2019 (3) TMI 2011 - AT - Income Tax

Disallowing of loss claimed on account of trading in commodity derivative - transactions were carried on NCDEX - treating the transactions carried on by the assessee between the period 21.05.2013 to 22.08.2013 as speculative transaction - as transactions on which the assessee suffered a loss to be speculative transactions and hence impugned loss was not allowed to be set off with normal business income - HELD THAT - A perusal of notification dated 27.11.2013 notifying NCDEX as recognized association, the language employed therein was similar to the language employed in notification dated 25.01.2006 whereby National Stock Exchange of India Ltd., Bombay and Bombay Stock Exchange Ltd., Bombay where notified as recognized stock exchange for the purpose of clause (d). Therefore, respectfully following the above decision of NASA Finelease Pvt. Ltd 2013 (9) TMI 733 - DELHI HIGH COURT , we hold that the notification will take effect during the entire previous year 2013-14 relating to assessment year 2014-15. No Commodity Transaction Tax (CTT) paid in respect of trading transaction of the assessee under consideration and therefore, the same does not quantify for being treated as non-speculative - The Second proviso which has been inserted by the Finance Act 2018 is curative and therefore is to be treated as came into force from the date from which clause (5) itself was inserted in the statute i.e. with effect from 01.04.2014. Our above view finds support from the decision of the Hon ble Supreme Court in the case of Allied Motors Pvt. Ltd. 1997 (3) TMI 9 - SUPREME COURT wherein it was held that a proviso which is designed to eliminate unintended consequence which may cause undue hardship to the assessee and unjust in a specific situation is to be read as retrospective with effect from which the main section was inserted. To the same effect is the decision of Ansal Land Mark Township Pvt. Ltd. 2015 (9) TMI 79 - DELHI HIGH COURT wherein decision of the Agra Bench of the Tribunal in the case of Rajeev Kumar Agarwal 2014 (6) TMI 79 - ITAT AGRA was confirmed wherein it was held that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically by the statue. It was held that Second proviso to Section 40(a)(ia) of the Act must be given retrospective effect of the point of time when the related legal provision was introduced. Thus, in view of the above discussion as in the instant case, it is not in dispute that the assessee s transactions in agricultural commodity derivative were otherwise eligible transaction within the meaning of Section 43(5)(e) of the Act, we set aside the orders of the lower authorities on this issue and direct the AO to treat the loss in said transaction as nonspeculative business loss and accordingly allow set off of the same from other business income as per law. Thus, this ground of appeal of the assessee is allowed.

Summary

Issues Involved:
1. Legality of the addition/disallowance of Rs. 4,69,47,808/- as speculative loss.
2. Interpretation and applicability of Section 43(5)(e) of the Income Tax Act.
3. Recognition of NCDEX as a recognized association.
4. Applicability of Commodity Transaction Tax (CTT) on agricultural commodity derivatives.
5. Retrospective application of amendments and procedural compliance.

Detailed Analysis:

1. Legality of the Addition/Disallowance of Rs. 4,69,47,808/- as Speculative Loss:
The primary issue in this appeal is whether the CIT(A) erred in confirming the disallowance of the loss claimed by the assessee on account of trading in commodity derivatives, treating the transactions as speculative. The assessee argued that the transactions were carried out on NCDEX, which was recognized under the Forward Contract Regulation Act, and that the procedural compliance requirements should not override the statutory provisions.

2. Interpretation and Applicability of Section 43(5)(e) of the Income Tax Act:
Section 43(5)(e) was inserted by the Finance Act, 2013, effective from 01.04.2014, to treat trading in commodity derivatives on a recognized association as non-speculative. The CIT(A) interpreted that the transactions carried out before NCDEX's notification as a recognized association on 27.11.2013 were speculative. However, the Tribunal found that the provision was applicable for the entire assessment year 2014-15, and the delay in notification should not deprive the assessee of the benefit, referencing the decision in CIT Vs NASA Finlease Pvt. Ltd.

3. Recognition of NCDEX as a Recognized Association:
The Tribunal noted that NCDEX was recognized under the Forward Contracts (Regulation) Act, 1952, since 20.11.2003. The procedural delay in its notification under the Income Tax Act should not affect the transactions carried out before the notification date. The Tribunal held that the notification of NCDEX as a recognized association should be considered effective for the entire assessment year 2014-15, aligning with the decision of the Hon’ble Delhi High Court in CIT Vs NASA Finlease Pvt. Ltd.

4. Applicability of Commodity Transaction Tax (CTT) on Agricultural Commodity Derivatives:
The Tribunal addressed the issue of CTT, noting that agricultural commodity derivatives were exempt from CTT. The Finance Act, 2018, inserted a second proviso to Section 43(5), clarifying that the requirement of chargeability to CTT does not apply to agricultural commodity derivatives. The Tribunal deemed this proviso curative and retrospective, effective from the date Section 43(5)(e) was introduced, thus supporting the assessee's claim that the transactions should not be treated as speculative due to the non-applicability of CTT.

5. Retrospective Application of Amendments and Procedural Compliance:
The Tribunal emphasized that procedural compliance requirements should not override the main statutory provisions. The delay in procedural notifications should not adversely affect the assessee’s rights. The Tribunal referenced several judicial precedents, including Allied Motors Pvt. Ltd. Vs CIT and CIT Vs Ansal Land Mark Township Pvt. Ltd., to support the retrospective application of curative amendments, ensuring that the assessee's transactions are treated as non-speculative for the entire assessment year 2014-15.

Conclusion:
The Tribunal allowed the appeal, directing the AO to treat the loss of Rs. 4,69,47,808/- as non-speculative business loss and allow set-off against other business income. The Stay Petition filed by the assessee was dismissed as infructuous. The judgment underscores the importance of aligning procedural compliance with statutory provisions and supports the retrospective application of curative amendments to avoid unintended consequences.