EAST & WEST SECURITIES (P) LTD, MUMBAI v. ITO 9(1)(3), MUMBAI

ITA 866/MUM/2010 | 2006-2007
Pronouncement Date: 25-02-2011 | Result: Allowed

Appeal Details

RSA Number 86619914 RSA 2010
Assessee PAN AAACE7577R
Bench Mumbai
Appeal Number ITA 866/MUM/2010
Duration Of Justice 1 year(s) 21 day(s)
Appellant EAST & WEST SECURITIES (P) LTD, MUMBAI
Respondent ITO 9(1)(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 25-02-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted E
Tribunal Order Date 25-02-2011
Date Of Final Hearing 01-02-2011
Next Hearing Date 01-02-2011
Assessment Year 2006-2007
Appeal Filed On 04-02-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E MUMBAI BEFORE SHRI J SUDHAKAR REDDY ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO JUDICIAL MEMBER ITA NO. 866 /MUM/2010 (ASSESSMENT YEARS 2006-07) EAST AND WEST SECURITIES (P) LTD. 302-303 A N HOUSE-34 TPS-III 31 ST ROAD OFF LINKING ROAD BANDRA (WEST) MUMBAI 400050 PAN: AAACE7577R .APPELLANT VS INCOME TAX OFFICER9(1)3 AAYAKAR BHAVAN MUMBAI-400020 .RESPONDENT ITA NO.960 /MUM/2010 (ASSESSMENT YEARS 2006-07) INCOME TAX OFFICER9(1)3 .APPELLANT V/S EAST AND WEST SECURITIES (P) LTD. RESPONDENT ASSESSEE BY : SHRI BIREN GABHAW ALA REVENUE BY : SHRI HEMANT LAL O R D E R PER VIJAY PAL RAO THESE CROSS-APPEALS ARE DIRECTED AGAINST THE OR DER DATED 12.11.2009 OF THE CIT(A) FOR THE ASSESSMENT YEAR 2006-07. ITA NO. 866 /MUM/2010 ITA NO.960 /MUM/2010 (ASSESSMENT YEARS 2006-07) 2 ITA NO. 866 /MUM/2010 2 THE ASSESSEE HAS RAISED VARIOUS GROUNDS IN THIS APPEAL HOWEVER THE ONLY ISSUE ARISES FOR OUR CON SIDERATION AND ADJUDICATION IS WHETHER IN THE FACTS AND CIRCUM STANCES OF THE CASE THE CIT(A) IS JUSTIFIED IN NOT ALLOWING THE SETOFF OF BROUGHT FORWARD SPECULATION LOSSES FOR THE ASSESSME NT YEAR 2001-02 AGAINST THE PROFIT OF THE CURRENT YEAR TRAD ING IN DERIVATIVE AND RESTRICTED THE SETOFF AGAINST THE I NCOME UP TO 24.1.2006 BY TREATING THE FUTURE AND OPTION TRADI NG ACTIVITIES INCOME UP TO 24.1.2006 AS SPECULATIVE INCOME IN VI EW OF THE AMENDMENT TO SECTION 43(5)(D). ITA NO. 960 /MUM/2010 3. THE REVENUE IN THIS APPEAL HAS RAISED THE FOLLO WING GROUNDS. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LAND IN LAW THE LEARNED CIT(A) ERRED IN HOLDI NG THAT PROVISIONS OF SECTION 43(5) CLAUSE (D) IS APPLICABLE FROM 25.01.2006 BEING THE DATE OF NOTIFICATION OF BSE AND NSE AS RECOGNIZED STOCK EXCHANGE IGNORING THE FACT THAT THE PROVISIONS O F SECTION 43(5) CLAUSE (D) IS INSERTED W.E.F.1.42006 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DIRECTING THE AO THE SET OFF OF BROUGHT FORWARD SPECULATION LOSS FOR AY 2002-03 AGAINST THE INCOME OF THE PAT PERIOD I.E . I INCOME FROM 1.4.2005 TO 24.1.2006 HOLDING THAT INCOME FROM TRADING IN DERIVATIVES THROUGH RECOGNIZ ED STOCK EXCHANGE ITA NO. 866 /MUM/2010 ITA NO.960 /MUM/2010 (ASSESSMENT YEARS 2006-07) 3 THUS BOTH THE ASSESSEE AND REVENUE HAVE RAISED THE ISSUE AGAINST THE TREATMENT OF THE INCOME FROM FUTURE A ND OPTION ACTIVITIES AS BUSINESS INCOME AFTER 24.1.2006 AS WELL AS THE SETOFF OF BROUGHT FORWARD SPECULATIVE LOSSES FOR TH E ASSESSMENT YEAR 2001-02 AGAINST THE INCOME FROM TH E FUTURE AND OPTION FOR THE YEAR UNDER CONSIDERATION. 