DCIT CENT CIR. 8(1), MUMBAI V. KUNAL GOVIND KATARIA, MUMBAI

ITA 4026/MUM/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8805 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2020
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2009-2010
• Appeal Filed On: 06-06-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B SRINIVAS
• Assessee Lawyers: DEEPAK R SHAH
• Keywords: Business income; Transactions in derivatives; Period of limitation; Speculation loss; Speculative transactions
• Section: 271(1)(c); 43(5); 201; 274; 207; 43; 73; 13; 22; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H, BENCH MUM BAI BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER & SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO.2292/MUM/2018 ( ASSESSMENT YEAR: 2014-15 ) KUNAL GOVIND KATARIA 2/B, CENCED APARTMENTS NR.BAJAJ PARK, AMBEDKAR ROAD, BANDRA(WEST) MUMBAI-400 050 VS. DCIT,CC-8(1) AAYKAR BHAWAN M.K.ROAD MUMBAI-400 020 PAN/GIR NO. A ODPK3994G ( APPELLANT ) .. ( RESPONDENT ) & ITA NOS.4026 & 4027/MUM/2018 ( ASSESSMENT YEARS: 2009-10 & 2011-12 ) DCIT,CC-8(1) AAYKAR BHAWAN M.K.ROAD MUMBAI-400 020 VS. KUNAL GOVIND KATARIA 2/B, CENCED APARTMENTS NR.BAJAJ PARK, AMBEDKAR ROAD, BANDRA(WEST) MUMBAI-400 050 PAN/GIR NO. AODPK3994G ( APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY SHRI DEEPAK R.SHAH, AR REVENUE BY SHRI B.SRINIVAS, CIT-DR DATE OF HEARING 02/03 /2020 DATE OF PRONOUNCEME NT 24/07 / 2020 / O R D E R PER G.MANJUNATHA (A.M) : THIS BUNCH OF THREE APPEALS, ONE APPEAL FIL ED BY THE ASSESSEE AND TWO APPEALS FILED BY THE REVENUE ARE DIRECTED A GAINST, SEPARATE BUT IDENTICAL ORDERS THE LD. COMMISSIONER OF INCOME TAX (APPEALS)- 50, MUMBAI, ALL DATED 23/03/2018 AND PERTAINS TO AS ST. YEAR 2009- 10, A.Y. 2011-12 AND A.Y. 2014-15. SINCE, THE FACT S ARE IDENTICAL KUNAL GOVIND KATARIA 2 AND ISSUE IS COMMON, FOR THE SAKE OF CONVENIENCE, T HESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED-OFF BY T HIS CONSOLIDATED ORDER. I) ITA NO.2292/MUM/2018 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED COMMISSIONER OF INCOME TAX (A) HAS E RRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF COMMODIT Y DERIVATIVE LOSS OF RS. 18,71,18,2547-MADE BY THE ASSESSING OFF ICER WITHOUT PROPERLY CONSIDERING THE FACTS THAT THE APPELLANT I S CARRYING ON DERIVATIVE TRADING IN COMMODITY AS EXCLUSIVE BUSINE SS ACTIVITY IRRESPECTIVE OF THE EXCHANGE TRADED, AND ALSO FAILE D TO FOLLOW THE JUDICIAL DECISIONS OF THE HON'BLE ITAT 'E' BENCH IN ITA NO. 5179/MUMA6 OF ASSESSMENT YEAR 2012-2013 IN THE APPE LLANT'S OWN CASE HAVING SAME FACTS OF, THE CASE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF TRADING COMMO DITY AND CURRENCY DERIVATIVES, FILED HIS RETURN OF INCOME FO R AY 2014-15 ON 01/10/2014, DECLARING TOTAL INCOME OF RS.40,21,780/ -. THE CASE WAS SELECTED FOR SCRUTINY AND DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, THE LD. AO NOTICED THAT THE ASSESSEE H AS INCURRED LOSS OF RS.18,71,18,254/- FROM TRADING IN COMMODITY DERI VATIVES ON THE NATIONAL MULTI COMMODITY EXCHANGE (NMCE), AHMADABAD AND ACCORDINGLY, CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY LOSSES INCURRED FROM COMMODITY DERIVATIVES TRADED ON NMC E CANNOT BE ALLOWED TO BE SET OFF AGAINST PROFIT DERIVED FROM C OMMODITY DERIVATIVES ON MCX, AS PER PROVISIONS OF SECTION 43 (5)(E) OF THE I.T.ACT, 1961. IN RESPONSE TO SHOW CAUSE NOTICE, TH E ASSESSEE SUBMITTED THAT HE IS ENGAGED IN ONE AND ONLY BUSINE SS OF TRADING IN COMMODITY DERIVATIVES AND AS PER THE PROVISIONS OF SECTION 28 KUNAL GOVIND KATARIA 3 EXPLANATION (2), THE BUSINESS OF THE ASSESEE SHOULD BE CONSIDERED AS ONE AND ACCORDINGLY, PROFIT OR LOSS DERIVED SHOU LD BE TREATED AS ONE, FOR THE PURPOSE OF SET OFF OF LOSS AGAINST PRO FITS EARNED FROM COMMODITY TRADING IN MULTI EXCHANGES. 4. THE LD. AO WAS NOT CONVINCED WITH THE EXPLANATIO N OF THE ASSESSEE AND ACCORDING TO HIM LOSSES INCURRED FORM COMMODITY DERIVATIVES TRADING ON NATIONAL MULTI COMMODITY EXC HANGE, AHMADABAD A NON RECOGNIZED ASSOCIATION AS PER EXP LANATION 2 TO CLAUSE (D) OF SUB-SECTION (5) OF SECTION 43 CANNOT BE ALLOWED TO BE SET OFF AGAINST PROFIT DERIVED FROM COMMODITY DERIV ATIVES TRADING ON MULTI COMMODITY EXCHANGE, BECAUSE PROFIT OR LOSS EA RNED FROM TRADING ON MCX IS A TRADING PROFIT AND SAME CANNOT BE SET OFF AGAINST SPECULATIVE PROFIT. THE RELEVANT FINDINGS O F THE LD. AO ARE AS UNDER:- 10. ASSESSEE CONTENTIONS HAVE BEEN NOTED BUT ARE FO UND UNACCEPTABLE FOR FOLLOWING REASONS I) THE LOSSES INCURRED ON NMCE FAIL TO QUALIFY AS NON SPECULATIVE LOSSES AS NMCE WAS AN UNRECOGN3SED STOCK EXCHANGE IN AY 20 14-15 II) FURTHER, EVEN IN VIEW OF PROVISION OF SEC 43(5)(E), THE ASSESSEES LOSSES FAIL THE TEST OF ALLOWABILITY AS NO COMMODITIES TRANSACTION TAX (CTT) (INTRODUCED FROM 01.07.2013) WAS PAID FOR THE COMMODITIES DERIVATIVES TRADING ON NMCE. THIS I S EVIDENT FROM THE. CONTRACT NOTES SUBMITTED BY THE ASSESSEE IN CO URSE OF ASSESSMENT PROCEEDINGS FOR COMMODITIES TRADED ON NMCE, AHMADA BAD III) FURTHER ON AN EXERCISE TO ASCERTAIN WHETHER NMCE WAS A RECOGNIZED ASSOCIATION, THE UNDERSIGNED FAILED TO FIND ANY NOTIFICATION WITH RESPECT TO DECLARATION OF NMCE AS RECOGNIZED ASSOCIATION (FOR ASSESSMENT 'YEAR UNDER CONSIDERATI ON) WITHIN THE MEANING OF SEC 43(5)(E) UNLIKE THE FOLLOWING NOTIFI CATION IN CASE OF MCX WHICH IS REPRODUCED BELOW FOR SAKE OF CLARITY, GOVERNMENT OF INDIA, MINISTRY OF FINANCE, DEPARTME NT OF REVENUE, CENTRAL BOARD OF DIRECT RAXES VIDE ITS NOTIFICATION NO2/2013 DATED 29 TH NOVEMBER, 2013 HEREBY NOTIFIES THE MULTI COMMODITY EXCHANGE OF INDIA LIMITED, MUMBAI AS A RECOGNIZED ASSOCIATION FOR THE PURPOSES FO CLAUSES(E) OF THE PROVISO TO CLAUSE(5) OF THE SECTI ON 43 OF THE INCOME TAX ACT, 1961 ( 43 OF 1961) RED WITH SUB RULE (4) OF R ULE 6DDD OF THE INCOME KUNAL GOVIND KATARIA 4 TAX RULES, 1962 WITH EFFECT FROM THE DATE OF PUBLIC ATION OF THIS NOTIFICATION IN THE OFFICIAL GAZETTE. 11. THUS, ON THREE COUNTS, THE ASSESSEES LOSSES F AIL THE TEST OF THE COMPLEMENTARY PROVISIONS OF SEC 43(5)(D) & SEC 43(5 )(E) RENDERING THE LOSSES ACCRUED ON NMCE AS SPECULATION LOSSES AND HE NCE NOT ALLOWABLE FOR SET OFF AGAINST PROFITS EARNED FROM C OMMODITIES DERIVATIVES TRADING ON RECOGNIZED STOCK EXCHANGES. 12. IN THE LIGHT OF ABOVE DISCUSSION, THE LOSS INCU RRED ON NMCE, AHMADABAD AMOUNTING TO RS.18,71,18,254/- IS DISALLO WED BEING IN THE NATURE OF SPECULATION LOSS AND HENCE DISALLOWABLE A GAINST PROFITS FROM NON SPECULATIVE BUSINESS. PENALTY PROCEEDINGS INIT IATED U/S 271(1)(C) R.W.S. 274 FOR FURNISHING INACCURATE PARTICULARS OF INCOME. 5. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A). BEFORE TH E LD.CIT(A), THE ASSESSEE HAS FILED DETAILED WRITTEN SUBMISSIONS, ON THE ISSUE, WHICH HAS BEEN REPRODUCED AT PARA 7 ON PAGES 3 TO 13 OF LD.CIT(A) ORDER. THE SUM AND SUBSTANCE OF ARGUMENTS OF THE AS SESSEE BEFORE THE LD.CIT(A) ARE THAT THE ASSESSEE IS CARRYING OUT ONLY AND ONLY COMMODITY DERIVATIVES TRADING IN MULTI COMMODITY EX CHANGES AND THEREFORE, THE SAME CANNOT BE SPLIT, ON THE BASIS O F TRADING IN DIFFERENT COMMODITY EXCHANGES FOR THE PURPOSES OF T AXATION. THE ASSESSEE, FURTHER SUBMITTED THAT THE PROVISIONS CON TAINED IN SECTION 43(5)(D) OF THE I.T.ACT, 1961 IS NOT APPLICABLE TO COMMODITIES DERIVATIVES TRADING AND THEREFORE, THE PROFIT AND L OSS FROM ALL THE TRANSACTIONS, WHETHER EXECUTED ON RECOGNIZED OR NON -RECOGNIZED EXCHANGE ARE SPECULATIVE TRANSACTIONS AND THEREFORE , THE PROFIT OR LOSS NEEDS TO BE ALLOWED TO BE SET OFF. THE ASSESS EE HAS ALSO RELIED UPON THE DECISION OF ITAT, MUMBAI IN ITS OWN CASE F OR AY 2012-13 AND ARGUED THAT THE ITAT HAS CATEGORICALLY HELD THA T THE ASSESSEES BUSINESS IS ONE FOR THE PURPOSE OF TAXATION AND HEN CE, THE SAME SHOULD NOT BE SPLIT INTO DIFFERENT BUSINESSES ON TH E BASIS OF TRADING ON DIFFERENT MULTI COMMODITY EXCHANGES. KUNAL GOVIND KATARIA 5 6. THE LD.CIT(A) AFTER CONSIDERING RELEVANT SUBMISS IONS OF THE ASSESSEE AND ALSO BY TAKING NOTE OF VARIOUS PROVISI ONS OF THE ACT, INCLUDING THE SECURITIES CONTRACTS (REGULATION) ACT , 1956, HE CAME TO THE CONCLUSION THAT LOSS INCURRED BY THE ASSESSE E ON COMMODITY DERIVATIVES FROM NATIONAL MULTI COMMODITY EXCHANGE (NMCE), AHMADABAD IS IN THE NATURE OF SPECULATIVE LOSS AND THE SAME CANNOT BE ALLOWED TO BE SET OFF AGAINST PROFIT EARNED FR OM COMMODITY DERIVATIVES ON MCX CANNOT BE SET OFF. THE LD.CIT(A) , FURTHER NOTED THAT NMCE , AHMADABAD IS A NON-RECOGNIZED ASSOCIATI ON FOR THE PURPOSES OF SECTION 43(5)(E) OF THE ACT, WHICH IS E VIDENT FROM THE FACT THAT THE CBDT HAS NOT NOTIFIED THE SAID ASSOCIATION , WHEREAS MCX HAS BEEN NOTIFIED FOR THE PURPOSE OF SECTION 43(5)( E) OF THE ACT. HE, FURTHER NOTED THAT AS PER AMENDED PROVISIONS OF SEC TION 43(5)(E) OF THE ACT, WHICH IS INSERTED BY THE FINANCE ACT, 2013 W.E.F 01/04/2014 AND APPLICABLE FROM AY 2014-15 ONWARDS, ONLY PROFIT OR LOSS DERIVED FROM COMMODITY DERIVATIVES IN MULTI COMMODITY EXCHA NGES IS OUTSIDE THE PURVIEW OF SPECULATIVE PROFIT AS PER SE CTION 43(5)(E) OF THE ACT, BUT SUCH TRANSACTIONS SHOULD SUFFER COMMOD ITY TRANSACTION TAX. IN THIS CASE, THE ASSESEE HAS NEITHER, PAID CO MMODITY TRANSACTION TAX, NOR NMCE IS A RECOGNIZED STOCK EXC HANGE FOR THE PURPOSE OF SECTION 43(5)(E) OF THE ACT, AND THUS, T HERE IS NO ERROR IN THE FINDINGS RECORDED BY THE LD. AO IN DISALLOWING LOSS INCURRED FROM COMMODITY DERIVATIVE TRADING ON NMEC, AHMADABAD. TH E RELEVANT FINDINGS OF THE LD.CIT(A) ARE AS UNDER:- 8.0 I HAVE CONSIDERED THE FACTS OF THE CASE, THE SUBMISSIONS OF THE APPELLANT, THE OBSERVATIONS OF THE AO CONTAINED IN THE ASSESSMENT ORDER AND THE OTHER MATERIALS ON RECORD ON THIS ISSUE. 8.1 THE AO HAS DISALLOWED AN AMOUNT OF RS. 18,71,18 ,254/-, BEING LOSS INCURRED FROM DERIVATIVE COMMODITY TRADING THROUGH NMCE(NATIONAL MULTI KUNAL GOVIND KATARIA 6 -COMMODITY EXCHANGE), AHMEDABAD, AN UNRECOGNISED EX CHANGE, CONSIDERING THE SAME AS SPECULATIVE LOSS AND THE SA ME WAS NOT ALLOWED TO BE SET OFF AGAINST NORMAL BUSINESS PROFITS. THUS , THE SPECULATION LOSS OF RS. 18,71,18,254/-, WAS NOT ALLOWED BY THE A.O. TO BE SET-OFF AGAINST THE PROFIT EARNED BY THE APPELLANT FROM THE DERIVATIVE TRADING THROUGH RECOGNISED EXCHANGES LIKE, MCX. 8.2 I HAVE NOTED THAT THE LOSS AMOUNTING TO RS. 18 ,71,18,2547- INCURRED BY THE APPELLANT ON NATIONAL MULTI -COMMODITY EXCHA NGE (NMCE), AHMEDABAD IS IN THE NATURE OF SPECULATIVE LOSS. IN THIS REGARD, IT IS PERTINENT TO REFER TO THE PROVISIONS OF SECTION 43( 5) OF THE ACT, WHICH ARE REPRODUCED AS UNDER;- (5) 'SPECULATIVE TRANSACTION' MEANS A TRANSACTION IN W HICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING ST OCKS 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 CONTRACT IN RESPECT OF RAW MATERIALS OR MERCHANDI SE ENTERED INTO BY , APERSON IN THE COURSE OF HIS MANUFACTURING OR MERCH ANTING BUSINESS TO AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATIONS IN R ESPECT OF HIS CONTRACTS FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY HIM OR 3IZI 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 OF THE SECURITIES CONTRA CTS (REGULATION) ACT, 1956 (42 OF 1956) CARRIED OUT IN A RECOGNISED STOCK EXCHANGE; [OR]] (E) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING I N COMMODITY DERIVATIVES' CARRIED OUT IN A RECOGNISED ASSOCIATION [, 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 IFOR THE PURPOSES OF[CLAUSE (D)], T HE EXPRESSIONS (I) 'ELIGIBLE TRANSACTION' MEANS ANY TRANSACTION, (A) CARRIED OUT ELECTRONICALLY ON SCREEN-BASED STE RNS THROUGH A STOCK BROKER OR SUB-BROKER OR SUCH OTHER INTERMEDIARY REG ISTERED UNDER SECTION 1? 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 EXCHAN GE BOARD OF INDIA ACT, 1992 (15 OF 1992) OR THE DEPOSITORIES ACT, 1996 (22 OF 1996) AND THE RULES, REGULATIONS OR BYE-LAWS MADE OR DIRECTIONS I SSUED UNDER THOSE ACTS OR BY BANKS OR MUTUAL FUNDS ON A RECOGNISED STOCK E XCHANGE; AND KUNAL GOVIND KATARIA 7 (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 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 SECUR ITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) AND WHICH FULFI LS SUCH CONDITIONS AS MAY BE PRESCRIBED AND NOTIFIED 34 BY THE CENTRAL GOVERNMENT FOR THIS PURPOSE;] [EXPLANATION 2FOR THE PURPOSES OF CLAUSE (E), THE EXPRESSIONS (I)'COMMODITY DERIVATIVE' SHALL HAVE THE MEANING AS ASSIGNED TO IT IN VII OF THE FINANCE ACT, 2013; (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, RULES 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 O R BYE-LAWS MADE OR DIRECTIONS ISSUED UNDER THAT ACT ON A RECOGNISED AS SOCIATION; 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 UNDER THE AC T, RULES, REGULATIONS OR BYE-LAWS REFERRED TO IN SUB-CLAUSE (A), UNIQUE TRAD E NUMBER AND PERMANENT ACCOUNT NUMBER ALLOTTED UNDER THIS ACT; (IN) 'RECOGNISED ASSOCIATION 1 ' MEANS A RECOGNISED ASSOCIATION AS REFERRED TO IN CLAUSE (J) OF SECTION 2 OF THE FORWARD CONTRA CTS (REGULATION) ACT, 1952 (74 OF 1952) AND WHICH FULFILS SUCH CONDITIONS AS MAY BE PRESCRIBED' AND IS NOTIFIED BY THE CENTRAL GOVERNME NT FOR THIS PURPOSE;] 8.3 THUS, 'SPECULATIVE TRANSACTION' IS A TRANSACTI ON IN WHICH THE CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY IS PERIOD ICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY. THUS , IN GENERAL THE DERIVATIVE TRANSACTIONS IN A COMMODITY FALLS UNDER THE CATEGORY OF 'SPECULATIVE TRANSACTIONS', AS THE DERIVATIVE TRANS ACTIONS ARE SETTLED WITHOUT TAKING DELIVERY OF ANY COMMODITY. THE EXCEP TIONS TO THIS GENERAL DEFINITION OF 'SPECULATIVE TRANSACTION' ARE CONTAIN ED IN THE PROVISO TO SECTION 43(5) FROM CLAUSE (A) TO (E) 8.4 FOR OUR PURPOSE, CLAUSE (E) UNDER PROVISO T O SECTION 43(5) IS RELEVANT, WHICH CLEARLY STATES THAT THE COMMODITY D ERIVATIVE TRANSACTIONS WILL BE DEEMED TO BE NON-SPECULATIVE, IF IT IS CARRIED OUT IN A RECOGNIZED ASSOCIATION AND CTT(COMMODITIES TRANSACTION TAX) HAS BEEN CHARG ED. THE RECOGNIZED ASSOCIATION FOR THE PURPOSE OF CLAUSE (E ) HAS BEEN DEFINED AS UNDER:- (III) 'RECOGNISED ASSOCIATION' MEANS A RECOGNISED A SSOCIATION AS REFERRED TO IN CLAUSE (J) OF SECTION 2 OF THE FORWARD CONTRA CTS (REGULATION) ACT, 1952 (74 OF 1952) AND WHICH FULFILS SUCH CONDITIONS AS MAY BE PRESCRIBED 7 ' AND IS NOTIFIED BY THE CENTRAL GOVERNMENT FOR THI S PURPOSE; KUNAL GOVIND KATARIA 8 8.5 AS PER THE ABOVE DEFINITION OF THE 'RECOGNISED ASSOCIATION 'NMCE (NATIONAL MULTI -COMMODITY EXCHANGE), AHMEDABAD, HA S NOT BEEN NOTIFIED BY THE CBDT FOR THE PURPOSES OF CLAUSE (E) OF THE PROVISO TO CLAUSE (5) OF THE SECTION 43 OF THE ACT AND HENCE I S NOT A RECOGNISED ASSOCIATION. 8.6 ON THE OTHER HAND, MCX IS A RECOGNISED ASSOCI ATION FOR THE PURPOSES OF CLAUSE (E) OF THE PROVISO TO CLAUSE (5) OF THE SECTION 43 OF THE ACT AND THE RELEVANT NOTIFICATION IN THIS REGARD IS REPRODUCED BELOW:- 'GOVERNMENT OF INDIA, MINISTRY OF FINANCE, DEPARTME NT OF REVENUE, CENTRAL BOARD OF DIRECT TAXES VIDE ITS NOTIFICATION NO. 92/2013 DATED 29 FH NOVEMBER 2013 HEREBY NOTIFIES THE MULTI COMMODITY E XCHANGE OF INDIA LIMITED, MUMBAI AS A RECOGNISED ASSOCIATION FOR THE PURPOSES OF CLAUSE (E) OF THE PROVISO TO CLAUSE (5) OF THE SECTION 43 OF THE INCOME TAX ACT, 1961 (43 OF 1961) READ WITH SUB-RULE (4) OF RULE 6D DD OF THE INCOME TAX RULES, 1962, WITH EFFECT FROM THE DATE OF PUBLICATI ON OF THIS NOTIFICATION IN THE OFFICIAL GAZETTE'. 8.7 IT MAY BE IMPORTANT TO NOTE THAT CLAUSE (E) O F THE PROVISO TO CLAUSE (5) OF THE SECTION 43 OF THE ACT HAS BEEN INSERTED BY THE FINANCE ACT, 2013 AND IS OPERATIONAL FROM 01.04.2014 AND HENCE I S APPLICABLE FOR THE CURRENT ASSESSMENT YEAR UNDER CONSIDERATION. 8.8 THUS, THE NET EFFECT OF THE AMENDMENT MADE IN THE ACT FROM THE A.Y. 2014-15 ONWARDS, IS THAT THOSE DERIVATIVE COMMODITY TRANSACTIONS, WHICH ARE CARRIED OUT ON A RECOGNIZED STOCK EXCHANGE WILL FALL IN THE CATEGORY OF NON-SPECULATIVE TRANSACTION IN VIEW OF THE DEEMING FICTION OF CLAUSE (E) OF THE PROVISO TO CLAUSE (5) OF THE SECTION 43 OF THE ACT. ON THE OTHER HAND, THE DERIVATIVE COMMODITY TRANSACTIONS CARRIED OUT I N AN UNRECOGNIZED STOCK EXCHANGE WILL FALL IN THE CATEGORY OF SPECULA TIVE TRANSACTION. 8.9 THUS, THE LOSS AMOUNTING TO RS. 18,71,18 F 254/- INCURRED BY THE APPELLANT ON NATIONAL MULTI -COMMODITY EXCHANGE (NM CE), AHMEDABAD IS SPECULATIVE IN NATURE. WHILE ON THE OTHER HAND, THE PROFIT EARNED BY THE APPELLANT ON MCX, A RECOGNISED EXCHANGE IS TO BE TR EATED AS NON- SPECULATIVE !. THUS, THE SPECULATIVE LOSS OF RS. 18 ,71,18,2547- CAN'T BE SET OFF E> NON-SPECULATIVE PROFIT EARNED BY THE APP ELLANT ON MCX. 8.10 ALSO, NO COMMODITIES TRANSACTION TAX (CTT) WAS PAYABLE TILL 01.07.2013 ON THE COMMODITY DERIVATIVES TRANSACTION S ON NMCE. THUS, ON THIS COUNT ALSO THE COMMODITY DERIVATIVES TRANSA CTIONS ON NMCE ARE TO BE TREATED AS SPECULATIVE IN NATURE IN VIEW OF P ROVISION OF SEC 43(5)(E) OF THE ACT. 8.11 IN THE LIGHT OF ABOVE DETAILED DISCUSSION, T HE LOSS INCURRED ON NMCE, AHMEDABAD AMOUNTING TO RS. 18,71,18,2547/- IS DISALLOWED BEING IN THE NATURE OF SPECULATION LOSS AND FURTHER , THE SAME CAN'T BE SET- OFF AGAINST PROFITS EARNED FROM NON-SPECULATIVE TRA NSACTIONS OF MCX. KUNAL GOVIND KATARIA 9 7. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE LD.CIT(A) HAS ERRED IN CONFIRMED ADDITIONS MADE BY THE LD. AO TOW ARDS DISALLOWANCES OF LOSS INCURRED FROM COMMODITY DERIV ATIVE TRADING AMOUNTING TO RS.18,71,18,254/- ON NMCE, AHMADABAD, WITHOUT PROPERLY CONSIDERING THE FACT THAT THE ASSESSEE IS CARRYING ON DERIVATIVE TRADING IN COMMODITIES AS EXCLUSIVE BUSI NESS ACTIVITY IRRESPECTIVE OF ANY EXCHANGE AND THUS, INCOME DERIV ED FROM SUCH ACTIVITY SHALL BE CONSIDERED ONE FOR THE PURPOSE OF TAXATION. THE LD. AR, FURTHER SUBMITTED THAT THE LD.CIT(A) FAILED TO FOLLOW THE DECISION OF JURISDICTION ITAT, MUMBAI IN ASSESSEE OWN CASE F OR AY 2012-13, WHERE THE TRIBUNAL CATEGORICALLY HELD THAT THE ASSE SSEES BUSINESS IS ONLY AND ONLY DERIVATIVE TRADING IN COMMODITY AND C ONSEQUENTLY, LOSS INCURRED OR PROFIT EARNED FROM COMMODITY DERIVATIVE TRADING SHOULD BE TREATED AS SPECULATIVE LOSS/PROFIT AND SHOULD BE ALLOWED TO SET OFF AGAINST EACH OTHER. THE LD. AR, REFERRING TO GAZETT E NOTIFICATION OF GOVT. OF INDIA, SUBMITTED THAT NMCE, AHMADABAD, IS A RECOGNIZED ASSOCIATION/EXCHANGE UNDER MINISTRY OF CONSUMER AFF AIRS, FOOD AND PUBLIC DISTRIBUTION U/S 5 OF THE FORWARD CONTRACTS (REGULATION) ACT, 1952. HE, FURTHER SUBMITTED THAT WHEN THE ASSOCIATI ON/EXCHANGE IS A RECOGNIZED BY GOVT. OF INDIA, MERELY BECAUSE IT WAS NOT NOTIFIED BY THE CBDT FOR THE PURPOSE OF SECTION 43(50(D) AND (E ) OF THE INCOME TAX ACT, 1961, THE TRADING ACTIVITY CARRIED OUT ON NMCE CANNOT BE CONSIDERED AS DIFFERENT FROM ACTIVITY CARRIED OUT O N MCX, MUMBAI, WHEN NATURE OF TRANSACTION IS ONE AND THE SAME. 8. THE LD. DR, ON THE OTHER HAND STRONGLY SUPPORT ING ORDER OF THE LD.CIT(A) SUBMITTED THAT AS PER THE AMENDED PROVISI ONS OF SECTION 43(5)(E) BY THE FINANCE ACT, 2013 W.E.F 01/04/2014 , WHICH IS APPLICABLE FOR AY 2014-15 ONWARDS, THE COMMODITY DE RIVATIVES KUNAL GOVIND KATARIA 10 TRADING HAS BEEN EXCLUDED FROM THE DEFINITION OF SP ECULATION LOSS OR PROFIT, PROVIDED THE TRADING IN DERIVATIVES SHOULD BE IN A RECOGNIZED EXCHANGE/ASSOCIATION AND THE TRANSACTIONS SHOULD SU FFER COMMODITY TRANSACTION TAX. IN THIS CASE, THE ASSESSEE IS TRAD ING IN MCX AND NMCE, AHMADABAD AND MCX IS A RECOGNIZED EXCHANGE FO R THE PURPOSE OF SECTION 43(5)(E) OF THE ACT. THEREFORE, THE LOSS OR PROFIT INCURRED FORM DERIVATIVE TRADING ON MCX IS A BUSINE SS PROFIT, WHEREAS LOSS OR PROFIT INCURRED FROM DERIVATIVE TR ADING ON NMCE, AHMADABAD IS SPECULATION LOSS OR PROFIT, BECAUSE TH E SAID ASSOCIATION IS NOT RECOGNIZED FOR THE PURPOSE OF SE CTION 43(5)(E) OF THE I.T.ACT, 1961. THE LD.CIT(A) AFTER CONSIDERING RELEVANT FACTS HAS RIGHTLY CONFIRMED ADDITIONS MADE BY THE LD. AO AND HIS ORDER SHOULD BE UPHELD. 9. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. THE FACTS BORNE OUT FROM THE RECORDS CLEARLY INDICATES THAT THE ASSESSEE IS ENGAGED IN ONE AND ONLY BUSINESS OF TRADING IN C OMMODITY DERIVATIVES IN DIFFERENT EXCHANGES AND SUCH PROFIT OR LOSS HAS BEEN TREATED AS ONE BUSINESS FOR THE PURPOSE OF TAXATION AND ACCORDINGLY, SET OFF LOSSES INCURRED FROM NMCE, AHMADABAD AGAINS T PROFIT DERIVED FROM MCX. THERE IS NO DISPUTE WITH REGARD TO FACT THAT THE ASSESSEE IS MEMBER OF TWO COMMODITY EXCHANGES I.E, MCX AND NMCE, AHMADABAD. THE ASSESSEE IS TRADING ON BOTH EX CHANGES IN COMMODITY DERIVATIVES. FURTHER, MCX, AS WELL AS NMC E, AHMADABAD, BOTH ARE RECOGNIZED STOCK EXCHANGES BY T HE MINISTRY OF CONSUMER AFFAIRS, FOOD AND PUBLIC DISTRIBUTION AS A RECOGNIZED ASSOCIATION/EXCHANGE U/S 5 OF THE FORWARD CONTRACTS (REGULATION) ACT, 1952. IN FACT, NMCE, AHMADABAD HAS BEEN RECOGN IZED BY WAY OF NOTIFICATION, DATED 10/01/2003 IN CONSULTATION W ITH THE FORWARD KUNAL GOVIND KATARIA 11 MARKET COMMISSION UNDER SECTION 5 OF THE FORWARD CO NTRACTS (REGULATION) ACT, 1952. SIMILARLY, MCX IS ALSO A RE COGNIZED ASSOCIATION UNDER SECTION 5 OF THE FORWARD CONTRACT S (REGULATION) ACT, 1952. THE ONLY DIFFERENCE IS MCX HAS BEEN NOTI FIED BY THE CBDT U/S 43(5)(D) OF THE I.T.ACT, 1961 W.E.F. AY 20 14-15, WHEREAS NMCE, AHMADABAD IS NOT NOTIFIED FOR THE PURPOSE OF SECTION 43(5)(E) OF THE I.T.ACT, 1961. OTHERWISE, BOTH ARE RECOGNIZE D ASSOCIATIONS/EXCHANGES FOR ONLINE TRADING IN COMMOD ITY DERIVATIVES. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT IT IS INCORRECT TO DIFFERENTIATE BUSINESS CARRIED OUT BY THE ASSESSEE IN COMMODITY DERIVATIVES ON TWO EXCHANGES ONLY FOR THE REASONS T HAT THE ONE EXCHANGE IS NOT NOTIFIED BY THE CBDT U/S 43(5)(E) O F THE ACT, MORE PARTICULARLY WHEN SAID EXCHANGE OR ASSOCIATION IS A RECOGNIZED ASSOCIATION U/S 5 OF THE FORWARD CONTRACTS (REGULAT ION) ACT, 1952. 10. WE, FURTHER NOTED THAT THE ASSESSEE IS CARRYING OUT ITS BUSINESS ON BOTH COMMODITY EXCHANGES ON COMMODITY DERIVATIVE S AND SUCH BUSINESS HAS BEEN TREATED AS ONE AND ONLY BUSINESS FOR THE PURPOSE OF TAXATION AND ACCORDINGLY PROFIT OR LOSS DERIVED FROM BOTH EXCHANGES HAS BEEN TREATED AS ONE BUSINESS BY NETTI NG OF PROFIT OR LOSS FOR THE PURPOSE OF TAXATION. WE, FURTHER, NOTE D THAT AS PER SECTION 28, EXPLANATION 2 OF THE I.T.ACT, 1961, WHE RE SPECULATIVE TRANSACTIONS CARRIED ON BY AN ASSESSEE ARE OF SUCH A NATURE AS TO CONSTITUTE A BUSINESS, THE BUSINESS SHALL BE DEEMED TO BE DISTINCT AND SEPARATE FROM ANY OTHER BUSINESS. SINCE, THE A PPELLANT IS DEALING IN COMMODITY DERIVATIVES TRADING THAT TOO O NE AND ONLY BUSINESS ACTIVITY, THE INCOME GENERATED THROUGH SAI D BUSINESS ON DIFFERENT STOCK EXCHANGES/ASSOCIATIONS NEEDS TO BE TREATED AS ONE AND ONLY BUSINESS AS PER SECTION 28 EXPLANATION (2) OF THE INCOME TAX ACT, 1961. THIS LEGAL POSITION IS SUPPORTED BY THE DECISION OF KUNAL GOVIND KATARIA 12 HONBLE BOMBAY HIGH COURT, IN THE CASE OF ITO VS KA MANI TUBES LTD. (1994) 207 ITR 271 (BOM), WHERE IT WAS HELD TH AT IN DECIDING THE CHARACTER OF TRANSACTIONS, WHAT IS IMPORTANT TO CONSIDER IS THE DISTINCTIVE CHARACTER TO SUCH TRANSACTIONS, BUT NOT THE PLATFORM IN WHICH SUCH TRANSACTIONS HAS BEEN CARRYOUT. FURTHER, THE PROVISIONS OF SECTION 43(5)(D) OF THE I.T.ACT, 1961 IS NOT APP LICABLE TO COMMODITIES DERIVATIVE TRADING, IF SUCH TRANSACTION S ARE NOT CARRIED OUT IN A RECOGNIZED STOCK EXCHANGE/ASSOCIATION AND ALSO, THE SAME ARE NOT SUFFERED TO COMMODITY TRANSACTION TAX. BUT, AS PER THE AMENDED PROVISIONS OF SECTION 43(5)(E) W.E.F. 01/04 /2014, THE COMMODITY DERIVATIVE TRANSACTIONS ARE EXCLUDED FROM THE DEFINITION OF SPECULATIVE TRANSACTIONS, IF SUCH TRANSACTIONS ARE CARRIED OUT IN A RECOGNIZED ASSOCIATION AND WHICH IS CHARGEABLE TO C OMMODITY TRANSACTION TAX UNDER CHAPTER VIII OF THE COMMODITI ES ACT, AND SUCH TRANSACTIONS SHALL NOT BE DEEMED TO BE SPECULATIVE TRANSACTIONS. THEREFORE, FROM THE ABOVE, IT IS VERY CLEAR THAT AN Y TRANSACTIONS CARRIED OUT IN COMMODITY DERIVATIVES ON ANY ASSOCIA TION/EXCHANGE ARE SPECULATIVE TRANSACTIONS. BUT, A BENEFIT HAS BE EN GIVEN TO EXCLUDE THOSE TRANSACTIONS FROM THE DEFINITION OF S PECULATION TRANSACTIONS, IF SUCH TRANSACTIONS ARE CARRIED OUT IN RECOGNIZED ASSOCIATIONS/EXCHANGES AND WHICH ARE SUFFERED COMMO DITY TRANSACTIONS TAX. FROM THE ABOVE, IT IS VERY CLEAR THAT, BASICALLY ANY TRADING ACTIVITY CARRIED OUT IN ANY ASSOCIATION ON ONLINE TRADING IN COMMODITY DERIVATIVES IS IN THE NATURE OF SPECULATI ON TRANSACTIONS AND THE SAME CANNOT BE DIFFERENTIATED, ON THE BASIS OF RECOGNIZAITON OR NON-RECOGNIZAITON OF A PARTICULAR ASSOCIATION/EX CHANGES, MORE PARTICULARLY WHEN THE ASSESSEE IS ENGAGED IN ONE AN D ONLY BUSINESS OF TRADING IN DERIVATIVES ON DIFFERENT ASSOCIATIONS /EXCHANGES. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE L D. AO, AS WELL AS THE LD.CIT(A) WAS COMPLETELY ERRED IN TREATING INCO ME/LOSS EARNED KUNAL GOVIND KATARIA 13 FROM DIFFERENT ASSOCIATIONS/EXCHANGES FOR THE PURPO SE OF TAXATION, WHEN THE ASSESSEE HAS DONE A COMPOSITE BUSINESS OF TRADING IN DERIVATIVES IN MULTIPLE COMMODITY EXCHANGES. HENCE, WE ARE OF THE CONSIDERED VIEW THAT THE LOSS INCURRED BY THE ASSES SEE FROM TRADING IN COMMODITY DERIVATIVES ON NMCE, AHMADABAD IS A SP ECULATIVE LOSS, WHICH IS ELIGIBLE FOR SET OFF AGAINST PROFIT EARNED FROM COMMODITY DERIVATIVES ON MCX, WHICH IS ALSO A SPECU LATIVE PROFIT FOR THE PURPOSE OF TAXATION. 11. FURTHER, ASSUMING, BUT NOT ACCEPTING THE FACT T HAT BUSINESS CARRIED OUT BY THE ASSESSEE IN DERIVATIVE TRADING O N TWO EXCHANGES IS SEPARATE, BECAUSE OF RECOGNITION OF MCX BY THE C BDT AND NON RECOGNITION OF NMCE, AHMADABAD FOR THE PURPOSE OF S ECTION 43(5)(E) OF THE INCOME TAX ACT, 1961, BUT STILL LOS S INCURRED FROM DERIVATIVES TRADING ON NMCE, AHMADABAD CAN BE SET O FF AGAINST PROFIT EARNED FROM MCX, BECAUSE BOTH ASSOCIATION/ E XCHANGE ARE RECOGNIZED EXCHANGES AND NOTIFIED BY THE MINISTRY O F CONSUMER AFFAIRS, FOOD AND PUBLIC DISTRIBUTION AS A RECOGNIZ ED ASSOCIATION/EXCHANGE U/S 5 OF THE FORWARD CONTRACTS (REGULATION) ACT, 1952. IN FACT, NMCE, AHMADABAD HAS BEEN RECOGN IZED BY WAY OF NOTIFICATION, DATED 10/01/2003 IN CONSULTATION W ITH THE FORWARD MARKET COMMISSION UNDER SECTION 5 OF THE FORWARD CO NTRACTS (REGULATION) ACT, 1952. SIMILARLY, MCX IS ALSO A RE COGNIZED ASSOCIATION UNDER SECTION 5 OF THE FORWARD CONTRACT S (REGULATION) ACT, 1952. THEREFORE, ONCE ANY ASSOCIATION IS RECOG NIZED FROM GOVT. OF INDIA, THEN ANY TRADING ACTIVITY CARRIED OUT THE REIN IS OUTSIDE THE PURVIEW OF SECTION 43(5)9E) OF THE ACT. HENCE, LOSS INCURRED FROM DERIVATIVES TRADING ON NMCE, CANNOT BE CONSIDERED A S DIFFERENT FROM PROFIT EARNED FROM MCX ONLY ON THE BASIS OF NOTIFIC ATION ISSUED BY THE CBDT FOR THE PURPOSE OF SECTION 43(5)(D) OF THE ACT, BECAUSE THE KUNAL GOVIND KATARIA 14 LAW REQUIRES RECOGNITION OF ASSOCIATION/EXCHANGE FR OM GOVT. OF INDIA, BUT IT DOES NOT SPECIFICALLY REQUIRES NOTIFICATION FROM CBDT U/S 43(5) OF THE INCOME TAX ACT, 1961. WE, THEREFORE, ARE OF THE CONSIDERED VIEW THAT NMCE, AHMADABAD IS A RECOGNIZED ASSOCIATI ON LIKE MCX, MUMBAI AND PROFIT OR LOSS INCURRED FROM BOTH EXCHAN GES IS A BUSINESS PROFIT AND CONSEQUENTLY, ANY LOSS INCURRED FROM ONE EXCHANGE CAN BE SET OFF AGAINST PROFIT EARNED FROM ANOTHER EXCHANGE. 