NIRANJAN JATA,BHUBANESWAR vs. DCIT,SALARY CIRCLE-3(1), BHUBANESWAR

This is an appeal filed by the assessee against the order of the

CIT(A),2, Bhubaneswar dated 15.4.2019 for the assessment year 2016-17.

“1.For that, the order of the forum below is arbitrary, illegal, unjustified and erroneous and has been passed on improper application of mind, being devoid of merit as such deserves to be quashed in limine.

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3.For that, disallowance of set off of business loss U/s 71 is unjustified and unwarranted and devoid of any merit, being legitimate set off allowed by statute, deserves to be allowed in Toto.”

India Limited. During the course of assessment proceedings, the Assessing

Officer noticed that the assessee has transacted large value sale of futures

(derivatives) in a recognized stock exchange reported in Securities

Transaction Tax Return (STT CODE 5). On verification of documents, the

Assessing Officer noted that the assessee has submitted trading transaction

statement for Rs.30,00,098/-. However, Tax audit report and relevant

books of account have not been submitted before him. According to the

AO, as per section 44AD of the Act, a sum equal to 8% of the total turnover

shall be considered as income from business and profession and, therefore,

he estimated the turnover @ 8% of Rs.30,00,098/- and added

Rs.2,40,008/- to the income of the assessee.

is in appeal before the Tribunal.

adjudication.

submitted that the assessee has suffered loss during trading in derivatives,

therefore, the question of income does not arise. Ld counsel submitted

that the assessee is a salaried employee and the turnover in derivative

P a g e 2 | 8 transaction is less than Rs.1 crore, therefore, he is not liable to conduct tax

audit. Ld A.R. referred to paper book pages 1 & 2 containing affidavit by

the assessee and submitted that all the documents i.e. certified copy of

consolidated ledger from broker, all bank statement (Uco Bank, SBI, ICICI

and IOB) and certified gain & loss statement from broker and reply to show

cause notice and explaining every query raised in relation to loss, were

submitted before the Assessing Officer.

maintained books of accounts, the estimation done by the lower authorities

is correct.

this case, the assessee, in the relevant assessment year, was in the trading

transactions in derivatives of Rs.30,00,098/- but has not maintained books

of account u/s.44AD of the Act. Therefore, the Assessing Officer estimated

the profit @ 8% of the total transaction which is confirmed by the ld CIT(A).

9,. The contention of ld A.R. is that the assessee has incurred loss in

derivative transactions and, therefore, no income has arisen out of this

transaction.

regards to section 28 to section 43C, provides that a sum equal to 8% of

the total turnover or a sum higher than the 8% claimed to have been

earned by the eligible assessee shall be deemed to be the profit and gains

P a g e 3 | 8 of such business and chargeable under the head “PGBP”. Explanation to

section 44AD doesn’t specifically exclude transactions in derivatives – F&O

as not eligible business. In the present case, there is no dispute to the fact

the assessee has incurred loss in trading in derivatives. From the relevant

para 2 at page 2 of the assessment order, I observe that the Assessing

Officer, by noticing the trading transaction statement for the financial year

2015-16, estimated the net income of the assessee u/s. 44AD of the

Income tax Act (in short ‘the Act’) @ 8%. Regarding the estimation, it is

the contention of ld counsel for the assessee that converting a loss into

estimated profit not only is unjustified but also contrary to legislative

intentions and unwarranted as per the statutory provisions of the Act. He

further submitted that the loss from derivative transaction deserves to be

well recognised and has to be allowed. Ld counsel has placed reliance on

the order dated 20.9.2013 of ITAT Delhi ‘B’ Bench in the case of ITO vs

Felex Enterprises Pvt Ltd in ITA No.5129/Del/2012 for Asst.Year: 2007-08

and submitted that speculation loss from derivative transaction should be

adjusted against profit by applying section 43(5)(c) & (d) instead of section

73 r.w.s 73(1) of the Act. He also drew my attention towards relevant last

para at page 4 of the order and submitted that the loss incurred on account

of transaction in share futures on a recognized stock exchange is normal

business loss and same cannot be treated as speculative loss. Ld A.R. also

drew my attention towards page 3 of the paper book and submitted that

P a g e 4 | 8 this kind of loss statement has been issued by Portfolio Manager doing

transaction on behalf of the assessee, wherein, loss of equity shown as

Rs.3,37,599.56 has been accepted by the Assessing Officer. However, the

Assessing Officer declined to accept the loss on share trading, which has

been shown as loss at Rs.22,30,251.19 shown by the said Port folio

Manager as others in the case of the assessee. Ld counsel submitted that

all the transactions have been done on a recognized stock exchange

through a registered broker. Therefore, the loss from such transaction has

to be allowed as normal business loss.

Assessing Officer in estimating the net profit @ 8%. However, he could not

assist the Tribunal that from where and on what basis the AO has taken the

amount of turnover as Rs.30,00,098/- for the financial year 2015-16 as

stated in para 2 at page 2 of the assessment order.

considered view that when the Assessing Officer without disputing the

amount of equity loss has stated in the said gain/loss statement issued by

the share broker as on 31.3.2016, then the amount of loss from other share

transaction cannot be disallowed or disbelieved. On estimation of profit @

8% by the AO, I am of the view that this action is baseless, meaningless

and has not been supported by any documents or corroborative evidence.

P a g e 5 | 8 Therefore, such kind of estimation cannot be held as sustainable and thus, I

demolish the same.

case of Felex Enterprises Pvt Ltd (supra), I direct the Assessing Officer that

the amount of Rs.22,30,251.19 should be allowed to the assessee as

normal business loss. Hence, Ground No.2 of the assessee is allowed.

Assessing Officer has denied set off of business loss being legitimate set off

allowed by the statute. Therefore, same may kindly be allowed. Ld counsel

submitted that since the transaction carried out by the assessee is a non-

speculative transaction, provisions of section 43(5) of the Act 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 of the Act and hence, such loss is required to be allowed for set off

against regular income of the assessee from other heads of income. Ld

counsel for the assessee drew my attention to section 71(1) of the Act and

submitted that the assessee is entitled to have the amount of loss set off

against his income, if any, assessable for that assessment year under any

other head. Ld counsel for the assessee relied on the decision of Mumbai

Benches of the Tribunal in the case of Babulal Enterprises vs ACIT in ITA

P a g e 6 | 8 No.6031/Mum/1996 order dated 12.2.1997, wherein, the turnover is defined

that where the actual delivery was not taken and difference in price was

settled on the basis of contract note, the turnover cannot include those

transactions value. He also submitted that similar view has been expressed

by Mumbai Tribunal in the case of Growmore Exports Ltd vs ACIT, 78 ITD

95 (Mum).

rightly allowed short term capital loss of Rs.3,37,599.56 incurred by the

assessee to be carried forward to next year under section 74 of the Act and

he was right in denying set off of loss suffered by the assessee from trading

of derivative transaction.

that while allowing Ground No.2 of appeal of the assessee, I have reached

to a logical conclusion that the Assessing Officer has wrongly estimated the

net income of the assessee and was not correct in treating the loss as

speculative loss and same has to be treated as normal business loss.

Therefore, as per provisions of section 71(1) of the Act, where in respect of

any assessment year, the net result of the computation of income under

any head of income, other than ‘capital gains’, is a loss and the assessee

has income assessable under the head ‘capital gains’ such loss may, subject

to the provisions of the Chapter -VI, be entitled to, if the amount of such

P a g e 7 | 8 loss set off against his income, if any, assessable for that assessment year

under any head of income. Therefore, keeping in view the said sub-

section(1) of Section 71 of the Act, I direct the Assessing officer to allow set

off the loss incurred by the assessee from trading transaction in derivatives

from other heads of income. Accordingly, the Assessing Officer is directed

to recalculate the taxable income of the assessee. Ground No.3 is allowed.

Order pronounced on 31 /12/2019.

Sd/- (Chandra Mohan Garg) JUDICIAL MEMBER

Cuttack; Dated 31/12/2019 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : Niranjan Jata, AL-117, VSS Nagar, Saheed Nagar, Bhubaneswar.

By order

Sr.Pvt.secretary ITAT, Cuttack

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