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2015 (12) TMI 1117 - ITAT KOLKATA

2015 (12) TMI 1117 - ITAT KOLKATA - TMI - Loss on account of non-speculation transaction as speculation - Held that:- The trading of derivatives for the entire assessment 2006-07 is out of the definition of speculation business if it is carried out in the recognized stock exchange. The assessee has done the trading in the recognized stock exchange. So it is clear that loss on account of derivative transaction or very much covered in clause (d) of the proviso Section 43(5) of the Act. In view of .....

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erest expense by treating the loss from the derivative transactions as non- speculative business. We find that this ground relates to the first ground of Revenue’s appeal regarding treating the transaction of derivative as speculative business up to 25.01.2006. In the first ground of appeal, we have held the business of the assessee as nonspeculative. Accordingly, the interest disallowed by AO is allowable expense against the non-speculative business of the assessee. In our considered view, this .....

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‘current asset’ in Schedule-7 for an amount of ₹ 1,38,26,870/-. Ld. AR further drew our attention on page 7 of the financial statement, wherein ‘transaction, Demat & share transfer stamp charges’ under the head of “Administrative charges” were written. Hence the ld. AR claimed that no expense for STT has been debited in the profit and loss account of the assessee. From the aforesaid discussion, we find that assessee has not debited any amount of STT in its profit and loss account in the y .....

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was to be allowed from the tax computed as per provisions of Sec.115JB of the Act to find out whether after set off of rebate u/s.88E of the Act, any tax liability remained or not. Admittedly, the tax liability as per MAT provisions was less and rebate admissible u/s.88E of the Act was more. Therefore, rebate u/s 88E had to be allowed even when total income is computed u/s. 115JB of the Act. Resultantly, the ground taken by Revenue is dismissed.- Decided against revenue. - ITA No. 877-878/Kol / .....

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ramed by ITO Ward-3(2) and DCIT Circle-3, Kolkata u/s 143(3) r.w.s.115JB of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide their orders dated 05.12.2008 and 27.12.2010 for assessment years 2006-07 & 2008-09 respectively. First we take up ITA No. 877/Kol/2013 A.Y. 06-07. 2. First ground raised by Revenue is regarding that the Ld. CIT(A) has erred in holding loss on account of non-speculation transaction for an amount of ₹ 1,47,27,937/-as speculation. 3. Briefly stat .....

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m 01.04.2005 to 24.1.2005 at ₹ 1,47,47,937/-; b) loss of sale of derivatives from 25.01.2006 to 31-3-2006 at ₹ 1,25,66,484/-; The Assessing Officer sought clarification from assessee by issuing notice stating that why loss incurred on sale/purchase of derivative prior to 25.01.2006 should not be treated as speculation loss. Assessee submitted that as per section 43(5)(d) of the Act, trading in derivatives is not a speculative business. The relevant sub-clause (d) in Sec. 43(5) of the .....

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5) of the Act. Hence, it is implied that an eligible transaction in respect of trading in derivative carried out on these Stock Exchanges w.e.f. 25.01.2006 shall alone be treated as non speculative transaction. Therefore, loss of ₹ 1,47,47,937/- on sale of derivative prior to 25.01.2006 was treated as speculation loss and accordingly it was not allowed to be set off with non-speculation income. 4. Aggrieved, assessee preferred appeal before Ld. CIT(A) who held that the transaction in quest .....

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exempted from the purview of speculative transaction under section 43(5) because of recent systemic and technological changes introduced by stock exchange. The intention of the legislature is also clear from the fact that all the transactions in derivatives have not been exempted from the ambit of speculative transaction under section 43(5) but only the eligible transactions of trading in derivatives carried out in a recognized stock exchange are exempt. By way of explanation, the legislature h .....

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dvancement introduced by the stock markets resulting in more transparency in the dealings. Therefore, the circumstances under which amendment was brought into existence was not intended to provide for an obvious omission but was made in view of the changed circumstances. Hence, the amendment is prospective in nature and no inference should be drawn that it was retrospective. The ITAT, Kolkata Special Bench further explains what is prospective:- In view of the above, clause (d) of section 43(5) i .....

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ed the materials available on record. Ld. DR vehemently relied on the order of Assessing Officer whereas Ld. AR also relied on the order of Ld. CIT(A). Ld. AR submitted various case laws in support of his claim. From the aforesaid discussion we find that AO has treated the loss incurred by assessee on account of derivative transaction up-to 25.01.2006 as speculation loss in terms of Notification No. 2/2006 issue on dated 25.1.2006 and explanatory memorandum in notification number SO. 89(E), and .....

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actions up-to 25-1-2006 is speculation loss. However, we find that Hon ble Delhi High Court in the case of CIT v. Nasa Finlease P. Ltd. Appeal No.647/2012 (Delhi High Court) dt.06.09.2013 has decided in favour of the assessee. The relevant extract of the order is reproduced below : 7. The factual position is not in dispute. Notification No.2/2006 dated 25th January, 2006, issued by the Central Board of Direct Taxes does not specify any particular date and simply notifies the National Stock Excha .....

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procedure and formalities have to be complied with, should not disentitle and deprive an assessee, specially, when the transactions were carried through a notified stock exchange. The aforesaid delay is not attributable to the assessee. The notification, therefore, merits acceptance and should be given retrospective effect. Notification was procedural and necessary adjunct to the Section enforced with effect from 1st April, 2006. The rule and notification issued in the present case effectuate t .....

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ecided in favour of assessee. The relevant extract is mentioned below:- 4. We have heard the parties and perused the material placed before us. We find that the issue in question is covered by the decision of Tribunal in the case of G.K. Anand Bros. Buildwell (P) Ltd. (supra), wherein on identical facts and circumstances of the case and considering the Special Bench decision of ITAT in the case of Shree Capital Services Ltd. vs. ACIT, reported in 318 ITR (AT) 1 (Kol-SB), the Tribunal treated the .....

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e said provision an eligible transaction in respect of trading in derivatives referred to in the Securities Contracts (Regulation) Act, 1956 carried out in a recognized stock exchange shall not be deemed to be a speculative transaction. Clause (d) in the proviso was inserted by the Finance Act, 2005 with effect from 1-4-2006. Therefore, if a transaction falls within clause (d) of the proviso it will not be deemed to be a speculative transaction in respect of transaction pertaining to the assessm .....

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06 as per clause (d) inserted, the same will apply to all the transactions in relation to the assessment year 2006-07 and onwards. Clause (d) does not mention that unless the recognized stock exchange is notified, the transaction will not be deemed to be a speculative transaction. The power to notify the stock exchange is granted under the statute and hence, once the recognized stock exchange is notified, the same will apply respect of all eligible transactions carried out in relation to the fin .....

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uld not be deemed to be loss in the speculation business. Therefore, the loss-inquestion was to be treated as a business loss and not as loss in speculation business. In view of the above and respectfully following the aforesaid decision of Tribunal in the case of G.K. Anand Bros. Buildwell (p) Ltd. (supra), we hold that the authorities below were not justified in treating the loss of ₹ 2,22,296/- incurred upto 24/1/2006 on derivative transaction as speculation loss instead of business los .....

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clause (d) of the proviso Section 43(5) of the Act. In view of such amendment under the Act, the income/loss arrived on derivative shall be treated as non-speculative loss. Taking a consistent view and relying on the above cited case law, we confirm the order of Ld. CIT(A) and this ground of Revenue s appeal is dismissed. 6. Next ground raised by Revenue is regarding that the Ld. CIT(A) erred in allowing relief of interest payment for ₹ 78,191/- relying loss on trading of derivatives prior .....

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tion of derivative as speculative business up to 25.01.2006. In the first ground of appeal, we have held the business of the assessee as nonspeculative. Accordingly, the interest disallowed by AO is allowable expense against the non-speculative business of the assessee. In our considered view, this ground of Revenue s appeal is dismissed. 8. Next ground raised by Revenue is regarding that the Ld. CIT(A) erred in allowing relief to assessee instead of disallowance u/s. 14A of the Act. 9. During t .....

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ut the disallowance as provided u/s 14A read with Rule8D of the IT Rules, 1962 as below:- i) direct expenses of ₹ 3,854/- ii) interest expense of ₹ 3,06,617/- iii) .5% of the average value of investment of ₹ 3,53,933/- Accordingly, AO disallowed the expense of ₹ 6,64,404/- and added it to the income of assessee. 10. Aggrieved, assessee preferred appeal before Ld. CIT(A) who partly allowed the appeal by observing as under:- … Assessee relied upon Mumbai High Court i .....

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crores and interest income was to the extent of ₹ 23 lacs and assessee has substantial interest free funds for ₹ 13.77 crores and share worth ₹ 5.76 crores were held as stock-in-trade. Keeping in view these facts and circumstances no interest is attributable to earning tax-free income and the administrative expenses in relation to tax-free income may be taken as 1% of the total exempt income of ₹ 25,14,872/- (LTCG plus dividend) and amount disallowable u/s. 14A is quanti .....

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such expenditure in relation to income which does form part of total income under this act. The AO in his order has not recorded the charge of dissatisfaction. Besides this the ld. AR submitted that the provision inserted under Rule 8D of IT Rule came into effect on 24.03.2008 and relevant year under appeal i.e. AY 2006-07. Hence the rule 8D does not apply to the assessee. The ld. AR also submitted that interest expenses incurred is not related to the dividend income. Ld AR finally prayed not to .....

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lable for an amount of ₹ 13.77 crores and investment made in the shares held as stock-in-trade for an amount of ₹ 5.76 crores. Therefore, we infer that assessee has made investment in share held as stock-in-trade out of its own fund. Therefore, the disallowance of interest as specified under Rule 8D of IT Rules is not applicable in the present case. However, several courts have decided to disallow the expense @ 1% of the total exempt income prior to insertion of Rule 8D of the IT Rul .....

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1 per cent of such dividend income which, according to them, is the thumb rule applied consistently. We find no reason to interfere. Taking a consistent view and relying on the decision of this Hon'ble jurisdictional High Court in above cited case R..R.Sen & Brothers Pvt. Ltd.(supra) we find that there was no applicability of Rule 8D in the instant case as this Rule 8D came in force w.e.f. 24.03.2008. In view of above, we find no reason to interfere in the order of Ld. CIT(A) and this gr .....

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at the assessee has claimed an expense for an amount of ₹ 39,20,360/- towards the transaction, Demat and share transfer charges . The AO called upon the assessee to explain the expenses and found that these expenses are the payment of STT. The AO disallowed the expenses of STT by virtue of section 40(a)(ib) of the Act. The expense incurred on STT is not allowable expense, therefore, AO disallowed STT expense and added it to the income of assessee. 14. Aggrieved, assessee preferred appeal b .....

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transaction charges paid to the stock exchange broker. Assessee had paid ₹ 1,93,73,008/- as STT on derivatives, speculative transactions and share transactions shown under the head business income as per Form no. 10DB furnished (33 forms). It is pertinent to mention that this STT was not debited in the P&L a/c and was shown as part of schedule - 7 of the Balance Sheet under the head current assets. Keeping in view the above facts and circumstances addition of ₹ 39,20,360/- made .....

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he year under consideration and drew our attention on page-5 of the balance sheet, wherein the STT was duly shown under the head current asset in Schedule-7 for an amount of ₹ 1,38,26,870/-. Ld. AR further drew our attention on page 7 of the financial statement, wherein transaction, Demat & share transfer stamp charges under the head of Administrative charges were written. Hence the ld. AR claimed that no expense for STT has been debited in the profit and loss account of the assessee. .....

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lowing relief by adjusting the tax under MAT provision against the STT. 17. During the course of assessment proceeding AO found that assessee claimed rebate u/s 88E of the STT paid while working out the tax under the provisions of Minimum Alternate Tax (MAT) as specified u/s 115JB of the Act. The AO found that there is no scope of applying the average rate of tax on the income for the adjusting the tax under the provisions of MAT under section 88E(2). So there is a clear cut violation of sub-sec .....

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mputing the MAT liability u/s 115JB. It was contended by the assessee that total STT paid as per Form 10DB was ₹ 1,93,73,008/- on derivatives, speculative transactions and shares transactions on account of business and the receipt on account of above heads was duly credited in P&L a/c for the financial year. The A/R further relied upon the judgment of ITAT Kolkata in Ganeshan Securities Pvt. Ltd. dated 30.12.2011 to support is contention that the assessee is entitled to a deduction of .....

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p; 5 are allowed. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 19. We have heard rival contentions and gone through the facts and circumstances of the case. We find that the assessee claimed the rebate of tax worked out under the provision of MAT as provided under section 88E of the Act. But the AO disallowed the same on the ground that the condition specified under section 88E(2) for applying the average rate of income tax while calculating the rebate has not been .....

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the rebate of STT paid by the assessee is allowable from the income tax computed against the total income computed under section 115JB of the Income Tax Act, 1961. The term total income has been defined under the Income Tax Act, 1961 as the total amount of income referred to in section 5, computed in the manner laid down in this Act. Section 5 of the Income Tax Act, 1961 defines the scope of the total income of a resident or a non-resident person. The total income of the assessee has to be compu .....

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shall be deemed to be the total income of the assessee and tax payable by the assessee shall be the amount of income tax at the specified rate. When we look at the provisions of section 77 of the Income Tax Act, 1961, we find that the rebate is to be granted from the amount of income tax chargeable on the total income of the assessee. The income tax is computed after arriving at the total income of the assessee and section 87 of the Income Tax Act, 1961 does not differentiate between the total i .....

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