TaxTMI 
TaxTMI 
TaxTMI 
2020 (6) TMI 467
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....ing 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 or set aside. 8.The appellant craves leave to press new, additional grounds of appeal or m....
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.... 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 (22 of 1996) and the rules, regulations or bye-laws made or directions issued under those Acts or by banks or mutual funds on a recognised stock exchange; and (B) which is s....
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.... 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 as speculative loss in view of Section 43(5) of the IT Act 1961. 2. In this regards we draw your attention to the fact that Godavari Exim Pvt. Ltd. was a member of MCX Stock Exchange Ltd. We draw your attention to the notification no. 46/2009 date....
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....ich 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 of any transaction in the nature 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 236 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recogn....
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....e 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, 1956 read as under: " 2.[ac] "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 index of prices, of underlying securities;]" 7.1 Thus, it can be seen that the derivatives also includes securities. The definition of eligible....
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....ward, 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 index of prices, of underlying securities; It is further provided by SEBI that in Aug.2008 SEBI permitted exchange traded currency derivative. 7.4 Considering the relevant provisions of the relevant Acts, discussed herein above in the light of Hon'ble Madras High Court and the answers given to frequently asked questions by the SEBI and the incorporation of exchange traded currency derivative from August, 2008, there remain no iota of doubt that the transaction of the assessee cannot be treated as speculative transaction. We ....
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.... 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 be treated as speculative transaction. We have also gone through the copies of the contract notes incorporated in the paper book filed before us. A perusal of the contract note shows that the assessee has ' either entered into a call option or put option and on the settlement day the transaction has been settled by delivery, either the assessee has paid US dollar on the settlement day or has taken delivery of US dollar. To sum up, the derivatives include foreign currency and call option/put option, are transactions of derivative markets and cannot be termed as speculative in nature. Considering the tota....
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....it 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 proceedings u/s. 263 of the IT Act 1961 and oblige. 4. However, the ld. PCIT rejected the contention of the assessee and held that since one of the prerequisite in the proviso for the transactions not to be deemed as speculative is that the eligible transaction should be carried out electronically on screen-based systems through a stock broker or sub-broker as specified in Explanation 1 below sec.43(5); of the Act.Then, ld PCIT get conducted an enquiry through an income tax inspector to verify the genuineness of M/s Godavari Exim Pvt. Ltd. as a Member of the MCX and the genuineness of the transactions of the assessee through the company.In this connection, the Inspector of Income Tax has repor....
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....ssessee 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 Pr. CIT to exercise his power. For that, we have to examine as to whether in the first place the order of the Assessing Officer found fault by the Principal CIT is erroneous as well as prejudicial to the interest of the Revenue. For that, let us take the guidance of judicial precedence laid down by the Hon'ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be e....
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....2. 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 periodically or ultimately settled otherwise than by the actual delivery 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 guardagainst 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 toss 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 of any tra....