2012 (3) TMI 570 - AT - Income Tax

Transaction in F & 0 prior to 25.1.2006 to be treated as non speculation transaction - Additions made on account of F&O - Held that - We uphold the grievance of the assessee and hold that the derivate transactions entered into by the assessee at the recognized stock exchanges even prior to the date of notification in the relevant previous year are to be treated as covered by the exclusion clause set out in section 43(5)(d). Assessing Officer has to consider the composite transaction. The first appellate authority was wrong in his finding on applicability of explanation to section 43(5). Thus we vacate this finding. As the nature of business has to be understood in the proper perspective considering the business strategy of the assessee and as the composite transactions of both NSE and BSE have to be taken into account we set aside the matter to the file of Assessing Officer for adjudication afresh in accordance with law. This ground is thus allowed for statistical purposes.

Summary

Issues:
1. Treatment of speculative income and income from forwards and options.
2. Allowance of set off for share trading loss against share related profits under section 43(5).

Analysis:

Issue 1: Treatment of Speculative Income and Income from Forwards and Options
The assessee, engaged in jobbing/arbitrage activities, filed a return of income declaring total income. The Assessing Officer determined income, making additions for speculative income and income from forwards and options. The first appellate authority granted partial relief. Both the assessee and the Revenue appealed before the Tribunal. The Revenue contended that certain F&O transactions should be treated as speculation loss and added to the total income. The Tribunal referred to a similar case and held that transactions carried out before a specific date should be treated as non-speculative. Relying on previous decisions, the Tribunal dismissed the Revenue's appeal, upholding the Commissioner (Appeals) order.

Issue 2: Allowance of Set Off for Share Trading Loss under Section 43(5)
The assessee's appeal raised concerns about the treatment of share trading loss as speculative under section 43(5) and the disallowance of set off against other share related profits. The assessee explained the nature of jobbing/arbitrage activities involving price discrepancies between exchanges. The Tribunal noted that the Revenue authorities misunderstood the business nature and set aside the matter for reconsideration. The Tribunal emphasized understanding the composite transactions and business strategy, directing the Assessing Officer to adjudicate afresh in accordance with the law. Consequently, the Tribunal partly allowed the assessee's appeal.

In summary, the Tribunal dismissed the Revenue's appeal regarding speculative income and upheld the Commissioner (Appeals) order. The Tribunal partly allowed the assessee's appeal concerning the treatment of share trading loss and directed a reassessment based on the business strategy and composite transactions.