THE PRINCIPAL COMMISSIONER OF INCOME TAX-4 vs. M/S S.N.REALTY INFRASTRUCTURE (P) LTD

Facts

The assessee, M/s S.N. Realty Infrastructure (P) Ltd, a private limited company engaged in trading in derivatives, renting motorcars, and deriving income from house property, claimed a loss of Rs. 3,66,76,119 on account of trading in derivatives for assessment year 2012-13. The Assessing Officer (AO) treated this loss as speculative, stating the assessee failed to provide sufficient evidence to justify the claim under Section 43(5)(d) of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the assessee's appeal, holding that the necessary evidence was submitted to the AO and that the transactions met the conditions of Section 43(5)(d). The Revenue appealed this decision to the Income Tax Appellate Tribunal (ITAT). The ITAT affirmed the CIT(A)'s order, dismissing the Revenue's appeal.

Held

The Tribunal held that the loss incurred by the assessee in derivative transactions was not speculative. It affirmed the findings of the CIT(A) that the assessee had duly furnished all supporting pieces of evidence during the assessment proceedings and before the CIT(A). The Tribunal reiterated the conditions for a transaction in derivatives not to be treated as speculative under Section 43(5)(d): (1) carried out electronically on a screen-based system, (2) through a registered stockbroker, (3) supported by a time-stamped contract note issued by the broker containing client code and PAN, and (4) carried out through a recognized stock exchange. The Tribunal found that the assessee had provided all requisite details to justify that the loss claimed fulfilled these conditions. Consequently, the disallowance made by the AO was deleted. The Tribunal noted a concurrent finding of fact by the two revenue authorities and decided not to disturb it, dismissing the appeal.

Key Issues

1. Whether the Appellate Tribunal has erred in law and on facts in upholding the decision of the CIT(A) in deleting the disallowance of Rs.3,66,76,119 on account of F&O Loss? Assessee's Contention: The assessee argued that all necessary evidence to establish its case under clause (d) of Section 43(5) was submitted to the AO during assessment proceedings. The transactions were carried out electronically on a screen-based system through a registered stockbroker, JM Financial Services Pvt Ltd, which is registered with the National Stock Exchange of India, and were supported by time-stamped contract notes and bills/invoices from NSE. Therefore, the loss was not speculative. Revenue's Contention: The Revenue contended that the assessee failed to furnish necessary evidence or supporting evidence justifying that the loss represented trading activities in derivatives and fulfilled the conditions specified under Section 43(5)(d) of the Act. The AO treated the loss as speculative.