Arun Kumar Saraogi, Kolkata V. DCIT, Circle - 34, Kolkata

ITA 1587/KOL/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9413 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2011
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 19-07-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 10-09-2009
• Court: TRIBUNAL
• Department Lawyers: MRS KAVITA JHA
• Assessee Lawyers: S M SURANA
• Keywords: Transactions in derivatives; Speculation loss
• Section: 234B; 43(5)

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL, BEN CH A, KOLKATA () BEFORE . . . . . . . . , ,, , SHRI D.K.TYAGI, JUDICIAL MEMBER. !' !' !' !' /AND . .. . . .. .! !! ! , # SHRI C.D. RAO, ACCOUNTANT MEMBER '$ '$ '$ '$ / ITA NO. 1587/KOL/2009 %&' !()/ ASST. YEAR : 2006-07 (+, / APPELLANT ) ARUN KUMAR SARAOGI (PAN: ALRPS 8760P) - !& - - VERSUS - (.+,/ RESPONDENT ) D.C.I.T., CIRCLE-34, KOL. +, / 0 / FOR THE APPELLANT: / SHRI S.M.SURANA .+, / 0 / FOR THE RESPONDENT : MRS. KAVITA JHA 1 / ORDER ( . .. . . .. .! !! ! ) # PER SHRI C.D.RAO, A.M . THIS APPEAL FILED BY THE ASSESSEE IS PREFERRED AGAI NST THE ORDER DATED 31.07.2009 OF THE C.I.T.(A)-XX, KOLKATA PERTAINING TO ASSESSME NT YEAR 2006-07. 2. IN THIS APPEAL, THE ASSESSEE HAS TAKEN THE FOLL OWING GROUNDS: 1. FOR THAT AND IN THE FACTS AND CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(A) HAS ERRED IN CONSIDERING THE LOSS AMOUNTING TO RS.3,58,04,606/- INCURRED BY THE APPELLANT IN F&O CONTRACT BEFORE 25 /1/06 INASMUCH AS THE TRANSACTION UNDER THE F&O CONTRACT ARE NOT SPEC ULATIVE TRANSACTION AS DEFINED IN SECTION 43(5) OF THE ACT. 2. FOR THAT AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ORDER OF THE ASS ESSING OFFICER FOR DISALLOWANCE OF THE LOSS INCURRED BY THE APPELLANT UNDER THE F&O TRANSACTION INASMUCH AS THE C.B.D.T. CIRCULAR CANNO T SUPERSEDE THE WELL DEFINED PROVISIONS OF THE ACT AND THE CLAUSE (D) AD DED IN THE PROVISO TO SECTION 43(5) IS MERELY CLARIFICATORY IN NATURE. 3. FOR THAT AND IN THE FACTS AND CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE LEVY OF INTEREST U/S 234B OF THE ACT 2 INASMUCH AS THE APPELLANT DENIES ITS LIABILITY FOR ANY INTEREST IMPOSABLE U/S 234B OF THE ACT AS THE SAME WAS NEITHER QUANTIF IED NOR MENTIONED IN THE ASSESSMENT ORDER. 4. YOUR APPELLANT CRAVES LEAVE TO ARGUE FURTHER GR OUNDS, IF NECESSARY, AT THE TIME OF APPEAL. 3. BRIEF FACTS OF THE ABOVE ISSUES ARE THAT WHILE D OING THE SCRUTINY ASSESSMENT, THE AO HAS TREATED THE BALANCE OF F&O LOSS OF RS.3,58,0 4,606/- AS BUSINESS LOSS BY OBSERVING AS UNDER: FROM THE PROFIT & LOSS ACCOUNT, IT IS NOTED THAT TH E ASSESSEE HAS CLAIMED LOSS IN F&O TRADING OF RS.3,71,31,694/-. THE A/R WAS ASK ED TO SUBMIT THE DETAILS OF LOSS FROM F&O TRADING AND TO SUBMIT EXPLANATION WHY THE LOSS ON F&O TRADING BEFORE 25.1.2006 IS TREATED AS SPECULATION LOSS. TH E ASSESSEE HAS SUBMITTED THE DETAILS OF F&O TRADING AND ALSO THE LOSSES ARISED O N IT. AS PER THE NOTIFICATION NO.2 OF 25-01-2006 OF THE C.B.D.T., TRADING IN F&O BEFORE THAT DATE WAS TO BE TREATED AS SPECULATION AND ANY INCOME OR LOSS DUE T O F&O TRADING IS TO BE CONSIDERED AS SPECULATION PROFIT/LOSS AND ANY SUCH LOSS TO BE IGNORED. SPECULATION LOSS CANNOT BE SET OFF AGAINST ANY OTHE R INCOME AS PER THE RELEVANT PROVISION OF LAW. SUCH LOSS CAN BE SET OFF AGAINST SPECULATION LOSS. FROM THE DETAILS OF F&O TRADING, IT IS NOTED THAT THE ASSESS EE HAS SUFFERED LOSS OF RS.3,58,04,606/- BEFORE 25-1-2006 AND RS.13,27,088/ - AFTER THAT DATE. HENCE, THE F&O LOSS OF RS.3,58,04,606/- IS TREATED AS SPEC ULATION LOSS AS PER C.B.D.T. NOTIFICATION AND CARRY FORWARD FOR FUTURE SET OFF. THE BALANCE F&O LOSS OF RS.13,27,088/- IS TREATED AS BUSINESS LOSS. 3.1 THE AO FURTHER CHARGED INTEREST UNDER SECTION 2 34B OF THE I.T. ACT. 4. ON APPEAL, THE LD. CIT(A) HAS CONFIRMED THE SAME BY OBSERVING, REGARDING ISSUE NO.1, THAT I HAVE PERUSED THE ASSESSMENT ORD ER AND CONSIDERED THE SUBMISSIONS OF THE APPELLANT. IT IS AN ADMITTED FACT THAT THE A PPELLANT HAS INCURRED LOSSES OF RS.3,58,04,606/- IN F&O TRADING. PRIOR TO INSERTION OF CLAUSE (D) TO THE PROVISO OF SECTION 43(5) BY THE FINANCE ACT, 2005 WITH EFFECT FROM 01-04-2006, THE LOSS INCURRED IN F&O TRANSACTIONS WAS TREATED AS SPECULATIVE LOSS AND NOT BUSINESS LOSS. CONSEQUENT TO INTRODUCTION OF CLAUSE (D), A NOTIFICATION NO.2 OF 2006 DATED 25-01-2006 WAS ISSUED WHEREIN THE NATIONAL STOCK EXCHANGE, MUMBAI AND THE BOMBAY STOCK EXCHANGE, 3 MUMBAI WERE RECOGNIZED AS STOCK EXCHANGES TO CARRY OUT THE ELIGIBLE TRANSACTION IN F&O SHARES. THE RECOGNITION WAS GRANTED TO THE TWO EXCHANGES WITH EFFECT FROM 25- 01-2006. IN THE EXPLANATORY MEMORANDUM IN RESPECT O F NOTIFICATION S.O. 89(E) DATED 25-01-2006, IT WAS EXPLAINED THAT AN ELIGIBLE TRANS ACTION IN RESPECT OF TRADING IN DERIVATIVES CARRIED OUT ON THE TWO STOCK EXCHANGES WITH EFFECT FROM 25-01-2006 SHALL NOT BE DEEMED TO BE SPECULATIVE TRANSACTION. THERE IS NO DISPUTE ON FACTS THAT THE APPELLANT INC URRED LOSS OF RS.3,58,04,606/- IN RESPECT OF TRADING IN DERIVATIVES, THE TRANSACTI ONS OF WHICH ARE SETTLED OTHERWISE THAN ACTUAL DELIVERY OF SHARES AND SECURITIES. THUS, PRI OR TO INSERTION OF CLAUSE (D) TO THE PROVISO OF SECTION 43(5), THE LOSS INCURRED IN TRAD ING IN DERIVATIVES WAS TREATED AS SPECULATIVE LOSS. IT IS ONLY AFTER INSERTION OF CLA USE (D) TO THE PROVISO OF SECTION 43(5) BY THE FINANCE ACT, 2005 WITH EFFECT FROM 01-04-200 6 AND NOTIFICATION DATED 25-01- 2006 THAT THE LOSS INCURRED ON TRADING OF DERIVATIV ES WAS EXCLUDED FROM THE DEFINITION OF SPECULATIVE TRANSACTION. IN VIEW OF THE ABOVE, I FIND NO MERIT IN THE SUBMIS SIONS OF THE APPELLANT. THE VIEW TAKEN BY THE AO IN THIS REGARD IS UPHELD. THE LOSS OF RS.3,58,04,606/-, INCURRED IN TRADING OF DERIVATIVES PRIOR TO 25-01-2006, CANNOT BE ALLOWED AS BUSINESS LOSS. THE GROUNDS RAISED BY THE APPELLANT ARE DISMISSED. 4.1 AS REGARDING THE CHARGING OF INTEREST BY THE AO UNDER SECTION 234B OF THE ACT, THE LD. CIT(A) CONFIRMED THE SAME BY OBSERVING THAT CHARGING OF INTEREST UNDER SECTION 234B IS MANDATORY. THE INTEREST UNDER SECTI ON 234B HAS BEEN CLEARLY QUANTIFIED IN THE NOTICE OF DEMAND ACCOMPANYING THE ASSESSMENT ORDER. 5. AGGRIEVED BY THIS, THE ASSESSEE IS IN APPEAL BEF ORE US. 6. AT THE TIME OF HEARING BEFORE US, THE LD. COUNSE L, APPEARING ON BEHALF OF THE ASSESSEE, HAS REITERATED THE SUBMISSIONS MADE BEFOR E THE REVENUE AUTHORITIES AND FURTHER CONTENDED THAT IN THE SIMILAR SET OF FACTS, THE ITAT, MUMBAI J BENCH IN THE CASE OF PREM ASSOCIATES ADVERTISING & MARKETING IN ITA NO.6547/MUM/2009 HELD THAT THE DERIVATE TRANSACTIONS, ENTERED INTO BY THE ASSESSEE AT THE RECOGNIZED STOCK EXCHANGES EVEN PRIOR TO THE DATE OF NOTIFICATION IN THE RELEVANT PREVIOUS YEAR, ARE TO BE TREATED AS COVERED BY THE EXCLUSION CLAUSE SET OUT IN SECTION 43(5)(D). THEREFORE, HE 4 REQUESTED TO SET ASIDE THE ORDERS OF THE REVENUE AU THORITIES AND ALLOW THE APPEAL OF THE ASSESSEE. 7. ON THE OTHER HAND, THE LD. D.R, APPEARING ON BEHALF OF THE REVENUE, HAS RELIED ON THE ORDERS OF THE SPECIAL BENCH OF THE ITAT IN THE CASE OF SHREE CAPITAL SERVICES LTD. REPORTED IN 318 ITR (AT) 1 AND FURTHER CONTENDED TH AT IN VIEW OF THE DECISION OF THE SPECIAL BENCH, THE ORDER OF THE MUMBAI BENCH IS NOT APPLICABLE TO THE FACTS OF THE CASE. THEREFORE, HE REQUESTED TO CONFIRM THE ACTION OF THE REVENUE AUTHORITIES. 8. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CAREF UL PERUSAL OF THE MATERIALS AVAILABLE ON RECORD, WE ARE OF THE CONSIDERED VIEW THAT THE FACTS OF THE PRESENT CASE ARE AKIN TO THE FACTS OF THE CASE DECIDED BY THE ITAT, MUMBAI BENCH IN ITA NO.6547/MUM/2009 WHEREAS THE FACTS OF THE ISSUE DEC IDED BY THE SPECIAL BENCH ARE NOT SIMILAR TO THE ONE IN HAND. WE CONSIDER IT TO N ARRATE THE FACTS AS WELL AS THE CONCLUSION OF THE CASE DECIDED BY THE ITAT, MUMBAI BENCH IN ITA NO.6547/MUM/2009 AS UNDER: FACTS : THE MATERIAL FACTS ARE NOT IN DISPUTE. THE ASSESSME NT YEAR INVOLVED IS 2006-07, AND THE ASSESSEE HAS INCURRED LOSS OF RS 18,05,525, IN RESPECT OF FUTURE AND OPTIONS TRANSACTIONS INCURRED ON THE NATIONAL STOC K EXCHANGE OF INDIA ON 17TH, 23D AND 24 TH JANUARY 2006, WHICH WAS CLAIMED TO BE A NORMAL BUS INESS LOSS IN VIEW OF THE EXCEPTION CARVED OUT BY INSERTION OF CL AUSE (D) OF SECTION 43(5) BROUGHT TO STATUTE W.E.F 1ST APRIL 2006. THIS CLAIM HAS BEEN REJECTED BY THE AUTHORITIES BELOW ON THE GROUND THAT, AS ON THE DAT E OF TRANSACTIONS, THE STOCK EXCHANGE WAS NOT NOTIFIED FOR THE PURPOSES OF SECTI ON 43(5)(D), AND, THEREFORE, EVEN THOUGH CLAUSE (D) CAME INTO FORCE WITH EFFECT FROM 1T APRIL 2006, THE IMPUGNED TRANSACTIONS DID NOT SATISFY THE REQUIREME NTS OF SECTION 43(5)(D) TO THE EFFECT THAT TRANSACTIONS SHOULD BE ENTERED INTO IN A RECOGNIZED STOCK EXCHANGE. SECTION 43 (5) DEFINES SPECULATIVE TRANS ACTION MEANS A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED O THERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS. HO WEVER, CLAUSE (D), WHICH WAS INSERTED WITH EFFECT FROM 1ST APRIL 2006, PROVIDES THAT AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING OF DERIVATES CARRIED OUT IN A RE COGNIZED STOCK EXCHANGE SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION. THER E IS ALSO NO DISPUTE THAT THE TRANSACTION FULFILS THE REQUIREMENTS OF BEING AN EL IGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIVATES. AS FOR THE REQUIREMENT OF STO CK EXCHANGE BEING RECOGNIZED, AS SET OUT IN EXPLANATION (II) TO SECTION 43(5)(D), ARE THAT THE STOCK EXCHANGE SHOULD , INTER ALIA, NOTIFIED BY THE CENTRAL GOVER NMENT FOR THIS PURPOSE. IT IS AN ACCEPTED POSITION THAT NSE AND BSE HAVE BEEN GRA NTED RECOGNITION, FOR THE PURPOSE OF SECTION 43(5)(D), VIDE NOTIFICATION DATE D 25TH JANUARY 2006 ISSUED 5 BY THE CENTRAL BOARD OF DIRECT TAXES, AND THE POINT OF DISPUTE IS CONFINED TO THE QUESTION WHETHER THIS RECOGNITION WILL ALSO AFFECT THE TRANSACTIONS ENTERED INTO IN THE RELATED STOCK EXCHANGE PRIOR TO THE DATE OF RECOGNITION. CONCLUSION : 7. WE FIND THAT IT IS UNDISPUTED POSITION THAT THE STO CK EXCHANGES, ON WHICH THE IMPUGNED TRANSACTIONS WERE CARRIED OUT, WERE DULY N OTIFIED ON 25TH JANUARY 2006, AND THAT IN ACCORDANCE WITH THE VIEWS OF THE CO-ORDINATE BENCH IN THE CASE OF ANAND BUILDWELL (SUPRA), AS ALSO WITH THE V IEWS OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CLARIS LIFESCIENNCES (SUP RA), ONCE THE APPROVAL IS GRANTED IN THE RELEVANT PREVIOUS YEAR, AND IN THE A BSENCE OF ANYTHING INDICATED TO THE CONTRARY, THE APPROVAL HAS TO BE TAKEN AS EF FECTIVE FROM THE BEGINNING OF THE RELEVANT YEAR. THE ISSUE IS THUS COVERED, IN FA VOUR OF THE LINE OF REASONING ADOPTED BY THE ASSESSEE, BY DECISION OF THE COORDIN ATE BENCH IN THE CASE OF ANAND BROTHERS (SUPRA) AND BY HONBLE GUJARAT HIGH COURTS JUDGMENT IN THE CASE OF CLARIS LIFESCIENCES (SUPRA). RESPECTFULLY F OLLOWING THESE DECISIONS, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND HOLD THAT THE DERIVATE TRANSACTIONS, ENTERED INTO BY THE ASSESSEE AT THE RECOGNIZED STOC K EXCHANGES EVEN PRIOR TO THE DATE OF NOTIFICATION IN THE RELEVANT PREVIOUS YEAR, ARE TO BE TREATED AS COVERED BY THE EXCLUSION CLAUSE SET OUT IN SECTION 43(5)(D) . THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 8.1 KEEPING IN VIEW OF THE FACT THAT THE LD. D.R. C OULD NOT BRING ANY CONTRARY DECISION THAN THAT OF THE ONE RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE AND THE FACTS OF THE PRESENT CASE ARE UNDISPUTEDLY AKIN TO THE ON E DECIDED BY THE MUMBAI BENCH OF THE ITAT, RESPECTFULLY FOLLOWING THE SAME, WE SET A SIDE THE ORDERS OF THE REVENUE AUTHORITIES AND DIRECT THE AO TO TREAT THE LOSS AS SPECULATIVE LOSS. 8.2 REGARDING THE CHARGING OF INTEREST UNDER SECTIO N 234B OF THE ACT, AS WE HAVE ALLOWED THE PLEA OF THE ASSESSEE, THIS IS ONLY CONS EQUENTIAL IN NATURE, THE AO IS DIRECTED TO RE-COMPUTE THE INTEREST UNDER SECTION 234B OF TH E ACT, AFTER GIVING RELIEF TO THE ASSESSEE, AS INDICATED ABOVE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. 2 1 3 4& 25 ORDER IS PRONOUNCED IN THE OPEN COURT ON 07/01/2011 . SD/- SD/- . . . . . . . . , ,, , D.K.TYAGI, JUDICIAL MEMBER . .. . . .. .! !! ! , # C.D. RAO, ACCOUNTANT MEMBER ( (( (# # # #) )) ) DATE: 07.01.2011 MST(SR.P.S.) 6 1 / .%%6 76(8- COPY OF THE ORDER FORWARDED TO: 1. ARUN KUMAR SARAOGI, 27/1, STEPHEN HOUSE, 2 ND FLOOR, 4, B.B.D. BAG (EAST), KOLKATA- 700 001. 2 DCIT, CIRCLE-34, KOLKATA 3. THE CIT, 4. THE CIT(A), 5. DR, KOLKATA BENCHES, KOLKATA 6 .%/ TRUE COPY, 1&4/ BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES