Case Law Details
Magic Share Traders Ltd. Vs DCIT (ITAT Ahemdabad)
Conclusion: Since loss arising from derivative transactions were excluded from being regarded as speculative business under section 43(5)(d) as per Explanation to section 73, therefore, the loss incurred on account of derivatives was business loss and allowed to be set off against business income.
Held: Assessee company was engaged in the trading and investment in shares and securities, mutual funds and future & options. During the assessment year, assessee had carried out transactions in shares in cash segment as well as in derivative segment. AO noted that assessee had incurred losses from F&O business i.e. in derivative business and earned profits from share trading in cash segment. Thus, AO invoked the Explanation to Section 73 and held that losses arising from derivative transactions were in the nature of ‘speculative loss’ and thus not allowed to be set off against other streams of income reported in the return of income except income arising in cash segment of speculative nature. It was held Explanation to section 73 could not apply to loss arising from derivative transactions which were excluded from being regarded as speculative business under section 43(5)(d). Once it was deemed to be a normal business loss on the basis of proviso appended to Section 43(5), a question of applying Section 73 or the Explanation thereto for the purposes of refusing loss to be set off against business income was wholly incorrect. Thus, the loss incurred on account of derivatives was business loss and allowed to be set off against business income.
FULL TEXT OF THE ITAT JUDGMENT
The captioned appeal has been filed at the instance of the assessee against the order of the Commissioner of Income Tax (Appeals)-7, Ahmedabad (‘CIT(A)’ in short), dated 07.12.2015 arising in the assessment order dated 31.12.2014 passed by the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning assessment year 2012-13.
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