Rs 34 lakh F&O trading loss: Income Tax dept calls it speculative, ITAT Delhi treats Rs 25 lakh as business loss

A taxpayer from Dampier Nagar, Mathura, made Rs 8.64 crore from his real estate trading business but lost about Rs 34 lakh in future and options (F&O) trading in the stock market. However, when he filed his income tax return (ITR), he declared the F&O loss as a business loss. However, F&O trading is typically viewed as speculative income/loss unless your main business is F&O. In this case, as mentioned earlier, the taxpayer’s main business is a real estate trading, from which he had earned crores of rupees.

As a result, the Income Tax Assessing Officer (AO) from I.P. Estate, New Delhi picked his ITR for scrutiny and treated the entire loss as speculative by invoking the Explanation to Section 73, thus denying its off-set against the taxpayer’s regular business income. The AO based his decision on the Delhi High Court’s ruling in CIT v. DLF Commercial Developers Ltd.

Additionally, the Assessing Officer estimated that Rs 10 lakh out of the taxpayer’s total business expenses werelinked to share trading and disallowed that amount as well.


Thus, the aggregate disallowance relating to the share and derivative transactions amounted to Rs 44 lakh and a further disallowance of Rs 9,910 was made under Section 14A read with Rule 8D. The CIT(A) upheld the assessment, following which the taxpayer appealed before the ITAT Delhi tax tribunal.

On July 10, 2026, the taxpayer won the case in ITAT Delhi. Advocate Sudeh Garg and Advocate Utsav Garg represented the taxpayer in ITAT Delhi where the bench comprised of Sudhir Kumar, Judicial Member and Manish Agarwal, Accountant Member.

Also read: Husband trades through wife’s demat account, incurs Rs 1.95 crore loss; tax dept sends notice over clubbing of income, ITAT Lucknow grants him relief

Why the taxpayer won the case?

Chartered Accountant Suresh Surana said to ET Wealth Online that ITAT Delhi distinguished between the purchase and sale of shares and transactions in exchange-traded derivatives.

ITAT Delhi also observed that the deeming provision in the Explanation to Section 73 specifically covers a company’s business consisting of the purchase and sale of shares of other companies. It does not expressly include transactions undertaken in the futures and options segment.

ITAT Delhi further noted that eligible derivative transactions carried out on a recognised stock exchange are not included in the definition of a speculative transaction under Section 43(5)(d).

Relying on the Bombay High Court’s decision in the Souvenir Developers (India) Pvt. Ltd. v. Union of India case, which had considered the Delhi High Court’s ruling in DLF Commercial Developers, ITAT Delhi held that the Explanation to Section 73 could not be extended to cover exchange-traded derivative transactions.

Accordingly, out of the total trading loss of Rs. 34,21,431, ITAT Delhi treated Rs 9,11,932 arising from the actual purchase and sale of shares as speculative loss. The remaining derivative loss of Rs 25,09,499 was held to be an ordinary business loss eligible for treatment and set-off in accordance with the provisions governing business losses.

Also read: F&O tax rules: How derivatives traders should report profits, losses and expenses

ITAT Delhi determined that the Assessing Officer failed to provide any calculation, evidence or reasonable basis for allocating Rs 10 lakh of the taxpayer’s expenses to share-trading activity. Since the disallowance was based solely on an estimate, ITAT Delhi limited it to Rs 1 lakh, considering that amount fair and reasonable under the circumstances.

Consequently, against the aggregate disallowance of Rs 44,21,431, ITAT Delhi sustained only Rs 10,11,932, comprising the share-trading loss of Rs. 9,11,932 and the related expenditure of Rs 1 lakh. The balance addition of Rs 34,09,499 was deleted.

Surana says ITAT Delhi also deleted the disallowance of Rs 9,910 under Section 14A as the taxpayer’s financial records showed the absence of any exempt dividend income during the relevant year.

Relying upon the Cheminvest Ltd. v. CIT, CIT v. Holcim India Pvt. Ltd. and South Indian Bank Ltd. v. CIT case, ITAT Delhi held that disallowance under Section 14A could not be sustained in the absence of exempt income.

The taxpayer succeeded mainly because the AO had incorrectly treated derivative transactions as the same as purchase and sale of shares. ITAT Delhi held that the deeming fiction under the Explanation to Section 73 must be applied strictly and could not be extended to exchange-traded derivatives that fall within Section 43(5)(d).

According to Surana, the taxpayer succeeded also because the Rs 10 lakh expense allocation had no supporting basis and since no exempt income had been earned to justify a Section 14A disallowance.

The appeal was therefore partly allowed, with only the actual share-trading loss and Rs 1 lakh of associated expenditure being sustained.