By Jagdish D. Shah, Jagdish T. Punjabi Charted Accountants
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Counsel for assessee/revenue: Arvind Dalal/ Sumeet Kumar
Section 263 — Revision order, if passed for a reason not mentioned in the show-cause notice, is invalid.
Facts:
The assessee was engaged in share trading activity. The assessee had claimed set-off of trading losses against trading profits which set-off was accepted by the Assessing Officer (AO) in an order passed u/s.143(3) of the Act. The CIT issued a show-cause notice u/s.263 in which he claimed that share trading losses were speculation losses u/s.73 and the same could not be set off against trading income. The assessee, in response to show cause, clarified that the trading losses were eligible for being set off against trading profits. The CIT, without rejecting the claim of the assessee, passed an order u/s.263 on the ground that the AO had not taken the details to verify whether the profits and loss from future trading amounts to speculation profit or loss. He directed the AO to obtain complete details and conduct necessary enquiries and examine the same for the assessment year under consideration. Aggrieved, the assessee preferred an appeal to the Tribunal.
Held:
The Tribunal noted that the show-cause notice stated that the assessee was not eligible for set-off of losses on speculation transactions, whereas the revision has been on the ground that the AO did not make necessary verifications about the transactions. Relying on the ratio of the decision of the Tribunal in Maxpack Investments Ltd. v. ACIT, 13 SOT 67 (Del.) and the decision of the Punjab & Haryana High Court in the case of CIT v. Jagadhri Electric Supply and Industrial Co. Ltd., 140 ITR 490 (P & H), the Tribunal held that if a ground of revision is not mentioned in the show-cause notice issued u/s.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. The Tribunal quashed the order passed u/s.263 of the Act.
On merits, the Tribunal found the issue to be covered in favour of the assessee by the decision of the jurisdictional High Court in the case of CIT v. Lokmat Newspapers Pvt. Ltd., (322 ITR 43) (Bom.) wherein it has been held that irrespective of whether or not the profits on sale of shares arose from deliverybased trading or non-delivery-based trading, as long as the assessee is hit by Explanation to section 73, the entire profits will be deemed to be speculation profits and, accordingly, losses from non-deliverybased activity will also be eligible for set-off against profits from delivery-based transactions as well.
The appeal filed by the assessee was allowed.
