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1967 Supreme(Bom) 99
IN THE HIGH COURT OF BOMBAY
Kotwal, C.J. and V.S. Desai, J.
Appellants: Commissioner of Income-tax (Central), Bombay
Vs.
Respondent: Devidayal Metal Industries Pvt. Ltd.
Income-tax Reference No. 86 of 1962 Decided On: 26.09.1967
Counsels:
For Appellant/Petitioner/Plaintiff: G.N. Joshi, Adv.
For Respondents/Defendant: R.J. Kolah, Adv.
The Tribunal has the power to restrict the scope of enquiry of the Income-tax Officer in reassessment proceedings under section 33(4) of the Income-tax Act, 1961, if it finds that the Appellate Assistant Commissioner did not exercise his jurisdiction properly in the circumstances of the case.
Headnote:
INCOME TAX - Reassessment - Scope of enquiry - Tribunal's power to restrict the scope of enquiry - Section 31(3) and 33(4) of the Income-tax Act, 1961.
Fact of the Case:
The assessee claimed business losses and speculation losses in the assessment years 1955-56 and 1956-57. The Income-tax Officer disallowed the speculation losses and computed the business loss for 1955-56 at Rs. 1,30,889 and the income for 1956-57 at Rs. 5,60,078. The assessee appealed to the Appellate Assistant Commissioner, who accepted the assessee's contention that the speculation losses were from hedging transactions and remanded the matter to the Income-tax Officer to verify the forward transactions in metals and check the correctness of the results disclosed in the manufacturing and trading accounts of the appellant. The assessee appealed to the Tribunal, which held that the Appellate Assistant Commissioner's order was passed with jurisdiction but that he did not exercise that jurisdiction properly in the circumstances of the case. The Tribunal restricted the scope of the enquiry of the Income-tax Officer in the reassessment proceedings to only the speculation losses and no other point.
Finding of the Court:
The Tribunal found that the Appellate Assistant Commissioner passed the order setting aside the assessment with jurisdiction, but that the power ought to have been judiciously exercised in the facts and circumstances of the case. The Tribunal gave five grounds for its finding: (1) that at no time was the genuineness of the trading account disputed; (2) that the Income-tax Officer had at the original stage scrutinised, considered and accepted the same; (3) that it was in the circumstances unnecessary "to rip open the trading accounts"; (4) that even in the remand the Income-tax Officer had not discovered "any serious laches" and (5) that it was just and reasonable to restrict the scope of the enquiry of the Income-tax Officer to only the speculation losses and no other.
Issues: Whether the Tribunal was justified in restricting the powers conferred on the Income-tax Officer in making assessment under section 31(3) (b) of the Income-tax Act?
Ratio Decidendi: The Tribunal had the jurisdiction to pass the order which it did under section 33(4) of the Income-tax Act, 1961, which empowers the Tribunal to "pass such orders thereon as it thinks fit". The Tribunal found that the Appellate Assistant Commissioner's order was passed with jurisdiction, but that he did not exercise that jurisdiction properly in the circumstances of the case. The Tribunal gave five grounds for its finding, which were all reasonable and justified. The Tribunal was therefore justified in restricting the scope of the enquiry of the Income-tax Officer in the reassessment proceedings to only the speculation losses and no other point.
Final Decision: The question referred to the court was answered in the affirmative. The Commissioner was ordered to pay the costs of the assessee.
1. Since counsel of the assessee, at whose instance questions Nos. 2 and 3 have been referred for decision to this courts, has not pressed those questions, it is unnecessary to consider them. That leaves for our decision only question No. 1, which is as follows :
"Whether, in the facts and circumstances so the case, the Tribunal was justified in restricting the powers conferred on the Income-tax Officer in making assessment under section 31(3) (b) of the Income-tax Act ?"
2. This question arises upon the following facts. We need not in stating the facts refer to any of the several facts to be found in the statement of the case which do not impinge upon this question. The two years with which we are concerned are the assessment years 1955-56 and 1956-57, corresponding to the accounting years January 1, 1954, to December, 31, 1954, and January 1, 1955, to December 31, 1955. In the those years the assessee, who is a dealer in and manufacturer of vessels out of stainless steel, copper and copper alloys and stainless steel scrap, had claimed business losses as under :
1955-56 1956-57
Rs. Rs.
4,05,905. 1,70,213.
3. The Income-tax officer, however, computed the loss for 1955-56 at Rs. 1,30,889 and the income for 1956-57, at Rs. 5,60,078. In the same years, the assessee had claimed that he had incurred speculation loss in respect of transactions entered into by way of speculation as a set-off against possible trading losses due to fluctuations in the market price of the metals which he had purchased. The Income-tax Officer disallowed these speculation losses as follows :
1955-56 1956-57
Rs. Rs.
4,05,905 1,70,213.
4. It will be noticed that these speculation losses which the assessee had claimed corresponded exactly to the figures of speculation loss in business. The Income-tax Officer, in disallowing these losses, had merely treated them as speculation losses and held that, "As this is a speculation loss, this will be carried forward separately to be set off against future speculation profits."
5. The assessee, however, went up in appeal to the Appellate Assistant Commissioner and before the Appellate Assistant Commissioner it was contended that the speculation losses were from a speculation business embarked upon in the shape of hedging transactions, that is to say, transactions entered into by assessee as a safeguard against similar transactions of purchase of metals which he had entered into for the purpose of business. If due to fluctuation in price, the price of the metal had gone down land the assessee had incurred losses, to that extent the assessee would be compensated by contrary transactions entered into as hedging transaction. When this plea was raised before the Appellate Assistant Commissioner, he accepted the assessees contention and passed an order, the operative part of which was as follows :
"While dealing with the appeal for the assessment year 1955-56, counsel of the appellant alleged that the entire loss of Rs. 4,05,905 which has been treated as speculation loss under proviso 2 to section 24(1) of the Indian Income-tax Act is actually the ready loss, because it is the loss in respect of hedging transactions to guard against the loss from future price fluctuations in respect of their stock. The appellant has filed a big chart to prove his case. You (the Income-tax Officer) are requested to go through the chart and list prepared by the appellant to state if the contention of the appellant is correct. Remand report in duplicate should be submitted within one month form the receipt hereof."
6. This order was passed on the 31st July, 1959, but no steps were taken to comply with it within a month as directed, because in the meanwhile not only the case itself but the appeal pending before the Appellate Assistant Commissione
