2013 (10) TMI 648 - AT - Income Tax

Partial win for assessee: Set off brought forward loss against speculative business profit clarified

The Tribunal allowed the assessee's appeal partially, permitting the set off of brought forward business loss against the current year's profit to the ... Claim of Set off of the brought forward business loss – Whether Loss of Speculative Business Losses could be set off against the Income from Non-speculative Business – Held that:- The law in the matter is clear, and the loss of a speculative business, whether brought forward or for the current year, could not be set off against the non-speculative business income for the current year - The speculative transactions carried out by the assessee constitute a business in itself, and toward which we may refer to Explanation 2 to section 28 of the Act - it is only the loss as assessed that can be claimed for being brought forward and set off - It is only the business loss/es as returned and admitted for the earlier years that would qualify for being brought forward and, set off against the current year's income. The A.O. is directed to examine the assessee's claim for a part of the business income for the current year as arising out of its speculation business - subject to the necessary verification and findings by the assessing authority, we direct a set off in terms of section 73 r/w s. 80 of the Act - The onus to prove its claim would be on the assessee – Decided Partly in favour of Assessee. Issues:- Maintainability of claim of set off of brought forward business loss against current year's profit.Analysis:The appeal before the Appellate Tribunal ITAT Mumbai revolves around the issue of the maintainability of the claim of set off of brought forward business loss against the current year's profit. The assessee, involved in trading shares and securities, sought to set off the brought forward business loss from earlier years against the business and speculation profit for the current year. However, the Assessing Officer (A.O.) denied this claim, stating that the speculative business loss cannot be set off against non-speculative business income for the current year, citing Section 73 of the Income Tax Act, 1961. The A.O. disallowed the entire claim for set off, leading to the appeal.In the previous round before the Tribunal, the matter was remitted back to the A.O. for a fresh decision after providing a reasonable opportunity of hearing to the assessee. The A.O., in the subsequent proceedings, declined to admit the claim of brought forward loss as non-speculative business loss, leading to the confirmation of disallowance in appeal by the CIT(A). The Tribunal noted that only the loss as assessed can be claimed for being brought forward and set off, emphasizing that speculative business loss cannot be adjusted against non-speculative business income.However, the Tribunal directed the A.O. to examine the assessee's claim for a part of the business income for the current year arising from speculative business. If the business profit for the current year is indeed from speculative business, the set off of brought forward business loss (speculative) would be valid to that extent. The Tribunal highlighted that the burden of proof lies on the assessee to substantiate the claim. Consequently, the Tribunal partly allowed the assessee's appeal, granting the set off in accordance with Section 73 read with Section 80 of the Act.In conclusion, the Tribunal's judgment clarifies the distinction between speculative and non-speculative business income for the purpose of set off of brought forward business loss against the current year's profit. The decision underscores the importance of adhering to the provisions of the Income Tax Act and the burden of proof on the assessee to support their claims in such matters.