ARVIND KANJI CHHEDA, MUMBAI V. A.C.I.T. CIRCLE-19(2), MUMBAI

ITA 2295/MUM/2012

• Counselvise Citation: 229519914 RSA 2012
• Duration Of Justice: 2 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-10-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 09-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RODOLPH N DSOUZA
• Assessee Lawyers: MADAN DEDHIA
• Keywords: Business income; Transactions in derivatives; Speculation loss
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A , BENCH MUMBAI , BEFORE SHRI R.C.SHARMA , A M & SHRI SANJAY GARG , J M ITA N O. 229 5 / MUM/20 1 2 ( ASSESSMENT YEAR : 20 0 8 - 20 09 ) SHRI ARVIND KANJI CHHEDA, A/8, MAHESH APARTMENT, 3 RD FLOOR, S.T.ROAD, SANTACRUZ(W), MUMBAI - 54 VS. ACIT, CIRCLE - 19(2), MUMBAI PAN/GIR NO. : A A APC 6553 G ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : SHRI MADAN DEDHIA /REVENUE BY : SHRI RODOLPH N. DSOUZA DATE OF HEARING : 2 ND DECEMBER , 201 4 DATE OF PRONOUNCEMENT 2 ND DECEMBER , 201 4 O R D E R PER R.C.SHARMA (A.M) : TH IS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) DATED 10 - 1 - 2012 FOR THE ASSESSMENT YEAR 2008 - 09 , IN THE MATTER OF ORDER PASSED U/S. 143(3) OF THE ACT, WHEREIN FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE : - THE ONLY ISSUE FOR CONSIDERATION RELATES TO NOT ALLOWING CLAIM OF SET OFF OF LOSS OF EARLIER YEARS AMOUNTING RS.50,64,262/ - INCURRED ON DERIVATIVE TRANSACTIONS TO ADJUST AGAINST PROFIT EARNED ON DERIVATIVE TRANS ACTIONS OF CURRENT YEAR TREATING AS BUSINESS INCOME. THE LD CIT (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER AS PER PROVISION OF SECTION 73 OF INCOME TAX ACT. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. DURING THE YEAR UNDER CONSIDERATION ASSESSEE CLAIMED SET OFF OF LOSS OF EARLIER YEAR INCURRED ON DERIVATIVE TRANSACTIONS OUT OF PROFIT OF TRANSACTIONS OF SIMILAR IN ITA NO. 2295 / 1 2 2 NATURE IN THE CURRENT YEAR . THE AO DECLINED THE CLAIM ON THE PLEA THAT CARRY FORWARD LOSS FROM SPECULATION BUSINESS CANNOT BE SET OFF AGAINST THE BUSINESS INCOME IN THE CURRENT YEAR. BY THE IMPUGNED ORDER, THE CIT(A) CONFIRMED THE ACTION OF THE AO AND ASSESSEE IS IN FURTHER APPEAL BEFORE US. 3. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM THE RECORD THAT THE ASSESSEE HAD ENTERED INTO DERIVATIVE TRANSACTIONS IN THE FORM OF FUTURES AND OPTIONS AND INCURRED SPECULATIVE LOSS SINCE A.Y.2004 - 2005. IN THE PRECEDING ASSESSMENT YEARS 2004 - 05, 2005 - 06, 2006 - 07, 2007 - 08 THE ASSESSEE HAS INCURRED LOSSES FROM DERIVAT IVE TRANSACTIONS AS PER CHART HEREUNDER: ASSESSMENT YEAR LOSS AMOUNT 2004 - 2005 RS.15,38,522/ - 2005 - 20 06 RS.6,60,837/ - 2006 - 20 07 RS.16,60,751/ - 2007 - 20 08 RS.12,04,152/ - TOTAL LOSS RS.50,64,262/ - DURING THE A.Y.2008 - 2009 THE ASSESSEE HAD EARNED PROFI T OF RS.57,45,716/- FROM TRANSACTIONS CARRIED OUT IN DERIVATIVES BEING FUTURES AND OPTIONS. HE HAD BROUGHT FORWARD LOSSES FROM THIS ACTIVITY SINCE A.Y.2004 - 2005 TO 2007 - 2008 AMOUNTING TO RS.50,64,262/ - THE ASSESSEE IN HIS RETURN OF INCOME FOR A.Y.2008 - 2009 CLAIMED SET OFF OF BROUGHT FORWARD LOSSES INCURRED IN DEALING IN DERIVATIVES AGAINST THE CURRENT YEAR PROFIT FROM DERIVATIVES. THE SET OFF AND ALSO CARRY FORWARD AS CLAIMED BY ASSESSEE WAS DENIED BY AO STATING THAT THERE IS NO PROVISION IN THE ACT TO ADJUS T THE SPECULATION LOSS OF EARLIER YEARS FROM THE BUSINESS INCOME OF CURRENT YEAR. THEREFORE THE ASSESSING OFFICER DID NOT ALLOWED SET OFF OF ITA NO. 2295 / 1 2 3 PROFIT OF RS.50,64,262/ - CLAIMED AS AGAINST UNABSORBED SPECULATION LOSS FROM EARLIER YEARS . 4. FROM THE RECORD WE F OUND THAT D URING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD ENTERED INTO SIMILAR TRANSACTIONS IN DERIVATIVES BEING FUTURE AND OPTIONS. HOWEVER, THE AO HAS DECLINED ASSESSEES CLAIM OF SET OFF OF EARLIER YEARS LOSS AGAINST THE PROFIT FROM SIMILAR TRANSA CTION DURING THE YEAR UNDER CONSIDERATION. IT IS CLEAR FROM THE RECORD THAT ASSESSEE HAD CARRIED OUT FUTURE & OPTION TRANSACTIONS AND INCURRED LOSSES IN EARL IER ASSESSMENT YEARS AND HE WANTS SUCH LOSSES TO BE SET OFF AGAINST THE PROFIT OF THE SAME ACTIVITY IN THIS ASSESSMENT YEAR . I T IS NOT IN DISPUTE THAT THE ASSESSEE HAS EARNED PROFIT FROM THE SAME B USINESS IN WHICH LOSSES WERE INCURRED IN THE EARLIER YEARS. THE LOSS BROUGHT FORWARD DURING ALL THESE YEARS AND GAIN MADE DURING THE YEAR IS HAVING SAME NATUR E. THERE IS NO CHANGE IN THE NATURE EARNING OF INCOME DURING THE YEAR. IN A LL THE PRECEDING YEARS HE WAS INCURRING LOSSES IN FUTURES AND OPTIONS TRANSACTIONS BUT IN CURRENT YEAR HE MADE GAIN. NOTHING WAS BROUGHT ON RECORD BY AO TO ALLEGE THAT PROFIT EARNED DURING THE YEAR WAS NOT OUT OF FUTURE AND OPTION TRANSACTION. THUS THE ASSESSEE WAS ENTITLED TO SET OFF THE CARRIED FORWARD LOSSES OF EARLIER ASSESSMENT YEARS AGAINST PROFITS OF THE SAME BUSINESS IN THIS ASSESSMENT YEAR . 5. THE CLASSIFICATION OF BUSINESS FOR THE LIMITED PURPOSE OF SET OFF OF PAST L OSSES, INTO SPECULATIVE AND NON - SPECULATIVE IS TO BE DONE ON UNIFORM BASIS AND LOSSES INCURRED IN THE SAME BUSINESS IN EARLIER ASSESSMENT YEARS ARE TO BE TREATED AS ELIGIBLE FOR SET OFF AGAINST PROFIT OF THE SAM E BUSINESS IN THE SUBSEQUENT ASSESSMENT YEARS. FOR THIS REASON ALSO THE ITA NO. 2295 / 1 2 4 ASSESSEE DESERVES TO BE ALLOWED TO SET OFF OF BROUGHT FORWARD LOSSES FROM BUSINESS OF DEALING IN DERIVATIVES, INCURRED IN ASSESSMENT YEARS PRIOR TO ASSESSMENT YEAR 2006 - 2007 AGAINST PR OFIT OF THE SAME BUSINESS IN CURRENT ASSESSMENT YEAR 2006 - 2007 . THUS SPECULATIVE LOSSES MADE ON FUTURE OPTION TRANSACTIONS IN EARLIER YEARS ARE ELIGIBLE TO BE ALLOWED TO SET OFF AGAINST THE BUSINESS INCOME OF FUTURE OPTION TRANSACTIONS OF CURRENT YEAR. BAS ED ON THE SAME IN THE PRESENT CASE THE ASSESSEE IS ENTITLED TO SET OFF THE CARRIED FORWARD LOSSES OF EARLIER YEAR FROM THE SAME BUSINESS AGAINST PROFIT OF THE BUSINESS IN THIS ASSESSMENT Y EAR. 6. THE MUMBAI BENCH OF ITAT IN GAJENDRA KUMAR T. AGARWAL V. IN COME TAX O FFICER (2011) 40 (II) ITCL 324 (MUM - TRIB) VIDE ORDER DATED 31 - 5 - 2011 , HAS HELD THAT THE LOSS INCURRED IN DERIVATIVE TRANSACTIONS UPTO A.Y.2005 - 2006 CAN BE SET OFF AGAINST THE INCOME FROM DERIVATIVE TRANSACTIONS FOR THE A.Y.2006 - 2007. 7. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY MERIT IN THE A CTION OF THE LOWER AUTHORITIES IN DECLINING CLAIM OF SET OFF OF LOSSES OF EARLIER YEAR AGAINST PROFIT OF CURRENT YEAR. 8 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 02/12 / 201 4 . 02/12 / 2014 SD/ - SD/ - ( ) ( SANJAY GARG ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 02/12 /2014 /PKM , PS ITA NO. 2295 / 1 2 5 COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT (A), MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//