CHANDRASHEKHAR KARUNDIA (HUF), MUMBAI v. ITO WD 14(3)3, MUMBAI

ITA 5356/MUM/2011 | 2005-2006
Pronouncement Date: 16-09-2011 | Result: Allowed

Appeal Details

RSA Number 535619914 RSA 2011
Assessee PAN AAAHC1126R
Bench Mumbai
Appeal Number ITA 5356/MUM/2011
Duration Of Justice 2 month(s) 1 day(s)
Appellant CHANDRASHEKHAR KARUNDIA (HUF), MUMBAI
Respondent ITO WD 14(3)3, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 16-09-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted SMC
Tribunal Order Date 16-09-2011
Assessment Year 2005-2006
Appeal Filed On 15-07-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC MUMBAI BEFORE SHRI R V EASWAR PRESIDENT I T A NO: 5356/MUM/2011 (ASSESSMENT YEAR: 2005-06) M/S CHANDRASHEKHAR KARUNDIA (HUF) MUMBAI APPELLA NT (PAN: AAAHC1126R) VS INCOME TAX OFFICER 14(3)(3) MUMBAI RESPONDENT ASSESSEE BY: MR RAKESH JOSHI REVENUE BY: MR G P TRIVEDI DATE OF HEARING: 13 TH SEPTEMBER 2011 DATE OF PRONOUNCEMENT:16 TH SEPTEMBER 2011 O R D E R THIS IS AN APPEAL BY THE ASSESSEE AND IT RELATES T O THE ASSESSMENT YEAR 2005-06. THE ASSESSEE IS A HINDU U NDIVIDED FAMILY DERIVING SHARE INCOME / LOSS FROM A PARTNERSHIP FIR M AND LOSS FROM SHARE TRADING AND INCOME FROM OTHER SOURCES. 2. THE ASSESSEE FILED A RETURN OF INCOME ON 29 TH JULY 2005 DECLARING ` NIL TOTAL INCOME. THE RETURN WAS PROCESSED UNDER S ECTION 143(1) OF THE INCOME TAX ACT 1961. THEREAFTER THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT ON 31 ST AUGUST 2007 AGAIN DETERMINING THE TOTAL INCOME AT ` NIL. SUBSEQUENTLY THE ASSESSMENT WAS REOPENED UNDER SECTION 147 AFTER SEEKING APPROV AL OF THE 2 ITA NO: 5356/MUM/2011 ADDITIONAL CIT AND A NOTICE UNDER SECTION 148 WAS I SSUED TO THE ASSESSEE AND SERVED ON IT ON 17 TH SEPTEMBER 2009. THE REASONS RECORDED UNDER SECTION 148(2) FOR REOPENING THE ASS ESSMENT ARE REPRODUCED IN PARAGRAPH 2 OF THE ASSESSMENT ORDER A ND ARE NOT REPRODUCED HERE FOR THE SAKE OF BREVITY. IN THE CO URSE OF THE REASSESSMENT PROCEEDINGS THE ASSESSING OFFICER TOOK THE VIEW THAT THE ASSESSEE HAD WRONGLY ADJUSTED THE SPECULATION LOSS OF ` 3 88 489/- ON ACCOUNT OF FUTURES & OPTIONS (F&O FOR SHORT) TRANSA CTIONS AGAINST THE SHORT TERM CAPITAL GAIN OF ` 2 08 147/-. ACCORDING TO THE ASSESSING OFFICER IN THE CASE OF F&O TRANSACTION THERE IS NO DELIVERY OF SHARES AND THEREFORE THE LOSS SHOULD BE TREATED AS SPECULA TION LOSS. HE THEREFORE DID NOT PERMIT THE SAME TO BE ADJUSTED AG AINST THE SHORT TERM CAPITAL GAINS OR THE SHARE TRADING INCOME. THESE W ERE SEPARATELY BROUGHT TO TAX WITHOUT BEING REDUCED BY THE SPECULA TION LOSS. THE TAXABLE INCOME WAS THUS DETERMINED AT ` 2 99 830/-. 3. THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) A ND CHALLENGED THE JURISDICTION OF THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT. HE ALSO QUESTIONED THE ASSESSMENT ON MERITS AND SUBMIT TED THAT THE F&O LOSS OF ` 3 88 489/- CANNOT BE TREATED AS SPECULATION LOSS AS THE SAID LOSS AROSE ON ACCOUNT OF HEDGING TRANSACTIONS WHICH FELL UNDER PROVISO (B) TO SUB-SECTION (5) OF SECTION 43 OF THE ACT UN DER WHICH HEDGING TRANSACTIONS CANNOT BE DEEMED TO BE SPECULATIVE TRA NSACTIONS. THE CIT(A) DISMISSED BOTH THE CONTENTIONS OF THE ASSESS EE AND HENCE THE PRESENT APPEAL. 3 ITA NO: 5356/MUM/2011 4. THE FIRST POINT ARGUED BEFORE ME IS THAT THE ASS ESSING OFFICER DID NOT HAVE JURISDICTION TO REOPEN THE ASSESSMENT UNDER SECTION 147 AND THAT IT WAS BASED PURELY ON A CHANGE OF OPINION . RELIANCE WAS PLACED ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LIMITED (2010) 320 ITR 561 (SC) . I HAVE CAREFULLY CONSIDERED THE ARGUMENT IN THE LIGHT OF THE REASONS RECORDED. IN THE COURSE OF THE ORIGINAL ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) THE ASSESSING OFFICER HAD ISSUED A LETTER DATED 28 TH FEBRUARY 2007 TO THE ASSESSEE A COPY OF WHICH IS AT PAGES 3 AND 4 O F THE PAPER BOOK. IN ITEM NUMBER 13 OF THIS LETTER THE ASSESSING OFFI CER ASKED THE ASSESSEE TO FURNISH ITS EXPLANATION AS TO HOW THE L OSS IN F&O TRANSACTIONS WAS SET OFF AGAINST THE SHORT TERM CAP ITAL GAINS WHICH ACCORDING TO THE ASSESSING OFFICER WAS NOT ALLOWABL E AS PER THE RELEVANT PROVISIONS OF THE ACT. THE ASSESSEE WOULD APPEAR TO HAVE RELIED ON PROVISO (B) TO SECTION 43(5) AND CONTENDE D THAT THE LOSS AROSE ON ACCOUNT OF HEDGING TRANSACTIONS AND THEREFORE CA NNOT BE CONSIDERED AS SPECULATION LOSS. IN THE ASSESSMENT ORDER PASSED ON 31 ST AUGUST 2007 UNDER SECTION 143(3) THE ASSESSING OF FICER ALLOWED THE ASSESSEES CLAIM. IN PARAGRAPH 3 OF THE ASSESS MENT ORDER (PAGE 5 OF THE PAPER BOOK) HE OBSERVED THAT DETAILS IN RESPECT OF INCOME OFFERED FOR TAXATION ALONG WITH OTHER DETAILS HAVE BEEN COLLECTED VERIFIED AND KEPT ON RECORD . IN THE REASONS RECORDED FOR REOPENING THE ASSESSMENT THE ASSESSING OFFICER HAS REFERRED TO A NOTIFICATION NO:2/2006 ISSUED BY THE CBDT ON 25 TH JANUARY 2006 NOTIFYING INTER 4 ITA NO: 5356/MUM/2011 ALIA THE NATIONAL STOCK EXCHANGE OF INDIA AS A RE COGNIZED STOCK EXCHANGE FOR THE PURPOSE OF SECTION 43(5) WITH EFFE CT FROM 25 TH JANUARY 2006. RELYING ON THE NOTIFICATION THE ASSESSING O FFICER HAS EXPRESSED A VIEW IN THE REASONS RECORDED THAT A F&O TRANSACTI ON CARRIED OUT IN NATIONAL STOCK EXCHANGE ON OR AFTER 25 TH JANUARY 2006 SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION. ACCORDING TO THE ASSESSING OFFICER IN VIEW OF THE AMENDMENT TO THE SECTION WH ICH WAS PROSPECTIVE IN NATURE ALL F&O TRANSACTIONS CARRIED OUT PRIOR T O 25 TH JANUARY 2006 SHOULD BE TREATED AS SPECULATIVE TRANSACTIONS ONLY. ACCORDINGLY HE HAS OPINED IN THE REASONS RECORDED THAT F&O TRANSACTION S BEING NON- DELIVERY BASED TRANSACTIONS ARE SPECULATIVE TRANSAC TIONS UNDER SECTION 43(5) AND THESE TRANSACTIONS HAVE BEEN TAKEN OUT OF THE CATEGORY OF SPECULATIVE TRANSACTIONS ONLY WITH EFFECT FROM THE ASSESSMENT YEAR 2006-07 BY VIRTUE OF THE AMENDMENT MADE IN SECTION 43(5) OF THE ACT. FOR THESE REASONS THE ASSESSING OFFICER CAME TO TH E CONCLUSION THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT IN THE SENSE THAT THE LOSS IN F&O TRANSACTION SUFFERED BY THE ASSESSE E WAS ALLOWED TO BE SET OFF AGAINST THE SHORT TERM CAPITAL GAINS. 