Addition made by AO by Treating Loss of Income as Speculation Loss u/s 73 of Income Tax Act : ITAT Directs Re-adjudication [Read Order]

The Chennai bench of the Income Tax Appellate Tribunal (ITAT) directed the assessing officer to re-adjudicate the addition made by treating the loss of income as the speculation loss under section 73 of the Income Tax Act,1961. 

Total Securities Ltd, the appellant assessee appealed against the order passed by the Commissioner of Income Tax (Appeals) for confirming the addition made by the assessing officer by treating the loss of income as speculation loss. 

Thulasiram, the counsel for the assessee contended that the assessee earned positive net income from arbitrage or jobbing transactions and the provisions of Section 73 of the Income Tax Act apply to loss in speculative transactions and not to profits. 

It was further submitted that the trading business of the assessee constitutes only profit/loss in arbitrage/jobbing and these transactions were to be considered normal business transactions only and the the provisions of section 73 of the Income Tax Act did not apply to the case of the assessee because of specific exclusions of the arbitrage transactions from the purview of speculative transactions under section 43(5) of the Income Tax Act. 

AR.V.Sreenivasan, the counsel for the respondent relied on the decision made by the lower authorities and contended that the assessee set-off share trading loss on equity-based transactions against income from derivative trading and this income was in terms of clause (d) of section 43(5) was non-speculative. 

It was also submitted that since the assessee was engaged in the business of share trading, the explanation to Section 73 of the Income Tax Act would apply which provides that any income or loss arising from such transactions was deemed to be speculative. 

The two-member bench comprising V Durga Rao (judicial) and Manoj Kumar (Accountant) held that the explanation to section 73 of the Income Tax Act would not apply to the case of the assessee because of specific exclusions of the arbitrage/jobbing transactions from the purview of speculative transactions under section 43(5) of the Income Tax Act. 

Additionally, the bench directed the assessing officer to re-compute the income of the assessee while allowing the appeal filed by the assessee. 

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