IN THE INCOME TAX APPELLATE TRIBUNAL,
"B " BENCH, AHMEDABAD
Before Shri A. K. GARODIA, ACCOUNTANT MEMBER
and Shri KUL BHARAT, JUDICIAL MEMBER
I.T.A. No.2427 / Ahd/2009
(Assessment year 2006-07)
ACIT, Circle 6, Surat Vs. Shri Vimal Vadilal Shah (HUF),
207, Satyanarayan Bldg.,
PAN/GIR No. : AACHV9195F
C.O.No.201/Ahd/2009 (in I.T.A.No. 2427/Ahd/2009) (assessment year 2006-07)
Shri Vimal Vadilal Shah (HUF), Vs. ACIT, Circle 6, 207, Satyanarayan Bldg., Surat Kansara Sheri,
(APPELLANT) .. (RESPONDENT)
Assessee by: Shri Rasesh Shah, AR Department by: Shri Rajnish Vohra, Sr. DR
Date of hearing: 05.07.2012
Date of pronouncement: 31.08.2012
PER SHRI A. K. GARODIA, AM:-
This is revenue's appeal and the cross objection is filed by the assessee which are directed against the order of Ld. CIT(A) IV, Surat dated 12.05.2009 for the assessment year 2006-07. 2 I.T.A.No.2427/Ahd/2009
2. First, we take up the revenue's appeal. The grounds raised by the revenue are as under:
"1) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) IV, Surat has erred in allowing set off of speculative loss on account of commodities trading of Rs.91,13,122/- against the business income of Rs.1,23,60,835/-. 2) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) IV, Surat ought to have upheld the order of the A.O.
3) It is, therefore, prayed that the order of the Ld. CIT(A) IV, Surat may be set aside and that of the A.O. restored."
3. Brief facts till the assessment stage are noted by Ld. CIT(A) on pages 1,2 & 3 of his order, which are reproduced below: "The brief facts of the case are that for the year under consideration assessee earned profit of Rs.1,41,80,518/- on account of derivative trading of shares. So far s the commodity trading is concerned, assessee incurred loss of Rs.91,13,122/- in derivatives. The assessee has set off the loss of Rs.91,13,122/- on commodity trading with business income form trading of derivatives in shares during the current year. In the course of assessment proceedings, assessee was asked to show cause notice vide letter dated 25.11.2008 as to why the commodity trading loss should not be treated as speculation loss and same should not be added to total income of the
assessee as same is not allowable as set-off against other heads of income.
In response to above notice, assessee replied vide letter dated 27.11.2008 which is reproduced at Para no.8 of the assessment order. The main argument of assessee was that recognised stock exchange was defined in clause 2 of the Explanation to Sec 43(5) as stock exchange as referred in Securities Contract (Regulations) Act, 1956 and which fulfils such conditions as may be prescribed and notified by central government for this purpose. The recognised stock exchange was notified by central government with effect on 25.01.06. So according to assessee, the business profit or loss arising on or afterwards on 25.01.06 in derivatives could only be considered as non-speculative profit or loss. 3 I.T.A.No.2427/Ahd/2009
Assessee gave bifurcation of profit in respect of the transactions of the derivatives being Rs. 1,23,60,835/- derived between 01.04.05 to 24.01.06 and Rs.18,19,7837-between 25.01.06 to 31.03.06. However, the assessing officer was not satisfied with the reply of assessee. He stated that trading in derivatives is the new adventure in the nature of trade in which concept of actual delivery has become irrelevant. He placed reliance on the Advance Ruling in the case of Morgan Stanley & Co. International Ltd. - 272 ITR 416 holding that income from trading in derivative trading in case of global FII such as Morgan Stanley should be considered only as business income. He reproduced relevant portion of sec 43(5) notifying the amendment made in the section by Finance Act, 2005 at Para no. 10.9 of the assessment order & the Circular no 3/2006 dated 27,02.06 in Finance Act 2005 at Para no.3.10 of the assessment order. He placed reliance on the notes on clauses wherein it is mentioned that amendment will take effect from April 1, 2006 and will accordingly apply in relation to A.Y 2006-07 & subsequent years. He stated that said circular was only for notifying the two biggest stock exchanges in India for derivative trading. He stated that said notification is effective from 01.04.06 and considered the amendment made as retrospective being clarificatory in nature. He stated that where an amendment is made from T' April, it is usually understood that it is applicable from the assessment year starting from 1s April. He placed reliance on the decision in case of CIT V. Hongkong Ocean Shipping - 238 ITR 955 (Mad). He made various other contentions & disapproved the assessee's contention to treat F & 0 income before 25.01.06 as speculative income and considered the loss in commodity trading as speculative loss and did not allow the set-off & accordingly, addition ofRs.91,13,122/- was made to the total income of the assessee on account of loss on commodity transactions."
