PRASHANT RAMESH KOTHARI, MUMBAI V. ITO WD 14(3)4, MUMBAI

ITA 9121/MUM/2010

• Counselvise Citation: 912119914 RSA 2010
• Duration Of Justice: 3 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 03-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 29-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SANJAY PARIKH IZRFKHZ DH LS
• Keywords: Speculation loss
• Section: 43(5)

Judgement Text

- 1 - VK;DJ VIHYH; VF/KDJ.K LH U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI JH JH JH JH ,U ,U,U ,U- -- - DS DSDS DS- -- - LSUH LSUH LSUH LSUH] YS[KK LNL; ,OA ] YS[KK LNL; ,OA ] YS[KK LNL; ,OA ] YS[KK LNL; ,OA JH JH JH JH LAT; XXZ LAT; XXZ LAT; XXZ LAT; XXZ] U;KF;D LNL; DS ] U;KF;D LNL; DS ] U;KF;D LNL; DS ] U;KF;D LNL; DS LE{K LE{K LE{K LE{K BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER VK;DJ VIHY LA[;K /ITA NO. 9121/MUM/2010 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR 2007-08 PRASHANT RAMESH KOTHARI 262, MANGALDAS MARKET, 7 TH LANE, NAVI GALLI, MUMBAI 400 002. CUKE@ VS. ITO. WARD 14(3)(4), EARNEST HOUSE, NARIMAN POINT MUMBAI 400 021. PAN: - AA FPK 1294 D VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VIHYKFKHZ DH VKSJ LS @ ASSESSEE BY SHRI SANJAY PARIKH IZR;FKHZ DH VKSJ LS @ REVENUE BY SHRI RAVI PRAKASH VKNS'K@ VKNS'K@ VKNS'K@ VKNS'K@ ORDER PER N.K. SAINI, AM. THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 15.11.2010 OF CIT(A)-25, MUMBAI. THE ONLY GRIEVANCE OF THE ASSESSEE IN THIS APPEAL RELATES TO THE CONFIRMATION OF THE ACTI ON OF THE AO IN NOT ALLOWING BROUGHT FORWARD DERIVATIVE LOSS OF RS. 2, 50,355/-( THOUGH CLASSIFIED AS SPECULATION) OF A.Y. 2004-05 AGAINST THE DERIVATIVE PROFIT OF RS. 3,98,769/- MADE BY THE ASSESSEE DURING THE ASSE SSMENT YEAR 2007-08. 2. FACTS OF THE CASE IN BRIEF ARE THAT THE AO DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE CL AIMED THE SET OFF OF LQUOKBZ DH RKJH[K@ DATE OF HEARING 03 - 02 - 2014 ?KKS'K.KK DH RKJH[K@ DATE OF PRONOUNCEMENT 07-02-2014 - 2 - BROUGHT FORWARD SPECULATION LOSS OF RS. 2,50,355/- OUT OF NET PROFIT SHOWN AT RS. 3,98,769/-. THE AO FOUND THAT THE SAID LOSS PERTAINED TO ASSESSMENT YEAR 2004-05 AND IT WAS A SPECULATION LOSS SO IT CO ULD NOT BE SET OFF AGAINST SHARE TRADING INCOME AS WELL AS DERIVATIVE PROFIT. THE ASSESSEE CLAIMED BEFORE THE AO THAT BY VIRTUE OF FINANCE ACT 2005 W.E.F 1.4.2006 DERIVATIVE TRANSACTIONS ARE EXCLUDED FROM THE DEFIN ITION OF SPECULATIVE TRANSACTIONS AS DEFINED IN SECTION 43(5) OF THE INC OME TAX ACT 1961 ( HEREINAFTER REFERRED AS ACT). AO HELD THAT THE LOSS OF RS. 2,50,355/- WAS ON ACCOUNT OF SPECULATIVE TRANSACTION WHICH WAS EVIDEN T FROM THE STATEMENT OF INCOME FILED BY THE ASSESSEE HIMSELF. ACCORDINGL Y THE AO REFUSED TO ALLOW THE SET OFF OF SAID LOSS. 3. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO LD. CIT(A) AND SUBMITTED THAT THE SPECULATION LOSS OF A.Y. 2004-05 WAS DERIVATIVE LOSS BY VIRTUE OF SUBSEQUENT AMENDMENT W.E.F 01.04.2006, IT SHOULD NOT BE TREATED AS SPECULATIVE LOSS BUT SHOULD BE TREATED A S DERIVATIVE LOSS. 4. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT IN THE COMPUTATION OF TOTAL INCOME A TTACHED WITH RETURN OF INCOME FOR ASSESSMENT YEAR 2004-05, THE ASSESSEE HI MSELF CATEGORIZED IT AS INCOME FROM SPECULATION BUSINESS AND MENTIONED A SUM OF RS. 2,50,355/- AS SPECULATION LOSS OF SHARES. THE LD. C IT(A) DID NOT FIND MERIT IN THE SUBMISSION OF THE ASSESSEE THAT AMENDMENT HA D BEEN MADE IN SECTION 43(5) OF THE ACT. W.E.F 01.04.2006 WHEREIN CERTAIN TERMS AND CONDITIONS HAD BEEN LAID DOWN FOR AN ELIGIBLE TRANS ACTION TO BE CONSIDERED AS DERIVATIVE TRANSACTIONS, AFTER FULFILLMENT OF CE RTAIN CONDITIONS AS LAID DOWN IN THE STATUTE, AND AS PER RULE 6DDA & 6DDB OF INCOME TAX RULES, DERIVATIVE TRASSACTIONS ARE EXCLUDED FROM THE PURVI EW OF SPECULATIVE TRANSACTIONS BUT THOSE CONDITIONS COULD NOT BE FILF ILLED RETROSPECTIVELY, - 3 - PARTICULARLYL WHEN THE ASSESSEE HIMSELF HAD TREATED THESE TRANSACTIONS AS SPECULATIVE TRANSACTIONS GENERATING SPECULATIVE LO SS. THE LD. CIT(A) POINTED OUT THAT THE TRANSACTIONS CARRIED OUT IN AS SESSMENT YEAR 2004-05 WERE NOT DERIVATIVE TRANSACTIONS BUT PURE SPECULATI VE TRANSACTIONS, HENCE COULD NOT BE TREATED AS DERIVATIVE TRANSACTIONS AND EVEN NECESSARY NOTIFICATION BY GOVERNMENT OF INDIA WAS ISSUED ON 2 5.01.2006 RECOGNIZING STOCK EXCHANGES FOR THE PURPOSE OF SECTION 43(5) OF THE ACT ON FULFILLMENT OF CONDITIONS LAID DOWN IN RULE 6DDA OF THE INCOME TAX RULES 1962, AND THE EXPLANATORY MEMORANDUM IN RESPECT OF THE SAID NOTIFICATION CLEARLYL STATED THAT AN ELIGIBLE TRANSACTION IN RESPECT OF T RADING DERIVATIVES CARRIED OUT ON THESE TWO RECOGNIZED STOCK EXCHANGES W.E.F 2 5.01.2006 SHALL NOT BE DEEMED TO BE SPECULATIVE TRANSACTION. THE LD. CI T(A) CONFIRMED THE ACTION OF THE AO BY OBSERVING THAT AMENDMENT WAS EF FECTIVE FROM 01.04.2006 AND HAD CLOTHED WITH CERTAIN TERMS AND C ONDITIONS AS WELL AS RULES AND REGULATIONS MADE BY RECOGNIZED STOCK EXCH ANGE, THEREFORE, ASSESSEES ARGUMENT CANNOT BE ACCEPTED. BEING AGGRI EVED ASSESSEE FILED AN APPEAL BEFORE THE TRIBUNAL. 5. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF ITAT MUMBAI G BENCH MUMBAI IN THE CASE OF GAJENDRA KUM AR T. AGARWAL VS. INCOME TAX OFFICER [2011] 11 ITR (TRIB) 640 (MUMBAI ) COPY OF THE SAID ORDER WAS FURNISHED. 6. IN HIS RIVAL SUBMISSIONS THE LD DR STRONGLY SUPP ORTED THE ORDER PASSED BY LD. CIT(A) AND FURTHER SUBMITTED THAT THE AMENDMENT MADE IN SECTION 43(5) OF THE ACT WERE EFFECTIVE FROM 01.04. 2006 AND NOT RETROSPECTIVE, THEREFORE, THE AO RIGHTLY DISALLOWED THE CLAIM OF THE - 4 - ASSESSEE TO SET OFF THE DERIVATIVE LOSS CLAIMED AS SPECULATIVE LOSS IN THE ASSESSMENT YEAR 2004-05. 7. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PA RTIES AND CAREFULLY GONE THROUGH THE MATERIAL PLACED ON RECOR D. IN THE PRESENT CASE THE ONLY CONTROVERSY INVOLVED RELATES TO THE BROUGH T FORWARD LOSS ON ACCOUNT OF DERIVATIVE TRANSACTIONS WHICH WERE CONSI DERED AS SPECULATIVE IN NATURE BY THE ASSESSEE IN THE STATEMENT OF INCOM E FOR THE YEAR 2004- 05. HOWEVER LATER ON THE AMENDMENT TOOK PLACE BY VI RTUE OF FINANCE ACT 2005 W.E.F 01.04.2006 AND THE DERIVATIVE TRANSACTIO NS ARE EXCLUDED FROM THE DEFINITION OF SPECULATIVE TRANSACTIONS AS DEFIN ED IN SECTION 43(5) OF THE ACT. NOW THE ASSESSEE CLAIMED THE SET OFF OF THE SA ID LOSS FROM THE NET PROFIT SHOWN AT RS. 3,98,769/- FROM SHARE TRADING B USINESS. A SIMILAR ISSUE HAD BEEN ADJUDICATED BY THE ITATS MUMBAI G BENCH MUMBAI IN THE CASE OF GAJENDRA KUMAR T. AGARWAL VS. ITO, WHEREIN IT HAS BEEN HELD AS UNDER:- THE ASSESSEE HAD EARNED PROFITS FROM THE SAME BUS INESS IN WHICH LOSSES WERE INCURRED IN THE EARLIER YEARS AND WAS ENTITLED TO SET OFF THE CARRIED FORWARD LOSSES OF THE EARLIER ASSESSMENT YEARS, AS LONG AS ALL OTHER CONDITIONS WERE FULFILLED, FROM THE SAME BUSINESS A GAINST PROFITS OF THE BUSINESS IN THIS ASSESSMENT YEAR. THE ASSESSEE WAS ELIGIBLE FOR SETTING OF LOSSES OF BUSINESS OF DEALING IN DERIVATIVES, INCUR RED IN THE ASSESSMENT YEARS PRIOR TO THE ASSESSMENT YEAR 2006-07, AGAINST THE P ROFITS OF THE SAME BUSINESS IN THE ASSESSMENT YEAR 2006-07. IT HAS FURTHER BEEN HELD THAT THE LOSSES INCURRED I N THE ASSESSMENT YEARS PRIOR TO 2006-07, IN DEALING IN DERIVATIVES, MUST B E HELD TO BE LOSSES OF SPECULATION BUSINESS. THE ASSESSEE WAS ENTITLED TO SET OFF THE LOSS INCURRED, IN THE ASSESSMENT YEARS PRIOR TO THE ASSESSMENT YEA R 2006-07, IN THE BUSINESS OF DEALING IN DERIVATIVES, AGAINST THE PRO FITS EARNED IN THE ASSESSMENT YEAR 2006-07 AND LATER ASSESSMENT YEARS. WHILE LOSS INCURRED BY THE ASSESSEE IN THE PRECEDING ASSESSMENT YEARS W AS SPECULATION BUSINESS LOSS FOR THE PURPOSES OF ASSESSMENT IN THE RELEVANT ASSESSMENT YEARS, IT WAS STILL REQUIRED TO BE TREATED AS NON-SPECULATION BUS INESS LOSS FOR THE LIMITED PURPOSES OF SET OFF OF CARRIED FORWARD OF LOSSES A GAINST THE CURRENT YEARS PROFIT. - 5 - 7. SINCE THE FACTS IN THE PRESENT CASE ARE SIMILAR TO THE FACTS IN THE AFORESAID CASE OF M/S GAJENDRA KUMAR T. AGARWAL VS. ITO [2011] 11 ITR (TRIB) 640 MUMBAI, SO RESPECTFULLY FOLLOWING THE SA ID ORDER OF TRIBUNAL, WE SET ASIDE THE IMPUGNED ORDER PASSED BY LD. CIT(A) A ND DIRECT THE AO TO ALLOW THE CLAIM OF THE ASSESSEE FOR SET OFF OF CARR IED FORWARD LOSSES AS CLAIMED. 8. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 07 /02/2014 SD/- SD/- (SANJAY GARG) (N.K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED 07 /02/2014 SKS SR. P.S COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI