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Income Tax Appellate Tribunal, BENCH “B”, KOLKATA
Before: Hon’ble Shri N.V.Vasudevan, JM & Shri M.Balaganesh, AM]
This is an appeal by the Revenue directed against the order dated 21.11.2012 of CIT(A)-XII, Kolkata relating to A.Y.2009-10.
Grounds of appeal raised by the revenue read as follows :- i) “On the facts and circumstances of the case and law the Ld. CIT(A)-XII erred in ignoring the fact that none of the contract note bears the unique client code of the assessee and IT. Permanent Account Number (PAN) of the assessee , therefore, it is uncovered under the definition of eligible transaction. ii) Erred in treating the transaction as non-speculative. iii) Erred in allowing the set-ff of speculating loss against income from other source.”
The Assessee is a company engaged in the business of granting loans and advances and dealing in securities. For A.Y.2009-10 the assessee filed return of income declaring total income of Rs.2,11,440/-. On perusal of profit and loss account of the assessee, AO noticed that the assessee has shown loss on dealings in Future Option of Rs.2,04,78,003/-. AO called upon the assessee to furnish the documents in support of the loss on dealings in Futures & Option. The assessee filed the required
M/s. Bright Impex & Agencies Pvt.Ltd. A.Yr.2009-10 details. The transaction in the Futures & Options had been carried out to a broker by name India Nivesh Securities Pvt. Ltd.. The AO issued notice u/s 133(6) of the Act to the broker to furnish the account copy of the assessee as per his books and copies of the contract notes. The AO was of the view that the aforesaid loss in transaction in future option market was a speculation loss. Therefore it could not be set off against the business income of the assessee for the following reasons :- (i) Loss on share transaction till 23.01.2009 was Rs. 89,59,683.01 but cheques were received by the broker only on 23.01.2009 of Rs. 50,00,000/ - and on 06.03.2009 of Rs. 40,00,000/ -. Without deposit of margin money/security deposit no one broker can trade on. behalf of his client. (ii) The broker has received amount of Rs. 50 lakhs after 50days and Rs. 40 lakhs after 92 days of the transactions resulting in the loss. (iii) Confirmation of transaction filed by the assessee as generated by India Nivesh Securities Pvt Ltd on computer bore the date 19.08.2011. According to the AO the broker never confirmed the transaction before 19.8.2011. According to the AO, the fact that confirmation was given as required by the Assessee at a later point of time to the actual occurring of the transactions in the year 2009, it was clear that there was mutual understanding between assessee and broker to create loss in account of assessee. (iv) The broker received amount of Rs. 50 lakhs after 50 days and Rs. 40 lakhs after 92 days but not charged any interest on late payment of huge outstanding amount. (v) There was no evidence place on record to show that the assessee company has passed resolution to enter into futures & options transaction. (vi) All the transaction has made in between 24.11.2008 to 04.12.2008 i.e. within 11 days.
3.1. The assessee in reply to the above discrepancies pointed out by the AO submitted that because of the Assessee’s credentials and since the transaction were done in derivative segments and were squared up on the same day, the broker did not insist on margin money. The Assessee had paid the loss amount which it had incurred in the transactions. With regard to the complaint of the AO that the confirmation of the broker was given only on 19.8.2011, the Assessee pointed out that it received all the contract notes well in time after the transactions were entered into and the confirmation submitted to the AO was in response to notice u/s.133(6) of the Act and therefore no adverse inference can be drawn. The fact that the broker did not charge interest despite receiving money from the Assessee after lapse of some time cannot be the basis to draw any adverse inference. It is upto the broker whether to M/s. Bright Impex & Agencies Pvt.Ltd. A.Yr.2009-10 charge interest or not. With regard to the absence of resolution for indulging in transactions of futures and options, the Assessee pointed out that such resolution was never asked for. The Assessee pointed out that Section 43(5) of the Income tax Act, 1961 defines Speculation Transaction. " Speculative transaction means a transaction in which a contract for the . purchase or sale of any commodity, including stock and shares, IS periodically or ultimately settle otherwise than by actual delivery or transfer of the commodity or scrips”
However, there is specific exemption provided in provision (d) of the Section 43 (5). 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 recognized stock exchange; shall not be deemed to be a speculative transaction. Thus if the transaction in derivatives carried out in a recognized stock exchange; shall not be treated as speculative transaction even though settled otherwise than by delivery. In view of the above the Assessee submitted that the loss in question should not be treated as speculation loss and should be allowed to adjust with interest income.
3.2. AO did not agree with the contentions put forth by the assessee and treated the loss in transaction in Future Option market carried out by the assessee as speculation loss. Consequently the assessee’s total income without setting off this speculative loss was assessed at Rs.2,04,78,003/-.
Before CIT(A) the assessee pointed out as follows :- (1) That there were other transactions also done in the same financial year 2008-09 wherein the Assessee had paid a sum of Rs.75,00,000/- on 24.11.2008 and Rs.40,00,000/- on 28.11.2008 against other transaction made by the Assessee. But during same financial year the other transaction of losses amounting to Rs.89,59,683/- were allegedly paid after a gap of 50 days and 92 days after the transactions. (2) That objections raised by AO regarding delay in payment of loss by 50 days and 92 days can not make loss disallowable as nowhere in the. Income Tax Act it is provided that losses incurred shall be disallowed on the ground of remaining partially unpaid or if the payment of loss is made in delay. (3) The AO did not apply his mind regarding true intent of the section. Had the intention of the section of 43(5) and clause (d) of that section been on the basis of full payment basis, that must had been clearly laid down in the act itself. Therefore F&O transaction done and if remaining unpaid cannot be treated as speculative transaction as there is no such mandate in Sec.43(5)(d) of the Act .
M/s. Bright Impex & Agencies Pvt.Ltd. A.Yr.2009-10
(4) Further more it is nowhere provided in the Income Tax Act that transaction done in F&O will be allowed only on payment basis.
(5) The AO is not fully conversant with the practices prevalent in security market as to margin money. The AO is not aware that margin money' is applicable in which type of shares. If the broker has not taken margin money, this is not the default of the client. The client himself will not deposit the margin money unless he is asked far.
(6) Furthermore the observations of AO in the second page of the said Assessment order under point no (2) is very much surprising against facts of the case and/or otherwise perverse. i) The observations that loss on share till 23.01.2009 was Rs.89,59,683.01/- is fully wrong, because the loss on F&O was Rs.2,04,78,003/- till 23.01.2009. Secondly cheques received by the broker on 23.01.2009 of RS.50,00,000/- and on 06.03.2009 of Rs.40,00,000/- but why did AO not mention the cheques received on 24.11.08 of Rs.75,00,000/- one Rs.40,00,000/- on 29.11.2008 ii) Why AO mentioned only about Rs.50,OO,OO'} after 50 days and Rs.40 lakhs after 92 days of transaction loss. Why did AO remain silent about earlier receipt of Rs.75 lakhs on 24.11 .08 and Rs.40 lakhs on 29.11.08.
Now the question arises that does a F&O loss become speculative loss if the payment is made in delay? There is no provision in the Income Tax Act under which loss of F&O can be treated as speculative loss if the part payment is made in delay. Section 43(5) clause (d) clearly lays down that loss/profit arising in F&O segment shall be fully treated as business profit/loss. So the AO has gone blunder in treating the F&O loss as speculation loss.
The Assessee drew attention of CIT(A) to the copy of bills of all transactions done under F&O which showed the date, time and all shares under which these losses incurred were duly punched in stock exchange of all these transactions. The Assessee also pointed out that the A.O has verified the transaction with stock exchange as well as broker and all the a details relating to punching of F & 0 transaction time of transaction ,name of scripts and quantity of scripts traded were verified by the AO during the course of hearing. The same can be verified with the assessment file/record lying with the AO The Assessee also pointed out that the confirmation generated by India Nives Securities Pvt. Ltd., on computer bore the date 14.08.2011. It was argued that just because a transaction done earlier is confirmed at a later point of time that time is the time of transaction but the time mentioned as the time of transaction alone is the is produced after a lag of time, that does not make the transaction false. And that does not make any adjustment and mutual understanding between broker and client. The delay in part payment in respect of transaction in F & O will not make F&O
M/s. Bright Impex & Agencies Pvt.Ltd. A.Yr.2009-10 transaction as speculative. The provision of clause 43(5) clause (d) clearly provides that Future Option transaction shall only be treated as business transaction and under no circumstances can be treated as "speculative transaction." Hence in the light of the above submission it was prayed that “”Future Option loss" be not treated as "speculation loss" in view of the provision of section 43(5) clause (d) of Income Tax Act, 1961.
The CIT(A) agreed with the submissions of the Assessee and held that the loss in question is not a speculation loss and therefore can be set off against other income as claimed in the return of income by the Assessee. Aggrieved by the order of CIT(A) the revenue has preferred the present appeal before the Tribunal.
We have heard the rival submissions. The Learned DR relied on the order of AO. The learned counsel for the assessee reiterated the stand of the assessee as put forth before the CIT(A).
6.1. We have given a careful consideration to the rival submissions. It is clear from the order of CIT(A) that the AO in the course of assessment proceedings had carried out necessary verification with the brokers India Nivesh Securities Pvt. Ltd as well as Stock Exchange and found that future option transactions had in fact carried though stock exchange. The order of the AO is silent to all these facts. Since all the details were filed before the AO by the assessee and in the absence of any other material brought on record one has to proceed on the basis that the loss in question arose out of Future & Option transaction carried through stock exchange. When the factum of the actual carrying out transactions through recognized stock exchange is not doubted or disputed the other aspects which are set out in the order of assessment are purely academic and in our view cannot be the basis to conclude that loss in Future & Option transactions was speculative loss. As we have already seen section 43(5)(d) of the Act clearly lays down that an eligible transaction in respect of trading derivatives carried out in a recognized stock exchange will not be deemed to be a speculative transactions. In the light of the statutory provision the conclusion drawn by the AO
M/s. Bright Impex & Agencies Pvt.Ltd. A.Yr.2009-10 cannot be sustained and the same were rightly reversed by CIT(A). The other reasons given by the assessee before CIT(A) also justifies the action of CIT(A) in deleting the addition made by the AO. We do not find any ground to interfere in the order of CIT(A). Consequently the appeal by the revenue is dismissed.
In the result the appeal of the revenue is dismissed.
Order pronounced in the court on 03.02.2016.