ASIA SUGAR INDUSTRIES PVT. LTD.,NEW DELHI vs. ACIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘A’, NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA No.1809/Del/2015 Assessment Year: 2011-12 M/s. Asia Sugar Industries Vs. ACIT, Pvt. Ltd., Central Circle-5, New Delhi 6-B, Jor Bagh Lane, New Delhi PAN :AAACA2286D (Appellant) (Respondent)

Assessee by Shri Rahul Khare, Adv. Department by Shri Ravi Kant Gupta, Sr.DR Date of hearing 02.08.2018 Date of pronouncement 20.09.2018 ORDER PER O.P. KANT, AM: This appeal by the assessee is directed against order dated 16/02/2015 passed by the Ld. Commissioner of Income-tax (Appeals)-24, New Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2011-12, raising following grounds: 1. The learned CIT(A) erred in fact and in law in confirming the addition of Rs.45,50,000/- which is not only illegal but also against the facts and circumferences of the case. 2.1 The learned CIT(A) erred in fact and in law in issuing notice u/s 251(2) on a issue which was discussed by Asstt. Commissioner of Income Tax and adjudicated hence the same is not only illegal but also against the facts and circumferences of the case.

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2.2 The learned CIT(A) erred in fact and in law in enhancing the income and Making the addition of Rs.74,57,230/- based on the judgment of Hon’ble Delhi High Court in the case of CIT Vs. DLF Commercial Developers Ltd. (2013) which is against the facts and circumstances of the case. 2. Briefly stated facts of the case are that in the case of the assessee a search and seizure operation under section 132 of the Income-tax Act, 1961 (in short ‘the Act’) was carried out on 28/03/2011 along with the other cases of ‘Samir Thukral Group’. During the course of search action, along with other assets and documents, a cash of Rs.58,00,000/- was found from premise of the assessee located at 6B, Jorbagh, Delhi, out of which Rs.13,50,000/- was explained as belonging to various persons of the group and balance Rs.44,50,000/- was seized as unexplained. The assessee was issued notice under section 142(1) of the Act on 10/05/2012 for filing return of income for the year into consideration. In response, the assessee filed a letter intimating that the return of income was filed on 30/09/2011 declaring income of Rs.26,56,590/-. Subsequently, the assessment proceedings were commenced and notice under section 143(2)/142(1) of the Act were issued. The assessment under section 143(3) of the Act was completed on 28/03/2013 at assessed income of Rs.84,05,446/- after making certain disallowance/additions. Aggrieved, the assessee filed appeal before the Ld. CIT(A), who partly allowed the appeal of the assessee, however he also enhanced income to the extent of Rs.74,57,230/-. Aggrieved, the assessee is in appeal before the Tribunal.

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3.2 During the course of search action, the assessee could not explain the source of Rs.44,50,000/-. During assessment proceedings, the Assessing Officer asked as why the cash of Rs.44,50,000/- seized might not be treated as unexplained cash and undisclosed income of the assessee. The assessee explained that the cash seized represented cash sales of sugar, which had been accounted for in the books of accounts on 30/03/2011. The Assessing Officer rejected contention of the assessee holding that during the course of search action, the assessee could not give satisfactory answer of the source of the cash seized and the explanation of the assessee of cash sales was just an afterthought. Accordingly, he made addition of Rs.44,50,000/- as unaccounted cash under section 69A of the Act. 3.3 On further appeal, the assessee submitted that search and seizure action was carried out on 28/03/2011, i.e., 3 days before the closure of the financial year and at that time, the books of

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accounts maintained were provisional and unaudited. However, at the time of finalization of the accounts, the assessee recorded cash sales of Rs.44,50,000/- in the books of accounts. The assessee also explained that cash sales were duly reflected in sales tax return of 4th Quarter filed at Delhi. It was submitted that as per the statement on oath of Sh. Karan Amin, of the assessee company recorded by the DDIT, New Delhi, the said Rs.44.5 lakhs of the cash represented sale of sugar locally at Kandala. The assessee submitted that it has already shown cash sales of Rs.44,50,000/-in the audited profit and loss account, and thus making an addition for unaccounted cash of Rs.44,50,000/- to returned income of the assessee, amounted to duplication of the addition. According to the assessee, the cash seized of Rs.44.50 lakhs stands duly explained by way of cash sales entered in the books of accounts. In view of the various inconsistencies observed in the claim of the assessee, the Ld. CIT(A) rejected the contention of the assessee and confirmed addition made by the Assessing Officer. 3.4 Before us, the Ld. counsel of the assessee submitted that the assessee has duly recorded cash sales in its books of accounts and thus the source of the cash of Rs. 44.50 lakhs stands explained and thus no addition is warranted in the case of the assessee. He submitted that the action of the Assessing Officer in accepting the cash sales recorded in books of accounts as well as making addition for the unexplained cash amounts to duplication of the addition. According to him, if the explanation of the assessee is not accepted and the cash seized is treated as unexplained, than sales to that extent should be excluded from

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sales recorded by the assessee in the books of accounts and offered in the return of income. 3.5 The Ld. DR, on the other hand, relied on the finding of the Ld. CIT(A) and submitted that during the search proceeding the assessee failed to explain the source of the cash and it explained the source as out of cash sales, almost after 6 months from the date of the search and thus the explanation an afterthought. He further submitted that entire cash sales have been shown by way of single entry and corresponding purchases are not found to be verified. Thus, he requested that matter will be sent back to the Assessing Officer for verification of the purchases corresponding to the cash sales. In rejoinder, the Ld AR did not object for sending the matter back for verification to the Assessing Officer, however, according to him there should not be double addition for Rs.44.50 lakhs. 3.6 We have heard rival submissions and perused the relevant material on record. It is undisputed that out of the cash found of Rs. 58 lakhs, the assessee failed to explain the source of cash of Rs. 44.50 lakhs during the course of search proceeding, accordingly the said amount was seized and balance amount was released. Subsequent to the search proceeding, the assessee recorded entries of cash sales. The assessee submitted that Sh. Karan Amin, in charge of sugar operation of the assessee company in a statement recorded before the DDIT on 18/08/2011 explained the source of cash as cash sale of Sugar locally at Kandala Port. In the explanation before the Ld. CIT(A) the assessee submitted that Sugar quantity of 132.100 metric ton, was received as excess in the purchase transaction involving

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‘Haidergarh Chinni Mills’ and same was sold in cash and corresponding entry has been made in the books of accounts on 30/03/2011. The Ld. Counsel referred to page 62 of the paper- book , which is a copy of the sale’s register wherein the said entry of the cash sales has been recorded. Thus, according to the assessee the quantity of the Sugar sold was not purchased and it was received as excess in other purchases. The Ld. CIT(A), however has observed that the relevant purchase in which the receipt of excess sugar is claimed, is purchase of Raw Cane Sugar, whereas the assessee in its sale register has recorded Sale of white sugar for Rs.44.50 lakhs. The Ld. CIT(A) has pointed out various discrepancies in the claim of the assessee. According to the Ld. CIT(A), the assessee failed to explain the source of the cash during the course of search proceeding. He also observed that statement of Mr. Karan Amin was recorded on 18/08/2011 i.e. almost after 5 months from the date of the search, and thus not much reliable. No purchase of the Sugar, which was claimed as sold, was shown by the assessee and it was claimed that Sugar was received as excess in another purchase transactions. The said claim of the excess sugar was also not found to be justified by the Ld. CIT(A). The Ld. CIT(A) further observed that no name of the buyer has been shown in the cash sale invoice raised by the assessee. The Ld. CIT(A) further observed that the excess sugar claimed to have been received was “Raw Cane Sugar” whereas the Sugar claimed to have been sold was “ White Sugar”. The relevant finding of the Ld. CIT(A) is reproduced as under: “4.3.5 I have considered the submissions of the AR and perused the assessment order. On the day of search Rs.58 lacs cash was found at the appellant’s premises and when confronted, Mr. Sameer Thukral the

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main person of the company could not give any details for the source of cash found. The search party had seized Rs.44,50,000/- being excess cash, over and above what was recorded in the books of appellant company, in the books of Sh. Sameer Thukral, in the books Auro Sugar Pvt. Ltd. and Auro I.T. Solution Pvt. Ltd. as under:- (i) Mr. Samir Thukral Rs.5,44,786 (ii) Asia Sugar Industries Pvt. Ltd. Rs.2,57,423 (iii) Auto Sugar Pvt. Ltd. Rs.4,28,974 iv) Auro IT Solutions Pvt. Ltd. Rs. 1,19,402 4.3.6 It is observed that, in the case of cash found on the day of search, the reply given on the spot and the relevant conduct at the time of search are more relevant to decide whether the cash found was accounted or unaccounted cash. This is so because cash balance can always be cooked up in the books especially when the account books are not yet finalized. An important information relating to such huge cash, could not have been unknown to the main person of the company. In the instant case Mr. Sameer Thukral was unable to give any reply about the source of cash found at the premises. The amount involved is also not very small and it cannot be expected that the person, to whom the company belongs to, would not be knowing the source of such cash. In any case, in these days of advanced communication system, it would not be unreasonable to expect the main person to ascertain, from whomsoever he wanted to, the source of such huge cash found with him & inform the search team. The fact that he dodged the issue would only indicate that the cash found was an unaccounted cash. 4.3.7 It is also seen that the reliance of the appellant on the statement of Mr. Karan Amin is ill founded as the same has been given on 18.08.2011, i.e. almost 5 months after the date of search. In the mean time the appellant had sufficient time to come out with a manufactured excuse. The appellant has claimed that it has sold 132.100 Metric Tonnes of sugar, locally (Date kept unsaid) at Kandla and that the cash found during search represented the said cash receipts from sale of sugar. 1 have perused the documents submitted during appeal proceedings. It is observed that the appellant has made a claim which does not merit serious consideration. The sugar of quantity 132.100 Metric Tonnes, has been claimed to be the one, which was received as excess in the purchase transaction involving Haidergarh Chinni Mills. At para 4.4 below I have enhanced the total income by Rs. 74,57,230/-. While making the said enhancement, I have examined the documents furnished by the appellant in respect of their claim that the loss on importing sugar in Joint Venture with Dhampur Sugar Mills Ltd. was not a speculative loss. It is observed that the appellant has submitted a copy of a synopsis submitted before the AO to claim that the sugar sold in cash (receipts of which were yet to be accounted) represented excess sugar received in their transaction involving High-Sea purchase of sugar from Haidergarh

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Chinni Mills. I do not find any merit in the submissions. The report of the Dr. Amin Controllers Pvt. Ltd. at page 47 of the paper book, shows that there was excess quantity of sugar, but appellant’s share in the same was just 10.576 Metric Tonnes. The relevant table appearing in the said report is reproduced below for ready reference AS PER PRO-RATA WISE ATY PRO-RATA QTY RECEIVING BALANCE

NAME OF PARTY B/L.Qty Sound Water Total Excess Excess FOR damage RECEIVING M/s. Balaram Pur 29800.000 29849.920 29.692 29879.611 79.611 29938.130 -58.519 Chini M/s. Dhampur 5080.390 5088.900 5.062 5093.962 13.572 Sugar M/s. Dhampur 10660.908 10678.767 10.622 10689.389 28.481 India Sugar 14946.790 836.561 M/s. Asia Sugar 3958.702 3965.333 3.944 3969.278 10.576 4747.320 -778.042 Total 49500,000 49582.920 49.320 49632.240 132.240 -49450.680 0.000

4.3.8 Thus it is observed that there is no merit in the appellant’s submission that appellant was having excess sugar of 132.240 Metric Tonnes. Secondly the whole transaction of excess sugar took place on 11.08.2010 that is almost 7 months before the search date. The appellant has also enclosed a ‘supposed sale invoice’ for sale of sugar of Rs.45,50,000/-. The said sale invoice is an invoice probably on tally package, and it is dated 30 March, 2011. The description of goods is shown as White Refined Sugar and quantity is indicated at 132.100 Metric Tonnes which is exactly the so called excess sugar received on high sea purchase. The rate is shown at 33,724.45 per Metric Tonne. But the buyer of such huge quantity i.e. almost 13 Truck loads of 10 Tonnes each, has not been mentioned. The same has been claimed to be cash sale & that too through one single invoice. 4.3.9 There are many unanswered questions in the whole transaction. Firstly, the excess sugar was supposed to have been received in the first week of August, 2010 whereas the sale of the same is claimed to have taken place at Kandla in the last week of March, 2011. Where was this sugar lying, which godown, at what cost etc is not mentioned. Secondly, the excess sugar received was Raw Cane Sugar and not processed White Sugar as stated in the sale invoice. Still the excess quantity & the sold quantity as per bill of 30.03.2011 tally exactly. No wastage on processing. Again the sale is shown on 30.03.2011 as justification for cash found on at the premises 28/03/2011. What is sold as per invoice is White Sugar, while what was procured as excess by the appellant through High-Sea purchase was Raw Cane Sugar and not White Sugar. To convert the Raw Cane Sugar into White Sugar the same is required to

