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2020 (12) TMI 658 - AT - Income TaxRectification u/s 154 - reject assessee s claim of carry forward of long term capital loss on sale of shares - HELD THAT - After examining the issue we find that the Assessing Officer in rectification proceedings has given a finding of fact that Short Term Capital Loss declared by the assessee on sale of shares is the result of sham transaction and falls within the ambit of provisions of section 47(v) - AO in proceedings under section 143(3) of the Act accepted the claim of assessee and thereafter on re-appreciation of facts initiated proceedings u/s 154 to disallow assessee s claim of carry forward of Short Term Capital Loss terming the transaction to be sham. Assessing Officer has revisited the issue and has invoked rectification provision to review his order. As we have pointed earlier that the Assessing Officer has limited scope under section 154 of the Act to rectify any mistake apparent from the record. Substitution of opinion by the Assessing Officer under section 154 of the Act is not permissible. We may point here that the Act provides safeguards to the Revenue to plug the escapement of any income. The cannons in the form of revision under section 263 of the Act, reassessment under section 147 of the Act and rectification of mistake under section 154 of the Act have to be used appropriately. The remedies available to the Revenue under the Act are not mutually alternate. The right cannon has to be fired at right time depending on facts and circumstances of each case. The Assessing Officer in the present case has over stepped his jurisdiction in exercising his powers u/s. 154 to review his order.
Issues Involved:
1. Validity of proceedings under section 154 of the Income Tax Act. 2. Denial of carry forward of Long Term Capital Loss (LTCL). 3. Denial of carry forward of Short Term Capital Loss (STCL). Issue-wise Detailed Analysis: 1. Validity of Proceedings under Section 154 of the Income Tax Act: The core issue was whether the Assessing Officer (AO) was justified in invoking section 154 to rectify the assessment order, which originally allowed the carry forward of LTCL and STCL. The Tribunal emphasized that the AO's powers under section 154 are limited to rectifying "mistakes apparent from the record" and do not extend to reviewing or adjudicating debatable issues. The Tribunal cited various judgments, including those from the Hon'ble Calcutta High Court and the Hon'ble Punjab & Haryana High Court, which held that contentious issues or those with divergent judicial opinions fall outside the purview of section 154. The Tribunal concluded that the AO's action to invoke section 154 was not justified as the issue of carry forward of LTCL was debatable, with divergent views from different High Courts. 2. Denial of Carry Forward of Long Term Capital Loss (LTCL): The assessee had declared a long term capital loss on the sale of shares, which was initially allowed to be carried forward by the AO during the scrutiny assessment. However, in the rectification proceedings under section 154, the AO disallowed this carry forward, invoking section 10(38) of the Act. The Tribunal noted that the issue of whether LTCL on the sale of shares could be carried forward was debatable, as evidenced by conflicting judgments from the Hon'ble Calcutta High Court and the Hon'ble Gujarat High Court. Given the debatable nature of the issue, the Tribunal held that the AO erred in invoking section 154 to disallow the carry forward of LTCL, as section 154 cannot be used to rectify debatable issues. 3. Denial of Carry Forward of Short Term Capital Loss (STCL): The AO, in rectification proceedings, deemed the STCL on the sale of shares as a result of a sham transaction and disallowed its carry forward, which was initially accepted during the scrutiny assessment. The Tribunal found that the AO had revisited the issue and invoked section 154 to review his order, which is not permissible under section 154. The Tribunal highlighted that the AO's scope under section 154 is limited to rectifying apparent mistakes and does not include revisiting or substituting opinions. The Tribunal allowed the assessee's additional ground, stating that the AO overstepped his jurisdiction by using section 154 to review his order. Conclusion: The Tribunal concluded that the AO was not justified in invoking section 154 to disallow the carry forward of LTCL and STCL, as these issues were debatable and outside the scope of section 154. The Tribunal allowed the assessee's additional grounds challenging the AO's jurisdiction under section 154, thereby partly allowing the cross objections raised by the assessee. The Tribunal directed that the issue of jurisdiction must be decided before addressing the merits of the case.
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