2024 (1) TMI 842 - AT - Income Tax

Nature of loss - commodities transactions - Addition made u/s 43(5) - speculative loss or business loss - Assessee had indulged in trading in commodities derivatives on National Sport Exchange Limited (NSEL) through his broker - nature of transaction and investment made by the future and options by entering the contract - Assessee submitted that the Assessee had suffered loss on account of NSEL Scam in commodity market. The loss was booked on account of bad debts written off by the Assessee during the relevant previous year. The debts arisen in the normal course of business - AO concluded that the Assessee had undertaken speculative and non-speculative trades but had not maintained separate accounts, thus treating the loss as speculative loss permitted to be set off against speculative profit and gains of other speculative business only in terms of Section 73 of the Act. - CIT(A) concluded that all the transactions undertaken by the Assessee were not non-speculative in nature and thereby discarded the incorrect bifurcation made by the Assessing Officer and allowed the set off of loss HELD THAT - We find no infirmity in the order passed by the CIT(A) as the CIT(A) has granted relief by following the decision of Mumbai Bench of the Tribunal in the case of Nirshilp Securities Pvt. Ltd 2021 (6) TMI 814 - ITAT MUMBAI wherein it has been held that the commodities transaction undertaken on NSEL were paired purchase sale transactions backed by the delivery of commodities as per warehouse receipt issued/retained by NSEL accredited warehouses which did not fall in the definition of speculative transaction as defined in Section 43(5) of the Act. The aforesaid decision of the Tribunal in the case of Nirshilp Securities Pvt. Ltd. has been followed in the case of Smt. Asha Devi Poddar 2022 (8) TMI 1476 - ITAT MUMBAI - Respectfully following the aforesaid decisions of the Tribunal we decline to interfere with the order passed by the CIT(A). Ground No. 1 to 3 raised by the Revenue are dismissed.

Summary

Issues involved:
The appeal challenges the order of the Ld. Commissioner of Income Tax (Appeals) regarding the treatment of speculative loss under Section 43(5) of the Income Tax Act, 1961 for the Assessment Year 2014-15.

Issue 1: Treatment of speculative loss

The Revenue contested the deletion of the addition made under Section 43(5) towards speculative loss. The Assessee engaged in trading commodities derivatives on NSEL, resulting in a claimed business loss. The Assessing Officer concluded the losses as speculative, treated them as speculative loss, and disallowed the set off against speculative profit under Section 73 of the Act. The CIT(A) allowed the appeal, considering the transactions as business loss, not speculative. The CIT(A) relied on the decision of the ITAT Mumbai in the case of DCIT vs. Nirship Securities Pvt Ltd for AY 2014-15, holding that losses from commodities transactions not delivered to the assessee shall be treated as regular business loss under Section 28 of the Act. The CIT(A) also referred to the Supreme Court judgment in TRF Limited Vs. CIT: 232 ITR 397 and CBDT circular 12/2016. The ITAT upheld the CIT(A)'s decision, stating that the transactions were not speculative as per the Mumbai Bench's precedent in Nirshilp Securities Pvt. Ltd. case. The ITAT also mentioned the decision in Smt. Asha Devi Poddar Vs. ACIT-19(1), Mumbai, following the same rationale.

Issue 2: Nature of transactions and assessment

The Assessee, a resident individual running a proprietorship firm, declared 'Nil' income and faced scrutiny for claimed business loss related to commodities derivatives trading on NSEL. The Assessing Officer considered the transactions speculative, leading to the disallowance of set off against speculative profit. The Assessee's arguments, based on CBDT circular and legal precedents, were rejected by the Assessing Officer. The CIT(A) reversed this decision, categorizing the losses as business loss, not speculative, and allowed the set off. The ITAT upheld the CIT(A)'s decision, emphasizing the non-speculative nature of the transactions as per previous tribunal decisions.

Issue 3: Legal references and judgments

The Assessee relied on Circular No. 12/2016 and various Tribunal decisions, including Chowdry Associates Vs. ACIT, Remi Securities Limited Vs. ACIT, DCIT Vs. Nirship Securities Pvt. Ltd., and others. The Assessee also cited the Supreme Court judgment in TRF Limited Vs. CIT: 232 ITR 397 to support the claim of bad debt under Section 36(1)(vii) of the Act. The CIT(A) considered these references in favor of the Assessee, leading to the decision to treat the derivative loss as business loss, not speculative. The ITAT upheld the CIT(A)'s decision, emphasizing the applicability of previous tribunal decisions and legal principles in determining the nature of the transactions.