A Mathura-based taxpayer who earned ₹8.64 crore from his real estate trading business and incurred a loss of around ₹34 lakh from futures and options (F&O) trading in the stock market has won a significant tax dispute before the Income Tax Appellate Tribunal (ITAT), Delhi. According to reports from Mint, while filing his income tax return (ITR), the taxpayer reported the F&O loss as a business loss. However, the Income Tax Assessing Officer (AO) treated the entire loss as speculative and denied its set-off against the taxpayer's regular business income.
On July 10, 2026, ITAT Delhi ruled in favour of the taxpayer, distinguishing between share transactions and exchange-traded derivatives. As reported by Mint, the tribunal examined the distinction between the purchase and sale of shares and transactions carried out in exchange-traded derivatives. ITAT Delhi observed that the deeming provision contained in the Explanation to Section 73 specifically refers to a company's business involving the purchase and sale of shares of other companies. The tribunal noted that eligible derivative transactions executed on a recognised stock exchange are excluded from the definition of a speculative transaction under Section 43(5)(d). The tribunal also relied on the Bombay High Court's ruling in Souvenir Developers (India) Pvt. Ltd. v. Union of India and the Delhi High Court's decision in DLF Commercial Developers to support its conclusion that the Explanation to Section 73 could not be extended to exchange-traded derivative transactions.
The tribunal divided the taxpayer's total trading loss of ₹34,21,431 into two components. According to Mint, the loss of ₹9,11,932 arising from the actual purchase and sale of shares was treated as speculative loss. However, the remaining derivative loss of ₹25,09,499 was classified as an ordinary business loss, meaning it could be treated and set off in accordance with business loss provisions. The tribunal also examined the AO's decision to attribute ₹10 lakh of the taxpayer's expenses to share-trading activities, finding the disallowance was based merely on an estimate without proper calculation or supporting evidence. Since the disallowance was based on an estimate without reasonable justification, ITAT Delhi considered ₹1 lakh to be a fair and reasonable amount under the circumstances.
ITAT Delhi substantially reduced the overall disallowance from ₹44,21,431 to ₹10,11,932. As reported by Mint, the tribunal sustained only the speculative share-trading loss of ₹9,11,932 and ₹1 lakh towards related expenditure. The remaining ₹34,09,499 was deleted by the tribunal, providing substantial relief to the taxpayer. The ruling highlights the distinction between speculative share transactions covered by the Explanation to Section 73 and eligible exchange-traded derivative transactions, which can qualify for treatment as ordinary business transactions under applicable tax provisions. The tribunal's decision provides important precedent for taxpayers engaging in derivative trading activities.
