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Income Tax Appellate Tribunal, ‘’ SMC’’ BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED & SHRI T.R. SENTHIL KUMAR
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income (Appeals)-5, Ahmedabad dated 29/01/2019 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2015-16.
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The assessee has raised the following grounds of appeal: 1.1 The order passed u/s.250 on 29-1-2019 for A.Y.2015-16 by CIT(A)-5, A'bad, upholding the disallowance of Rs.8,64,792/- in F & O trading in commodities is wholly illegal, unlawful and against the principles of natural justice. 1.2 The Ld. CIT(A) has grievously erred in law and or on facts in not considering fully and properly the explanations furnished and the evidence produced by the appellant and passing a non-speaking order . 2.1 The Ld. CIT(A) has grievously erred in law and or on facts in upholding that the F& 0 Loss of Rs. 8,64,792/- in commodity transactions was not admissible since the appellant had failed to produce any letter or document to prove that CTT was not applicable in his case, 2.2 That in the facts and circumstances of the case as well as in law, the Ld. CIT{A) ought not to have upheld the disallowance of F& O Loss of Rs. 8, 64,792/- . 2.3 The Ld. CIT(A) has grievously failed to appreciate that the AO had not disputed that the appellant had indulged into F & 0 trading in commodity transactions which were not liable to CTT. 3.1 That in the facts and circumstances of the case as well as in law, the Id. CIT(A) has grievously erred in confirming the disallowance of RS. 1,24,722/- out of vehicle expenses on ad hoc basis @ 10 %. Which were excessive in the facts of the case.
It is therefore prayed that the disallowance/addition upheld by the CIT(A) should be deleted.
The interconnected issue raised by the assessee in ground No. 1 and 2 is that the learned CIT-A erred in treating the loss with respect to the F & O transactions in commodities segment of ₹ 8,64,792/- as speculative in nature.
The assessee before us is HUF and claimed to be engaged in the business of trading in shares, securities and commodities under the name and style of V3 trading and investment co. The assessee in the year under consideration has shown a loss of ₹ 8,64,792/- in F & O trading in commodities. According to the assessee, though such loss was speculative in nature, but the same falls under the exception under clause (e) of section 43(5) of the Act. Accordingly, the same cannot be treated as speculative in nature.
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4.1 However, the AO principally found that trading in commodities in the F & O segments is not speculative in nature if carried out through a recognized association and the same was subject to Commodities Transaction Tax (in short CTT) in pursuance to the provisions of clause (e) of section 43(5) of the Act. But, the assessee has not paid any commodities transaction tax and therefore the AO was of the view that the impugned loss in the F & O trading in commodities segment does not fall under the exception as discussed above. Thus, the AO treated the same as speculative in nature.
Aggrieved assessee preferred an appeal to the learned CIT-A who also confirmed the order of the AO by observing as under: 6.4 I have considered the facts of the case, submission made by the ' appellant and assessment order. During the assessment proceedings, the AO \ noted that the assessee has credited Rs.7,71,991/- for F & O transaction with Edelweless Comtrade and debited Rs.16,36,783/- and shown the loss of Rs.8,64,792/-. The assessee could not filed any evidence in support of the transaction that these transaction was covered by the exception clause of Section 43(5)(e) of the Act and finally noted that the assesee could not furnish the details, therefore the AO held that the F&O loss of Rs.8,64,792/- cannot be treated as business profit/loss and the same is speculative loss. 6.5. The appellant in the appellate proceedings filed written submission and claimed that the transaction is covered by the exception clause of provisions of Section 43(5)(e) of the Act being traded in Agro Product hence not liable for CTT and relied on various decisions. 6.6. The contention of the appellant is not tenable as the appellant could not filed any supporting documents or evidence that it traded in the Agro product which is not liable for CTT. the AO has discussed the reasons in details in the assessment order. The appellant could not file any letter or document either before the AO or during the appellate proceeding to prove that CTT is not applicable in his case. Therefore the contention of the appellant that CTT is not applicable in his case cannot be accepted in absence of any evidence. 6.7. After considering the facts and legal position, the AO is justified in treating the same as speculative transaction and disallowance of Rs.8,64,792/- made by the AO on account of speculative loss is confirmed. The ground of appeal is dismissed.
Being aggrieved by the order of the learned CIT-A the assessee is in appeal before us.
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The learned AR before us filed a paper book running from pages 1 to 64 and contended that there was no CTT payable with respect to the commodity trading in agricultural segment. But the transaction was carried out through the recognized association. Thus there was an amendment brought under the statute to dispense with the condition for the payment of CTT on agricultural commodity derivative by inserting the proviso by the Finance Act 2018 effective from 1 April 2019 which provided that no CTT is payable with respect to agricultural commodities. Though such proviso was brought by the Finance Act 2018 but the same incorporated to provide the clarification and therefore the same should be treated as curative in nature. Thus the same should be made effective from the date of insertion of sub- clause (e) of section 43(5) of the Act i.e. Finance Act 2013.
7.1 It was also contended by the learned AR for the assessee that when the CTT was not payable on the trading of agricultural products, therefore the transactions in agricultural commodities trading cannot be said out of the purview of the exception as provided under clause (e) of section 43(5) of the Act.
On the contrary, the learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. The speculative transactions are those transactions of purchase/sale of the commodities including stock and shares which are ultimately settled without actual delivery or transfer of the commodity or scripts. Thus, the transaction on hand carried out by the assessee is indeed is speculative in nature. But there have been provided certain exceptions under section 43(5) of the Act to the meaning/definition of speculative transaction. One of the exception has been provided under clause (e) of section 43(5) of the Act which reads as under: (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 purposes of this clause—
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(a) *********** (b) ********** (c) ********** (d) ************ (e) an eligible transaction in respect of trading in commodity derivatives carried out in a 78[recognised stock exchange], which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013),
9.1 From the above, it is transpired that any transaction of trading in commodity derivatives shall not be treated as speculative in nature if it is carried out in a recognized association and after the payment of commodities transaction tax. Such exception was brought by the Finance Act 2013.
9.2 From the above, there remains no ambiguity to the fact that the lawmakers wanted to treat the transactions in commodity trade derivatives as exception to speculative transactions subject to the conditions which have been elaborated in the previous paragraph. Initially, the lawmakers levied CTT on nonagricultural commodities in F and O segment at 0.01% of the price of the trade. At that point of time, there was no CTT on agricultural products. Thus apparently it appears that the conditions provided under (e) of section 43(5) of the Act has not been satisfied by the assessee.
9.3 However, there was an amendment brought by the Finance Act 2018 effective from 1 April 2019 wherein it was provided that condition of payment of CTT will not be applicable in case of the trading in agricultural commodities. The relevant amendment in the form of proviso to (e) of section 43(5) of the Act reads as under: Provided further that for the purposes of clause (e) of the first proviso, in respect of trading in agricultural commodity derivatives, the requirement of chargeability of commodity transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013) shall not apply.
9.4 In the above proviso, it was provided that there will not be any levy on the trading of agricultural derivatives. As such there remains no change as far as levy on agricultural products is concerned before and after the amendment by the
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Finance Act 2018. Thus, the controversy arises whether such amendment was brought to clarify the position of law as brought by the Finance Act 2013. For this purpose, we refer the memorandum to find out the object of the legislature for bringing such amendment by adding the proviso to clause (e) of section 43(5) of the Act by the Finance Act 2018 which reads as under: Tax treatment of transactions in respect of trading in agricultural commodity derivatives Clause (5) of section 43 defines speculative transaction. The proviso to the said clause, however, stipulates certain transactions to be non-speculative nature even though the contracts are settled otherwise than by the actual delivery or transfer of the commodity or scraps. The clause (e) to the said proviso provides that trading in commodity derivatives carried out in a recognised stock exchange, which is chargeable to commodity transaction tax is a non-speculative transaction. Commodity transaction tax (CTT) was introduced vide Finance Act’2013 to bring transactions relating to non-agricultural commodity derivatives under the tax net while keeping the agricultural commodity derivatives exempt from CTT. Since no CTT is paid, the benefit of clause (e) of the proviso to clause (5) of the section 43 is not available to transaction in respect of trading of agricultural commodity derivatives and accordingly, such transactions are held to be speculative transactions. In order to encourage participation in trading of agricultural commodity derivatives, it is proposed to amend the provisions of clause (5) of section 43 to provide that a transaction in respect of trading of agricultural commodity derivatives, which is not chargeable to CTT, in a registered stock exchange or registered association, will be treated as non-speculative transaction. These amendments will take effect from 1st April, 2019 and will, accordingly, apply in relation to assessment year 2019-20 and subsequent assessment years.
9.5 A cumulative reading of the above stated facts and the provisions of law, we note that the assessee’s who have carried out the transactions in the trading of commodities derivative in Agricultural segment prior to the amendment by the Finance Act 2018 will not get the benefit of the amendment whereas the assessee’s who have carried out transaction post to such amendment shall enjoy the benefit by treating the transactions with respect to trading derivatives for the agriculture products as normal business transaction and not as speculative in nature. As the position of the law remained the same even after bringing the amendment by inserting the proviso to clause (e) of section 43(5) of the Act, we hold that such amendment was for clarification and curative in nature and therefore the same should be held as retrospective in nature effective from the assessment year 2014- 15. In holding so we draw support and guidance from the judgment of Hon’ble Supreme Court in case CIT vs. Calcutta Export Company reported in 93 taxmann.com 51:
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Hence, in light of the forgoing discussion and the binding effect of the judgment given in Allied Moters (P.) Ltd. case (supra), we are of the view that the amended provision of Sec 40(a)(ia) of the IT Act should be interpreted liberally and equitable and applies retrospectively from the date when Section 40(a)(ia) was inserted i.e., with effect from the Assessment Year 2005-2006 so that an assessee should not suffer unintended and deleterious consequences beyond what the object and purpose of the provision mandates. As the developments with regard to the Section recorded above shows that the amendment was curative in nature, it should be given retrospective operation as if the amended provision existed even at the time of its insertion. Since the assessee has filed its returns on 01.08.2005 i.e., in accordance with the due date under the provisions of Section 139 IT Act, hence, is allowed to claim the benefit of the amendment made by Finance Act, 2010 to the provisions of Section 40(a)(ia) of the IT Act.
9.6 In view of the above we hold that the amendment brought by the Finance Act 2018 by inserting the 2 proviso to section 43(5) of the Act is retrospective in nature and therefore the transactions carried out by the assessee for the agriculture products relating to the trading in derivatives cannot be treated as speculative in nature merely on the reasoning that the CTT was not paid by the assessee.
9.7 Before parting, a question also arises whether the assessee has carried out the transactions in agriculture segment. To this effect, we note that the learned AR for the assessee has not brought anything on record. Accordingly a question was put to the learned AR for the assessee at the time of hearing to justify the stand of the assessee in this regard. The learned AR requested before us to restore this issue to the file of the AO for this limited purpose of examination whether the assessee is carried out the transactions in Agro commodity segment so that he could avail the benefit of the clause(e) of section 43(5) of the Act. The learned DR did not raise any objection on the arguments advanced by the learned counsel for the assessee. Thus in the interest of justice and fair play, we hold that the AO will carry out the examination to find out whether the assessee has carried out transactions in agricultural segment. If it is found to be true, then the impugned loss claimed by the assessee shall not be treated as speculative in nature. Accordingly, with the above direction, the ground of appeal of the assessee is allowed for the statistical purposes.
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The 2nd issue raised by the assessee is that the learned CIT(A) erred in 10. confirming the disallowance made by the AO in part for ₹ 1,24,000/- representing 10% of the expenses related to the car being petrol expenses, interest on car loan, car insurance and depreciation on car instead of deleting in entirety.
The AO during the assessment proceedings found that the assessee has claimed expenses related to the car namely petrol expenses, interest on car loan, car insurance and depreciation on car. The assessee was not maintaining any logbook for the use of the car. Likewise, the expenses claimed by the assessee amounting to Rs. 12,47,219/- were appearing on the higher side in comparison to the volume of the business carried out by the assessee. Therefore the AO was of the view that the possibility of personal use of the car cannot be ruled out. Thus the AO on adhoc basis made the disallowance of Rs. 2,49,444/- being 20% of Rs. 12,47,219/- and added to the total income of the assessee.
Aggrieved assessee preferred an appeal to the learned CIT(A), who partly confirmed the order of the AO by observing as under: I have considered the facts of the case and submission made by the appellant. It is seen that the AO made the disallowance of motor expenses of Rs.2,49,444/- being 20% of the total claim of Rs.12,47,219/- for the reason that the assessee has not produced any log book and details. Considering the facts of the case and submission made by the appellant the disallowance is restricted to 10% of the total expneses which comes to Rs.1,24,722/- Thus the ground of appeal is partly allowed.
Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us.
The learned AR before us contended that there cannot be any disallowance of the expenses on ad hoc basis.
On the other hand the learned AR before us vehemently supported the order of the authorities below.
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We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion we note that the disallowance has been made by the learned CIT-A on ad hoc basis for the expenses related to the car. These expenses related to the car can be categorized into segments as detailed below: i. Fixed expenses related to the car a. Depreciation b. interest on the loan c. insurance expenses ii. Revenue/running expenses related to the car i.e. petrol expenses 16.1 As regard the depreciation, we note that it is not an expense but the allowance which has to be allowed in pursuance to the provisions of section 32 of the Act irrespective of its use.
16.2 Likewise, the other expenses which are in the nature of interest on the car loan, insurance expenses, we are of the view that these expenses have to be incurred by the assessee irrespective of the fact whether the car is used by the assessee or not. In the given case, the use of the car for the purpose of the business has been admitted by the learned CIT(A) to the tune of 90%. Thus the question arises whether 10% of the expenses needs to be disallowed. To our understanding, these expenses being fixed in nature cannot be disturbed. It is for the reason that considering the worst situation that the car has not been used, then also such expenses has to be incurred by the assessee. Since the use of the car in the business has not been doubted, therefore we are of the considered opinion that such expenses should be allowed as business expenses against the income of the assessee.
16.3 With respect to the running expenses, in the absence of necessary details, the personal use of the car cannot be ruled out. Accordingly, the running expenses needs to be disallowed. Though, there is no standard formula to work out the
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personal use of the car in order to make the disallowance of the expenses. Therefore some element of guesswork has to be involved in making the disallowance. We find from the order of the learned CIT(A), he has made the disallowance only to the tune of 10% which appears quite reasonable. Therefore, we are not inclined to disturb the disallowance made by learned CIT(A) with respect to the variable expenses as discussed above. Hence the ground of appeal of the assessee is partly allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Court on 27/04/2022 at Ahmedabad.
Sd/- Sd/- (T.R. SENTHIL KUMAR) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 27/04/2022 Manish