A taxpayer from Mathura earned ₹8.64 crore through his real estate trading business but incurred a total trading loss of ₹34,21,431 from transactions in shares and futures and options (F&O) in the stock market. When the taxpayer filed his income tax return (ITR), he reported the entire loss as a business loss. The Income Tax Assessing Officer (AO) from I.P. Estate, New Delhi, treated the entire amount as speculative loss by applying the Explanation to Section 73 of the Income-tax Act and consequently denied its treatment against regular business income. The AO relied upon the Delhi High Court decision in CIT v. DLF Commercial Developers Ltd. and also attributed ₹10 lakh of the taxpayer's business expenditure to share-trading activities.
ITAT Delhi succeeded on July 10, 2026, with a Bench comprising Sudhir Kumar, Judicial Member, and Manish Agarwal, Accountant Member, drawing a distinction between transactions involving the purchase and sale of shares and those carried out in exchange-traded derivatives. The tribunal observed that the deeming provision contained in the Explanation to Section 73 specifically concerns a company's business involving the purchase and sale of shares of other companies. According to ITAT Delhi, the provision could not automatically be extended to exchange-traded derivative transactions. The tribunal further considered Section 43(5)(d), under which eligible derivative transactions carried out on a recognised stock exchange are excluded from the definition of a speculative transaction. Relying upon the Bombay High Court's decision in Souvenir Developers (India) Pvt. Ltd. v. Union of India, which had considered the Delhi High Court's ruling in DLF Commercial Developers, the tribunal held that the Explanation to Section 73 could not be extended to exchange-traded derivative transactions.
The taxpayer had reported a total trading loss of ₹34,21,431. ITAT Delhi classified ₹9,11,932, which arose from actual purchase and sale of shares, as speculative loss. The remaining ₹25,09,499 represented derivative losses and was treated as an ordinary business loss, making it eligible for treatment and set-off under the provisions applicable to business losses. The tribunal also examined the separate disallowance of ₹10 lakh towards business expenditure allegedly attributable to share-trading activities. It found that the Assessing Officer had not provided a calculation, supporting evidence, or a reasonable basis for allocating the entire ₹10 lakh to such activity. Since the disallowance was founded on an estimate, the tribunal considered ₹1 lakh to be a fair and reasonable amount and restricted the disallowance accordingly.
The total disallowance was reduced from ₹44,21,431 to ₹10,11,932. The sustained amount consisted of ₹9,11,932 towards the share-trading loss and ₹1 lakh towards the related expenditure. The balance addition of ₹34,09,499 was deleted. ITAT Delhi also deleted the separate ₹9,910 disallowance made under Section 14A read with Rule 8D, noting that the taxpayer had not earned any exempt dividend income during the relevant year. The appeal was consequently partly allowed, with the tribunal sustaining only the speculative loss attributable to actual share transactions and ₹1 lakh of associated expenditure, while deleting the balance addition of ₹34,09,499 and the Section 14A disallowance.