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be processed and cost is around Rs. 3000 per Metric Tonnes as per the joint venture agreement between appellant and Dhampur Sugar. From the said sales register it is also seen that there is considerable price difference of almost Rs. 16,000/- per Metric Tonne between Raw Cane sugar and White Refined Sugar. Thus the submissions of the appellant are full of inconsistencies and do not merit any consideration. The argument of the assessee that the sale accounted for on 30 March, 2011 represents the cash found at the appellant’s premises does not merit any consideration. The cash sales accounted as on 30.03.2011 in the sale register cannot be source of cash found at the appellant’s premises. The sugar which was in excess was raw sugar and not white refined sugar. The explanation of the assessee are full of inconsistencies and therefore it would be incorrect to accept the argument of duplicate/double addition also. Considering all these factors, 1 hereby confirm the addition of Rs. 45,50,000/- towards unaccounted cash found and seized from the appellant’s premises in the course of search. The action of the AO is therefore upheld.” 3.6 Before us, the Ld. counsel of the assessee could not find any infirmity in the finding of the Ld. CIT(A) that cash sales claimed by the assessee was not justified. The explanation of the assessee of having made cash sales are not substantiated by the evidences and thus the entire explanation of the cash sales failed. The claim that cash sales were shown in sales tax return filed at Delhi, whereas the assessee has submitted that sales were made at Kandla Port. Both the claims are contradictory. In the circumstances, we uphold the finding of the Ld. CIT(A) in treating the cash of Rs.44,50,000/- as unexplained. As regard the request of the Ld. DR for verification of the purchases corresponding to sale of Rs.45.50 Lacs is concerned, we find that before the Ld. CIT(A) the assessee has already submitted that no purchases were made corresponding to claim of sale of Rs. 44.50 lakhs and it was explained as received in excess in another purchase transaction. The assessee has not controverted this finding before us, thus, in view of the factual finding, we do not feel any

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requirement of restoring the matter to the lower authorities for verification of purchases. 3.7 However, on the issue of double addition we find that when the explanation of the cash sales of the assessee is rejected and the cash seized of Rs. 44.50 Lacs is held as an unexplained, the said cash sales cannot be retained as part of the sales of the assessee during the year under consideration. Accordingly, we direct the Assessing Officer to exclude the cash sales of Rs. 44.50 credited in books of account on 30/03/2011 out of the total sales declared by the assessee, for the purpose of return of income filed. The ground no. 1 of the appeal is accordingly dismissed. 4. The ground No. 2.1 and 2.2 of the appeal are in respect of addition of Rs.74,57,230/- sustained by the Ld. CIT(A). In ground No. 2.1, the assessee has challenged issue of enhancement notice by the Ld. CIT(A). In ground 2.2, the assessee has challenged making addition based on the judgment of the Hon’ble Delhi High Court in the case of CIT Vs. DLF Commercial Developers Ltd. 4.1 During the appellate proceedings, the Ld. CIT(A) observed that the assessee accounted loss on sale of derivatives (future and options) of Rs.1,24,12,622/- and loss of Rs.2,75,70,895/- on importing Sugar in joint-venture with Dhampur Sugar Mills P. Ltd. According to the Ld. CIT(A) as per the explanation to section 73 of the Act, the assessee company was liable to be treated as carrying on speculation business to the extent to which the business consist of purchase and sale of shares/derivatives. The Ld. CIT(A) issued a show cause notice under section 251(2), proposing as why the loss from speculation business should not be disallowed to be adjusted against current year’s profit from

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other businesses. The Ld. CIT(A) has reproduced the said notice in the impugned order. The assessee challenged power of the Ld. CIT(A) in enhancing the income in appeal against the order under section 153A of the Act. The Ld. CIT(A) rejected the contention of the assessee in this regard and held that he was well within his powers to enhance the income of the assessee on this count. The Ld. CIT(A) also rejected the objection of the assessee on merit. 4.2 Before us, the Ld. counsel submitted that the Assessing Officer has not discussed the issue of adjustment of losses from purchase and sale of shares (derivatives) against the profit from other businesses and, therefore, the Ld. CIT(A) was not justified in denying adjustment of losses from business of future and options against the profit of other businesses. 4.3 On merit of the addition, the Ld. counsel submitted that loss incurred on derivative transaction is not speculative loss as per section 43(5) of the Act and it is allowed to be adjusted against business income. In support of his contention, he relied on following decisions: “1. Sucon India Ltd. v. ACIT, ITAT Delhi, [2017] 88 taxmann.com 895 (Delhi - Trib.)/[2017] 184 TTJ 713 (Delhi - Trib.) where it has been clearly held that joss incurred on derivative transaction is not a speculative loss and is allowed to be adjusted against business income. 2. ITO vs Emperorr International Ltd (2015) 171 TTJ 409(DEL-TRIBUNAL) where it has been clearly held that loss incurred on derivative transaction is not a speculative loss and is allowed to be adjusted against business income. 3. Asian Financial Services Ltd. v. CIT, High Court of Calcutta, [2016] 70 taxmann.com 9 (Calcutta):- It was held by the Hon'ble High Court of Calcutta that loss incurred on account of derivatives would be deemed business loss under proviso to section 43(5) and not speculation loss and, hence, Explanation to section 73 could not be applied; as such, loss would be set off against income from business.

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4.4 Alternatively, the Ld. counsel also submitted that the Explanation below Section 73(4) has deemed only the activity of purchase and sale of shares as speculation business. According to him, the assessee has entered into trading of futures and options, i.e., derivative transactions, and which are not covered by the section 73(4) of the Act. 4.5 On the contrary, the Ld. DR relied on the finding of the Ld. CIT(A) and submitted that the Ld. CIT(A) followed the decision of the Hon’ble Delhi High Court in the case of CIT Vs. DLF

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Commercial Developers Ltd. (supra), which is a binding precedent on the authorities within the jurisdiction of the Delhi High Court, and, therefore, there was no error in the decision of the Ld. CIT(A). 4.6 We have heard the rival submission and perused the relevant material on record. As far as challenge to notice under section 251(2) is concerned, it is settled law that the CIT(A) is having plenary powers in disposing of an appeal in the scope of his power, coterminous with that of the Assessing Officer. The Hon’ble Supreme Court in the case of CIT Vs Kanpur Coal Syndicate (SC) 53 ITR 229 has observed as under:

“7. The next question is whether the said option is given only to the ITO and is denied to the AAC and the Appellate Tribunal. Under the Act the ITO, after following the procedure prescribed, makes an assessment under s. 23 of the Act. Doubtless in making an assessment at the first instance he has to exercise the option whether he should assess the AOP or the members thereof individually. It is not because that any section of the Act confers an exclusive power on him to do so, but because it is part of the process of assessment; that is to say, he has to ascertain who is the person liable to be assessed for the tax. If he seeks to assess an AOP as an assessable entity, the said entity can object to the assessment, inter alia, on the ground that in the circumstances of the case the assessment should be made on the members of the association individually. The ITO may reject its contention and may assess the total income of the association as such and impose the tax on it. Under s. 30 an assessee objecting to the amount of income assessed under s. 23 or the amount of tax determined under the said section or denying his liability to be assessed under the Act can prefer an appeal against the order of the ITO to the AAC. It is said that an order made by the ITO rejecting the plea of an association of persons that the members thereof shall be assessed individually does not fall under one or other of the three heads mentioned above. What is the substance of the objection of the assessee? The assessee denies his liability to be assessed under the Act in the circumstances of the case and pleads that the members of the association shall be assessed only individually. The expression ‘‘denial of liability'' is comprehensive enough to take in not only the total denial of liability but also the liability to tax under particular circumstances. In either case the denial is a denial of liability to be assessed under the

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provisions of the Act. In one case the assessee says that he is not liable to be assessed to tax under the Act, and in the other case the assessee denies his liability to tax under the provisions of the Act if the option given to the appropriate officer under the provisions of the Act is judicially exercised. We, therefore, hold that such an assessee has a right of appeal under s. 30 of the Act against the order of the ITO assessing the association of members instead of the members thereof individually. If an appeal lies, s. 31 of the Act describes the powers of the AAC in such an appeal. Under s. 31(3)(a) in disposing of such an appeal the AAC may, in the case of an order of assessment, confirm, reduce, enhance or annul the assessment; under clause (b) thereof he may set aside the assessment and direct the ITO to make a fresh assessment. The AAC has, therefore, plenary powers in disposing of an appeal. The scope of his power is coterminous with that of the ITO. He can do what the ITO can do and also direct him to do what he has failed to do. If the ITO has the option to assess one or other of the entities in the alternative, the AAC can direct him to do what he should have done in the circumstances of a case. Under s. 33(1), an assessee objecting to an order passed by an AAC under s. 28 or s. 31 may appeal to the Appellate Tribunal within 60 days of the date on which such order is communicated to him. Under s. 33(4), ‘‘The Appellate Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, and shall communicate any such order to the assessee and to the Commissioner." Under s. 33(5), "Where as the result of an appeal any change is made in the assessment of a firm or AOP or a new assessment of a firm or AOP is ordered to be made, the Appellate Tribunal may authorise the ITO to amend accordingly any assessment made on any partner of the firm or any member of the association." Under this section the Appellate Tribunal has ample power to set aside the assessment made on the AOP and direct the ITO to assess the individuals or to direct the amendment of the assessment already made on the members. The comprehensive phraseology used both in s. 31 and s. 33 of the Act does not countenance the attempt of the Revenue to restrict the powers of the AAC or of the Appellate Tribunal: both of them have power to direct the appropriate authority to assess the members individually instead of the AOP as a unit.” 4.7 Further in the case of CIT Vs Shapoorji Palloonji Mistry 44 ITR 891 the Hon’ble Supreme Court held that although the appellant Asst Commissioner has powers to enhance the assessment, but he has no power to travel beyond the record to enhance assessment of any year by discovering new source of

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income either in the return made by the assessee or the assessment order passed by the Income-tax Officer. 4.8 Since the issue of adjustment of losses from futures and options against the business income is arising from the return of income filed by the assessee, in our opinion, it is well within the powers of the Ld. CIT(A) to make additions in view of the finding of the Hon’ble Supreme Court in the case of CIT Vs Shapoorji Palloonji Mistry (supra). Accordingly, the ground 2.1 of the appeal is dismissed. 5. On the issue of the merit of the enhancement of income of Rs.74,57,230/-, the Ld. CIT(A) has followed the decision of the Hon’ble Delhi High Court. The relevant finding of the Ld. CIT(A) is reproduced as under: “4.4.7 I have considered the AR’s submission. I do not agree with the AR that the decision of Hon’ble High Court of Delhi in the case of DLF Commercial Developers (Supra) did not decide on the issue of adjustment of current year’s speculation loss against current years non-speculative profit. The Hon’ble High Court of Delhi in the said case has clearly held that Explanation in section 73 has an overriding effect on section 43(4) of the Act. Sub clause 1 of section 73 clearly prohibits the set off of current year’s speculation loss against current year’s non speculation profit. The explanation below S.73(4) gives meaning of speculation business which is applicable to all sub sections of S.73. Speculation Transaction defined in S. 43(4) is a general section applicable to all assessees. But the one given in S.73 is a special provision, applicable to special category of assessee. Special provision over ride the general provision of law on the subject. No doubt the issue involved in the case of DLF Commercial Developers (Supra) was regarding carry forward and set off of speculation business loss. The said issue could not have been decided without deciding the effect of Explanation to S.73 on S. 43(5) of the Act. The ratio decidendi in the said case applies to sub section 1 of section 73 also. At para 8 of order of the Hon’ble High Court of Delhi, it has been clearly held that the definition of “speculation transaction” contained in section 43 would be applicable only to section 28 to 41 of the Act. Hon’ble Court has further held that “Parliamentary intendment that such transactions are also excluded from the mischief of Explanation to section 73(4), however, is not born out.” 4.4.8 The relevant para 8 of the said order is reproduced below for ready reference: 8. Section 43 defines, for the purpose of Sections 28 to 41, certain terms. These latter provisions fall in Chapter IV, in Section D, which deal with computation of business income. The said provisions provide for

