ITAT Chennai: Derivative Trading Losses Ruled Non-Speculative

The Appellate Tribunal ITAT Chennai allowed the appellant's appeal regarding the treatment of losses from trading in shares and securities derivatives as speculative in nature. The Tribunal held that the derivative transactions were non-speculative as they were eligible transactions on a recognized stock exchange, in accordance with the amendment to Section 43(5) from AY 2006-07. Additionally, the Tribunal condoned the delay in filing the appeal due to the Covid-19 lockdown situation, ensuring a fair adjudication of the case.

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Issues:
1. Treatment of loss from trading in shares and securities derivatives as speculative in nature.
2. Condonation of delay in filing the appeal.

Issue 1: Treatment of loss from trading in shares and securities derivatives as speculative in nature

The appellant contested the order of the Commissioner of Income Tax (Appeals) regarding the treatment of a loss of Rs.45,05,705 from trading in shares and securities derivatives as speculative and hence not allowable for set off against business income. The appellant argued that the applicable section in the case was Section 43(5)(d) and not Section 73 of the Act. The appellant relied on the judgment of the Calcutta High Court in Asian Financial Services Ltd. Vs CIT, which held that loss from derivatives should be deemed business loss under the proviso to Section 43(5) and not speculative loss. The appellant further contended that the Explanation to Section 73 was not applicable in their case as it pertained to the purchase and sale of shares, not derivatives. The appellant also argued that as an individual, the provisions of Section 73 of the Act did not apply to them. The Tribunal found that the derivative transactions were eligible transactions carried out on a recognized stock exchange, making them non-speculative in nature as per the amendment to Section 43(5) from AY 2006-07. The Tribunal relied on a Supreme Court case to support the appellant's claim for set-off of losses from eligible transactions against normal business income. Consequently, the Tribunal directed the Assessing Officer to allow the set-off and re-compute the appellant's income, thereby allowing the appeal.

Issue 2: Condonation of delay in filing the appeal

The registry noted a delay of 246 days in filing the appeal, which the appellant sought to condone due to the lockdown situation arising from the Covid-19 pandemic. The impugned order was received during the lockdown period, leading to the delay. Despite opposition from the Learned Deputy Commissioner, the Tribunal, considering the circumstances, condoned the delay and proceeded with the adjudication of the appeal on its merits.

In conclusion, the Appellate Tribunal ITAT Chennai, in the judgment delivered by Hon'ble Shri V. Durga Rao and Hon'ble Shri Manoj Kumar Aggarwal, allowed the appellant's appeal regarding the treatment of losses from trading in shares and securities derivatives as speculative in nature. The Tribunal emphasized the non-speculative nature of the derivative transactions carried out on a recognized stock exchange, in line with the amendment to Section 43(5) from AY 2006-07. Additionally, the Tribunal condoned the delay in filing the appeal due to the Covid-19 lockdown situation, ensuring a fair adjudication of the case.

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