7 Sections 71, 72, 73 and Circular No. 23D dated 12.9.1960 issued by the Board – Business losses brought forward from earlier years can be adjusted against speculation profits of the current year after the speculation losses of the current year and also speculation losses brought forward from earlier years have been duly adjusted.

[2018] 92 taxmann.com 133 (Mumbai-Trib.)

Edel Commodities Ltd. vs. DCIT

ITA Nos. : 3426 AND 356 (Mum) OF 2016

A.Y.: 2011-12        Dated:  06.04.2018

FACTS 

The assesse company engaged in the business of trading in securities, physical commodities and derivative instruments filed its return of income wherein against the speculation profit of Rs. 4,77,37,754 brought forward business loss of AY 2010-11 of Rs. 1,92,98,587 was set off.  The Assessing Officer (AO) on examination of clause 25 of the Tax Audit Report and also the relevant schedule of the return of income as also the assessment record of AY 2010-11 observed that the loss of AY 2010-11 which has been set off against speculation profit of the current year was not a speculation loss but was a business loss other than loss from speculation business.  The AO denied the set off of non-speculation business loss brought forward from earlier years against speculation profit of the current year.

Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal where relying on the provisions of sections 71 and 72 of the Act relating to carry forward of losses. it was submitted that there is no bar in the Act for adjustment of brought forward non-speculation losses against the speculation profit of the current year.  Reliance was placed on CBDT Circular No. 23D dated 12.9.1960 and also on the decisions of the Calcutta High Court in the case of CIT vs. New India Investment Corporation Ltd. 205 ITR 618 (Cal); and of Allahabad High Court in the case of CIT vs. Ramshree Steels Pvt. Ltd. 400 ITR 61 (All.).

HELD  

The Tribunal noted that the Allahabad High Court has in the case of Ramshree Steels Pvt. Ltd. (supra) held that loss of current year and brought  forward losses of earlier year from non-speculation income can be set off against profit of speculation business of current year.  It also noted that the Calcutta High Court in the case of New India Investment Corporation Ltd. (supra) referred to the Bombay High court decision in the case of Navnitlal Ambalal vs. CIT [1976] 105 ITR 735 (Bom.) and also to the CBDT Circular which has held that if speculation losses for earlier years are carried forward and if in the year under consideration  speculation profit is earned by the assessee then such speculation profits for the year under consideration should be adjusted against the brought forward speculation loss of the previous year before allowing any other loss to be adjusted against these profits. 

The Tribunal held that a reading of sections 71, 72 and 73, Circular and case laws makes it clear that there is no blanket bar as such on adjustment of brough forward non-speculation business loss against current years speculation profit.  These provisions provide that loss in speculation business can neither be set off against income under the head “Business or profession” nor against income under any other head, but it can be set off only against profits, if any, of another speculation business. Section 73 effects complete segregation of speculation losses, which stand distinct and separate and can be mixed for set off purpose, only with speculation profits.  The said circular of the Board (which has been held by the Hon’ble Bombay High Court to be still holding the field) provide that if speculation losses for earlier years are carried forward and if in the year of account a speculation profit is earned by the assessee, then such speculation profits for the current accounting year should be adjusted against brought forward  speculation losses of the earlier year, before allowing any other losses to be adjusted against these profits.  Hence, it is clear that there is no bar in adjustment of unabsorbed business losses against speculation profit of current year provided the speculation losses for the year and earlier has been first adjusted from speculation profit.

The Tribunal noted that in the present case no case has been made out by the revenue that the current or earlier speculation losses have not been adjusted from the speculation profit.  In view of the aforesaid decision of  Hon’ble jurisdictional High Court and CBDT Circular mentioned above, the Tribunal set aside the order of lower authorities and decided the issue in favour of the assessee.