The DCIT, Central Circle-2(1), Ahmedabad V. M/s. Aaryavart Commodities Pvt. Ltd., Ahmedabad

ITA 1112/AHD/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6054 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 29-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Keywords: Speculation loss
• Section: 143(3); 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE, SHRI S. S. GODARA, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA NO. 1112/AHD/2016 (AS SESSMENT YEAR: 2008-09) THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 2(1), AHMEDABAD APPELLANT VS. M/S. AARYAVART COMMODITIES PVT. LTD., 210, CHITRARATH COMPLEX, OPP. MUNICIPAL MARKET, C. G. ROAD, AHMEDABAD RESP ONDENT PAN: AAMCS7986E /BY REVENUE : SHRI V. K. SINGH, SR. D.R. /BY ASSESSEE : SHRI ASEEM THAKKAR, A.R. /DATE OF HEARING : 12.02.2018 /DATE OF PRONOUNCEMENT : 21.02.2018 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS REVENUES APPEAL FOR ASSESSMENT YEAR 2008-09 A RISES AGAINST THE CIT(A)-3, AHMEDABADS ORDER DATED 18.02.2016, IN CA SE NO. CIT(A)-3/CIR- 1(1)/282/15-16, REVERSING ASSESSING OFFICERS FINDI NGS ADDING AN AMOUNT OF RS.5,19,46,966/- PERTAINING TO DISALLOWANCE OF LOSS INCURRED DUE TO SPECULATIVE ITA NO. 1112/AHD/16 [DCIT VS. M/S. AARYAVART COMMOD ITIES PVT. LTD. ] A.Y. 2008-09 - 2 - TRANSACTION NOT COVERED U/S.43(5)(D), IN PROCEEDING S U/S. 143(3) R.W.S. 263 OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. HEARD BOTH THE PARTIES QUA THE ABOVE SOLE ISSUE. C ASE FILE PERUSED. 2. WE NOTICE AT THE OUTSET THAT THE CIT(A)S FINDIN GS UNDER CHALLENGE ELABORATELY DISCUSSES ALL THE RELEVANT FACTS, ASSES SING OFFICERS CONCLUSION AS WELL AS ASSESSEES SUBMISSIONS DURING THE COURSE OF LOWE R APPELLATE PROCEEDINGS AS UNDER: 6. THE GROUND NO. 2 AND 3 RELATE TO THE ISSUE OF S UBSTANCE I.E. DISALLOWING THE LOSS AGAINST THE INCOME OF THE APPELLANT, SAYING THAT TH E LOSSES TO THE EXTENT OF RS.5,19,46,966/- INCURRED BY THE APPELLANT IN HEDGI NG ACTIVITIES WERE CONSIDERED AS SPECULATIVE IN NATURE AND DISALLOWED WHILE COMPUTIN G THE INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. THE ASSESSING OFFICER HAS DISCUSSED THE ISSUE IN PARA NO. 4 OF ASSESSMENT ORDER. THE GI ST OF THE ORDER IS AS UNDER: 'THE ASSESSEE HAD CHARGED THE PROFIT AND LOSS ACCOU NT WITH 'PURCHASE BY CONTRACT' OF RS. 5,19,46,966/-. THUS, THE LOSS OF R S. 5.19.46.966/- WAS ON ACCOUNTING OF HEDGING IN COMMODITIES IN MCX STOCK E XCHANGE LTD. AND NATIONAL COMMODITY & DERIVATIVE EXCHANGE LIMITED (N CDEX). THE LOSSES IN HEDGING TRANSACTIONS CARRIED OUT IN THE PREVIOUS YEAR 2007-08 RELEVANT TO A.Y. 2008-09 WAS 'SPECULATIVE TRANSACTION' AS PER