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TMI Blog2017 (1) TMI 1643X X X X Extracts X X X X X X X X Extracts X X X X ..... ex Court has decided this issue and which is binding for us. Disallowance of loss from business and profit of UTI and the disallowance was confirmed on the belief that transactions entered into by the assessee - HELD THAT:- The assessee entered into an agreement for forward delivery of Govt. Securities with one set of parties through the brokers and immediately also entered into forward purchase of Govt. Securities from other set of parties through the broker, but delivery of the securities never takes place. These transactions are finally settled by paying differential amount. According to special Court, the transactions are speculative transactions and the assessee has shown income out of same set of transactions which is more than the loss declared by the assessee - forward transactions entered into by the assessee was not illegal and therefore loss cannot be disallowed on that ground. We are also hold the same view. However, we have already held the transactions of sale/purchase of UTI unit 64 as business transaction and not speculative transactions, consequently, the profit arising out of the sale of UTI unit 64 is to be assessed as business income and cannot be set off agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in this appeal of the assessee against the order of CIT (A) confirming the action of the Assessing Officer (AO) in disallowing loss from sale of shares amounting to ₹ 49,06,798/- claimed to be set off against profit from sale of unit of UTI US-64. For this, assessee has raised following Ground Nos. 4 & 5. "4. The learned Commissioner of Income-Tax (Appeals) has erred in law and in facts in disallowing loss from sale of shares amounting to ₹ 49,06,798/- set off against profit from sale of units of UTI US-64. 5. The learned Commissioner of Income-Tax (Appeals) has erred in law and in facts in not appreciating that profit from sale of units of US-64 was speculative in nature. The learned CIT(A) ought to have appreciated that no delivery was taken in respect of transaction in US-64 as well as in shares of other companies." 4. Briefly stated facts are that the assessee is a private limited company engaged in the business of hiring of motor cars and trading in shares and securities. The AO during the course of assessment proceedings, on verification of records, noticed that during the period 04/03/1991 to 30/03/1991 the assessee has earned profit on sales of UTI US-64 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bom). Ld. Counsel for the assessee took us through the head note of the judgment which states: "Section 43(5) of the Income-tax Act, 1961, defines the expression "speculative transaction" to mean a transaction in which a contract for the purchase or sale of any commodity including stocks and shares is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. Since the expression "commodity" is not defined under the Act the expression "commodity" in section 43(5) has to be given meaning as understood in common parlance. The expression "commodity" means an article of trade or commerce which is tangible in nature. A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts in both index as well as stocks can be bought and sold through the trading members of a recognized stock exchange". He also relied on the decision of coordinate bench of this Tribunal Delhi 'A' bench in the case of ANZ Grindlays Bank Vs. DCIT (2004) 88 ITD 53 (Del) wherein the Tribunal has decided that transaction of purchase and sales of units and Government security b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eculative transactions carried on by an assessee are of such a nature as to constitute a business, then such speculation business shall be deemed to be distinct and separate from any other business. Section 722 of the Act provides for set off of the carried forward business losses not being a loss sustained in a speculation business. Section 73 provides that the carried forward losses in speculation business shall not be set off except against profits and gains, in any other speculation business. The assessee" claims that the losses incurred in derivative transactions are business losses which could be set off against profits and gains of any other business / any other heads of income, whereas the revenue contends that the losses incurred by the assessee in derivative transactions are speculative transactions covered under Section 43(5) of the Act which could be set off only against profits of speculation business. Section 43(5) of the Act defines the expression 'speculative transaction' to mean a transaction in which a contract for the purchase or sale of any commodity including stocks and shares is periodically or ultimately settled otherwise than by the actual delivery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transaction in commodity includes transactions in stocks & shares. Therefore, transactions in futures contracts like transactions in stocks & shares when settled otherwise than by actual delivery would be speculative transactions under Section 43(5) of the Act." 9. In view of the above judgments of the Bombay High Court, the learned Counsel for the assessee stated that the issue now stands cover in favour of assessee by this decision of Hon'ble Bombay High Court. He further referred to the decision of co-ordinate Bench of this Tribunal in the case of ANZ Grindlays Bank Vs CIT of ITAT Delhi (2004) 88 ITD 53 Delhi, the coordinate Bench on the very same issue, wherein the units of UTI and government speculates were the underlying assets and the Tribunal held that the transactions of purchase and sale of units and government securities by the assessee without actual delivery would fall within the scope of speculative transactions as defined in Section 43(5) of the Act. The learned Counsel for the assessee referred to the Para 20 of the order which reads as under "There is another aspect of the matter. Explanation to Section 73 is only a deeming provision and therefore, is appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-sections, for the purposes of the Income-tax Act, 1961, -- (a) any distribution of income received by a unit holder from the Trust shall be deemed to be his income by way of dividends; and (b) the Trust shall be deemed to be a company." Relying on the above provision of the UTI Act, the Revenue contends that if the UTI is a company and income from its units is dividend then ipso facto the units will have to be shares, therefore, the business of purchase and sale of units conducted by the assessee company will have to be deemed to be a business in shares which business, according to the Revenue, attracts Explanation to Section 73. On this basis, it is contended that the business of purchase and sale of units by the assessee company amounts to a business of speculation. Both the tribunal and the High Court have considered this argument as also the effect of Section 32(3) of the UTI Act and have come to the conclusion that the provision of the said Act is limited for the purpose of assessment of dividend income under the Act, and for deduction of tax at source. They have held that the legal fiction created by Section 32(3) of the UTI Act cannot be carried any further. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to be treated as speculative business and loss in buying and selling of units of UTI was business loss and not speculation loss. We find that Hon'ble apex Court has decided this issue and which is binding for us.. 11. As regards to another aspect of which the AO and CIT(A), who have confirmed the disallowance of loss from business and profit of UTI and the disallowance was confirmed on the belief that transactions entered into by the assessee was illegal and therefore, the loss arising from illegal business will not be allowed against legal transactions. 12. We have heard the rival contentions on this issue and gone through the facts and circumstances of the case. Before us, the learned Counsel for the assessee filed a copy of judgments in Suit No.1 of 2005, Canbank Financial Services Ltd. Vs. 1.M/s V.B. Desai, a firm. We find that this situation has raised the following issues: - "4. Whether the Suit transactions are prohibited by the Securities Contract (Regulation) Act, 1956 as alleged in Para V of the written statement. 5. Whether the Suit is based on an illegality and is liable to be dismissed on that ground as alleged in Para IV and VI of the written Statement?" The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are speculative transactions and the assessee has shown income out of same set of transactions which is more than the loss declared by the assessee. We find that the judgment of special Court clearly held that forward transactions entered into by the assessee was not illegal and therefore loss cannot be disallowed on that ground. We are also hold the same view. However, we have already held the transactions of sale/purchase of UTI unit 64 as business transaction and not speculative transactions, consequently, the profit arising out of the sale of UTI unit 64 is to be assessed as business income and cannot be set off against the profit arising out of sale / purchase of shares. 14. The next common issue raised by the assessee in this appeal is as regards to the claim of expenses in respect to the electricity, repair and maintenance and travelling, telephone and cash expenses. The assessee has raised following ground No.7-11 for these disallowances:- "7. The learned CIT(A) has erred in law and in facts is not granting deduction on account of electricity expenses amounting to ₹ 19,211/-. 8. The leaned CIT(A) has erred in law and in facts is not granting deduction on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eflected in the regular books of account because Harshad Mehta had referred/offered additional income to the income over and above the income related to the advances tax paid. The assessee contended that declaration was on estimate basis, that the books were not complete. The AO, however, was not convinced by the argument of the assessee in view of the fact that a large number of benami transactions were established in the course of subsequent investigation and that the assessee group had substantial income from share trading and money market that was not recorded in the regular books of account. Accordingly, he made addition of ₹ 3,90,000/- 5. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA). Before him it was argued that the presumption u/s. 132(4)(A) could not be invoked for the purpose of assessment proceedings, that the declaration had been made on the fact that no books were maintained, that no addition could be made on account of any declaration of any income without corroborative evidence found during the search. After considering the submissions of the assessee and the assessment order, the FAA held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of additions, there is no justification in making further addition of ₹ 25,OO,OOO on the basis of the declaration made by the assessee. If the Assessing Officer was to accept the declaration made by the assessee, then he should not have made other additions outside books of account. Therefore, there is force in the argument of the assessee on this point. The Assessing Officer may determine the total income either on the basis of estimation or on the basis of the declaration of the assessee. Therefore, in the facts and circumstances of the case, we find that the addition of ₹ 25, OO, OOO needs to be deleted. We order accordingly." Respectfully following the above order we direct the AO to determine the total income of the assessee either on the basis of estimation or on the basis of declaration made by the assessee. Following the order of Late Harshad S. Mehta-Legal Heir Jyoti S. Mehta(supra), we delete the addition amounting to ₹ 3.90 lakhs made by AO and confirmed by FAA.Gr.4 is decided in favour of the assessee." 18. As the facts are exactly identical in the present case also and Revenue could not differentiate the facts. Respectfully, following the coordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n upholding the action of the AO in charging interest under section 220(2) of the Act. 22. At the outset, the learned Counsel for the assessee stated that this issue is also covered by the decision of the Hon'ble Bombay High Court in the case of CIT v. M/s Chika Overseas Pvt. Ltd. which reads as under: - "6) We see no merit in the above contention. Under Section 156 of the Act, service of the demand notice is mandatory. Section 220(2) of the Act provides that if the amount specified in any notice of demand under Section 156 is not paid within the period prescribed under sub-section (1) of Section 220, then, the assessee shall be liable to pay simple interest at the rate prescribed therein. 7) In the present case, it is not in dispute that the original assessment order dated 28/2/1997 was set aside by the ITAT with a direction to pass fresh assessment order. Accordingly, fresh assessment order was passed on 24/12/2006 and the demand notice was served on 24/12/2006. As per Section 220(1) of the Act, the assessee was liable to pay the amount of demand within thirty days from the service of demand notice dated 24/12/2006. It is only if the assessee fails to pay the amount dema ..... X X X X Extracts X X X X X X X X Extracts X X X X
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