12. COMING TO CASE LAWS RELIED UPON BY THE ASSESSE E. THE ASSESSEE HAS RELIED UPON BY THE DECISION OF ITAT, M UMBAI IN ITS OWN CASE FOR AY 2012-13 IN ITA NO.5179/MUM/2016. WE FIN D THAT THE TRIBUNAL HAS CONSIDERED AN IDENTICAL ISSUE, IN LIGH T OF RECOGNIZED ASSOCIATION AND NON-RECOGNIZED ASSOCIATION FOR THE PURPOSE OF SECTION 43(5)(E) OF THE ACT AND AFTER CONSIDERING R ELEVANT FACTS HAS CAME TO THE CONCLUSION THAT THE ASSESEE IS ENGAGED IN EXCLUSIVE BUSINESS OF DERIVATIVE TRADING ON MULTIPLE COMMODIT Y EXCHANGES AND THE TRANSACTIONS ENTERED IN DERIVATIVES ON VARIOUS EXCHANGES IS HIS ONE AND ONLY BUSINESS ACTIVITY, WHETHER CONSIDERED AS SPECULATIVE OR NON SPECULATIVE, AS PER SECTION 43(5)(E) OF THE ACT AND SAID PROFIT OR LOSS SHOULD BE ALLOWED TO BE SET OFF AGAINST EAC H OTHER. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER:- 6. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSE E HAS STARTED HIS BUSINESS ACTIVITY OF DERIVATIVE TRADING IN COMMODIT Y ONLY AND HE HAS NOT DONE ANY ACTIVITY OF DERIVATIVE TRADING IN SECURITI ES AND EQUITY. WE ARE OF THE VIEW THAT THE DERIVATIVE TRADING IN COMMODITY I S TO BE CONSIDERED AS ONE BUSINESS AND THE NET INCOME FROM THE SAME SHOUL D BE ASSESSED AS BUSINESS INCOME OF SPECULATION BUSINESS, SINCE SECTION 43(5) DOES NOT EXCLUDE COMMODITY TRADING DURING THE YEAR. WE FIND FROM THE FACTS OF THE CASE THAT THE ASSESSEE IS MEMBER OF MCX AND HE HAS TO CARRY OUT TRANSACTION ON ANOTHER EXCHANGE BECAUSE ON MCX THER E WAS NO VOLUME IN COMMODITY LIKE COPER, CRUDE OIL, SILVER ETC. AND ALSO THERE WAS DIFFERENCE IN LOT SIZE OF THE COMMODITY IN LEAD, GO LD ETC. FURTHER IN MCX KUNAL GOVIND KATARIA 15 EXCHANGE, SOME TIME, THE TRADING LIMIT EXHAUSTED AN D HENCE HE HAS TO APPROACH OTHER BROKERS OF OTHER EXCHANGE TO CONTINU E THE ACTIVITY. WE FIND FROM THE FACTS OF THE CASE THAT THE ASSESSEE O N ICEX EXCHANGE EARNED PROFIT IN LEAD AND GOLD COMMODITY AND INCURR ED LOSS IN IRON ORE. THUS, THE OBSERVATIONS OF THE AO THAT THE TRANSACTI ONS CARRIED OUT IN THE LAST TWO MONTHS OF THE YEAR HAS NO RELEVANCE TO THE BUSINESS ACTIVITY OF DERIVATIVE TRADING IS OF NO SUBSTANCE. THE COMMODIT Y TRANSACTIONS ARE NOT COVERED BY SECTION 43(5)(D) OF THE ACT. CLAUSE (D) OF SECTION 43(5) IS RELATING TO TRANSACTIONS IN RESPECT OF THE TRADING IN DERIVATIVES REFERRED TO IN CLAUSE (AC) OF SECTION 2 OF SECURITIES CONTROL (REGULATION) ACT.1956. CLAUSE (AC) OF SECTION 2 OF SECURITIES CONTROL (REGULATION) ACT,1956 DEFINED AS UNDER: (A) A SECURITY DERIVED FRONT A DEBT INSTRUMENT, SHA RE, LOAN, WHETHER SECURED OR UNSECURED, RISK INSTRUMENT OR CONTRACT F OR DIFFERENCE OR ANY OTHER FORM OF SECURITY. ITA NO . 51 7 9/ MU M/ 20 1 6 (B) A CONTRACT WHICH DERIVES ITS VALUE FROM THE PRICES, OR INDEX OF PRICES, OF UNDERLYING SECUR ITIES. FROM THE ABOVE DEFINITION IT IS CLEAR THAT COMMODIT Y DERIVATIVE TRADING IS NOT COVERED BY SECURITIES CONTROL (REGULATION) ACT , 1956 AND THEREFORE THE PROVISION APPLIED BY THE AO IS AGAINST THE FACT S OF THE CASE. 7. EVEN THE BOARD CIRCULAR NO. 3 OF 2006 DATED 27-1 2-2006 HAS EXPLAINED THE SCOPE AND EFFECT OF AMMENDMENT WITH EFFECT FROM 01-06- 2006 MADE IN SECTION 43(5) BY THE FINANCE ACT 2005, WHICH HAVE BEEN ELABORATED IN THE FOLLOWING PORTION OF DEPARTMENTAL CIRCULAR: - '3.10 EXCLUDING 'TRADING IN DERIVATIVES' ON RECOGNI SED STOCK EXCHANGES FROM THE AMBIT OF 'SPECULATIVE TRANSACTIONS' EXISTI NG PROVISIONS OF CLAUSE (5) OF SECTION 43 DEFINE 'SPECULATIVE TRANSACTION' TO MEAN A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY CO MMODITY INCLUDING STOCKS AND SHARES IS SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS. THE PROVISO TO SECTION 43(5) LISTS OUT CERTAIN TRANSACTIONS WHICH ARE NOT DEEMED TO BE SPE CULATIVE TRANSACTIONS. SYSTEMIC AND TECHNOLOGICAL CHANGES INTRODUCED BY SE BI HAVE RESULTED IN SUFFICIENT TRANSPARENCY IN THE STOCK MARKETS AND HA VE TO A LARGE EXTENT CURBED THE SCOPE FOR GENERATING FICTITIOUS LOSSES T HROUGH ARTIFICIAL TRANSACTIONS OR SHIFTING OF INCIDENCE OF LOSS FROM ONE PERSON TO ANOTHER. THE SCREEN BASED COMPUTERIZED TRADING PROVIDES FOR AUDIT TRAIL. IN THE WAKE OF THESE DEVELOPMENTS, THE PRESENT DISTINCTION BETWEEN SPECULATIVE AND NON-SPECULATIVE ITA NO . 51 7 9/ MU M/ 20 1 6 T RANSACTIONS, IN RESPECT OF TRADING IN DERIVATIVES OF SECURITIES IS LOSING RELEVANCE. THE FINANCE ACT , 2005 HAS, ACCORDINGLY, AMENDED SECTION 43(5) TO PROVIDE THAT AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIVATIVES OF SECURITIES CARRIED OUT ON A RECOGNISED STOCK EXCHAN GE SHALL NOT BE DEEMED AS SPECULATIVE TRANSACTION. THE NOTIFICATION PRESCRIBING THE RULES AND THE CONDITIONS TO BE FULFILLED BY A STOCK EXCHA NGE TO BE RECOGNIZED BY THE CENTRAL GOVERNMENT FOR THE PURPOSES OF SECTION 43(5) [I.E., RULES 6DDA AND 6DDB OF THE INCOME-TAX RULES, 1962] HAS BE EN PUBLISHED IN THE OFFICIAL GAZETTE ON 1ST JULY, 2005 VIDE S. O. N O. 932(E). APPLICABILITY: FROM A.Y. 2006-07 ONWARDS.' 8. BUT, THE PROVISO TO CLAUSE (E) TAKES OUT THE DEF INITION OF SPECULATIVE TRANSACTION W.E.F 01.04.2014 BY INSERTING THE PROVI SO BY FINANCE ACT , 2013, WHICH WE WILL DISCUSS IN THE NEXT PARAGRAPH. KUNAL GOVIND KATARIA 16 9. ALTERNATIVE ARGUMENT MADE BY ASSESSEE IS THAT CO MMODITY TRANSACTION ARE COVERED BY PROVISO (E) OF SECTION 43(5) OF THE ACT, WHICH HAS BEEN ADDED BY FINANCE ACT , 2013 WITH EFFECT FRONT 01.04.2014 APPLICABLE FOR & FROM AY 2014-2015. HENCE THE TRANSACTIONS OF DERIVA TIVE TRADING IN COMMODITY ARE SPECULATION TRANSACTIONS AS PROVIDED BY SECTION 43(5) OF THE ACT AND THEREFORE THE TRANSACTIONS CARRIED OUT BY NSE, BSE, MCX, ICEX OR ANY OTHER EXCHANGES ARE ON SAME FOOTING AND SHALL BE ADJUSTED AGAINST EACH OTHER AS WHOSE TRANSACTIONS IRRESPECTI VE OF ANY EXCHANGE ARE SPECULATIVE TRANSACTIONS. THE ABOVE VIEW IS ALS O SUPPORT BY THE JUDICIAL DECISION OF THE COORDINATE BENCH OF THIS T RIBUNAL IN CASE OF VARSHA CORP. LTD VS DCIT IN APPEAL NO.6534/MUM/2010 FOR AY 2009- 2010. THE TRIBUNAL IN PARA 8 AND 9 OF THE ORDER HAS MADE INTE RPRETATION ITA NO . 51 7 9/ MU M/ 20 1 6 AND DISCUSSED THE FACTS AND AFTER INTERPRETING THE VARIOUS DECISIONS AS MENTIONED IN THE ORDER FINALLY HELD THAT THE BENEFIT OF CLAUSE (E) OF THE PROVISO TO SECTION 43(5) OF THE ACT, CANNOT BE ENTITLED THE ASSESSEE FOR THE TRANSACTIONS CARRIED OUT PRIOR TO ASSESSMENT YEAR 2014- 2015 AND ACCORDINGLY THE APPEAL FILED BY THE ASSESS EE WAS DISMISSED. 10. NOW WE HAVE TO DISCUSS THE PROVISION OF SECTION 43(5) OF THE ACT WITH ALL ITS PROVISION TO UNDERSTAND THE ASSESSEE'S CASE . THE RELEVANT PROVISION READS AS UNDER: - SECTION 43(5) ...... SPECULATIVE TRANSACTION MEANS A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHER WISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPTS. (A) A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCH ANDISE ENTERED INTO BY A PERSON IN THE COURSE OF HIS MANUFACTURING OR MERC HANTING BUSINESS TO GUARD AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATION S IN RESPECT OF HIS CONTRACTS FOR ACTUAL DELIVERS 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 HIC HOLDI NG OF STOCKS AND SHARE 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 AN TRANSACTION IN THE NAT URE OF JOBBING OR ARBITRAGE TO GUARD AGAINST LOSS WHICH MAY ARISE IN THE ORDINARY COURSE OF HIS BUSINESS AS SUCH MEMBER; OR ITA NO . 51 7 9/ MU M/ 20 1 6 (D) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING I N DERIVATIVES REFERRED TO IN CLAUSE L(AC) AT SECTION 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT,1956 (42 OF 1956) CARRIED OUT IN A RECOGNIZED STOCK EXCH ANGE; OR (E) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING I N COMMODITY DERIVATIVES CARRIED OUT IN A RECOGNIZED ASSOCIATION WHICH IS CH ARGEABLE TO COMMODITIES TRANSACTION TAX UNDER CHAPTER VII OF TH E FINANCE ACT, 2013 (17 OF 2013), I SHALL NOT BE DEEMED TO BE A SPECULA TIVE TRANSACTION. FROM THE PLAIN READING OF THIS PROVISION, WE OBSERV ED THAT THIS CLAUSE (D) WAS ADDED WITH EFFECT FROM 01.04.2006 WHICH IS RELA TED TO THE TRANSACTION COVERED UNDER SECURITIES CONTRACT (REGULATION) ACT . 1956 AND CLAUSE (E) WAS INSERTED FOR TRADING IN COMMODITY DERIVATIVES W ITH EFFECT FROM 01.04.2014. IN VIEW OF THIS POSITION, WE ARE OF THE VIEW THAT THE COMMODITY DERIVATIVES TRANSACTIONS ARE SPECULATIVE TRANSACTIONS AND THE ASSESSEE'S BUSINESS IS ONLY AND ONLY DERIVATIVES TR ADING IN COMMODITY, THE LOSS INCURRED OR PROFIT EARNED SHOULD BE SPECUL ATIVE LOSS / PROFIT AND SHOULD BE ALLOWED TO SET OFF AGAINST EACH OTHER. KUNAL GOVIND KATARIA 17 11. IN VIEW OF THE ABOVE POSITION OF LAW, WE ARE OF THE VIEW THAT IN THE GIVEN FACTS OF THE CASE THAT THE ASSESSEE IS EXCLUS IVELY CARRYING ON BUSINESS OF DERIVATIVE TRADING ON VARIOUS EXCHANGES AND THE TRANSACTION ENTERED INTO DERIVATIVE ON VARIOUS EXCHANGES IS HIS BUSINESS ACTIVITY WHETHER CONSIDERED AS SPECULATIVE OR NON SPECULATIV E TRANSACTION AS PER SECTION 43(5) , THE DERIVATIVE TRANSACTIONS ARE NOT SPECULATIVE TRANSACTION, IN VIEW OF THE FACT THAT THE DERIVATIV E TRANSACTION IS NOT SUPPORTED OR BACKED BY DELIVERABLE COMMODITY. THE A SSESSEE IS NOT CLAIMING ANY SPECIAL DEDUCTION UNDER SECTION 43(5)(D) OF THE ACT FOR TREATING THE PROFIT AS BUSINESS PROFIT. THE NATURE OF ACTIVITY IS CARRIED THROUGHOUT THE YEAR BY ITA NO . 51 7 9/ MU M/ 20 1 6 THE ASSESSEE IS ONE AND ONLY ONE TO TRADE IN DERIVATIVES ON VARIOUS EXC HANGES AND EARNED PROFIT OR INCOME WHICH INCLUDES LOSS. IN SUCH FACTS , WE ARE OF THE OPINION THAT THE ASSESSEE IS ELIGIBLE FOR SET OFF OF THIS L OSS AGAINST THE PROFIT. WE REVERSE THE ORDERS OF THE LOWER AUTHORITIES AND ALL OW THE CLAIM OF THE ASSESSEE. THIS ISSUE OF ASSESSEE'S APPEAL IS ALLOWE D. 13. IN THIS VIEW OF THE MATTER AND CONSISTENT WIT H VIEW TAKEN BY THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 201 2-13, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE IS ENGAGED IN ONE AND ONLY BUSINESS OF DERIVATIVE TRADING IN DIFFERENT COMMODI TY EXCHANGES AND SUCH BUSINESS NEEDS TO BE CONSIDERED AS ONE BUSINES S FOR THE PURPOSE OF TAXATION AND ANY PROFIT OR LOSS DERIVED FROM DIFFERENT EXCHANGES SHALL BE AGGREGATED BY ALLOWING LOSSES TO BE SET OFF. THE LD. AO AND LD.CIT(A) WITHOUT APPRECIATING THESE FAC TS HAS DISALLOWED LOSS INCURRED FORM DERIVATIVE TRADING ON NMCE, AHMADABAD AS SPECULATION LOSS AGAINST PROFIT EARNED FROM DERIVATIVE TRADING IN MCX BY HOLDING THAT PROFIT EARNED FROM M CX IS NOT SPECULATIVE PROFIT. HENCE, WE DIRECT THE LD. AO TO DELETE ADDITIONS MADE TOWARDS DISALLOWANCES OF LOSS INCURRED FROM NM CE, AHMADABAD AND ALLOWED SAID LOSS TO BE SET OFF AGAIN ST PROFIT DERIVED FROM DERIVATIVE TRADING ON MCX. 14. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. KUNAL GOVIND KATARIA 18 II) ITA NO. 4026/MUM/2018 & ITA NO.4027/MUM/2018 15. THE REVENUE HAS RAISED MORE OR LESS COMMON GR OUNDS OF APPEAL FOR BOTH ASSESSMENT YEARS. THEREFORE, FOR TH E SAKE OF BREVITY, GROUNDS OF APPEAL FILED FOR AY 2009-10 ARE REPRODUC ED AS UNDER:- 1. 'WHETHER ON FACTS AND IN CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) WAS RIGHT IN ALLOWING THE SPECULATIVE LOSS INCURRED FRO M DERIVATIVE COMMODITY TRADING THROUGH NMCE, AN UNRECOGNIZED EXCHANGE AND ALLOWING TO BE SET OFF AGAINST BUSINESS PROFITS WITHOUT APPRECIATING T HE FACT THAT THE ASSESSEE'S CASE EXCLUSIVELY FALL UNDER EXPLANATION TO SECTION 73OF THE I.T.ACT. 1961'. 2. 'WHETHER ON FACTS AND IN CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS ERRED IN ALLOWING THE SPECULATION LOSS OF RS. 76,38 ,044/- AGAINST NON SPECULATION GAINS WHICH IS PROHIBITED BY THE PROVIS IONS OF SECTION 73 OF THE I.T. ACT, 1961'. 16. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE M ATERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT THE LD.CIT (A) HAS DELETED ADDITIONS MADE BY T HE LD. AO TOWARDS DISALLOWANCES OF LOSS INCURRED FROM DERIVAT IVE TRADING ON NMCE, AHMADABAD, ON THE GROUND THAT SAID LOSS IS SP ECULATIVE LOSS AND SAME CAN BE SET OFF OF AGAINST PROFIT EARNED FR OM COMMODITY DERIVATIVES ON MCX, WHICH IS ALSO SPECULATION IN NA TURE. THE LD.CIT(A), WHILE DELETING ADDITIONS MADE BY THE LD. AO HAS TAKEN SUPPORT FROM DECISION OF ITAT IN ASSESSEE OWN CASE FOR AY 2012-13, WHERE THE TRIBUNAL HAS HELD THAT THE ASSESSEE IS EN GAGED IN ONE AND ONLY BUSINESS OF TRADING IN COMMODITY DERIVATIV ES ON DIFFERENT EXCHANGES/ASSOCIATIONS AND SAID BUSINESS NEEDS TO B E CONSIDERED AS ONE BUSINESS FOR THE PURPOSE OF TAXATION AND ANY PROFIT OR LOSS EARNED FROM DIFFERENT EXCHANGES NEEDS TO BE AGGREGA TED. THE RELEVANT FINDINGS OF THE LD.CIT(A) ARE AS UNDER;- KUNAL GOVIND KATARIA 19 13.0 I HAVE CONSIDERED THE FACTS OF THE CASE, SUB MISSIONS OF THE APPELLANT, THE OBSERVATIONS OF THE AO CONTAINED IN THE ASSESSMENT ORDER AND THE OTHER MATERIALS ON RECORD ON THIS ISSUE. 13.1 THE AO HAS DISALLOWED AN AMOUNT OF RS.76,38, 044/-, BEING LOSS INCURRED FROM DERIVATIVE COMMODITY TRADING THROUGH NMCE, AN UNRECOGNISED EXCHANGE, CONSIDERING THE SAME AS SPEC ULATIVE LOSS AND THE SAME WAS NOT ALLOWED TO BE SET OFF AGAINST BUSI NESS PROFITS. THUS, THE SPECULATION LOSS OF RS.76,38,044/- WAS NOT ALLOWED TO BE SET-OFF AGAINST THE PROFIT OF RS.65,49,180/- EARNED BY THE APPELLAN T FROM THE DERIVATIVE COMMODITY TRADING THROUGH RECOGNISED EXCHANGES LIKE , MCX. 13.2 I HAVE NOTED THAT A SIMILAR ISSUE HAS ARISE N BEFORE THE HON'BLE ITAT, MUMBAI FOR THE A.Y. 2012-13 IN THE CASE OF TH E APPELLANT IN ITA NO. 5179/MUM/2016. THE HON'BLE ITAT, MUMBAI 'I' BENCH H AS DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT, VIDE ORDER DATED 23.02.2018.THE HON'BLE ITAT HAS IN THE SAID JUDGMENT DEALT WITH ALL THE OB JECTIONS RAISED BY THE A.O. IN THE ASSESSMENT ORDER, IN GREAT DETAILS. THU S, THE RELEVANT PORTION OF THE SAID JUDGMENT BEING IMPORTANT IS REPRODUCED HEREUNDER:- '6. WE HAVE HEARD RIVAL CONTENTIONS AND GONE T HROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSES SEE HAS STARTED HIS BUSINESS ACTIVITY OF DERIVATIVE TRADING IN COMMODIT Y ONLY AND HE HAS NOT DONE ANY ACTIVITY OF DERIVATIVE TRADING IN SECURITI ES AND EQUITY. WE ARE OF THE VIEW THAT DERIVATIVE TRADING IN COMMODITY IS TO BE CONSIDERED AS ONE BUSINESS AND THE NET INCOME FROM THE SAME SHOULD BE ASSESSED AS BUSINESS INCOME OF SPECULATION BUSINESS, SINCE SECT ION 43(5) DOES NOT EXCLUDE COMMODITY TRADING DURING THE YEAR. WE FIND FROM THE FACTS OF THE CASE THAT THE ASSESSEE IS MEMBER OF MCX AND HE HAS TO CARRY OUT TRANSACTION ON ANOTHER EXCHANGE BECAUSE ON MCX THER E WAS NO VOLUME IN COMMODITY LIKE COPPER, CRUDE OIL, SILVER ETC. AN D ALSO THERE WAS DIFFERENCE IN LOT SIZE OF THE COMMODITY IN LEAD, GO LD ETC. FURTHER IN MCX EXCHANGE, SOME TIME, THE TRADING LIMIT EXHAUSTED AN D HENCE HE HAS TO APPROACH OTHER BROKERS OF OTHER EXCHANGE TO CONTINU E THE ACTIVITY. WE FIND FROM THE FACTS OF THE CASE THAT THE ASSESSEE O N ICEX EXCHANGE EARNED PROFIT IN LEAD AND GOLD COMMODITY AND INCURR ED LOSS IN IRON ORE. THUS, THE OBSERVATIONS OF THE AO THAT THE TRANSACTI ONS CARRIED OUT IN THE LAST TWO MONTHS OF THE YEAR HAS NO RELEVANCE TO THE BUSINESS ACTIVITY OF DERIVATIVE TRADING IS OF NO SUBSTANCE. THE COMMODIT Y TRANSACTIONS ARE NOT COVERED BY SECTION 43(5)(D) OF THE ACT. CLAUSE (D) OF SECTION 43(5) IS RELATING TO TRANSACTIONS IN RESPECT OF THE TRADING IN DERIVATIVES REFERRED TO IN CLAUSE (AC) OF SECTION 2 OF SECURITIES CONTROL ( REGULATION) ACT 1956. CLAUSE (AC) OF SECTION 2 OF SECURITIES CONTROL (REG ULATION) ACT, 1956 DEFINED AS UNDER: (A) A SECURITY DERIVED FRONT A DEBT INSTRUMENT, SH ARE, LOAN, WHETHER SECURED OR UNSECURED, RISK INSTRUMENT OR CONTRACT F OR DIFFERENCE OR ANY OTHER FORM OF SECURITY. (B) A CONTRACT WHICH DERIVES ITS VALUE FROM THE PR ICES, OR INDEX OF PRICES, OF UNDERLYING SECURITIES. FROM THE ABOVE DEFINITION IT IS CLEAR THAT COMMODIT Y DERIVATIVE TRADING IS NOT COVERED BY SECURITIES CONTROL (REGULATION) ACT, 1956 AND THEREFORE THE PROVISION APPLIED BY THE AO IS AGAINST THE FACT S OF THE CASE. KUNAL GOVIND KATARIA 20 7. EVEN THE BOARD CIRCULAR NO.3 OF 2006 DATED 27.12.2006 HAS EXPLAINED THE SCOPE AND EFFECT OF AMENDMENT WITH EF FECT FROM 01-06- MADE IN SECTION 43(5) BY THE FINANCE ACT 2005, WHIC H HAVE BEEN ELABORATED IN THE FOLLOWING PORTION OF DEPARTMENTAL CIRCULAR:- '3.10 EXCLUDING 'TRADING IN DERIVATIVES' ON RE COGNISED STOCK EXCHANGES FROM THE AMBIT OF SPECULATIVE TRANSACTIONS'. EXISTING PROVISIONS OF CLAUSE (5) OF SECTION 43 DEF INE 'SPECULATIVE TRANSACTION' TO MEAN A TRANSACTION IN WHICH A CONTR ACT FOR THE PURCHASE OR SALE OF ANY COMMODITY INCLUDING STOCKS AND SHARES I S SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMM ODITY OR SCRIPS. THE PROVISO TO SECTION 43(5) LISTS OUT CERTAIN TRANSACT IONS WHICH ARE NOT DEEMED TO BE SPECULATIVE TRANSACTIONS. SYSTEMIC AND TECHNOLOGICAL CHANGES INTRODUCED BY SE BI HAVE RESULTED IN SUFFICIENT TRANSPARENCY IN THE STOCK MARKETS AND HA VE TO A LARGE EXTENT CURBED THE SCOPE FOR GENERATING FICTITIOUS LOSSES T HROUGH ARTIFICIAL TRANSACTIONS OR SHIFTING OF INCIDENCE OF LOSS FROM ONE PERSON TO ANOTHER. THE SCREEN BASED COMPUTERIZED TRADING PROVIDES FOR AUDIT TRAIL. IN THE WAKE OF THESE DEVELOPMENTS, THE PRESENT DISTINCTION BETWEEN SPECULATIVE AND NON-SPECULATIVE TRANSACTIONS, IN RESPECT OF TRA DING IN DERIVATIVES OF SECURITIES IS LOSING RELEVANCE. THE FINANCE ACT, 2005 HAS, ACCORDINGLY, AMENDED SEC TION 43(5) TO PROVIDE THAT AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIVATIVES OF SECURITIES CARRIED OUT ON A RECOGNISED STOCK EXCHAN GE SHALL NOT BE DEEMED AS SPECULATIVE TRANSACTION. THE NOTIFICATION PRESCRIBING THE RULES AND THE CONDITIONS TO BE FULFILLED BY A STOCK EXCHA NGE TO BE RECOGNIZED BY THE CENTRAL GOVERNMENT FOR THE PURPOSES OF SECTION 43(5) [I.E., RULES 6DDA AND 6DDB OF THE INCOME-TAX RULES, 1962] HAS BE EN PUBLISHED IN THE OFFICIAL GAZETTE ON 1 S ' JULY, 2005 VIDE S.O. NO.932(E). APPLICABILITY: FROM A.Y. 2006-07 ONWARDS.' 8. BUT, THE PROVISO TO CLAUSE (E) TAKES OUT THE D EFINITION OF SPECULATIVE TRANSACTION W.E.F 01.04.2014 BY INSERTING THE PROVI SO BY FINANCE ACT, 2013, WHICH WE WILL DISCUSS IN THE NEXT PARAGRAPH. 9. BUT, THE PROVISO TO CLAUSE (E) TAKES OUT THE DEF INITION OF SPECULATIVE TRANSACTION W.E.F 01.04.2014 BY INSERTING THE PROVI SO (E) OF SECTION 43(5) OF THE ACT, WHICH HAS BEEN ADDED BY FINANCE ACT, 20 13 WITH EFFECT FROM 01.04.2014 APPLICABLE FOR & FROM AY 2014-15. HENCE THE TRANSACTIONS OF DERIVATIVE TRADING IN COMMODITY ARE SPECULATION TRA NSACTIONS AS PROVIDED BY SECTION 43(5) OF THE ACT AND THEREFORE THE TRANS ACTIONS CARRIED OUT BY NSE, BSE, MCX, ICEX OR ANY OTHER EXCHANGES ARE ON S AME FOOTING AND SHALL BE ADJUSTED AGAINST EACH OTHER AS WHOSE TRANS ACTIONS IRRESPECTIVE OF ANY EXCHANGE ARE SPECULATIVE TRANSACTIONS. THE A BOVE VIEW IS ALSO SUPPORT BY THE JUDICIAL DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF VARSHA CORP. LTD. VS. DCIT IN APPEAL NO.653 4/MUM/201 0 FOR AY 2009-1 0. THE TRIBUNAL IN PARA 8 AND 9 OF THE ORDER HAS MADE INTERPRETATION AND DISCUSSED THE FACTS AND AFTER IN TERPRETING THE VARIOUS DECISIONS AS MENTIONED IN THE ORDER FINALLY HELD TH AT THE BENEFIT OF CLAUSE KUNAL GOVIND KATARIA 21 (E) OF THE PROVISO TO SECTION 43(5) OF THE ACT, CAN NOT BE ENTITLED THE ASSESSEE FOR THE TRANSACTIONS CARRIED OUT PRIOR TO ASSESSMENT YEAR 2014- 15 AND ACCORDINGLY THE APPEAL FILED BY THE ASSESSEE WAS DISMISSED. 10. NOW WE HAVE TO DISCUSS THE PROVISO OF SECTION 4 3(5) OF THE ACT WITH ALL ITS PROVISION TO UNDERSTAND THE ASSESSEE'S CASE. TH E RELEVANT PROVISION READS AS UNDER:- SECTION 43(5) ..... SPECULATIVE TRANSACTION MEANS A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHER WISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPTS. (A) A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCH ANDISE ENTERED INTO BY A PERSON IN THE COURSE OF HIS MANUFACTURING OR MERC HANTING BUSINESS TO GUARD AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATION S IN RESPECT OF HIS CONTRACTS FOR ACTUAL DELIVERS 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 THE HOLDI NG OF STOCKS AND SHARE 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 AN 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 IN DERIVATIVES REFERRED TO IN CLAUSE L(AC) AT SECTION 2 OF THE SECURITIES CONT RACTS (REGULATION) ACT, 1956 (42 OF 1956) CARRIED OUT IN A RECOGNIZED STOCK EXCHANGE; OR (E) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING I N COMMODITY DERIVATIVES CARRIED OUT IN A RECOGNIZED ASSOCIATION WHICH IS CH ARGEABLE TO COMMODITIES TRANSACTION TAX UNDER CHAPTER VII OF TH E FINANCE ACT, 2013 (17 OF 2013), I SHALL NOT BE DEEMED TO BE A SPECULA TIVE TRANSACTION. FROM THE PLAIN READING OF THIS PROVISION, WE OBSERV ED THAT THIS CLAUSE (D) WAS ADDED WITH EFFECT FROM 01.04.2006 WHICH IS RELA TED TO THE TRANSACTION COVERED UNDER SECURITIES CONTRACT (REGULATION) ACT 1956 AND CLAUSE (E) WAS INSERTED FOR TRADING IN COMMODITY DERIVATIVES W ITH EFFECT FROM 01.04.2014. IN VIEW OF MS POSITION, WE ARE OF THE V IEW THAT THE COMMODITY DERIVATIVES TRANSACTIONS ARE SPECULATIVE TRANSACTIO NS AND THE ASSESSEE'S BUSINESS IS ONLY AND ONLY DERIVATIVES TRADING IN CO MMODITY, THE LOSS INCURRED OR PROFIT EARNED SHOULD BE SPECULATIVE LOS S/PROFIT AND SHOULD BE ALLOWED TO SET OFF AGAINST EACH OTHER. 11. IN VIEW OF THE ABOVE POSITION OF LAW, WE AR E OF THE VIEW THAT IN THE GIVEN FACTS OF THE CASE THAT THE ASSESSES IS EXCLUS IVELY CARRYING ON BUSINESS OF DERIVATIVE TRADING ON VARIOUS EXCHANGES AND THE TRANSACTION ENTERED INTO DERIVATIVE ON VARIOUS EXCHANGES IS HIS BUSINESS ACTIVITY WHETHER CONSIDERED AS SPECULATIVE OR NON SPECULATIV E TRANSACTION AS PER SECTION 43(5, THE DERIVATIVE TRANSACTIONS A RE NOT SPECULATIVE TRANSACTION, IN VIEW OF THE FACT THAT THE DERIVATIV E TRANSACTION IS NOT SUPPORTED OR BACKED BY DELIVERABLE COMMODITY. TH E ASSESSEE IS NOT CLAIMING ANY SPECIAL DEDUCTION UNDER SECTION 43(5)( D) OF THE ACT FOR TREATING THE PROFIT AS BUSINESS PROFIT. THE NATUR E OF ACTIVITY IS CARRIED KUNAL GOVIND KATARIA 22 THROUGHOUT THE YEAR BY THE ASSESSEE IS ONE AND ONLY ONE TO TRADE IN DERIVATIVES ON VARIOUS EXCHANGES AND EARNED PROFIT WHICH INCLUDES LOSS. IN SUCH FACTS, WE ARE OF THE OPINION THAT THE ASSES SEE IS ELIGIBLE FOR SET - OFF OF THIS LOSS AGAINST THE PROFIT. WE REVERSE T HE ORDERS OF THE LOWER AUTHORITIES AND ALLOW THE CLAIM OF THE ASSESSEE. T HIS ISSUE OF ASSESSEE'S APPEAL IS ALLOWED.' 13.3 I HAVE NOTED THAT THE FACTS AND CIRCUMSTAN CES FOR THE CURRENT YEAR UNDER CONSIDERATION ARE EXACTLY THE SAME AS IN A.Y. 2012-13. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HON'BLE ITAT, MUMBAI IN THE APPELLANT'S OWN CASE ON THIS ISSUE, THE ADDITION MA DE BY THE A.O. ON THIS ISSUE IS DELETED. 17. FACTS REMAIN UNCHANGED. THE REVENUE HAS FAILS TO BRING ON RECORD ANY EVIDENCES TO CONTROVERT THE FINDINGS OF FACTS RECORDED BY THE LD.CIT(A), IN LIGHT OF THE DECISION OF ITAT IN ASSESSEES OWN CASE FOR AY 2012-13. WE, FURTHER NOTED THAT THE COM MODITY DERIVATIVES TRANSACTIONS ARE NOT EXCLUDED FROM THE DEFINITION OF SPECULATIVE TRANSACTIONS UNDER THE PROVISIONS OF SE CTION 43(5) OF THE I.T.ACT, 1961 BEFORE AY 2014-15 AND HENCE, ALL TRAN SACTIONS IN COMMODITY DERIVATIVES IN ANY EXCHANGES ARE SPECULAT IVE TRANSACTIONS AND CONSEQUENT PROFIT OR LOSS EARNED T HERE FROM IS A SPECULATIVE PROFIT AND ACCORDINGLY, LOSS OR PROFIT FROM DIFFERENT EXCHANGES NEEDS TO BE SET OFF AGAINST EACH OTHER. WE, THEREFORE ARE OF THE OPINION THAT THERE IS NO ERROR IN THE FINDIN GS RECORDED BY THE LD.CIT(A), WHILE DELETING ADDITIONS MADE TOWARDS DI SALLOWANCES OF LOSS INCURRED FROM COMMODITY DERIVATIVES ON NMCE, A HMADABAD AND HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS T HE LD.CIT(A) AND DISMISSED APPEAL FILED BY THE REVENUE FOR AY 2009-1 0 AND 2011-12. 18. IN THE RESULT, APPEAL FILED BY THE ASSESSEE FOR AY 2014-15 IS ALLOWED AND APPEALS FILED BY THE REVENUE FOR AY 2009-10 AND 2011-12 ARE DISMISSED. KUNAL GOVIND KATARIA 23 19. BEFORE PARTING, WE SHALL DEAL WITH PROCEDURAL A SPECT OF PROUNCEMENT OF ORDER AS PRESCRIBED UNDER RULE 34(4) OF INCOME TAX (APPELLATE TRIBUNAL) RULES 1963. AS PER RULE 34(4), NO ORDER SHALL BE PRONOUNCED AFTER EXPIRY OF 90 DAYS FROM THE DATE OF HEARING. THIS APPEAL WAS HEARD ON 02/03/2020 AND ORDINARILY, THE ORDER SHALL BE PRONOUNCED ON OR BEFORE 31/05/2020. BUT, THIS ORDER COULD NOT BE PRONOUNCED ON OR BEFORE 31/05/2020, DUE TO THE FACT THAT THE GOVT. OF INDIA HAS IMPOSED NATIONWIDE LOCKDOWN FROM 25/03 /2020 AND THE SAME HAS BEEN EXTENDED TIME TO TIME UP TO 31/05/202 0 AND BECAUSE OF THIS, THE OFFICE WAS CLOSED UP TO 22/05/2020. FU RTHER, IF THE ABOVE LOCKDOWN PERIOD IS EXCLUDED FOR THE PURPOSE OF LIMI TATION, THEN THIS ORDER CAN BE PRONOUNCED ON OR BEFORE 27/07/2020. FU RTHER, WHETHER LOCKDOWN PERIOD CAN BE EXCLUDED OR NOT HAS BEEN EXH AUSTIVELY DEALT BY THE CO-ORDINATE BENCH OF ITAT, MUMBAI, IN THE CA SE OF DCIT VS JSW LIMITED, IN ITA NO. 6264/MUM/2018, DATED 14/05/ 2020, WHERE IT WAS HELD THAT DUE TO CORONA VIRUS PANDEMIC, THE PERIOD OF LIMITATION AUTOMATICALLY GETS EXTENDS TILL SUCH PERIOD THE LOC KDOWN IS IN FORCE. WE, THEREFORE, ARE OF THE OPINION THAT CONSIDERING THE PREVAILING SITUATION AND ALSO, BY RESPECTFULLY FOLLOWING THE D ECISION OF CO- ORDINATE BENCH IN THE CASE OF DCIT VS. JSW LIMITED (SUPRA), THE ORDER PRONOUNCED IN THE MONTH OF JULY 2020, IS WELL WITHIN THE TIME ALLOWED UNDER RULE 34(4) OF INCOME TAX (APPELLATE T RIBUNAL) RULES 1963. THIS ORDER IS PRONOUNCED AS PER RULE 34(4) OF INCOM E TAX (APPELLATE) TRIBUNAL RULES, 1963, BY NOTICE TO PART IES ON THIS 24/07/2020 KUNAL GOVIND KATARIA 24 SD/- (RAVISH SOOD) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 24/07/2020 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//