TaxTMI 
TaxTMI 
2018 (2) TMI 1709
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.... various exchanges as speculative business. For this assessee has raised following three grounds: - "1. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the order of the ACIT disallowing the appellant's claim of setoff of derivative loss of Rs. 4,48,73,079/- against derivative profit of Rs. 5,27,05,518 treating the same as speculative loss without properly considering the facts of the appellant's business which trading in derivative only on various exchanges as business which constitute the business as speculative business hence the income of the appellant should be speculative business income in totality. 2. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the action of the ACIT treating the derivative trading carried out on exchanges other than MCX and NSE as speculative loss instead of appreciating the fact that the appellant's only business activity is trading in derivatives and therefore the same can be looked into the cumulative effect instead of individual exchange wise effect of the Profit and Loss as taken by the Assessing Officer. 3. The learned C....
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.... through derivative trading which is in the nature of business as declared by the assessee which is not permissible. 6.6 In view of these facts and after considering the evidences on record, the loss booked from trading in derivatives from un-recognized exchange is held as speculation loss and is not allowed to be set off against business profit of Rs. 5,27,05,518/- is disallowed. Accordingly the business income of the assessee is assessed at Rs. 5,27,05,518/- as against Rs. 78,32,439/- declared by the assessee." Accordingly, he disallowed the assessee's claim of speculation loss of Rs. 4,48,73,079/- not allowable from the regular business income, which is income from recognized stock exchanges as specified in section 43(5)(d) of the Act. Aggrieved, assessee preferred appeal before CIT(A). 5. The CIT(A) after going through the submissions of the assessee confirmed the action of the AO vide Para 17 to 19 as under:- 17. The reliance of the Id AR of the appellant on the case of Varsha Corporation Ltd. vs DCIT in ITA no. 6534/ Mum/ 2012 dated 17.01 .2014 is without any strength as distinguishable on facts The said case pertains to A Y. 2009-10, the year in which....
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....levant portion of the judgment of Hon'ble Mumbai High Court is reproduced as under: "35) The argument that Section 43(5) refers to contracts which are capable of settlement by actual delivery whereas the transactions in futures are incapable of settlement and therefore, transactions in futures would fall outside the scope of Section 43(5) is also without any merit, because, the very object of Section 43(5) is to treat transactions which are settled otherwise than by actual delivery as speculative transactions. As noted earlier, Section 43(5) refers to contracts for purchase / sale of any commodity and it is not restricted to contracts which are capable of performance by actual delivery. Therefore, the fact that the futures contracts are settled otherwise than actual delivery cannot be a ground to hold that the futures contracts are not speculative transactions under Section 43(5) of the Act. 36) The exceptions enumerated in the proviso to Section 43(5) clearly provide that where speculative transactions are carried out with a view to guard against loss in respect of contracts for actual delivery in cases referred to in clause (a), (b) & (c) of the proviso, then, s....
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....f no substance. The commodity transactions are not covered by section 43(5)(d) of the Act. Clause (d) of section 43(5) is relating to transactions in respect of the trading in derivatives referred to in clause (ac) of section 2 of Securities Control (Regulation) Act.1956. Clause (ac) of section 2 of Securities Control (Regulation) Act,1956 defined as under: (A) A security derived front a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for difference or any other form of Security. (B) A contract which derives its value from the prices, or index of prices, of underlying securities. From the above definition it is clear that commodity derivative trading is not covered by Securities Control (Regulation) Act, 1956 and therefore the provision applied by the AO is against the facts of the case. 7. Even the board circular No. 3 of 2006 dated 27-12-2006 has explained the scope and effect of ammendment with effect from 01-06-2006 made in section 43(5) by the Finance Act 2005, which have been elaborated in the following portion of departmental circular: - "3.10 Excluding 'trading in derivatives' on recognised stock excha....
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....actions. The above view is also support by the judicial decision of the coordinate bench of this Tribunal in case of Varsha Corp. Ltd vs DCIT in appeal No.6534/Mum/2010 for AY 2009-2010. The Tribunal in Para 8 and 9 of the Order has made interpretation and discussed the facts and after interpreting the various decisions as mentioned in the order finally held that the benefit of clause (e) of the proviso to section 43(5) of the Act, cannot be entitled the assessee for the transactions carried out prior to Assessment Year 2014-2015 and accordingly the appeal filed by the assessee was dismissed. 10. Now we have to discuss the provision of section 43(5) of the Act with all its provision to understand the assessee's case. The relevant provision reads as under: - Section 43(5) ...... Speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scripts. (a) A contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting ....