TaxTMI 
TaxTMI 
2020 (6) TMI 467
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....der dated 02/11/2016 was passed after due inquiry and after calling for explanation and therefore the order was not erroneous and prejudicial to the interest of the revenue. Thus the order passed u/s 263 of the IT Act 1961 was bad in law and hence be quashed or set aside. 4.For that the Ld Principal Commissioner of Income Tax erred in holding that the assessment order passed on 02/11/2016 qua the issue of loss on account of commodities of Rs. 41,25,364/- was erroneous and prejudicial to the interest of the revenue. The order passed u/s 263 of the IT Act 1961 was bad in law and hence be quashed or set aside. 5.For that in the facts and circumstances of the case the Ld. Pr. CIT was not justified in invoking provisions of section 263 of the Income Tax Act, 1961 and holding that the assessment order passed on 02/11/2016 was erroneous and prejudicial to the interest of revenue. 6.The appellant craves leaves for filing additional evidences before the Hon'ble Tribunal. 7.For that in the facts and circumstances of the case the order u/s 263 of the IT Act 1961 passed was in violation of principals of natural justice hence is bad in law and be quashed and ....
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.... of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; [or] (d) an eligible transaction in respect of trading in derivatives referred to in clause [(ac)] of section 2of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange; [or] (e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognised association [, which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013),]]shall not be deemed to be a speculative transaction. [Explanation 1], -For the purposes of [clause (d)], the expressions- (i) "eligible transaction" means any transaction,- (A) carried out electronically on screen-based systems through a stock broker or sub-broker or such other intermediary registered under section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or the Securities and Exchange Board of India Act, 1992 (15 of 1992) or the Depositories Act, 1996 ....
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....be treated as speculation loss and was not to be allowed as deduction in computing the business income of the assessee. The A.O. had, however, allowed the same which was against the provisions of the Act leading to underassessment of income. In view of the above, the order passed by the A.O. was found to be erroneous in so far as it is prejudicial to the interest of the revenue within the meaning of section 263 of the I.T. Act, 1961. Accordingly, a show cause notice was issued to the assessee requesting it to explain as to why the assessment order in question should not be subjected to revision. 3. In response to the show cause notice, the assessee appeared before the PCIT and submitted written submission which is reproduced below: This is with respect to the notice issued u/s.263 of the IT Act 1961 dated 12/02/2019 proposing to review the assessment order passed u/s.143(3) of the IT Act 1961 dated 01/11/2016 passed by ACIT Circle 40, Kolkata. 1. In your notice the notice issued u/s.263 of the IT Act 1961 dated 12/02/2019 you have stated that the loss on currency i.e. US Dollar incurred for Rs. 41,25,364 through broker Godavari Exim Pvt. Ltd. should be treated ....
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....e carefully perused the orders of the Revenue Authorities and the submissions made by the assessee in the light of the relevant provisions of the IT Act and also Securities Contract Regulation Act, 1956. Section 43(5) of the I.T. Act read as under: "(5) 32"speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity33, including stocks and shares, is periodically or ultimately settled33 otherwise than by the actual delivery33 or transfer of the commodity or scrips: Provided that for the purposes of this clause-- (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course ....
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....ecognized association for trading in commodity derivative in accordance with the provisions of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and the rules, regulations or bye-laws made or directions issued under that Act on a recognized association; and (B) which is supported by a time stamped contract note issued by such member or intermediary to very client indicating in the contract note, the unique client identity number allotted under the Act, rules, regulations or bye- laws referred to in sub-clause (A), unique trade number and permanent account number allotted under this Act. (iii) "recognized association" means a recognized association as referred to in clause (j) of section 2 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and which fulfils such conditions as may be prescribed and is notified by the Central Government for this purpose" Proviso (d) excludes the transaction from the definition of speculative transaction in respect of trading of derivatives referred to in section 2(ac) of the Securities Contract (Regulation) Act, 1956 carried in recognized stock exchange. Section 2(ac) of the Securities Contract (Regulation) Act, 195....
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....as shares, bonds, and foreign currencies." 7.3 Further, the SEBI website in its section 'frequently asked questions' has explained the meaning of derivative as under: Q 1. What are Derivatives? A. The term "Derivative" indicates that it has no independent value, i.e. its value is entirely "derived" from the value of the underlying asset. The underlying asset can be securities, commodities, bullion, currency, live stock or anything else. In other words, Derivative means a forward, future option or any other hybrid contract of pre determined fixed duration, linked for the purpose of contract fulfillment to the value of a specified real or financial asset or to an index of securities. With Securities Laws (Second Amendment) Act,1999, Derivatives has been included in the definition of Securities. The term Derivative has been defined in Securities Contracts (Regulations) Act, as: A Derivative includes: - a. a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security; b. a contract which derives its value from the prices, or ind....
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..... Call options or put options were transactions of derivative markets and could not be termed speculative in nature. Therefore, the loss claimed by the assessee on account of foreign currency futures was allowable." 6. The question raised in this appeal reads as under:- ITA No.4657/Mum/2017 M/s. Weisser Trading Co. Pvt. Ltd., "On the facts and circumstances of the case, and in law, the learned Commissioner of Income-tax (Appeals) ought to have held that clause (d) of the proviso to section 43(5) of the Income-tax Act, 1961 ('the Act')/ was applicable to the transactions in foreign currency futures entered into by the appellant and therefore that the loss from these transactions was not in the nature of speculation loss." 7. The Tribunal decided the issue as under:- "considering the relevant provisions of the relevant Acts, discussed herein-above in the light of the hon'ble Madras High Court and the answers given to frequently asked questions by the Securities and Exchange Board India and the incorporation of exchange traded currency derivative from August, 2008, there remain no iota of doubt that the transaction of the assessee cannot....
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....e, we have no hesitation in setting aside the order of Ld. CIT(A). Appeal filed by the assessee is accordingly allowed." 14. Similar is the decision of the Agra Bench of the ITAT in the case of Nand Nandan Agrawal vs DCIT 2018 (2) TMI 253 - ITAT AGRA and the decision of the Chennai Bench of the ITAT in the case of DCIT vs Paterson Securities (P) Ltd. 127 ITD 386 (Chennai). Hence this grounds taken by the revenue on the deletion of disallowance of loss incurred on future trading of foreign exchange by the Ld. CIT(A) is hereby dismissed. 15. In the result, the appeals of the Revenue, for both the assessment years, are hereby dismissed. 7. We therefore submit that as per the above notification and the above decision the transaction is not to be treated as a speculative transaction. We therefore submit that there was no error in the order of the Assessing Officer which can be considered to be prejudicial and or erroneous to the interest of revenue. 8.Your assessee therefore submits that the order passed by the Ld AO can therefore not called to be erroneous sand prejudicial to the interest of revenue and therefore you are requested to drop the proceed....
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....passed by the AO was erroneous in so far as it is prejudicial to the interest of the Revenue, hence he directed the AO for examining the correctness of the claim of the assessee of 'loss on commodities' of Rs. 41,25,364/- and the correctness of the claim of the assessee regarding its transactions with Godavari Exim Pvt. Ltd. 5. Aggrieved by the order of the ld. PCIT, the assessee is in appeal before us. 6. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld PCIT and other materials available on record. Before us, Learned Counsel for the assessee reiterated the submissions made before the ld PCIT during the revision proceedings u/s 263 of the Act. On the other hand, the ld. DR for the Revenue has primarily reiterated the stand taken by the ld PCIT which we have already noted in our earlier para and the same is not being repeated for the sake of brevity. First of all, we have to see whether the requisite jurisdiction necessary to assume revisional jurisdiction is there existing before the ....
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....ing officer is erroneous as well as prejudicial to the interest of revenue. We note that ld PCIT was of the view that loss allowed in currency derivative transaction was not covered by the provisions of section 43(5) of the Income Tax Act, 1961 therefore, the assessing officer was not justified in allowing the currency loss of Rs. 41,25,364/-. We note that assessee submitted before the ld PCIT that M/s Godavari Exim Pvt Ltd was a member of MCX Stock exchange Ltd, vide notification No. 46/2009 dated 22.05.2009 which is recognized MCX Stock Exchange Ltd as an exchange,for clause (ii) in the explanation to clause (d) of the proviso to sub-section (5) of section 43 of the Income Tax Act, 1961 read with rule 6DDB of the Income Tax Rule, 1962. The assessee submitted the copy of the notification No. 46/2009 dated 22.05.2009 before the ld PCIT. Therefore, the transaction done by the assessee is covered by exception clause (d) of section 43(5) of the Act which is again ( at the cost of repetition ) reproduced below for ready reference: "speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodic....
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.... referred to in sub-clause (A) and permanent account number allotted under this Act; (ii) "recognised stock exchange" means a recognised stock exchange as referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and which fulfils such conditions as may be prescribed and notified by the Central Government for this purpose;] Therefore, it is quite clear that MCX Stock exchange Ltd is a recognized stock exchange and M/s Godavari Exim Pvt Ltd was a member of MCX Stock exchange Ltd; therefore assessee`s currency derivative transactions are covered by exception clause (d) of section 43(5) of the Act, hence loss incurred by the assessee to the tune of Rs. 41,25,364/- in respect of currency derivative is not speculation loss, therefore order passed by the AO u/s 143(3) dated 02.11.2016 is not erroneous. 8. We note the ld PCIT, on perusal of contract notes, deputed an Inspector to verify the transactions with the broker i.e. M/s Godavari Exim Pvt Ltd. The Inspector found the office and stated that an employee of Om Transport Co. stated that Godavari Exim Pvt Ltd and Om Transport were running under the sign board on Om Transport Co....