The Mumbai Bench of Income Tax Appellate Tribunal has deleted the disallowance holding that the hedging transactions in non-cleared securities were not illegal.
The assessee, Atul C. Vyas had filed appeals challenging the orders passed by Commissioner of Income Tax appeals (CIT (A)) related to the assessment years 1992-93 and 1993-94.
The assessee had purchased 16,200 shares of MLIL during September, 1991 and October 1991 on delivery basis. Subsequently, the assessee sold 5100 shares on 14.02.1992. out of the above said sale, the assessee has sold 2900 shares by way of hedging transactions. The hedging contract was closed by purchasing 1700 shares. The assessee claimed that the closing of hedging transaction by purchasing shares had resulted in a loss and the same was claimed in next AY and in the next year also loss was claimed in the same manner. But the AO did not accept the claim of hedging transactions.
Manoj Sinha on behalf of revenue contended that the assessee had sold the shares out of the stock available with him and accordingly computed capital gain. He also contended that the shares of Mazda Leasing and Industries Ltd were not allowed for forward purchase or sale and the transactions undertaken by the assessee were in violation of bye laws of Stock exchange. He further contended that transactions were illegal in nature as they were in violation of bye laws of Stock Exchange and regarding the circulars it was contended that it would not apply to the facts of the present case.
Dharmesh Shah, on behalf of assessee placed reliance on the Circular No.23D(XXXX-4) dated 12.09.1960 issued by CBDT.
The Mumbai Bench of B.R. Baskaran (Accountant Member) & Shri Pavan Kumar Gadale (Judicial Member) deleted the disallowance observing that ,”Even though the tax authorities have stated that the impugned transactions are illegal, yet they have not referred to any of the provisions of Bye laws of Stock Exchange, which specifically state that, the hedging transactions in ‘non-cleared securities’ are illegal. Further, the broker note placed at page 103 of the paper book would show that the assessee has carried forward the hedging transactions to March, 1992 and started purchasing shares from 24th March, 1992 onwards. Hence, it cannot be said that the transactions are illegal.”
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