Shri Tejas K.Shah, Ahmedabad V. The Income tax Officer,Ward-7(2), Ahmedabad

ITA 2255/AHD/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9778 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 06-07-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH
• Assessee Lawyers: MRS URVASHI SHODHAN
• Keywords: Business income; Transactions in derivatives; Speculation loss; Futures and options
• Section: 143(3); 43(5)

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND D.C.AGRAWAL, A M SHRI TEJAS K. SHAH, 1/A/31, SHYAMAL ROW HOUSE, SATELLITE ROAD, AHMEDABAD. VS. INCOME-TAX OFFICER, WD-7(2), AHMEDABAD. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- MRS. URVASHI SHODHAN, AR RESPONDENT BY:- SHRI K. M. MAHESH, SR.D.R. O R D E R PER D. C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FO LLOWING GROUNDS:- (1) ORDER U/S 143(3) DT,26.12.2008 DETERMINING INC OME OF RS.480035/- AND RAISING DEMAND OF RS.133979/-BEING ERRONEOUS BE CANCELLED. (2) THE LEARNED ITO HAS ERRED IN NOT CONSIDERING J UDICIOUSLY THAT, (I) NOTIFICATION NO.2/2006 DT.25.01.2006 IS CL ARIFICATORY IN NATURE I.E.GIVING INTIMATION OF GRANTING RECOGNITIO N TO THE STOCK EXCHANGES FOR THE FUTURE - OPTION TRADE. (II) MODUS OPRENDI OF THE BUSINESS REMAINS THE SAME, (III) NATURE OF INCOME /LOSS DOES NOT CHANGE BY ISSUANCE OF NOTIFICATION. (3) APPELLANT CRAVES LEAVE TO ADD / ALTER ANY GROUN DS OF APPEAL. PROFIT OF FUTURE & OPTION BUSINESS FOR THE WHOLE YE AR BE CONSIDERED AS SUCH AND UNABSORBED B/F LOSS FROM SUCH BUSINESS BE ALLOWED TO SET OFF TO THE EXTENT OF INCOME AND ASSESSMENT BE R EVISED ACCORDINGLY. ITA NO.2255/AHD/2010 ASST. YEAR :2006-07 2 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS ABOUT THE TREATMENT TO BE GIVEN TO PROFIT EARNED FROM FUTURE AND OPTION TRANS ACTIONS, WHETHER TO BE TREATED AS SPECULATIVE TRANSACTION AS AGAINST BUS INESS TRANSACTION TREATED BY THE ASSESSEE. THE ASSESSEE IS SALARIED EMPLOYEE AND DERIVING INCOME FROM TRADING IN FUTURE AND OPTIONS AND CLAIMING SET OFF OF THE BROUGHT FORWARD LOSS IN FUTURE AND OPTIONS AGAINST BUSINESS INCOME OF THE CURRENT YEAR. IN THIS ASST. YEAR ASSESSEE SHOWED INCOME DER IVED FROM FUTURE & OPTION UNDER THE HEAD BUSINESS WHEREAS THE AO FOLLO WING THE CIRCULAR NO.2 OF 2006 DATED 25.1.2006 AND EXPLANATORY MEMORA NDUM IN NOTIFICATION NO.SO.89(E) DATED 25.1.2006 TREATED TH E FUTURE OPTION TRANSACTION AS SPECULATIVE FROM 1.4.2005 TO 24.1.20 06 AND THOSE DURING 25.1.2006 TO 31.3.2006 AS BUSINESS. THE LOSS INCURR ED DURING THE COURSE OF TRANSACTION IN FUTURE & OPTIONS WAS TREATED AS S PECULATION AND WAS ALLOWED TO BE CARRIED FORWARD FOR SET OFF AGAINST S PECULATION INCOME OF THE CURRENT YEAR. THUS A SUM OF RS.2,84,875/- BEING BRO UGHT FORWARD SPECULATION LOSS OF ASST. YEAR 2005-06 WAS SET OFF AGAINST SPECULATION INCOME FOR ASST. YEAR 2006-07 AND BALANCE BROUGHT F ORWARD LOSS OF RS.2,056/- PERTAINING TO ASST. YEAR 2005-06 WAS ALL OWED TO BE CARRIED FORWARD TO NEXT YEAR. HOWEVER, THE ASSESSEE HAD CLA IMED SET OFF OF LOSS OF RS.8,09,500/- FOR ASST. YEAR 2005-06 AGAINST THE IN COME OF RS.7,65,752/- OF ASST. YEAR 2006-07. THE ARGUMENT RAISED BEFORE T HE LD. CIT(A) IN SUPPORT OF THE CLAIM THAT ENTIRE INCOME/LOSS GENERA TED FROM TRANSACTIONS IN FUTURE & OPTIONS IS BUSINESS INCOME/LOSS WERE AS UNDER :- I) NOTIFICATION NO.2/2006 DT.25.1.2006 IS CLARIFICATOR Y IN NATURE I.E. INTIMATING RECOGNITION OF STOCK EXCHANGE FOR F UTURE & OPTION TRADE. II) THE SAME AMOUNTS TO RETROSPECTIVE. III) NO INTENTION OF THE LEGISLATION TO WITHDRAW BENEFIT OF SET OFF OF LOSS OUT OF SUCH TRADE. 