DCIT Vs JM Financial Services Ltd. (ITAT Mumbai)
In the case of DCIT v. JM Financial Services Ltd. (ITAT Mumbai, Third Member), the assessee, a stock broker engaged in arbitrage operations, simultaneously purchased shares in the cash segment and sold them in the Futures & Options (F&O) segment. During the relevant assessment years, the assessee incurred losses in the cash segment while earning profits in the F&O segment, resulting in an overall gain. The Assessing Officer (AO) disallowed set-off of the cash segment losses against F&O profits, treating them as speculation losses under Explanation to Section 73 of the Income Tax Act. The CIT(A), relying on earlier ITAT orders, permitted the set-off. The matter was referred to the Third Member of ITAT due to conflicting views. The Judicial Member relied on Supreme Court and High Court rulings—Snowtex Investment Ltd. v. PCIT (2019) and PCIT v. Diamond Securities (P) Ltd. (2021)—which held that cash segment losses are speculative and cannot be set off against F&O profits. The Accountant Member viewed arbitrage as a composite business, allowing set-off. Upon reference under Section 255(4), the Third Member held that F&O profits are business income under Section 43(5), while cash segment losses remain speculation losses under Section 73. Since both provisions operate independently, speculative losses cannot be adjusted against F&O business income. Consequently, the Third Member allowed the Revenue’s appeal, clarifying that set-off of cash segment losses against F&O profits is not permissible under the Income Tax Act.
