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TMI Blog2022 (11) TMI 1056X X X X Extracts X X X X X X X X Extracts X X X X ..... of satisfaction of these attributes, or even reference to s. 43(5). The set off of the impugned loss against the assessee s other income without reference to s. 43(5) is clearly a mistake apparent from record which includes a mistake of law as well. The AO thus had the necessary jurisdiction for rectification in respect of the adjustment of the said loss, and the notice dated 14/12/2016 u/s 154, discussed in detailed at para 3.5 of this order, is, thus, a valid notice in the eyes of law. AO, however, rather than ascertaining in the rectification proceedings if the impugned transactions did indeed satisfy the requirement/s of s.43(5) r/w clause (e) of proviso thereto, i.e., defining speculative transaction, issued a finding without any verification and indeed de hors the material on record, stating the impugned loss as on unlisted shares and speculative. Her order therefore, cannot, be approved, and the mistake that imbued the assessment order accordingly continues to obtain. The same ought to have been corrected by the ld. CIT(A), enjoying coterminous powers, in appeal. Both the rectification order, as well as the appellate order holding original assessment as not mis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.85 lacs, comprising wholly of business income. Assessment was made u/s. 143(3) on 05/12/2016 at Rs. 838.29 lacs, again, as business income (assessment order on record/DPB pgs. 29-37). The same was subsequently enhanced to Rs. 2225.42 lacs by making an addition for Rs. 1387.13 lacs by, as stated, disallowing expenditure claimed on loss on shares in three Kolkata based companies (specified by name) vide order u/s. 154 dated 14/6/2017. Notice u/s. 133(6), as stated in the sec.154 order, seeking information on the listing status of these three companies on Calcutta Stock Exchange (CSE), had been sent on 16/11/2016, though no reply had been received up to the date of assessment. Subsequent reply thereto confirmed that none of these three companies was listed on CSE (DPB pgs. 1,2). The loss on shares claimed, which is from three (3) unlisted companies, is in the nature of a speculation loss, inadmissible for setoff against business income. In rectification proceedings, the assessee, vide it s reply dated nil (filed on 09/01/2017) (APB-1, pgs. 551-58/APB-2, pgs.1-8), given in Dak (receipt counter), referred to it s reply dated 29/8/2016 furnished during the assessment proceedings (enclo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss. 2.2 In appeal against the said order, it was explained before the first appellate authority that the matter had received due consideration by the Assessing Officer (AO) in the assessment proceedings. The assessee reiterated it s submissions, which found acceptance by the ld. CIT(A), who held as under: (pgs. 23-25) (vi) In the case of the assessee, it has entered into foreign currency trading because it is an exporter of iron ore. Hence in view of ratio laid down by the Hon'ble Supreme Court the AO was not justified in holding in rectification order that for foreign currency exchange trading loss of Rs.5,99,53,188/- is a speculation loss. Whereas it is business loss and its setoff is allowable against the business income. (vii) For the above reason and also for the reason that this issue is a debatable issue , I am of the considered opinion that the AO erred in holding that foreign currency trading loss of Rs. 5,99,53,188/- is a speculation loss. The AO is directed to treat foreign currency trading loss of Rs. 5,99,53,188/- as business loss and allow its setoff against the business income of the assessee as has been done in the original assessment order passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the circumstances of the case, the ld. CIT(A) should have held that the rectification order dated 13/6/2017 (*) is bad in law. [(*) correct date is 14/6/2017 ] 3. We have heard the parties, and perused the material on record. 3.1 Section 154, in its relevant part, reads as under: Rectification of mistake. 154. (1) With a view to rectifying any mistake apparent from the record an income-tax authority referred to in section 116 may,- (a) amend any order passed by it under the provisions of this Act; (b) amend any intimation or deemed intimation under sub-section (1) of section 143; (c) amend any intimation under sub-section (1) of section 200A. (1A) Where any matter has been considered and decided in any proceeding by way of appeal or revision relating to an order referred to in sub-section (1), the authority passing such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and decided. (2) Subject to the other provisions of this section, the authority concerned- (a) may make an amendment under su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proceedings of assessment, represents trite law ( Maharana Mills (P.) Ltd. v. ITO [1959] 36 ITR 350 (SC); Mahendra Mills Ltd. v. AAC [1975] 99 ITR 135 (SC); CIT v. K.N.Oil Industries [1983] 142 ITR 13 (MP)). Section 43(5), again, in its relevant part, reads as under: Definitions of certain terms relevant to income from profits and gains of business or profession. 43. In sections 28 to 41 and in this section, unless the context otherwise requires (1) to (4) .. (5) 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: Provided that for the purposes of this clause- (a) to (d) xxxxxxxxx (e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognised association , which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013), shall not be deemed to be a speculative transaction: (emphasis, supplied) The terms eligible transaction , commodity derivative , and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its relevant part, reads as under: 6.3 (3) The assessee firm suffered a trading loss of Rs. 13,87,12,982/- during the year under consideration and the same is debited in the profit and loss account of the assessee firm. Out of the total loss, the loss suffered under the foreign exchange currency trading of Rs. 5,99,53,188/- and under the commodity trading of Rs. 7,87,59,794/-. Thus the total loss suffered by the assessee firm amounting to Rs. 13,87,12,982/-. The assessee firm made a trading of foreign exchange currency through the company of registered broker GEOMETRY VANIJYA PRIVATE LIMITED, having its registered Office at 11, Clive Row, Kolkata 700 001. The complanince Off. Gautam Mukherjee and Email id is [email protected]. The Permanent Account Number (PAN) of the company is AACCG6000B. All transaction done through exchange and duly supported by the contract note and bill. The photocopies of the contract note/bill, where in, the details of contract note no., trade date, order no., order time, trade no., trade time, contract description, quantity, buy/sell, gross rate per contract, Value (Rs.) and Total (Inclusive/net of brokerage + Service Tax + TOC Net amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 3.3 There is, clearly, no whisper therein of the expenditure/loss under reference being on trading in shares. All the assessee s reply states is of the relevant transactions being duly supported, through an Exchange and per registered brokers; in short, genuine. There is also no reference to the transactions, stated to be in (a) foreign currency trading, and (b) trading in commodities, being non-speculative u/s. s.43(5) or, for that matter, being carried out through a recognised association or even a recognized stock exchange, even as the ingredients of the contract note specified for both the category of transactions are with reference to that specified in sub-clause (B) of Explanation 2 to s. 43(5), which defines an eligible transaction u/s. 43(5)(e) per cl. (ii) thereof. We say stated , as there is nothing on record to exhibit that the bills/contract notes evidencing the transactions were furnished in assessment, and which is only understandable as the query by the AO was a general enquiry, i.e., qua large expenses (APB-2, pgs. 9- 10/DPB pgs. 3-4). A voluminous (containing 558 pages) paper-book filed by the assessee (APB-1), clearly states, as required under the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, two, the two reasons that prevailed with the AO in moving rectification proceedings for denial of set off of the impugned loss, are as under: i) that the shares on the trading in which the loss claimed stands incurred, are not listed on CSE, a recognized stock exchange. ii) the impugned transactions are speculative, and the loss thereon, thus, speculative in nature. The words Besides this , at the beginning of the second sentence of the reasons, which, in the view of the AO, for the mistake inflicting the assessment dated 05/12/2016, signify the same as the second, without prejudice, reason. It may be noted that the AO, while referring to this reason, speaks of loss rs. 1387.13 lacs, even as the assessee does per it s reply dated 29/8/2016 before her in assessment. Why, even the assessee has also considered the same as so, and which also explains the assessee s reply filed on 09/01/2017 addressing both the reasons separately per paras 3.1 3.2 respectively. To this extent there is thus no difference between the assessee and the AO. Sure, it would have been in order and more appropriate for the AO to have added the words within the meaning of s. 43(5) of the Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he backgrounds facts leading to the issue of notice u/s. 154 on 14/12/2016, listing the particulars of the mistake (reproduced hereinbefore at para 3.3), requiring the assessee to show as to why, under the given facts and circumstances (and the law in the matter), the loss on trading in shares be not set off against business income of the assessee-firm. We shall take both the reasons stated therein in seriatim for examining their validity. (A) There can surely be no trading in a share unless it is listed, so that the inference of the claim being not genuine in view of it being not listed, cannot be per se faulted with. This itself is sufficient to impugn the genuineness of the impugned loss, i.e., where in respect of share loss, with the assessee having not furnished the relevant bills/contract notes, perhaps on account of the same being voluminous, in the assessment proceedings, so that the same were not on record at the time of issue of notice u/s. 154. No inquiry with CSE, reply from which having been admittedly received after the assessment, cannot also form part of the record, was required inasmuch as transferability of shares in a private limited company is severely rest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o, if therefore the transactions resulting in the impugned loss are speculative, i.e., with reference to sec. 43(5), the parameters of which are well-defined, an adjustment would arise, else not. This, it shall be noted, is in respect of the merits of the adjustment in rectification. Due opportunity of hearing is to be by law provided where the same would have the effect of enhancing an assessment, being even otherwise a postulate of fair hearing, itself an article of natural justice. The objection by the assessee could though be toward both, i.e., the rectification in principle, as well as the proposed adjustment. We may, to begin with, set-out the relevant provisions of the Act, i.e., other than sec. 43(5) reproduced hereinbefore, as under, as, surely, it is only where a mistake obtains, after considering the assessee s explanation/s, per its replies filed on 09/01/2017 and 01/02/2017, i.e., with reference to the material on record and the clear law in the matter, that the same could be rectified: Set off of loss from one source against income from another source under the same head of income. 70. (1) Save as otherwise provided in this Act, where the net result for any a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute; the assessee though claiming it to be a non-speculative business in view of the satisfaction of the conditions of s. 43(5)(e). Assessment in the instant case stands made oblivious of the law on speculative transactions, i.e., in disregard of the statutory mandate, so that a rectification is per se warranted. We are conscious that the assessee, in rectification proceedings, explained the foreign currency trading transactions not as commodity derivative trading, but on actual purchase/sale of foreign currency/exchange to protect it s iron ore export receipts in foreign exchange from rate fluctuations therein vis- -vis Indian rupee, i.e., as being in respect of it s mining business (refer para 2.1). The same, thus, has the effect of objecting to the rectification in principle inasmuch as, where indeed so, the said transaction would be outside the purview of s. 43(5), disregard of which provision; the transactions as explained in assessment being apparently speculative in terms thereof, is the mistake attending the assessment. The said claim, however, apart from being without reference to any material, is inconsistent with the claim/s in its respect in assessment proceedings, i. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of law as to a judicial order, and cannot have our approval, even as we, for the reasons afore-stated, agree with it in principle. 3.7 We may, before proceeding further, clarify the basis for our stating in the preceding para of the foreign currency trading as being only trading in commodity derivative, and it being stated in rectification proceedings as being in relation to the assessee s mining business is admittedly incorrect. The bills of Geometry Vanijya Pvt. Ltd. clearly reflect buying and selling transactions being effected. There is nothing therein toward a claim for actual purchase of currency as a trading stock, which is bought, only to be sold again, i.e., of the capital invested in the said stock. There is even no claim of margin money. That is, nothing to correlate the purchase and sale of foreign exchange/s with the assessee s exports. Even the foreign currency/s in and the countries to which the same are made, is not stated. The trades, which are several in a day, would be, where in relation to exports, far less in number and, further, correspond to the payment amounts and dates of the said export, while the same are restricted to 3 days, from 24/3/2014 to 26/3/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee s case. Its effect on the assessee s case aside, the misstatement, being misleading, is in itself unfortunate. The fact that thus obtains is that the entire loss is in respect of commodity derivative trading. Even otherwise, as clarified hereinbefore, unless proved incorrect with reference to the material on record, or otherwise ineligible in terms of clear law, the assessee s claims qua facts made in assessment would, in view of non-verification by the AO, be adopted as correct. 3.8 We have at this stage two options, either to issue appropriate findings, wherein that per the rectification order would merge, or to restore the matter back to the file of the AO for the purpose. Though this question, the rules being well laid out, does not normally arise, the present is a case of rectification proceedings, the scope of which is severely limited. As afore-said, the issue as to the nature of the impugned loss, speculative or otherwise, is to be determined on the basis of the material on record and, further, on the anvil of the clear law in the matter, and for which due opportunity stands already provided to the assessee. Sh. Ghai would during hearing, on being conveyed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the rectification proceedings, explaining the mistake in accounts; relied on an incomplete provision; preferring to even not appear before the AO. The restoration shall thus allow the assessee another opportunity to present it s case, addressing each of the conditions of s. 43(5)(e), and the AO to meet the stated deficiencies, and bring the assessment in conformity with law, the avowed object of the rectification proceedings. The assessee may, toward this, apart from the law, rely on the documents produced in assessment (viz. bills/CNs), being only toward substantiating it s claims in assessment. The restriction qua the material on record, it may be noted, is toward the inference of a mistake, and not toward if it indeed is, and which is what the right to show that no enhancement of it s assessment is indeed called for, in effect is, with there being nothing in law to curtail the said right. Of course, the assessee cannot turnaround, as it indeed sought to do in the instant case by claiming foreign currency trading to be in respect of it s mining business, and create fresh dispute/s ( Kamala Ganapathi Subramanium (supra)). Not so holding would amount to a travesty of justic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 43(5)(e) is indeed applicable to the transactions under reference as borne out by the record, as in fact contended in rectification proceedings. This is precisely what the ld. CIT(A) ought to have done, or caused to, in appellate proceedings. On the contrary, he even fails to notice the said omission in the assessment proceedings, as indeed in the rectification proceedings, even as he finds the former as in order, and the latter not so. And this, despite the entire bills/CNs having been furnished before him, the absence of which before the AO was also not noticed by him. He even does not adopt the correct provision of s.43(5)(e), where-under he confirms the transactions to be covered. Why, he even fails to observe that the assessee had, and which, coupled with the fact of it relying on incorrect law, inferably sleightly, in rectification proceedings, altered the nature of foreign currency trading transactions from being pure trading transactions to that of hedging transactions (in respect of its iron ore exports), i.e., without any supporting material or even explanation. Further, while he regards the issue of the deductibility of the said loss thereon as settled by the Apex Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in the matter, and completed the assessment allowing the set off of the said loss against the assessee s mining business income wherein the said loss was debited as share loss . The assessee claims, that it s claims, on facts, to the extent made in assessment, were to be therefore accepted as such; no misstatement or falsity having been shown therein. We could not agree more, with estoppel operating against the assessee as well. There was, however, no whisper by the assessee who had in fact claimed the same as an expense/s, during assessment about the satisfaction of any of the exclusion clauses of s. 43(5), defining the speculative transaction under the Act, or even a claim of the impugned loss being non-speculative and, thus, eligible for setoff against business income (u/s. 70). There is, accordingly, no finding by the AO in the matter, ostensibly accepting the assessee s claim. Section 43(5) being clearly attracted on the basis of facts borne out by the record, i.e., commodity derivative trading, which is, by definition, speculative, unless, of course, it is qua eligible transactions, defined thereunder and, further, carried through the members of a recognised ..... X X X X Extracts X X X X X X X X Extracts X X X X
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