Shri Jaswantrai D.Shah(Ind), Bhavnagar V. The Income tax Officer,Ward-1(4), Bhavnagar

ITA 1265/AHD/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9366 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 13-08-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 20-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEETA SHAH
• Assessee Lawyers: M K PATEL
• Keywords: Transactions in derivatives; Speculation loss
• Section: 43(5); 143(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL: AHMEDABAD BEN CHES C BENCH: AHMEDABAD (BEFORE S/SHRI R.V. EASWAR, VP AND A N PAHUJA, AM) ITA NO. 1265/AHD/2009 A Y: 2005-06 SHRI JASWANTRAI D. SHAH PLOT NO.940/B, KRISHNANAGAR, BEHIND GITA CHOWK ROAD, BHAVNAGAR 364 001 [PAN: ABOPS 5431 Q] VS THE INCOME TAX OFFICER, WARD- 1(4), NAKUBAG, BHAVNAGAR 364 001 APPELLANT RESPONDENT ASSESSEE BY SHRI M. K. PATEL, AR REVENUE BY SMT. NEETA SHAH, DR ORDER A N PAHUJA: THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DAT ED 17-12-2008 OF THE LEARNED CIT(A)-XX, AHMEDABAD ,RAI SES THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED GRAVELY IN LAW IN CONFIRMING THE TREA TMENT (BY THE LD. AO) OF THE LOSS OF RS.5,20,150/- INCURRED B Y THE APPELLANT IN DERIVATIVE TRANSACTIONS IN SHARES AS S PECULATION LOSS AS COVERED BY THE PROVISIONS OF S. 43(5) OF TH E ACT. 2. THE OBSERVATIONS OF THE LD . CIT(A) ADVERSE TO THE APPELLANT IN REGARD TO THE LOSS OF RS.5,20,150/- ARE UNWARRAN TED OF FACTS AND UNTENABLE IN LAW. 3. THE LD. CIT(A) ERRED GRAVELY IN LAW IN MERE REFE RRING TO BUT NOT CONSIDERING/DISCUSSING AT ALL THE CASE LAW OF B INDING NATURE RELIED UPON BY THE APPELLANT AND IN NOT PASS ING ANY SPEAKING ORDER THEREON. 4. ON A JUDICIOUS APPRECIATION OF THE RELEVANT FACT UAL AND LEGAL ASPECTS OF THE CASE, THE LD. CIT(A) OUGHT TO HAVE A LLOWED AND UPHELD THE LOSS OF RS.5,20,150/- AS REGULAR BUS INESS LOSS ADMISSIBLE TO THE APPELLANT. ADDITIONAL GROUND : ITA NO.1265/AHD/2009 JASWANTRAI D. SHAH 2 5. THE APPELLANT CRAVES LEAVE AND RESERVES RIGHT TO ADD TO, VARY AND/OR MODIFY THE ABOVE GROUNDS OF APPEAL. 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING LOSS OF RS. 3,43,379/- FILED ON 31-10-2005 BY THE ASSESSEE, CAR RYING ON THE BUSINESS OF TRANSACTIONS IN SHARES AND DERIVATIVES BESIDES MON EY LENDING, AFTER BEING PROCESSED U/S. 143(1) OF THE INCOME-TAX ACT, 1961 ( HEREINAFTER REFERRED TO AS THE ACT) WAS SELECTED FOR SCRUTINY WITH THE ISSUE OF NO TICE U/S 143(2) OF THE ACT ON 26- 10-2006. DURING THE COURSE OF ASSESSMENT PROCEEDING S, THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE HAD DECLARED LOSS OF RS.4,45,814/- IN DERIVATIVE TRANSACTIONS. TO A QUERY BY THE AO, T HE ASSESSEE FURNISHED A COPY OF LEDGER ACCOUNT IN RESPECT OF F&O TRADING (PURCHA SE AND SALES) BESIDES COPY OF NOTIFIED STOCK EXCHANGES RECOGNIZED UNDER CLAUSE (I I) IN EXPLANATION TO CLAUSE (D) OF PROVISO TO SECTION 43(5) OF THE ACT. ON PERUSA L OF THESE DOCUMENTS, THE AO WAS OF THE OPINION THAT LOSS OF RS.4,45,814/- WAS S PECULATIVE IN NATURE AND CANNOT BE ADJUSTED AGAINST ASSESSEES OTHER INCOME SINCE THE RELEVANT NOTIFICATION SO 89(E) WAS ISSUED ONLY ON 25.1.2006. IN RESPONSE TO A SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED VIDE LETTER DATED 11 -10-2007 A REVISED COMPUTATION OF INCOME WHEREIN LOSS OF SPECULATION B USINESS WAS CARRIED FORWARD TO THE NEXT YEAR. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE AO TREATED LOSS OF RS.4,45,814/- IN DERIVATIVE TRANSAC TIONS AS SPECULATIVE LOSS AND ACCORDINGLY, DETERMINED TOTAL SPECULATIVE LOSS OF R S.5,20,150/- 3. ON APPEAL, THE ASSESSEE WHILE RELYING UPON THE DECISIONS OF THE TRIBUNAL IN THE CASE OF R. B. K. SECURITIES (P) LTD. VS. ITO , 118 TTJ 465 (BOM) AND DCIT VS. SSKI INVESTORS SERVICES (P) LTD. 113 TTJ 511 (B OM) CONTENDED THAT THE LOSS IN DERIVATIVES IS REGULAR BUSINESS LOSS INCURRED DU RING THE COURSE OF BUSINESS THROUGH THE NETWORK SYSTEM OF NATIONAL BOURSES AND WAS NOT SPECULATIVE LOSS WITHIN THE MEANING OF PROVISIONS OF SECTION 43(5) O F THE ACT. IN THE LIGHT OF THESE SUBMISSIONS, THE LEARNED CIT(A) UPHELD THE FINDINGS OF THE AO IN FOLLOWING TERMS: ITA NO.1265/AHD/2009 JASWANTRAI D. SHAH 3 I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE LEARNED COUNSEL FOR THE APPELLANT AND HAVE ALSO GONE THROUGH THE AS SESSMENT ORDER. THE CASE-LAWS RELIED UPON BY THE LEARNED COU NSEL FOR THE APPELLANT HAVE ALSO BEEN CAREFULLY CONSIDERED. IT I S SEEN THAT AS AGAINST THE FINDINGS OF THE AO, THE APPELLANT FAILE D TO ESTABLISH AS TO HOW THE CONDITIONS LAID DOWN IN SECTION 43(5) ARE F ULFILLED SO AS TO TREAT THE TRANSACTIONS IN DERIVATIVES OTHER THAN SP ECULATIVE BUSINESS. THE TRANSACTIONS IN DERIVATIVES PERTAIN T O FINANCIAL YEAR 2004-05 AND THE PROVISIONS LAID DOWN IN SECTION 43( 5) HAVE BEEN BROUGHT IN BY THE FINANCE ACT, 2005 WITH EFFECT FRO M 1 ST APRIL, 2006 AS AGAINST THE CONTENTION IN THIS REGARD RAISED BY THE AO HAS NOT BEEN REBUTTED BY THE APPELLANT. ALSO, IT HAS NOT BE EN CLARIFIED BY THE APPELLANT THAT THE TRANSACTIONS HAVE BEEN MADE THRO UGH RECOGNIZED STOCK EXCHANGE AND THAT THE TRANSACTIONS ARE ELIGIB LE TRANSACTIONS. SINCE THIS BASIC CONDITION HAS NOT BEEN SATISFIED, THE DISALLOWANCE OF LOSS OCCURRED ON ACCOUNT OF DERIVATIVE TRANSACTI ONS AND DISALLOWED BY THE AO IS HEREBY HELD TO BE JUSTIFIED . THIS GROUND OF APPEAL IS REJECTED. 