VENKATAVARTHAN N.. IYENGAR, THANE V. ACIT CIR 4, THANE

ITA 5616/MUM/2015

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6960 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 14-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHWIN KUMAR
• Keywords: Business income; Speculation loss
• Section: 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI PAWAN SINGH (JM) I.T.A. NO. 5616 /MUM/20 15 (ASSESSMENT YEAR 20 11 - 12 ) SHRI VENKATAVARTHAN N. IYENGAR 1 ST FLOOR, SHRI NIWAS PADDY, VASAI WEST THANE PAN : AAIPI7983 G V S . ACIT, CIRCLE - 4 A - WING, ASHAR IT PARK, ROOM NO. 2 WAGLE ESTATE NEAR AMBIKA NAGAR THANE WEST ( APPELLANT ) ( RESPONDENT ) A SSESSEE BY SHRI K. SHIVRAM & SHRI RAHUL HAKANI DEPARTMENT BY S HRI ASHWIN KUMAR DATE OF HEARING 1 0 . 0 5 . 201 8 DATE OF PRONOUNCEMENT 23 . 0 5 . 201 8 O R D E R PER B.R. BASKARAN (AM) : - THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 03 - 09 - 2015 PASSED BY LD CIT(A) - 3, MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 2011 - 12. THE ASSESSEE IS AGGRIEVED B Y THE DECISION RENDERED BY LD CIT(A) ON THE FOLLOWING ISSUES: - (A) LOSS FROM TRADING IN DERIVATIVES TREATED AS SPECULATIVE LOSS INSTEAD OF BUSINESS LOSS. (B) LOSS FROM TRADING IN DELIVERY BASED SHARE TRANSACTIONS TREATED AS SPECULATIVE LOSS INSTEAD OF SHORT TERM CAPITAL GAINS. (C) REJECTION OF CLAIM OF SET OFF OF LONG TERM CAPITAL GAINS AND INCOME FROM OTHER SOURCES AGAINST THE ABOVE SAID LOSSES. (D) DISALLOWANCE OF INTEREST EXPENDITURE. (E) REJECTION OF CLAIM FOR CHANGE OF SELF OCCUPIED PROPERTY FOR THE PURPOSE OF COMPUTING INCOME FROM HOUSE PROPERTY. 2. THE ASSESSEE IS A SALARIED EMPLOYEE AND HE FILED HIS RETURN OF INCOME DECLARING A TOTAL INCOME OF RS.19.95 LAKHS. THE AO COMPLETED THE ASSESSMENT BY MAKING VARIOUS ADDITIONS AND THE ASSESSE E COULD NOT GET RELIEF IN THE APPEAL SHRI VENKATAVARTHAN N. IYENGAR 2 FILED BEFORE LD CIT(A). HENCE THE ASSESSEE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. 3. THE FIRST AND SECOND ISSUE RELATES TO THE CLAIM OF LOSS FROM DERIVATIVE TRANSACTIONS AND LOSS FROM SHARE TRANSACTIONS. THE ASSESSEE CLAIMED THE SAME AS BUSINESS LOSSES. HOWEVER, THE AO REJECTED THE SAID CLAIM AND ACCORDINGLY TREATED BOTH THE LOSSES AS SPECULATIVE LOSS. IN RESPECT OF LOSS FROM DERIVATIVE TRANSACTIONS, THE LD CIT(A) UPHELD THE VIEW TAKEN BY THE AO BY TAKING SU PPORT FROM EXPLANATION 73 OF THE ACT. IN RESPECT OF SHORT TERM CAPITAL LOSS, THE LD CIT(A) TOOK THE VIEW THAT THE ASSESSEE WAS INCURRING LOSSES ONLY TO SET OFF AGAINST LONG TERM CAPITAL GAIN AND ACCORDINGLY CONFIRMED THE ORDER OF AO. 4. WE HEARD THE PARTIES ON THESE TWO ISSUES AND PERUSED THE RECORD. WE NOTICE THAT THE AO DID NOT GIVE ANY REASONING FOR TREATING BOTH THE LOSSES AS SPECULATIVE LOSSES. THE AO DID NOT REFER TO THE PROVISIONS OF SEC. 43(5) AT ALL AND DID NOT SPELL OUT AS TO HOW SEC. 43( 5) WOULD NOT APPLY TO THE DERIVATIVE TRANSACTIONS. WE NOTICE THAT THE LD CIT(A) HAS TAKEN SUPPORT OF EXPLANATION TO SEC 73, WHICH IS NOT APPLICABLE TO INDIVIDUALS. HENCE WE ARE UNABLE TO AGREE WITH THE VIEW TAKEN BY THE TAX AUTHORITIES IN RESPECT OF LOSS FROM DERIVATIVE TRANSACTIONS. SINCE THE EXCEPTION PROVIDED IN PROVISIONS OF SEC. 43(5) IS APPLICABLE TO THESE TRANSACTIONS, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE CLAIM OF THE ASSESSEE. ACCORDINGLY WE DIRECT THE AO TO ASSESS LOSS ARISING FROM DER IVATIVE TRANSACTIONS AS BUSINESS LOSS. THE ORDER OF LD CIT(A) IS SET ASIDE. 5. IN RESPECT OF SHORT TERM CAPITAL LOSS DECLARED BY THE ASSESSEE, THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE HAS ACTUALLY INCURRED THOSE LOSS ON SALE OF SE CURITIES TAKEN ON DELIVERY BASIS. THE REASONING GIVEN BY LD CIT(A) THAT THE ASSESSEE HAS INCURRED SHORT TERM CAPITAL LOSS IN ORDER TO CLAIM SET OFF AGAINST LONG TERM CAPITAL GAINS IS BASED ON SURMISES AND CONJECTURES. EVEN IF IT IS CONSIDERED TO BE CORR ECT FOR A MOMENT, IN OUR VIEW, THE LAW DOES PERMIT ARRANGEMENT OF AFFAIRS TO THE CONVENIENCE OF THE ASSESSEE, PROVIDED THE SAME IS WITHIN THE FRAME WORK OF LAW. IN THE INSTANT CASE, WE ARE OF THE VIEW SHRI VENKATAVARTHAN N. IYENGAR 3 THAT THE PLANNING, IF ANY, DONE BY THE ASSESSEE IS WIT HIN THE FRAMEWORK OF LAW. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ACCEPT THE SHORT TERM CAPITAL LOSS ARISING FROM SALE OF SHARES AS DECLARED BY THE ASSESSEE. 6. SINCE WE HAVE HELD THAT BOTH THE ABOVE SAID LOSSES CANNOT BE TREATED AS SPECULATIVE LOSSES, THE AO IS DIRECTED TO ALLOW SET OFF LOSSES AGAINST OTHER INCOME AS PER THE PROVISIONS OF THE ACT. 7. SINCE WE HAVE HELD THAT THE LOSS FROM DERIVATIVE TRANSACTIONS AND SHORT TERM CAPITAL LOSS HAS T O BE ACCEPTED AS BUSINESS LOSS, THE INTEREST EXPENDITURE, IF ANY, RELATING THERETO IS REQUIRED TO BE ALLOWED AFTER DUE VERIFICATION IN TERMS OF SEC 36(1)(III) OF THE ACT. THE ASSESSEE HAD TAKEN MORTGAGE LOAN OF RS.20.00 LAKHS AND INCURRED INTEREST EXPENDI TURE OF RS.2,74,213/ - . THE ASSESSEE INITIALLY CLAIMED THE SAME AGAINST INCOME FROM HOUSE PROPERTY. NOW IT IS CLAIMED THAT THE SAME MAY BE ALLOWED AGAINST BUSINESS INCOME. SINCE THE USER OF LOAN PROCEEDS SHALL DECIDE THE ALLOWABILITY OF THE INTEREST EXPEN DITURE, WE RESTORE THIS ISSUE TO THE FILE OF THE AO FOR EXAMINING IT IN ACCORDANCE WITH THE LAW. 8. THE LAST ISSUE RELATES TO SUBSTITUTION OF SELF OCCUPIED PROPERTY FOR THE PURPOSE OF SEC. 23 OF THE ACT. THE ASSESSEE WAS OWNING THREE HOUSE PROPERTIES , VIZ., HOUSE LOCATED AT JUHU, SANTACRUZ (E) AND VASAI. THE ASSESSEE DECLARED NOTIONAL RENTAL INCOME FROM SANTACRUZ PROPERTY. IN THE RETURN OF INCOME, THE ASSESSEE DECLARED VASAI PROPERTY AS SELF OCCUPIED PROPERTY. HOWEVER, BEFORE THE AO, THE ASSESSEE S OUGHT TO SUBSTITUTE JUHU PROPERTY AS SELF OCCUPIED PROPERTY. THE AO TOOK THE VIEW THAT THE CHANGE OF SELF OCCUPIED PROPERTY IS NOT PERMISSIBLE AT THAT STAGE AND ACCORDINGLY REJECTED THE SAME. THE LD CIT(A) ALSO CONFIRMED THE SAME. 9. THE CONTENTION OF LD A.R IS THAT THE INCOME TAX ACT DOES NOT PROHIBIT SUBSTITUTION OF SELF OCCUPIED PROPERTY, SINCE THE OPTION IS GIVEN TO THE ASSESSEE TO DETERMINE THE SAME. THERE IS ALSO NO BAR THAT THE OPTION ONCE EXERCISED SHRI VENKATAVARTHAN N. IYENGAR 4 CANNOT BE CHANGED. THE LD D.R, ON THE CONT RARY, SUPPORTED THE ORDER PASSED BY LD CIT(A). 10. SINCE THE PROVISIONS OF THE ACT NOWHERE STATES THAT THE OPTION OF SELECTING SELF OCCUPIED PROPERTY, ONCE EXERCISED, CANNOT BE CHANGED, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE CONTENTIONS OF THE AS SESSEE. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ADOPT JUHU PROPERTY AS SELF OCCUPIED PROPERTY OF THE ASSESSEE. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED. ORDER HAS BE EN PR ONOUNCED IN THE COURT ON 23 . 0 5 .201 8 . SD/ - SD/ - (PAWAN SINGH ) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 23 / 0 5 / 20 1 8 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// SENIOR P RIVATE S ECRETARY PS ITAT, MUMBAI