Vinay Prakash (HUF), New Delhi V. ACIT, Circle-42(1), New Delhi

ITA 8118/DEL/2018

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 1056 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2015-2016
• Appeal Filed On: 20-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KATARIA
• Assessee Lawyers: AMIT GOEL
• Section: 12; 43; 73

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “F” DELHI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER I.T.A. No.8118/DEL/2018 Assessment Year 2015-16 Vinay Prakash (HUF) 132, Engineers Enclave, Pitampura, New Delhi. v. ACIT, Circle-42(1), New Delhi. TAN/PAN: AABHV2104D (Appellant) (Respondent) Appellant by: Shri Amit Goel, CA. Respondent by: Shri Vijay Kataria, Sr.DR Date of hearing: 10 05 2022 Date of pronouncement: 26 05 2022 O R D E R PER PRADIP KUMAR KEDIA, A.M.: Th e cap tio n ed ap peal h as b een filed at th e in s tan ce o f th e Assessee ag a in st t h e o rd er o f th e C o mmiss io n er o f In co me T ax (Ap p eals)-XIV, New Delh i (‘CIT(A)’ in sho rt) d ated 3 0 .1 0 .20 18 arisin g fro m th e a ssess men t o rd er d ated 3 0 .1 0 .2 01 8 p assed b y the Assessin g Offic er (AO) u n d er Sectio n 1 43 (3 ) o f th e In co me Tax Act, 1 9 6 1 (th e Act) co n cern in g AY 2 01 5 -1 6 . Th e su b stan tiv e g ro un d s o f ap p eal raised b y th e asse s see read s as un d er: “ 1 . T h a t h a v i n g r e g a rd t o t h e f a c t s a n d i n c i r c u m sta n c e s o f t h e c a se , L d . CI T (A ) h a s e r re d i n l a w i n h o l d i n g t h e t ra n s a c t i o n i n ‘ c u r re n c y d e r i v a t i v e s’ m a d e b y t h e a s s e s se e a n d ‘ S pe c u l a t i v e i n n a t u r e ’ a n d t h e re b y n o t a l l o wi n g s e t o f f o f s a m e a ga i n st o t h e r b u si n e s s i n c o m e a n d i n c o m e f ro m o t h e r so u rc e s. I.T.A. No.8118/Del/2018 2 2 . L d . CI T (A ) h a s e r re d o n f a c t s a n d i n l a w i n b i n di n g d e c i si o n s o f c o u r t s a n d t ri b u n a l s , a n d c i rc u l a r i s su e d b y S E B I a n d CB D T . 3 . T h a t t h e o rd e r d a t e d 3 0 . 1 0 . 2 0 1 8 p a s se d b y t h e CIT (A ) i s w ro n g , b a d i n l a w a n d i l l e g a l . 4 . T h a t t h e a p p e l l a t e c ra v e s t h e l e a v e t o a d d , m o d if y , a m e n d o r d e l e t e a n y o f t h e g r o u n d s o f a p p e a l a t t h e t i m e o f h e a ri n g . ” 2 . Brie fly s ta ted , th e assesse e is en g ag ed in th e sh are b r o k ing b u sin ess an d is also in d u lg in g in curren cy trad in g and o th er no n cu rren cy bu sin ess in d eriv at iv e seg men t. Du rin g th e Assess men t Year 2 0 14 -15 , th e assesse e c la imed an amo u n t o f Rs.2 4 ,6 7 ,7 04 /- as lo ss d u e to trad i n g in cu rren cy transact io n s th ro u gh a sh are an d sto ck b ro k er reg istered with SE BI; n ame ly PEE AAR Secu rit ies Ltd . o n BSE p latfo r m in cu rren cy d eriv ativ es seg ment . Th e assesse e c la i med t h e lo sses aris in g fro m cu rren cy deriv ativ es as n o n sp ecu lativ e b u sin ess an d co n seq uen tly c lai med set o ff o f su ch lo sses in cu rred ag ain st o th er n o n sp ecu lat iv e b u siness in co me d eclared b y th e as sessee . Th e Asses sin g Officer h o wev er o p in ed th at su ch lo sses arisin g fro m cu rren cy d eriv ativ e do n ot fa ll wi th th e ex cep tio n s st ip u lated in Sec tio n 4 3 (5 ) o f th e Act wh ich d efin es ex p ressio n ‘Sp ecu lat iv e tran sac tio n ’. Th e Assessin g Officer acco rd in g ly h eld t h at th e tran sac tio n cu rren cy d eriv ati v es wo u ld fa ll with in th e swe ep o f d e fin i tio n o f Sp ecu lat iv e tran sa ctio n s an d co n seq u en tly th e lo sses aris in g fro m su ch tran sa ctio n s are sp ecu lat iv e in n at u re an d set o ff an d carry fo rward of su ch lo ss wo u ld b e go v ern ed b y th e restric tio n s p rov id ed in Sectio n 7 3 o f th e Act. He acco r d in g ly d en ied th e set o ff o f lo ss a risin g fro m cu rren cy d eriv ativ es ag ain st in co me arisin g fro m n on sp ecu lat iv e I.T.A. No.8118/Del/2018 3 act iv it ies an d allo wed th e lo ss arisin g fro m cu rrency d eriv ativ es amo u n tin g to Rs.2 4 ,6 7 ,7 04 /- b e carried fo rward to th e su b seq u en t assess men t y ear in ter ms o f p ro v isio n s o f Sec tio n 73 o f th e Ac t an d ad ju stab le o n ly ag ain st th e sp ecu lat iv e in co me in th e su b seq u en t assess men t y ears. 3 . Ag g riev ed , th e ass essee p re ferred ap p eal b e fo re th e CI T(A) with o u t an y su cces s. 4 . Fu rth er ag griev ed , th e assessee p referred ap p eal b efo re th e Trib u n al. 5 . We h av e carefu ll y co n sid ered th e riv al su b miss ion s and p eru sed th e assessmen t o rd er as well as th e o rd er of th e CIT(A) to g eth er with c ase laws c i ted an d o t h er d o cu men ts re ferred to an reli ed u p on as per Ru le 1 8 (6 ) o f th e In co me Tax [App ella te Trib u n al] Ru les , 1 9 6 3 . 5 .1 Th e so li tary issu e co n fro n ted in th e p resen t app ea l is o n trea tmen t o f lo ss a risin g fro m d eriv a tiv e tr an sact io n s i n cu rren cy seg men t in th e ma t ter o f s et o ff an d carry fo rward . It is th e case o f th e assess ee th at it h as en tered in t o d eriv ativ es tr an sact io n s in cu rren cy seg men t o f th e reco g n ized sto ck ex ch an g e, i. e., BSE an d h as co mp li ed wit h o th er co nd itio n s stip u la ted in Sectio n 4 3 (5 ) read with p ro v iso (d ) th ereto . Th e co n tract fo r Cu rren cy Deriv ativ e Tran sa ctio n (CDT) ex ec u ted th ro u gh th e reg istered sh are b ro k er o n th e p lat fo rm o f th e sto ck ex ch an g e (reco g n ized Ex ch an g e b y SEBI) was re ferred to o n a sa mp l e b asis to d emo n strat e th a t CDT ex ecu ted b y th e asses see fa l ls with in th e d efin i t io n o f ‘elig i b le tran sac tio n ’ as p er Ex p lan atio n -1 ap p end ed b elo w Sectio n 4 3 (5 ) o f th e Act. It was th u s co n ten ded th at th e I.T.A. No.8118/Del/2018 4 CDT b ein g ‘elig i b le tran sa ct io n ’ fall s wi th in th e ex cep tio n s carv ed o u t to Sectio n 4 3(5 ) o f th e Act. Th e co n seq uen tia l effe ct wo u ld b e th at su ch CDT are o u tsi d e th e a mb i t o f ex pressio n ‘Sp ecu lativ e tran sa ctio n ’ are th u s n o n sp ecu la tiv e in n a t u re. Hen ce lo ss arisin g fro m s u ch CDT b ein g o rdin ary lo ss are elig i b le fo r set o ff ag a in st th e p ro fi ts ari sin g fro m o th er n o n sp ecu lati v e b u sin ess tran sac tio n s, etc . i n acco rd an ce with law. 5 .2 It is co n ten d ed o n b eh alf o f th e ass e ssee th at clau se (a c) o f Sect io n 2 o f Secu rit ies Co n trac ts (Re g u latio n ) Act, 1 9 56 in clu d es su ch tran sact io n with in th e mean in g o f d eriv at iv es tran sact io n an d th e tran sac t io n h as b een ex ecu ted e lec tro n ical ly o n screen b ased sy ste ms th ro u g h th e sto ck b ro k er reg istered u n d er Sectio n 1 2 of th e SEBI Act, 1 9 92 . It is th u s th e cas e o f th e assesse e t h at th e lo ss arisin g fro m C DT b ein g n o n-sp ecu lat iv e, b o th th e lower au th o ritie s h av e mi sd irec ted th e ms elv es in law in den y in g th e reli ef to ward s set o ff an d carry fo rward fo r lo ss arisin g fro m su ch n o n sp ecu lativ e tra n sactio n . 