By K. B. BHUJLE
Advocate
17. Principal CIT vs. Cartier Leaflin (P) Ltd.
[2019] 112 taxmann.com 63 (Bom.)
[2020] 268 Taxman 222 (Bom.)
Date of order: 15th October, 2019
A.Y.: 2011-12
Revision – Business loss – Allowable (as share trading) – Section 28(i) r.w.s. 263 of ITA, 1961 – Assessee company, engaged in business of financing and trading in shares – During assessment, A.O. before accepting assessee’s claim of operational loss in share trading, verified demat accounts, sale, purchase and closing stocks of assessee company and inquired about said loss – Show cause notice u/s 263 for revising assessment could not be issued on the basis that said accounts were to be examined
The assessee was engaged in the business of financing and trading in shares. In its return of income, the assessee declared a total loss of Rs. 11.29 crores. In assessment, the A.O. made a few additions / disallowances which resulted in the assessee’s taxable income reaching Rs. 35.50 crores. Subsequently, the Principal Commissioner opined that the amount of Rs. 8.79 crores shown under ‘other operating losses’ seemed to be a trading loss incurred by the assessee company out of its business of financial and capital market activities, which was its main business activity. He opined that on perusal of the assessment records, it was noticed that no examination of the books of accounts, transaction accounts of the share trading activity carried out by the assessee company vis-a-vis the demat accounts was carried out by the A.O. and that the entire operating loss as mentioned was accepted without any verification or proper application of mind. He, thus, held that the assessment order passed by the A.O. appeared to be erroneous and prejudicial to the interest of Revenue. Notice u/s 263 of the Income-tax Act, 1961 was issued by the Principal Commissioner.
On the assessee’s appeal, the Tribunal noted that from the records available it was evident that complete details in support of the claim of operating loss of Rs. 8.79 crores were made available by the assessee company to the A.O. In fact, the manner in which the operating loss was arrived at was submitted in a tabulated form along with item-wise details of all transactions during the assessment proceedings. Thus, the Tribunal concluded that the show cause notice u/s 263 by the Principal Commissioner was issued without examining the assessment records and the view taken by the A.O. after examination of exhaustive details and evidence was a possible view. The Tribunal held that the notice u/s 263 is not valid.
On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under:
‘i) The finding of fact in the order of the Tribunal is that the proceedings u/s 263, on the face of it, have been initiated without examination of records before the A.O. is not shown to be perverse. It is clear that the show cause notice proceeds on the basis that the books of accounts, transaction accounts of share trading carried out by the assessee vis-a-vis demat accounts have not been examined by the A.O. during the course of assessment proceedings. However, in the assessment order dated 28th March, 2014 itself, the A.O. had recorded that he examined the demat account in order to verify the share trading activities claimed by the assessee. Moreover, before passing the assessment order, sale, purchase and closing stocks were also examined by the A.O.
ii) Thus, the basis to invoke section 263 factually did not exist as there was due inquiry by the A.O. during the assessment proceedings leading to the assessment order. Thus, it is amply clear that the A.O. had applied his mind while accepting the claim of the assessee of operating loss of Rs. 8.79 crores making the proceedings u/s 263 bad in law. In any event, the view taken on facts by the A.O. is a possible view and the same is not shown to be bad.
iii) In the above view, the question as proposed does not give rise to any substantial question of law. Thus, not entertained. And appeal is, therefore, dismissed.’
