DCIT 4(1), MUMBAI v. EDELWEISS SECURITIES P. LTD, MUMBAI

ITA 4085/MUM/2008 | 2004-2005
Pronouncement Date: 13-01-2010 | Result: Partly Allowed

Appeal Details

RSA Number 408519914 RSA 2008
Assessee PAN AAACK3792N
Bench Mumbai
Appeal Number ITA 4085/MUM/2008
Duration Of Justice 1 year(s) 7 month(s) 7 day(s)
Appellant DCIT 4(1), MUMBAI
Respondent EDELWEISS SECURITIES P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 13-01-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted J
Tribunal Order Date 13-01-2010
Date Of Final Hearing 31-12-2009
Next Hearing Date 31-12-2009
Assessment Year 2004-2005
Appeal Filed On 06-06-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J MUMBAI. BEFORE SHRI SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMB ER AND SHRI V.D. RAO JUDICIAL MEMBER. I.T.A. NO. 40 85/MUM/2008 ASSESSMENT YEAR : 2004-05.. DY. COMMISSIONER OF INCOME TAX M/S EDELW EISS SECURITIES P.LTD. 4(1) MUMBAI. VS. 14 TH FLOOR EXPRESS TOWERS NARIMAN POINT MUMBAI-21. PAN : AAACK3792N APPELLANT RESPONDENT APPELLANT B Y : SHRI N.K. BALODIA. RESPONDENT BY : SHRI R.R. VORA . O R D E R PER J. SUDHAKAR REDDY A.M. THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED A GAINST THE ORDER OF THE CIT(APPEALS)-IV MUMBAI DATED 12-3-200 8 FOR THE ASSESSMENT YEAR 2004-05. 2. FACTS IN BRIEF : THE ASSESSEE IS A SHARE BROKER AND DEALER IN SHAR E AND SECURITIES AND DERIVATIVE INSTRUMENTS. THE AO IN TH E ASSESSMENT PROCEEDINGS DISALLOWED THE LOSS IN TRADING IN DERIV ATIVE INSTRUMENT AND HAD ALSO DISALLOWED PROPORTIONATE EXPENDITURE ATTRI BUTABLE TO SPECULATIVE BUSINESS. HE ALSO DISALLOWED THE PENALTY LEVIED B Y THE STOCK EXCHANGE ON THE ASSESSEE FOR VIOLATION OF MARGINS. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE FIRST APPELLATE AUTHORITY PARTLY ALLOWED THE APPEAL. THE REVENUE FILES THIS APPEAL ON THE FOLLOW ING GROUNDS: 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN DIRECTING THE AO TO TREAT THE LOSS ON DERI VATIVES TRANSACTIONS AS NON SPECULATION LOSS OVERLOOKING THE FACT THAT T HE EXPLANATORY NOTES TO THE FINANCE ACT 2005 CLEARLY STATED THAT TRANSACTIONS IN DERIVATIVES SHALL CEASE TO BE SPECULATIVE ONLY FROM THE DAY THE STOCK EXCHANGES FULFIL THE CONDITIONS TO BE PRESCRIBED BY THE CENTRAL GOVT. AND IT WAS ONLY W.E.F. 25 TH JANUARY 2006 THAT THE NOTIFICATION TO THAT EFFECT WAS ISSUED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN NOT CONSIDERING THAT THE PROVISOS TO 43(5) ARE MAINLY TO COVER THE LOSSES THAT MAY ARISE BY WAY OF HOLDING THE STO CKS AND NOT TO COVER CASES OF SIMULTANEOUS PURCHASE AND SALE OF SH ARES / DERIVATIVES WITH A VIEW TO EARNING PROFITS OUT OF PRICE DIFFERE NTIALS IN DIFFERENT SEGMENTS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD.CIT(A) ERRED IN HOLDING THE TRANSACTION IN DERIVATIVES TO BE NON SPECULATION LOSS WHEN ADMITTEDLY THE TRANSACTIONS WERE SETTLED OTHERWISE THAN BY ACTUAL DELIVERY OR TRANSFER. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN DELETING THE EXPENSES OF SPECULATIVE BUSIN ESS OF RS.4 78 85 319/- AS THE SAME IS INCURRED FOR THE SP ECULATIVE ACTIVITIES WHICH DO NOT FOR PART OF THE ASSESSEES BUSINESS CA RRIED OUT DURING THE YEAR. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN ALLOWING THE PENALTY OF RS.260858/- LEVIED BY STOCK EXCHANGE. THE LD. CIT(A) FAILED TO APPRECIATE THAT THE PENALTY LEVIED BY STOCK EXCHANGE IS FOR THE OFFENCE FOR VIOLATION OF LAW. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE IMP UGNED ORDER OF THE LD. CIT(A) IS CONTRARY TO LAW AND CONSEQUENTLY MERITS TO BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED . 3. WE HAVE HEARD MR. N.K. BALODIA THE LEARNED DR AND SHRI R.R. VORA LEARNED COUNSEL FOR THE ASSESSEE. 3 4. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIR CUMSTANCES OF THE CASE AND A PERUSAL OF THE PAPERS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW WE HOLD AS FOLLOWS. 5. GROUND NOS. 1 TO 3 ARE ON THE ISSUE WHETHER LOS S ON DERIVATIVES TRANSACTION IS A SPECULATION LOSS OR NO T AND WHETHER THE PROVISIONS OF SECTION 45(5)(D) ARE CLARIFICATARY AN D HENCE RETROSPECTIVE IN NATURE. MR. R.R. VORA VEHEMENTLY CONTENDED THAT SUB -CLAUSE (D) TO SUB- SECTION (5) TO SECTION 43 INTRODUCED BY THE FINANCE ACT 2005 WITH EFFECT FROM 1-4-2006 IS CLARIFICATORY IN NATURE AND THERE FORE RETROSPECTIVE IN ITS OPERATION. HE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ALLIED MOTORS P. LTD. VS. CIT DELHI 224 IT R 667 (SC) AND THE JUDGMENT IN THE CASE OF CIT VS. ALOM EXTRUSIONS (20 09) TIOL 125 (SC). THE LEARNED DR SUBMITTED THAT THE ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH OF TH E CALCUTTA TRIBUNAL IN THE CASE OF SHREE CAPITAL SERVICES LTD. VS. ACIT 12 4 TTJ 740. 5.1 AFTER HEARING THE RIVAL CONTENTIONS WE FIND T HAT THE ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE BY A DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF SHREE CAPITAL SERVICES LTD. (SUPRA) WHEREIN IT IS HELD THAT SECTI ON 43(5)(D) IS PROSPECTIVE IN NATURE AND LOSS INCURRED ON ACCOUNT OF FUTURES AND OPTIONS IN SHARES IS SPECULATIVE IN NATURE AND CANNOT BE TR EATED AS A BUSINESS LOSS. THE SUPREME COURT DECISIONS RELIED UPON BY THE ASSE SSEE ARE ON SECTION 43(5). HENCE GROUND NOS. 1 TO 3 OF THE REVENUE ARE ALLOWED. 6. GROUND NO. 4 IS ON DISALLOWANCE OF PROPORTIONAT E EXPENDITURE FROM REGULAR BUSINESS INCOME AND ADDIN G THE SAME TO SPECULATION LOSS FOR THE PURPOSE OF QUANTIFICATION OF SPECULATION LOSS. 4 6.1 BOTH THE PARTIES SUBMITTED THAT THE FIRST APPE LLATE AUTHORITY HAS CALLED FOR A REMAND REPORT AND THE DY.CIT-4(1) IN HIS REMAND REPORT DATED 18-12-2008 SUBMITTED TO THE CIT(APPEALS)-IV AT PAR 2.3 HAS COME TO A CONCLUSION THAT THE DISALLOWANCE COMES TO RS.1 03 17 491/- AS AGAINST THE ASSESSEES CLAIM OF RS.97 12 387/-. AS THIS WOR KING OF ALLOCATION OF EXPENDITURE TO THE DERIVATIVE TRANSACTION IS APPROV ED BY THE AO HIMSELF IN THE REMAND REPORT WE SET ASIDE THIS GROUND TO T HE FILE OF THE AO WITH A DIRECTION TO ADOPT THIS FIGURE OF RS.1 03 17 491/- AS EXPENDITURE TO TRANSACTIONS IN DERIVATIVES. THUS GROUND NO. 4 IS ALLOWED IN PART. 7. GROUND NO. 5 IS AGAINST THE DISALLOWANCE OF PEN ALTY LEVIED BY THE STOCK EXCHANGE FOR MARGIN VIOLATION. IN OUR CONSIDERED OPINION THIS PENALTY IS NOT LEVIED FOR VIOLATION OF ANY LAW . THE I-BENCH OF THE TRIBUNAL IN THE CASE OF CLASSIC SHARES AND STOCK BR OKING SERVICES LTD. VS. DCIT (2006) 011-SOT-0377 (MUM) ORDER DATED 28 TH JULY 2006 HAS HELD THAT THE PENALTY LEVIED BY THE STOCK EXCHANGE FOR SHORT COMINGS IN MARGIN MONEY CANNOT BE HELD TO BE THAT WHICH IS LEV IED FOR INFRINGEMENT OF LAW AND HENCE CANNOT BE DELETED. RESPECTFULLY FO LLOWING THE SAME WE ALLOW GROUND NO. 5 OF THE REVENUE. 8. IN THE RESULT THE APPEAL OF THE REVENUE IS ALL OWED IN PART. ORDER PRONOUNCED ON THIS 13 TH DAY OF JANUARY 2010. SD/- SD/- (V.D. RAO) (J. SUDHAKARY REDDY) JUDICIAL MEMBER. ACCOUNTANT MEMBER. MUMBAI DATED : 13 TH JANUARY 2010. WAKODE 5 COPY FORWARDED TO : 1. APPELLANT. 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR J-BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR ITAT MUMBAI BENCHES