GANGADHARAN MOHAN, MUMBAI V. ACIT RG 21(2), MUMBAI

ITA 6576/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0953 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 27-07-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 24-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MAHAPATRA
• Assessee Lawyers: SUNIL BHANDARI
• Keywords: Transactions in derivatives; Speculation loss
• Section: 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI PRAMOD KUMAR (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NO. 6576/MUM/2009 ASSESSMENT YEAR- 2006-07 SHRI GANGADHARAN MOHAN, C/O HARIVILAS C. THAKUR, CA, A-11, RAGHUKUL, S.V. ROAD, DAHISAR (E), MUMBAI-400 068 PAN-ACZPG2928A VS. THE ACIT, RANGE 21(2), PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX, MUMBAI-400 051 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SUNIL BHANDARI RESPONDENT BY: SHRI S.K. MAHAPATRA O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 13.11.2009 PASSED BY THE LD. CIT(A)-32 FOR THE ASSESSMENT YEAR 2006-07. 2. THE ONLY GROUND RAISED BY THE ASSESSEE READS AS FOLLOWS: THE LD. CIT(A) ERRED IN CONFIRMING THAT LOSS IN DE RIVATIVE TRADING INCURRED BETWEEN PERIOD 1.4.2005 AND 25.1.2 006 IS SPECULATIVE LOSS. 3. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD DECLARED PROFIT ON TRADING IN SHARES AND STOCK AT RS. 11,91, 515/- AND THE SAID PROFIT HAS BEEN SET OFF AGAINST LOSS IN TRADING IN SHARES AND STOCK AT RS. 2,03,41,762/-. SEC. 43(5)(D) OF THE I.T. ACT STATE D THAT AN ELIGIBLE ITA NO. 6576/M/09 2 TRANSACTION IN RESPECT OF TRADING DERIVATIVES CARRI ED OUT IN A RECOGNIZED STOCK EXCHANGE IS NOT TO BE DEEMED AS A SPECULATIVE TRANSACTION. IN THIS REGARD THE AO NOTED THAT THE SAID PROVISION BE CAME EFFECTIVE FROM THE DATE WHEN CBDT NOTIFIES THE EXCHANGE THROUGH WH ICH SUCH TRANSACTIONS HAVE BEEN CARRIED OUT. THE NOTIFICATI ON ISSUED BY THE CBDT RECOGNIZING THE STOCK EXCHANGES WHERE THE ASSE SSEE HAS TRANSACTED, IS EFFECTIVE FROM 25.01.2006 AND ACCORD INGLY, THE AO HELD THAT TILL 25.01.2006 ALL TRANSACTIONS IN FUTURE AND OPTION HAVE TO BE DEEMED AS SPECULATIVE IN NATURE. ACCORDINGLY, THE AO HELD THAT LOSS OF RS. 1,63,58,485/- INCURRED ON FUTURE AND OPTION TRA NSACTIONS UPTO 25.1.2006 WAS TREATED AS SPECULATION LOSS WHICH CAN BE SET OFF ONLY AGAINST PROFITS FROM SPECULATION IN FUTURE. 3. BEFORE THE LD. CIT(A) THE AR SUBMITTED THE DETA ILS OF PROVISIONS OF SEC. 43(5)(D). HE FURTHER SUBMITTED THAT THE LE GISLATURE HAS DELEGATED POWER TO NOTIFY THE STOCK EXCHANGES TO TH E CENTRAL GOVT. HOWEVER, THE CLAUSE DOES NOT MENTION THAT THE PROVI SIONS WILL BE EFFECTIVE FROM THE DATE OF SUCH NOTIFICATION BY THE CENTRAL GOVERNMENT. THEREFORE, BY MAKING THE PROVISIONS OF THE CLAUSE A PPLICABLE FROM THE DATE OF NOTIFICATION OF STOCK EXCHANGES ON 25.1.200 6, THE CENTRAL GOVT. HAS IN EFFECT DELAYED THE COMING INTO OPERATI ON OF THE CLAUSE UPTO 25.1.2006. THE AO HAS ALLOWED SPECULATION LOS S AT RS. 1,63,58,485/- TO BE CARRIED FORWARD TO BE SET OFF A GAINST SPECULATIVE INCOME. HOWEVER THE AO STATES IN PARA 5 OF THE ORD ER THAT THE TOTAL LOSS IS COMPUTED AT RS. 27,91,760/-. THIS IS INCOR RECT AS EVEN THE LOSS TREATED AS SPECULATIVE LOSS SHOULD BE SHOWN AS ASSE SSED LOSS. 4. THE LD. CIT(A) HELD AS FOLLOWS: ITA NO. 6576/M/09 3 THE LD. AUTHORISED REPRESENTATIVES CONTENTION IS WELL FOUNDED. THE BUSINESS LOSS TO BE CARRIED FORW ARD WORKS OUT TO RS. 27,91,760/- AND SPECULATION LOSS T O BE CARRIED FORWARD WORKS OUT TO RS. 1,63,58,485/-. TH E SAME IS NOT EXPLICITLY SO MENTIONED IN THE ASSESSMENT OR DER. THE AO IS DIRECTED TO ALLOW THE CARRY FORWARD OF BU SINESS LOSS OF RS. 27,91,760/- AND THE SPECULATION LOSS OF RS. 1,53,58,485/-. THIS GROUND OF APPEAL IS ACCORDINGL Y DISMISSED, ALTHOUGH THE ALTERNATIVE CLAIM OF CORREC T CARRY FORWARD OF BUSINESS LOSS AND SPECULATION LOSS IS AL LOWED. 5. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), ASSESS EE PREFERRED AN APPEAL BEFORE US AND OBJECTED TO THE CONFIRMATION O F LD. CIT(A) HOLDING THAT LOSS IN DERIVATIVE TRADING INCURRED BE TWEEN PERIOD 1.4.2005 AND 25.1.2006 IS SPECULATIVE LOSS. 6. THE LD. COUNSEL FOR THE ASSESSEE SHRI SUNIL BHAN DARI RELIED ON THE DECISION IN THE CASE OF G.K. ANAND BROS. BUILDW ELL (P) LTD. VS ITO 34 SOT 439 WHEREIN IT HAS BEEN HELD AS FOLLOWS: WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. SEC. 4 3(5) DEFINED SPECULATIVE TRANSACTION MEANS A TRANSACTI ON IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY INCLUDING STOCKS AND SHARES IS PERIODICAL OR ULTIMATELY SETTL ED OTHERWISE THAN BY THE ACTUAL DELIVERY OR THE TRANSFER OF COMM ODITY OR SCRIPS. PROVISO BELOW S. 43(5) CARVES OUT EXCEPTION S TO S. 43(5). AS PER CL. (D) OF THE SAID PROVISO 'AN ELIGIBLE TRA NSACTION IN RESPECT OF TRADING IN DERIVATIVES REFERRED IN SECUR ITIES CONTRACTS (REGULATION) ACT, 1956 CARRIED OUT IN A RECOGNIZED STOCK EXCHANGE SHALL NOT BE DEEMED TO BE A SPECULATIVE TR ANSACTION'. CLAUSE (D) IN THE PROVISO WAS INSERTED BY FINANCE A CT, 2005 W.E.F. 1ST APRIL, 2006. THEREFORE, IF A TRANSACTION FALLS WITHIN CL. (D) OF THE PROVISO WILL NOT BE DEEMED TO BE A SPECU LATIVE TRANSACTION IN RESPECT OF TRANSACTION PERTAINING TO ASST. YR. 2006- 07. UNDER CL. (D) OF THE PROVISO, A TRANSACTION IS NOT A SPECULATIVE TRANSACTION PROVIDED IT IS AN ELIGIBLE TRANSACTION WITHIN THE MEANING OF CL. (I) OF EXPLANATION AND IT IS CARRIED ON AT RECOGNIZED STOCK EXCHANGE AS EXPLAINED IN CL. (II) OF THE SAID EXPLANATION BELOW PROVISO TO S. 43(5)(D). THE RECOG NIZED STOCK EXCHANGE MEANS A RECOGNIZED STOCK EXCHANGE AS NOTIF IED BY THE ITA NO. 6576/M/09 4 CENTRAL GOVERNMENT FOR THIS PURPOSE. THEREFORE, EVE N IF THE NOTIFICATION IS FROM A PARTICULAR DATE, AS PER CL. (D) INSERTED, THE SAME WILL APPLY TO ALL THE TRANSACTIONS IN RELATION TO ASST. YR. 2006-07 AND ONWARDS. CLAUSE (D) DOES NOT MENTION TH AT UNLESS THE RECOGNIZED STOCK EXCHANGE IS NOTIFIED, THE TRAN SACTION WILL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION. THE POWER TO NOTIFY THE STOCK EXCHANGE IS GRANTED UNDER THE STAT UTE AND HENCE ONCE THE RECOGNIZED STOCK EXCHANGE IS NOTIFIE D, THE SAME WILL APPLY IN RESPECT OF ALL ELIGIBLE TRANSACTIONS CARRIED OUT IN RELATION TO FINANCIAL YEAR RELEVANT TO ASST. YR. 20 06-07 AND ONWARDS. THE SPECIAL BENCH OF TRIBUNAL IN THE CASE OF SHREE CAPITAL SERVICES LTD. (SUPRA) IN PARA 7 HELD THAT ' CL. (D) OF S. 43(5) IS PROSPECTIVE IN NATURE AND WILL BE EFFECTIV E FROM THE DATE FROM WHICH THE LEGISLATURE MADE IT EFFECTIVE, I.E., 1ST APRIL, 2006 AND WILL BE APPLICABLE TO ASST. YR. 2006-07 ONWARDS '. THE NOTIFICATION IS BY WAY OF A SUBORDINATED LEGISLATIO N BUT CANNOT OVERRIDE THE PRINCIPAL LEGISLATION ENACTED BY THE P ARLIAMENT. IT ONLY CLARIFIES BUT WILL NOT OVERRIDE UNLESS STATUTO RILY SO PRESCRIBED. SINCE THERE IS NO DISPUTE TO THE FACT T HAT THE TRANSACTIONS IN THE PRESENT CASE IN F&O SEGMENT ARE THE ELIGIBLE TRANSACTIONS CARRIED OUT IN A RECOGNIZED STOCK EXCH ANGE, LOSS IN SUCH TRANSACTIONS CANNOT BE DEEMED TO BE TRANSACTIO N IN SPECULATION BUSINESS. THE SAME BEING CONSIDERED AS REGULAR BUSINESS TRANSACTION, LOSS INCURRED IN THE SAME IS TO BE TREATED AS BUSINESS LOSS AND NOT LOSS IN SPECULATION BUSINE SS. IN THE RESULT, THE APPEAL IS ALLOWED. 7. RESPECTFULLY FOLLOWING THE DECISION OF THE DELHI TRIBUNAL (SUPRA) WE ALLOW THE ASSESSEES APPEAL. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 30 TH DAY OF JULY, 2010 SD/- SD/- (PRAMOD KUMAR ) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 30 TH JULY, 2010 RJ ITA NO. 6576/M/09 5 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR G BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 6576/M/09 6 DATE INITIALS 1 DRAFT DICTATED ON: 27.7.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 2 7 . 7 .2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______