DCIT, New Delhi V. M/s. A.R. Chadha & Co. India Pvt. Ltd., New Delhi

ITA 5665/DEL/2015

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5395 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 06-10-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Speculation loss; Tax effect; Futures and options
• Section: 143(3); 14A; 43(5); 12

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E: NEW DELHI BEFORE SHRI G.D. AGRAWAL, HONBLE PRESIDEN AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO.:-5665/DEL/2015 ASSESSMENT YEAR: 2011-12 O R D E R PER KUL BHARAT, J.M. THIS APPEAL FILED BY THE REVENUE IS DIRECT ED AGAINST THE ORDER OF LD. CIT(A) -1, NEW DELHI DATED 27 TH JULY, 2015 PERTAINING TO THE ASSESSMENT YEAR 2011-12. THE REVENUE HAS RAISED FOLL OWING GROUNDS :- DCIT CIRCLE-1(1), ROOM NO. 368, C.R. BUILDING, I.P. ESTATE NEW DELHI 110 002. VS. A.R. CHADHA & CO. INDIA PVT. LTD. OFFICE NO. 8, 1 ST FLOOR, ATMA RAM MANSON (SCINDIA HOUSE) K.G. MARG, CONNAUGHT PLACE NEW DELHI-110 001. PAN AAACA1108L (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI S.R. SENAPATI, SR.DR ASSESSEE BY : SHRI RANJAN CHOPRA, CA DATE OF HEARING 02/04/2018 DATE OF PRONOUNCEMENT 03/04/2018 2 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF ALV OF M BLOCK PROPERTY OF RS. 17,32,500/- AS AGAINST RS. 22,470/- SHOWN BY THE ASSESSEE. 2. THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO VERIFY THE TRANSACTION AND ALLOW THE LOSS OF RS. 84,11,813/- I F THEY ARE COVERED BY THE PROVISIONS OF SECTION 43(5) WHEN SUC H POWER IS NOT VESTED CIT(A) U/S 251(1) OF INCOME-TAX ACT. 3. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 2. THE FACTS GIVING RISE TO THE PRESENT APPEAL AR E THAT THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AN D THE ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT, 1961 ( HEREINAFTER REFER TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 31 ST JANUARY, 2014. BY FRAMING THE ASSESSMENT, THE AO MADE ADDITIONS IN RESPE CT OF ANNUAL LETTING VALUE OF PROPERTY OF RS. 6,05,803/-DISALLOWAN CE OF THE EXPENSES BY INVOKING THE PROVISIONS OF SECTION 14A BY APPLYING RULE 8D OF RS. 33,54,491/- AND DISALLOWANCE OF ADVERTISEMENT EXPENSE S OF RS. 11,79,384/-. AGGRIEVED AGAINST THIS ORDER THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO AFTER CONSIDERING T HE SUBMISSIONS 3 PARTLY ALLOWED THE APPEAL. THEREBY THE LD. CIT(A), DEL ETED THE ADDITION MADE OF RS. 17,32,500/- MADE ON ACCOUNT OF COMPUTING THE ANNUAL LETTING VALUE OF THE PROPERTY AND RESTORE THE ISSUE OF C LAIMING SPECULATION LOSS OF RS. 84,11,815/- TO THE AO FOR V ERIFICATION. AGAINST THIS THE REVENUE IS IN PRESENT APPEAL. 3. GROUND NO. 1 IS AGAINST DELETION OF ADDITION OF RS. 17,32,500/-. LD. DR SUPPORTED THE ORDER OF THE AO AND SUBMITTED THAT LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION . HE SUBMITTED THAT THE DECISION IN EARLIER YEAR IS UNDER CHALLENGE BEFORE THE HONBLE HIGH COURT. ON THE CONTRARY LD. COUNSEL FOR THE ASSESSEE OP POSED THE SUBMISSION OF THE LD. DR AND SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE TRIBUNAL IN EARLIER YEARS MORE PARTICULARLY IN THE ASSTT. YEAR 2008-09. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH THE ORDERS OF THE LD. CIT(A). LD. CIT(A) HAS GIVEN A FINDING OF FACT AND SUPPORTED THE DECISION OF THE TRIBUNAL IN EARLIER YEAR BY OBSER VING AS UNDER :- I HAVE CONSIDERED THE SUBMISSION OF THE APP ELLANT AND THE OBSERVATIONS MADE BY THE ASSESSING OFFICER IN THE A SSESSMENT ORDER. IT IS SEEN THAT THIS ISSUE HAS BEEN DECIDED BY MY PREDECESSOR IN FAVOUR OF THE APPELLANT FOR A.Y. 200 9-10. FOR THE SAKE OF CONVENIENCE, THE RELEVANT FINDINGS ARE REPR ODUCED AS UNDER :- 4 5. GROUND NO. 2 IS DIRECTED AGAINST THE DETERMINA TION OF THE ANNUAL LETTING VALUE (ALV) OF PROPERTY IN M BLOCK, CONNAUGHT PLACE BY THE AO AT RS. 17,32,500/- AS AGA INST RS. 20,590/- SHOWN BY THE ASSESSEE. THE AO HAS ADOP TED THE ABOVE FIGURE AS PER ASSESSMENT DONE IN PAST YEA R. IT IS SUBMITTED BY THE LD. AR THAT THIS ISSUE HAS BEEN DE CIDED BY THE HONBLE ITAT IN FAVOUR OF THE APPELLANT IN A.Y. 2006-07. CONSIDERING THE ABOVE IDENTICAL ADDITION MADE IN A. Y. 2007- 08 IN THE CASE OF THE APPELLANT WAS ALSO DELETED BY MY PREDECESSOR LD. CIT(A)-IV, NEW DELHI VIDE ORDER DAT ED 26.8.2011 IN APPEAL NO. 29/09-10. THEREFORE, RESPEC TFULLY FOLLOWING THE ABOVE JUDICIAL PRECEDENTS, THE IMPUGN ED ADDITION CANNOT BE SUSTAINED. THE SAME IS, ACCORDIN GLY, DELETED. THERE IS NO CHANGE IN THE FACTS OF THE CASE DURING THIS YEAR ALSO. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF H ONBLE ITAT IN THE APPELLANTS OWN CASE FOR THE EARLIER YEARS, THE IMP UGNED ADDITION CANNOT BE SUSTAINED. THE SAME IS, ACCORDINGLY, DELE TED. THIS GROUND OF APPEAL IS ALLOWED. 5. SINCE THIS FINDING OF THE FACT IS NOT CONTROVER TED BY THE REVENUE THIS ISSUE HAS ALREADY BEEN DECIDED BY THE COORDINATE BENCH IN FAVOUR OF THE ASSESSEE. TAKING A CONSISTENT VIEW WE DO NOT SEE ANY REASON TO 5 INTERFERE IN THE FINDING OF THE LD. CIT(A), SAME IS HE REBY AFFIRMED. THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 6. GROUND NO. 2 IS AGAINST THE DIRECTION OF THE AO TO VERIFY THE CLAIM OF THE ASSESSEE IN RESPECT OF SPECULATION LOSS. LD. DR SUPPORTED THE ORDER OF THE AO AND SUBMITTED THAT THE LD. CIT(A) HAS NO AUTHORITY TO REMAND THE MATTER TO THE AO. ON THE CONTRARY LD. COUN SEL FOR THE ASSESSEE OPPOSED THE SUBMISSIONS AND SUBMITTED THAT THE LD. CIT(A) HAS FOLLOWED THE ORDER PERTAINING TO THE ASSESSMENT YEAR 2009-10. HE SUBMITTED THAT IN ASSTT. YEAR 2009-10 THE ISSUE TRAVELLED U P TO THE STAGE OF TRIBUNAL AND THE TRIBUNAL WAS PLEASED TO DI SMISS THE APPEAL OF THE REVENUE ON ACCOUNT OF LOW TAX EFFECT. HOWEVER IN THE ASSESSMENT YEAR 2008-09 IN ITA NO. 5210/DEL/2011 THE ISSUE WA S RESTORED TO THE FILE OF THE AO BY THE TRIBUNAL 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORD. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE SIMILAR ISSUE WAS BEFORE THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ITA NO. 5210/DEL/2011 WHEREIN THE TRIBUNAL WAS PLEASED TO RES TORE THE ISSUE TO THE AO BY OBSERVING AS UNDER :- 13. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS AS ALSO THE AFORESAID DECISIONS RELIED UPON BY THE ID. AR ON BEHALF OF THE ASSESSEE. AS IS APPARENT FROM THE AFORESAID FACTS, THE AO 6 DISALLOWED THE CLAIM OF SET OFF OF SPECULATION LOSS OF 1,27,35,432/- FROM SHARES AGAINST OTHER INCOME. APPARENTLY, THE A O DID NOT ANALYSE THE NATURE OF TRANSACTIONS AS TO WHETHER LO SS SUFFERED BY THE ASSESSEE WAS FROM SHARES OR DERIVATIVES OR TRAN SACTIONS WERE ACTUALLY OF THE NATURE MENTIONED IN SEC. 43(5)' OF THE ACT NOR EXAMINED AS TO WHETHER OR NOT TRANSACTIONS WERE ELI GIBLE TRANSACTIONS WITHIN THE MEANING OF CLAUSE (D) OF TH E PROVISO TO THE SAID SECTION. ON APPEAL, THE ASSESSEE CLAIMED THAT THE SAID LOSS OF RS.1,27,35,432/- WAS SHOWN AS 'SPECULATION LOSS' IN ITS BOOKS OF ACCOUNTS, THE LOSS BEING RELATED TO PURCHASE AND SA LE OF STOCK FUTURES AND OPTIONS ON NSE, WHICH WERE IN THE NATUR E OF DERIVATIVES TRADED ON RECOGNIZED STOCK EXCHANGE AND WERE EXCLUDED FROM THE DEFINITION OF 'SPECULATIVE TRANSA CTION' IN TERMS OF SECTION 43(5)(D) OF THE ACT. THERE IS NOTHING TO SUGGEST AS TO WHETHER OR NOT THE ID. CIT(A) ANALYSED THE NATURE O F TRANSACTIONS OR DERIVATIVES AS TO WHETHER THESE WERE FORWARDS, F UTURES, OPTIONS OR SWAP AND WHETHER INDEX DERIVATIVES NOR ANALYSED AS TO WHETHER THE TRANSACTIONS FELL WITHIN THE AMBIT OF P ROVISIONS OF SEC. 43(5) OF THE ACT OR WERE ELIGIBLE TRANSACTIONS WIT HIN THE MEANING OF CLAUSE (D) OF THE PROVISO TO THE SAID SECTION. T HE ID. CIT(A) CONCLUDED THAT CASE OF THE ASSESSEE WOULD NOT BE CO VERED BY THE MISCHIEF OF EXPLANATION TO SECTION 73, ON BOTH COUN TS, FIRSTLY, SINCE MAJOR PART OF THE INCOME OF THE ASSESSEE CONSISTED OF INCOME FROM 7 HOUSE PROPERTY AND INCOME FROM OTHER SOURCES AND SE CONDLY SINCE THE ASSESSEE WAS ENGAGED IN TRADING OF FUTURES AND OPTIONS WHICH IS DIFFERENT FROM TRADING IN SHARES. BUT THE AO NOW HERE ANALYSED THE NATURE OF TRANSACTIONS, THE ASSESSEE ITSELF HAV ING TREATED THE AFORESAID LOSS AS SPECULATION LOSS IN ITS BOOKS. AP PARENTLY, THE APPLICABILITY OF PROVISIONS OF SEC. 43(5) OF THE AC T OR CLAUSE (D) OF THE PROVISO TO SAID SECTION HAS NEITHER BEEN EXAMIN ED BY THE AO NOR THE ID. CIT(A) .. HERE, WE MAY HAVE A LOOK AT T HE RELEVANT PROVISIONS OF SEC. 43(5) OF THE ACT, WHICH READ AS UNDER: (5) 'SPECULATIVE TRANSACTION' MEANS A TRANSACTION I N WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULT IMATELY. SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TR ANSFER OF THE COMMODITY OR SCRIPS: PROVIDED THAT FOR THE PURPOSES OF THIS CLAUSE- (A) A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCHANDISE ENTERED INTO BY A PERSON IN THE COURSE OF HIS MANUFACTURING OR MERCHANTING BUSINESS TO GUARD, AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATIONS IN R ESPECT OF HIS CONTRACTS FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY HIM OR MERCHANDISE SOLD BY HIM; OR 8 (B) A CONTRACT IN RESPECT OF STOCKS AND SHARES ENTE RED INTO BY A DEALER OR INVESTOR THEREIN TO GUARD AGAIN ST LOSS IN HIS HOLDINGS OF STOCKS AND SHARES THROUGH P RICE FLUCTUATIONS; OR (C) A CONTRACT ENTERED INTO BY A MEMBER OF A FORWAR D MARKET OR A STOCK EXCHANGE IN THE COURSE OF ANY TRANSACTION IN THE NATURE OF JOBBING OR ARBITRAGE T O GUARD AGAINST LOSS' WHICH MAY ARISE IN THE ORDINARY COURSE OF HIS BUSINESS AS SUCH MEMBER, OR (D) AN ELIGIBLE. TRANSACTION IN RESPECT OF TRADING IN DERIVATIVES REFERRED TO IN CIAUSE (AC) OF SECTION 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956), CARRIED OUT IN A RECOGNISED STOCK EXCHANGE; SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION ; EXPLANATION. - FOR THE PURPOSES OF THIS CLAUSE, THE EXPRESSIONS - (I) ELIGIBLE TRANSACTION' MEANS ANY TRANSACTION- (A) CARRIED OUT ELECTRONICALLY ON SCREEN-BASED SYST EMS THROUGH A STOCK BROKER OR SUB-BROKER OR SUCH OTHER INTERMEDIARY REGISTERED UNDER SECTION 12 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (1 5 9 OF 1992), IN ACCORDANCE WITH THE PROVISIONS OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956), OR THE SECURITIES AND EXCHANGE BOARD OF INDI A ACT, 1992 (15 OF 1992) OR THE DEPOSITORIES ACT, 199 6 (22 OF 1996) AND THE' RULES, REGULATIONS OR BYE-LAW S MADE OR DIRECTIONS ISSUED UNDER THOSE ACTS OR BY BANKS OR MUTUAL FUNDS ON A RECOGNISED STOCK EXCHANGE; AND (B) WHICH IS SUPPORTED BY A TIME STAMPED CONTRACT N OTE ISSUED BY SUCH STOCK BROKER OR SUB-BROKER OR SUCH OTHER INTERMEDIARY TO EVERY CLIENT INDICATING IN TH E CONTRACT NOTE THE UNIQUE CLIENT IDENTITY NUMBER ALL OTTED UNDER ANY ACT REFERRED TO IN SUB-CLAUSE (A) AND PERMANENT ACCOUNT NUMBER ALLOTTED UNDER THIS ACT; (II) 'RECOGNISED STOCK EXCHANGE' MEANS A RECOGNISED STOCK EXCHANGE AS REFERRED TO IN CLAUSE (F) OF SECT ION 2 OF THE SECURITIES' 'CONTRACTS (REGULATION) ACT, 195 6 (42 OF 1956), AND WHICH FULFILS SUCH CONDITIONS AS MAY BE PRESCRIBED AND NOTIFIED BY THE CENTRAL GOVERNMENT F OR THIS PURPOSE; 13.1 IN THE DECISION RELIED UPON BY THE ID. AR IN S HREE CAPITAL SERVICES LTD. (SUPRA) WHICH RELATED TO AY 2004-05, THE SPECIAL 10 BENCH CONCLUDED THAT THAT THE TERM 'DERIVATIVES' IN WHICH UNDERLYING ASSET IS SHARES, WOULD FALL WITHIN THE M EANING OF 'COMMODITY' USED IN S. 43(5) OF THE ACT AND THAT CL . (D) OF S. 43(5) INTRODUCED BY FINANCE ACT, 2005 W.E.F. 1ST APRIL, 2 006 WAS PROSPECTIVE IN NATURE AND WOULD BE EFFECTIVE FROM T HE DATE FROM WHICH THE LEGISLATURE MADE IT EFFECTIVE, I.E. AY200 6-07 ONWARDS. THE CASE OF THE ASSESSEE BEFORE US RELATES TO AY 20 08- 09 AND THEREFORE, APPLICABILITY OF AFORESAID CL. (D) OF S. 43(5) OF THE ACT IS REQUIRED TO BE EXAMINED. SINCE NEITHER' THE AO 'NOR THE ID. CIT(A) EXAMINED THE APPLICABILITY OF SAID CLAUSE (D) NOR R ELEVANT FACTS AND FIGURES ARE BEFORE US, WE CONSIDER IT FAIR AND APPR OPRIATE TO SET ASIDE THE ORDER OF THE ID. CIT(A) AND RESTORE THE M ATTER TO THE FILE OF THE AO FOR DECIDING THE AFORESAID ISSUE RAISED IN G ROUND NO.3 IN THE APPEAL BEFORE US, AFRESH IN ACCORDANCE WITH LAW , AFTER ALLOWING SUFFICIENT OPPORTUNITY TO THE ASSESSEE. NE EDLESS TO SAY THAT WHILE REDECIDING THE ISSUE, THE AO SHALL PASS A SPEAKING ORDER, BRINGING OUT CLEARLY AS TO THE NATURE OF DER IVATIVES AND AS TO WHETHER OR NOT THE TRANSACTIONS IN THE SAID DERIVAT IVES WERE SPECULATIVE IN NATURE OR WERE ELIGIBLE TRANSACTIONS WITHIN THE MEANING OF CLAUSE (D) OF THE PROVISO TO THE SECTION 43(5) OF THE ACT. WITH THESE OBSERVATIONS, GROUND NO. 3 IN THE APPEAL IS DISPOSED OF. 11 8. THE FACTS ARE IDENTICAL THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES HAS BEEN POINTED OUT. TAKING A CONSISTENT VIEW WE DIRECT THE AO TO DECIDE THE ISSUE IN THE LIGHT OF THE DECI SION OF THE TRIBUNAL IN ITA NO. 5210/DEL/2011. ACCORDINGLY THE ORDER OF THE LD. CIT(A) ON THIS ISSUE IS MODIFIED GROUND RAISED IN THI S APPEAL IS DISPOSED OF IN THE MANNER STATED HEREIN ABOVE. 9. IN THE RESULT APPEAL OF THE REVENUE IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. THIS DECISION WAS PRONOUNCED IN THE OPEN COURT ON 3 RD APRIL, 2018. SD/- SD/- (G.D. AGRAWAL) (KUL BHARAT ) HONBLE PRESIDENT JUDICI AL MEMBER DATED: 03/04/2018 VEENA COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI