1967 (9) TMI 9 - HC - Income Tax

Assessee claimed that he had incurred speculation loss as a set-off against possible trading losses due to fluctuations in the market price - ITO disallowed these speculation losses - AAC accepted the assessee s contention and directed ITO to go into trading account and determine whether there are actual profits - Tribunal is justified in holding that enquiry must be limited to points arose in appeal

Issues Involved:
1. Whether the Tribunal was justified in restricting the powers conferred on the Income-tax Officer in making assessment under section 31(3)(b) of the Income-tax Act.

Issue-wise Detailed Analysis:

Issue 1: Restriction of Powers of Income-tax Officer

Question Presented:
"Whether, in the facts and circumstances of the case, the Tribunal was justified in restricting the powers conferred on the Income-tax Officer in making assessment under section 31(3)(b) of the Income-tax Act?"

Facts:
The assessment years in question were 1955-56 and 1956-57. The assessee, a dealer and manufacturer of vessels made of stainless steel, copper, and copper alloys, claimed business losses of Rs. 4,05,905 and Rs. 1,70,213 respectively. The Income-tax Officer computed the loss for 1955-56 at Rs. 1,30,889 and the income for 1956-57 at Rs. 5,60,078. Speculation losses claimed by the assessee were disallowed by the Income-tax Officer, who treated these as speculation losses to be carried forward separately.

Appellate Assistant Commissioner's Order:
The Appellate Assistant Commissioner accepted the assessee's contention that the speculation losses were from hedging transactions and ordered a remand for the Income-tax Officer to verify the genuineness of these transactions. However, the Appellate Assistant Commissioner also directed the Income-tax Officer to re-examine the entire trading and manufacturing accounts, which led to the assessee's grievance.

Tribunal's Findings:
The Tribunal found that although the Appellate Assistant Commissioner had jurisdiction to set aside the assessment, the exercise of this power should be judicious. The Tribunal observed:
1. The genuineness of the trading account was never disputed.
2. The Income-tax Officer had originally scrutinized and accepted the trading accounts.
3. It was unnecessary to reopen the trading accounts.
4. No serious laches were discovered during the remand.
5. It was just and reasonable to restrict the scope of the reassessment to only the speculation losses.

Contentions:
The department contended that the Appellate Assistant Commissioner acted within his jurisdiction and the Tribunal should not have interfered. The assessee's counsel accepted the jurisdiction but argued that the Appellate Assistant Commissioner did not exercise it properly.

Court's Analysis:
The court noted that the Tribunal had wide powers under section 33(4) of the Income-tax Act to pass orders as it thinks fit. The Tribunal's decision to restrict the reassessment to speculation losses was justified based on the facts that the trading accounts were already scrutinized and accepted, and no new discrepancies were found.

Conclusion:
The court upheld the Tribunal's order, agreeing that the trading loss issue could not be reopened, though the accounts could be reviewed to determine the hedging losses. The question was answered in the affirmative, favoring the assessee, and the Commissioner was directed to pay the costs of the assessee.

Final Judgment:
"We uphold the order of the Tribunal and answer the question referred in the affirmative. The Commissioner shall pay the costs of the assessee."

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