MOHAN NATHUMAL KARNANI, MUMBAI V. ADDL CIT RG 19(3), MUMBAI

ITA 2107/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8732 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 25-10-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 15-03-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AMARD EEP
• Assessee Lawyers: ASHOK KOTANGLE
• Keywords: Business income; Transactions in derivatives; Speculation loss
• Section: 43(5); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G , MUMBAI BEFORE SHRI I. P. BANSAL, JUDICIAL MEMBER AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER ITA NO. : 2107/MUM/2010 ASSESSMENT YEAR : 2006-07 SHRI MOHAN NATHUMAL KARNANI SAMSHIBA, FLAT NO.3S2, PALI HILL NARGIS DUTT ROAD, BANDRA (W), MUMBAI-400 050 PAN NO: AACPK 2592 H VS. ADDL. CIT RANGE 19(3), 3 RD FLOOR, PIRAMAL CHAMBERS, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A SHOK KOTANGLE RESPONDENT BY : SHRI AMAR DEEP DATE OF HE ARING : 2 5 .10.2012 DATE OF PRONOUNCEMENT : 2 5 .10.2012 ORDER PER RAJENDRA SINGH, A.M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 11.12.2009 OF CIT(A)-21, MUMBAI FOR THE A.Y. 2006-0 7. THE ONLY DISPUTE RAISED IN THIS APPEAL IS REGARDING THE ALLOWBILITY OF SET OFF OF UNABSORBED SPECULATION LOSS OF EARLIER YEAR AGAINST THE PROFIT OF THE YEAR UNDER CONSIDERATION. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE WHO WAS A DEALER IN SHARES HAD EARNED SPECULATIVE LOSS OF `. 6,45,449/- IN FUTURE & OPTION (F&O) ITA NO : 2107/MUM/2010 SHRI MOHAN NATHUMAL KARNANI 2 TRANSACTIONS IN THE A.Y. 2005-06. IN THE YEAR UNDE R CONSIDERATION I.E. IN THE A.Y. 2006-07, THE ASSESSEE HAD EARNED INCOME OF `. 8,38,108/- FROM F & O TRANSACTIONS. THE ASSESSEE HAD SET OFF THE CAR RIED FORWARD SPECULATIVE LOSS OF A.Y. 2005-06 AGAINST THE INCOME IN THE A.Y. 2006-07. THE A.O. ASKED THE ASSESSEE TO EXPLAIN AS TO WHY TH E SET OFF SHOULD NOT BE DISALLOWED AS INCOME IN THE A.Y. 2006-07 WAS NORMAL BUSINESS INCOME IN VIEW OF THE AMENDMENT TO SECTION 43(5) W.E.F. A.Y. 2006-07 IN WHICH INCOME FROM F & O TRANSACTIONS HAS TO BE TREATED AS NORMAL BUSINESS INCOME. THE ASSESSEE EXPLAINED THAT THE NATURE OF TRANSACTIONS WAS THE SAME IN BOTH THE YEARS AND, THEREFORE, THE LOSS SHO ULD BE SET OFF AGAINST THE INCOME IN THE A.Y. 2006-07. THE A.O. HOWEVER, DID NOT ACCEPT THE CONTENTIONS RAISED. IT WAS OBSERVED BY HIM THAT IN THE A.Y. 2005-06, THE LOSS FROM TRANSACTIONS IN F & O HAS TO BE TREATED A S SPECULATIVE LOSS BUT IN THE A.Y. 2006-07, THE TRANSACTIONS IN F & O HAVE TO BE TREATED AS NON SPECULATIVE IN VIEW OF SUB-CLAUSE (D) OF SECTION 43 (5) INSERTED W.E.F. 01.04.2006. THE A.O. ACCORDINGLY DID NOT ALLOW THE SET OFF OF SPECULATIVE LOSS AGAINST THE INCOME FROM BUSINESS WHICH IN APPE AL WAS CONFIRMED BY THE CIT(A). AGGRIEVED BY THE SAID DECISION OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. BEFORE US, THE LEARNED AR FOR THE ASSESSEE SUBMI TTED THAT THE ISSUE WAS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISI ON OF THE TRIBUNAL IN ITA NO : 2107/MUM/2010 SHRI MOHAN NATHUMAL KARNANI 3 CASE OF GAJENDRA KUMAR T. AGRWAL V ITO(2011) 11 ITR 640 (MUM) (TRIB) IN WHICH THE SPECULATIVE LOSS FOR THE A.Y. 2005-06 AND EARLIER YEARS HAS BEEN FOUND TO BE ELIGIBLE FOR SET OFF AGAINST THE INCOME FROM F & O TRANSACTIONS IN THE A.Y. 2006-07 AND SUBSEQUENT YEARS. THE ASSE SSEE ALSO PLACED RELIANCE ON THE DECISION OF THE TRIBUNAL IN CASE OF PRADEEP KUMAR HARLALKA V/S ACIT ( 47 SOT 204). THE LEARNED DR, ON THE OTHER HAND, ARGUED THAT UNDER THE PROVISIONS OF LAW, THE LOSS F ROM SPECULATIVE BUSINESS CAN BE SET OFF ONLY AGAINST THE INCOME FRO M SPECULATIVE BUSINESS AND NOT AGAINST ANY OTHER INCOME. HE REFERRED TO T HE DECISION OF THE TRIBUNAL IN CASE OF RAKESH R. AGARWAL IN ITA NO.584 3/MUM/2009 DATED 07.01.2011 IN WHICH THE TRIBUNAL HELD THAT GAIN IN F & O TRANSACTIONS FOR THE A.Y. 2006-07 HAS TO BE TREATED AS NON SPECULATI VE AND, THEREFORE, THE SPECULATIVE LOSS IN F & O TRANSACTIONS OF EARLIER Y EARS CANNOT BE SET OFF. 4. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECO RDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REG ARDING THE ALLOWABILITY OF LOSS FROM F & O TRANSACTIONS OF THE A.Y. 2005-06 AGAINST THE INCOME FROM F & O TRANSACTIONS OF THE A.Y. 2006-07. THERE IS NO DISPUTE THAT THE TRANSACTIONS IN F & O HAVE TO BE TREATED AS SPECULA TIVE AND INCOME/LOSS ARISING THERE FROM HAS TO BE TREATED AS SPECULATIVE INCOME/LOSS. INFACT THIS VIEW IS SUPPORTED BY THE DECISION OF THE SPECI AL BENCH OF THE TRIBUNAL IN THE CASE OF SHREE CAPITAL SERVICES LTD. (124 ITD 740). HOWEVER, IN VIEW ITA NO : 2107/MUM/2010 SHRI MOHAN NATHUMAL KARNANI 4 OF THE PROVISIONS OF CLAUSE (D) TO SECTION 43(5) IN SERTED W.E.F 2006, THE F & O TRANSACTIONS HAVE TO BE TREATED AS NON SPECULATIV E AND, THEREFORE, INCOME/LOSS ARISING THERE FROM HAS TO BE TREATED AS NORMAL BUSINESS INCOME/LOSS. IN VIEW OF THE PROVISIONS OF SECTION 73(2) OF THE I.T. ACT, THE SPECULATIVE LOSS CARRIED FORWARD COULD BE SET OFF O NLY AGAINST THE PROFIT OF SPECULATIVE BUSINESS. SINCE INCOME FROM F & O TRAN SACTIONS IN THE A.Y. 2006-07 HAS TO BE TREATED AS NORMAL BUSINESS INCOME AND NOT SPECULATIVE INCOME, THE CARRIED FORWARD SPECULATIVE LOSS OF EAR LIER YEAR CANNOT BE SET OFF AGAINST THE INCOME FROM F & O TRANSACTIONS IN T HE A.Y. 2006-07 ONWARDS. THIS VIEW IS SUPPORTED BY THE DECISION OF THE TRIBUNAL DATED 07.01.2011 IN CASE OF THE RAKESH R. AGARWAL (SUPRA) . THE SAME VIEW HAD BEEN TAKEN BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN CASE OF SHREEGOPAL PUROHIT [2009] 33 SOT 1 (MUM.). 4.1 THE ASSESSEE HAS PLACED RELIANCE ON THE DECISIO N OF THE TRIBUNAL IN THE CASE OF GAJENDRA KUMAR T. AGRWAL V ITO (SUPRA) IN SUPPORT O F THE CASE. HOWEVER, THE SAID CASE IS FOUND TO BE NOT AP PLICABLE AS THE SAME RELATED TO LEGAL VALIDITY OF THE PROCEEDINGS U/S.26 3 IN WHICH IF THE A.O. HAS TAKEN ONE OF THE POSSIBLE VIEWS, ACTION U/S. 26 3 CANNOT BE HELD LEGAL. THE TRIBUNAL IN THE SAID CASE REFERRED TO THE JUDGM ENT OF THE HON'BLE SUPREME COURT IN THE CASE OF MANMOHAN DAS 59 ITR 699 (SC) IN WHICH IT WAS HELD THAT WHETHER THE CARRIED FORWARD LOSS OF T HE EARLIER YEAR CAN BE SET OFF AGAINST THE PROFIT AND GAINS OF THE SUBSEQU ENT YEAR HAS TO BE ITA NO : 2107/MUM/2010 SHRI MOHAN NATHUMAL KARNANI 5 DETERMINED BY THE A.O. WHO DEALS WITH THE ASSESSMEN T OF THE SUBSEQUENT YEAR AND NOT BY THE FINDING OF THE A.O. IN THE EARL IER ASSESSMENT YEAR. THIS JUDGMENT ALSO DOES NOT HELP THE CASE OF THE AS SESSEE AS THERE IS NO FINDING RECORDED BY THE A.O. IN THE A.Y. 2006-07 TH AT THE LOSS IN THE A.Y. 2005-06 WAS NON SPECULATIVE. IN FACT IT HAS BEEN H ELD BY THE A.O. THAT THE LOSS IN THE EARLIER YEAR WAS SPECULATIVE. THE SAID DECISION OF THE TRIBUNAL, THEREFORE, CANNOT COME TO THE HELP OF THE ASSESSEE IN VIEW OF THE SEVERAL DECISIONS OF THE CO-ORDINATE BENCHES WHICH ARE AGAINST THE ASSESSEE. THE ASSESSEE HAS ALSO RELIED ON THE DECI SION OF THE TRIBUNAL IN THE CASE OF PRADEEP KUMAR HARLALKA (SUPRA) WHICH IS ALSO OF NO HELP TO THE ASSESSEE. IN THE SAID CASE, THE ISSUE WAS WHET HER THE AMENDED PROVISIONS OF SECTION 43(5) WOULD APPLY IN RESPECT OF THE TRANSACTIONS ENTERED INTO PRIOR TO 25.01.2006 IN THE A.Y. 2006-0 7. THERE WAS NO ISSUE AS TO WHETHER THE LOSS OF EARLIER YEAR CAN BE SET O FF AGAINST THE INCOME OF A.Y. 2006-07. 4.2 THERE ARE SEVERAL DECISIONS OF THE TRIBUNAL AS PER WHICH THE AMENDED PROVISIONS OF SECTION 43(5) WILL APPLY FROM THE A.Y. 2006-07 AND NOT ONLY IN RESPECT OF THE TRANSACTIONS ENTERED AFT ER 25.01.2006. UNDER THE PROVISIONS OF LAW, THE F & O TRANSACTIONS HAVE TO BE TREATED AS NON SPECULATIVE FROM THE A.Y. 2006-07 ONWARDS AND, THER EFORE, THE SPECULATIVE LOSS OF EARLIER YEARS CANNOT BE SET OFF UNDER THE P ROVISIONS OF THE ACT WHICH ARE QUITE CLEAR. WE, THEREFORE, SEE NO INFI RMITY IN THE ORDERS OF THE ITA NO : 2107/MUM/2010 SHRI MOHAN NATHUMAL KARNANI 6 AUTHORITIES BELOW REJECTING THE CLAIM OF THE ASSESS EE. THE ORDER OF THE CIT(A) DISMISSING THE APPEAL OF THE ASSESSEE IS, TH EREFORE, UPHELD. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH OCTOBER, 2012. SD/- SD/- ( I. P. BANSAL ) ( RAJENDRA SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT: 25.10.2012 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI