In our considered opinion, the Assessing Officer has to consider the composite transaction. The first appellate authority was wrong in his finding on applicability of explanation to section 43(5). Thus, we vacate this finding.
As the nature of business has to be understood in the proper perspective considering the business strategy of the assessee and as the composite transactions of both NSE and BSE have to be taken into account, we set aside the matter to the file of Assessing Officer for adjudication afresh in accordance with law. This ground is, thus, allowed for statistical purposes.
INCOME TAX APPELLATE TRIBUNAL,MUMBAI
ITA No. 4227/Mum./2010 -(Assessment Year: 2006- 07)
Chirag D. Tanna v/s Asst. Commissioner of Income Tax
ITA No. 5027/Mum./2010 -(Assessment Year: 2006- 07)
Asstt. Commissioner of Income Tax v/s Chirag D. Tanna
Date of Order – 14.03.2012
O R D E R
PER J. SUDHAKAR REDDY, A.M.
These cross appeals are directed against the impugned order dated30th March 2010, passed by the Commissioner (Appeals)-XXXV, Mumbai, for assessment year 2006-07.
Facts in Brief:-
2. The assessee is engaged in the business of jobbing / arbitrage activities. He undertakes business of share trading on his own account. He filed his return of income on27th July 2006, declaring total income of Rs. 49,59,160. The Assessing Officer completed the assessment vide order dated 28th November 2008, passed under section 143(3) of the Income Tax Act, 1961 (for short “the Act”), determining the income at Rs. 1,01,34,547, interalia, making additions on account of speculative income and income from forwards and options. The assessee carried the matter in appeal wherein the first appellate authority granted part relief. Aggrieved, the assessee as well as the Revenue are in appeal before the Tribunal.
3. We have heard the learned Counsel, Mr. Rakesh Joshi, representing the assessee and the learned Departmental Representative, Mr. D.S. Sunder Singh, representing the Revenue.
4. The grounds raised by the Revenue, reads as follows:-
“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the A.O. to accept the transaction in F & 0 prior to 25.1.2006 to be treated as non speculation transaction. Since the assessee has claimed loss of Rs 32,94,841/- in F & 0 but it should not be allowed to set off fully hence an amount of Rs 4,37,903/- out of F&O transaction (up to 25.1.2006) is treated as speculation loss and is added to assessee’s total income.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the A.O. to delete the additions made on account of F&O for Rs.4,37,903/- without appreciating the fact that the judgments relied upon by ld. CIT(A) are not applicable in this case.”
5. Both the parties conceded before us that similar issue was considered by Mumbai “J” Bench of the Tribunal in M/s. Prem Associates Advertising & Marketing v/s JCIT, ITA no.6547/Mum./2009, order dated 17th September 2010, wherein the Tribunal, vide Para-7, held as follows:-
“7. We find that it is undisputed position that the stock exchanges, on which the impugned transactions were carried out, were duly notified on 25th January 2006, and that in accordance with the views of the co-ordinate bench in the case of Anand Buildwell (supra), as also with the views of Hon’ble Gujarat High Court in the case of Claris Lifesciennces (supra), once the approval is granted in the relevant previous year, and in the absence of anything indicated to the contrary, the approval has to be taken as effective from the beginning of the relevant year. The issue is thus covered, in favour of the line of reasoning adopted by the assessee, by decision of the coordinate bench in the case of Anand Brothers (supra) and by Hon’ble Gujarat High Court’s judgment in the case of Claris Lifesciences (supra). We Respectfully following these decisions, we uphold the grievance of the assessee and hold that the derivate transactions, entered into by the assessee at the recognized stock exchanges even prior to the date of notification in the relevant previous year, are to be treated as covered by the exclusion clause set out in section 43(5)(d). The assessee gets the relief accordingly.”
6. Keeping in view the aforesaid decision of the Tribunal, we decline to interfere with the order passed by the Commissioner (Appeals) and dismiss the grounds raised by the Revenue.
7. In the result, Revenue’s appeal is dismissed. We now take up assessee’s appeal. Ground raised by the assessee, reads as follows:-
“The learned CIT(A) erred in confirming the treatment of the share trading loss of Rs. 47,37,483 as speculative loss under section 43(5) of the Act and not allowing set off against other share related profits without appreciating the facts and circumstances of the case.”
8. After hearing rival contentions, we find that the Revenue authorities have not properly understood the nature of business of the assessee. The assessee submitted the following note to explain its nature of business:-
“The appellant is engaged in the business of jobbing/arbitrage activities.This jobbing or arbitrage is not defined in the Act but referred in clause (c) of section 43(5) of the Act. In this activity a trader takes the advantage of variation of price quote of same scrip at two different exchanges i.e. the purchase of securities on one market for immediate resale on another market in order to profit from a price discrepancy.
For example: the trader purchases the scrip at one exchange say Bombay Stock Exchange where the price quote is lower and sells the same script on another exchange say NSE where the price quote is higher. Later during the same day, he may get further opportunity to square off such transactions in the particular exchange to avoid delivery of shares. But if he does not get this opportunity to square off in any of the exchange then either has to take the delivery or offer delivery of that scrip. In this activity he earns the difference between two exchanges.
An important factor to carry out such transactions is that the trader should have that scrip in stock, so incase if he has to deliver the share he can do at one exchange and take delivery at other exchange, in case if he could not square off this transaction.
Hence during the normal course of business, the appellant had to settle some of the transactions on the same day without affecting any delivery, and for such transactions he had accounted for the net amount of purchase and sale i.e. Net Profit / Loss of transactions under the head “Jobbing Profit & Loss Account”
During the year the appellant carried out such transactions in various scrips, which he was holding in stock, between NSE & BSE. Now wherever he could square off the transactions, he has shown the net result in jobbing account and for transactions where he has to affect delivery, he shown them under sale & purchase. The transactions carried out by the appellant can be illustrated as follows:
|Scrip 1||+100 @ 102||-100 @ 105||Profit of Rs. 3|
|Scrip 1||-100 @ 101||–|
|Exchange wise Result||Loss of Re.1
|Profit of Rs. 4
of Rs. 10)
In the above instance, the appellant in first transaction earned a profit of Rs. 3/-, which he has accounted under sale & purchase account (delivery transaction) but the Ld A 0 has not allowed set off of loss of Re. 1/- (incurred in squaring off the transaction) against the profit of Rs. 3/-, which is part of same arbitrage activity and entered with a motive to hedge the loss against the stock in hand. This loss of Re. 1/- is part of normal arbitrage business but since the appellant has shown it separately, set off was denied.
A single transaction cannot be accepted in part as speculative transaction and part in non speculative transaction. At the most A 0 can treat net result as speculation income /loss after setting off the other leg of the transaction. But in the case of appellant net result is profit hence no dis allowance can be made. Therefore considering the provisions of section 43(5). Your Honours are requested to kindly treat the entire arbitrage activity as single business activity and allow set off of all the arbitrage transaction with each other. The Ld A 0 can verify all the transaction which are carried out under arbitrage activity.”
9. In our considered opinion, the Assessing Officer has to consider the composite transaction. The first appellate authority was wrong in his finding on applicability of explanation to section 43(5). Thus, we vacate this finding.
10. As the nature of business has to be understood in the proper perspective considering the business strategy of the assessee and as the composite transactions of both NSE and BSE have to be taken into account, we set aside the matter to the file of Assessing Officer for adjudication afresh in accordance with law. This ground is, thus, allowed for statistical purposes.
11. In the result, assessee’s appeal is partly allowed.
12. To sum up, Revenue’s appeal is dismissed and assessee’s appeal is partly allowed.
Order pronounced in the open Court on 14th March 2012