9911796707
TMI Blog2013 (1) TMI 598X X X X Extracts X X X X X X X X Extracts X X X X ..... er had filed a return of income on 31-10-2007 declaring a total income of Rs. 1.92 crores (rounded off). Such return was taken in scrutiny assessment. The Assessing Officer framed the assessment under section 143(3) of the Income Tax Act, 1961 ('the Act', for short) on 24-12-2009 determining the total income at Rs. 1.95 crores (rounded off). 4. In the return that the petitioner had filed, he had claimed loss on hedging of metal in Multi Commodity Exchange ('MCX', for short) at Rs. 12.76 lakhs (rounded off). In the notes forming part of the accounts for the year under consideration, the assessee had stated as under:- "During the year, the assessee has entered into transactions for trading in gold and silver futures on commodities exchange. The net amount payable/receivable based on contract notes and detailed bill reports, on account of buy and sells contracts during the year, shows a loss. Such loss shown is accounted as loss for the year, to the extent of bills upto year end, and is shown separately in trading account. We are informed that such contracts are settled otherwise than by delivery of respective commodity. Due to non-availability of information, an adjustment on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the previous year is Speculative transaction as per the definition provided in section 43(5) of the Act. Considering the fact that Multi Commodity Exchange of India Ltd. (MCX) was notified as the recognized exchange only on and with effect from 22/5/2009 and therefore the transactions entered into the previous year 2006-07 were not covered by proviso (d) of section 43(5) of the Act. Thus the loss to the tune of Rs. 1276386/- incurred by the assessee in hedging activities were speculative in nature and disallowable in computing the total income." This has resulted under assessment of Rs. 1276386/-. In view of the above, I have reasons to believe that the income chargeable to tax to the extent above has escaped the assessment within the meaning of sec. 147 of the I.T. Act 1961." 9. The petitioner raised his objections to such proposal of reopening under his communication dated 24-12-2011. Such objections were, however, rejected by the Assessing Officer under communication dated 4-1-2012. The petitioner has, therefore, approached this court challenging the very validity of the notice for reopening. 10. In Special Civil Application No. 6830/2012, facts are very similar. The petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. The petitioner raised his detailed objections under communication as at Annexure 'G' which was received by the Assessing Officer on 11-4-2012. Such objections were disposed of under communication dated 18-4-2012. The petitioner has, therefore, approached this court challenging the very notice for reopening the assessment. 14. From the above facts, it emerges that in both the years the assessments previously framed after scrutiny are sought to be reopened within a period of four years from the end of the relevant assessment years. The reasons recorded are also very similar. For the assessment year 2007-08, the reasons recorded specifically mention that the assessee was dealing in speculative transaction as covered under section 43(5) of the Act. Considering that MCX was notified as recognized exchange only with effect from 22-5-2009, the transaction would not be covered under the proviso (d) to section 43(5) of the Act and, therefore, the loss to the tune of Rs. 12.76 lakhs was not allowable as the same was incurred by the assessee in hedging activities which were speculative in nature. The language used for the reasons recorded for the assessment year 2008-09 is somewhat dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks thereafter would not arise. 16. On the other hand, learned counsel Shri Pranav Desai for the revenue opposed the petitions contending that at this stage when mere notice for reopening has been issued, all such contentions cannot be gone into. Only prima facie belief of the Assessing Officer is required to be examined. He submitted that in the original assessment, no opinion was formed by the Assessing Officer for reopening. The notice which has been issued within four years from the end of the relevant assessment year should, therefore, be upheld. 16.1 The counsel further submitted that whether the case of the assessee falls under clause (d) or clause (a) of sub-section (5) of section 43 of the Act is required to be examined. If the same falls under clause (d) by virtue of the fact that MCX was not recognized exchange till 22-5-2009, would be sufficient to reject the assessee's claim. If the case of the assessee is that such loss was covered under clause (a) of sub-section (5), there are certain conditions required to be fulfilled. It would be necessary to examine whether such conditions in the present case have been fulfilled or not. 16.2 With respect to the assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad examined various aspects touching such an issue and come to following conclusion:- "30. In the result, we are of the opinion that reopening of an assessment within a period of four years from the end of relevant assessment year after 1.4.1989 could be made as long as the same is not based on mere change of opinion. Merely because a certain material which is otherwise tangible and enables the Assessing Officer to form a belief that income chargeable to tax has escaped assessment, formed part of original assessment record, per se would not bar the Assessing Officer from reopening the assessment on the basis of such material. Expression "tangible material" does not mean material alien to the original record." 20. The main contention of the counsel for the petitioner that the reasons recorded do not disclose any belief on the part of the Assessing Officer that income chargeable to tax has escaped assessment still requires to be addressed. In this context, we may recall that the assessee having claimed the hedging loss in two consecutive years, the Assessing Officer has recorded reasons for reopening such a claim on the ground that the same was not allowable in terms of clause (d) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him. Clause (a) thus covers hedging losses. Clause (d) on the other hand refers to an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 which is carried out in a recognized stock exchange. 22. From the outset, the petitioner has been claiming that he is dealing in hedging besides in the wholesale business of gold and silver ornaments. To insure against price fluctuations, he has been hedging in such metals in MCX. The claim of the assessee, therefore, had to be examined in terms of clause (a) to sub-section (5) to section 43 of the Act. If for some reason such claim was not sustainable, it was open for the Assessing Officer in the original assessment to discard the same. If for valid reasons recorded, the Assessing Officer formed a prima facie belief that even after the completed assessment when where such claim was never examined, the same was not re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re are certain conditions to be fulfilled. However, we are afraid such a contention cannot be accepted for two reasons. Firstly, any attempt on the part of the Assessing Officer now to fall back on the conditions required to be satisfied for application of clause (a) would amount to change of reasons recorded for reopening. Secondly, any such inquiry would be wholly a fishing inquiry. It is not the case of the Assessing Officer in the reasons recorded that the hedging transactions did not satisfy such conditions and therefore the case did not fall under clause (a). It is thus presently, at least, not even the case of the Assessing Officer that the assessee not fulfilling the requirements contained in clause (a) of sub-section (5), such loss should be treated as arising out of speculative transaction. That the exclusion contained in clause (a) would not be available and the transaction, therefore, should be treated as speculative transaction as defined in clause (d) of sub-section (5) to section 43. In light of the above reasons, we do not propose to go into the third additional contention with respect to the assessment year 2008-09 raised by the counsel for the petitioner that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
