2019 (11) TMI 1339 - AT - Income Tax

Speculation loss u/s 73 - loss incurred on purchase and sale of shares in respect of delivery based transactions - matter was referred to Third Member u/s 255(4) - difference of opinion between the ld. Members constituting the Division Bench of ITAT, Kolkata - HELD THAT - Hon ble Third Member has concurred with the findings of ld. Accountant Member observing that the Explanation to Section 73 does not differentiate between delivery based transactions and derivative transactions in F O segment and the same applies to the entire business of purchase and sale of shares, whether such trading is delivery based or non-delivery based, whether there is profit or loss from such business. In the present case, the assessee-company has treated the entire activity of purchase and sale of shares, which comprised of both the delivery based and non-delivery based trading as one composite business and accordingly claimed set off of the loss incurred in delivery based trading against profit derived from derivative trading - the aggregation of the share trading loss and profit form derivatives transaction should be done before application of Explanation to section 73 of the Act and since there was surplus profit on such aggregation, Explanation to section 73 would not be applicable. - Ld. Third member has agreed with the view of the Accountant Member. Appeal of the assessee is allowed.

Summary

Issues:
1. Interpretation of speculation loss in delivery based share transactions under Explanation to Section 73 of the Income Tax Act.
2. Applicability of Explanation to Section 73 to the given case.

Analysis:
Issue 1:
The Appellate Tribunal ITAT Kolkata dealt with a disagreement between the members regarding whether the loss from purchase and sale of shares in delivery based transactions constitutes speculation loss under Explanation to Section 73 of the Income Tax Act. The matter was referred to a Third Member under Section 255(4) for opinion. The Third Member, concurring with the Accountant Member, emphasized that the Explanation to Section 73 does not differentiate between delivery based and non-delivery based transactions. It was highlighted that the aggregation of share trading loss and profit from derivative transactions should precede the application of Explanation to Section 73. In this case, since there was a surplus profit upon aggregation, the Explanation to Section 73 was deemed not applicable. The Third Member's decision aligned with the Accountant Member's view, leading to the allowance of the assessee's appeal.

Issue 2:
The Tribunal also deliberated on whether the provisions of Explanation to Section 73 could be directly applied to the circumstances of the case. The Third Member's order emphasized the need to aggregate share trading loss and profit from derivatives transactions before applying the Explanation to Section 73. By following this approach, it was determined that the Explanation to Section 73 did not apply in the present case due to the existence of surplus profit post-aggregation. Consequently, the majority view led to the allowance of the assessee's appeal. The matter was directed to be placed before the regular Bench for further appropriate action in accordance with the law.

In conclusion, the Appellate Tribunal ITAT Kolkata, through a detailed analysis and interpretation of the relevant legal provisions, resolved the issues surrounding speculation loss in delivery based share transactions and the applicability of Explanation to Section 73 in the given case. The decision of the Third Member aligned with the Accountant Member's perspective, ultimately resulting in the allowance of the assessee's appeal.