Tax Tribunal Allows Set-Off of Speculative Loss Against Business Income Retrospectively

The Tribunal held that the amendment to the Explanation to section 73 by the Finance Act (No. 2), 2014, was clarificatory and applied retrospectively from the date of insertion. Citing the Supreme Court's decision in another case, the Tribunal allowed the set off of deemed speculative loss against the business income of the assessee, considering their principal business was trading in shares. The arguments regarding the initiation of proceedings under section 263 and the principle of judicial discipline were rejected. The appeal was partly allowed, and the order was pronounced on September 26, 2018.

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Issues:
Jurisdiction under section 263 of the IT Act regarding deemed speculation loss from trading of shares and set off against business income.

Analysis:
The appeal concerned the jurisdiction exercised under section 263 of the IT Act by the Commissioner of Income Tax (CIT) directing the Assessing Officer to consider the applicability of Explanation to section 73 of the Act regarding deemed speculation loss from trading of shares. The main grievance of the assessee was the CIT's direction to disallow set off of deemed speculation loss against business income. The assessee argued that the revision proceedings were initiated based on the Assessing Officer's recommendation, which was not in accordance with section 263(1) of the Act. The assessee also contended that the assessments for previous years were accepted without change, and the revision was unjustified. Additionally, the assessee claimed that the Finance Act (No. 2), 2014 amendment to the Explanation to section 73 was curative, making the loss a normal business loss. The assessee cited relevant case laws to support their arguments.

The Department argued that the assessee's business involved trading shares, and the speculation loss could not be set off against non-speculation business income. The Assessing Officer's omission to consider the Explanation to section 73 was deemed erroneous and prejudicial to revenue. The Tribunal considered the arguments and precedents cited by both parties. It noted that the Explanation to section 73, inserted by the Finance Act (No. 2), 2014, clarified the treatment of losses from share trading by companies whose principal business is trading in shares. The Tribunal referred to a Mumbai Bench case and Supreme Court judgments to support the retrospective application of the amendment to the Explanation.

The Tribunal held that the amendment to the Explanation to section 73 by the Finance Act (No. 2), 2014, was clarificatory and applied retrospectively from the date of insertion. Citing the Supreme Court's decision in another case, the Tribunal allowed the set off of deemed speculative loss against the business income of the assessee, considering their principal business was trading in shares. The arguments regarding the initiation of proceedings under section 263 and the principle of judicial discipline were rejected. The appeal was partly allowed, and the order was pronounced on September 26, 2018.

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