Tax Authorities Disallow Set-Off of Business Losses Against Capital Gains: ITAT Sets Aside Order and Remands for Verification [Read Order]

Kamal Kant,appellant-assessee, was engaged in trading shares, securities, and futures and options contracts, and also earned capital gains from land and building transactions. He filed his income tax return on 30-03-2010, declaring income of Rs. 3,38,920/-, and claimed a business loss of Rs. 39,22,000/- and capital gains of Rs. 42,60,922/-.

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The Centralized Processing Centre (CPC) processed the return under section 143(1) and raised a demand, disallowing the set-off of the business loss against capital gains. The assessee filed a rectification request, which was rejected. He then appealed to the NFAC, which dismissed the appeal on 16-10-2023. Dissatisfied, he approached the tribunal.

The assessee counsel argued that under section 71(2) of the Act, business losses could be set off against income under the head “Capital Gain.” He relied on the decision in Deepak Sogani v. DIT, where the bench held that non-speculative business losses, like those from F&O derivative trading, could be set off against capital gains and other income, except salary income, which was barred under section 71(2A).

The Departmental counsel relied on the orders of the lower authorities.

The two member bench comprising Sudhir Kumar (Judicial Member) and Manish Agarwal (Accountant Member) considered the rival contentions and reviewed the record. It noted that the co-ordinate bench had held that non-speculative business losses from F&O derivative trading could be set off against capital gains and other income, except salary.

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In the present case, the assessee filed the return of income on time and claimed business losses from trading shares and securities against capital gains from land and building transactions under section 71(2) of the Act.

The tribunal held that the assessee’s set-off claim, made in the original return, was valid. It set aside the orders of the lower authorities and remanded the matter to the Assessing Officer (AO) for verification of the details submitted by the assessee. The appeal was allowed for statistical purposes.

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