2018 (9) TMI 2104 - AT - Income Tax

Revision u/s 263 - applicability of Explanation to section 73 so as to consider the deemed speculation loss from trading of shares and disallowing set off of deemed speculation loss from trading of shares out of the business income - CIT opined that in view of Explanation to section 73 introduced by Finance (No. 2) Act 2014 which is applicable form assessment year 2015-16 the assessee cannot be granted set off of deemed speculation loss from trading of shares out of the business income of the assessee - HELD THAT - The amendment inserted to Explanation to section 73 by Finance (No. 2) Act 2014 is to be applied retrospectively from the date of insertion to Explanation to section 73 of the Act. In coming to this view we take support from the judgment in the case of CIT vs. Alom Extrusions Ltd. 2009 (11) TMI 27 - SUPREME COURT wherein Their Lordships were considering the amendment made by the Finance Act 2003 by omitting the second proviso to section 43B of the Act w.e.f. 01/04/2004 and bringing about uniformity in the first proviso by equating tax duty cess and fees with contribution to welfare funds viz. Provident Fund etc. The Supreme Court held that the aforesaid amendment in section 43B of the Act by Finance Act 2003 is curative in nature and would therefore apply retrospectively w.e.f. 01/04/1988. In the present case the principle business of the assessee is trading in shares. Hence deemed speculative loss from trading in shares is to be set off of against the business income of the assessee. This ground of the assessee is allowed. CIT initiated the proceedings u/s. 263 of the Act based on the recommendations of the AO - We find that this argument is not based on any material borne on record. Accordingly this argument of the Ld. AR is rejected. Judicial discipline requires consistency in the income tax proceedings - According to the Ld. AR res judicata does not apply to income tax proceedings. Though each assessment year being a unit what was decided in one year might not apply in the following year; where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order; it would not be at all appropriate to allow the position to be changed in a subsequent year. In the present case non-consideration of one issue in one assessment year does not give vested right to the assessee to derive benefit from such an error committed by the AO. In our opinion perpetuating the error is not heroism. This argument of the Ld. AR is rejected. Appeal filed by the assessee is partly allowed.

Summary

Issues:
Jurisdiction under section 263 of the IT Act regarding deemed speculation loss from trading of shares and set off against business income.

Analysis:
The appeal concerned the jurisdiction exercised under section 263 of the IT Act by the Commissioner of Income Tax (CIT) directing the Assessing Officer to consider the applicability of Explanation to section 73 of the Act regarding deemed speculation loss from trading of shares. The main grievance of the assessee was the CIT's direction to disallow set off of deemed speculation loss against business income. The assessee argued that the revision proceedings were initiated based on the Assessing Officer's recommendation, which was not in accordance with section 263(1) of the Act. The assessee also contended that the assessments for previous years were accepted without change, and the revision was unjustified. Additionally, the assessee claimed that the Finance Act (No. 2), 2014 amendment to the Explanation to section 73 was curative, making the loss a normal business loss. The assessee cited relevant case laws to support their arguments.

The Department argued that the assessee's business involved trading shares, and the speculation loss could not be set off against non-speculation business income. The Assessing Officer's omission to consider the Explanation to section 73 was deemed erroneous and prejudicial to revenue. The Tribunal considered the arguments and precedents cited by both parties. It noted that the Explanation to section 73, inserted by the Finance Act (No. 2), 2014, clarified the treatment of losses from share trading by companies whose principal business is trading in shares. The Tribunal referred to a Mumbai Bench case and Supreme Court judgments to support the retrospective application of the amendment to the Explanation.

The Tribunal held that the amendment to the Explanation to section 73 by the Finance Act (No. 2), 2014, was clarificatory and applied retrospectively from the date of insertion. Citing the Supreme Court's decision in another case, the Tribunal allowed the set off of deemed speculative loss against the business income of the assessee, considering their principal business was trading in shares. The arguments regarding the initiation of proceedings under section 263 and the principle of judicial discipline were rejected. The appeal was partly allowed, and the order was pronounced on September 26, 2018.