Commissioner Of Income Tax-Central, New Central Revenue Building, Statue Circle, Jaipur(Raj v. Shri Prakash Chand Jain

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 16 / 2014 Commissioner of Income Tax-Central, New Central Revenue Building, Statue Circle, Jaipur(Raj) ----Appellant Versus Shri Prakash Chand Jain, 305, Jaipur Tower, 3rd Floor, M.I. Road, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. Anil Mehta with Mr. Sameer SharmaFor Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Order 18/09/2017 1.By way of this appeal, the appellant has assailed thejudgment and order of the Tribunal whereby the Tribunal haspartly allowed the appeal of the assessee modifying the order ofCIT(A) as well as AO. 2.This Court while admitting the matter framed the followingsubstantial question of law:- “Whether the Tribunal was justified in reversingthe findings given by the Assessing Officer aswell as CIT(A), thereby deleting the addition ofRs. 68,25,182/- by holding that the transactionsof jobbing/arbitrage entered into by the assesseeare not speculative transaction and proviso © ofSection 43(5) of the Act is applicable in the caseof the assessee, despite the assessee failing tomeet the mandatory conditions provided in the said proviso?” 3.Counsel for the appellant submitted that the Tribunal hasseriously committed an error in allowing the appeal of theassessee inasmuch as Section 43(5) of the Income Tax Act readsas under:- “Speculative transaction means a transaction inwhich a contract for the purchase or sale of anycommodity including stocks and share isperiodically or ultimately settled otherwise thanby the actual delivery or transfer of thecommodity or scrips.” 4.He has contended that it is not in regular course of business the provision will not apply in the case where contract is enteredbetween a member of stock exchange in the course of anytransaction in the nature of jobbing or arbitrage to guard againstloss which may arise in the ordinary course of business. In thatview of the matter, he contended that the Tribunal has seriouslycommitted an error. 5.Counsel for the respondent has taken us to para 11 of theTribunal which reads as under:- “11. After going through the written submissionsand the orders of the AO as well as of ld. CIT(A)and after taking into consideration thesubmissions of ld. D/R, we find that assesseedeserves to succeed on this ground. Clause © ofsection 43(5) has been reproduced somewhereabove in this order while discussing the facts aswell as while section 43(5) it has been providedthat speculation transaction means a transactionin which a contract for purpose or sale of anycommodity including stock and shares isperiodically or ultimately settled otherwise thenby the actual delivery or transfer of commodityor scrip. Thereafter under clause (a), (b) and (c)the exceptional clause is provided. Under clause 5.Counsel for the respondent has taken us to para 11 of theTribunal which reads as under:- “11. After going through the written submissionsand the orders of the AO as well as of ld. CIT(A)and after taking into consideration thesubmissions of ld. D/R, we find that assesseedeserves to succeed on this ground. Clause © ofsection 43(5) has been reproduced somewhereabove in this order while discussing the facts aswell as while section 43(5) it has been providedthat speculation transaction means a transactionin which a contract for purpose or sale of anycommodity including stock and shares isperiodically or ultimately settled otherwise thenby the actual delivery or transfer of commodityor scrip. Thereafter under clause (a), (b) and (c)the exceptional clause is provided. Under clause (c) it has been provided that a contract enteredinto by a member of a forward market or stockexchange in the course of any transaction in thenature of jobbing or arbitrage to guard againstloss which may arise in the ordinary course ofhis business as such member. In our consideredview, both the lower authorities i.e. AO and ld.CIT(A) could not understand the clause (c) inright perspective. The AO says the assesseecould not prove the transaction as there is nodelivery. However, at various points of time theAO accepts the assessee’s transaction as jobbingin nature but they are not done during theregular course of business. Clause (c)specifically provides that if any member of astock exchange entered into transaction either ofloss or profit that will be treated as businesstransaction. All these transactions are transactedthrough MCX which is an organized stockexchange. If a member wants to enter intotransaction of a future date then the transactionhas to be done through stock exchange and ifthe same members wants to settle thosetransactions by selling or purchasing then againtransaction has to be transacted through stockexchange which has been done in this case. Asample copy dated 5.3.2008 is placed on record.By this sample copy it is seen that the assesseemember gave an order for trading to buy gold offuture date i.e. 5[th] April, 2008. For the sake ofclarification, this transaction was ordered on5.3.2008. Thereafter assessee thought proper tosettle this transaction, again after few hours theassessee gave order to the stock exchange tosell the same for a future date. Both thesetransactions are done by stock exchange andwhatever the profit or loss