Brief of the case:
The ITAT bench of Mumbai in the above cited case held that simultaneous trading of shares in cash segment and arbitrage in derivative segment by assessee company cannot be splitted into speculative and non-speculative transactions . So, as soon as it is found that assessee is trading in shares , the entire trading activity to be treated as speculative business as per explanation to Sec 73 which clearly state that if any part of assessee’s business is trading in shares then the same trading to be treated as speculative business.
Facts of the case:
- The assessee company was engaged in the business of stock Broking, borrowing moneys, depository participants and investment in shares and securities. The assessee was dealing both in was dealing in capital segments as well as derivative segment. In Capital market segment, assessee made trading of equity shares whereas in derivative segment, future and options.
- It was noted by the AO that a future contract does not result in actual delivery. The AO invoked explanation to section 73 of the Act and queried that why loss in share trading should not be treated as speculative loss.
- AO did not accept the assessee’s reply that loss is covered u/s 43(5) and accordingly treated the same as speculative business loss as per explanation to Sec 73 and disallowed Rs 56,94,166.
- The CIT(A) held that derivative transactions were covered by 43(5)(d) and therefore, could not be held as speculative transactions. On the other hand, share trading done in the cash market is hit by explanation to section 73, and therefore, any loss/profit arising there from shall be deemed to be speculative, and could only be set off only against speculative business income of subsequent years.
- Aggrieved assessee is in appeal before ITAT Mumbai.
Contention of the Assessee:
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