Venus Enterprises Pvt. Ltd. on speculation loss at tribunal of ahmedabad

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IN THE INCOME TAX APPELLATE TRIBUNAL

AHMEDABAD ?C? BENCH

(BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER

& SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER)

ITA. No: 3635/AHD/2015
(Assessment Year: 2011-12)

Venus Enterprises P. Ltd. V/S DCIT, Circle-4(1)(2),
510, Sahjanand Trade Ahmedabad
Centre, Opp. Kothwala
Flats, Pritamnagar,
Ahmedabad-380006
(Appellant) (Respondent)

PAN: AAACV6467F

Appellant by : Shri Deepak Shah, AR
Respondent by : Shri Deepak Sutaria, Sr. D.R.

( )/ ORDER

Date of hearing : 30 -03-2016
Date of Pronouncement : 31 -03-2016

PER N.K. BILLAIYA, ACCOUNTANT MEMBER:
tribunal of ahmedabad , sec 73, speculation loss , n.k. billaiya

1. This appeal by the assessee is preferred against the order of Ld.

CIT(A)-9, Ahmedabad dated 18.11.2015 pertaining to A.Y. 2011-12.
———————Page 2———————
ITA No. 36352/Ahd/2015
. A.Y. 2011-2012

2. The only grievance of the assessee relates to the addition of Rs.

28,03,790/- by treating the business loss as speculation loss.
tribunal of ahmedabad , sec 73, speculation loss , n.k. billaiya

3. The assessee is doing business as Trading & Carting of Iron & Copper

Sludge. The return for the year was electronically filed on 30.09.2011

declaring total loss at Rs. 19,43,662/-. The return was selected for

scrutiny assessment and accordingly statutory notices were issued and

served upon the assessee.

4. During the course of the scrutiny assessment proceedings, The A.O

found that assessee has shown loss from Shares, Securities and other

transactions at Rs. 28,03,790/-. The assessee was asked to state the

nature of transaction with details thereof. Vide letter dated

20.06.2013; assessee submitted the details of Shares, Securities and

other transactions. On verifying the same, the A.O found that the loss

incurred is on account of trading in share derivatives.

5. Drawing support from the provisions of Section 73 of the Act. The A.O

was of the firm belief that the loss is nothing but speculation loss and

cannot be allowed to be set off from other business income of the

assessee. The A.O accordingly allowed Rs. 28,03,790/- to be carried

forward to be set off against other speculation profit and made an

addition of Rs. 28,03,790/- for the year under consideration.

6. Assessee carried the matter before the ld. CIT(A) and once again

explained the nature of transaction. It was vehemently contended that

trading in share derivatives are no more treated as speculation

business and, therefore, any loss incurred on account of trading in

derivatives would not be a speculation loss. After considering the facts
———————Page 3———————

ITA No. 36353/Ahd/2015
. A.Y. 2011-2012

and the submissions, the ld. CIT(A) was convinced that provisions of

Section 73 of the Act squarely apply on the facts of the case and

confirmed the addition of Rs. 28,03,790/-.

7. Aggrieved by this, the assessee is before us. The ld. counsel for the

assessee stated that explanation to Section 73 is not attracted on the

facts of the case as derivatives are not shares. Strong reliance was

placed on the decision in the case of Appollo Tyres Ltd. 237 ITR 706

Kerala High Court which has been confirmed by the Hon’ble Supreme

Court 255 ITR 273. Reliance was also placed on the decision of Hon’ble

Karnataka High Court in the case of First Securities P. Ltd. 370 ITR 72

and also on the decision of the Hon’ble Madras High Court in the case

of Anush Shares & Securities P. Ltd. 62 Taxmann.com 287.

8. Per contra, the ld. D.R. strongly supported the findings of the First

Appellate Authority.

9. We have carefully considered the orders of the authorities below. We

have also given a thoughtful consideration to the decisions relied upon

by the learned counsel. Section 73 along with the explanation read as

under:-

73. (1) Any loss, computed in respect of a speculation business carried on by the

assessee, shall not be set off except against profits and gains, if any, of another

speculation business.

(2) Where for any assessment year any loss computed in respect of a speculation business

has not been wholly set off under sub-section (1), so much of the loss as is not so set off

or the whole loss where the assessee had no income from any other speculation business,

shall, subject to the other provisions of this Chapter, be carried forward to the following

assessment year and-
———————Page 4———————

ITA No. 36354/Ahd/2015
. A.Y. 2011-2012

(i) it shall be set off against the profits and gains, if any, of any speculation business

carried on by him assessable for that assessment year; and

(ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried

forward to the following assessment year and so on.

(3) In respect of allowance on account of depreciation or capital expenditure on

scientific research, the provisions of sub-section (2) of section 72 shall apply in relation

to speculation business as they apply in relation to any other business.

(4) No loss shall be carried forward under this section for more than four assessment

years immediately succeeding the assessment year for which the loss was first computed.

[Explanation]- Where any part of the business of a company ([other than a company

whose gross total income consists mainly of income which is chargeable under the heads

?Interest on securities?, ?Income from house property?, ?Capital gains? and ?Income

from other sources?), or a company the principal business of which is the business of

banking or the granting of loans and advances) consists in the purchase and sale of

shares of other companies, such company shall, for the purposes of this section, be

deemed to be carrying on a speculation business to the extent to which the business

consists of the purchase and sale of such shares.]

10. The aforementioned section has to be read along with Section

43(5) of the Act which contains the definition of speculative

transaction. The relevant clause is 43(5)(d) which read as under

excludes-

(a) ??????????????

(b) ??????????????

(c) ??????????????..

(d) 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.

———————Page 5———————

ITA No. 36355/Ahd/2015
. A.Y. 2011-2012

11. A perusal of the aforementioned section shows that with effect

from 01.04.2006 trading in derivatives carried out in a recognized

stock exchange has been taken out of the ambit of speculation

transaction. The assessment order under consideration is 2011-12.

Thus, it can be safely concluded that for the year under consideration,

the impugned transactions of the assessee are excluded by the

definition of speculative transaction.

12. In our understanding of the law, the Explanation to Section 73 of

the Act cannot override the provisions of Section 43(5)(d) of the Act.

Once a transaction has been taken out of the scope of speculation any

loss incurred on account of such transaction cannot, by any stretch of

imagination be treated as speculation loss. We, therefore, set aside

the findings of the ld. CIT(A) and direct the A.O not to treat the loss as

a speculation loss and allow the same as a business loss.

13. In the result, the appeal filed by the assessee is allowed.

Order pronounced in Open Court on 31- 03 – 2016.

Sd/- Sd/-

(RAJPAL YADAV) (N. K. BILLAIYA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad: TRUE COPY

Rajesh
Copy of the Order forwarded to: –
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) ?
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER

Deputy/Asstt.Registrar
ITAT,Ahmedabad

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Ashni Shah is pursuing Chartered Accountancy and is currently engaged as Article Assistant at Rasesh Shah and Associates and can be reached at ashnishah2017@gmail.com. She loves Dancing and Gyming.

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