2015 (12) TMI 513 - AT - Income Tax

Disallowance of set off being loss on account of trading in Futures and Options/derivatives against other income - Held that - The assessee although had incurred loss of ₹ 3,93,08,929/- in trading of derivatives, but it had dividend income of ₹ 14,64,859/- and interest income under the head income from other sources amounting to ₹ 39,236/-. Therefore, the only positive income of the assessee was under the head income from other sources . We, therefore, by considering the totality of the facts as discussed hereinabove are of the view that the assessee s case falls within the purview of exception carved out in the explanation to Section 73 of the Act and consequently the assessee shall not be deemed to be doing the speculative business for the purpose of Section 73(1) of the Act. As in the present case, the assessee was having the interest income as well as income from dividend, the set off being loss on account of trading in Futures and Options/derivatives against other income should be allowed - Decided in favour of assessee.

Issues Involved:
1. Validity of order under Section 153A.
2. Violation of statutory conditions under Section 153A/143(3).
3. Confirmation of additions without incriminating material.
4. Denial of proper opportunity of being heard.
5. Non-allowance of set off for loss on trading in Futures and Options/derivatives.
6. Disallowance under Section 14A read with Rule 8D.

Detailed Analysis:

1. Validity of Order under Section 153A:
The assessee challenged the validity of the order passed under Section 153A, arguing that the search itself was unlawful and invalid. However, this ground was not pressed during the appeal, and thus, it was dismissed as not pressed.

2. Violation of Statutory Conditions under Section 153A/143(3):
The assessee contended that the proceedings initiated and the assessment framed under Section 153A/143(3) violated statutory conditions and procedures prescribed by law. This ground was also not pressed and hence dismissed as not pressed.

3. Confirmation of Additions without Incriminating Material:
The assessee argued that the additions were confirmed despite the absence of any incriminating material found during the search. This ground was not pressed and was dismissed as not pressed.

4. Denial of Proper Opportunity of Being Heard:
The assessee claimed that the CIT(A) passed the order without giving a proper and adequate opportunity of being heard. This ground was not pressed and was dismissed as not pressed.

5. Non-Allowance of Set Off for Loss on Trading in Futures and Options/Derivatives:
The primary issue contested was the non-allowance of the set off of Rs. 3,93,08,929/- loss on account of trading in Futures and Options/derivatives against other income. The AO disallowed the loss, treating it as speculative under Sections 43(5) and 73 of the Act. The assessee argued that the loss should be considered business loss as per proviso (c) to Section 43(5), which excludes certain transactions from being deemed speculative.

The CIT(A) upheld the AO's view, stating that the assessee's income mainly consisted of interest, dividend, and share trading, making the explanation to Section 73 applicable, thus treating the loss as speculative.

The Tribunal, however, found merit in the assessee's argument. It noted that the assessee had positive income only from dividends and interest, which fell under "income from other sources." Referring to the Bombay High Court's judgment in CIT Vs HSBC Securities & Capital Markets India Pvt. Ltd., the Tribunal held that the assessee's case fell within the exception carved out in the explanation to Section 73, thus not deeming the business as speculative.

6. Disallowance under Section 14A read with Rule 8D:
The assessee challenged the disallowance of Rs. 14,64,859/- under Section 14A read with Rule 8D, arguing that Rule 8D was not applicable for the year under consideration. This ground was not pressed and was dismissed as not pressed.

Conclusion:
The Tribunal allowed the appeal partly, specifically on the issue of non-allowance of set off for the loss on trading in Futures and Options/derivatives, holding that the assessee's case fell within the exception in the explanation to Section 73, thus not treating the business as speculative. Other grounds were dismissed as not pressed.

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