CanLah Investments Pte. Ltd., New Delhi V. ADIT, CPC, Bengaluru

ITA 1273/DEL/2021

AI Insights

The case involves CanLah Investments Pte. Ltd., a company incorporated in Singapore, which appealed against the order of the Commissioner of Income Tax (Appeals)-XLII, Delhi, concerning the assessment year 2019-20. The primary contention was regarding the taxability of income derived from derivative transactions and short-term capital gains on the sale of equity shares, which the assessee claimed were exempt from tax in India under the provisions of the DTAA between India and Singapore. The CPC had included these incomes as chargeable to tax, which was contested by the assessee. The CIT(A) upheld the CPC's decision without examining the merits, leading to the appeal before the ITAT.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 121603 (ITAT-DELHI)
• Duration Of Justice: 10 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 06-12-2022
• Assessment Year: misc
• Appeal Filed On: 28-07-2012
• Other Referred Cases: Commissioner of Income-tax, Meerut v. Modi Xerox Ltd., Khatau Junkar Ltd. v. K.S. Pathania, Dv. CIT, M/s. Ravi Baiai Design Pvt. Ltd., New Delhi v. ITO (CPC), Bangalore, ACIT vs Som Distilleries & Breweries Ltd
• Laws Referred To: Income Tax Act, 1961, Double Taxation Avoidance Agreement between India and Singapore
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief
• Section: 54; 154; 43

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “D” DELHI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER I.T.A. No.1273/DEL/2021 Assessment Year 2019-20 CanLah Investments Pte. Ltd., C/o L&L Partners, 1 st Floor, Ashoka Estate, 24 Barakhamba Road, New Delhi. Vs. Assistant Director of Income Tax, CPC Bengaluru. TAN/PAN: AAECH6224L (Appellant) (Respondent) Appellant by: Shri Mayank Agarwal, Adv. Shri Anukrati Gupta, Adv Shri Naman Mittal, Adv. Respondent by: Shri Sanjay Kumar, Sr.DR Date of hearing: 07 12 2022 Date of pronouncement: 15 12 2022 O R D E R PER PRADIP KUMAR KEDIA, A.M.: Th e cap tio n ed ap peal h as b een fil ed b y th e Assessee ag ain st th e o rd er o f th e Co mmiss io n er o f In co me Tax (Appeals)-XLII, Delh i [‘CIT(A)’ in sh o rt] d a ted 0 3 .0 8 .2 02 1 arisin g fro m th e in ti ma t io n d ated 2 4 .1 2 .20 2 0 issu ed b y Cen trali zed Pro cessin g Cen tre [CP C], B en g alu ru u nd er Secti o n 1 43 (1) o f th e I n co me Tax Act, 1 9 6 1 (th e Act ) co n cern in g AY 20 1 9 -2 0 . 2 . Th e g ro u nd s o f ap p eal ra ised b y th e assesse e read as u n d er: “ 1 . T h e o r d e r d a t e d A u g u s t 0 3 , 2 0 2 1 u n d e r s e c t i o n 25 0 o f i n c o m e T a x A c t , 1 9 6 1 ( " A c t " ) p a s s e d b y C o m m i s s i o n e r o f I n c o m e T a x ( A p p e a l s ) ( " C I T ( A ) " ) i s b a d i n l a w a n d o n t h e f a c t s a n d c i r c um s t a n c e s o f t h e c a s e . 2 . T h e C I T ( A ) h a s e r r e d i n l a w a n d o n t h e f a c t s a n d c i r c u m s t a n c e s o f I.T.A. No.1273/Del/2021 2 t h e c a s e b y r e j e c t i n g t h e g r o u n d s r a i s e d b y t h e a p pe l l a n t i n a s u m m a r y m a n n e r w i t h o u t g o i n g i n t o t h e m e r i t s o f t h e c a s e . 3 . T h e C I T ( A ) h a s e r r e d i n l a w a n d o n t h e f a c t s a n d c i r c u m s t a n c e s o f t h e c a s e b y n o t d e l e t i n g t h e a d d i t i o n m a d e b y A s s i st a n t D i r e c t o r o f I n c o m e T a x , C P C ( " A D I T , C P C " ) i n r e s p e c t o f c a p i t a l g a i n s w i t h o u t a p p r e c i a t i n g t h e f a c t s t h a t t h e s a m e w a s e x e m p t f r om t a x e s i n I n d i a u n d e r t h e p r o v i s i o n s o f P a r a g r a p h 5 o f A r t i c l e 1 3 -C a p i t a l G a i n s o f t h e D T A A b e t w e e n I n d i a a n d S i n g a p o r e . 4 . T h e C I T ( A ) a n d A D I T h a s e r r e d i n l a w a n d o n t h e f a c t s a n d c i r c u m s t a n c e s o f t h e c a s e b y i n c l u d i n g t h e a m o u n t of C a p i t a l G a i n s w h i c h w a s e x e m p t f r o m t a x e s i n I n d i a u n d e r t h e p r o vi s i o n s o f P a r a g r a p h 5 o f A r t i c l e 1 3 - C a p i t a l G a i n s o f t h e D TA A b e t w e e n I n d i a a n d S i n g a p o r e i n S c h e d u l e S I , a s i t d e a l s w i t h i n c om e c h a r g e a b l e t o t a x a t s p e c i a l r a t e s . 5 . T h e C I T ( A ) / A D I T h a s e r r e d i n l a w a n d o n t h e f ac t s a n d c i r c u m s t a n c e s o f t h e c a s e b y n o t a c c e p t i n g t h e r e s po n s e s , e l e c t r o n i c a l l y f i l e d b y t h e a p p e l l a n t . 6 . T h e C I T ( A ) h a s e r r e d i n s t a t i n g t h a t t h e a p p e l l an t h a s i n c o r r e c t l y f i l e d i t s t a x r e t u r n . 7 . T h e C I T ( A ) h a s e r r e d i n s u g g e s t i n g t h e o p t i o n o f r e c t i f i c a t i o n a p p l i c a t i o n u l s 1 5 4 o n i n c o m e t a x e - f i l i n g p o r t a l wi t h o u t d i s p o s i n g o f f t h e g r o u n d s r a i s e d b y t h e a p p e l l a n t o n m e r i t s . 8 . T h e C I T ( A ) h a s e r r e d i n l a w a n d o n t h e f a c t s a n d c i r c u m s t a n c e s o f t h e c a s e b y s t a t i n g t h a t t h e c a p i ta l g a i n d e r i v e d b y t h e a p p e l l a n t i n t h e d e r i v a t i v e s ( f u t u r e s ) t r a n s a c ti o n s a r e n o t c a p i t a l g a i n a n d w o u l d b e t a x e d a s b u s i n e s s i n c o m e . 9 . T h e C I T ( A ) h a s e r r e d i n l a w a n d o n t h e f a c t s a n d c i r c u m s t a n c e s o f t h e c a s e b y i n c o r r e c t l y c o m p u t i n g t h e i n t e r e s t u n d e r s e c t i o n 2 3 4 B a n d 2 3 4 C o f t h e A c t . 