ACIT, Bangalore V. Sri. Rajiv Khaitan, Bangalore

ITA 666/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60764 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-06-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 17-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Transactions in derivatives; Retrospective amendment; Speculation loss; Speculative transactions
• Section: 43(5); 263

Judgement Text

PAGE 1 OF 14 ITA NO.666/BANG/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI N BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NO.666/BANG/2011 (ASSESSMENT YEAR 2006-07) THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE- 7(1), BANGALORE-1. VS SRI RAJIV KHAITAN, NO. 589, SYNDICATE BANK ROAD, INDIRANAGAR 1 ST STAGE, BANGALORE-38. PA NO.AAGPK7518M (APPELLANT) (RESPONDENT) C.O.NO.45/BANG/2011 (BY ASSESSEE) DATE OF HEARING : 28.06.2012 DATE OF PRONOUNCEMENT : 04.07.2012 REVENUE BY : SMT. SUSAN THOMAS JOSE, J CIT ASSESSEE BY : SHRI C J BRITO, C.A. ORD ER PER GEORGE GEORGE K : THE DEPARTMENTS APPEAL AND ASSESSEES CROSS OBJE CTION ARE DIRECTED AGAINST THE ORDER OF THE CIT(A)-III, BANGA LORE, DATED 11.2.2011. THE RELEVANT ASSESSMENT YEAR IS 2006-07. 2. THE ONLY EFFECTIVE GROUND RAISED IN THE DEPARTME NTS APPEAL READS AS FOLLOWS:- THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW SET OFF OF BROUGHT PAGE 2 OF 14 ITA NO.666/BANG/2011 2 FORWARD LOSS ARISING FROM TRANSACTIONS IN DERIVATIVES AMOUNTING TO RS.88,82,747/- PERTAINING TO ASSESSMENT YEARS 2004-05 AND 2005-06 HOLDING THAT THE BROUGHT FORWARD LOSS IS BUSINESS LOSS, WITHOUT APPRECIATING THE FACT THAT THE AMENDMENT TO SEC.43(5) OF THE ACT, 1961, AS MADE BY THE FINANCE ACT 2005 IS EFFECTIVE FROM THE ASSESSMENT YEAR 2006-07 AND NOTHING CONTAINED IN THE AMENDED PROVISIONS MANDATES TREATING BROUGHT FORWARD SPECULATION LOSS OF EARLIER YEARS AS BUSINESS LOSS. 3. BRIEFLY STATED THE FACTS ARE AS FOLLOWS:- THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSI NESS OF TRADING IN DERIVATIVES AND AN INVESTOR IN EQUITY SHARES OF L ISTED SECURITIES. IN THE RELEVANT ASSESSMENT YEAR 2006-07, THE ASSESSEE HAD E ARNED A PROFIT FROM THE BUSINESS OF TRADING IN DERIVATES OF RS.1,33,38, 251/-. THE ASSESSEE HAD BROUGHT FORWARD LOSS FROM THE SAME BUSINESS OF TRAD ING IN DERIVATIVES CARRIED ON BY HIM IN HIS INDIVIDUAL CAPACITY FOR THE EARLIER YEARS I.E. ASSESSMENT YEARS 2004-05 (RS.18,85,611) AND ASSESSME NT YEAR 2005-06 (RS.69,97,136) BOTH OF WHICH WERE ALLOWED TO BE CAR RIED FORWARD TO ASSESSMENT YEAR 2006-07. THE SAID BROUGHT FORWARD L OSS FROM THE BUSINESS OF TRADING IN DERIVATIVES OF ASSESSMENT YEAR 2004-0 5 AND ASSESSMENT YEAR 2005-06 AMOUNTING TO RS.88,82,747/- WAS SET OFF AGA INST THE PROFIT FROM THE BUSINESS OF TRADING IN DERIVATIVES IN ASSESSMEN T YEAR 2006-07 RESULTING IN A TAXABLE INCOME OF RS.44,55,504/- FROM DERIVATI VE TRADING BUSINESS FOR THE ASSESSMENT YEAR 2006-07. PAGE 3 OF 14 ITA NO.666/BANG/2011 3 3.1 THE ASSESSING OFFICER, HOWEVER, DID NOT ALLOW THE SET OFF OF BROUGHT FORWARD LOSS AMOUNTING TO RS.88,82,747/- PE RTAINING TO THE ASSESSMENT YEAR 2004-05 AND 2005-06 AGAINST THE PROF ITS FROM THE BUSINESS OF TRADING IN DERIVATIVES FOR THE ASSESSMENT YEAR 20 06-07. THE REASONING OF THE ASSESSING OFFICER IN DENYING THE BENEFIT OF S ET OFF ARE AS FOLLOWS:- THE AMENDMENT TO SEC.43(5) HAS BEEN CARRIED OUT BY THE FINANCE ACT 2005 AND IT IS CLEARLY STATED THAT IT IS EFFECTIVE ONLY FROM 1.4.2006. THERE IS NO RETROSPE CTIVE EFFECT ENVISAGED BY THE AMENDMENT. THERE IS NO SPECIFIC MENTION OF THE SAME ANYWHERE EITHER IN THE ACT OR THE RULES OR THE MEMO EXPLAINING THE PROVISION O F THE FINANCE BILL 2005. HENCE THE ASSESSEES CLAIM THAT THERE IS A PRESUMPTION OF RETROSPECTIVE EFFECT AND THE PROVISION SHOULD BE CONSIDERED AS BENEFICIAL IS INC ORRECT. FURTHER, THE EXPLANATION TO SEC.43(5) WHICH DEFINES THE ELIGIBLE TRANSACTION HAS ALSO BEEN INSERTED W.E.F . 1.4.2006. ALSO THE RULE 6DDA WHICH DEFINES THE CONDITIONS FOR A STOCK EXCHANGE TO BE CONSIDERED AS A RECOGNIZED STOCK EXCHANGE FOR THE PURPOSE OF CLAUSE (D) OF PROVISO TO CLAUSE 5 OF SEC.43 HAS ALSO BEEN INSE RTED W.E.F. ASSESSMENT YEAR 2005-06. WITHOUT THE FRAME WORK OF RULES, THE DEFINITION OF THE ELIGIBLE TRANS ACTION FOR THE PURPOSE OF SEC.43(5)(D) IS NOT POSSIBLE. A S THE RULES HAVE BEEN INSERTED BY FINANCE ACT 2005 THERE I S NO SCOPE FOR DEFINING THE ELIGIBLE TRANSACTION FOR THE PURPOSE OF SEC.43(5)(D). FURTHER, IN THE ABSENCE O F ANY OF THESE CONDITIONS, IT WOULD BE INCORRECT TO PRESU ME THAT THE DERIVATIVE TRANSACTIONS CARRIED OUT IN THE ASSESSMENT YEAR 2004-05 AND 2005-06 WOULD FALL UNDER THE SCOPE OF SEC.43(5)(D). FROM THE MEMO EXPLAININ G THE PROVISIONS OF THE FINANCE BILL IT IS VERY CLEAR THAT ONLY AFTER THE INTRODUCTION OF SYSTEMIC AND TECHNOLOGICA L CHANGES INTRODUCED BY STOCK MARKETS WHICH HAVE RESUL TED IN SUFFICIENT TRANSPARENCY TO PREVENT GENERATING PAGE 4 OF 14 ITA NO.666/BANG/2011 4 FICTITIOUS LOSSES, THE NEED FOR DISTINCTION BETWEEN SPECULATIVE AND NON-SPECULATIVE TRANSACTIONS WAS FO UND INESSENTIAL. SINCE THE CHANGES MADE WERE FOUND TO BE ADEQUATE, THE AMENDMENT WAS BROUGHT IN THROUGH THE FINANCE BILL 2005. THEREFORE, IT IS NOT POSSIBLE T O GIVE THE BENEFIT OF SET OFF OF SPECULATIVE LOSSES OF ASSESSMENT YEAR 2004-05 AND 2005-06 AGAINST THE BUSINESS INCOME OF ASSESSMENT YEAR 2006-07. HENCE RS.88,82,747/- IS DISALLOWED FROM BEING SETOFF AGAI NST BUSINESS INCOME FOR ASSESSMENT YEAR 2006-07 AND THE SAME IS TAXED ACCORDINGLY. 4. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). 5. BEFORE THE FIRST APPELLATE AUTHORITY THE ASSESSE E HAD SUBMITTED THAT : (I) IN THE INTEREST OF JUSTICE AND EQUITY, THE ASSES SEE SHOULD BE ALLOWED SET OFF OF THE PAST LOSSES AGAINST INCOM E FROM THE SAME SOURCE PARTICULARLY SINCE THE BROUGHT FORWARD LOSS OF THE EARLIER YEARS FROM THE SPECULATION BUSINESS (DERIVATIVE) WERE DULY ASSESSED AND ALLOWED TO BE CARRIED FORWARD. THE TIME LIMIT FOR ALLOWING LOSS TO BE CARRIED FORWARD HAD ALSO NOT EXPIRED. THE SAME BUSINESS WAS CARRIED OUT BY THE ASSESSEE IN THE PREVIOUS YEAR IN WHICH THE SAID LOSSES AROSE AND THE SAME DERIVATIVE BUSINESS IS ALSO CARRIED ON IN THE CURRENT FINANCIAL YEAR UNDER APPEAL. THERE IS NO CHANGE IN THE PATTERN AND CHARACTER OF THE TRANSACTION IN AY 2004-05 AND AY 2005-06 AND THE TRANSACTIONS ENTERED IN THE CURRENT YEAR UNDER APPEAL. PAGE 5 OF 14 ITA NO.666/BANG/2011 5 (II) IN RESPECT OF EACH OF THE THREE RELEVANT ASSESSMENT YEARS I.E. 2004-05, 2005-06 AND 2006-07, THE DERIVATIVE TRANSACTIONS (F&O TRANSACTIONS) WERE CARRIED OUT SOLELY THROUGH NATIONAL STOCK EXCHANGE (NSE), A RECOGNIZED STOCK EXCHANGE AND OWNED BY FINANCIAL INSTITUTIONS, BANKS AND FINANCIAL INTERMEDIARIES (PUBLIC SECTOR UNDERTAKINGS). THESE TRANSACTIONS ARE VERIFIABLE WITH CONTACT NOTES ISSU ED BY THE SEBI APPROVED BROKERS WHICH DISCLOSE THE ORDER NO., TRADE NO., DATE AND TIME OF THE TRANSACT ION, QUANTITY, PRICE, UNIQUE CLIENT IDENTIFICATION NUMBER AND A CLEAR AUDIT TRAIL IS AVAILABLE WITH THE STOCK EXCHANGE. THESE CONTRACT NOTES WERE PRODUCED BEFORE THE CIT(A) FOR EXAMINATION IN RESPECT OF EAC H OF THE THREE RELEVANT THREE YEARS IN QUESTION. (III) THEREFORE, IN NOT ALLOWING THE SET OFF TO THE ASSES SEE WOULD LEADS TO AN ABSURD SITUATION WHEREBY THE LOSS FROM THE SAME BUSINESS IS NOT ALLOWED TO BE SET OFF AGAINST THE PROFIT FROM THE SAME BUSINESS. (IV) THAT APART SECTION 43(5)(D) INVOKED BY THE ASSESSING OFFICER DOES NOT CONTAIN ANY PROVISIONS TO PREVENT T HE CARRY FORWARD OF SUCH LOSSES OVER WHICH AN INHERENT AND LEGAL RIGHT HAD ARISEN TO CARRY FORWARD FOR 8 YEARS. (V) THAT ASIDE IT IS SEEN THAT THE SPECULATIVE BUSINESS IN RESPECT OF DERIVATIVE BUSINESS BEING TOTALLY ABROGAT ED FROM 01.04.2006, WOULD MEAN THAT THERE IS AN UNINTENDED LOSS FLOWING FROM THE IMPUGNED ASSESSMEN T ORDER. THAT IS TO SAY THE BENEFIT OF SET OFF OF SUC H LOSS BEING NEVER AVAILABLE ON THE DERIVATIVE BUSINE SS HAS LOST ITS SHEEN AND VALIDITY. THIS IS NOT IN THE SPIRIT OF THE ACT AND BESIDES SECTION 43(5)(D) DOES NOT SPECIFICALLY CONTAIN A PROVISION TO DENY THE SET OFF OF THE LOSSES INCURRED IN EARLIER YEARS WHICH OTHERWISE WOULD HAVE BEEN AVAILABLE TO THE ASSESSEE RESULTING IN SUCH BROUGHT FORWARD LOSS NOT SERVING THE DESIRED PURPOSE. PAGE 6 OF 14 ITA NO.666/BANG/2011 6 (VI) AGAIN EXAMINATION THE PATTERN AND CHARACTER OF THE TRANSACTION IN ASSESSMENT YEAR 2004-05 AND ASSESSMENT YEAR 2005-06 ALONG WITH THE TRANSACTION OF THE CURRENT YEAR IT IS SEEN THAT THERE IS NO CHAN GE IN THE PATTERN AND CHARACTER OF THE TRANSACTIONS. THE TRANSACTIONS IN ALL THESE 3 YEARS WERE PUT THROUGH THE NSE STOCK EXCHANGE WHICH IS ALWAYS A RECOGNIZED INSTITUTION AND IS NOT A PRIVATE ORGANIZATION BEING OWNED BY PUBLIC SECTION FINANCIAL INSTITUTIONS AND B EING STRICTLY MONITORED BY SEBI. FURTHER, THE SAID TRANSACTIONS ARE CLEARLY IDENTIFIABLE AND TRACEABLE THROUGH NSE. (VII) THE ASSESSING OFFICER HAD FAILED TO TAKE INTO CONSIDERATION ALL THESE FACTS THAT WERE PUT BEFORE HIM AND FAILED TO APPLY HIS MIND TO THE INHERENT RIGHT H ELD BY THE ASSESSEE, THE RIGHT TO CARRY FORWARD AND SET OFF. THE ASSESSING OFFICER ALSO FAILED TO CONSIDER THE FACT THAT SPECULATION ACTIVITIES HAVING BEEN STOPPE D BY THE AMENDMENT THE VESTED RIGHT OF CARRY FORWARD OF PAST LOSES CANNOT BE ALLOWED TO SUFFER A NATURAL DEATH. THE ASSESSING OFFICER SEEMS TO HAVE PROCEEDED WITH TOO TECHNICAL A VIEW AND FAILED TO DISTINGUISH THE FACTS TABULATED AND DETAILED IN THE MEMO TO THE FINANCE BILL OF 2005 ON WHICH THE ASSESSING OFFICE HEAVILY RELIED UPON. 5.1 BASED ON THE ABOVE SUBMISSIONS AND AFTER DETA ILED EXAMINATION OF THE FACTS OF THE CASE, THE HONBLE CIT(A) ALLOWE D THE APPEAL BY OBSERVING AS FOLLOWS: 7.0. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANTS AR. THE DERIVATIVE LOSS AGGREGATING TO RS. 88,82,747/- OCCURRED DURING THE AY 2004-05 AND AY 2005-06 WHICH IS SET OFF AGAINST THE PROFIT FROM TH E DERIVATIVE TRANSACTIONS DURING THE AY 2006-07 WERE ALL CARRIED OUT IN NSE, A RECOGNISED STOCK EXCHANGE OF INDIA. ALL THESE TRANSACTIONS WERE CLEARLY IDENTIFIED WITH DATE AND PAGE 7 OF 14 ITA NO.666/BANG/2011 7 TIME STAMPED CONTRACT NOTE GIVING DETAILS OF THE TRANSACTION AND UNIQUE TRANSACTION IDENTIFICATION N UMBER IS AFFIXED LEAVING A CLEAR AUDIT TRAIL TO VERIFY THE T RANSACTION. I HAVE EXAMINED THE SAMPLE COPIES OF THE CONTRACT N OTES FOR ALL THESE THREE YEARS AND IT IS ALSO OBSERVED T HAT THE NATURE AND CHARACTER OF THE DERIVATIVE TRANSACTIONS CARRIED OUT NSE STOCK EXCHANGE FOR THE YEARS AY 2004-05, AY 2005-06 AND AY 2006-07, WERE ALL SIMILAR TRANSACTIO NS. IT WOULD BE UNJUST TO DENY THE SET OFF OF LOSSES OF TH E AY 2004-05 AND AY 2005-06 AGAINST THE PROFIT OF AY 200 6- 07, THAT TOO FROM A SIMILAR SET OF TRANSACTIONS. I T IS CLEAR FROM THE FINANCE MEMO 2005 THAT IT IS NOT THE INTEN TION OF THE LAW TO DENY THE SET OFF OF BROUGHT FORWARD LOSSE S OCCURRED IN EARLIER YEARS WITH A SIMILAR TYPE OF TR ANSACTION IN AY 2006-07. THE PROVISION OF SECTION 43(5)(D) D OES NOT PROHIBIT THE SET OFF OF BROUGHT FORWARD LOSS FROM DERIVATIVE TRANSACTIONS AGAINST THE PROFIT FROM THE SAME TYPE OF TRANSACTIONS CARRIED OUT IN A RECOGNISED ST OCK EXCHANGE (NSE) DURING THE AY 2006-07. THE TRANSACTI ONS FOR THE AY 2004-05 AND AY 2005-06, ARE ALSO CARRIED OUT IN NSE AND WERE DULY ASSESSED BY THE ASSESSING OFFICE R AND NO DEVIATION IS FOUND WITH RESPECT TO PAST ACCU MULATED LOSSES. 7.1. FURTHER, THE DECISIONS OF THE HONBLE SUPREME COURT [SUPRA] RELIED UPON BY THE APPELLANT ARE DULY CONSIDE RED. THESE DECISIONS LAY DOWN THE PRINCIPLE THAT INJUSTIC E COULD NOT BE CAUSED TO THE ASSESSEE WHEN THE LAW DOES NOT EXPRESSLY PROHIBIT, AND THE LAW SHOULD BE CONSTRUED ACCORDINGLY WHICH RESULTS IN EQUITY RATHER THAN INJUS TICE. HENCE IT WOULD BE PREPOSTEROUS TO DENY THE BENEFIT O F SET OFF OF BROUGHT FORWARD LOSSES OF THE AY 2004-05 AND AY 2005-06 WHICH ARE SIMILAR FROM ALL PERSPECTIVE AS COMPARED TO THE TRANSACTIONS OF AY 2006-07. IN VIEW OF THIS, THE AO IS DIRECTED TO ALLOW THE SET OFF OF BR OUGHT FORWARD LOSS FROM DERIVATIVES AMOUNTING TO RS.88,82 ,747/- PAGE 8 OF 14 ITA NO.666/BANG/2011 8 6. THE REVENUE BEING AGGRIEVED IS IN APPEAL BEFORE US. 7. THE LEARNED DR SUBMITTED THAT THE LOSSES PERTAI NING TO ASSESSMENT YEARS 2004-05 AND 2005-06 ARE SPECULATIVE LOSSES. IT WAS SUBMITTED THAT BY AMENDMENT TO SECTION 43(5)(D), WHI CH WAS EFFECTIVE FROM AND FOR ASSESSMENT YEAR 2006-07, THE DEALING IN DER IVATIVE WITHOUT PHYSICAL DELIVERY WAS TREATED AS BUSINESS INCOME. SINCE FOR THE CONCERNED ASSESSMENT YEAR THE ASSESSEE HAD DERIVED PROFITS FRO M TRADING IN DERIVATIVES, WHICH IS A BUSINESS INCOME, THE BROUGH T FORWARD SPECULATIVE LOSSES COULD NOT BE SET OFF. 8. THE LEARNED AR SUBMITTED THAT THE ISSUE IN QUES TION IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL IN THE CASE OF GAJENDRA KUMAR T AGARWAL. A COPY OF THE ORDER OF THE TRIBUNAL (SUPRA ) WAS PLACED ON RECORD. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. THE ORDER OF THE HONBLE CIT (A) UNDER APPEAL FINDS SUPPORT IN A RECENT DECISION OF THE INCOME TAX APPELLATE TRIBU NAL MUMBAI G BENCH IN ITA NO 1798 /MUM /2010 DATED MAY 31, 2011. 9.1 IN THE CASE OF GAJENDRA KUMAR T AGARWAL CITE D SUPRA, THE ASSESSEE MADE PROFIT FROM TRADING IN DERIVATIVES FO R THE AY 2006-07 AMOUNTING TO RS. 1,91,48,060/-. IN THE EARLIER ASSE SSMENT YEARS 2001-02, 2002-03, 2003-04 AND 2005-06, THE ASSESSEE HAD INCU RRED LOSSES FROM THE SAME ACTIVITY (TRADING IN DERIVATIVES) AND HENCE A T OTAL SUM OF RS. 4,68,75,320 WAS B/F TO AY 2006-07. OUT OF THE L OSSES SO BROUGHT FORWARD FROM THE EARLIER ASSESSMENT YEARS THE ASSES SEE HAD CLAIMED SET PAGE 9 OF 14 ITA NO.666/BANG/2011 9 OFF FOR A SUM OF RS. 1,91,48,060/- AGAINST THE PROF ITS FROM TRADING IN DERIVATIVES IN THE ASSESSMENT YEAR 2006-07. THE ASSE SSING OFFICER IN HIS ASSESSMENT ORDER ALLOWED THE SET OFF CLAIMED BY THE ASSESSEE AND THE BALANCE OF THE UNABSORBED LOSSES WAS ALLOWED TO BE CARRIED FORWARD. THE LEARNED CIT UNDER SECTION 263 MADE A REVISION TO TH E AO ORDER AS HE CONSIDERED THE ASSESSMENT ORDER ERRONEOUS AND PREJU DICIAL TO THE INTEREST OF THE REVENUE AND DISALLOWED THE SET OFF OF LOSSES FROM DERIVATIVE TRANSACTIONS OF THE EARLIER YEARS AGAINST THE PROFIT S MADE FROM DERIVATIVE TRANSACTIONS DURING THE AY 2006-07. ON APPEAL BEFOR E THE HONBLE ITAT MUMBAI G BENCH THE ORDER OF THE LEARNED CIT WAS S ET ASIDE AND THE APPEAL OF THE ASSESSEE WAS ALLOWED. 9.2 IN PARA 5 OF THE ORDER HONBLE ITAT MUMBAI G BENCH COMMENTED THAT THE ISSUE BEFORE THEM WAS NOT WHETHE R OR NOT THE TRANSACTIONS IN DERIVATIVES AMOUNTED TO 'SPECULATIV E TRANSACTIONS' UNDER SECTION 43(5) AT THE RELEVANT POINTS OF TIME, I.E., AT THE POINT OF TIME WHEN LOSSES WERE INCURRED IN THE PRECEDING ASSESSMENT YEA RS, AS ALSO AT THE POINT OF TIME WHEN PROFITS ARE MADE IN THE SAME TYPE OF TR ANSACTIONS, BUT , WHETHER OR NOT THE LOSSES INCURRED IN DEALING IN DE RIVATIVES IN THE EARLIER ASSESSMENT YEARS ARE ELIGIBLE TO SET OFF AGAINST THE PROFITS FROM THE SAME ACTIVITY POST AMENDMENT TO DEFINITION OF 'SPECULATIO N TRANSACTIONS' UNDER SECTION 43(5) WITH EFFECT FROM 1ST APRIL 2006. 9.3 THE MUMBAI TRIBUNAL IN ITS ORDER HAS COMMENTE D ON THE STATEMENT MADE BY THE HONBLE FINANCE MINISTER, WHILE INTRODUCING THE AMENDMENT UNDER SECTION 43(5)(D) ON THE FLOOR OF TH E HOUSE. THE PAGE 10 OF 14 ITA NO.666/BANG/2011 10 OBSERVATION OF THE TRIBUNAL IN PARA 12 OF THE ORDER ARE REPRODUCED HEREWITH :- WHAT CLEARLY EMERGES FROM THE ABOVE IS (I) THAT IT W AS NOT ON ACCOUNT OF A SOME SUDDEN DEVELOPMENT, WHICH CHANGED THE SECURITIES MARKET OVER-NIGHT, BUT TO KE EP PACE WITH, AS THE HON'BLE FINANCE MINISTER PUT IT, 'SIGNIFICANT DEVELOPMENTS IN THE PAST DECADE (EMPHASIS BY UNDERLINING SUPPLIED BY US NOW) IN THE CAPITAL MAR KET INCLUDING THE INTRODUCTION OF TRADING IN FINANCIAL DERIVATIVES' ; (II) THAT THE RELIEF WAS MEANT FOR O NLY SUCH DERIVATIVES TRADING AS WAS DONE ON THE RECOGNISED S TOCK EXCHANGES ; (III) THAT IT WAS THE FIRST TIME WHEN T HE INCOME-TAX ACT, 1961 TOOK NOTE OF THE DERIVATIVES TRADING ; AND (IV) THAT THIS MEASURE OF AMENDING SE CTION 43(5) WAS A MEASURE TO BRING RELIEF TO THE ASSESSEE . 9.4. THE HONBLE MUMABI ITAT IN PARA 20 OF THE OR DER REFERRING TO THE DECISIONS OF THE HONBLE SUPREME COURT DECISION S IN THE CASE OF CIT VS MANMOHAN DAS (59 ITR 699) READ WITH HONBLE BOMBAY HIGH COURTS JUDGMENT IN THE CASE OF WESTERN INDIA OIL DISTRIBUTING LTD VS CIT (126 ITR 497) , HAS SET OUT THREE SIGNIFICANT PROPOSITIONS WHICH ARE SUMMED UP AS FOLLOWS: I. FIRST, THAT THE CALL, AS TO WHETHER A PARTICULAR B USINESS LOSS, SPECULATIVE OR NON-SPECULATIVE, INCURRED BY THE ASSE SSEE IN AN EARLIER YEAR IS ELIGIBLE FOR SET OFF AGAINST BUSI NESS INCOME IN A SUBSEQUENT YEAR, IS TO BE TAKEN IN THE COURSE O F PROCEEDINGS IN THE SUBSEQUENT ASSESSMENT YEAR, I.E. THE ASSESSMENT YEAR IN WHICH SET OFF IS CLAIMED. HONBLE SUPREME COURT HAS SET OUT THIS PROPOSITION AND THIS PROPOSITION WAS LATER CLARIFIED, IN UNAMBIGUOUS WOR DS, BY HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF WE STERN INDIA OIL DISTRIBUTING LTD VS CIT (126 ITR 497), WH ICH WAS APPROVED BY HONBLE SUPREME COURT IN THE JUDGMENT PAGE 11 OF 14 ITA NO.666/BANG/2011 11 REPORTED AS CIT VS WESTERN OIL DISTRIBUTING LTD (24 9 ITR 517). II. SECOND, THAT SECTION 24(2) OF THE 1922 ACT, WHICH I S THE SAME AS SECTION 73 (2) IN ALL MATERIAL RESPECTS, CO NFERS A STATUTORY RIGHT UPON THE ASSESSEE WHO SUSTAINS A LOS S OF PROFITS IN ANY YEAR IN ANY BUSINESS, PROFESSION OR VOC ATION TO CARRY FORWARD THE LOSS AS IS NOT SET OFF UNDER SUB-S ECTION (1) TO THE FOLLOWING YEAR, AND TO SET IT OFF AGAINST HIS PROFITS AND GAINS, IF ANY, FROM THE SAME BUSINESS, PROFESSIO N OR VOCATION FOR THAT YEAR. THE PROPOSITION THAT IS SET OUT IS IN FACT IN THE WORDS EMPLOYED BY THEIR LORDSHIPS AND IT DOES NOT NEED ANY ELABORATION. ONCE THIS STATUTORY RIGHT IS RECOGNIZED, IT IS A NATURAL COROLLARY OF THAT RECOGN ITION THAT WHEN AN ASSESSEE INCURS A LOSS IN A BUSINESS, SPECU LATIVE OR NON-SPECULATIVE, IN AN YEAR, SUCH LOSS HAS TO BE, SU BJECT TO FULFILLMENT OF OTHER PRECONDITIONS, IS TO BE SET OF F AGAINST THE PROFITS OF THE SAME BUSINESS IN SUBSEQUENT YEAR. III. THIRD, THAT IN THE COURSE OF PROCEEDINGS OF THE SUB SEQUENT ASSESSMENT YEAR, I.E. THE ASSESSMENT YEAR IN WHICH SE T OFF OF LOSS IS CLAIMED, IT IS OPEN TO EVEN DECIDE THE TRUE NATURE AND CHARACTER OF LOSS INCURRED IN THE EARLIER RELEVANT ASSESSMENT YEAR. IN OTHER WORDS, EVEN A FINDING ABOUT THE NATUR E OF LOSS, IN THE ASSESSMENT YEAR IN WHICH LOSS IS INCURR ED, DOES NOT BIND THE ASSESSEE, AND THAT ASPECT OF THE MATTE R CAN BE DECIDED AFRESH IN THE COURSE OF PROCEEDINGS IN THE ASSESSMENT YEAR IN WHICH SET OFF IS CLAIMED. AS NOTE D IN THIRD PARAGRAPH OF HONBLE SUPREME COURTS JUDGMENT ITSELF, IN MAKING HIS ORDER OF ASSESSMENT FOR THE YEAR 1950 -51, THE INCOME-TAX OFFICER DECLARED THAT THE LOSS COMPU TED IN THAT YEAR COULD NOT BE CARRIED FORWARD TO THE NEXT YE AR UNDER SECTION 24(2) OF THE INCOME-TAX ACT, AS IT WA S NOT A BUSINESS LOSS AND YET, WHILE DEALING WITH THE ASSES SMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 1951-52, IT WAS HELD THAT LOSS INCURRED BY THE ASSESSEE IN 1950-51 WAS BUSINESS LOSS IN NATURE. SIMILARLY, AS HELD BY HONBLE BOMBAY HIGH COURT IN THE CASE OF WESTERN INDIA OIL (SUPRA) AND AS PAGE 12 OF 14 ITA NO.666/BANG/2011 12 CONFIRMED BY HONBLE SUPREME COURT, LOSSES DETERMINE D UNDER THE HEAD INCOME FROM OTHER SOURCES , WHICH HAD ATTAINED FINALITY, WERE SUBSEQUENTLY TREATED AS BUSI NESS LOSSES THOUGH FOR THE LIMITED PURPOSES OF ELIGIB ILITY FOR SET OFF AGAINST PROFITS FROM SAME ACTIVITY IN SUBSEQUENT YEARS. 9.5. IN PARA 16 OF THE ORDER THE HONBLE MUMBAI I TAT BENCH HAS SAID THAT THE LEGAL POSITION, AS EMERGING FROM SEC TIONS 72 AND 73 OF THE ACT AS INTERPRETED BY THE CALCUTTA HIGH COURT IN CIT VS SOO RAJMAL BAIJNATH AGENCIES PVT. LTD. ( 272 ITR 325) IS THAT A BUSINESS LOSS, S PECULATIVE OR NON-SPECULATIVE, INCURRED BY AN ASSESSEE IN ONE ASSESSMENT YEAR CAN BE SET OFF AGAINST BUSINESS LOSS AGAINST THE PROFITS OF THE SAME BUSINESS, SPEC ULATIVE OR NON-SPECULATIVE, OR ANY OTHER BUSINESS IN THE SAME CATEGORY. 9.6. THE HONBLE MUMBAI ITAT FINALLY DECIDED THE MATTER IN FAVOUR OF THE ASSESSEE AND CONCLUDED IN PARA 29 TO PARA 3 1 OF THE SAID ORDER AS FOLLOWS : 29. IN VIEW OF THE GUIDANCE SO GIVEN BY THEIR LORD SHIPS, WE HAVE TO PROCEED ON THE BASIS THAT DESPITE INEXACTI TUDE IN THE LANGUAGE USED, AS WAS THE EXPRESSION APPROVED BY HONBLE SUPREME COURT, THE PROVISIONS OF CARRY FORWA RD AND SET OFF ARE TO BE CONSTRUED IN A MANNER SO AS NOT T O DEFEAT THE PLAIN AND UNAMBIGUOUS INTENTION OF THE LEGISLAT URE. IN OUR CONSIDERED VIEW, THIS AMENDMENT WAS TO PROVIDE RELIEF TO THE TAXPAYERS AND IS TO BE VIEWED AS BENEFICIAL PROVISIONS, AS SUCH, AND ONE CANNOT POSSIBLY PROCEED ON THE BASIS THAT THE OBJECT OF MAKING AMENDMENT IN SECTIO N 43(5) WAS TO KILL THE BROUGHT FORWARD LOSSES OF DEA LING IN DERIVATIVES OR MAKE THEM INELIGIBLE FOR BEING SET O FF AGAINST THE PROFITS OF THE SAME BUSINESS IN SUBSEQU ENT YEARS. WHATEVER MAY BE CHARACTERIZATION OF INCOME FOR THE PURPOSE OF INTRA-ASSESSMENT YEAR SET OFF IN THE RELE VANT ASSESSMENT YEAR, AND IRRESPECTIVE OF THE FACT THAT S UCH A PAGE 13 OF 14 ITA NO.666/BANG/2011 13 CHARACTERIZATION HAS ACHIEVED FINALITY IN ASSESSMENT , THE LOSSES AND PROFITS FROM DEALING IN DERIVATIVES MUST BE CHARACTERIZED ON A UNIFORM BASIS IN THE ASSESSMENT YEAR IN WHICH SET OFF IS CLAIMED. VIEWED IN THIS PERSPECTIV E ALSO, THE CLASSIFICATION OF BUSINESS FOR THE LIMITED PURP OSE OF SET OFF OF PAST LOSSES, INTO SPECULATIVE AND NON-SPECUL ATIVE, IS TO BE DONE ON A UNIFORM BASIS, AND, WHICHEVER WAY ON E LOOKS AT IT, THE LOSSES INCURRED IN THE SAME BUSINESS IN EARLIER ASSESSMENT YEARS ARE TO BE TREATED AS ELIGIBLE FOR S ET OFF AGAINST PROFITS OF THE SAME BUSINESS, SUBJECT TO FU LFILLMENT OF OTHER CONDITIONS, IN THE SUBSEQUENT ASSESSMENT YE ARS. FOR THIS REASON ALSO, THE ASSESSEE DESERVES TO BE G RANTED SET OFF OF BROUGHT FORWARD LOSSES FROM BUSINESS OF DEALING IN DERIVATIVES, INCURRED IN ASSESSMENT YEARS PRIOR T O ASSESSMENT YEAR 2006-07 AGAINST PROFITS OF THE SAME BUSINESS IN ASSESSMENT YEARS 2006-07 AND SUBSEQUENT ASSESSMENT YEARS. 30. FOR THE REASONS SET OUT ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE WAS INDEED ELIGIB LE FOR SETTING OF LOSSES OF BUSINESS OF DEALING IN DERIVAT IVES, INCURRED IN THE ASSESSMENT YEARS PRIOR TO THE ASSESS MENT YEAR 2006-07, AGAINST THE PROFITS OF THE SAME BUSINE SS IN ASSESSMENT YEAR 2006-07. THERE WAS NO INFIRMITY IN TH E ASSESSING OFFICER GRANTING THE SAID SET OFF. THE ASSESSMENT ORDER, SUBJECTED TO IMPUGNED REVISION PROCEEDINGS, THUS COULD NOT BE HELD TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. ACCORDI NGLY, WE QUASH THE IMPUGNED REVISION PROCEEDINGS, AND SET AS IDE LEARNED COMMISSIONERS ORDER IN CHALLENGE BEFORE US . 31. IN THE RESULT, THE APPEAL IS ALLOWED. PRONOUNCE D IN THE OPEN COURT TODAY ON 31ST DAY OF MAY, 2011. 9.7.. NO CONTRARY JUDGEMENTS/ORDERS TO THAT OF THE ORDER OF THE MUMBAI TRIBUNAL IN THE CASE OF GAJENDRA KUMAR T AGA RWAL HAD BEEN BROUGHT TO OUR NOTICE. SINCE THE FACTS OF THIS CASE IS IDE NTICAL TO THE FACTS PAGE 14 OF 14 ITA NO.666/BANG/2011 14 CONSIDERED BY THE MUMBAI TRIBUNAL IN THE CASE OF GAJ ENDRA KUMAR T AGARWAL (CITED SUPRA), RESPECTFULLY FOLLOWING THE COORDINATE BENCH ORDER OF THE MUMBAI TRIBUNAL, WE HOLD THAT THE ORDER OF THE CIT( A) IS CORRECT AND IN ACCORDANCE WITH LAW AND NO INTERFERENCE IS CALLED F OR. IT IS ORDERED ACCORDINGLY. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 11. THE CROSS OBJECTION FILED BY THE ASSESSEE IS ON LY SUPPORTING THE ORDER OF THE FIRST APPELLATE AUTHORITY. SINCE WE HA VE ALREADY DISMISSED THE APPEAL FILED BY THE REVENUE, THE CROSS OBJECTION FIL ED BY THE ASSESSEE HAS BECOME REDUNDANT AND INFRUCTUOUS. HENCE, THE SAME IS DISMISSED AS INFRUCTUOUS. 12. IN THE RESULT, THE CROSS OBJECTION FILED BY T HE ASSESSEE IS DISMISSED. THE ORDER PRONOUNCED ON THE 4 TH DAY OF JULY, 2012 AT BANGALORE. SD/- SD/- (N BARATHVAJA SANKAR) (GEORGE GEORGE K) VICE PRESIDENT JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONCERNE D. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/ BY ORDER SENIOR PRIVATE SECRETARY, ITAT, BA NGALORE.