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TMI Blog2012 (5) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... of such shares - It is contended by the learned counsel that the loss from the purchase and sale of the shares is to be separately considered and loss on account of valuation of closing stock of the shares is to be separately considered - Consequent to the rejection of the above, the assessee's contention about expenditure attributable to the speculation activities to the extent of Rs.6.00 lakhs is also be dismissed as the assessee is not contesting the quantification of the expenditure but only on the principle that the business loss so claimed cannot be held to be covered by Explanation to section 73 - Appeals are rejected - ITA No. 4067/Mum/2007, ITA No.4094/Mum/2007, - - - Dated:- 9-12-2011 - D.K. Agarwal, B. Ramakotaiah, JJ. Haridas Bhat for the Appellant Parthsarathi Naik, DR for the Respondent ORDER B. Ramakotaiah, Accountant Member 1. These are cross appeals by assessee and revenue against the order of the CIT-IV Mumbai dated 29.03.2007. The assessee in its appeal has raised five grounds. Ground No.1 pertains to the issue of reopening under section 147 of the Act. Ground No.2 pertains to treatment of loss of Rs.31,72,921/- arising out of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return, it shall be deemed to be a case where income chargeable to tax has escaped assessment. In the instant case, the Assessing Officer had reason to believe that certain claim had been allowed in excess to the appellant. The provisions of section 147 as amended w.e.f. 1.04.1998 are contextually different and the cumulative conditions spelt out in clauses (a) and (b) of section 147 prior to its amendment are not present in the amended provision. The only condition for action is that the Assessing Officer should have reasons to believe that income has escaped assessment. Hon'ble Delhi High Court has held in Bawa Abhai Singh vs. Dy. CIT (2001) 117 Taxman 12 that such belief can be reached in any manner and it not qualified by a pre-condition of faith and true disclosure of material fact by an assessee as contemplated in the pre-amended section 147(a). Viewed in that angle, power to reopen assessment is much wider under the amended provision and can be exercised even after the assessee has disclosed fully and truly all material facts. As regards the appellant's contention that the assessee had fully disclosed the facts in the computation of income, every disclosure is not and cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment and considering that the reopening was done within 4 years from the end of the Assessment Year, we uphold the order of the CIT (A) and reject assessee's contentions. Case law relied upon by the assessee do not apply to the facts as they were rendered in the contest of reopening after 4 years from the end of Assessment Year for which it has to be demonstrated that there is failure on the part of the assessee to fully disclose the material facts, or there was evidence that assessing officer formed an opinion in the assessment proceedings. Since proviso to Section 147 does not apply as the reopening was done within 4 years, we are of the opinion that the Assessing Officer has correctly invoked the provisions of section 147 Explanation 2(c) and therefore this ground of the assessee is rejected. It was also noticed that the Assessing Officer rejected the objections by a separate order dated 30.6.2006 and the assessee has not placed on record the reasons recorded by the Assessing Officer in that order and challenge made by the assessee to that order. Ground no. 1 is rejected. 5. Ground No.2 and 3 of the Assessee appeal and Ground No.1 and 2 of Revenue's appeal: The issue in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Act deals with the loss in speculation business. The section reads as under: (1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business. (2) Where for any assessment year any loss computed in respect of a speculation business has not been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and - (i) It shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year; and (ii) If the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on. (3) In respect of allowance on account of depreciation or capital expenditure on scientific research, the provisions of sub-section (2) of section 72 shall apply in relation to speculation business as they apply in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel is accepted, it would amount to holding that there are two sources of income one is the trading business of purchase and sales of shares and other valuation of the closing stock. It is settled position of law that the valuation of the closing stock is not a separate source of income. The true purpose of valuing and crediting the closing stock in the trading account is to balance so as to cancel out the entries relating to same stock from both the sides of the account. There are various methods for valuation of closing stock. Apart from cost, the assessee can value the closing stock at market value or "cost or market value whichever is lower". But merely because the assessee had valued the stock at market value, which is lower than the cost, it cannot be said that the loss arisen from the valuation of the closing stock. The loss is from the trading business of purchase and sale of shares and the valuation of the closing stock at less than the cost is the accounting for the anticipated loss from the business of purchase and sale of shares. Therefore, the contention of the learned counsel that the loss from the purchase and sale of shares and loss from the valuation of the closi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 would be applicable even when the loss is arising because of the valuation of shares. In the case under appeal before us, admittedly, there are large number of transactions of purchase and sale of shares during the year under consideration. Therefore, there is no dispute that explanation to section 73 is applicable. Only question in this appeal before us is with regard to determination of loss from the business of purchase and sale of shares. Thus, the facts in the case under appeal before us are altogether different than the facts in the cases relied upon by the learned counsel of the learned DR. Only dispute in this appeal before us is with regard to determination of loss from share trading business. For the detailed discussion in Para No.6 above, we hold that while determining loss from share trading business, loss from valuation of closing stock cannot be excluded. Valuation of closing stock is integral part of preparation of trading account. In view of the above, we reject the ground No.2 of the assessee's appeal". 8. This view is also supported by the Hon'ble Bombay High Court in the case of Prasad Agents (P) Ltd vs. Income Tax Officer in ITA No.196 of 2009 dated 20.3.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly rejected. 10. Coming to the issue of Vandha loss contested by Revenue the same required to be examined by the Assessing Officer. As seen from the balance sheet placed on record, the assessee has shown stock in trade to the extent of Rs.21,89,579/- under the head current assets as against Rs.32,61,097/- of earlier year. There is nothing on record to examine whether this 'stock in trade' shown is pertaining to Vandha transactions so claimed or assessee own trading transactions. It is also noticed that the assessee also had jobbing profit of Rs.11,39,213/-. Vide Para 3.1, CIT (A) also noted that 'the assessee submitted that considering the combined nature of business expenses towards brokerage business as well as trading in shares on its own account, the expenditure to be segregated'. This indicates that there is trading in shares on its own account which aspect has not been considered by the CIT(A). In view of this, we are of the opinion that the grounds raised by the revenue regarding Vandha loss to be treated as speculation loss is to be examined whether the loss arose in Vandha transactions or in assessee's own trading transactions. It is noticed that the CIT has consider ..... X X X X Extracts X X X X X X X X Extracts X X X X
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