Income Tax Appellate Tribunal - Kolkata
Olypab Traders Pvt. Ltd., Kolkata vs Department Of Income Tax on 7 May, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH: KOLKATA
[Before Shri P. K. Bansal, AM & Shri Mahavir Singh, JM]
I.T.A No.950/Kol/2012
Assessment Year: 2006-07
DCIT, Circle-2, Aayakar Bhawan Vs. M/s Olypab Traders Pvt. Ltd.
th
7 Floor, P-7, Chowringhee Sqr.Kol-69 2A, G.C. Avenue, 9th Floor, Kol-13
(PAN: AACCA 5571D)
(Appellant) (Respondent)
Date of hearing: 09.04.2015
Date of pronouncement: 07.05.2015
For the Appellant: Shri Prakash Nath Barnwal, JCIT, Sr-DR
For the Respondent: Shri Subash Agarwal, Advocate
ORDER
Per Shri Mahavir Singh, JM:
This appeal by Revenue is arising out of order of CIT(A)-I, Kolkata in appeal No. 407/CIT(A)-1/C-2/08-09 dated 08.03.2012. Assessment was framed by ITO Ward-2(1), Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Year 2001-02 vide his order dated 29.12.2008.
2. The first common issue in this appeal of Revenue is against the order of CIT(A) in disallowing loss on derivative transaction as well as on'Future and Option' transaction. For this, Revenue has raised following ground No. 1 and 2:-
"1. Whether on the facts and circumstances of the case the Ld. CIT(A) has erred in holding the loss on derivative transaction of Rs.27,89,487/- within the scope of section 43(5)(d) and treating the same as Business Loss, instead of loss due to speculative transactions determined by the AO, without examining the same is "eligible transaction" or not.
2. Whether on the facts and circumstances of the case the Ld. CIT(A) has erred in holding the loss on "Future and Option" transactions of Rs.30,74,848/- within the scope of section 43(5)(d) and treating the same as Business Loss, instead of loss due to speculative transactions determined by the AO, without examining the same, is "eligible transaction" or not."2 ITA No.950/K/2012
M/s Olypab Traders (P) Ltd. AY 2006-07
3. Briefly stated facts are that assessee-company is engaged in the business of investment, finance and share trading. The assessee filed its return of income for AY 2006-07 on 25-11-2006 and the same was processed u/s 143(1) of the Act. Assessment was picked up for scrutiny by issuing notice u/s 143(2) and 142(1) of the Act. During the course of assessment proceedings, Assessing Officer noticed that assessee-company suffered derivative loss of Rs.27,89,487/- and according to him this derivative loss is as speculation loss for the reason that derivative which is u/s 43(5) of the Act constitutes as speculation business. The AO further disallowed a sum of Rs.30,74,808/- being future and option transaction holding the same also as speculation loss. Aggrieved, assessee preferred appeal before CIT(A), who deleted the disallowance of loss after considering the submission of assessee by observing as under:-
"After careful consideration of the written submission and assessment order it is noticed that the assessee has incurred Rs.27,89,487/- as loss in derivative trading, the assessing officer held that the above loss to be speculative in nature. The A/R contended that assessing officer had ignored the provision of section 43(5)(d) of the Income tax Act which was an exception to the section 43(5) and came in force w.e.f. 1stdApril 2006 and further relied upon judgment of Hon'ble ITAT in the case Arun Kr. Saraogi vs DCIT in ITA No. 1587/K/2009 dated 07.01.2011 in respect of derivative transactions entered in to by the assessee at the recognized stock exchange even prior to the date of notification (25.01.2006) was held as business loss. Keeping in view these facts and circumstances ground no.1 and 2 are allowed."
Aggrieved, now Revenue is in appeal before us.
4. We have heard rival contentions and gone through the facts and circumstances of the case. We find that the AO has relied on the definition of "Speculative Transaction" as per section 43(5) of the Act which states as under-
'Speculative Transaction' means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips.' Though from the plain reading of the above definition of "Speculative Transaction", transactions in derivative trading appear to be speculative in nature, but it is imperative to analyse the clause (d) of the proviso appended to section 43(5) which 3 ITA No.950/K/2012 M/s Olypab Traders (P) Ltd. AY 2006-07 carves out exception to the above-stated rule. Clause (d) states that an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 carried out in a recognised stock exchange; shall not be deemed to be a speculative transaction. Further, the meaning of the term "eligible transaction" has been explained in the "Explanation" appended to section 43(5). It is worthwhile to mention here that the transactions in the recognized stock exchanges conform to the criteria laid down for making the transactions eligible. It is pertinent to note here that in the instant case, that the assessee has entered into transactions through registered members of the recognized stock exchanges viz., the Bombay Stock Exchange Ltd. and the National Stock Exchange Ltd. and all the transactions have been carried out electronically which have been supported by the time stamp contract note issued by the Stock broker. The Contract Notes were duly produced before the AO and the AO has nowhere in the assessment order pointed out the discrepancy, if any. Hence, we are of the view that the AO has ignored the "exception" to section 43(5), being clause (d) thereof and accordingly, the transactions in question cannot at all be said to be "Speculative Transactions". As explained by Ld. counsel for the assessee before us that the Explanation 2 clause (d) of the proviso to Sec. 43(5) of the Act and the relevant notification issued by CBDT reads as under:-
"Notification No. 2/2006 [SO 89 (E)], DATED 25-1-2006 In exercise of the powers conferred by clause (ii) in the Explanation to clause (d) of the proviso to clause (5) of section 43 of the Income-tax Act, 1961 (43 of 1961) read with sub-rule (4) of rule 6DDB of the Income-tax Rules, 1962, the Central Government hereby notifies the following stock exchanges as recognised stock exchanges for the purposes of the said clause with effect from the date of publication of this notification in the Official Gazette, namely:-
(1) National Stock Exchange of India Limited, Mumbai (2) Bombay Stock Exchange Limited, Mumbai
2. The Central Government may withdraw the recognition granted to the stock exchange if any of the conditions prescribed in rule 6DDa of the income-tax Rules, 1962, subject to which the recognition is granted, is violated.
3. This notification shall remain in force until the approval granted by the Securities and Exchange Board of India is withdrawn or expires, or this notification is 4 ITA No.950/K/2012 M/s Olypab Traders (P) Ltd. AY 2006-07 rescinded by the Central Government as provided in sub-rule (5) of rule 6DDB of the Income-tax Rules, 1962.
[F.No.142/38/2005-TPL] Explanatory Memorandum in respect of Notification S.O. 89(E).
Dated 25th January, 2006 The said Notification notifies Bombay Stock Exchange Limited, Mumbai and National Stock Exchange of India Limited, Mumbai as recognised Stock Exchanges for the purposes of clause () of the proviso to section 43(5) of the Income-tax Act, 1961. An eligible transaction in respect of trading in derivatives carried out on these two Stock Exchanges with effect from 25th January,2 006 shall not be deemed to be speculative transaction. The expression 'eligible transaction' is defined in the Explanation appearing after the proviso to section 43(5) of the Income-tax Act, 1961.
In view of the above facts and circumstances and legal position, we are of the view that the transactions are not speculative transactions and the assessee is eligible for allowance of business loss. Hence, both the grounds of revenue's appeal are dismissed.
5. Next issue in this appeal of Revenue is against the order of CIT(A) deleting the disallowance of preliminary expenses u/s 35D of the Acts spent of filing fees in ROC. For this, Revenue has raised following ground No.3:-
"3. Whether on the facts and circumstances of the case the Ld. CIT(A) was right in allowing preliminary expenses of Rs.12,600/- u/s 35D, which was spent mainly for filling Fees in ROC, which is capital in nature."
6. We have heard rival contentions and gone through the facts and circumstances of the case. We find that preliminary expense for filling fees in ROC is capital in nature and not revenue and this issue is squarely covered in favour of Revenue and against the assessee by the judgment of Hon'ble Supreme Court in the case of Punjab State Industrial Development Corporation Ltd. Vs. CIT (1997) 225 ITR 792 (Supreme Court), wherein it is held that the fee paid to the Registrar of Companies for expansion of the capital base of a company is directly related to the capital expenditure incurred by the company and although incidentally that would certainly help in the business of the company and may also help in profit making, it still retains the character of capital expenditure since the expenditure is directly 5 ITA No.950/K/2012 M/s Olypab Traders (P) Ltd. AY 2006-07 related to the expansion of the capital base of the company. As the facts are identical, the issue is squarely covered, we allow this issue of revenue's appeal.
7. In the result, appeal of Revenue is partly allowed.
8. Order is pronounced in the open court on 07th May, 2015.
Sd/- Sd/-
(P. K. Bansal) (Mahavir Singh)
Accountant Member Judicial Member
Dated : 7th May, 2015
*Dkp/P.S
Copy of the order forwarded to:
1. APPELLANT - DCIT Cir-2, Aayakar Bhawan, P-7. Chowringhee Square, Kolkata-69 2 Respondent -M/s Olypab Traders Pvt. Ltd. 2A. G.C. Avenue, 9th Floor, Kolkata-13
3. The CIT(A), Jalpaiguri
4. CIT, Jalpaiguri
5.
DR, Kolkata Benches, Kolkata
/True Copy, By order,
Asstt. Registrar.