TMI Blog2018 (9) TMI 1170X X X X Extracts X X X X X X X X Extracts X X X X ..... the smallness of amount and having regard to the documentary evidences, we do not see any warrant to differ with the version of the assessee. Therefore, the loss claimed by the assessee in the derivative segment is found to be covered by the exception provided under s. 43(5) of the Act and consequently, such loss requires to be allowed for set off against the regular income of the assessee. - Decided in favour of assessee - I.T.A. No. 2819/Ahd/2016 - - - Dated:- 17-9-2018 - SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMEBR For The Appellant : Wri tten Submission For The Responden : Shri S. K. Dave, Sr.D.R. ORDER PER PRADIP KUMAR KEDIA - AM: The captioned appeal has been filed at the instance of the assessee against the order of the CIT(A)-1, Ahmedabad ( CIT(A) in short), dated 29. 09. 2016 arising in the assessment order dated 30. 09. 2015 passed by the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning assessment year 2013 2. As per the ground of appeal, the assessee has challenged the action of the CIT(A) in denying the set off of losses arising from derivative transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehalf of the assessee and Revenue as well as perused the orders of the authorities below and documentary evidences placed before us as well as the case law cited. The maintainability of loss arising from derivative transactions against the regular income is in question. The assessee has claimed derivative loss in equity segment as well as in commodity segment. As regards the loss arising from derivative segment in share, the AO himself has noted that contract note issued by the share broker carries the relevant details such as unique client identity no. , time, order no. , trade no. and trade time of the securities bought by the assessee in respect of transactions mentioned in the contract note. Thus, the contact note issued to the assessee is clearly as per SEBI guidelines. We also fail to understand as to how the production of the original bills to the AO gives rise to any kind of adverse inference. It may at best be taken as imprudent for which the assessee cannot be penalized. It rather carries ring of truthfulness. On perusal of the communication received from the Stock Exchange, it is observed that the Stock Exchange has merely shown its inability to provide the details based ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : ₹ 83, 31, 935/- Tax as per computation sheet and demand notice enclosed should be paid. 11. According to the Assessing Officer (i) as per Section 45(5)(d) of the Income Tax Act, the transaction carried out by the assessee cannot be considered as 'eligible transaction' and the same has to be treated as 'speculative transaction' and (ii) irrespective of the fact whether the transactions are covered by the definition of 'eligible transaction' and the assessee will not be eligible for set off and carry forward of the loss of ₹ 60, 66, 466/- in view of Explanation to Section 73 of the Income Tax Act. 12. For better understanding of the relevant provisions relied on by the Assessing Officer, viz. , Section 43(5)(d) and Explanation to Section 73 are extracted hereunder: 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- (1) actual cost means . . . . . . . . . . . . (2) paid means . . . . . . . . . . . (3) plant includes . . . . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ped 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 recognised stock exchange as referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and which fulfils such conditions as may be prescribed and notified by the Central Government for this purpose; x x x x x Section 73: Losses in speculative business: (1) Any loss, computed n respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business. (2) Where for any assessment year any loss computed in respect of a speculation business has not been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e electronically on screen based systems and through approved stock broker and that the same is supported by Time Stamped Contract Note, issued by the stock broker indicating the unique identification number and PAN number in the contract note. The Authorised Representative of the assessee has explained and furnished the above details during assessment proceedings. However, an adverse assessment order has been preferred. 15. After considering the rival submissions, in the appeal filed by the assessee, the Commissioner of Income Tax (Appeals), vide order dated 16. 12. 2015, held as follows: 5. 1. 6. For the transactions in F O segments to qualify for being non-speculative transactions as per the definitions in Section 43(5) the transactions have to be eligible transactions and the transactions have to be carried out through recognised MCX stock exchange. The appellant has entered into transactions which are supported by contract notes having a unique client identity number. Such transactions were carried out through a stock broker on a screen based system. These transactions are eligible transactions. The transactions were carried out in a recognised stock exchange. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had suffered loss in trading of derivatives carried through Multi Commodity Stock Exchange. As derivative transactions being separate from trading in shares, provisions of Explanation to Section 73 will not be applicable to such transactions and hence, the loss incurred by the assessee in derivative transactions through recognised stock exchange has to be set off against other business income as per provisions of the Act. 19. In the light of the above discussions, we are of the view that the transaction carried out by the assessee is a non speculative transaction and thus Section 43(5) is not attracted to the facts of the instant case and likewise the assessee was trading in derivatives and not in shares, so the loss suffered by the assessee in trading in derivatives is excluded from the ambit of Explanation to Section 73. 20. Therefore, we concur with the decision taken by the Appellate Tribunal as well as the Commissioner of Income Tax (Appeals) in rejecting the view taken by the Assessing Officer to add ₹ 60, 66, 466/- as loss, on open market trading to the income of the assessee. 9. Respectfully following the judicial fiat available in thi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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