Commodity loss disallowance turns on genuine business substance, actual delivery, and the speculative transaction test.

Commodity loss on coriander contract settlement was disallowed because the assessee failed to prove genuine commercial substance, actual delivery, or credible evidence of a real business arrangement. The transaction was examined in light of surrounding circumstances, journal entries, close party relationship, and the test of human and preponderance of probabilities, and was found collusive. The dealings were also treated as speculative because they were settled otherwise than by actual delivery, outside a recognised commodity exchange, and did not satisfy the statutory exceptions or establish hedging linked to delivery contracts. As a result, the loss could not be allowed or set off against non-speculative business income.

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Issues: (i) whether the loss claimed on coriander contract settlement was a genuine business loss and allowable as such; (ii) whether the impugned transactions were speculative transactions so as to attract the bar under section 73 of the Income-tax Act, 1961.

Issue (i): whether the loss claimed on coriander contract settlement was a genuine business loss and allowable as such.

Analysis: The claim was examined on the surrounding circumstances, the absence of delivery, the lack of recognised exchange trading, the use of journal entries, the close relationship between the parties, and the failure to produce cogent evidence to establish a real commercial arrangement. Applying the test of human probabilities and the preponderance of probabilities, the transaction was found to be collusive and unsupported by credible material.

Conclusion: The loss was not proved to be genuine and was not allowable to the assessee.

Issue (ii): whether the impugned transactions were speculative transactions so as to attract the bar under section 73 of the Income-tax Act, 1961.

Analysis: The transaction was found to be settled otherwise than by actual delivery, outside any recognised commodity exchange, and without the statutory features required to bring it within the protective exceptions to the definition of speculation. The assessee also failed to establish that the dealings were hedging transactions connected with actual delivery contracts.

Conclusion: The transactions were treated as speculative in nature and the resultant loss could not be set off against non-speculative business income.

Final Conclusion: The orders of the lower authorities were sustained and the assessee's claim for allowance and set-off of the commodity loss failed.

Ratio Decidendi: A claimed commodity loss is disallowable where the assessee fails to prove genuine commercial substance and actual delivery, and a settlement otherwise than by delivery outside a recognised exchange may be treated as speculative unless it clearly falls within a statutory exception.

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