Value Momentum Software Services Pvt.Ltd., Hyd, Hyderabad V. DCIT, Circle-3(3), Hyderabad, Hyderabad

ITA 321/HYD/2016

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4418 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 21-11-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 18-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: D VENUGOPAL
• Keywords: Business income; Date of conversion; Speculation loss
• Section: 143(3); 80HHC; 234B; 43(5); 10B; 28

Judgement Text

ITA NOS 320 AND 321 OF 2016 VALUE MOMENTUM SOFTWARE SERVICES P LTD HYDERABAD PAGE 1 OF 14 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOS.320 & 321/HYD/2016 (ASSESSMENT YEARS: 2009-10 & 2010-11) M/S. VALUE MOMENTUM SOFTWARE SERVICES P LTD HYDERABAD PAN: AAACI 7400 H VS DY. COMMISSIONER OF INCOME TAX, CIRCLE 3(3) HYDERABAD FOR ASSESSEE : SHRI D. VENUGOPAL FOR REVENUE: SHRI K.J. RAO, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. BOTH ARE ASSESSEES APPEALS FOR THE A.YS 2009-10 & 2010-11 RESPECTIVELY. ITA NO.320/HYD/2016 A.Y.2009-10: 2. IN THIS APPEAL, THE ONLY GRIEVANCE IS THAT THE C IT (A) HAS ERRED IN HOLDING THAT THE FOREIGN EXCHANGE GAIN OF RS.2,75,260 DERIVED BY THE ASSESSEE IS NOT ELIGIBLE FOR EXEMPTI ON U/S 10A OF THE ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY WHICH IS ENGAGED IN THE BUSINESS OF DEVELOPMENT AND DESIGNING OF SOFTWARE PRODUCTS FILED ITS RETURN OF INCOME FOR TH E RELEVANT ASSESSMENT YEAR ON 28.09.2009 BY DECLARING A TOTAL INCOME OF DATE OF HEARING : 21.11.2016 DATE OF PRONOUNCEMENT : 30.11.2016 ITA NOS 320 AND 321 OF 2016 VALUE MOMENTUM SOFTWARE SERVICES P LTD HYDERABAD PAGE 2 OF 14 RS.1,08,87,970. DURING THE ASSESSMENT PROCEEDINGS U /S 143(3) R.W.S. 144C OF THE ACT, THE AO OBSERVED THAT THE AS SESSEE CLAIMED DEDUCTION U/S 10A OF THE ACT OF FOREX GAIN OF RS.2, 77,936. THE DETAILS WERE CALLED FOR AND ON PERUSAL OF THE DETAI LS FILED BY THE ASSESSEE, THE AO OBSERVED THAT THE GAIN IS FROM REI NSTATEMENT OF BALANCE IN EEFC A/C. OBSERVING THAT KEEPING THE FUND S IN EEFC A/C IS NOT COMPULSORY, THE AO HELD THAT THE GAIN IS NOT DERIVED FROM THE BUSINESS OF EXPORT. THEREFORE, HE TREATED THE INCOME AS INCOME FROM OTHER SOURCES AND RESTRICTED THE CLAI M OF DEDUCTION U/S 10A OF THE ACT TO THE EXPORT TURNOVER ONLY. AGG RIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A), WH O CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS IN SECOND A PPEAL BEFORE US. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSEE HAS RECEIVED CONSIDERATION ON EXPORT O F SOFTWARE IN THE FORM OF FOREIGN EXCHANGE WHICH HAS BEEN DEPOSIT ED IN THE EEFC A/C AND THE VALUATION OF THE FOREX AT THE END O F THE RELEVANT A.Y HAS RESULTED IN THE FOREX GAIN. THEREFORE, ACCOR DING TO HIM, THE GAIN IS INEXTRICABLY LINKED TO THE EXPORT CONSI DERATION AND THEREFORE, SUCH INCOME IS ELIGIBLE FOR DEDUCTION U/ S 10A OF THE ACT. IN SUPPORT OF HIS CONTENTION, HE PLACED RELIANCE UP ON THE FOLLOWING DECISIONS: A) INCOME TAX APPELLATE TRIBUNAL BANGALORE IN THE C ASE OF M/S. WIPRO LTD VS. DY.CIT IN ITA NO.972/BANG/2011 DATED 15.06.2012. B) HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. M/S. KSHEMA TECHNOLOGIES LTD IN ITA NO.703/2009, DATED 8.1.2016. ITA NOS 320 AND 321 OF 2016 VALUE MOMENTUM SOFTWARE SERVICES P LTD HYDERABAD PAGE 3 OF 14 5. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE EXPORT CON SIDERATION HAS BEEN DEPOSITED IN THE EEFC A/C IN FOREIGN EXCHANGE A ND THERE WAS NO PROHIBITION FROM WITHDRAWING THE SAID AMOUNT FOR ITS BUSINESS PURPOSES. IT IS SUBMITTED THAT THE EXPORT COMES TO AN END WHEN THE SALE CONSIDERATION IS DEPOSITED INTO T HE EEFC A/C AND THE FOREX GAIN OR LOSS ON THE DATE OF DEPOSIT A LONE IS PART OF EXPORT TURNOVER AND THEREAFTER IF THERE IS ANY GAIN ON FLUCTUATION OF SUCH FOREIGN EXCHANGE ON THE DATE OF CONVERSION, IT CANNOT BE CONSIDERED AS BUSINESS INCOME BUT HAS TO BE TREATED AS INCOME FROM OTHER SOURCES. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THE EXPORT TURNOVER IS ALWAYS BR OUGHT INTO INDIA BY WAY OF FOREIGN EXCHANGE DEPOSITED INTO THE EEFC A/C. THE ASSESSEE HAS KEPT THE FOREIGN EXCHANGE IN THE E EFC A/C AS IT DID NOT REQUIRE THE SAME IMMEDIATELY FOR ITS BUSINE SS PURPOSES. BY VIRTUE OF THE DEPOSITS REMAINING IN THE EEFC A/C, THE ASSESSEE HAS GAINED ON THE FOREIGN EXCHANGE FLUCTUATION. MER ELY BECAUSE THE SALE CONSIDERATION IS RETAINED IN THE BANK A/C, IT WILL NOT LOSE THE CHARACTER OF BEING EXPORT CONSIDERATION. THE G AIN IS ON A/C OF CONVERSION OF FOREIGN EXCHANGE. WE FIND THAT SIMILA R ISSUE HAD ARISEN IN THE CASE OF BANYAN CHEMICALS LTD. BEFORE A THIRD MEMBER BENCH REPORTED IN (2009) 117 ITD 376 (AHD.) WHEREIN IT WAS HELD AS UNDER: 13. IN THE CASE OF SMT. SUJATA GROVER (SUPRA), THE TRIBUNAL HELD THAT THE BASICALLY EXCHANGE RATE FLUCTUATION D IFFERENCE IS NOTHING BUT PART OF SALES. WHEN THE GOODS ARE EXPOR TED TO A COUNTRY OUTSIDE INDIA, THE INVOICE HAS TO BE RAISED IN TERMS OF THE FOREIGN CURRENCY PREVALENT IN THAT COUNTRY AND AT THE TIME OF MAKING THE EXPORT. THE EXPORTER CONVERTS THAT CU RRENCY ITA NOS 320 AND 321 OF 2016 VALUE MOMENTUM SOFTWARE SERVICES P LTD HYDERABAD PAGE 4 OF 14 INTO INDIAN RUPEES AT THE EXCHANGE RATE PREVALENT A T THAT TIME AND ACCORDINGLY TAKES THE COGNIZANCE OF THAT AMOUNT AS ITS EXPORT FIGURE IN ITS BOOKS OF ACCOUNT. HOWEVER, WHE N THE INVOICE IS ACTUALLY REALISED FROM THE FOREIGN COUNT RY AND THE AMOUNTS REMITTED TO INDIA, THE EXCHANGE RATE PREVAL ENT ON THAT DAY MAY BE EQUAL TO OR MORE OR LESS THAN THE O NE RECORDED IN THE BOOKS OF ACCOUNT AT THE TIME OF MAK ING THE SALES. IF THE EXCHANGE RATE IS MORE IT RESULTS INTO INCOME FROM THE EXCHANGE RATE FLUCTUATIONS AND IN THE REVERSE C ASE, IT BECOMES LOSS ON THAT ACCOUNT. UNDER ALL CIRCUMSTANC ES, THE BASIC CHARACTER OF THE RECEIPT OF THE FOREIGN CURRE NCY REMAINS THE SAME, I.E., IT REMAINS ATTRIBUTABLE TO THE EXPO RT EFFECTED BY THE ASSESSEE. IT ALSO HELD THAT THE EXPRESSION ' ANY OTHER RECEIPT OF A SIMILAR NATURE' AS USED IN EXPLN. (BAA ) TO S. 80HHC(4B) SHOULD MEAN ONLY SUCH ITEMS WHICH DO NOT DIRECTLY ADD TO THE EXPORT TURNOVER. THE FOREIGN EXCHANGE FL UCTUATION INCOME IS RELATED TO THE EXPORTS EFFECTED EARLIER A ND THERE CANNOT BE ANY DOUBT THAT AMOUNT REPRESENTING FOREIG N EXCHANGE RATE FLUCTUATIONS INCOME IN RELATION TO EX PORTS EFFECTED CANNOT BE CONSIDERED FOR EXCLUSION TO THE EXTENT OF 90 PER CENT FOR COMPUTING 'PROFITS OF THE BUSINESS' . THE ITEMS WHICH ARE EXCLUDED UNDER EXPLN. (BAA) BELOW S. 80HH C ARE INDEPENDENT RECEIPTS AND ARE IN THE NATURE OF INCOM E AND NOT TURNOVER OR ITS PART. BE THAT AS IT MAY, THERE IS E VEN NO EXCEPTION IN S. 10B LIKE THAT IN EXPLN. (BAA) TO S. 80HHC. IN THE CASE OF RENAISSANCE JEWELLERY (P) LTD. (SUPR A), THE TRIBUNAL, FOLLOWING THE AFORESAID DECISION IN THE C ASE OF SMT. SUJATA GROVER (SUPRA) AND THE TRIBUNAL DECISION IN THE CASE OF PRIYANKA GEMS VS. ASSTT. CIT (2005) 94 TTJ (AHD) 55 7, HELD THAT PROFIT ON ACCOUNT OF FOREIGN EXCHANGE GAIN IS DIRECTLY REFERABLE TO THE ARTICLES AND THINGS EXPORTED BY TH E ASSESSEE AND SUCH PROFITS ARE THEREFORE IN THE SAME NATURE A S THE SALE PROCEEDS AND THERE IS NO REASON WHILE DEDUCTION UND ER S. 10A SHOULD NOT BE ALLOWED IN RESPECT OF SUCH EXCHANGE G AIN. IT HAD ALSO OBSERVED THAT THERE IS NO DIFFERENCE IN THE LA NGUAGE OF SS. 10A AND 80HHC IN REGARD TO THE TREATMENT OF FOREIGN EXCHANGE GAIN. IN THE CASE OF SHAH ORIGINALS (SUPRA), THE TRIBUNAL HELD THAT GAIN ON FOREIGN EXCHANGE RATE FLUCTUATION UNDER EEF C ACCOUNT IS TO BE INCLUDED IN THE PROFITS OF EXPORT BUSINESS FOR THE PURPOSES OF DEDUCTION UNDER S. 80HHC. ITA NOS 320 AND 321 OF 2016 VALUE MOMENTUM SOFTWARE SERVICES P LTD HYDERABAD PAGE 5 OF 14 IN THE PRESENT CASE, THE RECEIPT OF THE SALE CONSID ERATION IS IN US DOLLAR. IT WAS CREDITED/DEPOSITED IN EEFC ACCOUN T OF THE ASSESSEE TO BE RETAINED IN US DOLLAR AS PER GUIDELI NES FOR OPERATING THIS ACCOUNT. IN THIS ACCOUNT, THE RECEIP TS MAY BE KEPT IN FOREIGN CURRENCY INSTEAD OF CONVERTING IT T O INDIAN RUPEE. THE GAIN ACCOUNTED FOR BY THE ASSESSEE IS TH E EXCESS RUPEE VALUE OF US DOLLAR ON THE DATE OF REALIZATION OF SALES PROCEEDS CREDITED. THEREFORE, THE EXCHANGE GAIN ON THE DATE OF DEPOSIT IN THE EEFC ACCOUNT HAS TO BE USED ON AC COUNT OF SALES REALIZED IN US DOLLAR ON THAT DATE. THE EXCHA NGE GAIN IS THUS SALES REALIZATION OF THE BILLED AMOUNT IN US D OLLAR AND WOULD BE AN INCOME DERIVED FROM THE EXPORT OF GOODS AND ARTICLES. THE ASSESSEE HAS ALSO RECORDED GAIN BEING THE DIFFE RENCE IN RATES ON THE DATE OF WITHDRAWALS FROM THE EEFC ACCO UNT AND THE DATE OF DEPOSIT IN THAT ACCOUNT. SUCH GAIN WOUL D NOT BE PART OF SALES AS ONCE THE SALE CONSIDERATION IS DEP OSITED IN EEFC ACCOUNT, THE EXCHANGE GAIN ACCRUED THEREAFTER WOULD NOT BE A PART OF THE TURNOVER AND CONSEQUENTLY NOT A PROFIT ARISING FROM THE EXPORT OF GOODS AND THE AMOUNT TO THAT EXTENT WOULD BE AN INCOME EARNED BY THE ASSESSEE DE RIVED FROM EXPORT AND THAT AMOUNT IS RS. 22,960 ON WHICH ASSESSEE HAD ALSO NOT CLAIMED/ SURRENDERED ITS CLAIM UNDER S . 10B. THE ASSESSEE HAS GIVEN THE BREAK-UP OF THE EXCHANGE GAI N OF RS. 15,51,239 AS UNDER : 1 9. ON A PERUSAL OF THIS CHART, WE FIND THAT THE RECEIPT OF RS. 15,51,239 INCLUDES RS. 15,31,518 AS THE GAIN ON THE SALES REALIZATION IN US DOLLAR ON THE DATE OF ITS RECEIPT AND DEPOSIT IN EEFC ACCOUNT AND BALANCE RS. 19,721 IS WITH REGARD TO EXCHANGE GAIN ON IMPORT PAYMENT. THEREFORE, THE ASSESSEE WOULD BE ENTITLED TO THE DEDUCTION UNDER S. 10B WITH REGARD TO EXCHANGE GAIN OF RS. 15,31,518 ONLY WHICH IS THE GAIN ON THE DAY OF DEPOSIT OF US DOLLARS IN THE EEFC ACCOUNT. IN MY OPINION, THEREFORE, THE ASSESSEE SHOULD BE GRANTED DEDUCTION UNDER S. 10B OF THE ACT WITH REGARD TO EXCHANGE GAIN OF RS. 15,31,518. I HOLD ACCORDINGLY. ITA NOS 320 AND 321 OF 2016 VALUE MOMENTUM SOFTWARE SERVICES P LTD HYDERABAD PAGE 6 OF 14 THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE DECISIO N, WE HOLD THAT THE FOREX GAIN AS ON THE DATE OF DEPOSIT INTO EEFC A /C ONLY IS PART OF THE EXPORT TURNOVER AS HELD BY THE HON'BLE THIRD MEMBER IN THE ABOVE CASE. 7. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. ITA NO.3221/HYD/2016 A.Y 2010-11 8. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IS ERRONEOUS TO THE EXTENT IT IS PREJUDICIAL TO THE APPELLANT. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN HOLDING THAT THE FOREIGN EXCHANGE GAIN DERIVED OF RS.92,L4,74L/- IS NOT ELIGIBLE FOR EXEMPTION U/S 10A OF THE I.T.ACT. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN EXCLUDING RS.92,L4,74L/- FROM THE ELIGIBLE PROFITS FOR EXEMPTION U/S L0A OF THE I.T.ACT ON THE GROUND THAT THE SAID AMOUNT WAS DERIVED OUT OF FORWARD CONTRACTS AND THAT SUCH INCOME REPRESENTS INCOME 'FROM OTHER SOURCES'. 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN HOLDING THAT AN AMOUNT OF RS.3L,83,463/- IS NOT ELIGIBLE FOR EXEMPTION U/S L0A OF THE I.T.ACT WITHOUT CONSIDERING THE EXPLANATION THAT THE SAID AMOUNT REPRESENTS REIMBURSEMENT OF EXPENSES. 5. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE CONSIDERED THE FACT THAT THERE WAS NO DELAY IN FILING THE RETURN OF INCOME ITA NOS 320 AND 321 OF 2016 VALUE MOMENTUM SOFTWARE SERVICES P LTD HYDERABAD PAGE 7 OF 14 AND, THEREFORE, THE INTEREST U/S 234A IS NOT CHARGEABLE. 6. THE LEARNED CIT (A) OUGHT TO HAVE SEEN THAT INTEREST U/S 234B AND U/S 234C IS NOT CHARGEABLE AND OUGHT TO HAVE DIRECTED THE AO TO DELETE INTEREST CHARGES U/S 234B AND 234C OF THE I.T. ACT. 9. AS REGARDS GROUND NO.2, FOR THE DETAILED REASONS GIVEN BY US IN THIS ORDER OF EVEN DATED IN THE ASSESSEES OWN CASE FOR THE A.Y 2009-10 ABOVE, THIS GROUND IS DISMISSED. 10. AS REGARDS GROUND NO.3, BRIEF FACTS ARE THAT TH E ASSESSEE ADMITTED A FOREIGN EXCHANGE GAIN OF RS.92, 14,741 WHICH IS CLAIMED AS DEDUCTION U/S 10A OF THE ACT. THE ASS ESSEE EXPLAINED THAT THE SAME WAS DERIVED OUT OF FORWARD CONTRACTS. OBSERVING THAT THESE GAINS ARE NOT DERIVED FROM THE BUSINESS OF EXPORT OF SOFTWARE, THE AO TREATED THIS INCOME AS I NCOME FROM OTHER SOURCES AND DISALLOWED THE CLAIM OF DEDUCTION U/S 10A. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS I N SECOND APPEAL BEFORE US. 11. THE LEARNED COUNSEL FOR THE ASSESSEE, WHILE REI TERATING THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW, HAS DRAWN OUR ATTENTION TO THE DECISION OF THE COORDINATE BEN CH OF THIS TRIBUNAL AT CHENNAI IN THE CASE OF MAJESTIC EXPORTS VS. JCIT IN ITA NOS. 1336 & 3072/MDS/2014 FOR THE A.YS 2009-10 A ND 2010- 11, DATED 8.6.2015 WHEREIN THE GAIN ON ACCOUNT OF T HE FORWARD CONTRACTS HAS BEEN HELD TO BE IN THE NATURE OF THE BUSINESS ITA NOS 320 AND 321 OF 2016 VALUE MOMENTUM SOFTWARE SERVICES P LTD HYDERABAD PAGE 8 OF 14 INCOME ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT. C OPY OF THE SAID ORDER IS FILED BEFORE US. 12. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS O F THE AUTHORITIES BELOW. 13. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE NATURE OF THE FORWARD C ONTRACT AND THE CHARACTER OF THE GAIN ON ACCOUNT OF SUCH CONTRACT H AS BEEN CONSIDERED AT LENGTH BY THE COORDINATE BENCH OF THI S TRIBUNAL AT CHENNAI IN THE CASE OF MAJESTIC EXPORTS (CITED SUPR A) AT PARA NO. 7 TO 9 WHICH IS REPRODUCED HEREUNDER FOR READY REFE RENCE: 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. IN THIS CASE, THE ASSESSEE WAS ENGAGED IN T HE BUSINESS OF MANUFACTURING AND EXPORT OF HOSIERY GARMENTS. DURIN G THE COURSE OF EXPORT, THE ASSESSEE ENTERED INTO DERIVATIVE CONTRA CT. THE ASSESSEE INCURRED LOSS IN THIS TRANSACTION. THE ASSESSEE CLA IMED IT AS BUSINESS LOSS. ACCORDING TO THE ASSESSING OFFICER THIS LOSS WAS NOT BUSINESS LOSS AND IT IS A SPECULATIVE LOSS AND THIS TRANSACTION I S SPECULATIVE IN NATURE AS SUCH THE LOSS INCURRED ON THIS TRANSACTION CANNO T BE SET OFF AGAINST BUSINESS INCOME OF THE ASSESSEE. ACCORDING TO THE L D. AUTHORISED REPRESENTATIVE FOR ASSESSEE, THE DERIVATIVE TRANSAC TION CANNOT FALL UNDER SEC.73. EXPLANATION TO SEC.73 CREATES A DEEMI NG FICTION BY WHICH AMONG THE ASSESSEE, WHO IS A COMPANY, AS INDICATED IN THE SAID EXPLANATION DEALING WITH THE TRANSACTION OF SHARE A ND SUFFER LOSS, SUCH LOSS SHOULD BE TREATED TO BE SPECULATIVE TRANSACTIO N WITHIN THE MEANING OF SEC.73 OF THE ACT, NOTWITHSTANDING THE FACT THAT THE DEFINITION OF SPECULATIVE TRANSACTION MENTIONED IN SEC.43(5) OF T HE ACT, THE TRANSACTION IS NOT OF THAT NATURE AS THERE HAS BEEN ACTUAL DELIVERY OF THE SCRIPS OF SHARE. AS PER THE DEFINITION OF SEC.43(5) , TRADING OF SHARES WHICH IS DONE BY TAKING DELIVERY DOES NOT COME UNDE R THE PURVIEW OF THE SAID SECTION. SIMILARLY, AS PER CLAUSE (D) OF S EC.43(5), DERIVATIVE TRANSACTION IN SHARES IS ALSO NOT SPECULATION TRANS ACTION AS DEFINED IN THE SAID SECTION. THEREFORE, BOTH PROFIT/LOSS FROM ALL THE SHARE DELIVERY TRANSACTIONS AND DERIVATIVE TRANSACTIONS ARE HAVING THE SAME MEANING, SO FAR AS SEC.43(5) OF THE ACT IS CONCERNED. AGAIN, IN VIEW OF THE FACT THAT BOTH DELIVERY TRANSACTIONS AND DERIVATIVE TRAN SACTIONS ARE NON- SPECULATIVE AS FAR AS SEC.43(5) IS CONCERNED, IT FO LLOWS THAT BOTH WILL HAVE THE SAME TREATMENT AS FAR AS APPLICATION OF EX PLANATION TO SEC.73 IS CONCERNED. THEREFORE, AGGREGATION OF THE SHARE T RADING PROFIT AND LOSS FROM DERIVATIVE TRANSACTIONS SHOULD BE DONE BE FORE THE EXPLANATION ITA NOS 320 AND 321 OF 2016 VALUE MOMENTUM SOFTWARE SERVICES P LTD HYDERABAD PAGE 9 OF 14 TO SEC.73 IS APPLIED. THE ABOVE VIEW HAS BEEN TAKEN BY SPECIAL BENCH OF THIS TRIBUNAL, MUMBAI BENCH, IN THE CASE OF CIT V. CONCORD COMMERCIAL PVT. LTD. (2005) 95 ITD 117 (MUM)(SB). IN THIS CASE , THE SPECIAL BENCH HELD THAT : BEFORE CONSIDERING WHETHER THE ASSESSEES CASE IS HIT BY THE DEEMING PROVISION OF EXPLANATION TO SEC. 73 OF THE ACT, THE AGGREGATE OF THE BUSINESS PROFIT / LOS S HAS TO BE WORKED OUT BASED ON THE NON-SPECULATIVE PROFI TS; EITHER IT IS FROM SHARE DELIVERY OR FROM SHARE DERIVATIVE. 8. FROM THE ABOVE, IT IS CONCLUDED THAT BOTH TRADIN G OF SHARES AND DERIVATIVE TRANSACTIONS ARE NOT COMING UNDER THE PU RVIEW OF SECTION 43(5) OF THE ACT WHICH PROVIDES DEFINITION OF SPEC ULATIVE TRANSACTION EXCLUSIVELY FOR PURPOSES OF SECTION 28 TO 41 OF THE ACT. AGAIN, THE FACT THAT BOTH DELIVERY BASED TRANSACTION IN SHARES AND DERIVATIVE TRANSACTIONS ARE NON-SPECULATIVE AS FAR AS SECTION 43(5) IS CONCERNED GOES TO CONFIRM THAT BOTH WILL HAVE SAME TREATMENT AS REGARDS APPLICATION OF THE EXPLANATION TO SECTION 73 IS CON CERNED, WHICH CREATES A DEEMING FICTION. NOW, BEFORE APPLICATION OF THE S AID EXPLANATION, AGGREGATION OF THE BUSINESS PROFIT/LOSS IS TO BE WO RKED OUT IN RESPECTIVE OF THE FACT, WHETHER IT IS FROM SHARE DELIVERY TRAN SACTION OR DERIVATIVE TRANSACTION. 8.1 NOW, THIS VIEW HAS BEEN TAKEN BY CO-ORDINATE, C HENNAI IN THE CASE M/S. AISHWARYA & CO P. LTD IN ITA NO.860/MDS/2014, DATED 29.05.2015, WHEREIN THEY FOLLOWED THE JUDGMENT OF T HE CALCUTTA HIGH COURT IN THE CASE OF M/S. BALJIT SECURITIES PVT. LT D. (88 CCH 313) WHEREIN HELD AS UNDER:- CLAUSE (D) OF SECTION 43(5) BECAME EFFECTIVE WITH EFFECT FROM 1ST APRIL, 2006. THEREFORE, PRIOR TO 1S T APRIL, 2006 ANY TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY INCLUDING STOCKS AND SHARES WAS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER O F THE COMMODITY OR SCRIP WAS A SPECULATIVE TRANSACTION. S UB- SECTION 1 OF SECTION 73 PROVIDES AS FOLLOWS: (1) ANY LOSS, COMPUTED IN RESPECT OF A SPECULATION BUSINESS CARRIED ON BY THE ASSESSEE, SHALL NOT BE S ET OFF EXCEPT AGAINST PROFITS AND GAINS, IF ANY, OF ANOTHE R SPECULATION BUSINESS. THE RESULTANT EFFECT WAS THAT ANY LOSS ARISING OUT OF SPECULATIVE TRANSACTION COULD ONLY HAVE BEEN SET OF F AGAINST PROFITS ARISING OUT OF SPECULATIVE TRANSACT ION. IN THE PRESENT CASE, THE ASSESSEE, AS ALREADY INDICATE D, HAS BEEN DEALING IN SHARES WHERE DELIVERY WAS IN FA CT ITA NOS 320 AND 321 OF 2016 VALUE MOMENTUM SOFTWARE SERVICES P LTD HYDERABAD PAGE 10 OF 14 TAKEN AND ALSO IN SHARES WHERE DELIVERY WAS NOT ULTIMATELY TAKEN. IN OTHER WORDS, THE ASSESSEE HAS BEEN DEALING IN ACTUAL SELLING AND BUYING OF SHARES AS A LSO DEALING IN SHARES ONLY FOR THE PURPOSE OF SETTLING THE TRANSACTION OTHERWISE THAN BY ACTUAL DELIVERY. THE QUESTION ARISE WHETHER THE LOSSES ARISING OUT OF TH E DEALINGS AND TRANSACTION IN WHICH THE ASSESSEE DID NOT ULTIMATELY TAKE DELIVERY OF THE SHARES OR GIVE DELI VERY OF THE SHARES COULD BE SET OFF AGAINST THE INCOME ARIS ING OUT OF THE DEALINGS AND TRANSACTIONS IN ACTUAL BUYI NG AND SELLING OF SHARES. AN ANSWER TO THIS QUESTION I S TO BE FOUND IN THE EXPLANATION APPENDED TO SECTION 73 WHICH READS AS FOLLOWS: EXPLANATION: WHERE ANY PART OF THE BUSINESS OF A COMPANY OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABL E UNDER THE HEADS INTEREST ON SECURITIES, OR A COMP ANY THE PRINCIPAL BUSINESS OF WHICH IS THE BU9SINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES) CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHE R COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULA TION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSIS TS OF THE PURCHASE. IN ORDER TO RESOLVE THE ISSUE BEFORE US, THE SECTION HAS TO BE READ IN THE MANNER AS FOLLOWS : EXPLANATION : WHERE ANY PART OF THE BUSINESS OF A COMPANY ( . . . .. .. .. .. . . .. .. . .. .. . ) CONS IST IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSES OF THIS SECTIO N, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHA SE AND SALE OF SUCH SHARES. IT WOULD, THUS, APPEAR THAT WHERE AN ASSESSEE, BEIN G THE COMPANY, BESIDES DEALING IN OTHER THINGS ALSO D EALS IN PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, THE ASSESSEE SHALL BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS. THE ASSESSEE, IN THE PRESENT CASE, PRINCIPALLY IS A SHARE BROKER, AS ALREADY INDICATED . THE ASSESSEE IS ALSO IN THE BUSINESS OF BUYING AND SELL ING OF SHARES FOR SELF WHERE ACTUAL DELIVERY IS TAKEN AND GIVEN AND ALSO IN BUYING AND SELLING OF SHARES WHERE ACTU AL DELIVERY WAS NOT INTENDED TO BE TAKEN OR GIVEN. THEREFORE, THE ENTIRE TRANSACTION CARRIED OUT BY TH E ASSESSEE, INDICATED ABOVE, WAS WITHIN THE UMBRELLA OF SPECULATIVE TRANSACTION. THERE WAS, AS SUCH, NO BAR IN SETTING OFF THE LOSS ARISING OUT OF DERIVATIVES FRO M THE ITA NOS 320 AND 321 OF 2016 VALUE MOMENTUM SOFTWARE SERVICES P LTD HYDERABAD PAGE 11 OF 14 INCOME ARISING OUT OF BUYING AND SELLING OF SHARES. THIS IS WHAT THE LEARNED TRIBUNAL HAS DONE. 9. FROM THE ABOVE DECISION OF THE CALCUTTA HIGH COU RT IN THE CASE OF BALJIT SECURITIES PVT. LTD. CITED SUPRA, THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE. HOWEVER, WE MAKE IT CLEAR THAT TOT AL TRANSACTION CONSIDERED FOR DETERMINING THIS BUSINESS LOSS FROM DERIVATIVE TRANSACTIONS CANNOT BE MORE THAN THE TOTAL EXPORT T URNOVER OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATIO N AND IF THE DERIVATIVE TRANSACTION IS IN EXCESS OF EXPORT TURNO VER, THEN THAT LOSS SUFFERED IN RESPECT OF THAT PORTION OF EXCESS TRANS ACTIONS TO BE CONSIDERED AS SPECULATIVE LOSS ONLY AS THAT EXCESS DERIVATIVE TRANSACTION HAS NO PROXIMITY WITH EXPORT TURNOVER AND THE ASSES SING OFFICER IS DIRECTED TO COMPUTE ACCORDINGLY. THIS GROUND IS ALL OWED AS INDICATED ABOVE. 14. RESPECTFULLY FOLLOWING THE SAME, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 15. AS REGARDS GROUND NO.4, THE FACTS ARE THAT THE ASSESSEE COMPANY RECEIVED AN AMOUNT OF RS.31,83,463 FROM ITS AE TOWARDS THE REIMBURSEMENT OF THE EXPENDITURE. TH E AO OBSERVED THAT THE ASSESSEE COMPANY HAS NOT INCLUDED THIS AMOUNT IN THE P&L A/C ON THE GROUND THAT THE SAME IS ONLY REIMBURSEMENT OF ACTUAL EXPENDITURE INCURRED AND TH EREFORE, HAS NO BEARING ON THE COMPUTATION OF PROFIT/INCOME OF T HE COMPANY. THE AO WAS NOT CONVINCED WITH THE SAID CONTENTION A ND HELD THAT THE EXPENSES WERE INCURRED FOR ITS AE AND REIMBURSE D BY THE AE AND THEREFORE, THEY HAVE TO BE PASSED THROUGH THE P &L A/C AND FOR THE CORRECT PICTURE OF THE TRANSACTION, THEY HA VE TO BE PRESENTED IN THE FINANCIAL STATEMENTS. THEREFORE, H E DISALLOWED THE CLAIM OF THE DEDUCTION U/S 10A OF THE ACT ON SU CH REIMBURSED EXPENDITURE. THE CIT (A) CONFIRMED THE DISALLOWANCE AND THE ASSESSEE IS IN APPEAL BEFORE US. ITA NOS 320 AND 321 OF 2016 VALUE MOMENTUM SOFTWARE SERVICES P LTD HYDERABAD PAGE 12 OF 14 16. IT IS THE CASE OF THE ASSESSEE THAT SINCE IT IS ONLY A REIMBURSEMENT OF THE EXPENDITURE, THE SAME WAS NOT CARRIED INTO THE P&L A/C AS IT WOULD HAVE NO EFFECT ON THE PROFI T/INCOME EARNED BY THE ASSESSEE. HE ALSO SUBMITTED THAT NONE OF THE AUTHORITIES HAVE DISPUTED THE GENUINENESS OF THE TR ANSACTION BUT HAVE MADE THE DISALLOWANCE ONLY ON THE GROUND THAT IT HAS NOT BEEN ROUTED THROUGH THE P&L A/C. SINCE THE TRANSACT ION DID NOT HAVE ANY IMPACT ON THE INCOME OF THE ASSESSEE, ACCO RDING TO HIM THE DISALLOWANCE OUGHT NOT TO BE MADE. 17. THE LEARNED DR HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 18. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE REIMBURSEMENT OF THE EX PENDITURE BY THE AE TO THE ASSESSEE IS ALSO ON INTERNATIONAL TRA NSACTION. THE TPO U/S 92CA OF THE ACT, HAS NOT MADE ANY ALP ADJUS TMENT TO THE REIMBURSEMENT OF EXPENDITURE WHICH ONLY SHOWS T HAT THE GENUINENESS OF THE TRANSACTION HAS BEEN ACCEPTED. W HEN THERE IS NO IMPACT ON THE PROFIT OF THE ASSESSEE BY THE SAID TRANSACTION, WE AGREE WITH THE CONTENTION OF THE ASSESSEE THAT IT D OES NOT HAVE ANY IMPACT ON THE COMPUTATION OF INCOME OF THE ASSE SSEE. IN VIEW OF THE SAME, GROUND NO.4 OF THE ASSESSEE IS ALLOWED . 19. AS REGARDS GROUND NO.5 RELATING TO LEVY OF INTE REST U/S 234A OF THE ACT, THE LEARNED COUNSEL FOR THE ASSESS EE SUBMITTED THAT IN THE RELEVANT A.Y, THE CBDT HAS EXTENDED THE TIME FOR FILING OF THE RETURNS TILL 15.11.2011 AND THE ASSESSEE HAD FILED ITS RETURN OF INCOME ON 13.11.2011 ITSELF AND THEREFORE, THE I NTERESTS U/S ITA NOS 320 AND 321 OF 2016 VALUE MOMENTUM SOFTWARE SERVICES P LTD HYDERABAD PAGE 13 OF 14 234A OF THE ACT IS NOT CHARGEABLE. SINCE THESE FACT S NEED VERIFICATION, WE DEEM IT FIT AND PROPER TO REMIT TH E ISSUE TO THE FILE OF THE AO FOR VERIFICATION OF THE DETAILS AND DIREC T THE AO TO CHARGE INTEREST U/S 234A OF THE ACT ONLY IF THERE IS A DEL AY IN FILING OF THE RETURN OF INCOME INSPITE OF EXTENSION OF TIME BY TH E CBDT. THIS GROUND IS THEREFORE, ALLOWED FOR STATISTICAL PURPOS ES. 20. AS REGARDS GROUND NO.6, AGAINST CHARGING OF INT EREST U/S 234B & 234C OF THE ACT, WE FIND THAT THEY ARE C ONSEQUENTIAL IN NATURE AND WE DIRECT THE AO TO RECOMPUTE THE INT EREST U/S 234B AND 234C OF THE ACT IN ACCORDANCE WITH LAW. NE EDLESS TO MENTION THAT THE ASSESSEE SHALL BE GIVEN A FAIR OPP ORTUNITY OF HEARING. 21. IN THE RESULT, ASSESSEES APPEAL FOR A.Y 2009-1 0 IS DISMISSED AND THE APPEAL FOR A.Y 2010-11 IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER, 2016. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 30 TH NOVEMBER, 2016. VINODAN/SPS ITA NOS 320 AND 321 OF 2016 VALUE MOMENTUM SOFTWARE SERVICES P LTD HYDERABAD PAGE 14 OF 14 COPY TO: 1 SRI D.VENUGOPAL, CA, FLAT NO.306, VIJAYASREE APART MENTS, NAGARJUNA NAGAR COLONY, AMEERPET, HYDERABAD 500073 2 DY. COMMISSIONER OF INCOME TAX, 17(2) ROOM NO.913 , 9 TH FLOOR, SIGNATURE TOWERS, OPP: BOTANICAL GARDEN, KONDAPUR H YDERABAD 500084 3 CIT (A)-5 HYDERABAD 4 PR. CIT 5 HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER