GANDIV INVESTMENT P. LTD, MUMBAI V. ACIT 15(2), MUMBAI

ITA 4238/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7165 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 12-03-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 16-06-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Speculation loss; Futures and options; Speculative transactions

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI. BEFORE SHRI J. SUDHAKAR REDDY,A.M. AND SMT.P.MADHA VI DEVI, J.M. I.T.A. NO. 4 238/MUM/2008. ASSESSMENT YEAR : 2005-06. GANDIV INVESTMENT P. LTD. ASSTT. COMMISSIONER P.S. PRABHUDESAI & CO., C.AS., VS. OF INCOME TAX, 604, GANPATI DARSHAN, 15(2), MUMBAI. CHOGLE NAGAR, SAVARPADA, NEAR SHANI MANDIR, BORIVALI (E), MUMBAI 400 066. PAN : AACCG3017C APPELLANT RESPONDENT APPELLANT BY : SHRI VISHWAS MEHENDALE. RESPONDENT BY : SHRI MOHD. USMAN. O R D E R PER J. SUDHAKAR REDDY, A.M. THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS)-XV, MUMBAI DATED 10 TH APRIL, 2008 ON THE FOLLOWING GROUNDS : 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW IN HOLDING THAT THE LOSS OF RS.1,28,61,829/- ON ACCOUN T OF DEALINGS IN DERIVATE INSTRUMENTS (LOSS ON /FUTURES AND OPTIONS) WAS LOSS ARISING FROM SPECULATIVE TRANSACTIONS. 2. WITHOUT PREJUDICE TO THE AFORESAID, THE LEARNED CIT (APPEALS) OUGHT TO HAVE HELD THAT THE LOSS OF RS.1,28,61,829/- ON A CCOUNT OF DEALINGS IN DERIVATE INSTRUMENT (LOSS ON FUTURE AND OPTIONS) SHOULD BE SET OFF AGAINST THE PROFIT OF RS.58,84,452/- ARISING FROM T HE BUSINESS OF PURCHASE AND SALE OF SHARES. 3. THE LEARNED CIT(APPEALS) ERRED IN REFERRING THE ISS UE AS TO WHETHER THE PROFIT OF RS.58,84,452/- EARNED IN REFERRING TH E ISSUE AS TO 2 WHETHER THE PROFIT OF RS.58,84,452/- EARNED FROM TH E BUSINESS OF PURCHASE AND SALE OF SHARES WAS COVERED BY THE EXPL ANATION TO SECTION73 AND IF SO WHETHER THE LOSS OF RS.1,28,61, 829/- ON ACCOUNT OF DEALINGS IN DERIVATIVE INSTRUMENTS (LOSS ON FUTU RES AND OPTIONS) COULD BE SET OFF AGAINST THE PROFIT OF RS.58,84,452 /- ARISING FROM THE BUSINESS OF PURCHASE AND SALE OF SHARES. 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW IN NOT ALLOWING CARRY FORWARD OF SPECULATION LOSS OF R S.69,90,877/- OR RS.1,28,61,829/- AS THE CASE MAY BE. 5. EACH OF THE ABOVE GROUNDS OF APPEAL ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. 6. THE APPELLANT CRAVES LIBERTY TO ADD, TO ALTER AND/O R AMEND ANY OF THE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. 2. THE ASSESSEE IS A COMPANY AND IS A DEALER IN SH ARES AND DERIVATIVE INSTRUMENTS. THE ISSUE ARISING IN THIS A PPEAL IS WHETHER THE LOSS ON ACCOUNT OF DEALING IN DERIVATIVE INSTRUMENTS IS A SPECULATION LOSS OR NOT AND IF SO WHETHER THE SAME CAN BE SET OFF AGAINST T HE SPECULATIVE LOSS THAT AROSE ON PURCHASE AND SALE OF SHARES. 3. WE HAVE HEARD MR. VISHWAS MEHENDALE, LEARNED CO UNSEL FOR THE ASSESSEE AND MR. MOHD. USMAN, THE LEARNED DR. 4. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIR CUMSTANCES OF THE CASE AND ON A PERUSAL OF THE PAPERS ON RECORD A ND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITED, W E HOLD AS FOLLOWS : 5. AS FAR AS GROUND NO. 1 IS CONCERNED, BOTH THE P ARTIES SUBMITTED THAT THE ISSUE STANDS COVERED AGAINST THE AESSESSE BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF SHREE CAPITAL SERVICES LTD. VS. ACIT REPORTED IN 121 ITD 498 (KOL ) (S.B.). RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT THE L OSS ARISING ON ACCOUNT OF DEALING IN DERIVATIVE INSTRUMENTS WAS LOSS ARISI NG FROM SPECULATIVE TRANSACTION. 3 6. IN THE RESULT, GROUND NO. 1 OF THE ASSESSEE IS DISMISSED. 7. COMING TO GROUND NO. 2 AND 3, THE FIRST APPELLA TE AUTHORITY AT PARA 5.1 OBSERVED AS FOLLOWS : 5.1 I HAVE CONSIDERED THE CLAIM OF THE APPELLANT. I FIND THAT THIS ISSUE WAS NOT DEALT IN THE ASSESSMENT ORDER. IT WAS NOT CLEAR AS TO WHETHER THIS ISSUE WAS AT ALL RAISED BEFORE THE AO. FURTHER, I ALSO FIND FROM THE COMPUTATION OF TOTAL INCOME FILED ALO NGWITH THE RETURN THAT THE APPELLANT DID NOT SPECIFICALLY CLAI M THE INCOME FROM PURCHASE & SLE OF SHARE AS SPECULATIVE INCOME AFTER APPLYING THE PROVISION OF EXPLANATION 1 TO SEC. 73. THIS ISSUE W AS REFERRED BACK TO AO IN REMAND REPORT. IN HIS REMAND REPORT DTD. 2 3.01.2008 THOUGH THE AO DEALT THIS ISSUE BUT NOT WITH CLARITY . THE FINDING OF AO IN THE REMAND REPORT SUFFERS FROM AMBIGUITY AND OBSCURITY. THE AO IS REQUIRED TO LOOK INTO THE PROVISIONS OF EXPLA NATION 1 TO SEC. 73 AND DECIDE AS TO WHETHER PROFIT FROM PURCHASE AN D SALE OF SHARE IS SPECULATION PROFIT OR NOT. IF THAT ISSUE IS DECI DED, THE NEXT QUESTION WILL ARISE REGARDING SETTING OFF THE SPECU LATION LOSS AT RS.1,2861,829/-. THE AO HAS TO TAKE LEGAL DECISION ON THESE ON THESE POINTS. UNDER THE CIRCUMSTANCES, I HAVE GOT N O OTHER OPTION LEFT TO DIRECT THE AO TO CONSIDER THE CLAIM OF THE APPELLANT AS PER THE PROVISION OF LAW ON THIS POINT. HENCE, THE APPE AL IS ALLOWED FOR STATISTICAL PURPOSE SUBJECT TO THE LEGAL FINDING TO BE GIVEN BY THE AO. 8. IN OUR HUMBLE OPINION, THE CIT(APPEALS) HAS COM MITTED AN ERROR IN NOT ALLOWING THE CLAIM OF THE ASSESSEE. WE DIRECT THE AO TO SET OFF THE SPECULATION LOSS AGAINST SPECULATION PROFIT ARISING OUT OF PURCHASE AND SALE OF SHARES. 9. IN THE RESULT, GROUND NO. 2 AND 3 ARE ALLOWED. 10. GROUND NO. 4 IS AN ALTERNATIVE CLAIM AND THE A O IS DIRECTED TO ALLOW CARRY FORWARD OF UNABSORBED SPECULATION LO SS IN ACCORDANCE WITH LAW. THIS GROUND IS ALSO ALLOWED. 4 11. GROUND NO. 5 AND 6 ARE GENERAL IN NATURE AND D O NOT REQUIRE ANY ADJUDICATION. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED IN PART. ORDER PRONOUNCED ON THIS 30 TH DAY OF MARCH, 2010. SD/- SD/- (P.MADHAVI DEVI) (J. SUDHAKAR REDDY) JUDICIAL MEMBER. ACCOUNTANT MEMBER. MUMBAI, DATED : 30 TH MARCH, 2010. COPY FORWARDED TO : 1. APPELLANT. 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, G-BENCH. (TRUE COPY) BY ORDER ASSTT. 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