Adroit Tradelink Pvt. Ltd., Gandhinagar V. The ITO, Ward-1(1)(4), Ahmedabad

ITA 2733/AHD/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0970 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 25-10-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 06-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N DIVETIA; MEHUL TALERA ARS
• Keywords: Business income; Transactions in derivatives; Speculation loss; Speculative transactions; Set aside; Capital Gains
• Section: 43(5); 250; 201; 43; 73; 28

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL , SM C BENCH, AHMEDABAD BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI WASEEM AHMED , ACCOUNTANT MEMBER ./ ITA NO. 2733 /AHD/2017 / ASSTT. YEAR: 2013 - 2014 ADROIT TRADE LINK PVT. LTD. , 145, SAMRAJYA APARTMENT , SECTOR - 14 , GANDHINAGAR - 382016 . PAN : AAACJ3868J VS. I.T.O, WARD - 1(1)(4) , AHMEDABAD . (APPLICANT) ( RESPON D ENT ) ASSESSEE BY : SHRI S.N. DIVETIA , & SHRI MEHUL TALERA, A.R S REVENUE BY : SHRI RAJDEEP SINGH SR. D.R / DATE OF HEARING : 25 / 10 / 201 9 / DATE OF PRONOUNCEMENT: 16 / 12 /201 9 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 1, AHMEDABAD DATED 28/09 /2017 ( IN SHORT LD.CIT(A) ) ARISING IN THE MATTER OF ASSESSMENT ORDER PASSED UNDER S. 143 (3) OF THE INCOME TAX ACT, 1961 ( HERE - IN - AFTER REFERRED TO AS 'THE ACT') DT.21 / 03/2016 RELEVANT TO THE ASSESSMENT YEAR 2013 - 20 14 . ITA NO.2733 /AHD/2017 ASSTT. YEAR 2013 - 14 2 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. 1.1 THE ORDER PASSED U/S 250 ON 28 - 09 - 2017 FOR A.Y. 2013 - 14 BY CJT(A) - 1, ABAD UPHOLDING THE DISALLOWANCE OF LOSS OF RS. 33,70,088/ - IN F&O TRANSACTIONS AS DEEMED SPECULATION LOSS UNDER EXPLANATION TO SECTION 73 IS WHOLLY ILLEGAL, UNLAWFUL AND WITHOUT JURISDICTION. 2.1 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN HOLDING THAT THE EX PLANATION TO SECTION 73 WAS APPLICABLE AND THEREBY TREATING THE LOSS OF RS.33,70,088/ - AS DEEMED SPECULATION LOSS AND THEREBY DISALLOWING THE SET OFF AGAINST THE NORMAL BUSINESS INCOME. 2.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A ) OUGHT NOT HAVE INVOKED EXPLANATION TO SECTION 73 AND TREATED THE LOSS OF RS.33,70,088/ - AS DEEMED SPECULATION LOSS THEREBY DISALLOWING THE SET OFF AGAINST THE NORMAL BUSINESS INCOME. IT IS THEREFORE PRAYED THAT THE F&O LASS TO THE EXTENT OF RS.33,70,088 / - MAY BE TREATED AS NORMAL BUSINESS LOSS. 2. T HE ONLY ISSUE RAISED BY THE ASSESSEE IS THAT THE LEARNED CIT (A) ERRED IN UPHOLDING THE ORDER OF TH E AO BY TREATING THE LOSS OF 3 3 , 70 , 088 / - IN FUTURE AND OPTION TRANSACTION AS DEEMED SPECULATION LOSS IN PURSUANCE TO THE PROVISIONS OF THE EXPLANATION TO SECTION 73 OF THE ACT. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A PRIVATE LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF SECURITY TRADING AND CONSULTANCY. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS CARRIED OUT TRANSACTIONS IN FUTURE AND OPTIONS THROUGH THE RECOGNIZED STOCK EXCHANGE WHICH INCURRED THE LOSS OF RS. 33 , 70 , 088 ONLY. THE AO TREATED SUCH LOSS AS DEEMED SPE CULATION LOSS IN PURSUANCE TO THE PROVISIONS OF THE EXPLANATION 73 OF THE ACT. ACCORDINGLY THE AO HELD THAT SUCH LOSS CANNOT BE SET OFF AGAINST THE NORMAL BUSINESS INCOME OF THE ASSESSEE. 4. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED CIT (A) W HO CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER: 3.5. AFTER GOING THROUGH THE FACTS OF THE CASE, IT IS SEEN THAT THE APPELLANT IS PRIVATE LIMITED COMPANY AND HAS TRADED IN SHARES. EXPLANATION TO SECTION 73 CLEARLY STATES THAT IN CASES OF COMPANIES WHERE THE GROSS TOTAL INCOME DOES NOT CONSIST MAINLY OF INCOME CHARGEABLE UNDER THE HEADS 'INCOME FROM SECURITIES', 'INCOME FROM HOUSE PROPERTY', 'CAPITAL GAINS' AND 'INCOME FROM OTHER SOURCES', OR ASSESSEE'S PRINCIPAL BUSINESS IS NOT BANKING OR GRANTING L OANS AND ADVANCES - ANY TRADING IN SHARES WOULD BE ITA NO.2733 /AHD/2017 ASSTT. YEAR 2013 - 14 3 DEEMED TO BE OF SPECULATIVE NATURE. AS THE ASSESSEE DOES NOT COME IN ANY OF THE EXCEPTION CATEGORIES, THE PROVISIONS OF SECTION 73 ARE CLEARLY APPLICABLE IN ITS CASE. ON PERUSAL IT CAN BE MADE OUT THAT SEC TION 73 OF THE I.T. ACT IS INDEPENDENT OF SECTION 43(5). BOTH THE SECTIONS HAVE INDEPENDENT AND SEPARATE MEANING AND PURPOSE. BOTH THE SECTIONS CANNOT BE ALWAYS CO - JOINED AS CONTENDED BY THE ASSESSEE IN ITS REPLY DATED 10.03.2016. EXPLANATION TO SECTION 73 CAN BE APPLIED EVEN IF THERE IS DELIVERY BASED SALES/PURCHASE OF SHARES AND ALSO IN SITUATIONS OF TRADING OF DERIVATIVES. AS THE ASSESSEE IS NOT ENGAGED IN ANY OF THE SPECIFICALLY EXCLUDED CATEGORIES OF BUSINESS TO RENDER EXPLANATION TO SECTION 73 IN APPL ICABLE. THE LOSS HAS TO BE TREATED AS SPECULATIVE LOSS ONLY. THE STATED OBJECTIVE OF SECTION 73 APPARENT FROM THE TENOR OF ITS LANGUAGE IS TO DENY SPECULATIVE BUSINESSES THE BENEFIT OF CARRY FORWARD OF LOSSES. EXPLANATION TO SECTION 73 (4) HAS BEEN ENACTED TO CLARIFY BEYOND ANY SHADOW OF DOUBT THAT SHARE BUSINESS OF CERTAIN TYPES OR CLASSES OF COMPANIES ARE DEEMED TO BE SPECULATIVE. THAT IN ANOTHER PART OF THE STATUTE, WHICH DEALS WITH COMPUTATION OF BUSINESS INCOME, DERIVATIVES ARE EXCLUDED FROM THE DEFIN ITION OF SPECULATIVE TRANSACTIONS, ONLY UNDERLINES THAT SUCH EXCLUSION IS LIMITED FOR THE PURPOSE OF THOSE PROVISIONS OR SECTIONS. 3.6, THE EXPLANATION TO THE PROVISION CATEGORICALLY PROVIDES THAT WHERE ANY PART OF THE BUSINESS OF THE COMPANY INCLUDES PURCHASE AND SALE OF SHARES OF THESE COMPANIES, IT SHALL BE DEEMED TO BE CARRYING ON SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THAT ACTIVITY. THE INTENTION OF SECTION 43 WAS TO DEFINE CERTAIN TERMS IN RESPECT OF CLASSIFICATION OF INCOME AND FOR PURPOSES OF SECTION 28 - 41. SECTION 43(5) STATED THAT TRANSACTIONS WHERE CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCK AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS, IT WOULD NOT BE DEEMED TO BE SPECULATIVE TRANSACTION. BY THE AMENDMENT MADE W.E.F. 01.04.2006, FOUR CATEGORIES OF CONTRACTS INCLUDING THE ON PROVIDED UNDER SECTION 43(5)(D) I.E. TRANSACTIONS IN RESPECT OF TRADING - AND DERIVATIVE AS DEFINED UNDER SECURITIES CONTRACT (REGULATION) ACT, 1956 ARE NOT TO BE DEEMED TO BE SPECULATIVE TRANSACTION. STRENGTH CAN BE DRAWN FROM THE FACT THAT THE SAID PROVISION, I.E. SECTION 43(5)(D) HAS RESTRICTED APPLICATION IN THAT IT DEFINES SPECULATIVE TRA NSACTION AND EXCLUDES TRANSACTIONS AND DERIVATIVES ONLY FOR A LIMITED PURPOSE. ON THE OTHER HAND, SECTION 73 HAS WIDER APPLICATION AND RELATES TO ALL MANNER OF LOSSES. IT DEALS WITH A QUESTION OF UNDER WHAT CIRCUMSTANCES CARRY FORWARD OF SUC'JI LOSSES BE P ERMITTED. THE SPECIFIC INCLUSION OF THE ACTIVITY OF SALE AND PURCHASE OF SHARE, OF OTHER COMPANIES FROM THE OTHERWISE GENERAL APPLICATION OF PRINCIPLES UNDERLYING SECTION 73 MEANT THAT THOSE TRANSACTIONS COULD NOT CLAIM THE BENEFIT OF THE PROVISION. THE FA CT THAT THE TRADE AND TRANSACTIONS IN DERIVATIVES AS DEFINED UNDER SECTION 2 OF THE SECURITIES CONTRACT (REGULATION) ACT, 1956, WERE SPECIFICALLY EXCLUDED FROM THE DEFINITION OF SPECULATIVE TRANSACTIONS. EVEN THOUGH THAT DEFINITION WAS IN SECTION 43(5), YE T IT CANNOT BE IGNORED SINCE THERE WAS NO OTHER DEFINITION OF DERIVATIVES IN THE INCOME TAX ACT. DERIVATIVE NEED NOT BE ONLY IN RESPECT OF STOCK AND SHARES BUT COULD ALSO PERTAIN TO COMMODITIES. ITA NO.2733 /AHD/2017 ASSTT. YEAR 2013 - 14 4 3.7. THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF CIT - IV, DELHI V/S DLF COMMERCIAL DEVELOPERS LTD 261 CTR 0127 : (2013) 218 TAXMAN 0045 : (2013) HAS DISCUSSED THE SAME ISSUE, THE RELEVANT PARA IS REPRODUCED BELOW: - 'IT IS NO DOUBT, TEMPTING TO HOLD THAT SINCE THE EXPRESSION 'DERIVATIVES' IS DEFINED ONLY IN SECTIO N 43(5) AND SINCE IT EXCLUDES SUCH TRANSACTIONS FROM THE ODIUM OF SPECULATIVE TRANSACTIONS, AND FURTHER THAT SINCE THAT HAS NOT BEEN EXCLUDED FROM SECTION 73, YET THE COURT WOULD BE DOING VIOLENCE TO PARLIAMENTARY INTENDMENT. THIS IS BECAUSE A DEFINITION E NACTED FOR ONLY A RESTRICTED PURPOSE OR OBJECTIVE SHOULD NOT BE APPLIED TO ACHIEVE OTHERS ENDS OR PURPOSES. DOING SO WOULD BE CONTRARY TO THE STATUTE. THUS CONTEXTUAL APPLICATION OF A DEFINITION OR TERM IS STRESSED; WHEREVER THE CONTEXT AND SETTING OF A PR OVISION INDICATES AN INTENTION THAT AN EXPRESSION DEFINED IN SOME OTHER PLACE IN THE ENACTMENT, CANNOT BE APPLIED, THAT INTENT PREVAILS, REGARDLESS OF WHETHER STANDARD EXCLUSIONARY TERMS (SUCH AS 'UNLESS THE CONTEXT OTHERWISE REQUIRES') ARE USED.' 'THE STA TED OBJECTIVE OF SECTION 73 - APPARENT FROM THE TENOR OF ITS LANGUAGE IS TO DENY SPECULATIVE BUSINESSES THE BENEFIT OF CARRY FORWARDED OF LOSSES. EXPLANATION TO SECTION 73 (4) HAS BEEN ENACTED TO CLARIFY BEYOND ANY SHADOW OF DOUBT THAT SHARE BUSINESS OF CE RTAIN TYPES OR CLASSES OF COMPANIES ARE DEEMED TO BE SPECULATIVE. THAT IN ANOTHER PART OF THE STATUTE, WHICH DEALS WITH COMPUTATION OF BUSINESS INCOME, DERIVATIVES ARE EXCLUDED FROM THE DEFINITION OF SPECULATIVE TRANSACTIONS, ONLY UNDERLINES THAT SUCH EXCL USION IS LIMITED FOR THE PURPOSE OF THOSE PROVISIONS OR SECTIONS. TO BORROW THE MADRAS HIGH COURT'S EXPRESSION, 'DERIVATIVES ARE ASSETS, WHOSE VALUES ARE DERIVED FROM VALUES OF UNDERLYING ASSETS'; IN THE PRESENT CASE, BY ALL ACCOUNTS THE DERIVATIVES ARE BA SED ON STOCKS AND SHARES, WHICH FALL SQUARELY WITHIN THE EXPLANATION TO SECTION 73(4). THEREFORE, IT IS IDLE TO CONTEND THAT DERIVATIVES DO NOT FALL WITHIN THAT PROVISION, WHEN THE UNDERLYING ASSETS ITSELF DOES NOT QUALIFY FOR THE BENEFIT, AS THEY (DERIVAT IVES - ONCE REMOVED FROM IT AND ENTIRELY DEPENDENT ON STOCK AND SHARES, FOR DETERMINATION OF THEIR VALUE). 3.8. THUS, ON THE BASIS OF THE ABOVE DISCUSSION AND IN VIEW OF THE JUDGMENT OF ~ HON'BLE HIGH COURT OF DELHI (SUPRA) AND AS PER THE SCHEME OF THE IT ACT, IT IS CLEAR THAT I THE SHARE TRANSACTIONS CARRIED OUT BY THE APPELLANT ARE OF SPECULATIVE IN NATURE AND ANY F TOSS INCURRED ON SUCH ACTIVITY IS LIABLE TO BE SET OFF AGAINST PROFIT AND GAINS OF OTHER SPECULATIVE BUSINESS ONLY. THE APPELLANT'S SHARE/DER IVATIVE TRADING ACTIVITY IS TREATED AS SPECULATION LOSS AND NOT ALLOWED TO BE SET OFF AGAINST THE NON SPECULATIVE BUSINESS. IN VIEW OF THE ABOVE AN AMOUNT OF RS. 33,70,0887 -- IS TREATED AS SPECULATIVE BUSINESS L AND THE SAME IS REDUCED FROM THE BUSINESS IN COME AND ASSESSED BY THE AO /', CONFIRMED. THE GROUND OF THE APPELLANT IS DISMISSED. ITA NO.2733 /AHD/2017 ASSTT. YEAR 2013 - 14 5 B EING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A) THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LEARNED AR BEFORE US SUBMITTED THAT IN THE IDENTICAL FACTS AND CIRCUMSTANCES , THIS TRIBUNAL IN THE CASE OF MAGIC SHARE TRADERS LTD . VS. DCIT IN ITA 770/AHD/2016 V IDE ORDER DATED 31 OCTOBER 2018 HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. THE LEARNED AR ALSO CLAIMED THAT THE TRANSACTIONS IN FUTURE AND OPTIONS CAR RIED OUT THROUGH RECOGNIZED STOCK EXCHANGE IS NOT SPECULATIVE IN PURSUANCE TO THE PROVISIONS OF SECTION 43(5)(D) OF THE ACT. 6. ON THE OTHER HAND THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE TRANSACTIONS IN FUTURE AND OPTIONS CARRIED OUT THROUGH THE RECOGNIZED STOCK EXCHANGE ARE NOT BE TREATED AS SPECULATIVE IN NATURE IN PURS UANCE TO THE PROVISIONS OF SECTION 4 3 ( 5 )(D) OF THE ACT. ADMITTEDLY, THE T RANSACTIONS IN FUTURE AND OPTIONS WERE CARRIED OUT THROUGH THE RECOGNIZED STOCK EXCHANGE. IN THIS REGARD WE FIND SUPPORT AND GUIDANCE FROM THE ORDER OF THIS TRIBUNAL IN THE CASE OF MA GIC SHARE TRADERS LTD. (SUPRA). THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RESPECTIVE ORDERS OF THE AO AND CIT(A). THE SUBSTANTIVE QUESTION THAT ARISES FOR ADJUDICATION IS WHETHER LOSS INCURRED IN ELIGIBLE TRANSACTIONS I.E. DERIVATIVE TRANSACTIONS WITHIN THE MEANING OF PROVISO (D) TO SECTION 43(5) OF THE ACT NOT INVOLVING ANY PURCHASE OR SALE OF SHARES PER SE CAN BE REGARDED AS SPECULATIVE LOSS FOR THE PURPOSES OF SET OFF IN VIEW OF EXPLANATION TO SECTION 73 OR NOT. THE CONTROVERSY INVOLVED IN THE PRESENT CASE IS THUS ESSENTIALLY LEGAL IN NATURE. 9.1 IN THE PRESENT APPEAL, THE ASSESSEE SEEKS SET OFF OF LOSSES ARISING FROM DERIVATIVE LOSSES AS NON - SPECULATIVE BUSINESS LOSS. I N CONTRAST, THE REVENUE HAS LABELED THE LOSS ARISING FROM DERIVATIVE TRANSACTIONS AS 'SPECULATIVE LOSS' AND HAS CONSEQUENTLY DENIED SET OFF OF SUCH LOSSES FROM REGULAR INCOME OF NON - SPECULATIVE NATURE ETC. BY APPLYING EXPLANATION TO SECTION 73 OF THE ACT. 9.2 WE FIRST ADVERT TO THE PIVOTAL CONTENTION ON BEHALF OF THE ASSESSEE THAT EXPLANATION TO SECTION 73 OF THE ACT CANNOT APPLY TO LOSS ARISING FROM DERIVATIVE TRANSACTIONS WHICH ARE ITA NO.2733 /AHD/2017 ASSTT. YEAR 2013 - 14 6 CATEGORICALLY EXCLUDED FROM BEING REGARDED AS SPECULATIVE BUSINESS AS DEF INED UNDER S.43(5) OF THE ACT READ WITH PROVISO (D) THERETO. IDENTICAL ISSUE AROSE BEFORE THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF ASIAN FINANCIAL SERVICES (SUPRA) RELIED UPON. THE HON'BLE CALCUTTA HIGH COURT HELD THAT ONCE IT IS DEEMED TO BE A NORMA L BUSINESS LOSS ON THE BASIS OF PROVISO APPENDED TO SECTION 43(5) OF THE ACT, A QUESTION OF APPLYING SECTION 73 OF THE ACT OR THE EXPLANATION THERETO FOR THE PURPOSES OF REFUSING LOSS TO BE SET OFF AGAINST BUSINESS INCOME IS WHOLLY INCORRECT. THE HON'BLE C ALCUTTA HIGH COURT AFTER TAKING NOTE OF THE DECISION OF HON'BLE DELHI HIGH COURT IN DLF COMMERCIAL (SUPRA) TOOK A DISTINCT STAND THAT DERIVATIVES CANNOT BE TREATED AT PAR WITH SHARES FOR THE PURPOSES OF EXPLANATION TO SECTION 73 OF THE ACT BECAUSE THE LEGI SLATURE HAS TREATED IT DIFFERENTLY. THUS, IN VIEW OF THE AFORESAID POSITION ENUNCIATED BY THE HON'BLE HIGH COURT IN ASIAN FINANCIAL SERVICES (SUPRA), WE FIND GOOD DEAL OF FORCE IN THE CASE OF ASSESSEE. THE CLAIM OF THE ASSESSEE THUS REQUIRES TO BE ALLOWED ON THIS GROUND ALONE. 9.3 IN VIEW OF THE RESOUNDING CONCLUSION DRAWN IN FAVOUR OF THE ASSESSEE ON THE AFORESAID LEGAL POSITION, WE DO NOT CONSIDER IT NECESSARY TO ADVERT TO OTHER ALTERNATIVE RAISED ON BEHALF OF THE ASSESSEE. 10. I N THE RESULT, GROUND NO.1 OF THE ASSESSEE S APPEAL IS ALLOWED . I N VIEW OF THE ABOVE, WE HOLD THAT THE IMPUGNED LOSS BY THE ASSESSEE IS NOT SPECULATIVE LOSS AS PROVIDED UNDER THE EXPLANATION TO SECTION 73 OF THE ACT. ACCORDINGLY WE SET ASIDE THE ORDER OF THE LEARNED CIT (A) AND DIRECT THE AO NOT TO TREAT SUCH LOSS AS SPECULATIVE IN NATURE. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. O RDER PRONOUNCED IN THE COURT ON 16 /12 / 2019 AT AHMEDABAD. - SD - - SD - (MAHAVIR PRASAD ) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (TRUE COPY) A HMEDABAD; DATED 16 / 12 /2019 MANISH