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2015 (11) TMI 1303 - ITAT DELHI

2015 (11) TMI 1303 - ITAT DELHI - TMI - Disallowance of notional loss on F&O foreign currency transaction - CIT(A) allowed the claim - Held that:- CIT(A) rightly demolished the conclusion of the Assessing Officer that the said loss is a notional loss and represents marked to market is not correct. We are also in agreement with the conclusion of the CIT(A) that the claim of the assessee is not in pursuance to the notional entry which has been passed on the last date of the financial year and repr .....

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analysis of the order of the first appellate authority on this issue, we reach to a logical conclusion that the Assessing Officer made addition regarding the Board Circular which is not actually applicable to the facts and circumstances of the present case, therefore, the CIT(A) was right in concluding this issue in favour of the assessee. We are unable to see any perversity or any other valid reason to interfere with the order of the ld. CIT(A). - Decided against revenue

Disallowance .....

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that the assessee on sale of original assets has deposited the proceeds in his bank account. From there, he deposited the money temporarily with mutual funds and before the due date of deposit in Capital Gain Scheme, encashed the mutual funds and deposited the amount in Capital Gain Scheme as required by the relevant provisions of the Act. On vigilant and careful consideration of contention of the Assessing Officer as well as conclusion of the CIT(A) as noted above, we are of the view that the A .....

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hri Chandra Mohan Garg, Judicial Member And Shri L. P. Sahu, Accountant Member For the Appellant : Shri Sujit Kumar, Sr. DR For the Respondent : Shri ved Jain, Adv ORDER Per Chandra Mohan Garg, Judicial Member This appeal by the revenue has been filed against the order of the CIT(A)- XIII dated 7.5.2012 passed in Appeal No. 214/11-12 for assessment year 2009- 10. 2. The main grounds raised by the revenue read as under:- 1. The Learned CIT(A) has erred on the facts and circumstances of the case a .....

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8377; 3,04,44,615 as against the returned income of ₹ 43,59,730/-. The Assessing Officer made disallowances including impugned two disallowances viz. first disallowance of loss incurred on account of F&O transaction in foreign currency in stock exchange and second disallowance of claim of exemption u/s 54F of the Act by holding that the assessee was owner of more than one property. The aggrieved assessee carried the matter before the first appellate authority and both these grounds wer .....

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tained in Board s Instruction No. 3/2010 dated 23.3.10, the impugned loss claimed by the assessee under the business head was rightly treated as notional loss and the same was not allowed to be set off from the other heads of income or to carry forward the same to the subsequent years. 5. Replying to the above, learned counsel of the assessee submitted that the loss suffered by the assessee on the basis of actual transaction in the foreign exchange derivatives is allowable and the observations o .....

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he assessee submitted that the assessee has suffered gross loss of ₹ 2.32 crores and earned a gross profit of ₹ 1.94 crore, as such, net loss was ₹ 33.73 crore which is not a notional loss but from the facts of the case, it is clear that the loss is an actual loss and the same is allowable to the assessee as per section 43(5) of the Act. 6. Learned counsel of the assessee also placed reliance on following judgments:- 1. CIT vs Kapil Nagpal 2015 (9) TMI 613 - Delhi High Court 2. .....

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e submissions, from careful perusal of the impugned order, we note that the CIT(A) has dealt this issue in para 6.3 at page 8 of the impugned order wherein he has held as under:- 6.3 I have considered the submission of the appellant and observation of the assessing officer. It is seen that ASSESSING OFFICER has made disallowance of loss of ₹ 37,73,273/- incurred on account of F&O transactions in foreign currency in a recognized stock exchange. It has been observed by the Assessing Offi .....

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the transactions ledger with M/s PACE Financial Services and PACE Financial Stock Broking. The same is filed at page 197 to 199 of the paper book. The appellant has also filed copy of bank statements running with HSBC Bank where from the payments have been made to the brokers. It has been further contented that in any case this being a loss incurred during the year is an allowable loss. 1 have perused the facts and on going through the same. It is observed that the appellant has entered into th .....

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se facts the observation of the Assessing Officer that the above said loss is a notional loss and represents marked to market is not correct. It is not a notional entry which has been passed on the last day of the financial year and represents the value as per the market value on 31st March. It is a running account whereby profit and loss are being incurred on settlement day and amount being debited and credited on account of loss or the profit as the case may be. Accordingly this being an actua .....

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egation of the Assessing Officer was that as per specific clarification contained in Board s instruction (supra), the loss claimed by the assessee under the business head is a notional loss whereas the CIT(A), after considering the facts and circumstances of the case and analyzing the claim of the assessee, observed that the assessee has entered in various F&O transactions and he has incurred loss and has also earned profit and finally he sustained actual loss of ₹ 37,73,273 during the .....

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y was passed out of running account whereby profit and loss which have been incurred on settlement day and amount have been debited and credited on account of loss or profit as the case may be. Ld. CIT(A) finally granted relief to the assessee by holding that as per Circular regarding notional loss is not applicable to the transaction which was undertaken by the assessee as F&O transaction. On logical analysis of the order of the first appellate authority on this issue, we reach to a logical .....

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cts and circumstances of the case and in law in allowing the claim of ₹ 2.00.87,987/- without the assessee fulfilling the conditions prescribed under section 54F of the Income tax act, 1961 because the assessee made a claim without verifying the pre-conditions prescribed under the said provisions. Ld. DR took us through relevant part of the assessment order and submitted that after detailed deliberations and consideration of the assessee s stand and explanation, the Assessing Officer right .....

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nd submitted that the assessee has not able to prove that the source of above investment in capital gain account was the maturity amount of the same funds as necessary evidences thereof have not been furnished and the deduction u/s 54 or 54F will be available to the taxpayer only if the assessee invests either out of sale proceeds of the asset of his other personal funds but not from borrowed funds. 10. Replying to the above, learned counsel of the assessee supported the order of the first appel .....

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Learned counsel of the assessee submitted that these allegations of the Assessing Officer are factually incorrect and are also legally untenable as the assessee was the owner of only one property i.e. JPH-03, Central Park, Sector 42, Gurgaon having 50% share only which is clear from the copy of the conveyance deed available at assessee s paper book page 116 to 119. Learned counsel of the assessee further pointed out that the assessee was the owner of property no. G- 602 till 29.1.09 only and wh .....

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missions and explanation of the assessee that the rental income for the whole year has been shown by the assessee because the implication of the clubbing provision as per section 64(1) of the Act and only showing the rental income does not mean that the assessee continues to be the owner of the gifted property. Learned counsel of the assessee placed reliance on the decision of ITAT Mumbai B Bench in the case of Smt. Maya A. Ajwani vs ITO-7(2)(4), Mumbai (2015) 56 taxmann.com 255 (Mumbai-Trib.) a .....

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income from gifted house in the hands of donor and in this situation, the gift cannot be regarded as sham transaction merely because gift was made by the assessee to his/her spouse. 11. On careful consideration of above submissions of both the sides, from the operative part of the impugned order of the first appellate authority, we note that the first appellate authority had dealt with this issue in para 10.2 at page 19 of the impugned order and the relevant observations of the ld. CIT(A) appear .....

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, Sector 42, Gurgaon, 50% share 2. G-602, Central Park, Sector 42, Gurgaon 3. Aravali Farm, 50% share There is no dispute so far as JPH-03, Central Park-, Sector 42, Gurgaon is concerned as the assessee also admits that he was 50% owner of this flat. As regards the flat no. G-602, the contention of the appellant is that he has gifted this property to his wife on 29th January, 2009 and as such he ceased to be the owner on 29th January, 2009. This fact is also noted by the Assessing Officer. Howev .....

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y with absolute rights including the exclusive unrestricted right to sell or transfer the said property. The physical vacant possession has also been handed over to the Donee. The gift deed is a registered deed registered before the Sub-Registrar, Gurgaon on 29 January, 2009. In view of these facts I hold that the observation of the Assessing Officer in the assessment order that the appellant continues to be the beneficial owner is not correct. The second contention of the Assessing Officer that .....

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having gifted this flat to his wife on 29th January, 2009 thereafter the appellant despite not being owner of the flat, still the rental income from such income is to be clubbed in his hand in view of the provisions of Section 64(1 )(iv) of the Act. Thus there is no contradiction as alleged by the A.O. The explanation of the appellant in this regard is found to be correct that it is not his rental income. It is because of the clubbing of income provision that income earned is being included in .....

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efinition of Farm House that is a type of building or house which serves the residential purposes in a rural or agricultural land. There can t be any dispute about the Farm House, if there is a house on the farm land. But the issue is whether there is a house on the agriculture (farm) land. There does not seem to be any basis for the Assessing Officer to conclude that there is a house on the farm. The Assessing Officer has picked up the figure of investment from the statement of affairs and with .....

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fact that the appellant has paid a sum of ₹ 5,50,000/- for 50% right in the agricultural land being plot no.C-66 in Aravali Retreat. There being no material to allege that there is construction and there is a house, the same cannot be considered to be a residential house for the purpose of Section 54F of the Act. It being an agricultural land, it cannot be considered a residential house for the purpose of Section 54F of the Act. In view of the above stated facts, it is established that app .....

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l gain realized by the appellant was first deposited in the mutual fund and then appellant has not been able to prove the source of the investment in respect of the investment made in the capital gain scheme. Further he has held that the amount to be deposited in Capital Gain Scheme be the same amount as realized from the sale of original assets. In this regard the Assessing Officer has cited the judgment of the Bombay Bench in the case of Milan Sharat Ruparel vs. ACIT 121 TTJ 770 (Mum) whereby .....

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ttedly in this case there is no dispute that the money has been deposited before the due date of filing the return. However the contention of the Assessing Officer that the capital gain realized has been first utilized for deposit with the mutual fund cannot be a ground for disallowing the exemption. There is no restriction on utilization of capital gain realized from sale of original asset till its deposit in the Capital Gain Scheme. The appellant is free to deal with the same as it may like. T .....

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so not correct. The appellant on sale of original assets first deposited the proceeds in his bank account. From there he deposited the money temporarily with mutual funds and before the due date of deposit in Capital Gain Scheme, encashed the mutual funds and deposited the amount in Capital Gain Scheme. Thus the appellant has complied with all the conditions of Section 54F to be eligible to claim the exemption. The Assessing Officer is accordingly directed to allow the exemption u/s 54F of the I .....

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in the capital gain of amount before the due date of filing the return. 13. We consider the allegations of the Assessing Officer as well as conclusion of the CIT(A). In our understanding when the assessee has parted his legal right through gift deed dated 29.1.2009 and the property no. G-602 was gifted to his wife, then it cannot be presumed that the assessee continued to be owner of the said property even after execution of registered gift deed in favour of his spouse. So far as the taxable in .....

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