TaxTMI 
TaxTMI 
2015 (6) TMI 124
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.... of assessment proceedings, it was found by the AO that the assessee had incurred a loss of Rs. 21,04,331/- on account of futures & options from MCX trading and such loss was treated by the assessee as speculative loss in the original return. In the revised return also the assessee considered such loss as speculation loss. Subsequently, in re-revised return filed on 30-6-2010, the said loss was treated as business loss. The AO asked the assessee to explain the same. It was submitted that the assessee company is engaged in the business of trading in gold. The company had obtained gold from State Bank of India, Opera House Branch as gold loan for which the price was unfixed and having regard to the price fluctuation for non-fixed date i.e. 90 days. In such transaction risk was involved according to price fluctuation for non-fixed quality of gold and in order to minimize such risk the assessee company hedge the gold in MCX. The transaction entered into by the assessee company through MCX is derivative transaction, in which it has incurred a loss of Rs. 21,04,331/-. The assessee also denied applicability of Section 43(5), which defines "speculative transaction". It was submitted that t....
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....nges recognized by FMC. MCX being not a recognized stock exchange by SEBI, therefore the AO was right in treating the loss as speculative loss. He has also distinguished the case laws relied upon by the assessee. The assessee being aggrieved has filed aforementioned grounds of appeal. 6. After narrating the facts and reiterating the arguments, learned counsel submitted that this position of law has been explained by Mumbai ITAT in the case of ACIT Vs. Arnav Akshay Mehta, (2012) 53 SOT 581 (Mum), copy of which has also been placed on record and also given to the learned DR. In the said decision it has been held that according to the provisions under Section 43(5)(d)(ii) w.e.f. 1-4-2006, an eligible transaction carried out in a recognized Stock Exchange will not be treated as speculative transaction. Such provision is procedural mechanism and in the process if a longtime is taken to recognize the stock exchange, then it will not lead to an inference that the same would be applicable from the date when the stock exchange has been recognized by the Central Government. The transaction carried through MCX stock exchange after 1-4-2006 would be eligible to be treated as non-speculation w....
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....subsequently the two stock exchanges, namely, National Stock Exchange and Bombay Stock Exchange were notified w.e.f. 25th January, 2006, therefore, derivative transactions between July, 2005 to September, 2005, were not eligible. Learned CIT(A) also held that Explanation to Section 73 was not applicable as the assessee was an investment company and, thus, assessee was not entitled to set off the said loss from derivative transaction. However, the Tribunal accepted the proposition laid down by the assessee that the assessee is entitled to avail the benefit under Section 43(5)(d), even in respect of impugned transaction w.e.f. 1-4-2006. It was observed that the Parliament had enacted the provision w.e.f. the said date and the delay, if any, for the issue of Rules and Notification, cannot nullified the legislative mandate of the enactment. Delay was attributable to the CBDT, who had failed to issue necessary notification within time. Such findings of the Tribunal were confirmed by the Hon'ble High Court, following the decision of Hon'ble Supreme Court in the case of S.A.L. Narayan Row and another Vs. Ishwarlal Bhagwandas and another, (1965) 57 ITR 149. 8. Learned AR further referred ....
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....ive transactions in view of the main provisions of Section 43(5) of the Act. He further submitted that it has clearly been brought out by the learned CIT(A) that Section 43(5)(d) referred to the eligible transactions, which are carried out in a recognized stock exchange. MCX is not a stock exchange, hence, on the basis of clause (d) of Section 43(5), relief cannot be granted to the assessee. Therefore, learned DR vehemently pleaded that the assessee does not deserve any relief. 11. We have given our thoughtful consideration to the submissions advanced at the hands of the learned counsel for the assessee as well as learned DR for the department. Admittedly, MCX, through which the assessee has carried out the transactions, is not a recognized stock exchange as required under the provisions of Section 43(5)(d) of the Act. As it can be seen from the abovementioned Notification dated 29-11-2013, which has been relied upon by the learned AR, which has also been reproduced in the above part of this order, the MCX, through which the assessee has carried out the transactions, is notified as a "recognized association" for the purposes of clause (e) of proviso to clause 5 of Section 43 of th....
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....e market) for a period of seven years on its system; (iv) the recognized association shall ensure that transactions (in respect of derivative market) once registered in the system are not erased; (v) the recognized association shall ensure that the transactions (in respect of derivative market) once registered in the system are modified only in cases of genuine error and maintain data regarding all transactions (in respect of derivative market) registered in the system which have been modified and submit a monthly statement in Form No. 3BC to the Director General of Income-tax (Intelligence and Criminal Investigation), New Delhi within fifteen days from the last day of each month to which such statement relates. 6DDD. Notification of a recognized association for the purposes of clause (e) of the proviso to clause (5) of section 43.- (1) An application for notification of a recognized association (as per clause (j) of section 2 of the Forward Contracts (Regulation) Act, 1952) as a recognized association for the purposes of clause (e) of the proviso to clause (5) of section 43 may be made to the Member (Legislation), Central Board of Direct Taxes, North Block, New Delhi. (2) ....
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....s per Section 43(5) of the Act. 12. The case relied upon by the assessee also do not support the case of the assessee. In case of ACIT Vs. Arnav Akshay Mehta (supra), the transactions relate to stock exchange of India, which is MCX stock exchange, which was notified on 22-5-2009 and the transactions were governed by clause (d) of the proviso to Section 43(5), which was inserted by the Finance Act, 2005 w.e.f. 1-4-2006. Therefore, for the transactions, which were under consideration in that case, were held to be not of speculative nature under the provisions of clause (d) of the proviso to Section 43(5) of the Act and the said case relates to assessment year 2007-08. The transactions entered into by the assessee after insertion of clause (d) of the proviso to Section 43(5), were held to be of non-speculative nature as there was a provision on the statute. However, in the present case, when the assessee carried out these transactions, there was no existing provision in the statute in the shape of clause (e) of the proviso to Section 43(5). 13. In the case of CIT Vs. Nasa Finelease Pvt. Ltd. (supra), the case relates to proviso (d) to sub-section 5 of Section 43 of the Act and the s....