2021 (12) TMI 1032 - AT - Income Tax

Revision u/s 263 - speculative transaction or not - majority of trades undertaken through day jobbing in which sale and purchase of scrips on same day are matched without taking the delivery of the scrips - one of the reasons for selecting the case for scrutiny was large value sale of share which were settled otherwise than by actual delivery or transfer of STT - HELD THAT - If the amount of ₹ 93,23,384/- is treated as speculation loss then business loss of ₹ 26,58,196/- will get set off against the income from house property of ₹ 20,52,542/-, against income from other sources of ₹ 5,40,403/- and against short term capital gain of ₹ 65,251/-. This will result in balance short term capital gain of ₹ 3,84,32,308/- to be set off against carry forward loss under the same head 'short term capital gain' against available carry forward short term capital gain of ₹ 4,41,05,508/-. There is no impact of any revenue loss in this year nor in the subsequent year. Similar is the fact in A.Y. 2016-17 wherein if ₹ 2,92,861/- is treated as speculation loss instead of business loss, taxable income will remain the same of ₹ 59,70,000/-. This fact has not been denied by the ld. Pr. CIT or ld. CIT DR. Thus, if there is no loss of revenue in this year or in subsequent year nor will it impact the taxable income, then the assessment order cannot be held to be prejudicial to the interest of revenue and accordingly, in view of the principle laid down by Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT the assessment order cannot be set aside. Otherwise also, it is purely a case of change of opinion for the reason that similar nature of transaction of day trading of shares and F O has been held to be business income/business loss in all the earlier years wherein assessment has been completed u/s. 143(3) of the Act. Thus, if rule of consistency is applicable on the same facts and circumstances in these years, then merely changing the head of income from business to speculation, then it cannot be held that the assessment order is erroneous and prejudicial to the interest of revenue. More so, here in this case, section 263 has been done only on the basis of audit objection which was only for the purpose of verification and which has already been examined by the AO during the course of assessment proceedings. Accordingly, the impugned orders u/s. 263 are set aside and assessment orders passed u/s. 143(3) of the Act are restored. - Decided in favour of assessee.

Issues Involved:

1. Jurisdiction and validity of the order passed under Section 263 of the Income-tax Act, 1961.
2. Classification of loss from day trading as speculative loss versus business loss.
3. Adequacy of inquiries conducted by the Assessing Officer (AO).
4. Impact on taxable income and revenue interest.
5. Consistency in treatment of similar transactions in previous years.

Issue-wise Detailed Analysis:

1. Jurisdiction and Validity of the Order under Section 263:
The assessee contended that the Principal Commissioner of Income-tax (PCIT) lacked jurisdiction to pass the order under Section 263 of the Income-tax Act, 1961, arguing that the order was "without jurisdiction, bad in law and void ab-initio." The Tribunal examined whether the PCIT's order setting aside the assessment framed under Section 143(3) was valid. It was determined that the PCIT had issued the notice under Section 263 based on an audit objection, without independent application of mind, making the action unsustainable in law.

2. Classification of Loss from Day Trading:
The PCIT classified the loss of ?93,23,384 from day trading as speculative loss, which the assessee argued was a business loss. The Tribunal noted that the assessee was engaged in the business of shares, including Futures & Options (F&O) and day trading, and had consistently treated such transactions as business income/loss in previous years. The Tribunal found that the AO had accepted the assessee's classification after due examination, and the PCIT's reclassification was a mere change of opinion.

3. Adequacy of Inquiries Conducted by the AO:
The PCIT argued that the AO had not conducted proper inquiries to determine whether the transactions were speculative. However, the Tribunal found that the AO had issued multiple notices and queries during the assessment process, to which the assessee had responded with detailed information. The AO had completed the assessment after examining the entire details, making the PCIT's claim of inadequate inquiry unfounded.

4. Impact on Taxable Income and Revenue Interest:
The assessee demonstrated that even if the loss of ?93,23,384 was treated as speculative, the taxable income would remain the same due to the availability of brought forward losses. The Tribunal agreed, noting that there was no revenue loss either in the current year or in subsequent years. Therefore, the assessment order could not be considered prejudicial to the interest of the revenue.

5. Consistency in Treatment of Similar Transactions:
The Tribunal highlighted the principle of consistency, noting that similar transactions in previous years had been treated as business income/loss and accepted by the department in assessments completed under Section 143(3). Changing the classification in the current year without any new evidence was deemed inconsistent and unjustified.

Conclusion:
The Tribunal concluded that the assessment order was neither erroneous nor prejudicial to the interest of the revenue. It set aside the PCIT's order under Section 263 and restored the original assessment orders passed under Section 143(3). The appeals filed by the assessee were allowed, reaffirming the classification of the loss as business loss and upholding the AO's original assessment.

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