TMI Blog2012 (10) TMI 483X X X X Extracts X X X X X X X X Extracts X X X X ..... operty and business income. Since the portion of expenses relating to house property income had already been disallowed by the assessee suo moto, keeping in view the past history and method followed by the assessee, the CIT(A) was of the opinion that the AO was not justified in making further disallowance of expenses since certain expenses were required for maintenance of the corporate structure of the assessee. In view of consistent practice followed by the assessee, especially when the Revenue have not placed any material controverting the aforesaid findings no different view in the matter is called for - in favour of assessee. Disallowance of set off of speculation loss - CIT(A) deleted the addition - Held that:- The term 'derivatives' in which underlying asset is shares, would fall within the meaning of 'commodity' used in s. 43(5) and that cl. (d) of s. 43(5) introduced by Finance Act, 2005 w.e.f. 1st April, 2006 was prospective in nature and would be effective from the date from which the legislature made it effective, i.e. AY 2006-07 onwards. The case of the assessee relates to AY 2008- 09 and therefore, applicability of aforesaid cl. (d) of s. 43(5) of the Act is requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17-08-2009. During the course of assessment proceedings, the Assessing Officer[AO in short] noticed that the assessee had adopted ALV of its property at M Block, Connaught Place, New Delhi at Rs.20,590/-. Relying upon his findings in the AY 1996-97, the AO adopted rental value at Rs.17,32,500/-,resulting in determination of property income of Rs.12,06,604/-. . 3. On appeal, the ld. CIT(A), following the decision of the ITAT in the AY 2006-07 and decision of his predecessor in the AY 2007-08, deleted the addition made by the AO. 4 The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. DR supported the order of the AO while the ld. AR on behalf of the assessee relied upon the decision dated 06-05-2010 of the ITAT in the assessee s own case for the AY 2006-07 in ITA no. 20/Del/2010 wherein following the decision of ITAT for the AYs 1998-99, 2003-04 and 2004-05, the ITAT decided the issue in favour of the assessee. 5.. We have heard both the parties and gone through the facts of the case as also the aforesaid decision of the ITAT. While adjudicating an identical issue in the AY 2006-07, the ITAT concluded as under :- 2. Before us, it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue have not placed before us any material, controverting the aforesaid findings of the ld. CIT(A) so as to enable us to take a different view in the matter, we are not inclined to interfere. Therefore, ground no.1 in the appeal is dismissed. 6. Ground no..2 relates to disallowance of expenses of Rs.15,48,775/-. The AO noticed that the assessee reflected 87% of its income by way of rentals while remaining 13% was miscellaneous income, comprising dividend and capital gains. Since the assessee had offered rental income under the head income from the house property, the AO disallowed 75% of the expenditure, amounting to Rs.57,69,977/-,resulting in disallowance of 1Rs.5,48,775/-, the assessee having already disallowed expenses of Rs.42,21,202/- . 7. On appeal, the ld. CIT(A) is allowed the claim in the following terms:- I have carefully considered the assessment order and the submissions made by the ld. AR. The AO has disallowed 75% of administrative expenses on estimate on the ground that the assessee has income from house property, capital gains and dividend. However, it is argued by the ld. AR that the appellant is engaged in the business of purchase and sale of stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain expenses were required for maintenance of the corporate structure of the assessee. In view of consistent practice followed by the assessee, especially when the Revenue have not placed before us any material ,controverting the aforesaid findings of the ld. CIT(A) so as to enable us to take different view in the matter, we are not inclined to interfere. Therefore, ground no.2 in the appeal is also dismissed. 10. Ground no. 3 relates to claim of set off of loss Rs.1,27,35,432/-. During the course of assessment proceedings, the AO noticed that the assessee had claimed speculation loss of Rs. 1,27,35,432/- from shares resulting in business loss of Rs.1,65,46.553/-. Since the loss was speculative in nature, the AO disallowed the claim, holding that claim shall be allowed only in terms of provisions of section 73(1) of the Act. 11. On appeal, the ld. CIT(A) allowed the claim, holding as under:- 8.2 I have carefully considered the assessment order and the submission made by the ld. AR. The AO has disallowed set off of the above loss against other income of the assessee by treating it as a loss from speculation business u/s 73(1) of the Act. It is argued by the ld. AR that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lder ownership of the assets and liabilities of the company and right to participate in profits of the company by way of dividends. As against the above, the stock futures and options do not confer on the holder any ownership of the company s assets and liabilities or right to participate in the profits of the company. The stock futures and options simply give the holder the right/obligation to buy/sell the shares of a company at a future date at a previously agreed price. As per the system followed in India for derivatives trading in the stock exchanges, the buyer of stock futures/ options squares off the transaction on the settlement date of prior to the settlement date by paying/ receiving the difference between the agreed price and the market price (spot price) on the date of settlement without having to physically settle the transaction by purchase and sell of shares. So, the trading in derivatives basically involves cash settlement of difference of price, and no physical delivery of shares and is accordingly different from buying and selling of shares. Further, I find that the Explanation to section 73(1) relating to trading in shares is a deeming provisions, and as per rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence, loss on purchase and sale of units of mutual fund cannot be treated as loss from Speculation business. 8.3.2 In view of the above clear factual and legal position, I find that the impugned disallowance of set off of derivatives loss by the Assessing Officer cannot be sustained either in law. Further, as regards the appellant showing it as speculation loss in its books of account, it is settled law that the tax treatment of any transaction is to be based on the actual nature of transaction and the corresponding provisions of income tax law and not simply on the accounting treatment given to it by the assessee in its books of account. It has been submitted by the ld. AR that this issue was also not raised by the AO during the assessment proceedings. Under the facts and circumstances as discussed above, I direct that the AO to verify the actual nature of the transactions undertaken by the appellant which has given rise to the loss of Rs. 1,27,35,432/- and if the same relates to purchase and sale of stock futures and options on recognized Stock Exchanges, the AO will allow set off of the same from other income (except capital gains and salary) in terms of section 71 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since the assessee was engaged in trading of futures and options which is different from trading in shares. But the AO nowhere analysed the nature of transactions, the assessee itself having treated the aforesaid loss as speculation loss in its books. Apparently, the applicability of provisions of sec. 43(5) of the Act or clause (d) of the proviso to said section has neither been examined by the AO nor the ld. CIT(A). Here, we may have a look at the relevant provisions of sec. 43(5) of the Act, which read as under: (5) "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: 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 merchanting 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 int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... islature made it effective, i.e. AY2006-07 onwards. The case of the assessee before us relates to AY 2008- 09 and therefore, applicability of aforesaid cl. (d) of s. 43(5) of the Act is required to be examined. Since neither the AO nor the ld. CIT(A) examined the applicability of said clause (d) nor relevant facts and figures are before us, we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to the file of the AO for deciding the aforesaid issue raised in ground no.3 in the appeal before us, afresh in accordance with law, after allowing sufficient opportunity to the assessee. Needless to say that while redeciding the issue, the AO shall pass a speaking order, bringing out clearly as to the nature of derivatives and as to whether or not the transact ions in the said derivatives were speculative in nature or were eligible transactions within the meaning of clause (d) of the proviso to the section 43(5) of the Act. With these observations, ground no. 3 in the appeal is disposed of. 14. No additional ground has been raised before us in terms of residuary ground no.4 in the appeal, accordingly, this ground is dismissed. 15. No other ..... X X X X Extracts X X X X X X X X Extracts X X X X
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