2011 (1) TMI 1519 - AT - Income Tax

Summary

Issues Involved:
The judgment involves the treatment of F&O losses as speculative or business losses u/s 43(5) of the Income Tax Act, and the levy of interest u/s 234B of the Act.

Treatment of F&O Losses:
The Assessee's appeal contested the treatment of F&O losses as speculative losses by the AO and CIT(A). The AO considered the F&O loss of Rs. 3,58,04,606/- before 25/1/06 as speculation loss based on a CBDT notification. The CIT(A) upheld this decision, citing the insertion of clause (d) to the proviso of section 43(5) by the Finance Act, 2005. The CIT(A) clarified that losses incurred in trading of derivatives prior to 25-01-2006 were speculative losses and not business losses. The appeal was dismissed based on these grounds.

Levy of Interest u/s 234B:
The AO charged interest u/s 234B of the Act, which was confirmed by the CIT(A) as mandatory. The interest amount was quantified in the notice of demand accompanying the assessment order. The Assessee challenged this decision in the appeal.

Appellate Tribunal Decision:
The ITAT, Kolkata, after hearing both parties, referred to a similar case decided by the ITAT, Mumbai Bench, where derivative transactions were treated as covered by the exclusion clause in Section 43(5)(d). The ITAT found the facts of the present case akin to the Mumbai Bench decision and set aside the orders of the revenue authorities. The ITAT directed the AO to treat the loss as speculative loss and re-compute the interest under section 234B of the Act accordingly. Consequently, the appeal of the Assessee was allowed on 07/01/2011.