2022 (5) TMI 378 - HC - Income Tax

Revision u/s 264 - Loss on account of derivative transactions - it is petitioner s case that when he realized his mistake treating F O loss as speculative loss he filed the revision petition before respondent no.1 requesting him to assess his income as per law - HELD THAT - We should keep in mind that assessee should pay only such amount of tax as legally payable under the provisions of Income Tax Act. Mistakes happen and we also see that assessee has taken different stand earlier. But the fact that is required to be seen is whether transaction in respect of trading in any derivatives carried out in the recognized Stock Exchange can be treated as speculative transaction and loss or gain in such transaction is normal business loss or gain. Courts have held that even if, return as submitted by the assessee is accepted by the Assessing Officer, and if thereafter, the assessee comes to know about the mistakes committed, that he was not liable for more taxation or had paid more tax, he can definitely approach revenue authority and in such event, it is open to the revisional authority to exercise its jurisdiction u/s 264 of the Act. Once assessee is able to satisfy about mistake due to which there was over assessment, the Commissioner had power to correct the same u/s 264(1) of the Act. In such situation, we would expect the Commissioner to apply his mind to the question and decide the matter. Simply saying, additions which are voluntarily agreed, can not be the subject matter of revision, would be little harsh on assessee. Therefore, we hereby set aside order impugned in this petition and remand the matter to the Commissioner of Income Tax for denovo consideration of petitioner s application u/s 264 of the Act. We would expect the Commissioner to consider all the documents being submitted by petitioner and the submissions of petitioner and decide for himself whether loss as claimed would be speculative loss or non speculative loss, not withstanding the stand taken by petitioner in the original return of income or in the revised return filed. It will have to be an independent view of the Commissioner. Revision should be disposed by the Commissioner of Income Tax by 15.07.2022.

Summary

Issues:
Impugning order under section 264 of the Income Tax Act, 1961 - Treatment of derivative transactions - Speculative loss vs. normal business loss - Revision petition dismissed on grounds of delay - Consideration of Form 10-DB by the Commissioner - Jurisdiction of revisional authority under section 264 - Applicability of proviso (d) to section 43(5) of the Act - Correcting over assessment - Commissioner's discretion in revision proceedings.

Analysis:
The petitioner challenged the order passed by the respondent under section 264 of the Income Tax Act, 1961, regarding the treatment of derivative transactions. The petitioner initially declared income but later revised it to nil after adjusting losses from derivative transactions against capital gains and other sources, claiming these losses as normal business losses under Section 43(5)(d) instead of speculative losses. The scrutiny assessment raised questions about the nature of these losses, leading to discrepancies in the assessment for the relevant years.

In the assessment year 2009-10, the petitioner declared a substantial loss from derivative transactions, realizing that a similar loss from the previous year was mistakenly treated as speculative instead of a normal business loss. The revision petition under section 264 for the earlier year was dismissed on grounds of delay, but a subsequent writ petition led to a reconsideration of the matter. The court emphasized the need for a thorough examination of whether derivative transactions should be classified as speculative and if losses or gains from such transactions qualify as normal business losses or gains.

The court highlighted the importance of rectifying mistakes in assessments to ensure that taxpayers pay only the legally due amount of tax. It noted that even if an assessee's return is initially accepted, subsequent discoveries of errors allow for revision under section 264. The Commissioner was directed to reevaluate the petitioner's application, considering all submitted documents and arguments independently to determine the nature of the losses claimed. The court set a deadline for the Commissioner to conclude the revision proceedings.

Furthermore, the court instructed the Commissioner to provide the petitioner with a personal hearing and advance notice, allowing time to respond to any relevant orders or judgments. This procedural safeguard aimed to ensure fairness and transparency in the revision process. Ultimately, the court disposed of the petition, remanding the matter to the Commissioner for a fresh assessment in line with the legal principles discussed in the judgment.