Appeal details
Counselvise Citation
[2017] 128 COUNSELVISE.COM (IT) 8165 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 1 month(s) 3 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
16-03-2017
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
H
Next Hearing Date
20-12-2016
Assessment Year
2011-2012
Appeal Filed On
13-02-2015
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 1012/MUM/2015 ASSESSMENT YEAR: 2011-12 M/S. HEETU CHEMICALS & ALKALIES LTD., VS. DCIT 5(1) E-8 COMMERCE CENTRE, TARDEO RD. MUMBAI TARDEO, MUMBAI 400 034 PAN NO. AAACH1535Q (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MIHIR NANIVADEKAR, AR REVENUE BY: SHRI C.S. SHARMA, DR DATE OF HEARING : 20/1 2/2016 DATE OF PRONOUNCEMENT: 16/03/2017 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2011-12. THE APPEAL IS DIRECTED AGAINST THE ORDER COMMISSIONER (APPEALS) 10, MUMBAI AND ARISES OUT OF ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER:- I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LEARNED CIT(A)-28 ERRED IN CONFIRMING THE DISALLOWANCES OF R S. 14,65,325/- BY TREATING LOSS ON TRADING IN DERIVATIVES AS SPECULATIO N BUSINESS UNDER EXPLANATION TO SECTION 73(4). II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LEARNED CIT(A)-28 ERRED IN NOT APPRECIATING THE FACT THAT PR OVISIONS OF EXPLANATION TO SECTION 73(4) ARE ONLY APPLICABLE TO SHARES AND NOT APPLICABLE IN CASE OF TRADING IN DERIVATIVES. ITA NO. 1012/MUM/2015 2 3. IN A NUTSHELL, THE FACTS ARE THAT THE ASSESSEE, M/S HEETU CHEMICALS & ALKALIES LTD. (HCAL) DEBITED RS. 14,65, 325/- IN ITS P&L ACCOUNT ON ACCOUNT OF LOSS ON SALE OF INVESTMENTS / DERIVATIVES. IN RESPONSE TO A QUERY RAISED BY THE ASSESSING OFFICER (AO), HCAL SUBMITTED THAT SUCH LOSS WAS FULLY ALLOWABLE AS BUS INESS LOSS AS ALL THE TRANSACTIONS WERE CARRIED OUT BY THE ASSESSEE-COMPA NY ON RECOGNISED STOCK EXCHANGE AND SUCH TRANSACTIONS HAD ALSO SUFFERED SECURITY TRANSACTION TAX (STT). IT WAS ALSO SUBMITT ED BEFORE THE AO THAT ON SIMILAR FACTS, HCAL HAD EARNED SPECULATIVE PROFIT IN F.Y. 2009- 10 OF RS. 35,307/- AND THE SAME WAS OFFERED TO TAX. CONVERSELY, DURING THE YEAR UNDER CONSIDERATION, HCAL HAS INCUR RED LOSS AND THE SAME SHOULD BE ALLOWED AS DEDUCTION. REFERRING TO S ECTION 43(5) OF THE ACT, IT WAS SUBMITTED BEFORE THE AO THAT DERIV ATIVES ARE DIFFERENT FROM SHARES AND THEREFORE EXPLANATION TO SECTION 73 WHICH COVERS ONLY SHARES AND NOT DERIVATIVES IS NOT APPLICABLE T O THE ASSESSEE. 3.1 THE AO WAS NOT CONVINCED WITH THE ABOVE EXPLANA TION OF HCAL, AS THE ASSESSEE WAS IN THE BUSINESS OF RESELLING OF VARIOUS CHEMICALS MANUFACTURED IN ITS PLANT. THEREFORE, TRADING IN DE RIVATIVES WAS NOT THE BUSINESS ACTIVITY OF HCAL. THE AO HELD THAT BY VIRTUE OF SECTION 43(5) R.W.S 73 OF THE ACT, LOSS ON ACCOUNT OF TRADI NG IN DERIVATIVE IN SHARES AND SECURITIES CANNOT BE SET OFF AGAINST THE NORMAL BUSINESS INCOME AS THE SAME IS A SPECULATIVE LOSS. RELIANCE WAS PLACED BY THE AO ON THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN CIT VS. DLF COMMERCIAL