₹34 lakh tax relief for F&O trader: Why ITAT Delhi rejected the ‘speculative loss’ tag

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.

While filing his income tax return (ITR), the taxpayer reported the F&O loss as a business loss. The Income Tax Assessing Officer (AO), however, treated the entire loss as speculative and denied its set-off against the taxpayer's regular business income.

The AO invoked the Explanation to Section 73 of the Income Tax Act and relied on the Delhi High Court's judgment in CIT v. DLF Commercial Developers Ltd. to support the assessment.

AO also disallowed ₹10 lakh in business expenses

Apart from treating the trading loss as speculative, the Assessing Officer estimated that ₹10 lakh from the taxpayer's total business expenditure was attributable to his share-trading activities.

The amount was consequently disallowed.

The combined disallowance related to the share and derivative transactions came to ₹44 lakh. The AO also made a separate disallowance of ₹9,910 under Section 14A read with Rule 8D.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the assessment. The taxpayer then challenged the order before ITAT Delhi.

On July 10, 2026, the tax tribunal ruled in favour of the taxpayer.

ITAT distinguishes share transactions from exchange-traded derivatives

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. According to the tribunal, the provision does not expressly extend to transactions in the futures and options segment.

The tribunal also 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).

Bombay High Court ruling supports taxpayer's case

While reaching its conclusion, ITAT Delhi relied on the Bombay High Court's ruling in Souvenir Developers (India) Pvt. Ltd. v. Union of India.

The tribunal considered the Delhi High Court's decision in DLF Commercial Developers and held that the Explanation to Section 73 could not be extended to exchange-traded derivative transactions.

As a result, the tribunal divided the taxpayer's total trading loss of ₹34,21,431 into two components.

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.

This meant that the derivative loss could be treated and set off in accordance with the provisions applicable to business losses.

Tribunal cuts estimated expense disallowance

ITAT Delhi also examined the Assessing Officer's decision to attribute ₹10 lakh of the taxpayer's expenses to share-trading activities.

The tribunal found that the AO had not provided any calculation, supporting evidence or reasonable basis to justify the ₹10 lakh allocation.

Since the disallowance was based merely on an estimate, ITAT Delhi considered ₹1 lakh to be a fair and reasonable amount under the circumstances.

Consequently, the tribunal substantially reduced the overall disallowance.

₹34.09 lakh disallowance deleted

Against the total disallowance of ₹44,21,431, ITAT Delhi sustained only ₹10,11,932.

This comprised 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 the applicable tax provisions.