Appeal details
Counselvise Citation
[2011] 134 COUNSELVISE.COM (IT) 8028 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
11 month(s) 15 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
23-03-2011
Appeal Filed By
Department
Order Result
Allowed
Bench Allotted
J
Assessment Year
2006-2007
Appeal Filed On
07-04-2010
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH: MUMBAI BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.2684/MUM/2010 (ASSESSMENT YEAR: 2006-07) DCIT 2(3), R.NO.555, AAYAKAR BHAVAN, MUMBAI-400 021 REVENUE VS M/S. SHREE MAHAGANGA SUGAR MILLS LTD., 28, RAJA BAHADUR MANSION, 4TH FLOOR, R.NO.21, B.S. MARG, FORT, MUMBAI -400 023 ASSESSEE PAN: AABCE 0969 L ASSESSEE BY: NONE REVENUE BY: MRS KUSUM INGLE, CIT DR O R D E R PER R.S. PADVEKAR, JM THIS APPEAL IS FILED BY THE REVENUE CHALLENGING THE IMPUGNED ORDER OF THE LD. CIT (A) 6, MUMBAI DATED 20.01.2010 FOR THE A.Y. 2006-07. DESPITE SERVICE OF NOTICE OF HEARING THROUGH RPAD O N 15.2.2011 TO THE ASSESSEE NONE APPEARED ON BEHALF OF THE ASSESSEE NO R ANY ADJOURNMENT LETTER HAS BEEN FILED HENCE WE PROCEED TO DECIDE TH E APPEAL ON MERIT AFTER HEARING THE LD. D.R. THE REVENUE HAS TAKEN THE FOL LOWING EFFECTIVE GROUND:- ITA 2684/M/2010 M/S. SHREE MAHAGANGA SUGAR MILLS LTD. 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT (A) ERRED IN HOLDING THAT LOSS OF ` 3,7 8,00,361/- INCURRED BY THE ASSESSEE AS SPECULATION LOSS CAN BE SET OFF AGAINST THE BUSINESS INCOME DERIVED FROM TRADING IN FUTURES AND OPTIONS. 2. THE FACTS PERTAINING TO THE GROUND NO.2 ARE AS U NDER. THE ASSESSEE IS ENGAGED IN THE MANUFACTURING AND SALE O F SAFETY MATCHES AND PACKAGING MACHINES. ON THE PERUSAL OF THE STATEMEN T OF ACCOUNTS, IT WAS NOTICED BY THE A.O. THAT THE ASSESSEE HAS SUSTAINED THE LOSS FROM THE TRADING IN SHARES AND SECURITIES AMOUNTING TO ` 34,69,562/-. THE A.O. WAS OF THE OPINION THAT AS PER THE PROVISIONS OF SE CTION 73 IT WAS A DEEMED SPECULATION LOSS. THE A.O. HAS NOTED THAT A S PER THE COMPUTATION OF INCOME FILED ALONG WITH THE RETURN, THE ASSESSEE HAS SHOWN THE PROFIT OF ` 4,35,43,038/- WHICH WAS EARNED FROM TRADING IN FUTURE AND OPTIONS (F & O) AFTER 25.01.2006 WHICH I S IN TURN, IS A BUSINESS INCOME WITHIN THE MEANING OF SECTION 43(5) OF THE I.T. ACT. THE A.O. HAS DONE EXERCISE OF COMPUTATION ON PAGE 2 OF THE ASSESSMENT ORDER AND WORKED OUT NEGATIVE FIGURE OF SPECULATION LOSS OF ` 3,78,00,361/-. THE A.O. ALSO NOTED THAT THE ASSESSEE HAS SHOWN TOT AL SALE OF THE SECURITY OF ` 92.78 LAKHS AND MAJOR INCOME IS FROM THE SAID ACTI VITY. THE A.O. HELD THAT THE BUSINESS OF THE ASSESSEE-COMPANY IS T REATED AS A SPECULATION AND HENCE THE EXPLANATION TO SECTION 73 OF THE ACT IS APPLICABLE. THE A.O., THEREFORE, TREATED THE LOSS OF ` 3,78,00,361/- AS A SPECULATION LOSS AND NOT AS A BUSINESS LOSS. THE A .O. FURTHER NOTED THAT THE PROFIT EARNED ON THE TRADING IN FUTURE AND OPTI ONS (F&O) OF ` 4,35,43,037/- EARNED AFTER 25.1.2006 IS TO BE TREAT ED AS A BUSINESS INCOME FOR THE A.Y. 2006-07. THE A.O., THEREFORE, TREATED ` 3,78,00,361/- AS A SPECULATION LOSS AND ALLOWED THE SAME TO BE CARRIED FORWARD AND DECLINED TO GIVE THE BENEFIT OF THE SET OFF. ITA 2684/M/2010 M/S. SHREE MAHAGANGA SUGAR MILLS LTD. 3 3. THE ASSESSEE CHALLENGED THE SAID DISALLOWANCE B EFORE THE LD. CIT (A). BEFORE THE LD. CIT (A) IT WAS CONTENDED THAT THE F&O TRANSACTIONS HAS TAKEN PLACE BEFORE 25.1.2006, WHICH INADVERTENT LY HAS BEEN CONSIDERED BY THE A.O. AS F&O TRANSACTIONS HAVING T AKEN PLACE AFTER 25.01.2006. IT WAS FURTHER PLEADED THAT THE ASSESS EE WAS DEBARRED FROM DOING ANY TRANSACTION IN THE CAPITAL MARKET W.E.F. 5.10.2005. IT WAS ALSO CONTENDED THAT IN VIEW OF THE SEBI NOTIFICATION NO. 2 OF 2006 DATED 25.1.2006 AND SUBMITTED THAT AFTER 25.1.2006 THE DE RIVATIVE TRANSACTIONS CANNOT BE TREATED AS A SPECULATION TRANSACTIONS. I T WAS ALSO CONTENDED THAT TRADING IN F&O TRANSACTIONS BEFORE 25.1.2006 W AS NOTHING BUT A SPECULATION INCOME / LOSS AND HENCE THE PROFIT OF ` 4,35,45,037/- IS A SPECULATION INCOME AND SAME CANNOT BE TREATED AS A BUSINESS INCOME AND HENCE, SET OFF THE SPECULATION LOSS OF ` 3,78,00,361/- IS TO BE ALLOWED AGAINST THE SPECULATION INCOME OF ` 4,35,45,037/-. THE LD. CIT (A) FOUND THAT THERE WAS MERIT IN THE CONTENTION OF THE ASSES SEE. THE LD. CIT (A) HAS DIRECTED THE A.O. TO VERIFY THE DATE ON WHICH T HE SAID TRANSACTIONS RELATING TO INCOME OF ` 4,35,42,037/- HAD BEEN ENTERED INTO AND BEING THE TRANSACTIONS HAS BEEN ENTERED INTO BY 25.1.2006 THE SAME WAS DIRECTED TO BE TREATED AS A SPECULATION INCOME AND TO ALLOW THE SET OFF OF THE SUCH PROFIT AGAINST THE SPECULATION LOSS. 4. WE FIND FORCE IN THE SUBMISSION OF LD. D.R. THAT INCOME FROM F&O HAS TO BE TREATED AS INCOME FROM BUSINESS IN TERMS OF CLAUSE (D) OF SECTION 43(5), WHICH READS AS UNDER:- AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIVATIVES REFERRED TO IN CLAUSE (AC) OF SECTION 2 OF THE SECU RITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) CARRIED OUT IN A RECOGNISED STOCK EXCHANGE; SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTI ON. EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, TH E EXPRESSIONS ITA 2684/M/2010 M/S. SHREE MAHAGANGA SUGAR MILLS LTD. 4 (I) ELIGIBLE TRANSACTION MEANS ANY TRANSACTION, (A) CARRIED OUT ELECTRONICALLY ON SCREEN-BASED SYS TEMS THROUGH A STOCK BROKER OR SUB-BROKER OR SUCH OTHER INTERMED IARY REGISTERED UNDER SECTION 12 OF THE SECURITIES AND E XCHANGE BOARD OF INDIA ACT, 1992 (15 OF 1992) IN ACCORDANCE WITH THE PROVISIONS OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) OR THE SECURITIES AND EXCHANGE BOARD O F INDIA ACT, 1992 (15 OF 1992) OR THE DEPOSITORIES ACT, 199 6 (22 OF 1996) AND THE RULES, REGULATIONS OR BYE-LAWS MADE O R DIRECTIONS ISSUED UNDER THOSE ACTS OR BY BANKS OR M UTUAL FUNDS ON A RECOGNISED STOCK EXCHANGE; AND (B) WHICH IS SUPPORTED BY A TIME STAMPED CONTRACT NOTE ISSUED BY SUCH STOCK BROKER OR SUB-BROKER OR SUCH OTHER INTERMEDIARY TO EVERY CLIENT INDICATING IN THE CONT RACT NOTE THE UNIQUE CLIENT IDENTITY NUMBER ALLOTTED UNDER AN Y ACT REFERRED TO IN SUB-CLAUSE (A) AND PERMANENT ACCOUNT NUMBER ALLOTTED UNDER THIS ACT; (II) RECOGNISED STOCK EXCHANGE MEANS A RECOGNISE D STOCK EXCHANGE AS REFERRED TO IN CLAUSE (F) OF SECTION 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) AND WHICH FULFILS SUCH CONDITIONS AS MAY BE PRESCRIBED AND NOTIFIED 71 BY THE CENTRAL GOVERNMENT FOR THIS PURPOSE. THE SPECIAL BENCH OF THE TRIBUNAL HAS ALREADY HELD IN CASE OF SHREE CAPITAL SERVICES LTD. VS. ACIT THAT PROVISIONS OF C LAUSE (D) WAS INTRODUCED BY FINANCE ACT, 2005 W.E.F. 1.4.2006 AND IS APPLICABLE PROSPECTIVELY W.E.F. 1.4.2006. IT DOES NOT MAKE A DIFFERENCE WHETHER TRANSACTIONS WERE CARRIED OUT AFTER JANUARY 31, 200 6 OR BEFORE THAT BECAUSE BOMBAY STOCK EXCHANGE AND NATIONAL STOCK EX CHANGE WERE RECOGNIZED STOCK EXCHANGES BY THE CENTRAL BOARD OF DIRECT TAXES ITA 2684/M/2010 M/S. SHREE MAHAGANGA SUGAR MILLS LTD. 5 NOTIFICATION NO.2 DATED JANUARY 25, 2006. SINCE PA RLIAMENT ENACTED THE LAW W.E.F. APRIL 1, 2006 THEREFORE, ALL THE TRANSAC TIONS CARRIED OUT IN THE PREVIOUS YEAR RELEVANT TO A.Y. 2006-07 WILL HAVE TO BE TREATED AS BUSINESS PROFITS. THE SIMILAR VIEW HAS ALREADY BEEN TAKEN B Y THE DELHI BENCH OF THE TRIBUNAL IN CASE OF SMT. SEEMA JAIN VS. ACIT (2 010) 6 ITR (TRIBUNAL) 488 (DELHI) AND G.K. ANAND BROS. BUILDWELL P. LTD. VS. ITO (2009) 34 SOT 439 (DELHI). ONCE THE TRANSACTIONS OF F&O ARE HELD TO BE IN THE NATURE OF BUSINESS PROFIT THEN SAME ARE NOT APPLICABLE FOR SE T OFF AGAINST THE SPECULATION LOSS. ACCORDINGLY, WE SET ASIDE THE OR DER OF THE LD. CIT (A) AND RESTORE THAT OF THE A.O. 5. IN THE RESULT, REVENUES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY O F 23RD MARCH 2011. SD/- SD/- ( T.R. SOOD ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI, DATE: 23RD MARCH 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) 6, MUMBAI. 4) THE CIT-2, MUMBAI. 5) THE D.R. J BENCH, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR *CHAVAN I.T.A.T., MUMBAI
