Loss from F & O transaction is Speculative Loss, No Set Off since Amendment to s. 73 has Prospective Application: ITAT [Read Order]

The Mumbai bench of the ITAT, last week held that loss arising out of future and options (F&O) transactions are speculative loss. The bench, while refusing to allow the claim for set off the same with the ordinary business income, said that it is not allowable since the amendment to section 73 of the Income Tax Act has no retrospective effect.

In the instant case, the Assessing Officer treated loss in future and options (F&O) transactions as speculation loss and disallowed the same.

On appeal, the first appellate authority noted that since loss is from transaction in F & O which is a derivative segment, set off is allowable on such loss.

On departmental appeal, the Tribunal said that the loss arising on account of F & O transaction was to be held as a speculation loss by applying the provisions of explanation to section 73.

However, relying on the decision of the Delhi High Court, in the case of CIT vs. DLF Commercial Developers Ltd, the bench said that set off is not allowable to the assessee.

Restoring the original order, the bench noted that “We also note that to cure this situation and enable such derivative dealings to be taken out of the ambit of explanation to section 73, the amendment was done in Explanation 73 by which companies engaged in business of trading in shares were also taken out the ambit of aforesaid explanation. However, this amendment was done with effect from 01.14.2015. the Hon’ble Calcutta High Court in the case of Pr. CIT vs. M/s. Snowtex Investment Ltd. (GA No. 1695 of 2016 ITAT No. 199 of 2016 vide order dated 22.11.2016) has held that the said amendment is prospective. Hence, the aforesaid amendment does not help the case of the assessee. The assessee’s case is squarely covered by the aforesaid Hon’ble Delhi High Court decision. It is settled law that the decision of Hon’ble High Court is superior to that of ITAT. Hence, in our considered opinion, the order of the ld. Commissioner of Income Tax (Appeals) in this case deserves to be set aside and the order of the Assessing Officer be restored.”