2016 (5) TMI 585 - AT - Income Tax

Set-off F&O trading losses against income; no carry forward for late filers. Appeal partially allowed.

The Tribunal allowed the set-off of F&O derivative trading losses against short-term capital gains and other income, excluding salary income, as per ... Set-off of losses across heads of income - Non-speculative business loss characterisation of Futures & Options under section 43(5)(d) - Statutory bar on setting off business losses against salary income (non-obstante in section 71(2A)) - Carry forward of business losses conditioned on timely return filingSet-off of losses across heads of income - Non-speculative business loss characterisation of Futures & Options under section 43(5)(d) - Statutory bar on setting off business losses against salary income (non-obstante in section 71(2A)) - Assessee's claim to set-off loss from F&O (non-speculative business loss) against short-term capital gains on shares and other incomes (excluding salary). - HELD THAT: - The Tribunal accepted that the loss from Futures & Options trading is a non-speculative business loss for the purposes of the Act in view of the conditions in section 43(5)(d). Section 70 governs set-off within the same head and is not dispositive here; section 71 governs set-off of losses across different heads. The plain language of section 71(2) permits a loss under any head other than 'Capital gains' to be set off against income under any head, including 'Capital gains'. However, section 71(2A) contains a non-obstante provision specifically precluding set-off of losses under the head 'Profits and gains of business or profession' against income under the head 'Salaries'. Applying these provisions, the Tribunal held there is no statutory bar to setting off the F&O non-speculative business loss against short-term capital gains and other heads of income, but the statutory prohibition in section 71(2A) prevents such loss being set off against salary income.Set-off of the F&O non-speculative business loss against short-term capital gains on shares and other income is allowed; set-off against salary is barred by section 71(2A).Carry forward of business losses conditioned on timely return filing - Whether the assessee is entitled to carry forward the unadjusted F&O business loss having filed the return belatedly. - HELD THAT: - The Tribunal applied the requirement that, for carry forward of losses under the heads 'Profits and gains of business or profession' or 'Capital gains', the return must be filed within the due date prescribed by section 139(1). By virtue of section 139(3) read with section 80 (as amended), failure to file the return within the prescribed time disentitles the assessee to carry forward such losses. The Tribunal noted that the assessee filed the return belatedly and therefore is not entitled to carry forward the unadjusted F&O business loss; the proper remedy for such a taxpayer lies in approaching the Board (CBDT) under section 119 for any discretionary relief.Carry forward of the unadjusted F&O business loss is disallowed because the return was not filed within the time prescribed by section 139(1).Final Conclusion: Appeal partly allowed: the F&O non-speculative business loss may be set off against short-term capital gains and other heads of income (but not against salary due to section 71(2A)), while carry forward of the remaining unadjusted business loss is disallowed for failure to file the return within the due date. Issues Involved:1. Set-off of F&O/Derivatives segment loss against short-term profit in shares or other income.2. CIT(A)'s failure to address the set-off issue specifically.3. Legality of the assessment under Sections 147/148.4. Levy of interest under Sections 234A, 234B, and 234C.5. Carry forward of F&O segment loss.Issue-wise Detailed Analysis:1. Set-off of F&O/Derivatives Segment Loss Against Short-term Profit in Shares or Other Income:The assessee incurred a loss of Rs. 55,14,312 in the F&O/Derivatives segment and sought to set it off against a short-term profit of Rs. 48,39,634 made in shares. The AO disallowed this set-off, citing Section 70 of the Income Tax Act, which governs the set-off of losses under the same head of income. The AO also rejected the assessee's reliance on Section 71(2), which allows set-off of losses under one head against income under another head. The Tribunal observed that the loss from F&O trading is a non-speculative business loss under Section 43(5)(d) and should be set off against other heads of income, including short-term capital gains, as per Section 71(2). However, this set-off cannot be applied against salary income due to the prohibition in Section 71(2A).2. CIT(A)'s Failure to Address the Set-off Issue Specifically:The CIT(A) did not specifically address the issue of set-off of F&O losses against short-term capital gains or other income. The Tribunal noted that the CIT(A) should have considered the provisions of Section 71(2) and allowed the set-off of non-speculative business loss against other heads of income, excluding salary income.3. Legality of the Assessment Under Sections 147/148:The Tribunal did not address this issue in detail as the assessee's counsel did not press it. Therefore, this ground was dismissed.4. Levy of Interest Under Sections 234A, 234B, and 234C:This ground was considered consequential and did not require separate adjudication. Hence, it was dismissed.5. Carry Forward of F&O Segment Loss:The assessee filed the return of income belatedly on 31-03-2010, beyond the due date specified under Section 139(1). As per Section 139(3) read with Section 80, the assessee must file the return within the due date to carry forward business losses. Since the return was filed late, the assessee is not entitled to carry forward the unadjusted business loss from F&O trading. The Tribunal upheld this view, stating that the assessee should approach the CBDT under Section 119 for relief.Conclusion:The Tribunal allowed the set-off of F&O derivative trading losses against short-term capital gains and other income, excluding salary income, as per Section 71(2). However, the assessee is not entitled to carry forward the unadjusted business loss due to the late filing of the return. The appeal was partly allowed, addressing grounds 1, 2, and 5, while grounds 3 and 4 were dismissed. The order was pronounced in the open court on 30th March 2016.