AATASH SHARE & COMMODITIES BROKING P.LTD, MUMBAI V. ACIT 4(1), NAGPUR

ITA 1407/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71300 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 01-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS BHAVNA YASHROY
• Assessee Lawyers: K SHIVARAM
• Keywords: Speculation loss
• Section: 45(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI .. , , BEFORE SHRI I. P. BANSAL, JM AND SHRI SANJAY ARORA , AM ./ I.T.A. NO. 1407/MUM/2012 ( / ASSESSMENT YEAR: 2008-09) AATASH SHARE & COMMODITIES BROKING PVT. LTD. 14, BUILDING NO.2, TURAKHIA PARK, M. G. ROAD, KANDIVALI (W), MUMBAI-400 067 / VS. ASST. CIT 4(1), MUMBAI ./ ./PAN/GIR NO. AAFCA 3909 C ( !'#$ /ASSESSEE ) : ( % / REVENUE ) & ./ I.T.A. NO. 1522/MUM/2012 ( / ASSESSMENT YEAR: 2008-09) DY. CIT 4(1), 6 TH FLOOR, ROOM NO.640, AAYAKAR BHAVAN, MUMBAI-400 020 / VS. AATASH SHARE & COMMODITIES BROKING PVT. LTD. 14, BUILDING NO.2, TURAKHIA PARK, M. G. ROAD, KANDIVALI (W), MUMBAI-400 067 ./ ./PAN/GIR NO. AAFCA 3909 C ( % / REVENUE ) : ( !'#$ /ASSESSEE ) !'#$ & ' / ASSESSEE BY : SHRI K. SHIVARAM & SHRI PARAS SAVLA % & ' / REVENUE BY : MRS. BHAVNA YASHROY ( %) & $* / DATE OF HEARING : 28.08.2013 +,- & $* / DATE OF PRONOUNCEMENT : 25.09.2013 2 ITA NOS. 1407 & 1522/MUM/2012 (A.Y. 2008-09) AATASH SHARE & COMMODITIES BROKING PVT. LTD. . / O R D E R PER SANJAY ARORA, A. M.: THESE ARE A SET OF CROSS APPEALS, I.E., BY THE ASSE SSEE AND THE REVENUE, AGITATING THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEAL S)-9, MUMBAI (CIT(A) FOR SHORT) DATED 12.12.2011, PARTLY ALLOWING THE ASSESSEES AP PEAL CONTESTING ITS ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT H EREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2008-09 VIDE ORDER DATED 30.11.2010. 2. WE SHALL TAKE UP THE ASSESSEES APPEAL, BEING SE NIOR, FIRST. VIDE ITS FIRST GROUND, THE ASSESSEE CHALLENGES THE ENHANCEMENT OF ITS INCOME B Y RS.4,90,512/- BY MAKING AN ADDITION IN RESPECT OF MARK TO MARKET PROFIT OF RS. 7,92,365/- IN RESPECT OF DERIVATIVE TRANSACTIONS OUTSTANDING AS AT THE YEAR-END. WE TAB ULATE THE TRANSACTIONS AND THE PROFIT AND LOSS INVOLVED BY MARKING IT TO MARKET, SO AS TO HIGHLIGHT THE CONTROVERSY UNDER REFERENCE (PB PG.127): CONTRACT QTY BOUGHT /SOLD DIFFERENCE PROFIT ON THE BASIS OF MARK TO MARKET DIFFERENCE (LOSS) ON THE BASIS OF MARK TO MARKET CHENNAI PETRO 44100 BOUGHT 6,93,012 IFCI 100470 BOUGHT (2,84,917) RELIANCE POWER 9900 BOUGHT 99,353 UNITECH 10800 SOLD (16,936) TOTAL 7,92,365 (3,01,853) NET DIFFERENCE 4,90,512 WHILE THE ASSESSEE HAD CLAIMED LOSS FOR RS.3,01,853 /- ON THE GROUND OF PRUDENCE, IT HAD NOT, CORRESPONDINGLY, ACCOUNTED FOR THE PROFIT ARIS ING ON OTHER SUCH UNSETTLED TRANSACTIONS AS AT THE YEAR-END, I.E., 31.03.2008, WHICH WORKS T O RS.7.92 LACS. THE LD. CIT(A) FOUND THE SAME AS INCONSISTENT AND, ACCORDINGLY, AFTER SH OW CAUSING THE ASSESSEE IN RESPECT THEREOF, INASMUCH AS THE SAME WOULD LEAD TO AN ENHA NCEMENT IN THE ASSESSED INCOME, ADDED THE SAID PROFIT. 