2022 (9) TMI 452 - AT - Income Tax

Rectification u/s 154 - treatment to loss on sale of shares claimed as a trading loss or capital loss - AO has initiated proceeding u/s 154 qua the claim of loss on the ground that the shares were held as investment and not as stock in trade - HELD THAT - As in reply to show-cause notice issued under section 154 of the Act, the assessee has clearly and categorically submitted that the shares were held as stock in trade and the issue was examined in course of scrutiny assessment. Thus, from the aforesaid facts, it is patent and obvious that the issue, whether the loss on sale of shares claimed by the assessee is a trading loss or capital loss is a highly debatable issue. That being the factual position emerging on record, in my considered opinion, proceeding under section 154 of the Act could not have been initiated by the Assessing Officer to rectify the so called mistake as it is not a mistake in the nature of mistake apparent on the fact of record. Therefore, we delete the addition - Ground raised is allowed.

Summary

Issues:
Appeal against order of Commissioner of Income Tax for assessment year 2014-15 - Addition of Rs.6,00,000 under section 154 of the Income-tax Act, 1961.

Analysis:

1. Failure to appear for hearing: The appellant failed to appear for the hearing despite multiple opportunities granted. The Tribunal proceeded ex parte after hearing the Departmental Representative and reviewing the available materials.

2. Dispute over addition of Rs.6,00,000: The Assessing Officer made an addition of Rs.6,00,000 in the assessment under section 154 of the Income-tax Act, 1961. This amount was related to a loss on the sale of shares of VKJ Infra Developers Ltd., which was debited to the profit and loss account. The appellant claimed it as a trading loss, while the Assessing Officer contended that the shares were held as investment, not stock in trade.

3. Assessment and rectification: The assessment under section 143(3) of the Act had initially accepted the appellant's claim of the loss on shares as a trading loss. However, the Assessing Officer issued a show-cause notice under section 154 to rectify this, citing that the shares were held as investment. The appellant contested this, stating that the shares were indeed held as stock in trade.

4. Decision of the Tribunal: The Tribunal found the issue of whether the loss on the sale of shares should be treated as a trading loss or capital loss to be highly debatable. The Tribunal concluded that the initiation of proceedings under section 154 to rectify this claim was not justified, as it was not a mistake apparent on the face of the record. Consequently, the Tribunal deleted the addition of Rs.6,00,000, allowing the ground raised by the appellant.

5. Final Verdict: The Tribunal allowed the appeal, pronouncing the order in the open court on 29th July 2022.