Avinash Nivrutti Bhosale, Pune V. CIT-II, Pune

ITA 862/PUN/2013

• Counselvise Citation: 86224514 RSA 2013
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 16-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VERMA
• Keywords: Business income; Salary income; Transactions in derivatives; Earning of tax free income; Speculation loss
• Section: 14A; 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.862/PN/2013 (ASSESSMENT YEAR : 2007-08) AVINASH NIVRUTTI BHOSALE, ABIL HOUSE-2, RANGE HILL CORNER, GANESH KHIND ROAD, PUNE-411007 .. APPELLANT PAN NO.ABTPB8151F VS. CIT-II, PUNE .. RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : SMT. M.S. VERMA DATE OF HEARING : 22-04-2014 DATE OF PRONOUNCEMENT : 30-04-2014 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 28-03-2012 PASSED U/S.263 BY THE CIT-II, PUNE RELAT ING TO ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE HAS FILED THIS APPEAL ON 16-04-2014 . A PERUSAL OF FORM 36 SHOWS THAT THE ASSESSEE HAS RECEIVED THE 263 ORD ER ON 03-04-2012 AND HE SHOULD HAVE FILED THIS APPEAL WITHIN A PERIOD OF 60 DAYS FROM THE SAID DATE, I.E. ON OR BEFORE 02-05-2013. THUS, THERE IS A DEL AY OF ABOUT ONE YEAR IN FILING OF THIS APPEAL. THE ASSESSEE FILED A CONDON ATION PETITION ALONG WITH A DULY SWORN IN AFFIDAVIT OF THE CONCERNED CHARTERED ACCOUNTANT, WHO WAS LOOKING AFTER TAXATION MATTERS, EXPLAINING THE MIST AKE COMMITTED BY HIM. 2 3. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO TH E CONTENTS OF THE CONDONATION PETITION AS WELL AS THE AFFIDAVIT FILED BY THE CONCERNED CHARTERED ACCOUNTANT EXPLAINED THE REASONS FOR SUCH DELAY IN FILING OF THE APPEAL. REFERRING TO THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF COLLECTOR, LAND ACQUISITION VS. MST. KATIJI AND OTH ERS REPORTED IN 167 ITR 471 HE SUBMITTED THAT THE HONBLE SUPREME COURT IN THE SAID DECISION HAS HELD THAT WHEN JUSTICE AND TECHNICAL CONSIDERATIONS ARE PITTED AGAINST EACH OTHER THE CAUSE OF SUBSTANTIAL JUSTICE DESERVES TO BE PREFERRED, FOR THE OTHERSIDE CANNOT CLAIM TO HAVE A VESTED RIGHT IN IN JUSTICE BEING DONE BECAUSE OF A NON-DELIBERATE DELAY. HE ACCORDINGLY SUBMITTE D THAT THE DELAY IN FILING OF THIS APPEAL SHOULD BE CONDONED SINCE THERE WAS N O MALAFIDE INTENTION ON THE PART OF THE ASSESSEE FOR NOT FILING THIS APPEAL WITHIN THE STATUTORY TIME. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND OPPOSED THE CONDONATION PETITION. 4. AFTER CONSIDERING THE RIVAL ARGUMENTS MADE BY BO TH THE SIDES AND RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF COLLECTOR LAND ACQUISITION VS. MST. KATIJI AND OTHERS (SUPRA) THE DELAY IN FILING OF THIS APPEAL IS CONDONED AND THE APPEAL IS ADMITTED FOR HEARING. 5. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS AN INDIVIDUAL AND DERIVES INCOME FROM SALARY, HOUSE PROPERTY, PROFITS AND GAINS OF BUSINESS OR PROFESSION INCLUDING SPECULATION BUSINESS, LONG TER M AND SHORT TERM CAPITAL GAINS AND INCOME FROM OTHER SOURCES. HE FILED HIS RETURN OF INCOME ON 31- 10-2007 DECLARING TOTAL INCOME OF RS.24,52,28,650/- . THE AO COMPLETED THE ASSESSMENT ON 26-12-2009 DETERMINING THE TOTAL INCOME AT RS.31,70,36,285/. SUBSEQUENTLY, THE LD. CIT ON PER USAL OF THE ASSESSMENT 3 ORDER ALONG WITH RECORDS NOTICED THAT THE ORDER PAS SED BY THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTERES T OF THE REVENUE SINCE THE ASSESSING OFFICER FAILED TO COMPLY THE PROVISIONS O F CLAUSE (D) TO PROVISO TO SUB-SECTION (5) OF SECTION 43 TO THE PROFITS OF RS. 17,42,448/- SHOWN BY THE ASSESSEE UNDER THE HEAD SPECULATION BUSINESS WHER EAS AS THE PROFIT OUGHT TO HAVE BEEN SHOWN AS BUSINESS INCOME. AS A CORO LLARY HE ALSO FAILED TO DISALLOW THE ASSESSEES CLAIM OF SET OFF OF UNABSOR BED SPECULATION LOSS OF EARLIER YEAR AGAINST THE BUSINESS INCOME OF RS.17,7 2,448/- WHEREAS SPECULATION LOSS COULD ONLY BE BROUGHT FORWARD AND SET OFF AGAINST SPECULATION GAINS. HE ALSO FOUND CERTAIN OTHER MIS TAKES IN THE ASSESSMENT ORDER. HE ACCORDINGLY ISSUED A SHOW CAUSE NOTICE U /S.263 TO THE ASSESSEE WHEREIN AMONG OTHER THINGS THE FOLLOWING WERE COMMU NICATED : 3.1 DURING THE YEAR UNDER CONSIDERATION LE. ASSESSM ENT YEAR 2007-08, YOU HAD SHOWN SPECULATION PROFIT OF RS.17,72,448/- AGAINST WHICH BROUGHT FORWARD SPECULATION LOSS WAS SET OFF. THIS SPECULAT ION PROFIT OF RS.17,72,448/- INCLUDED PROFITS OF RS.15,56,240/- D ERIVED FROM TRADING IN FUTURES & OPTIONS TRANSACTIONS CARRIED OUT AT NATIO NAL STOCK EXCHANGE (NSE). THE NATIONAL STOCK EXCHANGE (NSE) IS A RECOG NIZED STOCK EXCHANGE WITHIN THE MEANING OF RULE 6DDA OF THE INCOME-TAX R ULES, 1962. THEREFORE, AS PER CLAUSE (D) OF THE PROVISO TO SUB-SECTION (5) OF SEC. 43, PROFITS DERIVED FROM FUTURES & OPTIONS TRANSACTIONS CARRIED OUT THR OUGH NSE WOULD BE BUSINESS PROFIT AND NOT SPECULATION PROFIT AS HAD B EEN CLAIMED BY YOU. AS SUCH, THE BROUGHT FORWARD SPECULATION LOSS OF THE E ARLIER YEARS COULD NOT BE SET OFF AGAINST THE SAID BUSINESS PROFIT. THE ASSES SING OFFICER SHOULD HAVE DISALLOWED YOUR CLAIM OF SET-OFF ON THIS SCORE AND SHOULD HAVE BROUGHT THE IMPUGNED BUSINESS PROFIT TO TAX. HOWEVER, HE NOT ON LY FAILED TO DO SO, THIS IMPORTANT STATUTORY PROVISION ALSO ESCAPED HIS NOTI CE ALTOGETHER. 3.2 FURTHER, IN THE RETURN OF INCOME DIVIDEND INCOM E OF RS.2,19,06,682/- HAD BEEN SHOWN AS EXEMPT. IN VIEW OF THE PROVISIONS OF SECTION 14A OF THE INCOME-TAX ACT, 1961, THE ASSESS ING OFFICER OUGHT TO HAVE ARRIVED AT THE EXPENDITURE INCURRED IN RELATIO N TO THIS EXEMPT INCOME AND SHOULD HAVE DISALLOWED SUCH EXPENDITURE. HOWEVE R, HE FAILED TO DO SO. IN FACT, THE APPLICABILITY OF SECTION 14A WAS NOT E XAMINED IN ANY MANNER. 3.3 AS SEEN FROM THE CASE RECORDS, VOLUMINOUS TRANS ACTIONS OF PURCHASES/ SALES OF SHARES/ UNITS FALLING IN THE CA TEGORY OF SHORT TERM CAPITAL GAINS WERE CARRIED OUT BY YOU. THE ASSESSIN G OFFICER WAS REQUIRED TO EXAMINE THESE TRANSACTIONS IN ORDER TO ASCERTAIN AS TO WHETHER THERE WERE PURCHASES OF SECURITIES OR UNITS WITHIN A PERIOD OF THREE MONTHS PRIOR TO THE RECORD DATE OR SALES OF SUCH SECURITIES OR UNITS WI THIN THREE/ NINE MONTHS AFTER SUCH DATE WHICH WOULD ATTRACT THE PROVISIONS OF SEC. 94(7) OF THE INCOME-TAX ACT, 1961. HE, HOWEVER, FAILED TO DO SO, ALTHOUGH SUCH 4 EXAMINATION/ASCERTAINMENT WAS CALLED FOR IN THE FAC TS AND CIRCUMSTANCES OF YOUR CASE. 4. FOR THE REASONS STATED HEREINABOVE, THE ORDER DT . 26-12-2009 MADE BY THE ASSESSING OFFICER IN YOUR CASE FOR THE A.Y. 2007-08 IS CONSIDERED ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT EREST OF THE REVENUE. ACCORDINGLY, AND BY VIRTUE OF THE AUTHORITY VESTED IN THE UNDERSIGNED AS PER THE PROVISIONS OF SEC.263 OF THE INCOME-TAX ACT , 1961, THE SAID ORDER IS PROPOSED TO BE REVISED UNDER THE SAID SECTION. 