4. BEFORE US THE LEARNED DR HAS SUBMITTED THAT TH E CIT(A) HAS FAILED TO CONSIDER THE FACT THAT CLAUSE (D) OF SECTION 43(5) OF THE ACT HAS BEEN INSERTED WITH EF FECT FROM 01.04.2006 AND DOES NOT HAVE ANY RETROSPECTIVE EFFE CT. HE HAS RELIED UPON THE DECISION OF SPECIAL BENCH OF KOLKATA TRIBUNAL IN THE CASE OF SHREE CAPITAL SERVICES LT D. V/S ACIT REPORTED IN (2009) `121 ITD 498) (KOL)SB). 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ELEVANT RECORD. AT THE OUTSET THE LEARNED AR OF THE ASSESSE E FAIRLY CONCEDED THAT THE ISSUED RAISED IN THIS APPEAL BY T HE REVENUE IS SQUARELY COVERED IN FAVOUR OF THE REVENUE AND AG AINST THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH OF K OLKATA TRIBUNAL IN THE CASE OF SHREE CAPITAL SERVICES LTD REPORTED IN (2009) `121 ITD 498) (KOL)SB). WE FIND FROM THE OR DER THAT THE ISSUE IS DECIDED BY THE SPECIAL BENCH IN PARAGR APH 5.3 AND 7 HELD AS UNDER : ITA NO. 866 /MUM/2010 ITA NO.960 /MUM/2010 (ASSESSMENT YEARS 2006-07) 4 5.3 IN VIEW OF THE ABOVE WE HOLD THAT THE TERM DERIVATIVES IN WHICH UNDERLYING ASSET IS SHARES WILL FALL WITHIN THE MEANING OF COMMODITY USED IN SECTION 43(5) OF THE ACT . 7. IN VIEW OF THE ABOVE WE HOLD THAT CLAUSE (D) OF SECTION 43(5) IS PROSPECTIVE IN NATURE AND WILL BE EFFECTIVE FROM THE DATE FROM WHICH THE LEGISLATURE MADE IT EFFECTIVE I.E.1.4.2006 AND WILL BE APPLICA BLE TO ASSESSMENT YEA 2006-07 ONWARDS. IN VIEW OF THE ABOVE WE FIND NO MERITS IN THE ASSESSEES APPEAL. THE SAME IS DISMISSED 6. IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF KOLKATA TRIBUNAL IN THE CASE OF SHREE CAPITAL SERVICES LTD . WE DECIDE THIS ISSUE IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. THE ORDER OF THE CIT(A) IS SET ASIDE AND THE ORDER OF THE AO IS RESTORED. 7. WITH REGARDS OF THE GROUNDS NO.2 WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED THE RELEVANT RECORD. TH E ASSESSEE IS IN THE BUSINESS OF TRADING IN SHARES. THE ASSE SSEE EARNED THE INCOME OF RS.3 18 58 231/- FROM THE DERIVATIV ES (FUTURE AND OPTION) TRANSACTIONS TRADING WHICH WAS SETOFF AGAINST THE BROUGHT FORWARD LOSSES OF RS.7 38 14 932/- PERTAIN ING TO THE ASSESSMENT YEAR 2001-02. DURING THE ASSESSMENT PROCEEDINGS THE AO ISSUED SHOW CAUSE NOTICE TO TH E ASSESSEE AS TO WHY THE SPECULATIVE INCOME FROM THE TRADING IN FUTURE AND OPTION TRANSACTIONS THROUGH RECOGNIZED STOCK ITA NO. 866 /MUM/2010 ITA NO.960 /MUM/2010 (ASSESSMENT YEARS 2006-07) 5 EXCHANGE BE NOT TREATED AS THE INCOME IN VIEW OF T HE AMENDMENT TO THE PROVISIONS TO SECTION 43 (5) OF TH E ACT BY INSERTING THE CLAUSE (D) IN THE PROVISO BY THE FIN ANCE ACT 2005 WITH EFFECT FROM 1.4.2006. THE ASSESSEE FILED ITS REPLY 27.7.2008 AND CONTENDED THAT THE SPECULATION LOSSE S SHOWN FOR THE ASSESSMENT YEAR 2001-02 AND 2003-04 HAS BEE N CARRIED FORWARD FOR SETOFF AGAINST THE FUTURE GAIN . THEREFORE WHEN THE LOSSES ON ACCOUNT OF SAME NATURE OF TRANSA CTIONS THE SAME IS TO BE ALLOWED AS SET OFF AGAINST THE INCOME EARNED FROM THE SIMILAR NATURE OF TRANSACTIONS DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. IT WAS ALSO CONTENDED BEF ORE THE AO THAT SINCE THE AMENDMENT TO SECTION 43(5)(D) BY WAY OF FINANCE ACT 2005 IS ONLY IN CLARIFICATORY NATURE AN D THEREFORE THE BROUGHT FORWARD LOSSES SHALL BE ALLOWED AS INCO ME AS TO BE SETOFF AGAINST THE INCOME FROM THE DERIVATIVE T RANSACTIONS. THE AO DID NOT ACCEPT THE CONTENTIONS OF THE ASSESS EE AND HELD THAT IN VIEW OF THE PROVISIONS OF SECTION 73(4 ) THE SPECULATION LOSSES FOR THE ASSESSMENT YEAR 2001-02 CANNOT BE ALLOWED TO BE SET OFF SINCE THE TIME PERIOD OF THE SAME IS ONLY UPTO FOUR YEARS FROM THE ASSESSMENT YEAR IN WHICH S UCH LOSSES WAS FIRST DETERMINED. 8. ON APPEAL THE CIT(A) HAS HELD THAT THE INCOME EARNED FROM 1.4.2005 TO 24.1.2006 SHALL BE DEEMED TO BE TH E ITA NO. 866 /MUM/2010 ITA NO.960 /MUM/2010 (ASSESSMENT YEARS 2006-07) 6 SPECULATIVE LOSS AND THEREBY TO THAT EXTENT SHALL BE ALLOWABLE FOR SETOFF AGAINST THE SPECULATIVE LOSSES CARRIED F ORWARD. THE CIT(A) HAS REFERRED THE CBDT NOTIFICATION NO.2 DATE D 25.1.2006 WHEREIN CBDT HAS NOTIFIED NATIONAL STOC K EXCHANGE AND BOMBAY STOCK EXCHANGE AS RECOGNIZED S TOCK EXCHANGE FOR THE PURPOSES OF CLAUSE (I) OF THE EXP LANATION BELOW CLAUSE (D) OF PROVISION OF SECTION 43(5). AS PER THE EXPLANATORY MEMORANDUM IN RESPECT OF NOTIFICATION DATED 25.1.2006 THE ELIGIBLE TRANSACTIONS IN RESPECT OF T RADING IN DERIVATIVES CARRIED OUT IN NATIONAL STOCK EXCHANG E AND BOMBAY STOCK EXCHANGE WITH EFFECT FROM 25.1.2006 S HALL NOT BE DEEMED TO BE SPECULATIVE TRANSACTIONS. AS REG ARDS THE RESTRICTION OF FOUR YEARS FOR CARRY FORWARD AND SE T OFF OF THE SPECULATIVE LOSSES THE CIT(A) HAS HELD THAT THE A MENDMENT IN SECTION 73(4) HAS BEEN BROUGHT BY FINANCE ACT 2 005 WITH EFFECT FROM 1.4.2006 HENCE THE LOSES INCURRED IN RE SPECT OF ASSESSMENT YEAR 2001-02 CAN NOT BE ALLOWED AS SET O FF AND LOSSES BROUGHT FORWARD PERTAINING TO THE ASSESSMENT YEAR 2002-03 AS SET OFF AGAINST THE INCOME FOR THE PERIO D FROM 1.4.2005 TO 24.1.2006. 9. BEFORE US THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT RESTRICTION OF SET OFF AS PER THE SE CTION 73(4) FROM 8 YEARS TO 4 YEARS BY WAY OF FINANCE ACT 200 5 DOES NOT ITA NO. 866 /MUM/2010 ITA NO.960 /MUM/2010 (ASSESSMENT YEARS 2006-07) 7 EFFECT SET OFF THE BROUGHT FORWARDED LOSSES. HE HA S SUBMITTED THAT BY VIRTUE OF THE SAID AMENDMENT THE RESTRICTIO N OF 4 YEARS IS ONLY FOR CARRIED FORWARD OF THE LOSSES NOT FOR S ET OFF. THE LEARNED AR HAS SUBMITTED THAT THE AMENDMENT IS NO T APPLICABLE FOR THE BROUGHT FORWARD LOSSES PERTAINI NG TO THE ASSESSMENT YEAR 2001-02 BECAUSE THE AMENDMENT IS W .E.F. 1.4.2006. THE LAW AS EXISTS AT THE RELEVANT POINT OF TIME WOULD BE APPLICABLE FOR CARRIED FORWARDED OF THE LOSSES F IRST COMPUTED. THUS THEREFORE THE LEARNED AR HAS SUB MITTED THAT IN THE YEAR 2001-02 THE LOSSES SINCE WERE ALLO WED TO CARRY FORWARD UP TO 8 YEARS. ALTERNATIVELY HE HAS CONT ENDED THAT THE LOSSES ON ACCOUNT DERIVATIVES CANNOT BE TREATE D AS SPECULATIVE LOSSES THEREFORE THE SAME IS TO BE A LLOWED AS SET OFF AGAINST THE PROFITS OF THIS YEAR WITHOUT AN Y RESTRICTION. HE HAS RELIED UPON THE ORDER OF THIS TRIBUNAL IN TH E CASE OF DCIT V/S SSKI INVESTORS SERVICES LTD REPORTED IN (2008) 113 TTJ (MUM) 511. 10. ON THE OTHER HAND THE LEARNED DR HAS SUBMITTE D THAT AS PER THE PROVISIONS OF SECTION 73(4) NO LOSSES IS ALLOWED TO BE CARRIED FORWARD FOR MORE THAN 4 ASSESSMENT YEARS AND THEREFORE THE SET OFF OF THE SPECULATION LOSSES WH ICH ARE MORE THAN FOUR YEARS OLD CANNOT BE ALLOWED. HE HAS REL IED UPON THE ORDERS OF THE AUTHORITIES BELOW. ITA NO. 866 /MUM/2010 ITA NO.960 /MUM/2010 (ASSESSMENT YEARS 2006-07) 8 11. AS REGARDS THE ISSUE IN DEPARTMENTAL APPEAL TH E LEARNED DR HAS SUBMITTED THAT THE ENTIRE INCOME EARNED DUR ING THE PERIOD FROM 1.4.2005 TO 31.3.2006 SHALL BE TREATED AS BUSINESS INCOME SINCE THE AMENDMENT IS CLARIFICATORY IN NAT URE AND THEREFORE THE SPECULATIVE LOSSES CANNOT BE ALLOWED AGAINST THE BUSINESS INCOME EVEN FOR THE ASSESSMENT YEARS 2 002-03 AND 2003-04. HE HAS RELIED UPON THE ORDER OF THE MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF G K ANAND BU ILDWELL (P) LTD V/S ITO REPORTED ON 34 SOT 439 (DEL). 12. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND R ELEVANT RECORD. AS FAR AS THE QUESTION OF AMENDMENT IN SE CTION 43(5) BY INSERTING THE CLAUSE (D) TO THE PROVISO VIDE FIN ANCE ACT 2005 IS RETROSPECTIVE OR PROSPECTIVE IS CONCERNED THE SAID ISSUE HAS BEEN CONSIDERED AND DECIDED BY THE CALCUT TA SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF SREE CAPITAL V/S ACIT REPORTED IN 121 ITD 498. THE SPECIAL BENCH HA S HELD THAT CLAUSE (D) OF SECTION 43(5) IS PROSPECTIVE IN NATURE AND WILL BE EFFECTIVE FROM THE DATE FROM WHICH LEGISLAT URE MADE IT W.E.F. 1.4.2006 AND WILL BE APPLICABLE FROM THE PRO SPECTIVE EFFECT. ITA NO. 866 /MUM/2010 ITA NO.960 /MUM/2010 (ASSESSMENT YEARS 2006-07) 9 13. IN SO FAR AS THE ELIGIBILITY OF THE SPECULATIVE LOSES TO BE CARRIED FORWARD UNDER SUB-SECTION 4. OF SECTION 73 REDUCED FROM 8 YEARS TO 4 YEARS BY AMENDMENT FINANCE ACT 2005 W.E.F.1.4.2006 IS CONCERNED WE ARE OF THE VIEW THA T SPECULATIVE LOSS FIRST COMPUTED IN THE YEAR OF 20 01-02 WERE ALLOWED TO BE CARRIED FORWARD UP TO 8 YEARS AS PER THE PROVISIONS EXISTED AT THAT RELEVANT POINT OF TIME. THE RESTRICTION OF 4 YEARS IS APPLICABLE ONLY FOR THE SPECULATIVE LOSSES WHICH FOR THE FIRST TIME COMPUTED ON OR AFTE R 1.4.2006 THEREFORE ONCE THE SPECULATIVE LOSSES FIRST DETERM INED IS ALLOWED TO BE CARRIED FORWARD TO BE 8 YEARS THE SA ME CANNOT BE DISALLOWED FROM SET OFF BY VIRTUE OF SUBSEQUENT AMENDMENT RESTRICTING THE PERIOD OF CARRIED FORWARD. WE QUOTE THE PROVISIONS OF SECTION 73 AS UNDER : LOSSES IN SPECULATION BUSINESS. 73. (1) ANY LOSS COMPUTED IN RESPECT OF A SPECULATION BUSINESS CARRIED ON BY THE ASSESSEE SHALL NOT BE SET OFF EX CEPT AGAINST PROFITS AND GAINS IF ANY OF ANOTHER SPECULATION B USINESS. (2) WHERE FOR ANY ASSESSMENT YEAR ANY LOSS COMPUTED IN RESPECT OF A SPECULATION BUSINESS HAS NOT BEEN WHOLLY SET OFF UNDER SUB- SECTION (1) SO MUCH OF THE LOSS AS IS NOT SO SET O FF OR THE WHOLE LOSS WHERE THE ASSESSEE HAD NO INCOME FROM ANY 15 OTHER SPECULATION BUSINESS SHALL SUBJECT TO THE OTHER PROVISIONS OF THIS CHAPTER BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR A ND (I) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAI NS IF ANY OF ANY SPECULATION BUSINESS CARRIED ON BY HIM ASSESSABLE F OR THAT ASSESSMENT YEAR ; AND (II) IF THE LOSS CANNOT BE WHOLLY SO SET OFF THE A MOUNT OF LOSS NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLL OWING ASSESSMENT YEAR AND SO ON. ITA NO. 866 /MUM/2010 ITA NO.960 /MUM/2010 (ASSESSMENT YEARS 2006-07) 10 (3) IN RESPECT OF ALLOWANCE ON ACCOUNT OF DEPRECIAT ION OR CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH THE PROVISIONS OF SUB-SECTION (2) OF SECTION 72 SHALL APPLY IN RELATION TO SPECULATION BUSINESS AS THEY APPLY IN RELATION TO ANY OTHER BUSINESS. (4) NO LOSS SHALL BE CARRIED FORWARD UNDER THIS SEC TION FOR MORE THAN [FOUR] ASSESSMENT YEARS IMMEDIATELY SUCCEEDING THE ASSESSMENT YEAR FOR WHICH THE LOSS WAS FIRST COMPUT ED. [EXPLANATION.WHERE ANY PART OF THE BUSINESS OF A COMPANY ( [OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONS ISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTERES T ON SECURITIES INCOME FROM HOUSE PROPERTY CAPITAL GAINS AND INCOME FROM OTHER SOURCES] OR A COMPANY THE PRIN CIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES) CONSISTS IN THE PURCHASE AND SA LE OF SHARES OF OTHER COMPANIES SUCH COMPANY SHALL FOR THE PURPOS ES OF THIS SECTION BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHA SE AND SALE OF SUCH SHARES.] 14. FROM THE PLAIN READING OF SUB-SECTION 4 OF SEC TION 73 IT IS CLEAR THAT THE AMENDMENT IS APPLICABLE ONLY W.E. F FROM 1.4.2006 AND THEREFORE IT WOULD NOT EFFECT THE SET TING OFF OF THE ALREADY BROUGHT FORWARD SPECULATION LOSSES. THI S ISSUE IS ALLOWED IN FAVOUR OF THE ASSESSEE AND AGAINST THE R EVENUE. THE ORDERS OF HE LOWER AUTHORITIES ARE SET ASIDE. 15.. THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 866 /MUM/2010 ITA NO.960 /MUM/2010 (ASSESSMENT YEARS 2006-07) 11 16. IN SUM AND SUBSTANCE THE APPEAL OF THE REVENU E IS DISMISSED AND THE APPEAL OF THE ASSESSEE IS ALSO AL LOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 25TH FEB 2 011 SD SD (J.SUDHAKAR REDDY) (V IJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ON THIS 25 TH DAY OF FEB 2011 SRL:11211 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR ITAT MUMBAI