Income Tax Appellate Tribunal - Ahmedabad
Jaswantrai D.Shah(Ind), Bhavnagar vs Assessee on 17 December, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL: AHMEDABAD BENCHES
"C" BENCH: AHMEDABAD
(BEFORE S/SHRI R.V. EASWAR, VP AND A N PAHUJA, AM)
ITA No. 1265/Ahd/2009
A Y: 2005-06
Shri Jaswantrai D. Shah Vs The Income Tax Officer,
Plot No.940/B, Krishnanagar, Ward- 1(4), Nakubag,
Behind Gita Chowk Road, Bhavnagar 364 001
Bhavnagar 364 001
[PAN: ABOPS 5431 Q]
Appellant Respondent
Assessee by Shri M. K. Patel, AR
Revenue by Smt. Neeta Shah, DR
ORDER
A N PAHUJA: This appeal by the assessee against an order dated 17-12-2008 of the learned CIT(A)-XX, Ahmedabad ,raises the following grounds:
"1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred gravely in law in confirming the treatment (by the Ld. AO) of the loss of Rs.5,20,150/- incurred by the appellant in derivative transactions in shares as speculation loss as covered by the provisions of s. 43(5) of the Act.
2. The observations of the Ld. CIT(A) adverse to the appellant in regard to the loss of Rs.5,20,150/- are unwarranted of facts and untenable in law.
3. The Ld. CIT(A) erred gravely in law in mere referring to but not considering/discussing at all the case law of binding nature relied upon by the appellant and in not passing any speaking order thereon.
4. On a judicious appreciation of the relevant factual and legal aspects of the case, the Ld. CIT(A) ought to have allowed and upheld the loss of Rs.5,20,150/- as regular business loss admissible to the appellant.
Additional ground:ITA No.1265/Ahd/2009 2
Jaswantrai D. Shah
5. The appellant craves leave and reserves right to add to, vary and/or modify the above grounds of appeal."
2. Facts, in brief, as per relevant orders are that return declaring loss of Rs. 3,43,379/- filed on 31-10-2005 by the assessee, carrying on the business of transactions in shares and derivatives besides money lending, after being processed u/s. 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act) was selected for scrutiny with the issue of notice u/s 143(2) of the Act on 26- 10-2006. During the course of assessment proceedings, the Assessing officer[AO in short] noticed that the assessee had declared loss of Rs.4,45,814/- in derivative transactions. To a query by the AO, the assessee furnished a copy of ledger account in respect of F&O trading (purchase and sales) besides copy of notified stock exchanges recognized under clause (ii) in Explanation to clause (d) of proviso to section 43(5) of the Act. On perusal of these documents, the AO was of the opinion that loss of Rs.4,45,814/- was speculative in nature and cannot be adjusted against assessee's other income since the relevant notification SO 89(E) was issued only on 25.1.2006. In response to a show cause notice, the assessee submitted vide letter dated 11-10-2007 a revised computation of income wherein loss of speculation business was carried forward to the next year. After considering the submissions of the assessee, the AO treated loss of Rs.4,45,814/- in derivative transactions as speculative loss and accordingly, determined total speculative loss of Rs.5,20,150/-
3. On appeal, the assessee while relying upon the decisions of the Tribunal in the case of R. B. K. Securities (P) Ltd. Vs. ITO, 118 TTJ 465 (Bom) and DCIT Vs. SSKI Investors Services (P) Ltd. 113 TTJ 511 (Bom) contended that the loss in derivatives is regular business loss incurred during the course of business through the network system of national bourses and was not speculative loss within the meaning of provisions of section 43(5) of the Act. In the light of these submissions, the learned CIT(A) upheld the findings of the AO in following terms:
ITA No.1265/Ahd/2009 3Jaswantrai D. Shah "I have carefully considered the contentions of the learned counsel for the appellant and have also gone through the assessment order. The case-laws relied upon by the learned Counsel for the appellant have also been carefully considered. It is seen that as against the findings of the AO, the appellant failed to establish as to how the conditions laid down in section 43(5) are fulfilled so as to treat the transactions in derivatives other than speculative business. The transactions in derivatives pertain to Financial Year 2004-05 and the provisions laid down in section 43(5) have been brought in by the Finance Act, 2005 with effect from 1st April, 2006 as against the contention in this regard raised by the AO has not been rebutted by the appellant. Also, it has not been clarified by the appellant that the transactions have been made through recognized stock exchange and that the transactions are eligible transactions. Since this basic condition has not been satisfied, the disallowance of loss occurred on account of derivative transactions and disallowed by the AO is hereby held to be justified. This ground of appeal is rejected."
4. The assessee is now in appeal against the aforesaid findings of the learned CIT(A). At the outset, the learned AR on behalf of the assessee while relying upon the decisions in the case of R. B. K. Securities (P) Ltd. Vs. ITO, 118 TTJ 465 (Bom), DCIT Vs. SSKI Investors Services (P) Ltd. 113 TTJ 511 (Bom) and P. S. Kapur Vs ACIT (2009) 120 TTJ 422 (Jaipur) contended that loss in derivative transactions cannot be held as speculative loss within the meaning of provisions of section 43(5) of the Act. He further submitted that clause d) inserted in proviso to sub-section (5) of Section 43 by Finance Act 2005 with effect from 1.4.2006 stipulates that loss or gain in derivative transactions is not speculative in nature. The learned DR, on the other hand, supported the findings of the learned CIT(A) and vehemently argued that decision in the case of P. S. Kapur (supra) relied upon by the learned AR, was not applicable to the facts of the case under consideration..
5. We have heard both the parties and gone through the facts of the case. We find that in SSKI Investors Services (P) Ltd.(supra), the ITAT concluded that transactions in derivatives being of a separate kind, could not be treated speculative in nature in the AY 2001-02 .Following this decision and decision of ITA No.1265/Ahd/2009 4 Jaswantrai D. Shah Bangalore Bench in the case of Bharath Kumar Vs. DCIT,4 SOT 593(Bang), ITAT in RBK Securities (P) Ltd.(supra) in the AY 2003-04 held that loss in F&O transactions was business loss and not speculative loss. In another decision in the case of PS Kapur(supra) for the AY 2004-05 , a similar view was taken while holding that loss in derivatives is allowable as business loss as the transactions did not fall u/s 43(5) of the Act. It was further concluded that clause
(d) inserted in proviso to sec. 43(5) by the Finance Act,2005 w.e.f 1st April,2006 is retrospective in application by necessary implication. In the light of consistent view taken by the co-ordinate Benches of this Tribunal in the aforesaid three decisions, we are of the opinion that transactions in derivatives cannot be held to be speculative in nature ,being not falling within the meaning of provisions of the extant section 43(5) of the Act. In view thereof, grounds nos. 1 to 4 in the appeal are allowed.
7. No additional ground having been raised in terms of residuary ground no.5, accordingly, the said ground is dismissed.
8. In the result, appeal is allowed.
Order pronounced in the open Court on 21st August,2009 Sd/- Sd/-
(R. V. EASWAR) (A.N. PAHUJA) VICE PRESIDENT ACCOUNTANT MEMBER Date: 21st August,2009 LAKSHMIKANT/ Copy of the order forwarded to: 1. The assessee
2. Income Tax Officer,Ward- 1(4), Nakubag, Bhavnagar 364 001
3. CIT(A)-XX Ahmedabad
4. The CIT concerned
5. The D.R. ITAT, Ahmedabad,
6. Guard File BY ORDER DR / AR, ITAT, Ahmedabad