PRINCIPAL COMMISSIONER OF INCOME TAXI vs. M/S DIAMOND SECURITIES PVT. LTD.

ITA 10/2017 ( 1 ) THE HIGH COURT OF MADHYA PRADESH: JABALPUR (Division Bench) Income Tax Appeal No. 10/2017 Principal Commissioner of Income Tax-I, …Appellant/Revenue Bhopal versus M/s Diamond Securities Pvt. Ltd., Bhopal …Respondent/Assessee ====================================================== Coram: Hon’ble Shri Justice Ajay Kumar Mittal, Chief Justice Hon’ble Shri Justice Vijay Kumar Shukla, Judge ====================================================== Appearance: Shri Sanjay Lal, Advocate for the Appellant/Revenue. Shri Mukesh Agrawal, Advocate for the Respondent No.1/Assessee. ====================================================== JUDGMENT (Oral) (20.01.2020) Per: Ajay Kumar Mittal, Chief Justice: The present appeal under Section 260A of the Income Tax Act, 1961 (for short “the Act”) has been preferred by the Revenue against an order dated 05.07.2016 passed by the Income Tax Appellate Tribunal, Jabalpur (for brevity “the Tribunal”) in I.T.A.No.284/Ind/2015 relating to Assessment Year 2007-08, whereby the appeal filed by the appellant-Revenue has been dismissed. 2. This appeal was admitted on 27.11.2017 for determination of the following substantial question of law:- “(i) Whether on the facts and in the circumstances of the case, learned Tribunal was correct in holding that the loss of Rs.96,50,334/- constituted business loss and not a speculation loss?” ITA 10/2017 ( 2 ) 3. The facts of the case, as are borne out from the memo of appeal, in nutshell are that the respondent-assessee derived income from the business of shares sub-brokers, trading in futures and option (F&O) of shares and commodities futures. The assessee furnished its return of income electronically on 30.10.2007 for the assessment year 2007-08 declaring total income of Rs.29,02,262/- and claiming business loss of Rs.96,50,334/-. The original assessment was completed on 19.11.2009 vide order under Section 143(3) of the Act determining total income at Rs.29,24,150/-. Thereafter, the Assessing Officer finding escapement of income of the assessee to the tune of Rs.96,50,334/- issued notice under Section 148 of the Act dated 20.06.2011 calling upon the assessee to justify the set off of loss claimed in the transactions of shares F&O, as claimed. Finding the reply of the assessee as not tenable, the assessment was completed vide order dated 18.03.2013 (Annexure A-1) after making addition of Rs.96,50,334/- as speculation loss and the income was assessed at Rs.1,25,74,480/-. Being aggrieved by the reassessment, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals-I) [hereinafter referred to as “the CIT(A)]. The CIT(A) allowed the appeal vide order dated 26.02.2015 (Annexure A-2) and deleted the addition made by the Assessing Officer. The order of the CIT(A) was assailed by the Revenue before the learned Tribunal, who has dismissed the appeal vide order dated 05.07.2016 (Annexure A-3), which order is impugned herein. 4. At the outset, learned counsel for the respondent-assessee raised a preliminary objection by filing I.A. No.12773/2019 that in the light of the Circular No.3/2018 dated 11.07.2018 read with amended Circular ITA 10/2017 ( 3 ) No.17/2019 dated 08.08.2019 issued by the CBDT, the present appeal is not maintainable, as the tax effect is below Rs. 1.00 Crore. However, combating the said objection, learned counsel for the Revenue submitted that though the tax effect involved in the present case is below the prescribed monetary limit for filing the appeal, but since there is Revenue audit objection, therefore, the case is covered under Para 10(c) of the aforesaid CBDT circulars and the appeal can be filed. In view of the said fact, the preliminary objection raised is noted to be rejected. 5. Learned counsel for the appellant made an extraneous effort to persuade us that both the appellate authorities below have erred in fact and in law in allowing the speculation loss claimed by the assessee in transaction of shares F&O by treating the same as general business loss. The assessee was obliged to produce the stamped contract notes with the return in support of business loss and justify the set off loss claimed by him but he failed to place any material on record before the Assessing Officer, which led to addition of an amount of Rs.96,50,334/- as speculation loss and rightly so. It was further submitted that the appellate authorities below failed to appreciate that in the share transactions in respect of which the business loss was claimed there was no actual delivery of scrips as envisaged under Sub- section (5) of Section 43 of the Act and therefore, such transaction did not fall in the category of an ‘eligible transaction’ under Clause (d) of proviso to Sub-section (5) of Section 43 of the Act. Hence, it was prayed that the appeal be allowed and the impugned order be set aside. 6. In rebuttal, learned counsel for the respondent-assessee argued in support of the impugned order and contended that the submissions advanced ITA 10/2017 ( 4 ) by the learned counsel for the appellant before this Court have already been taken care of by the both the appellate authorities below and germane reasons have been assigned and, therefore, no interference is warranted. 7. Having heard learned counsel for the parties, we are of the considered view that the present appeal deserves to be dismissed. 8. It is noted that before the Tribunal, the Departmenrt of Revenue admitted that the addition of Rs.96,50,334/- as speculation loss was made due to some confusion that the business loss of the earlier year was brought forward by the assessee for set off in the assessment year 2007-08 and since the provisions of Section 43(5)(d) of the Act were introduced w.e.f. 01.04.2006, therefore, the advantage of the said provision was not available to the assessee for the earlier year. It was further agreed by the Revenue that the loss from shares and futures was covered by clause (d) of proviso to sub- section (5) of Section 43 of the Act and was not a speculation loss. In this view of the matter, the learned Tribunal affirmed the order of the CIT(A). The findings recorded by the learned Tribunal read as under:- “7. Before us, the learned DR submitted that there was a confusion in this case as in the assessment order it is mentioned that the assessee has set off the loss from shares F&O of Rs.96,50,334/- against its business income and it was, therefore, presumed that it was brought forward business loss of earlier year and, hence, not allowable. It was, therefore, held that as the provisions of section 45(5)(d) of the Act were introduced w.e.f. 1.4.2006, therefore, the said provision was not applicable to earlier assessment years. 8. In view of the above submissions of the learned DR wherein he has agreed that the loss from shares and futures was covered by section 43(5) (d) of the Act and was not speculation loss and hence, an allowable deduction against the business income, we find no good reason to interfere ITA 10/2017 ( 5 ) with the order of the learned CIT(A) which is confirmed. Therefore, the ground of appeal of the revenue is dismissed.” 9. The appellant having admitted before the learned Tribunal that the addition of the amount of Rs.96,50,334/- on account of speculation loss happened by mistake due to confusion, cannot be heard to say that the order passed by the Tribunal or for that matter, the CIT(A) is bad in law. 10. Even if for the sake of consideration, the argument advanced by the learned counsel for the appellant-Revenue that both the appellate authorities below erred in allowing the loss claimed by the assessee in transaction of shares F&O by treating the same as general business loss, is taken up, we do not find any merit in the said argument as well. The relevant statutory provision contained in Section 43(5) of the Act which was inserted in the Act by the Finance Act, 2005 w.e.f. 1.4.2006, reads as under:- “Definitions of certain terms relevant to income from profits and gains of business or profession. 43. In sections 28 to 41 and in this section, unless the context otherwise requires- *** *** *** (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: Provided that for the purpose of this clause- *** *** *** (d) an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stocks exchange; shall not be deemed to be a speculative transaction. Explanation – For the purposes of this clause, the expressions - (i) “eligible transaction” means any transaction, - (A) carried out electronically on screen-based systems through a stock broker or sub-broker or such other intermediary registered under ITA 10/2017 ( 6 ) section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or the Securities and Exchange Board of India Act, 1992 (15 of 1992) or the Depositories Act, 1996 (22 of 1996) and the rules, regulations or bye-laws made or directions issued under those Acts or by banks or mutual funds on a recognised stock exchange; and (B) which is supported by a time stamped contract note issued by such stock broker or sub-broker or such other intermediary to every client indicating in the contract note the unique client identity number allotted under any Act referred to in sub-clause (A) and permanent account number allotted under this Act;” 11. A conjoint reading of clause (d) of the proviso to sub-section (5) of Section 43 of the Act and the explanation attached to it makes it clear that if a transaction in trading of derivatives is carried out electronically on screen- based system through a stock broker or sub-broker and it is supported by a time stamped contract note issued by such broker which indicates unique client identity and PAN number of the client, it shall be “an eligible transaction” and shall not be deemed to be a “speculative transaction”. 12. The learned Tribunal while considering the appeal of the Revenue found that the CIT(A) at the time of deciding the appeal of the assessee against the addition of Rs.96,50,334/- made by the Assessing Officer treating the same as speculation loss, had called for the remand report to ascertain as to whether the assessee did fulfill the condition laid down under sub-clause (d) of proviso to Sub-section (5) of Section 43 of the Act. The contract notes were also produced by the assessee before the CIT(A), amongst which the note issued by the broker M/s Arihant Capital Market Ltd. through whom the assessee had undertaken the alleged transactions in respect of trading in derivatives i.e. F&O of shares was also examined in particular. The contract ITA 10/2017 ( 7 ) note clearly revealed that the transactions were supported by time stamped contract notes issued by the stock broker in which unique client identity and PAN number etc were also indicated in accordance with the explanation-1 attached to clause (d) of proviso to sub-section (5) of Section 43 of the Act. Section 43(5) of the Act was also discussed in the order by the CIT(A) and on the basis of the same, the CIT(A) had arrived at the conclusion that the assessee had fully satisfied the requirements under clause (d) of the proviso to Sub-section (5) of Section 43 of the Act. 13. Learned counsel for the Revenue has failed to point out that the findings returned by the CIT(A) and the Tribunal are erroneous or are perverse in any manner or are based on misappreciation of material on record. We find no reason to interfere with the order impugned herein. Therefore, in the facts and circumstances noticed above, the loss sustained by the assessee from the transaction of purchase and sale of the shares cannot be deemed to be speculation loss. Accordingly, we answer the substantial question of law against the appellant-Revenue in the present case that the loss of Rs.96,50,334/-, as claimed by the Revenue is not a speculation loss. 14. For the reasons stated hereinabove, the present appeal fails and is hereby dismissed. (AJAY KUMAR MITTAL) (VIJAY KUMAR SHUKLA) CHIEF JUSTICE JUDGE S/ Digitally signed by SACHIN CHAUDHARY Date: 2020.02.20 16:59:03 +05'30'