6 . Sect io n 4 3 (5) o f t h e In co me Tax Act d e fin es ‘sp ecu l ativ e tran sac tio n ’. As p er th e Sch e me o f th e Act, a tra n sactio n o f sp ecu lat iv e n atu re carries a d i ffere n tia l trea t men t q u a th e non sp ecu lat iv e tran sac tio n in th e mat ter o f se t o ff and carry fo rward o f lo sses ar isin g th erefro m. Th e p ro v iso to Sectio n 4 3 (5) p rov id es fo r certa in ex ce p tio n s in v aried situ a tio n an d wh ere th e tran sac tio n s ex ec u ted fa ll wi th in an y o f su ch ex ceptio n s, p ro fit /lo ss ari sin g fro m su ch tran sac t io n s will n o t b e reg ard ed as d eriv ed fro m sp ec u lat iv e b u sin ess a n d co n sequ en tly , will n o t b e d eemed to b e sp e c u lat iv e tran sact io n fo r th e p u rp o ses o f th e Ac t. 7 . We are p resen tl y co n cern ed with clau se (d ) o f such I.T.A. No.8118/Del/2018 5 ex cep tio n s an n ex ed to Sectio n 4 3 (5) o f th e Act. In view o f th e clau se (d ) to Sect i o n 43 (5), a tran sa ctio n wil l n o t b e reg ard ed as ‘sp ecu lat iv e tran sa ctio n ’ wh ere an elig ib le tran sact io n in resp ect o f trad in g in d eriv ativ es re ferred to i n clau se ( ac) o f Se ctio n 2 o f Secu rit ies Co n trac ts (Reg u la tio n ) Act, 1 9 5 6 was carried o u t in a reco g n ized sto ck ex ch an g e. Ex p lan atio n -1 to Sec tio n 4 3 (5 ), in tu rn , d efin es ‘e lig ib le tran sac t io n ’ fo r th e p u rp o ses o f cl au se (d ) to me an a tran sac tio n carried o u t el ectro n ica lly o n screen b ased sy ste ms th ro u gh a sto ck b ro k er reg ist ered u n d er SEBI Act 1 9 9 2 . 8 . Clau se (a c) o f Se ct io n 2 o f Secu rit ies Co n tracts (Reg u la tio n ) Act, 1 9 5 6 d efin es ex p ressio n ‘d eriv ativ e’ in an in clu si v e man n er as u n d er: “(a c) “d eri va ti ve” in c lu d es- (A ) a secu rity d er ived fro m a d eb t in stru men t, sh a re, lo a n , wh eth er s ecu red o r u n secu red , ris k in s tru men t o r co n tra ct fo r d i ffe re n ces o r a n y o th er f o rm o f secu ri ty . (B ) A co n tra ct wh ich d erives i ts va lu e f ro m th e p ric es, o r in d ex o f p r ices , o f u n d erlyin g secu ri ti es; (C ) Co mmod ity d er iva t ives; a n d (D) S u ch o th er in stru men ts a s ma y b e d ecla red b y th e Cen tra l Go vern men t to b e d eriva tiv e s.” 9 . CBDT also ca me o u t with in stru ct io n s reg ard in g allo wab ili ty o f lo sses o n acco u n t o f fo rex d eriv at iv es wh ich takes c o g n izan ce o f th e q u estio n con fro n ted to u s. The relev an t p arag rap h o f th e CBDT In stru ctio n No .0 3 /2 01 0 d ate d 2 3 .03 .2 0 10 is repro du ced I.T.A. No.8118/Del/2018 6 h ereu n d er: I n a c a s e w h e r e a l o s s o n a f o r e x - d e r i v a t i v e t r a n s ac t i o n a r i s e s o n a c t u a l s e t t l e m e n t / c o n c l u s i o n o f c o n t r a c t a n d i s no t a n o t i o n a l o r m a r k e d t o m a r k e t b o o k e n t r y , a f u r t h e r q u e s t i o n w i ll a r i s e a s t o w h e t h e r s u c h a l o s s i s o n a c c o u n t o f a s p e c u l a t i v e t r a n s a c t i o n a s c o n t e m p l a t e d i n S e c t i o n 4 3 ( 5 ) o f t h e I n c o m e t a x A c t. F o r d e t e r m i n i n g w h e t h e r l o s s f r o m a t r a n s a c t i o n i n r e s pe c t o f a f o r e x - d e r i v a t i v e i s a s p e c u l a t i o n l o s s o r n o t , t h e A s s e s si n g O f f i c e r s m a y r e f e r t o P r o v i s o ( d ) b e l o w s u b - s e c t i o n ( 5 ) o f S e c t io n 4 3 i n s e r t e d b y t h e F i n a n c e A c t , 2 0 0 5 , w i t h e f f e c t f r o m 1 . 4 . 2 0 0 6 . It l a y s d o w n t h a t a n y ' e l i g i b l e t r a n s a c t i o n ' i n r e s p e c t o f t r a d i n g i n d e r i v a t i v e s r e f e r r e d t o i n c l a u s e (a c ) o f s e c t i o n 2 o f t h e S e c ur i t i e s C o n t r a c t s ( R e g u l a t i o n ) A c t , l 9 5 6 , t h a t h a s b e e n c a r r i e d o u t in a r e c o g n i z e d s t o c k e x c h a n g e s h a l l n o t b e t r e a t e d a s a s p e c u l a t i ve t r a n s a c t i o n . F u r t h e r , a n ' e l i g i b l e t r a n s a c t i o n ' f o r t h i s p u r p o s e w o u l d b e o n e t h a t f u l f i l s t h e c o n d i t i o n s l a i d d o w n i n E x p l a n a t i on t o S e c t i o n 4 3 ( 5 ) ( d ) . A n y l o s s i n a s p e c u l a t i v e t r a n s a c t i o n c a n b e s e t o f f o n l y a g a i n s t p r o f i t f r o m s p e c u l a t i v e t r a n s a c t i o n s . A s t h e r e v e n u e i m p l i c a t i o n s o f s u c h t r a n s a c t i o n a r e l a r g e , t h e A s s e s s i n g O f f i c e r s n e e d t o e x a m i n e t h e s t a t e m e n t s of a c c o u n t s a n d t h e n o t e s t o a c c o u n t s w i t h a v i e w t o f i n d o u t a n y re f e r e n c e t o a n y l o s s o n a c c o u n t o f f o r e x - d e r i v a t i v e s . I n s o m e c a s e s, t h e s e l o s s e s m a y b e c a m o u f l a g e d u n d e r t h e ' f i n a n c i a l c h a r g e s ' ' fo r e i g n e x c h a n g e l o s s ' o r s o m e s i m i l a r h e a d w h i c h m a y m a k e i t d i f f i c u l t t o d e t e c t t h e m . I n s u c h c a s e s , t h e A s s e s s i n g O f f i c e r s s h o u l d m a k e a s p e c i f i c q u e r y a s k i n g t h e a s s e s s e e t o g i v e a b r e a k u p o f a n y ' M a r k e d t o M a r k e t ' l o s s o n a f o r e x - d e r i v a t i v e s i n c lu d e d i n t h e P r o f i t a n d L o s s A c c o u n t a n d e x a m i n e w h e t h e r s u c h t ra n s a c t i o n s a r e ' e l i g i b l e t r a n s a c t i o n ' i n t e r m s o f S e c . 4 3 ( 5 ) ( d ). A n a d j u s t m e n t t o t h e t a x a b l e i n c o m e m a y t h e r e f o r e b e m a d e , i f n e c e s sa r y , k e e p i n g i n v i e w t h e p r o v i s i o n s o f l a w r e f e r r e d t o a b o v e . I.T.A. No.8118/Del/2018 7 1 0 . On facts an d as p er th e co n tract n o tes, th e as sesse e h as en tered in to co n t ract fo r tran sact i o n s in cu rren cy d eriv ativ es seg men t o f BSE L td . th ro u g h reg iste red sh are b ro k er name ly PEE AAR Secu rit ies Lt d . resu lt in g in th e i mp u g n ed lo sses. 1 1 . Th e d efin i tio n o f d eriv at iv e u n d er Secu rit ies Co n tract (Reg u lat io n ) Act, 1 9 5 6 rep ro d u ced h erein ab o v e, d efin es th e ex p ress ‘d eriv ativ e ’ in an in c lu siv e man n er an d in ter a li a in c lu d es a secu rity d eriv ed fro m a d eb t in st ru men t, risk in stru men t an d su ch o th er in stru men ts as may b e d eclared b y the Cen tral Go v ern men t to b e d eriv ativ es . Th e d efin it io n is th us v ery wid ely wo rd ed . Th e CBD T in stru c tio n n o .3 /1 0 clear ly p ro v ides in th e co n tex t o f p ro v iso (d ) b elo w su b Sect io n (5 ) o f Sect io n 43 in serted b y Fin ance Act, 2 0 0 5 w.e. f. 0 1 .0 4 .2 0 06 relev an t to Assessmen t Year 2 0 06 -07 o nward s th at an y ‘elig ib le t ran sact io n’ in resp ect o f trad i n g in d eriv ativ es referred to in clau se (ac) o f Sect io n 2 o f Secu rit ies Co n trac ts (Re g u latio n ) Act, 1 9 56 th at h as b een carried o u t in a reco g n ized sto ck ex ch an g e shall n o t b e trea ted as sp ecu la t i v e tran sac tio n . 1 2 . Co n tex tu al ly , th e Co -o rd in ate Ben c h o f Trib u n al in Nand Nan d an Ag arwal vs. DCIT, ITA No .3 4 9 and 3 50 /Ag ra/2 016 o rd er d ated 1 8 t h Jun e, 2 0 1 8 referred to an d relied u p on sev eral o ther ju d g men ts an d o b serv ed th at d eriv at i v es in clu d e fo re ig n cu rren cy an d cal l o p tio n / p u t o p tio n ex ecu ted in th e d eriv ativ e mark et . I t was h eld th at th e trad in g o f cu rren cy d eriv ativ es mad e b y th e assesse e are co v ered b y th e d efi n itio n o f ‘d eriv a tiv es’ an d co n seq u en tly stan d s ex clu d ed fro m th e a mb i ts o f s p ecu lat iv e tran sac tio n s d e fin ed u n d er Sectio n 4 3 (5 ) o f th e Ac t o win g to clau se (d ) o f th e p ro v iso to Sectio n 4 3 (5 ) o f th e Act . Si mi lar v i ew h as b een tak en b y th e Co -o rd in ate Ben ch in Kamal Kish o re v s. I.T.A. No.8118/Del/2018 8 ACIT in ITA No .4 5 9 2 /Del/2 0 1 6 o rd er d ated 1 3 t h Feb ru ary , 2 0 1 7 . 1 3 . In essen ce, an ‘el ig ib le t ran sact io n ’ [as d efined in Ex p lan atio n -I to Sect io n 4 3 (5 )] in resp ect o f d erivativ es tran sac tio n [as d e fin ed in c lau se (a c) to Sect io n 2 o f Secu riti es Co n tract (Reg u la t io n ) Act, 1 9 56 ] carried o u t o n a reco g n ized Sto ck Ex ch an g e sh all n o t b e d ee me d as Sp ecu lat iv e Tran sact io n h av in g reg ard to ex cep tio n p ro v id ed in clau se (d ) to p rov iso to Sect io n 4 3 (5 ) o f th e Act . 1 4 . In th e lig h t o f th e factu a l an d leg al su b mission s can v assed o n b eh alf o f th e a ssessee we are o f th e co n sid ered v ie w th at th e assesse e in th e in st an t cas e h as co mp l ied wi th al l th e co n d itio n s o f clau se (d ) an d Ex p lan atio n -1 to Sect io n 4 3 (5 ) o f the Act cu mu la tiv e ly so as to tr eat su ch cu rren cy d eriv ative tran sact io n as elig ib le tr an sact io n fo r th e p u rp o ses o f ex clu sio n fro m th e amb i t o f sp ecu la tiv e tran sact io n d efin ed u n d er Sectio n 4 3(5 ) o f th e Act . Th is b ein g th e p o sitio n , th e lo s s arisin g fro m d eriv ativ e tran sac tio n h as b een in co rrect ly d isa llo wed b y th e Assessin g Officer fo r b ein g set o ff an d c arried fo rward ag ainst n on sp ecu lat iv e b u sin ess in co me in acco rd an ce with law an d wro ng ly co n firmed b y th e CIT(A). Th e actio n o f th e CIT(A) is acco rd in g ly set as id e an d th e Assessin g Offic er is d irected to resto re th e cla im o f th e ass essee to b e n o n sp ecu lativ e in n a tu re. 1 1 . In th e resu l t, th e a p p eal o f th e asses s ee is a llo wed . Order pronounced in the open Court on 26/05/2022. Sd/- Sd/- [SAKTIJIT DEY] [PRADIP KUMAR KEDIA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: /05/2022 Prabhat