Surana Mercantiles Pvt. Ltd., Kolkata V. DCIT, CC-XXIII, Kolkata, Kolkata

ITSSA 24/KOL/2015

• Counselvise Citation: [2017] 122 COUNSELVISE.COM (IT) 3419 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 30-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 29-05-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 27-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G MALLIKARJUNA
• Keywords: Business income; Transactions in derivatives; Speculation loss; Speculative transactions
• Section: 43(5); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C, BENCH KOLKATA BEFORE SHRI N. V. VASUDEVAN, JM & DR. A.L.SAINI, AM IT(SS) NO.24/KOL/2015 (A.Y: 2008-09) SURANA MERCANTILES PVT. LTD. C/O S.L. KOCHAR, ADVOCATE 86, CANNING STREET, KOLKATA-1 VS. D.C.I.T, C C - XXIII, KOLKATA ./ ./PAN/GIR NO. : AABCB 4120 A ( ASSESSEE ) .. ( RESPONDENT ) ASSESSEE BY : SHRI ANIL KOCHAR, ADVOCATE RESPONDENT BY : SHRI G. MALLIKARJUNA, CIT DR / DATE OF HEARING : 12/07/2017 /DATE OF PRONOUNCEMENT: 30/08/2017 / O R D E R PER DR. ARJUN LAL SAINI, AM: THE CAPTIONED APPEAL FILED BY THE ASSESSEE, PERTAINING TO ASSESSMENT YEAR 2008-09, IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-21, KOLKATA, IN APPEAL NO.466/CC-4(1)/CIT(A)-21/14-15, DATED 16.12.2014, WHICH IN TURN ARISES OUT OF AN ORDER PASSED BY THE ASSESSING OFFICER U/S.263/153A/143(3) OF THE INCOME TAX ACT 1961, (HEREINAFTER REFERRED TO AS THE ACT), DATED 21.01.2014. 2. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1.FOR THAT THE LD. CIT (A) OUGHT TO HAVE PROPERLY TAKEN NOTE OF THE CONTENTIONS RAISED BY THE ASSESSEE RELATING TO THE GROUNDS OF APPEAL TAKEN BEFORE HIM AND OUGHT TO HAVE ALLOWED THE APPEAL. 2.FOR THAT THE FACT THAT NO INCRIMINATING DOCUMENT/ PAPER WAS FOUND AND SEIZED BY THE SEARCH PARTY CONDUCTING SEARCH U/S 132, THE LD. CIT(A) OUGHT TO HAVE ACCEPTED THE CONTENTION OF THE ASSESSEE THAT THE ADOPTION OF JURISDICTION U/S 263 BY THE LD. CIT RESULTING IN THE IMPUGNED ASSESSMENT MADE BY THE A.O. WAS LIABLE TO BE CANCELLED. 3.FOR THAT THE LD. CIT (A) ERRED IN REJECTING THE PLEA OF THE ASSESSEE THAT THE ASSESSEE WAS ENTITLED TO THE BENEFIT OF CARRY FORWARD SPECULATION LOSS FOR ADJUSTMENT AGAINST THE INCOME DERIVED BY IT FROM THE DERIVATIVES. IT(SS) NO.24/KOL/2015 A.Y: 2008-09 SURANA MERCANTILES PVT. LTD. PAGE | 2 4.FOR THAT THE LD. CIT (A) OUGHT TO HAVE ACCEPTED THE CONTENTIONS OF THE ASSESSEE AS DULY SUBMITTED IN THE WRITE UP THAT THE INCOME EARNED BY THE ASSESSEE UNDER DERIVATIVE TRADING WAS AVAILABLE FOR SET OFF AGAINST CARRY FORWARD SPECULATION LOSSES. 5.FOR THAT FURTHER GROUNDS OF APPEAL MAY KINDLY BE ALLOWED TO BE TAKEN OF THE TIME OF HEARING OF THE APPEAL. 3. ALTHOUGH, IN THIS APPEAL, THE ASSESSEE HAS RAISED A MULTIPLE GROUNDS OF APPEAL BUT AT THE TIME OF HEARING THE MAIN GRIEVANCE OF THE ASSESSEE HAS BEEN CONFINED TO THE ISSUE THAT WHETHER THE ASSESSEE COMPANY IS ELIGIBLE TO ADJUST THE BROUGHT FORWARD SPECULATION LOSS OF PREVIOUS YEARS WITH TRADING INCOME ON DERIVATIVES. 3.1 BRIEF FACTS QUA THE ISSUE ARE THAT A SEARCH & SEIZURE OPERATION U/S.132 OF THE I.T ACT, 1961, WAS CONDUCTED AT THE VARIOUS RESIDENCE AND OFFICE PREMISES OF SURANA GROUP ON 19.03.2009. IN CONSEQUENCE, NOTICE U/S.153A WAS ISSUED IN THIS CASE FOR SIX YEARS FROM A.Y 2003-04 TO 2008-09 FOR ASSESSMENT. THE ASSESSEE HAD FILED RETURN U/S.153 ON 06.01.2010 SHOWING INCOME OF RS.2,27,55,113/-. ASSESSMENT U/S.153A/143(3) WAS COMPLETED ON 31.12.2010 ON A TOTAL INCOME OF RS.2,36,12,810/-. 3.1 HOWEVER, LATER ON, THE COMMISSIONER OF INCOME TAX HAD EXERCISED HIS JURISDICTION UNDER SECTION 263 OF THE ACT. IT WAS NOTICED BY THE CIT THAT IN THE COMPUTATION OF INCOME, THE ASSESSEE COMPANY HAD ADJUSTED BROUGHT FORWARD SPECULATION LOSS WITH TRADING INCOME ON DERIVATIVES. SINCE, AS PER CIT, ANY ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIVATIVES WILL NOT TREATED AS SPECULATIVE BUSINESS IN TERMS OF CLAUSE (D) OF SEC.43(5) OF THE I.T. ACT, AND ANY INCOME THEREON CANNOT BE TREATED AS SPECULATIVE BUSINESS. THEREFORE, LD CIT OBSERVED THAT PROFIT ON TRADING DERIVATIVES OF IT(SS) NO.24/KOL/2015 A.Y: 2008-09 SURANA MERCANTILES PVT. LTD. PAGE | 3 RS.76,61,582.96/- BEING A BUSINESS INCOME CANNOT BE ALLOWED TO SET OFF AGAINST SPECULATIVE LOSS. THEREFORE LD CIT HELD THAT THE ASSESSMENT ORDER PASSED BY THE AO UNDER SECTION 153A/143(3) WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 3.2 THE ASSESSING OFFICER BASED ON THE ORDER OF LD CIT UNDER SECTION 263, MADE THE ORDER STATING THAT ASSESSEE IS NOT ELIGIBLE TO SET OFF THE BROUGHT FORWARD SPECULATION LOSS AGAINST THE PROFIT FROM TRADING IN DERIVATIVES (FUTURE & OPTIONS). HOWEVER, THE ASSESSEE HAD SUBMITTED BEFORE THE AO THAT THE STATEMENT OF ACCOUNTS RELATING TO A.Y. 2008-09 WOULD SHOW THAT THE ASSESSEE HAD PROFIT OF RS. 78,06,336/- UNDER THE NOMENCLATURE 'PROFIT ON LNTRA DAY TRADING ON SHARES & F&O WHICH ARE BASICALLY A SPECULATIVE PROFIT AS THERE IS NO POINT OF TAKING/GIVING DELIVERY OF SHARES AND IT IS ONLY UPON THE SETTLEMENT THAT THE PROFIT IS ARRIVED AT. THIS IS THE BASIC CHARACTER OF SPECULATIVE INCOME AND AS SUCH HAS BEEN RIGHTLY CLAIMED BY THE ASSESSEE AND IN FACT CONSIDERED AS SUCH BY THE A.O IN ORIGINAL ASSESSMENT PROCEEDINGS, AND THEREFORE THE ASSESSEE IS ENTITLED TO SET OFF SUCH LOSS OF RS.82,05,373/- BEING B/F FROM A.Y. 2006- 07. HOWEVER, THE AO REJECTED THE ASSESSEE`S CLAIM AND ADDED RS.76,61,582/- 3.3 AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, PASSED UNDER SECTION 263/153A/143(3) OF THE ACT, THE ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), WHO HAS CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. THE CIT(A) HELD THAT THE TRANSACTIONS IN DERIVATIVES WERE CONSIDERED AS SPECULATIVE TRANSACTIONS ONLY UP TO A.Y. 2005-06. HOWEVER/ AFTER INSERTION OF CLAUSE (D) OF PROVISO TO SECTION 43(5) OF THE ACT FROM THE A.Y. 2006-07 ONWARDS, THE LOSS IN DERIVATIVE TRADING IS CONSIDERED AS THE BUSINESS LOSS AND THE PROFIT IN DERIVATIVE TRANSACTIONS IS TO BE CONSIDERED AS BUSINESS INCOME. IN THE CASE OF ASSESSEE THE IT(SS) NO.24/KOL/2015 A.Y: 2008-09 SURANA MERCANTILES PVT. LTD. PAGE | 4 YEAR UNDER APPEAL IS A.Y.2008-09 AND, THEREFORE, THE PROFIT OF RS.76,61,583/- ON DERIVATIVE TRADING IS NOTHING BUT THE BUSINESS PROFIT AND THE SAME CANNOT BE SET OFF AGAINST THE BROUGHT FORWARD SPECULATION LOSS. THEREFORE IN VIEW OF THE ABOVE, THE CIT(A) HELD THAT THE ACTION OF THE AO TREATING THE PROFIT OF RS.76,61,583/- ON DERIVATIVE TRADING AS BUSINESS PROFIT AND CONSEQUENTLY DENIAL OF SET OFF OF SPECULATION LOSS AGAINST THAT INCOME, WAS UPHELD BY THE CIT(A). 3.4 NOT BEING SATISFIED WITH THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US.THE LD. COUNSEL FOR THE ASSESSEE HAS VEHEMENTLY SUBMITTED, BEFORE US, THAT THE ISSUE UNDER CONSIDERATION IS FULLY COVERED BY THE JUDGMENT IN THE CASE OF GAJENDRA KUMAR. T. AGARWAL, VS ITO, IN ITA NO.1798/MUM/2010, A.Y 2006-07 WHEREIN IT WAS HELD THAT AS A RESULT OF THE AMENDMENT IN SECTION 43(5) WITH EFFECT FROM 1 ST APRIL 2006, LOSSES INCURRED IN DERIVATIVE TRADING ARE HELD TO BE ELIGIBLE FOR BEING SET OFF AGAINST NORMAL BUSINESS PROFITS, AS DERIVATE TRADING ITSELF IS TREATED AS A NON-SPECULATIVE BUSINESS, AND LOSSES OF ANY NON-SPECULATIVE BUSINESSES CAN BE ADJUSTED PROFITS OF ANY NON-SPECULATIVE BUSINESS. THE LD TRIBUNAL FURTHER HELD THAT 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 SECTION 43(5) WAS TO KILL THE BROUGHT FORWARD LOSSES OF DEALING IN DERIVATIVES OR MAKE THEM INELIGIBLE 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 MUSH BE CHARACTERIZED ON A UNIFORM BASIS IN THE ASSESSMENT YEAR IN WHICH SET OFF IS CLAIMED. VIEWED IN THIS PERSPECTIVE ALSO, THE CLASSIFICATION OF BUSINESS FOR THE LIMITED PURPOSE OF 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 THE SAME BUSINESS IN EARLIER ASSESSMENT YEARS ARE TO BE TREATED AS ELIGIBLE FOR SET OFF AGAINST PROFITS OF THE SAME BUSINESS, SUBJECT TO FULFILMENT OF OTHER CONDITIONS, IN THE SUBSEQUENT ASSESSMENT YEARS. FOR THIS REASON ALSO, THE ASSESSEE DESERVES TO BE GRANTED SET OFF IT(SS) NO.24/KOL/2015 A.Y: 2008-09 SURANA MERCANTILES PVT. LTD. PAGE | 5 OF BROUGHT FORWARD LOSSES FROM BUSINESS OF DEALING IN DERIVATIVES, INCURRED IN ASSESSMENT YEARS PRIOR TO ASSESSMENT YEAR 2006-07 AGAINST PROFITS OF THE SAME BUSINESS IN ASSESSMENT YEARS 2008-09 AND SUBSEQUENT ASSESSMENT YEARS. THEREFORE, LD COUNSEL PRAYED THE BENCH THAT ASSESSEE IS ELIGIBLE TO CLAIM SET OFF OF LOSSES OF BUSINESS OF DEALING IN DERIVATIVES AS EXPLAINED ABOVE. 