2019 (7) TMI 696 - HC - Income Tax

Allowability of loss of trading in derivatives - AO alleged that assessee had failed to furnish the necessary evidence to justify that the loss represented the trading activities in the derivatives and covered u/s 43(5)(d) - speculative loss OR business loss - In appellate proceedings assessee furnished all evidences - CIT(A) held that F O transactions were carried out electronically on a screen based system through a registered stock broker namely JM Financial Services Pvt Ltd which is registered with the NSE and transactions are supported by time stamped contract notes and bills and invoices issued by the NSE hence appellant was covered u/s 43(5)(d) - Tribunal upheld the order HELD THAT - There is a concurrent finding recorded by the two Revenue authorities as regards the loss sustained by the assessee fulfilling all the conditions, as specified under Section 43(5)(d). Essentially, this appeal is more on facts rather than on any substantial question of law. In view of concurrent finding of fact recorded by the two Revenue authorities, we would not like to disturb the same. - appeal fails and is hereby dismissed.

Summary

Issues involved:
1. Interpretation of Section 43(5)(d) of the Income Tax Act, 1961 regarding treatment of derivative trading losses.
2. Whether the losses claimed in derivative transactions fulfill the conditions specified under Section 43(5)(d) of the Act.
3. Assessment of the nature of the losses incurred in derivative trading as speculative or non-speculative.

Analysis:

Issue 1: Interpretation of Section 43(5)(d) of the Income Tax Act, 1961
The case involved a Tax Appeal under Section 260A of the Income Tax Act, 1961, where the Revenue challenged the deletion of disallowance of a significant amount made on account of Futures and Options (F&O) Loss. The Assessing Officer treated the loss as speculative in nature under Section 43(5)(d) of the Act due to the lack of supporting evidence. However, the CIT (Appeals) reversed this decision by considering the provisions of Section 43(5)(d) and the evidence presented by the assessee. The Tribunal also affirmed this decision, emphasizing the conditions specified under Section 43(5)(d) that need to be fulfilled for derivative transactions not to be deemed speculative.

Issue 2: Fulfillment of conditions under Section 43(5)(d)
The CIT (Appeals) and the Tribunal both found that the assessee had provided all necessary evidence to establish that the losses claimed in derivative transactions fulfilled the conditions specified under Section 43(5)(d) of the Act. The evidence included details such as electronic transactions on a screen-based system, transactions through a registered stockbroker, time-stamped contract notes, and transactions carried out on a recognized stock exchange. This evidence led to the conclusion that the losses were not speculative in nature as per the provisions of the Act.

Issue 3: Assessment of speculative nature of losses
The Revenue authorities initially treated the losses incurred in derivative trading as speculative due to insufficient evidence. However, the CIT (Appeals) and the Tribunal both overturned this decision after considering the evidence provided by the assessee, which demonstrated that the transactions met the criteria outlined in Section 43(5)(d) of the Act. The Tribunal specifically highlighted that the losses were non-speculative as they fulfilled the conditions specified under the relevant section, leading to a concurrent finding by both authorities that the losses were not speculative in nature.

In conclusion, the judgment focused on the interpretation and application of Section 43(5)(d) of the Income Tax Act, 1961 regarding the treatment of losses incurred in derivative transactions. The decision emphasized the importance of fulfilling the specified conditions to determine whether such losses are speculative or non-speculative, ultimately leading to the dismissal of the Revenue's appeal based on the concurrent findings of fact by the Revenue authorities.