6. SO FAR AS THE SECOND AND THIRD ISSUES ARE CONCER NED THE ASSESSEE HAS ACCEPTED THE SAME THAT THERE IS NO DISPUTE, THEREFO RE, WE ARE NOT CONCERNED WITH THE ABOVE 2 ISSUES. 7. SO FAR AS THE ISSUE OF ASSESSMENT OF THE BUSINES S INCOME OF RS.17,72,448/- AS SPECULATION ACTIVITY AND THE SET OFF OF UNABSORBED SPECULATION LOSS AGAINST THE SAID INCOME THE ASSESS EE VIDE ITS LETTER DATED 19- 03-2012 SUBMITTED AS UNDER WHICH HAS BEEN REPRODUCE D BY THE LD.CIT AT PARA 6 OF HIS ORDER : SET OFF SPECULATION LOSS AGAINST SPECULATION INCOME OF FUTURE AND OPTIONS DURING THE A.Y. 2007-08 ASSESSEE HAS EARNED PROFIT FROM TRADING IN FUTURE AND OPTIONS TRANSACTIONS OF RS.17,72,448/-. THE BR OUGHT FORWARD LOSSES UNDER THE SAME HEAD ARE AS FOLLOWS : THE ABOVE BROUGHT FORWARD LOSSES WAS SET OFF AGAINST THE PROFIT OF RS.17,72,448/- UNDER THE SAME HEAD. F& O TRANSACTIONS ARE DERIVATIVE TRANSACTIONS THOUGH PRIOR TO THE AMENDMENT TO SEC.43 (5) W.E.F. A.Y. 2006- 07, DERIVATIVE TRANSACTIONS ARE SPECULATIVE TRANSACTIO NS AND THE LOSSES SUFFERED THERE FROM ARE SPECULATIVE LOSSES, THE QUESTION WHETHER THEY ARE ELIGIBLE FOR SET-OFF HAS TO BE DETERMINED AS PER THE LAW PREVAILING IN THE YEAR OF SET-OFF. AS IN THE YEAR OF SET-OFF, DERIVATIVE TR ANSACTIONS ARE NOT, PURSUANT TO AMENDMENT TO SEC.43(5), TREATED AS SPECULATIVE TRA NSACTIONS, THE LOSSES INCURRED PRIOR TO THE AMENDMENT HAVE TO BE TREATED AS NORMAL BUSINESS LOSSES AND ARE ELIGIBLE FOR SET OFF AGAINST ALL BUSINESS IN COME IN ACCORDANCE WITH SEC.72. (GAJENDRA KUMAR T. AGARWAL VS. ITO (ITAT , MUMBAI). ASSESSMENT YEAR PARTICULARS AMOUNT 2006-07 LOSS FROM TRADING IN FUTURE AND OPTIONS 81,70 ,688 2005-06 LOSS FROM TRADING IN FUTURE AND OPTIONS 14,30 ,853 5 7.1 SUBSEQUENTLY, THE ASSESSEE VIDE LETTER DATED 27 -03-2012 REITERATED THE SAME SUBMISSIONS AS PER PARA 6.1 OF THE ORDER OF CI T WHICH READS AS UNDER : 6.1 THE VERY FIRST THING TO BE NOTED IS THAT IN V IEW OF THE AMENDMENT TO SECTION 43(5) W.E.F. 01/04/2006, THE PROFIT OF R S. 17,72,448/- IS TO BE TREATED AS BUSINESS PROFIT AND NOT SPECULATION PROF IT. FOR, THE ASSESSEE HAD DERIVED THE SAID PROFIT FROM TRADING IN FUTURES AND OPTIONS THROUGH THE NSE WHICH IS A RECOGNIZED STOCK EXCHANGE. THERE FORE, THE ASSESSEE WAS PATENTLY IN ERROR IN ADMITTING THE ABOVE PROFIT , IN THE RETURN OF INCOME, UNDER THE HEAD SPECULATION BUSINESS. THE AS SESSING OFFICER IS HEREBY DIRECTED TO ASSESS THE PROFIT OF RS.17,17,44 8/- UNDER THE HEAD 'BUSINESS'. 7.2 HOWEVER, THE LD.CIT WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE OBSERVED THAT IN THE RETURN OF IN COME FILED FOR THE A.Y. 2005-06, THE ASSESSEE HIMSELF HAD SHOWN LOSS OF RS. 14,30,853/- FROM 'SPECULATION BUSINESS'. THE SAID LOSS WAS ALSO CLAI MED TO BE CARRIED FORWARD SPECIFICALLY AS 'SPECULATION LOSS'. SIMILARLY IN TH E RETURN OF INCOME FOR THE A.Y. 2006-07, THE ASSESSEE HAD CLAIMED LOSS FROM 'S PECULATION BUSINESS' OF RS. 81,70,688/-. IN THE RETURN FOR THIS ASSESSMENT YEAR, THE ABOVE LOSS WAS ALSO CLAIMED TO BE CARRIED FORWARD SPECIFICALLY UND ER THE HEAD 'SPECULATION LOSS'. 7.3 IN THE RETURN OF INCOME FOR THE A.Y. 2007-08, I N SCHEDULE BFLA, THE ASSESSEE SHOWED BUSINESS (INCLUDING SPECULATION) PR OFIT OF RS.8,15,37,516/- AGAINST WHICH BROUGHT FORWARD LOSS OF RS.17,72,448/ - WAS SET-OFF, THUS ARRIVING AT THE CURRENT YEAR'S INCOME REMAINING AFT ER SET-OFF AT RS.7,97,65,068/-. THE SET-OFF THUS CLAIMED IN THIS SCHEDULE WAS AGAINST THE PROFIT OF RS. 17,72,448/- ALREADY MENTIONED SUPRA. IN THE VERY NEXT SCHEDULE I.E. SCHEDULE CFL, DETAILS OF THE LOSSES TO BE CARR IED FORWARD TO THE FUTURE YEARS WERE SHOWN AS UNDER: 6 A.Y. LOSS FROM SPECULATION BUSINESS 2005-06 RS. 14,30,853/- 2006-07 RS. 81,70,688/- ---------------------- TOTAL OF EARLIER YEARS' LOSSES: RS.96,01,541/- ADJUSTMENT OF ABOVE LOSSES IN SCHEDULE BFLA RS.17,72,448/- ---------------------- TOTAL LOSS CARRIED FORWARD TO FUTURE YEARS RS.78,29,093/- ---------------------- 7.4 THE LD. CIT OBSERVED THAT THE ASSESSEE HIMSELF HAD CONSCIOUSLY SHOWN THE LOSSES FOR THE TWO EARLIER YEARS AS SPECU LATION LOSS. HE OBSERVED THAT THE AMENDMENT TO SECTION 43(5) WITH THE INSERT ION OF CLAUSE (D) CAME INTO EFFECT FROM 01/04/2006 AND, THEREFORE, WAS APP LICABLE FOR AND FROM THE A.Y. 2006-07. THEREFORE, SO FAR AS THE LOSS OF RS. 14,30,853/- FOR THE A.Y. 2005-06 IS CONCERNED, IT CANNOT BE DISPUTED THAT TH E SAME WAS NOT IN THE NATURE OF SPECULATION LOSS. ACCORDING TO LD.CIT WH EN IT COMES TO THE A.Y. 2006-07, THERE IS NO REASON AS TO WHY THE ASSESSEE SHOWED THE LOSS OF RS.81,70,688/- AS SPECULATION LOSS IF THE SAME HAD BEEN INCURRED IN THE COURSE OF DERIVATIVE TRANSACTION TRADED THROUGH THE RECOGNIZED STOCK EXCHANGES WITHIN THE MEANING OF CLAUSE(D) OF THE PR OVISO TO SECTION 43(5). SINCE THE ASSESSEE HIMSELF HAS CONSCIOUSLY SHOWED THE LOSS AS SPECULATION LOSS AND SINCE HE HAS INVOKED THE PROVISIONS OF SEC TION 263 ONLY IN RELATION TO THE A.Y. 2007-08, THEREFORE HE OBSERVED THAT IT CANNOT AND ALSO NEED NOT BE INFERRED THAT THE LOSS OF RS. 81,70,688/- WAS NO T IN THE NATURE OF SPECULATION LOSS AND THAT THE SAME WAS IN THE NATUR E OF BUSINESS LOSS. HE, THEREFORE, HELD THAT THIS IS SUFFICIENT TO SETTLE T HE ISSUE IN THIS MATTER RAISED IN THE SHOW-CAUSE NOTICE U/S. 263 AGAINST THE ASSESSEE . 7 7.5 HE REJECTED THE CONTENTION OF THE ASSESSEE THAT THE ELIGIBILITY FOR SET-OFF HAS TO BE DETERMINED IN THE YEAR OF SET-OFF ON THE GROUND THAT 'ELIGIBILITY' IN THIS CONTEXT HAS A VERY LIMITED RE FERENCE. RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RE LIANCE JUTE INDUSTRIES VS. CIT REPORTED IN 120 ITR 921 HE OBSER VED THAT THE LIMIT LIES IN THE VERY ELIGIBILITY OF SUCH LOSS TO BE CAR RIED FORWARD TO BEGIN WITH AND THE NUMBER OF YEARS FOR WHICH THE ELIGIBLE BROU GHT-FORWARD LOSS COULD BE SET-OFF. NOTHING MORE CAN BE READ INTO THE ASSERTION THAT ELIGIBILITY FOR SET-OFF OF LOSS HAS TO BE DETERMINE D IN THE YEAR OF SET-OFF. 7.6 THE LD.CIT OBSERVED THAT SUBSEQUENT LAW, COMING INTO EFFECT FROM A SUBSEQUENT YEAR / DATE, CAN BY NO MEANS AFFECT OR A LTER THE NATURE OF THE EARLIER TRANSACTIONS. IF THE EARLIER YEARS' TRANSAC TIONS AS PER THE LAW THEN PREVAILING WERE SPECULATIVE, THE SAME WOULD NOT BEC OME NON-SPECULATIVE MERELY BECAUSE THE SUBSEQUENT LAW PROVIDED FOR SUCH A CHANGE IN RESPECT OF THE TRANSACTIONS CARRIED OUT FROM A SPECIFIC DATE S PECIFIED FOR THIS PURPOSE. HE HELD THAT THE AMENDMENT TO PROVISIONS OF SECTION 43(5)(D) WAS BROUGHT INTO EFFECT PROSPECTIVELY FROM 01/04/2006 AND WOULD , THEREFORE, ONLY APPLY TO DERIVATIVE TRANSACTIONS CARRIED OUT THROUGH RECO GNIZED STOCK EXCHANGES FROM 01/04/2006 ONWARDS, HENCE FROM THE ASSESSMENT YEAR 2006-07. THEREFORE, WHILE THE PROFIT DERIVED BY THE ASSESSEE FROM THE DERIVATIVE TRANSACTION DURING THE A.Y. 2007-08 HAS TO BE ASSES SED AS BUSINESS INCOME, THE LOSS INCURRED BY THE ASSESSEE DURING T HE PREVIOUS YEAR RELEVANT TO THE A.Y. 2005-06 WOULD CONTINUE TO RETAIN ITS CH ARACTER AS SPECULATION LOSS. HE OBSERVED THAT FOR A.Y. 2006-07, THE ASSES SEE HIMSELF HAD SHOWN THE LOSS OF RS.81,70,688/- AS LOSS FROM SPECULATION BUSINESS, THEREFORE IN THE 8 PRESENT PROCEEDINGS, THE CLAIM THUS MADE BY THE ASS ESSEE HIMSELF CANNOT BE DISTURBED IN ANY MANNER. 7.7 IN VIEW OF THE ABOVE THE LD.CIT HELD THAT THE A SSESSING OFFICER ERRED IN NOT DISALLOWING THE SET-OFF OF THE SPECULATION L OSS OF RS.17,72,448/- CLAIMED BY THE ASSESSEE AGAINST THE CURRENT YEAR'S BUSINESS PROFIT OF IDENTICAL AMOUNT. HE THEREFORE DIRECTED THE AO TO DISALLOW TH E SAID CLAIM AND TO ASSESS THE BUSINESS PROFIT OF RS.17,72,448/-. 8 AGGRIEVED WITH SUCH ORDER OF LD.CIT THE ASSESSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LD. CIT-II, PUNE ERRED IN NOT ALLOWING THE SET OFF OF BROUGHT FORWARD LOSS FROM DERIVATIVE TRANSACTIONS OF EARLIER YEARS AGAINST PROFITS FROM DERI VATIVE TRANSACTIONS AMOUNTING TO RS.17,72,448/- IN A.Y.2007-08. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE TH E LD. CIT-II MAY THEREFORE BE DIRECTED TO ALLOW THE SET OFF OF BROUGH T FORWARD LOSS OF DERIVATIVE TRANSACTIONS AGAINST THE PROFITS FROM DERIVA TIVE TRANSACTIONS IN A.Y.2007-08 AMOUNTING TO RS.17,72,448/-. 9. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY OPPOSE D THE ORDER OF THE CIT. HE SUBMITTED THAT THE AMENDMENT TO PROVISIONS OF SECTION 43(5)(D) WERE AMENDED W.E.F. A.Y. 2006-07. REFERRING TO THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF GAJENDR A KUMAR T. AGARWAL VS. ITO REPORTED IN (2011) 142 TTJ (MUMBAI) 612 HE SUBMITTED THAT IN THE SAID DECISION THE TRIBUNAL HAS HELD THAT ASSESSEE W AS ELIGIBLE FOR SETTING OFF OF LOSS OF BUSINESS OF DEALING IN DERIVATIVE, INCUR RED IN THE ASSESSMENT YEARS PRIOR TO THE A.Y. 2006-07 AGAINST THE PROFITS OF TH E SAME BUSINESS IN A.Y. 2006-07. HE SUBMITTED THAT FOLLOWING THE ABOVE DEC ISION THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF KASAT SECURITIES PVT. L TD. HAS ALLOWED THE CLAIM OF SET OFF OF BUSINESS LOSS OF EARLIER YEARS FROM D ERIVATIVE PROFIT OF A.Y. 9 2006-07. HE SUBMITTED THAT SINCE THE LD.CIT INSTEA D OF SETTING ASIDE THE ISSUE TO THE FILE OF THE AO HAS DIRECTED HIM TO DIS ALLOW THE SAID CLAIM, THEREFORE, IN VIEW OF THE DECISION OF THE MUMBAI BE NCH OF THE TRIBUNAL AS WELL AS THE DECISION OF THE PUNE BENCH OF THE TRIBU NAL THE ISSUE HAS TO BE DECIDED IN FAVOUR OF THE ASSESSEE. 10. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND STRONGLY SUPPORTED THE ORDER OF THE CIT. SHE SUBMITTED THAT THE CORRECTNESS OF THE ISSUE IS AT STAKE. REFERRING TO THE DECISION OF TH E MUMBAI BENCH OF THE TRIBUNAL RELIED ON BY THE LD. COUNSEL FOR THE ASSES SEE, SHE SUBMITTED THAT THE AO PASSED THE ORDER U/S.143(3) ON 26-12-2009 WHEREA S THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF GAJENDR A KUMAR T. AGARWAL WAS PASSED ON 31-05-2011. THEREFORE, THE AO HAD NO OPPORTUNITY TO APPLY HIS MIND TO TAKE A POSSIBLE VIEW ON THIS ISSUE. FU RTHER, THERE IS NO DISCUSSION IN THE ASSESSMENT ORDER NOR ANY QUERY RAISED BY THE AO ON THIS ISSUE. THEREFORE, THE LD.CIT WAS JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 263. SHE HOWEVER SUBMITTED THAT ON MERIT THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF GAJENDRA KUMAR T. AGARWAL (SUPRA) WHICH HAS BEEN FOLLOWED BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF KAS AT SECURITIES PVT. LTD. (SUPRA). 