TaxTMI 
TaxTMI 
2019 (3) TMI 2011
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.... 3. That the CIT(A) has failed to appreciate the fact that the date of notification for recognizing the association (NCDEX) on which the transactions were carried out is immaterial and that the language and the intention of the IT Act should prevail over the Rules and notifications (procedural laws). Reasoning adopted for interpreting provisions of clause 'd' of section 43(5) are equally applicable for clause 'e' of section 43(5). 4. That the CIT(A) failed to appreciate that prior to getting notified for the purpose of section 43(5)(e) NCDEX was already a recognized association as per Section 2 of Forward Contract Regulation Act, 1952 since 20-11-2003. 5. That the CIT(A) has failed to appreciate the fact that the retrospective amendment brought in Sec 43(5)(e) by the Finance (No.2) Act 2014 is not applicable to the appellant. It is well established that a provision cannot be read retrospectively to divest assessee of his vested rights. 6. That in view of the facts and circumstances the appellant cannot be held liable for non payment of commodities transaction tax since the same was levied with retrospective effect and much later than the dates of transactions. 7. That....
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.... for payment of commodity transaction tax, the amendment was made effective from 06.08.2014 by the Finance Act o 2014. iii. The Assessing Officer did not apply the provisions on assessment year basis and should have considered the factual position as applicable on first day of the assessment year i.e. 01.04.2014 when there was substantial compliance of each and every aspect. iv. the notified rules cannot be made effective from every perspective date. v. Procedural compliance cannot override statute. vi. The Assessing Officer did not apply CIT Vs NASA Finlease Pvt. Ltd. (2013) 358 ITR 305. vii. The notification of recognition of the exchange does not create any right or liability but it merely recognizes the eligibility. vii. A number of judicial precedents/decisions were also quoted. ACIT Vs Arnav Akshya Mehta (2012) 25 taxman.com 252 Vimal Oil Foods Ltd. Vs ACIT (2011) 55 taxman.com 107 6. The CIT(A) after considering the above arguments of the assessee observed that the moot question involved in this case was that the transactions carried out by the appellant during the period 21.05.2013 to 22.08.2013 (prior to approval of NCDEX on 27.11.2013) which are in t....
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....sactions of the appellant were carried out between the period 21.05.2013 to 22.08.2013 on a exchange which was approved on 27.11.2013. Thus, the question that arises are these transactions non-speculative and are saved by the proviso to the aforesaid section. 10. The appellant has quoted number of decisions given by different judicial for as related to Section 45(5)(d) of the Act to buttress the point that even in those cases the recognition of the exchanges came subsequently but the benefit of the provisions were extended to the transactions carried out on the earlier occasion. A considerable reliance has been placed on ACIT Vs Arnav Akshay Mehta (2012) 53 SOT 581 (Mum.) and the decision of CIT Vs NASA Finlease Pvt. Ltd. (2013) 358 ITR 305. In these cases, it was held that the appellant was entitled to treat the transaction as non-speculative even if the respective exchanges have been recognized subsequently. The primary reasoning given in these decisions was that the operations of the beneficial provisions come into play the moment they are enacted; the rules and notifications are merely subservient; any delay caused in issue of notifications cannot be put as an hindrance to the....
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....s and regulations are subservient to the main provision might be true in a case where the delegated legislation merely provide the formalities. In the present case, Rules 6DDC and 6DDD provides detailed conditions of the audit Trail required to be maintained electronically and to be transmitted to the designated authority. The Jaipur Bench of the Tribunal in the case of Prem Prakash Uma Shankar in ITA No. 91/JP/2013, order dated 20.02.2013 and in ITA No. 599/JP/2013, order dated 11.08.2015 held that the recognition was must for availing the benefit of the provisions. 15. The CIT(A) further observed that the decision in the case of CIT Vs NASA Finlease Pvt. Ltd. (2013) 358 ITR 305 (Del.) was not applicable because that decision was given in the context of Section 45(5)(d) of the Act where it had mentioned in para 5.7 about the systems of stock exchange was fully established, therefore, Hon'ble Court took a lenient view in respect of recognition by CBDT and treated this as mere formality. However, in the case of Section 45(5)(e) of the Act were not fully equipped and operationalized,, therefore, any laxity in permitting transactions before the due diligence is likely to cause damage....
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....peculative. The BASIC fact that NCDEX was already an existing 'recognised association' since 20-11- 2003 was completely ignored. 20. The section nowhere states that such benefit will be from the date it gets notified. Correct inference from the Explanation 2 to section 43(5) which provided that such recognized association to fulfill such conditions as may be prescribed clearly means that during the period there are no rules prescribed for this purpose till then compliance of said condition is not relevant at all. In such procedural matters what is important is whether once procedures are prescribed thereafter whether they have been complied with or not, which in the given case of Appellant NCDEX has very well complied with in all respect. 21. We hereby reproduce quote from 7th edition of Shri Nani Palkhiwala, "An authority cannot make rules or issue notifications adversely affecting the assessee's rights with retrospective effect, unless the statute, either expressly or by necessary intendment, empowers the authority to do so. This principle has now received statutory recognition in s. 295(4)." The same principle is enunciated in the case of ITO v Ponnoose 75 ITR 174 ....
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....ical returns etc. It does not guide as to how the transactions to be carried on. Therefore, this part of the definition as given in Explanation 2 to section 43(5) must be treated as procedural only. Extract of Section 43(5)(e): "As amended by Finance Act, 2013: The following clause (e) shall be inserted in proviso to clause (5) of section 43 by the Finance Act, 2013, w.e.f. 1-4-2014: "(e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognized association. shall not be deemed to be a speculative transaction." 24. A few conditions have been laid down in order to qualify for the exclusion. These are similar to the conditions laid down for exclusion of securities derivative transactions from the definition of speculative transaction. The commodities derivatives transaction should be carried out electronically on a screen-based system on a recognized commodity exchange through a member or intermediary registered under the bylaws, rules and regulations of a recognized commodity exchange in accordance with the Forward Contracts (Regulation) Act (FCRA) and in accordance with the rules, regulations or by-laws made or directions issued....
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....pect of those approved stock exchanges, irrespective of the date of approval during the year. Reliance was placed on following decisions: Effective date of statute prevails upon procedural mechanism I. (2012) 25 Taxmann.com 252 (Mumbai) / (2012) 53 SOT 581 (Mumbai) - ITAT Mumbai Bench 'A" - ACIT, Vs. Arnav Akshay Mehta it was held as under: Procedural compliance cannot override statute Delay in recognition of stock exchange - Procedural delay in recognition of stock exchange would not lead a derivative transaction to be categorized as speculative one. II. [2011] 12 taxmann.com 55 (Ahemdabad)/[2011] 46 SOT 276 (Ahmedabad)/[2011] : ACIT, Circle-2, Bhavanagar v. Hiren Jaswantrai Shah there was a circular dt. 25-1-2006 issued for treating income / loss from derivative transaction in shares as regular business income was treated as curative and considered to be applicable retrospectively. III. CIT vs. Nasa Finelease Pvt Ltd - ITA 647 / 2012 / Delhi HC, dt. 6-9-2013. It was the case of the assessee that the transaction was conducted by it from July 2005 to Sept 2005 cannot be rejected for the benefit of provision (d) of Sub-section 5 of Section 43(5) as there was a provision ....
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..... The notification dated 25-1-2006 is by way of a subordinate legislation but cannot override the principal legislation enacted by the Parliament. It only clarifies but will not override unless statutorily so prescribed. Since there was no dispute to the fact that the transactions, in the instant case, in future and option segment were the eligible transactions carried out in a recognized stock exchange, loss in such transactions could not be deemed to be loss in the speculation business. Therefore, the loss-in-question was to be treated as a business loss and not as loss in speculation business. 28. Case of the Appellant is identical to above situation, even this time condition and procedure for applying were announced vide Notification no. 51 on 4-7-2013 vide Rule 6DDC, Rule 6DDD and form 3BC (ITA 6534 / 2012). Therefore, just because NCDEX was notified on 27-11-2013 will not make all transactions for entire period from 1-4-2013 till 26-11-2013 as made on unrecognized association. It is therefore submitted that for the 1st year of such amendment the date of notification is not important since it is impossible to even apply for getting notified before the guidelines are prescribe....
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....e recognised association shall have the approval of the Forward Markets Commission established under the Forward Contracts (Regulation) Act, 1952 (74 of 1952) in respect of trading in derivatives and shall function in accordance with the guidelines or conditions laid down by the Forward Markets Commission; (ii) the recognised association shall ensure that the particulars of the client (including unique client identity number and PAN) are duly recorded and stored in its databases; (iii) the recognised association shall maintain a complete audit trail of all transactions (in respect of derivative market) for a period of seven years on its system; (iv) the recognised association shall ensure that transactions (in respect of derivative market) once registered in the system are not erased; (v) the recognised 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 (Intelli....
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....all transactions and that such are not erased or modified as per Rule 6DDC. On an application filed with CBDT along with particulars as given in rule 6DDD, such recognized association will be notified as recognized association for the purpose of clause (e) to proviso to sub-section (5) of section 43. Therefore, it is undisputed that rule 6DDD is only procedural in nature. When a rule or provision does not affect or empower any right or create an obligation or only relates to procedures, then it is deemed to be retrospective otherwise such inference is likely to lead to absurdity. The notification issued under rule 6DDD does not empower any right or create obligation but only recognizes what is already in existence. 33. It is not a case that NCDEX was created after 27-11-2013 and, therefore, transactions could not have been carried out through them and, therefore, transactions carried out prior to this date would also be covered for being treated as nonspeculative. In other words if transactions in derivatives are carried out through recognised associations which are already in existence during assessment year 2014-15 i.e., financial year 1-4-2013 & 31-3-2014 onwards and which are ....
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.... to exclude commodity derivative transactions carried out in a recognized commodity association ("recognized commodity exchange") and inserted sub-clause (e) in the following manner: "As amended by Finance Act, 2013: The following clause (e) shall be inserted in proviso to clause (5) of section 43 by the Finance Act, 2013, w.e.f. 1-4-2014: "(e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognized association. shall not be deemed to be a speculative transaction." As a correct interpretation of above newly inserted section 43(5)(e) would be that this exclusion would apply to all commodity derivatives transactions in agricultural as well as non-agricultural commodities and not just non-agricultural commodity derivatives, which are subject to CTT." 37. Since this amendment was effective from assessment year 2014-15, it would naturally apply to all transactions on or after 1 April 2013. This would also mean that all commodity derivative transactions are no longer to be treated as speculative transactions. Unfortunately, tax law makers do not believe in keeping things simple, they amended same section in August 2014 as below: ....
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....tions carried out in previous year relevant to the assessment year beginning on 01.04.2014. 40. As per Page no. 83 of the 7th edition of Shri Nani Paikhiwala, law to be applied is that in force in assessment year- "Though the subject of the charge is the income of the previous year, the law to applied is that in force in the assessment year, unless otherwise stated or implied; and any amendment which is in force at the beginning of the relevant assessment year must govern the case though the Income- Tax Act as it stands amended on the 1st April of a financial year must apply to the assessment of that year. Any amendments in the Act, which come into force after the 1st April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force." This principle is also applied in the cases of CIT v Scindia Steam Navigation Co Ltd 42 ITR 589 (SC) & Karimtharuvi Tea Estates Ltd v State of Kerala 60 ITR 2S2 (SC). Two important paragraphs from the judgement by the Hon'ble Supreme Court are reproduced for reference: "Now, it is well-settled that the Income-tax Act, as it stands amended on the firs....
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....nd admits of two interpretations a view which is favourable to the subject should be adopted. In fact such an interpretation is also in consonance with ordinary notions of equity and fairness would further fortify the court in adopting such a course, {reference from case: [1976] 105 ITR 179(SC) CIT v. Madho Pd. Jatia}. 43. To summarise, as on 1-4-2014 the Act only required that the transactions carried out on recognized association will be deemed as non-speculative and NCDEX fulfilled all conditions during the period when there were no rules prescribed as well as the period after they were prescribed clearly establishes that transactions carried for full year should be treated as nonspeculative. Observation of Ld. AO that Appellant carried this business for the 1st time and it was not regularly engaged in trading in commodities trading is out of context and relevance. Infact, the Appellant Company is engaged into trading for more than 25 years and has full liberty to start any line of business at any point of time. The Act / Section nowhere states that the provision would be applicable only to the person who has carried such transactions in the past and not to the first timer. The....
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.... 06.08.2014 and thus, income tax act nowhere provided for such compliance on the date when transactions were carried out or even on the first day of assessment year i.e. 01.04.2014. Since agricultural commodities are not liable for CTT appellant was not required to pay CTT therefore, it was pointed out and stated that condition of charging CTT cannot be applied in appellant's case in the given circumstances. 48. Since appellant fully acted upon certain provision that existed in the act on the date when transactions were carried in 2013, the principle of promissory estoppel would prevail for which reliance is placed in Motilal Padampat Sugar Mills vs. Estate of U.P. (SC) (118 ITR Page 326 Internal Page 361). 49. The question of making disallowance of loss from commodity derivatives in the returned income at the time of conducting tax audit u/s.44AB does not arise since the loss was genuinely an allowable business loss. 50. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. In the instant case, the undisputed facts are that the assessee has suffered loss of Rs.4,69,47,808/- in trading in agricultural based commodi....
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....dicating 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 the 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:" 56. The contention of the Revenue is that though the provision was inserted w.e.f. assessment year 2014-15 but as the recognized association was notified by the notification dated 27.11.2013, the eligible transaction entered into prior to that date will not quantify as non-speculative transaction. 57. We find that similar issue arose before the Hon'ble Delhi High Court in the case of CIT Vs NASA Finelease Pvt. Ltd. reported in 358 ITR 305 (Del.) wherein in relation to clause (d) of first proviso to Section 43(5) of the Act which was inserted w.e.f. assessment year 2006-07 and the recognized stock exchange was notified vide notification dated 25.01.2006 and therefore, the transac....
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....r consideration and therefore, the same does not quantify for being treated as non-speculative. 60. We find that it is not in dispute that the trading transactions of the assessee were in agricultural commodity derivatives. As per the provisions of law, no CTT is legally chargeable in respect of agricultural commodity derivatives. The ld. AR of the assessee drawn our attention to the Second proviso to Section 43(5) of the Act inserted by the Finance Act, 2018 which reads as under: "Provided further that for the purposes of clause (e) of the first proviso, in respect of trading in agricultural commodity derivatives, the requirement of chargeability of commodity transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013) shall not apply." 61. The ld. DR pointed out that the above Second proviso was inserted w.e.f. 01.04.2019 and therefore, was not applicable in the assessment year 2014-15. 62. We find that vide inserting clause (e) in the First proviso to Section 43(5) of the Act, the Hon'ble Finance Minister stated in the Parliament as under: "149. There is no distinction between derivative trading in the securities market and derivative trading in the commoditie....