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Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 177/JP/2017
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 177/JP/2017 fu/kZkj.k o"kZ@Assessment Years : 2012-13 cuke Manjeet Singh Duggal, A.C.I.T., Vs. 135-B, Ram Gali No. 3, Raja Circle-1, Park, Jaipur-302001 Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABFPD 5158 C vihykFkhZ@Appellant izR;FkhZ@Respondent vk;dj vihy la-@ITA No. 202/JP/2017 fu/kZkj.k o"kZ@Assessment Years : 2012-13 cuke A.C.I.T., Manjeet Singh Duggal, Vs. Circle-5, 135-B, Ram Gali No. 3, Raja Jaipur. Park, Jaipur-302001 LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABFPD 5158 C vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Mahendra Gargieya (Adv) jktLo dh vksj ls@ Revenue by : Shri J.C. Kulhari (JCIT) lquokbZ dh rkjh[k@ Date of Hearing : 07/05/2018 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 01/06/2018 vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M.: These are cross appeals filed by the assessee and the Revenue against the order of ld. CIT(A), Ajmer dated 28/12/2016 for A.Y. 2012-13, wherein the assessee and the Revenue have raised following grounds of appeal:
2 ITA 177 & 202/JP/2017_ Manjeet Singh Duggal Vs ACIT
Grounds of assessee’s appeal: 1. “In the facts and circumstances of the case and in law the ld. CIT(A) has erred in disallowance of commodity loss of Rs. 9,10,126/-. The action of ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the said addition of Rs. 9,10,126/-.”
Grounds of revenue’s appeal: 1. Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in allowing the deduction of Rs. 1,47,64,740/- U/s 54 of the I.T. Act on account of capital gain.”
During the course of hearing, the assessee has sought permission to raise following additional ground of appeal, which is as under:
“2. Rs. 30,05,000/- The ld. CIT(A) erred in law as well as on the facts of the case in allowing the deduction U/s 54 in part only i.e. upto Rs. 1,47,64,740/- only as against Rs. 1,77,69,740/- (including exemption of Rs. 30,05,000/- on account of construction cost incurred up to 30/09/2012) claimed by the assessee. The deduction so denied being contrary to the provisions of law and facts on the record and hence, the exemption as claimed kindly be allowed in full.”
It was submitted that it is purely a legal ground, which do not require any fresh investigation of facts inasmuch as the same are already available on record and in support of this, reliance was placed on the decision of the Hon'ble Supreme Court in the case of National Thermal Power Corporation Ltd. 229 ITR 383 (SC). After hearing both the sides, the said additional ground being a pure legal ground is hereby admitted.
3 ITA 177 & 202/JP/2017_ Manjeet Singh Duggal Vs ACIT
Firstly, we shall take up the appeal of the Revenue and the additional ground raised by the assessee, which revolve around a common issue. Briefly stated, facts of the case are that during the year under consideration, the assessee sold a residential house situated at E-41, Kailash Colony, New Delhi vide a registered sale deed dated 31/1/2012 for a total sale consideration of Rs. 7.00 crores. In his original return of income filed on 27/7/2012, the assessee claimed deduction U/s 54 of the Income Tax Act, 1961 (in short the Act) amounting to 2,20,41,404/-, and after considering the same and the indexed cost of acquisition of Rs. 4,79,58,596/-, long term capital gain on sale of said property was computed at NIL. In the notes to the computation of income, it was shown as the land purchased on 07/6/2012 for Rs. 1.40 crores, registration charges paid of Rs. 11.00 lacs and it was further stated that the assessee will construct a house in the same land within three years period for an amount of Rs. 70.00 lacs. Accordingly, no capital gain liability was computed by taking into consideration the deduction under provisions of Section 54 of the Act. Thereafter, the assessee filed a revised return of income on 11/2/2013 wherein deduction U/s 54 of the Act was computed at Rs. 50.00 lacs and in the notes to computation of income, it was stated that the assessee shall invest Rs. 50 lacs on construction of residential house. Accordingly, a revised capital gains liability was computed at Rs. 1,70,41,404/-. Thereafter, during the course of assessment proceedings, the assessee filed another revised computation of income wherein deduction U/s 54 was shown as investment in house property and the amount stated to be Rs. 1,77,69,740/-, and revised capital gains liability was determined at Rs 42,71,664. The deduction claimed under section 54 consisted of cost of acquisition of land of Rs. 1,47,64,740/- and expenses incurred on the property till 30/9/2012 amounting to Rs. 30,65,000/- totaling to Rs. 1,77,69,740/-.
