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Facts
The assessee, engaged in trading shares and securities, and also earning capital gains from land, filed a return declaring INR 3,38,920. The assessee claimed a business loss of INR 39,22,000 and capital gains of INR 42,60,922. The CPC did not allow the set-off of business loss against capital gains.
Held
The Tribunal held that under Section 71(2) of the Income-tax Act, business losses (non-speculative) from F&O trading can be set off against capital gains, with a specific exclusion for salary income as per Section 71(2A). The lower authorities' orders were set aside.
Key Issues
Whether business losses from futures and options trading can be set off against capital gains, considering the provisions of Section 71(2) and 71(2A) of the Income Tax Act, 1961.
Sections Cited
71(2), 154, 143(1), 71(2A), 234A, 234B, 234C, 43(5)(d), 70, 71, 72(2)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “C”, DELHI
Before: SH. SUDHIR KUMAR & SH. MANISH AGARWAL
Date of hearing: 25/08/2025 Date of Pronouncement: 17/09/2025 ORDER PER SUDHIR KUMAR, JUDICIAL MEMBER:
This appeal by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi [hereinafter referred to as “NFAC”] vide order dated 16.10.2023 pertaining to A.Y. 2009-10 arising out the assessment order dated 30.07.2020 u/s 154 of the Income-tax Act, 1961, (in short ‘the Act’).
The assessee has raised the following grounds in appeal as under: (i) On the facts and circumstances of the case , the CIT(A) has earned in law and facts of the case by dismissing the appeal of Mr. Kamal Kant (the appellant) and confirming the income assessed at INR 42,60,922/- as against the returned income of INR3,38,922/- (ii) On the facts and circumstances of the case, the CIT(A) has earned in law and facts of the case by dismissing the appeal of the appellant for providing the due relief under the provisions of section 71(2) of the Act by confirming the rejection order under section 154 of the Act dated 30-07-2020 by jurisdictional AO and thereby also confirming the assessment income of the appellant at INR 42,60,922/- as against the returned income of INR 3,38,922/-. (iii) On the facts and circumstances of the case, the CIT(A) has earned in law and facts of the case by dismissing the appeal of the appellant on the grounds that relevant fields under column 51 of the P&L account have not been disclosed by the appellant for the claim of loss from futures & options in the income tax return (i.e. ITR4) filed when in fact the loss incurred from futures & options have duly been reported in the relevant filed of ITR4 Form filed by the appellant and the set off of losses was duly allowed in the ITR Form. (iv) On the facts and circumstances of the case, the CIT(A) has earned in law not by providing the due relief to the appellant from the technical error that had been crept at the end of CPC while processing of the income tax return.
Kamal Kant vs. ITO Ward54(1) (v) On the facts and circumstances of the case, the learned CIT(A) erred in levying interest u/s 234A, 234 B and 234C of the Act. (vi) The appellant craves leaves to add amend alter or omit any of the above grounds of the appeal as the circumstances may warrant.
The brief facts of the case are that the assessee is an individual and engaged in the business of trading of shares & securities, future, and option contracts at various stock exchanges. The assessee also earned the income under the head income from Capital gains on account of transaction relating to land Building. The assessee filed return of income declaring at Rs. 3,38,920/- on 30-03-2010. The return was processed u/s 143(1) of the Act. The assessee claimed the loss of Rs. 39,22,000/- under the head Business and Profession and income under the head capital gain at Rs. 42,60,922/-. After processing the return of income u/s 143(1) of the act by the CPC, a demand was raised on the assessee. The CPC has not allowed the setoff of business loss under the head Capital Gain. Against this order the assessee was filed the rectification application but no relief was granted to the assessee.
Aggrieved, the order of the CPC the assessee preferred the appeal before the Ld. NFAC who vide his order dated 16-
The Ld. AR of the assessee submitted that as per section 71(2) of the Act the loss of the assessee under the head of Business and profession can be set off with the income under the “Capital Gain”. Reliance has placed the decision of Deepak Sogani v. Deputy Commissioner of Income –Tax -24 (1), Mumbai. In this case the Co-ordinate bench has observed as under: “On careful perusal of section 70and 71 of the act, it is observed that the said section 70 of the Act deals with set-off of losses under the same head of income while in the instant case losses incurred by the assessee on F&O derivative trading is a business loss from non-speculative business which is not in dispute in view of provisions of section 43(5)(d) of the Act and the assessee in view of provisions of section 71(2) of the Act is seeking the set- off the said non-speculative business loss on F&O derivative trading business against other heads of income being the income from short term capital gains earned on the sale of shares and other income earned by the assessee excluding salary income earned by the assessee in view of the provisions of section 71(2A) of the Act. On perusal of the section 71 of the Act, it is observed that it deals with set-off of losses incurred under one head of income against another head of income. The language of section 71(2) of the Act is plain and clear and it 4 Kamal Kant vs. ITO Ward54(1) allows the losses incurred under any head other than the head “Capital gain” to be set-off against income under any other head of income including head ‘capital gain’. The language is clear and plain and we do not see any bar or prohibition on adjustment of losses incurred by the assessee in F&O trading business against the short term capital gains earned by the assessee on sale of shares and other income earned by the assessee except salary income as there is a specific bar and prohibition raised by the statue by virtue of Section 71(2A) of the Act which debar adjustment of losses incurred under the head ‘Profit and gains of business or profession ‘to be set off against salary income. Section 71(2A) has a non-obstante clause and creates a bar not withstanding what is contained in Section 71(1) and 72(2) of the Act. The assesse has incurred losses in F&O trading in derivatives which is assessable as non-speculative business loss under the head ‘Profit and gain of business or profession and bar as contained in section 71(2A) of the Act shall operate and the assessee will not be entitled to set off loses in F&O derivative trading business against salary income earned by the assessee. While assessee will be entitled to set-off such loses in F&O derivative trading business losses which are non-speculative business losses against capital gains on sale of shares and other income earned by the assessee except salary income. We order accordingly.”
8. The Ld. DR has relied upon the orders of the lower authorities. 5 Kamal Kant vs. ITO Ward54(1) 9. We have heard the rival contentions and perused the material available on record. The co-ordinate bench in the above sited case held that the losses in futures & Option derivative trading business which are non-speculative business losses would be set off against capital gains on sale of shares and other income earned by assessee. In the instant case the assessee has filed the return of income within prescribed time and claimed the losses of business of trading of the shares & securities against the income from Capital gain on account of transaction relating to Land building which would be set off as per the section of 71(2) of the Act. The assessee has claimed the set off in the original return of income. The Ld. AO should set off the claim of the assessee as claimed by him. Respectfully following the decisions of the Co-ordinate bench the order passed by the lower authorities are set a side and the matter is remand back to the ld. Assessing Officer to verified the details submitted by the assessee. The appeal of the assessee is liable to be allowed for statistical purpose.
In the result, the appeal of the assessee is allowed for statistical purpose. Order pronounced in the open court 17.09.2025.