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2017 (2) TMI 723 - AT - Income TaxDenial of claim of set off of loss from shares and derivatives - whether loss from the purchase and sale of shares can be set of against the business income in terms of section 73? - Held that - Loss incurred on derivative transaction was not a speculative loss and is allowed to be adjusted against business income. See Asian Financial Services Ltd. Vs. Commissioner of Income Tax-3, Kolkata 2016 (3) TMI 685 - CALCUTTA HIGH COURT Whether the loss from the activity of trading in shares, i.e., purchase and sale of shares is a speculation loss in terms of explanation to section 73(4) ? - Held that - Respectfully following the decision of the Tribunal in the case of SRJ Securities Ltd. (2003 (1) TMI 260 - ITAT DELHI-B ), we hold that the activity of purchase and sale of shares carried out with assessee for the purpose of section 73 of the Act is a speculation business activity and, accordingly, the loss of ₹ 10,10,75,192/- suffered from the activity of purchase and sale of shares cannot be allowed to set off against the business income.
Issues Involved:
1. Denial of set-off of loss from trading in derivatives. 2. Denial of set-off of loss from trading in shares. 3. Denial of set-off of loss from intraday trading in shares. Issue-wise Detailed Analysis: 1. Denial of Set-off of Loss from Trading in Derivatives: The primary issue was whether the loss from derivative transactions amounting to ?17,27,16,630/- could be set off against business income. The assessee argued that derivative transactions were non-speculative as per Section 43(5) of the Income Tax Act. However, the Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) (CIT(A)) held that the explanation to Section 73 applied, deeming the loss from derivative transactions as speculative and thus not eligible for set-off against business income. The Tribunal noted conflicting judgments from different High Courts on this issue. The Delhi High Court in the case of CIT vs. DLF Commercial Developers Ltd. held that derivatives based on stocks and shares fall within the explanation to Section 73 and thus are speculative. Conversely, the Calcutta High Court in Asian Financial Services Ltd. vs. Commissioner of Income Tax held that derivatives should not be treated as speculative for the purposes of Section 73. The Tribunal, following the Supreme Court's principle in Vegetable Product Ltd. that in cases of conflicting judgments, the decision favorable to the assessee should be followed, ruled in favor of the assessee. Thus, the loss from derivative transactions was allowed to be set off against business income. 2. Denial of Set-off of Loss from Trading in Shares: The second issue was whether the loss of ?10,10,75,192/- from the purchase and sale of shares could be set off against business income. The AO and CIT(A) treated this loss as speculative under the explanation to Section 73, which deems the business of purchase and sale of shares by a company as speculative unless the company falls under specific exclusions. The Tribunal upheld this view, referencing the clear statutory language and previous Tribunal decisions, such as SRJ Securities Ltd., which held that losses from share trading by a company are speculative and cannot be set off against business income. The Tribunal rejected the assessee's reliance on CBDT Circular No. 204 and the decision in Aman Portfolio Private Limited, emphasizing that the statutory provisions take precedence over circulars. 3. Denial of Set-off of Loss from Intraday Trading in Shares: The assessee did not press for the set-off of the intraday trading loss amounting to ?25,38,407/-. Consequently, this issue was not contested further and was not allowed for set-off against business income. Conclusion: The Tribunal partly allowed the appeal. It ruled in favor of the assessee regarding the set-off of losses from derivative transactions, aligning with the Calcutta High Court's judgment. However, it upheld the denial of set-off for losses from the purchase and sale of shares, consistent with the statutory provisions and previous Tribunal decisions. The intraday trading loss was not contested and thus not allowed for set-off. The decision was pronounced on 18th January 2017.
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