Income Tax Officer, Ward -10(1), Hyderabad V. Sri Hanuman Joshi, Secunderabad

ITA 1344/HYD/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69771 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 03-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y V S T SAI
• Keywords: Transactions in derivatives; Speculation loss
• Section: 43(5); 12; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI CHANDRAPOOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.1344/HYD/2012 ASSESSMENT YEAR 2009-2010 ITO, WARD 10 (1) SECUNDERABAD. VS. SRI HANUMAN JOSHI SECUNDERABAD PAN ABNPJ8479Q (APPELLANT) (RESPONDENT) FOR APPELLANT : SHRI YVST. SAI, D.R. FOR RESPONDENT : SHRI KC DEVDAS, A.R. DATE OF HEARING : 27.08.2013 DATE OF PRONOUNCEMENT : 13.09.2013 ORDER PER SAKTIJIT DEY, J.M. THIS APPEAL IS FILED BY THE DEPARTMENT AGAINST THE ORDER OF THE CIT(A)-VI, HYDERABAD DATED 15.06.2012 FOR THE AS SESSMENT YEAR 2009-2010. THE SOLE ISSUE ARISING OUT OF THE GR OUNDS RAISED BY THE DEPARTMENT IS WITH REGARD TO THE ORDER PASSED BY THE CIT(A) ALLOWING ASSESSEES CLAIM OF LOSS FROM SHARE TRADING AMOUNTING TO RS.45,24,445/-. 2. BRIEFLY THE FACTS RELATING TO THE ISSUE IN DISPUT E ARE, THE ASSESSEE AN INDIVIDUAL IS THE PROPRIETOR OF M/S. JA I GANESH CLOTHING. THROUGH THE AFORESAID PROPRIETARY CONCERN THE ASSESSEE CARRIES ON THE BUSINESS ACTIVITY OF TRADING IN TEXTIL E GOODS AS WELL AS IN SHARES. FOR THE IMPUGNED ASSESSMENT YEAR THE A SSESSEE FILED ITS RETURN OF INCOME ON 26.09.2009 DECLARING A TOTAL LOSS OF RS.10,15,829/-. INITIALLY, THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. SUBSEQUENTLY, THE ASSESSEES CASE WAS SELECTED 2 FOR SCRUTINY AND IN THE COURSE OF THE ASSESSMENT PRO CEEDINGS, THE ASSESSING OFFICER ON VERIFYING THE COMPUTATION FILED ALONG WITH THE RETURN OF INCOME NOTICED THAT THE ASSESSEE HAD CLAIMED LOSS FROM SHARE BUSINESS AT RS.45,24,440/-. THE ASSESSIN G OFFICER ON FURTHER EXAMINATION OF THE DETAILS OF LOSS CLAIMED FROM SHARE TRADING AT RS.45,24,440/- NOTICED THAT THE ASSESSEE HAD CONDUCTED ALL THE SHARE TRANSACTIONS THROUGH M/S. K OTAK SECURITIES LIMITED DURING THE YEAR UNDER DISPUTE. TH E ASSESSING OFFICER REFERRING TO SECTION 73 OF THE ACT OBSERVED THAT LOSSES IN SPECULATION BUSINESS CANNOT BE SET OFF AGAINST ANY O THER HEAD OF INCOME EXCEPT AGAINST PROFITS AND GAINS FROM ANOTHE R SPECULATION BUSINESS. HE FURTHER NOTED THAT THE TERM SPECULATI VE TRANSACTION DEFINED IN SUB-SECTION 5 OF SECTION 43 OF THE ACT WOULD MEAN A TRANSACTION IN WHICH A CONTRACT FOR TH E PURCHASE OR SALE OF ANY COMMODITY INCLUDING STOCKS AND SHARES IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY T HE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS. THE ASSESSING OFFICER RELYING UPON SOME JUDICIAL PRECEDENTS CAME TO THE CONCLUSION THAT LOSS CLAIMED IS A SPECULATIVE LOSS AS THE ASSESSEE HAS NOT DISCHARGED THE BURDEN OF PROVING THAT IT IS NOT A SPECULATIVE LOSS. ACCORDINGLY, THE ASSESSING OFFICE R COMPLETED THE ASSESSMENT BY DISALLOWING THE LOSS CLAIMED OF RS .45,24,440/- BY TREATING IT AS SPECULATIVE LOSS AND ALLOWED IT TO BE CARRIED FORWARD IN FUTURE YEARS AND AGAINST SPECULATION PROF ITS. THE ASSESSEE BEING AGGRIEVED OF THE ASSESSMENT ORDER SO PASSED PREFERRED APPEAL BEFORE THE CIT(A). 3. THE CIT(A) AFTER HEARING THE SUBMISSIONS OF THE ASSESSEE IN THE CONTEXT OF THE OBSERVATIONS MADE BY THE ASSESSIN G OFFICER IN THE ASSESSMENT ORDER ALLOWED THE APPEAL BY HOLDING A S UNDER : 4.1. THE ASSESSING OFFICER HAS NOT SPECIFIED IN HI S ORDER WHICH SPECIFIC INFORMATION LED HIM TO CONCLUDE THAT THE 3 TRANSACTIONS OF THE ASSESSEE WERE SPECULATIVE IN NATURE. INDEED, THE ASSESSING OFFICER HAS NOT REFER RED TO ANY SPECIFIC TRANSACTION OR INFORMATION AT ALL I N HIS ORDER BEFORE ARRIVING AT HIS CONCLUSIONS. THE ASSESSING OFFICER HAS ACCUSED THE ASSESSEE OF FAILI NG TO ESTABLISH THAT THE LOSS CLAIMED WAS NOT A SPECULATIVE LOSS. THE ASSESSEE HAVING FILED ALL THE REQUISITE INFORMATION, THE ONUS WAS ON THE ASSESSIN G OFFICER TO ESTABLISH THAT THE LOSS CLAIMED WAS SPECULATIVE IN NATURE. 4.2. IN THE COURSE OF THE APPELLATE PROCEEDINGS, TH E A.R. HAS FILED AN ELABORATE PAPER BOOK CONTAINING COPIES OF THE LETTER DT.14.12.2011 SUBMITTED TO THE ASSESSING OFFICER, SUMMARY OF SHARE TRADING DURING THE YEAR, HIS D-MAT ACCOUNT, DETAILS OF HIS DERIVATIVES TRADING, THE PURCHASE AND SALES ACCOUNT IN RESPECT OF EQUITY SHARES, AS WELL AS HIS PROFIT AND LOSS ACCOUNT AND BALANCE SHEET AND THE INCOME-TAX RETURN. I FIND FRO M THE DETAILS OF THE SHARE PURCHASE AND SALES THAT TH E PURCHASES WERE REFLECTED IN THE D-MAT ACCOUNT OF TH E ASSESSEE BEFORE BEING SOLD; IN OTHER WORDS, THE TRADING IN SHARES WAS ON DELIVERY BASIS AND THEREFO RE, NOT SPECULATIVE IN NATURE. 4.3. IN THE SECOND PARAGRAPH (IN THE EXTRACTS FROM THE ASSESSMENT ORDER QUOTED ABOVE), THE ASSESSING OFFICER HAS REFERRED TO THE ABSENCE OF ACTUAL DELI VERY OF THE DERIVATIVES. SINCE THE ASSESSING OFFICER HA S NOT CLARIFIED WHAT EXACTLY HE MEANS BY THIS OBSERVATION , IT IS PRESUMED THAT HE BELIEVES THAT ALL TRANSACTIONS IN DERIVATIVES ARE SPECULATIVE IN NATURE. THOUGH THE ASSESSING OFFICER HAS QUOTED CLAUSE (D) TO THE PROVI SO 4 TO SEC. 43(5) IN HIS ORDER, HE DOES NOT APPEAR TO H AVE TAKEN COGNIZANCE OF IT WHILE ARRIVING AT HIS CONCLUSIONS. IN VIEW OF THE SPECIFIC EXCLUSION PROV IDED TO DERIVATIVES BY THIS CLAUSE TO THE PROVISO, THE TREATMENT BY THE ASSESSING OFFICER OF THE TRADING I N DERIVATIVES AS SPECULATIVE IN NATURE CANNOT BE UPHE LD. 4.4. IN THE ABSENCE OF ANY EVIDENCE TO SHOW THAT TH E TRADING IN SHARES WAS BY MEANS OTHER THAN ACTUAL DELIVERY AND IN VIEW OF THE AMENDMENT TO SEC. 43(5) EXCLUDING DERIVATIVES TRADING FROM THE PURVIEW OF SPECULATIVE TRANSACTIONS, THE BUSINESS OF THE ASSES SEE OF TRADING IN SHARES AND IN FUTURES AND OPTIONS CAN NOT BE CALLED SPECULATIVE. THE APPEAL OF THE ASSESSEE I S, THEREFORE, ALLOWED. 4. THE LEARNED DR RELIED ON THE ORDER OF THE ASSESS ING OFFICER WHEREAS, THE LEARNED AR STRONGLY SUPPORING THE ORDER OF THE CIT(A) SUBMITTED THAT THE ASSESSING OFFICER HAVING NO MATERIAL BEFORE HIM TO DEMONSTRATE THAT THE SHARE TRADING WE RE NOT ON ACTUAL DELIVERY BASIS HAS CAME TO THE CONCLUSION PUR ELY ON ASSUMPTION AND PRESUMPTION. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD AS WELL AS THE ORDERS OF THE REVENUE AUTH ORITIES. ON PERUSAL OF THE ASSESSMENT ORDER IT BECOMES CLEAR TH AT APART FROM EXTENSIVELY EXTRACTING CERTAIN PROVISIONS OF THE ACT AND RELYING UPON CERTAIN JUDICIAL PRECEDENTS, THE ASSESSING OFFI CER HAS ABSOLUTELY NOT BROUGHT ANY MATERIAL ON RECORD WHICH C OULD DEMONSTRATE THE FACT THAT THE TRADING IN SHARES WER E NOT ON ACTUAL DELIVERY BASIS BUT IN THE NATURE OF SPECULATI VE TRANSACTION AS DEFINED UNDER SECTION 43(5) OF THE ACT. AT THIS STAGE, IT WOULD BE RELEVANT TO LOOK INTO THE PROVISION AS CONTAINED UNDER SECTION 43(5) WHICH READS AS UNDER : 5 SPECULATIVE TRANSACTION MEANS A TRANSACTION IN WH ICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULT IMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TR ANSFER OF THE COMMODITY OR SCRIPS. 6. HOWEVER, THE PROVISO TO SECTION 43(5) EXCLUDES CE RTAIN TRANSACTIONS FROM THE TERM SPECULATIVE TRANSACTION. CLAUSE (D) TO THE PROVISO SPECIFICALLY EXCLUDES AN ELIGIBLE TRANSAC TION IN RESPECT OF TRADING IN DERIVATIVES REFERRED TO IN CLAUSE (AC ) OF SECTION 2 OF SECURITIES CONTRACTS (REGULATION ACT) 1956 CARRIED OUT IN A RECOGNIZED STOCK EXCHANGE. EXPLANATION TO THE AFORESA ID CLAUSE FURTHER MAKES IT CLEAR THAT AN ELIGIBLE TRANSACTION WOULD MEAN ANY TRANSACTION CARRIED OUT ELECTRONICALLY ON SCREEN BASED SYSTEMS THROUGH A STOCK BROKER OR SUB-BROKER OR SUCH OTHER INTERMEDIARY REGISTERED UNDER SECTION 12 OF THE SECU RITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 AND SECONDLY, THE T RANSACTION MUST BE SUPPORTED BY TIME STAMPED CONTRACT NOTE ISSU ED BY SUCH STOCK BROKER OR SUB-BROKER OR SUCH OTHER INTER MEDIARY TO EVERY CLIENT INDICATING IN THE CONTRACT NOTE UNIQUE CODE, IDENTITY NUMBER ALLOTTED. CONSIDERED THE CONTEXT OF THE STATU TORY PROVISION AS EXTRACTED HEREINABOVE, IT CAN BE SEEN T HAT THE CIT(A) IN PARA 4.2 OF HER ORDER, HAS ELABORATELY DISCUSSED ABOUT THE EVIDENCE SUBMITTED BY THE ASSESSEE DURING THE ASSESS MENT PROCEEDING WHICH CLEARLY INDICATE THAT THE TRADING I N SHARES WAS ON DELIVERY BASIS AND THEREFORE, NOT SPECULATIVE IN NATURE. 7. ON PERUSAL OF THE LETTER DATED 14.12.2011 ADDRES SED TO THE INCOME TAX OFFICER, WHICH IS AT PAGE 1 OF THE PAPER BOOK SUBMITTED BEFORE US, ALSO CLEARLY BEAR TESTIMONY TO T HE AFORESAID OBSERVATIONS MADE BY THE CIT(A) AS THE SAID LETTER W OULD DEMONSTRATE THE FACT THAT ALL DETAILS WITH REGARD T O SHARE TRADING WERE SUBMITTED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER IN 6 THE COURSE OF ASSESSMENT PROCEEDING. HOWEVER, NOWHE RE IN THE ASSESSMENT ORDER NOR ANYWHERE ELSE, THE ASSESSING O FFICER HAS EITHER BROUGHT ANY MATERIAL EVIDENCE OR DISCUSSED AB OUT A SINGLE TRANSACTION WHICH ACCORDING TO HIM IS NOT DELIVERY B ASED SO AS TO BRING IT WITHIN THE DEFINITION OF SPECULATIVE TRAN SACTION AS DEFINED IN SUB-SECTION 5 OF SECTION 43 OF THE ACT. IT APPEARS FROM THE ASSESSMENT ORDER THAT THE ASSESSING OFFICER HAS REACHED HIS CONCLUSION MERELY ON THE BASIS OF ASSUMPTIONS AND PRESUMPTIONS WITHOUT BRINGING ANY EVIDENCE ON RECORD TO BACK SUCH CONCLUSION. ON THE CONTRARY, THE ASSESSEE HAS P RODUCED ENOUGH DOCUMENTARY EVIDENCE TO SUBSTANTIATE ITS CLAI M THAT THE TRADING IN SHARE IS DELIVERY BASED AND IN THE NATURE OF ELIGIBLE TRANSACTION IN DERIVATES AS REFERRED TO IN CLAUSE ( D) OF THE PROVISO TO SECTION 43(5) THEREBY, TAKING IT OUT OF THE PURVI EW OF SPECULATIVE TRANSACTION AS MENTIONED IN SECTION 43( 5) OF THE ACT. THE CONTRACT NOTE COPIES WHICH HAVE BEEN SUBMITTED BEFORE US ALSO CLEARLY DEMONSTRATE THIS FACT. IN THE AFORESAID CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CONCLUSI ON ARRIVED AT BY THE ASSESSING OFFICER THAT THE TRANSACTION IN SHA RE TRADING ENTERED INTO BY THE ASSESSEE IS SPECULATIVE TRANSACT ION, IS WITHOUT ANY BASIS AND HENCE, CANNOT BE SUSTAINED. WE, THEREF ORE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) WHICH I S ACCORDINGLY UPHELD. GROUNDS RAISED BY THE DEPARTMENT ARE DISMISS ED. 8. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13.09.2013. SD/- SD/- (CHANDRA POOJARI) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATE 13 TH SEPTEMBER, 2013. VBP/- 7 COPY TO 1. INCOME TAX OFFICER, WARD 10 (1), 5 TH FLOOR, A BLOCK, I.T. TOWERS, A.C. GUARDS, HYDERABAD. 2. SRI HANUMAN JOSHI, D.NO.2 - 4 - 403 & 404, GROUND FLOOR, RAMGOPALPET, SECUNDERABAD. PAN ABNPJ8479Q. 3. CIT(A) - VI , 6A, I.T. TOWERS, A.C. GUARDS, HYDERABAD 004. 4. DR B BENCH, ITAT, HYDERABAD