2016 (10) TMI 842 - AT - Income Tax

Loss from trading in commodities - whether is a speculative transaction within the meaning of Explanation (2) to Section 28 r.w.s. 43(5)(d)? - Held that - As seen from the transactions and from the provisions of the Act, we are of the opinion that the transactions involved are certainly speculative in nature as per the mandate of Section 43(5). Since nothing was brought on record that the said transactions do not come within the exceptions provided in the section, even though, the same are business transactions, they have to be considered as a separate speculative business and the loss so arrived at is to be considered as speculative loss. However, we are unable to appreciate the order of the CIT(A) in directing the AO to treat the profit from business of income again as total income when AO himself has treated an amount of ₹ 18,16,952/- as speculative loss. Even the AO in our opinion has wrongly considered the amount. The gain on trading in stock futures is also from the speculative transactions. Therefore, the net loss of ₹ 13,57,130/- only can be considered as loss from the speculative transactions. Therefore, we modify the orders of the AO and CIT(A) to the extent of computation of loss. AO is directed to treat only an amount of ₹ 13,57,130/- as speculative loss and the balance loss claimed by assessee should be treated as business loss. AO is directed to modify the orders accordingly.

Summary

Issues:
1. Whether the loss incurred by the assessee from commodity and share trading activity should be treated as business loss or speculation loss.
2. Whether the CIT Appeals had the authority to make additional additions without proper notice or opportunity to the assessee.
3. Whether the rejection of the appeal by CIT without a speaking order was justified.

Analysis:
1. The Assessing Officer (AO) invoked Section 43(5) to classify the transactions resulting in loss from trading in commodities as speculative transactions. The AO held that the business of the assessee in these transactions should be considered speculative in nature. The Commissioner of Income Tax (Appeals) upheld the AO's decision, stating that the commodities like gold and silver are not securities within the meaning of the relevant provisions, thus disallowing the speculative loss claimed by the assessee. The ITAT Hyderabad, after examining the ledger account copies and considering the provisions of Section 43(5), concluded that the transactions were speculative in nature. However, the ITAT modified the orders of the AO and CIT(A) to treat only a specific amount as speculative loss and the remaining loss as business loss.

2. The CIT Appeals made additional additions over and above those made by the AO without providing proper notice or opportunity to the assessee. The ITAT Hyderabad did not find this action to be legal, as proper procedures were not followed in making these additional additions.

3. The rejection of the appeal by CIT without a speaking order was a point of contention raised by the assessee. The ITAT Hyderabad did not delve into this issue in detail in its judgment, as the focus was primarily on the classification of the loss as speculative or business loss and the related computations.

In conclusion, the ITAT Hyderabad partially allowed the assessee's appeal by modifying the orders of the AO and CIT(A) regarding the classification of loss from trading in commodities. The judgment emphasized the importance of correctly categorizing transactions as speculative or business-related to determine the appropriate treatment of losses.