M/S. RAINA COMMODITIES PVT. LTD., ,KOLKATA vs. ITO, WARD 1(1), , KOLKATA

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ITA 1188/KOL/2025Status: DisposedITAT Kolkata15 September 2025AY 2017-20184 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the Assessing Officer's action in passing a rectification order under Section 154 was unsustainable. Firstly, it was not a mistake apparent from the record, but rather a debatable issue that required a prolonged analysis of Section 43(5) of the Act, which cannot be rectified under Section 154. The Tribunal cited the Supreme Court decision in ITO vs. Volkart Brothers & Ors. and the Rajasthan High Court decision in CIT vs. United Mercantile Co. (P) Ltd. to support this view. Secondly, the Tribunal found that the transactions in derivatives did not fall within the ambit of Section 43(5) of the Act. The judgment specifically referred to proviso (d) and (e) of Section 43(5), which exclude eligible transactions in derivatives carried out on a recognized stock exchange, especially when commodity transaction tax has been paid. As the assessee had paid commodity transaction tax, these transactions were not speculative. Consequently, the Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition. The issue of delay in filing the appeal before the CIT(A) was implicitly resolved by the Tribunal deciding the case on merits.

What were the facts?

The assessee, M/s Raina Commodities Pvt. Ltd., is in appeal against the order dated 16.12.2024 of the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessment year in question is 2017-18. The appeal challenges the CIT(A)'s upholding of the Assessing Officer's (AO) rectification order passed under Section 154 of the Income Tax Act, 1961. The AO had treated a loss of Rs. 79,25,368/- from intra-day trading in derivatives as speculation loss, contrary to the assessee's claim of it being a normal business loss. The original assessment under Section 143(3) had accepted the loss as business loss. The rectification order was passed suo motu without a show-cause notice. The assessee contended that the rectification order was passed without a mistake apparent from the record and that the appeal before the CIT(A) was filed promptly upon learning of the order.

What were the issues?

1. Whether the order passed by the Assessing Officer under Section 154 of the Income Tax Act, 1961, treating the loss from intra-day trading in derivatives as speculation loss, is sustainable when the original assessment under Section 143(3) had accepted it as business loss, and whether there was a mistake apparent from the record. 2. Whether the intra-day trading in derivatives, on which commodity transaction tax was paid, falls within the definition of 'speculative transaction' under Section 43(5) of the Income Tax Act, 1961. Assessee's Contentions: The assessee argued that the AO's action under Section 154 was unsustainable as there was no mistake apparent from the record; the issue was debatable and required extensive analysis. The assessee also contended that the transactions in derivatives were not speculative as they were carried out on a recognized stock exchange and commodity transaction tax was paid, thus falling under the exceptions provided in Section 43(5) of the Act. The assessee relied on the decisions in ITO vs. Volkart Brothers & Ors. (82 ITR 50 SC) and CIT vs. United Mercantile Co. (P) Ltd. (1986) 158 ITR 41 (Raj). Revenue's Contentions: The judgment does not record specific contentions from the revenue regarding the issues.

Which sections of the Income-tax Act were involved?

Section 154,Section 143(3),Section 43(5),Section 2(ac)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “D” BENCH KOLKATA

Before: Shri Rajesh Kumar, AccountantMember & Shri Pradip Kumar Choubey, JudicialMember

order

:September 15, 2025 ORDER

Per Rajesh Kumar, Accountant Member:

1.

The present appeal has been preferred by the assessee against the order dated 16.12.2024 of the Commissioner of Income Tax, Appeal ADDL/JCIT(A)-7, Mumbai[hereinafter referred to as the “ld. CIT(A)”] passed u/s 250 of the Income Tax Act, 1961 [hereinafter referred to as the “Act”].

2.

The assessee has challenged the order of the ld. CIT(A) upholding the action of the Assessing Officer in passing rectification order u/s 154 of the Act thereby confirming the action of the Assessing Officer in treating the loss of Rs.79,25,368/- as speculation loss as against offered by the assessee as normal business loss. The assessee has also challenged the validity of order passed u/s 154 of the Act on the ground that there is no mistake apparent from the record in the assessment M/s Raina Commodities Pvt. Ltd framed u/s 143(3) and therefore, the order passed u/s 154 of the Act may be quashed.

3.

The facts in brief are that the assessee was framed in this case u/s 143(3) of the Act vide order dated 30.12.2019 wherein the loss of Rs.79,25,368/- from intra-day trading in derivatives was offered as business loss and accordingly return was filed. The Assessing Officer assessed the same in the assessment framed u/s 143(3). Thereafter the Assessing Officer passed an order u/s 154/143(3) dated 14.09.2021 making suo moto adjustment in the rectification order treating the business loss of Rs.79,25,368/- as speculation loss being covered u/s 43(5) of the Act without giving a show-cause notice to the assessee.

4.

The assessee challenged the said order u/s 154/143(3) of the Act before the ld. CIT(A) and the ld. CIT(A) also without considering the reply of the assessee dismissed the appeal by upholding that there is no justification for delayed filing of the appeal.

5.

The assessee filed an affidavit explaining therein that the assessee was not knowing about the rectification order having been passed u/s 154/143(3) for the assessment year 2017-18 by ITO, Ward-1, Kolkata on 14.09.2021 as the same falls under Covid Period which was also passed without giving any notice to the assessee. The assessee submitted that the assessee came to know about the said order on 15.01.2024 only. Therefore, there was no delay in filing the said appeal by the assessee before the ld. CIT(A) and if at all the delay is considered to be there, the same may be condoned on the ground that the delay falls under Covid period and the reasons for the delay is bona fide and genuine. The ld. counsel for the assessee also submitted that the assessee has uploaded all the information and details before the ld. CIT(A) along with a written submission and therefore, the order may kindly be passed on merit.

M/s Raina Commodities Pvt. Ltd 6. After hearing the rival contentions and considering the materials available on record, we find that in this case, the Assessing Officer passed order u/s 143(3) of the Act accepting the loss from derivatives which was claimed to set off against other income as stated hereinabove. Thereafter, the Assessing Officer suo motto passed the rectification order without affording any opportunity to the assessee by rejecting the said claim of set off against interest income. In our view, the said action of the Assessing Officer is not sustainable in the eyes of law as this is not an apparent mistake from the record which could be rectified by the Assessing Officer. This is a debatable issue and cannot be rectified u/s 154 of the Act. The case of the assessee is squarely covered by the decision of the Apex Court in the case of ITO vs. Volkart Brothers & Ors. reported in 82 ITR 50 (SC) and decision of Rajasthan High Court in the case of CIT vs. United Mercantile Co. (P) Ltd. reported in (1986) 158 ITR 41(Raj) wherein it has been held that provisions of section 154 of the Act can be resorted to in case of mistake which is apparent from record and not otherwise. In other words where the issue is debatable on which two view are possible or required to be established by long drawn process of reasoning then provisions of section 154 of the Act can not be invoked. Moreover, the case of the assessee does not fall within the ambit of section 43(5) of the Act which provides 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”. We note that there are certain exceptions to this in the provisos and as per proviso (d), it has been provided that “an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 carried out in a recognised stock exchange” and proviso (e) which provides that “an eligible transaction in respect of trading in commodity derivatives carried out in a [recognised stock exchange which is 3 M/s Raina Commodities Pvt. Ltd 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”. In this case, the transactions were done on the stock exchange on which commodity transaction tax has been paid. Therefore, the same does not fall within the ambit of section 43(5) of the Act. Considering these facts and circumstances, we are inclined to set aside the order of the ld. CIT(A) and direct the Assessing Officer to delete the addition on two counts: (i) the order passed u/s 154 of the Act is unsustainable as there is no mistake apparent from the record in the order passed u/s 143(3) of the Act as the issue is debatable and should be understood after a very prolonged and lengthy analysis of section 43(5) of the Act and (ii) the transaction does not fall within the ambit of section 43(5) of the Act.

7.

In the result, the appeal of the assessee is allowed. Kolkata, the 15th September, 2025.

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