is there that has beensettled by the stock exchange in account of theassessee member. No doubt remains thatassessee had done its transaction on regularbasis which cannot be termed that they are notregular course of business as provided in clause(c) of section 43(5). The ld. CIT(A) alsoaccepted that transaction has been done but inhis view this transaction either falls under themain clause of section 43(5) or clause (a).Section 43(5) is about speculative transaction.Therefore, ld. CIT(A) has treated this transactionas speculative in nature and in clause (a) acontract in respect of raw material ormerchandise entered into by a person in thecourse of his manufacturing or merchandisingbusiness to guard against loss through futureprice fluctuation in respect of his contract for actual delivery of goods manufactured by him ormerchandise sold by him. This clause cannot beapplied on the assessee as assessee is not doingthe business of manufacturing or merchandisingbusiness but doing the transaction for himself offuture date through stock exchange and this fallsunder clause (c) where it is clearly mentionedthat a contract entered into by a member of aforward market or a stock exchange in thecourse of any transaction in nature of jobbing orarbitrage to guard against loss which may arisein the ordinary course of business as suchmember. The AO himself admitted that thenature of transaction entered into by theassessee is in nature of jobbing. However, asdelivery was not given, therefore, he treated thistransaction as speculative in nature. It has beenalso mentioned that no contract was filed inwritten. In our considered opinion thisobservations of the AO are without any basisbecause the assessee is a member of stockexchange called MCX and all the transactions aredone by him as jobbing transaction which hasbeen admitted by the AO also. Therefore, thereis no question of any delivery or question of anywritten contract. These are regular transactionsand as per clause (c) this transaction has to betreated as done in the regular course ofbusiness. AO has also mentioned somewhere inhis order that case of the assessee may fallunder clause (d) of section 43(5) deals withderivative transaction, therefore, the assessee’scase does not fall under clause (d) of section43(5) of the Act. 11.1 The Ld. CIT (A) somewhere in his order hasobserved that the actual user of any commodityenter into jobbing transaction under forcefulcircumstances, then only those transactions shallbe qualified for clause (c). We are notunderstandable that how forcefully transactionscan be identified as transactions of jobbing.Undisputedly, the transactions by assessee areof jobbing transactions for the safeguard offuture loss and, therefore, it clearly falls underclause (c) of section 43(5). Various case lawsrelied upon by Ld. A/R before the AssessingOfficer as well as before Ld. CIT (A) and nowhere before the Tribunal support the case of theassessee. The ratio of these cases have beendiscussed in the written submissions filed onbehalf of the assessee which are reproducedsomewhere above in this order, therefore, weare not repeating ratio of those case laws onceagain. The contention of Ld. D/R that decision of Hon'ble Allahabad High Court is not in detail.Whether the order of Hon'ble Allahabad HighCourt is detailed or not but it deals with theclause (c) of section 43(5) and it has been heldthat if the transaction entered into by assesseethrough stock exchange are of jobbing naturethen they fall under clause (c). Similar view hasbeen expressed in case of Komal Export, 19 SOT602 (Del) and also Bangalore Bench of theTribunal in case of M/s. First Securities Pvt. Ltd.,(2009) TIOL 443 and in case of LDK Shares andSecurities Pvt. Ltd. These cases have beendiscussed in the written submissions. Therefore,we are not repeating again. Regarding thedecision in case of Shree Capital Services Ltd. inITA No. 1294/Kol/2008 relied upon by AssessingOfficer, it is seen that this decision is in fact fallsunder clause (d) and not clause (c). Therefore,the decision of Kolkata Bench in case of ShreeCapital Services Pvt. Ltd. (supra) is notapplicable in the facts of the present case. Inview of these facts and circumstances and inview of various case laws , we are of theconsidered view that case of assessee falls underclause (c) of section 43(5) and, therefore, theloss incurred by assessee has to be treated asbusiness loss eligible for set off against otherbusiness income of the year. Accordingly wedirect the Assessing Officer to allow the claim ofthe assessee for both the years.” 6.He has relied upon the decision in case of Commissioner of 6.He has relied upon the decision in case of Commissioner of Income Tax vs. Ram Kishan Gupta [2014] 361 ITR 387(Allahabad) wherein it has been held as under:- “27. The Tribunal having returned a finding thatthe details of each and every transaction weredisclosed by the assessee which were part of thepaper book. No discrepancy in any of thetransactions can be pointed out by the AssessingOfficer nor the bona fide of the transactions weredoubted, the transaction thus carried out werepart of the "jobbing" within the meaning ofproviso (c) to section 43(5). 28.We are thus of the view that the order of theTribunal allowing the appeal of the assessee is tobe upheld although confined to the ground thatthe losses suffered by the assessee cannot betermed to be speculative loss by virtue of proviso(c) to section 43(5). In view of the foregoingdiscussions, all the questions are answered in favour of the assessee and against the Revenue.The appeal is dismissed. 6.1. He has also relied upon the decision in case of Commissioner of Income Tax vs. Sharwan Kumar Agarwal [2001] 249 ITR 233 (All) wherein it has been held as under:- “2. The assessee is a share broker and filedhis return of income on December 13, 1994.The assessment was completed under Section143(3) of the Income Tax Act, 1961. Duringthe course of assessment proceedings, theAssessing Officer had found that the assesseehad at times settled the share transactions bycorresponding deliveries and at times settledthe contract without effecting the delivery. Onan examination of invoice bills, the AssessingOfficer found that the assessee had earned aprofit of Rs. 32,80,949 and suffered a loss ofRs. 1,10,14,010, thereby incurring a net lossof Rs. 77,33,061. It was held that this wasspeculative transaction within the meaning ofSub-section (5) of Section 43 of the IncomeTax Act. Invoking the provisions of Section 73of the Income Tax Act, the Assessing Officerheld that the speculative loss of Rs. 77,33,061could not be allowed to be set off against theprofit of general business of the assessee. Theorder was affirmed by the Commissioner ofIncome Tax (A)-1, Kanpur. The Income TaxAppellate Tribunal in appeal held that theassessee was entitled to the exception coveredby Clause (c) of the proviso to Section 43(5)of the Income Tax Act, which reads as under : "a contract entered into by a member of aforward market or a stock exchange in thecourse of any transaction in the nature ofjobbing or arbitrage to guard against losswhich may arise in the ordinary course of hisbusiness as such member ; shall not be deemed to be a speculativetransaction ;" 6. The Tribunal found dial the assessee wasentitled to the exception covered by theproviso, Clause (c) to Sub-section (5) ofSection 43 of the Income Tax Act. The onus ofproof was on the Department to establish thatsuch exception was not applicable. It hasplaced reliance upon the decision of theSupreme Court in CIT v. Ramakrishna Deo MANU/SC/0059/1958MANU/SC/0059/1958 :[1959]35ITR312(SC) . It further found that nomaterial was collected at the appellate stageto show that the condition was fulfilled.Learned counsel for the applicant has notshown that there was any material to showthat the assessee was not entitled to theexception, referred to above. It may also benoted that the applicant has not sought anyquestion to be referred in regard to proviso,Clause (c) to Sub-section (5) of Section 43 ofthe Income Tax Act.” 6.2. He has relied upon another decision in case of Commissionerof Income Tax, Bangalore vs. First Securities (P) Ltd. [2015] 370 ITR 72 (Karnataka) wherein it has been held as under:- MANU/SC/0059/1958MANU/SC/0059/1958 :[1959]35ITR312(SC) . It further found that nomaterial was collected at the appellate stageto show that the condition was fulfilled.Learned counsel for the applicant has notshown that there was any material to showthat the assessee was not entitled to theexception, referred to above. It may also benoted that the applicant has not sought anyquestion to be referred in regard to proviso,Clause (c) to Sub-section (5) of Section 43 ofthe Income Tax Act.” 6.2. He has relied upon another decision in case of Commissionerof Income Tax, Bangalore vs. First Securities (P) Ltd. [2015] 370 ITR 72 (Karnataka) wherein it has been held as under:- “Therefore, it has no application to a contractentered into by a member of the NSE orBangalore Stock Exchange, whose business is intrading of shares on behalf of his clients, whichis known as jobbing or arbitrage. Any loss whichmay arise in the course of such business, shallnot be deemed to be a speculative transaction.If the nature of the transaction by the assesseeis not a speculative transaction at all, then, theExplanation to section 73 of the Act has noapplication. The loss sustained by the assesseeis a business loss which can be set off againstthe income from the other sources. Therefore,the prohibition under section 73 of the Act isattracted only to set off the loss in a speculativebusiness against the profit from other business,because loss from speculation business shouldbe set off only from a profit of speculationbusiness. Therefore, the Tribunal was justifiedin setting aside the order passed by theauthorities and allowing the claim of theassessee. The substantial question of law isanswered in favour of the assessee and againstthe Revenue. We do not see any merit in thesetwo appeals. Accordingly, the appeals aredismissed.” 7.We have heard counsel for both the sides. 8.Taking into account, the MCX is only for the purpose ofgovernment and it is doing only job work therefore, there is no delivery. Even the Tribunal has admitted the transaction being ofjobbing nature. In that view of the matter, the Tribunal has rightlyinvoked the provision of Section 43(5) and Clause (c) in holdingthat transactions are not speculative transaction. 9.Hence, the issue is answered in favour of the assesseeagainst the department. 10.The appeal stands dismissed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. A.Sharma/27