Losses could not be ignored in determining the applicability of exception clause of Explanation to section 73
SUMMARY OF CASE LAW
Section 254 of the Income-tax Act, 1961 – Appellate Tribunal – Powers of – Assessment year 1996-97 -Whether though Tribunal is not akin to a Court but functions discharged by it are similar to a Court, and, hence, in addition to its expressed statutory powers it has got inherent power to pass such orders as may be necessary for ends of justice – Held, yes -
Whether Tribunal has inherent power to refix case for hearing to prevent miscarriage of justice or to grant substantial justice, and only condition which is required to be satisfied is that aggrieved party must be given an opportunity of hearing – Held, yes.
Section 73 of the Income-tax Act, 1961 – Losses – In speculation business – Assessment year 1996-97 – Whether business loss being negative profit cannot be ignored in determining applicability of exception clause of Explanation to section 73 – Held, yes
CASE LAW DETAILS
Decided by: IN THE ITAT MUMBAI BENCH `B’, In The case of: Mafatlal securities Ltd. v. Joint Commissioner of Income-tax, Special Range 32, Mumbai, Appeal No.: IT Appeal No. 1127 (Mum.) of 2001 , Decided on: August 10, 2007
The assessee-company was engaged in the business of investment and trading in shares and securities. The assessee filed return showing dividend income, capital gains and business loss. The assessee also claimed set off of its business loss from other heads of income. The Assessing Officer treated share trading loss as speculation loss and by invoking Explanation to section 73 rejected the assessee’s claim. The Assessing Officer also rejected the assessee’s contention that the income chargeable to tax would not include negative income and, hence, business loss under the head `Income from business or profession’ had to be ignored for the purpose of determining the gross total income as provided in the first exception of the Explanation to section 73 and held that the assessee’s case was not covered under the exception provided in Explanation to section 73. The Commissioner (Appeals) upheld the finding of the Assessing Officer. Aggrieved by the said order, the assessee filed the appeal before the Tribunal wherein the case was originally fixed for hearing on 7-8-2006. However, during the course of further study of the files, the Bench thought that certain observations in the order of the Special Bench in the case of Asstt. CIT v. Concord Commercial  95 ITD 117 (Mum.) were relevant and also the decision of the Tribunal in the case of Yucca Finvest (P.) Ltd. v. Dy. CIT  101 ITD 403 (Mum.) were also relevant, hence, the case was refixed for fresh hearing and was, accordingly, heard on 11-6-2007. The assessee took a preliminary objection against such approach of Tribunal and contended that the Tribunal has no power to refix the case for hearing.
INHERENT POWERS OF TRIBUNAL
The Tribunal has inherent power to refix the cases to prevent miscarriage of justice or to grant substantial justice. The only condition which is required to be satisfied is that the aggrieved party must be given an opportunity of hearing which had been done in the instant case, hence, there was nothing wrong in the procedure adopted by the Tribunal. [Para 11]
Many times ex parte orders are passed on merits. However, when an application is being made by the aggrieved party for re-hearing the appeal after giving an opportunity to the assessee, such ex parte order is re-called though there is no express provision exist in this regard because the source of such power exist under section 254(1) itself. In the situation, when the Tribunal is clear in its mind that the provisions of section 254(1) were not complied in true spirit in passing the ex parte order it can recall such order for disposal afresh after giving an opportunity of hearing to both the parties and in such cases it does not amount to review of its earlier order because the purpose of setting aside an ex parte order is to consider the whole matter afresh by affording an opportunity of being heard. Similarly, the Tribunal before passing a written order can re-fix the case suo motu for clarifications so as to apprise the issue afresh in the light of other facts or material. There is nothing wrong in it because principles of natural justice are equally applicable to judicial authorities as these are applicable to the parties to the disputes. [Para 12]
Though the Tribunal is not akin to a Court but the functions discharged by it are similar to a Court, and, hence, in addition to its expressed statutory powers it has got inherent power to pass such orders as may be necessary for the ends of justice. In the instant case by re-fixing the case, the Tribunal had exercised itself inherent powers and by giving an opportunity to the assessee it had also complied that principles of natural justice. Hence, action of the Tribunal was in accordance with law. Accordingly, the preliminary objection raised by the assessee in this regard was to be rejected. [Para 13]
APPLICABILITY OF EXCEPTION CLAUSE OF EXPLANATION TO SECTION 73
The Special Bench of the Tribunal in Concord Commercials (P.) Ltd.’s case (supra) has held that the business loss being negative profit cannot be ignored in determining the applicability of exception clause of Explanation to section 73. [Para 16]
Similarly, in Yucca Finvest (P.) Ltd.’s case (supra), the Tribunal has held that the word `chargeable’ used in Explanation to section 73 would refer to chargeability to tax under the Act. This would only mean that loss may not be charged to tax directly in the current year. But by adjustment against other business income in that year or in following years, it reduces the other income on which tax is levied. Hence, negative income, i.e., loss is as equally chargeable to tax as positive income. [Para 17]
Thus, taking into consideration all relevant facts of the instant case and the decisions of Yucca Finvest (P.) Ltd. (supra) and Concord Commercial (P.) Ltd. (supra), it was to be held that the loss in trading of shares was a speculation loss and merely because it was a negative income, i.e., loss, could not be ignored in determining the applicability of exception clause of Explanation to section 73. [Para 18]
Asstt. CIT v. Concord Commercial (P.) Ltd.  95 ITD 117 (Mum.) (SB) and Yucca Finvest (P.) Ltd. v. Dy. CIT  101 ITD 403 (Mum.) (para 18) followed.
Cases referred to
CIT v. Sun Distributors & Mining Co. Ltd.  68 Taxman 223 (Cal.) (para 5), CIT v. Arvind Investments Ltd.  192 ITR 365/58 Taxman 216 (Cal.) (para 5), Eastern Aviation & Industries Ltd. v. CIT  208 ITR 1023/74 Taxman 641 (Cal.) (para 5), Associated Capital Market Management (P.) Ltd. v. Jt. CIT [Order dated 31-3-2003, IT Appeal No. 1103 (Mum.) of 2001] (para 6), CIT v. Thane Electricity Supply Co.  206 ITR 727(Bom.) (para 6), Asstt. CIT v. Concord Commercial (P.) Ltd.  95 ITD 117 (Mum.) (SB) (para 8), Yucca Finvest (P.) Ltd. v. Dy. CIT  101 ITD 403 (Mum.) (para 8), CIT v. Sudhir Choudhrie  278 ITR 490/147 Taxman 306 (Delhi) (para 8), CIT v. G. Sagar Suri & Sons  185 ITR 484 (Delhi) (para 8), ITAT v. V.K. Agarwal  101 Taxman 382 (SC) (para 10), Oriental Building & Furnishing Co. v. CIT  21 ITR 105 (Punj.) (para 11), S.B. Singar Singh & Sons v. ITAT  58 ITR 626 (All.) (para 11), CIT v. Dr. T.K. Jayaraj  256 ITR 252/120 Taxman 367 (Ker.) (para 11), CIT v. Park View Properties (P.) Ltd.  261 ITR 473 (Cal.) (para 17), Aryasthan Corpn. Ltd. v. CIT  253 ITR 401/124 Taxman 516 (Cal.) (para 17) and Dy. CIT v. Akrosh Investment & Leasing (P.) Ltd.  90 ITD 287 (Mum.) (para 17).
Nitesh Shah for the Appellant.
Chet Ram for the Respondent.