DEVELOPERS LTD. [2013] 35 TAXMANN.COM 280(DEL). CONSIDERING THE ABOVE THE AO DISALLOWED THE CLAIM O F LOSS OF RS. 14,65,325/- INCURRED ON ACCOUNT OF TRADING IN DERIV ATIVE IN SHARES AND SECURITIES. ITA NO. 1012/MUM/2015 3 4. THE ASSESSEE PREFERRED AN APPEAL AGAINST THE ORD ER OF THE AO BEFORE THE LEARNED CIT(A). WE FIND THAT THE LEARNED CIT(A) FOLLOWED THE DECISION IN DLF COMMERCIAL DEVELOPERS LTD. (SUPRA) AND CONFIRMED THE DISALLOWANCE MADE BY THE A.O. 5. BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE RELIES ON THE DECISION IN THE CASE OF CIT VS. BHARAT R. RUIA (HUF) (2011) 337 ITR 452 (BOM). ON THE OTHER HAND, THE LEARNED DR RELIES ON THE DECISION IN DLF COMMERCIAL DEVELOPERS LTD . (SUPRA). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE BEGIN WITH THE DECISIONS REL IED ON BY THE LEARNED COUNSEL OF THE ASSESSEE. IN BHARAT R. RUIA (HUF) (SUPRA) , IN THE A.Y. 2003-04, THE ASSESSEE HAD ENTERED INTO DER IVATIVE TRANSACTIONS WHICH RESULTED IN LOSS AMOUNTING TO RS . 28,37,707/-. THE ASSESSEE CLAIMED THE ABOVE LOSS AS BUSINESS LOSS. T HE AO REJECTED THE CONTENTION OF THE ASSESSEE AND HELD THAT THE LOSS I NCURRED WAS SPECULATIVE LOSS U/S 43(5) OF THE ACT. THE LEARNED CIT(A) AGREED WITH THE ORDER OF THE AO. ON FURTHER APPEAL FILED BY THE ASSESSEE, THE ITAT HELD THAT CLAUSE (D) TO THE PROVISO TO SECTION 43(5 ) OF THE ACT BEING RETROSPECTIVE IN NATURE, THE LOSSES INCURRED FROM T HE DERIVATIVE TRANSACTIONS COULD NOT BE TREATED AS SPECULATIVE LO SSES INCURRED BY THE ASSESSEE IN THE A.Y. 2003-04. ON APPEAL FILED B Y THE REVENUE, THE HON'BLE HIGH COURT HELD: IN THE RESULT, WE HOLD THAT THE EXCHANGE TRADED DER IVATIVE TRANSACTIONS CARRIED ON BY THE ASSESSEE DURING THE ASSESSMENT YEAR 2003-04 ARE SPECULATIVE TRANSACTIONS COVERED UNDER SECTION 43(5) OF THE ACT AND THE LOSS INCURRED IN THOSE TRANSACTIONS ARE LIABLE TO THE TRE ATED AS SPECULATIVE LOSS AND NOT BUSINESS LOSS. WE FURTHER HOLD THAT CLAUSES (D) I NSERTED TO THE PROVISO TO SECTION 43(5) WITH EFFECT FROM APRIL 1, 2006, IS PR OSPECTIVE IN NATURE AND THE ITA NO. 1012/MUM/2015 4 INCOME-TAX APPELLATE TRIBUNAL WAS IN ERROR IN HOLDIN G THAT CLAUSES (D) TO THE PROVISO TO SECTION 43(5) APPLIED RETROSPECTIVELY SO AS TO APPLY TO THE TRANSACTIONS CARRIED ON BY THE ASSESSEE DURING THE AS SESSMENT YEAR 2003-04. 6.1 THE DECISION IN BHARAT R. RUIA (HUF) IS IN FAVOUR O F THE REVENUE. 6.2 NOW WE TURN TO THE DECISION IN THE CASE OF DLF COMMERCIAL DEVELOPERS LTD. (SUPRA) . IN THAT CASE THE ASSESSEE CLAIMED LOSS OF RS. 492.71 LAKHS ON ACCOUNT OF PURCHASE AND SALE OF SHA RES. THE ASSESSEE ARGUED THAT THE LOSS IN TRADING OF DERIVATIVES WAS NOT A SPECULATIVE LOSS IN TERMS OF SECTION 43(5) OF THE ACT AND COULD NOT BE DISALLOWED AS SPECULATIVE LOSS UNDER ANY PROVISIONS OF THE ACT . THE AO REJECTED THAT SUBMISSION AND HELD THAT SECTION 73 APPLIED SI NCE IT WAS INDEPENDENT OF SECTION 43(5). EXPLANATION TO SECTION 73 CAN BE APPLIED EVEN IF THERE IS DELIVERY BASED SALE PURCHA SE OF SHARES AND ALSO IN SITUATIONS OF TRADING OF DERIVATIVES. THE A O HELD THAT