T HE DEFINITION PROVIDED IN SECTION 43(5) OF THE ACT IN VIEW OF THE FACT THAT M CX STOCK EXCHANGE LTD. (MCX) WAS NOTIFIED AS THE RECOGNIZED EXCHANGE ONLY ON AND WITH EFFECT FROM 22.05.2009 AND NCDEX WAS NOT NOTIFIED AS THE R ECOGNIZED STOCK EXCHANGE. THEREFORE, SUCH TRANSACTIONS ENTERED INTO IN THE PREVIOUS YEAR 2007-08 WERE NOT COVERED BY PROVISO (D) OF SECTION 43(5) OF THE ACT TOO. THUS, THE LOSSES TO THE TUNE OF RS. 5,19,46,9667- I NCURRED BY ASSESSEE IN HEDGING ACTIVITY WERE SPECULATIVE IN NATURE AND IT WAS DISALLOWABLE IN COMPUTING THE INCOME UNDER THE HEAD 'PROFITS AND GA INS OF BUSINESS OR PROFESSION' OF THE NON-SPECULATIVE BUSINESS,' WHICH WAS NOT DISALLOWED. INCOME-TAX INVOLVED ON THE UNDERASSESSMENT OF RS.5, 19,46,966/-.' 6.1 ON THE OTHER HAND, THE APPELLANT HAS EXPLAINE D THE ISSUE IN THE SUBMISSION AND HAS RELIED ON VARIOUS JUDGMENTS. 6.2 THE PERUSAL OF THE ASSESSMENT ORDER INDICATES THAT THE AO HAS ONLY OBJECTION / THAT THE TRANSACTIONS WERE NOT CARRIED OUT IN RECOGNIZED STOCK EXCHANGE OR RECOGNITION I HAS BEEN GRANTED ON A DATE WHICH I S SUBSEQUENT TO THE YEAR UNDER APPEAL. THE FACT REMAINS THAT THE RECOGNITION TO THE EXCHANGE HAS BEEN GRANTED AT A SUBSEQUENT DATE. THE ISSUE HAS BEEN DEALT WITH BY JURISDICTIONAL ITAT IN THE CASE OF VIMAL OIL AND FOOD INDUSTRIES LTD. REPORTED IN (201 5) 67 SOT 373, (AHM ) WHEREIN IT HAS BEEN HELD. ITA NO. 1112/AHD/16 [DCIT VS. M/S. AARYAVART COMMOD ITIES PVT. LTD. ] A.Y. 2008-09 - 3 - 'IN VIEW OF THE DISCUSSION, ASSESSEE'S DERIVATIVE T RADING THROUGH MCX STOCK EXCHANGE IN ASSESSMENT YEAR 2008-09 WAS NON SPECULA TED TRANSACTION; THEREFORE, LOSS INCURRED IN SUCH TRANSACTIONS WAS T O BE TREATED AS NORMAL BUSINESS LOSS. IT IS FOUND THAT BY FINANCE ACT, 200 5 CLAUSE (D) WAS INSERTED IN PROVISO TO SUB-SECTION (5) OF SECTION 43 WITH EF FECT FROM 1-4-2006 WHICH PROVIDED THAT AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIVATIVE REFERRED TO IN CLAUSE (A) OF SUB-SECTION (2) OF SEC URITIES CONTRACT (REGULATION) ACT, 1956 CARRIED OUT IN A RECOGNIZED STOCK EXCHANGE SHALL NOT BE DEEMED TO BE SPECULATIVE TRANSACTIONS. THUS, FRO M 1-4-2006 TRADING IN DERIVATIVE CARRIED THROUGH THE RECOGNIZED STOCK EXC HANGE WAS TREATED AS NON-SPECULATIVE TRANSACTIONS. FOR THE PURPOSE OF CL AUSE (D), RULES 6DDA AND 6DDB OF IT RULES, 1962, PROVIDED THAT NOTIFICAT ION OF RECOGNIZED STOCK EXCHANGE HAS TO BE DONE BY THE CENTRAL GOVERNMENT ( CBDT). IN PURSUANCE OF THIS RULE, THE CBDT HAS NOTIFIED THE MCX STOCK E XCHANGE LTD. BY S.O. 1327(E) DATED 22-5-2009. THE ISSUE IN SUCH A NOTIFI CATION GIVEN ON 22-5- 2009, BY WHICH MCX STOCK EXCHANGE HAS BEEN RECOGNIZ ED, COULD BE HELD