CIT vs. HERMONOS ZUBADI INVESTMENT PVT LTD

IN THE HIGH COURT OF DELHI AT NEW DELHI . . . ITA 222/2012 . . . CIT ..... Appellant . Through: Mr. Sanjeev Sabharwal, Sr. Standing Counsel. . versus . . . HERMONOS ZUBADI INVESTMENT PVT LTD ..... Respondent . Through: Mr. Salil Aggarwal with Mr. P.C. Yadav, Advocate. . . . CORAM: . HON'BLE MR. JUSTICE SANJIV KHANNA . HON'BLE MR. JUSTICE R.V.EASWAR . . . O R D E R . 13.04.2012 . . . In the List of Dates and Synopsis, it is mentioned that tax effect . is ` 2,52,114/-. In spite of the small tax effect Revenue has preferred this appeal as it is stated that an audit objection was raised in the present case and accepted by the department. . 2. We have heard counsel for the Revenue and do not find any merit in the present appeal. The Assessing Officer invoked his powers under Section 154 to correct ?an error apparent from the record? and accordingly had made an addition of ` 12,99,783/- by disallowing ?speculative loss?. We may notice that earlier for the assessment year 2005-06 the assessment under Section 143(3) was completed on 07.12.2007 at an income of ` 6,41,101/-. The Assessing Officer in the order under Section 154 observed that this amount of ` 12,99,783/- was on account of (net) loss on sale of shares under future option trading and, therefore, was a speculative loss. . 3. The aforesaid addition under Section 154 was upheld by the First Appellate Authority. The Tribunal in the impugned order has allowed the appeal, inter alia, observing that power under Section 154 cannot be invoked to correct mistake on a debatable issue on which two or more opinions are possible. The Tribunal has specifically referred to the decision in DCIT v. S.S.K.I. Investors Services Pvt. Ltd., (2008) 113 TTJ 511 in which it was held that provision of 43(5) was not applicable to derivative trading. There was thereafter decision of the Mumbai Tribunal in R.B.K. Securities Pvt. Ltd. v. ITO, (2008) 118 TTJ 465. There is an earlier decision of Bangalore Bench of Tribunal in C. Bharath Kumar v. Deputy CIT, (2005) 4 SOT 593 (Bangalore) in which a similar legal view was taken. Subsequently, Special Bench of Tribunal was constituted and these decisions were reversed in Shree Capital Services Ltd. v. ACIT, (2009) 318 ITR (AT) 1. . 4. The different views and conflicting decisions are indicative that the legal interpretation of Section 43(5) was not free from controversy. It cannot be said that two views were not possible. Subsequently, legislature intervened and Section 43(5) was amended by introduction of clause (d) to the proviso w. e. f. 01.04.2006 vide Finance Act, 2005. Derivative transactions were excluded from the preview of Section 43(5). We do not agree with the counsel for the Revenue that for the period prior 01.04.2006 there cannot be any ambiguity or debate. The issue could not have been made subject matter of rectification. . 5. In view of the above we do not find any substantial question of law arises. The appeal is dismissed. . 6. We clarify that we have not expressed any opinion on merits, whether clause (d) of 43(5) has retrospective effect or not. . . . . . SANJIV KHANNA, J . . . . . . . R.V.EASWAR, J . APRIL 13, 2012 . hs . . . . . $ 4 .