BHARAT AMARCHAND DOSHI, MUMBAI V. ITO 12(1)(4), MUMBAI

ITA 2752/MUM/2010

• Counselvise Citation: 275219914 RSA 2010
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 03-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 08-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHIMA GUPTA
• Assessee Lawyers: SAMEER G DALAL; VIPUL B JOSHI
• Keywords: Business income; Transactions in derivatives; Speculation loss
• Section: 12

Judgement Text

1 ITA 2752 /M/2010 SHRI BHARAT AMARCHAND DOSHI IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI R.K. PA NDA, A.M. ITA NO. 2752/MUM/2010 ASSESSMENT YEAR 2006-07 BHARAT AMARCHAND DOSHI, C/O AMARCHAND DOSHI & CO., GROUND FLOOR, VITHALDAS CHAMBERS, HOMI MODI STREET, FORT, MUMBAI 400 002. PAN AACPD0328A VS. ITO WARD 12(1)(4), IST FLOOR, AAYAKAR BHAWAN, MUMBAI. APPLICANT RESPONDENT APPELLANT BY SHRI VIPUL B. JOSHI & SHRI SAMEER G. DALAL RESPONDENT BY SMT. ASHIMA GUPTA ORDER PER R.K. PANDA A.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF CIT(A)-23, MUMBAI DATED 6 TH JANUARY, 2010 RELATING TO A.Y. 2006-07. 2. IN GROUND NO. 1 THE ASSESSEE HAS CHALLENGED THE ORD ER OF THE CIT(A) IN CONFIRMING THE ACTION OF THE A.O. IN TREATING THE B USINESS LOSS ON TRADING IN F&O OF ` 6,59,640/- AS SPECULATION LOSS. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE A.O. NOT ED FROM THE COMPUTATION OF INCOME FILED BY THE ASSESSEE THAT IT HAS ADJUSTED T HE LOSS ON ACCOUNT OF DERIVATIVES TRADING OF ` 9,09,089/- FROM THE BUSINESS INCOME. FROM THE DET AILS 2 ITA 2752 /M/2010 SHRI BHARAT AMARCHAND DOSHI OF DERIVATIVE TRADING FURNISHED BY THE ASSESSEE, HE NOTED THAT THE ASSESSEE HAS BOTH GAIN AS WELL AS LOSS FROM THE DERIVATIVES TRAD ING. THE A.O. ANALYSED THE LIST OF GAIN/LOSS FROM DERIVATIVES TRADING DONE BY THE ASSESSEE MONTH-WISE AND SCRIPT-WISE AND NOTED THAT 9 OUT OF 10 TRANSACTIONS ENTERED INTO BY THE ASSESSEE ARE PRIOR TO 25 TH JANUARY, 2005. ACCORDING TO THE A.O., IN VIEW OF T HE PROVISO (D) TO SUB-SECTION 5 OF SECTION 43 READ WIT H EXPLANATION (II), THE TRANSACTIONS ARE SPECULATIVE TRANSACTIONS AND NOT T RADING TRANSACTION AS TREATED BY THE ASSESSEE. HE NOTED THAT THE NSE AND BSE HAVE BEEN NOTIFIED VIDE SO 89(E) DATED 25/1/2006, THEREFORE, THE DERIV ATIVES TRANSACTIONS PRIOR TO THIS DATE ARE SPECULATIVE IN NATURE AND ONLY AFTER 25.1.2006 THEY SHALL NOT BE CONSIDERED AS SPECULATIVE TRANSACTIONS. ACCORDINGLY , THE LOSS ON ACCOUNT OF DERIVATIVE TRADING AFTER 25.1.2006 AMOUNTING TO ` 2,15,985/- WAS ALLOWED TO BE SET OFF AGAINST BUSINESS INCOME. HOWEVER, THE LOSS ON ACCOUNT OF DERIVATIVES TRADING PRIOR TO 25.1.2006 AMOUNTING TO ` 6,59,460/- WAS TREATED AS SPECULATIVE LOSS WHICH CANNOT BE ALLOWED TO BE SET OFF AGAINST BUSINESS INCOME. HE, HOWEVER, HELD THAT THE ASSESSEE IS ALLOWED TO C ARRY FORWARD THIS SPECULATIVE LOSS TO BE SET OFF AGAINST FUTURE SPECULATIVE GAINS . 4. IN APPEAL, THE CIT(A) UPHELD THE ACTION OF THE A .O. FOR WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSET, FILED THE FOLLOWING DECISIONS AND SUBMITTED THAT THE ISSUE STANDS COVER ED IN FAVOUR OF THE ASSESSEE IN THE VIEW OF THE FOLLOWING DECISIONS:- 1. G.K. ANAND BROS. BUILDWELL (P) LTD. V. ITO, WARD 12(2) [2009] 34 SOT 439(DEL.) 2. SMT. SEEMA JAIN V. ACIT [2010] 6 ITR (TRIB) 48 8 (DELHI) 3. ACIT VS. SHRI PARIMAL D. NATHWANI ITA NO. 3336 /MUM/2009 FOR A.Y. 2006-07 DATED 21 ST JANUARY, 2011. 3 ITA 2752 /M/2010 SHRI BHARAT AMARCHAND DOSHI 4. MR. PRAVIN J. AGARWAL V. ITO ITO NO. 2453/MUM/ 2010 A.Y. 2006-07 DATED 9 TH MARCH, 2011. 6. THE LD. D.R., ON THE OTHER HAND, SUPPORTED THE O RDER OF A.O. AND CIT(A). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSION MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF A.O. AND THE CIT(A) AND THE P APER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE TRIBUNAL IN THE CASE OF MR. PRAVIN J. A GARWAL (SUPRA), FOLLOWING THE DECISIONS IN THE CASE OF SMT. SEEMA JAIN (SUPRA) AN D G.K. ANAND BROS. BUILDWELL (P.) LTD. (SUPRA) HAS HELD THAT LOSS INCU RRED ON DERIVATIVE TRANSACTIONS CARRIED OUT IN THE PREVIOUS YEAR RELEVANT TO A.Y. 2 006-07 WOULD BE ELIGIBLE FOR THE BENEFIT OF SECTION 43(5)(D) OF THE ACT AND ACCO RDINGLY WOULD BE ELIGIBLE TO BE SET OFF AGAINST THE PROFIT EARNED IN PURCHASE AND S ALE OF SHARES ON DELIVERY BASIS. THE RELEVANT PORTION OF THE ORDER OF THE TR IBUNAL AT PARA NO. 5 & 6 READ AS UNDER:- 5. THE PROVISIONS OF SEC.43(5) READ AS FOLLOWS: SEC.43(5) 'SPECULATIVE TRANSACTION' MEANS A TRANSA CTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING ST OCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN B Y THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS: PROVIDED THAT FOR THE PURPOSES OF THIS CLAUSE-- (A) . (B) . (C) (D) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIVATIVES REFERRED TO IN CLAUSE (AA) OF SECTION 2 OF THE SECURITIES CONTRACT S (REGULATION) ACT, 1956 (42 OF 1956), CARRIED OUT IN A RECOGNISED STOCK EXCHANGE; 4 ITA 2752 /M/2010 SHRI BHARAT AMARCHAND DOSHI SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION ; EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, THE EXPRESSIONS (I) ELIGIBLE TRANSACTION MEANS ANY TRANSACTION, (A) CARRIED OUT ELECTRONICALLY ON SCREEN-BASED SYSTEMS THROUGH A STOCK BROKER OR SUB-BROKER OR SUCH OTHER INTERMEDIARY REG ISTERED UNDER SECTION 12 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA AC T, 1992 (15 OF 1992), IN ACCORDANCE WITH THE PROVISIONS OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956), OR THE SECURITIES AND EXCHA NGE BOARD OF INDIA ACT, 1992, OR THE DEPOSITORIES ACT, 1996 (22 OF 199 6) AND THE RULES, REGULATIONS OR BYE-LAWS MADE OR DIRECTIONS ISSUED U NDER THOSE ACTS OR BY BANKS OR MUTUAL FUNDS ON A RECOGNISED STOCK EXCHANG E ; AND (B) WHICH IS SUPPORTED BY A TIME STAMPED CONTRACT NOTE ISSUED BY SUCH STOCK BROKER OR SUB-BROKER OR SUCH OTHER INTERMEDIA RY TO EVERY CLIENT INDICATING IN THE CONTRACT NOTE THE UNIQUE CLIENT I DENTITY NUMBER ALLOTTED UNDER ANY ACT REFERRED TO IN SUB-CLAUSE (A) AND PER MANENT ACCOUNT NUMBER ALLOTTED UNDER THIS ACT ; (II) RECOGNISED STOCK EXCHANGE MEANS A RECOGNISED STOCK EXCHANGE AS REFERRED TO IN CLAUSE (F) OF SECTION 2 OF THE SECURITIES CON TRACTS (REGULATION) ACT, 1956 (42 OF 1956), AND WHICH FULFILS SUCH CONDITIONS AS MAY BE PRESCRIBED AND NOTIFIED BY THE CENTRAL GOVERNMENT FOR THIS PURPOSE. 5. IN SMT.SEEMA JAIN VS. ACIT 2010 6 ITR (TRIBUNAL) 488 (DEL), THE FACTS WERE, THE ASSESSEE, A TRADER IN SHARES AND SECURITI ES, INCURRED LOSS ON DERIVATIVE TRANSACTIONS ON THE BOMBAY AND NATIONAL STOCK EXCHA NGES AND EARNED PROFIT FROM PURCHASE AND SALE OF SHARES ON DELIVERY BASIS. HE SET OFF THE LOSS INCURRED ON DERIVATIVE TRANSACTIONS AGAINST THE PROFIT FROM TRADING IN SHARES. THE ASSESSING OFFICER DISALLOWED SET-OFF OF LOSS INCURR ED ON DERIVATIVE TRANSACTIONS UP TO JANUARY 25, 2006 AGAINST PROFIT FROM TRADING IN SHARES ON THE GROUND THAT THE DERIVATIVE TRANSACTIONS PRIOR TO JANUARY 2 5, 2006 WERE TO BE TREATED AS SPECULATIVE TRANSACTIONS SINCE THE TWO STOCK EXCHAN GES IN QUESTION WERE NOTIFIED FOR THE PURPOSE OF SECTION 43(5)(D) OF THE INCOME-TAX ACT, 1961, IN TERMS OF NOTIFICATION NO. 2 DATED JANUARY 25, 2006. THE C OMMISSIONER (APPEALS) UPHELD THE ORDER OF THE ASSESSING OFFICER. ON FURTH ER APPEAL , THE TRIBUNAL HELD, ALLOWING THE APPEAL, THAT CLAUSE (D) OF SECTION 43( 5) HAVING BEEN INSERTED BY THE FINANCE ACT, 2005 WITH EFFECT FROM APRIL 1, 2006, T RANSACTIONS IN DERIVATIVES IN A RECOGNISED STOCK EXCHANGE SHALL NOT BE DEEMED TO BE SPECULATIVE TRANSACTIONS WITH EFFECT FROM APRIL 1, 2006. THE NATIONAL STOCK EXCHANGE AND THE BOMBAY STOCK EXCHANGE WERE RECOGNISED AS STOCK EXCHANGES B Y THE CENTRAL BOARD OF DIRECT TAXES NOTIFICATION NO. 2 DATED JANUARY 25, 2 006. PRIOR TO THIS DATE, THE TRANSACTIONS CARRIED OUT IN THESE EXCHANGES UNDER T HE PROVISIONS OF SECTION 43(5)(D), COULD NOT BE TREATED AS NON-SPECULATIVE T RANSACTIONS. PARLIAMENT ENACTED THE LAW WITH EFFECT FROM APRIL 1, 2006, THE REFORE, ALL THE TRANSACTIONS CARRIED OUT IN THE PREVIOUS YEAR RELEVANT TO THE AS SESSMENT YEAR 2006-07, WOULD BE ELIGIBLE FOR THE BENEFIT OF SECTION 43(5)(D) OF THE ACT. ACCORDINGLY, LOSS INCURRED ON DERIVATIVE TRANSACTIONS WOULD BE LIABLE TO BE SET OFF AGAINST THE 5 ITA 2752 /M/2010 SHRI BHARAT AMARCHAND DOSHI PROFIT EARNED IN PURCHASE AND SALE OF SHARES ON DEL IVERY BASIS. SINCE THE TRANSACTIONS IN DERIVATIVES WOULD BE TREATED AS BUS INESS INCOME, NO EXPENDITURE COULD BE ALLOCATED TOWARDS SPECULATIVE BUSINESS. THE DECISION IN THE CASE OF G. K. ANAND BROS. BUILDWELL P. LTD. V. ITO [2009] 34 SOT 439 (DELHI) WAS FOLLOWED. 6. IN VIEW OF THE AFORESAID DECISION OF THE TRIBUNA L WE ARE OF THE VIEW THAT THE CLAIM OF SET OFF TO THE EXTENT OF RS. 5,09,881/ - SHOULD ALSO BE ALLOWED. WE DIRECT ACCORDINGLY. 8. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBU NAL, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE A.O. TO TREAT THE LOSS ON TRADING IN F & O OF ` 6,59,640/- AS BUSINESS LOSS WHICH WOULD BE ELIGIBLE TO BE SET OFF AGAINST THE PROFIT EARNED IN PURCHASE AND SALE OF SHARES ON DEL IVERY BASIS. THE GROUND NO. 1 RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 9. IN GROUND NO. 2, THE ASSESSEE HAS CHALLENGED TH E ORDER OF THE CIT(A) IN RESTRICTING THE DISALLOWANCE TO 10% OF MOTOR CAR EX PENSES, TELEPHONE EXPENSES AND ENTERTAINMENT EXPENSES. 10. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS THE ABOVE GROUND FOR WHICH THE LD. D.R. HAS NO OBJECTIO N. ACCORDINGLY, THE SAME IS DISMISSED AS NOT PRESSED. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 13.5.2011. SD/- SD/- (R.V. EASWAR) (R.K. PANDA) PRESIDENT ACCOUN TANT MEMBER MUMBAI, DATED 13 TH MAY, 2011. 6 ITA 2752 /M/2010 SHRI BHARAT AMARCHAND DOSHI RK COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -23, MUMBAI 4. THE CIT- XII, MUMBAI 5. THE DR BENCH, F 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI 7 ITA 2752 /M/2010 SHRI BHARAT AMARCHAND DOSHI DATE INITIALS 1 DRAFT DICTATED ON 4.5.2011, SR. PS 2 DRAFT PLACED BEFORE THE AUTHOR 5.5.2011 SR. PS 3 DRAFT PLACED BEFORE THE SECOND MEMBER 4 APPROVED DRAFT COMES TO THE SR. PS SR. PS 5 KEPT FOR PRONOUNCEMENT ON SR. PS 6 FILE SENT TO THE BENCH CLERK SR. PS 7 DATE ON WHICH FILE GOES TO THE HEAD CLERK 8 DATE ON WHICH FILE GOES TO THE AR 9 DATE OF DISPATCH OF ORDER