2015 (6) TMI 124 - AT - Income Tax

Loss incurred on trading in futures & options on MCX - speculation loss OR business loss - Benefit of Section 43 - Held that - For the transactions, which were under consideration in that case, were held to be not of speculative nature under the provisions of clause (d) of the proviso to Section 43(5) of the Act and the said case relates to assessment year 2007-08. The transactions entered into by the assessee after insertion of clause (d) of the proviso to Section 43(5), were held to be of non-speculative nature as there was a provision on the statute. However, in the present case, when the assessee carried out these transactions, there was no existing provision in the statute in the shape of clause (e) of the proviso to Section 43(5). In the case of CIT Vs. Nasa Finelease Pvt. Ltd. (2013 (9) TMI 733 - DELHI HIGH COURT), the case relates to proviso (d) to sub-section 5 of Section 43 of the Act and the said insertion was made by the Finance Act, 2005 and the National Stock Exchange and Bombay Stock Exchange, through which the assessee in that case had carried out the transaction were notified on 25th January, 2006. It was the case of the assessee that the transaction conducted by it from July 2005 to September, 2005, cannot be rejected for the benefit of proviso (d) to sub-section 5 of Section 43(5) as there was a provision on the statute in the shape of clause (d). The lapse in the issue of notification etc. was only on account of delay by CBDT. It is in these circumstances, the Hon ble High Court has upheld the order of the Tribunal vide which the relief was given to the assessee. Thus, in that case, there was a provision on the statute under which the assessee sought the benefit. However, in the present case, as mentioned earlier, provisions of clause (e) of the proviso to Section 43(5) did not exist during the period when the assessee carried out the transactions. Thus the assessee is not entitled to claim the benefit of clause (e) of the proviso to Section 43(5) of the Act - Decided against assessee.

Summary

Issues Involved:
1. Whether the loss incurred on trading in futures and options on MCX should be treated as speculation loss or business loss.

Detailed Analysis:

Treatment of Loss as Speculation or Business Loss:
The primary issue revolves around the treatment of a loss amounting to Rs. 21,04,331 incurred by the assessee on trading in futures and options on the MCX. The assessee initially treated this loss as speculative in their original and revised returns but later claimed it as a business loss in a re-revised return.

During assessment proceedings, the Assessing Officer (AO) treated the loss as speculative, based on the fact that the MCX was not recognized as a stock exchange under Section 43(5) during the relevant assessment year (2009-10). The AO referenced the proviso to Section 43(5), which states that trading in derivatives on a recognized stock exchange is not deemed speculative. However, the MCX was recognized as a stock exchange only from 22-5-2009, which pertained to the financial year 2009-10 and not the assessment year 2009-10.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, noting that Section 43(5)(d)(ii) applies to recognized stock exchanges by SEBI, which deals with share trading. Since the MCX is a commodity exchange recognized by the FMC, it did not fall within the ambit of Section 43(5)(d)(ii). Therefore, the loss was correctly treated as speculative.

Arguments and Precedents:
The assessee cited the case of ACIT Vs. Arnav Akshay Mehta, where the Mumbai ITAT held that transactions carried out through the MCX Stock Exchange after 1-4-2006 should be treated as non-speculative. The assessee also referred to the case of CIT Vs. Nasa Finelease P Ltd., where the Delhi High Court ruled that the delay in recognizing a stock exchange should not affect the nature of transactions conducted under the statutory provision.

Despite these precedents, the Tribunal noted that the MCX was recognized as a "recognized association" for the purposes of clause (e) of the proviso to Section 43(5) only from 1-4-2014, as inserted by the Finance Act, 2013. Therefore, this provision did not apply to the transactions conducted by the assessee in the financial year 2008-09.

Conclusion:
The Tribunal concluded that since the MCX was not a recognized stock exchange under Section 43(5)(d) during the relevant period, the loss incurred on trading in futures and options on the MCX should be treated as speculative. The appeal filed by the assessee was dismissed, and the treatment of the loss as speculative was upheld.

Judgment:
The appeal filed by the assessee is dismissed. The loss incurred on trading in futures and options on the MCX is to be treated as a speculative loss, not a business loss. The Tribunal's decision is based on the statutory provisions and the recognition status of the MCX during the relevant assessment year.