M/s Nasa Finlease Private Ltd., New Delhi V. ACIT, New Delhi

ITA 1663/DEL/2010

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8835 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 02-02-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 13-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJHA
• Keywords: Business income; Transactions in derivatives; Speculation loss; Speculative transactions
• Section: 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E , NEW DELHI BEFORE SH. N. K. SAINI , AM AND SH. A. T VA RK E Y , JM ITA NO. 1663 /DEL/201 0 : ASSTT. YEAR : 2006 - 07 M/S NASA FINLEASE PVT . LTD., 207, SUCHIT CHAMBER, 1224/5, NAIWALA, BANK STREET, KAROL BAGH, NEW DELHI - 110005 VS ACIT, RANGE - 13, NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. A A A CN444Q A SSESSEE BY : SH. NAGESWAR RAO, ADV . REVENUE BY : SH. P. DAM KANUNJHA, SR DR DATE OF HEARIN G : 02.02.2015 DATE O F PRONOUNCEMENT : 02 . 02 .201 5 ORDER P ER N. K. SAINI , AM: THIS IS AN APPEAL BY THE ASSESSEE AND IS DIRECTED AGAINST THE ORDER DATED 16.02.2009 OF LD. CIT(A) - X V I , NEW DELHI. 2. THIS APPEAL WAS EARLIER DISPOSED OFF BY THE ITAT DELHI BENCH E , NEW DELHI VIDE ORDER DATED 30.03.2012 . AGAINST THE SAID ORDER, T HE REVENUE DEPARTMENT PREFERRED AN APPEAL TO THE HON BLE DELHI HIGH COURT WHER EIN VIDE ORDER DATED 06.09.2013, T HE VIEW TAKEN BY THE ITAT THAT THE ASSESSEE WAS ENTITLED TO THE BENEFIT UNDER PROVISO (D) TO SECTION 43(5) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) EVEN IN RESPECT OF TRANSACTION CARR IED OUT W.E.F. 01.04.2006 WAS UP HELD. H OWEVER, THE ANOTHER ISSUE RELATING TO SPECULATIVE LOSS U/S 73 OF THE ACT WAS SET ASIDE TO THE ITAT . O N THE DIRECTION OF THE HON BLE JURISDICTIONAL ITA NO. 1663 /DEL/201 0 NASA FINLEASE PVT. LTD. 2 HIGH COURT, N OW THIS ISSUE IS DECIDED . T HE FACTS RELATING TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSEE INCURRED A LOSS OF RS. 1,90,29,988 / - ON D ERIVATIVE TRANSACTIONS WHICH WERE ENTERED INTO BY THE ASSESSEE IN ORDER TO REDUCE THE SYSTEMIC RISK OF MAKING INVESTMENT IN VARIOUS SHARES. THE AO TREATED THE SAID LOSS AS LOSS FROM SPECULATIVE BUSINESS AND HELD THAT ALTHOUGH THE SECTION 43(5) OF THE ACT H AS BEEN AMENDED W.E.F ASSESSMENT YEAR 2006 - 07, T HE NOTIFICATION FOR THE RECOGNIZED EXCHANGE IS APPLICABLE FROM 05.01.2006 AND THEREFORE, TRANSACTION UNDERTAKEN BEFORE SUCH DATE WOULD BE CONSIDERED AS SPECULATIVE TRANSACTIONS. ACCORDINGLY, LOSS FROM TRADING OF DERIVATIVE WAS CONSIDERED AS LOSS FROM SPECULATIVE BUSINESS NOT ELIGIBLE FOR SET OFF AGAINST THE OTHER BUSINESS INCOME. 3. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) WHO SUSTAINED THE VIEW TAKEN BY THE AO BY OBSERVING IN PARA 4. 7 OF THE IMPUGNED ORDER AS UNDER: 4.7 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT, THE FINDINGS OF THE ASSESSING OFFICER AND THE FACTS ON RECORD. AS FAR AS THE CONTENTION OF THE APPELLANT THAT FUTURE INDEX/DERIVATIVE TRANSACTION ARE INCAPABLE OF P HYSICAL DELIVERY AND HENCE F UTURE IND E X / DERIV A TIV E TR A NSAC T IO N A R E I NCAPABL E O F P HY S I C AL DELIVERY AND HENCE O U TSI DE TH E SCOP E OF S ECT I ON 4 3 ( 5 ) ON T HE B A SI S OF TH E D E C ISIO N OF MUMBAI TR I BUNAL IN R B K SECUR ITIES LTD . ( SUPRA) , DCIT VS . SSKI IN V E STO R S SERVICE S PVT . L T D. (SUPRA) AND P . S . KA PO O R VS. ACIT ( SU P RA), I T CA N B E S EE N T HAT I N T HE F I RST TWO DECISIONS, THE AS SE S SMEN T YEAR I NV O LVED W A S PR I OR TO ASSESS MENT YEAR 2006 - 07 . IT WAS DUR I NG ASSE SS ME N T Y EA R 2006 - 07 TH AT ITA NO. 1663 /DEL/201 0 NASA FINLEASE PVT. LTD. 3 AMEN D MENT TO SE C T I O N 43(5 ) W AS M AD E BY I NSER T ING C L AU S E ( D ) THERETO . I N CASE OF P. S. K APOOR ( S UPR A) , IT WAS ONL Y HEL D TH AT THE P R OVISIONS OF S E CT I O N 43 ( 5 ) (D ) WAS CLARIF ICA TO R Y AN D H ENCE RETR O SPE C T I VE. I N T HE AP PELL AN T 'S CASE, T HE AS S ES S MEN T YE A R INVOLVE D I S ASSES SM E NT Y EAR 20 0 6 - 07 . AC C OR DI NG L Y, SECT ION 4 3(5) ( D ) READ WITH N OT IF I CA TION NO . 2 / 2 0 06 DAT E D 2 5 . 01. 2 006 A ND E XPL A N ATORY MEMORANDUM I N R E SPECT OF NOT I FICAT I ON SO 8 9( E) DATED 25 . 1 . 2006 WO U L D APPLY . ALTHO UG H S ECTI ON 43( 5 ) INSER T ED B Y F INANCE AC T , 2005 IS OPE R ATIVE FOR AS S ESSMENT YE A R 2 00 6 - 0 7 SIN CE T H E RUL E S T H E RE TO I.E . RU LE 6DDA A ND R ULES 6DDB WERE N OTIFIED ON 1 . 7. 2 00 5, AND THEREAFT ER THE NOT IF ICAT I O N MENTION I N G RECOGNITI O N OF BS E AND N SE FOR T HE PURPOS ES OF TH E AM E N DED SEC TIO N 43 ( 5 ) CAME IN TO EFFECT ON 25 . 1 . 06, THE ELIGIBLE TRANS A CT ION IN RESPECT O F TR A D I NG IN D E R IVATIVE I N T H E RECOGNIZED S T OCK EX C HA N GE S H A L L NOT BE DEEMED TO B E A SPECU L AT IVE T R ANSA C TION ONLY WITH EFFECT FROM 25 . 1 . 06 . THI S I S THE I MP ORT OF N OTIFICAT I ON NO . 2 / 2 006 D AT ED 25 . 01 . 2006 . ACC O RDING LY , I HO LD T HAT T H E A P PEL L ANT ' S DE RI V A T I V E T R A N SACTIO N UNDERT A KEN B ET W EE N JULY, 2005 AND S E PTEM BER 200 5 AN D B EFO R E 2 5 - 0 1 - 20 0 6 IS NOT ELIG I B L E TRAN SA C T I ONS AS PER THE PROVIS O ( D ) O F SECTION 43 ( 5 ) O F T H E ACT A ND HENCE T O BE CON SIDERE D AS S P E CU LATIVE TRANSACTION. TH E CONTEN T IONS OF T HE LEARNED AR ON A PPL I C A BILIT Y OF EXPLANA T ION T O SE CTI ON 73 OF THE A C T T O THE PR ESENT CASE AR E AL S O LIABLE TO BE REJECT E D AS AFTE R GO I NG THROUG H TH E TAX AUDIT R EPORT SI G N E D BY SH . S. D . C H O P RA CA, TH E N A TU R E OF THE BUS I NESS OF THE APPELLANT COMPANY I S SHOWN AS ' I N V E STMEN T COMPAN Y' AN D THE EXPLANATION TO SECTI O N 73 , W H ICH I S INSERTED BY TAXA T ION LAWS ( A MENDM E N T) ACT, 1975 ONLY TREATS THE B U S I NESS O F PURCHASE AND SAL E O F S H AR E S BY C OM P A N IES , W HICH ARE NOT I N VESTMENT COMPA NI ES , AS S PECULATION B U S INES S . AS TH E APPELLANT IS A N I N VESTMENT COMPANY, HE N CE TH E LOSS A R ISING F ROM T HE DE RIV A TI VE TRAN S A CTIONS CANN OT BE ALLOWED AGAINST THE P R OF I T S A R I S ING FROM DEALING I N THE SHARES A ND S E CU RITIES . ACC O RD I N GLY, THIS GR O UND O F AP P EA L IS T A KEN AS R EJ ECTED. ITA NO. 1663 /DEL/201 0 NASA FINLEASE PVT. LTD. 4 4. NOW THE ASSESSEE IS IN APPEA L. THE LD. COUNSEL FOR THE ASSESSEE WAS FAIR ENOUGH TO CONCEDE THAT EVEN IF THE PRESENT ISSUE I S DECIDED AGAINST THE ASSESSEE THERE WILL BE NO LOSS TO IT BECAUSE IT IS ENTITLED FOR THE BENEFIT UNDER PROVISO (D) OF SECTION 43(5) OF THE ACT. IN OTHER WORDS I T WAS STATED THAT THE VIEW TAKEN BY THE LD. CIT(A) MAY BE CONFIRMED. 5 . IN HIS RIVAL SUBMISSIONS THE LD. DR SUPPORTED THE ORDER OF THE LD. CIT(A) AND REITERATED THE OBSERVATIONS MADE IN THE IMPUGNED ORDER BY THE LD. CIT(A). 6 . WE HAVE CONSIDERED THE SUBM ISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE SINCE THE LD. COUNSEL FOR THE ASSESSEE CONCEDED THAT THE ISSUE UNDER CONSIDERATION EVEN IF DECIDED AGAINST THE ASSESSEE THERE WILL BE NO LOSS T O THE ASSESSEE . THE LD. COUNSEL FOR THE ASSESSEE COULD NOT CONTROVERT THE FINDINGS GIVEN BY THE LD. CIT(A) THAT THE ASSESSEE IS AN INVESTMENT COMPANY, HENCE THE LOSS ARISING FROM DERIVATIVES TRANSACTION CANNOT BE ALLOWED AGAINST THE PROFITS ARISING FROM DE ALING IN THE SHARES & SECURITIES. T HEREFORE, WE DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE FINDINGS GIVEN BY THE LD. CIT(A). ACCORDINGLY, THIS ISSUE IS DECIDED AGAINST THE ASSESSEE , HOWEVER, THE MAIN ISSUE RELATING TO DEDUCTION U/S ITA NO. 1663 /DEL/201 0 NASA FINLEASE PVT. LTD. 5 43(5) OF THE ACT IS IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, GROUND NO S . 2 TO 2.6 ARE PARTLY ALLOWED. 7 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . ( ORDER PRONOU N CED IN T HE OPEN COURT ON 02/0 2 / 2015 ) . SD/ - SD/ - ( A. T. VA RK E Y ) ( N. K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 02 / 0 2 / 2015 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR