DCIT, CHENNAI V. KFJ Gold and Diamond P Ltd., CHENNAI

ITA 2017/CHNY/2014

• Counselvise Citation: 201721714 RSA 2014
• Duration Of Justice: 1 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 10-09-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 25-07-2014
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: D ANAND
• Keywords: Transactions in derivatives; Speculation loss

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , ! ' . #$ , % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ ITA NO. 2017/MDS/2014 / ASSESSMENT YEAR : 2009-10 THE DEPUTY COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-II(4), CHENNAI 34 APPELLANT) V. M/S. KFJ GOLD AND DIAMOND P. LTD., AC-3, 2 ND AVENUE, ANNA NAGAR, CHENNAI 600 040. PAN AACCK7263K RESPONDENT) / APPELLANT BY : SHRI A.V.SREEKANTH, JCIT / RESPONDENT BY : SHRI D. ANAND, ADVOCATE ! / DATE OF HEARING : 10.09.2015 '# ! / DATE OF PRONOUNCEMENT: 30.09.2015 ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) DATED 1 9.2.2014. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FIL ED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 ON 31.3.2010 - - ITA 2017/14 2 DECLARING AN INCOME OF ` 20,88,958/-. THE RETURN WAS PROCESSED U/S.143(1) AND SELECTED FOR SCRUTINY. THE ASSESSIN G OFFICER, WHILE COMPLETING THE ASSESSMENT U/S.143(3) OF THE A CT ASSESSED THE INCOME AT ` 1,54,61,935/- BY DISALLOWING THE ASSESSEES CLAIM OF LOSSES OF ` 1,33,72,975/- FROM TRADING IN COMMODITIES. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE T HE CIT(APPEALS). 3. ON APPEAL, THE CIT(APPEALS) OBSERVED THAT SEC.43 (5)(D) WAS INSERTED BY THE FINANCE ACT, 2006 WITH EFFECT F ROM 1.4.2006, WHICH CLEARLY EXCLUDES THE TRANSACTIONS IN COMMODIT IES I.E. DERIVATIVES, IF THEY ARE TRANSACTED THROUGH THE REC OGNIZED EXCHANGES, MCX, THE EXCHANGE THROUGH WHICH THE ASSE SSEE HAD TRANSACTED IN THE COMMODITIES, IS A RECOGNIZED EXCHANGE, VIDE CBDT NOTIFICATION NO.46/2009 DATED 22.5.2009, BUT RETROSPECTIVELY. THE CIT(APPEALS) PLACED RELIANCE ON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V. ARNAV AKSHAY MEHTA (2012) [53 SOT 581], WHE REIN SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL BY OBS ERVING THAT SINCE THE MCX WAS RECOGNISED BY THE CBDT WITH RETRO SPECTIVE EFFECT, THE COMMODITY TRANSACTIONS THROUGH THE SAID EXCHANGE - - ITA 2017/14 3 ARE EXCLUDABLE FROM THE DEFINITION OF THE SPECULATI VE TRANSACTIONS U/S.43(5) OF THE ACT. 3.1 FURTHER, THE C IT(APPEALS) OBSERVED THAT THE CO NTENTION OF THE AO IS THAT THERE IS NO PROVISION IN THE MEMORAN DUM OF ARTICLES OF THE COMPANY TO AUTHORIZE THE MANAGING D IRECTOR TO TRADE IN THE COMMODITIES AND HENCE, THE LOSSES SUFF ERED IN THE SAID COMMODITY TRANSACTIONS CANNOT BE ALLOWED IN TH E HANDS OF THE ASSESSEE. FURTHER, THE CIT(APPEALS) OBSERVED T HAT IN THE MEMORANDUM OF ARTICLES OF THE COMPANY, THERE IS RES IDUARY CLAUSE, AS PER WHICH THE ASSESSEE CAN UNDERTAKE ANY OTHER ACTIVITY AS PER THE DECISION OF BOARD OF DIRECTORS/ MANAGEMENT. ACCORDINGLY, THE BOARD OF MANAGEMENT HAD AUTHORIZED THE MANAGING DIRECTOR TO TRADE IN THE COMMODITIES. TH EREFORE, THE RESULTING PROFITS OR LOSSES WILL ACCRUE TO THE ASSE SSEE COMPANY ONLY. ACCORDING TO THE CIT(APPEALS), THE ASSESSE ES LOSSES FROM COMMODITIES TRADING ARE NOT SPECULATIVE LOSSES AND HENCE ELIGIBLE FOR SET OFF AGAINST INCOMES FROM OTHER REG ULAR BUSINESS ACTIVITIES. ACCORDINGLY, THE CIT(APPEALS) DIRECTED THE AO TO ALLOW THE ASSESSEES CLAIM OF LOSSES FROM THE COMMO DITY TRADING OF ` 1,33,72,975/- TO BE SET OFF AGAINST THE REGULAR BUS INESS - - ITA 2017/14 4 INCOME. AGAINST THIS, THE REVENUE IS IN APPEAL BEF ORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE MAIN CONTENTION OF THE LD. DR IS THAT THE NOTIFICATION NO.46/2009 CATEGORICALLY NOTI FIED THE MCX STOCK EXCHANGE LTD., AS A RECOGNIZED STOCK EXCHANGE FOR THE PURPOSE OF CLAUSE (D) TO SEC.43(5) (D) WITH EFFECT FROM THE DATE OF PUBLICATION OF THIS NOTIFIC ATION IN THE OFFICIAL GAZETTE. FURTHER, THE LD. DR CONTENDED TH AT THE ASSESSEE HAS TRANSACTED WITH MCX STOCK EXCHANGE DUR ING THE FINANCIAL YEAR 2008-09, WHICH IS MUCH PRIOR TO THE SAID NOTIFICATION AND THE CIT(APPEALS) IS NOT JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. 5. HOWEVER, WE FIND THAT SIMILAR ISSUE WAS CONSIDER ED BY THE TRIBUNAL IN THE CASE OF ACIT V. ARNAV AKSHAY MEHTRA (MUMBAI) [53 SOT 581], WHEREIN IT WAS OBSERVED AS U NDER: IT WAS OBSERVED THAT ONCE IN THE STATUTE, IT HAS BEEN PROVIDED THAT W.E.F. 01.04.2006, AN ELIGIBLE TRANSACTION CARRIED OUT IN A RECOGNIZED STOCK EXCHANGE WILL NOT BE TREATED AS SPECULATION TRANSACTION, THEN SIMPLY BECAUSE PROCEDURAL MECHANISM HAS TAKEN A LONG TIME TO RECOGNIZE THE STOCK EXCHANGE IT WILL NOT LEAD TO AN INFERENCE THAT THE SAME WOULD BE APPLICABLE FROM THE DATE WHEN THE STOCK EXCHANGE HAS BEEN RECOGNIZED BY THE CENTRAL GOVT. TRANSACTIONS CARRIED OUT THROUGH - - ITA 2017/14 5 MCX STOCK EXCHANGE AFTER 01.04.2006 WOULD BE ELIGIBLE FOR BEING TREATED AS NON-SPECULATION WITHI N THE MEANING OF SECTION 43(5)(D). IT WAS THUS HELD THAT THE ASSESSEES DERIVATIVE TRADING THROUGH MCX STOCK EXCHANGE IN THE ASST. YEAR 2007-08 IS NON-SPECULATION TRANSACTION AND, THEREFORE, LOSS INCURRED IS TO BE TREATED AS NORMAL BUSINESS LOSS. WE ARE OF THE OPINION THAT THE STATUTE IS SUPERIOR THAN THE RECOGNITION OF CBDT. THEREFORE, IN VIEW OF THE ABO VE DECISION OF THE TRIBUNAL, THE ISSUE RAISED BY THE R EVENUE IS DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 30 TH OF SEPT., 2015 AT CHENNAI. SD/- SD/- ( $ % . & '( ) ( ) * + , ) DUVVURU RL REDDY - ./012304556037- 8 9: /JUDICIAL MEMBER ! 9:;<<5=1>01>?@AB@3 )8 /CHENNAI, C9 /DATED, THE 30 TH SEPT., 2015. MPO* 9D EFGF /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. H- /CIT(A) 4. H /CIT 5. FIJ K /DR 6. J(L /GF.