DCIT, New Delhi V. M/s. JPT Securities Pvt. Ltd., Mumbai

ITA 6615/DEL/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0785 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 05-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NAINA SOIN KABIL
• Assessee Lawyers: G S KOHLI
• Keywords: Transactions in derivatives; Earning of tax free income
• Section: 142(1); 14A

Judgement Text

1 ITA NO. 6615/DEL/2014 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SHRI N. K. SAINI, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER ITA NO. 6615/DEL/201 4 ( A.Y 2011-12) DCIT CIRCLE-13(2) NEW DELHI (APPELLANT) VS JPT SECURITIES PVT. LTD. 209,SKILL HOUSE, BANK STREET, CROSS LANE MUMBAI AAACJ2438A (RESPONDENT) APPELLANT BY SH. NAINA SOIN KABIL, SR. DR RESPONDENT BY SH. G. S. KOHLI, ADV ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER DATED 25/09/2014 PASSED BY CIT(A)-VIII, NEW DELHI FOR ASSESSMENT YE AR 2011-12. 2. THE GROUNDS FOR APPEAL ARE AS UNDER:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE & IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS. 5,03, 94,883/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF MARK TO MARKET LOSS CLAI MED BY THE ASSESSEE? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS. 5,03, 94,883/- WITHOUT APPRECIATING THE FACT THAT MARK TO MARKET LOSS IS A LOSS GENERATED THROUGH AN ACCOUNTING ENTRY RATHER THAN ACTUAL SALE OF A SECURITY AND IGNORING THE FINDING DATE OF HEARING 17.09.2018 DATE OF PRONOUNCEMENT 20.09.2018 2 ITA NO. 6615/DEL/2014 OF THE ASSESSING OFFICER IN THIS REGARD THAT NO ACTUAL SALE OR SETTLEMENT TOOK PLACE AND LOSS CLAIMED BY THE ASSESSEE WAS THUS ONL Y A NOTIONAL LOSS? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.13,26, 721/- U/S 14A R W RULE 8D? 4. THAT THE ORDER OF THE LD IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 5. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 3. THE ASSESSEE COMPANY IS A NON BANKING FINANCE CO MPANY AND IS MAINLY ENGAGED IN THE CAPITAL MARKET AND FINANCIAL SERVICES. RETURN DECLARING INCOME OF RS 3,07,87,481/- WAS E-FILED BY THE ASSES SEE COMPANY ON 31.03.2013. THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT. AS THE CASE WAS SELECTED FOR SCRUTINY, NOTICE U/S 143(2) OF THE I T . ACT, 1961 WAS ISSUED & SERVED UPON THE ASSESSEE BY ITO WARD 4(2), NEW DELH I. THE CASE WAS RECEIVED ON TRANSFER AND FRESH NOTICES U/S 143(2) DATED 22.1 1.2013 OF THE I T. ACT, 1961, WAS ISSUED & SERVED UPON THE ASSESSEE. NOTICE U/S 142(1) OF THE I T. ACT ALONG-WITH A DETAILED QUESTIONNAIRE DATED 26.12.201 3 WAS ISSUED AND SERVED ON THE ASSESSEE . IN RESPONSE TO THE NOTICE, CHARTERED ACCOUNTANT AND AUTHORIZED REPRESENTATIVE OF THE ASSESSEE COMPANY A TTENDED THE PROCEEDINGS FROM TIME TO TIME AND FURNISH THE REQUISITE DETAILS /INFORMATION, BOOKS OF ACCOUNTS WHICH WAS EXAMINED BY THE ASSESSING OFFICE R. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE CLAIM MARK TO MARKET LOS S ON DERIVATIVE INSTRUMENT AMOUNTING TO RS. 5,03,94,885/-. THE ASSESSEE WAS A SKED TO SHOW CAUSE AS TO WHY THE SAME SHOULD NOT BE DISALLOWED AS ACTUAL SAL E OR SETTLEMENT DID NOT TOOK PLACE. THE ASSESSEE FILED REPLY. THE ASSESSI NG OFFICER HELD THAT THE DETAILS FILED BY THE ASSESSEE IN SUPPORT OF ITS CLA IM FOR LOSS INCURRED ON TRADING IN FUTURE AND OPERATIONS SHOWS THAT NO ACTUAL SALE WAS DONE AND THE LOSS WAS ONLY A NOTIONAL LOSS. THE ASSESSING OFFICER FURTHE R HELD THAT THE ASSESSEE DID NOT PRODUCE ANY EVIDENCE THAT SUCH NOTIONAL LOSS WA S SETTLED BY MAKING 3 ITA NO. 6615/DEL/2014 PAYMENT OR CANCELLATION OF CONTRACT. THUS, THE ASS ESSING OFFICER HELD THAT THE LOSS IS NOT ADMISSIBLE AS PER PROVISIONS OF SECTIO N 43(5)(D) OF THE INCOME TAX ACT AND MAY DISALLOWANCE OF RS.5,03,94,883/-. THE ASSESSING OFFICER ALSO MADE DISALLOWANCE U/S 14A IN TERMS OF RULE 8D FOR R S.13,26,721/-. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT (A). THE CIT (A) ALLOWED THE APPEAL OF THE ASSESSEE. 5. THE LD. DR SUBMITTED THAT THE ASSESSEE IS A NON BANKING FINANCIAL INSTITUTE AND THE ASSESSING OFFICER RIGHTLY DISALLO WED MARK TO MARKET LOSSES BY RELYING UPON THE INSTRUCTION NO.03/2010 DATED 23/3/ 2010. THE LD. DR SUBMITTED THAT THE ASSESSING OFFICER RIGHTLY HELD T HAT THE NOTIONAL LOSS IS NOT ADMISSIBLE AS PER PROVISIONS OF SECTION 43(3) (D) O F THE ACT, BECAUSE IN THE PRESENT CASE THERE WAS NO SALE CONDUCTED BY THE ASS ESSEE. AS REGARDS GROUND NO. 3, THE LD. DR SUBMITTED THAT THE ASSESSING OFFI CER HAS RIGHTLY INVOKED SECTION 14A READ WITH RULE 8D. 6. THE LD. AR SUBMITTED THAT THE CIT (A) HAS EXTENS IVELY GIVEN THE DETAILS AS TO WHY MARK TO MARKET LOSS SHOULD NOT BE DISALLO WED. THUS, THE LD. AR SUBMITTED THAT THE LOSS WAS ACTUAL COMPONENT LOSS A ND THE PROFIT HAS BEEN ACCEPTED BY THE ASSESSING OFFICER AND ONLY LOSS HAS BEEN DISALLOWED BY THE ASSESSING OFFICER WHICH IS NOT PERMISSIBLE UNDER TH E ACT. AS REGARDS GROUND NO.3, THE LD. AR SUBMITTED THAT THERE WERE NO EXPEN SES AS THERE WAS A LOSS IN THE ASSESSEES CASE. THEREFORE, THE LD. AR RELIED UPON THE ORDER OF THE CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. AS REGARDS GROUND NO.1 & 2, THE CIT(A) HEL D AS UNDER:- I HAVE CONSIDERED THE OBSERVATIONS/CONTENTIONS GIVE N BY THE LEARNED A.O. IN RESPECT OF DISALLOWANCE OF 'MARK TO MARKET LOSS' AND THE WRITTEN SUBMISSION OF THE LEARNED A.R. WHERE HE ALSO PLACED ON THE RECORD THE 4 ITA NO. 6615/DEL/2014 WRITTEN SUBMISSION OF LETTER DATED 20/02/14 FILED B EFORE A.O. WHERE THE STATEMENT OF LOSS ARRIVED ON THE BASIS OF BILLS AND CONTRACT NOTES ISSUED BY THE STOCK BROKERS WERE PLACED ON THE RECORD AND F&O BUSINESS ACCOUNT MAINTAINED BY THE APPELLANT-COMPANY ALONG W ITH ALL THE SUPPORTED DOCUMENTS RELATED TO EACH TRANSACTIONS WE RE ALSO PRODUCED WHERE THE CONTRACT NUMBER, PERIOD OF PURCHASES AND EXPIRY PERIOD OF CONTRACT AND ON WHAT DATE THE SALE IS EFFECTED AND WHAT PROFIT OR LOSS EARNED ON EACH DERIVATIVE TRANSACTIONS ARE COVERED. IT HAVE NO DISPUTE THAT THE TRANSACTIONS WERE RENDERED THROUGH RECOGNI ZED REGISTERED BROKERS AND NOTIFIED EXCHANGE AND EACH TRANSACTIONS WAS CARRIED OUT ELECTRONICALLY ON SCREEN BASIS SYSTEM AND THE LEARN ED A.O. HAD FAILED TO PROVE THE FACTUM THAT ENTRIES IN RESPECT OF SUCH TR ANSACTIONS WERE SHAM PARTICULARLY WHERE IT WERE STATED BY FILING LETTER DATED 20/02/2014 THAT 'IN CASE IF STILL ANY CLARIFICATION IS REQUIRED PLE ASE LET US KNOW SO THAT THE SAME CAN BE COMPLIED WITH IN ACCORDANCE TO THE LAW'. THE TO AND NET PROFIT (LOSS) OF THE APPELLANT ON F&O BUSINESS IS AS UNDER:- SL. NO. LOSS (DR) PROFT (CR.) 1 RELIGARE SECURITIES LTD. 11,80,08,211 10,11,79,392 2 KEYNET FINANCE LTD. 11,70,76,575 9,03,05,181 3 JM FINANCIAL SERVICES LTD. 3,34,02,409 2,66,07,739 TOTAL 26,84,87,195 21,80,92,312 TURNOVER OF DERIVATIVE BUSINESS = RS. (21,80,92,312 + RS. 26,84,87,195) = RS. 48,65,79,507/-. 5 ITA NO. 6615/DEL/2014 NET LOSS OF DERIVATIVE BUSINESS U/S 43(5)(D) = RS. 5,03,94,883/-. THEREFORE, THE AR SHOULD GIVE TAX AUDIT REPORT U/S 44AB IN FUTURE, AS BUSINESS T.O. EXCEEDS MORE THAN 60 LAKHS. AS ALL FI GURES ARE COMPUTER GENERATED, SCREEN BASES AND TIME STAMPED, NO DEEP A UDIT IS REQUIRED. THUS SINCE THE LEARNED A.O. HAD FAILED TO RECORD A NY EVIDENCES CONTRARY TO DOCUMENTS FILED AND PRODUCED, THUS, SINCE THERE IS NO DISPUTE TO THE FACT THAT THE TRANSACTIONS WERE ELIGIBLE TRA NSACTIONS IN F&O SEGMENT AND ALSO CARRIED OUT THROUGH RECOGNIZED STOCK EXCHA NGES, LOSS IN SUCH TRANSACTIONS DESERVES TO BE CONSIDERED AS BUSINESS LOSS AND THUS DISALLOWANCE OF RS.5,03,94,883/- IS HEREBY DELETED. THUS, THE CIT(A) HAS GIVEN A DETAILED FINDING AS T HERE WAS NO DISPUTE THAT THE TRANSACTIONS WERE RENDERED THROUGH RECOGNIZED R EGISTERED BROKERS AND NOTIFIED EXCHANGE AND EACH TRANSACTIONS WAS CARRIED OUT ELEC TRONICALLY ON SCREEN BASIS SYSTEM. THIS FINDING WAS NOT CONTRADIC TED BY THE LD. DR. THEREFORE, GROUND NO. 1 AND 2 OF THE REVENUES APPE AL ARE DISMISSED. 8. AS REGARDS GROUND NO.3, THE CIT(A) HELD AS UNDER :- I HAVE GONE THROUGH THE A.O.'S ORDER WHERE I DO NO T FIND ANYWHERE THE FINDING MIGHT HAVE BEEN GIVEN BY HIM FOR THE EX PENSES INCURRED BY THE APPELLANT-COMPANY RELATED TO DIVIDEND INCOME. THERE IS NO BORROWED MONEY UTILISED FOR SUCH INVESTMENT. HENCE, NO INTER EST PAID. THAT KEEPING IN VIEW THE CITED CASES BY A.R. WHICH INCLUDES THE SUPREME COURT DECISION WHERE IT IS HELD FOR ATTRACTING SECTION 14A THERE HAS TO BE A PROXI MATE CAUSE FOR DISALLOWANCE WHICH IS IN RELATIONSHIP WITH THE TAX- ------- EXEMPT INCOME. THE APPELLANT COMPANY GOT UNSECURED INTEREST FREE LOAN OF RS. 6 ITA NO. 6615/DEL/2014 67,04,10,000/- FROM HOLDING CO. AWAITA PROPERTIES L TD. AND INVESTED RS. 53,06,88,553/- IN INVESTMENT DURING CURRENT YEAR. H ENCE THERE IS NO INTEREST PAID ON SUCH LOAN. THE AR VEHEMENTLY ARGUE D THAT NO DISALLOWANCE U/S 14A BE MADE IN THIS CASE. THE AUDITED ACCOUNTS PLACED ON THE RECORD ALSO DOE S NOT REVEALS ANY EXPENSES OF INTEREST WHICH MAY CREATE SUSPICION THAT THE INVESTMENT WERE MADE BY RAISING THE FUNDS. FURTHER KEEPING IN VIEW THE NATURE OF ACTIVITIES CARRIED OUT BY THE APPELLANT-COMPANY ALS O GIVES THE RELIEF AS HELD BY ITAT MUMBAI DECISION QUOTED BY THE A.O. (312 ITR 1TR (AT), (IRRESPECTIVE OF THE FACT THAT IT IS REFERRED BY LE ARNED A.O) THUS IN THESE CIRCUMSTANCES I AGREE WITH THE LEARNED AR THAT ACTI ON OF THE A.O. WAS NOT JUSTIFIED, THUS THE DISALLOWANCE OF RS.13,26,721/- U/S 14A IS DELETED. THE CIT(A) HAS GIVEN A CLEAR FINDING THAT THERE WAS NO BORROWED MONEY UTILISED FOR SUCH INVESTMENT AND THEREFORE, NO INTEREST WAS PAID BY THE ASSESSEE. THIS POSITION WAS NOT CONTRADICTED BY THE LD. DR. THUS, GROUND NO. 3 IS DISMISSED. THEREFORE, THERE IS NO NEED TO INTERFERE WITH THE O RDER OF THE CIT(A). HENCE, APPEAL OF THE REVENUE IS DISMISSED. 9. IN RESULT, THE APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH SEPTEMBER, 2018 . SD/- SD/- (N. K. SAINI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 20/09/2018 *R. N COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 7 ITA NO. 6615/DEL/2014 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION 17.09.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 18.09.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 20.09.2018 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 20.09.2018 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 20.09.2018 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER