Income Tax Appellate Tribunal - Indore
M/S. D & H Sechron Electrodes Pvt. Ltd., ... vs The Jcit Range-1, Indore on 21 August, 2018
D&H Sechron Electrodes Pvt. Ltd
Appeal No MA 08/Ind/2018 arising out of ITA No.62/Ind/2015
आयकर अपील
य अ धकरण, इंदौर यायपीठ, इंदौर
IN THE INCOME TAX APPELLATE TRIBUNAL,
INDORE BENCH, INDORE
BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER
AND SHRI MANISH BORAD, ACCOUNTANT MEMBER
Appeal No. MA 08/Ind/2018
Arising out of ITA No.62/Ind/2015
Assessment Year: 2011-12
D&H Sechron Electrodes Joint Commissioner of
Pvt.Ltd, Vs. Income Tax, Range-1,
44-46 Industrial Estate, Indore
Kila Maidan, Indore
(Appellant) (Respondent )
PAN No.AAACD6111E
Revenue by Shri Yogesh Mishra, Sr. DR
Assessee by Shri S.N. Agrawal,CA
Date of Hearing 27.7.2018
Date of 21.08.2018
Pronouncement
ORDER
PER MANISH BORAD, AM.
This Miscellaneous petition filed by the assessee pertaining to the A.Y. 2011-12 is directed against the order of Hon'ble I.T.A.T., Indore Bench, Indore dated 28.02.2018.
2. The assessee has pointed out that apparent mistake has occurred in the order of the Tribunal by submitting as follows;
1D&H Sechron Electrodes Pvt. Ltd Appeal No MA 08/Ind/2018 arising out of ITA No.62/Ind/2015
1.
"01} That on the facts and in the circumstances of the case, the Ld CIT[A] erred in approving the treatment as given by the Ld AO by treating the loss incurred by the assessee on Future & Option Transactions of Rs 96,67,872/- as a speculative loss in place of normal business loss as claimed by the assessee as per express provision of section 43[5] Q[ the Act without properly appreciating the facts of the case and submission made before him.
02.] That on the facts and in the circumstances of the case the Learned CIT(A) erred in confirming the charging of interest u/s 234B and 234(' of the Act. The said amount of interest was charged excessively the same requires to be charged as per law. "
03] That during the course of hearing of above appeal following points were raised and put forth before the Hon'ble Bench :-
1. Loss from F&O transactions is a normal business loss as per provision of section 43(5)(d) of the Income Tax Act.
2. The income of the assessee first computed as per Chapter IV and if the resulting figure is a loss, in that case only provision as mentioned in the Expl. To section 74(4) of the Act is applicable. 3 The assessee placed reliance on the decision of the Hon'ble Calcutta High court wherein it was categorically stated that provision as mentioned in Explanation to Section 73[4] of the Act is not applicable in case of F & 0 transactions. For this preposition Decision of Hon'ble Delhi Bench of ITAT in the case of Mis Sucon India Limited [ITANo 45191 Dell 2013 dt 18-01-2017] was also relied upon. 4 The amendment in explanation to section 73[4] of the Act by the Finance Act 2014 was also referred wherein it was clearly mentioned that transactions which were specifically excluded from the definition of speculative loss as per provision of section 43[51 of the act, in that case, 2 D&H Sechron Electrodes Pvt. Ltd Appeal No MA 08/Ind/2018 arising out of ITA No.62/Ind/2015 explanation to section 73[4] of the Act does not apply and for applicability of the amended provision with retrospective effect decision of !Ion'ble Kolkata Bench in the case of Longview Trade & Credit P. Limited [Appeal No ITA No 6101 Koll 2017 dt 30-08-2017] was referred.
4.1 That in the present appeal, the assessee company had declared positive income under the head of lncome from Business & Profession and gross total income of the assessee was also at a positive figure. That as per provision of section 43[5][d] of the Act, the loss from Future & Option Transaction has to be considered as a normal business loss and when the resulting amount under the head Income [rom Business & Profession is at a positive figure, in that case provision as mentioned in explanation to section 73[4] of the Act is not applicable.
4.2 The assessee in Para 1.13.1 of written synopsis filed by the appellant the said issue has been dealt in detail. A similar view was also expressed by the Hon'ble Kolkata Bench of ITAT in the case of ITO Vs M/s Arion Commercial P Limited [ ITA No 10101 Koll 2011 dt 29-12-2011 ] as discussed in Para 1.13.2 of the synopsis. In Para 1.14.3 of the Synopsis, decision of Hon'ble Special Bench was referred in the case of Concord Commercial P Limited as reported in 95 ITD 117 wherein similar view was expressed.
4.3 That in para 1.15.2 of the Synopsis, decision of Hon'ble Delhi High Court in the case of DLF Commercial Development Limited was referred wherein in Para 7 of the said order, the Hon'ble High court has held that the scope of definition of provision of section 43 [5] of the Act is applicable to the pro vision of section 28 to 41 of the Act. In Para 1.15.3 of the Synopsis, para 8 of the decision of the Hon'b1e Delhi high court was discussed in detail wherein it was stated that first computation of 3 D&H Sechron Electrodes Pvt. Ltd Appeal No MA 08/Ind/2018 arising out of ITA No.62/Ind/2015 Total Income has to be prepared as per Chapter IV, in Section II and if the resu1tin~ figure was at a loss than provisi on of section 73 [41 gets attracted on the same.
4.4 That in Para 1.15.5. and 1.15.6 of the synopsis, Para 11 and 12 of the decision of the Hon'b1e Delhi High court in the case of DLF Commercial Developments Limited was discussed wherein it was held by the Hon'b1e High Court that where there was loss from F & 0 Business then provision of section 73[41 of the Act is applicable for carried forward of losses purpose only.
4.5 In the present appeal in hand, there was no loss under Chapter IV, section D rather huge profit was declared by the assessee. Hence, provision of section 73[41 of the Act is not applicable, rather the Para 7 & 8 of the decision of the Hon'b1e Delhi High Court is applicable which says that for calculating the business income, income has to be computed as per provisions of section 28 to 41 read with section 43[5][d1 of the Income Tax Act.
4.6 That in view of the above, it is submitted that Hon'ble Bench bas not decided the crucial aspect of this appeal which was argued in detailed and also mentioned in the written synopsis as filed before thc Hon'ble Bench. Hence, Hon'ble bencb is very kindly requested to recall its order and decide the issue afresh in light of the above discussion.
3.
4. The Ld. Counsel for the assessee referring to the written submissions mentioned in this miscellaneous application submitted that while adjudicating the grounds raised in the appeal filed, the Hon'ble Tribunal has not considered the judgments of Hon'ble High 4 D&H Sechron Electrodes Pvt. Ltd Appeal No MA 08/Ind/2018 arising out of ITA No.62/Ind/2015 Court of Calcutta in the case of Asian Financial Services Ltd. V/s CIT (2016) 70 Taxman.com 9, Kolkatta as well as the decision of Hon'ble Delhi Bench of the I.T.A.T. in the case of Sucon India Ltd V/s ACIT, Income-tax Act, 1961, No.4519/Del/2013 order dated 18.01.2017 wherein the issue was decided in favour of the assessee.
He further submitted that the Hon'ble'ble Tribunal dismissed the assessee's appeal mainly relying on the judgment of Hon'ble Delhi High Court in the case of CIT V/s DLF Commercial Dev. Ltd 261 CTR 126 but on the same issue Hon'ble High Court of Calcutta in the case of Asian Financial Services Ltd (supra) after duly considering the judgment of Hon'ble High Court of Delhi in CIT Vs DLF Commercial Dev. Ltd (supra) has held that loss incurred on account of trading of derivatives referred in Security Contract (Regulation) Act carried out in recognized stock exchange cannot be termed as speculative transaction and also cannot be equated to the purchase and sale of shares as provided in explanation to section 73(4) of the Act and therefore same is eligible for being set off as a business loss against any other business income. Ld. Counsel for the assessee further referring to judgments of Hon'ble 5 D&H Sechron Electrodes Pvt. Ltd Appeal No MA 08/Ind/2018 arising out of ITA No.62/Ind/2015 Supreme Court in the case of Vegetable Product Ltd reported in 88 ITR 192 submitted that the decision of jurisdictional High Court is not available and the issue has been decided contrary to each other by other Hon'ble High Courts then in such situations judgment favourable to the assessee should be followed. The Ld. Counsel for the assessee therefore prayed that the view taken by Hon'ble High Court of Calcutta in the case of Asian Financial Services Ltd (Supra) should have been followed by the Tribunal and as this is an apparent mistake, the same needs to be rectified.
5. On the other hand the Departmental Representative opposed the submissions made by Ld. Counsel for the assessee and relied the findings of the Tribunal.
6. We have heard rival contentions and perused records placed before us. Through this miscellaneous application it has been pleaded that an apparent mistake on record has cropped up in the order of Tribunal as the judgments and decisions favouring the assessee which were placed on record during the course of hearing, have not been considered by the Tribunal while adjudicating the 6 D&H Sechron Electrodes Pvt. Ltd Appeal No MA 08/Ind/2018 arising out of ITA No.62/Ind/2015 issue. From perusal of Tribunal order dated 28.2.18 we find that the sole issue was regarding treatment of future and option loss of Rs.96,67,872/- as to whether it is to be treated as speculation loss by virtue of section 73 of the Act or in the alternative the assessee is eligible to set off of this F&O loss against other business income of the assessee.
7. We find that while adjudicating the issue in detail we referred and relied to the judgment of Hon'ble High Court of Delhi in the case of CIT V/s DLF Commercial Dev. Ltd (supra) in coming to the conclusion that the transactions of future and options are based on stock and shares and the assessee is covered by the explanation to section 73 of the Act and therefore the alleged loss was held to be speculative loss not eligible for set off against other business income of the assessee.
8. We further observe from the perusal of paper book as well as the cases referred and relied by Ld. Counsel for the assessee that reliance was also placed on the judgment of Hon'ble High Court, Calcutta in the case of Asian Financial Services Ltd (Supra) which 7 D&H Sechron Electrodes Pvt. Ltd Appeal No MA 08/Ind/2018 arising out of ITA No.62/Ind/2015 was further followed by the coordinate bench of Delhi in the case of M/s. Sucon India Ltd (Supra) and in both these judgments the decision of Hon'ble High Court of Delhi in case of DLF Commercial Dev. Ltd (supra) has been duly considered and the decision has been given in favour of the assessee treating the derivative loss as a business loss not covered explanation to u/s 73 of the Act.
9. We find that a mistake apparent from record has occurred in the impugned order of the Tribunal dated 28.2.2018 as the judgments favouring the assessee were not considered while adjudicating the issue. We therefore recall our findings given in Para 10, 11 and 12 of our appellate order dated 28.2.2018 and insert the following findings in place thereof.
Para-10:
The Ld. Counsel for the assessee has referred to various judgments and it has been pleaded that the very same issue has been dealt by Hon'ble High Court of Calcutta in the case of Asian Financial Services Ltd (Supra) and the Hon'ble court after considering the judgments of Hon'ble High Court of Delhi 8 D&H Sechron Electrodes Pvt. Ltd Appeal No MA 08/Ind/2018 arising out of ITA No.62/Ind/2015 in the case of DLF Commercial Dev. Ltd (supra) have held that 'We are inclined to thank that the clause of the sentence 'which fall squarely...' qualifies the word 'shares' and not the word 'derivatives'. We have no difficulty in accepting the views of the Delhi High Court when they say that shares fall squarely within the explanation to Section 73(4) but we are unable to agree when derivatives are treated at par with the shares because the legislature has treated them differently".
Para-11:
Further co-ordinate bench in the case of ACIT V/s M/s. Sucon India Ltd (supra) held that the treatment of set off of loss on account of trading of derivatives and the I.T.A.T., Delhi in their decision favouring the assessee considered both the judgments of High Court of Delhi in the case of DLF Commercial Dev. Ltd (supra) and Calcutta High Court in the case of Asian Financial Services Ltd (supra) and decided in favour of the assessee by following the judgment of Hon'ble Apex Court in the case of Vegetable Product Ltd (supra) observing as follows;9
D&H Sechron Electrodes Pvt. Ltd Appeal No MA 08/Ind/2018 arising out of ITA No.62/Ind/2015 "3.7 We have heard the rival submission of the parties and perused the relevant material on the record. In the grounds raised by the assessee, two issues emerge before us. The first issue is whether loss from dealing in derivative transaction can be set of against business income or not. Second issue before us is whether loss from the purchase and sale of shares can be set of against the business income in terms of section 73 of the Act.
3.7.1 Regarding the first issue, the assessee has shown loss on derivatives trading on NSE/BSE Rs.17 ,27,16,630/- and claimed to set off the same against business income. The learned CIT(DR) submitted that issue in question is covered by the decision of the Hon'ble Delhi High Court in the case of CIT Vs. DLF Commercial Developers Ltd.(supra).
We find that the Hon'ble High court referred to both Section 73 and Section 43 of the Income-tax Act and decisions available on the issue in dispute and held that loss from the derivative transactions was speculative for the purpose of section 73 of the Act and, therefore, could not be adjusted against business profit. The relevant finding of the Hon'ble High Court is reproduced as under:
"6. Before a discussion on the merits of the appeal, it would be essential to extract the relevant provisions of the Income Tax Act. Section 73 (with explanation), to the extent it is relevant, reads as follows:
"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 except against profits and gains, if any, of another speculation business.
(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 off or the whole loss where the assessee 10 D&H Sechron Electrodes Pvt. Ltd Appeal No MA 08/Ind/2018 arising out of ITA No.62/Ind/2015 had no income from any other speculation business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and-
(i) it shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year; and
(ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on. (3) In respect of allowance on account of depreciation 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 section for more than [four} assessment years immediately succeeding the assessment year for which the loss was first computed.
Explanation.-Where any part of the business of a company [other than a company whose gross total income consists mainly of income which is chargeable under the heads "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources '1, or a company the principal business of which is the business of banking or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares.} Section 43, to the extent it is relevant, reads as follows:
43. In Sections 28to 41 and in this section, unless the context otherwise requires-
********** ********* 11 D&H Sechron Electrodes Pvt. Ltd Appeal No MA 08/Ind/2018 arising out of ITA No.62/Ind/2015 (5) "Speculative transaction" means a transaction in which a contract for the purchase of 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:
Provided that for the purposes of this clause -
(a) A contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchandise business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or
(b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or
(c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member (or)
(d) An eligible transaction in respect of trading in derivatives referred to in clause {(a c)} of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognized stock exchange;} Shall not be deemed to be a speculative transaction, [Explanation - Four the purpose of this clause, the expressions _ (A) Carried out electronically on screen-based systems through a stock broker or sub-broker or such other intermediary registered under section 12 of the Securities and exchange Board of India Act, 1992 (15 of 1992) in accordance with the provisions of the Securities Contracts (Regulation) 12 D&H Sechron Electrodes Pvt. Ltd Appeal No MA 08/Ind/2018 arising out of ITA No.62/Ind/2015 Act, 1956 (42 of 1956) or the Securities and Exchange Board of India Act, 1992 or the Depositories Act, 1996 (22 of 1996) and the rules, regulations or bye-laws made or directions issued under those Acts or by banks or mutual funds on a recognized stock exchange; ;and (B) which is supported by a time stamped contract note issued by such stock broker or sub-broker or such other intermediary to every client indicating in the contract note the unique client identity number allotted under any Act referred to in sub-clause (A) and permanent account number allotted under this Act;
(ii) "recognized stock exchange" means a recognized stock exchange as referred to in clause (f) of section 2 of the Securities Contracts (Regulation) act, 1956 (42 of 1956) and which fulfils such conditions as may be prescribed and notified by the Central Government for this purpose;} It is apparent, facially, that the term "speculative transaction" has been defined only in Section 43(5). At the same time, it is qualified that the scope of the definition is restricted in its application to working out the mandate of Sections 28 to 41 of the Act. In terms of the Explanation to Section 73(4), in the case of a company, business of purchase and sale of shares is deemed to be speculation business. However, certain companies are excluded from this Explanation, which are:
(i) a company whose gross total income consists mainly of income which is chargeable under the heads 'Interest on securities', 'Income from house property', 'Capital gains' and 'Income from other sources'.
(ii) a company, the principal business of which is the business of banking or the granting of loans and advances.
