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DATE: April 30, 2019 (Date of pronouncement)
DATE: June 24, 2019 (Date of publication)
AY: 2008-09
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CITATION:
Speculation Loss: Law on when an amendment can be said to be clarificatory/ retrospective explained. The amendment to the Explanation to s. 73 by the Finance (No 2) Act 2014 with effect from 1 April 2015 is not clarificatory or retrospective. Consequently, loss occurred to the assessee as a result of its activity of trading in shares (a loss arising from the business of speculation) is not capable of being set off against the profits which it had earned against the business of futures and options since the latter did not constitute profits and gains of a speculative business

The amendment which was brought by Parliament to the Explanation to Section 73 by the Finance (No 2) Act 2014 was with effect from 1 April 2015. In its legislative wisdom, the Parliament amended Section 43(5) with effect from 1 April 2006 in relation to the business of trading in derivatives, Parliament brought about a specific amendment in the Explanation to Section 73, insofar as trading in shares is concerned, with effect from 1 April 2015. The latter amendment was intended to take effect from the date stipulated by Parliament and we see no reason to hold either that it was clarificatory or that the intent of Parliament was to give it retrospective effect. 31 The consequence is that in A.Y. 2008-2009, the loss which occurred to the assessee as a result of its activity of trading in shares (a loss arising from the business of speculation) was not capable of being set off against the profits which it had earned against the business of futures and options since the latter did not constitute profits and gains of a speculative business

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DATE: October 16, 2018 (Date of pronouncement)
DATE: October 26, 2018 (Date of publication)
AY: 2014-15
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CITATION:
S. 254/ 36(1)(vii): If the AO has failed to discharge his obligation to conduct a proper inquiry, it is the obligation of the ITAT to ensure that effective inquiry is carried out. The AO has not examined the crucial aspect whether the bad debts claimed by the assessee due to the NSEL scam constitutes a "speculative transaction" u/s 43(5) and whether Explanation to s. 73(1) applies

A perusal of the order of the lower authorities gives an infallible impression that such crucial aspect has not been addressed. Without understanding the fate of the goods purchased purportedly in the custody of or on behalf of the assessee, it will not be possible to determine the issue. Where the purchase with delivery is settled by cross contract of sale with delivery at future date against sale proceeds, the entire debt turning bad is rather innocuous

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DATE: December 28, 2016 (Date of pronouncement)
DATE: December 29, 2016 (Date of publication)
AY: 2009-10
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CITATION:
S. 73 Explanation (speculation loss): If the assessee manages his transactions of sale and purchase of shares in cash segment and in future segment as a composite business, the transactions cannot be segregated to arrive at profit or loss in each segment separately. The provisions of the Income-tax Act cannot be interpreted to the disadvantage of the assessee and to segregate the transactions in cash and future segment which will be against the spirit of the taxation law

The peculiarity of the business of the assessee is such that the transactions carried out by the assessee in cash segment and in future segment cannot be segregated. The business of the assessee survives on the ultimate resultant figure arrived at after setting off/adjusting of the profit and loss from each segment. It cannot be said that the transactions in each segment done by the assessee are independent of each other. Before parting we would like to further add that certain exceptions have been carved out under section 43(5) vide which certain transactions in derivative named as ‘eligible transactions,’ done on a recognized stock exchange, subject to fulfillment of certain requirements, are deemed to be non-speculative. The said provisions have been inserted in the Act for the benefit of the assessees keeping in view the fact that in such type transactions on recognized stock exchange, the chance of manipulating and thereby adjusting the business profits towards speculative losses by the assessee is negligible because such transactions are done on recognized stock exchange and there are less chances of manipulation of figures of profits and losses. These provisions have been inserted for the benefit of the assessee so that the assessee may be able to set off and adjust his profit and losses from derivatives in commodities against the normal business losses. These provisions are intended to ease out the assessee from the difficulties faced due to the stringent provisions separating the speculative transactions from the normal transactions

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DATE: October 1, 2016 (Date of pronouncement)
DATE: October 10, 2016 (Date of publication)
AY: 2009-10
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CITATION:
37(1)/43(5): Loss suffered in foreign exchange transactions entered into for hedging business transactions cannot be disallowed as being “notional” or “speculative” in nature. S. Vinodkumar Diamonds is not good law as it lost sight of Badridas Gauridas 261 ITR 256 (Bom)

It appears that in S. Vinodkumar, the Tribunal held the forward contract on facts before it to be speculative in nature in view of Section 43(5) of the Act. However, it appears that the decision of this court in CIT vs. Badridas Gauridas (P) Ltd. (134) Taxman Pg. 376 was not brought to the notice of the Tribunal when it rendered its decision in S. Vinodkumar (supra). In the above case, this court has held that forward contract in foreign exchange when incidental to carrying on business of cotton exporter and done to cover up losses on account of differences in foreign exchange valuations, would not be speculative activity but a business activity

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DATE: August 11, 2016 (Date of pronouncement)
DATE: August 20, 2016 (Date of publication)
AY: 2009-10
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CITATION:
S. 37(1): Foreign exchange loss is not a "notional" or "speculation" loss and is allowable as a deduction. CBDT's Instruction No. 3 of 2010 which deals with foreign exchange derivative transactions (forward contracts) is not applicable to cases of losses in dealings with foreign exchange

The loss was not on account of derivatives but are in fact losses and gains in foreign exchange relating to the purchase and sales transactions i.e. creditors and debtors outstanding as on 31st March, 2010. Therefore, Instruction No.3 of 2010 issued by the CBDT would have no application to the facts of the present case. In fact, the issue arising herein would be covered by the principles laid down by the Apex Court in Woodward Governor India (P) Ltd. (supra). Accordingly, as the impugned order of Tribunal followed by the decision of the Apex Court in Woodward Governor India (P) Ltd. (supra) which governs the issue, the question as proposed does not give rise to any substantial question of law

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DATE: March 16, 2016 (Date of pronouncement)
DATE: April 13, 2016 (Date of publication)
AY: 2009-10
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CITATION:
S. 43(5), Explanation to s. 73: Where the assessee is a dealer in shares, the entire business of share trading and derivatives should be treated as a composite business and aggregated before applying Explanation to
s. 73

Where the assessee is a dealer in shares, the entire business consists in sale purchase of shares, then, it should be treated as composite business. Also, assessee’s stand of treating the whole business as composite business has always been accepted by the revenue in earlier as well as subsequent years. Accordingly, whole of assessee’s business was treated as speculative and loss of current year was allowed to be set off against profits of the current year

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DATE: October 7, 2015 (Date of pronouncement)
DATE: November 17, 2015 (Date of publication)
AY: 2009-10
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CITATION:
S. 50C should not be invoked if difference between stamp value and declared consideration is nominal, S. 14A/ Rule 8D does not apply to share application money, Pure foreign exchange hedging transactions cannot be treated as speculative transactions

Though section 50C of the Act does not speak of any such variation in terms of percentage between value adopted for the purpose of stamp duty and the registration and the actual consideration received on transfer, keeping in view of the decision of the Hon’ble ITAT, Hyderabad Bench and keeping in view of the fact that the difference between the valuation for the stamp duty and the actual consideration received by the assessee is less than 2% we are of the view that addition sustained by CIT(A) should be deleted

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DATE: August 7, 2015 (Date of pronouncement)
DATE: August 10, 2015 (Date of publication)
AY: 2006-07
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CITATION:
(i) DR can only support the AO's order and cannot set up an altogether new case before the ITAT, (ii) Loss on sale of shares, even if a speculation loss, can be set-off against the gains on sale of shares

Even if the loss claimed by the assessee relating to share transactions as well as loss resulting on valuation of closing stock is treated as speculation loss, the same is entitled to be set-off against the profit on sale of shares in view of DLF Commercial Developers Ltd. 261 CTR (Del) 127

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DATE: July 24, 2015 (Date of pronouncement)
DATE: July 27, 2015 (Date of publication)
AY: 2009-10, 2010-11
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CITATION:
Loss suffered on account of forex derivative contracts (Exotic Cross Currency Option Contracts) cannot be treated as speculative loss to the extent that the derivative transactions are not more than the total export turnover of the assessee. If the derivative transaction is in excess of export turnover, the loss in respect of that portion of excess transactions has to be considered as speculative loss because the excess derivative transaction has no proximity with export turnover

We make it clear that total transaction considered for determining this business loss from derivative transactions cannot be more than the total export turnover of the assessee for the assessment year under consideration and if the derivative transaction is in excess of export turnover, then that loss suffered in respect of that portion of excess transactions to be considered as speculative loss only as that excess derivative transaction has no proximity with export turnover and the Assessing Officer is directed to compute accordingly

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DATE: May 27, 2015 (Date of pronouncement)
DATE: June 1, 2015 (Date of publication)
AY: 2007-08
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CITATION:
S. 43(5)(d): Loss from trading in derivatives is not a speculation loss and can be set-off against normal business profits

Now question arises as to whether the loss suffered by the assessee on derivative was to be treated as a speculative loss or to be set off against the regular business profit. Explanation to clause (d) of Sub-section (5) to Section 43 of the Act provides that eligible transaction in respect of trading in derivatives would not be deemed to be speculative transaction. In the present case, it is an admitted fact that the assessee was engaged in the business of dealing in shares & securities and has incurred loss from dealing in derivatives (shares futures)

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