2019 (6) TMI 1392 - AT - Income Tax

ITAT rules on business losses from Future & Options, equity shares for AY 2013-14

The ITAT partially allowed the assessee's appeal for the assessment year 2013-14. It ruled in favor of the assessee regarding the treatment of business ... Loss from Future & Option and equity share trading loss - Business loss OR speculation loss - HELD THAT:- Identical issue arose before the Hon'ble Calcutta High Court in the case of Asian Financial Services [2016 (3) TMI 685 - CALCUTTA HIGH COURT] relied upon. Once it is deemed to be a normal business loss on the basis of proviso appended to Section 43(5) of the Act, a question of applying Section 73 of the Act or the Explanation thereto for the purposes of refusing loss to be set off against business income is wholly incorrect. The Hon'ble Calcutta High Court after taking note of the decision of Hon'ble Delhi High Court in DLF Commercial (2013 (7) TMI 334 - DELHI HIGH COURT) took a distinct stand that derivatives cannot be treated at par with shares for the purposes of Explanation to Section 73 because the legislature has treated it differently. Thus, in view of the aforesaid position enunciated by the Hon'ble High Court in Asian Financial Services (supra), we find good deal of force in the case of assessee. Disallowance of expenses u/s.14A r.w. Rule 8D - HELD THAT:- Assessee has earned dividend income claimed as exempt u/s. 10(34) of the act. Since the assessee has not substantiated with any relevant material that not any expenditure has been incurred towards earning of the aforesaid dividend income, therefore, disallowance u/s. 14A by the assessing officer is justified. Accordingly, we do not find any error in the decision of the CIT(A) on this issue. Therefore, this ground of appeal of the assessee is dismissed. Issues:1. Treatment of business loss from Future & Options and equity shares as speculation loss under section 73 of the Income Tax Act, 1961.2. Disallowance of expenditure under section 14A.Issue 1: Treatment of Business Loss as Speculation Loss:The case involved the appeal of an assessee for the assessment year 2013-14 concerning the treatment of business losses from Future & Options (F & O) and equity shares as speculation losses under section 73 of the Income Tax Act, 1961. The assessing officer disallowed the losses as speculation losses, citing the explanation to section 73. The assessee argued that transactions in derivatives carried out on a recognized stock exchange were not speculative as per the provisions of section 43(5)(d) and should not be treated as such. The Co-ordinate Bench of the ITAT had previously ruled in favor of the assessee in a similar case for the assessment year 2012-13. The ITAT upheld the assessee's contention, stating that losses from derivative transactions, falling under Proviso (d) to Section 43(5) and not involving purchase or sale of shares, should not be considered speculative losses under section 73. Therefore, the appeal of the assessee was allowed on this ground.Issue 2: Disallowance of Expenditure under Section 14A:The second issue pertained to the disallowance of expenses under section 14A by the assessing officer. The assessee had earned dividend income claimed as exempt under section 10 of the act. The assessing officer, upon finding that the assessee had earned exempt income, computed a disallowance of expenses under section 14A amounting to Rs. 1,62,753. The assessee contended that no expenditure was incurred towards earning the dividend income. However, the ITAT noted that the assessee failed to provide relevant material to substantiate this claim. Therefore, the disallowance of expenses under section 14A by the assessing officer was deemed justified, and the decision of the CIT(A) dismissing the appeal on this issue was upheld. Consequently, this ground of appeal by the assessee was dismissed.In conclusion, the ITAT allowed the appeal of the assessee partly, ruling in favor of the assessee regarding the treatment of business losses as speculation losses but upholding the disallowance of expenses under section 14A. The order was pronounced in the open court on 26-06-2019.