Shri Yogesh Mafatlal Bhansali, Ahmedabad V. The Income tax Officer,Ward-2(3), Ahmedabad

ITA 371/AHD/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9830 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 11-11-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 11-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAYANT JAVERI
• Keywords: Speculation loss
• Section: 234B; 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI S. S. GODARA, JUDICIAL MEMBER) ITA. NO: 371/AHD/2011 (ASSESSMENT YEAR: 2007-08) YOGESH MAFATLAL BHANSALI 132, ANAND SHOPPING CENTRE, RATANPOLE, AHMEDABAD V/S INCOME TAX OFFICER, WARD- 2 (3), AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AARPB6394H APPELLANT BY : SHRI URVASHI SHODHAN, AR RESPONDENT BY : SHRI JAYANT JAVERI, SR. D.R. ( )/ ORDER DATE OF HEARING : 11-11-2016 DATE OF PRONOUNCEMENT : 16 -12-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-XVI, AHMEDABAD DATED 06.12.2010 PERTAINING TO A.Y. 2007- 08. ITA NO 371/A HD/2011 . A.Y. 2007-0 8 2 2. THE CONCISE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE READS AS UNDER:- APPELLANT CRAVES LEAVE TO SUBMIT THE FOLLOWING CONC ISE GROUNDS OF APPEAL BEFORE THE HON'BLE ITAT: 1 & 3 LD. CIT (A) ERRED IN LAW AND ON FACTS IN D ETERMINING SPECULATIVE LOSS OF RS.46,58,750/- IGNORING CORRECT COMPUTATION CONSIDE RING NET EFFECT OF TRANSACTIONS FOR WHICH DETAILED WERE SUBMITTED BEFO RE THE AO & CIT (A), THE NET ORDINARY LOSS CAME TO BE RS. 37, 18, 167/-LD. CIT ( A) OUGHT TO HAVE ACCEPT COMPUTATION MADE BY THE APPELLANT BY ALLOWING SET O FF OF LOSS IN DELIVERY BASED TRANSACTION AND AGAINST THE SPECULATIVE PROFIT IN T HE RETURN OF INCOME AND TREAT THE SAME AS ORDINARY BUSINESS LOSS ELIGIBLE FOR SET OFF . IT BE SO HELD NOW. 2. LD. CIT (A) ERRED IN LAW AND ON FACTS IN CONFIR MING DISALLOWANCE OF LOSS TO THE TUNE OF RS. 46,58,750/-TREATING SAME AS SPECULATION LOSS, IGNORING FACTS THAT APPELLANT HAS EARNED PROFIT OF RS. 98,92,730/- FROM SPECULATIVE TRANSACTION AND AFTER SET OFF OF LOSS OF DELIVERY BASED TRANSACTION THE CORRECT ORDINARY BUSINESS LOSS CAME TO BE RS. 37,18,167/-. 4. LD. CIT (A) ERRED IN LAW AND ON FACTS BY INVOKIN G PROVISIONS OF SECTION 73 IGNORING FACT THAT THE LOSS INCURRED BY THE APPELLA NT IS FROM NORMAL DELIVERY BASED TRANSACTIONS IN SHARES AND NOT IN DERIVATIVES. LD. CIT (A) OUGHT TO HAVE ACCEPTED RETURNED LOSS. 5 & 6 LD. CIT (A) OUGHT TO HAVE APPRECIATED PROPER LY AND CONSIDERED JUDICIALLY, THE SUBMISSIONS MADE BEFORE HIM BEFORE PASSING THE FINAL ORDER AND OUGHT TO HAVE ALLOWED APPEAL IN TOTO. 7. LEVY OF INTEREST U/S 234A, 234B & 234C IS NOT JU STIFIED. 3. THE ASSESSEE IS RUNNING A PROPRIETARY CONCERN BY TH E NAME BHANSALI BULIONS. HE IS ALSO DOING TRADE IN SECURITIES IN HI S INDIVIDUAL NAME. THE ACCOUNTS OF THE PERSONAL BUSINESS IN THE NAME OF YO GESH MAFATLAL BHANSALI AND THE PROPRIETARY BUSINESS OF BHANSHALI BULION AR E SEPARATELY MAINTAINED AND BOTH THE SET OF BOOKS OF ACCOUNTS ARE AUDITED U /S. 44AB.THE A.O. NOTICED THAT THE ASSESSEE HAS SET OFF ITS NORMAL BU SINESS LOSS AGAINST THE ITA NO 371/A HD/2011 . A.Y. 2007-0 8 3 PROFIT EARNED FROM THE ALLEGED SPECULATION BUSINESS . THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE PROVISIONS OF SECTION 73 O F THE ACT SHOULD NOT BE INVOKED IN THIS CASE. THE ASSESSEE FILED A DETAILED REPLY WHICH READS AS UNDER:- (A) ' TRADING TRANSACTION IN SHARES IT MENTIONED BY YOU THAT WHILE FILING THE VARIOUS S TATEMENTS THE DETAILS OF 'SAME- DAY' TRANSACTIONS ARE NOT GIVEN AND YOU WILL TREAT THE SAME AS SPECULATION LOSS. SPECULATION LOSS IN THIS REGARDS, THE ABOVE STATEMENT MADE BY YOU IS FAR FROM THE TRUTH AND FAR FROM THE FACTS BECAUSE IF YOU HAVE SEEN OUR SUBMISS ION DATED 21 ST AUGUST 2009, PARTICULARLY PAGE NO 6 TO 8 (SHARE PURCHASE ACCOUNT SAME DAY) AND PAGE NO. 27 TO 33 (SHARE SALES ACCOUNT SAME DAY) THE ASSESSEE HAS MADE PROFIT AS UNDER IN CASE OF BHANSALI BULLION. SAME DAY SALES RS, 194827069 SAME DAY PURCHASES RS.184900624 SAME DAY PROFIT (BULION) RS. 9926445 HENCE THERE IS PROFIT FROM THE ABOVE BUSINESS ACTIV ITY AND NOT LOSS AND IT CANNOT BE TREATED AS SPECULATION LOSS'. 4. THE A.O. DISMISSED THE CLAIM OF THE ASSESSEE BY HOL DING AS UNDER:- 3.1.1 THE ABOVE SUBMISSION OF THE ASSESSEE WAS COMPARED W ITH THE ACTUAL TRADING RESULTS IN THIS FIRM. THE PROFIT OF RS.99,26,445/- SHOWN ABOVE BY THE ASSESSEE IS A MIRAGE CREATED BY HIM WHICH HAS NOTHING TO DO WITH REALITY. THE NET RESULT IN THE SPECULATIVE TRANSACTIONS OF SECURITIES IN M/S. BHAN SALI BULION WAS A HUGE LOSS OF RS.1,48.20,872/- AND NOT A PROFIT OF RS.99,26,445/- AS SEEN FROM THE FOLLOWING EXTRACT: ITA NO 371/A HD/2011 . A.Y. 2007-0 8 4 PARTICULARS AMOUNT PARTICULARS AMOUNT OPENING STOCK 1,07,60,800 SALES 23,12,50,857 PURCHASE 23,53,10,929 LOSS 1,48,20,872 TOTAL 24,60,71,729 TOTAL 24,60,71,729 5. THE A.O. COMPLETED THE ASSESSMENT PROCEEDINGS BY DI SALLOWING THE ALLEGED SPECULATIVE LOSS OF RS. 148,20,872/-. 6. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 7. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE ONCE AG AIN REITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. PER CONTR A, THE LD. D.R. STRONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 8. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. THE FACTS EMANATING FROM THE ASSESSMENT ORDE R SHOW THAT DURING THE YEAR, DELIVERY BASED TRANSACTIONS IN SECURITIES WERE UNDERTAKEN BY THE ASSESSEE IN BOTH THE BUSINESSES. THE ASSESSEE IS AL SO FOUND TO HAVE DONE DAY TRADING IN SOME OF THE SCRIPS. IN THE DELIVERY BASED TRANSACTIONS, PROFIT OF RS. 9,41,320/- WAS EARNED IN THE INDIVIDUAL CAPA CITY, WHEREAS LOSS OF RS. 1,45,52,218/- WAS INCURRED IN BHANSHALI BULION THER EBY THE NET RESULT WAS LOSS OF RS. 1,36,10,898/-. WE ALSO FIND THAT THE AS SESSEE HAS EARNED A PROFIT OF RS. 98,93,469/- IN THE SAME DAY TRANSACTION AND LOSS OF RS. 738 WAS INCURRED INDIVIDUAL CAPACITY WHICH RESULTED INTO A NET PROFIT OF RS. ITA NO 371/A HD/2011 . A.Y. 2007-0 8 5 98,92,731/-. THE NET LOSS OF RS. 1,36,10,898/- WAS SET OFF AGAINST PROFIT OF RS. 98,92,731/- RESULTING INTO A NET LOSS OF RS. 37 ,18,167/-. 9. AT THIS JUNCTURE, IT WOULD BE PERTINENT TO CONSIDER THE PROVISIONS OF SECTION 72 VIS--VIS PROVISIONS OF SECTION 73 OF THE ACT:- SECTION 72 ENUMERATES PROVISIONS OF CARRY FORWARD AND SET OFF OF BUSINESS LOSSES. '72 [(1) WHERE FOR ANY ASSESSMENT YEAR, THE NET RES ULT OF THE COMPUTATION UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSI ON' IS A LOSS TO THE ASSESSEE, NOT BEING A LOSS SUSTAINED IN A SPECULATION BUSINES S, AND SUCH LOSS CANNOT BE OR IS NOT WHOLLY SET OFF AGAINST INCOME UNDER ANY HEAD OF INCOME IN ACCORDANCE WITH THE PROVISIONS OF SECTION 71, SO MUCH OF THE LOSS A S HAS NOT BEEN SO SET OFF OR, WHERE HE HAS NO INCOME UNDER ANY OTHER HEAD, THE WH OLE LOSS SHALL, SUBJECT TO THE OTHER PROVISIONS OF THIS CHAPTER, BE CARRIED FORWAR D TO THE FOLLOWING ASSESSMENT YEAR, AND (I) IT SHALL BE SET OFF AGAINST THE PROFIT AND GAI NS, IF ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM AND ASSESSABLE FOR THA T ASSESSMENT YEAR; (II) IF THE LOSS CANNOT BE WHOLLY SO SET OFF, THE A MOUNT OF LOSS NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR AN D SO ON] SECTION 73 ENUMERATES PROVISION OF LOSSES IN SPECULATION BUSINESS. '73 (1) ANY LOSS, COMPUTED IN RESPECT OF A SPECULAT ION BUSINESS CARRIED ON BY THE ASSESSEE, SHALL NOT BE SET OFF EXCEPT AGAINST PROFI TS AND GAINS, IF ANY, OF ANOTHER SPECULATION BUSINESS. (2) WHERE FOR ANY ASSESSMENT YEAR ANY LOSS COMPUTED IN RESPECT OF SPECULATION BUSINESS HAS NOT BEEN WHOLLY SET OFF UNDER SUB-SECT ION (1), SO MUCH OF THE LOSS AS IS NOT SET OFF OR THE WHOLE LOSS WHERE THE ASSESSEE HAD NO INCOME FROM ANY OTHER SPECULATION BUSINESS, SHALL, SUBJECT TO THE OTHER P ROVISIONS OF THE CHAPTER, BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR, A ND ITA NO 371/A HD/2011 . A.Y. 2007-0 8 6 (I) IT SHALL BE SET OFF AGAINST THE PROFIT AND GAIN S, IF ANY, OF ANY SPECULATION BUSINESS CARRIED ON BY HIM ASSESSABLE FOR THAT ASSE SSMENT YEAR, AND (II) IF THE LOSS CANNOT BE WHOLLY SO SET OFF, THE A MOUNT OF LOSS NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR AN D SO ON.' 10. A PERUSAL OF THE AFOREMENTIONED SECTION SHOWS THAT SECTION 73 ENUMERATES PROVISIONS OF LOSSES IN SPECULATION BUSINESS AND IT SAYS THAT ANY LOSS COMPUTED IN RESPECT OF A SPECULATION BUSINESS SHALL NOT BE SET OFF EXCEPT AGAINST PROFIT AND GAINS OF ANOTHER SPECULATION BUS INESS. 11. AT THIS POINT, LET US CONSIDER THE DEFINITION OF SP ECULATION BUSINESS AS GIVEN IN SECTION 43 OF SUB-SECTION (5) OF THE ACT AND THE SAME READS AS UNDER:- (5) : ' SPECULATIVE TRANSACTION' MEANS A TRANSACTION IN W HICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCK S 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- (A) A CONTRACT IN RESPECT OF RAW MATERIALS OR MERC HANDISE ENTERED INTO BY A PERSON IN THE COURSE OF HIS MANUFACTURING OR MERCHA NTING BUSINESS TO GUARD AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATIONS IN R ESPECT OF HIS CONTRACTS FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY HIM OR MERCHANDIS E 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 HOLDINGS OF ST OCKS 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 NATURE OF J OBBING OR ARBITRAGE TO GUARD AGAINST LOSS WHICH MAY ARISE IN THE ORDINARY COURSE OF HIS BUSINESS AS SUCH MEMBER; ITA NO 371/A HD/2011 . A.Y. 2007-0 8 7 (D) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING I N DERIVATIVES REFERRED TO IN CLAUSE (AC) OF SECTION 2 OF THE SECURITIES CONTRACTS (REGU LATION) ACT, 1956 (42 OF 1956) CARRIED OUT IN A RECOGNIZED STOCK EXCHANGE; (E) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING I N COMMODITY DERIVATIVES CARRIED OUT IN A RECOGNIZED ASSOCIATION [WHICH IS CHARGEABL E TO COMMODITIES TRANSACTION UNDER CHAPTER VII OF THE FINANCE ACT, 2013 (17 OF 2 013)]] SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION . 12. IF THE TRANSACTIONS OF THE ASSESSEE ARE CONSIDERED IN THE LIGHT OF THE DEFINITION OF SPECULATION TRANSACTION GIVEN HEREINA BOVE, IN OUR CONSIDERED OPINION, THE TRANSACTIONS OF THE ASSESSEE CANNOT BE CONSIDERED TO BE SPECULATIVE TRANSACTIONS. THE ASSESSEE HAS PURCHASE D AND SOLD THE SHARES DURING THE DAY ITSELF WHICH MAY, AT THE MOST, BE CO NSIDERED AS TRADING IN SHARES. ANY LOSS ARISING OUT OF THIS CANNOT BE CONS IDERED AS A SPECULATION LOSS. WE, THEREFORE, DO NOT FIND ANY ERROR IN SETTI NG OFF OF LOSS WITH THE PROFITS BY THE ASSESSEE. 13. THE REVENUE AUTHORITIES HAVE GROSSLY ERRED IN TREAT ING THE TRADING LOSS AS A SPECULATION LOSS. 14. WITHOUT PREJUDICE TO OUR AFOREMENTIONED FINDINGS AN D FOR THE SAKE OF THE COMPLETENESS OF ADJUDICATION ON THE FACTS IN HAND, PROVISIONS OF SECTION 73 AS MENTIONED HEREINABOVE DO NOT APPLY AT ALL. SINCE THE ASSESSEE HAS NOT SET OFF THE ALLEGED SPECULATION LOSS FROM THE BUSIN ESS PROFIT BUT IN FACT HAS SET OFF BUSINESS LOSS FROM THE ALLEGED SPECULATION PROFIT. ITA NO 371/A HD/2011 . A.Y. 2007-0 8 8 15. HOWEVER, AS MENTIONED ELSEWHERE, THE TRANSACTIONS O F THE ASSESSEE DO NOT FIT INTO THE DEFINITION OF SPECULATION TRANSACTION GIVEN U/S. 43(5) OF THE ACT (SUPRA). WE FIND THE ORDER OF THE FIRST APPELLATE A UTHORITY ERRONEOUS AND ARE ACCORDINGLY SET ASIDE. THE A.O. IS DIRECTED TO ALLOW THE SET OFF OF LOSSES AS CLAIMED BY THE ASSESSEE. 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 16 - 12- 2 016 SD/- SD/- (S. S. GODARA) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 16 /12/2016 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD