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Income Tax Appellate Tribunal, “L” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI SANDEEP GOSAIN, JM
O R D E R Per Shamim Yahya, A. M.: This appeal by the Revenue is directed against the Order by the Commissioner of Income Tax (Appeals) dated 19.01.2016 and pertains to the assessment year (A.Y.) 2011-12.
The grounds of appeal read as under: 1. "On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing that the loss of Rs.2,46,31,762/- on account of derivative trading cannot be treated as speculation loss and failed to appreciate that the case of the assessee squarely falls within ambit of explanation to S.73 of the I.T. Act"
(A.Y. 2011-12) ITO vs. M/s. Arandi Investments Pvt. Ltd. 2. "On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 15,95, 844/- made by AO u/s 14A r.w.r. 8D holding that no disallowance can be made in respect of dividend income earned on shares held as stock-in-trade without considering the decision of the Hon'ble ITAT in the case of DH Securities Pvt. Ltd. (41 taxmann.com 352).
3. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.
Apropos to ground no. 1
On this issue, the Assessing Officer treated loss in future and options (F&O) transactions as speculation loss and disallowed the same. Upon the assessee’s appeal, the ld. Commissioner of Income Tax (Appeals) noted that there is no dispute that the said loss is from transaction in F & O which is a derivative segment. The ld. Commissioner of Income Tax (Appeals) noted that this explanation was clearly given to the Assessing Officer during the assessment proceedings, ledger copies of purchase and sales of F & O transactions were also submitted. Placing reliance upon the decision of ITAT in the case of SSK Investors Services (P.) Ltd. (in for assessment year 2001-02) the ld. Commissioner of Income Tax (Appeals) found the issue to be covered and decided the issue in favour of the assessee.
Against this order, the Revenue is in appeal before us.
We have heard the ld. ld. Departmental Representative and none appeared on behalf of the assessee despite notice.
(A.Y. 2011-12) ITO vs. M/s. Arandi Investments Pvt. Ltd. 6. Before proceeding further, we may gainfully refer to the provisions of section 43(5)(d) and explanation to section 73, which are relevant here:
Section 43(5)(d) reads as under:
Definitions of certain terms relevant to income from profits and gains of business or profession.
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 purposes 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 stock exchange; [or]] Explanation to section 73 reads as under:
Losses in speculation business. 73. (1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business. (2) Where for any assessment year any loss computed in respect of a speculation business has not been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and— (i) it shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year; and (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on.
(A.Y. 2011-12) ITO vs. M/s. Arandi Investments Pvt. Ltd. (3) In respect of allowance on account of depreciation or capital expenditure on scientific research, the provisions of sub-section (2) of section 72 shall apply in relation to speculation business as they apply in relation to any other business. (4) No loss shall be carried forward under this section for more than four assessment years immediately succeeding the assessment year for which the loss was first computed. [Explanation.—Where any part of the business of a company (other than a company whose gross total income consists mainly of income which is chargeable under the heads "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources", or a company [the principal business of which is the business of trading in shares or banking]10 or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. [(10). Substituted for "the principal business of which is the business of banking" by the Finance (No. 2) Act, 2014, w.e.f. 1-4-2015.] 7. We find that on this issue, the A.O. has referred to Hon’ble Delhi High Court decisions on identical issue. The Hon’ble Delhi High Court in the case of CIT vs. DLF Commercial Developers Ltd. [2013] 218 Taxman 45 (Del) has held that the provisions of the explanation to section 73 supersede the provision of section 43(5)(d).
In view of this, the loss arising on account of F & O transaction was to be held as a speculation loss by applying the provisions of explanation to section 73.
We also note that to cure this situation and enable such derivative dealings to be taken out of the ambit of explanation to section 73, the amendment was done in Explanation 73 by which companies engaged in business of trading in shares were (A.Y. 2011-12) ITO vs. M/s. Arandi Investments Pvt. Ltd. also taken out the ambit of aforesaid explanation. However, this amendment was done with effect from 01.14.2015. the Hon’ble Calcutta High Court in the case of Pr. CIT vs. M/s. Snowtex Investment Ltd. (GA No. 1695 of 2016 ITAT No. 199 of 2016 vide order dated 22.11.2016) has held that the said amendment is prospective. Hence, the aforesaid amendment does not help the case of the assessee. The assessee’s case is squarely covered by the aforesaid Hon’ble Delhi High Court decision. It is settled law that the decision of Hon’ble High Court is superior to that of ITAT. Hence, in our considered opinion, the order of the ld. Commissioner of Income Tax (Appeals) in this case deserves to be set aside and the order of the Assessing Officer be restored.
Accordingly, we restore the order of the Assessing Officer on this issue.
Apropos to ground no. 2 10. On this issue, the Assessing Officer made disallowance u/s. 14A r/w Rule 8D amounting to Rs.15,95,844/-. Upon the assessee’s appeal, the ld. Commissioner of Income Tax (Appeals) noted that the Assessing Officer has mentioned that this a company which is carrying out activities of share trading. Hence, placing reliance upon the decisions for the proposition that when investment is held in stock-in-trade, disallowance u/s. 14A is not permissible. Hence, the ld. Commissioner of Income Tax (Appeals) deleted the addition.
Upon careful consideration, we find that there is no dispute to the proposition that if the shares are held as stock-in-trade, no disallowance u/s. 14A is required.
However, there is no clear finding that the entire portfolio held by the assessee was (A.Y. 2011-12) ITO vs. M/s. Arandi Investments Pvt. Ltd. held as stock-in-trade. Hence, we remit the issue to the file of the Assessing Officer. The Assessing Officer shall examine the issue in light of our observation as under and thereafter decide as per law.
In the result, the appeal by the Revenue is partly allowed for statistical purpose.
Order pronounced in the open court on 05.01.2018 Sd/- Sd/- (Sandeep Gosain) (Shamim Yahya) �या�यक सद�य / Judicial Member लेखा सद�य / Accountant Member मुंबई Mumbai; �दनांक Dated : 05.01.2018 व.�न.स./Roshani, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. आयकर आयु�त(अपील) / The CIT(A) 3. आयकर आयु�त / CIT - concerned 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 5. गाड� फाईल / Guard File 6. आदेशानुसार/ BY ORDER,