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TMI Blog2018 (4) TMI 802X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract notes and that the transaction did not qualify as an eligible transaction. Thus, the Assessing Officer rejected the assessee's claim. Alternatively, the Assessing Officer also held that even if the transaction has to be treated as eligible speculative transaction, the assessee will not be entitled for the claim, in view of Explanation to Section 73, as per which, the company had to be treated as in the speculative business to the extent of which the income was derived from speculative transaction. 3. Aggrieved by the assessment order, assessee filed appeal before the Commissioner of Income Tax (Appeal), Chennai. The Commissioner of Income Tax (Appeals), stated that the transaction in F&O / derivative segments were to be entered into, with the support of contracts notices having unique client identity number, and that the transaction were to be carried out through recognised stock exchange, and therefore the transaction is an eligible transaction, under Section 43(5). The Commissioner of Income Tax (Appeal), Chennai, held that the derivatives cannot be treated as share and therefore the transaction is excluded from the Explanation to Section 73(4). Thereby, the Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rivatives are not shares, therefore, they are excluded from the ambit of Section 73(4) of the Act. According to the Ld. D.R., the CIT(Appeals) is not correct in allowing the claim of the assessee. 5. Before the Tribunal, the learned counsel for the assessee, made the following submissions: "4. On the contrary, Shri M.P. Senthil Kumar, the Learned counsel for the assessee, submitted that admittedly, the assessee is engaged in the business of jewellery. The assessee traded in derivatives in the Multi Commodity Stock Exchange. Referring to proviso to Section 43(5) of the Act, the Learned counsel submitted that when trading was made in derivatives through a recognized Stock Exchange, the same cannot be deemed to be a speculative transaction. Therefore, according to the Learned counsel, provisions of Section 73(4) is not applicable at all." 6. After considering the rival submissions and on the facts and circumstances of the case, the Income Tax Appellate Tribunal 'A' Bench, Chennai, vide order dated 15.09.2016, made in ITA No.659/mds/2016, dismissed the Revenue appeal. 7. Aggrieved by the same, the present Tax Case Appeal has been filed by the Commissioner of Income Tax, C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also erred in not considering the grounds raised by the Revenue with respect to the Explanation to Section 73 while deciding the issue. 9. Heard the learned counsel appearing for the parties and perused all the materials available on record. 10. Main issue on which arguments were advanced before this Court is with regard to addition of Rs. 60,66,466/- (loss on open market trading) made by the Assessing Officer to the income of the assessee. Assessment order dated 26.03.2014, reads as follows: "The assessee company has not substantiated that the transactions were supported by Contract Notes and were carried on in a recognised stock exchange i.e., in MCX which is the recognised stock exchange as per SO 1327 (E) dated 22.05.2009. Thus the transactions cannot be considered as 'eligible transactions' as per section 43(5)(d). In view of explanation to section 73, the assessee will not be eligible for set off and carry forward of the loss of Rs. 60,66,466/- irrespective of the fact whether the transactions are covered by the definition of 'eligible transaction'. Penalty proceedings under Section 271(1)(c) are initiated for furnishing inaccurate particulars of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange; or (e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognised association , which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013), shall not be deemed to be a speculative transaction. Explanation 1. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. (emphasis is ours) 13. Keeping the above provisions in mind, first let us consider whether Section 43(5) of the I.T. Act will apply to the facts and circumstances of the case. Section 43(5) deals with 'speculative transaction' and any income derived from the same will be computed under the head income from profits and gains of business or profession . Proviso (d) to Section 43(5) gives exemption to an eligible transaction in respect of trading in derivatives carried out in a recognised exchange. 14. Now, let us consider the kind of transaction, the assessee carried out in the instant case. The assessee's main business is in retail gold jewellery and for a short period of time viz., three months i.e., from 08.08.2010 to 25.10.2010, the assessee was also trading in derivatives through recognised Multi Commodity Stock Exchange and suffered loss to a tune of Rs. 60,66,466/-. The said transactions were carried out by the assessee electronically on screen based systems and through approved stock bro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is trading in derivatives in the Multi Commodity Stock Exchange, which was recognized. Therefore, the same cannot be treated as speculative transaction within the meaning of Section 43(5) of the Act. In other words, the transaction made in derivatives through Multi Commodities Stock Exchange was exempted under proviso (d) to Section 43(5) of the Act. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. 6. In the result, the appeal filed by the Revenue is dismissed." 17. On the facts and circumstances of this case, the transaction done by the assessee is not a speculative transaction but it only comes under provios (d) to Section 43(5) of the Act thereby it is only a non speculative transaction and thus exempt from tax. 18. Section 73 of the I.T. Act deals with "losses in speculation business". Explanation to Section 73 categorically states that in the case of a company, business of purchase and sale of shares is deemed to be speculative business. Here, in the instant case, the assessee had suffered loss in trading of derivatives carried through Multi Commodity Stock Exchange. As derivative tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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