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TMI Blog2013 (1) TMI 598X X X X Extracts X X X X X X X X Extracts X X X X ..... any such inquiry would be wholly a fishing inquiry - In favour of assessee - SPECIAL CIVIL APPLICATION NOS. 6830 & 6861 OF 2012 - - - Dated:- 22-10-2012 - AKIL KURESHI AND MS. HARSHA DEVANI, JJ. Tushar P. Hemani and Ms. Vaibhavi K. Parikh for the Petitioner. Pranav G. Desai for the Respondent. ORDER Akil Kureshi J. - Heard learned counsel for the respective parties for final disposal of the petitions. These petitions arise out of similar background involving the same assessee. We have heard these petitions together and propose to dispose them off by this common order. 2. The petitioner is common in both the petitions. He has challenged two separate notices issued by the Assessing Officer seeking to reopen the completed assessments for the assessment years 2007-08 and 2008-09 which assessments were framed after scrutiny. The petitioner is a proprietary concern and is engaged in the business of wholesale of gold and silver ornaments, labour job of gold and silver ornaments and trading in gold and hedging in metal on commodity exchange. 3. For the assessment year 2007-08, the petitioner had filed a return of income on 31-10-2007 declaring a total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undisputed position that during the scrutiny assessment, there was no query raised by the Assessing Officer on this particular issue, obviously, therefore, the assessee also did not elaborate such loss claimed by him in the return filed. 7. It is this scrutiny assessment which the Assessing Officer desired to reopen for which he issued the impugned notice dated 10-10-2011 calling upon the petitioner to deliver within thirty days from the date of service of the notice, a return in the prescribed form. 8. At the request of the petitioner, the Assessing Officer supplied the reasons recorded by him for issuing the notice for reopening of the assessment. Such reasons read as under: "Reasons for reopening of assessment. In this case return of income for the A.Y. 2007-08 showing the income of Rs. 19243343/- was filed on 31/10/2007 and the assessment was finalized u/s 143(3) vide assessment order dtd. 24-12-2009 determining income at Rs. 19508730/-. Subsequently it was found that: "In this case it is observed that the assessee has debited Rs.1276386/- towards "Loss of hedging of metal in MCX" in P L A/c. The loss in hedging transactions carried out in the previous year is Speculati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly it is found that the assessee had debited the profit and loss account with "loss on hedging of metal on MCX" of Rs. 20,60,095. The losses in hedging transactions carried out in the previous year 2007-08 relevant to A.Y. 2008-09 was "speculative transaction" as per the definition provided in Section 43(5) of the Act in view of the fact that MCX Stock Exchange Ltd. (MCX) was notified as the recognized exchange only on and with effect from 22.5.2009. Thus, the losses to the tune of Rs. 20,60,095 incurred by assessee in hedging activity were speculative in nature and it was disallowable in computing the income under the head "profits and gains of business or profession" of the non-speculative business. However, the deduction claimed by the assessee by debiting in the Profit Loss Account against "Income from business and profession" was not is allowed. Income-tax involved on the underassessment of Rs. 20,60,095/- This resulted in underassessment of income of Rs. 20,60,095/-. In view of the above I have reasons to believe that the income chargeable to tax to the extent above has escaped the assessment within the meaning of sec. 147 of the I.T. Act 1961." 13. The petitioner rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvalid. (2) Counsel further submitted that during the assessments in both the assessment years, full facts were presented by the assessee before the Assessing Officer. The losses claimed were duly supported by the documents and the audited accounts. At no stage the Assessing Officer raised any question about the validity of such claim. In the assessment orders framed also, the Assessing Officer noted that the assessee was dealing in hedging transactions. He, therefore, submitted that the Assessing Officer should be seen to have formed an opinion with respect to such loss claimed in the original assessments and any attempt on his part to reopen the assessment at this stage would be based only on mere change of opinion. (3) With respect to assessment year 2008-09, the counsel raised an additional contention namely, that the Assessing Officer having rejected the books of accounts of the assessee and having framed an assessment on best judgment, the question of further disallowing the the loss could not arise. He contended that the Assessing Officer having discarded the books of the assessee, the question of disallowing loss as claimed in such books thereafter would not arise. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f that income chargeable to tax has escaped assessment would also have to be examined. 18. Coming first to the question of the Assessing Officer previously having formed an opinion in the original assessments, we may recall that though the assessee had claimed such hedging losses in both the assessment years, the Assessing Officer in the original returns had not addressed such question and had proceeded to frame the assessments without addressing such claims. In the assessment order, there is no reference that the Assessing Officer examined such claim and either for the reasons recorded or otherwise, accepted the claim. During the assessment proceedings also, no questions were raised by the Assessing Officer with respect to such claims. In that view of the matter, we are unable to accept the contention of the counsel for the assessee that the Assessing Officer should be seen to have formed an opinion with respect to validity of such claims and that, therefore, any attempt on his part now to reopen such a question would be a mere change of opinion. 19. In a recent decision by this court dated 30-7-2012 in Special Civil Application No. 29792/2007, we had examined various aspects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) an eligible transaction in respect of trading in derivatives referred to in clause [(ac)] of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognized stock exchange;] 21. From the above provision, it can be seen that "speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity including stocks and shares is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. It is not in dispute that ordinarily the transactions entered into by the petitioner in hedging would fall under such definition of speculative transaction. However, sub-section (5) contains several exclusion clauses under the proviso containing clauses (a) to (d). Clause (a) of the said proviso excludes a contract in respect of raw materials or merchandise entered into by a person in the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eculative transaction. To our mind, this is based on complete misconception. The assessee never claimed such transaction to be one arising out of trading in derivatives requiring therefore any recognition of the stock exchange i.e. MCX in which such transactions had taken place. From the beginning, the case of the assessee was that he was insuring himself against losses due to fluctuation of precious material by entering into hedging contracts. Thus, clearly the case of the assessee was that by virtue of clause (a) of sub-section (5) of section 43, the same would not be treated as speculative transaction. It is not the case of the Assessing Officer in the reasons recorded for reopening the assessment that for any particular reason such claim under clause (a) was not acceptable. On the basis of the reasons recorded, therefore, the impugned notices for reopening must fail. As already noted, the counsel for revenue yet made an attempt to argue that the assessee's claim for exclusion by virtue of clause (a) of sub-section (5) was not verified and required certain verifications. We are conscious that for a transaction of hedging to fall under clause (a), there are certain conditions to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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