Pawan Sethi,, New Delhi v. ACIT, New Delhi

ITA 3808/DEL/2009 | 2006-2007
Pronouncement Date: 15-01-2010 | Result: Allowed

Appeal Details

RSA Number 380820114 RSA 2009
Assessee PAN ABAPS5736Q
Bench Delhi
Appeal Number ITA 3808/DEL/2009
Duration Of Justice 4 month(s) 7 day(s)
Appellant Pawan Sethi,, New Delhi
Respondent ACIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 15-01-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted F
Tribunal Order Date 15-01-2010
Date Of Final Hearing 06-01-2010
Next Hearing Date 06-01-2010
Assessment Year 2006-2007
Appeal Filed On 07-09-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH F DELHI ] BEFORE SHRI A. D. JAIN JM SHRI K. D. RANJAN AM I. T. APPEAL NO. 3808 (DEL) OF 2009. ASSESSMENT YEAR : 2006-07. SHRI PAWAN SETHI ASSTT. COMMISSIO NER OF INCOME-TAX 30 ISHWAR NAGAR VS. C I R C L E : 22 (1) N E W D E L H I - 110 065. N E W D E L H I. P A N / G I R NO. ABA PS 5736 Q. ( APPELLANT ) ( RESPONDE NT ) ASSESSEE BY : SHRI ANIL GUPTA C. A.; DEPARTMENT BY : SHRI H. K. LAL SR. D. R.; O R D E R. PER K. D. RANJAN AM : THIS APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 20 06-07 ARISES OUT OF THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XXIII NEW DELHI. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE REA D AS FOLLOWS :- ' 1. THE AO AND CIT (APPEALS)-XXIII NEW DELHI HAS ERRED IN LAW AND ON THE FACTS OF THE CASE BY NOT ALLOWING THE LOSS FROM ELIGIBLE DERIVATIVE TRANSACTIONS AS BUSINESS LOSS UNDER SECTION 43(5); 2 I. T. APPEAL NO. 3808 (DEL) OF 2009. 2. THE AO AND CIT (APPEALS)-XXIII HAS FURTHER ERRED IN NOT ALLOWING THE SETTING OFF OF THE LOSSES FROM DERIVATIVE TRANSACTI ONS FROM THAT OF THE OTHER BUSINESS INCOME OF THE ASSESSEE EVEN IF THE ASSESS EE HAS WRONGLY CLAIMED THE LOSS AS CAPITA LOSS IN ITS RETURN OF INCOME. ' 3. THE ONLY ISSUE FOR CONSIDERATION RELATES TO NOT ALLOWING SET OFF OF THE LOSSES FROM DERIVATIVE TRANSACTIONS AGAINST OTHER BUSINESS INCO ME OF THE ASSESSEE. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSEE IS AN INDIVID UAL AND DURING THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION SUFFERED LOSS ON DERIVATIVE TRA NSACTIONS. THE ASSESSEE AT THE TIME OF FILING THE RETURN OF INCOME TREATED THE LOSS FROM P URCHASE AND SALE OF SHARES UNDER DERIVATIVE TRANSACTIONS AS CAPITAL LOSS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE FILED A LETTER DATED 12/11/2009 BEFORE THE ASSESSING OFFICE R GIVING ALL THE PARTICULARS OF TRANSACTIONS UNDER FUTURE AND OPTIONS. THE ASSESSEE ALSO PRODUC ED BROKER NOTE BEFORE THE ASSESSING OFFICER IN SUPPORT OF THE FACT THAT THE TRANSACTIONS WERE E NTERED INTO DERIVATIVE TRANSACTIONS WITH NSE/ BSE. THE TRANSACTIONS WERE DONE THROUGH ELECTRONIC SCHEME BASED SYSTEMS THROUGH BROKERS REGISTERED WITH SEBI. THE CONTRACT NOTES INDICATED THE PAN NUMBER OF THE ASSESSEE. IT WAS THEREFORE PLEADED THAT AS PER PROVISIONS OF SECTIO N 43(5) OF THE ACT WHERE THE ASSESSEE WAS ENGAGED IN THE BUSINESS AND PROFESSION OF DERIVATIV E TRANSACTIONS THE LOSS INCURRED BY THE ASSESSEE WILL BE TREATED AS NORMAL NON-SPECULATIVE BUSINESS TRANSACTION. THEREFORE THE LOSS ARISING FROM DERIVATIVE BUSINESS TRANSACTIONS WERE TO BE SET OFF AGAINST OTHER BUSINESS OF THE ASSESSEE. HOWEVER THE ASSESSING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE WITHOUT ANY DISCUSSION AND TREATED THE LOSS AS SHORT TERM CAPIT AL LOSS WITHOUT ALLOWING THE SET OFF AGAINST THE OTHER BUSINESS. 4. ON APPEAL THE LD. CIT (APPEALS) OBSERVED THAT T HE ASSESSEE HAS NOT MADE ANY CLAIM IN THE RETURN OF INCOME OR COMPUTATION FILED ALONG WIT H RETURN OF INCOME WITH REGARD TO LOSSES ON TRADING OF DERIVATIVE TRANSACTIONS. HE RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF GOETZ INDIA LTD. VS. CIT 284 ITR 323 (S C) FOR THE PROPOSITION THAT FOR PURPOSE OF CLAIMING OF BENEFIT THE ASSESSEE WAS TO FILE THE SA ME EITHER IN THE RETURN OF INCOME OR BY WAY OF REVISED RETURN OF INCOME. SINCE IT WAS NOT DONE SO BY THE ASSESSEE THE CLAIM OF THE ASSESSEE WAS NOT ALLOWABLE. ON MERITS THE LD. CIT (APPEALS) NOTED THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF HIRING OF MACHINERY USED IN MINING AND THAT OF TRANSPORTING 3 I. T. APPEAL NO. 3808 (DEL) OF 2009. MINERALS LIKE SAND AND STONES IN THE NAME AND STYLE OF KAILASH KUMAR AND COMPANY; AND PREMIER ROCK PRODUCTS. THE BUSINESS OF THE ASSESSE E WAS NOT THAT OF SHARE BROKER OR DEALING IN SHARES. THIS FACT WAS DISCERNIBLE FROM THE RETU RN FILED BY THE ASSESSEE AND LETTER DATED 4/12/2008. THE LD. CIT (APPEALS) HAS ALSO NOTED TH AT THE ASSESSEE HAD MAINLY BEEN AN INVESTOR APART FROM INCOME FROM SALARY DIVIDEND ET C. THE PROVISIONS OF SECTION 43(5) OF THE ACT WOULD BE APPLICABLE TO THE ASSESSEE ONLY IF THE SAID INCOME OR LOSS COMES FROM THE BUSINESS OF THE ASSESSEE. SINCE THE ASSESSEE WAS N OT ENGAGED IN THE BUSINESS OF DERIVATIVES AND THE ASSESSEES BUSINESS WAS PROVIDING MACHINERY ON HIRE FOR MINING OPERATIONS AND TRANSPORTATION OF RAW MATERIAL BECAUSE OF WHICH TH E ASSESSEE HAD DISCLOSED THE TRADING IN SHARES AS SHORT / LONG TERM CAPITAL GAINS. IF THE INCOME / LOSS COULD NOT BE ASSESSED UNDER THE HEAD 'INCOME FROM BUSINESS OR PROFESSION' PROVISION S OF SUB-SECTION (5) OF SECTION 43 COULD NOT BE APPLIED TO THE FACTS OF THE ASSESSEE'S CASE. ACCORDINGLY LD. CIT (APPEALS) REJECTED THE CLAIM OF THE ASSESSEE. 5. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED T HAT IN THE RETURN OF INCOME THE ASSESSEE HAS CLAIMED THE LOSS INCURRED ON DERIVATIV E TRANSACTIONS. SINCE THE ASSESSEE WAS ENGAGED IN DEALING IN SHARES UNDER FUTURE AND OPTI ONS THE SAME WAS IN THE NATURE OF BUSINESS ACTIVITIES AND HENCE AS PER PROVISIONS OF SECTION 43(5) OF THE ACT THE TRADING IN SHARES WAS A NORMAL BUSINESS CARRIED ON BY THE ASSE SSEE. HE PLACED RELIANCE ON THE DECISION OF SPECIAL BENCH IN THE CASE OF SHREE CAPITAL SERVI CES LTD. VS. ACIT 318 ITR 81 (KOL.) (SB). ON THE OTHER HAND THE LD. SR. DR SUBMITTED THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRANSPORTING MINERALS PURCHASE AND SAL E OF SHARES WAS NOT THE REGULAR BUSINESS OF THE ASSESSEE. THE ASSESSEE HAD CLAIMED IN THE RETU RN OF INCOME THAT LOSS ON SALE OF DERIVATIVES AS SHORT-TERM CAPITAL LOSS AND THEREFORE THE ASSE SSEE WAS NOT ENTITLED TO SET OFF OF THE LOSS AGAINST THE OTHER BUSINESS OF THE ASSESSEE. REPLYI NG TO THE SUBMISSIONS MADE BY THE REVENUE THE LD. AR OF THE ASSESSEE RELYING ON DECISION OF H ON'BLE SUPREME COURT IN THE CASE OF MAHALAXMI SUGAR MILLS CO. LTD. VS. 160 ITR 920 (SC) SUBMITTED THAT IT WAS THE DUTY OF THE ASSESSING OFFICER TO APPLY THE RELEVANT PROVISIONS OF THE INCOME-TAX ACT FOR THE PURPOSE OF DETERMINING THE TRUE FIGURE OF ASSESSEE'S TAXABLE I NCOME AND CONSEQUENTIAL TAX LIABILITY; THAT THE ASSESSEE FAILED TO CLAIM BENEFIT OF SET OFF CA NNOT RELIEVE THE ITO OF HIS DUTY TO APPLY SECTION 24 IN AN APPROPRIATE CASE. IT WAS THEREFO RE SUBMITTED THAT THE AO SHOULD HAVE 4 I. T. APPEAL NO. 3808 (DEL) OF 2009. APPLIED THE RELEVANT PROVISIONS OF LAW TO ARRIVE AT THE CORRECT INCOME OF THE ASSESSEE AND TAX PAYABLE BY IT. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE RETURN OF INCOME THE ASSESSEE HAD CLAIMED LOSS FROM DERIVATIVES AS SHORT TERM CAPITAL LOSS. BEFORE THE AO THE ASSESSEE VIDE LETTER DATED 12/11/ 2008 HAD SUBMITTED THAT OUT OF LOSS ON DERIVATIVE TRANSACTIONS OF RS.1 15 55 570/- SHORT T ERM CAPITAL GAIN OF RS.4 44 982/- WAS ADJUSTED SINCE ACCORDING TO EXPLANATION (I) TO SECT ION 43(5) THE DERIVATIVE TRANSACTIONS WERE NOT SPECULATIVE TRANSACTIONS AND WERE TAXABLE AS NO RMAL BUSINESS GAINS OR LOSSES THE CREDIT FOR THE LOSSES INCURRED BY THE ASSESSEE ON FUTURES & OPTIONS WERE ADJUSTABLE AGAINST ANY NORMAL GAINS FROM BUSINESS OR PROFESSION. HOWEVER THE ASSESSING OFFICER WHILE COMPLETING ASSESSMENT ON 29/12/2008 HAD NOT DISCUSSED THE ISSU E AT ALL AND HAS TAKEN THE FIGURE OF LOSS UNDER SHORT TERM CAPITAL LOSS AT RS.1 06 11 744/-. BEFORE THE LD. CIT (APPEALS) THE ASSESSEE HAS TAKEN A GROUND FOR SETTING OFF OF LOSSES FROM F UTURE AND OPTIONS AMOUNTING TO RS.1 15 55 517/- WITH OTHER PROFITS EARNED BY THE A SSESSEE UNDER THE HEAD 'BUSINESS AND PROFESSION'. THE LD. CIT (A) HAS REJECTED THE CLAI M OF THE ASSESSEE MADE DURING THE COURSE OF ASSESSMENT ON TWO GROUNDS I.E. FIRSTLY AS PER DECI SION OF HON'BLE SC IN THE CASE OF GOETZ (INDIA) LTD. VS.CIT (SUPRA) THE ASSESSEE CANNOT MAK E ANY CLAIM WITHOUT FILING REVISED RETURN. SECONDLY THAT THE ASSESSEE WAS NOT ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND THEREFORE PROVISIONS OF SECTION 43(5) OF THE ACT W ERE INAPPLICABLE IN HIS CASE. PROVISO (D) TO SECTION 43(5) OF THE ACT WAS INSERTED BY FINANCE AC T 2005 APPLICABLE WITH EFFECT FROM 1/4/2006 ACCORDING TO WHICH AN ELIGIBLE TRANSACTI ON IN RESPECT OF TRADING IN DERIVATIVES REFERRED TO IN CLAUSE (AC) OF SECTION 2 OF SECURITI ES CONTRACTS (REGULATION) ACT 1956 (42 OF 1956) CARRIED OUT IN A RECOGNIZED STOCK EXCHANGE CA NNOT BE A SPECULATIVE TRANSACTION. FROM THE PLAIN READING OF CLAUSE (D) OF THE PROVISO IT I S CLEAR THAT THE EXPRESSION USED IS 'AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIVATIVES.' THE LEGISLATURE HAD NOT USED THAT THE EXPRESSION THAT THE ASSESSEE SHOULD BE ENGAGED IN T HE BUSINESS OF DERIVATIVES. FURTHER THE ELIGIBLE TRANSACTION HAS BEEN DEFINED IN THE CLAUSE (A) OF EXPLANATION TO CLAUSE (D) OF SECTION 43(5) ACCORDING TO WHICH AN ELIGIBLE TRANSACTION ME ANS ANY TRANSACTION CARRIED OUT ELECTRONICALLY ON SCHEME BASED SYSTEM THROUGH A BRO KER OR A SUB-BROKER OR SUCH INTERMEDIATORY REGISTERED UNDER SECTION 12 OF SECUR ITIES EXCHANGE BOARD OF INDIA ACT 1952 IN ACCORDANCE WITH THE PROVISIONS OF SECURITIES CON TACTS (REGULATION) ACT 1956 OR SECURITIES 5 I. T. APPEAL NO. 3808 (DEL) OF 2009. EXCHANGE BOARD OF INDIA 1992 OR DEPOSITORY ACT 19 96 AND THE RULES REGULATIONS OR BY- LAWS MADE OR DIRECTIONS ISSUED UNDER THOSE ACTS OR BY BANKS OR MUTUAL FUNDS ON A RECOGNIZED STOCK EXCHANGE; AND (B) WHICH IS SUPPORTED BY A TIM E STAMPED CONTRACT NOT ISSUED BY SUCH STOCK BROKER OR SUB-BROKER OR SUCH OTHER INTERMEDIA TORY TO EVERY CLIENT INDICATING THE CONTRACT NOTE THE UNIT CLIENT IDENTITY NUMBER ALLOTTED UNDER ANY ACT REFERRED TO IN SUB CLAUSE (A) OR PERMANENT ACCOUNT NUMBER ALLOTTED UNDER THIS ACT. THEREFORE AN ELIGIBLE TRANSACTION HAS TO BE EXAMINED IN VIEW OF PROVISIONS OF EXPLANATION TO PROVISO (D) TO SECTION 43(5) OF THE ACT. HON'BLE SUPREME COURT IN THE CASE OF GOETZ (INDIA) LTD. VS. CIT (SUPRA) HAS HELD THAT THE DECISION WAS RESTRICTED TO THE POWERS OF THE ASSESS ING AUTHORITY TO ENTERTAIN A CLAIM OF DEDUCTION OTHERWISE BY A REVISED RETURN AND DID NO T IMPINGE ON THE POWER OF THE APPELLATE TRIBUNAL UNDER SECTION 254 OF THE ACT. SINCE THE ASSESSEE'S CASE HAS NEITHER BEEN EXAMINED BY THE AO IN VIEW OF PROVISIONS OF SECTION 43(5) OF THE ACT NOR THE LD. CIT (A) HAS DEALT WITH THE ISSUE WE FEEL IT PROPER TO SET ASIDE THE MATTE R TO THE FILE OF THE AO TO EXAMINE THE CLAIM OF THE ASSESSEE IN THE LIGHT OF PROVISIONS OF PROVISO (D) TO SECTION 43(5) WHETHER THE ASSESSEE FULFILS THE CONDITIONS UNDER WHICH THE TRANSACTION S OF FUTURE AND OPTIONS CARRIED OUT BY THE ASSESSEE ARE ELIGIBLE TO BE TREATED AS NON-SPECULAT IVE TRANSACTIONS. THE ASSESSING OFFICER WILL PROVIDE THE ASSESSEE A REASONABLE OPPORTUNITY OF BE ING HEARD. 6. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 15TH JANUARY 2010. SD/- SD/- [ A. D. JAIN ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 15TH JANUARY 2010. *MEHTA * 6 I. T. APPEAL NO. 3808 (DEL) OF 2009. COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT 4. CIT (APPEALS) 5. DR ITAT NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR ITAT. 7 I. T. APPEAL NO. 3808 (DEL) OF 2009.