Mrs. B.Amirthalakshmi, Coimbatore V. ITO, Coimbatore

ITA 268/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61084 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2012
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 09-02-2012
• Court: TRIBUNAL
• Department Lawyers: DR YOGESH K AMAT SR
• Assessee Lawyers: G BASKAR
• Keywords: Transactions in derivatives; Retrospective amendment; Speculation loss
• Section: 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI (BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI V.DURGA RAO, JUDICIAL MEMBER ) .. I.T.A. NO.268 /MDS/2012 ASSESSMENT YEAR : 2008-09 MRS.B.AMIRTHALAKSHMI, NO.126,ARTS COLLEGE ROAD, COIMBATORE 641 018. PAN : ACYPA 3152 F (APPELLANT) V. THE INCOME TAX OFFICER-WARD III(1), O/O. INCOME TAX OFFICER, RACE COURSE ROAD, COIMBATORE 641 018. (RESPONDENT) APPELLANT BY : SHRI G.BASKAR, ADVOCATE RESPONDENT BY : DR.YOGESH K AMAT, SR.A.R. DATE OF HEARING : 09.05.12 DATE OF PRONOUNCEMENT : 18.05.12 O R D E R PER N.S.SAINI, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF COMMISSIONER OF INCOME TAX(APPEALS)-I, COIMBATORE, DATED 18.12.2011 FOR ASSESSMENT YEAR 2008-09. ITA NO.268/MDS/12 2 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL:- 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A) IS CONTRARY TO LAW AND FACTS OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME TAX(A) HAS ER RED IN PARA 5.2. PAGE 4 OF HIS ASSESSMENT ORDER BY TREATIN G THE LOSS ON COMMODITY TRADING AS SPECULATIVE LOSS 3. THE LEARNED COMMISSIONER OF INCOME TAX(A) HAS WRONG LY CONCURRED WITH THE OBSERVATION OF THE ASSESSING OFF ICER THAT THE COMMODITY FUTURES ARE NOT ELIGIBLE TRANSACTION OF DERIVATIVES REFERRED TO IN CLAUSE (AC) OF SECTION 2 OF THE SECU RITIES CONTRACTS (REGULATION) ACT, 1956. 4. THE LEARNED COMMISSIONER OF INCOME TAX(A) HAS W RONGLY CONCURRED WITH THE OBSERVATION OF THE ASSESSING OFF ICER THAT THE ASSESSEE HAS TRADED IN AN UNRECOGNIZED STOCK EXCHAN GE (MULTI COMMODITY EXCHANGE OF INDIA LIMITED (MCS LTD.,) ), AS RECOGNITION GRANTED BY THE CENTRAL GOVERNMENT THROU GH NOTIFICATION NUMBER 46 OF 2009 DATED 22 ND MAY 2009 WAS BEYOND THE FINANCIAL YEAR UNDER ASSESSMENT. THE LE ARNED ITA NO.268/MDS/12 3 COMMISSIONER OF INCOME TAX(A) OUGHT TO HAVE APPLIED THE BENEFICIAL NOTIFICATION WITH RETROSPECTIVE EFFECT T O THE CASE OF THE APPELLANT. 5. THE LEARNED COMMISSIONER OF INCOME TAX(A) OUGHT TO HAVE CONSIDERED THE NOTIFICATION GRANTING RECOGNITION TO MCS LTD. FOR THE PURPOSE OF CLAUSE (D) OF SECTION 43(5) WOULD BE RETROSPECTIVE IN EFFECT FROM 1 ST APRIL 2006 ONWARDS [DATE AMENDMENT CAME INTO FORCE] AS THE RECOGNITION DOES NOT EMPOWER ANY NEW RIGHT OR CREATE OBLIGATION BUT ONLY RECOGNIZES ONLY WHAT IS ALREADY INEXISTENCE. 6. YOUR APPELLANT HEREBY CRAVES TO AMEND, ADD, ALL OW AND ALTER THE ABOVE GROUNDS OF APPEAL AT THE TIME OF HEARING. 3. THE ONLY ISSUE INVOLVED IN THE APPEAL IS THAT THE LEARNED COMMISSIONER OF INCOME TAX(A) ERRED IN CONFIRMING T HE ORDER OF THE ASSESSING OFFICER IN TREATING THE LOSS FROM COMMOD ITY TRADING AS SPECULATIVE LOSS. ITA NO.268/MDS/12 4 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE WAS TRADING IN SHARES AND COMMODITY FUTURES DURING THE FINANCIAL Y EAR 2007-08. THE ASSESSEE MADE PURCHASES IN COMMODITIES (F&O) OF ` 61,47,716/- AND SALES OF ` 38,43,690/- THEREBY INCURRING A LOSS OF ` 23,04,026/- BY TRADING IN COMMODITIES (F&O). FROM THE DETAILS OF T RADING FILED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER, THE ASSESSIN G OFFICER NOTED THAT THE ASSESSEE WAS TRADING IN FUTURES OF CRUDE OIL, SILVER AND GOLD. THE ASSESSEE WAS REGISTERED WITH COIMBATORE COMMODI TIES LIMITED, A MEMBER OF THE MULTI COMMODITIES EXCHANGE OF INDIA L TD (MCX). THE ASSESSING OFFICER SHOW-CAUSED THE ASSESSEE TO ASK W HY THESE TRANSACTIONS SHOULD NOT BE TREATED AS SPECULATIV E AND THE SETTING OFF OF THE LOSS INCURRED IN THIS ACTIVITY AGAINST PROFI T FROM TRADING OF SHARES, BE DISALLOWED. THE ASSESSEE SUBMITTED THAT THE TRA NSACTIONS ENTERED INTO BY THE ASSESSEE IN THE COMMODITIES EXCHANGE AR E NON-SPECULATIVE UNDER SECTION 43(5)(D) OF THE INCOME TAX ACT, 1961. THE ASSESSING OFFICER AFTER CONSIDERING THE SEC.2(H) OF THE SECUR ITIES TRANSACTIONS (REGULATION) ACT AND SEC.2(AC) OF THE SECURITIES TR ANSACTIONS (REGULATION) ACT AND EXPLANATION (II) OF CLAUSE (D) OF SECTION43(5) OF THE INCOME TAX ACT HELD THAT THE TRANSACTION ENTERED IN TO BY THE ASSESSEE ITA NO.268/MDS/12 5 IN COMMODITY DERIVATIVES ARE OF SPECULATIVE NATURE AND DOES NOT FALL UNDER THE PURVIEW OF SECTION 43(5)(D) OF THE INCOME TAX ACT, 1961. SEC.2(AC) OF THE SECURITIES CONTRACTS (REGULATION) ACT IS A SECURITY DERIVATIVE AND NOT A COMMODITY DERIVATIVE. THE ASS ESSING OFFICER OBSERVED THAT MCX LTD. WAS NOTIFIED BY THE CENTRAL GOVERNMENT BY NOTIFICATION NO.46 OF 2009 DATED 22 ND MAY, 2009 AND HENCE, DURING THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR 2008-09, THE MCX LTD WAS NOT RECOGNIZED AND THEREFORE, THE ASSESSEES TRANSA CTIONS WILL NOT COME UNDER THE PURVIEW OF CLAUSE (D) OF SECTION43(5 ) OF THE INCOME TAX ACT. ACCORDINGLY, HE DISALLOWED THE SET OFF OF LOSS FROM THE SHARES TRADING PROFIT OF THE ASSESSEE AND ALLOWED CARRY F ORWARD OF THE LOSS IN COMMODITIES TO BE ADJUSTED AGAINST SPECULATIVE PROF IT OF THE SUBSEQUENT YEARS. 5. ON APPEAL, THE COMMISSIONER OF INCOME TAX(A) CO NFIRMED THE ORDER OF THE ASSESSING OFFICER FOR THE SAME VERY RE ASONS. 6. THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE R ELIED UPON THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. HE FILED A COPY OF ITA NO.268/MDS/12 6 NOTIFICATION NO.46 OF 2009 DATED 22 ND MAY, 2009 IN SUPPORT OF HIS CONTENTION THAT MCX LTD WAS NOTIFIED ON 22.05.2009 AS A RECOGNIZED STOCK EXCHANGE FOR THE PURPOSE OF CLAUSE (II) IN TH E EXPLANATION TO CLAUSE (D) OF THE PROVISO TO SUB-SECTION (5) OF SEC TION 43 OF INCOME TAX ACT, 1961. HE FURTHER RELIED ON THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF G.K.ANAND BROS. BUILDWELL ( P) LTD. VS. INCOME TAX OFFICER IN [2009] 34 SOT 439 (DEL.) AND POINTED FROM PARA-5 OF THE SAID ORDER THAT IT HAS BEEN HELD IN THAT ORDER EVEN IF THE NOTIFICATION IS FROM A PARTICULAR DATE, AS PER CLAUSE (D) INSERTED, THE SAME WILL APPLY TO ALL THE TRANSACTIONS IN RELATION TO ASSESSMENT YEAR 2006-07 AND ONWARDS. CLAUSE (D) DOES NOT MENTION THAT UNLESS TH E RECOGNIZED STOCK EXCHANGE IS NOTIFIED, THE TRANSACTION WILL NOT BE D EEMED TO BE A SPECULATIVE TRANSACTION. THE POWER TO NOTIFY THE ST OCK EXCHANGE IS GRANTED UNDER THE STATUTE AND HENCE ONCE THE RECOGN IZED STOCK EXCHANGE IS NOTIFIED, THE SAME WILL APPLY IN RESPEC T OF ALL ELIGIBLE TRANSACTIONS CARRIED OUT IN RELATION TO FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR 2006-07 AND ONWARDS. THE SPECIAL B ENCH OF TRIBUNAL AT KOLKATA IN THE CASE OF SHREE CAPITAL SE RVICES LTD VS. ASSTT. C.I.T. IN [2009] 124 TTJ (KOL) (SB) 740 IN PARA-7 H ELD THAT CLAUSE (D) ITA NO.268/MDS/12 7 OF SECTION 43(5) IS PROSPECTIVE IN NATURE AND WILL BE EFFECTIVE FROM THE DATE FROM WHICH THE LEGISLATURE MADE IT EFFECTIVE I .E. 1 ST APRIL, 2006 AND WILL BE APPLICABLE TO ASSESSMENT YEAR 2006-07 ONWAR DS. THE NOTIFICATION IS BY WAY OF A SUBORDINATED LEGISLATIO N BUT CANNOT OVERRIDE THE PRINCIPLE LEGISLATION ENACTED BY THE PARLIAMENT BUT WILL NOT OVERRIDE UNLESS STATUTORILY SO PRESCRIBED. 7. ON THE OTHER HAND, THE DEPARTMENTAL REPRESENTAT IVE SUPPORTED THE ORDER OF THE LOWER AUTHORITIES. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD . THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE SUFFERED A LOSS OF ` 23,04,026/- FROM DEALING IN COMMODITIES DERIVATIVE AND CLAIMED THE SAME AS NORMAL BUSINESS LOSS AND SET OFF AGAINST THE BUSIN ESS INCOME. THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSE E ON TWO GROUNDS. FIRSTLY THE COMMODITY DERIVATIVE IS NOT COVERED BY CLAUSE (D) OF PROVISO TO SECTION 43(5) AND SECONDLY, MCX LTD. WAS NOTIFI ED AS REGISTERED STOCK EXCHANGE UNDER CLAUSE (D) OF PROVISO TO SECTI ON 43(5) WITH EFFECT ITA NO.268/MDS/12 8 FROM 22.05.09 WHEREAS THE TRANSACTIONS IN QUESTION WERE ENTERED INTO PRIOR TO THAT DATE, I.E. WITHIN THE FINANCIAL YEAR 2007-08. 9. THE COMMISSIONER OF INCOME TAX(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 10. WE FIND THAT THE STOCK EXCHANGE WHICH HAS BEEN NOTIFIED UNDER CLAUSE (D) OF SECTION 43(5) THE MCX LTD. WHEREAS A S PER THE ORDER OF ASSESSMENT, THE ASSESSEE MADE TRANSACTIONS THROUGH MULTI COMMODITIES EXCHANGE OF INDIA LTD.. FROM THE TENO R OF THE ORDERS OF THE LOWER AUTHORITIES, IT SEEMS THAT THEY HAVE TREA TED THE MULTI COMMODITIES EXCHANGE OF INDIA LTD.,, SAME AS MCX ST OCK EXCHANGE LTD. WITHOUT VERIFYING WHETHER THEY ARE THE NAME OF THE SAME EXCHANGE OR ARE DIFFERENT EXCHANGES. WE THEREFORE, SET ASI DE THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR PROPER VERI FICATION AND IT IS FOUND THAT THE ASSESSEE HAS DEALT THROUGH MCX STOCK EXCHA NGE OF INDIA LTD.,THEN TO DECIDE THE ISSUE AFRESH AFTER KEEPING IN VIEW THE DECISIONS RELIED UPON BY THE ASSESSEE AND QUOTED ABOVE IN THE ORDER. HOWEVER, IF IT IS FOUND THAT THE ASSESSEE HAS NOT TRANSACTED THROUGH THE ITA NO.268/MDS/12 9 RECOGNIZED REGISTERED STOCK EXCHANGE, THEN THE ISSU E IS TO BE DECIDED ACCORDINGLY AS PER LAW. THE ASSESSING OFFICER IS D IRECTED TO RE-ADJUDICATE THE ISSUE AFRESH IN THE LIGHT OF THE DISCUSSIONS MADE ABOVE AFTER ALLOWING REASONABLE OPPORTUNITY OF HEAR ING TO THE ASSESSEE. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON FRIDAY, THE 18 TH MAY, 2012 AT CHENNAI. SD/- SD/- ( V.DURGA RAO) (N.S.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 18 TH MAY, 2012. K S SUNDARAM. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE