ASST CIT CIR 21(3), MUMBAI V. HITESH S. DOSHI, MUMBAI

ITA 5573/MUM/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9370 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2009-2010
• Appeal Filed On: 28-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Speculation loss; Tax effect; Speculative transactions
• Section: 43(5)

Judgement Text

H HH H IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI , ,, , BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. : 5573/MUM/2013 (ASSESSMENT YEAR: 2009-10) ACIT- CIRCLE -21(3), ROOM NO. 501, BLDG, 5 TH FLOOR, C-11, PRATYAKSH KAR BHAVAN, BKC, BANDRA (EAST), MUMBAI -400 051 VS SHRI HITESH S DOSHI, ETERNIA-A/1602, HIRANANDANI GARDENS, MAIN STREET, POWAI, MUMABAI-400 076 .: PAN: AACPD 8612 R (APPELLANT) (RESPONDENT) CROSS OBJECTION 250/MUM/ 2014 ARISING OUT OF ITA NO. : 5573/MUM/2013 FOR AY 2009-10 SHRI HITESH S DOSHI, POWAI, MUMABAI-400 076 .: PAN: AACPD 8612 R VS ACIT- CIRCLE -21(3), BANDRA (EAST), MUMBAI -400 051 (APPELLANT) CROSS OBJECTOR (RESPONDENT) ASSESSEE-CROSS OBJECTOR BY : SHRI TEJ HAH RESPONDENT BY : SHRI JEETENDRA KUMAR /DATE OF HEARING : 05-01-2015 / DATE OF PRONOUNCEMENT : 04-02-2015 ORDER , , , , : :: : PER VIVEK VARMA, JM: THE APPEAL IS FILED BY THE DEPARTMENT AGAINST THE ORDER O F CIT(A) 22, MUMBAI, DATED 03.06.2013, WHEREIN THE FOLLOWING GROUNDS HAVE BEEN RAISED: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT T HE TRANSACTION OF PURCHASE AND SALE OF SHARES BY THE ASSESSEE HAS TO BE TREATED AS INVESTMENT AND THE PROFIT/LOSS THEREON HAS TO BE ASSESSEE UNDER THE HE AD CAPITAL GAINS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT APPRECIAT ING THE FACTUAL POINTS ON WHICH THE REVENUE HAS NOT ACCEPTE D THIS DECISION FOR THE EARLIER ASSESSMENT YEARS AND ARE IN FURTHER APPEAL BEFORE THE HONBLE HIGH COURT. SHRI HITESH S DOSHI ITA 5573/M/2013 CO 250/MUM/2014 2 3. THE APPELLANT PRAYS THAT THE ORDER OF LD. CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSIN G OFFICER BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO AMEND OR TO ALTER ANY GROUND OR ADD A NEW GROUND, WHICH MAY BE NECESSARY . 2. THE ASSESSEE HAS ALSO FILED A CROSS OBJECTION (CO) AGA INST THE APPEAL AS FILED BY THE DEPARTMENT, WHICH IS AS FOLLOWS: 1. THE APPEAL PREFERRED AGAINST THE IMPUGNED ORDER IS NOT MAINTAINABLE ON THE GROUND OF LOW TAX EFFECT IN VIEW OF INSTRUCTION NO 3 OF 2011 DT. 09.02.2011. 2. THE CROSS OBJECTION RESERVES ITS RIGHT TO ADD, AMEND OR ALTER ALL OR ANY OF THE GROUNDS OF CROSS OBJECTI ONS BEFORE OR DURING THE HEARING OF THE APPEAL AND CROS S OBJECTIONS. 3. COMING TO THE CO, THE AR SUBMITTED THAT THE APPEAL IS NOT MAINTAINABLE IN VIEW OF THE FACT THAT THE TAX EFFECT IS MUCH LOWER THEN WHAT IS ALLOWED BY THE CBDT TO PERUSING TO FILE APPEA LS BEFORE ITAT AND HIGHER JUDICIAL FORA. IN FACT, CIT(A) HAS GIVE N RELIEF ON THE LTCG, WHICH WAS TREATED AS BUSINESS INCOME B Y THE AO. ON THIS ISSUE THE TAX EFFECT, ACCORDING TO US IS MUCH HIGHER THAN THE BOARDS CIRCULAR, DISSUADING THE OFFICERS TO FILE APP EALS BEFORE THE HIGHER FORA, WHEREIN THE TAX EFFECT IS LOW. 4. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY MERIT IN THE C O, AS FILED BY THE ASSESSEE, WHICH WE REJECT. 5. COMING TO THE MERITS, THE ISSUE IMPUGNED IN THE APPEA L HAD BEEN DEALT WITH BY THE ORDER OF THE COORDINATE BENC H AT MUMBAI IN ASSESSEES OWN CASE IN ASSESSMENT YEARS 2004 -05, 2006-07. THE COORDINATE BENCH HELD, 19 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSIN G OFFICER HELD THAT THE DERIVATIVE TRANSACTION PRIOR TO 25.1.2006 ARE SPECULATIVE IN NATURE AND FROM 25.1.2 006 TO 31.3.2006 ARE AS BUSINESS INCOME. THE ASSESSING OFFICERS VIEW IS BASED ON THE NOTIFICATION ISSUED BY THE CBDT ON RECOGNIZING STOCK EXCHANGE W.E.F 25.1.2006 FOR CARRYOUT THE DERIVATIVE TRADING AS PER THE PROVISIO NS OF SEC. 43(5)(D). THE CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER BY TREATING THE DERIVATIVE TRANSA CTION AS SPECULATIVE IN NATURE UP TO 25.1.2006 AND THEREA FTER, AS BUSINESS INCOME. 20 AS POINTED OUT BY THE LD AR, WE FIND THIS ISSUE HAS BEEN CONSIDERED AND DECIDED BY THE SHRI HITESH S DOSHI ITA 5573/M/2013 CO 250/MUM/2014 3 TRIBUNAL IN THE CASE OF PREM ASSOCIATES ADVERTISING & MARKETING (SUPRA) WHEREIN IT HAS BEEN HELD AS UNDER : 7. WE FIND THAT I T IS UNDISPUTED POSITION THAT THE STOCK EXCHANGES, ON WHICH THE IMPUGNED TRANSACTIONS WERE CARRIED OUT , WERE DULY NOTIFIED ON 25TH JANUARY 20 06, AND THAT IN ACCORDANCE WITH THE VIEWS OF THE CO-ORD INATE BENCH IN THE CASE OF ANAND BUILDWELL (SUPRA), AS AL SO WITH THE VIEWS OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CLARIS LIFE SCIENCES (SUPRA), ONCE THE APPROVAL IS GRANTED IN THE RELEVANT PREVIOUS YEAR, AND IN THE ABSENCE OF ANYTHING INDICATED TO THE CONTRARY, THE APPROVAL HAS TO BE TAKEN AS EFFECTIVE FROM THE BEGI NNING OF THE RELEVANT YEAR. THE ISSUE IS THUS COVERED, IN FAVOUR OF THE LINE OF REASONING ADOPTED BY THE ASSESSEE, B Y DECISION OF THE COORDINATE BENCH IN THE CASE OF ANA ND BROTHERS (SUPRA) AND BY HONBLE GUJARAT HIGH COURT S JUDGMENT IN THE CASE OF CLARIS LIFE SCIENCES (SUPRA ). RESPECTFULLY FOLLOWING THESE DECISIONS, WE UPHOLD T HE GRIEVANCE OF THE ASSESSEE AND HOLD THAT THE DERIVAT E TRANSACTIONS, ENTERED INTO BY THE ASSESSEE AT THE RECOGNIZED STOCK EXCHANGES EVEN PRI OR TO THE DATE OF NOTIFICATION IN THE RELEVANT PREVIOUS Y EAR, ARE TO BE TREATED AS COVERED BY THE EXCLUSION CLAUSE SE T OUT 20.1 FURTHER, THE TRIBUNAL IN THE CASE OF NIPRA FIN ANCIAL SERVICES P LTD. (SUPRA) AGAIN HAD AN OCCASION TO CO NSIDER AND ADJUDICATE THE SAME ISSUE IN PARAS 8 & 9, WHICH ARE AS UNDER: 8. IN THE CASE OF G.K. ANAND BROS. BUILDWELL (P.) LTD G.K. ANAND BROS. BUILDWELL (P.) LTD G.K. ANAND BROS . BUILDWELL (P.) LTD G.K. ANAND BROS. BUILDWELL (P.) LTD VS. I.T.O. [2009] 34 [439 (DELHI) IT HAS BEEN HELD AS FOLLOWS FOR THE ASSESSMENT YEAR 2006-07 WITH RESPECT TO SPECULATIVE TRANSACTIONS THE QUESTION WHETHER THE L OSS ARISING IN FUTURE AND OPTION TRANSACTION CARRIED OU T IN A RECOGNIZED STOCK EXCHANGE IS TO BE TREATED AS A BUS INESS LOSS AND NOT AS LOSS IN SPECULATION BUSINESS HAS BE EN AFFIRMATIVE. FURTHER IT HAS BEEN HELD AS FOLLOWS: SECTION 43(5) DEFINES SPECULATIVE TRANSACTION WH ICH MEANS A TRANSACTION IN WHICH A CONTRACT FOR THE PUR CHASE OR SALE OF ANY COMMODITY INCLUDING STOCKS AND SHARE S IS PERIODICAL OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR THE TRANSFER OF COMMODITY OR SCR IPS. PROVISO BELOW SECTION 43(5) CARVES OUT EXCEPTIONS T O SECTION 43(5). AS PER CLAUSE (D) OF THE SAID PROVIS O AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIV ATIVES REFERRED TO IN THE SECURITIES CONTRACTS (REGULATION ) ACT, 1956 CARRIED OUT IN A RECOGNIZED STOCK EXCHANGE SHA LL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION. CLA USE (D) IN THE PROVISO WAS INSERTED BY THE FINANCE ACT, 2005 WITH EFFECT FROM 1-4-2006. THEREFORE, IF A TRANSACT ION FALLS WITHIN CLAUSE (D) OF THE PROVISO, A TRANSACTI ON IT WILL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION IN RE SPECT OF TRANSACTION PERTAINING TO ASSESSMENT YEAR 2006-0 7. UNDER CLAUSE (D) OF THE PROVISO, A TRANSACTION IS N OT A SPECULATIVE TRANSACTION PROVIDED IT IS AN ELIGIBLE TRANSACTION WITHIN THE MEANING OF CLAUSE (1) OF THE EXPLANATION AND IT IS CARRIED ON AT THE RECOGNIZED STOCK EXCHANGE AS EXPLAINED IN CLAUSE (II) OF THE SAID SHRI HITESH S DOSHI ITA 5573/M/2013 CO 250/MUM/2014 4 EXPLANATION BELOW PROVISO TO SECTION 43(5)(D).THE RECOGNIZED STOCK EXCHANGE MEANS A RECOGNIZED STOCK EXCHANGE AS NOTIFIED BY THE CENTRAL GOVERNMENT FOR THIS PURPOSE. THEREFORE, EVEN IF THE NOTIFICATION IS FRO M 25.01.2006 AS PER CLAUSE (D) INSERTED, THE SAME WIL L APPLY TO ALL THE TRANSACTION IN RELATION TO THE ASS ESSMENT YEAR 2006-07 AND ONWARDS. CLAUSE (D) DOES NOT MENTI ON THAT UNLESS THE RECOGNIZED STOCK EXCHANGE IS NOTIFI ED, THE TRANSACTION WILL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION. THE POWER TO NOTIFY THE STOCK EXCHANGE IS GRANTED UNDER THE STATUE AND, HENCE, ONCE THE RECOGNIZED STOCK EXCHANGE IS NOTIFIED, THE SAME WIL L APPLY IN RESPECT OF ALL ELIGIBLE TRANSACTIONS CARRI ED OUT IN RELATION TO THE FINANCIAL YEAR RELEVANT TO THE ASSE SSMENT YEAR 2006-07 AND ONWARDS. THE NOTIFICATION DATED 25.01.06 IS BY WAY OF A SUBORDINATED LEGISLATION BU T CANNOT OVER RIDE THE PRINCIPAL LEGISLATION ENACTED BY THE PARLIAMENT. IT ONLY CLARIFIES BUT WILL NOT OVERRIDE UNLESS STATUTORILY SO PRESCRIBED. SINCE THERE WAS NO DISPU TE TO THE FACT THAT THE TRANSACTIONS, IN THE INSTANT CASE , IN FUTURE AND OPTION SEGMENT WERE THE ELIGIBLE TRANSAC TIONS CARRIED OUT IN A RECOGNIZED STOCK EXCHANGE, LOSS IN SUCH TRANSACTIONS COULD NOT BE DEEMED TO BE LOSS IN THE SPECULATION BUSINESS. THEREFORE, THE LOSS-IN-QUESTI ON WAS TO BE TREATED AS A BUSINESS LOSS AND NOT AS LOSS IN SPECULATIVE BUSINESS. (PARA 5) 9. FOLLOWING THE RATIO OF THE DECISION REPORTED IN 34 SOT 439 (DELHI) (SUPRA) WE CONFIRM THE ORDER OF THE CIT (A) IN DELETING THE ADDITION OF RS.22,74,113/- ON ACCOUNT OF SPECULATION LOSS AND ESTIMATED EXPENSES INCURRED FO R THE SAME OF RS. 15,99,831/-. THEREFORE, RESPECTFULLY FOLLOWING THE EARLIER ORDER S OF THE TRIBUNAL, WE DECIDE THE ISSUE IN FAVOUR OF THE ASSE SSEE. 6. RELYING ON THE ABOVE DECISION BY THE ITAT ON MERITS IN THE CASE OF THE ASSESSEE, WE DO NOT HAVE ANY REASON TO DE VIATE FROM THE ABOVE FINDING AND COME TO AN ALIEN DECISION. 7. IN THESE CIRCUMSTANCES, WE SUSTAIN THE ORDER OF THE CIT(A) AND REJECT THE APPEAL AS FILED BY THE DEPARTMENT. 10. AS A RESULT, THE APPEAL FILED BY THE DEPARTMENT IS DISMISSED. 11. WE HAVE ALREADY REJECTED THE CO FILED BY THE ASSESSEE. SHRI HITESH S DOSHI ITA 5573/M/2013 CO 250/MUM/2014 5 AS A RESULT, THE APPEAL, AS FILED BY THE DEPARTMENT AND THE CO FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH FEBRUARY, 2015. SD/- SD/- ( ) ( ) (R C SHARMA) (VIVEK VARMA) ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI, DATE: 4 TH FEBRUARY, 2015 #/ COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE CIT(A) -22, MUMBAI. 4) THE CIT-21, MUMBAI/CIT -21, MUMBAI. 5) $%& ###' H , ( #' , ) * / THE D.R. H BENCH, MUMBAI. 6) &+, - COPY TO GUARD FILE. (./ / BY ORDER 0 / 1 2 / / TRUE COPY / / ( #' , ) * DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN, SR.PS