The Assessing Officer, referring to the original return of income, observed that the assessee has not bought a residential house rather he has
4 ITA 177 & 202/JP/2017_ Manjeet Singh Duggal Vs ACIT only bought a plot of land and has proposed to make construction in the years to come. Further the amount over and above the cost of plot should have been deposited in the capital gains accounts scheme but the assessee has failed to do so. In this regard, the Assessing Officer referred to the computation filed with the original return of income as well as the purchase deed and the map of the property which nowhere mentioned a residential house but a plot of land with stone covered area. Referring to the revised computation of income and the revised claim made during the course of assessment proceedings, a show cause notice was issued to the assessee. In response to the notice, the assessee submitted that it has purchased a new residential house situated at C-113, Ramgali No. 5, Raja Park, Jaipur on 07/6/2012 for Rs. 1.40 crores. Referring to the sale deed, it was submitted by the assessee that what has been purchased is a “Nirmit Suda” i.e, already constructed building alongwith water and electric connection with roof. In support of this, photographs of the building in which three rooms are constructed alongwith toilet, bath was submitted. Further, a copy of the electricity bill was submitted, which was in the name of seller which shows the status of the consumer as residential and that of the electricity meter as domestic connection. However, the submissions so made by the assessee was not found acceptable to the Assessing Officer. As per the Assessing Officer, the same plot of land is claimed as plot purchased in the original return of income with a proposal to construct a house and later the same is claimed as residential house purchased. Further referring to the purchase deed, the Assessing Officer stated that it is a plot of land with stone covered area which can at the most be claimed as a temporary structure but not a residential house as nowhere there is mention of a residential or even a dwelling unit. It was further observed by the Assessing Officer that if the assessee had bought a residential house then why not the assessee claimed the deduction of residential house in first place rather than mentioning proposed construction of house on the plot, which clearly shows an afterthought on the part of the
5 ITA 177 & 202/JP/2017_ Manjeet Singh Duggal Vs ACIT assessee. It was further stated by the Assessing Officer that the assessee has not deposited any amount in the capital gain account scheme and claimed investment in residential house directly to surpass the deposit scheme and availed deduction U/s 54 of the Act. Further the Assessing Officer observed that the question of allowability of additional deduction, what is not claimed in the return of income will only arise if the deduction is prima facie valid and referring to the Hon'ble Supreme Court decision in the case of Goetze (India) Limited Vs CIT (2006) 157 Taxman 1 wherein it was observed by the Hon'ble Supreme Court that the A.O. could entertain a claim only if made in the return/revised return. Accordingly, the Assessing Officer did not allow the claim of the assessee U/s 54 of the Act and computed long term capital gain liability in the hands of assessee at Rs. 2,54,95,782/- as against Rs. 1,70,41,404/- computed by the assessee and thereby bringing to tax amount of Rs. 84,54,378/- in the hands of the assessee as additional income under the head “long term capital gain”.
Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A), who has allowed the claim of assessee to the extent of Rs. 1,47,64,740/- U/s 54 of the Act holding that what has been purchased by the assessee was a residential house. However, he didn’t allow the claim of Rs. 30,65,000/-.
During the course of hearing, the ld DR reiterated the findings of the Assessing officer and relied on the order of the Assessing officer. It was further submitted that the ld CIT(A) has not rightly appreciated the contents of the sale deed of the new property and what has been purchased was a plot of land and not a residential house.
Per contra, the ld AR of the assessee has relied on the submissions made before the ld. CIT(A) as well as supported the findings so made by him except in respect of Rs 30,05,000 which has been challenged by way of the
6 ITA 177 & 202/JP/2017_ Manjeet Singh Duggal Vs ACIT additional ground of appeal. It was submitted that the ld AO clearly proceeded on a misconception of facts and law by saying that the new property purchased was nothing but a mere plot and not a new residential house. It was submitted that the fact that the new property was a residential house is clearly mentioned in the registered sale deed wherein it has been stated that “fufeZr”kqnk rkehjkr yxs leLr lkeku] e; ikuh&fctyh fQfVax e; dusD”ku lfgr ds tek izR;sd izdkj dh jkf”k;ksa lfgr ds uhps dh tehu Åij dh Nr reke ge gdwdksa lfgr ds vf/kdkjksa ds eq0 1]40]00]000@& : v{kjs ¼,d djksM+ pkyhl yk[k :i;s½ dh ,ot esa f}rh;i{k Øsrk Jh euthr flag nqXxy -------------------”. It was further submitted that even the original seller started living in that house as evident from the sale deed where it is stated that “mUgksus vius futh IykWV ij fuekZ.k dj fjgk;”k “kq: dhA“ and the fact that even water and electricity fittings and connections were available as evident from the electricity bill in the name of the seller. It was further submitted that even the photographs clearly show construction of two rooms, toilet, bath and kitchen and thus, it was a complete house fit for human habitation. In support, reliance was placed on the decision of the Coordinate Bench in case of Prem Prakash Bhutani vs ACIT 110 TTJ 440 (Del). Further, reference was drawn to the decision of the Coordinate Bench in case of Seema Singh Beniwal vs DCIT (ITA No. 135/JP/2012 dated 9/10/2015) where it was held that the law doesn’t prescribe any particular manner or the quantum of the construction but it should be a residential house which should be habitable.
Regarding expenditure of Rs 30,05,000, it was submitted by the ld AR that the ld. CIT(A) seriously erred in not allowing the full amount of deduction as claimed at Rs. 1,77,69,740/- u/s 54 and there appears no justification at all behind the part allowance of the deduction up to Rs. 1,47,64,740/- only. The facts are not denied that the assessee has already incurred total cost Rs.1.78 Cr. up to 30th Sep, 2012 (which was well within the permissible time limit of two years from the date of the transfer being 30.01.2012, expiring only on 31.01.2014) whereas, the assessee had incurred total cost much prior thereto. The investment of Rs.1.48 Cr was already made up to 07.06.2012 and further
7 ITA 177 & 202/JP/2017_ Manjeet Singh Duggal Vs ACIT cost of Rs.30,05,000/- was incurred up to 30.09.2012 totaling to Rs.1.78 Cr with the prescribed period of two years. The ld. CIT(A) though noted the facts and claims made but has been silent and has not given any finding.
We have heard the rival contentions and purused the material available on record. It is not in dispute that a claim towards deduction under section 54 was made by the assessee while filing his original return of income and thereafter, there have been revision in the quantum of such claim during the course of assessment proceedings. The AO has not allowed the said claim holding that what has been purchased is a plot of land and not a residential house, besides other reasons. The ld CIT(A) has however allowed the said claim of the assessee to the extent of purchase consideration and related expenses as per conveyance deed dated 7.6.2012, however he has not allowed the claim of Rs. 30,65,000/-. The limited question that arises for consideration is whether the assessee has purchased a residential plot of land simpliciter or has purchased a residential house which is habitable. For the purposes of determining the same, what is critical to examine is the conveyance deed by virtue of which the assessee has purchased the said property. In this regard, the ld CIT(A) has returned a finding which is reproduced as under:
“I have gone through the sale deed dated 07.06.2012 carefully. In the sale deed, it has clearly been mentioned that the original owner of the Plot No. 113, Raja Park, Jaipur himself had constructed house on the plot and started living in that house. Further, at page 6 of the sale deed also, it has clearly been mentioned that what was being sold was Plot No. 113 along with the house constructed thereon and water and electricity fitting with connection. The photograph of the property purchased by the appellant was also attached along with the sale deed. After going through the sale deed and photograph attached with sale deed, I am of the considered view that the property purchased by the appellant was a
8 ITA 177 & 202/JP/2017_ Manjeet Singh Duggal Vs ACIT residential house for which deduction u/s 54 is admissible to the appellant.”
In our view, the findings of the ld CIT(A) are based on right appreciation of the conveyance deed duly corroborated by the pictures of the constructed rooms as well as domestic electric connection taken in the name of the seller. During the course of hearing, nothing has been brought to our notice to controvert the said findings of the ld CIT(A). Hence, we hereby confirm the said findings of the ld CIT(A) that the property so purchased by the appellant was a residential house eligible for deduction under section 54 of the Act. As far as claim of Rs 30,05,000 is concerned, nothing has been brought on record which demonstrate that such cost has been incurred towards any refurbishment/renovation of the residential house so purchased. In the result, sole ground of the revenue’s appeal and the assessee’s additional ground of appeal is hereby dismissed and the order of the ld CIT(A) is hereby confirmed.
Now, coming to the main ground of assessee’s appeal wherein the assessee has challenged the disallowance of commodity loss of Rs. 9,10,126/-. Briefly stated, facts of the case are that during the year under consideration, the assessee has incurred loss of Rs. 9,10,126/- in respect of trading in commodities derivatives on MCDX and NSC and the same was claimed as setoff against the normal business activities. The Assessing Officer referring to the definition of speculative transaction as defined in Section 43B(d) stated that trading in derivatives referred to in Section 2(ac) of he Securities Contracts (Regulation) Act, 1956 carried out on a recognized stock exchange is not deemed to be a speculative transaction. The recognized stock exchanges are NSC, BSE, MCX and United Stock Exchange of India. The income derived from such transactions carried on these recognized exchanges in periods thus notified, will be treated as non-speculative i.e. business income. However, commodity derivatives are considered as eligible transactions if traded on
9 ITA 177 & 202/JP/2017_ Manjeet Singh Duggal Vs ACIT recognized stock exchanges only from 01/4/2014 as per the amended definition of speculative transaction by virtue of insertion of clause (e) by the Finance Act, 2013. Even the assessee is trading on NSE and the segment of trading as commodity dealing from which can be considered as eligible transaction only from 01/4/2014. Accordingly, the Assessing Officer held that dealing in commodity transactions is a speculative business activity and any losses from the same can only be set off against the income from speculative business and not from any other head of income referring to the provisions of Section 73 of the Act. The loss on account of speculative transaction amounting to Rs. 9,10,126/- was accordingly disallowed and not allowed to be setoff against the income from any other head.
Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A), who has confirmed the disallowances by holding that the disallowance made by the Assessing Officer is in accordance with the provisions of Section 73 of the Act.
Now, the assessee is in appeal before us. During the course of hearing, the ld AR took us through the definition of speculative transactions as defined in Section 43(5)(d) as well as 43(5)(e) of the Act. The ld AR also took us through the definition of derivatives as defined in Section 2(ac) of the Securities Contract (Regulation) Act and submitted that the word ‘derivative’ is a term of wide import which includes the share derivatives as well as commodity derivatives. The ld AR has further relied on the written submissions which are reproduced as under:
“2.1 It is submitted that the fact are not denied that the assessee, this year, has transacted in Derivatives (shares and commodities both). By the introduction of sec. 43(5) by the Finance Act 2005 with effect from 01.04.2006, any loss or profit arising from the derivative transaction ( i.e. even without taking delivery), is permissible as non-speculative in as
10 ITA 177 & 202/JP/2017_ Manjeet Singh Duggal Vs ACIT much as it provides that the transactions of Futures and Options (F&O) derivatives trading are covered by clause (d) of section 43(5) and such transactions, if done on the recognized stock exchange, would not be treated as speculative transactions.
2.2 It is further submitted that sec 43(5)(d) defines an eligible transactions with reference to those derivatives, which are referred to in sec 2(ac) of Securities Contract Regulation Act, 1956 (SCRA).
2.3 Further, the term derivative have been defined in that act as under
2(ac) “Derivative” includes-
(A) a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security ;
(B) a contract which derives its value from the prices, or index of prices, of underlying securities;
3.1 Here it is to be clarified that the word ‘derivative’ is a term of wide import which includes the share derivatives as well as commodity derivatives. Accordingly, even a contract for difference or any other form of security also falls under the term derivatives.
3.2 It may further be clarified that the provisions of the Securities Contract Regulations Act fully applies to both type of derivatives whether shares derivatives or commodity derivatives for the reason that sec 2(h) of the Act, which defines 'Securities’ also includes derivatives and then derivatives u/s 2(ac), as reproduced above also includes both type of derivatives. Definition of security u/s 2(h) of SCRA is as under:
(h) “securities” include—
11 ITA 177 & 202/JP/2017_ Manjeet Singh Duggal Vs ACIT
(i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;
(ia) derivative;
Since the definition of security also includes derivatives, hence the commodity derivatives traded by the assessee in commodities, in the present case on future/option are fully covered by the term derivative and are covered by sec 43(5)(d).
Present Transactions Covered by 43(5)(d) itself:
4.1 It is further submitted that clause (e) was inserted below sec 43(5)(d) by the Finance Act, 2013 and was made effective from 01.04.2014 (i.e. from AY 2014-15 & onwards) which certainly speaks of the transactions in commodity derivatives. However, the background and the legislative intent, behind insertion of clause (e) was not to read the commodity derivatives in addition to/in contrast/in difference of the share derivative for the reason that the legislator wanted that the loss arising from the transactions entered in the commodity derivatives to be treated as non- speculative, if CTT (Commodity Transaction Tax) has been paid/suffered on such transaction. Therefore, it was provided that an eligible transaction w.r.t. trading in commodity derivatives, will not be a speculative transaction if it is CTT paid and carried out through a recognized exchange. Thus, it is evident that the insertion of clause (e) was only for a limited purpose, as stated above and therefore, it cannot be contended that the derivatives as contemplated by sec 43(5)(d) does include shares only but does not include commodity. Therefore, the AO’s allegation that clause (e) was made effective from A.Y. 2014-15 is not relevant in as much as the assessee had made the claim u/s
12 ITA 177 & 202/JP/2017_ Manjeet Singh Duggal Vs ACIT 43(5)(d) only which fully covers both type of derivatives. Kindly refer communication explaining speculative transactions in respect of commodity derivatives (DPB 55)
4.2 It is pertinent to note that pursuant to the insertion of clause (e) in sec 43(5), no change was made in the definition of derivatives given in sec 2(ac) of Securities Contract Regulations Act. Thus, if the legislation wanted the commodity derivatives to be taken out of 43(5)(d) then a change to that effect was essentially required. Kindly refer Explanation 2 below sec 43(5)(e), reading as under:
Explanation 2.—For the purposes of clause (e), the expressions—
(i) "commodity derivative" shall have the meaning as assigned to it in Chapter VII of the Finance Act, 2013;
(ii) "eligible transaction" means any transaction,—
(A) carried out electronically on screen-based systems through member or an intermediary, registered under the bye-laws, rules and regulations of the recognised association for trading in commodity derivative in accordance with the provisions of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and the rules, regulations or bye-laws made or directions issued under that Act on a recognised association; and
(B) which is supported by a time stamped contract note issued by such member or intermediary to every client indicating in the contract note, the unique client identity number allotted under the Act, rules, regulations or bye- laws referred to in sub-clause (A), unique trade number and permanent account number allotted under this Act;
13 ITA 177 & 202/JP/2017_ Manjeet Singh Duggal Vs ACIT (iii) “recognized association" means a recognised association as referred to in clause (j) of section 2 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and which fulfils such conditions as may be prescribed and is notified by the Central Government for this purpose;
In case of the assessee, the subjected derivative trading were done through the recognised stock exchanges i.e. MCX and NSE and both the exchanges have been granted recognition by the SEBI. The NSE had already been recognized long back however, MCX has been recognized as stock exchange w.e.f. 17.10.2008 kindly refer copy of a communication from the website of SEBI.”
We have heard the rival contentions and purused the material available on record. We have gone through the order of the ld CIT(A) and don’t see any infirmity in his findings whereby he has disallowed setting off of the loss on commodity derivates being speculative transaction against the normal business income in accordance with provisions of Section 73 of the Act. Further, we donot agree with the contentions of the ld AR that the present transaction is covered by clause (d) of section 43(5) given that clause (e) which talks about trading in commodity derivative an an eligible transaction was brought on the statue books by the Finance Act 2013 w.e.f 1.4.2014 and is thus not applicable for the impugned assessment year. In the result, ground of assessee’s appeal is dismissed.
In the result, we upheld the order of the ld CIT(A) and both the cross appeals are dismissed.
Order pronounced in the open Court on 01/06/2018.
14 ITA 177 & 202/JP/2017_ Manjeet Singh Duggal Vs ACIT
Sd/- Sd/- ¼fot; iky jko½ ¼foØe flag ;kno½ (Vijay Pal Rao) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 01/06/2018 *Ranjan आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Shri Manjeet Singh Duggal, Jaipur. 2. izR;FkhZ@ The Respondent- (i) The A.C.I.T., Circle-1, Jaipur (ii) The A.C.I.T., Circle-5, Jaipur 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 6. xkMZ QkbZy@ Guard File (ITA No. 177 & 202/JP/2017) vkns'kkuqlkj@ By order,
सहायक पंजीकार@Aेेज. त्महपेजतंत