2024 (1) TMI 926 - AT - Income Tax

Revision u/s 263 - loss through the MCX transaction for hedging its stock in trade allowed by the AO for setting off against other income - as per CIT MCX transaction falls u/s 43(5)(a) and the AO had accepted the claim of the assessee under section 43(5)(d) which deals with derivatives transactions, AO should have examined the issue under the provisions of section 43(5)(a) and the Board Circular dated 12.09.1960 making order as erroneous and prejudicial to the interests of revenue - HELD THAT - According to the ld. Pr.CIT, the assessee s case of MCX transactions for hedging the loss falling under clause (a) of section 43(5) is not covered under speculative transaction and MCX transactions were done in the normal course of business of the assessee. Therefore the loss suffered is business loss of the assessee and accordingly the assessee is eligible for setting of loss as per CBDT Circular dated 12.09.1960 referred by the ld. CIT. Hence the order of the AO allowing the loss claimed by the assessee on this issue is not erroneous in so far as it is not prejudicial to the interest of the revenue. We further note that the ld. Pr.CIT has observed that the AO has treated the loss u/s. 43(5)(d) and has allowed the loss. Even if the assessee s case falls under any of the provisions of (a) or (d) of section 43(5), it is not speculative loss. AO was justified in allowing the loss claimed by the assessee. Hence the order passed by the AO is not erroneous and prejudicial to the interest of the revenue. The case law relied by the ld. AR in the case of Jayesh Raichand Shah 2013 (1) TMI 598 - GUJARAT HIGH COURT and CIT v. Sri Vasavai Gold Bullion (P) Ltd 2018 (4) TMI 802 - MADRAS HIGH COURT supports the case of the assessee. On the other issues of loss from rate deference and interest on partners capital also, the ld. Pr.CIT has directed the AO to examine these issues without giving any finding and merely directing the AO for examination of these issues is not sufficient. We note that the assessee had submitted reply to the ld. Pr.CIT, However, the ld. Pr.CIT instead of examining that it is prejudicial to the interest of revenue or not, he has merely giving direction to the AO. As per our considered opinion, the ld. Pr.CIT should have determined that the assessee s submission is not correct. Therefore merely giving direction to the AO is not sustainable. We further note from the arguments of the ld. AR of the assessee that the case was selected for limited scrutiny, therefore the ld. PCIT cannot travel beyond the reason for selection of limited. Scrutiny. On carefully going through section 263 of the Act, the ld. Pr.CIT may call for and examine the record of any proceeding under the Act and consider any order passed therein by the AO as erroneous and prejudicial to the interests of the revenue and pass such order thereon. Hence we reject this argument of the ld. AR. Thus we set aside the order of the ld. PR.CIT passed u/s. 263. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of proceedings initiated under Section 263 of the Income-tax Act, 1961.
2. Examination of errors prejudicial to the interest of revenue.
3. Consideration of assessee's submissions by the Commissioner.
4. Adequacy of enquiry by the Assessing Officer (AO) during original assessment.
5. Treatment of MCX transactions and their classification under Section 43(5) of the Act.
6. Examination of other issues such as rate difference loss and interest on partners' capital.

Summary:

Issue 1: Validity of Proceedings under Section 263
The assessee contended that the proceedings initiated under Section 263 were opposed to law and should be cancelled. The Tribunal noted that the appeal was filed within the period directed by the Hon'ble High Court, thus the delay of 1599 days was not considered.

Issue 2: Examination of Errors Prejudicial to Revenue
The Principal Commissioner of Income-tax (Pr.CIT) found the AO's order erroneous and prejudicial to the interest of revenue. The Pr.CIT issued a show cause notice highlighting discrepancies such as the MCX transaction losses, rate difference loss, and interest on partners' capital.

Issue 3: Consideration of Assessee's Submissions
The assessee argued that the Pr.CIT did not properly consider the submissions made during the proceedings. The Tribunal observed that the Pr.CIT's directions for a de novo assessment without providing specific findings were insufficient.

Issue 4: Adequacy of Enquiry by AO
The Tribunal noted that the AO had issued notices and received detailed responses from the assessee regarding MCX transactions. The AO had accepted the losses claimed by the assessee, indicating that the issue was examined in detail.

Issue 5: Treatment of MCX Transactions
The Pr.CIT argued that the AO wrongly applied Section 43(5)(d) instead of Section 43(5)(a) for MCX transactions. The Tribunal found that whether the transactions fell under clause (a) or (d) of Section 43(5), they were not speculative. Therefore, the AO's acceptance of the losses was justified and not erroneous or prejudicial to the revenue.

Issue 6: Examination of Other Issues
The Pr.CIT directed the AO to examine issues related to rate difference loss and interest on partners' capital without providing specific findings. The Tribunal held that merely directing the AO to examine these issues was not sufficient and that the Pr.CIT should have determined their impact on revenue.

Conclusion:
The Tribunal set aside the order of the Pr.CIT passed under Section 263, holding that the AO's original assessment was not erroneous or prejudicial to the interests of the revenue. The appeal by the assessee was partly allowed.