Set off of speculation losses which had been accepted by the Assessing Officer earlier cannot be denied

The ITAT Delhi in the case of Income Tax Officer vs. Vartman Securities & Services Pvt. Ltd., 2014 (12) TMI 552, has held that where the income or loss of the assessee company from speculation business which has already been accepted by the Assessing Officer in the previous years and if the facts and circumstances in the following years are the same, the set off of speculation losses cannot be denied to the assessee. The assesee in such situations can rightly claim deduction for his loss.

Facts of the case:

The Assessing Officer denied set off of speculative losses of the assessee company in the by holding that the business of the assessee company relating to purchase and sale of shares cannot be considered as speculative business and the business and the income of the assessee company from transactions excluding speculative business should be considered as regular business income. In view of the above the Assessing Officer denied set off of carrying forward speculative losses.
The assessee company claimed a brought forward loss of Rs. 12, 82,930/- in the return of income. The assessee company was assessed under section 143(3) and a copy of the order was enclosed. The company was granted a speculation loss of Rs. 18, 46,458/- along with a business loss of Rs. 1, 87, 58/-. The assessee company claimed that as its business consisted of purchase and sale of shares; as such the same should be treated as speculative business as per section 73 of the Act. The claim of the assessee was dismissed on the ground that the current year income was treated as the regular business income of the assessee company.
Section 73 of the Income Tax Act states that where any part of business of a company deals with purchase and sale of shares of other companies, then such company shall be considered to be carrying on speculation business up to the extent of which the business deals with the purchase and sale of shares.
The assessee during the proceedings emphasized on the paper books wherein it was clearly mentioned that the assessee filed copies of the bank statements and returns together with the computation of income of the investors who deposited the share application money before the Assessing Officer.
The Assessing Officer proceeded to make addition under section 68 of the Income Tax Act without going into examination and verifying the details and the filed returns and the bank accounts of the investors and kept the same aside.

The judgment:

It has been held in many earlier cases that if share application is received by an assessee company from alleged shareholders whose details have been provided to the Assessing Officer, the department can rightly proceed to reopen the assessments of the respective share investors according to law but the amount of share application money cannot be treated as undisclosed income of the assessee as per 68 of the Act.
In view of the above contentions the order of the CIT (A) was upheld. The appeal was decided against the Revenue.