2022 (4) TMI 712 - AT - Income Tax

Revision u/s 263 by CIT - set off of the brought forward non-speculative business loss against the profit of speculative business - HELD THAT - This simply means the computation of taxable income of 'speculative business and non-speculative business cannot be combined together, the figures have to be separately arrived at for each segment. Having arrived at such separate figures of two segments, if there arises necessity of set off in case of negative figure (i.e. loss) from either segment, we have to look upon the provisions of section 72 and 73. We believe that it may not be correct to say that by segregating two segments as per mandate of section 28, there is an automatic consequence that loss of one segment cannot be set off against profit of another segment. If that be so, what would be the necessity of section 72 and 73? Therefore, we have to look upon the provisions of section 72 and 73, which fall under the Chapter VI, to understand what is allowed and what is prohibited in the matter of set off. AR has already put forward the analysis of section 72 and 73 supported by the legal precedents. We do not want to reproduce the same for the sake of brevity but the Ld. AR is right in submitting the interpretation that the loss of speculative business cannot be set off against the profit of non-speculative business but the loss of non-speculative business is allowed to be set off against profit of speculative business . We observe that the assessee was justified in claiming set off of the brought forward non-speculative business loss against the profit of speculative business and the Ld. AO has allowed the same, which is very much in accordance with the provisions of the Act. Therefore the order passed by the Ld. AO is neither suffering from any error nor prejudicial to the interest of revenue. Being so the Ld. PCIT has wrongly invoked the provisions of section 263 which are not applicable to the present case. Therefore we are persuaded to quash the revision-order passed by the Ld. PCIT u/s. 263 - Decided in favour of assessee.

Issues Involved:
1. Delay in filing the appeal.
2. Validity of the revision-order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961.
3. Set off of brought forward non-speculative business loss against the profit of speculative business.

Issue-wise Detailed Analysis:

1. Delay in filing the appeal:
The appeal by the assessee was filed after a delay of 219 days. The delay was attributed to the Covid-19 Pandemic. The appellant relied on the Hon'ble Supreme Court's order in Suo Motu Writ Petition (C) No. 3 of 2020, which extended the limitation period for filing appeals from 15.03.2020. The respondents agreed to this submission, and thus, the appeal was considered timely and proceeded for hearing.

2. Validity of the revision-order passed by the PCIT under section 263:
The learned PCIT issued a show-cause notice under section 263, questioning the set off of profits from speculative business against brought forward non-speculative business losses. The PCIT deemed the assessment order dated 21.12.2018 as erroneous and prejudicial to the interest of revenue because the Assessing Officer (AO) did not examine this aspect. Consequently, the PCIT set aside the assessment order and directed the AO to redo the assessment. The assessee challenged this revision-order, arguing that the AO's original order was neither erroneous nor prejudicial to the interest of revenue.

3. Set off of brought forward non-speculative business loss against the profit of speculative business:
The assessee earned a profit of ?13,08,856 from day trading of shares, classified as "profit of speculative business." The assessee also had brought forward non-speculative business losses. The AO allowed the set off of these losses against the speculative business profits. The PCIT, however, contended that this set off was incorrect and prejudicial to the revenue's interest.

The assessee's representative argued that under section 72 of the Act, non-speculative business losses can be set off against the profit of "any" business, including speculative business. The representative cited several legal precedents, including CIT Vs. Ramshree Steels (P.) Ltd. and ITAT Mumbai decisions, which supported the view that non-speculative business losses can be set off against speculative business profits.

The respondents, on the other hand, referred to Explanation 2 to section 28, which deems speculative business as distinct and separate from any other business. They argued that this distinction prohibits the set off of non-speculative business losses against speculative business profits.

Tribunal's Findings:
The Tribunal analyzed the provisions of sections 28, 72, and 73 of the Act. It noted that while section 28 treats speculative business as distinct and separate, sections 72 and 73 govern the set off of losses. Section 72 allows the set off of non-speculative business losses against the profit of any business, including speculative business. Section 73 restricts the set off of speculative business losses only against speculative business profits but does not prohibit the set off of non-speculative business losses against speculative business profits.

The Tribunal concluded that the assessee's claim for set off was valid under the provisions of the Act, and the AO's original order was neither erroneous nor prejudicial to the interest of revenue. Therefore, the PCIT's invocation of section 263 was unjustified.

Conclusion:
The Tribunal quashed the revision-order passed by the PCIT under section 263 and allowed the appeal of the assessee. The order was pronounced in the open court on 24th March 2022.

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