2018 (6) TMI 1035 - AT - Income Tax

Treatment of future & options trading s derivative losses of assessee Company as speculation loss under section 73 - nature of loss - conflicting views - diversified decisions - Held that -Even when the decision of Hon ble non-jurisdictional High Courts are in conflict with each other, the only objective criteria which followed by us is to take a view favorable to the assessee. Hon ble Calcutta High Court s decision in the case of Asian Financial Services Ltd to be followed 2016 (3) TMI 685 - CALCUTTA HIGH COURT wherein decided that the loss incurred on account of derivatives would be deemed business loss under proviso to section 43(5) and not speculation loss and, accordingly Explanation to section 73 could not be applied - the loss (on account of sale of derivatives) would be allowed to be set off against income arising out of proper business because derivatives were treated differently within meaning of Explanation to section 73(4) and not at par with the shares - Decided in favour of assessee

Summary

Issues:
Challenge to deletion of addition on account of treatment of future & options trading derivative losses as speculation loss under section 73 of the Income Tax Act, 1961 for assessment year 2011-12.

Detailed Analysis:

Issue 1:
The Assessing Officer challenged the deletion of an addition made on account of treating future & options trading derivative losses as speculation loss under section 73 of the Act for the assessment year 2011-12.

Analysis:
The ITAT Ahmedabad noted that the issue was covered in favor of the assessee by a judgment of the Hon’ble Calcutta High Court in the case of Asian Financial Services Ltd. vs. CIT. The High Court held that losses incurred on derivatives should be deemed as business loss under proviso to section 43(5) and not speculation loss. As there was no contrary decision from any jurisdictional High Court, the foundation of the Assessing Officer's grievance was found to be legally unsustainable.

Issue 2:
Conflict between the views of Hon’ble Calcutta High Court and Hon’ble Delhi High Court on the treatment of losses on derivatives.

Analysis:
While the Calcutta High Court held in favor of the assessee, the Delhi High Court had a different view on the matter. The ITAT Ahmedabad acknowledged the conflicting legal views but emphasized that the mere pendency of an appeal in a higher judicial forum does not dilute the binding nature of a judicial precedent. Since no request was made by revenue authorities to keep the matter pending, the ITAT had to decide on the conflicting views.

Issue 3:
Guidance on resolving conflicting decisions of High Courts in absence of jurisdictional High Court rulings.

Analysis:
The ITAT referred to a decision by a co-ordinate bench in a different case to resolve conflicting decisions of High Courts. It highlighted the principle that when there are conflicting views, the objective criterion should be to favor the assessee. Therefore, in the absence of jurisdictional High Court rulings, the decision of the Calcutta High Court in the Asian Financial Services Ltd. case was followed, leading to the dismissal of the Revenue's appeal.

In conclusion, the ITAT upheld the decision of the CIT(A) to delete the addition on account of treating future & options trading derivative losses as speculation loss, based on the judgment of the Calcutta High Court. The appeal filed by the Revenue was dismissed, and the decision was pronounced on June 18, 2018.