ACIT 3(1)(2), MUMBAI V. EDELWEISS GLOBAL WEALTH MANAGEMENT LTD, MUMBAI

ITA 366/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8257 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 25-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M C OMI NINGSHEN
• Keywords: Business income; Speculation loss
• Section: 143(3); 115JB; 43(5)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE HONBLE S/SHRI JOGINDER SINGH (JM), AND RAJESH KUMAR, ( AM ) I.T.A. NO. 366 /MUM/201 6 ( / ASSESSMENT YEA R :20 10 - 11 ) ASSTT.COMMISSIONER O F INCOME - 3(1)(2), ROOM NO.607, 6 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400020 / VS. M/S EDELWEISS GLOBAL WEALTH MANAGEMENT LTD (FORMERLY KNOWN AS EDE L WEISS FINANCIAL PRODUCT AND SOLUTIONS LTD) EDELWEISS HOUSE, OFF CST RD, KALINA, MUM BAI - 4000098 / REVENUE BY : SHRI M C OMI NINGSHEN, / REVENUE BY : SHRI JITENDRA JAIN WITH RAVIKANT S PATHAK PAN : AABC17567C / DATE OF HEARING : 11.10.2017 / DATE OF PRONOUNCEMENT : 24. 11 .2017 / O R D E R PER RAJESH KUMAR, A. M: THIS IS AN APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD.CIT(A) - 8 , MUMBAI, DATED 30.11.2015 FOR THE ASSESSMENT YEAR 20 10 - 11 . 2. THE ONLY ISSUE RAISED BY THE REVENUE IS A GAINST THE DELETI ON OF ADDITION OF RS.5,16,74,976/ - BY THE LD. CIT(A) AS MADE BY THE AO BY TREATING THE LOSS ON TRADING IN CURRENCY DERIVATIVE INSTRUMENTS AS SPECULATION LOSS . 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINES S OF MARKETING AND DISTRIBUTION OF FINANCIAL PRODUCTS AND ADVISORY SERVICES AND 2 I.T.A. NO. 366 /MUM/201 6 FILED RETURN OF INCOME ON 4.10.2010 DECLARING TOTAL LOSS OF RS.89,03,783/ - UNDER NORMAL PROVISIONS OF LAW AND UNDER SECTION 115JB AT RS.1,08,60,745/ - . DURING THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR UNDER CONSIDERATION, THE ASSESSEE HAS CLAIMED SET OFF OF LOSS IN TRADING IN CURRENCY DERIVATIVE INSTRUMENT S OF RS.5,16,74,976/ - AGAINST THE BUSINESS INCOME EARNED. HOWEVER, THE AO WAS OF THE OPINION THAT LOSS IN TRAD ING IN CURRENCY DERIVATIVE S IS NOT SPECULATIVE AND HENCE NOT ELIGIBLE FOR SET TING OFF AGAINST THE NORMAL BUSINESS LOSS. THE ASSESSEE FILED DETAILED REPLY BEFORE THE AO. THE AO IS NOT SATISFIED WITH THE REPLY OF THE ASSESSEE AND TREATED THE SAID LOS S AS SPECULATIVE IN NATURE AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE DENYING THE BENEFIT OF SET OFF OF RS.4,90,23,770/ - VIDE ASSESSMENT ORDER DATED 18.2.2013 PASSED UNDER SECTION 143(3) OF THE ACT. IN THE APPELLATE PROCEEDINGS, THE LD. CI T(A) ALLOWED THE APPEAL OF THE ASSESSEE AFTER CONSIDERING THE CONTENTIONS AND SUBMISSIONS RAISED DURING THE COURSE OF APPELLATE PROCEEDINGS WHICH HA VE BEEN INCORPORATED IN PARA 4.2 TO 4.10 OF THE APPELLATE ORDER AND DELETED THE ADDITION MADE BY THE AO B Y OBSERVING AND HOLDING AS UNDER : 6. DECISION GROUND NO.1 AND 4 6.1 I HAVE GIVEN DUE CONSIDERATION TO THE FACTS OF THE CASE. AT THE OUTSET, IT IS PERTINENT TO NOTE THAT THE FACTS OF THIS CASE ARE IDENTICAL TO THOSE IN THE CASE OF IVF ADVISORS PVT LT D. ITA NO.4798/MUM/2012 3 I.T.A. NO. 366 /MUM/201 6 DATED 13.2.2015 WHEREIN THE HONBLE ITATI BENCH MUMBAI HAS HELD AS UNDER : 7.4 CONSIDERING THE RELEVANT PROVISIONS OF THE RELEVANT ACTS, DISCUSSED HEREIN ABOVE IN THE LIGHT OF HONBLE MADRAS HIGH COURT AND THE ANSWERS GIVEN TO FR EQUENTLY ASKED QUESTIONS BY THE SEBI AND THE INCORPORATION OF EXCHANGE TRADED CURRENCY DERIVATIVE FROM AUGUST, 2008, THERE REMAIN NO IOTA OF DOUBT THAT THE TRANSACTION OF THE ASSESSEE CANNOT BE TREATED AS SPECULATIVE TRANSACTION. WE HAVE ALSO GONE THROUGH THE COPIES OF THE CONTRACT NOTES INCORPORATED IN THE PAPER BOOK FILED BEFORE US. A PERUSAL OF THE CONTRACT NOTE SHOWS THAT THE ASSESSEE HAS EITHER ENTERED INTO CALL OPTION OR PUT OPTION AND ON THE SETTLEMENT DAY THE TRANSACTION HAS BEEN SETTLED BY DELIVERY , EITHER THE ASSESSEE HAS PAID US DOLLAR ON THE SETTLEMENT DAY OR HAS TAKEN DELIVERY OF US DOLLAR 7.5 TO SUM UP, THE DERIVATIVES INCLUDE FOREIGN CURRENCY AND CALL OPTION/ PUT OPTION, ARE TRANSACTIONS OF DERIVATIVE MARKETS AND CANNOT BE TERMED AS SPECULATI VE IN NATURE. CONSIDERING THE TOTALITY OF THE FACTS AND IN THE LIGHT OF THE JUDICIAL DISCUSSION HEREIN ABOVE, WE HAVE NO HESITATION IN SETTING ASIDE THE ORDER OF LD. CIT(A). APPEAL FILED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 6.2 FURTHER CBDT, IN ITS I NSTRUCTION NO.3/2010 DATED 23.3.2010 GUIDED THE AO TO VERIFY THE LOSS ON ACCOUNT OF CURRENCY DERIVATIVES AND ITS NATURE (WHETHER SPECULATIVE OR NON - SPECULATIVE). THE CBDTS INSTRUCT9ION IS QUOTED AT PARA 4.9 ABOVE AND DISCUSSED THEREIN. 6.3 AS CAN BE SEE N FROM THE FACTS OF THE INSTANT CASE, THE ISSUES INVOLVED AND CIRCUMSTANCES TO BE EXAMINED ARE IDENTICAL TO THOSE WHICH WERE BEFORE THE HONBLE ITAT IN IS DECISION IN ITAT ORDER NO.4798/MUM/2012 DA T ED 13.2.2015 WHICH HAS BEEN EXTENSIVELY REFERRED TO ABOVE , IN VIEW OF THE ABOVE FACS AND CBDTS INSTRUCTION NO.3/2010 DA T ED 23.3.2010 THE RATIO LAID DOWN BY THE HONBLE ITAT HAS TO BE RESPECTFULLY FOLLOWED . 6.4 ACCORDINGLY, GROUNDS OF APPEAL 1 TO 4 ARE ALLOWED AND THE AO IS DIRECTED TO DELETE THE ADDITION OF RS.5,79,27,553/ - ON ACCOUNT OF SPECULATION LOSS. GROUNDS NO.1 TO 4 ARE ALLOWED. 4 I.T.A. NO. 366 /MUM/201 6 6.5 GROUNDS 5 AND 6 REFERS TO DISALLOWANCE OF RS.62,52,577/ - BEING LOSS INCURRED IN TRADING OF COMMODITY DERIVATIVES TREATING THE SAME AS SPECULATIVE LOSS. 6.6 IT IS SEEN T HAT THE AO HAS TREATED THE COMMODITY DERIVATIVE LOSS AS SPECULATIVE LOSS DESPITE THE FACT THAT THE APPELLANT ITSELF HAS TREATED THE SAID LOSS AS SPECULATIVE LOSS AND DISALLOWED HE SAME, HOWEVER, THE SAME HAS NOT BEEN SET OF F AGAINST THE SPEC ULATIVE INCOME BY THE AO AND RESULTANTLY THE SPECULATIVE INCOME HAS BEEN ASSESSED AT RS.1,36,29,223/ - . THIS TRANSLATES TO DOUBLE TAXATION. 6.7 THE AO IS DIRECTED TO GIVE BENEFIT OF SET OFF OF SPECULATIVE LOSS OF RS.62,68,501/ - AGAINST SPECULATIVE INCOME DECLARED IN THE RETURN OF INCOME. GROUND NO.5 AND 6 ARE ALLOWED 4. THE LD. DR ARGUED BEFORE US THAT THE LOSS ON TRADING IN FOREIGN EXCHANGE IS NOT A BUSINESS LOSS BUT IT IS SPECULATIVE LOSS AND THEREFORE THE AO HAS RIGHTLY DENIED THE SET TING OFF THE SAID LOSS AGAIN ST THE NORMAL BUSINESS INCOME. THE LD. AR ON THE CONTRARY SUBMITTED THAT THE EXPLANATION TO SECTION 73 DOES NOT APPLY TO THE TRADING IN FOREIGN EXCHANGE AND IS APPL ICABLE ONLY TO TRADING IN SHARES AND SECURITIES. THE LD. AR ALSO SUBMITTED THAT NATION AL STOCK EXCHANGE AND MC X STOCK EXCHANGE HA VE BEEN NOTIFIED AS RECOGNIZED STOCK EXCHANGES WITH EFFECT FROM 22.5.2009 IN THE GAZETTE OF INDIA. HE ALSO PLACED A COPY OF THE NOTIFICATION ISSUED BY THE CBDT NOTIFYING THESE EXCHANGES AS RECOGNIZED STOC K EXCHANGE S. THE LD AR STATED THAT IN VIEW OF THE SAID FACTS , THE TRANSACTIONS CARRIED OUT ON THE SAID EXCHANGE S ARE NOT SPECULATIVE TRANSACTION . HE FURTHER SUBMITTED THAT ALL CONDITIONS AS ENVISAGED IN S ECTION 43(5) ( D ) OF THE ACT HA VE BEEN SATISFIED AN D HENCE SHOULD BE ALLOWED TO BE SET OFF AGAINST THE NORMAL BUSINESS INCOME . THE LD. AR ALSO 5 I.T.A. NO. 366 /MUM/201 6 DREW OUR ATTENTION TO THE PROVISIONS OF SECTION 43(5) OF THE ACT AS AMENDED BY THE FINANCE ACT, 2005 IN WHICH CLAUSE (D) WAS INSERTED IN THE PROVISO TO SUB - SEC TION (5) OF SECTION 43 OF THE INCOME TAX ACT, 1961) DATED 1.4.2006 DEFINING THE ELIGIBLE TRANSACTION S IN RESPECT OF TRADING IN DERIVATIVE S AS REFERRED TO SECTI O N 2 OF SECURITIES TRANSACTION ACT, 1956 CARRIED OUT IN RECOGNIZED STOCK EXCHANGE S SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTIONS AND ACCORDINGLY, HE SUBMITTED THAT ANY TRADING /TRANSACTIONS CARRIED OUT IN THE RECOGNISED STOCK EXCHANGE WITH EFFECT FROM 1.4.2006 W ERE TO BE TREA T ED AS NON SPECULATIVE TRANSACTION S . FINALLY, THE LD. AR PRA YED BEFORE THE BENCH TH A T THE ORDER OF LD. CIT(A) BE UPHELD AND THE AO BE DIRECTED TO ALLOW LOSS IN FOREIGN EXCHANGE TRANSACTION AS BUSINESS LOSS. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE IMPUGNED O RDERS AND CIRCULAR OF CBDT (SUPRA). WE FIND THAT THE TRANSACTION S OF TRADING IN FOREIGN EXCHANGE INSTRUMENTS ON RECOGNIZED STOCK EXCHANGE ARE NOT SPECULATIVE TRANSACTION S IN VIEW OF THE AMENDMENT BY FINANCE ACT, 2005 IN SECTION 43(5) OF THE IT ACT, WHEREIN THE PROVISO HAS BEEN INSERTED W.E.F.1.4.2006 PROVIDING THAT ANY TRANSACTION ON RECOGNIZED STOCK EXCHANGE IN DER IVATIVES WOULD NOT BE A SPECULATIVE TRANSACTION . 6 . WE FIND THAT THE LD. CIT(A) HAS TAKEN A VERY CORRECT AND LEGAL VIEW OF THE MATER AN D RIGHTLY DELETED THE ADDITION MADE BY THE AO. ACCORDINGLY, WE 6 I.T.A. NO. 366 /MUM/201 6 ARE INCLINED TO UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 7 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24TH NOV , 2017 . S D SD (JOGINDER SINGH ) ( RAJESH KUMAR ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 24. 1 1 . 2017 SR.PS:SRL: / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, T RUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI