2018 (8) TMI 1260 - AT - Income Tax

Speculative loss or not - loss incurred by the assessee on Future & Option Transactions - Held that - In the given circumstances justice needs to be given in favour of the assessee and we therefore respectfully following the judgment of Hon ble High Court of Calcutta in the case of CIT V/s Asian Financial Services Ltd (2016 (3) TMI 685 - CALCUTTA HIGH COURT) as well as the decision of Coordinate Bench of Delhi in the case of Sucon India Ltd V/s ACIT (2017 (2) TMI 723 - ITAT DELHI) are of the considered view that the loss incurred by the assessee on account of future and option transactions entered during the year cannot be termed as speculation loss in view of the explanation to section 73 of the Act. We further held that the impugned loss falls under the proviso (d) to section 43(5) of the Act and therefore cannot be treated as speculative loss and as such the assessee is eligible to set off the impugned loss from future and option transactions against other business income earned by the assessee during the year. Decided in favorof assessee.

Summary

Issues Involved:
1. Treatment of loss incurred on Future & Option (F&O) transactions.
2. Applicability of interest charges under sections 234B and 234C of the Income Tax Act.
3. Consideration of judicial precedents and relevant case laws.

Detailed Analysis:

1. Treatment of Loss Incurred on Future & Option (F&O) Transactions:
The primary issue revolves around whether the loss of ?96,67,872 incurred by the assessee on F&O transactions should be treated as a speculative loss or a normal business loss. The assessee argued that, as per section 43(5)(d) of the Income Tax Act, such transactions should be considered normal business losses. The Tribunal initially treated this loss as speculative, relying on the Delhi High Court's judgment in CIT Vs. DLF Commercial Dev. Ltd, which stated that transactions of F&O based on stocks and shares fall under the explanation to section 73 of the Act, thereby categorizing the loss as speculative.

However, the assessee contended that the Tribunal overlooked the Calcutta High Court's decision in Asian Financial Services Ltd., which held that losses from trading derivatives in recognized stock exchanges should not be treated as speculative. The Tribunal acknowledged the mistake and recalled its previous order, agreeing that the Calcutta High Court's judgment, which was favorable to the assessee, should have been considered. Consequently, the Tribunal concluded that the F&O loss should be treated as a normal business loss, eligible for set-off against other business income.

2. Applicability of Interest Charges Under Sections 234B and 234C of the Income Tax Act:
The assessee also contested the excessive charging of interest under sections 234B and 234C of the Act. The Tribunal did not provide a separate detailed discussion on this issue in the recalled order, focusing instead on the primary issue of the nature of the F&O loss. However, the implication is that if the primary issue is resolved in favor of the assessee, the interest charges would need to be recalculated accordingly.

3. Consideration of Judicial Precedents and Relevant Case Laws:
The Tribunal initially relied on the Delhi High Court's judgment in CIT Vs. DLF Commercial Dev. Ltd, which treated F&O losses as speculative. The assessee pointed out that this decision was contrary to the Calcutta High Court's ruling in Asian Financial Services Ltd., which should have been considered. The Tribunal agreed that an apparent mistake occurred by not considering the favorable judgments for the assessee. The Tribunal also referred to the Supreme Court's ruling in Vegetable Product Ltd., which states that in cases of conflicting judgments, the view favorable to the assessee should be adopted.

In light of these considerations, the Tribunal recalled its earlier findings and decided in favor of the assessee, treating the F&O loss as a normal business loss and allowing it to be set off against other business income. The Tribunal's revised decision aligns with the Calcutta High Court's judgment and the principle of favoring the assessee in case of conflicting judicial precedents.

Conclusion:
The Tribunal allowed the miscellaneous application of the assessee, rectifying the earlier order and treating the F&O loss as a normal business loss eligible for set-off against other business income. The order was pronounced in the open court on 21.8.2018.