3 IV) IN FUTURE & OPTION TRADE, BASIC INGREDIENTS OF SPEC ULATION TRANSACTION ARE LACKING HENCE OF NON-SPECULATIVE IN NATURE. V) YOUR HONOURS ATTENTION IS INVITED TO - A) ACIT VS. SHREEGOPAL PUROHIT (2009) 33 SOT (MUM) B) P.S. KAPOOR VS. ACIT (2009) SOT 587/120 TTJ 422(JP) VI) THE TERM DERIVATIVES IS NOT INCLUDED IN COMMODIT Y IN THE LEGISLATION. VII) NO SUCH RECOGNITION FOR COMMODITY TRADING EXCHANGE. THE LD. CIT(A) RELIED ON THE DECISION OF THE TRIBUN AL (SPECIAL BENCH) KOLKATA IN THE CASE OF SHREE CAPITAL SERVICES LTD. 121 ITD 498 FOR HOLDING THAT TRANSACTIONS IN FUTURE & OPTIONS ARE S PECULATIVE TILL THE AMENDMENT MADE IN SECTION 43(5) WHICH AMENDMENT WOU LD NOT BE APPLICABLE RETROSPECTIVELY. THE RELEVANT PORTION FR OM THE JUDGMENT IS AS UNDER :- IN RESPECT OF ASST. YEAR 2004-05, THE ASSESSEE SUF FERED A LOSS ON ACCOUNT OF TRADING IN FUTURES AND OPTIONS. S.43(5) DEFINES A SPECULATIVE TRANSACTION AS ONE IN WHICH A CONTRACT FOR PURCHAS E AND SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES IS SETTLED O THERWISE THAN BY ACTUAL DELIVERY. CLAUSE (D) WAS INSERTED IN S.43(5) BY THE FINANCE ACT, 2005 W.E.F. 1.4.2006 TO PROVIDE THAT AN ELIGIBLE T RANSACTION OF TRADING IN DERIVATIVES SHALL NOT BE DEEMED TO BE A SPECULATIV E TRANSACTION. THE SPECIAL BENCH HAD TO CONSIDER (I) WHETHER TRANSACTI ONS IN DERIVATIVES ARE A SPECULATIVE TRANSACTION U/S 34(5) AND IF SO (II ) WHETHER CLAUSE (D) OF S.43(5) IS CLARIFICATORY AND RETROSPECTIVE IN NATUR E. HELD-DECIDING AGAINST THE ASSESSEE. (I) A DERIVATIVE IS A SECURITY REPRESENTING THE V ALUE OF THE UNDERLYING STOCKS AND SHARES AND MUST BE GIVEN THE SAME TREATM ENT AS THAT GIVEN TO THE STOCKS AND SHARES. ALSO S.43(5) USES THE TERM COMMODITY IN A WIDE SENSE AND COVERS DERIVATIVES. FURTHER, THE FACT T HAT S.43(5) (D) EXEMPTS CERTAIN DERIVATIVES FROM THE AMBIT OF THE DEFINITIO N OF SPECULATIVE TRANSACTION SHOWS THAT THEY WOULD OTHERWISE HAVE C OME WITHIN THAT TERM AS OTHERWISE THE AMENDMENT WOULD BE REDUNDANT. (II) CLAUSE (D) OF S.43(5) CANNOT BE HELD TO BE CLA RIFICATORY BECAUSE IT DOES NOT EXEMPT ALL TRANSACTIONS IN DERIVATIVES BUT ONLY THE ELIGIBLE TRANSACTIONS ON RECOGNIZED STOCK EXCHANGES. RULES 6DDA & 6DDB 4 WHICH DEAL WITH RECOGNIZED STOCK EXCHANGES WERE INS ERTED W.E.F. 1.7.2005. CONSEQUENTLY, IT APPLIES ONLY TO ASST. YE AR 2006-07 & ONWARDS. NOTE: THE DECISIONS IN SSKI INVESTORS 113 TTJ 511 ( MUM), RBK SECURITIES 118 TTJ 465 (MUM), P.S.KAPUR 120 TTJ 422 (JP) AND OTHERS ARE IMPLIEDLY OVERRULED. FOLLOWING THE DECISION OF SPECIAL BENCH, THE LD. CI T(A) CONFIRMED THE ORDER OF THE AO. 3. WE HAVE HEARD THE PARTIES. IN OUR CONSIDERED VIE W THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF LD. CIT(A) WHO FOL LOWED THE SPECIAL BENCH JUDGMENT WHICH IS ALSO BINDING ON THIS BENCH. NO CONTRARY MATERIAL OR JUDGMENT OF HIGHER COURT IS BROUGHT INT O OUR NOTICE SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW. ACCORDINGLY, TH E APPEAL FILED BY THE ASSESSEE IS DISMISSED. 4. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 17/9/10. SD/- SD/- (BHAVNESH SAINI) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBE R AHMEDABAD, DATED : 17/9/10. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 5 1.DATE OF DICTATION 26/8/2010. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..