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Income Tax Appellate Tribunal, PUNE “A” BENCH : PUNE
Before: SHRI RAMA KANTA PANDA & MS. ASTHA CHANDRA
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE “A” BENCH : PUNE BEFORE SHRI RAMA KANTA PANDA, VICE PRESIDENT AND MS. ASTHA CHANDRA, JUDICIAL MEMBER I.T.A.No.973/PUN./2024 Assessment Year 2019-2020 Dimple Alnesh Somji, Flat No.902, B-Block, Amar The ACIT, Central Circle-1(3), Renaisance, S.No.62/63, 6th Floor, Aayakar Sadan, Bodhi vs. Off. Sopan Baug, Gorpadi, Towers, Salisbury Park, PUNE – 411 001. Gultekadi, PUNE – 411 037. Maharashtra. Maharashtra. PAN BPTPS1550N (Appellant) (Respondent) For Assessee : CA Nitin Rander For Revenue : Shri Ramnath P. Murkunde Date of Hearing : 03.12.2024 Date of Pronouncement : 09.12.2024 ORDER PER RAMA KANTA PANDA, V.P. :
This appeal filed by the Assessee is directed against the order dated 28.12.2023 of the learned CIT(A), Pune-11, Pune relating to assessment year 2019-2020.
Facts of the case, in brief, are that the assessee is an individual and filed her original return of income on 31.10.2019 declaring total income of Rs.15,22,500/-. A search and seizure action u/sec.132 of the of the Income Tax Act, 1961 (in short "the Act") was conducted in the case of the assessee on 16.01.2019. A notice u/sec.143(2) of the Act was issued to the assessee on 20.02.2020 for compliance on 2 ITA.No.973/PUN./2024 23.03.2020. Subsequently, notice u/sec.142(1) dated 03.11.2020 was also issued to the assessee along with a questionnaire asking the assessee to furnish certain information as specified therein. In response to the same, the assessee filed requisite details.
2.1. During the course of assessment proceedings, the Assessing Officer observed from the return of income that assessee has shown income from business and profession and credited the P & L account by Rs.7,24,861/- as revenue from operations. Against this, the assessee has claimed expenditure under various heads amounting to Rs.57,54,801/- to arrive at the net loss of Rs.50,29,940/-. In the computation of income, the assessee has set-off this loss against business income and income from other sources amounting to Rs.75,876/- and the unabsorbed loss of Rs.49,54,064/- was carried forward to the succeeding assessment years.
2.2. The Assessing Officer, therefore, asked the assessee to furnish certain information relating to the business income and expenditure. The assessee in response to the same filed her revised computation of income by reducing the business loss from Rs.50,29,940/- to Rs.8,02,986/- and after setting it off against other income, the unabsorbed loss of Rs.7,77,103/- was carried forward.
3 ITA.No.973/PUN./2024 2.3. The Assessing Officer, therefore, asked the assessee to furnish the information relating to business activities. The assessee, in her reply, filed ledger copies of some of the expenditure. However, according to the Assessing Officer, no supporting evidence was furnished. So far as the business activity is concerned, it was submitted that she has shown income of Rs.49,993/- from intra-day trading. The assessee also furnished statement of the transactions made through IIFL Securities to substantiate her income from dealing in commodity trading through the authorized stock broker. It was submitted that during the previous year, the assessee incurred loss of Rs.7,27,109/- in commodity trading and after claiming various expenditure, net loss of Rs.50,79,933/- was shown from commodity trading which was reduced to Rs.8,52,979/- in the revised computation of income by suo motu disallowing the interest expenditure.
2.4. However, the Assessing Officer was not satisfied with the above submissions. He held that the assessee did not furnish any supporting documentary evidence relating to expenditure claimed. Therefore, he took the income from commodity trading at Rs.NIL and did not allow the loss, which according to him, is speculative loss. The Assessing Officer accordingly determined the total income of the assessee at Rs.16,32,753/-.
4 ITA.No.973/PUN./2024 5. In appeal, the Ld. CIT(A) upheld the action of the Assessing Officer by observing as under :
“Findings
I have considered the facts of the case and the submissions made by the appellant. As per the assessment order, the assessee has shown business receipts of Rs.7,24,861/- and against this expenditure of Rs.57,54,801/- was claimed. In this manner, a net loss of Rs.50,29,940/- was claimed in the original return. When asked to substantiate the said loss and to furnish evidences regarding expenses claimed, the appellant revised her computation of income. In the revised computation filed during the assessment proceedings, business loss was reduced from Rs.50,29,940/- to Rs.8,02,986/-. The income from other sources amounting to Rs.25,883/- was adjusted against this business loss and resultant business loss of Rs.7,77,103/- (8,02,986- 25,883) was carried forward to subsequent assessment years.
10. The Assessing Officer further observed that the appellant has shown income of Rs.49,993/- from intra-day trading. She also declared a loss of Rs.8,52,979/- from commodity trading. In support of this loss from commodity trading, the appellant filed statement of transactions made
5 ITA.No.973/PUN./2024 through IIFL Securities. During the assessment proceedings, the Assessing Officer specifically asked the appellant to substantiate this loss of Rs.8,52,979/-, however, the appellant did not submit any evidence regarding the same. In the absence of any supporting evidence regarding the claim of the expense, the Assessing Officer considered the income from commodity trading as Nil. In this manner, the business income of the appellant was assessed at Rs.49,993/-.
11. The claim of the appellant is that she has incurred loss in respect of trading in commodity derivatives which was done on a recognized exchange. Therefore, the loss incurred on trading in commodity derivatives is not a speculative loss and same should be adjusted against other regular business income.
12. From the copy of statement issued by M/s IIFL Securities, filed by the appellant, it is seen that the total sale value of commodity (crude oil, gold and silver) comes to Rs.6,85,10,670/-. Since the turnover of commodity trading done by the appellant during that year exceeds the auditable threshold limit prescribed under the Act, the appellant was required to maintain complete books of accounts and to get them audited. Since, the appellant has failed to do so, the business loss of Rs.8,52,979/- claimed by her on commodity trading cannot be allowed. It is also 6 ITA.No.973/PUN./2024 important to mention that the loss claimed in the original return of income was Rs.50,29,940/- which was reduced to Rs.8,02,986/- in the revised computation filed during the assessment proceedings. It is also important to mention that the said loss has not been substantiated by the appellant by filing complete details or producing books of accounts. Considering the totality of facts of the case, the action of the Assessing Officer in disallowing the loss of Rs.8,52,979/- on commodity trading is upheld. The ground no.1 raised by the appellant is DISMISSED.”
Aggrieved with such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds :
1. “On facts and in the circumstances of the case and in law, Ld. Assessing Officer (AO) and Ld. CIT(A) erred in not allowing the claim of business loss of Rs.7,27,109/- incurred on trading in commodity derivatives.
2. On facts and in the circumstances of the case and in law, Ld. AO and Ld. CIT(A) erred in disallowing the business expenditure of Rs.1,25,870/- claimed under the head Profit and Gains of business.
The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal
, at any time before or at the time of hearing of the appeal, so as to 7. ITA.No.973/PUN./2024 enable the Honourable Members to decide this appeal according to law.
7. Learned Counsel for the Assessee, at the outset, drew the attention of the Bench to page-13 of the paper book with respect to the Certificate issued by the IIFL Securities regarding loss of Rs.7,27,109/-. Referring to pages 14 and 15 of the paper book, he drew the attention of the Bench to the details of transactions made through IIFL Securities. He submitted that as per the provisions of sec.43(5)(e), transactions in respect of trading in commodity derivatives shall not be deemed to be a speculative transaction. Referring to the decision of Lucknow Bench of the Tribunal in the case of Ramesh Verma, Bahrain vs. ACIT, Gonda vide ITA.No.40/ LKW/2020 order dated 18.05.2022 for assessment year 2015- 16, he submitted that identical issue has been decided in favour of the assessee by the decision of the Tribunal. He accordingly submitted that the order of the Ld. CIT(A) upholding the action of the Assessing Officer in disallowing loss of Rs.7,27,109/- incurred on commodity trading is not justified.
7.1. So far as the disallowance of business expenditure of Rs.1,25,870/- is concerned, Learned Counsel for the Assessee, drew the attention of the Bench to pages-25 to 29 of the paper book with regard to the details of expenditure such as professional fees of Rs.30,000/; salary Rs.42,850/-;
8 ITA.No.973/PUN./2024 travelling and conveyance Rs.30,593/-; Bank charges Rs.944/- and miscellaneous expenses Rs.24,942/-. He submitted that although complete bills and vouchers are not available, however, these are expenditure relating to the trading activity and therefore, the same should be allowed. He accordingly submitted that both the grounds raised by the assessee should be allowed.
8. The Learned DR on the other hand, heavily relied on the order of the Assessing Officer and the Ld. CIT(A).
9. We have heard the rival arguments made by both the sides and perused the material available on record. The first issue raised by the assessee in the grounds of appeal is regarding the order of the Ld. CIT(A) in not allowing the claim of business loss of Rs.7,27,109/- incurred on trading in commodity derivatives. A perusal of the assessment order shows that the Assessing Officer treated the same as speculative loss and did not allow the same to be carried- forward against the business income of Rs.49,993/-. We find the Ld. CIT(A) upheld the action of the Assessing Officer, the reasons of which, have already been reproduced in the preceding paragraphs. It is the submission of the Learned Counsel for the Assessee that the loss incurred in respect of trading in commodity derivatives is not a speculative loss as per the provisions of sec.43(5)(e) of the Act. It is also his
9 ITA.No.973/PUN./2024 submission that necessary Certificate from IIFL Securities was submitted before the Assessing Officer and there is no dispute to the same.
9.1. We find some force in the above arguments of the Learned Counsel for the Assessee. We note provisions of sec.43(5)(e) read as under :
“Sec.43(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 – (a) --- (b) --- (c) --- (d) --- (e) an eligible transaction in respect of trading in commodity derivatives carried out in a [recognised stock exchange] [Sub. for recognised association" by the Act No.12 of 2020, w.e.f. 01.04.2020], which is chargeable to commodities transaction tax under Chapter-VII of the Finance Act, 2013 (17 of 2013), shall not be deemed to be a speculative transaction.”
10 ITA.No.973/PUN./2024 9.2. We find identical issue has come up before the Coordinate Bench of the Lucknow Bench of the Tribunal in the case of Ramesh Verma, Bahrain vs. ACIT, Gonda (supra) wherein the Tribunal exhaustively discussed the issue of where the Assessing Officer has made addition of Rs.64,98,638/- by invoking the provisions of clause (e) of the first proviso to sec.43(5) of the I.T. Act, holding that derivatives trading in commodities is a kind of speculation in commodity trading business and that loss suffered in derivatives commodity trading can be set-off only against its own head, and not against the business head. We find the action of the Assessing Officer was upheld by the Ld.CIT(A) and on further appeal by the assessee, the Tribunal from para-6 onwards decided the issue in favour of the assessee by observing as under :
“6. Heard. The issue is as to whether the Id. CIT(A) has correctly confirmed the addition of Rs.64,98,638/, made by invoking the provisions of clause (e) of the first proviso to section 43(5) of the 1.T. Act.
Section 43(5) and clause (e) of the first proviso thereto, as applicable to Assessment Year 2015-16, i.e., the year under consideration, read as follows:
43(5), "speculative transaction means a transaction in which a contract for the purchase or sale of any 11 ITA.No.973/PUN./2024 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- (a).... (b).... (c). (d).. (e) an eligible transaction in respect of trading in association, which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013), shall not be deemed to be a speculative transaction.'
Thus, clause (e) of the first proviso to section 43(5) of the I.T.Act, categorically provides that an (eligible transaction) in respect of trading in (commodity derivatives) carried out in a (recognised Association), which is chargeable to (commodities transaction tax), shall not be deemed to be a speculative transaction.
