ITAT allows set off of losses from earlier years against current year profits on derivative transactions

The ITAT allowed the assessee's appeal against the CIT(A)'s decision, permitting the set off of losses from earlier years against profits earned on derivative transactions in the current year. The ITAT held that the assessee engaged in similar derivative transactions consistently, and as the profit was from the same business activity, the losses could be set off. Relying on precedent, the ITAT concluded that the assessee was entitled to set off the carried forward losses from dealing in derivatives. The appeal was allowed in favor of the assessee on 02/12/2014.

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Issues:
Claim of set off of loss of earlier years against profit earned on derivative transactions of the current year.

Analysis:
The appeal was filed by the assessee against the order of CIT(A) for the Assessment Year 2008-09, regarding the claim of set off of loss of earlier years against the profit earned on derivative transactions of the current year. The AO declined the claim stating that carry forward loss from speculation business cannot be set off against business income in the current year. The CIT(A) upheld the AO's decision, leading to the appeal before ITAT.

The assessee had entered into derivative transactions in the form of Futures and Options and incurred speculative losses since A.Y.2004-2005. The total losses incurred in the preceding assessment years amounted to Rs. 50,64,262. However, during the A.Y.2008-2009, the assessee earned a profit of Rs. 57,45,716 from similar derivative transactions. The assessee claimed set off of the brought forward losses against the current year's profit, which was denied by the AO, stating no provision in the Act allowed such adjustment.

ITAT found that the assessee had engaged in similar derivative transactions in the current year as well. The nature of the income, i.e., losses and gains from Futures and Options, remained consistent across the years. The AO failed to prove that the profit earned in the current year was not from derivative transactions. Therefore, the assessee was entitled to set off the losses from earlier years against the profit from the same business activity in the current year.

Referring to a previous Mumbai ITAT decision, it was established that losses incurred in derivative transactions up to a certain year could be set off against income from derivative transactions in subsequent years. Following this precedent, ITAT concluded that the assessee should be allowed to set off the carried forward losses from dealing in derivatives against the profit from the same business in the current assessment year.

In light of the above analysis and legal precedents, ITAT found no merit in the lower authorities' decision to deny the set off of losses from earlier years against the profit of the current year. Consequently, the appeal of the assessee was allowed, and the order was pronounced in favor of the assessee on 02/12/2014.

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