Arvind Kanji Chheda vs. ACIT ITAT Mumbai `A’ Bench Before R. C. Sharma (AM) and Sanjay Garg (JM) ITA No. 2295 /Mum/2012 Assessment Year: 2008-09. Decided on: 2nd December, 2014. Counsel for assessee / revenue: Madan Dedia / Rodolph N. D’souza

Facts: During the previous year relevant to assessment year 2008-09, the assessee earned profit of Rs. 57,45,716 from transactions carried out in derivatives being futures and options. He had brought forward losses, amounting to Rs. 50,64,262, from this activity since AY 2004-05 to AY 2007-08. In the return of income filed, the assessee claimed set off of loss of earlier years incurred on derivative transactions out of profit of transactions of similar nature in the current year. The Assessing Officer (AO) while assessing the total income declined the claim on the plea that brought forward speculation loss cannot be set off against profit of a nonspeculative business in 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.

Held :
The Tribunal found that it was undisputed fact that during the year under consideration the assessee had entered into similar transactions as were entered into in the earlier years when the losses were suffered. The loss brought forward from the earlier years and the gain made in the current year is of the same nature. There is no change in the nature of income earned during the current year.

The classification of business for the limited purpose of set off of past losses into speculative and non-speculative is to be done on uniform basis and losses incurred in the same business in earlier assessment years are to be treated as eligible for set off against profit of the same business in the subsequent assessment years. The Tribunal held that for this reason also the assessee deserves to be allowed set off of brought forward losses from business of dealing in derivatives, incurred in assessment years prior to AY 2006-07 against profit of the same business in current assessment year. Thus, speculative losses made on future and option transactions in earlier years are eligible to be allowed to be set off against the business income of future option transactions of current year. The Tribunal also noted that the Mumbai Bench of ITAT in Gajendra Kumar T. Agarwal vs. ITO (2011) 40 (II) ITCL 324 (Mum-Trib) vide order dated 31.5.2011 has held that loss incurred in derivative transactions upto AY 2005-06 can be set off against income from derivative transactions for AY 2006-07. The Tribunal decided the appeal in favor of the assessee.

The appeal filed by assessee was allowed.