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TMI Blog2011 (3) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... evision proceedings on the ground that the details of purchase and sale of share transactions in futures were not verified as to whether the profit or loss from the future trading amounts to speculation gains or loss. In the show cause notice, however, learned Commissioner stated that " as per the provisions of Section 73 of the Income Tax Act, any loss computed in respect of a speculation business carried on by the assessee, shall not be set be set off against profits and gains, if any, of speculation business" and, therefore, the assessee is not allowed to adjust speculation loss, on futures trading, against other business profits.In the said show cause it was also observed that "total income of the assessee company is required to be computed by ignoring the speculation loss". In the written submissions filed by the assessee, in response to the aforesaid show cause notice, it was, inter al ia, stated that in the share trading business of the assessee, there is a net profit, even after setting off loss on in transactions which were on account of hedging transactions and thus not hit by the provisions of Explanations to Section 73. While Commissioner did not really reject the submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly refers to declining , what the Commissioner perceives as, a set off of speculation loss against business profits. That is a categorical disentitlement of set off. In the final conclusions in the impugned revision order, however, the Commissioner once again deviates from the stand so taken and concludes as follows: In view of the f oregoing, the assessment order dated 27.12.2007 passed by the Assessing Officer is considered to be erroneous and prejudicial to the interests of the revenue. Since the Assessing Officer has not taken the necessary details to verify whether the profits and loss from future trading amounts to speculation profit or loss, the assessment order is set aside with a direction to obtain complete details and conduct necessary enquiries and examine the same f or the assessment year under consideration. The Assessing Officer shall provide adequate opportunity to the assessee bef ore passing the assessment order 5. It is thus clear that there has been shifts in the stand of the Commissioner on whether it was a fit case for revision on the ground that the assessee was not eligible for set off of losses on speculative transactions or whether it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not mentioned at all in the show cause, obviously the assessee had no opportunity to meet that point." [Emphasis supplied] 10. The ratio of the decision, clear from the above observations, is that if a ground of revision is not mentioned in the show-cause notice issued under section 263, that ground cannot be made the basis of the order passed under the section, for the simple reason that the assessee would have had no opportunity to meet the point. ................ 11. The other judgment which supports the case of the assessee is that of the Punjab and Haryana High Court in CIT v. Jagadhri Electric Supply and Industrial Co. Ltd. [1983] 140 ITR 490 The nature of the jurisdiction of the CIT under section 263 and the powers of the Tribunal while dealing with an appeal against the order passed under that section were explained in that decision. The CIT had found the order of the AssessingOfficer allowing continuation of registration to the assessee-firm to be erroneous on the ground that the actual distribution of the profits was different from the ratio mentioned in the deed of partnership. The Tribunal set aside the order of the CIT but while doing so observed that ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , cannot substitute the grounds which the Commissioner himself did not think proper to form the basis of his order." We respectfully understand this judgment as holding, by necessary implication, that if the CIT has not mentioned the ground on which action is proposed to be taken under section 263 in the show-cause notice, it is deemed that he was not satisfied that it was a fit ground for taking action under the section, with the result that the final order, if based on the ground which he had earlier considered not fit for taking action under the section, will have to be set aside as not based on any ground which may justify his belief that the order passed by the Assessing Officer was erroneous insofar as it is prejudicial to the interests of the Revenue. ...................... 6. In any case, even on merits, the stand of the assessee cannot be faulted, and is, as learned representatives fairly agree, covered in favour of the assessee by Hon'ble jurisdictional High Court's judgment in the case of CIT Vs Lokmat Newspapers Pvt Ltd (322 ITR 43) wherein it is held that irrespective of whether or not the profits on sale of shares arose from delivery based trading or n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the profits and gains of an other speculation business. Similarly, for the purposes of subsection (2), the loss in respect of a speculation business which has not been set off either in whole or in part, can be carried forward and can be set off against profits and gains "of any speculation business". The expression "any speculation business" means a speculation business of the assessee in respect of which profits and gains for the assessment year in question have arisen and there is no justification to restrict the content of that speculation business where profits have arisen by excluding a business involving actual delivery of shares. No such restriction is found in the Explanation. To impose one is a legislative function. In other words, once the assessee is carrying on a speculation business and the profits and gains have arisen from that business during the course of the assessment year, the assessee is entitled to set off the losses carried forward from a speculation business arising out of a previous assessment year. 7. In this view of the matter, it is wholly immaterial whether or not the losses from non delivery based transactions, i.e. in trading in futur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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