3.1 THE PARTIES WERE HEARD AT LENGTH. THE ASSESSEE AS A PART AND IN THE REGULAR COURSE OF ITS BUSINESS ENTERS INTO FORWARD CONTRACTS FOR P URCHASE AND SALE OF SECURITIES, TO BE 3 ITA NOS. 1407 & 1522/MUM/2012 (A.Y. 2008-09) AATASH SHARE & COMMODITIES BROKING PVT. LTD. SETTLED ON A DEFINED, FUTURE DATE. THE CONTRACTS AR E SUBSEQUENTLY SQUARED UP ON THE BASIS OF THE OBTAINING RATES AS ON THE RELEVANT (MATURITY ) DATE. ACCORDINGLY, NO PROFIT IS BOOKED WHEN THE MOVEMENT IN THE SHARE PRICE YIELDS A PROFI T AS AT THE YEAR-END, WHILE AT THE SAME TIME BOOKS A LOSS IN CASE OF AN ADVERSE MOVEMENT IN THE SHARE PRICE. THIS EXPLAINS THE ASSESSEES CONDUCT IN, WHILE BOOKING THE LOSS FOR R S.3.02 LACS, NOT RECOGNIZING THE UNREALIZED INCOME ON OTHER CONTRACTS, WHICH WORKS T O RS.7.92 LACS. THE LD. CIT(A) FOUND THIS INCONGRUENT AND, THEREFORE, WHILE NOT DISTRIBU TING THE LOSS AS BOOKED, SO THAT THE ASSESSEES GROUND IS INCORRECT TO THAT EXTENT, DIRE CTED FOR THE INCLUSION OF THE UNREALIZED GAIN, RESULTING IN AN ENHANCEMENT IN INCOME BY RS.7 .92 LACS. APART FROM INCONSISTENCY, THE OTHER FACTOR THAT GUIDED THE DECISION BY THE LD . CIT(A) IS THAT THE LOSS OF RS.3.02 LACS HAD NOT CRYSTALLIZED, BUT WAS ONLY NOTIONAL, SO THA T NO ALLOWANCE IN ITS RESPECT COULD BE ALLOWED. 3.2 BEFORE US, LIKE CONTENTIONS WERE RAISED BY EITH ER SIDE; THE RESPECTIVE CASES OF THE PARTIES BEING THE SAME, WITH THE ASSESSEE ALSO RELY ING, APART FROM THE GUIDANCE NOTE ON ACCOUNTING FOR EQUITY INDEX AND EQUITY STOCK FUTURE S AND OPTIONS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (PB PGS .96-117), ALSO ON THE DECISION BY THE TRIBUNAL IN THE CASE OF PASUPATI CAPITAL SERVICES (P.) LTD. VS. ACIT (IN ITA NO. 5361/MUM/2011 DATED 13.02.2013). IN OUR VIEW, THE A SSESSEES STAND MERITS ACCEPTANCE. WITHOUT DOUBT, THE LOSS OF RS.3.02 LACS ON THE UNSE TTLED DERIVATIVE CONTRACTS HAS NOT CRYSTALLIZED. SO HOWEVER, THE LD. CIT(A) HAS NOT DI SALLOWED THE SAID LOSS, BUT, WHILE RETAINING THE SAME, HAS DIRECTED FOR THE INCREASE I N INCOME IN RESPECT OF UNREALIZED GAINS. PRUDENCE IS A FUNDAMENTAL ACCOUNTING ASSUMPTION, DU LY RECOGNIZED BY LAW PER ACCOUNTING STANDARD (AS I) ISSUED BY THE CBDT U/S.1 45(2) OF THE ACT. THE SAME PRESCRIBES BOOKING OF ALL KNOWN LIABILITIES AND LOS SES, WHILE AT THE SAME TIME NOT BOOKING, SIMILARLY, UNREALIZED PROFITS OR INCOME. MARKING TO MARKET IS A RELIABLE GUIDE TO ASCERTAIN THE EXTENT OF LOSS THAT THE ASSESSEE STANDS TO SUFF ER IN RESPECT OF THE CONTRACTS ENTERED INTO. THE GENUINENESS OF THE TRANSACTIONS IS NOT IN DOUBT , WITH THE LD. AR POINTING OUT THAT IN FACT ALL THE FOUR TRANSACTIONS HAVE ULTIMATELY RESU LTED