Shri Prakashkumar Natvarlal Patel, Ahmedabad V. The Income Tax Officer, Ward-3(3), Ahmedabad

ITA 262/AHD/2015

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 0114 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 03-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ASHWIN SHAH BHADRESH G
• Keywords: Transactions in derivatives; Speculation loss; Speculative transactions
• Section: 143(3)

Judgement Text

ITA NO.: 262/AHD/2015 ASSESSMENT YEAR: 2010-11 PAGE 1 OF 3 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD B BENCH, AHMEDABAD [CORAM: JUSTICE P P BHATT, PRESIDENT AND PRAMOD KUM AR, VICE PRESIDENT] ITA NO.: 262/AHD/2015 ASSESSMENT YEAR: 2010-11 PRAKASHKUMAR NATVARLAL PATEL ....APPELL ANT PROP. OF M/S. JIYA ENTERPRISE, F-204, UMA SHARANAM, OPP. NIRMAN HOMES, NEW S.G. ROAD, GOTA, AHMEDABAD-382481 [PAN : AOLLP 6510 K] VS INCOME TAX OFFICER ..........RESPONDENT WARD 3(3), AHMEDABAD APPEARANCES BY ASHWIN SHAH, BHADRESH G. FOR THE APPELLANT MUDIT NAGPAL FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : JUNE 03, 2019 DATE OF PRONOUNCEMENT : JUNE 03, 2019 O R D E R PER BENCH : 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HA S CHALLENGED CORRECTNESS OF THE ORDER DATED 15 TH DECEMBER 2014 PASSED BY THE CIT(A) IN THE MATTER O F ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSM ENT YEAR 2010-11. 2. GRIEVANCES RAISED BY THE ASSESSEE APPELLANT ARE AS FOLLOWS: 1. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING F&O COMMODITY LOSS OF RS. 40,07,962 AS SPECULATION LOSS IN AS MUCH AS THE F&O LOSS IS A BUSINESS LOSS AS PER SECTION 43(5)(E) AS INSERTED BY FINANCE ACT, 2013 W ITH EFFECT FROM 01-04-2014 AND THAT THE SAID INSERTION IS WITH RETROSPECTIVE EFFEC T IN VIEW SUPREME COURT IN THE CASE OF ALLIED MOTORS P. LTD V/S. CIT 224 ITR 677 AND CIT V /S. ALOM EXTRUSIONS LTD. 319 ITR 306. 2. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE INTEREST OF RS. 3,00,000 OUT OF RS. 4,77,240 ON THE GROUND THAT THE INTEREST FREE LOANS ARE GIVEN IN AS MUCH AS THE ENTIRE AMOUNT OF INTEREST PAID IS FOR THE PURPOSE OF BUSIN ESS AND THEREFORE IT IS ALLOWABLE AS DEDUCTION. ITA NO.: 262/AHD/2015 ASSESSMENT YEAR: 2010-11 PAGE 2 OF 3 3. TO ADJUDICATE ON THIS APPEAL, ONLY A FEW MATERIA L FACTS NEED TO BE TAKEN NOTE OF. THE ASSESSEE BEFORE US IS ENGAGED IN THE BUSINESS OF GO LD AND BULLION TRADING. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NO TICED THAT THE ASSESSEE HAS CLAIMED A DEDUCTION OF RS 40,07,962 IN RESPECT OF COMMODITY TRANSACTIONS ON MCX AS LOSS. THE ASSESSING OFFICER NOTED THAT THIS IS NOT A RECOGNIZ ED STOCK EXCHANGE AND THAT IT IS IN THE NATURE OF SPECULATIVE TRANSACTIONS. THE ASSESSEES CLAIM REGARDING THE TRANSACTIONS BEING IN THE NATURE OF HEDGING TRANSACTIONS WAS ALSO REJECTE D. THE LOSS OF RS 40,07,962 WAS THUS TREATED TO BE SPECULATIVE LOSS IN NATURE WHICH WAS NOT SET OFF AGAINST OTHER BUSINESS PROFITS. THE ASSESSING OFFICER ALSO NOTED THAT THE ASSESSEE HAS GIVEN INTEREST FREE LOANS UNCONNECTED WITH BUSINESS, AND AT THE SAME TIME BORROWED FUNDS FROM A BANK AND ONE OTHER PERSON ON COMMERCIAL TERMS. IT WAS IN THIS BACKDROP THAT THE INTEREST PAYMENT OF RS 4,77,240 WAS ALSO DISALLOWED BY THE ASSESSING OFFICER. AGGRIEVED, ASS ESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). IT WAS CONTENDED THAT THE AMENDMENT IN SECTION 43(5), BY INSERTING CLAUSE (E), MUST BE HELD TO BE RETROSPECTIVE IN EFFECT, EVEN TH OUGH IT WAS INTRODUCED W.E.F. 1 ST APRIL 2014. THE CIT(A) REJECTED THIS PLEA. ON THE INTEREST DISA LLOWANCE, THE CIT(A) ALLOWED RELIEF TO THE EXTENT OF RS 1,77,420 BUT CONFIRMED THE BALANCE AMO UNT OF RS 3,00,000. THE DISALLOWANCE SO CONFIRMED WAS JUSTIFIED ON THE GROUND THAT WHILE T HE ASSESSEE HAS ALLOWED HIS OWN FUNDS AS INTEREST FREE ADVANCES, HE IS PAYING INTEREST ON TH E LOANS THAT HE HAS RECEIVED. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 5. SO FAR ASSESSEES GRIEVANCE AGAINST THE DISALLOW ANCE OF INTEREST TO THE EXTENT OF RS 3,00,000 IS CONCERNED, ONCE THE CIT(A) HOLDS, AS SH E HAS HELD IN THIS CASE, THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS AVAILABLE, THERE CANNOT BE ANY JUSTIFICATION OF THE DISALLOWANCE OF INTEREST ON BORROWED FUNDS. AS IS T HE SETTLED LEGAL POSITION, WHEN THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS, THE PRESUMPTION HAS TO BE THAT THE INTEREST FREE FUNDS HAVE BEEN UTILIZED FOR THE PURPOSE OF ADVANCING INTEREST FREE LOANS. HONBLE BOMBAY HIGH COURTS JUDGMENT IN THE CASE OF CIT VS RELIANCE UTILITIES & POWER PVT LTD [(2009) 313 ITR 340 (BOM)], WHICH HAS BEEN FOLLOWED, WITH APPROVAL, BY HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS UTI BANK LTD [(2013) 32 TAXMANN.282 (GUJ)] HOLDS SO. IN THIS VIEW OF THE MATTER, THE DISALLOWANCE OF RS 3,00,000 MUST STAND DELETED. 7. GROUND NO. 2 IS THUS ALLOWED 8. ON THE QUESTION OF THE LOSS OF RS 40,07,962 BEIN G TREATED AS SPECULATION LOSS AND INELIGIBLE TO SET OFF AGAINST NORMAL INCOME, THE AS SESSEE HAS AN ALTOGETHER NEW PLEA. HE CONTENDS THAT LOSS ON ACCOUNT OF DERIVATE TRADING C ANNOT BE TREATED AS SPECULATION LOSS AT ALL. HE FINDS SUPPORT FROM CERTAIN JUDICIAL PRECEDENTS I N SUPPORT OF THIS PROPOSITION. IN ALL FAIRNESS, HOWEVER, HE ADMITS THAT THIS PLEA WAS NEV ER BEFORE THE AUTHORITIES BELOW, EVEN AS HE CONTENDS THAT HE HAS ALL THE RIGHTS TO PRESENT A NE W LEGAL PLEA AT THE STAGE OF THE TRIBUNAL. WHEN WE, HOWEVER, SUGGESTED THAT THIS PLEA SHOULD B E FIRST EXAMINED BY THE CIT(A), HE VERY GRACIOUSLY, EVEN THOUGH SOMEWHAT RELUCTANTLY, AGREE D TO THE SUGGESTION. LEARNED DEPARTMENTAL REPRESENTATIVE ALSO DID NOT OPPOSE THE SUGGESTION. THE PLEA TAKEN BY THE LEARNED COUNSEL CERTAINLY DESERVES JUDICIOUS CONSID ERATION BUT TAKING UP THIS PLEA DIRECTLY AT THIS STAGE, AND ALLOWING THE LOWER APPELLATE FORUM TO BE BYPASSED ALTOGETHER, WOULD NOT BE APPROPRIATE. ITA NO.: 262/AHD/2015 ASSESSMENT YEAR: 2010-11 PAGE 3 OF 3 9. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE DEEM IT FIT AND PROPER TO REMIT THE ISSUE TO THE FILE OF TH E CIT(A) FOR ADJUDICATION DE NOVO IN THE LIGHT OF OUR ABOVE OBSERVATIONS, IN ACCORDANCE WITH THE L AW AND BY WAY OF A SPEAKING ORDER. AS THE MATTER IS BEING REMITTED TO THE FILE OF THE CIT(A) FOR FRESH CONSIDERATION, ALL ISSUES ARE LEFT OPEN. 10. GROUND NO. 1 IS THUS ALLOWED FOR STATISTICAL PU RPOSES. 11. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON THE 3 RD DAY OF JUNE, 2019. SD/- SD/- JUSTICE P P BHATT PRAMOD KUMAR (PRESIDENT) (VI CE-PRESIDENT) AHMEDABAD, DATED THE 3 RD DAY OF JUNE, 2019 COPIES TO: (1) THE APPELLANT (2) THE RESPOND ENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD