2014 (1) TMI 943 - AT - Income Tax

Deletion made on account of set off made - Loss on Future and Option set off against the normal business Held that - There was a credit balance in one account and debit balance in another account - Simply because the broker has not carried out any adjustment entry during the year under consideration and he said adjustment entry during the year under consideration and he said adjustment entry was passed on the next day of the close of the year i.e. 1.4.2008, solely on this basis the F&O transactions of the appellant, which were duly routed through the recognize stock exchange, cannot be held as speculative transaction - as per the amended provisions of section 43(5), the transactions cannot be treated as speculative transactions and loss of such transactions cannot be held as notional loss with effect from 1.4.2006 Relying upon The Commissioner of Income-tax, Central-IV Versus Shri Bharat R. Ruia (HUF) 2011 (4) TMI 37 - BOMBAY HIGH COURT . The assessee has stated that there was net amount to be received by the assessee from the broker and therefore there was no need by the assessee to make the payment as on 31.3.2008 on account of loss in F&O segment - the assessee also filed details of loss incurred in derivatives before the AO the order of the CIT(A) upheld simply because the broker had not carried any adjustment entered during the year under consideration and the said adjustment entry was passed on the next day of close of the year i.e. 1.4.2008 could not be a ground to hold that it was a notional loss the CIT(A) has rightly held that the said F&O transactions were actually settled by the assessee and the loss incurred was actual - the AO is directed to treat the loss as business loss which is liable to be set off against the business income of the assessee Decided against Revenue.

Summary

Issues:
1. Whether the ld. CIT(A) erred in deleting the addition of Rs.49,66,586/- made by the AO regarding the set off of loss on Future and Option (F & O) transactions as notional loss?

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai for the assessment year 2008-09 involved the issue of whether the ld. CIT(A) erred in deleting the addition of Rs.49,66,586/- made by the AO concerning the set off of loss on Future and Option (F & O) transactions. The AO had treated the loss as notional, disallowing it to be set off against the normal business income of the assessee. The AO relied on CBDT instruction No.3/2010, stating that notional losses cannot be set off against taxable income. The assessee contended that the loss was actual, supported by evidence of transactions through a recognized broker. The ld. CIT(A) directed the AO to treat the loss as business loss eligible for set off against business income, emphasizing the actual settlement of transactions and the lack of speculative nature. The Tribunal upheld the ld. CIT(A)'s decision, noting the genuine nature of transactions and the settlement of F & O losses, rejecting the department's appeal.

The assessee argued that all F & O transactions were conducted through a recognized broker, with evidence of complete payment for losses incurred. The AO's reliance on CBDT instruction No.3/2010 was deemed irrelevant as it pertained to foreign exchange derivatives, not applicable to the case at hand. The ld. CIT(A) found merit in the assessee's submissions, emphasizing the actual settlement of transactions and the absence of speculative nature post-amended provisions. The Tribunal concurred, highlighting the separate accounts maintained by the broker for share and F & O transactions, supporting the genuineness of the transactions and the settlement of losses. The Tribunal upheld the ld. CIT(A)'s decision to treat the loss as business loss eligible for set off against business income, dismissing the department's appeal.

The department contended that the loss on F & O transactions should be treated as notional due to incomplete settlement of certain transactions at year-end. However, the assessee provided evidence of actual settlement through the broker, with details of transactions and payments made. The ld. CIT(A) and the Tribunal found the department's arguments unsubstantiated, emphasizing the actual settlement of transactions and the lack of speculative nature. The Tribunal upheld the ld. CIT(A)'s decision, directing the AO to treat the loss as business loss liable for set off against business income, ultimately dismissing the department's appeal.