ACIT 15(1), MUMBAI V. DEEPSANG CORPORATION, MUMBAI

ITA 2260/MUM/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 3151 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 03-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHANDRA VIJAY
• Keywords: Business income; Speculation loss
• Section: 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI D BENCH, MUMBAI BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER. ITA. NO. 2260/MUM/2014 (ASSESSMENT YEAR:2008-09) THE ACIT 15(1), MUMBAI APPELLANT VS. M/S. DEEPSANG CORPORATION 431, 4 TH FLOOR, SANGHRAJKA HOUSE, DR. D. B. MARG, OPERA HOUSE, MUMBAI 400 004 RESPONDENT PAN: AAEFD6966A /BY APPELLANT : SHRI CHANDRA VIJAY, D.R. /BY RESPONDENT :SHRI ASHOK PATIL, A.R. /DATE OF HEARING : 24.09.2015 /DATE OF PRONOUNCEMENT : 30.09.2015 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY REVENUE AGAINST THE O RDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-26, MUMBAI, DA TED 29.01.2014 FOR A.Y. 2008-09 ON FOLLOWING GROUNDS: ITA NO.2260/MUM/14 A.Y. 08-09 [ACIT VS. M/S. DEEPSA NG CORPORATION] PAGE 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING DISALLOWAN CE OF MARK TO MARKET LOSS OF RS.2,98,49,207/- ON THE DERIVATE TRANSACTION. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) HAS ERRED IN NOT DECIDING THE IS SUE ON MERITS THOUGH HONBLE ITAT HAS SET ASIDE THE ISS UE TO THE CIT(A) TO BE DECIDED AFRESH AS PER LAW. 2. ASSESSMENT IN THIS CASE WAS COMPLETED AT AN ASSE SSED INCOME OF RS.49,50,030/- AND APPEAL WAS FILED ON VA RIOUS GROUNDS ON 25.11.2010 AND APPEAL WAS PARTLY ALLOWED . SUBSEQUENTLY, ASSESSEE WENT TO ITAT AND WHEREIN ORD ER WAS PASSED ON 05.02.2013 BY OBSERVING AS UNDER: 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED THA T THE ASSESSING OFFICER DID NOT ALLOW SET OFF OF MTM LOSS AGAINST THE REGULAR BUSINESS INCOME ON TWO GROUNDS, VIZ., F IRSTLY, THE ASSESSEE DID NOT HAVE UCC AND SECONDLY, THE ASS ESSEE FAILED TO PROVIDE ANY EVIDENCE THAT THIS MTM MARGIN WAS EVER SETTLED BY ACTUAL CASH' SETTLEMENT OR CARRIED FORWARD. THE LEARNED CFT(A) DELETED THE DISALLOWANCE SIMPLY BY CONSIDERING ONE ASPECT, BEING THE AVAILABILITY OF U CC. THERE IS NO DISCUSSION WHATSOEVER AS REGARDS THE SECOND A SPECT ON WHICH THE ASSESSING OFFICER DID NOT ALLOW SET OF F OF LOSS. THE LEARNED AR WAS FAIR ENOUGH TO CONCEDE THAT THER E IS NO DISCUSSION ON THE GROUND REPRODUCED ABOVE THAT THE REVENUE IS AGGRIEVED AGAINST THE REVERSAL OF THE A. O'S ACTION THOUGHT THE ASSESSEE FAILED TO SUBMIT ANY, E VIDENCE THAT THESE LOSSES WERE ACTUALLY SETTLED AT THE YEAR ENDING. WITHOUT GOING INTO THE MERITS OF THE CASE, WE SET A SIDE THE IMPUGNED ORDER AND RESTORE THE MATTER TO THE FILE O F THE LEARNED CFT(A) FOR DECIDING THE SECOND ASPECT AFRES H AS PER LAW AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEIN G HEARD TO THE ASSESSEE. ' 2.1 SUBSEQUENT TO THE AFORESAID ITAT ORDER, THE MAT TER WAS ITA NO.2260/MUM/14 A.Y. 08-09 [ACIT VS. M/S. DEEPSA NG CORPORATION] PAGE 3 SENT FOR REMAND VIDE LETTER DATED 25.04.2013 AND TH E REMAND REPORT WAS RECEIVED VIDE LETTER DATED 02.01.2014. T HE ISSUE INVOLVED IN THIS CASE WAS WHETHER MARK TO MARKET LO SS (MTM) ON DERIVATIVE TRANSACTIONS RS.2,98,49,207/- WAS ALL OWABLE AS BUSINESS LOSS. CIT(A) ALLOWED THE APPEAL VIDE PARA 4.2 OF THE ORDER AS UNDER :- 4.2 I HAVE CAREFULLY CONSIDERED THE FINDINGS OF TH E AO AS WELL AS THE SUBMISSIONS OF THE APPELLANT. IN THIS R EGARD, THE FINDINGS OF THE AO DOES NOT APPEAR APPROPRIATE BECA USE, THE APPELLANT HAS REGULARLY CARRIED OUT THE DERIVATIVE TRANSACTIONS OF F & O. IT IS NOW A SETTLED PRINCIPL E THAT THE DERIVATIVE TRANSACTIONS CONDUCTED THROUGH A RECOGNI ZED STOCK EXCHANGE HAVE BEEN TAKEN OUT OF THE PURVIEW O F THE SPECULATION TRANSACTIONS UNDER SECTION 43(5) OF THE I. T ACT, AFTER THE AMENDMENT WITH EFFECT FROM 01.4.2006. THI S POSITION HAVE RECENTLY BEEN CLARIFIED BY THE HON'BL E BOMBAY HIGH COURT IN THE CASE OF BHARAT RUIA (HUF), WHEREI N IT IS HELD THAT AFTER THE AMENDMENT, THE DERIVATIVE TRANS ACTIONS IN SHARES WOULD NOT COME WITHIN THE AMBIT OF SPECUL ATIVE TRANSACTIONS U/S.43(5) OF THE I.T. ACT. IN THE INS TANT CASE, IT IS AN UNDISPUTED FACT THAT THESE TRANSACTIONS HAVE BEEN CARRIED OUT THROUGH RECOGNIZED STOCK EXCHANGE WITH UNIQUE CLIENT CODE (UCC) ACCORDINGLY, THE PROFIT/LOSS ON S UCH TRANSACTIONS WILL BE TREATED AS NORMAL BUSINESS PRO FIT/LOSS AND IT CANNOT BE TREATED AS NOTIONAL LOSS. ON THIS ISSUE, MATTER WAS REMANDED TO AO TO VERIFY THE UCC. VIDE RE PORT DATED 04.10.2011, THE AO HAS CONFIRMED THAT THE ASS ESSEE HAD UCC. THEREFORE, THE FINDING OF THE AO IN THIS R EGARD IS REVERSED.' 2.2 THIS ORDER OF CIT(A) HAS BEEN RESTORED BACK BY ITAT WITH DIRECTIONS AS DETAILED IN PARA 3.1 OF CIT(A). THE S UBMISSIONS OF ITA NO.2260/MUM/14 A.Y. 08-09 [ACIT VS. M/S. DEEPSA NG CORPORATION] PAGE 4 ASSESSEE IN THIS REGARD WERE FORWARDED AND THE REMA ND REPORT READS AS UNDER: 'IN THE APPEAL PROCEEDINGS THIS CASE THE ASSESSMENT WAS COMPLETED U/S.143(3) OF THE I.T ACT DETERMINING THE TOTAL INCOME AT RS.49,50,030/- INSTEAD OF RETURNED LOSS D ECLARED AT RS.2,63,84, 766/-. WHILE COMPLETING THE ASSESSME NT THE AO TREATED THE MARK TO MARGIN LOSS INCURRED ON F & O BUSINESS AS SPECULATION LOSS INSTEAD OF BUSINESS LO SS TREATED BY THE ASSESSEE AND ALSO DENIED THE SET OFF AGAINST OTHER BUSINESS INCOME DURING THE YEAR. THE APPEAL FILED BY THE ASSESSEE AGAINST THE ABOVE ORDER WAS ALLOWED BY THE LD. CIT(A) BY DIRECTING THE AO TO TREAT THE MARK TO MAR GIN LOSS AS BUSINESS LOSS AND ALLOW THE SET OFF AS CLAIMED B Y THE ASSESSEE. AGAINST THE ABOVE ORDER THE DEPARTMENT FILED APPEAL BEFORE THE HON'BLE ITAT. THE ITAT HAS SET ASIDE THE ORDER OF THE CIT(A) AND RESTORED BACK THE ISSUE TO THE FILE OF THE CIT(A) TO VERIFY WHETHER THE ASSESSEE HAS MADE THE SETTLEMENT OF MARK TO MARGIN LOSS WITH THE BROKERS BY ACTUAL CASH PAYMENT DURING THE YEAR WITH SUPPORTING DOCUME NTARY EVIDENCE. IN VIEW OF THE ABOVE, THE ASSESSEE SUBMIT TED THE DETAILS IN RESPECT OF ACTUAL SETTLEMENT OF LOSS BEF ORE THE CIT(A), WHICH HAS BEEN FORWARDED TO THE AO FOR VERI FICATION AND SUBMISSION OF REMAND REPORT. THEREFORE, VIDE LETTER DATED 19.07.2013, THE ASSESE E WAS ASKED TO FURNISH THE DETAILS ALONGWITH DOCUMENT ARY EVIDENCES IN RESPECT OF PAYMENTS MADE TO BROKERS FO R SETTLEMENT OF THE ABOVE LOSS DURING THE YEAR. IN R ESPONSE TO THE ABOVE NOTICE, THE ASSESSEE VIDE LETTER DATED 07 .08.2013 & 14.08.2013 HAS FURNISHED THE COPY OF LEDGER ACCOU NTS, BANK STATEMENTS, BROKER STATEMENTS ETC. REGARDING T HE ACTUAL SETTLEMENT OF THE LOSS MADE BY CHEQUE PAYMEN TS AND ADJUSTMENTS OF SHARE TRADING RECEIPTS. AFTER VERIFICATION OF THE DETAILS IT IS FOUND THAT THE ASSESSEE HAS SETTLED THE LOSS OF RS.2,98,49,207/- T O THE BROKERS DURING THE YEAR AS UNDER: ITA NO.2260/MUM/14 A.Y. 08-09 [ACIT VS. M/S. DEEPSA NG CORPORATION] PAGE 5 TOTAL MARK TO MARGIN LOSS RS.2,98,49,207/- LESS: PAYMENT MADE TO:- M/S. PRAGYA SECURITIES PVT. LTD. (DEEPSANG CORPN. UBI A/C. NO.318801010336721) RS.1,57,64,539/- M/S. TECHNO SHARES & STOCKS PVT. RS.20,10,252/- LTD. (DEEPSANG CORPN. ICICI BANK A/C. NO.034805002164 & UNION BANK OF INDIA A/C. NO. 31880101336721) PAID ON BEHALF BY SHRI GUNVANTRAI RS.5,00,000/- SANGHRAJKA (PARTNER) SARASWAT BANK A/C. NO.OPPUB/5020 PAID ON BEHALF BY MRS. SANGEETA RS.17,00,000/- AMIT SHAH (PARTNER) ICICI BANK A/C. NO.34805002132 (PAID ON BEHALF BY M/S. DADAJEE RS.18,00,000/- RS.2 ,17,74,791/- DHAKJEE PVT. LTD. (SISTER CONCERN) HDFC BANK A/C. NO.0602490000702) (COPY OF LEDGER ACCOUNT AND BANK ACCOUNT STATEMENT ENCLOSED AS ANNEXURE-A) BALANCE RS.80,74,416/- NET OF PURCHASE AND SALES RS.81,16,780/- (AMOUNT ADJUSTED BY BROKERS FROM BALANCE AVAILABLE IN THE RUNNING A/C. OF REGULAR PURCHASE AND SALE OF SHARES) (COPY OF SALES & PURCHASE STATEMENT ENCLOSED AS ANNEXURE-B) EXCESS PAID TO BROKER RS.42,364/- IN VIEW OF THE ABOVE, THE CLAIM OF THE ASSESSEE THA T THE MARK TO MARGIN LOSS HAS BEEN ACTUALLY SETTLED DURIN G THE YEAR IS FOUND TO BE IN ORDER AND THE APPEAL MAY KIN DLY BE DECIDED BY CONSIDERING THE ABOVE FACTS AND MERITS O F THE CASE. ITA NO.2260/MUM/14 A.Y. 08-09 [ACIT VS. M/S. DEEPSA NG CORPORATION] PAGE 6 ASSESSING OFFICER HAD VERIFIED THE FACT OF PAYMENT OF SPECULATION LOSS AND FOUND THE SAME TO BE IN ORDER AS PER FINDINGS RECORDED IN REMAND REPORT. IN VIEW OF REM AND REPORT, CIT(A) HELD THAT LOSS INCURRED BY ASSESSEE DURING Y EAR HAS BEEN SETTLED BY VARIOUS PAYMENTS IN SUBSEQUENT YEAR S AND SAME WAS FOUND IN ORDER. THIS REASONED FINDING OF CIT(A), WHEREIN CIT(A) HAS DELETED THE DISALLOWANCE OF MARK TO MARKET LOSS OF RS.2,98,49,207/- ON DERIVATE TRANSACTION, N EEDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 3. AS A RESULT, APPEAL FILED BY REVENUE IS DISMISSE D. PRONOUNCED IN THE OPEN COURT ON THIS THE 30 TH DAY OF SEPTEMBER, 2015. SD/- SD/- ( ASHWANI TANEJA ) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBE R MUMBAI: DATED 30/09/2015 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE !# / ASSESSEE $ %&%'( ) / CONCERNED CIT * )+ / CIT (A) ,-./00'(1 '( 12 %& / DR, ITAT, MUMBAI 3/4567 / GUARD FILE. BY ORDER / #8 1 9: ;% 1 '( 12 %&<