IN PROFIT. FURTHER, AS CLARIFIED BY HIM 4 ITA NOS. 1407 & 1522/MUM/2012 (A.Y. 2008-09) AATASH SHARE & COMMODITIES BROKING PVT. LTD. IN RESPONSE TO A QUERY BY THE BENCH, THE CLOSING RA TE IN RESPECT OF THE SECURITY TRANSACTIONS FOR WHICH LOSS HAS BEEN BOOKED/ACCOUNT ED FOR IS SUBSTITUTED FOR THE COST PRICE, SO THAT IT IS ONLY THE PRICE, PLUS OR MINUS, WITH REFERENCE TO THE SAID RATE, THAT WOULD BE/IS CONSIDERED WHILE BOOKING THE PROFIT AND LOSS ON THE SETTLEMENT OF THE TRANSACTION. AS SUCH, THE MATTER HAS TO BE REGARDED NOT WITH REFERE NCE TO INCONSISTENCY, BUT WITH REGARD TO THE PRUDENCE, WHICH, AS AFORESAID, IS A FUNDAMENTAL ACCOUNTING ASSUMPTION/PRINCIPLE AND, THEREFORE, IS TO INFORM ALL ACCOUNTING STATEMENTS. WE, ACCORDINGLY, DIRECT THE DELETION OF THE ADDITION OF RS.7.92 LACS MADE BY THE LD. CIT(A) . NEEDLESS TO ADD, THE SAID INCOME WOULD STAND TO BE DELETED, AND THE LOSS OF RS.3.02 LACS CLAIMED AND ALLOWED TO THE ASSESSEE, ADJUSTED AGAINST THE INCOME, SPECULATIVE OR NON-SPECULATIVE, AS THE CASE MAY BE, UNDER WHICH THE INCOME FROM DERIVATIVES STANDS CLAS SIFIED FOR THE YEAR OF SETTLEMENT. WE DECIDE ACCORDINGLY. 4. THE SECOND ISSUE ARISING IN THE INSTANT CASE IS IN RESPECT OF THE DISALLOWANCE OF THE SPECULATIVE LOSS CLAIMED BY THE ASSESSEE. THE ASSES SING OFFICER (A.O.) OBSERVED DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THAT THOUG H THE ASSESSEE WAS ENGAGED IN BOTH THE SHARE TRADING AS WELL AS THE DERIVATIVE BUSINES SES, HAD BOOKED THE ENTIRE INTEREST EXPENDITURE AGAINST THE SHARE TRADING INCOME. THIS WAS NOT ACCEPTABLE AS THE F & O SEGMENT OF THE BUSINESS ALSO REQUIRED INVESTMENT OF FUNDS FOR MARGIN MONEY IN HUGE SUMS. NO PROPER ALLOCATION IN RESPECT OF THE SAID E XPENDITURE HAVING BEEN MADE, HE PROCEEDED TO DISALLOW THE LOSS CLAIMED BY THE ASSES SEE FROM THE SHARE TRADING BUSINESS. THE SAME STOOD CONFIRMED BY THE LD. CIT(A) ON THE S AME BASIS, SO THAT AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE PRIMARY FACTS ARE NEITHER DENIED NOR DISPUTED. THE ASSESSEE HAS A DMITTEDLY NOT MADE ANY ALLOCATION OF THE INTEREST EXPENDITURE AGAINST THE TWO BUSINESS S EGMENTS FOR WHICH THE BORROWED FUNDS HAVE BEEN UTILIZED THROUGH THE COMMON POOL OF FUNDS . THE SAME WOULD, THEREFORE, NEED TO BE ALLOCATED ON SOME REASONABLE, COGENT BASIS. T HOUGH THE ASSESSEE HAS PROVIDED FOR 5 ITA NOS. 1407 & 1522/MUM/2012 (A.Y. 2008-09) AATASH SHARE & COMMODITIES BROKING PVT. LTD. SUCH A ALLOCATION BEFORE THE LD. CIT(A) IN THE APPE LLATE PROCEEDINGS (PB PGS.132-133), THE SAME HAS NOT BEEN VERIFIED OR EXAMINED BY EITHE R OF THE AUTHORITIES BELOW. ACCORDINGLY, WE RESTORE THE MATTER BACK TO THE FILE OF THE A.O. TO CONSIDER THE ASSESSEES CLAIM OF ALLOCATION, AS PROPOSED, AND DECIDE UPON T HE SAME ON THE TOUCHSTONE OF IT BEING A REASONABLE AND COGENT BASIS, ASSESSING THE INCOME F ROM THE SHARE TRADING BUSINESS AS WELL AS THE INCOME FROM THE SPECULATIVE BUSINESS ACCORDI NGLY. THERE IS NO ROOM FOR ANY ARBITRARY ACTION, AND THE REVENUE IS OBLIGED TO TAK E ITS OBJECTION, FOUND REASONABLE BY US IN PRINCIPLE, TO ITS LOGICAL END. WE DECIDE ACCORDI NGLY. 6. THE THIRD GROUND OF THE ASSESSEES APPEAL RAISES A COMMON ISSUE WITH THE REVENUES APPEAL PER ITS SOLE GROUND. THE A.O. IN A SSESSING THE ASSESSEES TAX LIABILITY FOR THE YEAR COMPUTED THE INCOME-TAX UNDER THE REGU LAR PROVISIONS (OTHERWISE AT RS.84,00,360/-) AFTER ALLOWING REBATE U/S.88E, SO T HAT THE SAME CAME TO BE NIL, WHILE COMPUTING THE TAX PAYABLE UNDER THE ALTERNATE METHO D, I.E., ON THE BOOK PROFIT U/S.115JB OF RS.55,17,680/-, AT RS.5,51,768/-. THE LATTER BEI NG HIGHER, THE DEMAND FOR THE SAME WAS RAISED. THE ASSESSEES CLAIM FOR LIKE REBATE BEING ALLOWED FROM THE TAX ON THE BOOK PROFIT, I.E., PRIOR TO COMPARISON OF THE TAX PAYABLE UNDER THE TWO ALTERNATIVES, DID NOT FIND FAVOUR WITH THE LD. CIT(A), WHO THOUGH DIRECTED FOR REBATE U/S.88E BEING ALLOWED TO THE ASSESSEE ON THE BOOK PROFIT TAX AS WELL, SO THAT BOTH THE PA RTIES ARE IN APPEAL. 7. BEFORE US, THE MATTER WAS ARGUED WITH REFERENCE TO THE DECIDED CASE LAW, AS IN THE CASE OF CIT VS. HORIZON CAPITAL LTD. [2011] 64 DTR 306 (KAR) AND CIT VS. MBL & CO. LTD. [2013] 35 TAXMANN.COM 60 (DEL). THE MATTER, THEREF ORE, HAS TO BE CONSIDERED IN LIGHT OF THE DECISIONS BY THE HONBLE COURTS OF LAW. IT H AS BEEN CLARIFIED THAT THE REBATE U/S.88E COULD NOT BE CONFINED TO THE TAX UNDER REGULAR PROV ISIONS OF THE ACT, AND WOULD, THEREFORE, EXTEND ALSO TO THAT PAYABLE ON THE BOOK PROFIT U/S. 115JB. ACCORDINGLY, ONCE A COMPARISON BETWEEN THE HIGHER OF THE TWO TAX PAYABLES, I.E., O N THE INCOME ASSESSED ON THE REGULAR PROVISIONS AS WELL AS ON THE BASIS OF THE BOOK-PROF IT, IS MADE TO DETERMINE THE TAX EXIGIBLE, THE REBATE AS EXIGIBLE UNDER LAW U/S.88E WOULD HAVE TO BE ALLOWED IRRESPECTIVE 6 ITA NOS. 1407 & 1522/MUM/2012 (A.Y. 2008-09) AATASH SHARE & COMMODITIES BROKING PVT. LTD. OF WHETHER THE TAX IS PAYABLE UNDER THE REGULAR PRO VISIONS OF THE ACT OR UNDER THE BOOK PROFIT. WE FIND THE IMPUGNED ORDER TO BE IN CONSONA NCE THEREWITH. WE DECIDE ACCORDINGLY. 8. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED, AND THE REVENUES APPEAL IS DISMISSED. #-$/ !'#$ & 0. % 1 $ & $ 23, 4 % & # & $ 23 ORDER PRONOUNCED IN THE OPEN COURT ON SEPTEMBER 25, 2013 SD/- SD/- (I. P. BANSAL) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ( ) MUMBAI; 5 DATED : 25.09.2013 %. ../ ROSHANI , SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. 6 / THE APPELLANT 2. 786 / THE RESPONDENT 3. ( 9$ ( ) / THE CIT(A) 4. ( 9$ / CIT - CONCERNED 5. <%=> 7$ ?! , * ?!- , ( ) / DR, ITAT, MUMBAI 6. >@' A) / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , ( ) / ITAT, MUMBAI