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TaxTMI 
TaxTMI 
TaxTMI 
2023 (12) TMI 1226
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.... adjudication purposes. ITA No.2323/Del/2015 for Assessment Year 2009-10 3. The grounds of appeal raised by the assessee read as under: "1. On the facts and circumstances of the case and in law, the order passed by the Commissioner of Income Tax (Appeal) and assessment order passed by Ld. Assessing Officer are bad in law. 2. On the facts and circumstances of the case and in law, the assessing officer erred in completing the assessment at income of Rs. 27,75,76,563/- instead of income of Rs. 33,52,536/- as returned by the appellant and Commissioner of Income Tax (Appeal) erred in not holding so. On the facts and circumstances of the case and in law, the CIT(A) should have deleted all the additions made by the assessing officer and should have directed the assessing officer to accept the income as returned by the appellant. 3a. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeal) erred in not deleting the addition of Rs. 7,80,08,374/- made by the Assessing Officer on account of disallowance of loss in derivative trading. b. On the facts and circumstances of the case and in law, the Commissioner of Inc....
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....f the company. 7. On the facts and circumstances of the case and in law, the various adverse inferences drawn / remarks made by the Commissioner of Income Tax (Appeal) and assessing officer are erroneous, arbitrary and against the principal of natural justice and therefore, such inference / remarks are not sustainable. 8. On the facts and circumstances of the case and in law, the interest has been wrongly charged u/s. 234B of Income Tax Act, 1961. 9. On the facts and circumstances of the case and in law, penalty proceedings u/s 271(1)(c) of Income Tax Act, 1961 has been wrongly initiated." 4. When the matter was called for hearing, the ld. counsel for the assessee submitted that Grounds No.4 and 5 are not pressed in view of the relief granted by the CIT(A). The ld. counsel further submitted that Ground no.3 is the only substantive ground for adjudication purposes. In view of the assertions made, Grounds No.4 and 5 of the grounds of appeal are dismissed as not pressed. 5. Ground No.3 concerns additions of Rs. 7,80,08,374/- made by the Assessing Officer on account of disallowance of loss in derivative transactions on the platform of National Exchange ....
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....hat no details in relation to derivative loss were asked for in the course of the assessment, the additional evidences were admitted by the CIT(A) in the light of the various judgments for adjudication on merits. 8. The CIT(A) however on merits not only decided the issue against the assessee but also issued a notice proposing enhancement of income by another amount of Rs. 5,30,39,741/-. The CIT(A) ultimately confirmed the disallowance of derivative loss of Rs. 7,80,08,374/- claimed by Assessee and also further enhanced the assessed income by Rs. 5,30,39,741/-. Resultantly, the addition of Rs. 13,10,48,115/- were made towards derivative transactions in the hands of the assessee. 9. The relevant paragraph dealing with the issue by the CIT(A) reads as under: "Regarding Ground No.4 of the Appeal relating to disallowance of loss on trading of derivatives amounting to Rs. 7,80,08,374, I find that the Ld. AO, in the assessment order, had acknowledged the fact of receipt of copy of account of M/s RB Masters Securities Ltd., Delhi, in which the total debit and credit balances were shown at Rs. 16,06,65,074/- and Rs. 15,89,53,696/-, respectively. Further, the AO also acknowled....
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.... Stock Exchange) S. No. SCRIP NAME TRADE AMOUNT (IN Rs. ) BUY SELL DIFFERENCE 1 Bank of India 182621397.5 206452195 23830797.5 2 IFCI 9283526.5 9360258 76731.5 3 Ispat lnd. 11873980 11779982.5 -93997.5 4 JP Associates 301450237.5 318777525 17327287.5 5 JP Hydro 22032031.25 21988125 -43906.25 6 LT 1590550 1409590 -180960 7 Parsvanath 224224105.00 231591115 7367010 8 Powergrid 26395022.5 26637476.25 242453.75 9 Reliance 16561117.5 21203287.5 4642170 10 Unitech 5217570 5089725 -127845 Total 80,12,49,537.8 85,42,89,279.3 5,30,39,741.5 Keeping in view of this, it is evident that during the period, 1.4.2008 to 31. 3.2009, in respect of all settlements recorded in the accounts of the appellant by the NSE, a net gain of Rs. 5,30,39,741.5 on all derivative transactions was made by it, whereas, the appellant had claimed net loss in this segment of Rs. 7,80,08,374/-, (which was disallowed by the Ld. AO). 6.4.5 In view of the above, a notice for enhancement of demand was issued u/s. 251(2)....
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....appellant with regard the speculative losses in the derivative transactions of Rs. 7,80,08,374 was genuine and may be allowed by me. 6.4.7 I have carefully considered the facts of the case in the light of the submissions made by the appellant and the information requisitioned from NSE u/s. 133(6). On careful consideration of the above, it is observed that as in the F&O segment, no delivery of Scrips are effectuated as these transactions are speculative in nature, the net amount of gain or loss, as the case may be, booked on different dates of settlement go towards computation of profits/losses in the derivative transactions during the relevant financial ear. The confirmed account of the appellant by M/ NSE for FY 2008-09 does not show any outstanding position, as claimed by appellant. Therefore, the plea of the appellant is not justified, as speculative transactions are booked on the date of the net settlement, unlike the trading of shares on physical delivery basis, where, working of the losses/gains will require considering the unconcluded purchases made in the preceding year or the stock carried forward to subsequent year. It is seen that as against the aggrega....
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.... Reliance 5106150 5106150 16561117 21203287 0 -463980 Unitech 988920 988920 5217570 5089725 302850 302850 -813915 Total 64899445 77866647 142766092 801249537 854289279 5606924 5069993 10676917 -79049433 Less: Position Closed (not showing in NSE File 1306607 Less: difference in buying position 173438 Add: Brokerage, transaction charges, service tax, stamp charges, securities transaction tax -438983 Net Loss -78008371 Loss claimed -78008374 11.1 Adver....
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....sage of the trade, ordinary accounting practices and settled judicial view on the matter. 11.2 The ld. counsel submitted that while the Assessing Officer has disallowed the derivative loss claimed by the assessee at Rs. 7.80 crore on wholesome basis without obtaining any evidence and without putting appropriate query to the assessee, the CIT(A), on the other hand, merely relied upon the transactions freshly entered and executed during the year as reported by the NSE. The ld. counsel submitted that the mis-match between the losses reported by the assessee and the gains presumed by the CIT(A) is on account of the value of transactions remaining open at the beginning of the year as well as at the end of the year. The CIT(A) has omitted to take cognizance of such open position, i.e., derivatives contracts not matured in the preceding year as well as the contract entries during the year at about the end of the financial year and matured on the settlement date falling in the next year. 11.3 The ld. counsel referred to the broker-wise ledger account and scrip-wise profit/loss in derivative contracts. The ld. counsel thus essentially submitted that the CIT(A) misdirected himself in l....
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..... counsel pointed out that as per the enhancement notice, certain inquiries were conducted by the CIT(A) from the NSE under Section 133(6) in relation to derivative loss claimed amounting to Rs. 7,80,08,374/-. However, as per the information received from NSE, the total sale trade stands at Rs. 85,42,89,279/- and the buy trade stands at Rs. 80,12,49,537/-. The CIT(A) accordingly inferred that the difference of sale and buy comes to a gain of Rs. 5,30,39,741/-. Based on such data, enhancement of the assessed income was proposed. To assail the view taken by the CIT(A), the ld. counsel pointed out that the loss of Rs. 7,80,08,374/- claimed is sum of actual loss incurred in relation to derivative contracts which were entered during the year and also matured during the financial year 2008-09 in question together with the loss crystallized during the year in respect of opening outstanding position brought forward as well as year end 'open outstanding position' carried forward in relation to contracts not matured during the year. The ld. counsel submitted that CIT(A) proceeded at fallacious factual premise based on limited data on buy and sale trade only in relation to F.Y. 2008-09 withou....
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....sed the material available on record. 14. The controversy in the present case revolves around correctness of derivatives losses claimed by the assessee at Rs. 7,80,08,374/- on the platform of the Stock Exchange (NSE). The issue is essentially factual in nature. 14.1 As delineated in the preceding paragraphs, the assessee incurred losses in derivative trading of Rs. 7,80,08,374/-. The Assessing Officer disallowed the aforesaid derivative loss without making any inquiry with the assessee. In the first appeal, however, the assessee filed the contract notes, the ledger account of the broker and other documentary evidences to support the derivative losses incurred by the assessee and claimed as allowable expense. The CIT(A) made inquiries with the Stock Exchange but however grossly misunderstood the elementary gamut of transactions. The CIT(A) observed that as per the information received from NSE the total purchases were for Rs. 80,12,49,537/- and total sales were for Rs. 85,42,89,279/-. The CIT(A) accordingly inferred that difference of sales and purchases, i.e., Rs. 5,30,39,741/- was the profit earned by the assessee instead of loss of Rs. 7,80,08,374/- as claimed by the assess....
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....ount, the derivative losses claimed by the assessee tallies exactly with the audited financial statement. The assessee also contends that derivative loss determined and reported is in tune with accounting practices and accounting policies consistently applied over the years. 15. We find wholesome merit in the plea raised on behalf of the assessee. The derivative loss claimed by the assessee is supported threadbare by scrip-wise tabular statement. The mis-match between derivative loss claimed qua the working of the CIT(A) is found to be explained and is on account of unilateral omission on part of the CIT(A) to take cognizance of the losses arising on account of open position at the beginning of the year which matured during the year in question and likewise open position which remained unmatured and carried forward in the subsequent financial year. The approach of the assessee to recognize profits/losses in open contracts appears to be prima facie in tune with the accounting practices. The effect of open position if not taken will give rise to totally absurd conclusions. The profit/loss carried already reported for a part of the period in the preceding accounting year will get a....