M/s. Jeenee Solution Pvt. Ltd., Ahmedabad V. ITO, Ward-1(1)(2), Ahmedabad

ITA 973/AHD/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2686 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 11-03-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 17-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Assessee Lawyers: S N DIVETIA
• Keywords: Business income; Speculation loss; Speculative transactions
• Section: 43(5); 143(2); 73(1); 73; 72; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD SMC BENCH BEFORE: SHR I SANDEEP GOSAIN , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER M/S. JEENEC SOLUTION PVT. LTD. 4 TH FLOOR, A.K. PATEL HOUSE, NEAR MITHAKHALI, NAVRANGPURA, AHMEDABAD - 380009 PAN: AABCJ4357M (APPELLANT) VS THE IT O , WARD - 2 ( 1 )(2 ) , AHMEDABAD (RESPONDENT) REVENUE BY : S H RI LALIT P. JAIN , SR. D . R. ASSESSEE BY: SHRI S.N. DIVETIA , A.R. DATE OF HEARING : 11 - 0 3 - 2 020 DATE OF PRONOUNCEMENT : 12 - 03 - 2 020 / ORDER P ER : AMARJIT SINGH, AC COUNTANT MEMBER : - THIS ASSESSEE S APPEAL FOR A.Y. 2013 - 14 , ARI SES FROM ORDER OF THE CIT(A) - 6, AHMEDABAD DATED 09 - 02 - 2 018 , IN PROCEEDINGS UNDER SECTION 1 4 3(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1. THE LEARNED CIT(A) AND LEARNED ASSESSING OFFICER ERRED IN TREATING THE BUSINESS LOSS INCURRED IN FUTURE & OPTION OF DERIVATIVES OF 1,71,9537 - AS SPECULATION LOSS BY INVOKING THE PROVISIONS OF SECTION 73(1) OF THE INCOME TAX ACT. 2. THE LD. CI(A) & LEARNED ASSESSING OFFICER FURTHER ERRED IN CONSIDERING THE F & O TRANSACTIONS HAS NOT SATISFIED THE CONDITION OF SECTION 43(5) OF THE IT ACT. I T A NO . 973 / A HD/20 18 A SS ESSMENT YEAR 2013 - 14 I.T.A NO. 973 /AHD/20 18 A.Y. 2013 - 14 PAGE NO M/S. JEENEC SOLUTION PVT. LTD. VS. IT O 2 3. THE FACT IN BRIEF IS THAT RETURN OF INCOME DECLARING INCOME OF RS. 18 , 75 , 548/ - WAS FILED ON 28 T H SEP, 2013. THE CASE WAS SUBJECT TO SCRUTINY ASSESSMENT AND NOTICE U/S. 143(2) OF THE ACT WAS ISSUED ON 3 RD SEP, 2 014. DURING THE COURSE OF ASSES SMENT, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS CLAIMED LOSS OF RS. 1 , 71 , 953/ - ON SALE OF CURRENCY T RANSACTION UNDER THE HEAD OTHER IN COME. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN WHY NO T THE SALE OF CURRENCY TRANSACTIONS SHOULD BE TREATED AS SPECULATIVE TRANSACTIONS . THE ASSESSEE HAS EXPLAINED THAT IN ITS CASE THE F & O TRANSACTIONS WERE CA RRIED ELECTRONICALLY ON SCREEN BASED SYSTEM THROUGH STOCK BROKER WITH NATIONAL STOCK EXCHANGE OF INDIA. IT IS FURTHER SUBMITTED THAT ON THE BASIS OF PROVISIONS OF SECTION 43(5) OF THE ACT TRANSACTIONS CARRIED IN DERIVATIVES IN FUTURE AND OPTION IN SHARES AND CURRENCY ARE CONSIDERED AS NORMAL BUSINESS INCOME/LOSS. THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE STATING THAT APART FROM ITS NORMAL BUSINESS ACTIVITY THE ASSESSEE COMPANY WAS HAVING SPECULATION TRANSACTION AND AFTER REFER RING THE DECISION OF HON BLE HIGH COURT IN THE CASE OF CIT VS. D LF COMMERCIAL DEVELOPER LTD. ITA 94/2013 CONCLUDED THAT LOSS SHOWN BY THE ASSESSEE WAS A SPECULATION LOSS. THEREFORE, THE ASSESSING OFFICER CONCLUDED THAT AS PER SECTION 71(A) OF THE ACT ANY LOSS COMPUTED IN RESPECT OF SPECULATION BUSINESS CARRIED ON BY THE ASSE SSEE SHALL NOT BE SET OFF IN RESPECT OF PROFIT AND GAIN IF ANY OF OTHER SPECULATION BUSINESS. 4. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE THE LD. CIT(A) . T HE LD. CIT(A) HAS D ISMISSED THE APPEAL OF THE ASSESSEE BY REITERATING THE FACTS REPORTED BY THE ASSESSING OFFICER . I.T.A NO. 973 /AHD/20 18 A.Y. 2013 - 14 PAGE NO M/S. JEENEC SOLUTION PVT. LTD. VS. IT O 3 5. DURING T HE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. COUNSE L HAS SUBMITTED PAPER BOOK COMPRISING VARIOUS DETAILS AND COPIES OF DOCUMENT FURNI SHED B EFORE THE LOWER AUTHORITIES AT THE TIME OF ASS ESSMENT AND APPELLATE PROCEEDINGS. THE LD. COUNSEL HAS REFERRED THE VARIOUS CONTRACT NOTES PERTAINING TO THE TRANSACTION IN FUTURE AND OPTION MADE THROUGH AUTHORIZED BROKER AND SUBMITTED THAT ASSESSING OFFICER HAS INCORRECTLY MADE REFERENCE TO THE DECISION OF DELHI HIGH COURT IN THE C ASE OF DLF COMMERCIAL DEVELOPER PVT. LTD. WHICH WAS RELATED TO TRADING OF SHARES WHEREBY THE ASSESSEE HAS SHOWN TRANSACTION IN NIFTY AN D C URRENCY ( F &O) WHICH IS GOVERNED BY SECTION 43(5) OF THE ACT. TO SUPPORT HIS CONTENTION, THE LD. COUNSEL HAS PLACED RELIANCE ON THE DECISION OF CO - ORDINATE BENCH OF ITAT AHMEDABAD VIDE ITA (2019) 111 TAXMAN.COM 339 (AHMEDABAD TRIB . ) IN TH E CASE OF MAGIC SHARE TRADING LTD. VS. ITO. ON THE O THER HAND , LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF LOWER AUTHORITIES. 6. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAS ENTERED IN THE DERIVATIVE TRANS ACTIONS OF NIFTY AND CURRENCY ( F & O) IN WHICH NET LOSS OF RS. 1 , 71 , 953/ - WAS INCURRED. THE DERIVATIVES I.E. FUTURE AND OPTION TRANSACTIONS WERE TAKEN PLACE IN THE RECOGNIZED STOCK EXCHANGE I.E. NATIONAL STOCK EXCHANGED AND MCS IN VARIOUS SCRIPTS AND CURR ENCIES. THE DETAILED BROKER NOTE ALONG WITH CONTRACT NOTES/ INVOICES WERE SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE ASSESSING OFFICER HAS TREATED THE AFORESAID LOSS AS SPECULATION LOSS AND STATED THAT AS PER SECTION 73(1) OF THE ACT THE S AME CANNOT BE SET OFF AGAINST OTHER NORMAL BUSINESS LOSS . IN THIS I.T.A NO. 973 /AHD/20 18 A.Y. 2013 - 14 PAGE NO M/S. JEENEC SOLUTION PVT. LTD. VS. IT O 4 REGARD, WE HAVE GONE THROUGH THE PROVISION OF SECTION 43(5) OF THE ACT PERTAINING TO SPECULATION TRANSACTION REPRODUCED AS UNDER: - (5) 1 ' SPECULATIVE TRANSACTION' MEANS A TRANSACTION IN WH ICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS: PROVIDED THAT FOR THE PURPOSES OF THIS CLAUSE - (A) A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCHANDISE ENTERED INTO BY A PERSON IN THE COURSE OF HIS MANUFACTURING OR MERCHANTING BUSINESS TO GUARD AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATIONS IN RESPECT OF HIS CONTRACTS FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY HIM OR MERCHANDISE SOLD BY HIM; OR (B) A CONTRACT IN RESPECT OF STOCKS AND SHARES ENTERED INTO BY A DEALER OR INVESTOR THEREIN TO GUARD AGAI NST LOSS IN HIS HOLDINGS OF STOCKS AND SHARES THROUGH PRICE FLUCTUATIONS; OR (C) A CONTRACT ENTERED INTO BY A MEMBER OF A FORWARD MARKET OR A STOCK EXCHANGE IN THE COURSE OF ANY TRANSACTION IN THE NATUR E OF JOBBING OR ARBITRAGE TO GUARD AGAINST LOSS WHICH MAY ARISE IN THE ORDINARY COURSE OF HIS BUSINESS AS SUCH MEMBER; SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION; (D) AN ELIGIBLE TRANSACTION IN RE SPECT OF TRADING IN DERIVATIVES REFERRED TO IN CLAU SE 7 1 [(AC)] OF SECTION 2 72 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) CARRIED OUT IN A RECOGNISED STOCK EXCHANGE; 73 [OR]] (E) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN COMMODITY DERIVA TIVES 70 CARRIED OUT IN A RECOGNISED ASSOCIA TION 74 [, WHICH IS CHARGE ABLE TO COMMODITIES TRANSACTION TAX UNDER CHAPTER VII OF THE FINANCE ACT, 2013 (17 OF 2013),]] SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION. AFTER CONSIDERING THE PROVISION OF SECTION 43(5), THE CO - ORDINATE B ENCH OF THE I TAT AHMEDABAD VIDE ITA NO. (2019) 111 TAXMAN.COM 239 (AHMEDABAD TRIB . ) IN THE CASE OF MAGIC SHARE TRADERS LTD. VS. ITO HAS ADJUDICATED THE IDENTICAL ISSUE AS UNDER: - 3.3 THE SUBSTANTIVE QUESTION IN CONTROVERSY IS WHETHER LOSS INCURRED IN ELIGIBLE TRANSACT IONS VIZ. 'DERIVATIVE TRANSACTIONS' WITHIN THE MEANING OF PROVISO (D) TO SECTION 43(5) OF THE ACT NOT INVOLVING ANY PURCHASE OR SALE OF SHARES PER SE CAN BE REGARDED AS 'SPECULATIVE LOSS' FOR THE PURPOS ES OF SET OFF IN VIEW OF EXPLANATION TO SECTION 73 OR NOT? 3.4 THE CO - ORDINATE BENCH OF ITAT IN ITA NO. 770/AHD/2016 CONCERNING A.Y. 2012 - 13 ORDER DATED 31.10.2018 HAS ADJUDICATED THE ISSUE IN FAVOUR O F THE ASSESSEE. THE RELEVANT OPERATIVE PARA IS REPRODUCED HEREUNDER: - '9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RESPECTIVE ORDERS OF THE AO AND CIT(A). THE SUBSTANTIVE QUESTION THAT ARISES FOR ADJUDICATION IS WHETHER LOSS INCU RRED IN ELIGIBLE TRANSACTIONS I.E. DERIVATIVE TRANSACTIONS WITHIN THE MEANING OF PROVISO (D) TO SECTION 43(5) OF THE ACT NOT INVOLVING ANY PURCHASE OR SALE OF SHARES PER SE CAN BE REGARDED AS SPECULATIVE LOSS FOR THE PURPOSES OF SET OFF IN VIEW OF EXPLANAT ION TO SECTION 73 OR NOT. THE CONTROVERSY INVOLVED IN THE PRESENT CASE IS THUS ESSENTIALLY LEGAL IN NATURE. I.T.A NO. 973 /AHD/20 18 A.Y. 2013 - 14 PAGE NO M/S. JEENEC SOLUTION PVT. LTD. VS. IT O 5 9.1 IN THE PRESENT APPEAL, THE ASSESSEE SEEKS SET OFF OF LOSSES ARISING FROM DERIVATIVE LOSSES AS NON - SPECULATIVE BUSINESS LOSS. IN CONTRAST, THE R EVENUE HAS LABELED THE LOSS ARISING FROM DERIVATIVE TRANSACTIONS AS 'SPECULATIVE LOSS' AND HAS CONSEQUENTLY DENIED SET OFF OF SUCH LOSSES FROM REGULAR INCOME OF NON - SPECULATIVE NATURE ETC. BY APPLYING EXPLANATION TO SECTION 73 OF THE ACT. 9.2 WE FIRST ADV ERT TO THE PIVOTAL CONTENTION ON BEHALF OF THE ASSESSEE THAT EXPLANATION TO SECTION 73 OF THE ACT CANNOT APPLY TO LOSS ARISING FROM DERIVATIVE TRANSACTIONS WHICH ARE CATEGORICALLY EXCLUDED FROM BEING REGARDED AS SPECULATIVE BUSINESS AS DEFINED UNDER S.43(5 ) OF THE ACT READ WITH PROVISO (D) THERETO. IDENTICAL ISSUE AROSE BEFORE THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF ASIAN FINANCIAL SERVICES (SUPRA) RELIED UPON. THE HON'BLE CALCUTTA HIGH COURT HELD THAT ONCE IT IS DEEMED TO BE A NORMAL BUSINESS LOSS O N THE BASIS OF PROVISO APPENDED TO SECTION 43(5) OF THE ACT, A QUESTION OF APPLYING SECTION 73 OF THE ACT OR THE EXPLANATION THERETO FOR THE PURPOSES OF REFUSING LOSS TO BE SET OFF AGAINST BUSINESS INCOME IS WHOLLY INCORRECT. THE HON'BLE CALCUTTA HIGH COUR T AFTER TAKING NOTE OF THE DECISION OF HON'BLE DELHI HIGH COURT IN DLF COMMERCIAL (SUPRA) TOOK A DISTINCT STAND THAT DERIVATIVES CANNOT BE TREATED AT PAR WITH SHARES FOR THE PURPOSES OF EXPLANATION TO SECTION 73 OF THE ACT BECAUSE THE LEGISLATURE HAS TREAT ED IT DIFFERENTLY. THUS, IN VIEW OF THE AFORESAID POSITION ENUNCIATED BY THE HON'BLE HIGH COURT IN ASIAN FINANCIAL SERVICES (SUPRA), WE FIND GOOD DEAL OF FORCE IN THE CASE OF ASSESSEE. THE CLAIM OF THE ASSESSEE THUS REQUIRES TO BE ALLOWED ON THIS GROUND AL ONE. 9.3 IN VIEW OF THE RESOUNDING CONCLUSION DRAWN IN FAVOUR OF THE ASSESSEE ON THE AFORESAID LEGAL POSITION, WE DO NOT CONSIDER IT NECESSARY TO ADVERT TO OTHER ALTERNATIVE CONTENTIONS RAISED ON BEHALF OF THE ASSESSEE. 10. IN THE RESULT, GROUND NO. 1 OF THE ASSESSEE'S APPEAL IS ALLOWED.' IN THE LIGHT OF THE ABOVE FACTS AND FIN DINGS OF THE CO - ORDINATE B E NCH, WE CONSIDER THAT THE LD. CIT(A) IS NOT JUSTIFIED IN TREATING THE BUSINESS LOSS INCURRED IN FUTURE & OPTION OF DERIVATIVES OF RS. 1,71,953 / - AS SPECULATION LOSS. THEREFORE, FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH AS CITED ABOVE, THE APPEAL OF THE ASSESSEE IS ALLOWED. 7 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 12 - 03 - 20 20 SD/ - SD/ - ( SAN DEEP GOSAIN ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 12 /03 /2020 I.T.A NO. 973 /AHD/20 18 A.Y. 2013 - 14 PAGE NO M/S. JEENEC SOLUTION PVT. LTD. VS. IT O 6 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENU E 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,