DEPUTY COMMISSIONER OF INCOME TAX (CIRCLE) - 6(1)(1), MUMBAI vs. M/S. AGARWAL TEXTILES INDUSTRIES P. LTD., MUMBAI

Considered the rival submission and material placed on record, we notice that assessee has not filed cross appeal or cross objection against the order filed by the department and only during the appellate proceedings, it realized that it should file CO and since the delay in filing CO is already explained by the assessee through affidavit and it has already explained the reasons for such delay, which according to us, reasonable cause. Therefore, we condone the delay.

The brief facts of the case are that assessee is engaged in trading of silk yarn and fabrics and trading in securities and derivative securities. Assessee filed its return of income on 30.09.09 declaring total loss of Rs. 1,25, 38,35,120/-. Thereafter assessee has filed revised return of income on 30.03.11 revising the total loss of Rs. 1,25,41,63,342/-. The return was processed u/s 143(1) of the Act. Subsequently, the case was selected under CASS and notice u/s 143(2) and 142(1) of the Act were issued and served on the assessee. In the original assessment, AO made disallowance u/s 14A and determined the total taxable income at loss of Rs. 1,25,38,35,120/-.

AO issued notice u/s 148 on 24.03.14. When assessee requested for reasons for reopening and asked the AO to treat the return of income filed electronically as the return of income filed u/s 148 of the AO. The AO communicated the reasons for reopening and the objections filed by the assessee are rejected vide letter dated 23.03.15 by the AO. Further, AO noticed that assessee had investment in quoted shares in the assessment year 2008-09 to the tune of Rs. 1,84,93,52,185/- which had been fully liquidated in the AY 2009-10. It is further noticed that assesse had debited a sum of Rs. 1,25,05,47,463/- as loss on the sale of shares of stock-in-trade and claimed the loss as business loss. AO observed that assessee has converted its investment held in shares amounting to Rs. 1,84,93,52,185/- into stock-in-trade and declared a long term capital gain of Rs. 98,07,816/- on such conversion which it set off against the short term capital loss incurred by it. Subsequently, the assessee sold these shares which are stock-in-trade and incurred a loss Rs. 1,25,05,47,463/-, which it treated as business loss. According to the AO, assessee is eligible to treat the loss incurred by the assessee as long term CO 176/Mum/2019 M/s Agarwal Textiles Industries Pvt. Ltd. capital loss and assessee is not eligible to treat this transaction as business loss and further he observed that the gross total income of the assessee is a loss of which 99% loss due to sale /purchase of other business shares. Therefore, it is speculation loss which cannot be allowed as business loss. Accordingly, he disallowed the claim of loss claimed by the assessee.

Aggrieved by the above order of AO, assessee preferred appeal before Ld. CIT(A) and submitted a detail submission before him. In this regard, Ld. CIT(A) has extracted the detail submission which are at page no. 4 to 15 of its order and it is relevant to note that Ld. CIT(A) has given an opportunity to AO to represent the case before him, which AO has failed to utilize. After considering the detail submission of the assessee, Ld. CIT(A) allowed the appeal of the assessee on reopening of the assessment as below:-

Aggrieved with the above order, revenue has preferred the appeal before us on the grounds mentioned herein below:-

"On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that re- assessment made under section 147 as invalid as the details were submitted at the time of original assessment for verification without appreciating the fact that a particular issue when brought to the notice CO 176/Mum/2019 M/s Agarwal Textiles Industries Pvt. Ltd. of the assessing officer and the assessing officer found that ground is valid for reopening."

The Appellant craves leave to amend or alter any ground or to submit additional new ground, which may be necessary.

The grounds raised by the department is mainly on reopening of assessment and the same are considered for adjudication.

Before us, Ld. DR brought to our notice the finding of Ld. CIT(A) at para no. 6.2 of its order and submitted that Ld. CIT(A) observed that all the details relevant for assessment were submitted at the time of original assessment for verification and further he observed that the reasons for reopening being different than the show cause notice issued during re-assessment proceedings, he submitted that both the above observations are without appreciating the fact that particular issue when brought to the notice of AO and the same was found to be valid ground for reopening. He brought to our notice page no. 156 of the paper book in which AO has communicated the reasons for reopening and he submitted that assessee has claimed the loss of sale of the shares as business loss, whereas AO has clearly brought on record to demonstrate that it is long term capital loss and further he brought to our notice that assessee has claimed excessive relief. Further he brought to our notice page no. 92 of the paper book which is original assessment order in CO 176/Mum/2019 M/s Agarwal Textiles Industries Pvt. Ltd. which AO has only disallowed u/s 14A of the Act and accepted the return of income filed by the assessee without discussing any other issue. Further he brought to our notice page no. 97 of the paper book which is notice u/s 142(1) in which AO has merely called for regular information relating to assessment proceedings. In this respect, he brought to our notice point no. 24 of the said notice. He further brought to our notice page no. 107 of the paper book which is a letter submitted by the AR of the assessee in response to notice issued u/s 142(1) and he submitted that assessee has not filed any relevant information before the AO on such loss. In this respect, he relied upon the following judgments:- i) Export Credit Guarantee Corp of India Ltd. Vrs. ACIT (2013) 350 ITR 651 (Bom) ii) Usha Inttl. Ltd. Vrs. DCIT (2015) 153 ITD 558 (Del) iii) Rollatainess Ltd. vrs. ACIT (2015) 173 TTJ (Del)

He further brought to our notice page no. 165 of the paper book in which AO observed as below while rejecting the issue of notice u/s 148 of the Act. For the sake of clarity, which is reproduced below:-

He further submitted that assessee has filed all the details regarding conversion of shares into stock-in-trade as well as subsequent details of sale of those shares and offered the difference as long term capital gain /business loss as the case may be as per section 45(2) of the Act.

On the objection from Ld. DR on the submission of Ld. AR that this information were not asked by the AO, but assessee has filed themselves for which the Bench has asked DR to file order sheet copy of the assessment record in which whether the above information were submitted by the assessee itself or as asked by the AO. We notice that until today, no such information were brought on record by the Ld. DR, therefore we decide to set aside the objection of Ld DR and proceed to dispose off the appeal.

Considering the rival submission and material placed on record, we notice that assessee has converted the long CO 176/Mum/2019 M/s Agarwal Textiles Industries Pvt. Ltd. term investment into stock-in-trade during this assessment year and assessee has also offered the long term capital gain on the date of conversion. Subsequently, assessee sold all the shares and incurred a huge loss and as per the records submitted before us, assessee has claimed it as the business loss considering the fact that assessee has treated the above shares which was sold during the year as stock-in-trade. As per the records brought to our notice by Ld. AR, it clearly indicates that all this information of conversion of shares into stock-in-trade were brought to the notice of the AO in the original assessment itself. Considering the fact that all this information was very much available on assessment records and now the AO reopen the assessment on the same set off of information and we rightly notice that Ld. CIT(A) clearly observed that assessee has furnished the details of capital gain which are also on account of treatment of investment into stock-in-trade vide letter dated 31.10.11 before the AO. Therefore, according to Ld. CIT(A), it cannot CO 176/Mum/2019 M/s Agarwal Textiles Industries Pvt. Ltd. be said that AO has not verified this fact. Since the assessee has filed a copy of Board Resolution and workings of long term capital gain before the AO in the original assessment itself and it substantiates the findings of Ld. CIT(A) that all this information were very much available for the AO in the original assessment to complete. Therefore, in our considered view that the findings of Ld. CIT(A) seems to be in order.

With regard to other observation of Ld. CIT(A) that in the reasons for reopening, AO has not nowhere indicated that the business loss suffered by the assessee can be treated speculation loss and only in the revised assessment order, AO came to the conclusion that this loss can only be speculation loss. Therefore, we are inclined to accept the finding of Ld. CIT(A) that the re-assessment order is only a change of opinion. Accordingly, grounds raised by the revenue stands dismissed.