THE PRINCIPAL COMMISSIONER OF INCOME TAX-4 V. M/S S.N.REALTY INFRASTRUCTURE (P) LTD

TAXAP/341/2019

AI Insights

The case revolves around a tax appeal by the Principal Commissioner of Income Tax-4 against M/S S.N. Realty Infrastructure (P) Ltd concerning the assessment year 2012-13. The core issue was whether a loss of Rs.3,66,76,119 claimed by the assessee from trading in derivatives was speculative in nature. The Assessing Officer initially treated the loss as speculative due to insufficient evidence. However, the CIT (Appeals) and the Income Tax Appellate Tribunal reversed this decision, finding that the assessee had provided adequate evidence that the transactions were conducted in a recognized stock exchange and met the criteria under Section 43(5)(d) of the Act. The High Court, upon reviewing the concurrent findings of the lower authorities, dismissed the Revenue's appeal.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 733219 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 09-07-2019
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: MAUNA BHATT
• Keywords: Derivatives trading; F & O Loss; Recognized stock exchange; Speculative transaction
• Section: 43(5); 260A

Judgement Text

"C/TAXAP/341/2019 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 341 of 2019 ========================================================== THE PRINCIPAL COMMISSIONER OF INCOME TAX-4 Versus M/S S.N.REALTY INFRASTRUCTURE (P) LTD ========================================================== Appearance: MRS MAUNA M BHATT(174) for the Appellant(s) No. 1 for the Opponent(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR.JUSTICE A.C. RAO Date : 09/07/2019 ORAL ORDER (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1 This Tax Appeal under Section 260A of the Income Tax, 1961 [for short, 'the Act, 1961'] is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench, dated 1st January 2019 in the ITA No.1393/ AHD/2017 for the assessment year 2012­13. 2 The Revenue has proposed the following substantial question of law: “Whether the Appellate Tribunal has erred in law and on facts in upholding the decision of CIT(A) in deleting the disallowance of Rs.3,66,76,119/­ made on account of F & O Loss?” 3 We take notice of the fat that the assessee is a manufacture private limited company and engaged in the business of trading in derivatives renting of motorcar and also deriving income under the head “house property”. The assessee, in its profit and loss account, has claimed loss of Rs.3,66,76,119/­ on account of trading in derivatives. The assessee claimed to have carried its trading activities in the derivatives through a Page 1 of 4 C/TAXAP/341/2019 ORDER recognized stock exchange. The Assessing Officer came to the conclusion that the assessee had failed to furnish the necessary evidence or rather supporting evidence justifying that the loss represented the trading activities in the derivatives and fulfilled the conditions as specified under Section 43(5)(d) of the Act. The Assessing Officer treated the loss of Rs.3,66,76,119/­ as speculative in nature. 4 The assessee, being dissatisfied, carried the matter before the CIT (Appeals) in appeal. The CIT (Appeals), while allowing the appeal preferred by the assessee, held as under: “6.2 I have considered the assessemnt order, fats of the case and the submissions made by the appellant. During the appellant proceedings, it was claimed by the appellant that all necessary evidences in respect of establishing how its case was covered under clause (d) of Section 43(5) were submitted to the AO during the assessment proceedings. It was seen from the submissions made that the contention of the appellant was correct and all necessary evidences had been called for by the AO and furnished by the appellant during the assessment proceedings. However, in spite of several reminders, no report has been furnished by the AO till date. In view of this fact and also the fact that these evidences were already produced by the appellant before the AO during the assessment proceedings, and hence do not constitute additional evidences, this order is being passed on the basis of material available on record. At this stage, it would be pertinent to look at the provisions of Section 43(5) of the Act: “.... (5) “speculative transaction” means a transaction in which 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) (b) (c) (d) an eligible transaction in respect of trading in derivatives referred to in clause (nc) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange; or The explanation 1 to this clause also explains what an 'eligible transaction' and 'recognized stock exchange mean. Page 2 of 4 C/TAXAP/341/2019 ORDER 6.2.1 In this case, it is seen from the evidences furnished that the F&O transactions were carried out electronically on a screen based system through a registered stock broker namely JM Financial Services Pvt Ltd which is registered with the National Park Exchange of India. It is also seen that these transactions are supported by time stamped contract notes. The appellant has submitted copies of these contract notes and bills and invoices issued by the NSE. Considering the above facts, I am of the opinion that the case of the appellant was covered under clause (d) of Section 43(5) of the Act and therefore the disallowance made by the AO by invoking Section 43(5) of the Act is deleted. Ground of appeal No.3 is allowed.” 5 The Revenue, being dissatisfied with the order passed by the CIT (Appeals) preferred further appeal before the Income Tax Appellate Tribunal. The Tribunal, while affirming the order passed by the CIT (Appeals) and dismissing the appeal preferred by the Revenue, observed as under: “9. We have heard the rival submissions perused the materials available on record. The issue in the instant case relates to the fact whether the loss incurred by the assessee in derivative transactions represents a speculative loss. The assessee during the year has incurred a loss of Rs.3,66,76,119/­ in derivative trading. The assessee claimed that such loss is not speculative in pursuance to the provisions of clause (d) of subsection 5 of section 43 of the Act. However, the AO treated such loss as speculative by observing that the assessee failed to substantiate his claim from documentary evidence during the assessment proceedings. 9.1 However, the Ld. CIT(A) reversed the order of the AO by observing that the assesee duly furnished all the supporting pieces of evidence during the assessment proceedings as well as before him. Accordingly, the Ld. CIT(A) reversed the order of the AO. 9.2 At this juncture, we find pertinent to refer to the provisions of section 43(5)(d) of the Act, which reads as under: “(5) \"Speculative transaction\" means a transaction in which 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 ­ Page 3 of 4 C/TAXAP/341/2019 ORDER xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx [(d) an eligible transaction in respect of trading in derivatives referred to in clause [(ac)] of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange,] shall not be deemed to be a speculative transaction 9.3 As per the above provisions, the transaction in derivative will not be treated as speculative if it fulfills the following conditions: 1. The transactions carried out electronically on screen based system. 2. The transaction is carried out through the registered stockbroker. 3. The transaction is supported by a time stamped contract note issued by such broker containing client code and permanent account number. 4. The transaction is carried out through the recognized stock exchange. 9.4 The Ld. CIT(A) in his finding has recorded that, the assessee has provided all the requisite details to justify that the loss claimed in derivative transactions fulfills all the conditions as specified under section 43(5)(d) of the Act.” 6 Thus, there is a concurrent finding recorded by the two Revenue authorities as regards the loss sustained by the assessee fulfilling all the conditions, as specified under Section 43(5)(d) of the Act. Essentially, this appeal is more on facts rather than on any substantial question of law. In view of concurrent finding of fact recorded by the two Revenue authorities, we would not like to disturb the same. 7 In view of the above, this appeal fails and is hereby dismissed. (J. B. PARDIWALA, J) (A. C. RAO, J) CHANDRESH Page 4 of 4 "