TMI Blog2020 (6) TMI 467X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt Ltd had surrendered its membership of MCX Stock Exchange and after surrendering the same, it was engaged in Transport business. We note that transactions were duly backed by contract notes, transactions were entered into by account payee cheque. The assessee proved that MCA Stock Exchange Ltd was notified for the purpose of section 43(5) of the Act, vide Notification No. 46/2009 dated 22.05.2009 issued by the CBDT and the currency derivative transaction was done by assessee through broker i.e M/s Godavari Exim Pvt Ltd; who was member of MCA Stock Exchange Ltd. The assessee`s transaction falls under clause (d) of sub-section 5 of section 43 of the Act and therefore currency derivative loss is not a speculation loss. Based on the factual position, as narrated above, the assessment order,u/s 143(3) of the Act dated 02.11.2016 which is subjected to impugned revision proceedings, thus could not be held to be erroneous and prejudicial to the interest of the revenue. Accordingly, we quash the impugned revision proceedings, and set aside learned Commissioner's order in challenge before us.- Appeal of the assessee is allowed. - ITA No.1100/Kol/2019 - - - Dated:- 12-6-2020 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return of income for the A.Y. 2014-15 on 04.09.2014 declaring total income of ₹ 77,43,630/-. After that, the assessee had filed its revised return of income for the A.Y. 2014-15 declaring total income at ₹ 77,43,630/-. The assessment was made u/s 143(3) of the Act by assessing officer on 02.11.2016 assessing the total income at ₹ 1,03,68,630/-. Later on, Ld Principal Commissioner of Income Tax (PCIT), had exercised his jurisdiction under section 263 of the Act. The ld PCIT, on perusal of the assessment records, noticed that the assessee had claimed loss on account of commodities (Currency Loss) of ₹ 41,25,364/-. On perusal of contract notes of Godavari Exim Pvt. Ltd, it was noted by ld PCIT that the said loss of ₹ 41,25,364/- had been incurred on account of currency derivative. Further, the ld PCIT noticed that the transactions in question involved settlement otherwise than by actual delivery or transfer of any commodity, therefore the loss on account of commodities, currency derivatives of ₹ 41,25,364/- should be speculation loss. Then after, the ld PCIT, in order to prove his stand, referred the provisions of sec.43(5) of the I.T. Act,196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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;] [Explanation 2.-For the purposes of clause (e), the expressionsSheth (i) commodity derivative shall have the meaning as assigned to it in Chapter VII of the Finance Act, 2013; (ii) eligible transaction means any transaction,- (A) carried out electronically on screen-based systems through member or an intermediary, registered under the bye-laws, rules and regulations of the recognised association for trading in commodity derivative in accordance with the provisions of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and therule5, regulations or bye-laws made or directions issued under that Act on a recognised association; and (B) which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tock Exchange Ltd. as an exchange clause (li) in the Explanation to clause (d) of the proviso to sub-section (5) of section 43 of the Income-tax Act, 1961 (43 of 1961) read with rule 6DDB of the Income- tax Rule. 1962. The said notification reads as follows: MCX Stock Exchange Ltd., notifies as a recognised Stock Exchange for the purposes of Section 43(5)(ii) of the Income-tax Act, 1961 NOTIFICATION NO. 46/2009 1.. S.O. 1327(E). - In exercise of the powers conferred by clause (ii) in the Explanation to clause (d) of the proviso to sub-section (5) of section 43 of the Income-tax Act. 1961 (43 of 1961), read with rule 6DDB of the Income-tax Rules, 1962, the Central Government hereby notifies MCX Stock Exchange Ltd. as a recognized stock exchange for the purpose of the said clause with effect from the date of publication of this notification in the Official Gazette. 2. MCX Stock Exchange Ltd. shall separately maintain data regarding all transactions registered in the system in which client codes have been allowed to be changed for periodical Inspection by the Director-General of income-tax (Investigation) having Jurisdiction over such exchange and provide copies of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied out in a recognised stock exchange;[or] (e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognized 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.--For the purposes of this clause, 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es also includes securities. The definition of eligible transaction mentioned herein above clearly show that the transaction must have been carried out electronically in accordance with the provisions of Securities Contracts (Regulation) Act and the Rules and Regulations or bye laws made or directions issued under this Act or by banks or mutual funds on a recognized stock exchange and which is supported by time stamped contract note issued by such stock broker or sub-broker or intermediary to every client indicating in the contract note the unique client identity number and permanent account number. 7.2 It would be pertinent to consider the decision of Hon'ble Madras High Court in the case of Rajshree Sugar Chemicals Ltd. vs. Axis Bank Ltd., AIR 2011 (Mad) 144, wherein the term derivative has been defined to include foreign currency as an underlying security of the derivative. The relevant extract of the case is quoted below: What are these derivatives which have gained such a great deal of notoriety? In simple terms, derivatives are financial instruments whose values depend on the value of other underlying financial instruments. The International Accounting Standa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iota of doubt that the transaction of the assessee cannot be treated as speculative transaction. We have also gone through the copies of the contract notes incorporated in the paper book filed before us. A perusal of the contract note shows that the assessee has either entered into call option or put option and on the settlement day the transaction has been settled by delivery, either the assessee has paid US dollar on the settlement day or has taken delivery of US dollar. 7.5 To sum up, the derivatives include foreign currency and call option/ put option, are transactions of derivative markets and cannot be termed as speculative in nature. Considering the totality of the facts and in the light of the judicial discussion herein above, we have no hesitation in setting aside the order of Ld. CIT(A). Appeal filed by the assessee is accordingly allowed. 8. In the result, the appeal filed by the assessee is allowed. (5) We draw your attention to the decision of the Ld ITAT Mumbai in the case of WEISER TRADING COMPANY PRIVATE LIMITED VERSUS DY. COMMISSIONER OF INCOME TAX - I (3) (2), MUMBAI (No. ITA No. 4657/Mum/2017) before which a similar issue was there. The Ld ITAT he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... call option/put option, are transactions of derivative markets and cannot be termed as speculative in nature. Considering the totality of the facts and in the light of the judicial discussion hereinabove, we have no hesitation in setting aside the order of the learned Commissioner of Income-tax (Appeals). The appeal filed by the assessee is accordingly allowed. 8. As the facts and circumstances during the year are same, respectfully following the order of the Tribunal, this ground of assessee's appeal is allowed. 6. We draw your attention to the decision of the Ld ITAT Kolkata in the case of DCIT CIRCLE 11, KOLKATA VERSUS M/S PODDAR PROJECTS LTD, 2018 (5) TMI 1324 -ITAT KOLKATA before which a similar issue was there. The Ld ITAT held: 13. The second issue that arises are adjudication for the assessment year 2010-11 is whether the Ld. CIT(A) was right in allowing speculation loss of ₹ 3,17,26,872/- as trading loss of the assessee. The loss in question was incurred by the assessee on future trading in forex. The Ld. CIT(A) referred to the CBDT instruction no 3/2010 dated 23.03.2010 reported in Taxman (ST) page 160 and 162 and held that the loss is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Exim Pvt. Ltd. as a Member of the MCX and the genuineness of the transactions of the assessee through the company.In this connection, the Inspector of Income Tax has reported as follows after conducting enquiry at the address of the company stated in the contract note:- As directed, I went to 171, C.R. Avenue, 1st Floor, Kolkata - 700006 to verify the address in the case of Godavari Exim Pvt. Ltd. There is no such address exists in the place mentioned above. C.R. Avenue does , not fall underpin code - 700006. The Inspector had also been directed to find out about the existence of Godavar Exim Pvt. Ltd. at 67/28, Strand Road, 12 no. Gali, Kolkata - 700006, i.e., the address of the said company which could be identified from google search. The Inspector has given the following report in respect of the said enquiry. As directed, I went to 67/28, Strand Road, 12 no. Gali, Kolkata - 700006, to verify the address in the case of Godavari Exim Private Limited. The address is of an old building. There, I could not locate any sign board of the above mentioned company. According to employee of Om Transport Co., Godavari Exim Private Limited Om Transport Co. are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer s order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a dealer or investor therein to guard against toss in his holdings of stocks and shares through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; [or] (d) an eligible transaction in respect 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for the purpose of section 43(5) of the Act, vide Notification No. 46/2009 dated 22.05.2009 issued by the CBDT and the currency derivative transaction was done by assessee through broker i.eM/s Godavari Exim Pvt Ltd; who was member of MCA Stock Exchange Ltd. The assessee`s transaction falls under clause (d) of sub-section 5 of section 43 of the Act and therefore currency derivative loss ₹ 41,25,364/- is not a speculation loss. Based on the factual position, as narrated above, the assessment order,u/s 143(3) of the Act dated 02.11.2016 which is subjected to impugned revision proceedings, thus could not be held to be erroneous and prejudicial to the interest of the revenue. Accordingly, we quash the impugned revision proceedings, and set aside learned Commissioner's order in challenge before us. 9. Before parting, it is noted that the order is being pronounced after 90 days of hearing. However, taking note of the extraordinary situation in the light of the Covid-19 pandemic and lockdown, the period of lockdown days need to be excluded. For coming to such a conclusion, we rely upon the decision of the Coordinate Bench of the Mumbai Tribunal in the case of DCIT vs. JCB L ..... X X X X Extracts X X X X X X X X Extracts X X X X
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