D.C.I.T. CIRCLE 3(3), MUMBAI V. R.T. EXPORTS LTD., MUMBAI

ITA 4468/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92557 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 21-01-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 02-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR
• Assessee Lawyers: ASHIT MEHTA
• Keywords: Depreciation; Business expenditure; Rule of consistency; Speculation loss; Bad and doubtful debts; Revised return; Unabsorbed depreciation
• Section: 143(3); 115JB; 43(5); 139(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D , MUMBAI BEFORE SHRI R.C. SHARMA , ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 4468 /M/2012 ASSESSMENT YEAR: 2007 - 08 ASSTT. COMMISSIONER OF INCOME - TAX, CIRCLE - 3(3), ROOM NO.609, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 VS. M/S. R.T. EXPORT S LTD. , 508, DALAMAL HOUSE, J.B. ROAD, NARIMAN POINT, MUMBAI 400 0 21 PAN: AAAC R3524M (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI V IJAY MEHTA & ASHIT MEHTA, A.R. REVENUE BY : SHRI LOVE KUMAR , D.R. DATE OF HEARING : 2 9 .04. 201 5 DATE OF PRONOUNCEMENT : 15.05. 2015 O R D E R PER VIJAY PAL RAO , JUDICIAL MEMBER: THIS APPEAL BY THE REVENUE IS DIRECTED AGA INST THE ORDER DATED 22 .0 2 .201 2 OF THE CIT(A) FOR THE ASSESSMENT YEAR 2007 - 08. THE REVENUE H AS RAISED THE FOLLOWING GROUNDS OF APPEAL: ' 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT (A) ERRED IN DELETING THE ADDITION OF 59, 095/ - , MADE ON ACCOUNT OF DISALLOWANCE OF STT PAYMENT, ON THE BASIS OF REVISED RETURN FILED BY THE ASSESSEE, WITHOUT APPRECIATING THAT THE REVISED RETURN WAS FILED BY THE ASSESSEE BEYOND THE TIME LIMIT PRESCRIBED U/S. 139(5) AS SUCH THE R EVISED RETURN FILE D IS INVALID. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. ITA NO.4468/M/2012 M/S. R.T. EXPORTS LTD. 2 CIT (A) ERRED IN DELETING THE ADDITION OF 28,500/ - , MADE ON ACCOUNT OF DISALLOWANCE OF EXCESS DONATION PAID, ON THE BASIS OF REVISED RETURN FILED BY THE ASSESSEE, WITHOU T APPRECIATING THAT THE REVISED RETURN WAS FILED BY THE ASSESSEE BEYOND THE TIME LIMIT PRESCRIBED U/S. 139(5) AS SUCH THE REVISED RETURN FILED IS INVALID. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT (A) ER RED IN DELETING TH E ADDITION OF 3,50,481/ - , MADE ON ACCOUNT OF DISALLOWANCE OF BAD DEBTS CLAIMED, FOLLOWING THE DECISION OF HON'BLE APEX COURT IN THE CASE OF TRF LIMITED ( CIVIL APPEAL NO. 5293 OF 2003), WITHOUT APPRECIATING THAT THE DECISION RELIED UPON IS NOT RELEVANT TO THE FACTS OF THE CASE AS ON THE BASIS OF EVIDENCE FURNISHED AT THE TIME OF ASSESSMENT PROCEEDINGS THE LOSS CLAIMED WAS CAPITAL IN NATURE. WITHOUT PREJUDICE TO THE ABOVE THE BAD DEBT CLAIMED CANNOT BE ALLOWED AS IT IS APPROVED ON 30 - 0 4 - 2007 AS SUCH IT IS PR EMATURE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT (A) ERRED IN HOLDING THAT LOSS ON COMMODITY FUTURES OF 13,95,241/ - IS A SPECULATION LOSS COVERED UNDER THE PROVISIONS OF SEC.43(5)(D) INSTEAD OF BUSINESS LOSS, AS HELD B Y THE AO, WITHOUT APPRECIATING THAT THE TRANSACTIONS RELATING TO LOSS ON COMMODITIES DERIVATIVE TRADING WERE NOT CARRIED OUT THROUGH RECOGNIZED STOCK EXCHANGE AS ENVISAGED IN CLAUSE (D) OF SEC.43(5). 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN JAW, THE ID. CIT (A) ERRED IN HOLDING THAT THE AO WAS NOT JUSTIFIED IN MAKING ADJUSTMENTS FOR COMPUTING BOOK PROFIT U/S.11 5JB IN RESPECT OF BAD DEBTS DISALLOWED OF 3,50,481/ - . 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CI T (A) ERRED IN DELETING THE ADDITION OF 11,69,603/ - MADE BY WAY OF DISALLOWANCE OF DEPRECIATION AND BOAT EXPENSES, WITHOUT APPRECIATING THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE FAILED TO FURNISH ANY EVIDENCE TO SHOW THAT THE EXPENSES INCUR RED FOR THE PURPOSE OF BUSINESS AND AS SUCH THE SAME IS RIGHTL Y TREATED AS PERSONAL EXPENSES. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT (A) ERRED IN HOLDING THAT THE LOSS OF 1,5064439/ - ON SHARE TRADING ITA NO.4468/M/2012 M/S. R.T. EXPORTS LTD. 3 BE TREATED AS BUSI NESS LOSS INSTEAD OF SPECULATION LOSS AS HELD BY THE AO WITHOUT APPRECIATING THAT THE ASSESSEE'S CASE DOES NOT FALL IN ANY OF THE EXCEPTIONS PROVIDED IN EXPLANATION TO SEC.73. THEREFORE, THE DECISION OF MUMBAI HIGH COURT IN THE CASE OF DARSHAN SECURITIES P VT. LTD. [ITA NO.2886 OF 2009 DATED 02.02.2012], RELIED UPON BY THE LD CIT (A), IS NOT RELEVANT TO THE FACTS OF THE ASSESSEE'S CASE.' 2. GROUND NO.1 IS REGARDING THE DISALLOWANCE OF STT PAID BY THE ASSESSEE. THE ASSESSEE HAS FILED A REVISED RETURN AND C LAIMED THE DEDUCTION OF CORRECT AMOUNT OF STT PAID BY THE ASSESSEE IN THE REVISED RETURN OF INCOME. THE ASSESSING OFFICER (AO) HAS REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE REVISED RETURN FILED BY THE ASSESSEE IS BEYOND THE TIME LIMIT PRES CRIBE D UNDER SECTION 139(5). ON APPEAL, THE LD. CIT(A) HAS ACCEPTED THE CORRECT AMOUNT OF STT AS GIVEN BY THE ASSESSEE IN THE REVISED RETURN OF INCOME AND THEREFORE GIVEN THE RELIEF TO THE ASSESSEE TO THE TUNE OF RS. 59,095/ - . 3. WE HAVE HEARD THE LD. D .R. AS WELL AS THE LD. A.R. AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE AO HAS DISALLOWED THE RELIEF TO THE ASSESSEE ONLY ON THE TECHNICAL GROUND OF DELAY IN FILING THE REVISED RETURN. IT IS PERTINENT TO NOTE THAT THE AO HAS TO ASSESS THE CORRECT INCOME OF THE ASSESSEE ON THE BASIS OF THE PROVISIONS OF THE ACT AND IN CASE IF THE ASSESSEE INADVERTENTLY HAS OFFERED THE HIGHER INCOME THE SAME CANNOT BE TAXED BY TAKING THE EXCUSE OF TECHNICALITIES. EVEN OTHERWISE THERE IS NO RESTRICTION ON THE JURISD ICTION AND THE POWER OF APPELLATE AUTHORITY TO CONSIDER A FRESH PLEA IN VIEW OF THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. VS. CIT [1998] 229 ITR 383 (SC) . ACCORDINGLY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF LD. CIT(A) IN ALLOWING THE CORRECT AMOUNT OF STT CLAIMED BY THE ASSESSEE IN THE REVISED RETURN OF INCOME. ITA NO.4468/M/2012 M/S. R.T. EXPORTS LTD. 4 4. GROUND NO.2 IS REGARDING THE DISALLOWANCE OF EXCESS DONATION PAID ON THE BASIS OF REVISED RETURN. WE HAVE HEARD THE LD. D.R. AS WE LL AS THE LD. A.R. AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE AO HAS DISALLOWED THE CLAIM OF DONATION PAID BY THE ASSESSEE ON THE GROUND THAT THE REVISED RETURN FILED BY THE ASSESSEE IS BEYOND THE TIME LIMIT PRESCRIBED UNDER SECTION 139(5). THE LD. CIT(A) HAS ACCEPTED THE CLAIM OF THE ASSESSEE. SINCE ON MERITS THE AO HAS NOT DISPUTED THE CLAIM OF THE ASSESSEE, THEREFORE WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE LD. CIT(A) IN ALLOWING THE CORRECT FIGURE OF DONATION PAID BY THE AS SESSEE IN VIEW OF OUR FINDING ON GROUND NO.1. 3. GROUND NO.3 IS REGARDING THE DISALLOWANCE OF BAD DEBTS. THE ASSESSEE CLAIMED AS WRITTEN OFF THE BAD DEBTS TO THE TUNE OF RS.3,50,481/ - . THE AO HAS DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THA T THE AMOUNT IS CAPITAL IN NATURE AND FURTHER THE BOARD OF DIRECTORS OF THE ASSESSEE HAS APPROVED THE BAD DEBTS ON 30.04.07 WHICH IS SUBSEQUENT TO THE CLOSURE OF THE FINANCIAL YEAR UNDER CONSIDERATION. ON APPEAL, THE LD. CIT(A) HAS HELD THAT THE BAD DEBTS WERE ON ACCOUNT OF REVENUE AND NOT CAPITAL IN NATURE AND FURTHER BY FOLLOWING THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF T . R . F . LTD. VS. CIT [2010] 323 ITR 397 (SC) ALLOWED THE CLAIM OF THE ASSESSEE. 4. WE HAVE HEARD THE LD. D.R. AS WELL A S THE LD. A.R. AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. D.R. HAS REFERRED THE RELEVANT FINDING OF THE AO AND SUBMITTED THAT THE BOARD OF DIRECTORS OF THE ASSESSEE HAS APPROVED THE BAD DEBTS IN THE MEETING HELD ON 30.04.07, THEREFORE THE RES OLUTION IS SUBSEQUENT TO THE FINANCIAL YEAR CLOSED ON 31.03.07. WE FURTHER NOTE THAT THE AMOUNT OF BAD DEBT S WRITTEN OFF REPRESENTS THE LOAN IN THE ORDINARY COURSE OF BUSINESS OF MONEY LENDING WHICH IS CARRIED ON BY THE ASSESSEE, THEREFORE WHEN THE INTERE ST ON THE SAID AMOUNT IS OFFERED TO TAX, THEN IN VIEW OF THE JUDGMENT ITA NO.4468/M/2012 M/S. R.T. EXPORTS LTD. 5 OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SHREYAS S. MORAKHIA [2012] 342 ITR 285 (BOM) THE SAME IS ALLOWABLE AS BUSINESS LOSS. ACCORDINGLY, WE DO NOT FIND ANY MERITS IN THE GROUNDS RAISED BY THE REVENUE WHEN THE BAD DEBTS WERE ACTUALLY WRITTEN OFF BY THE ASSESSEE BEING UNRECOVERABLE AND IT IS REGARDING THE ADVANCE GIVEN BY THE ASSESSEE IN THE BUSINESS OF MONEY LENDING. 5. GROUND NO.4 IS REGARDING THE DISALLOWANCE OF LOSS OF COMMODITY FUTURES BY TREATING AS SPECULATION LOSS. WE HAVE HEARD THE LD. D.R. AS WELL AS THE LD. A.R. AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. A.R. OF THE ASSESSEE HAS FAIRLY CON CE DED THAT THIS GROUND IS COVERED AGAINST THE ASS ESSEE BY THE DECISION OF THIS TRIBUNAL DATED 17.01.14 IN THE CASE OF VA RSHA CORPORATION LTD. VS. DCIT IN ITA NO.6534/M/2012. HOWEVER, THE LD. A.R. HAS SUBMITTED THAT THE QUANTIFICATION OF THE AMOUNT OF LOSS IS REQUIRED TO BE VERIFIED BECAUSE ON THE SAME PRINCIPLE SOME INCOME OF THE ASSESSEE WILL ALSO BE TREATED AS SPECULATION INCOME. AT THE OUTSET, WE FIND THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF VARSHA CORPORATION LTD. (SUPRA) IN PARA 11 TO 13 AS UNDER: 11. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE SUBMISSIONS ADVANCED AT THE HANDS OF THE LEARNED COUNSEL FOR THE ASSESSEE AS WELL AS LEARNED DR FOR THE DEPARTMENT. ADMITTEDLY, MCX, THROUGH WHICH THE ASSESSEE HAS CARRIED OUT THE TRANSACTIO NS, IS NOT A RECOGNIZED STOCK EXCHANGE AS REQUIRED UNDER THE PROVISIONS OF SECTION 43(5)(D) OF THE ACT. AS IT CAN BE SEEN FROM THE ABOVEMENTIONED NOTIFICATION DATED 29 11 - 2013, WHICH HAS BEEN RELIED UPON BY THE LEARNED AR, WHICH HAS ALSO BEEN REPRODUCED IN THE ABOVE PART OF THIS ORDER, THE MCX, THROUGH WHICH THE ASSESSEE HAS CARRIED OUT THE TRANSACTIONS, IS NOTIFIED AS A 'RECOGNIZED ASSOCIATION' FOR THE PURPOSES OF CLAUSE (E) OF PROVISO TO CLAUSE 5 OF SECTION 43 OF THE ACT. CLAUSE (E) OF PROVISO TO SUB - SECT ION (5) OF SECTION 43 HAS RECENTLY BEEN INSERTED BY THE FINANCE ACT, 2013 W.E.F. 1ST APRIL, 2014, WHICH READS AS UNDER : - '(E) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN COMMODITY DERIVATIVES CARRIED OUT IN A RECOGNIZED ASSOCIATION, SHALL NOT BE DEEM ED TO BE A SPECULATIVE TRANSACTION.' ITA NO.4468/M/2012 M/S. R.T. EXPORTS LTD. 6 THEREFORE, THE EXEMPTION TO THE TRANSACTIONS GIVEN BY THE STATUTE IS W.E.F. 1 - 4 - 2014 AND THIS IS INSERTED BY THE FINANCE ACT, 2013. IN PURSUANCE OF THE AMENDMENT, NOTIFICATION NO.51, DATED 4 - 7 - 2013 HAS BEEN ISSUED BY TH E CBDT, VIDE WHICH RULE 6DDD IS INSERTED IN THE INCOME TAX RULES. THE SAID NOTIFICATION READ AS UNDER : - INCOME - TAX (NINTH AMENDMENT) RULES, 2013 - INSERTION OF RULES 6DDC, 6DDD AND FORM NO. 3BC NOTIFICATION NO.51/2013 [F. NO. 142114/ 2013 - TPLJ/S0 2017(E), DAT ED 4 - 7 - 2013 IN EXERCISE OF THE POWERS CONFERRED BY CLAUSE (E) OF THE PROVISO TO CLAUSE (5) OF SECTION 43 READ WITH SECTION 295 OF THE INCOME - TAX ACT, 1961 (43 OF 1961), THE CENTRAL BOARD OF DIRECT TAXES HEREBY MAKES THE FOLLOWING RULES FURTHER TO AMEND TH E INCOME - TAX RULES, 1962, NAMELY: - 1. (1) THESE RULES MAY BE CALLED THE INCOME - TAX (9TH AMENDMENT) RULES, 2013. (2) THEY SHALL COME INTO FORCE ON THE DATE OF THEIR PUBLICATION IN THE OFFICIAL GAZETTE. 2. IN THE INCOME - TAX RULES, 1962, IN PART II, IN SUB - PA RT C, AFTER RULE 6DDB, THE FOLLOWING RULES SHALL BE INSERTED, NAMELY : - '6DDC. CONDITIONS THAT A RECOGNIZED ASSOCIATION IS REQUIRED TO FULFILL TO BE NOTIFIED AS A RECOGNIZED ASSOCIATION FOR THE PURPOSES OF CLAUSE (E) OF THE PROVISO TO CLAUSE (5) OF SECTION 43. - FOR THE PURPOSES OF CLAUSE (E) OF THE PROVISO TO CLAUSE (5) OF SECTION 43, A RECOGNIZED ASSOCIATION SHALL FULFILL THE FOLLOWING CONDITIONS IN RESPECT OF TRADING IN DERIVATIVES, NAMELY: - (I) THE RECOGNIZED ASSOCIATION SHALL HAVE THE APPROVAL OF THE F ORWARD MARKETS COMMISSION ESTABLISHED UNDER THE FORWARD CONTRACTS (REGULATION) ACT, 1952 (74 OF 1952) IN RESPECT OF TRADING IN DERIVATIVES AND SHALL FUNCTION IN ACCORDANCE WITH THE GUIDELINES OR CONDITIONS LAID DOWN BY THE FORWARD MARKETS COMMISSION; (II) THE RECOGNIZED ASSOCIATION SHALL ENSURE THAT THE PARTICULARS OF THE CLIENT (INCLUDING UNIQUE CLIENT IDENTITY NUMBER AND P AN) ARE DULY RECORDED AND STORED IN ITS DATABASES; (III) THE RECOGNIZED ASSOCIATION SHALL MAINTAIN A COMPLETE AUDIT TRAIL OF ALL TRANS ACTIONS (IN RESPECT OF DERIVATIVE MARKET) FOR A PERIOD OF SEVEN YEARS ON ITS SYSTEM; (IV) THE RECOGNIZED ASSOCIATION SHALL ENSURE THAT TRANSACTIONS (IN RESPECT OF DERIVATIVE MARKET) ONCE REGISTERED IN THE SYSTEM ARE NOT ERASED; (V) THE RECOGNIZED ASSOCIATI ON SHALL ENSURE THAT THE TRANSACTIONS (IN RESPECT OF DERIVATIVE MARKET) ONCE REGISTERED IN THE SYSTEM ARE MODIFIED ONLY IN CASES OF GENUINE ERROR AND MAINTAIN DATA REGARDING ALL TRANSACTIONS (IN RESPECT OF DERIVATIVE MARKET) REGISTERED IN THE SYSTEM WHICH HAVE BEEN MODIFIED AND SUBMIT A MONTHLY STATEMENT IN FORM NO. 3BC TO THE DIRECTOR GENERAL OF INCOME - TAX (INTELLIGENCE AND CRIMINAL INVESTIGATION), NEW DELHI WITHIN FIFTEEN DAYS FROM THE LAST DAY OF EACH MONTH TO WHICH SUCH STATEMENT RELATES. 6DDD. NOTIFICA TION OF A RECOGNIZED ASSOCIATION FOR THE PURPOSES OF CLAUSE (E) OF THE PROVISO TO CLAUSE (5) OF SECTION 43. - (1) AN APPLICATION FOR NOTIFICATION OF A RECOGNIZED ASSOCIATION (AS PER CLAUSE (J) OF SECTION 2 OF THE FORWARD CONTRACTS (REGULATION) ACT, 1952) ITA NO.4468/M/2012 M/S. R.T. EXPORTS LTD. 7 AS A RECOGNIZED ASSOCIATION FOR THE PURPOSES OF CLAUSE (E) OF THE PROVISO TO CLAUSE (5) OF SECTION 43 MAY BE MADE TO THE MEMBER (LEGISLATION), CENTRAL BOARD OF DIRECT TAXES, NORTH BLOCK, NEW DELHI. (2) THE APPLICATION REFERRED TO IN SUB - RULE (1) SHALL BE ACC OMPANIED WITH THE FOLLOWING DOCUMENTS, NAMELY : - (I) APPROVAL GRANTED BY FORWARD MARKETS COMMISSION FOR TRADING IN DERIVATIVES; (II) UP - TO - DATE RULES, BYE - LAWS AND TRADING REGULATIONS OF THE RECOGNIZED ASSOCIATION; (III) CONFIRMATION REGARDING FULFILLING T HE CONDITIONS REFERRED TO IN CLAUSE (II) TO CLAUSE (V) OF RULE 6DDC; (IV) SUCH OTHER INFORMATION AS THE RECOGNIZED ASSOCIATION MAY LIKE TO PLACE BEFORE THE CENTRAL GOVERNMENT. (3) THE CENTRAL GOVERNMENT MAY CALL FOR SUCH OTHER INFORMATION FROM THE APPLICAN T AS IT DEEMS NECESSARY FOR TAKING A DECISION ON THE APPLICATION. (4) THE CENTRAL GOVERNMENT, AFTER EXAMINING THE INFORMATION FURNISHED BY THE RECOGNIZED ASSOCIATION UNDER SUB - RULE (2) OR SUBRULE (3), SHALL NOTIFY THE RECOGNISED1SSOCIATION AS A RECOGNIZED ASSOCIATION FOR THE PURPOSES OF CLAUSE (E) OF THE PROVISO TO CLAUSE (5) OF SECTION 43 OR ISSUE AN ORDER REJECTING THE APPLICATION BEFORE THE EXPIRY OF FOUR MONTHS FROM THE END OF THE MONTH IN WHICH THE APPLICATION IS RECEIVED. (5) THE NOTIFICATION REFERRED TO IN SUB - RULE (4) SHALL BE EFFECTIVE UNTIL THE APPROVAL GRANTED BY THE FORWARD MARKETS COMMISSION IS WITHDRAWN OR EXPIRED, OR THE NOTIFICATION IS RESCINDED BY THE CENTRAL GOVERNMENT.' 3. IN THE SAID RULES, IN APPENDIX - II, AFTER FORM NO. 3BB, THE FOLLOWIN G FORM SHALL BE INSERTED, NAMELY: - 'FORM NO. 3BC [SEE RULE 6DDC] MONTHLY STATEMENT TO BE FURNISHED BY A RECOGNIZED ASSOCIATION IN RESPECT OF TRANSACTIONS IN WHICH CLIENT CODES HAVE BEEN MODIFIED AFTER REGISTERING IN THE SYSTEM FOR THE MONTH OF ____________ ___ IN PURSUANCE TO THE AFOREMENTIONED NOTIFICATION, THE MCX HAS BEEN NOTIFIED AS RECOGNIZED ASSOCIATION VIDE NOTIFICATION DATED 29 - 11 - 2013, WHICH IS ALSO REPRODUCED ABOVE. IF THE ASSESSEE IS SEEKING BENEFIT OF CLAUSE (E) OF PROVISO TO SECTION 43(5), THEN SUCH BENEFIT CAN BE EXTENDED TO ASSESSEE ONLY IN RESPECT OF ASSESSMENT YEAR 2014 - 2015 AS THE PROVISIONS OF CLAUSE (E) OF PROVISO TO SECTION 43(5) ARE INSERTED BY THE STATUTE W.E.F. 1 - 4 - 2014. HOWEVER, IN THE PRESENT CASE, THE TRANSACTIONS DONE BY THE A SSESSEE RELATE TO FINANCIAL YEAR 2008 - 09. FOR THESE TRANSACTIONS, THERE WAS NO PROVISIONS IN THE STATUTE TO GIVE THE BENEFIT TO THE ASSESSEE IN RESPECT OF TRANSACTIONS OF COMMODITIES, WHICH ARE ULTIMATELY SETTLED OTHERWISE THEN BY ACTUAL DELIVERY OR TRANSF ER OF THE COMMODITY AS PER SECTION 43(5) OF THE ACT. 12. THE CASE RELIED UPON BY THE ASSESSEE ALSO DO NOT SUPPORT THE CASE OF THE ASSESSEE. IN CASE OF ACIT VS. ARNAV AKSHAY MEHTA (SUPRA), THE TRANSACTIONS RELATE TO STOCK EXCHANGE OF INDIA, WHICH IS MCX STO CK EXCHANGE, WHICH WAS NOTIFIED ON 22 - 5 - 2009 AND THE TRANSACTIONS WERE GOVERNED BY CLAUSE (D) OF THE PROVISO TO SECTION 43(5), WHICH WAS INSERTED BY THE FINANCE ACT, 2005 W.E.F. 1 - 4 - 2006. THEREFORE, FOR THE TRANSACTIONS, WHICH WERE UNDER CONSIDERATION IN T HAT CASE, WERE HELD TO BE NOT OF SPECULATIVE NATURE UNDER THE PROVISIONS OF CLAUSE (D) OF THE PROVISO TO SECTION 43(5) OF THE ACT AND THE SAID CASE RELATES TO ASSESSMENT YEAR 2007 - 08. THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE AFTER INSERTION OF CLAUSE (D) ITA NO.4468/M/2012 M/S. R.T. EXPORTS LTD. 8 OF THE PROVISO TO SECTION 43(5), WERE HELD TO BE OF NON - SPECULATIVE NATURE AS THERE WAS A PROVISION ON THE STATUTE. HOWEVER, IN THE PRESENT CASE, WHEN THE ASSESSEE CARRIED OUT THESE TRANSACTIONS, THERE WAS NO EXISTING PROVISION IN THE STATUTE IN THE SH APE OF CLAUSE (E) OF THE PROVISO TO SECTION 43(5). 13. IN THE CASE OF CIT VS. NASA FINELEASE PVT. LTD. (SUPRA), THE CASE RELATES TO PROVISO (D) TO SUB - SECTION 5 OF SECTION 43 OF THE ACT AND THE SAID INSERTION WAS MADE BY THE FINANCE ACT, 2005 AND THE NATIO NAL STOCK EXCHANGE AND BOMBAY STOCK EXCHANGE, THROUGH WHICH THE ASSESSEE IN THAT CASE HAD CARRIED OUT THE TRANSACTION WERE NOTIFIED ON 25TH JANUARY, 2006. IT WAS THE CASE OF THE ASSESSEE THAT THE TRANSACTION CONDUCTED BY IT FROM JULY 2005 TO SEPTEMBER, 200 5, CANNOT BE REJECTED FOR THE BENEFIT OF PROVISO (D) TO SUB - SECTION 5 OF SECTION 43(5) AS THERE WAS A PROVISION ON THE STATUTE IN THE SHAPE OF CLAUSE (D). THE LAPSE IN THE ISSUE OF NOTIFICATION ETC. WAS ONLY ON ACCOUNT OF DELAY BY CBDT. IT IS IN THESE CIRC UMSTANCES, THE HONBLE HIGH COURT HAS UPHELD THE ORDER OF THE TRIBUNAL VIDE WHICH THE RELIEF WAS GIVEN TO THE ASSESSEE. THUS, IN THAT CASE, THERE WAS A PROVISION ON THE STATUTE UNDER WHICH THE ASSESSEE SOUGHT THE BENEFIT. HOWEVER, IN THE PRESENT CASE, AS M ENTIONED EARLIER, PROVISIONS OF CLAUSE (E) OF THE PROVISO TO SECTION 43(5) DID NOT EXIST DURING THE PERIOD WHEN THE ASSESSEE CARRIED OUT THE TRANSACTIONS. IN VIEW OF ABOVE DISCUSSION, WE HOLD THAT ASSESSEE IS NOT ENTITLED TO CLAIM THE BENEFIT OF CLAUSE ( E) OF THE PROVISO TO SECTION 43(5) OF THE ACT. 6. ACCORDINGLY, FOLLOWING THE ORDER OF THE CO - ORDINATE BENCH OF THE TRIBUNAL, WE SET ASIDE THE IMPUGNED ORDER OF THE LD. CIT(A) QUA THIS ISSUE AND RESTORE THE FINDINGS OF THE AO. HOWEVER, AS POINTED OUT BY THE LD. A.R. THAT THE QUANTIFICATION OF THE SPECULATION LOSS HAS TO BE RECOMPUTED BY THE AO, THEREFORE FOR THE LIMITED PURPOSE QUANTIFICATION THE ISSUE IS SET ASIDE TO THE RECORD OF THE AO. 7. GROUND NO.5 IS REGARDING THE ADJUSTMENT MADE BY THE AO FOR C OMPUTING BOOK PROFIT UNDER SECTION 115JB ON ACCOUNT OF BAD DEBT DISALLOWANCE. WE HAVE HEARD THE LD. D.R. AS WELL AS THE LD. A.R. AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THIS GROUND OF THE REVENUES APPEAL IS CONNECTED WITH THE GROUND NO.3 IN RESP ECT OF THE DISALLOWANCE OF BAD DEBTS UNDER NORMAL PROVISIONS OF THE ACT. IN VIEW OF OUR FINDINGS ON THE GROUND NO.3, THIS GROUND OF THE REVENUES APPEAL IS DISMISSED. EVEN OTHERWISE WHEN THE ASSESSEE HAS ITA NO.4468/M/2012 M/S. R.T. EXPORTS LTD. 9 ACTUALLY WRITTEN OFF THE BAD DEBTS IN THE BOOKS OF ACCOUNT, THEN NO ADJUSTMENT CAN BE MADE WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB AS THIS AMOUNT DOES NOT REPRESENT ANY PROVISION ON ACCOUNT OF BAD DEBTS. 8. GROUND NO.6 IS REGARDING THE DISALLOWANCE OF DEPRECIATION AND BOAT EXPENSES. THE AO HAS DISALLOWED THE DEPRECIATION AND EXPENSES IN RESPECT OF LUXURY BOAT OWNED BY THE ASSESSEE ON THE GROUND THAT THE SAME ARE PERSONAL IN NATURE. ON APPEAL, THE LD. CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE CLAIM OF THE ASSESSEE WAS ALLOWED IN THE EARLIER YEARS AS WELL AS IN THE SUBSEQUENT YEARS AND THEREFORE THE SAME ARE TO BE ALLOWED AS BUSINESS EXPENDITURE. 9. WE HAVE HEARD THE LD. D.R. AS WELL AS THE LD. A.R. AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, W E NOTE THAT THE CLAIM OF THE ASSESSEE REGARDING DEPRECIATION AND EXPENSES ON THE BOAT HAS BEEN ALLOWED BY THE AO IN THE EARLIER YEAR I.E. A.Y. 2006 - 07 WHILE PASSING THE ASSESSMENT ORDER UNDER SECTION 143(3). EVEN IN THE SUBSEQUENT ASSESSMENT YEAR FOR THE A.Y. 2008 - 09 TO 2012 - 13 THE AO HAS ALLOWED THE CLAIM OF THE ASSESSEE. THE DETAILS OF THE STATUS OF THE CLAIM OF THE ASSESSEE IN ALL THE ASSESSMENT YEARS ARE AS UNDER : SR. NO ASST. YEAR EXPENSES ON BOAT DEPR. ON BOAT ALLOWABILITY ASSESSMENT COMPLETED U /S 1 2006 - 07 CLAIMED CLAIMED ALLOWED BY AO 143(3) 2 2007 - 08 CLAIMED CLAIMED UNDER APPEAL UNDER APPEAL 3 2008 - 09 CLAIMED CLAIMED ALLOWED BY AO 143(1) 4 2009 - 10 CLAIMED CLAIMED ALLOWED BY AO 143(3) 5 2010 - 11 CLAIMED CLAIMED ALLOWED BY AO 143(3) ITA NO.4468/M/2012 M/S. R.T. EXPORTS LTD. 10 6 2011 - 12 CLAIMED CLAIMED ALLOWED BY AO 143(1) 7 2012 - 13 CLAIMED CLAIMED ALLOWED BY AO 143(3) THEREFORE, IN VIEW OF THE FACT THAT EXCEPT THE YEAR UNDER CONSIDERATION THE AO HAS ACCEPTED THE CLAIM OF THE ASSESSEE ON ACCOUNT OF DEPRECIATION AND OTHER EXPENSES ON BOAT. WHEN THERE IS NO CHANGE IN FACTS AND CIRCUMSTANCES IN THIS YEAR UNDER CONSIDERATION, THEN THE AO HAS TO MAINTAIN THE RULE OF CONSISTENCY. ACCORDINGLY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE LD. CIT(A) FOR THIS ISSUE. 10. GROUND NO.7 IS REGARDING THE DISALLOWANCE OF LOSS ON SHARE TRADING BY TREATING THE SAME AS SPECULATION LOSS IN VIEW OF THE EXPLANATION TO SECTION 73. THE ASSESSEE HAS INVESTED IN SHARES OF VARIOUS COMPANIES. THE LOSS ON SUCH TRADE HAS BEEN TREATED AS NON SPECULATIVE BUSINESS LOSS BY THE ASSESSEE IN THE RETURN OF INCOME. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE AS TO WHY THE SHARE TRADING ACTIVITY SHOULD NOT BE TREATED AS SPECULATION ACTIVITY AND WHY THE SE T OFF OF LOSS OF SPECULATION BUSINESS SHOULD NOT BE DISALLOWED. IN RESPONSE, THE ASSESSEE VIDE ITS LETTER DATED 26.10.09 STATED THAT THE TRANSACTION HAS BEEN SETTLED BY ACTUAL DELIVERY AND THEREFORE IT DOES NOT FALL WITHIN THE AMBIT OF SPECULATION TRANSAC TION. THE AO HELD THAT EVEN IN THE CASE OF ACTUAL DELIVERY BASED TRANSACTION IF THE COMPANY HAS INDULGED IN THE SHARE TRADING ACTIVITY IT WILL BE OBSERVED AS SPECULATION ACTIVITY AND LOSS FROM SUCH ACTIVITY IS SPECULATIVE LOSS AS PER THE PROVISIONS OF EXP LANATION TO SECTION 73 AND THEREFORE THE SAME CANNOT BE SET OFF AGAINST THE NON SPECULATI VE BUSINESS PROFIT WHICH WAS DISCLOSED BY THE ASSESSEE OF RS. 2,14,93,920/ - . ITA NO.4468/M/2012 M/S. R.T. EXPORTS LTD. 11 11. BEFORE THE LD. CIT(A), THE ASSESSEE HAS CONTENDED THAT THE ASSESSEE FALLS UNDER THE EXCEPTION PROVIDED UNDER EXPLANATION TO SECTION 73 BECAUSE THE GROSS TOTAL INCOME OF THE ASSESSEE IS MAINLY OF HEAD OF THE INCOME FROM OTHER SOURCES. THE LD. CIT(A) ACCEPTED THE CLAIM OF THE ASSESSEE AND DIRECTED THE AO TO TREAT THE APPLICANTS CLAIM AS B USINESS LOSS AND NOT AS SPECULATIVE LOSS. 12. BEFORE US, THE LD. D.R. HAS REFERRED TO THE FINDING OF THE AO AND SUBMITTED THAT THE AO HAS POINTED OUT THAT THE ASSESSEE HAS DECLARED PROFIT FROM BUSINESS AT RS.2,14,93,920/ - AS INCOME UNDER THE HEAD INCOM E FROM BUSINESS AND PROFESSION WHEREAS THE ASSESSEE HAS INCURRED A LOSS OF RS.1,50,64,439/ - ON SHARE TRADING, THEREFORE THE LOSS OF SHARE TRADING CANNOT BE SET OFF IN VIEW OF THE EXPLANATION TO SECTION 73. HE HAS RELIED UPON THE ORDER OF THE AO. 13. O N THE OTHER HAND, THE LD. A.R. HAS SUBMITTED THAT THE ASSESSEE HAS FURNISHED THE DETAILS SHOWING THE INCOME FROM BUSINESS AS WELL AS THE INCOME FROM OTHER SOURCES. HE HAS FURTHER CONTENDED THAT AFTER SETTING OFF OF BROUGHT FORWARD BUSINESS LOSSES OF RS. 2, 47,76,60 4/ - UNDER SECTION 72 OF THE ACT T HE GROSS INCOME FROM BUSINESS COMES TO NIL IN COMPARISON TO THE INCOME FROM OTHER SOURCES AT RS.75,26,828 / - , THEREFORE THE ASSESSEE FALLS UNDER THE EXCEPTION PROVIDED IN EXPLANATION TO SECTION 73. HE HAS FURTHER CO NTENDED THAT FOR COMPUTATION OF GROSS TOTAL INCOME AS REQUIRED UNDER THE EXPLANATION TO SECTION 73 THE BROUGHT FORW ARD BUSINESS LOSS AS WELL AS UNABSORB ED DEPRECIATION BROUGHT FORWARD HAS TO BE GIVEN EFFECT AND THEN ONLY THE INCOME FROM BUSINESS BEING GROS S TOTAL INCOME TO BE COMPUTED. IN SUPPORT OF HIS CONTENTION, HAS HE RELIED UPON THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. DARSHAN SECURITIES LTD. 341 ITR 556. ITA NO.4468/M/2012 M/S. R.T. EXPORTS LTD. 12 IN REJOINDER, THE LD. D.R. HAS SUBMITTED THAT THE GROSS TOTAL INCOME HAS TO BE TAKEN INTO ACCOUNT ONLY FOR THE YEAR UNDER CONSIDERATION AND NOT THE INCOME OF THE EARLIER YEARS FOR THE PURPOSE OF EXPLANATION TO SECTION 73. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSI ONS AS WELL AS RELEVANT MATERIAL ON RECORD. THERE IS NO QUARREL AS FAR AS THE EXCEPTION CARVED OUT IN THE EXPLANATION TO SECTION 73 OF THE ACT THAT IF THE COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHAR GE ABLE UNDER THE HEAD INTER - ALIA INCOME FROM OTHER SOURCES THEN THE DEEMING F ICTION CREATED BY THE EXPLANATION TREATING THE BUSINESS OF THE ASSESSEE AS SPECULATION BUSINESS FOR THE PURPOSE OF SETTING OFF OF THE LOSS ARISEN FROM PURCHASE AND SALE OF SHARES AGAINST THE OTHER HEAD OF INCOMES WOULD NOT BE APPLIED. THE HONBLE JURISDIC TIONAL HIGH COURT IN THE CASE OF CIT VS. DARSHAN SECURITIES PVT. LTD. (SUPRA) HAS REITERATED THE PROPOSITION THAT IF THE GROSS INCOME OF THE ASSESSEE COMPANY CONSISTS THE INCOME WHICH IS CHAR GE ABLE UNDER THE HEADS INTEREST ON SECURITIES, INCOME FROM HO USE PROPERTY, CAPITAL GAIN AND INCOME FROM OTHER SOURCES IS MORE THAN THE INCOME FROM BUSINESS OR PROFESSION, THEN THE SAID COMPANY WILL FALL IN THE EXCEPTIONS CARVED OUT UNDER THE EXPLANATION TO SECTION 73 AND DEEMING FICTION WILL NOT BE APPLIED TO SUCH COMPANY. THE ISSUE BEFORE US IS IN NARROW COMPASS AS TO WHETHER THE GROSS INCOME OF THE ASSESSEE FOR THE PURPOSE OF COMPARISON WITH THE INCOME FROM OTHER SOURCES HAS TO BE COMPUTED AFTER SETTING OFF OF BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION. THE GROSS TOTAL INCOME FOR THE PURPOSE OF EXPLANATION TO SECTION 73 OF THE ACT SHALL BE THE AGGREGATE INCOME PRIOR TO GIVING THE SETTING OFF UNDER CHAPTER VI OF THE ACT. THE AUTHORITIES BELOW HAVE NOT DEALT WITH THIS ISSUE TO GIVE AN FACTUA L FINDING ABOUT THE ALLOWABLE BUSINESS LOSS AND UNABSORBED DEPRECIATION AS WELL AS THE LEGAL POINT WHETHER THE GROSS TOTAL INCOME UNDER THE ITA NO.4468/M/2012 M/S. R.T. EXPORTS LTD. 13 HEAD BUSINESS AND PROFESSION HAS TO BE COMPUTED AFTER GIVING EFFECT TO THE SETTING OFF OF BROUGHT FORWARD BUSINESS LOSS AS WELL AS BROUGHT FORWARD UNABSORBED DEPRECIATION FOR THE PURPOSE OF ARRIVING TO A DECISION THAT THE INCOME FROM OTHER SOURCES IS MORE THAN THE INCOME FROM BUSINESS AND PROFESSION. THEREFORE FOR THE LIMITED PURPOSE THIS ISSUE IS SET ASIDE TO THE RE CORD OF THE AO TO REEXAMINE AND RECONSIDER THE SAME BY CONSIDERING THE CLAIM OF THE ASSESSEE AND THEN DECIDE THE SAME AS PER LAW. 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 15. 0 5 . 201 5 . SD/ - SD/ - ( R.C. SHARMA ) ( VIJAY PAL RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 15. 0 5 .2015 . * KISHORE , SR. P.S. COPY TO: T HE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.