TMI Blog2010 (9) TMI 1143X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. The assessee vide order sheet noting dated 03.12.2008 was asked to explain as to why it should not be disallowed. The assessee was asked to submit the bifurcation of the derivative transaction i.e. before and after 26.01.2006. The assessee was also asked to specify the expenses incurred on it. The assessee vide letter dt.10.12.2008 submitted the note on the issue of derivatives. For sake of clarity, the same is reproduced from Assessment Order under The assessee company has incurred the loss in derivates trading business of ` 4192858/-. The date wise breakup of the loss was already submitted to your honour with particular break up of 26th January, 2006 which is Assessment Order follows: Period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered by definition of speculative transactions within the meaning section 43(5) of the I.T. Act. The above view of the assessee is supported by the Hon ble Mumbai ITAT decision in the case of CIT vs. SSKI Investor Services Pvt. Ltd. 113 TTJ 511. 3. Without prejudice it is also submitted that Assessment Order per Rules of the Stock Exchange a derivative contract is compulsorily required to be squared off and actual delivery of asset is neither contemplated nor possible. Thus, it is outside the purview of definition of speculative transaction u/s.43(5) of the I.T. Act. 4. Without prejudice, it is also submitted that the amendment in the definition of speculative transaction vide Finance Act, 2005 must be regarded Assessment Ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is covered under this term. Derivative is the financial contract whose pay off structure is determined by the value of an underlying commodity, security, index, interest rate, exchange rate etc. For eg., in future, there is the contract to buy commodity or security on a future date and in Option there is the right to buy or sell a specific underlying asset at a specific price on or before a given date in future. The definition of the work securities {Sec.2(h)(ia)}. It means derivative is a contract to buy the commodity or scrips in future or option to buy or sale before the given date. Hence, definition of speculation given in Sec.43(5) is clearly applicable to derivative transaction as it is not covered by the exception mentioned in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 2005 with effect from 01.04.2006. The ITAT J Bench, Mumbai in the case of ITA No.3182/Mum/04 for Assessment Year 2001-02 has held in para 3 which is quoted as under: 3. In the first appeal, the CIT(A) found that the loss was incurred on account of derivative trading in assessee s own account. The CIT(A) held that derivative segments are all future trades but strictly speaking by definition of speculative transaction. As derivative trading does not involve any purchase and sale of shares, the loss on account of derivative cannot be treated as speculation loss. We find that dealings in derivative being a separate kind of transaction without force of law, it is not possible to hold that the transaction was speculative in nature. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) erred in overlooking the fact that the Explanatory notes to the Finance Act, 2005 clearly stated that transactions in derivatives shall seize to be speculative only from the day the Stock Exchange fulfill the conditions to be prescribed by the Central Govt. and it was only w.e.f. 25th January, 2006 that the Notification to that effect was issued. 4. On the facts and circumstances of the case and in law, the impugned order of the learned CIT(A) is contrary to law and consequently merits to be set aside and that of the Assessing Officer be restored. 5. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 7. We have heard both the parties. 8. In the case of G.K. Anan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arried on at the recognized stock exchange as explained in clause (ii) of the said Explanation below proviso to section 43(5)(d). The recognized stock exchange means a recognized stock exchange as notified by the Central Government for this purpose. Therefore, even if the notification is from 25.01.2006 as per clause (d) inserted, the same will apply to all the transaction 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 statue and, hence, once the recognized stock exchange is notified, the same will apply in respect of all el ..... X X X X Extracts X X X X X X X X Extracts X X X X
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