3.5 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND TAKEN BY THE AO WHICH WE HAVE ALREADY NOTED IN THE EARLIER PARA AND IS NOT REPEATED FOR THE SAKE OF BREVITY. 3.6. HAVING HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIALS AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THE 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 SECTION 43(5) WAS TO KILL THE BROUGHT FORWARD LOSSES OF DEALING IN DERIVATIVES OR MAKE THEM INELIGIBLE 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 MUSH BE CHARACTERIZED ON A UNIFORM BASIS IN THE ASSESSMENT YEAR IN WHICH SET OFF IS CLAIMED. VIEWED IN THIS PERSPECTIVE ALSO, THE CLASSIFICATION OF BUSINESS FOR THE LIMITED PURPOSE OF 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 THE SAME BUSINESS IN EARLIER ASSESSMENT YEARS ARE TO BE TREATED AS ELIGIBLE FOR SET OFF AGAINST PROFITS OF THE SAME BUSINESS, SUBJECT TO FULFILMENT OF OTHER CONDITIONS, IN THE SUBSEQUENT ASSESSMENT YEARS. FOR THIS REASON ALSO, THE ASSESSEE DESERVES TO BE GRANTED SET OFF OF BROUGHT FORWARD LOSSES FROM BUSINESS OF DEALING IN IT(SS) NO.24/KOL/2015 A.Y: 2008-09 SURANA MERCANTILES PVT. LTD. PAGE | 6 DERIVATIVES, INCURRED IN THE PREVIOUS ASSESSMENT YEARS. BASED ON THE FACTUAL POSITION WE ARE OF THE VIEW THAT THE ASSESSEE WAS INDEED ELIGIBLE FOR SET OFF LOSSES FROM BUSINESS OF DEALING IN DERIVATIVE, INCURRED IN PREVIOUS YEAR AGAINST PROFIT OF ASSESSMENT YEAR 2008-09, BECAUSE THERE WAS SAME BUSINESS IN ASSESSMENT YEAR 2006-07 AND 2007-08. FOR THE REASONS SET OUT ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE WAS INDEED ELIGIBLE FOR SETTING OF LOSSES OF BUSINESS OF DEALING IN DERIVATIVES, INCURRED IN THE ASSESSMENT YEARS PRIOR TO THE ASSESSMENT YEAR 2006-07, AGAINST THE PROFITS OF THE SAME BUSINESS IN ASSESSMENT YEAR 2008-09. 3.7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE, IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30/08/2017 . SD/ - ( N. V. VASUDEVAN) SD/ - (DR. A. L. SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA; DATED: 30/08/2017 [RS, SPS] / COPY OF THE ORDER FORWARDED TO : 1. / THE ASSESSEE SURANA MERCANTILES PVT. LTD. 2. / THE RESPONDENT- DCIT, CC - XXIII, KOLKATA. 3. ( ) / THE CIT(A), KOLKATA. 4. / CIT 5. , , / DR, ITAT, KOLKATA 6. / GUARD FILE. //TRUE COPY// BY ORDER SENIOR PRIVATE SECRETARY, HEAD OF OFFICE/D.D.O, I.T.A.T, KOLKATA BENCHES, KOLKATA .