ITO vs. Emperor International Ltd (ITAT Delhi)

The assessee suffered a business loss in shares amounting to Rs. 95,06,474/- on derivatives which was treated by the AO as speculative in nature. The assessee also earned profit of Rs. 74,72,122/- on account of trading in commodity futures. The said profit was also considered by the AO as speculative in nature but without bringing any material on record as to how the same was speculative in nature. The assessee earned the profit relating to delivery based share trading, trading in commodities and earning commission on booking of flats. Profit earned from those activities by the assessee cannot be considered as speculative in nature. 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). It is not the case of the AO that the share futures in which the assessee was dealing were not recorded in recognized Stock Exchange, the loss incurred by the assessee was also not disputed by the AO. We, therefore, by keeping in view the provisions contained in clause (d) to Subsection (5) of Section 43 of the Act, are of the view that the ld. CIT(A) was fully justified in directing the AO for not treating the loss incurred by the assessee on derivatives and the profit earned by trading of the commodity as speculative in nature, For the aforesaid view, we are also fortified by the decision of the ITAT Mumbai ‘B’ Bench in the case of R.B.K. Securities (P) Ltd. Vs ITO reported in 118 TTJ 465.