2022 (7) TMI 1386 - AT - Income Tax

Revision u/s 263 - As per CIT derivative loss could not be adjusted against the income computed u/s 44AD - HELD THAT - As assessee invited our attention to the paper-book to submit that show-cause notices were served by the AO during the assessment proceedings wherein the queries were raised regarding the adjustment of derivative loss against the income declared u/s 44AD of the Act which were duly replied and the relevant evidences in support of the claim were also furnished. AO having satisfied with the reply and explanation submitted by the assessee passed the assessment order accepting the adjustment/set off of derivative loss against business income of the assessee.As submitted that even otherwise there is no bar under the Income Tax Act for setting off of derivative loss against business income. DR could not rebut the above contention of assessee. No justification on the part of the ld. PCIT to exercise his revision jurisdiction u/s 263 - Appeal of the assessee stands allowed.

Summary

Issues involved:
1. Revision jurisdiction under section 263 of the Income Tax Act regarding adjustment of derivative loss against business income computed under section 44AD.

Detailed Analysis:
The appeal before the Appellate Tribunal ITAT Kolkata was filed by the assessee against the order of the Principal Commissioner of Income Tax, Asansol, exercising revision jurisdiction under section 263 of the Income Tax Act. The issue revolved around the adjustment of derivative loss against the business income computed under section 44AD of the Act. The Principal Commissioner had held that the derivative loss could not be adjusted against the income computed under section 44AD, deeming the Assessing Officer's order as erroneous and prejudicial to the Revenue's interest.

The counsel for the assessee presented arguments supported by relevant documents, showing that show-cause notices were duly responded to during the assessment proceedings. The Assessing Officer, after being satisfied with the explanations and evidence provided by the assessee, accepted the adjustment of derivative loss against the business income. Additionally, the counsel highlighted that there is no statutory prohibition under the Income Tax Act for setting off derivative loss against business income. The Departmental Representative failed to counter these contentions put forth by the assessee's counsel.

The Appellate Tribunal, after considering the submissions and evidence presented, concluded that there was no justification for the Principal Commissioner to exercise revision jurisdiction under section 263 of the Act in this case. Consequently, the Tribunal found the revision order unsustainable in law and quashed it. As a result, the appeal of the assessee was allowed, providing relief in favor of the assessee regarding the adjustment of derivative loss against the business income computed under section 44AD.