TO BE APPLICABLE FOR THE UNDERTAKEN IN THE ASSESSMENT YEAR 2008-09 I.E. AFTER 1ST APRIL, 2006. ONCE IN IT HAS BEEN PROVIDED THAT WITH EFFECT FROM 1-4-2006, AN ELIGIBLE TRANSACTION OUT IN A RECOGNIZED STOCK E XCHANGE WILL NOT BE TREATED AS SPECULATIVE TRANSACTION, THEN SIMPLY BEC AUSE PROCEDURAL MECHANISM HAS TAKEN A LONG TIME TO RECOGNIZE THE ST OCK EXCHANGE, IT WILL NOT LEAD TO AN INFERENCE THAT THE SAME WOULD BE APP LICABLE FROM THE DATE WHEN THE STOCK EXCHANGE HAS BEEN RECOGNIZED BY THE CENTRAL GOVT. THE NOTIFICATION ISSUED UNDER RULE 6DDB, DOES NOT EMPOW ER ANY RIGHT OR CREATE OBLIGATION BUT ONLY RECOGNIZES WHAT IS ALREADY PROV IDED IN STATUTE. THUS, THE TRANSACTIONS CARRIED OUT THROUGH MCX STOCK EXCHANGE AFTER 1-4-2006, WOULD BE ELIGIBLE FOR BEING TREATED AS NON-SPECULAT IVE DERIVATES WITHIN THE MEANING OF CLAUSE (D) OF PROVISO TO SECTION 43(5). [PARA 5] 6.3 IN VIEW OF RATIO LAID DOWN BY THE HON'BLE 1TAT, AHMEDABAD (SUPRA) AND OTHER CASE LAWS SUCH AS CIT VS. NASA FINLEASE PVT. LTD. (2013) 358 ITR 305 (DELHI) AND ARNAV AKSHAY MEHTA (2012) 53 SOT 581 (MUM.), IT IS DECIDED THAT THE LOSS IN THE TRANSACTIONS TO BE TREATED AS BUSINESS LOSS AND NOT AS SPECULATIVE LOSS. THE GROUND NO. 2 & 3 OF THE APPEAL ALLOWED. 3. LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY C ONTENDS THAT THE ASSESSING OFFICER HAD RIGHTLY MADE THE IMPUGNED ADD ITION OF RS.5,19,46,966/- IN VIEW OF THE FACT THAT THE ASSESSEES CASE IN SEEKIN G TO ADJUST ITS LOSSES IN HEDGING TRANSACTIONS WAS RIGHTLY HELD TO BE NOT ALLOWABLE B EING ARISING OUT OF SPECULATIVE TRANSACTIONS AS DEFINED U/S.43(5) OF THE ACT. HE H IGHLIGHTS THE FACT THAT THE STOCK EXCHANGE IN QUESTION STOOD NOTIFIED AS A RECOGNIZED EXCHANGE ONLY W.E.F. 25.02.2009 WHEREAS WE ARE DEALING WITH ASSESSMENT Y EAR 2008-09. WE FIND THE ABOVE CO-ORDINATE BENCHS DECISION IN CASE OF VIMAL OIL AND FOOD INDUSTRIES LTD. (SUPRA) HAS ALREADY HELD THAT SUCH A RECOGNITION OF STOCK EXCHANGE WITH PROSPECTIVE ITA NO. 1112/AHD/16 [DCIT VS. M/S. AARYAVART COMMOD ITIES PVT. LTD. ] A.Y. 2008-09 - 4 - EFFECTS WOULD ALSO COVER THE IMPUGNED ASSESSMENT YE AR FOR THE PURPOSE OF EXIGIBILITY OF SECTION 43(5)(D) OF THE ACT. LEARNE D DEPARTMENTAL REPRESENTATIVE FAILS TO PINPOINT ANY DISTINCTION ON FACTS OR LAW. WE THEREFORE AFFIRM CIT(A)S FINDINGS UNDER CHALLENGE. 4. THIS REVENUES APPEAL IS DISMISSED. [PRONOUNCED IN THE OPEN COURT ON THIS T HE 21 ST DAY OF FEBRUARY, 2018.] SD/- SD/- ( AMARJIT SINGH ) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 21/02/2018 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )*+ ,--. . /0 / DR, ITAT, AHMEDABAD 1 +23 / GUARD FILE. BY ORDER / . // . /0