1 0 . T h e a b o v e g r o u n d s o f a p p e a l s a r e i n d e p e n d e n t a nd w i t h o u t p r e j u d i c e t o o n e a n o t h e r . ” 3 . As p er it s g ro u n ds o f ap p eal, th e a ssessee h as essen t ial ly ch all en g ed certa in ad ju st men ts mad e b y th e CPC to ward s in co me d eclared u n d er th e h ead Cap ita l Gai n s (CG) arisin g fro m sal e o f Eq u ity sh ares an d in co me ar isin g u n d er d eriv ativ e seg men t wh il e p ro cessin g th e re tu rn u n d er S. 1 4 3 (1 ) o f th e Act . 4 . Brie fly s ta ted , th e assesse e i s a co mp an y in co rpo rated in Sin g ap o re an d claims to b e en g ag ed in th e b u sin ess o f In v estmen t act iv it ies . As p er th e Re tu rn o f In come fi led b y the as sessee fo r I.T.A. No.1273/Del/2021 3 th e AY 2 0 1 9 -2 0 in q u estio n , th e as sessee d ecl ared its resid en t ia l sta tu s as ‘NRI- No n Resid en t’ an d also cla i med it to b e Fo reig n In stitu t io n al In v esto r (FII). As p er ROI, th e assess ee cla ims to h av e earn ed in co me in th e fo rm o f cap it al g ain s o n sa le o f sh ares etc an d in co me arisin g fro m d er i v ativ e tran sa ct io n s in Sto ck Ex ch an g es in In d ia. In i ts re tu rn o f in co me ( ROI) fo r Assessmen t Year 2 0 1 9-2 0 in qu estio n , th e Asses see in ter a lia rep o rted Sh o rt Term C ap it al Ga in s (STCG) at Rs .5 5 ,0 7 ,2 52 /- o n wh ich tax was o ffer ed at a co n c essio n al ra te o f 7 .5 % o n th e b asis o f trea ty en tered b etween I n d ia An d Sin g ap ore. Th is ap art , the Assesse e also rep o rted in co me fro m d eriv at iv e tran sac t io n s to t h e tu n e o f Rs. 1 ,8 1 ,6 8 ,8 5 5 /- in th e same h ead ti tl ed ‘ Sch ed u le CG-Cap ita l Gain s’. Th e in co me fro m d eriv at iv e tran sact io n s were h owev er cla i med to b e n o t c h arg eab le to tax in In d ia a t a l l as p er DTAA. 5 . Th e ROI so filed was p ro cessed u n der Sect io n 1 4 3(1) o f th e Act. As n o ted , th e in co me fro m d er i v ativ e tran sact io n s amo u n tin g to Rs . 1 ,8 1 ,6 8 ,8 5 5 was rep o rted u n d er th e h e ad cap ita l g ain s b u t d eclared as n o t ch arg eab le to t ax in In d ia. Wh ile pro cessin g th e ROI, th e CPC id en ti fi ed th is a mo u n t o f Rs.1 ,8 1 ,6 8 ,85 5 /- as v arian ce/ in co n sis ten cy an d in clu d ed th e sa me as charg eab le in co me wh ile co mp u tin g th e in co me u n d er th e h ead ‘Cap ita l Gain s. As ag ain st th e ad ju st men t s mad e, th e ass essee c lai ms to h av e fi led it s o b ject io n s elec tro n ica lly o n 1 2 .0 2 .20 20 and 1 3 .1 0 .20 2 0 clarify in g th at th e p ro p o sed v arian ce p ertain s to Cap it al Gain s ar is in g in tran sac t io n s carried o u t in d eriv ativ es (Fu tu res) seg men t an d th e su ch d erivativ e tran sac tio n s are ex emp t fro m th e p u rv iew o f t ax at io n in In d ia in v i ew o f p ara 5 o f Arti cle 1 3 – ‘Cap ital Gain s’ re ferred in DTAA b etween In d ia an d Sin g ap o re. Th e assessee th u s cla i med th at i t h as correc tl y rep o rted I.T.A. No.1273/Del/2021 4 th e tax ab le in co me ex clu d in g p rofi ts ari sin g fro m deriv ativ e tran sac tio n s an d ad ju st men ts as mad e b y th e CPC is n o t p ermiss ib le in la w. Ho wev er, th e CPC reje ct ed th e assessee’s co n ten tio n an d issu ed in ti ma tio n u n d er Sectio n 1 43 (1 ) d ated 2 4 .1 2 .20 2 0 treatin g th e a fo resaid in co me aris in g fro m d eriv at iv e tran sac tio n s as ch a rg eab le to tax . 6 . Bein g ag g riev ed , th e assess ee p refe rred ap p eal befo re th e CIT(A). Th e CIT( A) h o wev er d id n ot p ay h eed to th e s u b missio n s mad e o n b eh al f o f th e ass essee to ward s n on tax ab il ity o f g ain s arisin g fro m d eriv ativ e tran sac t io n attr ib u tab le to th e sta tu s o f Fo reig n In stitu tio n al In v esto rs (FII). Th e CIT(A) bru sh ed asid e th e g riev an ce o f t h e assesse e to war d s ad ju stmen ts mad e b y th e CPC o n th e g ro u nd th at th e as sesse e h as n o t fo l lo wed th e d u e p ro cess fo r co rrectio n o f mis tak e , i f an y , with CPC. T h e CIT(A) th u s d eclin ed to in terfere wi th th e in t imat io n d etermin in g th e to ta l in co me ch arg eab le to tax an d tax l iab il ity d e ter mined th ereo n . 7 . Fu rth er ag griev ed , th e assessee p referred ap p eal b efo re th e ITAT. 8 . Th e ld . co u n sel fo r th e as sesse e arg u ed in len g th an d p o in ted o u t th at th e ass e ssee is a Fo re ig n In sti tu tio n al Inv esto r (FII) reg istered with SE BI an d ho ld s th e statu s o f a n o n -residen t. Wh ile fi l in g th e retu rn o f in co me, th e asses see in t er a lia d ecl ared Sh o rt Term C ap it al Ga in o f Rs .5 5 ,0 7 ,2 5 2 /- u n d er ‘Sch ed u le CG Cap it al Gain s’ at Seri al No .9 wh ich is ch arg eab le to t ax a ft er g iv in g co n cessio n o f 5 0 % to th e ap p l icab le ra te in ter ms of c lau se 4 C Articl e 1 3 o f th e I n d o -Sin g ap ore Treaty . Th e ap p l icab l e rate o f tax was th u s sho wn at 7 .5 % th ereon i.e. 5 0 % o f no rmal ra te o f 1 5% ap p licab l e to STC G. Co u p led with th is, in sch ed u le CG Seria l I.T.A. No.1273/Del/2021 5 No .9 (2), th e asse ssee al so d eclare d an amo u n t o f p ro fits o f Rs.1 ,8 1 ,6 8 ,8 5 5 /- wh ich aro se fro m th e ‘d eriv a t iv e tran sact io n s’ wh ich are reg ard ed as ‘secu rit ies’ u n d er th e Secu rit ie s Co n tract s (Reg u lat io n ) Act, 1 9 56 . Adv ertin g to Sectio n 2 (1 4 ) o f th e Act, th e ld . co u n sel p o in ted o u t th at th e secu rit ies h eld b y Fo reign In stitu t io n al In v esto rs are reg ard ed as cap i ta l asse t d e fin ed u n d er Sect io n 2 (14 ) o f th e Act an d th u s an y g ain s arisin g fro m ‘d eriv ativ e tran sac tio n s’ b y th e FII are to b e reg ard ed as cap ita l assets . Th e tax a tio n o f cap ita l asse ts are su b ject to Art icl e 1 3 o f th e Trea ty an d cl au se 5 th ereo f ex emp ts t ax at io n o f su ch g ain s fro m tax at io n in In d ia. It was all eg ed th at th e CPC h as mi sco n stru ed th e p rov isio n s o f th e Act an d also th e en tries refl ec ted in th e re tu rn o f in co me an d u n au tho rised ly carried o u t imp er missib le ad ju st men ts . 9 . Th e assessee al so fi led sy n o p sis to defen d its po sit io n wh ich is rep ro d u ced h ereu n d er fo r read y referen ce. “ T h i s i s i n r e f e r e n c e t o c a p t i o n e d a p p e a l h e a r d b y H o n ' b l e M e m b e r s o n D e c e m b e r 0 7 , 2 0 2 2 . D u r i n g t h e c o u r s e o f t h e h e a ri n g , t h e H o n ' b l e M e m b e r s d i r e c t e d t h e a p p e l l a n t t o f i l e w r i t t e n s y n op s i s o f t h e c o n t e n t i o n s r a i s e d d u r i n g t h e h e a r i n g . A s d i r e c t e d , w e , o n b e h a l f o f a n d u n d e r t h e i n s t r u ct i o n s o f t h e a p p e l l a n t w i s h t o s u b m i t a b r i e f w r i t t e n s y n o p s i s of t h e c o n t e n t i o n s r a i s e d b y t h e a p p e l l a n t a s f o l l o w s : B a c k g r o u n d T h e a p p e l l a n t i s a c o m p a n y i n c o r p o r a t e d i n S i n g a p o re a n d i s n o n - r e s i d e n t i n I n d i a u n d e r t h e p r o v i s i o n s o f I n c o m e T ax A c t , 1 9 6 1 ( " t h e A c t " ) . T h e a p p e l l a n t i s a t a x r e s i d e n t o f S i n g a p o r e a n d i s e n t i t l e d t o c l a i m t h e b e n e f i t s o f t h e D o u b l e T a x a t i o n A v o i d a n c e A g r e e m e n t b e t w e e n I n d i a a n d S i n g a p o r e ( ` I n d i a - S i n g a p o r e D T A A' ) . T h e a p p e l l a n t i s a l s o r e g i s t e r e d a s a F o r e i g n P o r t f o l i o I n v e s t o r ( " F P I " ) i n I n d i a w i t h t h e S e c u r i t i e s a n d E x c h a n g e B o a r d o f I n d i a . D u r i n g t h e A Y 2 0 1 9 - 2 0 , t h e a p p e l l a n t u n d e r t o o k t r a ns a c t i o n s f o r s a l e / p u r c h a s e o f e q u i t y s h a r e s a n d d e r i v a t i v e s o n t h e r e c o g n i z e d s t o c k e x c h a n g e s o f I n d i a . T h e a p p e l l a n t d e r i v e d i n c o m e i n t h e f o r m o f s h o r t I.T.A. No.1273/Del/2021 6 t e r m c a p i t a l g a i n s (` S T C G ' ) a m o u n t i n g t o I N R 1 , 8 1 , 68 , 8 5 5 o n t r a n s a c t i o n i n t h e d e r i v a t i v e s ( f u t u r e s ) s e g m e n t a nd I N R 5 5 , 0 7 , 2 5 2 o n s a l e o f e q u i t y s h a r e s . I n t h e i n c o m e t a x r e t u r n f o r t h e r e l e v a n t y e a r , t h e a p p e l l a n t d i s c l o s e d i t s r e s i d e n t i a l s t a t u s a s n o n - r e s i d e n t a n d p r o v i d e d i t s F P I r e g i s t r a t i o n d e t a i l s i n t h e I T R f o r m ( r e f e r p a g e 6 1 a n d 6 2 o f t h e p a p e r b o o k ) . I n t h e i n c o m e t a x r e t u r n , t h e S T C G d e r iv e d b y t h e a p p e l l a n t w a s s h o w n a s f o l l o w s : -  S T C G a m o u n t i n g t o I N R 5 5 , 0 7 , 2 5 2 o n s a l e o f e q u i t y sh a r e s o f f e r e d f o r t a x a t t h e r a t e o f 7 . 5 % u n d e r t h e p r o v i s i o n s o f I n d i a - S i n g a p o r e D T A A ( r e f e r p a g e 1 0 7 o f t h e p a p e r b o o k ) :  S T C G a m o u n t i n g t o I N R 1 , 8 1 , 6 8 , 8 5 5 o n d e r i v a t i v e t r an s a c t i o n s w e r e c l a i m e d a s e x e m p t u n d e r A r t i c l e 1 3 ( 5 ) o f t h e I n d i a -S i n g a p o r e D T A A ( r e f e r p a g e 1 0 8 o f t h e p a p e r b o o k ) a n d s h o w n a s i n c om e n o t c h a r g e a b l e t o t a x i n I n d i a a s p e r t h e D T A A . T h e A s s i s t a n t D i r e c t o r o f I n c o m e T a x , C e n t r a l i z e d Pr o c e s s i n g C e n t e r (` A D I T , C P C ' ) w h i l e p r o c e s s i n g t h e r e t u r n f i l e d b y t h e a p p e l l a n t , i d e n t i f i e d a v a r i a n c e a m o u n t i n g t o R s . 1 , 8 1 , 6 8 , 8 5 5 ( i . e . S T C G o n d e r i v a t i v e t r a n s a c t i o n s ) a n d a d d e d t h e s a m e b a c k w hi l e c o m p u t i n g t h e i n c o m e u n d e r t h e h e a d c a p i t a l g a i n s . Wi t h r e s p e c t t o t h i s a d d i t i o n h i g h l i g h t e d i n t h e i nt i m a t i o n u / s 1 4 3 ( 1 ) ( a ) o f t h e A c t , t h e a p p e l l a n t f i l e d r e s p o n s e s e l e c t r o n i c a l l y o n F e b r u a r y 1 2 , 2 0 2 0 a n d O c t o b e r 1 3 , 2 0 2 0 ( r e f e r t o p ag e 5 3 & 5 7 r e s p e c t i v e l y o f t h e p a p e r b o o k ) c l a r i f y i n g t h e p r o po s e d v a r i a n c e a n d s u b m i t t e d t h a t t h e i n c o m e h a s b e e n c o r r e c t l y r e p o r te d i n t h e I T R a n d h e n c e t h e a d j u s t m e n t s m a d e b y t h e A D I T , C P C a r e i n co r r e c t . T h e A D I T , C P C d i d n o t c o n s i d e r t h e r e s p o n s e s f i l e d b y th e a p p e l l a n t a n d p a s s e d a n i n t i m a t i o n o r d e r ( r e f e r t o p a g e 1 8 o f t h e p a p e r b o o k ) u n d e r s e c t i o n 1 4 3 ( 1 ) o f t h e I n c o m e T a x A c t , 1 9 6 1 ( ` t h e A ct ' ) . L a t e r , a p p e l l a n t f i l e d r e c t i f i c a t i o n a p p l i c a t i o n ( r e f e r t o p a g e 5 1 & 5 2 o f t h e p a p e r b o o k ) u n d e r s e c t i o n 1 5 4 o f t h e A c t f o r t h e m is t a k e s a p p a r e n t f r o m r e c o r d i n t h e i n t i m a t i o n , t h i s a p p l i c a t i o n w a s n o t d i s p o s e d b y t h e A D I T , C P C . T h e a p p e l l a n t a l s o f i l e d a n a p p e a l b e f o r e t h e C o m m is s i o n e r o f I n c o m e T a x ( A p p e a l s ) ( ` L d . C I T ( A ) ' ) w h e r e i n t h e a p pe l l a n t c h a l l e n g e d t h e a d j u s t m e n t s m a d e i n t h e i n t i m a t i o n or d e r u n d e r s e c t i o n 1 4 3 ( 1 ) o f t h e A c t . T h e a p p e a l f i l e d b y t h e a p p e l l a n t w a s d i s m i s s e d b y t h e L d . C I T ( A ) i n a s u m m a r y m a n n e r b y s t a t i n g t h a t a p p e l l a n t s h o u l d h a v e f i l e d o n l i n e r e c t i f i c a t i o n a pp l i c a t i o n . T h e L d . C I T ( A ) f u r t h e r o b s e r v e d t h a t a s p e r s e c t i o n 4 3 ( 5 ) of t h e A c t , p r o f i t s a n d g a i n s f r o m t h e d e r i v a t i v e s t r a n s a c t i o n s c a r r i e d o u t i n a r e c o g n i z e d s t o c k e x c h a n g e w o u l d b e t a x e d a s b u s i n e ss i n c o m e a n d n o t c a p i t a l g a i n s . A g g r i e v e d b y t h e f i n d i n g s o f t h e L d . C I T ( A ) , t h e a pp e l l a n t f i l e d a n a p p e a l b e f o r e t h e H o n o u r a b l e I n c o m e T a x A p p e l l a t e Tr i b u n a l ( ‘ H o n ' b l e I T A T ' ) c h a l l e n g i n g t h e o r d e r p a s s e d b y t he L d . C I T ( A ) . T h e k e y c o n t e n t i o n s o f t h e a s s e s s e e a g a i n s t t h e a d d i t i on s i n t h e i n t i m a t i o n u / s 1 4 3 ( 1 ) o f t h e A c t a r e g i v e n h e r e u n d e r : - I.T.A. No.1273/Del/2021 7 I . G a i n s d e r i v e d b y t h e a p p e l l a n t t h r o u g h t h e t r a n sa c t i o n i n d e r i v a t i v e ( f u t u r e s ) s h o u l d b e t r e a t e d a s c a p i t a l ga i n ( i n s t e a d o f b u s i n e s s i n c o m e ) e x e m p t f r o m t a x e s i n I n d i a u n d e r th e p r o v i s i o n s o f I n d i a - S i n g a p o r e D T A A T h e L d . C I T ( A ) e r r e d i n s t a t i n g t h a t a s p e r s e c t i o n 4 3 ( 5 ) o f t h e A c t , p r o f i t a n d g a i n s f r o m d e r i v a t i v e t r a n s a c t i o n s c a r r ie d o u t i n r e c o g n i z e d s t o c k e x c h a n g e w o u l d b e t a x e d a s b u s i n e ss i n c o m e a n d n o t c a p i t a l g a i n s . I n t h i s r e g a r d , r e f e r e n c e i s m a d e t o t h e d e f i n i t i o n o f ' C a p i t a l A s s e t ' u n d e r s e c t i o n 2 ( 1 4 ) o f t h e A c t w h i c h s p e c i f i c a l l y pr o v i d e s t h a t a n y s e c u r i t i e s h e l d b y a F P I s h o u l d b e t r e a t e d a s " c a p it a l a s s e t s " . T h e r e l e v a n t e x t r a c t o f t h e s e c t i o n i s r e p r o d u c e d a s u nd e r : S e c t i o n 2 " ( 1 4 ) " c a p i t a l a s s e t " m e a n s — ( b ) a n y s e c u r i t i e s h e l d b y a F o r e i g n I n s t i t u t i o n a l I n v e s t o r w h i c h h a s i n v e s t e d i n s u c h s e c u r i t i e s i n a c c o r d a n c e w i t h t h e r e g u l a t i o n s m a d e u n d e r t h e S e c u r i t i e s a n d E x c h a n g e B o a r d o f I n d i a A ct , 1 9 9 2 ( 1 5 o f 1 9 9 2 ) . . T h e t e r m " s e c u r i t i e s " i s d e f i n e d i n e x p l a n a t i o n 2 of s e c t i o n 2 ( 1 4 ) o f t h e A c t a s f o l l o w s : E x p l a n a t i o n 2 . — F o r t h e p u r p o s e s o f t h i s c l a u s e — ( a ) t h e e x p r e s s i o n " F o r e i g n I n s t i t u t i o n a l I n v e s t o r " s h a l l h a v e t h e m e a n i n g a s s i g n e d t o i t i n c l a u s e ( a ) o f t h e E x p l a n at i o n t o s e c t i o n I 1 5 A D ; ( b ) t h e e x p r e s s i o n " s e c u r i t i e s " s h a l l h a v e t h e m e a ni n g a s s i g n e d t o i t i n c l a u s e ( I t ) o f s e c t i o n 2 o f t h e S e c u r i t i e s C on t r a c t s ( R e g u l a t i o n ) A c t , 1 9 5 6 ( 4 2 o f 1 9 5 6 ) ; " F u r t h e r , t h e t e r m ‘ s e c u r i t i e s ’ i s d e f i n e d i n s e c t i on 2 ( h ) o f t h e S e c u r i t i e s C o n t r a c t s ( R e g u l a t i o n ) A c t , 1 9 5 6 t o i n c lu d e d e r i v a t i v e s w i t h i n i t s a m b i t . T h e R e l e v a n t e x t r a c t o f s e c t i o n 2( h ) i s g i v e n b e l o w : " ( h ) " s e c u r i t i e s " i n c l u d e ( i ) s h a r e s , s c r i p s , s t o c k s , b o n d s , d e b e n t u r e s , d e b en t u r e s t o c k o r o t h e r m a r k e t a b l e s e c u r i t i e s o f a l i k e n a t u r e i n o r o f a n y i n c o r p o r a t e d c o m p a n y o r o t h e r b o d y c o r p o r a t e ; ( i a ) d e r i v a t i v e ; ... ... ... . ” T h u s , o n t h e b a s i s o f c o m b i n e d r e a d i n g o f t h e a f o r es a i d s e c t i o n s , i t i s e v i d e n t t h a t s e c u r i t i e s ( i n c l u d i n g d e r i v a t i v e s ) s h ou l d b e t r e a t e d a s " c a p i t a l a s s e t s " i n t h e h a n d s o f t h e F P I . S e c t i o n 1 1 5 A D o f t h e A c t d e a l s w i t h i n c o m e o f t h e FP I f r o m t r a n s f e r o f s e c u r i t i e s . A s p e r s e c t i o n 1 1 5 A D ( 1 ) ( b ) o f t h e A ct , i n c o m e a r i s i n g f r o m t h e t r a n s f e r o f s e c u r i t i e s , s h a l l b e c h a r g e d as s h o r t - t e r m o r l o n g - t e r m c a p i t a l g a i n , d e p e n d i n g u p o n t h e p e r i o d of h o l d i n g o f s u c h s e c u r i t i e s . H e n c e , i t i s s u b m i t t e d t h a t t h e g a i n s de r i v e d b y t h e a p p e l l a n t o n d e r i v a t i v e t r a n s a c t i o n s s h o u l d b e t r e at e d a s " c a p i t a l I.T.A. No.1273/Del/2021 8 g a i n s " u n d e r t h e p r o v i s i o n s o f t h e A c t a n d c a n n o t be c o n s i d e r e d a s b u s i n e s s i n c o m e ( a s i n c o r r e c t l y h e l d b y t h e L d . C I T( A ) i n h i s o r d e r ) . T a x a b i l i t y o f c a p i t a l u n d e r t h e I n d i a - S i n g a p o r e D T AA T h e S T C G d e r i v e d b y t h e a p p e l l a n t o n d e r i v a t i v e t r an s a c t i o n s a r e e x e m p t f r o m t a x e s i n I n d i a a s p e r A r t i c l e 1 3 ( 5 ) o f t h e I n d i a - S i n g a p o r e D T A A . T h e r e l e v a n t e x t r a c t o f A r t i c l e 1 3 (5 ) i s r e p r o d u c e d b e l o w : " A R T I C L E 1 3 C A P I T A L G A I N S 1 . G a i n s d e r i v e d b y a r e s i d e n t o f a C o n t r a c t i n g S t at e f r o m t h e a l i e n a t i o n o f i m m o v a b l e p r o p e r t y , r e f e r r e d t o i n A rt i c l e 6 , a n d s i t u a t e d i n t h e o t h e r C o n t r a c t i n g S t a t e m a y b e t a x ed i n t h a t o t h e r S t a t e . 2 . G a i n s f r o m t h e a l i e n a t i o n o f m o v a b l e p r o p e r t y f or m i n g p a r t o f t h e b u s i n e s s p r o p e r t y o f a p e r m a n e n t e s t a b l i s h m e n t w h i ch a n e n t e r p r i s e o f a C o n t r a c t i n g S t a t e h a s i n t h e o t h e r C o n t r a c t i n g S t a t e o r o f m o v a b l e p r o p e r t y p e r t a i n i n g t o a f i x e d b a s e a v a i l a bl e t o a r e s i d e n t o f a C o n t r a c t i n g S t a t e i n t h e o t h e r C o n t r a c t i n g S t a t e f o r t h e p u r p o s e o f p e r f o r m i n g i n d e p e n d e n t p e r s o n a l s e r v i c e s , i n c l u d i n g s u c h g a i n s f r o m t h e a l i e n a t i o n o f s u c h a p e r m a n e n t e s t a b l i s h m e n t ( al o n e o r t o g e t h e r w i t h t h e w h o l e e n t e r p r i s e ) o r o f s u c h f i x e d b a s e , ma y b e t a x e d i n t h a t o t h e r S t a t e . 3 . G a i n s f r o m t h e a l i e n a t i o n o f s h i p s o r a i r c r a f t op e r a t e d i n i n t e r n a t i o n a l t r a f f i c o r m o v a b l e p r o p e r t y p e r t a i n i ng t o t h e o p e r a t i o n o f s u c h s h i p s o r a i r c r a f t s h a l l b e t a x a b l e o n l y i n t h e C o n t r a c t i n g S t a t e o f w h i c h t h e a l i e n a t o r i s a r e s i d e n t . 4 . 1 [ * * *] 2 [ 4 A . G a i n s f r o m t h e a l i e n a t i o n o f s h a r e s a c q u i r e d b e f o r e 1 A p r i l 2 0 1 7 i n a c o m p a n y w h i c h i s a r e s i d e n t o f a C o n t r a c ti n g S t a t e s h a l l b e t a x a b l e o n l y i n t h e C o n t r a c t i n g S t a t e i n w h i c h t h e a l i e n a t o r i s a r e s i d e n t . 4 B G a i n s f r o m t h e a l i e n a t i o n o f s h a r e s a c q u i r e d o n o r a f t e r 1 A p r i l 2 0 1 7 i n a c o m p a n y w h i c h i s a r e s i d e n t o f a C on t r a c t i n g S t a t e m a y b e t a x e d i n t h a t S t a t e . 4 C H o w e v e r , t h e g a i n s r e f e r r e d t o i n p a r a g r a p h 4 B of t h i s A r t i c l e w h i c h a r i s e d u r i n g t h e p e r i o d b e g i n n i n g o n 1 A p r i l 2 0 1 7 a n d e n d i n g o n 3 1 M a r c h 2 0 1 9 m a y b e t a x e d i n t h e S t a t e o f w h i c h t h e c o m p a n y w h o s e s h a r e s a r e b e i n g a l i e n a t e d i s a r e s i d e n t a t a t a x r a t e t h a t s h a l l n o t e x c e e d 5 0 % o f t h e t a x r a t e a p p l i c a b l e o n s u c h ga i n s i n t h a t S t a t e . 5 . G a i n s f r o m t h e a l i e n a t i o n o f a n y p r o p e r t y o t h e r t h a n t h a t r e f e r r e d t o i n p a r a g r a p h s 1 , 2 , 3 , 4 A a n d 4 B o f t h i s A r t i c l e s h a l l b e t a x a b l e o n l y i n t h e C o n t r a c t i n g S t a t e o f w h i c h t h e a l i e n a t or i s a r e s i d e n t . ! " A s e v i d e n t f r o m t h e a f o r e s a i d A r t i c l e 1 3 ( 5 ) , g a i n s f r o m a l i e n a t i o n o f a n y p r o p e r t y o t h e r t h a n t h o s e l i s t e d i n p a r a g r a p h s 1 , 2 , 3 , 4 A a n d 4 B d e r i v e d b y a t a x r e s i d e n t o f S i n g a p o r e a r e o n l y t a xa b l e i n S i n g a p o r e . I.T.A. No.1273/Del/2021 9 T h e t r a n s a c t i o n s i n d e r i v a t i v e s a r e n o t c o v e r e d i n p a r a g r a p h s 1 , 2 , 3 , 4 A a n d 4 B a n d a c c o r d i n g l y , t h e g a i n s d e r i v e d b y t h e a p p e l l a n t f r o m d e r i v a t i v e s a r e e x e m p t f r o m t a x e s i n I n d i a . C a p i t a l G a i n s i n c o m e w a s c o r r e c t l y r e f l e c t e d i n t h e " C G S c he d u l e " ( C a p i t a l G a i n s ) o f t h e I T R f i l e d b y t h e a p p e l l a n t . T h e L d . C I T ( A ) h a s e r r e d i n t h a t t h e a p p e l l a n t h a s i n c o r r e c t l y f i l e d i t s t a x r e t u r n a n d t h a t a p p e l l a n t h a s e r r e d i n n o t f i l l i n g a m o u n t o f L T C G a t r o w n o . 1 2 o f t h e I T R f o r m . T h e L d . C I T ( A ) h a s f a i l e d t o a p p r e c i a t e t h a t t h e a p p e l l a n t h a d c o r r e c t l y f i l e d it s I T R f o r m a n d m a d e a p p r o p r i a t e d i s c l o s u r e s a s r e q u i r e d t o b e m a d e u n d e r l a w i n t h e I T R f o r m . A s d i s c u s s e d i n d e t a i l i n p o i n t I a b o v e , t h e S T C G de r i v e d b y t h e a p p e l l a n t o n d e r i v a t i v e t r a n s a c t i o n s i s e x e m p t f r o m t a x e s i n I n d i a u n d e r A r t i c l e 1 3 ( 5 ) o f t h e I n d i a - S i n g a p o r e D T A A . T he a p p e l l a n t h a s a c c o r d i n g l y c l a i m e d S T C G a m o u n t i n g t o I N R 1 , 8 1 , 6 8 , 85 5 o n d e r i v a t i v e t r a n s a c t i o n s a s e x e m p t u n d e r A r t i c l e 1 3 (5 ) o f t h e I n d i a - S i n g a p o r e D T A A ( r e f e r p a g e 1 0 8 o f t h e p a p e r b o o k ) a nd s h o w n t h e s a m e a s i n c o m e n o t c h a r g e a b l e t o t a x i n In d i a a s p er t h e D T A A . T h e r e l e v a n t e x t r a c t o f t h e I T R i s a s f o l l o w s : A c k n o w l e d g e m e n t N u m b e r : 1 7 8 5 7 1 6 2 1 2 6 0 9 1 9 2 S I N G A P O R E 65 13 0 Yes 115AD 30 0 a Tota l amou nt of Short Term Ca pital Gai n not ch argeabl e to tax i n Indi a as pet DTAA A9a 81611855 b Total atraxim of STCG charwahk to tax at special rate, n't India as per DTAA A9b 550725 2 1 0 Total short term capital gain (Alc+ , A2c+ A3c+ Ala+ , A4b+ A5c+ A6g+ , A7+A8- A9a) A10 550725 2 A s t h e S T C G d e r i v e d b y t h e a p p e l l a n t o n d e r i v a t i v e t r a n s a c t i o n s i s n o t c h a r g e a b l e t o t a x i n I n d i a u n d e r t h e p r o v i s i o n s o f t h e I n d i a - S i n g a p o r e D T A A , t h e s a m e i s n o t r e q u i r e d t o b e s h o wn i n ' S c h e d u l e S I ' ( r e f e r t o p a g e 1 2 7 o f t h e p a p e r b o o k ) ( i n c o m e ch a r g e a b l e t o t a x a t s p e c i a l r a t e ) o f t h e I T R . I t i s t h e r e f o r e , s u b m i t t ed t h a t n o n - d i s c l o s u r e o f S T C G a m o u n t h i g h l i g h t e d i n t h e i n t i m a t i o n u / s 1 43 ( 1 ) o f t h e A c t i s i n c o r r e c t a s S c h e d u l e S I d e a l s w i t h i n c o m e c h a r g e a bl e t o t a x a t s p e c i a l r a t e s . F u r t h e r , r o w 1 2 o f S c h e d u l e - C G ( a s r e f e r r e d b y t h e L d . C I T ( A ) i n p a r a 6 . 2 o f h i s o r d e r ) i s a l s o n o t a p p l i c a b l e a s t he s a i d c o l u m n r e l a t e s t o d i s c l o s u r e s f o r l o n g t e r m c a p i t a l g a i n s . A s t h e a p p e l l a n t h a s n o t d e r i v e d a n y l o n g - t e r m c a p i t a l g a i n s d u r i n g t h e r e l e v a n t y e a r , I.T.A. No.1273/Del/2021 10 t h e f i n d i n g s g i v e n b y t h e L d . C I T ( A ) a t p a r a 6 . 2 o f h i s o r d e r i s i n c o r r e c t i n l a w a n d o n f a c t s o f t h e c a s e . H e n c e , n o a d j u s t m e n t s h a l l b e m a d e i n t h e i n s t a n t ca s e a s t h e i n c o m e h a s b e e n c o r r e c t l y r e p o r t e d i n t h e i n c o m e t a x r e t u rn f i l e d b y t h e a p p e l l a n t . I I I . T h e L d . A D I T , C P C e r r e d i n l a w a n d o n t h e f a c ts a n d c i r c u m s t a n c e s o f t h e c a s e b y m a k i n g a d j u s t m e n t s t o t h e t o t a l i n c o m e o f t h e a p p e l l a n t v i d e t h e i m p u g n e d i n t i m a t i o n o r d e r d a t e d 2 4 . 1 2 . 2 0 2 0 u n d e r s e c t i o n 1 4 3 ( 1 ) o f t h e A c t . T h e s c o p e o f s e c t i o n 1 4 3 ( 1 ) i s v e r y c l e a r l y d e f i n e d a n d o n l y t h e l i s t e d a d j u s t m e n t s u n d e r s e c t i o n 1 4 3 ( 1 ) ( a ) o f t h e A c t a r e p e r m i s s i b l e u n d e r s e c t i o n 1 4 3 ( 1 ) o f t h e A c t . T h e r e l e v a n t e x t r a c t o f s e c t i o n 1 4 3 ( 1 ) o f t h e A c t i s a s f o l l o w s : - " 1 4 3 . ( 1 ) Wh e r e a r e t u r n h a s b e e n m a d e u n d e r s e c t i on 1 3 9 , o r i n r e s p o n s e t o a n o t i c e u n d e r s u b - s e c t i o n ( 1 ) o f s e c t io n 1 4 2 , s u c h r e t u r n s h a l l b e p r o c e s s e d i n t h e f o l l o w i n g m a n n e r , n a m e l y :— ( a ) . t h e t o t a l i n c o m e o r l o s s s h a l l b e c o m p u t e d a f te r m a k i n g t h e f o l l o w i n g a d j u s t m e n t s , n a m e l y : — ( t ) a n y a r i t h m e t i c a l e r r o r i n t h e r e t u r n ; ( i i ) a n i n c o r r e c t c l a i m , i f s u c h i n c o r r e c t c l a i m i s a p p a r e n t f r o m a n y i n f o r m a t i o n i n t h e r e t u r n ; ( i i i ) d i s a l l o w a n c e o f l o s s c l a i m e d , i f r e t u r n o f t he p r e v i o u s y e a r f o r w h i c h s e t o f f o f l o s s i s c l a i m e d w a s f u r n i s h e d b e y on d t h e d u e d a t e s p e c i f i e d u n d e r s u b - s e c t i o n ( 1 ) o f s e c t i o n 1 3 9 ; ( i v ) d i s a l l o w a n c e o f e x p e n d i t u r e o r i n c r e a s e i n i n co m e i n d i c a t e d i n t h e a u d i t r e p o r t b u t n o t t a k e n i n t o a c c o u n t i n c o m pu t i n g t h e t o t a l i n c o m e i n t h e r e t u r n ; ( v ) d i s a l l o w a n c e o f d e d u c t i o n c l a i m e d u n d e r s e c t i o n 1 0 A A o r u n d e r a n y o f t h e p r o v i s i o n s o f C h a p t e r V I - A u n d e r th e h e a d i n g " C — D e d u c t i o n s i n r e s p e c t o f c e r t a i n i n c o m e s " , i f t h e re t u r n i s f u r n i s h e d b e y o n d t h e d u e d a t e s p e c i f i e d u n d e r s u b - s e c t i o n ( 1 ) o f s e c t i o n 1 3 9 ; o r ( v i ) a d d i t i o n o f i n c o m e a p p e a r i n g i n F o r m 2 6 A S o r Fo r m 1 6 A o r F o r m 1 6 w h i c h h a s n o t b e e n i n c l u d e d i n c o m p u t i n g t he t o t a l i n c o m e i n t h e r e t u r n : P r o v i d e d t h a t n o s u c h a d j u s t m e n t s s h a l l b e m a d e u n le s s a n i n t i m a t i o n i s g i v e n t o t h e a p p e l l a n t o f s u c h a d j u s t m e n t s e i t h er i n w r i t i n g o r i n e l e c t r o n i c m o d e : P r o v i d e d f u r t h e r t h a t t h e r e s p o n s e r e c e i v e d f r o m t he a p p e l l a n t , i f a n y , s h a l l b e c o n s i d e r e d b e f o r e m a k i n g a n y a d j u s t m en t , a n d i n a c a s e w h e r e n o r e s p o n s e i s r e c e i v e d w i t h i n t h i r t y d a y s o f t h e i s s u e o f s u c h i n t i m a t i o n , s u c h a d j u s t m e n t s s h a l l b e m a d e : P r o v i d e d a l s o t h a t n o a d j u s t m e n t s h a l l b e m a d e u n d er s u b - c l a u s e ( v i ) i n r e l a t i o n t o a r e t u r n f u r n i s h e d f o r t h e a s s e s s m e nt y e a r c o m m e n c i n g o n o r a f t e r t h e 1 s t d a y o f A p r i l 2 0 1 8 ; ” I.T.A. No.1273/Del/2021 11 I t i s e v i d e n t f r o m t h e a b o v e t h a t o n l y 5 a d j u s t m e n ts l i s t e d i n c l a u s e ( i ) t o ( v ) o f s e c t i o n 1 4 3 ( 1 ) ( a ) a r e p e r m i s s i b l e u n de r s e c t i o n 1 4 3 ( 1 ) o f t h e A c t . C l a u s e ( v i ) i s a l s o n o t a p p l i c a b l e w i t h e ff e c t f r o m A Y 2 0 1 8 ¬ 1 9 a s p e r t h e a b o v e m e n t i o n e d t h i r d p r o v i s o . In t h e i n s t a n t c a s e , t h e b e n e f i t s o f t h e I n d i a - M a u r i t i u s D T A A a r e e f f e c t i v e l y d e n i e d t o t h e a p p e l l a n t i n t h e i n t i m a t i o n u n d e r s e c t i o n 1 43 ( 1 ) o f t h e A c t w h i c h i s o u t s i d e t h e s c o p e o f t h e p e r m i s s i b l e a d j u st m e n t s u n d e r s e c t i o n 1 4 3 ( 1 ) o f t h e A c t . A c c o r d i n g l y , t h e a d j u s t me n t m a d e i n t h e i n t i m a t i o n u n d e r s e c t i o n 1 4 3 ( 1 ) o f t h e A c t s h o u l d be d e l e t e d i n t h e c a s e o f t h e a p p e l l a n t . I n t h i s r e g a r d , r e l i a n c e i s p l a c e d o n t h e f o l l o w i n g j u d i c i a l p r e c e d e n t s : 1 ) T h e H o n ' b l e A l l a h a b a d H i g h C o u r t i n t h e c a s e o f C o m m i s s i o n e r o f I n c o m e - t a x , M e e r u t v . M o d i X e r o x L td . [ 2 0 1 4 1 4 1 t a x m a n n . c o m 3 0 2 ( A l l a h a b a d ) h e l d a s f o l l o w s : " 1 7 . We h a v e v e r y c a r e f u l l y c o n s i d e r e d t h e r i v a l s ub m i s s i o n s . T h e s c o p e o f s e c t i o n 1 4 3 ( 1 ) ( a ) o f t h e A c t i s b y n o w w e ll s e t t l e d . T h e a s s e s s i n g o f f i c e r c a n m a k e p r i m a f a c i e a d j u s t m e n t s o n l y i n r e s p e c t o f i s s u e s w h i c h a r e n o t d e b a t a b l e a n d f o r w h i c h n o f ur t h e r i n f o r m a t i o n r e q u i r e d f r o m t h e a s s e s s e e o t h e r t h a n t h a t c o n t a i ne d i n t h e r e t u r n o f i n c o m e a n d t h e a c c o m p a n y i n g d o c u m e n t s . I n o t h e r w o rd s w h e r e t h e c l a i m a d m i t s o f m o r e t h a n o n e i n t e r p r e t a t i o n o r r e qu i r e s f u r t h e r f a c t s a n d d e t a i l s , t h e s a n t e i s o u t s i d e t h e s c o p e o f t h e s a i d s e c t i o n . We a g r e e w i t h t h e s u b m i s s i o n s o f t h e l e a r n e d c o u n s e l fo r t h e a s s e s s e e t h a t w h i l e a d j u d i c a t i n g a n a p p e a l a g a i n s t i n t i m a t i on u n d e r s e c . 1 4 3 ( 1 ) ( a ) o f t h e A c t t h e C I T ( A ) i s n o t e m p o w e r e d t o c a l l f o r f u r t h e r d e t a i l s a t t h e a p p e l l a t e s t a g e . T h e C I T ( A ) i s r e q u ir e d t o s e e w h e t h e r o n t h e b a s i s o f t h e r e t u r n o r , t h e a c c o m p a n y i n g d o cu m e n t s a s f i l e d b e f o r e t h e a s s e s s i n g o f f i c e r , a n y p r i m a f a c i e a d j u st m e n t c o u l d b e m a d e . I t i s f u r t h e r n o t o p e n t o t h e C I T ( A ) t o r e m i t s e t a s i d e t h e m a t t e r t o t h e f i l e o f t h e a s s e s s i n g o f f i c e r . T h e C IT ( A ) m a y e i t h e r d e l e t e o r s u s t a i n t h e p r i m a f a c i e a d j u s t m e n t . I n t he l i g h t o f t h e s e o b s e r v a t i o n s t h e g r o u n d s o f a p p e a l r a i s e d b y t h e a ss e s s e e a r e a d j u d i c a t e d u p o n . . . " 2 ) T h e H o n ' b l e B o m b a y H i g h C o u r t i n t h e c a s e o f K h at a u J u n k a r L t d . v . K . S . P a t h a n i a , D v . C I T 1 1 9 9 2 1 1 9 6 I T R 5 5 ( Bo m . ) h e l d a s f o l l o w s : " 2 3 I n i t s l i t e r a l s e n s e , ' p r i m a f a c i e ' m e a n s o n t he f a c t o f i t . H e n c e , o n t h e f a c e o f t h e r e t u r n a n d t h e d o c u m e n t s a n d a c co u n t s a c c o m p a n y i n g i t , t h e d e d u c t i o n c l a i m e d m u s t b e i n a dm i s s i b l e . O n l y t h e n c a n i t b e d i s a l l o w e d u n d e r t h e p r o v i s o t o s . 14 3 ( 1 ) ( a ) . I f a n y f u r t h e r e n q u i r y i s n e c e s s a r y , o r i f t h e I T O f e e l s th a t f u r t h e r p r o o f i s r e q u i r e d i n c o n n e c t i o n w i t h t h e c l a i m f o r d e d u c t i o n, h e w i l l h a v e t o i s s u e a n o t i c e u n d e r s u b - s . ( 2 ) o f s . 1 4 3 . " 3 ) T h e H o n ' b l e D e l h i I T A T i n t h e c a s e o f M / s . R a v i B a i a i D e s i g n P v t . L t d . , N e w D e l h i v . I T O ( C P C ) , B a n g a l o r e — I T A 9 2 6 / De 1 / 2 0 1 2 h a s d e l e t e d t h e a d d i t i o n s m a d e i n t h e i n t i m a t i o n u / s 1 43 ( 1 ) o f t h e A c t b y r e f e r r i n g t o t h e d e c i s i o n o f t h e H o n ' b l e I n d o r e I T AT i n t h e c a s e o f I.T.A. No.1273/Del/2021 12 A C I T v s S o m D i s t i l l e r i e s & B r e w e r i e s L t d i n I T A N o . 2 4 8 / I n d / 2 0 1 2 w h e r e i n t h e H o n ' b l e I n d o r e I T A T h e l d a s f o l l o w s : " 5 . . . . I t i s t r i t e t h a t u / s 1 4 3 ( 1 ) ( a ) p r i m a f a c i e ad j u s t m e n t s i s p e r m i s s i b l e o n l y i n r e s p e c t o f c l a i m s , t h e i n c o r r e ct n e s s o f w h i c h i s a p p a r e n t f r o m i n f o r m a t i o n i n t h e r e t u r n . D e b a t a b l e c l a i m s a r e n o t l i a b l e t o s u c h p r i m a l a c k a d j u s t m e n t s . I n t h e c a s e o f t h e a p p e l l a n t , u n d e r c o n s i d e r a t i o n , t h e r e i s n o t h i n g i n t h e r e t u r n o r i n t h e c o m p u t a t i o n o f t o t a l i n c o m e t o s u g g e s t t h a t t h e i m pu g n e d L T A . 1 9 3 7 / D e 1 / 2 0 1 7 A s s e s s m e n t y e a r 2 0 1 3 - 1 4 6 c l a i m o f s et o f f o f b r o u g h t f o r w a r d l o s s e s , w a s p r i m a f a c i e i n c o r r e c t . I n t h e gi v e n f a c t s a n d c i r c u m s t a n c e s o f t h e c a s e , t h e d e n i a l o f t h e i m p u g ne d c l a i m , i n m y c o n s i d e r e d v i e w , c o u l d b e d o n e o n l y a f t e r i s s u e o f n o t i c e t o t h e a p p e l l a n t , s i n c e t h e n o n - s p e a k i n g u n i l a t e r a l d e n i al o f t h e i m p u g n e d c l a i m w a s c l e a r l y o u t s i d e t h e a m b i t o f p r i m a f a c i e a d j u s t m e n t s e n v i s a g e d i n s e c t i o n 1 4 3 ( 1 ) ( a ) o f t h e A c t a n d t h a t t h e A . O . d i d n o t h a v e s u f f i c i e n t m a t e r i a l t o h o l d t h a t t h e i m p u g n e d c l a i m w a s p r i m a f a c i e i n a d m i s s i b l e . U n d e r t h e p r o v i s i o n s o f s e c t i o n 1 4 3 ( 1 ) ( a ) o f t h e A c t , t h e A . O . w a s n o t e n t i t l e d t o a l l o w o r d i s a l l o w t h e c l a i m b u t c o u l d o n l y m a k e a d j u s t m e n t o n a p r i m a f a c i e s c r u t i ny o f t h e r e t u r n a n d t h e a c c o m p a n y i n g d o c u m e n t s f i l e d b y t h e a p p e l l an t . A s a l r e a d y s t a t e d , s i n c e t h e i m p u g n e d n o n - s p e a k i n g u n i l a t e r a l d e n i a l o f t h e a p p e l l a n t s c l a i m , w a s w i t h o u t i s s u e o f n o t i c e t o t he a p p e l l a n t , i n m y c o n s i d e r e d v i e w , t h e A . O . t r a v e l l e d b e y o n d t h e s c o pe o f t h e p o w e r s c o n f e r r e d u p o n h i m b y s e c t i o n 1 4 3 ( 1 ) ( a ) a n d t h u s w ro n g l y d i s a l l o w e d t h e i m p u g n e d c l a i m w h i c h b y n o s t r e t c h o f i m a g i n a t io n c o u l d c o m e w i t h i n t h e a m b i t o f p r i m a f a c i e a d j u s t m e n t s u / s 1 4 3( 1 ) ( a ) o f t h e A c t . . . . . . . . . . . . . . . . . 1 . 2 T h e r e l e v a n c e o f s e c t i o n 1 4 3 ( 1 ) ( a ) , u n d e r w h i c h t h e A . O . w a s a c t i n g , c o u l d n o t h a v e b e e n o v e r l o o k e d . T h e i m p o r ta n c e o f s c o p e o f p o w e r s u / s 1 4 3 ( 1 ) ( a ) l i e s i n s e v e r e l i m i t a t i o n o f po w e r s o f t h e A . O . u n d e r t h i s s e c t i o n . A n y r e l i e f t h a t h e c a n g r a n t o r t h e d i s a l l o w a n c e h e c a n m a k e , u n d e r t h i s s e c t i o n m u s t b e s o l e l y o n th e b a s i s o f m a t e r i a l o n r e c o r d . " H e n c e , i t i s s u b m i t t e d t h a t n o a d j u s t m e n t s c a n b e ma d e i n t h e c a s e o f t h e a p p e l l a n t u n d e r s e c t i o n 1 4 3 ( 1 ) o f t h e A c t . I V . A D I T , C P C h a s e r r e d i n l a w i n n o t a c c e p t i n g t h e r e s p o n s e s f i l e d e l e c t r o n i c a l l y b y t h e a p p e l l a n t T w o r e s p o n s e s w e r e f i l e d b y t h e a p p e l l a n t t o w a r d s th e c o m m u n i c a t i o n s r e c e i v e d u n d e r 1 4 3 ( 1 ) ( a ) o f t h e A c t ( r e f e r t o p a g e 5 7 & 5 3 r e s p e c t i v e l y o f t h e p a p e r b o o k ) . T h e s e r e s p o n se s w e r e c o m p l e t e l y i g n o r e d b e f o r e f i l i n g t h e i n t i m a t i o n u / s 1 4 3 ( 1 ) o f t h e A c t p a s s e d b y t h e A D I T , C P C . T h e r e f o r e , t h e a d d i t i o n s ma d e i n t h e i n t i m a t i o n o r d e r a r e n o t t e n a b l e a n d l a c k s a p p l i c a ti o n o f m i n d b y t h e A D I T , C P C a n d h e n c e , s h a l l b e d e l e t e d . V . N o i n t e r e s t s h a l l b e c h a r g e d u n d e r s e c t i o n 2 3 4 B a n d 2 3 4 C o f t h e A c t T h e a d d i t i o n s m a d e t o t h e i n c o m e o f t h e a p p e l l a n t pe r t a i n s t o S T C G d e r i v e d o n d e r i v a t i v e t r a n s a c t i o n s . A s d i s c u s s e d a bo v e i n d e t a i l , t h e I.T.A. No.1273/Del/2021 13 S T C G d e r i v e d b y t h e a p p e l l a n t o n d e r i v a t i v e t r a n s a ct i o n s i s e x e m p t f r o m t a x e s i n I n d i a u n d e r A r t i c l e 1 3 ( 5 ) o f t h e I n d ia - S i n g a p o r e D T A A a n d t h u s , t h e d e m a n d r a i s e d a g a i n s t t h e a p p e l l a n t in t h e i n t i m a t i o n u / s 1 4 3 ( 1 ) o f t h e A c t a l o n g w i t h c o r r e s p o n d i n g i n t e re s t u / s 2 3 4 B a n d 2 3 4 C o f t h e A c t i s i n c o r r e c t . H e n c e , t h e c o m p u t a t i on o f i n t e r e s t u n d e r s e c t i o n 2 3 4 B / 2 3 4 C o f t h e A c t s h o u l d b e a p p r o pr i a t e l y m o d i f i e d . ” 1 0 . In th e l ig h t o f o ral an d writ ten su b missio n s, th e ld . co u n sel u rg ed th at resto ratio n o f p o sitio n was tak en in th e retu rn o f in co me . 1 1 . Th e ld . DR fo r th e Rev en u e b y th e assess ee, o n th e o th er h an d , relied u po n th e o rd er o f the CIT(A) and sub mitted in fu rth eran ce th at e v en if th e d eriv a tiv e in co me is re g ard ed as ‘secu rit ies’ an d , i n tu rn , su ch secu rit ies d er iv in g its v alu e fro m u n d erly in g sh ares are ak in to sh ares an d th u s aliena tio n th ereo f is tax ab le in In d ia . 1 2 . We h av e co n sid ered th e riv a l su b mi ssio n s an d the ma teri al p laced o n reco rd . Wh ile th e ass essee in th e in s tan t cas e d ecl ared certa in a mo u n t a risin g fro m d eriv ativ e tran sac t io n as to t al ly ex emp t fro m t ax l iab i li ty an d ap p lied co n cessio n al rat e fo r o th er cap it al g ain s in th e l ig h t o f th e p ro v isio n s o f t ax trea t y , th e CPC h as mad e ad ju st me n ts to ward s d eriv ativ e in co me an d en h an ced th e tax ab le in co me o f th e assess ee. In th e first ap p eal a g ain st su ch ad ju st men ts , th e C IT(A) h as also n o t ex amin ed th e issu e o n meri ts an d rejec ted th e ap p eal o f th e ass esse e in a su mmary ma n n er. Th e CIT(A) h as d en ied th e relie f o n th e g ro un d th at th e as sessee h as n o t fo llo wed th e rig h t co u rse o f actio n p ro v id ed for CPC co mmu n icat io n . 1 3 . On app raisal o f fa c ts an d to tali ty o f ci rcu mstan c es, we are o f I.T.A. No.1273/Del/2021 14 th e co n sid ered v ie w th at th e ma t ter n eed s to b e re man d ed b ack to th e CIT(A) fo r ad ju d icatio n o n meri t s after ascer tain in g th e fac ts an d ap p licab le p o sit io n o f law th ereo n . Hen ce, witho u t ex p ressin g an y op in io n o n merits o f ex c lu sio n o f in co me fro m deriv ativ e tran sac tio n s fro m ch arg eab il ity c la imed b y th e assessee in th e lig h t o f trea ty , t h e co n trov ersy is resto red to th e fi le o f th e CIT(A). Th e CIT(A) sh all ex amin e th e fac ts o n mer it in acco rd an ce with la w an d in case b ein g satis fied wi th th e meri ts o f th e case, sh a ll t a k e ap p ro p riate me asu res to d irect t h e CPC to carry o u t th e rect i fi ca tio n o f th e ad j u stmen ts mad e in acco rd an ce with l aw. Reaso n a b le o p p o rtu n ity sh all b e g iv en to th e asse ssee wh ile d o in g so . 1 4 . In th e resu lt, th e ap p eal o f th e a ssessee is a llo we d fo r sta tis ti ca l p u rp o ses. Order pronounced in the open Court on 15/12/2022. Sd/- Sd/- [SAKTIJIT DEY] [PRADIP KUMAR KEDIA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: /12/2022 Prabhat