In Kunal G. Kataria and Assistant Commissioner of Income Tax v. ACIT, the Mumbai bench of Income Tax Appellate Tribunal (ITAT) recently held that the net income from derivative trading in commodity should be assessed as business income of speculation business.
Assessee in the present case is an individual engaged in the business of trading in commodity derivatives on various exchanges like NSE, BSE, MCX, ICEX etc. the assessee filed his return of income for the relevant assessment year and declared total income of Rs. 78,32,439 which is derived from profit & loss from various exchanges and claimed exemption on speculation loss at Rs. 4,48,73,079.
During the assessment period, the Assessing Officer (AO) divided the earnings into two such as recognized stock exchanges and non-recognized stock exchanges by applying the provisions of section 43(5)(d) of the Income Tax Act 1961. The AO disallowed the claim of the Assessee on speculation loss at Rs.4,48,73,079 by considering the same as regular business income from recognized stock exchanges as specified in section 43(5)(d) of the Act.
On appeal, the CIT(A) upheld the order of the AO and confirmed the disallowance made by him. Thereafter, the Assessee approached the Tribunal against the order passed by the authority.
After considering the facts and circumstances of the present issue, the Tribunal bench consists of Judicial Member Mahavir Singh and Accountant Member Rajesh Kumar objected the findings of the lower authorities and observed that “the Assessee is exclusively carrying on business of derivative trading on various exchanges and the transaction entered into derivative on various exchanges is his business activity whether considered as speculative or non-speculative transaction as per section 43(5) of the Act, the derivative transactions are not speculative transaction, in view of the fact that the derivative transaction is not supported or backed by deliverable commodity”.
The division bench further observed that “the Assessee is not claiming any special deduction under section 43(5)(d) of the Act for treating the profit as business profit. The nature of activity is carried throughout the year by the Assessee is one and only to trade in derivatives on various exchanges and earned profit or income which includes loss”. By holding such facts the bench opinioned that the Assessee in the present case is eligible to set off the loss against the profit and accordingly allowed the claim of the Assessee on speculation loss at Rs. 4,48,73,079 while concluding the issue.
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