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Income Tax Officer, Ward-11 (1) , Revenues Versus M/s Emperor International Ltd.

2015 (6) TMI 284 - ITAT DELHI

Disallowance of loss - transactions related to sale purchase of shares and derivatives/commodity trading - As per CIT(A) AO was not justified in treating the transactions of derivative trading and commodity future as speculative, and directed AO to allow the set off of loss incurred from derivative trading against the profit earned from commodity future, sale & purchase of shares and commission earned on sale & purchase of land - Held that:- In the present case, it is an admitted fact that the a .....

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ly justified in directing the AO for not treating the loss incurred by the assessee on derivatives and the profit earned if trading of the commodity as speculative in nature, For the aforesaid view, we are also fortified by the decision of the ITAT Mumbai 'B' Bench in the case of R.B.K. Securities (P) Ltd. Vs ITO (2008 (7) TMI 949 - ITAT MUMBAI). - Decided against revenue. - ITA No. 2181/Del/2012, CO No. 241/Del/2012 - Dated:- 27-5-2015 - N K Saini, AM And George George K, JM,JJ. For the Appella .....

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nsequently deleting the disallowance of loss made at ₹ 18,90,350/-, that transactions related to sale purchase of shares and derivatives/commodity trading were not speculative transactions and consequently allowing set-off of losses incurred from derivative trading against profit earned from other activities/business ignoring the fact that provisions of Explanation of Section 73 and Explanation 2 to Section 28 of the Act are specifically applicable to the Assessee's case while provisio .....

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shares & securities, earning commission on the booking of flats and from commodity trading. The AO asked the assessee to explain as to why Explanation (5) to section 73 of the Act should not be made applicable to the transactions in shares & securities. The assessee vide reply dated 15.10.2009 submitted that the transactions made by the assessee were of delivery based transaction and some of them were nondelivery based. As regards to the applicability of explanation (5) to section 73 of .....

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ut in a recognized stock exchange were not speculative transactions. The AO observed that the assessee had incurred loss in derivative trading of ₹ 90,74,051/- and earned profit on commodity future transaction of ₹ 71,83,701/-. He further observed that the assessee was also doing delivery based sales/purchase, earning commission on sale of flats and under this head the assessee had shown profit of ₹ 21,15,903/-. The AO treated the transactions of derivative trading and commodit .....

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"10.2 Submission of the appellant Your honor during the year under consideration the appellant was engaged in the business of dealing in shares and securities. The details of profits earned and the losses incurred are as follows: Profit from dealing in shares (delivery based) 4,59,450 Profit from dealing in shares (non delivery based) 1,56,378 Profit from Trading in Commodity Futures 74,72,122 Loss from Trading in Shares Futures 95,06,474 The ld. AO while computing the income for the year u .....

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as failed to understand the provision of the law and the recent judicial pronouncement in this respect and has erred in treating as loss incurred on derivatives as speculation loss as against the same being business loss. Your honor will endorse that the fact that the loss of ₹ 95,06,474/- has been incurred on derivatives (share futures) is undisputed. Also the fact that there is a profit of ₹ 74,72,122/- on account of trading in commodity futures is undisputed. The only question bef .....

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aw 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 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 .....

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ses of this clause, the expressions- (i) "eligible transaction" means any transaction,- (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) Act, 1956 (42 of 1956) or the Securities and Exchange Board of India Act, 1992 (15 of 1992) or the Depositories .....

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ized 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 23 by the Central Government for this purpose;] Further your attention is drawn to the CBDT circular dated 25.01.2006 wherein the National Stock Exchange and the Bombay Stock Exchange have been recognized as the "recognized stock exchanges". The assessee h .....

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er loss arising in future and option transaction carried out in a recognized stock exchange is to be treated as a business loss and not as loss in speculation business- held yes- The similar findings have been appreciated in the following case laws: Seema Jain vs. ACIT 6 ITR (Trib) 488 (Del) "profit or loss from derivative trading will not be speculative profit or loss, therefore, the same will be eligible to be set off against the business income carried out by the assessee" RBK Secur .....

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tions cannot be treated as speculative loss ". Your honor the case laws quoted by the Id. AO relate to losses incurred on shares and securities and not on futures and options and thus are not applicable to the facts of the case of the appellant company. In view of the above facts and the position of law, it is prayed that the additions made by the AO be deleted and such other relief be given which your honor may deem fit." 5. The ld. CIT(A) after considering the submissions of the asse .....

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. CIT(A) held that the AO was not justified in treating the transactions of derivative trading and commodity future as speculative, he directed the AO to allow the set off of loss incurred from derivative trading against the profit earned from commodity future, sale & purchase of shares and commission earned on sale & purchase of land. The reliance was placed on the following case laws: - Smt. Seema Jain Vs ACIT 6 ITR (TRIB) 488 (Del.) - G.K. Anand Bros. Buildwell (P.) Ltd. Vs ITO, Ward- .....

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of the Act to means a transaction in which contract for purchase or sale of any commodity, including stock & shares is periodically or ultimately settled otherwise than by actual delivery or transfer of the commodity or scraps, thereafter, a proviso have been inserted to exclude certain transactions from the purview of the speculative transactions and clause (d) specifically provides that an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of .....

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ive transaction. It was also submitted that the assessee had not incurred loss in the sale/purchase of shares and was doing trading in derivative which is different than the share as is evident from the definition given in the Securities Contract (Regulation) Act, 1956 and also under the Companies Act, thus, the share and derivatives are distinct items. Therefore, the explanation to section 73 of the Act being a deeming fiction cannot be extended to the derivatives. The reliance was placed on th .....

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The assessee also earned profit of ₹ 74,72,122/- on account of trading in commodity futures. The said profit was also considered by the AO as speculative in nature but without bringing any material on record as to how the same was speculative in nature. The assessee earned the profit relating to delivery based share trading, trading in commodities and earning commission on booking of flats. Profit earned from those activities by the assessee cannot be considered as speculative in nature. N .....

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culative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and share, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips: (a)…….. (b)…… (c)…….. (d) an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a re .....

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ontracts (Regulation) 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 allo .....

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