2016 (12) TMI 1482 - AT - Income Tax

Treating the trading loss as a speculation loss - Held that - If the transactions of the assessee are considered in the light of the definition of speculation transaction given hereinabove, in our considered opinion, the transactions of the assessee cannot be considered to be speculative transactions. The assessee has purchased and sold the shares during the day itself which may, at the most, be considered as trading in shares. Any loss arising out of this cannot be considered as a speculation loss. We, therefore, do not find any error in setting off of loss with the profits by the assessee. The revenue authorities have grossly erred in treating the trading loss as a speculation loss. Without prejudice to our aforementioned findings and for the sake of the completeness of adjudication on the facts in hand, provisions of Section 73 as mentioned hereinabove do not apply at all. Since the assessee has not set off the alleged speculation loss from the business profit but in fact has set off business loss from the alleged speculation profit. The transactions of the assessee do not fit into the definition of speculation transaction given u/s. 43(5) of the Act (supra). We find the order of the First Appellate Authority erroneous and are accordingly set aside. The A.O. is directed to allow the set off of losses as claimed by the assessee. - Decided in favour of assessee

Issues:
1. Determination of speculative loss and treatment of ordinary business loss
2. Disallowance of loss and invoking provisions of section 73
3. Consideration of submissions made before passing the final order
4. Justification of levy of interest u/s 234A, 234B & 234C

Issue 1: Determination of speculative loss and treatment of ordinary business loss:
The appeal was against the order of Ld. CIT(A)-XVI for A.Y. 2007-08. The Assessee claimed that the speculative loss was determined incorrectly, and the ordinary business loss should have been allowed for set off. The Assessee argued that the profit earned from speculative transactions should offset the loss from delivery-based transactions. The A.O. dismissed the claim, stating that the profit shown by the Assessee was not accurate. However, the ITAT found that the transactions did not fit the definition of speculative transactions under section 43(5) of the Act. Therefore, the ITAT allowed the appeal, directing the A.O. to allow the set off of losses as claimed by the Assessee.

Issue 2: Disallowance of loss and invoking provisions of section 73:
The A.O. disallowed the alleged speculative loss incurred by the Assessee, leading to the Assessee approaching the ld. CIT(A) without success. The A.O. invoked section 73, but the ITAT found that the transactions were not speculative as per the definition provided in the Act. The ITAT held that the revenue authorities erred in treating the trading loss as a speculation loss, and the provisions of section 73 did not apply. The ITAT set aside the order of the First Appellate Authority and directed the A.O. to allow the set off of losses claimed by the Assessee.

Issue 3: Consideration of submissions made before passing the final order:
The Assessee had submitted detailed explanations and documents to support their claim that the transactions were not speculative. The ITAT carefully considered the submissions made before the lower authorities and found merit in the Assessee's arguments. The ITAT concluded that the revenue authorities had made errors in treating the trading loss as speculation loss, and the set off of losses claimed by the Assessee should be allowed.

Issue 4: Justification of levy of interest u/s 234A, 234B & 234C:
The Assessee contested the levy of interest under sections 234A, 234B, and 234C, claiming that it was not justified. However, the judgment did not provide detailed analysis or resolution regarding this specific issue.

In summary, the ITAT allowed the Assessee's appeal, finding that the transactions were not speculative as per the legal definition, and directed the A.O. to allow the set off of losses claimed by the Assessee. The judgment emphasized the importance of correctly interpreting the provisions of the Act and considering the nature of transactions before determining the tax implications.

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