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matters relating to computation of such income, rent taxes, insurance of buildings, repairs of plant and machinery, depreciation, reserves for shipping business, rehabilitation fund, expenditure on certain eligible objects or schemes, deductions, amounts not deductible, profits chargeable to tax, etc. The assessee is no doubt correct in contending that the only definition of derivatives is to be found in Section 43 (5); yet the Court cannot ignore or overlook that the definition - to the extent it excludes such transactions from the mischief of the expression "speculative transactions" is confined in its application. Parliamentary intendment that such transactions are also excluded from the mischief of Explanation to Section 73 (4), however, is not borne out. 4.4.9 As regards decision of Hon’ble High Court of Bombay relied upon by the AR, it is noted that when these is any decision of jurisdictional High Court on a given issue, the same is a binding precedent and not that of other High Courts. Therefore, respectfully following the decision of Hon’ble High Court of Delhi in the case of DLF Commercial Developers (Supra) (2013), the submission of the AR is hereby rejected. 4.4.10 As regards the AR’s submission that the appellant has speculative profit of Rs.49,55,392/-, the same is evident from schedule 15 of the audited accounts. Therefore, the appellant is entitled to adjust current year’s speculation loss against current year’s speculation profit to the extent of Rs. 49,55,392/- only. The balance cannot be allowed to be adjusted against profit from other business. The AO is directed to re-compute the total income by disallowing the set off of current year’s speculative business loss of Rs. 74,57,230/- against any other income. To this extent, the total income of the assessee gets enhanced by Rs. 74,57,230/-. Ordered accordingly.”

5.1 The issue in dispute raised in the ground is whether the Explanation in section 73 has an overriding effect on section 43(4) of the Act. The claim of the assessee is that the activity of trading in futures and options is not a speculative activity in view of the provisions of section 43(4) of the Act, and, thus, the loss on account of said activity of trading in future and option is eligible for setoff against other losses from non-speculative business. 5.2 The contention of the Revenue, on the other hand, is that a speculative transactions defined in section 43(4) is a general section applicable to all assessees wherein the section 73 is a special provision applicable to special category of assessee and a special provision override general provision of law on the subject.

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The Ld. CIT(A) has referred the para-8 of the decision of the Hon’ble Delhi High Court in the case of DLF Commercial Developers Ltd. (supra) and invoked Explanation below section 73(4) for holding that loss accounted on trading of futures and option was a speculation loss not eligible for setoff against non- speculation profit. For ready reference, the relevant finding of the Hon’ble Delhi High Court is reproduced as under: “8. Section 43 defines, for the purpose of Sections 28 to 41, certain terms. These latter provisions fall in Chapter IV, in Section D, which deal with computation of business income. The said provisions provide for matters relating to computation of such income, rent taxes, insurance of buildings, repairs of plant and machinery, depreciation, reserves for shipping' business, rehabilitation fund, expenditure on certain eligible objects or schemes, deductions, amounts not deductible, profits chargeable to tax, etc. The assessee is no doubt correct in contending that the only definition of derivatives is to be found in Section 43(5); yet the Court cannot ignore or overlook that the definition – to the extent it excludes such transactions from the mischief of the expression “speculative transactions” is confined in its application. Parliamentary intendment that such transactions are also excluded from the mischief of Explanation to Section 73 (4), however, is not borne out.”

5.3 Further, the Hon’ble Delhi High Court has held that Explanations to section 73(4) also applies in case of derivative transactions. The relevant finding of the Hon’ble High Court is reproduced as under: “11. The stated objective of Section 73- apparent from the tenor of its language is to deny speculative businesses the benefit of carry forward of losses. Explanation to Section 73 (4) has been enacted to clarify beyond any shadow of doubt that share business of certain types or classes of companies are deemed to be speculative. That in another part of the statute, which deals with computation of business income, derivatives are excluded from the definition of speculative transactions, only underlines that such exclusion is limited for the purpose of those provisions or sections. To borrow the Madras High Court's expression, "derivatives are assets, whose values are derived from values of underlying assets"; in the present case, by all accounts the derivatives are based on stocks and shares, which fall squarely within the explanation to Section 73 (4).

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Therefore, it is idle to contend that derivatives do not fall within that provision, when the underlying asset itself does not qualify for the benefit, as they (derivatives -once removed from it and entirely dependent on stocks and shares, for determination of their value).” 5.4 Thus, the contention of the Ld. counsel not to invoke Explanation below section 73(4) in case of futures and options transaction of the assessee, is also rejected. In view of the binding decision of the Hon’ble Delhi High Court followed by the Ld. CIT(A), we are not examining the decisions cited by the Ld. counsel as to whether same are applicable in the facts of the instant case. 6. In view of the aforesaid discussion, we do not find any infirmity in the finding of the Ld. CIT(A) on the issue in dispute. Accordingly, ground no. 2.2 the ground of the appeal is dismissed. 7. In the result, the appeal of the assessee is dismissed. Order is pronounced in the open court on 20th Sept., 2018.

Sd/- Sd/- AMIT SHUKLA O.P. KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 20th September, 2018. RK/-(D.T.D.) Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR

Asst. Registrar, ITAT, New Delhi