2016 (8) TMI 457 - AT - Income Tax

Revision u/s 263 - AO holding Loss incurred to be Speculative Loss - Held that - It is an admitted case that the assessee is not the member of NCDEX and it is also admitted case that during the 263 proceedings before the ld Commissioner that the profit of physical delivery of the commodities were not received by the assessee. However during this proceedings, the assessee had produced the bills of purchase and sale of the commodities case and had also filed an affidavit support of his case, the effect of these documents and affidavit shall be dealt by us in the separate proceedings in the matter in Appeal number 446/14. In our view, the observation of the ld CIT that loss caused to the assessee on account of speculative business as concluded by the ld CIT on the basis of the material available with him, cannot be permitted to be set off U/s 72 of the Act. Therefore, in our view, the order of the assessing officer, whereby he kept the speculation loss as business loss is erroneous and prejudicial to the interest of the revenue as the ld Assessing Officer has allowed the setting of the speculative loss of ₹ 18,31,596/- against the business income of the assessee - Decided against assessee.

Summary

Issues involved:
1. Whether the order passed by the Assessing Officer under Section 263 of the Income Tax Act, 1961 was erroneous and prejudicial to the interest of revenue.
2. Whether the loss incurred by the assessee amounting to ?18,31,596/- should be treated as speculative loss or business loss.

Analysis:
Issue 1:
The appeal was filed by the assessee against the order passed by the ld CIT under Section 263 of the Income Tax Act. The original assessment was conducted by the Assessing Officer, where the assessee declared a total income of ?1,79,730/-. The ld Assessing Officer then assessed the total income to be ?2,60,010/-. The primary contention of the assessee was that the NCDEX loss incurred was a business loss due to hedging transactions, not a speculative loss. The ld Commissioner, after considering the facts, held that the assessee was not entitled to claim the loss as a business loss, treating it as speculative loss. The order was set aside as prejudicial to the interest of revenue, requiring proper verification at the Assessing Officer level.

Issue 2:
The assessee argued that the NCDEX loss was not speculative but a business loss arising from hedging transactions. The ld CIT concluded that since the assessee was not a member of NCDEX and did not receive physical delivery of commodities, the loss was speculative and could not be set off against business income. The Tribunal observed that the ld Assessing Officer's decision to treat speculative loss as business loss was erroneous and prejudicial to revenue. Citing legal precedents, including the Malabar Industrial Co. Ltd. case and Commissioner of Income-tax, Mumbai vs. Amitabh Bachchan, the Tribunal dismissed the appeal, upholding the decision of the ld CIT.

In conclusion, the Tribunal upheld the order passed by the ld CIT under Section 263, dismissing the assessee's appeal. The judgment emphasized the importance of proper verification and the distinction between speculative and business losses in income tax assessments.