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TMI Blog2016 (8) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer has erred in disallowing Rs. 24,907 u/s 14A of the Income Tax Act, 1961. 2. Under the facts and circumstances of the case and in law, the learned Assessing Officer has erred in disallowing carried forward and set off of Rs. 20,83,591 being speculative loss of A.Y 2006-07 on account of F & O transactions. Your appellant submits that the full amount of Rs. 20,83,591 should be allowed to be carried forward and set off against business income of the year under appeal u/s 43(5)(d)." 3. The brief facts of the case are that assessee is a director in M/s Suraj Tools & Equipments (P) Ltd. and M/s Rontgen Saws (P) Ltd. The assessee has shown income from salary and income from other sources. It was observed by the AO from the return of income filed for the assessment year 2006-07 that the assessee has himself shown speculation loss of Rs. 20,83,591/- on account of transaction in F&O but the same was set off against the normal business by the assessee during the year. Further, the loss incurred by the assessee in F & O transactions in National Stock Exchange of India or in Bombay Stock Exchange, were incurred on a date prior to 25.01.2006 i.e. the date of their being notifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove ground no. 1 raised by the assessee in the memo of appeal filed with the Tribunal . Accordingly we order dismissal of ground no. 1 with respect to disallowance of Rs. 24,907/- u/s 14A of the Act as not being pressed. We order accordingly. 7. The ld. Counsel for the assessee submitted that proviso (d) to clause (5) of Section 43 of the Act read with explanation was inserted into the statute by Finance Act, 2005 w.e.f. 01-04-2006 applicable from the assessment year 2006-07 and subsequent assessment years , whereby eligible transaction in respect of trading in derivatives on recognized stock exchanges shall not be treated as speculative transaction. The assessee had entered into F & O transactions and incurred losses , which transaction was derivative transactions which complied with all the requirements of proviso (d) to clause (5) of Section 43 of the Act read with explanation except that it was entered into previous year 2005-06 prior to 25-01-2006 .It was submitted that the National Stock Exchange/Bombay Stock Exchange were recognised vide notification issued by Central Government on 25th January, 2006 which is to be treated as retrospective w.e.f. 01-04-2005 to cover the ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961 - Recognised Stock Exchange - Notified Stock Exchanges NOTIFICATION NO. 2/2006 [SO 89 (E)], DATED 25-1-2006 In exercise of the powers conferred by clause (ii) in the Explanation to clause (d) of the proviso to clause (5) of section 43 of the Income-tax Act, 1961(43 of 1961) read with sub-rule (4) of rule 6DDB of the Income- tax Rules, 1962, the Central Government hereby notifies the following stock exchanges as recognised stock exchanges for the purposes of the said clause with effect from the date of publication of this notification.in the Official Gazette, namely:- (1) National Stock Exchange of India Limited, Mumbai (2) Bombay Stock Exchange Limited, Mumbai 2. The Central Government may withdraw the recognition granted to the stock exchange if any of the conditions prescribed in rule 6DDA of the income-tax Rules, 1962, subject to which the recognition is granted, is violated. 3. This notification shall remain in force until the approval granted by the Securities and Exchange Board of India is withdrawn or expires, or this notification is rescinded by the Central Government as provided in sub-rule (5) of rule 6DDB of the Income-tax Rules, 1962. [F.No. 142/38/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange; or (e) xx shall not be deemed to be a speculative transaction. Explanation - For the purposes of clause (d), 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 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 recognised 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 allotted under any Act referred to in sub-clause (A) and permanent account number allotted under this Act; (ii) "recognised stock exchange" means a recognis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecent systemic and technological changes introduced by stock markets have resulted in sufficient transparency to prevent generating fictitious losses through artificial transactions or shifting of incidence of loss from one person to another. The screen based computerized trading provides for an excellent audit trail. Therefore, the present distinction between speculative and non- speculative transactions, particularly relating to derivatives is no more required. The proposed amendment therefore, seeks to provide that an eligible transaction carried out in respect of trading in derivatives in a recognized stock exchange shall not be deemed to be a speculative transaction. The proposed amendment also seeks to notify relevant rules etc. regarding conditions to be fulfilled by recognized exchanges in this regard. Further it is also proposed to amend sub-s. (4) of s.73 so as to reduce the period of carry forward of speculation losses from eight assessment years to four assessment years. These amendments will take effect from 1st April 2006 and will, accordingly, apply in relation to asst. years 2006-07 and subsequent years." From the above it is evident that the eligible transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arkets have resulted in sufficient transparency to prevent generating fictitious losses through artificial transactions or shifting of incidence of loss from one person to another. The screen based computerized trading provides for an excellent audit trail. Therefore, the present distinction between speculative and non- speculative transactions, particularly relating to derivatives is no more required." Thus, under these circumstances recognition to NSE/BSE for the purposes of proviso (d) to clause (5) of Section 43 read with explanation and notification thereof by Central Government was a mere procedural requirement to be complied with as the technical and systemic changes were already introduced by these two stock exchanges which have resulted in sufficient transparency to prevent generating fictitious losses through artificial transactions or shifting of incidence of loss from one person to another. The screen based computerized trading provided for an excellent audit trail. This was within the knowledge of Central Government when the proposed amendments were introduced in Parliament vide Finance Bill , 2005 on 28th February 2005. Thus, it cannot be presumed that when the Parli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ences(supra), once the approval is granted in the relevant previous year, and in the absence of anything indicated to the contrary , the approval has to be taken as effective from the beginning of the relevant year. The issue is thus covered, in favour of the line of reasoning adopted by the assessee, by decision of the coordinate bench in the case of Anand Brothers(supra) and by Hon'ble Gujarat High Court's judgment in the case of Claris Lifesciences(supra). Respectfully following these decisions, we uphold the grievance of the assessee and hold that the derivative transactions entered into by the assessee at the recognized stock exchanges even prior to the date of notification in the relevant previous year, are to be treated as covered by the exclusion clause set out in Section 43(5)(d). The assessee gets relief accordingly." It was held by the Tribunal in other cases as cited by the learned counsel of the assessee as detailed above in preceding para's that losses incurred prior to issue of notification on 25th January, 2006 but during the relevant previous year 2005-06 shall be treated as non-speculative normal business losses provided it satisfies other conditions as stipulate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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