RAJESH RAMU DEORA, MUMBAI V. ADDL CIT RG 12(3), MUMBAI

ITA 5153/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59853 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 09-02-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 22-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR
• Assessee Lawyers: SAMEER DALAL
• Keywords: Salary income; Earning of tax free income; Speculation loss; Futures and options
• Section: 143(3); 14A; 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, J, MUMBAI BEFORE SHRI D.K.AGARWAL(JM) AND SHRI P.M.JAGTAP(AM) ITA NO.5153/MUM/2010 (ASSESSMENT YEAR:2006-07) RAJESH RAMU DEORA, SAMBHAVA CHAMBERS, 4 TH FLOOR, SIR P.M.ROAD, MUMBAI-400001 PAN:ADXPD0928Q ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE 12(3), MUMBAI. APPELLANT V/S RESPONDENT DATE OF HEARING : 9.2.2012 DATE OF PRONOUNCEMENT : 24.2.2012 APPELLANT BY : SHRI SAMEER DALAL RESPONDENT BY : SHRI C.G.K.NAIR O R D E R PER D.K.AGARWAL (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 19.4.2010 PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2006-07. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL HAVING SALARY INCOME FROM M/S G.AMPHRAY LABORATORIES, INCOME FROM TRADING OF SHARES AND SECURITIES, FUTURES AND OPTIONS AND CAPI TAL GAIN ON SHARE TRANSACTIONS, FILED RETURN DECLARING TOTAL ITA NO.5153/MUM/2010 (ASSESSMENT YEAR:2006-07) 2 INCOME OF RS.1,14,86,197/-. HOWEVER, THE ASSESSMENT WAS COMPLETED AT AN INCOME OF RS.1,17,06,940/- INCLUDING DISALLOWANCE U/S 14A RS.32,329/- AND DISALLOWANCE OF LOSS ON FUTURE AND OPTIONS RS.1,56,083/- VIDE ASSESSMENT ORDER DATED 29.12.2008 PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). ON APPEAL, THE LD. CIT(A) WHILE UPHOLDING THE ABOVE DISALLOWANCES MADE BY THE AO, PARTLY ALLOWED THE APPEAL. 3. BEING AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. GROUND NO.1 IS AGAINST THE SUSTENANCE OF DISALLOWANCE U/S 14A OF THE ACT. 5. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE AO OBSERVED THAT THE PROVISIONS OF SECTION 14A ARE APPLICABLE TO THIS CASE BECAUSE NO EXPENSES HAS SPECIFICALLY BEEN DISALLOWED BY THE ASSESSEE TREATI NG IT AS TO BE RELATED TO THE EXEMPT INCOME AND ACCORDINGLY, HE MADE DISALLOWANCE OF RS.32,329/- U /S 14A READ WITH RULE 8D OF THE INCOME TAX RULES, 1962, WHICH THE LD. CIT(A) ALSO CONFIRMED. ITA NO.5153/MUM/2010 (ASSESSMENT YEAR:2006-07) 3 6. AT THE TIME OF HEARING, BOTH THE PARTIES HAVE AGREED THAT THE ISSUE MAY BE SET ASIDE TO THE FILE OF THE AO FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. CO . LTD., V/S. DCIT SINCE REPORTED IN (2010) 328 ITR 81 (BOM.). 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABL E ON RECORD. WE FIND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUTE THAT THE CAS E IS SQUARELY COVERED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. CO . LTD.,(SUPRA), WHEREIN IT HAS BEEN HELD THAT THAT THE PROVISIONS OF SECTION 14A ARE APPLICABLE IN THE CIRCUMSTANCES AS ARE PREVAILING PRESENTLY AND THE DISALLOWANCE HAS TO BE WORKED OUT BY THE AO ON SOME `REASONABLE BASIS AND NOT UNDER RULE 8D. UNDER SU CH CIRCUMSTANCES, WE SET ASIDE THE IMPUGNED ORDER AND RESTORE THE MATTER TO THE FILE OF THE AO FOR DECIDI NG THE QUANTUM OF DISALLOWANCE, AS PER THE AFORE-NOTED JUDGMENT, AFTER ALLOWING A REASONABLE OPPORTUNITY O F BEING HEARD TO THE ASSESSEE. THE GROUND TAKEN BY ITA NO.5153/MUM/2010 (ASSESSMENT YEAR:2006-07) 4 THE ASSESSEE IS, THEREFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSES. 8. GROUND NO.2 IS AGAINST THE CONFIRMATION OF LOSS IN DEALING IN FUTURES AND OPTIONS FOR A PERIOD PRI OR TO 26.1.2006 OF RS.1,56,083/- AS SPECULATION LOSS. 9. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS INCURRED A LOSS OF RS.3.82,662/- IN TRANSACTIONS OF FUTURES AND OPTION S WHICH HAVE BEEN TREATED BY THE ASSESSEE AS BUSINE SS LOSS AND ADJUSTED AGAINST THE BUSINESS PROFITS EARN ED ON SHARE TRADING. HOWEVER, THE AO OBSERVED THAT THE FINANCE ACT, 2005 HAS AMENDED THE DEFINITION OF TERM SPECULATIVE TRANSACTION IN SECTION 43(5) OF THE ACT. IN THE EXCLUSION CLAUSE THE FOLLOWING SUB-CLAU SE (D) WAS ADDED: (D) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIVATIVES REFERRED TO IN CLAUSE (AC) OF SECTIO N 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) CARRIED OUT IN A RECOGNIZED STOCK EXCHANGE. HE FURTHER OBSERVED THAT THE TERMS ELIGIBLE TRANSACTIONS AND RECOGNIZED STOCK EXCHANGE WERE ITA NO.5153/MUM/2010 (ASSESSMENT YEAR:2006-07) 5 ALSO DEFINED. THE TERM RECOGNIZED STOCK EXCHANGE IS DEFINED AS UNDER: RECOGNIZED STOCK EXCHANGE MEANS A RECOGNIZED STOCK EXCHANGE AS REFERRED TO IN CLAUSE (F) OF SECTION 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956( 42 OF 1956) AND WHICH FULFILS SUCH CONDITIONS AS MAY BE PRESCRIBED AND NOTIFIED BY THE CENTRAL GOVERNMENT FOR THIS PURPOSE. B) BY NOTIFICATION NO.SO 89(E) DATED 25.01.2006, TH E FOLLOWING STOCK EXCHANGES WERE NOTIFIED AS RECOGNIZ ED STOCK EXCHANGES U/S.43(5) (I) NATIONAL STOCK EXCHANGE OF INDIA LIMITED, MUMBA I. (II) BOMBAY STOCK EXCHANGE LIMITED, MUMBAI. RELYING ON THE ABOVE PROVISIONS, THE AO WAS OF THE VIEW THAT THE PROPOSED AMENDMENT TO SECTION 43(5) HAS COME INTO EFFECT FROM 25.1.2006 AND NOT 1.4.2005. THEREFORE, IN THE LIGHT OF THE ABOVE PROVISIONS, THE AO ASKED THE ASSESSEE TO REPLY ON T HIS ISSUE. IN REPLY TO THE QUERY RAISED BY THE AO, THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE SAID AMENDMENT HAS COME INTO EFFECT FROM 1.4.2005 AND NOT FROM 25.1.2006 AND IN SUPPORT, HE PLACED RELIAN CE ON MEMORANDUM EXPLAINING THE PROVISIONS OF THE ITA NO.5153/MUM/2010 (ASSESSMENT YEAR:2006-07) 6 FINANCE BILL, 2005 AS ALSO THE CBDT CIRCULAR NO.3/2 006 DATED 27.2.2006. THE LD. AUTHORIZED REPRESENTATIVE ALSO SUBMITTED BEFORE THE AO THAT THERE EXISTS JUDGMENTS PRIOR TO ASSESSMENT YEAR 2006-07 WHICH TAKE THE VIEW THAT DEALING IN THE DERIVATIVE IS A SEPARATE KIND OF TRANSACTION WHICH DOES NOT INVOLVE ANY PURCHASE OR SALE OF SHARES AND, THEREFORE LOSS ON ACCOUNT OF DERIVATIVE TRADING CANNOT BE TREATED AS SPECULATIVE LOSS. HOWEVER, THE AO DID NOT ACCEPT TH E EXPLANATION OF THE ASSESSEE AND HELD THAT AMENDED PROVISIONS ARE CLEAR THAT THE AMENDMENT SHALL COME INTO EFFECT ONLY IN RESPECT OF THE RECOGNIZED STOCK EXCHANGES U/S.43(5) AND SINCE IT WAS ONLY ON 25.1.2006 THAT THE BSE AND THE NSE WERE NOTIFIED AS RECOGNIZED STOCK EXCHANGES U/S.43(5), THE SAID AMENDMENT, CAME INTO EFFECT ONLY WITH EFFECT FROM THAT DATE. THEREFORE, THE AO HELD THAT THE LOSS ON FUTURES AND OPTIONS OF RS.1,56,,083/- WHICH WAS INCURRED DURING THE PERIOD FROM 1.4.2005 TO 24.1.20 06 IS A SPECULATION LOSS AND NOT BUSINESS LOSS AND ACCORDINGLY THE AO DID NOT ALLOW THE SET OFF OF S UCH LOSS OUT OF PROFITS EARNED BY THE ASSESSEE. ON APP EAL, THE LD. CIT(A) UPHELD THE VIEWS OF THE AO. ITA NO.5153/MUM/2010 (ASSESSMENT YEAR:2006-07) 7 10. AT THE TIME OF HEARING, BOTH THE PARTIES HAVE AGREED THAT THE ISSUE IS FULLY COVERED IN FAVOUR O F THE ASSESSEE BY THE CONSISTENT VIEW OF THE TRIBUNAL AND TO REFER ONE OF THEM IS THE DECISION OF THE CO-ORDINA TE BENCH OF THE TRIBUNAL IN MR.PRAVIN J.AGARWAL V/S ITO IN ITA NO.2453/MUM/2010(AY:2006-07) DATED 9.3.2011, THEREFORE, THE ISSUE MAY BE DECIDED ACCORDINGLY. 11. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABL E ON RECORD. WE FIND MERITS IN THE PLEA OF THE PARTIES THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN MR.PRAVIN J.AGARWAL (SUPRA), WHEREIN IT HAS BEEN HELD THAT ALL THE TRANSACTIONS CARRIED OUT IN THE PREVIOUS YEAR RELEV ANT TO THE ASSESSMENT YEAR 2006-07, WOULD BE ELIGIBLE F OR THE BENEFIT OF SECTION 43(5)(D) OF THE ACT. ACCORDI NGLY, LOSS INCURRED ON DERIVATIVE TRANSACTIONS WOULD BE LIABLE TO BE SET OFF AGAINST THE PROFIT EARNED IN PURCHASE AND SALE OF SHARES ON DELIVERY BASIS AND ACCORDINGLY, THE AO IS DIRECTED TO ALLOW THE SAME. ITA NO.5153/MUM/2010 (ASSESSMENT YEAR:2006-07) 8 12. IN THE RESULT, THE ASSESSEES APPEAL STANDS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 24TH FEB.,2012. SD SD ( P.M.JAGTAP ) (D.K.AGARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, 24TH FEBRUARY, 2012 SRL: COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILE. BY ORDER TRUE COPY ASSTT. 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