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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA & SHRI RAMIT KOCHAR
PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the assessee, being ITA No. 3163/Mum/2014, is directed against the order dated 28-02-2014 passed by the learned Commissioner of Income Tax (Appeals)- 34, Mumbai (Hereinafter called “the CIT(A)”), the appellate proceedings before the CIT(A) arose from the assessment order dated 29-11-2011 passed by the learned assessing officer (Hereinafter called “the AO”) u/s. 143(3) of the Income Tax Act,1961(Hereinafter called “the Act”) read with Section 147 of the Act, for the assessment year 2008-09. 2. The grounds raised by the assessee in the memo of appeal filed with the Tribunal read as under:-
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“1.In the facts and circumstances of the case and in law the learned CIT(A) erred in not holding that loss of Rs.55,14,312 incurred by the appellant in F&O/Derivatives segment of stock market ought to have been set off against short term profit of Rs.48,39,634 made by the appellant in shares in cash market for the year in appeal or against income from any other source earned by the appellant for the year.
The learned CIT(A) gravely erred in not specifically dealing with the above ground and in not passing any speaking order in respect of the above ground.
In the facts and circumstances of the case and in law the learned CIT(A) erred in not holding that the assessment in appeal made u/s 147/148 was bad in law and was not tenable. The learned CIT(A) also erred in not holding that the notice issued u/s 148 was in itself bad in law as it was issued for reasons that would not justify initiation of reassessment.
The learned CIT(A) erred in holding that ground related levy of interest u/s 234A/234B and 234C was consequential in nature. It is submitted that in the facts and circumstances of the case and in law no interest was leviable u/s 234A/234B and 234C.
Without prejudice to the ground No. 1 the learned CIT(A) erred in not allowing carry forward of loss incurred in F & O segment of the stock market.”
The brief facts of the case are that the assessee has declared income from salary , rental income, business income from trading in Futures and Option Market , short term capital gains and income from other sources. The assessee filed return of income with Revenue belatedly on 31-03-2010 and notice u/s 148 of the Act was issued on 14-03-2011 which was duly served on the assessee, after recording of reasons for re-opening of the assessment.
The assessee had returned a loss from trading in F & O of Rs.55,14,313/- and short term capital gains of Rs. 48,39,634/- in the return of income filed with Revenue. This short term capital gains has been set-off by the assessee against the business loss from F & O business. The assessment
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was re-opened u/s 147 of the Act due to the afore-said reasons in view of the provisions of Section 70 of the Act, which are reproduced hereunder :-
“Set off, or carry forward and set off [Set off of loss from one source against income from another source under the same head of income. 70. (1) Save as otherwise provided in this 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. (2) ***** (3) Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any capital asset (other than a short-term capital asset) is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation88a made for the assessment year in respect of any other capital asset not being a short-term capital asset.]”
The assessee was asked as to why set off of F & O loss claimed by the assessee against short term capital gain on shares be not disallowed. The assessee made submissions before the AO but the same were rejected by the AO relying upon the provisions of Section 70(1),(2) and (3) of the Act. It was held by the AO that reliance of the assessee on provisions of Section 71(2) of the Act is misplaced. Thus, claim of the assessee for adjustment of short term capital gains on shares against loss on F & O trading business as claimed by the assessee was disallowed and added back to the income of the assessee by the AO. The claim of loss from F & O business was also not allowed to be carried forward as the assessee has not filed the return of income with the Revenue within prescribed due date. Further , in view of provisions of Section 71(2A) of the Act, set off of loss on Futures and Options business was also not allowed to be set-off against salary income of the assessee. The AO passed re- assessment order dated 29-11-2011 u/s 143(3) read with Section 147 of the Act disallowing the afore-stated claims of the assessee.
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Aggrieved by the re-assessment order dated 29-11-2011 u/s 143(3) read with Section 147 of the Act passed by the AO, the assessee filed first appeal before the CIT(A).
The assessee submitted that in view of provisions of Section 71(2) of the Act , the claim of the assessee for set off of short term capital gains on shares earned by the assessee against the loss incurred in the Future and Option derivative trading business of the assessee is to be allowed. The assessee submitted that in view of provisions of Section 43(5)(d) of the Act , Future and Option derivative trading loss is a non-speculative business loss assessable under the head ‘ Profit and gains of business or profession’ . Thus, the assessee submitted that as per provisions of Section 71(2) of the Act , the assessee claim for set off F&O derivative trading business loss be allowed to be set off against the short term capital gains on shares earned by the assessee. The said claim was also rejected by the CIT(A) nor the claim for F& O Trading loss was allowed to be carried forward as the assessee filed return of income late beyond the time stipulated u/s 139(1) of the Act. Similarly, the claim of adjustment of F& O trading loss was not allowed to be set off by the CIT(A) against salary income in view of bar and prohibition created by Section 71(2A) of the Act. The CIT(A) passed appellate orders dated 28-02-2014 rejecting afore-stated claims of the assessee.
