The DCIT, Circle-4(1)(2), Ahmedabad V. M/s. Venus Enterprise Pvt. Ltd., Ahmedabad

ITA 797/AHD/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9743 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 30-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Speculation loss; Capital expenditure
• Section: 143(3); 43(5)

Judgement Text

, SMC IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SMT. MADHUMITA ROY, JUDICIAL MEMEBR ./ I.T.A. NO. 797/AHD/2017 ( ASSESSMENT YEAR : 2013-14) D.C.I.T. CIRCLE- 4(1)(2), AHMEDABAD / VS. M/S. VENUS ENTERPRISE PVT. LTD. 510, SAHJANAND TRADE CENTER, OPP. KOTHAWALA FLATS, PRITAMNAGAR, AHMEDABAD - 380006 ./ ./ PAN/GIR NO. : AAACV6467F ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI MUDIT NAGPAL, SR. D.R. / RESPONDENT BY : NONE DATE OF HEARING 15/11/2018 !'# / DATE OF PRONOUNCEMENT 12/12/2018 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF IN COME TAX (APPEALS)-8, AHMEDABAD (CIT(A) IN SHORT), DATED 1 6.01.2017 ARISING IN THE ASSESSMENT ORDER DATED 03.11.2015 PASSED BY THE ASSESSING OFFICER (AO) UNDER S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) CONCERNING ASSESSMENT YEAR 2013-14. ITA NO.797/AHD/17 [DCIT VS. M/S. VENUS ENTERPRISE PVT. LTD.] A.Y. 2013-14 - 2 - 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE REA D AS UNDER:- 1) WHETHER THE LD. CIT(A) IS RIGHT IN LAW AND ON F ACTS IN DELETING THE ADDITION U/S.73 OF THE ACT, MADE BY THE AO TREATING BUSINESS LOSS (AS CLAIMED BY THE ASSESSEE) OF RS.1,06,39,881/- AS SPECULATION LOSS. 3. WHEN THE MATTER WAS CALLED FOR HEARING, NONE APP EARED FOR THE ASSESSEE. 4. LEARNED DR RELIED UPON THE ORDER OF THE AO. 5. THE SHORT CONTROVERSY IN THE INSTANT CASE IS MAI NTAINABILITY OF THE ACTION OF THE AO IN TREATING THE LOSS ARISING O N SHARE DERIVATIVE TRANSACTIONS IN FUTURE AND OPTIONS TO THE TUNE OF R S.1,06,39,881/- AS SPECULATIVE LOSS. THE CIT(A) HAS EXAMINED THE ISSU E IN LENGTH AND FOUND MERIT IN THE APPEAL OF THE ASSESSEE. IT WAS OBSERVED BY THE CIT(A) THAT THE BASIC ARGUMENT OF THE ASSESSEE REVO LVES AROUND ITS PLEA THAT THE DERIVATIVE TRANSACTIONS STANDS EXCLUD ED FROM THE PURVIEW OF DEFINITION OF SPECULATIVE TRANSACTION IN VIEW OF THE CLAUSE (D) OF SECTION 43(5) OF THE ACT. THE CIT(A) AFFIRMED THE PLEA OF THE ASSESSEE THAT EXPLANATION TO SECTION 73 OF THE ACT WOULD NOT APPLY WHERE THE TRANSACTIONS DO NOT FALL WITHIN THE DEFINITION OF S ECTION 43(5) OF THE ACT. THE CIT(A) HAS TAKEN NOTE OF THE IDENTICAL IS SUE ARISING IN ASSESSEES OWN CASE CONCERNING AY 2011-12 IN ITA NO . 3635/AHD/2015 ORDER DATED 31.03.2016 WHEREIN IN THE IDENTICAL FACT SITUATION THE LOSS ARISING FROM SUCH TRANSACTIONS I N DERIVATIVE WERE HELD THAT BUSINESS LOSS INSTEAD OF SPECULATIVE LOSS . THE RELEVANT OPERATIVE PARA OF THE ORDER OF THE CO-ORDINATE BENC H OF ITAT IN ASSESSEES OWN CASE (SUPRA) CONCERNING AY 2011-12 I S REPRODUCED HEREUNDER: 9. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO GIVEN A THOUGHTFUL CONSIDERATION TO TH E DECISIONS ITA NO.797/AHD/17 [DCIT VS. M/S. VENUS ENTERPRISE PVT. LTD.] A.Y. 2013-14 - 3 - RELIED UPON BY THE LEARNED COUNSEL. SECTION 73 ALON G WITH THE EXPLANATION READ AS UNDER:- 73. (1) ANY LOSS, COMPUTED IN RESPECT OF A SPECULAT ION BUSINESS CARRIED ON BY THE ASSESSEE, SHALL NOT BE SET OFF EX CEPT AGAINST PROFITS AND GAINS, IF ANY, OF ANOTHER SPECULATION B USINESS. (2) WHERE FOR ANY ASSESSMENT YEAR ANY LOSS COMPUTED IN RESPECT OF A SPECULATION BUSINESS HAS NOT BEEN WHOLLY SET OFF UNDER SUB- SECTION (1), SO MUCH OF THE LOSS AS IS NOT SO SET O FF OR THE WHOLE LOSS WHERE THE ASSESSEE HAD NO INCOME FROM ANY OTHER SPE CULATION BUSINESS, SHALL, SUBJECT TO THE OTHER PROVISIONS OF THIS CHAPTER, BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR AN D- (I) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAI NS, IF ANY, OF ANY SPECULATION BUSINESS CARRIED ON BY HIM ASSESSABLE F OR THAT ASSESSMENT YEAR; AND (II) IF THE LOSS CANNOT BE WHOLLY SO SET OFF, THE A MOUNT OF LOSS NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING A SSESSMENT YEAR AND SO ON. (3) IN RESPECT OF ALLOWANCE ON ACCOUNT OF DEPRECIAT ION OR CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH, THE PROVISIONS OF SUB-SECTION (2) OF SECTION 72 SHALL APPLY IN RELATION TO SPECULATIO N BUSINESS AS THEY APPLY IN RELATION TO ANY OTHER BUSINESS. (4) NO LOSS SHALL BE CARRIED FORWARD UNDER THIS SEC TION FOR MORE THAN FOUR ASSESSMENT YEARS IMMEDIATELY SUCCEEDING T HE ASSESSMENT YEAR FOR WHICH THE LOSS WAS FIRST COMPUTED. [EXPLAN ATION]- WHERE ANY PART OF THE BUSINESS OF A COMPANY ([OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS 'INTEREST ON SECURITIES' , 'INCOME FROM HOUSE PROPERTY', 'CAPITAL GAINS' AND 'INCOME FROM O THER SOURCES'), OR A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES) CONS ISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUC H COMPANY SHALL, FOR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE B USINESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES.] 10. THE AFOREMENTIONED SECTION HAS TO BE READ ALON G WITH SECTION 43(5) OF THE ACT WHICH CONTAINS THE DEFINIT ION OF SPECULATIVE TRANSACTION. THE RELEVANT CLAUSE IS 43(5)(D) WHICH READ AS UNDER EXCLUDES- (A) .......................................... (B) .......................................... (C) ............................................ (D) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING I N DERIVATIVES REFERRED TO IN CLAUSE (AC) OF SECTION 2 OF THE SECU RITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) CARRI ED OUT IN A RECOGNIZED STOCK EXCHANGE. 11. A PERUSAL OF THE AFOREMENTIONED SECTION SHOWS THAT WITH EFFECT FROM 01.04.2006 TRADING IN DERIVATIVES CARRI ED OUT IN A RECOGNIZED STOCK EXCHANGE HAS BEEN TAKEN OUT OF THE AMBIT OF SPECULATION TRANSACTION. THE ASSESSMENT ORDER UNDER CONSIDERATION IS 2011-12. THUS, IT CAN BE SAFELY CONCLUDED THAT F OR THE YEAR UNDER ITA NO.797/AHD/17 [DCIT VS. M/S. VENUS ENTERPRISE PVT. LTD.] A.Y. 2013-14 - 4 - CONSIDERATION, THE IMPUGNED TRANSACTIONS OF THE ASS ESSEE ARE EXCLUDED BY THE DEFINITION OF SPECULATIVE TRANSACTI ON. 12. IN OUR UNDERSTANDING OF THE LAW, THE EXPLANAT ION TO SECTION 73 OF THE ACT CANNOT OVERRIDE THE PROVISIONS OF SEC TION 43(5)(D) OF THE ACT. ONCE A TRANSACTION HAS BEEN TAKEN OUT OF T HE SCOPE OF SPECULATION ANY LOSS INCURRED ON ACCOUNT OF SUCH TR ANSACTION CANNOT, BY ANY STRETCH OF IMAGINATION BE TREATED AS SPECULATION LOSS. WE, THEREFORE, SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.O NOT TO TREAT THE LOSS AS A SPECULATI ON LOSS AND ALLOW THE SAME AS A BUSINESS LOSS. 6. WE FIRST ADVERT TO THE PIVOTAL ISSUE RAISED ON B EHALF OF THE ASSESSEE BEFORE LOWER AUTHORITIES THAT EXPLANATION TO SECTION 73 OF THE ACT CANNOT APPLY TO LOSS ARISING FROM DERIVATIVE TR ANSACTIONS WHICH ARE CATEGORICALLY EXCLUDED FROM BEING REGARDED AS SPECU LATIVE BUSINESS AS DEFINED UNDER S.43(5) OF THE ACT READ WITH PROVISO (D) THERETO. IN THIS REGARD, WE NOTICE THAT IDENTICAL ISSUE AROSE BEFORE THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF ASIAN FINANCIAL SERVICES 293 CTR 240 (CAL.). THE HONBLE CALCUTTA HIGH COURT HELD T HAT ONCE IT IS DEEMED TO BE A NORMAL BUSINESS LOSS ON THE BASIS OF PROVISO APPENDED TO SECTION 43(5) OF THE ACT, A QUESTION OF APPLYING EXPLANATION TO SECTION 73 OF THE ACT FOR THE PURPOSES OF REFUSING LOSS TO BE SET OFF AGAINST BUSINESS INCOME IS WHOLLY INCORRECT. THE HO NBLE CALCUTTA HIGH COURT AFTER TAKING NOTE OF THE DECISION OF HON BLE DELHI HIGH COURT IN CIT VS. DLF COMMERCIAL DEVELOPERS PVT. LTD . 35 TAXMANN.COM 280 (DEL) TOOK A DISTINCT STAND THAT DE RIVATIVE TRANSACTION IN SHARE CANNOT BE TREATED AT PAR WITH DEALING IN SHARES PER SE FOR THE PURPOSES OF EXPLANATION TO SECTION 73 OF TH E ACT BECAUSE THE LEGISLATURE HAS TREATED IT DIFFERENTLY. THUS, IN VIEW OF THE AFORESAID POSITION ENUNCIATED BY THE HONBLE HIGH C OURT IN ASIAN FINANCIAL SERVICES (SUPRA), WE FIND GOOD DEAL OF FO RCE IN THE CASE OF ASSESSEE. 7. HENCE, IN PARITY WITH THE VIEW ALREADY TAKEN BY THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE, WE DO NOT SEE ANY JUS TIFICATION IN THE ITA NO.797/AHD/17 [DCIT VS. M/S. VENUS ENTERPRISE PVT. LTD.] A.Y. 2013-14 - 5 - ACTION OF THE AO. THE CIT(A), IN OUR VIEW, HAS CON CLUDED THE ISSUE IN FAVOUR OF ASSESSEE IN TUNE WITH LAW. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS ACCO RDINGLY DISMISSED EX PARTE. SD/- SD/- (MADHUMITA ROY) (PRADIP KUMA R KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 12/12/2018 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 12/12/20 18