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Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH, AHMEDABAD
Per Pramod Kumar, AM:
By way of this appeal, the assessee-appellant has challenged correctness of the order dated 25th February 2014 passed by the learned CIT(A)-6, Ahmedabad in the matter of assessment under section 143(3) r.w.s. 147 of the Income-tax Act, 1961, for the assessment year 2005-06.
The grievances raised by the appellant are as follows:-
“1. The learned CIT(A) has erred in law and on the facts of the case in confirming the action of learned Assessing officer in reopening the assessment of the Appellant under section147 of the Act. Under the facts and circumstances of the case, the reopening is without jurisdiction and thus illegal.
The learned CIT(A) has erred in law and on facts of the case in confirming the action of Id. AO in framing the impugned assessment order u/s 143(3) r.w.s. 147 of the Act on the ground which is completely different than the ground on which the reassessment is initiated. Under the circumstances, the reassessment order itself is bad in law and may kindly be quashed.
The learned CIT(A) has erred in law and on facts of the case in confirming the action of Assessing Officer in not allowing set off of brought forward
ITA No. 1316/Ahd/2014 Bhansali Fiscal Services Pvt Ltd Vs. ITO Assessment year: 2005-06 Page 2 of 4 business loss against current year's business profits. In the facts and the circumstances of the present case, the brought forward losses should have been allowed to set off against the present year income.
Both the lower authorities have passed the orders without properly appreciating and grossly ignoring various submissions, explanations and information submitted and the case laws relied on by the appellant from time to time which ought to have been considered before passing the impugned order.
The learned CIT(A) has erred in law and on facts in confirming the action of learned Assessing Officer in charging interest u/s 234A/B/C/D of the Act.
The learned CIT(A) has erred in law and on facts in confirming the action of learned Assessing Officer in initiating penalty proceedings u/s 271(1)(c) of the Act."
To adjudicate on this appeal only a few material facts need to be taken note of. This is a case of reopened assessment. While reopening the assessment, the Assessing Officer recorded the observations as follows:-
“In this case, the assesses company had filed e-filed return of income for the above assessment year on 27.10.2005 declaring total income of Rs.Nil after claiming set-off of brought forward business loss / unabsorbed depreciation of earlier years. The return so filed was processed u/s. 143(1) of the I.T. Act. Thereafter, scrutiny assessment u/s.143(3) of the Act was completed on 30.11.2007, assessing the net income at Rs. Nil after setting off of Speculation loss/unabsorbed depreciation of A.Y.1997-98, 1999-00 and A.Y. 2001-02 etc. totaling at Rs. 42,00,460/- against business income.
On verification of records, it is noticed that during the previous year relevant to A.Y.2005-06, the assesses company was engaged in the business of trading of share and cheque discounting. The so called business losses of earlier years which were actually losses of speculative business to the extent of Rs.42,00,460/- pertaining to the A.Ys. 1997-98, 1999-00 and A.Y. 2001-02 etc. were wrongly allowed to be set off against the business income for the A.Y. 2005-06 without taking in to consideration of the explanation to Section 73 of the IT Act. In view of the explanation in section 73 of the Act, the loss incurred on trading of shares by the assessee company was speculation loss. Thus, the said loss was in the nature of speculation loss and not business loss and hence assessee-company was not entitled to set off such speculation loss against any of the income.
The income earned by the assessee company was chargeable under the head profits and gains of business and was not speculative income as per definition in section 43(5) of the Act. Since during the previous year under consideration the speculation business has been reflected in book of account of assessee as a distinct and separate from other business as per Explanation below Rule 28, the speculation loss of Rs. 42,00,460/- of current year allowed to carry forward to subsequent years was not in order.
ITA No. 1316/Ahd/2014 Bhansali Fiscal Services Pvt Ltd Vs. ITO Assessment year: 2005-06 Page 3 of 4 However, the set off of speculation loss / unabsorbed depreciation of A.Y. 2001-02 and A.Y. 2002-03 etc. against the business income of the assessment year under report determined of Rs.42,00,460/- was not in order. This resulted under assessment of business income to the extent of Rs.42,00,460/-.
In view of above, it is therefore concluded that the assessee company has failed to disclose fully and truly all material facts necessary for assessment.
Therefore, I have reasons to believe that income of the assessee company to the above extent of Rs.42,00,460/- has escaped assessment. The case is therefore, required to be reopened U/s. 147 of the I.T. Act.”
Aggrieved, inter alia, by the said reopening, the assessee carried the matter in appeal before the learned CIT(A) but without any success. The plea of the assessee, inter alia, was that in the reasons so recorded, no lapses on the part of the assessee have been pointed out; and, since the assessment sought to be reopened is beyond four years, unless there is lapse on the part of the assessee, the completed assessment cannot be reopened. One of the points raised by the assessee before the CIT(A) was that the reasons for reopening, as evident from the reasons recorded above, was that the business losses of the earlier years which was loss of speculative business could not be set off against the business income for the present year in the light of explanation to Section 73 of the Act. However, while framing the reassessment, the Assessing Officer had discarded that stand and proceeded to disallow the losses on the ground that the assessee’s cheque discounting business was discontinued in assessment year 2002-03 and, for that reason, set off of brought forward losses pertaining to such discontinued business could not be set off against the business income of the present year. This plea was rejected by the ld. CIT(A) by observing as follows:-
“(iii) That the re-opening was on a different issue and the order was passed on another Issue. As seen from the reasons recorded for the reopening assessment reproduced above, the reopening was done on the ground that the brought forward speculation losses of earlier years were wrongly set off against the business income of the year under consideration. As seen from the assessment order u/s 143(3) r.w.s 147, the set off brought forward of losses was modified. In other words the order was passed precisely on the same issue on which the assessment was reopened. Hence, this contention of the appellant is factually incorrect and is devoid of merit.”
The assessee is aggrieved and is in further appeal before us.
We find that, as rightly pointed out by the learned counsel, the reason for which the assessment is reopened is altogether different from the stand taken by the Assessing Officer in the impugned reassessment order. While the assessment was reopened on the ground that the carried forward losses were wrongly set off against the business income without taking in to account the explanation to Section 73 of the Act, in the assessment, set off was declined for the reason that cheque discounting business itself was discontinued in the assessment year 2002-03. It is indeed true that both these issues relate to the set off of carried forwarded losses but then the
ITA No. 1316/Ahd/2014 Bhansali Fiscal Services Pvt Ltd Vs. ITO Assessment year: 2005-06 Page 4 of 4 nature of stand and the reasons for declining the set off are altogether different. Such a course of action is not permissible in the light of Hon’ble jurisdictional High Court’s judgment in the case of CIT Vs. Mohmed Junded Dadani, (2013) 355 ITR 172. In any case, the reasons recorded for reopening the assessment do not point out any lapse on the part of the assessee. In view of these discussions and bearing in mind entirety of the case, we are of the considered view that the impugned reassessment is vitiated in law and accordingly we quash the reassessment proceedings. The reasons for which the reassessment proceedings were vitiated have not found favour with the Assessing Officer even at the assessment stage, as such the very foundation of reopening of the assessment is vitiated in law. Accordingly, the reassessment stands quashed.
In the result, the appeal is allowed. Pronounced in the open court today on the 18th September, 2018
Sd/- Sd/-
Ms. Madhumita Roy Pramod Kumar (Judicial Member) (Accountant Member) Ahmedabad, the 18th day of September, 2018 **bt
Copies to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order TRUE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad
Date of dictation: ...18.09.2018................. 2. Date on which the typed draft is placed before the Dictating Member: ...18.09.2018... 3. Date on which the approved draft comes to the Sr. P.S./P.S.: …18.09.2018….. 4. Date on which the fair order is placed before the Dictating Member for Pronouncement: .18.09.2018. 5. Date on which the file goes to the Bench Clerk : . .18.09.2018 ……. 6. Date on which the file goes to the Head Clerk : ……………………………. 7. The date on which the file goes to the Assistant Registrar for signature on the order: …. 8. Date of Despatch of the Order: ………………......