PRAVIN J. AGARWAL, MUMBAI v. ITO 12(1)(1), MUMBAI

ITA 2453/MUM/2010 | 2006-2007
Pronouncement Date: 09-03-2011 | Result: Allowed

Appeal Details

RSA Number 245319914 RSA 2010
Bench Mumbai
Appeal Number ITA 2453/MUM/2010
Duration Of Justice 11 month(s) 11 day(s)
Appellant PRAVIN J. AGARWAL, MUMBAI
Respondent ITO 12(1)(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-03-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 09-03-2011
Date Of Final Hearing 03-03-2011
Next Hearing Date 03-03-2011
Assessment Year 2006-2007
Appeal Filed On 29-03-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI RAJENDRA SIN GH (A.M) ITA NO.2453/MUM/2010(A.Y. 2006-07) MR. PRAVIN J. AGARWAL 182 DELUXE HOUSE MODY STREET FORT MUMBAI 400 001. PAN:AABPA 6742Q (APPELLANT) VS. THE I.T.O 12(1)(1) MUMBAI. (APPELLANT) APPELLANT BY : SHRI SAMEER G. DALAL RESPONDENT BY : SHRI P.N. DEVDASAN ORDER PER N.V.VASUDEVAN J.M THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 3/2/2010 OF CIT(A)-23 MUMBAI RELATING TO ASSESSMENT YEAR 2006- 07. THE GROUND OF APPEAL RAISED BY THE ASSESSEE READS AS FOLLOWS: ON THE FACTS OF THE CASE AND IN LAW THE LEARNED CI T(A) ERRED IN CONFIRMING THAT THE LOSS ON DEALING IN FUTURE & OPT ION OF SHARES IN RECOGNIZED STOCK EXCHANGE PRIOR TO 25/01/2006 IS SP ECULATION LOSS. THE APPELLANT PRAYS THAT THE LOSS OUGHT TO BE TREAT ED AS BUSINESS LOSS. 2. THE ASSESSEE IS AN INDIVIDUAL. HE CARRIES ON TH E BUSINESS IN EXPORT OF TEXTILE PRODUCTS IN THE NAME OF M/S. P.J.INTERNATIO NAL. THE ASSESSEE ALSO DERIVED INCOME FROM LTCG STCG AND INCOME FROM OT HER SOURCES. ON A PERUSAL OF THE COMPUTATION OF TOTAL INCOME THE AO N OTICED THAT THE ASSESSEE HAD SHOWN LOSS FROM FUTURES OPTION TRANSACTIONS AT RS. 5 15 688/-. THE ASSESSEE HAD SET OFF THIS LOSS AGAINST ITS INCOME F ROM BUSINESS. THE AO ON ITA NO.2453/MUM/2010(A.Y. 2006-07) 2 PERUSAL OF FURTHER DETAILS NOTICED THAT THE LOSS ON ACCOUNT OF FUTURES OPTION TRANSACTIONS FOR THE PERIOD FROM 1/4/2005 TO 24/1/ 2006 WAS RS.5 09 881/- AND THE LOSS AFTER 25/1/2006 TO 31/3/2006 WAS RS.58 07/-. UNDER THE PROVISIONS OF SECTION 43(5)(D) OF THE INCOME TAX AC T 1961 (THE ACT) WHICH WAS INTRODUCED BY THE FINANCE ACT 2005 W.E.F. 1/4/ 2006 AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIVATIVES RE FERRED TO IN CLAUSE (AC) OF SECTION 2 OF THE SECURITIES CONTRACT(REGULATION) AC T 1956 CARRIED OUT IN A RECOGNIZED STOCK EXCHANGE SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION. RECOGNIZED STOCK EXCHANGE FOR THE PUR POSE OF THE ABOVE PROVISION MEANS STOCK EXCHANGES AS MAY BE NOTIFIED BY THE CENTRAL GOVERNMENT FOR THE PURPOSE OF SECTION 45(5)(D) OF T HE ACT. THERE IS NO DISPUTE THAT THE ASSESSEE CARRIED OUT THE TRANSACTI ONS IN NSE AND BSE. NSE AND BSE WERE NOTIFIED FOR THE PURPOSE OF SECTION 43 (5)(D) OF THE ACT BY NOTIFICATION DATED 25/1/2006. ACCORDING TO THE AO THEREFORE THE LOSS FROM FUTURES OPTION TRANSACTIONS UPTO 24/1/2006 SHOULD B E TREATED AS SPECULATIVE LOSS AND THEREFORE CANNOT BE SET OFF A GAINST NORMAL BUSINESS INCOME. THE AO ACCORDINGLY DID NOT PERMIT THE SET OFF TO THE EXTENT OF RS.5 09 881/-. 3. ON APPEAL BY THE ASSESSEE THE CIT(A) CONCURRED WITH THE VIEW OF THE AO. 4. AT THE TIME OF HEARING OF THIS APPEAL IT WAS BRO UGHT TO OUR NOTICE THAT IDENTICAL ISSUE HAD COME UP FOR CONSIDERATION BEFOR E THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF SMT. SEEMA JAIN VS. ACIT AN D THE TRIBUNAL HAS TAKEN A VIEW THAT ANY LOSS IN RESPECT OF FUTURES OPTION T RANSACTIONS INCURRED ON OR AFTER 1/4/2005 WOULD NOT BE SPECULATIVE LOSS. 5. THE PROVISIONS OF SEC.43(5) READ AS FOLLOWS: SEC.43(5) 'SPECULATIVE TRANSACTION' MEANS A TRANSA CTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY INCLUDING STOCKS ITA NO.2453/MUM/2010(A.Y. 2006-07) 3 AND SHARES IS PERIODICALLY OR ULTIMATELY SETTLED O THERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCR IPS: 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 (AA) OF SECTION 2 OF THE SECURITIES CO NTRACTS (REGULATION) ACT 1956 (42 OF 1956) CARRIED OUT IN A RECOGNISED STOCK EXCHANGE; SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION ; EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE THE E XPRESSIONS (I) ELIGIBLE TRANSACTION MEANS ANY TRANSACTION (A) CARRIED OUT ELECTRONICALLY ON SCREEN-BASED SYSTEMS THROUGH A STOCK BROKER OR SUB-BROKER OR SUCH OTHER INTERMEDIARY REG ISTERED UNDER SECTION 12 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT 1992 (15 OF 1992) IN ACCORDANCE WITH THE PROVISIONS OF THE SECURITIES CONTRACTS (REGULATION) ACT 1956 (42 OF 1956) OR THE SECURIT IES AND EXCHANGE BOARD OF INDIA ACT 1992 OR THE DEPOSITORIES ACT 1996 (22 OF 1996) AND THE RULES REGULATIONS OR BYE-LAWS MADE OR DIRE CTIONS ISSUED UNDER THOSE ACTS OR BY BANKS OR MUTUAL FUNDS ON A R ECOGNISED STOCK EXCHANGE ; AND (B) WHICH IS SUPPORTED BY A TIME STAMPED CONTRACT NOTE ISSUED BY SUCH STOCK BROKER OR SUB-BROKER OR SUCH OTHER INTERMEDIA RY TO EVERY CLIENT INDICATING IN THE CONTRACT NOTE THE UNIQUE CLIENT I DENTITY NUMBER ALLOTTED UNDER ANY ACT REFERRED TO IN SUB-CLAUSE (A ) AND PERMANENT ACCOUNT NUMBER ALLOTTED UNDER THIS ACT ; (II) RECOGNISED STOCK EXCHANGE MEANS A RECOGNISED STOCK EXCHANGE AS REFERRED TO IN CLAUSE (F) OF SECTION 2 OF THE SECUR ITIES CONTRACTS (REGULATION) ACT 1956 (42 OF 1956) AND WHICH FULFILS SUCH COND ITIONS AS MAY BE PRESCRIBED AND NOTIFIED BY THE CENTRAL GOVERNMENT F OR THIS PURPOSE. 5. IN SMT.SEEMA JAIN VS. ACIT 2010 6 ITR (TRIBUNAL) 488 (DEL) THE FACTS WERE THE ASSESSEE A TRADER IN SHARES AND SECURITI ES INCURRED LOSS ON DERIVATIVE TRANSACTIONS ON THE BOMBAY AND NATIONAL STOCK EXCHANGES AND EARNED PROFIT FROM PURCHASE AND SALE OF SHARES ON D ELIVERY BASIS. HE SET OFF THE LOSS INCURRED ON DERIVATIVE TRANSACTIONS AGAINS T THE PROFIT FROM TRADING IN SHARES. THE ASSESSING OFFICER DISALLOWED SET-OFF OF LOSS INCURRED ON DERIVATIVE ITA NO.2453/MUM/2010(A.Y. 2006-07) 4 TRANSACTIONS UP TO JANUARY 25 2006 AGAINST PROFIT FROM TRADING IN SHARES ON THE GROUND THAT THE DERIVATIVE TRANSACTIONS PRIOR T O JANUARY 25 2006 WERE TO BE TREATED AS SPECULATIVE TRANSACTIONS SINCE THE TWO STOCK EXCHANGES IN QUESTION WERE NOTIFIED FOR THE PURPOSE OF SECTION 4 3(5)(D) OF THE INCOME-TAX ACT 1961 IN TERMS OF NOTIFICATION NO. 2 DATED JAN UARY 25 2006. THE COMMISSIONER (APPEALS) UPHELD THE ORDER OF THE ASSE SSING OFFICER. ON FURTHER APPEAL THE TRIBUNAL HELD ALLOWING THE AP PEAL THAT CLAUSE (D) OF SECTION 43(5) HAVING BEEN INSERTED BY THE FINANCE A CT 2005 WITH EFFECT FROM APRIL 1 2006 TRANSACTIONS IN DERIVATIVES IN A REC OGNISED STOCK EXCHANGE SHALL NOT BE DEEMED TO BE SPECULATIVE TRANSACTIONS WITH EFFECT FROM APRIL 1 2006. THE NATIONAL STOCK EXCHANGE AND THE BOMBAY ST OCK EXCHANGE WERE RECOGNISED AS STOCK EXCHANGES BY THE CENTRAL BOARD OF DIRECT TAXES NOTIFICATION NO. 2 DATED JANUARY 25 2006. PRIOR TO THIS DATE THE TRANSACTIONS CARRIED OUT IN THESE EXCHANGES UNDER T HE PROVISIONS OF SECTION 43(5)(D) COULD NOT BE TREATED AS NON-SPECULATIVE T RANSACTIONS. PARLIAMENT ENACTED THE LAW WITH EFFECT FROM APRIL 1 2006 THE REFORE ALL THE TRANSACTIONS CARRIED OUT IN THE PREVIOUS YEAR RELEVANT TO THE AS SESSMENT YEAR 2006-07 WOULD BE ELIGIBLE FOR THE BENEFIT OF SECTION 43(5)( D) OF THE ACT. ACCORDINGLY LOSS INCURRED ON DERIVATIVE TRANSACTIONS WOULD BE L IABLE TO BE SET OFF AGAINST THE PROFIT EARNED IN PURCHASE AND SALE OF SHARES ON DELIVERY BASIS. SINCE THE TRANSACTIONS IN DERIVATIVES WOULD BE TREATED AS BUS INESS INCOME NO EXPENDITURE COULD BE ALLOCATED TOWARDS SPECULATIVE BUSINESS. THE DECISION IN THE CASE OF G. K. ANAND BROS. BUILDWELL P. LTD. V. ITO [2009] 34 SOT 439 (DELHI) WAS FOLLOWED. 6. IN VIEW OF THE AFORESAID DECISION OF THE TRIBUNA L WE ARE OF THE VIEW THAT THE CLAIM OF SET OFF TO THE EXTENT OF RS. 5 09 881/ - SHOULD ALSO BE ALLOWED. WE DIRECT ACCORDINGLY. ITA NO.2453/MUM/2010(A.Y. 2006-07) 5 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 9 TH DAY OF MARCH 2011. SD/- SD/- (RAJENDRA SINGH) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED. 9 TH MARCH.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RC BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR I TAT MUMBAI BENCHES MUMBAI. VM. ITA NO.2453/MUM/2010(A.Y. 2006-07) 6 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 3/3/2011 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 3/3/2011 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER