Prime Line Enterprises P. Ltd., Hyd, Hyderabad V. ITO, Ward-16(2), Hyderabad, Hyderabad

ITA 327/HYD/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6205 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 18-03-2016
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: HARIKISHAN ASAWA
• Keywords: Transactions in derivatives; Speculation loss
• Section: 43(5); 12; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 327/HYD/2016 ASSESSMENT YEAR: 2008-09 M/S. PRIME LINE ENTERPRISES (P) LTD., HYDERABAD [PAN: AAECP3951C] VS THE INCOME TAX OFFICER, WARD-16(2), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI HARIKISHAN ASAWA, AR FOR REVENUE : SHRI K.J. RAO, DR DATE OF HEARING : 18-08-2016 DATE OF PRONOUNCEMENT : 14-09-2016 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS)-4, HYDERABAD D ATED 12-01-2016. ASSESSEE HAS RAISED THE FOLLOWING GROUN DS: 1. OUR MAIN BUSINESS IS OF COMMODITY AND SHARE TRA DING ACTIVITY. ALL THIS LOSS IS INCURRED IS IN THE NORMAL COURSE O F BUSINESS. IT IS A FACT THAT THERE ARE MANY SERIES OF TRANSACTIONS IN THE YEAR A ND THIS IS TO BE TREATED AS BUSINESS LOSS AND NOT A SPECULATION LOSS. THE LOSS DISALLOWED IS RS. 1816952/- TREATING IT A SPECULATION LOSS IS AGAINST FACTS AND LAW. TRANSACTIONS IN COMMODIT IES IS AKIN TO TRADING IN F&O DERIVATES AND AS SUCH THIS IS TO BE TERMED AS B USINESS. EVEN THE SUBSEQUENT YEARS SUCH A BUSINESS IS THERE. THERE IS NO PROVISION IN SEBI WHICH PROHIBITS US FROM DOING THI S TYPE OF BUSINESS AND I.T.A. NO. 327/HYD/2016 PRIME LINE ENTERPRISES (P) LTD., :- 2 -: OUR MEMO. OF ASSOCIATION AND ARTICLES OF ASSOCIATI ON ALSO DO NOT PROHIBIT US FOR THE SAME BUSINESS. AS SUCH THIS IS TO BE TREATED AS SECURITIES. THAT THE ADDITIONS MADE BY THE I.T.O. ARE NOT PROPER. 2. CIT APPEALS HAVE MADE FURTHER ADDITIONS OVER AND ABOVE THE ADDITIONS MADE BY THE I.T.O. WITHOUT ANY NOTICE OR BASE OR OPPORTUNITY TO US. AS SUCH THE ORDER OF CIT (A) IS NOT LEGAL. 3. WRITTEN ARGUMENTS FILED BEFORE CIT (APPEALS) MA Y BE READ WITH. THE REJECTION OF APPEAL BY CIT IS WITHOUT A SPEAKIN G ORDER. MORESO, CONTENTS OF WRITTEN ARGUMENTS IS NOT DISCUSSED BY C .I.T. APPEALS. 2. BRIEFLY STATED ASSESSEE, ENGAGED IN THE BUSINESS O F MANUFACTURE AND SALE OF GOLD ORNAMENTS, FILED RETURN OF LOSS ADMITTING RS.17,18,882/-. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) NOTICED THAT A SSESSEE HAS CLAIMED LOSS OF RS.13,57,130/- FROM COMMODITY AND SHARE TRADING, THE LOSS OF WHICH IS WORKED OUT AS UNDER: RS. I. LOSS FROM TRADING IN COMMODITIES 18,16,952 II. LESS: GAIN ON TRADING IN STOCK FUTURES 4,59,022 NET LOSS 13,57,130 3. AO INVOKED THE PROVISIONS OF SECTION 43(5) TO HOL D THAT THE TRANSACTIONS RESULTING IN LOSS FROM TRADING IN COMMO DITIES IS A SPECULATIVE TRANSACTION WITHIN THE MEANING OF EXPLANATI ON (2) TO SECTION 28 R.W.S. 43(5)(D) OF THE ACT. HE CONSIDERED THAT THE BUSINESS OF ASSESSEE IN RESPECT OF THESE TRANSACTIONS A RE TO BE CONSIDERED AS SPECULATIVE IN NATURE . HIS REASONING IS AS UNDER: EXPLANATION (2) TO SEC. 28 OF THE IT PROVIDES THAT WHERE SPECULATIVE TRANSACTIONS CARRIED ON BY THE ASSESSEE ARE OF SUCH A NATURE TO CONSTITUTE A BUSINESS, THE BUSINESS (HERE INAFTER REFERRED TO AS SPECULATION BUSINESS) SHALL BE DEEMED TO BE DIST INCT AND SEPARATE FROM ANY OTHER BUSINESS. SEC. 43(5) DEFIN ES SPECULATIVE I.T.A. NO. 327/HYD/2016 PRIME LINE ENTERPRISES (P) LTD., :- 3 -: TRANSACTION AS A TRANSACTION IN WHICH CONTRACT FOR PURCHASE OR SALE OF ANY COMMODITY INCLUDING STOCKS AND SHARES, IS PE RIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DEL IVERY OR THE TRANSFER OF COMMODITY OR SCRIPS. HOWEVER, THIS RUL E HAS AN EXCEPTION IN CLAUSE (D) WHICH PROVIDES THAT AN ELIG IBLE TRANSACTION IN RESPECT OF TRADING IN DERIVATIVES REFERRED TO IN CL AUSE (AC) OF SECTION (2) OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1 956 CARRIED OUT IN THE RECOGNIZED STOCK EXCHANGE. SEC.2(AC) OF THE SE CURITIES CONTRACTS (REGULATION) ACT, 1956 DEFINES A DERIVATIVE AS INCL UDING (A) A SECURITY DERIVED FROM DEBT INSTRUMENT, SHARE, LOAN, RISK INSTRUMENT OR CONTRACTUAL DIFFERENCES OR ANY OTHER FORM OF SEC URITY. (B) A CONTRACT WHICH DERIVES ITS VALUE FROM THE PRICES OR INDEX OF PRICES OF UNDERLYING SECURITIES. SINCE THE COMMODITIES LIKE GOLD AND SILVER ARE NOT SECURITIES WITHIN THE MEANING OF SEC.2(AC), THE REFORE, THE SAVING CLAUSE PROVIDED UNDER CLAUSE (D) OF SEC. 43(5) SHAL L NOT APPLY TO THE ASSESSEE. 3.1. HE ACCORDINGLY CONSIDERED AN AMOUNT OF RS. 18,16,952/- AS SPECULATIVE LOSS. BEFORE THE LD.CIT(A), IT WAS CONTENDED THAT ASSESSEES TRANSACTIONS ARE TO BE CONSIDER ED AS SEPARATE BUSINESS AND THEREFORE, THE SAME SHOULD NOT BE CONSIDERED AS SPECULATIVE LOSS. IT WAS THE CONTENTION THAT ASSESSEE IS IN TRADING AND SO THE LOSS CANNOT BE CONSIDERED A S SPECULATIVE LOSS. LD.CIT(A) HOWEVER, DID NOT AGREE AND REJECTED THE APP EAL BY STATING AS UNDER: 4. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE, SUBMISSIONS OF THE APPELLANT AND THE ASSESSMENT ORD ER. FROM THE P&L ACCOUNT, THE NET LOSS FROM COMMODITY AND SHARE TRADING ACTIVITY WERE OF RS. 13,57,130/-. THE APPELLANT IS A COMPAN Y DOING THE BUSINESS OF MANUFACTURING AND SALE OF GOLD ORNAMENT S DISCLOSED LOSS RETURN OF INCOME AFTER CLAIMING LOSS FROM COMM ODITY AND SHARE TRADING ACTIVITY. ON VERIFICATION, IT IS NOTICED T HAT THE APPELLANT PROFITS IS OF RS. 3,61,000/- FROM GOLD AND SILVER B USINESS. DURING THE ASSESSMENT YEAR, THERE IS LOSS FROM TRADING IN COMMODITIES OF RS. 18,16,952/- AND GAIN ON TRADING IN STOCK FUTURE S IS OF RS. 4,59,022 THEREBY THE NET LOSS ARRIVED IS OF RS. 13, 57,130/-. THE ASSESSING OFFICER MAINLY DISALLOWED THE SPECULATIVE LOSS BECAUSE OF THE REASON THAT THE COMMODITY LIKE GOLD AND SILVER ARE NOT SECURITIES WITHIN THE MEANING OF SECTION 2(AC), THEREBY, THE S AVING CLAUSE PROVIDED UNDER CLAUSE (D) OF SECTION 43(5) SHALL NO T APPLY TO THE I.T.A. NO. 327/HYD/2016 PRIME LINE ENTERPRISES (P) LTD., :- 4 -: APPELLANT. DURING THE COURSE OF APPEAL PROCEEDINGS ALSO, THE APPELLANT FAILED TO SUBSTANTIATE HIS CLAIM OF SPECU LATIVE LOSS TO BE ALLOWED. THEREFORE, I AM IN AGREEMENT WITH THE ASS ESSING OFFICER AND THE ADDITION MADE BY THE ASSESSING OFFICER IS C ONFIRMED. BUT THE ASSESSING OFFICER WHILE DOING SO DISALLOWED THE SPECULATION LOSS OF RS. 18,16,952/- INSTEAD OF LOSS CLAIMED BY THE A PPELLANT OF RS. 13,57,130/-. HENCE, THE PROFIT FROM BUSINESS INCOM E IS OF RS. 3,61,752/- TO BE TAKEN AS TOTAL INCOME IN PLACE OF RS. 98,070/- AS ARRIVED BY THE ASSESSING OFFICER. 4. LD. COUNSEL PLACED ON RECORD A PAPER BOOK CONTAI NING SET OF TRANSACTIONS UNDERTAKEN BY ASSESSEE IN STOCK EXCH ANGE THROUGH BROKERS IN COMMODITIES MARKET AS WELL AS SHAR E MARKET. IT WAS HIS SUBMISSION THAT ASSESSEES BUSINESS ITSELF I S UNDERTAKING PURCHASE AND SALE OF SHARES AND COMMODITIES, THEREFO RE, THE SAME HAS TO BE CONSIDERED AS BUSINESS LOSS ONLY NOT AS A SPECULATIVE LOSS. 5. LD. DR HOWEVER, RELIED ON THE ORDERS OF THE AUTHOR ITIES. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND EXAMI NED THE LEDGER ACCOUNT COPIES PLACED ON RECORD. AS SEEN FROM THE DETAILS PLACED ON RECORD, ASSESSEE HAS INDULGED IN F UTURE TRANSACTIONS AND ALSO PURCHASE AND SALE OF COMMODITIES LIKE GOLD AND SILVER AND IN SHARE MARKET, MOST OF THEM ARE DAY-TR ANSACTIONS. PROVISIONS OF SECTION 43(5) WITH REFERENCE TO SPECULA TIVE TRANSACTION ARE AS UNDER: SEC. 43 (5) 'SPECULATIVE TRANSACTION' MEANS A TRANSACTION I N WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS: PROVIDED THAT FOR THE PURPOSES OF THIS CLAUSE I.T.A. NO. 327/HYD/2016 PRIME LINE ENTERPRISES (P) LTD., :- 5 -: (A) A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCH ANDISE ENTERED INTO BY A PERSON IN THE COURSE OF HIS MANUFACTURING OR MERCHA NTING BUSINESS TO GUARD AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATION S IN RESPECT OF HIS CONTRACTS FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY HIM OR MERCHANDISE SOLD BY HIM; OR (B) A CONTRACT IN RESPECT OF STOCKS AND SHARES ENTE RED INTO BY A DEALER OR INVESTOR THEREIN TO GUARD AGAINST LOSS IN HIS HOLDI NGS OF STOCKS AND SHARES THROUGH PRICE FLUCTUATIONS; OR (C) A CONTRACT ENTERED INTO BY A MEMBER OF A FORWAR D MARKET OR A STOCK EXCHANGE IN THE COURSE OF ANY TRANSACTION IN THE NA TURE OF JOBBING OR ARBITRAGE TO GUARD AGAINST LOSS WHICH MAY ARISE IN THE ORDINARY COURSE OF HIS BUSINESS AS SUCH MEMBER; OR (D) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING I N DERIVATIVES REFERRED TO IN CLAUSE (AC) OF SECTION 2 OF THE SECURITIES CONTRACT S (REGULATION) ACT, 1956 (42 OF 1956) CARRIED OUT IN A RECOGNISED STOCK EXCH ANGE; OR (E) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING I N COMMODITY DERIVATIVES CARRIED OUT IN A RECOGNISED ASSOCIATION 6A [, WHICH IS CHARGEABLE TO COMMODITIES TRANSACTION TAX UNDER CHAPTER VII OF TH E FINANCE ACT, 2013 (17 OF 2013),] SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION . EXPLANATION 1.FOR THE PURPOSES OF CLAUSE (D), THE EXPRESSIONS (I) 'ELIGIBLE TRANSACTION' MEANS ANY TRANSACTION, (A) CARRIED OUT ELECTRONICALLY ON SCREEN-BASED SYST EMS THROUGH A STOCK BROKER OR SUB-BROKER OR SUCH OTHER INTERMEDIARY REG ISTERED UNDER SECTION 12 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (15 OF 1992) IN ACCORDANCE WITH THE PROVISIONS OF T HE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) OR TH E SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (15 OF 1992) OR T HE DEPOSITORIES ACT, 1996 (22 OF 1996) AND THE RULES, REGULATIONS O R BYE-LAWS MADE OR 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 N OTE 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 PERMANENT 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 SECUR ITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) AND WHICH FULFI LS SUCH CONDITIONS AS MAY BE PRESCRIBED AND NOTIFIED 7 BY THE CENTRAL GOVERNMENT FOR THIS PURPOSE; EXPLANATION 2.FOR THE PURPOSES OF CLAUSE (E), THE EXPRESSIONS (I) 'COMMODITY DERIVATIVE' SHALL HAVE THE MEANING AS ASSIGNED TO IT IN CHAPTER VII OF THE FINANCE ACT, 2013; I.T.A. NO. 327/HYD/2016 PRIME LINE ENTERPRISES (P) LTD., :- 6 -: (II) 'ELIGIBLE TRANSACTION' MEANS ANY TRANSACTION, (A) CARRIED OUT ELECTRONICALLY ON SCREEN-BASED SYST EMS THROUGH MEMBER OR AN INTERMEDIARY, REGISTERED UNDER THE BYE-LAWS, RUL ES AND REGULATIONS OF THE RECOGNISED ASSOCIATION FOR TRADING IN COMMOD ITY DERIVATIVE IN ACCORDANCE WITH THE PROVISIONS OF THE FORWARD CONTR ACTS (REGULATION) ACT, 1952 (74 OF 1952) AND THE RULES, REGULATIONS OR BYE- LAWS MADE OR DIRECTIONS ISSUED UNDER THAT ACT ON A RECOGNISED ASSOCIATION; AND (B) WHICH IS SUPPORTED BY A TIME STAMPED CONTRACT N OTE ISSUED BY SUCH MEMBER OR INTERMEDIARY TO EVERY CLIENT INDICATING I N THE CONTRACT NOTE, THE UNIQUE CLIENT IDENTITY NUMBER ALLOTTED UN DER THE ACT, RULES, REGULATIONS OR BYE-LAWS REFERRED TO IN SUB-CLAUSE ( A), UNIQUE TRADE NUMBER AND PERMANENT ACCOUNT NUMBER ALLOTTED UNDER THIS ACT; (III) 'RECOGNISED ASSOCIATION' MEANS A RECOGNISED A SSOCIATION AS REFERRED TO IN CLAUSE (J) OF SECTION 2 OF THE FORWARD CONTRACTS (R EGULATION) ACT, 1952 (74 OF 1952) AND WHICH FULFILS SUCH CONDITIONS AS MAY B E PRESCRIBED 7A AND IS NOTIFIED BY THE CENTRAL GOVERNMENT FOR THIS PURPOSE ; 6.1. NOTHING WAS BROUGHT ON RECORD BY THE LD. COUN SEL TO SUBMIT THAT ANY OF THE EXCEPTIONS PROVIDED IN THE SECTION WILL APPLY TO THE IMPUGNED TRANSACTIONS. AS SEEN FROM THE TRANSAC TIONS AND FROM THE PROVISIONS OF THE ACT, WE ARE OF THE OPINION THAT THE TRANSACTIONS INVOLVED ARE CERTAINLY SPECULATIVE IN NATU RE AS PER THE MANDATE OF SECTION 43(5). SINCE NOTHING WAS BROUGHT O N RECORD THAT THE SAID TRANSACTIONS DO NOT COME WITHIN THE EXCE PTIONS PROVIDED IN THE SECTION, EVEN THOUGH, THE SAME ARE BUSI NESS TRANSACTIONS, THEY HAVE TO BE CONSIDERED AS A SEPARATE SPECULATIVE BUSINESS AND THE LOSS SO ARRIVED AT IS TO BE CONSIDERED AS SPECULATIVE LOSS. 7. HOWEVER, WE ARE UNABLE TO APPRECIATE THE ORDER OF THE CIT(A) IN DIRECTING THE AO TO TREAT THE PROFIT FROM BUSI NESS OF INCOME AGAIN AS TOTAL INCOME WHEN AO HIMSELF HAS TREA TED AN AMOUNT OF RS. 18,16,952/- AS SPECULATIVE LOSS. EVEN THE AO IN OUR OPINION HAS WRONGLY CONSIDERED THE AMOUNT. THE GAIN ON TRADING I.T.A. NO. 327/HYD/2016 PRIME LINE ENTERPRISES (P) LTD., :- 7 -: IN STOCK FUTURES IS ALSO FROM THE SPECULATIVE TRANSAC TIONS. THEREFORE, THE NET LOSS OF RS. 13,57,130/- ONLY CAN B E CONSIDERED AS LOSS FROM THE SPECULATIVE TRANSACTIONS. THEREFORE, WE MODIFY THE ORDERS OF THE AO AND CIT(A) TO THE EXTENT OF COMPUTATION OF LOSS. AO IS DIRECTED TO TREAT ONLY AN AMOUNT OF RS. 13,57,13 0/- AS SPECULATIVE LOSS AND THE BALANCE LOSS CLAIMED BY ASSESSEE SHOULD BE TREATED AS BUSINESS LOSS. AO IS DIRECTED TO MODIFY THE ORDERS ACCORDINGLY. 8. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 14 TH SEPTEMBER, 2016 SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBE R HYDERABAD, DATED 14 TH SEPTEMBER, 2016 TNMM COPY TO : 1. M/S. PRIME LINE ENTERPRISES (P) LTD., HYDERABAD. C/O. HARIKISHAN ASAWA, ADVOCATE, 4-1-13/4, TILAK ROAD, HYDERABAD. 2. INCOME TAX OFFICER, WARD-16(2), HYDERABAD. 3. CIT (APPEALS)-4, HYDERABAD. 4. PR.CIT-4, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.