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2011 (12) TMI 557 - AT - Income TaxShare trading loss and profit from derivative transactions - Held that - Trading of shares which is done by delivery transactions are not hit by Sec.43(5) as speculation. Similarly, derivative transaction in shares profit/loss is also not hit by Sec.43(5) of the I. T. Act, which deals about speculation transaction. As such, both profit/loss from all the share delivery transactions and derivative transactions are having the same meaning, so far as, Sec.43(5) of the I. T. Act is concerned. When once we held that the transactions done by delivery as well as the transactions of derivatives are not hit by section 43(5) of the Act it is in our considered view that the aggregation of the share trading loss and profit from derivative transactions should be done before the application of the Explanation to section 73 of the IT Act is applicable.
Issues Involved:
1. Whether transactions in derivatives are hit by section 43(5) of the Income Tax Act. 2. Whether the disallowance and addition of Rs. 17,98,773/- treated as deemed speculation loss by the Assessing Officer (AO) was justified. 3. Whether delivery-based share transactions fall under the ambit of Explanation to section 73 of the Income Tax Act. Detailed Analysis: Issue 1: Transactions in Derivatives and Section 43(5) The AO argued that losses incurred in non-derivative share transactions, deemed speculative under Explanation to Section 73, cannot be set off against profits from derivative transactions, which are non-speculative under Section 43(5)(d). The AO cited various judgments, including the Supreme Court's decision in Appollo Tyres Ltd., to support the distinction between shares and derivatives. The CIT(A) disagreed, stating that both share delivery transactions and derivative transactions are not speculative as per Section 43(5). The Tribunal upheld the CIT(A)'s view, emphasizing that transactions in derivatives are not hit by Section 43(5). Issue 2: Disallowance and Addition of Rs. 17,98,773/- as Deemed Speculation Loss The AO treated the share trading loss as deemed speculative under Explanation to Section 73 and disallowed the set-off against derivative profits. The CIT(A) directed the AO to aggregate share delivery loss with share derivatives profit, stating that both transactions are non-speculative under Section 43(5). The Tribunal agreed with the CIT(A), noting that the net result of the assessee's transactions is a profit, thus the application of Explanation to Section 73 does not arise. The Tribunal referenced the ITAT Special Bench decision in CIT vs Concord Commercial Pvt. Ltd. and the Bombay High Court's ruling in Lokmat News Papers (P) Ltd., supporting the aggregation of business income before applying Explanation to Section 73. Issue 3: Delivery-Based Share Transactions and Explanation to Section 73 The AO argued that the loss from share trading should be treated as deemed speculative under Explanation to Section 73. The CIT(A) held that delivery-based share trading is not speculative under Section 43(5) and should be aggregated with derivative transactions before applying Explanation to Section 73. The Tribunal upheld this view, stating that both delivery-based share trading and derivative transactions are non-speculative, and aggregation should be done before applying the deeming fiction of Explanation to Section 73. Conclusion: The Tribunal dismissed the revenue's appeal, agreeing with the CIT(A) that: 1. Transactions in derivatives are not hit by Section 43(5). 2. The disallowance and addition of Rs. 17,98,773/- as deemed speculation loss was not justified. 3. Delivery-based share transactions do not fall under the ambit of Explanation to Section 73. Order pronounced in the court on 29.12.2011.
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