2013 (11) TMI 117 - AT - Income Tax

Disallowance of loss from derivative business Held that - Following Asst. CIT v. Shree Gopal Purohit 2009 2009 (6) TMI 676 - ITAT MUMBAI - Income from derivative transaction is non-speculative in nature - Even if there are procedural violations and the transactions are not strictly eligible transactions, there is no dispute that these are transactions in derivative products and such transactions even under the definition of speculative transactions in section 43(5) are non speculative - The assessee had maintained each and every record of the documentation provided by the sub-broker like trade confirmation report and bills - The assessee, having lack of knowledge about the contract note, did not desire for the contract note from sub-broker - The sub-broker has confirmed the transactions. The assessee has actually traded in derivatives, which is proved from all the trade confirmation reports and final settlement on record Decided in favour of assesse.

Summary

Issues:
Appeal against disallowance of loss from derivative business.

Analysis:
In this case, the sole ground of appeal was the disallowance of Rs. 3,85,268 on account of loss from derivative business by the Assessing Officer, which was confirmed by the Commissioner of Income-tax (Appeals). The assessee contended that the transactions were compliant with the provisions of section 43(5)(d) of the Income-tax Act, 1961, and relied on relevant case laws to support their argument. The main issue revolved around the non-issuance of a proper contract note by the sub-broker, which the assessee claimed was due to lack of awareness rather than intentional non-compliance. The Revenue failed to provide corroborative evidence to substantiate their contentions, leading to the allowance of the appeal by the Tribunal.

The assessee's representative argued that the transactions were carried out through recognized stock exchanges electronically on screen-based systems, meeting the conditions of eligible transactions under section 43(5)(d) of the Act. The representative highlighted that although the sub-broker did not issue a proper contract note with necessary details, the assessee had maintained documentation like trade confirmation reports and bills. The Tribunal noted that the lack of a contract note was due to the assessee's lack of knowledge about the requirement rather than an attempt to evade compliance. The Tribunal also emphasized that the Revenue failed to prove that the transactions were sham, as confirmed by the sub-broker, and that the assessee had traded in derivatives, supported by trade confirmation reports and final settlement records.

The Tribunal considered the detailed submissions made by the assessee, the relevant provisions of the Act, and the memorandum explaining the provisions of the Finance Bill, 2005. The Tribunal concluded that the Revenue did not provide sufficient corroborative evidence to support their contentions, leading to the allowance of the assessee's appeal. The Tribunal held that the findings of the Commissioner of Income-tax (Appeals) could not be sustained, and therefore, allowed the appeal of the assessee against the disallowance of the loss from derivative business.