TMI Blog2007 (6) TMI 309X X X X Extracts X X X X X X X X Extracts X X X X ..... on debentures, etc., at Rs. 8,54,250 which was adjusted against the loss from share trading. On these facts, the Assessing Officer was of the view that income to the extent of Rs. 8,54,250 had escaped assessment as per the provisions of section 147 of the Act inasmuch as the loss in shares was deemed to be speculation loss as per the Explanation to section 73 of the Act and consequently, the same could not be set-off against the profit under other heads. Accordingly, the reassessment proceedings were initiated by issue of notice under section 148 of the Act on 5-3-2003. 3. In the course of reassessment proceedings, the assessee did not challenge the validity of reassessment proceedings and consequently, the reassessment was concluded by determining the total income at Rs. 8,61,949 after denying the set-off of the loss from share trading. 4. However, the validity of reassessment proceedings was challenged before the learned CIT(A) by raising two contentions namely - ( i ) since all the facts relating to purchase and sale of shares/debentures were available from the audited accounts, the reassessment proceedings could not be initiated in view of the judgment of the Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arise. Consequently, the question of change of opinion also does not arise. She relied upon the decision of the Hon ble Bombay High Court in the case of Citibank N.A. ( supra ). She also relied on the judgment of the Hon ble Bombay High Court in the case of Dr. Amin s Pathology Laboratory v. P.N. Prasad, Jt. CIT [2001] 252 ITR 683, wherein it has been held that the proviso to section 147 cannot be applied where the return has been accepted under section 143(1)( a ). She also relied on the judgment of the Hon ble Calcutta High Court in the case of Simplex Concrete Piles India (P.) Ltd. v. Dy. CIT [2002] 255 ITR 49 wherein it has been held that notice of re-assessment would be valid if prima facie it is shown that Assessing Officer had reason to believe that income had escape assessment. 7. Rival submissions of the parties have been considered carefully in the light of the facts emerging from the orders of the lower authorities and the case law cited before us. In our opinion, the legal contention raised by the learned counsel for the assessee is without force. Perusal of the provisions of section 147 reveals that only requirement for initiating reassessment proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year unless the Chief Commissioner of Income-tax or the Commissioner of Income-tax is satisfied that it is a fit case for issue of such notice. Sub-section (2) of section 151 applies where assessment is not made under section 143(3). In such situation also, the notice could not be issued after four years unless the JCIT is satisfied that it is a fit case of issue of notice. Thus, sanction under section 151 is required only where period of four years from the end of relevant assessment year has expired. This inference is also fortified by the fact that Their Lordships of the Hon ble Bombay High Court referred to certain judgments of the Hon ble Supreme Court and the judgment of the own Court which were decided with reference to section 147( a ) of the Act (prior to amendment). Section 147( a ) was also applicable to those cases where reopening was made after expiry of four years from the end of assessment year. This shows that Their Lordships of the Hon ble Bombay High Court were concerned with the reassessment proceedings with reference to the proviso to section 147, while in the present case, we are concerned with a case where notice has been issued within a period of four ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d circumstances, we find no merit in the above appeal, hence, the same stands dismissed, however, no order as to costs." [Emphasis supplied] 10. Perusal of the above clearly shows that the Court decided the issue in favour of the assessee on the ground that there was no basis for entertaining the belief that no part of income had escaped assessment. The other observations that there was no escapement by reason of omission or failure on the part of the assessee but to disclose fully and truly all material facts was by way of obiter inasmuch as - ( i ) the notice was issued within four years from the end of the assessment year and consequently the proviso to section 147 was inapplicable and ( ii ) the Court referred its own judgment in the case of Dr. Amin s Pathology Laboratory ( supra ), wherein it has been clearly held that the proviso to section 147 applies only to the cases were reopening is sought of the assessments under section 143(3). The condition regarding failure to disclose material facts is provided only in the proviso and not where the assessment is re-opened under the main provisions of section 147. In view of the clear verdict of the Hon ble Bombay High Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion does not apply to the present case since there was no occasion for forming an opinion under section 143(1)( a ). Consequently, the intimation of proceedings under section 147 of the Act is upheld. 13. The next issue arising from this appeal is whether the loss of Rs. 1,12,88,130 incurred in the business of shares on account of valuation of closing stock can be set-off against the other incomes declared by the assessee. 14. Briefly stated the facts are that the assessee-company was engaged in the purchase and sale of shares and had incurred a loss of Rs. 1,12,88,130 from such business. The assessee had also declared income by way of dividend and interest amounting to Rs. 8,54,250 against which the loss in shares was set-off and thus, nil income was returned. In the course of assessment proceedings, the assessee was asked to show cause why such loss should not be treated as speculation loss and consequently, the same should not be allowed to set-off from the other incomes declared by the assessee. In reply, it was submitted by the assessee that loss was not incurred on account of speculation loss but it was incurred merely on account of diminishing in the value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delivered by Single Bench. The full decision of the Bench has not been furnished before us but has referred to the catch notes given in BCA Journal. According to him, in that case, it was decided that loss on account of valuation of closing stock could not be considered as speculation loss under the provisions of Explanation to section 73 of the Act. It was also pointed out by him that this decision has been followed by the Division Bench of the Tribunal in the case of Associated Capital Market Management (P.) Ltd., copy of which is not available with the learned counsel for the assessee. He merely pointed out Para-3.4 of the learned CIT(A) where such plea was taken by the assessee. At this stage, the Bench also informed the assessee s counsel that this very issue has been decided by the Calcutta Bench of the Tribunal in the case of Paharpur Cooling Tower Ltd. v. Dy. CIT [2003] 85 ITD 745, wherein it has been held that loss incurred on account of valuation of closing stock will have to be treated as speculation loss in terms of the provisions of Explanation to section 73 of the Act. The learned counsel for the assessee expressed his ignorance about this decision. On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of trading of shares and, therefore, assessee has to be treated as carrying on the speculation business in shares by virtue of such deeming provision. If a person is, undisputedly, carrying on the business of selling any goods than, the profits and loss from such business has to be computed in accordance with the settled principles - ( i ) that value of the stock-in-trade must be taken into consideration while computing the true profits or losses of the business carried on [ CIT v. A. Krishnaswami Mudaliar [1964] 53 ITR 122 (SC), Chainrup Sampatram v. CIT [1953] 24 ITR 481 at page 487 (SC), A.L.A. Firm v. CIT [1991] 189 ITR 285 at page 302 (SC)], ( ii ) that the assessee is entitled to value the stock-in-trade at cost or market value whichever is less [ Chainrup Sampatram s case ( supra ) and CIT v. British Paints India Ltd. [1991] 188 ITR 44 at page 51 (SC)], and ( iii ) value of closing stock must be the opening stock of the succeeding year [ Chainrup Sampatram s case ( supra )]. 18. As a result of the above exercise, if there are losses in such business, then the assessee, but for the provisions of section 73, would be entitled to set-off such losses again ..... X X X X Extracts X X X X X X X X Extracts X X X X
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