9. Now, in order not to be deemed a speculative transaction, a transaction shall, as per clause (e) of the first proviso to section 43(5):
12 ITA.No.973/PUN./2024 (a) Be an eligible transaction (b) In respect of trading (c) In commodity derivatives (d) Carried out in a recognized association (e) Chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013.
Let us see if the assessee fulfills all the conditions prescribed by section 43(5) first proviso (e).
11.1 Explanation 2(ii) to clause (e) of the first proviso defines "eligible transaction" as follows:
"eligible transaction" means any transaction, - (A) carried out electronically on screen-based systems through member or intermediary, recognized 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 direction issued under that Act on a recognised association; and (B) which is supported by a time stamped the 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,
13 ITA.No.973/PUN./2024 rules, regulations or bye-laws referred to in sub- clause (4), unique trade number and permanent account number this Act; 11.2. Neither the Assessing Officer, nor the Id. CIT(A) has disputed the assessee having fulfilled all the above conditions of an eligible transaction. The trading in commodity derivatives was carried out by the assessee on recognised Associations. As per reply dated 21.12.2017 (APB 712), filed by the assessee before the Assessing Officer, in response to notice dated 15.12.2017, issued under section 143(3), the documents confirming the business in trading of derivatives of Commodity, Currency and Shares had already been filed before the Assessing Officer by the assessee along with reply dated to 21.2.2017, by way of confirmation of M/s SMC Global Securities Ltd., for derivatives trading in commodity market, and M/s Wealth Mantra Commodities Private Limited for trading in Commodity and Currency derivatives. The loss shown in these confirmations was stated to be matching with the loss shown in the profit and loss account. It was also stated that in these confirmations filed, the amount of commodity transaction tax paid also stood mentioned. Similar was the reply dated 24.10.2019 (APB 17-21) filed by the assessee before the Id. CIT(A). The Id.CIT(A), in paragraph 4.2 of the impugned order, has 14 ITA.No.973/PUN./2024 acknowledged that "confirmations of M/s SMC Global Securities Ltd. for derivatives trading in commodity markets, M/s Wealth Mantra Commodities Private Limited for dealing in commodity and currency derivatives have been filed." 11.3. In view of the above, the transactions entered into by the assessee are eligible transactions.
12. It also nowhere stands disputed by the authorities below that the transactions in question were in respect of trading in commodity derivatives, carried out in recognised Association/s, chargeable to commodities transaction tax. Therefore, evidently, all the requirements of clause (e) to the first proviso to section 43(5) stand squarely met.
From the above, indubitably, the transactions entered into by the assessee, in keeping with the specific requirements of clause (e) of the first proviso to section 43(5), cannot at all be deemed to be speculative transactions. In this regard, unsustainably, the authorities below have gone at a total tangent from the requirements of law. As for the Assessing Officer, he states that the assessee does business in non-agricultural trading, for which, he had not submitted any expertise. Now, this is nowhere the requirement of clause (e) of the first proviso to section 43(5), as discussed above. There is no bar of 15 ITA.No.973/PUN./2024 expertise requiring trading in commodity derivatives, if the assessee, being a Doctor, practices in Radiology. It is also not correct to state, as has been done by the Assessing Officer, that the assessee is trading in commodities rather than in commodity derivatives, which is speculative in nature. As per the details of loss from derivatives business incurred by the assessee, such derivatives were with regard to Crude oil, Nickel, etc., and Currency derivatives. The confirmations from the recognised Associations were filed, as previously noted. Nowhere have the authorities below denied that the commodity derivatives are commodity derivatives as prescribed under Chapter VII of the Finance Act, 2013. In this regard, clause (i) of Explanation 2 to section 43(5) specifically states that for the purposes of clause (e) of the first proviso of section 43(5), the expression 'commodity derivatives' shall have the meaning as assigned to it in Chapter VII of the Finance Act, 2013.
In the impugned order, the Id. CIT(A), without considering this aspect of the matter, has confirmed the Assessing Officer's observations, holding that the assessee could do two businesses, but the accounts should have been maintained separately; that the assessee has wrongly set off loss of speculative business with regular
16 ITA.No.973/PUN./2024 business; and that the assessee does not have the expertise of doing trading in commodities.
Firstly, no case of intermingling of expenses stands made out. The loss from trading in commodity derivatives has been identified to the last rupee. The issue is as to whether such loss can be set off against other business loss. Next, as discussed herein above, in keeping with clause (e) of the first proviso to section 43(5), the loss incurred is not a speculative loss.
Now, coming to the issue as to whether the loss from trading in commodity derivatives, which, as above, is not a speculative loss, has rightly been set off by the assessee against regular business profits from medical derivatives business.
As per section 70 (1) of the 1.T. Act, where the net result for any Assessment Year in respect of any source falling under any head of income, other than "Capital Gains", is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head.
So, according to section 70(1) of the I.T. Act, loss from any source under any head of income can be set off against income from any other source under the same head.
17 ITA.No.973/PUN./2024 19. Then, section 73 (1) states thus: "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."
Reading clause (e) of the first proviso to section 43(5), and sections 70(1) and 73(1) of the I.T. Act together, it emerges that in the assessee's case, since a derivatives commodity trading transaction is not a speculative transaction, loss arising therefrom can very well be set off against the profit of the medical derivatives business of the assessee. Rather, it is only against such business profit that the business loss from the derivatives commodity trading can be set off.
Clause (e) of the first proviso to section 43(5) of the I.T. Act was inserted by the Finance Act, 2013, w.e.f. 1.4.2014. The assessment year under consideration is 2015 16. Thus, this provision is squarely applicable to the assessee's case.
None of the case laws relied on by the Id. CIT(A) is applicable to the present case, since they do not relate to clause (e) of the first proviso to section 43(5) of the I.T. Act.
18 ITA.No.973/PUN./2024 23. In view of the above, the grievance of the assessee is found to be justified and is accepted as such. The Grounds raised are, hence, accepted. The addition made by the Assessing Officer, as confirmed by the ld. CIT(A), is cancelled.
In the result, the appeal of the assessee is allowed.”
9.3. In the instant case, there is no dispute to the fact that assessee has carried-out the transactions in trading of commodity on derivatives through IIFL Securities and a Certificate to the same effect has already been produced before the Assessing Officer, according to which, the total loss on account of trading loss in commodity derivatives was Rs.7,27,109/-. Under these circumstances and relying on the decision of the Lucknow Bench of the tribunal cited (supra), we are unable to uphold the order of the Ld. CIT(A) in not allowing the claim of business loss of Rs.7,27,109/- incurred on trading in commodity derivatives. Accordingly, the order of the Ld. CIT(A) is set aside and the Assessing Officer is directed to allow the claim of business loss of Rs.7,27,109/- incurred on trading in commodity derivatives. The first ground raised by the assessee is accordingly allowed.
19 ITA.No.973/PUN./2024 10. So far as the second issue is concerned, the same relates to the order of the Ld. CIT(A) in disallowing the business expenditure of Rs.1,25,870/-.
After hearing both the sides, we find that it is an admitted fact that assessee has not furnished any details before the Assessing Officer regarding the incurring of the business expenditure except the ledger account of such expenses. We find the details of business expenditure as given by the assessee appears to be exorbitantly on the higher side. At the same time, it cannot be said that assessee has not incurred any business expenditure for doing trading in commodity derivatives. Considering the totality of the facts and circumstances of the case, we are of the considered opinion that a lump sum expenditure of Rs.50,000/- may reasonably be considered as business expenditure. Accordingly, we modify the order of the Ld. CIT(A) and direct the Assessing Officer to allow an amount of Rs.50,000/- as business expenditure as against Rs.1,25,870/- claimed by the assessee. Ground No.2 raised by the assessee is partly allowed.
In the result, appeal of the assessee is partly allowed.
20 ITA.No.973/PUN./2024 Order pronounced in the open Court on 09.12.2024.