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TMI Blog2018 (9) TMI 1170X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that the assessee has claimed losses arising from derivative transactions aggregating to Rs. 99. 35Lakhs against the profits arising of sale of land and interest income. The AO found that derivative loss in respect of shares amounts to Rs. 75, 49, 467/- whereas Rs. 23, 66, 362/- arises from commodity trading. No details for loss of Rs. 19, 678/- was stated to be provided by the assessee. The AO questioned the bonafides of the derivative transactions in shares on the ground that the contract notice furnished by the assessee contains only order no. , trade no. , trade time of securities which details are annexed and numbered with the first page of the contract note. Secondly, the contract notes were furnished to the AO in original which is imprudent and thirdly, the NSE has denied to have carried out any transactions by the assessee company. The AO accordingly held that the loss arising on transactions in the derivative segment of shares cannot be regarded as 'eligible transaction' under s. 43(5)(d) of the Act. The AO further observed that the loss of Rs. 23, 66, 362/- arose in commodity trading on the platform of the commodity exchange. The assessee has shown transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction has been executed against the order number specified in the contract. Therefore, in these circumstances, it will be difficult to draw inference against the assessee for allowability of derivative loss in terms of Section 43(5)(d) of the Act. As regards the claim of losses arising in the commodity exchange platform the stand of the Revenue that the assessee's transaction is not an eligible transaction as contemplated in Section 43(5)(d) of the Act was firmly rejected by the Hon'ble Madras High Court in the case of CIT vs. M/s. Sri Vasavi Gold & Bullion Pvt. Ltd. in T. C. A. No. 853 of 2017 in identical facts and circumstances. The relevant operative para of the judgment of the Hon'ble Madras High Court is reproduced as hereunder: "10. Main issue on which arguments were advanced before this Court is with regard to addition of Rs. 60, 66, 466/- (loss on open market trading) made by the Assessing Officer to the income of the assessee. Assessment order dated 26. 03. 2014, reads as follows: "The assessee company has not substantiated that the transactions were supported by Contract Notes and were carried on in a recognised stock exchange i. e. , in MCX which is the reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; or (d) an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange; or (e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognised association, which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013), shall not be deemed to be a speculative transaction. Explanation 1-For the purposes of clause (d), the expressions- (i) "eligible transaction" means any transaction, - (A) carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is section for more than four assessment years immediately succeeding the assessment year for which the loss was first computed. Explanation. - Where any part of the business of a company (other than a company whose gross total income consists mainly of income which is chargeable under the heads "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources", or a company the principal business of which is the business of trading in shares or banking or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. "(emphasis is ours) 13. Keeping the above provisions in mind, first let us consider whether Section 43(5) of the I. T. Act will apply to the facts and circumstances of the case. Section 43(5) deals with 'speculative transaction' and any income derived from the same will be computed under the head income from profits and gains of business or profession . Proviso (d) to Section 43(5) gives exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain type or classes of companies are deemed to be speculative. Since derivatives are not shares, they are excluded from the ambit of explanation to Sec. 73(4). Therefore, the transactions entered into by the appellant are eligible transactions and the AO is directed to delete the addition of Rs. 60, 66, 466/-. These grounds of appeal are allowed. " 16. Adverting to the submissions of the parties, extracted supra, Income Tax Appellate Tribunal, vide order dated 15. 09. 2016, held as follows: ""5. We have considered the rival submissions on either side and perused the relevant material available on record. In this case, the assessee is trading in derivatives in the Multi Commodity Stock Exchange, which was recognized. Therefore, the same cannot be treated as speculative transaction within the meaning of Section 43(5) of the Act. In other words, the transaction made in derivatives through Multi Commodities Stock Exchange was exempted under proviso (d) to Section 43(5) of the Act. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. 6. In the result, the appeal filed by the Revenue is dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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