M/s. DIAMOND SECURITIES PVT. LTD.(Now known as Diamond Financial Services), Bhopal V. THE DCIT 1(1), Bhopal

CO 49/IND/2015

• Counselvise Citation: [2016] 112 COUNSELVISE.COM (IT) 4136 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 05-07-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 02-07-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R P MOURYA
• Keywords: Business income; Transactions in derivatives; Additional evidence; Speculation loss; Reassessment proceedings
• Section: 43(5); 148; 12; 28

Judgement Text

DCIT VS. DIAMOND SECURITIES PVT. LTD. ITA NO. 284/IND/2015 & CO NO.49/IND/2015 1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA,JM AND SHRI N.S. SAINI, AM ITA NO. 284/IND/2015 A.Y.2007-08 DY.COMMR. OF INCOMETAX 1(1) BHOPAL ::: APPELLANT VS M/S DIAMOND SECURITIES PVT. LTD. BHOPAL ::: RESPONDENT CO NO. 49/IND/2015 ARISING OUT OF ITA NO. 284/IND/2015 M/S DIAMOND SECURITIES PVT. LTD. BHOPAL ::: APPELLANT VS DY.COMMR. OF INCOMETAX 1(1) BHOPAL ::: RESPONDENT REVENUE BY SHRI R.P.MOURYA ASSESSEE BY SHRI JITENDRA JAIN DATE OF HEARING 4.7.2016 DATE OF PRONOUNCEMENT 5 .7.2016 DCIT VS. DIAMOND SECURITIES PVT. LTD. ITA NO. 284/IND/2015 & CO NO.49/IND/2015 2 O R D E R PER SHRI N.S. SAINI, AM THE APPEAL HAS BEEN PREFERRED BY THE REVENUE WHEREAS THE CROSS OBJECTION HAS BEEN PREFERRED BY THE ASSESSE E AGAINST THE ORDER DATED 26.2.2015 OF THE LEARNED CIT(A) -I, BHOPAL. 2. THE SOLE GRIEVANCE OF THE REVENUE IS THAT THE LEARN ED CIT(A) ERRED IN DELETING THE ADDITION OF RS.96,50,33 4/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SET OFF O F LOSS CLAIMED IN TRANSACTIONS OF SHARES F&O OF RS.96,50,334/ -. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FIRM DERIVES INCOME FROM BUSINESS OF SHARES BROKER, TRADIN G IN FUTURES & OPTIONS (F&O) OF SHARES AND COMMODITIES FUT URE. THE ASSESSEE IN THE RETURN OF INCOME FILED CLAIMED BU SINESS LOSS OF RS. 96,50,334/- ON THE TRADING OF F&O OF SHAR ES. ACCORDING TO THE ASSESSING OFFICER IN THESE TRANSACTI ONS DCIT VS. DIAMOND SECURITIES PVT. LTD. ITA NO. 284/IND/2015 & CO NO.49/IND/2015 3 ACTUAL DELIVERY OF SCRIPTS WAS NOT INVOLVED, THE ASSE SSING OFFICER HELD THAT THE LOSS CLAIMED BY THE ASSESSEE WAS SPECULATION LOSS. HE ALSO HELD THAT THE TRANSACTION OF THE ASSESSEE WAS NOT AN ELIGIBLE TRANSACTION UNDER CLAUSE (D) SECTION 43(5) OF THE ACT AND, THEREFORE, CANNOT BE TR EATED AS NORMAL BUSINESS LOSS AND DISALLOWED THE SAME. 3. ON APPEAL BEFORE THE LEARNED CIT(A), THE ASSESSEE ARGUED THAT THE ASSESSEE INCURRED NET LOSS FROM TRANSACT ION OF F&O IN SHARES AT RS.96,50,334/- AS MAY BE SEEN FRO M THE AUDITED PROFIT AND LOSS ACCOUNT. THE ASSESSEE CLAIM ED THAT THE SAID LOSS WAS FULLY SUPPORTED BY THE CONTRACT NOTES. ALL THE CONTRACT NOTES WERE PRODUCED BEFORE T HE ASSESSING OFFICER FOR VERIFICATION. IT WAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT ALL THE TRANSACTIONS WERE CAR RIED OUT ELECTRONICALLY ON SCREEN BASED SYSTEM OF EXCHANGE IN WHICH TIME STAMPED CONTRACT NOTES WERE GENERATED WITH OUT FAIL AS A MANDATE BY LAW. IT WAS ALSO CONTENDED THAT IT IS DCIT VS. DIAMOND SECURITIES PVT. LTD. ITA NO. 284/IND/2015 & CO NO.49/IND/2015 4 NOT POSSIBLE TO TRADE ELECTRONICALLY ON SCREEN BASED S YSTEM WITHOUT GENERATING A CONTRACT NOTE. IT WAS ALSO SUBMIT TED THAT THE ASSESSEE PRODUCED THE CONTRACT NOTES IN CONNECTION WITH F&O TRANSACTIONS. AS A SPECIMEN THE ASSESSEE ALSO FURNISHED COPIES OF A FEW CONTRACT NOTES ALONG WITH WRITTEN SUBMISSIONS. IT WAS SUBMITTED THAT ALL TH ESE TRANSACTIONS RELATED TO TRADING IN DERIVATIVES AND WERE ELIGIBLE TRANSACTION WITHIN THE MEANING OF SECTION 43( 5)(D) THE ACT AND, THEREFORE, THE LOSS WAS NOT A SPECULATION LOSS. IT WAS, THEREFORE, ARGUED THAT THE SAID LOSS WAS A BUSINE SS LOSS AND, THEREFORE, ELIGIBLE FOR SET OFF AGAINST THE BUSINESS INCOME OF THE ASSESSEE. 4. THE LEARNED CIT(A) OBSERVED THAT IT WAS NOT CLEARLY MENTIONED IN THE ASSESSMENT ORDER WHETHER THE ASSESSE E PRODUCED ALL THE CONTRACT NOTES BEFORE THE ASSESSING OFFICER WHEREAS THE ASSESSEE CONTENDED THAT ALL THE CONTRACT NOT ES WERE PRODUCED BEFORE THE ASSESSING OFFICER. THEREFO RE, THE DCIT VS. DIAMOND SECURITIES PVT. LTD. ITA NO. 284/IND/2015 & CO NO.49/IND/2015 5 COPY OF WRITTEN SUBMISSIONS ALONG WITH SAMPLE COPY OF CONTRACT NOTES WERE FORWARDED TO THE ASSESSING OFFICE R WITH THE REQUEST TO VERIFY THE SAME AND SUBMIT REMAND REPORT AS TO WHETHER THE ASSESSEE FULFILS THE CONDITION LAID DO WN UNDER CLAUSE (D) TO SECTION 43(5) OF THE ACT AND SUBM IT A REPORT REGARDING THE MERIT OF DISALLOWANCE MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER BY TREATING THE LOSS OF RS.96,50,334/- AS SPECULATION LOSS. 5. THE REMAND REPORT FURNISHED BY THE ASSESSING OFFI CER VIDE FILE NO. DCIT-1(1)/BHOPAL/REMAND REPORT/14-15 DT.23.2.2015 THROUGH THE ADDL. CIT, RANGE-1, BHOPAL I S AS UNDER :- 3. IN THIS REGARD, THE CASE RECORD HAS BEEN VERI FIED AND IT IS FOUND FROM THE SUBMISSIONS OF THE ASSESSE E PLACED IN ASSESSMENT FOLDER THAT DURING THE COURSE OF REASSESSMENT PROCEEDINGS ITSELF THE ASSESSEE HAD ALREADY PRODUCED CONTRACT NOTES FOR VERIFICATION BE FORE THE ASSESSING OFFICER. IT IS ALSO MENTIONED IN THE PARA 3 OF THE ASSESSMENT ORDER THAT DETAILS ASKED AS PER QUESTIONNAIRE AND ORDER SHEET WERE FURNISHED AND DCIT VS. DIAMOND SECURITIES PVT. LTD. ITA NO. 284/IND/2015 & CO NO.49/IND/2015 6 CONSIDERED ALONG WITH THE AUDITED BOOKS OF ACCOUNTS , BILLS, VOUCHERS, CONTRACT NOTES ETC. IN VIEW OF THE ABOVE, IT IS CLEAR THAT NO ADDITIONA L EVIDENCE HAS BEEN FURNISHED BY THE ASSESSEE DURING THE APPELLATE PROCEEDINGS. THE THEN ASSESSING OFFICER H AS PASSED THE REASSESSMENT ORDER AFTER TAKING INTO CONSIDERATION THE CONTRACT NOTES ALSO AS MENTIONED IN THE REASSESSMENT ORDER. THUS, IT IS HUMBLY SUBMITTE D THAT IN THE APPELLATE PROCEEDINGS, DECISION MAY BE TAKEN ON MERITS OF THE CASE. IN REJOINDER THE ASSESSEE SUBMITTED THAT THE ASSESSI NG OFFICER ADMITTED IN THE REMAND REPORT THAT THE CONTRAC T NOTES WERE FURNISHED BY THE ASSESSEE BEFORE THE ASSE SSING OFFICER AND, THEREFORE, SUCH CONTRACT NOTES WERE NOT ADDITIONAL EVIDENCE. IT WAS CONTENDED THAT THE TRANSACTI ON OF THE ASSESSEE WAS ELIGIBLE TRANSACTION. IT WAS, THEREF ORE, PRAYED THAT THE AMOUNT OF RS.96,50,334/- IN THE TRADIN G OF DERIVATIVES (F&O) OF SHARES MAY BE TREATED AS BUSINESS LOSS AND ADDITION MADE BY THE ASSESSING OFFICER TREATING THE SAME AS SPECULATION LOSS MAY BE DELETED. DCIT VS. DIAMOND SECURITIES PVT. LTD. ITA NO. 284/IND/2015 & CO NO.49/IND/2015 7 6. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AS WELL AS THE REMAND REPOR T HELD AS UNDER :- 3.7 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT, REMAND REPORT OF THE A.O., REJOINDER OF THE APPELLANT AND FACTS OF THE CASE. THE ISSUE INVOLVED IS WHETHER THE LOSS OF RS.96,50,334/- INCURRED BY THE APPELLANT IN THE TRADING OF DERIVATIVES (F&O) IN SHARES WAS A BUSINESS LOSS OR SPECULATION LOSS. AS PER THE APPELLANT, THE TRANSACTIONS UNDERTAKEN BY THE APPELLANT RELATING T O TRADING OF DERIVATIVES (F&O) IN SHARES WERE ELIGIB LE TRANSACTIONS IN VIEW OF CLAUDE (D) OF THE PROVISO TO SECTION 43(5) OF THE ACT AND, THEREFORE, THE LOSS S O INCURRED SHALL NOT BE DEEMED TO A SPECULATION LOSS, WHEREAS THE A.O. HELD THAT THE APPELLANT DID NOT FULFILL THE CONDITIONS LAID DOWN IN CLAUDE (I)(A) & (B) AS MENTIONED IN DEFINITION OF ELIGIBLE TRANSACTION IN EXPLANATION BELOW SECTION 43(5) OF THE ACT. THE PROVISIONS OF SECTION 43(5) OF THE ACT READ AS UNDE R: - 43 IN SECTIONS 28 TO 41 AND IN THIS SECTION, UNLE SS THE CONTEXT OTHERWISE REQUIRES- (1) . (2) . (3) . (4) . 5) 'SPECULATIVE TRANSACTION' MEANS A TRANSACTION I N WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY DCIT VS. DIAMOND SECURITIES PVT. LTD. ITA NO. 284/IND/2015 & CO NO.49/IND/2015 8 COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN B Y THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS: PROVIDED THAT FOR THE PURPOSES OF THIS CLAUSE (A) A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCHANDISE ENTERED INTO BY A PERSON IN THE COURSE OF HIS MANUFACTURING OR MERCHANTING BUSINESS TO GUARD AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATION S IN RESPECT OF HIS CONTRACTS FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY HIM OR MERCHANDISE SOLD BY HIM; OR (B) A CONTRACT IN RESPECT OF STOCKS AND SHARES ENT ERED INTO BY A DEALER OR INVESTOR THEREIN TO GUARD AGAIN ST LOSS IN HIS HOLDINGS OF STOCKS AND SHARES THROUGH PRICE FLUCTUATIONS; OR (C) A CONTRACT ENTERED INTO BY A MEMBER OF A FORWA RD MARKET OR A STOCK EXCHANGE IN THE COURSE OF ANY TRANSACTION IN THE NATURE OF JOBBING OR ARBITRAGE T O GUARD AGAINST LOSS WHICH MAY ARISE IN THE ORDINARY COURSE OF HIS BUSINESS AS SUCH MEMBER; OR (D) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING I N DERIVATIVES REFERRED TO IN CLAUSE(AC) OF SECTION 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) CARRIED OUT IN A RECOGNISED STOCK EXCHANGE ; OR (E) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING I N COMMODITY DERIVATIVES CARRIED OUT IN A RECOGNISED ASSOCIATION SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION . EXPLANATION 1.FOR THE PURPOSES OF CLAUSE (D), THE EXPRESSIONS DCIT VS. DIAMOND SECURITIES PVT. LTD. ITA NO. 284/IND/2015 & CO NO.49/IND/2015 9 (I) 'ELIGIBLE TRANSACTION' MEANS ANY TRANSACTION, (A) CARRIED OUT ELECTRONICALLY ON SCREEN-BASED SYST EMS THROUGH A STOCK BROKER OR SUB-BROKER OR SUCH OTHER INTERMEDIARY REGISTERED UNDER SECTION 12 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (15 OF 1992) IN ACCORDANCE WITH THE PROVISIONS OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) OR THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (15 OF 1992) OR THE DEPOSITORIES AC T, 1996 (22 OF 1996) AND THE RULES, REGULATIONS OR BYE - LAWS MADE OR DIRECTIONS ISSUED UNDER THOSE ACTS OR BY BANKS OR MUTUAL FUNDS ON A RECOGNISED STOCK EXCHANGE; AND (B) WHICH IS SUPPORTED BY A TIME STAMPED CONTRACT N OTE ISSUED BY SUCH STOCK BROKER OR SUB-BROKER OR SUCH OTHER INTERMEDIARY TO EVERY CLIENT INDICATING IN TH E CONTRACT NOTE THE UNIQUE CLIENT IDENTITY NUMBER ALLOTTED UNDER ANY ACT REFERRED TO IN SUB-CLAUSE (A ) AND PERMANENT ACCOUNT NUMBER ALLOTTED UNDER THIS ACT; FROM THE ABOVE PROVISIONS, IT IS CLEAR THAT NORMAL SPECULATION TRANSACTION MEANS WHERE PURCHASE AND SALE OF ANY STOCK AND SHARES IS SETTLED OTHERWISE THAN BY ACTUAL DELIVERY OF THE SCRIPS. HOWEVER, PROVISO TO SECTION 43(5) OF THE ACT PROVIDES CERTAI N EXCEPTIONS. CLAUSE (D) OF THE PROVISO PROVIDES THAT AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIVATIVES CARRIED OUT IN A RECOGNIZED STOCK EXCHANGE SHALL NOT BE DEEMED TO BE A SPECULATION TRANSACTION. IN CLAUSE (I) OF EXPLANATION BELOW SECTION 43(5) OF THE ACT, THE DEFINITION OF ELIGIB LE TRANSACTION HAS BEEN GIVEN. IN VIEW OF THESE PROVISIONS, A TRANSACTION IN TRADING OF DERIVATIVES DCIT VS. DIAMOND SECURITIES PVT. LTD. ITA NO. 284/IND/2015 & CO NO.49/IND/2015 10 SHALL NOT BE DEEMED TO BE A SPECULATION TRANSACTION IF IT FULFILS THE FOLLOWING CONDITIONS: - (I) THE TRANSACTION IS CARRIED OUT ELECTRONICALLY ON SCREEN-BASED SYSTEM THROUGH A STOCK BROKER OR SUB- BROKER;. (II) THE TRANSACTION IS SUPPORTED BY A TIME STAMPED CONTRACT NOTE ISSUED BY SUCH STOCK BROKER; AND (III) IN CONTRACT NOTE, THE UNIQUE CLIENT IDENTITY NO. ALLOTTED AND PAN OF THE CLIENT IS CLEARLY INDICATED . IT MAY BE NOTED THAT THE APPELLANT HAD PRODUCED ALL THE CONTRACT NOTES BEFORE THE ASSESSING OFFICER DURING ASSESSMENT PROCEEDINGS SHOWING THAT ALL THE TRANSACTIONS WERE UNDERTAKEN THROUGH STOCK BROKER, M/S ARIHANT CAPITAL MARKET LTD. NOW, IN ORDER TO EXAMINE WHETHER THE TRANSACTIONS UNDERTAKEN BY THE APPELLANT IN RESPECT OF TRADING IN DERIVATIVES, I.E. F&O OF SHARES, WERE ELIGIBLE TRANSACTIONS, IT WOU LD BE FRUITFUL TO REPRODUCE A SCANNED COPY OF CONTRACT NOTE ISSUED BY THE BROKER, M/S ARIHANT CAPITAL MARKET LTD., THROUGH WHOM THE APPELLANT HAD UNDERTAKEN THESE TRANSACTIONS, AS UNDER: - IT MAY BE NOTED THAT ALL THE CONTRACT NOTES ARE IDENTICAL. ON PERUSAL OF THESE CONTRACT NOTES, IT I S EVIDENTLY CLEAR THAT THE APPELLANT HAD FULFILLED AL L THE CONDITIONS THAT THE TRANSACTIONS FOR TRADING IN DERIVATIVES (F&O) IN SHARES WERE CARRIED OUT ELECTRONICALLY ON SCREEN-BASED SYSTEM, THROUGH A STOCK BROKER, IN NATIONAL STOCK EXCHANGE OF