TMI Blog2016 (8) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... ve business losses to set off against the normal business income of the instant previous year relevant to the assessment year in question, as laid down in the ratio of the decisions of the Tribunal cited before us as set out above and also as per our detailed discussions in preceding para’s of this order, hence we allow the appeal filed by the assessee on this ground - I. T. A. No. 778/ Mum/ 2014 - - - Dated:- 29-7-2016 - Shri Saktijit Dey, Judicial Member And Shri Ramit Kochar, Accountant Member Assessee by Shri Sanjay R. Parikh Revenue by : Shri Sunil Kumar Agarwal, JCIT ORDER Per Ramit Kochar, Accountant Member This appeal, filed by the assessee, being ITA No. 778/Mum/2014, is directed against the appellate order dated 5th December, 2013 passed by learned Commissioner of Income Tax (Appeals)- 13, Mumbai (hereinafter called the CIT(A) ), for the assessment year 2009-10, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 24th November, 2011 passed by the learned Assessing Officer (hereinafter called the AO ) u/s 143(3) of the Income Tax Act,1961 (Hereinafter called the Act ). 2. The grounds of appeal raised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 83,591/- prior to 25.01.2006 as speculation loss even though the assessee himself treated as speculation loss and is allowed to be set off against speculation income of the assessee, vide assessment order dated 24- 11-2011 passed by the AO u/s 143(3) of the Act. Similarly, addition was made by the A.O. of ₹ 24,907/- and the said sum was added back to the income of the assessee u/s 14A of the Act by applying Rule 8D(2)(iii) of the Income Tax Rules, 1962 being 0.5% of average value of investment held by the assessee ,vide assessment order dated 24-11-2011 passed by the AO u/s 143(3) of the Act. 4. Aggrieved by the assessment order dated 24-11-2011 passed by the A.O. u/s. 143(3) of the Act, the assessee filed first appeal before the ld. CIT(A) which appeal stood dismissed by the learned CIT(A) on both the above issues agitated by the assessee before the learned CIT(A) vide appellate orders dated 05-12-2013. 5. Aggrieved by the appellate order dated 05.12.2013 passed by learned CIT(A) , the assessee filed second appeal with the Tribunal. 6. With respect to the disallowance of ₹ 24,907 u/s 14A of the Act agitated by the assessee vide ground no. 1 in the memo of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erivatives transactions in the assessment year 2006-07 which were entered into prior to 25-01-2006 i.e. date of notification of NSE and BSE as recognized stock exchanges and the losses should be allowed as normal business loss. 8. The ld. D.R., on the other hand, relied on the orders of authorities below. 9. We have considered the rival contentions and also perused the material available on record including the case laws cited before us. The assessee had incurred losses of ₹ 20,83,591/- in F O transactions which are derivative transactions in the assessment year 2006-07 which the assessee is seeking to be allowed to be carried forward as non-speculative losses and to get it adjusted against normal business income in the instant assessment year 2009-10 under appeal. The said F O loss had occurred in the previous year 2005-06 itself but prior to 25th January 2006 on which date the National Stock Exchange(NSE) and Bombay Stock Exchange(BSE) were notified by Central Government as recognized stock exchanges in accordance with the powers conferred by clause (ii) in the Explanation to clause (d) of the proviso to clause (5) of Section 43 of the Act read with Rule 6DDB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eculative transaction, while in the instant case the assessee incurred F O losses i.e. in derivative transactions during the previous year 2005-06 but prior to 25- 01-2006 and is seeking carrying forward as non-speculative losses and adjustment against the normal business income for the impugned assessment year 2009-10, by treating the said losses as non-speculative in nature while notification allow such losses to be treated as non-speculative only with respect to transactions in derivatives undertaken on NSE/BSE w.e.f. 25-01-2006. Before we proceed further, it would be relevant to analyse the provisions of proviso (d) to clause (5) of Section 43 of the Act read with explanation which was introduced in Statute by Finance Act, 2005 w.e.f. 01-04-2006 and are applicable for assessment year 2006-07 and subsequent assessment years reads as under: 'Definitions of certain terms relevant to income from profits and gains of business or profession. 43. In sections 28 to 41 and in this section, unless the context otherwise requires- Xx (5) speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction. It is an admitted position between the rival parties that F O transactions i.e. derivative transaction which the assessee undertook on which the assessee sustained loss of ₹ 20,83,591/- was otherwise qualifying all the conditions as stipulated by the proviso (d) to clause (5) of Section 43 read with explanation , except that it was carried out by the assessee in the previous year 2005-06 prior to 25-01-2006 when NSE/BSE were being notified as recognized stock exchanges by Central Government on 25-01-2006 vide notification no. 2/2006 (SO 89(E)) , dated 25-01-2006. The Memorandum explaining the provisions in the Finance Bill, 2005 which introduced clause (d) ((2005) 194 CTR(St.) 147 , the purpose of introduction of clause (d) has been explained, which reads as under: Measures to rationalize the tax treatment of derivative transaction Under the existing provisions (cl.(5) of s.43) a transaction for the purchase and sale of any commodity including stocks and shares is deemed to be a 'speculative transaction', if it is settled otherwise than by actual delivery. However, certain categories of transactions are excluded from the purview of said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipulated conditions u/s 43(5) of the Act, by introduction of proviso (d) to Section 43(5) by Finance Act,2005 w.e.f. 01-04-2006 which is applicable from assessment year 2006-07 and subsequent assessment years , and this was done by the Parliament keeping in view the recent systemic and technological changes introduced by stock markets 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 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, when the Hon ble Finance Minister introduced the afore-stated proposed amendment vide Finance Bill, 2005 in Parliament which is introduced on 28th February 2005 , the Central Government was fully aware that now Stock Exchanges in India are technically equipped to prevent manipulations in the markets, and derivative transactions which complies with all the stipulated prescribed requirements are to be taken out of being treated as speculative transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the proviso (d) to clause (5) of Section 43 read with explanation from the beginning of relevant previous year i.e. 01-04-2005 shall be allowable as non-speculative losses and are to be treated as covered by exclusion clause set out in proviso (d) to clause (5) of Section 43 read with explanation despite the fact that NSE/BSE were recognized on 25-01-2006. The said amendment in Statute was brought by Finance Act, 2005 w.e.f 01-04-2006 and is applicable for assessment year 2006-07 and subsequent years . It was held by the Hon ble Gujarat High Court in case of Claris Lifesciences Limited v. ACIT(2008) 112 ITD 307 (Guj HC) that 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 Mumbai Tribunal in the case of Prem Associates Advertising and Marketing v. JCIT in ITA 6547/Mum/2009 vide orders dated 17-09-2010 has allowed the losses incurred in derivative transactions during previous year 2005-06 but prior to 25-01-2006 to be treated as covered by the exclusion clause set out in the proviso (d) to clause (5) of Section 43 of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year in question, as laid down in the ratio of the decisions of the Tribunal cited before us as set out above and also as per our detailed discussions in preceding para s of this order, hence we allow the appeal filed by the assessee on this ground. It is pertinent to mention here that true nature and character of the past losses suffered by the assessee in the assessment year 2006-07 which are to be set off in the impugned assessment year 2009-10 , it is open to be decided in the impugned assessment year which ratio of law is supported by the decision of Hon ble Bombay High Court in the case of Western India Oil Distributing Co. Limited v. CIT (1980) 126 ITR 497(Bom.) which was affirmed by Hon ble Supreme Court in CIT v. Western India Oil Distributing Company Limited reported in (2001) 249 ITR 517(SC). This proposition of law was also followed in one of cases cited by learned counsel of the assessee , decided by the Mumbai Tribunal in Gajendra Kumar T. Agarwal v. ITO reported in (2011) 11 ITR (Trib.) 640(Mumbai). This disposes of ground no 2 raised by the assessee in memo of appeal filed with the Tribunal which is adjudicated by allowing this ground of appeal raise ..... X X X X Extracts X X X X X X X X Extracts X X X X
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