A real estate businessman from Mathura secured partial relief from the Income Tax Appellate Tribunal (ITAT) Delhi after a dispute over losses from futures and options (F&O) trading.
The taxpayer, who earned Rs. 8.64 crore from his real estate trading business, reported a total stock market trading loss of Rs. 34.21 lakh in his income tax return. The Assessing Officer (AO), however, treated the loss as speculative because the taxpayer’s main business was real estate and not stock market trading.
The ITAT Delhi, in its July 10, 2026 order, ruled that Rs. 25.09 lakh of the loss from exchange-traded derivatives could be treated as a normal business loss. However, it classified Rs. 9.11 lakh arising from the actual purchase and sale of shares as speculative loss.
The AO had invoked the Explanation to Section 73 of the Income Tax Act and treated the taxpayer’s entire Rs. 34.21 lakh trading loss as speculative. The assessment relied on the Delhi High Court ruling in CIT vs DLF Commercial Developers Ltd.
However, the ITAT Delhi found that the provision applies to a business involving the purchase and sale of shares of other companies. The tribunal said the provision does not specifically cover eligible exchange-traded futures and options transactions.
The tribunal also referred to Section 43(5)(d), which excludes eligible derivative transactions carried out on a recognised stock exchange from the definition of a speculative transaction. Therefore, it rejected the AO’s decision to treat all derivative trading losses as “speculative loss.”
ITAT Delhi relied on the Bombay High Court ruling in Souvenir Developers (India) Pvt. Ltd. vs Union of India. This ruling had also considered the Delhi High Court judgment in the DLF Commercial Developers case.
Of the total Rs. 34,21,431 trading loss, the tribunal found that Rs. 9,11,932 came from the purchase and sale of shares. It treated this amount as speculative. The remaining Rs. 25,09,499 related to derivatives and qualified as an ordinary business loss.
The AO had also disallowed Rs. 10 lakh from the taxpayer’s business expenses. The officer estimated that the amount related to the taxpayer’s share trading activity.
ITAT Delhi found no calculation, evidence, or clear basis supporting the Rs. 10 lakh figure. Since the AO had made the allocation based on an estimate, the tribunal reduced the disallowance to Rs. 1 lakh.
As a result, the total disallowance linked to share and derivative transactions fell from Rs. 44,21,431 to Rs. 10,11,932. This included the Rs. 9,11,932 speculative share-trading loss and Rs. 1 lakh of related expenditure.
The tribunal deleted the remaining addition of Rs. 34,09,499. Chartered Accountant Suresh Surana said the case turned on the difference between share transactions and exchange-traded derivatives under the Income Tax Act.
The tribunal also removed a separate disallowance of Rs. 9,910 made under Section 14A read with Rule 8D. The taxpayer’s records showed that he had not earned exempt dividend income during the relevant financial year.
ITAT Delhi relied on court rulings including Cheminvest Ltd. vs CIT, CIT vs Holcim India Pvt. Ltd. and South Indian Bank Ltd. vs CIT. It held that Section 14A could not be applied when the taxpayer had no exempt income.
The tribunal therefore partly allowed the taxpayer’s appeal. It upheld only the actual share-trading loss of Rs. 9.11 lakh as speculative and Rs. 1 lakh of related expenses.
The main dispute arose from the AO treating derivatives in the same manner as direct share purchases and sales. ITAT Delhi held that the Explanation to Section 73 could not be extended to eligible exchange-traded derivatives covered by Section 43(5)(d).
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