INDIA LTD., MUMBAI. THE CONTRACT NOTE CLEARLY MENTIONS THE ORDER NO., TRADE NO., TRADE TIME, PARTICULARS O F SECURITY AND, THUS, THE TRANSACTIONS WERE SUPPORTED BY TIME STAMPED CONTRACT NOTES ISSUED BY THE STOCK DCIT VS. DIAMOND SECURITIES PVT. LTD. ITA NO. 284/IND/2015 & CO NO.49/IND/2015 11 BROKER. THE CONTRACT NOTES ALSO CONTAIN THE UNIQUE CLIENT IDENTITY NO. AND PAN OF THE APPELLANT. IN AL L THE CONTRACT NOTES, PAN OF THE APPELLANT IS MENTIONED AS AADFD8215F. THUS, THE APPELLANT FULFILLED ALL THE CONDITIONS AS LAID DOWN IN CLAUSE (D) OF THE PROVISO TO SECTION 43(5) AND, THEREFORE, THE TRANSACTIONS UNDERTAKEN BY THE APPELLANT IN RESPECT OF TRADING IN DERIVATIVES WERE ELIGIBLE TRANSACTIO NS, WHICH SHALL NOT BE DEEMED TO BE SPECULATION TRANSACTIONS. HENCE, THE LOSS INCURRED BY THE APPELLANT IN THE TRANSACTIONS IN RESPECT OF TRADING IN DERIVATIVES WAS NOT A SPECULATION LOSS AS DEFINED I N SECTION 43(5) OF THE ACT AND IT WAS A BUSINESS LOSS . ACCORDINGLY, THE A.O. IS DIRECTED TO TREAT THE LOSS OF RS.96,50,334/- INCURRED IN TRADING OF DERIVATIVES (F&O) IN SHARES AS BUSINESS LOSS. THEREFORE, THE ADDITION OF RS.96,50,334/- MADE THE A.O. INTO THE RETURNED INCOME ON ACCOUNT OF TREATING THE SAME AS SPECULATION LOSS IS DELETED. HENCE, THIS GROUND IS ALLOWED. 7. BEFORE US, THE LEARNED DR SUBMITTED THAT THERE WAS A CONFUSION IN THIS CASE AS IN THE ASSESSMENT ORDER IT IS MENTIONED THAT THE ASSESSEE HAS SET OFF THE LOSS FR OM SHARES F&O OF RS.96,50,334/- AGAINST ITS BUSINESS INCO ME AND IT WAS, THEREFORE, PRESUMED THAT IT WAS BROUGHT FORWARD BUSINESS LOSS OF EARLIER YEAR AND, HENCE, NOT DCIT VS. DIAMOND SECURITIES PVT. LTD. ITA NO. 284/IND/2015 & CO NO.49/IND/2015 12 ALLOWABLE. IT WAS, THEREFORE, HELD THAT AS THE PROVISIO NS OF SECTION 45(5)(D) OF THE ACT WERE INTRODUCED W.E.F. 1.4.2006, THEREFORE, THE SAID PROVISION WAS NOT APPLICABLE TO EAR LIER ASSESSMENT YEARS. 8. IN VIEW OF THE ABOVE SUBMISSIONS OF THE LEARNED DR WHEREIN HE HAS AGREED THAT THE LOSS FROM SHARES AND FUTURES WAS COVERED BY SECTION 43(5)(D) OF THE ACT AN D WAS NOT SPECULATION LOSS AND HENCE, AN ALLOWABLE DEDUCTION AGAINST THE BUSINESS INCOME, WE FIND NO GOOD REASON TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A) WHICH IS CONFIRMED. THEREFORE, THE GROUND OF APPEAL OF THE REV ENUE IS DISMISSED. 9. IN THE CROSS OBJECTION FILED BY THE ASSESSEE, THE ASSESSEE HAS CHALLENGED THE INITIATION OF PROCEEDINGS U /S 148 OF THE ACT. IN VIEW OF OUR DECISION IN THE APPEAL OF THE REVENUE ON MERITS OF THE ISSUE, AS WE HAVE CONFIRMED THE DCIT VS. DIAMOND SECURITIES PVT. LTD. ITA NO. 284/IND/2015 & CO NO.49/IND/2015 13 ORDER OF THE LEARNED CIT(A) DELETING THE ADDITION, T HE CROSS OBJECTION HAS BECOME INFRUCTUOUS AND HENCE DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE AND CROS S OBJECTION OF THE ASSESSEE BOTH ARE DISMISSED. PRONOUNCED IN OPEN COURT ON 5 TH JULY, 2016 SD/- SD/- (D.T. GARASIA) (N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER 5 TH JULY, 2016 DN/- DCIT VS. DIAMOND SECURITIES PVT. LTD. ITA NO. 284/IND/2015 & CO NO.49/IND/2015 14