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Income Tax Appellate Tribunal, ALLAHABAD BENCH, ALLAHABAD
A.Y. 2014-15 Arup Banerji, vs. Deputy Commissioner of 14/18, Elgin Road, Allahabad Income Tax, Circle-1, Allahabad PAN:ACUPB7330A (Appellant) (Respondent) Assessee by: Sh. S.K. Jaiswal, C.A. Revenue by: Sh. A.K. Singh, Sr. DR Date of hearing: 18.09.2024 Date of pronouncement: 29.11.2024 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the order of the ld. CIT(A), NFAC dismissing his appeal against the order of the DCIT, Circle-1, Allahabad passed on 30.12.2016. The grounds of appeal preferred by the assessee are as under:-
1. BECAUSE the learned Commissioner of Income Tax (Appeals) has erred in law and on facts in holding that appellant does not want to pursue the appeal and dismissing appeal ex- party without affording an adequate and effective opportunity of being heard.
2. BECAUSE the learned Commissioner of Income Tax (Appeals) has erred in law and on facts in not allowing the set-off of loss from derivative trading of Rs. 66,05,524/- brought forward from assessment year 2008-09 against the current year income of Rs. 60,19,056/- earned from derivative trading.
3. BECAUSE the learned Commissioner of Income Tax (Appeals) has wrongly conceived the fact that appellant has brought forward loss from trading in 'commodity derivatives' as per clause (e) of section 43(5) whereas the appellant has brought forward loss from trading in 'derivative' as per clause (d) of section 43(5) which is excluded from the definition of 'speculative transaction' with effect from 01.04.2006.
BECAUSE the appellant has rightly set-off the losses from derivative trading brought forward from assessment year 2008-09 against the current year income from derivative trading.
5. BECAUSE the order appealed against is contrary to the facts, law and principle of natural justice.”
The facts of the case are that the assessee showed income from short term capital gain at Rs.60,19,056/- and set it off against brought forward losses of earlier years. The assessee was asked to give a detailed computation of his income. In response, the assessee submitted that the gain of Rs.60,19,056/- was not capital gain but income from derivative trading which had in advertently been shown under the head income from capital gains and loss of Rs.75,35,030/- brought forward from A.Y. 2008-09 were also losses from derivative trading which was however, inadvertently claimed under the head capital gain. Since the loss was from derivative trading therefore, the current income from derivative trading was being set off against the brought forward derivative trading loss for the A.Y. 2008-09. It was submitted, that it was the actual nature of the transaction which would be decisive factor so as to determine taxability and not the way the assessee had shown it in the return of income. For this proposition, the assessee placed reliance on the decision of the Hon’ble Supreme Court in the case of Delhi Stock Exchange Association vs. CIT reported in 41 ITR 495. The ld. AO observed that the assessee had done derivative trading on a regular basis and therefore, such income of the assessee had to be charged under the head business, because it was not income from short term capital gain. Therefore, the question of set off against the brought forward losses of A.Y. 2008-09 did not arise. The ld. AO further found that there was a mismatch in the gains of derivative trading in the case of M/s Niramal Bang Securities Ltd., where short term capital loss of Rs.1,19,559/- had been set off and since the same was capital loss, it could not be set off cannot be allowed for as adjustment from derivative trading. He, therefore, computed the income from derivative trading at Rs.61,39,464/-, disallowed the set off and brought the same to tax.
The matter was carried in appeal before the ld. CIT(A). The ld. CIT(A) records that he issued four notices to the assessee but the assessee did not respond to any of those notices. Therefore, he concluded that the assessee was not interested in pursuing the appeal, by way of filing of submissions. Therefore, he proceeded to decide the appeal based upon the materials on record. The ld. CIT(A) observed that ,in view of the fact that prior to insertion of Clause E of proviso to section 43(5) which was inserted by Finance Act, 2013 w.e.f. 1.4.2014, loss incurred in respect of trading in commodity derivatives was to be treated as speculation loss,therefore, there was no merit in the grounds raised
by the appellant. He accordingly, dismissed the appeal.
4. Shri. S.K. Jaiswal, C.A. (hereinafter referred to as the ‘ld. AR’) appeared on behalf of the assessee and argued the case. At the outset, it was informed that there was a delay of 27 days’ in the filing of the appeal which was occasioned by the fact that the counsel Shri. S.K. Jaiswal, C.A., was suffering from typhoid and accelerated hyper tension and therefore, he was not in a position to attend to matters between 16th February, 2024 to 29th February, 2024. The assessee came to know about the passing of the ex parte order only on the 10th of May, when he asked his Accountant to provide the current status of appeals pending for hearing before the ld. CIT(A), and then he immediately filed the appeal. Therefore, the delay was for reasons beyond the control of the assessee and it was submitted that the assessee did not gain from any delay in filing of the appeal. Accordingly, he prayed that the delay may kindly be condoned. After considering these arguments, the delay of 2 days in filing the appeal is condoned and the case is taken up for hearing on merits. Ld. AR further arguing the case, pointed out that the ld. CIT(A) had wrongly concluded that the assessee had brought forward losses from trading in, ‘Commodity derivatives’ as per (Clause E) of section 43(5), whereas the assessee had brought forward losses from trading in, ‘Derivatives’ as per Clause D of section 43(5), which was excluded from the definition of, ‘Speculative transaction’ w.e.f. 1.04.2006. It was submitted that the assessee had rightly set off the losses from derivative trading brought forward from A.Y. 2008-09 against the income of the current year from derivative trading. It was, therefore, submitted that the loss may kindly be allowed to the assessee.
On the other hand, Shri. A.K. Singh, Sr. DR (hereinafter referred to as the ‘ld. DR’) argued that the assessee had not filed his returns carefully and shown the income as short term capital gain. Therefore, since capital gain could only be set off against capital loss, the set off of the loss was not allowable.
We have duly considered the facts and circumstances of the case. The ld. AO has, after investigating the derivative trading done by the assessee, has come to the conclusion that the frequency of the same indicates that it is income from business and not income from capital gains. It is also not disputed that the loss was also from trading in derivatives. No doubt, there are certain mistakes in the way that the assessee has filed its return, but once the facts became clear during the course of assessment. It is clear that loss from derivative trading can be used to set off the income from derivative trading. It is observed that the assessee has shown both the previous years losses and current years income from derivative trading as Short Term Capital Gain while the AO has concluded after examination that this was in the nature of business income and therefore he has disallowed the carried forward losses under the head of Capital gains. We observe that there is an inconsistency in the approach the Ld AO. While reclassifying the income of the Assessee from