Income Tax Appellate Tribunal - Chennai
K.Jawarilal, Vellore vs Department Of Income Tax
IN THE INCOMETAX APPELLATE TRIBUNAL: A- BENCH:CHENNAI
(Before Shri U.B.S.Bedi, Judicial Member
and Shri Abraham P. George. Accountant Member)
ITA No. 974/Mds/09
Assessment Year 2005-06
The ACIT. Vs. Shri K.Jawarilal,
Cir.I. Vellore No.89 Santhapet,
Gudiyatham-632602
AADBJ3814C
(Appellant) (Respondent)
Appellant by: Sri Shaji P.Jacob
Respondent by: None
ORDER
PER SHRI ABRAHAM P. GEORGE, Accountant Member-
This appeal of the Revenue is directed against the order of the CIT(A)-IX, Chennai treating the loss of ` 24,78,733/- incurred by the assessee in futures & options trading as business loss. According to the Revenue, futures & options trading (in short F&O) carried on by the assessee are speculative transactions which were ultimately settled other than by actual delivery or transfer of commodities or scrips. Further as per the ITA NO.974/Mds/09 2 Revenue, assessee himself had added back the loss on F&O and intraday trading in its computation.
2. Short facts apropos are that assessee, engaged in the business of purchase and sale of shares, plots and financing had declared total income of ` 9,83,680/- in his return. During the course of assessment proceedings it was noted that assessee had incurred loss of ` 24,78,733/- in F&O trading and ` 1,05,890/- in intraday trades. Assessee itself in his return of income filed, had considered such losses to be not allowable for tax purposes. From the net loss as per his profit and loss account, assessee had deducted such loss on F&O trading and intraday trades for arriving at the returned total income of ` 9,83,680/-. Assessment was completed by the AO in the lines of the computation furnished by the assessee, except two additions. One was for expenses relating to loss in intraday trades and F&O, which assessee had estimated at ` 35,000/- against which AO estimated at ` 1 lakh. Second addition was on account of disallowance of ` 1 lakh out of agricultural income claimed by the assessee.
3. Assessee went on appeal before the CIT(A) arguing that the loss of ` 24,78,733/- in future & option trading was not speculative in nature. It ITA NO.974/Mds/09 3 also submitted before the CIT(A) that the loss of ` 1,05,890/- in intraday transaction of shares was also not speculative in nature. It was, pleaded that such losses had to be considered as business loss only. Ld. CIT(A) was appreciative of this contention in so far as it related to F&O. According to him, futures & option transactions were business transactions. For coming to this conclusion, he relied on the amendment to sec. 43(5) by Finance Act, 2005 with effect from 01-04-2006, whereby loss on account of dealing in futures & option transactions and other derivative products were excluded from the definition of "speculative transaction". He thus accepted the appeal of the assessee and held that insofar as loss from future & option transaction was concerned, it was to be considered only as business loss. However, vis-à-vis the loss on intraday trades, the CIT(A) accepted the view of the AO.
4. Now before us, the ld. DR submitted that by virtue of the decision of the Special Bench of this Tribunal in the case of Sri Capital Services Ltd. v. ACIT (2009) (318 ITR (AT) 1), loss on account of future & option trading prior to 01-04-2006 had to be considered only as speculative loss. Ld. DR pointed out that the Special Bench had held sub-clause (d) to Sec. 43(5) inserted by Finance Act, 2005 w.e.f. 01-04-2006 to be applicable only from assessment year 2006-07 and prospective in nature. ITA NO.974/Mds/09 4
5. There was no appearance on behalf of the asseessee despite service of notice. When the case was initially fixed on 27-08-2009 there was a request by the AR of the assessee for adjourning the case. On 29- 10-2009 an AR had entered appearance on behalf of the assessee and requested for adjournment. Nevertheless on the dates of hearing thereafter no body entered appearance on behalf of the assessee. Hence, on 11-08-2010 this Tribunal had directed service of notice to the assessee through the DR. This was duly effected and acknowledgement for having served the notice has been filed by the Department before us. Therefore, we are proceeding to dispose of this appeal on merits.
6. CIT(A) had held that loss on future & options transactions was not speculative in nature considering the amendment to sec. 43(5) of the Act through which clause (d) was inserted by Finance Act 2005 to have retrospective effect. However, as pointed out by the ld. DR the same issue was considered by Special Bench of this Tribunal in the case of Sri Capital Services Ltd. (supra). In this decision it was held that clause (d) of sec. 43(5) of the Act could not be held to be clarificatory in nature. It was held that it was prospective in nature w.e.f. 01-04-2006. It was also held that loss on account of futures & options was rightly treated as ITA NO.974/Mds/09 5 speculative loss for assessment year 2004-05, which was under
consideration before the Special Bench. In the case before us, the assessment year involved is assessment year 2005-06 and as per the decision of the Special Bench of the Tribunal sub-clause (d) of sec. 43(5) would not be applicable for that year. Therefore, respectfully following the decision of the Special Bench we have to decide this issue against the assessee. In taking this view, we are fortified by the decision of the Delhi Bench of this Tribunal in the case of Renaissance Asset Management Co. (P) Ltd. vs. AO (2010) 2 ITR (Trib.) 765. We also find that the assessee had added back in his computation statement, loss on future & options trading considering it to be speculative in nature. We, therefore, set aside the order of the CIT(A) and restore the order of the AO.
7. In the result, appeal of the Revenue is allowed.
.
Order was pronounced in the Open Court on 22-10 -2010
Sd/- Sd/-
( U.B.S. BEDI) (ABRAHAM P. GEORGE)
Judicial Member Accountant Member
Chennai: 22nd October, 2010
Nbr"
Cc: Assessee/ Assessing Officer/ CIT(A)/ CIT/ D.R/ Guard File.