A real estate trader from Mathura has won a partial victory before the Income Tax Appellate Tribunal (ITAT) in Delhi over the treatment of losses from futures and options (F&O) trading.
The taxpayer, who reported income of Rs 8.64 crore from his real estate trading business, had declared a total stock market trading loss of Rs 34.21 lakh in his income tax return. The Assessing Officer (AO) classified the entire loss as speculative, arguing that the taxpayer’s main business was real estate and not stock market trading.
F&O losses treated as business loss
In an order dated July 10, 2026, the ITAT Delhi ruled that Rs 25.09 lakh of the loss from exchange-traded derivatives could be treated as a normal business loss. The remaining Rs 9.11 lakh, which arose from the actual purchase and sale of shares, remained classified as speculative loss.
The tribunal rejected the AO’s application of the Explanation to Section 73 of the Income Tax Act, which had been invoked based on the Delhi High Court ruling in CIT vs DLF Commercial Developers Ltd. ITAT Delhi observed that the provision applies to businesses involving the purchase and sale of shares of other companies, and does not specifically cover eligible exchange-traded F&O transactions.
Referring to Section 43(5)(d), the tribunal noted that eligible derivative transactions carried out on a recognised stock exchange are excluded from the definition of speculative transactions. It also relied on the Bombay High Court ruling in Souvenir Developers (India) Pvt. Ltd. vs Union of India, which had examined the DLF Commercial Developers decision.
Expense disallowance reduced
The AO had also disallowed Rs 10 lakh from the taxpayer’s business expenses, estimating that the amount related to share trading activity. ITAT Delhi found no calculation, evidence, or clear basis for the Rs 10 lakh figure and reduced the disallowance to Rs 1 lakh.
Consequently, the total disallowance linked to share and derivative transactions fell from Rs 44.21 lakh to Rs 10.11 lakh. This comprised Rs 9.11 lakh of speculative share-trading loss and Rs 1 lakh of related expenditure. The tribunal deleted the remaining addition of Rs 34.09 lakh.
Section 14A disallowance deleted
The tribunal also struck down a separate disallowance of Rs 9,910 made under Section 14A read with Rule 8D, as the taxpayer had not earned any exempt dividend income during the relevant financial year. Relying on rulings such as Cheminvest Ltd. vs CIT, CIT vs Holcim India Pvt. Ltd. and South Indian Bank Ltd. vs CIT, ITAT Delhi held that Section 14A cannot be applied when no exempt income exists.
The appeal was partly allowed. The tribunal upheld only the actual share-trading loss of Rs 9.11 lakh as speculative and Rs 1 lakh of related expenses. Chartered Accountant Suresh Surana noted that the case highlighted the distinction between direct share transactions and exchange-traded derivatives under the Income Tax Act.