5. SECTION 43(5) DEFINES SPECULATIVE TRANSACTION. THERE IS A PROVISO WHICH CONTAINS FOUR CLAUSES. UNDER CLAUSE (B) A CONTRACT IN RESPECT OF STOCKS AND SHARES ENTERED INTO BY A DEAL ER OR INVESTOR THEREIN TO GUARD AGAINST LOSS IN HIS HOLDINGS OF ST OCKS AND SHARES THROUGH PRICE FLUCTUATIONS SHALL NOT BE DEEMED TO B E A SPECULATIVE TRANSACTION. IN OTHER WORDS A HEDGING TRANSACTION WAS NOT TREATED AS A 5 ITA NO: 5356/MUM/2011 SPECULATIVE TRANSACTION. CLAUSE (D) OF THE PROVISO WAS INTRODUCED BY THE FINANCE ACT 2005 WITH EFFECT FROM 01.04.2006 I.E. FROM THE ASSESSMENT YEAR 2006-07. THIS CLAUSE PROVIDED THAT AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIVATIVES AN D CARRIED OUT IN A RECOGNIZED STOCK EXCHANGE SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION. PRIOR TO 01.04.2006 EVEN SUCH A TRAN SACTION WAS CONSIDERED TO BE A SPECULATIVE TRANSACTION. THERE IS AN EXPLANATION BELOW THE PROVISO WHICH WAS ALSO SIMULTANEOUSLY IN SERTED BY THE FINANCE ACT 2005. THIS EXPLANATION DEFINED AN EL IGIBLE TRANSACTION AND A RECOGNIZED STOCK EXCHANGE. THE QUESTION BE FORE ME IS WHETHER THE REASONS RECORDED BY THE ASSESSING OFFIC ER UNDER SECTION 148(2) COULD HAVE LED HIM TO THE REASONABLE BELIEF THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT FOR THE AS SESSMENT YEAR 2005-06. I HAVE ALREADY REFERRED TO THE ASSESSEES CONTENTION THAT THE QUESTION WHETHER THE LOSS IN F&O TRANSACTIONS COULD BE SET OFF AGAINST THE SHORT TERM CAPITAL GAINS WAS EXAMINED BY THE AS SESSING OFFICER BY RAISING A SPECIFIC QUERY AND IT WAS ONLY ON BEING S ATISFIED BY THE ASSESSEES REPLY THAT IT COULD BE SET OFF THAT IN THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) THE ASSESSING OFFICER A CCEPTED THE ASSESSEES CLAIM. THE REASONS RECORDED BY THE ASSE SSING OFFICER IN MY OPINION DO NOT HAVE ANY NEXUS OR LIVE LINK WITH THE BELIEF FORMED BY HIM. IN THE REASONS RECORDED HE HAS REFERRED TO TH E NOTIFICATION ISSUED BY THE CBDT ACCORDING RECOGNITION TO THE NATIONAL S TOCK EXCHANGE WITH EFFECT FROM 25 TH JANUARY 2006. OBVIOUSLY THE ASSESSING OFFICER 6 ITA NO: 5356/MUM/2011 HAS IN MIND CLAUSE (D) OF THE PROVISO TO SECTION 43 (5) OF THE ACT. BUT EVEN AFTER THE INTRODUCTION OF THE ABOVE CLAUSE A HEDGING TRANSACTION AS DEFINED IN CLAUSE (B) OF THE PROVISO CONTINUES T O BE TREATED AS A REGULAR TRANSACTION OR IN OTHER WORDS AS A NON-SPEC ULATIVE TRANSACTION. IT IS TRUE THAT RECOGNITION WAS ACCORDED TO NATIONA L STOCK EXCHANGE ONLY FROM 25 TH JANUARY 2006 AND ALL TRANSACTIONS IN DERIVATIVES C ARRIED OUT PRIOR TO THE SAID DATE SHOULD BE TREATED AS SPE CULATIVE TRANSACTIONS. IT IS ALSO TRUE THAT IN THE ASSESSEES CASE ALL THE TRANSACTIONS IN F&O WERE PRIOR TO THE SAID DATE. BUT UNLESS THERE IS S OME TANGIBLE MATERIAL TO DOUBT THE CHARACTER OF THE TRANSACTIONS WHICH WE RE ACCEPTED AS HEDGING TRANSACTIONS CARRIED OUT BY THE ASSESSEE I N F&O THE REOPENING OF THE ASSESSMENT CANNOT BE SUSTAINED. T HE NOTIFICATION OF THE CBDT ACCORDING RECOGNITION TO THE NATIONAL STOC K EXCHANGE UNDER CLAUSE (D) OF THE PROVISO THEREFORE HAS NO NEXUS OR LIVE LINK WITH THE BELIEF OF THE ASSESSING OFFICER. THE ASSESSING OFF ICER HAS ALSO REFERRED TO THE FACT THAT THE F&O TRANSACTIONS ARE NOT DELIVERY BASED AND THEREFORE THEY ARE COVERED BY THE DEFINITION OF A SPECULATIVE TRANSACTION UNDER SECTION 43(5) OF THE ACT. BUT T HE ASSESSING OFFICER HIMSELF HAS ACCEPTED THESE TRANSACTIONS TO BE NON-S PECULATIVE IN NATURE AND AS BEING HEDGING TRANSACTION WITHIN THE MEANING OF CLAUSE (B) OF THE PROVISO WHILE COMPLETING THE ORIGINAL AS SESSMENT. IN FACT HE HAS RAISED A SPECIFIC QUERY ON THIS ASPECT WHICH W AS ANSWERED BY THE ASSESSEE AND SUCH EXPLANATION WAS ACCEPTED BY THE A SSESSING OFFICER IN THE ORIGINAL ASSESSMENT PROCEEDINGS. TANGIBLE M ATERIAL IS REQUIRED 7 ITA NO: 5356/MUM/2011 TO SHOW THAT THIS IS NOT A CASE OF A CHANGE OF OPIN ION ON THE PART OF THE ASSESSING OFFICER. THE MERE FACT THAT THE TRANSACT IONS WERE NOT DELIVERY BASED DOES NOT AMOUNT TO TANGIBLE MATERIA L BECAUSE EVEN DURING THE ORIGINAL ASSESSMENT PROCEEDINGS IT WAS K NOWN TO THE ASSESSING OFFICER THAT THESE TRANSACTIONS WERE NOT DELIVERY BASED. UNLESS THERE IS TANGIBLE MATERIAL TO SHOW THAT THE CHARACTER OF THE F&O TRANSACTIONS IS NOT THAT OF HEDGING TRANSACTIONS T HE REOPENING OF THE ASSESSMENT CANNOT BE SUSTAINED. TILL SUCH TANGIBLE MATERIAL IS AVAILABLE TO THE ASSESSING OFFICER THE REOPENING I S VULNERABLE TO THE CHALLENGE OF BEING A MERE REVIEW OF THE EARLIER ASS ESSMENT. IT IS WELL SETTLED THAT THE ASSESSING OFFICER HAS NO POWER TO REVIEW THE ASSESSMENT AND HE HAS THE POWER ONLY OF REASSESSME NT WHICH HAS TO BE BASED ON FULFILLMENT OF CERTAIN PRE-CONDITIONS. THIS POSITION IS WELL SETTLED BY THE RECENT JUDGMENT OF THE SUPREME COURT CITED SUPRA ON WHICH RELIANCE WAS RIGHTLY PLACED ON BEHALF OF THE ASSESSEE. 6. FOR THE ABOVE REASONS I AM SATISFIED THAT THE N OTICE UNDER SECTION 148 HAS BEEN ISSUED ON A MERE CHANGE OF OPI NION. THE REASSESSMENT IS THEREFORE INVALID. I ACCORDINGLY Q UASH THE SAME. 7. IN THE VIEW I HAVE TAKEN IT IS NOT NECESSARY TO EXAMINE THE MERITS OF THE CLAIM OF THE ASSESSEE. THE APPEAL IS ACCORDINGLY ALLOWED WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH SEPTEMBER 2011. SD/- ( R V EASWAR ) MUMBAI DATED 16 TH SEPTEMBER 2011 PRESIDENT SALDANHA 8 ITA NO: 5356/MUM/2011 COPY TO: 1. M/S CHANDRASHEKAR KARUNDIA (HUF) 202 CHARTERED HOUSE DR CAWASJI HORMANJI STREET MUMBAI 400 002 2. ITO 14(3)(3) MUMBAI 3. CIT-14 MUMBAI 4. CIT(A)-25 MUMBAI 5. DR SMC BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR ITAT MUMBAI