Aggrieved by the appellate orders dated 28-02-2014 passed by the CIT(A), the assessee filed second appeal with the Tribunal.
The ld counsel for the assessee contended before the Tribunal that the assessee incurred derivative trading business loss in Futures and Options of Rs.55,14,313/- which was sought to be set-off against short term capital gains of Rs.48,39,634/- earned by the assessee on shares which is an allowable claim in view of provisions of Section 71(2) of the Act and the ITA 3163/Mum/2014 5
authorities below erred in not allowing the said claim of the assessee for set- off. The ld. Counsel submitted that the revenue erred in invoking provisions of Section 70 of the Act which is not applicable as the same is applicable for adjustment of losses within same head of income , rather provisions of Section 71 of the Act are applicable in the cases of adjustment of losses under different head of the income inter-se and the claim of the assessee is allowable in view of specific provisions as contained in Section 71(2) of the Act. The ld counsel submitted that on perusal of computation of income filed by the assessee with the Revenue along with return of income, loss arising from F & O derivative trading business cannot be set off against salary income in view of the bar and prohibition created by provisions of Section 71(2A) of the Act , while rest of the income declared by the assessee in return of income filed with Revenue is to be adjusted against F&O derivative trading business loss incurred by the assessee. The assessee counsel submitted that in view of provisions of Section 43(5)(d) of the Act , the F & O derivative trading business loss incurred by the assessee is a non-speculative business loss which is chargeable to tax under the head ‘Profit and gains of business or profession’ as non-speculative business income (loss) and can be set off against income earned under the other heads of income except salary income.
Ld. DR on the other hand relied upon the orders of the authorities below.
We have considered the rival contentions and perused the material on records. We have observed that the assessee has incurred loss of Rs.55,14,313/- in Futures and Options derivative trading business. In view of the provisions of Section 43(5)(d) of the Act, the said loss is a non-speculative business loss provided conditions stipulated u/s. 43(5) of the Act are fulfilled which is not in dispute in present appeals as per the facts emanating from records. The dispute is with respect to adjusting the said non-speculative business loss of Rs.55,14,313/- incurred on F & O derivative trading
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business against the short term capital gains on sale of shares of Rs.48,39,634/- earned by the assessee . We have observed that the said set- off is denied to the assessee in view of Section 70(1), (2) and (3) of the Act while the assessee is relying on Section 71(2) of the Act. We have carefully analyzed the provisions of said sections which are reproduced hereunder:
“Set off, or carry forward and set off
[Set off of loss from one source against income from another source under the same head of income. 70. (1) Save as otherwise provided in this 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.
(2) Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any short-term capital asset is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset.
(3) Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any capital asset (other than a short-term capital asset) is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset not being a short-term capital asset.]”
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“[Set off of loss from one head against income from another.
(1) Where in respect of any assessment year the net result of the computa- tion under any head of income, other than "Capital gains", is a loss and the assessee has no income under the head "Capital gains", he shall, subject to the provisions of this Chapter, be entitled to91have the amount of such loss set off against his income, if any, assessable for that assessment year under any other head.
(2) Where in respect of any assessment year, the net result of the computation under any head of income, other than "Capital gains", is a loss and the assessee has income assessable under the head "Capital gains", such loss may, subject to the provisions of this Chapter, be set off against his income, if any, assessable for that assessment year under any head of income including the head "Capital gains" (whether relating to short-term capital assets or any other capital assets).
[(2A) Notwithstanding anything contained in sub-section (1) or sub-section (2), where in respect of any assessment year, the net result of the computation under the head "Profits and gains of business or profession" is a loss and the assessee has income assessable under the head "Salaries", the assessee shall not be entitled to have such loss set off against such income.]
(3) Where in respect of any assessment year, the net result of the computation under the head "Capital gains" is a loss and the assessee has income assessable under any other head of income, the assessee shall not be entitled to have such loss set off against income under the other head.]
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[(4) Where the net result of the computation under the head "Income from house property" is a loss, in respect of the assessment years commencing on the 1st day of April, 1995 and the 1st day of April, 1996, such loss shall be first set off under sub-sections (1) and (2) and thereafter the loss referred to in section 71A shall be set off in the relevant assessment year in accordance with the provisions of thatsection.]” On careful perusal of Section 70 and 71 of the Act , it is observed that the said Section 70 of the Act deals with set-off of losses under the same head of income while in the instant case Losses incurred by the assessee on F&O derivative trading is a business loss from non-speculative business which is not in dispute in view of provisions of Section 43(5)(d) of the Act and the assessee in view of provisions of Section 71(2) of the Act is seeking the set off the said non-speculative business loss on F&O derivative trading business against other heads of income being the income from short term capital gains earned on the sale of shares and other income earned by the assessee excluding salary income earned by the assessee in view of provisions of Section 71(2A) of the Act. On perusal of the Section 71 of the Act , it is observed that it deals with set-off of losses incurred under one head of income against another head of income. The language of Section 71(2) of the Act is plain and clear and it allows the losses incurred under any head other than under the head ‘capital gains’ to be set off against income under any other head of income including head ‘capital gains’. The language is clear and plain and we do not see any bar or prohibition on adjustment of losses incurred by the assessee in F & O trading business against the short term capital gains earned by the assessee on sale of shares and other income earned by the assessee except salary income as there is a specific bar and prohibition raised by the statute by virtue of Section 71(2A) of the Act which debar adjustment of losses incurred under the head ‘Profits and gains of business or profession’ to be set off against salary income. Section 71(2A) has ITA 3163/Mum/2014 9
a non-obstante clause and creates a bar notwithstanding what is contained in Section 71(1) and 71(2) of the Act. The assessee has incurred losses in F & O trading in derivatives which is assessable as non-speculative business loss under the head ‘Profit and Gains of business or profession’ and bar as contained in Section 71(2A) of the Act shall operate and the assessee will not be entitled to set off losses in F & O derivative trading business against salary income earned by the assessee , while assessee will be entitled to set-off such losses in F & O derivative trading business losses which are non-speculative business losses against capital gains on sale of shares and other income earned by the assessee except salary income. We order accordingly.
The next contention of the assessee is that the assessee has filed return of income with revenue belatedly on 31-03-2010 which is beyond the time stipulated u/s 139(1) of the Act, while the assessee was required to file the same by 30-09-2008 i.e. the due date stipulated u/s 139(1) of the Act. Thus, the assessee did not file return of income with Revenue with-in due date stipulated u/s 139(1) of the Act , rather the return was filed belatedly u/s 139(4) of the Act. Provisions of Section 139(3) of the Act read with Section 80 of the Act ,post amendment by the Direct Tax Laws (Amendment) Act ,1987 w.e.f. 01-04-1989, clearly stipulate that for losses sustained by the tax-payer under the head ‘Profit and gains of business or profession’ or ‘Capital gains’ whereby the tax-payer claims to take benefit of carry forward of such losses u/s 72(1),73(2) , 74(1),74(3) or 74A(3) of the Act , the tax-payer has to file return of income as per provisions of Section 139(1) of the Act within due date specified in Section 139(1) of the Act and any non-compliance will disentitle carry forward of such losses by virtue of Section 139(3) read with Section 80 of the Act. The recourse in such a case is to approach CBDT u/s 119 of the Act for allowability of carry forward of such losses which are claimed vide belated return of income filed with Revenue. Admittedly, the assessee in the instant case did not file return of income within due date as prescribed u/s ITA 3163/Mum/2014 10
139(1) of the Act and hence , the assessee will not be allowed to carry forward un-adjusted business loss arising from F & O derivative trading business chargeable to tax under the head ‘Profit and gain of business or profession’ which remained un-adjusted after adjusting the same under the other heads of income except salary income , as per our decision in preceding para’s. We order accordingly.
With this order we have disposed of ground no 1 , 2 and 5 raised by the assessee. We order accordingly.
The ld counsel of the assessee has not pressed ground no. 3 and hence the same is dismissed.
Ground no 4 raised by the assessee is consequential and does not require adjudication and is dismissed.
In the result, the appeal filed by the assessee in ITA N0. 3163/Mum/2014 for the assessment year 2008-09 is partly allowed as indicated above.
Order pronounced in the open court on 30th March, 2016. आदेश क" घोषणा खुले "यायालय म" "दनांकः ……………… को क" गई । (AMIT SHUKLA) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER मुंबई Mumbai; "दनांक Dated 30-03-2016 [ व."न.स./ R.K. R.K. R.K., Ex. Sr. PS R.K.
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आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant
""यथ" / The Respondent. 3. आयकर आयु"त(अपील) / The CIT(A)- concerned, Mumbai 4. आयकर आयु"त / CIT- Concerned, Mumbai "वभागीय ""त"न"ध, आयकर अपील"य अ"धकरण, मुंबई / DR, ITAT, Mumbai “ F” Bench 5. 6. गाड" फाईल / Guard file. आदेशानुसार/ BY ORDER, स"या"पत ""त //// उप/सहायक पंजीकार (Dy./Asstt.