LOSS OF RS. 492.71 LAKHS HAD TO BE TREATED AS SPECULATIVE LOSS AND COULD NOT BE ALLOWED TO BE ADJUSTED AGAINST BUSINESS INCOME. THE CIT(A) REJECTED THE ASSESSEES CONTENTION. IN FURTHER APPEAL, THE I TAT ACCEPTED THE CONTENTION THAT EXPLANATION TO SECTION 73 APPLIED AND GRANTED THE RELIEF CLAIMED. IN FURTHER APPEAL, THE HON'BLE HIGH COURT HELD THAT (I) DEFINITION OF SPECULATIVE TRANSACTION AS INDICATE D IN SECTION 43(5) IS RESTRICTED IN ITS APPLICATION TO WORKING OUT MANDAT E OF SECTIONS 28 TO 41 ONLY, (II) IN TERMS OF EXPLANATION TO SECTION 73, IN CASE OF CERTAIN TYPES OR CLASSES OF COMPANIES, BUSINESS OF PURCHASE AND SALE OF SHARES IS DEEMED TO BE SPECULATION BUSINESS, AND (III) WHE RE BY ALL ACCOUNTS DERIVATIVES WERE BASED ON STOCKS AND SHARES, WHICH FALL SQUARELY WITHIN EXPLANATION TO SECTION 73, LOSS FROM SALE PURCHASE OF SUCH DERIVATIVE WOULD BE SPECULATIVE LOSS, WHICH WOULD N OT BE PERMITTED TO BE CARRIED FORWARD. ITA NO. 1012/MUM/2015 5 6.3 IN THE COMPUTATION OF INCOME OF THE YEAR OF ASS ESSMENT U/S 28 OF THE ACT, THE ASSESSEE IS NOT ENTITLED TO SET OFF SPECULATIVE LOSSES AGAINST PROFITS FROM OTHER BUSINESS ACTIVITIES OF T HE SAME YEAR. THIS WAS SO HELD BY THE HON'BLE SUPREME COURT IN CIT VS. GAURI DUTTA BHAGWAN DASS AND CO. (1969) 71 ITR 296 (SC); CIT VS. KANODIA & CO. (JP) (1970) 77 ITR 515 (SC); CIT VS. GUPTA BROS. (P) LTD. (1972) 83 ITR 443 (SC). THUS U/S 73, LOSSES IN SPECULATION BUSINESS CANNOT BE SET OFF AGAINST ANY INCOME UNDER THE HEAD BUSINESS OR PROF ESSION NOR U/S 71 AGAINST INCOME UNDER ANY OTHER HEAD, BUT IT CAN BE SET OFF ONLY AGAINST PROFITS, IF ANY, OF ANOTHER SPECULATION BUS INESS. 6.4 HCAL IS A COMPANY. AS PER EXPLANATION TO SECTION 73, WHERE ANY PART OF THE BUSINESS OF A COMPANY ( WHETHER PRIVATE OR PUBLIC ) CONSISTS OF THE PURCHASE AND SALE OF SHARES OF OTHE R COMPANIES, SUCH COMPANY SHALL BE DEEMED TO BE CARRYING ON A SPECULA TION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PU RCHASE AND SALE OF SUCH SHARES. THE ASSESSEE IN THE PRESENT CASE DOES NOT FALL IN THE EXCEPTION MENTIONED IN EXPLANATION TO SECTION 73. 6.5 TO SUM UP, RESPECTFULLY FOLLOWING THE RATIO LA ID DOWN IN DLF COMMERCIAL DEVELOPERS LTD. (SUPRA), WE HOLD THAT THE ASSESSEE CANNOT SET OFF THE LOSS OF RS. 14,65,325/- BECAUSE AS PER EXPLANATION TO SECTION 73 IF THE PART OF THE BUSINESS OF THE COMPA NY CONSISTS OF SALE AND PURCHASE OF SHARES OF OTHER COMPANIES SUCH BUSI NESS OF SHARES SHALL BE DEEMED TO BE A SPECULATIVE BUSINESS. AS SU CH, THE LOSS OF RS. 14,65,325/- IS A LOSS FROM SPECULATION BUSINESS AND IT CAN BE SET OFF ITA NO. 1012/MUM/2015 6 ONLY FROM THE INCOME OF SPECULATION BUSINESS AND NO T FROM ANY OTHER BUSINESS. 7. IN VIEW OF THE REASONS DELINEATED AT PARA 6 TO 6 .5 HERE-IN-ABOVE, THE ORDER OF THE LEARNED CIT(A) ON THE ABOVE ISSUE IS CONFIRMED. 8. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16/03/2017 SD/- SD/- (MAHAVIR SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBE R MUMBAI; DATED: 16/03/2017 BISWAJIT, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI
