Asstt.Comm.of Income Tax,Circle-2, Nagpur V. M/s Dhandhania Commodity Private Limited, Nagpur

ITA 56/NAG/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84658 (ITAT-NAGPUR)
• Duration Of Justice: 3 year(s) 5 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2014
• Appeal Filed By: Department
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 23-03-2011
• Court: TRIBUNAL
• Department Lawyers: NINAWE
• Keywords: Speculation loss
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER . /ITA NO.56/NAG/2011 ( AY: 2006 - 2007 ) ASST.S COMMISSIONER OF INCOME TAX, CIRCLE - 2, NAGPUR. / VS. M/S. DHANDHANIA COMMODITY PVT LTD., DHANDHANIA HOUSE, EAST HIGH COURT ROAD, CIVIL LINES, NAGPUR. ./ PAN : AABCD9605N ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI NINAWE, JCIT / RESPONDENT BY : NONE / DATE OF HEARING : 03.09.2014 / DATE OF PRONOUNCEMENT : 05 .09.2014 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE REVENUE ON 23.3.2011 IS AGAINST THE ORDER OF THE CIT (A) - I, NAGPUR DATED 24.1.2011 FOR THE ASSESSMENT YEAR 2006 - 2007. 2. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN HOLDING THAT THE TRANSACTIONS IN FUTURE AND DERIVATIVES DONE BY THE ASSESSEE WERE NOT SPECULATIVE TRANSACTIONS AND THEREBY FURTHER ERRED IN ALLOWING THE LOSS OF RS. 27,35,363/ - AS NORMAL BUSINESS LOSS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN HOLDING THAT THE LOSS INCURRED BY THE ASSESSEE OF RS. 27,35,363/ - WAS GENUI NE LOSS INCURRED IN REGULAR COURSE OF BUSINESS BY DISREGARDING THE FACT THAT THE ASSESSEE FAILED TO SUBSTANTIATE THE CLAIM OF LOSS INCURRED ON BEHALF OF THE CLIENTS . 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS A MEMBER OF NATIONA L COMMODITY & DERIVATIVES EXCHANGE LTD (NCDEX) DEALING IN FUTURE COMMODITY AND DERIVATIVES ON BEHALF OF CLIENT. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, ASSESSEE FILED THE RETURN OF INCOME DECLARING THE TOTAL LOSS OF RS. 3,18,306/ - . ASSESSMENT WAS COMPETED U/S 143(3) OF THE ACT AND THE ASSESSED INCOME WAS DETERMINED AT RS. 27,34,370/ - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO D ISALLOWED LOSS , DUE TO CLIENTS OF THE ASSESSEE, AMOUNTING TO RS. 27, 35,363/ - AND RS. 3,17,313/ - BEING DISALLOWANCE U/S 40(A)(IA) OF THE ACT. WITH 2 REGARD TO LOSS, AO HELD THAT THE LOSS IS SPECULATIVE AS THE TRADES DONE THROUGH NCDEX ARE WITHOUT ACTUAL DELIVERY. AO ALTERNATIVELY HELD THAT AS THE ASSESSEE - COMPANY IS DOING PURCHASE AND SALE ON BEHALF OF ITS CLIENTS AND IT IS NOT A LOSS IN THE ORDINARY COURSE OF BUSINESS. AO IS OF THE OPINION THAT THE ACT OF ASSESSEE IN SETTING OFF THE LOSSES AGAINST PROFIT INDICATES THAT THESE ARE SPECULATIVE TRANSACTIONS AND THEREFORE, THE LOSS CANNOT BE ALLOWED FROM THE NORMAL BUSINE SS INCOME U/S 71 TO 73 OF THE ACT. AGGRIEVED, ASSESSEE CARRIED T HE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) PARTLY ALL OWED THE APPEAL BY DIRECTING THE AO TO ALLOW THE LOSS AS THE SAME IS OCCURRED IN THE ORDINARY COURSE OF BUSINESS. THE CIT (A) DISCUSSED THE ISSUE AT LENGTH VIDE PARAS 8 TO 11 OF HIS ORDER. AGGRIEVED WITH THE DECISION OF THE CIT (A), REVENUE IS IN APPEAL B EFORE THE TRIBUNAL BY RAISING THE ABOVE MENTIONED GROUNDS. 5. DURING THE PROCEEDINGS BEFORE US, SHRI A.R. NINAWE, LD DR RELIED ON THE ORDER OF THE AO AND REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES BY STATING THAT THE SETTING OFF OF THE LO SSES AGAINST THE PROFIT CLEARLY INDICATES THE SPECULATIVE NATURE OF THE TRANSACTIONS AND THEREFORE, THE AOS DECISION IS CORRECT. 6. ON THE OTHER HAND, NONE APPEARED ON BEHALF OF THE ASSESSEE TO REPRESENT ITS CASE. 7. WE HAVE HEARD THE LD DR AND PERUSED TH E ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US. ON PERUSAL OF THE CIT (A)S ORDER IN GENERAL AND PARA 9 TO 11 IN PARTICULAR, WE FIND THE SAME ARE RELEVANT IN THIS REGARD. FOR THE SAKE OF COMPLETENESS OF THIS ORDER, WE FIND I T RELEVANT TO REPRODUCE THE SAID PARAS 9 TO 11 OF THE CIT (A)S ORDER WHICH READ AS UNDER: 9. I FIND THAT AO IS NOT IDENTIFIED ANY ELEMENTS OF SPECULATIVE TRANSACTIONS IN THE BUSINESS CARRIED ON BY THE ASSESSEE COMPANY. THEREFORE, THE CONTENTION OF THE AO IS NOT TENABLE. 10. IN A RECENT DECISION OF THE CHENNAI D BENCH IN THE CASE OF DCIT VS. PATERSON SECURITIES (P) LTD , REPORTED IN 134 TTJ 777 IT HAS BEEN HELD THAT A DERIVATIVE IS FINANCIAL INSTRUMENT, THE PRICE OF WHICH HAS A STRONG CORRELATI ON WITH AN UNDERLYING COMMODITY, CURRENCY, ECONOMIC VARIABLE OR FINANCIAL INSTRUMENT. THE DIFFERENT TYPES OF DERIVATIVES ARE FUTURE CONTRACTS, FORWARD, SWAPS AND OPTIONS. THEY ARE TRADED ON DERIVATIVE MARKETS OR OVER THE COUNTER (OTC). THE MARKET TRAD ED DERIVATIVES ARE STANDARD BUT THE OTC TRADES CAN BE CUSTOMIZED WITH REGARD TO MATURITY, QUANTITY, OR / PRICING STRUCTURE FOR A PARTICULAR CLIENT. THE DISCLOSURE OF DERIVATIVES IN FINANCIAL STATEMENTS IS REQUIRED BY FINANCIAL REPORTING STANDARD - 13 A SP ECULATIVE TRANSACTION AS PER S.43(5) MEANS A TRANSACTION IN WHICH THE CONTRACT FOR THE PURCHASE OR 3 SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY ACTUAL DELIVERY OR TRANSFER OF COMMODITY OR SCRIP . A DERIVATIVE CAN ALSO BE TRADED ON THE VALUE OF THE UNDERLYING SHARES BUT IS NOT A TRADE IN ANY ACTUAL STOCK. IT DOES NOT HAVE A PHYSICAL EXISTENCE. DERIVATIVES ARE NOT A CONTRACT FOR PURCHASE OR SALE OF ANY PHYSICAL COMMODITY AS SUCH. SO, THESE ARE NOT SPECULATIVE TRANSACTIONS IN THE SENSE OF TERMS OF SECTION 43(5). 11. CONSIDERING THE FACTS IN TOTALITY I HOLD THAT THE LOSS OF RS. 27,35,363/ - IS NOT SPECULATIVE LOSS OCCURRED IN THE ORDINARY COURSE OF BUSINESS. AO IS DIRECTED TO ALLOW THE LOSS AS ITS LOSS THAT IS OCCURRED IN THE ORDINARY COURSE OF BUSINESS. THEREFORE, GROUND NO.3 & 4 ARE ALLOWED . 8. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT THE CIT (A) HAS RIGHTLY ADJUDICATED THE ISSUE UNDER CONSIDERATION WHILE DIRECTING THE AO TO ALLOW THE LOS S AS THAT IS OCCURRED IN THE ORDINARY COURSE OF BUSINESS BY RELYING ON THE DECISION OF THE ITAT, CHENNAI BENCH. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT (A) AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUNDS RAISED BY THE R EVENUE ARE DISMISSED. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONO UNCED IN THE OPEN COURT ON 05 TH SEPTEMBER, 2014 . SD/ - SD/ - (VIVEK VARMA) (D. KARUNAKARA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER NAGPUR ; 5 /09/2014 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , / DR, ITAT, NAGPUR. 6. / GUARD FILE . //TRUE COPY// / BY ORDER (SR. PRIVATE SECRETARY) / ITAT, NAGPUR