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Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH
Before: Shri Rajpal Yadav & Shri Amarjit Singh
Revenue by: Shri Mudit Nagpal, Sr. D.R. Assessee by: Shri S.N. Soparkar & Ms. Urvashi Shodhan, ARs Date of hearing : 18-06-2019 Date of pronouncement : 26-06-2019 आदेश/ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
This assessee’s appeal for A.Y. 2013-14, arises from order of the CIT(A)-6, Ahmedabad dated 12-02-2018, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”.
Ground nos. 1 to 3 in the appeal of the assessee are pertained to upholding and treating the business loss of Rs. 15,69,53,695/- from Future & Options and Rs. 2,46,403/- loss in equity shares as speculation loss by Page No 2 Magic Share Traders Ltd. vs. ACIT applying explanation to section 73 of Income Tax Act, 1961. Ground nos. 4 to 6 are pertained to upholding the order of the assessing officer in making disallowance of Rs. 1,62,753/- u/s. 14A. These grounds of appeal
are adjudicated in two categories as under:- Business loss from Future & Option of Rs. 15,69,53,695/- and equity share trading loss of Rs. 2,46,403/- treating as speculation loss
3. During the course of assessment, the assessing officer noticed that the assessee has carried out transactions in shares, F & O and earned brokerage income and interest income. On verification of the detail submitted, the assessing officer observed that assessee has shown loss of Rs. 15,69,53,695/- from F & O business and loss of Rs. 2,46,403 from share trading. Therefore, the assessing officer has asked the assessee to explain as to why the aforesaid losses should not be disallowed as speculation loss as per explanation to section 73 of the act. The assessee has explained that transactions in respect of trading in derivatives carried out electronically on screen based submission through a stock exchange broker on a registered stock exchange and supported by a time stamped contract note issued by the stock broker indicating the contract note the unique client ID No and PAN shall be treated as an eligible transaction to be covered and such eligible transactions was not deemed to be speculation transaction. The assessee has further submitted that as the provision to section 43(5)(d) w.e.f. 1st April, 2006 transactions of trading in derivatives carried out on a recognized stock exchange with the above ingredients is not treated as speculative transaction. The assesse has also submitted that particularly the explanation to section 73 of the act, it is very clear that the explanation deals with purchase and sale of shares and not with derivatives transaction carried out on account of future Page No 3 Magic Share Traders Ltd. vs. ACIT & option through any recognized stock exchange as in the case of the assessee. The assessing officer has not accepted the explanation of the assessee and treated the trading in F & O and shares by the assessee as speculation loss for the purpose of explanation to section 73 of the act and the losses from F & O of Rs. 15,69,53,695/- and loss from share trading amounting to Rs. 2,46,403/- as speculation losses as per explanation to section 73 of the act. Accordingly, no set off was allowed.
4. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee.
We have heard the rival contentions and perused the material on record on this issue. During the course of appellate proceedings before us, the ld. counsel has brought to our notice that identical issue on similar fact in the case of the assessee itself pertaining to assessment year 2012-13 has been adjudicated by the Co-ordinate Bench of the ITAT vide and the issue was decided in favour of the assessee. With the assistance of ld. representatives, we have gone through the above cited order of the Co-ordinate Bench of the ITAT and noticed that similar issue on identical facts has been decided in favour of the assessee. The relevant parts of the decision of the ITAT vide ITA No. 770Ahd/2016 in the case of the assessee itself is reproduced as under:- “9. We have carefully considered the rival submissions and perused the respective orders of the AO and CIT(A). The substantive question that arises for adjudication is whether loss incurred in eligible transactions i.e. derivative transactions within the meaning of Proviso (d) to Section 43(5) of the Act not involving any purchase or sale of shares per se can be regarded as speculative loss for the purposes of set off in view of Explanation to Section 73 or not. The controversy involved in the present case is thus essentially legal in nature. 9.1 In the present appeal, the assessee seeks set off of losses arising from derivative losses as non- speculative business loss. In contrast, the Revenue has labeled the loss arising from derivative Page No 4 Magic Share Traders Ltd. vs. ACIT
transactions as 'speculative loss' and has consequently denied set off of such losses from regular income of non-speculative nature etc. by applying Explanation to Section 73 of the Act. 9.2 We first advert to the pivotal contention on behalf of the assessee that Explanation to Section 73 of the Act cannot apply to loss arising from derivative transactions which are categorically excluded from being regarded as speculative business as defined under s.43(5) of the Act read with proviso (d) thereto. Identical issue arose before the Hon'ble Calcutta High Court in the case of Asian Financial Services (supra) relied upon. The Hon'ble Calcutta High Court held that once it is deemed to be a normal business loss on the basis of proviso appended to Section 43(5) of the Act, a question of applying Section 73 of the Act or the Explanation thereto for the purposes of refusing loss to be set off against business income is wholly incorrect. The Hon'ble Calcutta High Court after taking note of the decision of Hon'ble Delhi High Court in DLF Commercial (supra) took a distinct stand that derivatives cannot be treated at par with shares for the purposes of Explanation to Section 73 of the Act because the legislature has treated it differently. Thus, in view of the aforesaid position enunciated by the Hon'ble High Court in Asian Financial Services (supra), we find good deal of force in the case of assessee. The claim of the assessee thus requires to be allowed on this ground alone.”
Respectfully following the decision of the Co-ordinate Bench in the case of the assessee itself as supra, the appeal of the assessee is allowed.
Ground No. 2 (Disallowance of expenditure u/s. 14A) 6. During assessment, the assessing officer noticed that assessee has earned dividend income of Rs. 14,91,720/- claimed as exempt u/s. 10 of the act. On query, the assessee submitted that it had not earned any exempt income, therefore, no disallowance was made. Since the assessee has earned the aforesaid exempt income, therefore, the assessing officer has not agreed with the explanation of the assessee and computed the disallowance of expenses u/s.14A r.w. Rule 8D to the amount of Rs. 1,62,753/- and added to the total income of the assessee.
Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee on this issue.
Page No 5 Magic Share Traders Ltd. vs. ACIT
We have heard the rival contentions and noticed that assessee has earned dividend income of Rs. 14,91,720/- claimed as exempt u/s. 10(34) of the act. Since the assessee has not substantiated with any relevant material that not any expenditure has been incurred towards earning of the aforesaid dividend income, therefore, disallowance of Rs. 1,62,753/- u/s. 14A by the assessing officer is justified. Accordingly, we do not find any error in the decision of the ld. CIT(A) on this issue. Therefore, this ground of appeal of the assessee is dismissed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 26-06-2019