Section 43 defines, for the purpose of Sections 28 to 41, certain terms. The latter provisions fall in Chapter IV, in Section 0, which deal with 13 D&H Sechron Electrodes Pvt. Ltd Appeal No MA 08/Ind/2018 arising out of ITA No.62/Ind/2015 computation of business income. The said provisions provide for matter relating to computation of such income, rent taxes, insurance of buildings, repairs of plant and machinery, depreciation, reserves for shipping business, rehabilitation fund, expenditure on certain eligible objects or schemes, deductions, amounts not deductible, profits chargeable to tax, etc. The assessee is no doubt correct in contending that the only definition of derivatives is to be found in Section 43(5); yet the Court cannot ignore or overlook that the definition - to the extent, it excludes such transactions from the mischief of the expression "speculative transactions" is confined in its application. Parliamentary intendment that such transactions are also excluded from the mischief of Explanation to Section 73 (4), however, is not borne out.
In this context, it would be instructive to notice that in Rajshree Sugars and Chemicals Ltd (supra), the Madras High Court noticed, rather dramatically, that that "..'Derivatives are time bombs and financial weapons of mass destruction' said Warren Buffett, one of the world's greatest investors, who overtook Microsoft Maestro in 2008 to become the richest man in the world and who is known as the 'Sage of Omaha or Oracle of Omaha'. Derivatives, according to him, can push companies on to a spiral that can lead to a corporate melt down .... " The High Court then, after examining the nature and characteristics of derivatives transactions, observed that:
"5. What are these 'derivatives' which have gained such a great deal of notoriety? In simple terms, derivatives are financial instruments whose values depend on the value of other underlying financial instruments. The International Accounting Standard (lAS) 39, defines "derivatives" as follows:
A derivative is a financial instrument:
(a) whose value changes in response to the change in a specified interest 14 D&H Sechron Electrodes Pvt. Ltd Appeal No MA 08/Ind/2018 arising out of ITA No.62/Ind/2015 rate, security price, commodity price, foreign exchange rate, index of prices or rates, a credit rating or credit index, or similar variable (sometimes called the 'underlying');
(b) that requires no initial net investment or little initial net investment relative to other types of contracts that have a similar response to changes in market conditions; and
(c) that is settled at a future date.
Actually, derivatives are assets, whose values are derived from values of underlying assets. These underlying assets can be commodities, metals, energy resources, and financial assets such as shares, bonds, and foreign currencies."
It is no doubt, tempting to hold that since the expression "derivatives" is defined only in Section 43 (5) and since it excludes such transactions from the odium of speculative transactions, and further that since that has not been excluded from Section 73, yet, the Court would be doing violence to Parliamentary intendment. This is because a definition enacted for only a restricted purpose or objective should not be applied to achieve other ends or purposes. Doing so would be contrary to the statute. Thus contextual application of a definition or term is stressed; wherever the context and setting of a provision indicates an intention that an expression defined in some other place in the enactment, cannot be applied, that intent prevails, regardless of whether standard exclusionary terms (such as "unless the context otherwise requires") are used. In The Vanguard Fire & General Insurance Co. Ltd., Madras v. MIS.
Fraser And Ross & Anr AIR 1960 SC 971 it was held that:
"It is well settled that all statutory definitions or abbreviations must be read subject to the qualification variously expressed in the definition clauses which created them and it may be that even where the definition is exhaustive 15 D&H Sechron Electrodes Pvt. Ltd Appeal No MA 08/Ind/2018 arising out of ITA No.62/Ind/2015 inasmuch as' the word defined is said to mean a certain thing, it is possible for the word to have a somewhat different meaning in different sections of the Act depending upon the subject or the context. That is why all definitions in statutes generally begin with the qualifying words similar to the words used in the present case, namely, unless there is anything repugnant in the subject or context. Therefore in finding out the meaning of the word " insurer" in various sections of the Act, the meaning to be ordinarily given to it is that given in the definition clause. But this is not inflexible and there may be sections in the Act where the meaning may have to be departed from on account of the subject or context in which the word has been used and that will be giving effect to the opening sentence in the definition section, namely, unless there is anything repugnant in the subject or context. In view of this qualification, the court has not only to look at the words but also to look at the context, the collocation and the object of such words relating to such matter and interpret the meaning intended to be conveyed by the use of the words under the circumstances. "
Similarly, in N.K. Jain and Drs. v C.K. Shah and Drs. AIR 1991 SC 1289, it was held that:
"4. The subject matter and the context in which a particular word is used are of great importance and it is axiomatic that the object underlying the Act must always be kept in view in construing the context in which a particular word is used "
11. The stated objective of Section 73- apparent from the tenor of its language is to deny speculative businesses the benefit of carry forward of losses. Explanation to Section 73 (4) has been enacted to clarify beyond any shadow of doubt that share business of certain types or classes of companies are deemed to be speculative. That in another part of the statute, which deals with computation of business income, derivatives are excluded from the definition of speculative transactions, only underlines that such exclusion is limited for the purpose of those provisions or sections. To borrow the Madras 16 D&H Sechron Electrodes Pvt. Ltd Appeal No MA 08/Ind/2018 arising out of ITA No.62/Ind/2015 High Court's expression, "derivatives are assets, whose values are derived from values of underlying assets"; in the present case, by all accounts the derivatives are based on stocks and shares, which fall squarely within the explanation to Section 73 (4). Therefore, it is idle to contend that derivatives do not fall within that provision, when the under/ying asset itself does not qualify for the benefit, as they (derivatives - once removed from it and entirely dependent on stocks and shares, for determination of their value).
12. In the light of the above discussion, it is held that the Tribunal erred in law in holding that the assessee was entitled to carry forward its losses; the question framed is answered in favour of the revenue and against the assessee. The appeal is, therefore, allowed; there shall be no order as to costs."
3.7.2 On the other hand, the learned counsel of the assessee relied on the decision of the Hon'ble High Court of Calcutta in the case of Asian Financial Services Ltd. Vs. Commissioner of Income Tax-3, Kolkata (supra). In the said case one of the questions raised was that, whether on the true and proper interpretation of the Explanation to section 73 of the Income-tax Act, 1961, the Tribunal was justified in law in holding that loss of Rs.3,24,76,185/- incurred in eligible transaction within the meaning of proviso (d) to section 43(5) not involving any purchase/sale of shares as such was speculation loss? 3.7.3 The Hon'ble High Court of Calcutta disagreed with the decision of the Hon'ble Delhi High Court and held as under:
"It would appear that the activities appearing in Clauses (a) to (e) are not to be deemed to be speculative transactions. Therefore, this comes within the category of deemed business which is however distinct and separate from any other business. Now, the question is, whether loss arising out of such deemed business can be set off against the profit arising out of other business or businesses which may for clarity be called proper business.17
D&H Sechron Electrodes Pvt. Ltd Appeal No MA 08/Ind/2018 arising out of ITA No.62/Ind/2015 Under Section 70 of the Act, the assessee is entitled to have the loss set off against his income from any other source under the same head unless otherwise provided. Therefore answer to the question is that the assessee is entitled to have the loss arising out of deemed business set off against the income arising out of business proper unless otherwise provided. The question however remains whether the explanation to Sub-Section (4) of Section 73 relied upon by Mr. Lodh provides otherwise. A plain reading of the explanation quoted above cannot be said to have provided otherwise. In that case the irresistible conclusion is that the assessee is entitled to set off such loss arising out of deemed business against the income arising out of business proper.
The learned Tribunal has supported the contention of the revenue relying upon the judgment of the Delhi High Court quoted above. The views expressed by the Hon'ble Delhi High Court are contained in a part of the sentence, which is as follows:
"by all accounts the derivatives are based on stocks and shares, which fall squarely within the Explanation to Section 73(4)"
We are inclined to think that the clause of the sentence which fall squarely .... ', qualifies the word 'shares" and not the word 'derivatives'. We have no difficulty in accepting the views of the Delhi High Court when they say that shares fall squarely within the Explanation to Section 73(4) but we are unable to agree when derivatives are treated at par with the shares because the legislature has treated them differently." 3.7.4 In the case of Asian Financial Services Ltd. (supra), the Hon'ble Calcutta High Court accordingly answered the question in negative. 3.7.5 The learned counsel submitted before us that both the decision are of the High Court other then Jurisdictional High Court, which is the Punjab and Haryana High Court in the case of the assessee. The learned counsel relying on the decision of the Hon'ble Supreme Court in the case of Vegetable Product Ltd., 18 D&H Sechron Electrodes Pvt. Ltd Appeal No MA 08/Ind/2018 arising out of ITA No.62/Ind/2015 reported in 88 ITR 192 submitted that where contrary decision of the Hon'ble high courts other than the jurisdictional High Court are available, then in such a situation, decision favourable to the assessee should be followed. The Hon'ble Supreme Court in the case of vegetable product Ltd (supra) held as under:
"4. There is no doubt that the acceptance of one or the other interpretation sought to be placed on s. 271 (1 ) (a) (i) by the parties would lead to some inconvenient result, but the duty of the Court is to read the section, understand its language and give effect to the same. If the language is plain, the fact that the consequence of giving effect to it may lead to some absurd result is not a factor to be taken into account in interpreting a provision. It is for the legislature to step in and remove the absurdity. On the other hand, if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted. This is a well- accepted rule of construction recognized by this Court in several of its decisions. Hence, all that we have to see is, what is the true effect of the language employed in s. 271 (1)(a) (i). If we find that language to be ambiguous or capable of more meanings than one, then we have to adopt that interpretation which favours the assessee, more particularly so because the provision relates to imposition of penalty."
3.7.6 Respectfully following the above decision of the Hon'ble Supreme Court in the case of Vegetable Product Ltd. (supra), we are inclined to follow the decision of the Hon'ble Calcutta High Court on the issue in dispute. Accordingly, we hold that the loss incurred on derivative transaction was not a speculative loss and is allowed to be adjusted against business income. "
19D&H Sechron Electrodes Pvt. Ltd Appeal No MA 08/Ind/2018 arising out of ITA No.62/Ind/2015 Para-12:
From perusal of the above decision of Coordinate Bench, we are of the view that the judgment of Hon'ble High Court of Kolkata in the case of Asian Financial Services Ltd (supra) is squarely applicable as in the instant issue and there is no judgment of jurisdictional High Court of Madhya Pradesh but there are contrary decisions by Hon'ble High Court of Delhi in the case of CIT V/s DLF Commercial Dev. Ltd (supra) in favour of the revenue whereas Hon'ble High Court of Calcutta in case of Asian Financial Services Ltd V/s CIT (supra) decided in favour of the assessee (after duly considering the judgment of Hon'ble High Court of Delhi in the case of DLF Commercial Dev. Ltd V/s CIT (supra).
In the given circumstances justice needs to be given in favour of the assessee and we therefore respectfully following the judgment of Hon'ble High Court of Calcutta in the case of CIT V/s Asian Financial Services Ltd (supra) as well as the decision of Coordinate Bench of Delhi in the case of Sucon India Ltd V/s ACIT (supra) are of the considered view that the loss of Rs.96,67,872/- incurred by 20 D&H Sechron Electrodes Pvt. Ltd Appeal No MA 08/Ind/2018 arising out of ITA No.62/Ind/2015 the assessee on account of future and option transactions entered during the year cannot be termed as speculation loss in view of the explanation to section 73 of the Act and further we also hold that impugned loss cannot be termed as loss from purchase and sale of shares as provided in explanation to section 73 of the Act. We further held that the impugned loss of Rs.96,67,872/- falls under the proviso (d) to section 43(5) of the Act and therefore cannot be treated as speculative loss and as such the assessee is eligible to set off the impugned loss from future and option transactions against other business income earned by the assessee during the year. In the result Ground No.1 raised by the assessee in I.T.A. No. I.T.A/62/2015 is allowed.
10. In the result the Miscellaneous application of the assessee is allowed.
The order pronounced in the open Court on 21.8.2018.
Sd/- Sd/-
( KUL BHARAT) (MANISH BORAD)
JUDICIAL MEMBER ACCOUNTANT MEMBER
दनांक /Dated : 21st August, 2018
/Dev
21
D&H Sechron Electrodes Pvt. Ltd
Appeal No MA 08/Ind/2018 arising out of ITA No.62/Ind/2015 Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file.
By order Private Secretary/DDO, Indore 22