Principal Commissioner Of Income Tax-I, …Appellant/Revenuebhopal v. M/S Diamond Securities Pvt. Ltd., Bhopal …Respondent/Assessee

THE HIGH COURT OF MADHYA PRADESH: JABALPUR(Division Bench) Income Tax Appeal No. 10/2017 Principal Commissioner of Income Tax-I, …Appellant/RevenueBhopal versus M/s Diamond Securities Pvt. Ltd., Bhopal …Respondent/Assessee ====================================================== Coram: Hon’ble Shri Justice Ajay Kumar Mittal, Chief JusticeHon’ble Shri Justice Vijay Kumar Shukla, Judge ====================================================== Appearance: Shri Sanjay Lal, Advocate for the Appellant/Revenue. Shri Mukesh Agrawal, Advocate for the Respondent No.1/Assessee. ====================================================== JUDGMENT (Oral)(20.01.2020) Per: Ajay Kumar Mittal, Chief Justice: The present appeal under Section 260A of the Income Tax Act, 1961(for short “the Act”) has been preferred by the Revenue against an orderdated 05.07.2016 passed by the Income Tax Appellate Tribunal, Jabalpur(for brevity “the Tribunal”) in I.T.A.No.284/Ind/2015 relating to AssessmentYear 2007-08, whereby the appeal filed by the appellant-Revenue has beendismissed. 2.This appeal was admitted on 27.11.2017 for determination of thefollowing substantial question of law:- “(i)Whether on the facts and in the circumstances of the case,learned Tribunal was correct in holding that the loss ofRs.96,50,334/- constituted business loss and not aspeculation loss?” learned Tribunal was correct in holding that the loss ofRs.96,50,334/- constituted business loss and not aspeculation loss?” 3.The facts of the case, as are borne out from the memo of appeal, innutshell are that the respondent-assessee derived income from the businessof shares sub-brokers, trading in futures and option (F&O) of shares andcommodities futures. The assessee furnished its return of incomeelectronically on 30.10.2007 for the assessment year 2007-08 declaring totalincome of Rs.29,02,262/- and claiming business loss of Rs.96,50,334/-. Theoriginal assessment was completed on 19.11.2009 vide order under Section143(3) of the Act determining total income at Rs.29,24,150/-. Thereafter, theAssessing Officer finding escapement of income of the assessee to the tuneof Rs.96,50,334/- issued notice under Section 148 of the Act dated20.06.2011 calling upon the assessee to justify the set off of loss claimed inthe transactions of shares F&O, as claimed. Finding the reply of the assesseeas not tenable, the assessment was completed vide order dated 18.03.2013(Annexure A-1) after making addition of Rs.96,50,334/- as speculation lossand the income was assessed at Rs.1,25,74,480/-. Being aggrieved by thereassessment, the assessee preferred an appeal before the Commissioner ofIncome Tax (Appeals-I) [hereinafter referred to as “the CIT(A)]. The CIT(A)allowed the appeal vide order dated 26.02.2015 (Annexure A-2) and deletedthe addition made by the Assessing Officer. The order of the CIT(A) wasassailed by the Revenue before the learned Tribunal, who has dismissed theappeal vide order dated 05.07.2016 (Annexure A-3), which order isimpugned herein. 4.At the outset, learned counsel for the respondent-assessee raised apreliminary objection by filing I.A. No.12773/2019 that in the light of theCircular No.3/2018 dated 11.07.2018 read with amended Circular No.17/2019 dated 08.08.2019 issued by the CBDT, the present appeal is notmaintainable, as the tax effect is below Rs. 1.00 Crore. However, combatingthe said objection, learned counsel for the Revenue submitted that thoughthe tax effect involved in the present case is below the prescribed monetarylimit for filing the appeal, but since there is Revenue audit objection,therefore, the case is covered under Para 10(c) of the aforesaid CBDTcirculars and the appeal can be filed. In view of the said fact, the preliminaryobjection raised is noted to be rejected. 4.At the outset, learned counsel for the respondent-assessee raised apreliminary objection by filing I.A. No.12773/2019 that in the light of theCircular No.3/2018 dated 11.07.2018 read with amended Circular No.17/2019 dated 08.08.2019 issued by the CBDT, the present appeal is notmaintainable, as the tax effect is below Rs. 1.00 Crore. However, combatingthe said objection, learned counsel for the Revenue submitted that thoughthe tax effect involved in the present case is below the prescribed monetarylimit for filing the appeal, but since there is Revenue audit objection,therefore, the case is covered under Para 10(c) of the aforesaid CBDTcirculars and the appeal can be filed. In view of the said fact, the preliminaryobjection raised is noted to be rejected. 5.Learned counsel for the appellant made an extraneous effort topersuade us that both the appellate authorities below have erred in fact andin law in allowing the speculation loss claimed by the assessee in transactionof shares F&O by treating the same as general business loss. The assesseewas obliged to produce the stamped contract notes with the return in supportof business loss and justify the set off loss claimed by him but he failed toplace any material on record before the Assessing Officer, which led toaddition of an amount of Rs.96,50,334/- as speculation loss and rightly so. Itwas further submitted that the appellate authorities below failed toappreciate that in the share transactions in respect of which the business losswas claimed there was no actual delivery of scrips as envisaged under Sub-section (5) of Section 43 of the Act and therefore, such transaction did notfall in the category of an ‘eligible transaction’ under Clause (d) of proviso toSub-section (5) of Section 43 of the Act. Hence, it was prayed that theappeal be allowed and the impugned order be set aside. 6.In rebuttal, learned counsel for the respondent-assessee argued insupport of the impugned order and contended that the submissions advanced by the learned counsel for the appellant before this Court have already beentaken care of by the both the appellate authorities below and germanereasons have been assigned and, therefore, no interference is warranted. 7.Having heard learned counsel for the parties, we are of the consideredview that the present appeal deserves to be dismissed. 8.It is noted that before the Tribunal, the Departmenrt of Revenueadmitted that the addition of Rs.96,50,334/- as speculation loss was madedue to some confusion that the business loss of the earlier year was broughtforward by the assessee for set off in the assessment year 2007-08 and sincethe provisions of Section 43(5)(d) of the Act were introduced w.e.f.01.04.2006, therefore, the advantage of the said provision was not availableto the assessee for the earlier year. It was further agreed by the Revenue thatthe loss from shares and futures was covered by clause (d) of proviso to sub-section (5) of Section 43 of the Act and was not a speculation loss. In thisview of the matter, the learned Tribunal affirmed the order of the CIT(A).The findings recorded by the learned Tribunal read as under:- “7.Before us, the learned DR submitted that there was a confusion inthis case as in the assessment order it is mentioned that the assessee has setoff the loss from shares F&O of Rs.96,50,334/- against its businessincome and it was, therefore, presumed that it was brought forwardbusiness loss of earlier year and, hence, not allowable. It was, therefore,held that as the provisions of section 45(5)(d) of the Act were introducedw.e.f. 1.4.2006, therefore, the said provision was not applicable to earlierassessment years. 8.In view of the above submissions of the learned DR wherein he hasagreed that the loss from shares and futures was covered by section 43(5)(d) of the Act and was not speculation loss and hence, an allowablededuction against the business income, we find no good reason to interfere 8.In view of the above submissions of the learned DR wherein he hasagreed that the loss from shares and futures was covered by section 43(5)(d) of the Act and was not speculation loss and hence, an allowablededuction against the business income, we find no good reason to interfere with the order of the learned CIT(A) which is confirmed. Therefore, theground of appeal of the revenue is dismissed.” 9.The appellant having admitted before the learned Tribunal that theaddition of the amount of Rs.96,50,334/- on account of speculation losshappened by mistake due to confusion, cannot be heard to say that the orderpassed by the Tribunal or for that matter, the CIT(A) is bad in law. 10.Even if for the sake of consideration, the argument advanced by thelearned counsel for the appellant-Revenue that both the appellate authoritiesbelow erred in allowing the loss claimed by the assessee in transaction ofshares F&O by treating the same as general business loss, is taken up, we donot find any merit in the said argument as well. The relevant statutoryprovision contained in Section 43(5) of the Act which was inserted in the Actby the Finance Act, 2005 w.e.f. 1.4.2006, reads as under:- “Definitions of certain terms relevant to income from profits and gainsof business or profession. 43.In sections 28 to 41 and in this section, unless the contextotherwise requires- ********* (5)“speculative transaction” means a transaction in which a contractfor the purchase or sale of any commodity, including stocks and shares, isperiodically or ultimately settled otherwise than by the actual delivery” ortransfer of the commodity or scrips: Provided that for the purpose of this clause- ********* (d)an eligible transaction in respect of trading in derivatives referredto in clause (ac) of section 2 of the Securities Contracts (Regulation) Act,1956 (42 of 1956) carried out in a recognised stocks exchange;shall not be deemed to be a speculative transaction. Explanation – For the purposes of this clause, the expressions - (i)“eligible transaction” means any transaction, - (A)carried out electronically on screen-based systems through a stock broker or sub-broker or such other intermediary registered under section 12 of the Securities and Exchange Board of India Act, 1992(15 of 1992) in accordance with the provisions of the SecuritiesContracts (Regulation) Act, 1956 (42 of 1956) or the Securities andExchange Board of India Act, 1992 (15 of 1992) or theDepositories Act, 1996 (22 of 1996) and the rules, regulations orbye-laws made or directions issued under those Acts or by banks ormutual funds on a recognised stock exchange; and (B)which is supported by a time stamped contract note issued by suchstock broker or sub-broker or such other intermediary to everyclient indicating in the contract note the unique client identitynumber allotted under any Act referred to in sub-clause (A) andpermanent account number allotted under this Act;”stock broker or sub-broker or such other intermediary to everyclient indicating in the contract note the unique client identitynumber allotted under any Act referred to in sub-clause (A) andpermanent account number allotted under this Act;” 11.A conjoint reading of clause (d) of the proviso to sub-section (5) ofSection 43 of the Act and the explanation attached to it makes it clear that ifa transaction in trading of derivatives is carried out electronically on screen-based system through a stock broker or sub-broker and it is supported by atime stamped contract note issued by such broker which indicates uniqueclient identity and PAN number of the client, it shall be “an eligibletransaction” and shall not be deemed to be a “speculative transaction”. 11.A conjoint reading of clause (d) of the proviso to sub-section (5) ofSection 43 of the Act and the explanation attached to it makes it clear that ifa transaction in trading of derivatives is carried out electronically on screen-based system through a stock broker or sub-broker and it is supported by atime stamped contract note issued by such broker which indicates uniqueclient identity and PAN number of the client, it shall be “an eligibletransaction” and shall not be deemed to be a “speculative transaction”. 12.The learned Tribunal while considering the appeal of the Revenuefound that the CIT(A) at the time of deciding the appeal of the assesseeagainst the addition of Rs.96,50,334/- made by the Assessing Officer treatingthe same as speculation loss, had called for the remand report to ascertain asto whether the assessee did fulfill the condition laid down under sub-clause(d) of proviso to Sub-section (5) of Section 43 of the Act. The contract noteswere also produced by the assessee before the CIT(A), amongst which thenote issued by the broker M/s Arihant Capital Market Ltd. through whomthe assessee had undertaken the alleged transactions in respect of trading inderivatives i.e. F&O of shares was also examined in particular. The contract S/ note clearly revealed that the transactions were supported by time stampedcontract notes issued by the stock broker in which unique client identity andPAN number etc were also indicated in accordance with the explanation-1attached to clause (d) of proviso to sub-section (5) of Section 43 of the Act.Section 43(5) of the Act was also discussed in the order by the CIT(A) andon the basis of the same, the CIT(A) had arrived at the conclusion that theassessee had fully satisfied the requirements under clause (d) of the provisoto Sub-section (5) of Section 43 of the Act. 13.Learned counsel for the Revenue has failed to point out that thefindings returned by the CIT(A) and the Tribunal are erroneous or areperverse in any manner or are based on misappreciation of material onrecord. We find no reason to interfere with the order impugned herein.Therefore, in the facts and circumstances noticed above, the loss sustainedby the assessee from the transaction of purchase and sale of the sharescannot be deemed to be speculation loss. Accordingly, we answer thesubstantial question of law against the appellant-Revenue in the present casethat the loss of Rs.96,50,334/-, as claimed by the Revenue is not aspeculation loss. 14.For the reasons stated hereinabove, the present appeal fails and ishereby dismissed. (AJAY KUMAR MITTAL) CHIEF JUSTICE (VIJAY KUMAR SHUKLA) JUDGE