2017 (5) TMI 1266 - AT - Income Tax

Revision u/s 263 - applicability provision of explanation to section 73 - Held that - The only income and during the year under consideration was dividend on shares and mutual fund which it chargeable to tax under the head income from other sources . In reply to the applicability of explanation to section 73 of the act the assessee contended that section 73 is not applicable to the assessee company. The copies of reply of assessee dated 2 November 2011 and 5th November 2011 and the various details makes it clear that the assessing officer considered the factual matrix of the issue before passing the assessment order. Thus, from the record placed before us it cannot be said that the assessment was passed without application of mind and/or no question was raised by assessing officer regarding the loss shown by assessee. We may also not that the assessing officer has not referred his finding regarding the claim of loss, the manner in which it was substantiated by assessee in the assessment order. The revenue has not disputed the copies of replies placed before the assessing officer. Thus, from the contents of order of assessment we may conclude that order maybe erroneous as the same is not speaking order on a particular issue, however the order is not prejudicial to the interest of revenue. The assessing officer passed the order which is based on one of the possible view. We may further conclude that the order passed by learned Commissioner does not fulfill the twin condition as contemplated under section 263 of the Act. The order of learned Commissioner is based on change of opinion. - Decided in favour of assessee.

Issues Involved:
1. Validity of the CIT's order under section 263 of the Income-tax Act.
2. Application of section 45(2) and treatment of loss as capital loss.
3. Applicability of Explanation to section 73 and treatment of loss as speculative.
4. Consideration of other income exceeding business income in the context of Explanation to section 73.

Detailed Analysis:

1. Validity of the CIT's Order under Section 263:
The assessee contested the CIT's order under section 263, arguing that the Assessing Officer (AO) had properly scrutinized the various claims made by the assessee during the assessment proceedings. The AO had issued a questionnaire and received detailed replies from the assessee, particularly concerning the conversion of shares into stock-in-trade and the applicability of section 73. The CIT, however, concluded that the AO's order was erroneous and prejudicial to the interest of the Revenue. The Tribunal noted that the CIT did not provide any show-cause notice for section 45(2) and that the AO had indeed considered the relevant issues before passing the assessment order. The Tribunal held that the AO's order was based on one of the possible views and thus could not be deemed erroneous or prejudicial to the Revenue.

2. Application of Section 45(2) and Treatment of Loss as Capital Loss:
The CIT directed the AO to apply the provisions of section 45(2) to the conversion of shares from investment to stock-in-trade and to treat the resultant loss as a speculation loss. The assessee argued that this issue was not raised in the show-cause notice, thereby violating the principles of natural justice. The Tribunal observed that the AO had considered the factual matrix and the assessee's explanations regarding the conversion of shares. The Tribunal concluded that the AO's decision was not erroneous, as it was based on a possible view and was substantiated by the assessee's replies.

3. Applicability of Explanation to Section 73 and Treatment of Loss as Speculative:
The CIT applied the provisions of Explanation to section 73, treating the share trading loss as speculative. The assessee contended that section 73 was not applicable, as the only income during the year was from "Income from Other Sources." The Tribunal noted that the AO had examined this issue during the assessment proceedings and accepted the assessee's explanation. The Tribunal held that the AO's order was not prejudicial to the Revenue, as it was based on a possible view and the AO had conducted adequate inquiries.

4. Consideration of Other Income Exceeding Business Income in the Context of Explanation to Section 73:
The assessee argued that when other income exceeds business income, the provisions of Explanation to section 73 do not apply. The Tribunal observed that the AO had considered this aspect and accepted the assessee's contention during the assessment proceedings. The Tribunal concluded that the AO's order was not erroneous or prejudicial to the Revenue, as it was based on a possible view and the AO had made adequate inquiries.

Conclusion:
The Tribunal set aside the CIT's order under section 263, holding that the AO's order was not erroneous or prejudicial to the interest of the Revenue. The AO had conducted adequate inquiries and considered the relevant issues before passing the assessment order. The Tribunal allowed the appeal filed by the assessee.

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