11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE LD. CIT AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE LD.CIT INVO KED JURISDICTION U/S.263 OF THE INCOME TAX ACT ON THE GROUND THAT LOSS INCUR RED BY THE ASSESSEE 10 DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEA R 2005-06 WOULD CONTINUE TO RETAIN ITS CHARACTER AS SPECULATION LO SS AND THE SAME CANNOT BE SET OFF AGAINST THE PROFIT EARNED BY THE ASSESSEE F ROM THE DERIVATIVE TRANSACTIONS DURING A.Y. 2007-08 WHICH HAS TO BE AS SESSED AS BUSINESS INCOME. ACCORDING TO THE LD.CIT THE AMENDMENT TO SECTION 43(5)(D) WAS BROUGHT INTO EFFECT PROSPECTIVELY FROM 01-04-2006 A ND WOULD THEREFORE ONLY APPLY TO DERIVATIVE TRANSACTIONS CARRIED OUT THROUG H RECOGNISED STOCK EXCHANGES FROM 01-04-2006 ONWARDS, I.E. FROM THE A. Y. 2006-07. HE ACCORDINGLY DIRECTED THE AO TO DISALLOW THE SAID CL AIM AND TO ASSESS THE BUSINESS PROFIT OF RS.17,72,448/-. NO DOUBT, THERE IS NO DISCUSSION IN THE ASSESSMENT ORDER AND THE AO HAS ACCEPTED THE CLAIM OF THE ASSESSEE ON THE BASIS OF THE COMPUTATION STATEMENT FILED BY THE ASS ESSEE CLAIMING THE SET OFF OF THE SPECULATION LOSS OF RS.17,72,448/- FROM THE CURRENT YEARS INCOME FROM DERIVATIVE TRANSACTIONS. 11.1 WE FIND THE LD.CIT INSTEAD OF SETTING ASIDE TH E ORDER TO THE FILE OF THE ASSESSING OFFICER FOR DENOVO ASSESSMENT OF THIS ISS UE HAS DECIDED THE ISSUE ON MERIT HIMSELF AND HAS DIRECTED THE AO TO DISALLO W THE SAID CLAIM AND ASSESSEE THE BUSINESS PROFIT. HOWEVER, ON MERIT THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE MUMBA I BENCH OF THE TRIBUNAL IN THE CASE OF GAJENDRA KUMAR T. AGARWAL (SUPRA) WHERE IT HAS BEEN HELD THAT ASSESSEE IS ELIGIBLE FOR SETTING OFF OF L OSS OF BUSINESS OF DEALING IN DERIVATIVES INCURRED IN THE ASSESSMENT Y EARS PRIOR TO A.Y. 2006-07 AGAINST THE PROFITS OF THE SAME BUSINESS IN A.Y. 2006-07. THE RELEVANT OBSERVATION OF THE TRIBUNAL FROM PARA 27 TO 30 READ AS UNDER : 11 27. AS A RESULT OF THE AMENDMENT IN S. 43(5) W.E.F. 1ST APRIL, 2006, LOSSES INCURRED IN DERIVATIVE TRADING ARE HELD TO BE ELIGI BLE FOR BEING SET OFF AGAINST NORMAL BUSINESS PROFITS, AS DERIVATE TRADING ITSELF IS TRE ATED AS A NON- SPECULATIVE BUSINESS, AND LOSSES OF ANY NON-SPECULATIVE BU SINESSES CAN BE ADJUSTED PROFITS OF ANY NON-SPECULATIVE BUSINESS. IRONICA LLY, HOWEVER, THIS APPARENTLY WELL INTENDED MEASURE OF RELIEF TO THE ASSE SSEE HAS RESULTED IN AN ABSURD SITUATION IN WHICH PAST LOSSES OF DERIVATIVES TRADI NG CANNOT BE SET OFF AGAINST PROFITS OF DERIVATIVES TRADING ITSELF. WHAT WAS MEANT TO BE A SOURCE OF RELIEF HAS TURNED INTO A CAUSE OF MISERY. THAT IS CLEAR LY AN ABSURDITY. AS TO WHAT SHOULD BE DONE IN SUCH A SITUATION, WE FIND GUIDA NCE FROM THE OBSERVATIONS MADE BY HON'BLE SUPREME COURT, IN THE CA SE OF CIT VS. HINDUSTAN BULK CARRIERS (2003) 179 CTR (SC) 362 : (20 03) 259 ITR 449 (SC), AS FOLLOWS : 'A CONSTRUCTION WHICH REDUCES THE STATUTE TO A FUTILIT Y HAS TO BE AVOIDED. A STATUTE OR ANY ENACTING PROVISION THEREIN MUST BE SO CO NSTRUED AS TO MAKE IT EFFECTIVE AND OPERATIVE ON THE PRINCIPLE EXPRESSED IN MAXIM UT RES MAGISVALEAT QUAM PEREAT I.E., A LIBERAL CONSTRUCTION SHOULD BE PUT UPON WRITTEN INSTRUMENTS, SO AS TO UPHOLD THEM, IF POSSIBLE, A ND CARRY INTO EFFECT THE INTENTION OF THE PARTIES. [SEE BROOM'S LEGAL MAXI MS (10TH EDITION), P. 361, CRAIES ON STATUTES (7TH EDITION) P. 95 AND MAXW ELL ON STATUTES (11TH EDITION) P. 221]. A STATUTE IS DESIGNED TO BE WORKABLE AND THE INTERPRE TATION THEREOF BY A COURT SHOULD BE TO SECURE THAT OBJECT UNLESS CRUCIAL OM ISSION OR CLEAR DIRECTION MAKES THAT END UNATTAINABLEWHITNEY VS. IRC (1926) AC 37 P. 52 REFERRED TO IN CIT VS. S. TEJA SINGH AIR 1959 SC 352 AND GURSAHAISAIGAL VS. CIT AIR 1963 SC 1062. THE COURTS WILL HAVE TO REJECT THAT CONSTRUCTION WHIC H WILL DEFEAT THE PLAIN INTENTION OF THE LEGISLATURE EVEN THOUGH THERE MAY B E SOME INEXACTITUDE IN THE LANGUAGE USEDSALMON VS. BUNCOMBE (1886) 11 AC 62 7 P. 634 (PC), CURTIS VS. STOVIN (1889) 22 CBD 513 REFERRED TO IN S. TEJA SINGH'S CASE (SUPRA). IF THE CHOICE IS BETWEEN TWO INTERPRETATIONS, THE NAR ROWER OF WHICH WOULD FAIL TO ACHIEVE THE MANIFEST PURPOSE OF THE LEGISLATIO N WE SHOULD AVOID. WHENEVER IT IS POSSIBLE TO DO SO, IT MUST BE DONE TO CO NSTRUE THE PROVISIONS WHICH APPEAR TO CONFLICT SO THAT THEY HARMONISE. IT SH OULD NOT BE LIGHTLY ASSUMED THAT PARLIAMENT HAD GIVEN WITH ONE HAND WHAT IT TOOK AWAY WITH THE OTHER.' 28. HON'BLE SUPREME COURT, IN THE CASE OF K.P. VARGH ESE VS. ITO &ANR. (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597 (SC), H AS FURTHER HELD THAT THE TASK OF INTERPRETATION IS NOT A MECHANICAL TASK AND, Q UOTED WITH APPROVAL, JUSTICE HAND'S OBSERVATION THAT 'IT IS ONE OF THE SUREST INDEXES OF A MATURE AND DEVELOPED JURISPRUDENCE NOT TO MAKE A FORTRESS OUT OF THE DICTIONARY BUT TO REMEMBER THAT STATUTES ALWAYS HAVE SOME PURPOSE OR OB JECT TO ACCOMPLISH, WHOSE SYMPATHETIC AND IMAGINATIVE DISCOVERY IS THE SUREST GUIDE TO THEIR MEANING'. THEIR LORDSHIPS, INTER ALIA, OBSERV ED AS FOLLOWS : '... THE TASK OF INTERPRETATION OF A STATUTORY ENACTM ENT IS NOT A MECHANICAL TASK. IT IS MORE THAN A MERE READING OF MATHEMATICAL FORMULAE BECAUSE FEW WORDS POSSESS THE PRECISION OF MATHEMATICAL SYMBOLS. IT IS A N ATTEMPT TO DISCOVER THE INTENT OF THE LEGISLATURE FROM THE LANG UAGE USED BY IT AND IT MUST ALWAYS BE REMEMBERED THAT LANGUAGE IS AT BEST AN IMPE RFECT INSTRUMENT FOR THE EXPRESSION OF HUMAN THOUGHT AND, AS POINTED OUT B Y LORD DENNING, IT WOULD BE IDLE TO EXPECT EVERY STATUTORY PROVISION TO BE 'DRAFTED WITH DIVINE 12 PRESCIENCE AND PERFECT CLARITY'. WE CAN DO NO BETTER THAN REPEAT THE FAMOUS WORDS OF JUDGE LEARNED HAND WHEN HE SAID : '...........IT IS TRUE THAT THE WORDS USED, EVEN IN T HEIR LITERAL SENSE, ARE THE WRITING: BE IT A STATUTE, A CONTRACT OR ANYTHING ELSE . BUT IT IS ONE OF THE SUREST INDEXES OF A MATURE AND DEVELOPED JURISPRUDENCE NOT T O MAKE A FORTRESS OUT OF THE DICTIONARY; BUT TO REMEMBER THAT STATUTES ALWA YS HAVE SOME PURPOSE OR OBJECT TO ACCOMPLISH, WHOSE SYMPATHETIC AND IMAGINA TIVE DISCOVERY IS THE SUREST GUIDE TO THEIR MEANING.' WE MUST NOT ADOPT A STRICTLY LITERAL INTERPRETATION O F... BUT WE MUST CONSTRUE ITS LANGUAGE HAVING REGARD TO THE OBJECT AND PURPOSE WHICH THE LEGISLATURE HAD IN VIEW IN ENACTING THAT PROVISION AND IN THE CO NTEXT OF THE SETTING IN WHICH IT OCCURS. WE CANNOT IGNORE THE CONTEXT AND TH E COLLECTION OF THE PROVISIONS IN WHICH . . ., APPEARS, BECAUSE, AS POINTED OUT BY JUDGE LEARNED HAND IN THE MOST FELICITOUS LANGUAGE : INTERPRET '. . . THE MEANING OF SENTENCE MAY BE MORE THAN THAT OF THE SEPARATE WORDS, AS A MELO DY IS MORE THAN THE NOTES, AND NO DEGREE OF PARTICULARITY CAN EVER OBVIA TE RECOURSE TO THE SETTING IN WHICH ALL APPEAR, AND WHICH ALL COLLECTIVELY CRE ATE.........' 29. IN VIEW OF THE GUIDANCE SO GIVEN BY THEIR LORDSH IPS, WE HAVE TO PROCEED ON THE BASIS THAT DESPITE 'INEXACTITUDE IN THE LANGUAGE USED', AS WAS THE EXPRESSION APPROVED BY HON'BLE SUPREME COURT, THE PROVISIONS OF CARRY FORWARD AND SET OFF ARE TO BE CONSTRUED IN A MANNER SO AS NOT TO DEFEAT THE PLAIN AND UNAMBIGUOUS INTENTION OF THE LEGISLATURE. I N 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 S. 43(5) WAS TO KILL THE BROUGHT FORWARD LOSSES OF DEALING IN DERIVATIVES OR MAKE THEM I NELIGIBLE FOR BEING SET OFF AGAINST THE PROFITS OF THE SAME BUSINESS IN SUBSEQUENT YEARS. WHATEVER MAY BE CHARACTERIZATION OF INCOME FOR THE PURPOSE OF INTRA-ASSESSMENT YEAR SET OFF IN THE RELEVANT ASSESSMENT YEAR, AND IRRESPECTIVE OF THE FACT THAT SUCH A 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 TH IS PERSPECTIVE ALSO, THE CLASSIFICATION OF BUSINESS FOR THE LIMITED PURPOSE O F SET OFF OF PAST LOSSES, INTO SPECULATIVE AND NON-SPECULATIVE, IS TO BE DONE ON A UNIFORM BASIS, AND, WHICHEVER WAY ONE LOOKS AT IT, THE LOSSES INCURRED IN T HE SAME BUSINESS IN EARLIER ASSESSMENT YEARS ARE TO BE TREATED AS ELIGIBLE FO R SET OFF AGAINST PROFITS OF THE SAME BUSINESS, SUBJECT TO FULFILMENT OF O THER CONDITIONS, IN THE SUBSEQUENT ASSESSMENT YEARS. FOR THIS REASON ALSO, THE ASSESSEE DESERVES TO BE GRANTED SET OFF OF BROUGHT FORWARD LOSSES FROM BUSINE SS OF DEALING IN DERIVATIVES, INCURRED IN ASSESSMENT YEARS PRIOR TO ASST. YR . 2006-07 AGAINST PROFITS OF THE SAME BUSINESS IN ASST. YRS. 2006-07 AND SUBSEQ UENT ASSESSMENT YEARS. 30. FOR THE REASONS SET OUT ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE WAS INDEED ELIGIBLE FOR SETTING OF LOSSES OF BUSINE SS OF DEALING IN DERIVATIVES, INCURRED IN THE ASSESSMENT YEARS PRIOR TO TH E ASST. YR. 2006-07, AGAINST THE PROFITS OF THE SAME BUSINESS IN ASST. YR. 2006- 07. THERE WAS NO INFIRMITY IN THE AO GRANTING THE SAID SET OFF. THE A SSESSMENT ORDER, SUBJECTED TO IMPUGNED REVISION PROCEEDINGS, THUS COULD NOT BE HE LD TO BE ERRONEOUS .AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. ACC ORDINGLY, WE QUASH THE IMPUGNED REVISION PROCEEDINGS, AND SET ASIDE LEARNED CI T'S ORDER IN CHALLENGE BEFORE US. 31. IN THE RESULT, THE APPEAL IS ALLOWED. 13 11.2 WE FIND FOLLOWING THE ABOVE DECISION THE COORD INATE BENCH OF THE TRIBUNAL IN THE CASE OF KASAT SECURITIES PVT. LTD. (SUPRA) HAS ALLOWED THE CLAIM OF SET OFF OF CARRY FORWARD OF LOSS ON ACCOUN T OF TRANSACTIONS IN DERIVATIVES FROM THE PROFIT OF THE SAME BUSINESS IN A.Y. 2006-07. 11.3 IN VIEW OF THE ABOVE PRECEDENTS, WE HOLD THAT THE LD. CIT WAS NOT JUSTIFIED IN DIRECTING THE AO TO DISALLOW THE SET O FF OF THE SPECULATION LOSS OF RS.17,72,448/- AGAINST THE PROFIT FROM SAME BUSINES S IN A.Y. 2007-08. ACCORDINGLY, THE ORDER OF THE CIT ON THIS ISSUE IS SET-ASIDE AND THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 30-04-2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) ( R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED 30 TH APRIL, 2014 SATISH COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT-II, PUNE 4. DR A BENCH, PUNE 5. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE