9911796707
TMI Blog2020 (9) TMI 1042X X X X Extracts X X X X X X X X Extracts X X X X ..... ering the facts that the appellant is carrying on derivative trading in commodity as exclusive business activity irrespective of the exchange traded, and also failed to follow the judicial decisions of the Hon'ble ITAT "E" bench in ITA No. 5179/MumA6 of Assessment Year 2012-2013 in the appellant's own case having same facts of, the case. 3. The brief facts of the case are that the assessee is an individual engaged in the business of trading commodity and currency derivatives, filed his return of income for AY 2014-15 on 01/10/2014, declaring total income of Rs. 40,21,780/-. The case was selected for scrutiny and during the course of assessment proceedings, the Ld. AO noticed that the assessee has incurred loss of Rs. 18,71,18,254/- from trading in commodity derivatives on the National Multi Commodity Exchange (NMCE), Ahmadabad and accordingly, called upon the assessee to explain as to why losses incurred from commodity derivatives traded on NMCE cannot be allowed to be set off against profit derived from commodity derivatives on MCX, as per provisions of section 43(5)(e) of the I.T.Act, 1961. In response to show cause notice, the assessee submitted that he is engaged in on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the official Gazette". 11. Thus, on three counts, the assessee's losses fail the test of the complementary provisions of Sec 43(5)(d) & sec 43(5)(e) rendering the losses accrued on NMCE as speculation losses and hence not allowable for set off against profits earned from Commodities derivatives trading on recognized stock exchanges. 12. In the light of above discussion, the loss incurred on NMCE, Ahmadabad amounting to Rs. 18,71,18,254/- is disallowed being in the nature of speculation loss and hence disallowable against profits from non speculative business. Penalty proceedings initiated u/s 271(1)(c) r.w.s. 274 for furnishing inaccurate particulars of income. 5. Being aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has filed detailed written submissions, on the issue, which has been reproduced at Para '7' on pages 3 to 13 of Ld.CIT(A) order. The sum and substance of arguments of the assessee before the Ld.CIT(A) are that the assessee is carrying out only and only commodity derivatives trading in Multi commodity Exchanges and therefore, the same cannot be split, on the basis of trading in differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he observations of the AO contained in the assessment order and the other materials on record on this issue. 8.1 The AO has disallowed an amount of Rs. 18,71,18,254/-, being loss incurred from derivative commodity trading through NMCE(National Multi -Commodity Exchange), Ahmedabad, an unrecognised exchange, considering the same as speculative loss and the same was not allowed to be set off against normal business profits. Thus, the speculation loss of Rs. 18,71,18,254/-, was not allowed by the A.O. to be set-off against the profit earned by the Appellant from the derivative trading through recognised exchanges like, MCX. 8.2 I have noted that the loss amounting to Rs. 18,71,18,2547- incurred by the appellant on National Multi -Commodity Exchange (NMCE), Ahmedabad is in the nature of speculative loss. In this regard, it is pertinent to refer to the provisions of section 43(5) of the Act, which are reproduced as under;- (5) "speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately'" settled otherwise than by the actual delivery or transfer of the commodity or scrips ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 notified34 by the Central Government for this purpose;] [Explanation 2-For the purposes of clause (e), the expressions- (i)"commodity derivative" shall have the meaning as assigned to it in 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 the rules, regulations or bye-laws made or directions issued under that Act on a recognised association; and (B) which is supported by a time stamped contract note issued by such member or intermediary to every client indicating in the contract note, the unique client identity number allotted under the Act, rules, regulations or bye-laws referred to in sub-clause (A), unique trade number and permanent account number allotted under this Act; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Rules, 1962, with effect from the date of publication of this notification in the Official Gazette". 8.7 It may be important to note that clause (e) of the proviso to clause (5) of the section 43 of the Act has been inserted by the Finance Act, 2013 and is operational from 01.04.2014 and hence is applicable for the current assessment year under consideration. 8.8 Thus, the net effect of the amendment made in the Act from the A.Y. 2014-15 onwards, is that those derivative commodity transactions, which are carried out on a recognized stock exchange will fall in the category of non-speculative transaction in view of the deeming fiction of clause (e) of the proviso to clause (5) of the section 43 of the Act. On the other hand, the derivative commodity transactions carried out in an unrecognized stock exchange will fall in the category of speculative transaction. 8.9 Thus, the loss amounting to Rs. 18,71,18f254/- incurred by the appellant on National Multi -Commodity Exchange (NMCE), Ahmedabad is speculative in nature. While on the other hand, the profit earned by the appellant on MCX, a recognised exchange is to be treated as nonspeculative !. Thus, the speculative loss of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 2013 w.e.f 01/04/2014, which is applicable for AY 2014-15 onwards, the commodity derivatives trading has been excluded from the definition of speculation loss or profit, provided the trading in derivatives should be in a recognized exchange/association and the transactions should suffer commodity transaction tax. In this case, the assessee is trading in MCX and NMCE, Ahmadabad and MCX is a recognized exchange for the purpose of section 43(5)(e) of the Act. Therefore, the loss or profit incurred form derivative trading on MCX is a business profit, whereas loss or profit incurred from derivative trading on NMCE, Ahmadabad is speculation loss or profit, because the said association is not recognized for the purpose of section 43(5)(e) of the I.T.Act, 1961. The Ld.CIT(A) after considering relevant facts has rightly confirmed additions made by the Ld. AO and his order should be upheld. 9. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. The facts borne out from the records clearly indicates that the assessee is engaged in one and only business of trading in commodity derivatives in different exchanges and su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent stock exchanges/associations needs to be treated as one and only business as per section 28 Explanation (2) of the Income Tax Act, 1961. This legal position is supported by the decision of Hon'ble Bombay High Court, in the case of ITO vs Kamani Tubes Ltd. (1994) 207 ITR 271 (Bom), where it was held that in deciding the character of transactions, what is important to consider is the distinctive character to such transactions, but not the platform in which such transactions has been carryout. Further, the provisions of section 43(5)(d) of the I.T.Act, 1961 is not applicable to commodities derivative trading, if such transactions are not carried out in a recognized stock exchange/association and also, the same are not suffered to commodity transaction tax. But, as per the amended provisions of section 43(5)(e) w.e.f. 01/04/2014, the commodity derivative transactions are excluded from the definition of speculative transactions, if such transactions are carried out in a recognized association and which is chargeable to commodity transaction tax under chapter VIII of the commodities Act, and such transactions shall not be deemed to be speculative transactions. Therefore, from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, once any association is recognized from Govt. of India, then any trading activity carried out therein is outside the purview of section 43(5)9e) of the Act. Hence, loss incurred from derivatives trading on NMCE, cannot be considered as different from profit earned from MCX only on the basis of notification issued by the CBDT for the purpose of section 43(5)(d) of the Act, because the law requires recognition of Association/exchange from Govt. of India, but it does not specifically requires notification from CBDT u/s 43(5) of the Income Tax Act, 1961. We, therefore, are of the considered view that NMCE, Ahmadabad is a recognized association like MCX, Mumbai and profit or loss incurred from both exchanges is a business profit and consequently, any loss incurred from one exchange can be set off against profit earned from another exchange. 12. Coming to case laws relied upon by the assessee. The assessee has relied upon by the decision of ITAT, Mumbai in its own case for AY 2012-13 in ITA No.5179/Mum/2016. We find that the Tribunal has considered an identical issue, in light of recognized association and non-recognized association for the purpose of section 43(5)(e) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndex of prices, of underlying securities. From the above definition it is clear that commodity derivative trading is not covered by Securities Control (Regulation) Act, 1956 and therefore the provision applied by the AO is against the facts of the case. 7. Even the board circular No. 3 of 2006 dated 27-12-2006 has explained the scope and effect of ammendment with effect from 01-06- 2006 made in section 43(5) by the Finance Act 2005, which have been elaborated in the following portion of departmental circular: - "3.10 Excluding 'trading in derivatives' on recognised stock exchanges from the ambit of 'speculative transactions' Existing provisions of clause (5) of section 43 define 'speculative transaction' to mean a transaction in which a contract for the purchase or sale of any commodity including stocks and shares is settled otherwise than by the actual delivery or transfer of the commodity or scrips. The proviso to section 43(5) lists out certain transactions which are not deemed to be speculative transactions. Systemic and technological changes introduced by SEBI have resulted in sufficient transparency in the stock markets and have to a large exte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal filed by the assessee was dismissed. 10. Now we have to discuss the provision of section 43(5) of the Act with all its provision to understand the assessee's case. The relevant provision reads as under: - Section 43(5) ...... Speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scripts. (a) A contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivers of goods manufactured by him or merchandise sold by him; or (b) A contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in hic holding of stocks and share through price fluctuations; or (c) A contract entered into by a member of a forward market or a stock exchange in the course of an transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in assessee's own case for AY 2012-13, we are of the considered view that the assessee is engaged in one and only business of derivative trading in different commodity exchanges and such business needs to be considered as one business for the purpose of taxation and any profit or loss derived from different exchanges shall be aggregated by allowing losses to be set off. The Ld. AO and Ld.CIT(A) without appreciating these facts has disallowed loss incurred form derivative trading on NMCE, Ahmadabad as speculation loss against profit earned from derivative trading in MCX by holding that profit earned from MCX is not speculative profit. Hence, we direct the Ld. AO to delete additions made towards disallowances of loss incurred from NMCE, Ahmadabad and allowed said loss to be set off against profit derived from derivative trading on MCX. 14. In the result, appeal filed by the assessee is allowed. ii) ITA No. 4026/Mum/2018 & ITA No.4027/Mum/2018 15. The revenue has raised more or less common grounds of appeal for both assessment years. Therefore, for the sake of brevity, grounds of appeal filed for AY 2009-10 are reproduced as under:- 1. "Whether on facts and in circumstances of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided the issue in favour of the Appellant, vide order dated 23.02.2018.The Hon'ble ITAT has in the said judgment dealt with all the objections raised by the A.O. in the assessment order, in great details. Thus, the relevant portion of the said judgment being important is reproduced hereunder:- "6. We have heard rival contentions and gone through facts and circumstances of the case. We find that the assessee has started his business activity of derivative trading in commodity only and he has not done any activity of derivative trading in securities and equity. We are of the view that derivative trading in commodity is to be considered as one business and the net income from the same should be assessed as business income of speculation business, since section 43(5) does not exclude commodity trading during the year. We find from the facts of the case that the assessee is member of MCX and he has to carry out transaction on another exchange because on MCX there was no volume in commodity like Copper, Crude Oil, Silver etc. and also there was difference in lot size of the commodity in Lead, Gold etc. Further in MCX exchange, some time, the trading limit exhausted and hence he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se developments, the present distinction between speculative and non-speculative transactions, in respect of trading in derivatives of securities is losing relevance. The Finance Act, 2005 has, accordingly, amended section 43(5) to provide that an eligible transaction in respect of trading in derivatives of securities carried out on a recognised stock exchange shall not be deemed as speculative transaction. The notification prescribing the rules and the conditions to be fulfilled by a stock exchange to be recognized by the Central Government for the purposes of section 43(5) [i.e., Rules 6DDA and 6DDB of the Income-Tax Rules, 1962] has been published in the Official Gazette on 1s' July, 2005 vide S.O. No.932(E). Applicability: From A.Y. 2006-07 onwards." 8. But, the proviso to clause (e) takes out the definition of speculative transaction w.e.f 01.04.2014 by inserting the proviso by Finance Act, 2013, which we will discuss in the next paragraph. 9. But, the proviso to clause (e) takes out the definition of speculative transaction w.e.f 01.04.2014 by inserting the proviso (e) of section 43(5) of the Act, which has been added by Finance Act, 2013 with effect from 01.04.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligible 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), I shall not be deemed to be a speculative transaction. From the plain reading of this provision, we observed that this clause (d) was added with effect from 01.04.2006 which is related to the transaction covered under Securities Contract (Regulation) Act 1956 and clause (e) was inserted for trading in commodity derivatives with effect from 01.04.2014. In view of Ms position, we are of the view that the commodity derivatives transactions are speculative transactions and the assessee's business is only and only derivatives trading in commodity, the loss incurred or profit earned should be speculative loss/profit and should be allowed to set off against each other. 11. In view of the above position of law, we are of the view that in the given facts of the case that the assesses is exclusively carrying on business of derivative trading on various exchanges and the transaction entered into derivative on various exchanges is his business activity whether considered as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax (Appellate Tribunal) Rules 1963. As per rule 34(4), no order shall be pronounced after expiry of 90 days from the date of hearing. This appeal was heard on 02/03/2020 and ordinarily, the order shall be pronounced on or before 31/05/2020. But, this order could not be pronounced on or before 31/05/2020, due to the fact that the Govt. of India has imposed nationwide lockdown from 25/03/2020 and the same has been extended time to time up to 31/05/2020 and because of this, the office was closed up to 22/05/2020. Further, if the above lockdown period is excluded for the purpose of limitation, then this order can be pronounced on or before 27/07/2020. Further, whether lockdown period can be excluded or not has been exhaustively dealt by the co-ordinate bench of ITAT, Mumbai, in the case of DCIT vs JSW Limited, in ITA No. 6264/Mum/2018, dated 14/05/2020, where it was held that due to corona virus pandemic, the period of limitation automatically gets extends till such period the lockdown is in force. We, therefore, are of the opinion that considering the prevailing situation and also, by respectfully following the decision of coordinate bench in the case of DCIT vs. JSW Limited (Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
