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Facts
The Revenue appealed against an order allowing an appellant company to set off its trading loss in Futures and Options (F&O) against brokerage income. The Revenue contended that the F&O loss was speculative and could not be set off against business income. The Revenue also challenged the order of the CIT(A) which had quashed the reopening of assessment.
Held
The Tribunal upheld the order of the CIT(A), holding that the reopening of assessment was invalid. The Tribunal found that the reopening was based on a mere change of opinion, that reasons were not properly communicated, and that it was initiated after the expiry of the statutory period without valid justification.
Key Issues
Whether the reopening of assessment was valid, considering it was initiated after four years based on internal audit observations without new material, amounting to a change of opinion.
Sections Cited
147, 148, 143(3)
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Income Tax Appellate Tribunal, Mumbai “B” Bench, Mumbai.
Before: Shri Narender Kumar Choudhry (JM) & Shri Omkareshwar Chidara (AM)
In this appeal, the Revenue contends before the ITAT that the appellant company has its own trading loss in the Futures and Options (F&O for short) segment and the same cannot be set off against the brokerage income because the loss incurred in appellant’s F&O segment of business is speculative in nature. This speculative loss cannot be set off against the business income of appellant company, is the main ground of appeal of Revenue. Secondly, the Revenue challenged the order of Ld. CIT(A), who passed the order of AO against the reopening of assessment.
2 M/s. NNM Securities P. Ltd. 2. As against this main ground of appeal, the appellant filed cross objection stating that the appellant raised grounds of appeal on reopening of assessment as well as on merits, but the Ld. CIT(A) adjudicated the issue of reopening of assessment in assessee’s favour by quashing the reopening the assessment without adjudicating other grounds on merits. Hence, the appellant filed the cross objection.
Briefly stating the facts :
a) The Ld. AO originally completed the assessment accepting the F&O loss and no addition was made. A query was also raised at time of original assessment and reply filed by appellant was taken into consideration and assessment was completed. Subsequently, the assessment was reopened, ostensibly on the basis of an Internal Audit party observation and the assessee filed a copy of the same, alongwith written submission in the paper book. The appellant company’s contention is three fold – first being, it is only change of opinion and the second being the reasons recorded were supplied only one day in advance contravening the principles laid down in the decision of Hon'ble Supreme Court in the case of GKN Driveshaft 259 ITR 19 (SC) and the third being the reasons recorded for reopening the assessment were factually incorrect and hence the very foundation of reopening of assessment is invalid. The appellant company also contends that, even on merits also, the loss claimed by it is as per law and should be allowed as the same is not speculative in nature. b) The Ld. CIT(A) held that the reopening of assessment is invalid because no fresh material came into possession of Department to reopen the assessment as the notice was issued beyond the time allowed of four years. As the issue of set off of loss
3 M/s. NNM Securities P. Ltd. was already discussed by Ld. AO in his Order earlier, now on the same issue, assessment cannot be reopened.
The Ld. AR and Ld. DR filed detailed written submissions and argued at length on the issues raised in grounds of appeal. The same are taken into consideration.
5. Before adjudicating the issues, it is found that the appellant company filed cross objection with a small delay of loss than a month after going through the affidavit filed by them, it is decided that there is a reasonable cause and hence the delay is condoned, the decision is being given on merits of the case.
6. The first issue to be decided is whether the reopening of assessment is valid as per the provisions of Income Tax Act. After perusing the material available on record, the Bench decides that the order of Ld. CIT(A) is to be upheld on the issue of quashing the assessment in view of the following reasons :- i) The Hon'ble Apex Court in the case of GKN Driveshaft (supra) held that the appellant company should be given copy of recording reasons for reopening the case and taken the objections of appellant and the Revenue should pass an order to reject the same, if they want to. Then only, the Revenue should proceed on merits. This procedure laid down by Hon'ble Apex Court was not followed by Revenue as the ‘reasons’ were given only one day prior to passing the assessment order and no separate order rejecting the objections of appellant was passed by Ld. AO. ii) For reopening the case, the primary condition is that there should not be simple change of opinion and some new material should come into the possession of Revenue in view of the decisions of Kelvinator of India Ltd. 320 ITR 561 (SC) and Cartini India Ltd. 314 ITR 275 (Bom), where four years period elapsed. In the 4 M/s. NNM Securities P. Ltd. impugned case in hand, the issue relating to setting off of loss, alleged to be speculative is not permitted to set off against business income was already dealt by earlier AO for which appellant filed evidence where no addition was made. iii) The Revenue reopened the assessment based on the objection raised by “Internal Audit Party”. As the issue involved was already dealt by earlier AO, reopening on the same issue amounts to mere change of opinion, and the same is not permitted as held by Hon'ble Bombay High Court in the case of Asian Paints Ltd. 308 ITR 195 (Bom). iv) The assessment year involved is A.Y. 2016-17 and reopening was done after four years which is again not permitted by law as it was held that notice issued after expiry of four years where there is no allegation that the appellant has not disclosed material facts necessary for reopening as held in Sound Castings (P) Ltd. 250 CTR 119 (Bom).
7. In view of the above, the Order of Ld. CIT(A) is upheld and the reopening of assessment is held as invalid. Since, the reopening of assessment is held as invalid, there is no need to go into merits.
8. Thus, the appeal of Revenue and Cross Objection of appellant are dismissed.
Order pronounced in the open Court on 06/10/2025.