Loss From Trading In Commodity Derivatives Non-Speculative In Nature, Can Be Set Off Against Regular Business Income: ITAT Lucknow

[08 June 2022] The Lucknow Bench of ITAT has ruled that trading in commodity derivatives, that satisfies the requirements of Clause (e) of the first proviso to Section 43 (5) of the ITAT, 1961, is non-speculative in nature, and thus the loss arising from it can be set off against the regular business income. The Bench, consisting of A.D. Jain (Vice President) and T.S. Kapoor (Accountant Member), held that there is no bar of expertise required for trading in commodity derivatives and that Clause (e) of the first proviso to Section 43(5) does not require any such expertise.
The ITAT observed that Section 70(1) of the Income Tax Act provides that loss from any source under any head of income under the Income Tax Act, other than “Capital Gains”, can be set off against income from any other source under the same head. The ITAT noted that as per the provisions of Section 73 (1) of the Income Tax Act, loss from a speculation business carried on by the assessee can be set off only against the profits and gains of another speculation business.
The ITAT held that in view of the provisions of Section 70(1), Section 73(1) and Clause (e) of the first proviso to Section 43(5), derivatives commodity trading transaction undertaken by the Assessee was not a speculative transaction and thus, the loss arising from it could be set off against the profits of the medical derivatives business carried on by the Assessee.