4. Being aggrieved, the assessee carried the matter in appeal before Ld. CIT(A) who has decided this issue in favour of the assessee and now, the revenue is in appeal before us.
5. It was submitted by the Ld. D.R. that the tribunal decision rendered in the case of ACIT Vs Hiren J Shah as reported in I.T.A.No. 3361/Ahd/2009 dated 17.06.2011 supports the case of the revenue. He 4 I.T.A.No.2427/Ahd/2009
submitted a copy of this Tribunal decision and pointed out that in that case, it was held by the tribunal that Rule 6DDB is only procedural in nature and, therefore, it is retrospective and hence, the notification dated 25.01.2006 would be effective form 01.04.2005 and it would be applicable to the entire assessment year 2006-07. He submitted that as per this tribunal decision, the income of the assessee from derivative transaction is not speculation income and hence, it cannot be adjusted against speculation loss arising on account of commodity trading of Rs.91,13,122/-. He further submitted that there is one more Tribunal decision in the case of Shri Tejas K Shah in I.T.A.No. 2255/Ahd/2010 dated 17.09.2010 wherein, it was held that the transaction up to the date of notification is to be treated as speculative transaction. He submitted that in view of these two contradictory judgements of the tribunal, the matter may be referred to Special bench of the Tribunal.
6. As against this, Ld. A.R. supported the order of Ld. CIT(A). He placed reliance on the judgment of Hon'ble Bombay High Court rendered in the case of CIT Vs Bharat R Ruia (HUF) as reported in 337 ITR 452 (Bom.) and it was submitted that this judgment of Hon'ble Bombay High court covers the issue in favour of the assessee and hence, no reference to Special bench of the Tribunal is required. He further submitted that notification dated 25.01.2006 is not fully considered by the tribunal in the case of Hiren J Shah (supra) and the tribunal has failed to consider this aspect of notification that NSE and BSE were approved by this notification No.02/06 dated 25.01.2006 w.e.f. the date of publication of this notification in the official gazette. He further submitted that in these two stock exchange notifications, date is 25.01.2006 only and hence, till 24.01.2006 it was not approved stock exchange and therefore, derivative transaction till this date is speculative transaction only. He 5 I.T.A.No.2427/Ahd/2009
further submitted that if this is held that whenever the recognition is granted to a stock exchange, the same shall apply form 01.04.2005 then, it will lead to unintended results because NCX stock exchange Ltd. has been notified as per notification No.46/9 dated 22.05.2009 and he submitted a copy of this notification. He further submitted that more stock exchanges may be notified in future also and, therefore, this view cannot be taken that whenever the stock exchange is notified, the same should be considered as approved notified stock exchange for the purpose of Section 43(5) w.e.f. 01.04.2005.
7. We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below and the judgements cited by both the sides. We find that the relevant amendment being insertion of clause (d) in sub-section (5) of Section 43 of the Act isw.e.f. 01.04.2006. The same is reproduced below for the sake of ready reference:-
"43(5)(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 shall not be deemed to be a speculative transaction."
8. From the above provision of clause (d) of sub-section (5) of Section 43, we find that derivative transaction carried out in a recognized stock exchange is not to be considered as speculative transaction. Hence, this is very important to find out as to whether the derivative transaction in question was carried out in a recognized stock exchange or not. As per the notification No.89 dated 25.01.2006, two stock exchanges were notified as recognized stock exchange i.e. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). Subsequently, MCX Stock Exchange was also recognized by notification No.46/9 w.e.f. 22.05.2009 6 I.T.A.No.2427/Ahd/2009
and Untied Stock Exchange of India Ltd. is also recognized vide notification No.12/11 dated 25.02.2011. Now, the question is as to whether the transaction carried out in NSE and BSE up to 24.01.2006 can be said to be the transaction carried out in a recognized stock exchange and similarly whether a transaction carried out in MCX stock exchange up to 21.05.2009 and in United stock exchange of India Ltd. Up to 24.02.2011 can be said to be derivative transaction carried out in a recognized stock exchange. Here, the question is not this that whether this notification is clarificatory and, therefore, retrospective because the notification itself states that the stock exchange has been recognized w.e.f. the date of publication of the notification in the official gazette and such date of publication regarding notification for BSE and NSE is 25.01.2006. We find that the tribunal decision rendered in the case of ACIT Vs Hiren J Shah is dated 17.06.2011 whereas, the tribunal decision rendered in the case of Shri Tejas K Shah (supra) is dated 17.09.2010. In the case of the tribunal decision rendered in the case of Hiren J. Shah (supra), the other tribunal decision rendered in the case of Tejas K Shah (supra) was not cited and not considered although the members constituting both these benches were the same. This is now a settled position of law that the earlier tribunal decision is binding on the tribunal and if such decision is not considered in a later tribunal judgment, then such later judgement cannot have the precedence value because of the reason that later decision is without considering the earlier decision having contradictory decision. Under these facts, in our considered opinion, the later Tribunal decision rendered in the case of Hiren J Shah (supra) is not a binding precedence and, therefore, in our considered opinion, the earlier tribunal decision rendered in the case of Tejas K Shah (supra) is binding precedence. We also find that in that tribunal decision, 7 I.T.A.No.2427/Ahd/2009
the Tribunal has considered and followed the decision of Special bench of the Tribunal rendered in the case of Shree Capital Services Ltd. as reported in 121 ITD 498(SB). Otherwise also, in view of this fact that two stock exchange are subsequently notified as on 22.05.2009 i.e. MCX Stock Exchange and on 25.02.2011 i.e. United Stock Exchange of India Ltd. It cannot be said that all these notifications are retrospective and are applicable w.e.f. 01.04.2005. Under this factual position, we are of the considered opinion that we are bound to follow the earlier Tribunal decision rendered in the case of Tejas K Shah (supra) and there is no requirement to refer the matter to Hon'ble President, ITAT for constitution of a Special bench because the contradictory decision in the case of Hiren J Shah (supra) is not of any precedence value because of this reason that it is without considering the earlier Tribunal decision rendered in the case of Tejas K Shah (supra). We therefore, decide this issue in favour of the assessee by respectfully following the Tribunal decision rendered in the case of Tejas K. shah (supra).
9. In the result, appeal of the revenue is dismissed.
10. Now, we take up the C.O. filed by the assessee. The grounds raised in the C.O. are as under:
"1. On the facts and in circumstances of the case as well as law on the subject, the learned assessing officer has erred in treating business loss of Rs. 91,13,122/- on account of commodity derivative transactions as speculative loss instead of non speculative loss and thereby not allowing set off against business profit from shares in derivative trading. The learned CIT(A) did not deal with the ground as he already allowed assessee's ground by treating income of Rs. 1,23,60,735/- from F&O transactions as speculative income and thereby allowing set off against business loss from commodity trading.
2. On the facts and in circumstances of the case as well as law on the subject, the learned assessing officer has erred in not assessee the rebate claim of Rs. 7,59,584/- u/s. 88E on account of STT paid 8 I.T.A.No.2427/Ahd/2009
during the year against the demand raised. The learned CIT(A) did not deal with the ground as he already allowed assessee's ground by treating income of Rs. 1,23,60,735/- from F&O transactions as speculative income and thereby allowing set off against business loss from commodity trading.
3. In case appeal filed by the Revenue is allowed, the above grounds raised before CIT(A) may please be decided."
11. Regarding ground No.1 of the C.O., we find that no adjudication is called for because we have already upheld the order of Ld. CIT(A) on this issue.
12. Regarding ground No.2 of the C.O. also, we find that no separate adjudication is called for because we have already approved the order of Ld. CIT(A) on the main aspect regarding treating of income of Rs.1,23,60,375/- from F & O transaction as speculative income and thereby allowed set off against business loss for commodity trading. On this aspect, it is held by Ld. CIT(A) that this ground of assessee has become infructuous as set off of loss is already allowed and, therefore, there is no case of any increase in tax liability. On this aspect also, we do not find any reason to interfere in the order of Ld. CIT(A). This ground is also rejected.
13. In the result, appeal of the revenue and the C.O. of the assessee are dismissed.
14. Order pronounced in the open court on the date mentioned hereinabove.
(KUL BHARAT) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Sp
Copy of the Order forwarded to:
1. The applicant
2. The Respondent
3. The CIT Concerned
4. The Ld. CIT (Appeals)
5. The DR, Ahmedabad By order
6. The Guard File
1. Date of dictation...27/08/12
2. Date on which the typed draft is placed before the Dictating Member...30/08/2012 .Other Member ............
3. Date on which the approved draft comes to the Sr. P.S./P.S.
4. Date on which the fair order is placed before the Dictating Member for pronouncement .........31/08/12
5. Date on which the fair order comes back to the Sr. P.S./P.S.31/8/12
6. Date on which the file goes to the Bench Clerk ...31/08/2012
7. Date on which the file goes to the Head Clerk .......................
8. The date on which the file goes to the Assistant Registrar for signature on the order .........................
9. Date of Despatch of the order. ......................