4. THE ASSESSEE IS NOW IN APPEAL AGAINST THE AFORES AID FINDINGS OF THE LEARNED CIT(A). AT THE OUTSET, THE LEARNED AR ON BE HALF OF THE ASSESSEE WHILE RELYING UPON THE DECISIONS IN THE CASE OF R. B. K. SECURITIES (P) LTD. VS. ITO, 118 TTJ 465 (BOM), DCIT VS. SSKI INVESTORS SERVICES (P) LTD. 113 TTJ 511 (BOM) AND P. S. KAPUR VS ACIT (2009) 120 TTJ 422 (JAIPUR) CONTENDED THAT LOSS IN DERIVATIVE TRANSACTIONS CANNOT BE HELD AS SPECULATI VE LOSS WITHIN THE MEANING OF PROVISIONS OF SECTION 43(5) OF THE ACT. HE FURTHER SUBMITTED THAT CLAUSE D) INSERTED IN PROVISO TO SUB-SECTION (5) OF SECTION 43 BY FINA NCE ACT 2005 WITH EFFECT FROM 1.4.2006 STIPULATES THAT LOSS OR GAIN IN DERIVATIV E TRANSACTIONS IS NOT SPECULATIVE IN NATURE. THE LEARNED DR, ON THE OTHER HAND, SUPPO RTED THE FINDINGS OF THE LEARNED CIT(A) AND VEHEMENTLY ARGUED THAT DECISION IN THE CASE OF P. S. KAPUR (SUPRA) RELIED UPON BY THE LEARNED AR, WAS NOT APPL ICABLE TO THE FACTS OF THE CASE UNDER CONSIDERATION.. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT IN SSKI INVESTORS SERVICES (P) LTD.(SU PRA), THE ITAT CONCLUDED THAT TRANSACTIONS IN DERIVATIVES BEING OF A SEPARATE KIN D, COULD NOT BE TREATED SPECULATIVE IN NATURE IN THE AY 2001-02 .FOLLOWING THIS DECISION AND DECISION OF ITA NO.1265/AHD/2009 JASWANTRAI D. SHAH 4 BANGALORE BENCH IN THE CASE OF BHARATH KUMAR VS. DC IT,4 SOT 593(BANG), ITAT IN RBK SECURITIES (P) LTD.(SUPRA) IN THE AY 20 03-04 HELD THAT LOSS IN F&O TRANSACTIONS WAS BUSINESS LOSS AND NOT SPECULATIVE LOSS. IN ANOTHER DECISION IN THE CASE OF PS KAPUR(SUPRA) FOR THE AY 2004-05 , A SIMILAR VIEW WAS TAKEN WHILE HOLDING THAT LOSS IN DERIVATIVES IS ALLOWABL E AS BUSINESS LOSS AS THE TRANSACTIONS DID NOT FALL U/S 43(5) OF THE ACT. IT WAS FURTHER CONCLUDED THAT CLAUSE (D) INSERTED IN PROVISO TO SEC. 43(5) BY THE FINANC E ACT,2005 W.E.F 1 ST APRIL,2006 IS RETROSPECTIVE IN APPLICATION BY NECESSARY IMPLIC ATION. IN THE LIGHT OF CONSISTENT VIEW TAKEN BY THE CO-ORDINATE BENCHES OF THIS TRIBU NAL IN THE AFORESAID THREE DECISIONS, WE ARE OF THE OPINION THAT TRANSACTIONS IN DERIVATIVES CANNOT BE HELD TO BE SPECULATIVE IN NATURE ,BEING NOT FALLING WITHIN THE MEANING OF PROVISIONS OF THE EXTANT SECTION 43(5) OF THE ACT. IN VIEW THEREOF, G ROUNDS NOS. 1 TO 4 IN THE APPEAL ARE ALLOWED. 7. NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERMS OF RESIDUARY GROUND NO.5, ACCORDINGLY, THE SAID GROUND IS DISMISSED. 8. IN THE RESULT, APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21S T AUGUST,2009 SD/- SD/- (R. V. EASWAR) (A.N. PAHUJA) VICE PRESIDENT ACCOUNTANT MEMBER DATE: 21ST AUGUST,2009 LAKSHMIKANT/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE 2. INCOME TAX OFFICER,WARD- 1(4), NAKUBAG, BHAVNAGA R 364 001 3. CIT(A)-XX AHMEDABAD 4. THE CIT CONCERNED 5. THE D.R. ITAT, AHMEDABAD, 6. GUARD FILE BY ORDER DR / AR, ITAT, AHMEDABAD