2014 (9) TMI 1031 - HC - Income Tax

Disallowance of loss in commodity future trading - Appellate Tribunal reversing the decision of the CIT (A) upholding the disallowance of the loss in commodity future trading claimed to have been incurred by the assessee in the course of its business - Held that - In the light of the factual matrix and the judicial pronouncements discussed hereinabove, the transactions entered into by the respondent assessee when are held to be genuine and not disputed by Revenue and they have taken place on the floor of the MCX, the Tribunal as a fact-finding authority, adjudicated these questions of facts on the basis of the relevant material presented before the authorities, there being no perversity in such decision of the Tribunal, there is no reason to interfere with, inasmuch as, no substantial question of law, can be stated to arise out of the impugned order of the Tribunal. - Decided against revenue

Summary

Issues Involved:
1. Whether the Appellate Tribunal is right in law and on facts in reversing the decision of the CIT (A) upholding the disallowance of the loss in commodity future trading claimed by the assessee.

Detailed Analysis:

Background and Proceedings:
A search under section 132 of the Income Tax Act, 1961 was conducted in the group cases of a certain individual on 22.09.2005, leading to the initiation of proceedings under section 153A read with section 153C of the Act against the assessee. The assessee filed a return of income declaring a total income of Rs. 91,09,790/-, claiming a loss of Rs. 2,16,59,338/- under "commodity future trading." The Assessing Officer (AO) scrutinized these transactions and concluded that the loss was contrived, disallowing the claim. The Commissioner (Appeals) concurred with the AO's findings.

Tribunal's Findings:
The assessee challenged the decision before the Income Tax Appellate Tribunal, which ruled in favor of the assessee. The Tribunal noted that the transactions were carried out on the floor of MCX through a recognized broker and deemed them genuine. The Tribunal found no perversity in the transactions and held that the loss suffered by the assessee was genuine.

Revenue's Argument:
The revenue, represented by Mr. Nitin Mehta, argued that the Tribunal ignored the facts and disregarded relevant judicial pronouncements favoring the revenue. The revenue relied on the Supreme Court decisions in Commissioner of Income Tax, Calcutta v. Karam Chand Thapar and Bros. P. Ltd. and M/s McDowell & Company Limited v. Commercial Tax Officer, emphasizing that colorable devices for tax avoidance should not be permitted.

High Court's Analysis:
The High Court extensively reviewed the material on record and the Tribunal's findings. It noted that the assessee was primarily engaged in share trading and had ventured into commodity derivative transactions for the first time. The transactions were executed through MCX, and the revenue did not dispute their occurrence. The Tribunal had considered all relevant material and explanations provided by the assessee, concluding that the transactions were genuine.

Judicial Precedents:
The High Court referred to its own decision in Commissioner of Income Tax v. Special Prints Ltd., where it held that legitimate tax planning cannot be objected to by the revenue. The Court also cited the Bombay High Court decision in Commissioner of Income Tax v. Ramkrishna Bajaj (HUF), which upheld the genuineness of transactions even when shares were sold to close relatives, provided the transactions were genuine and properly valued.

Supreme Court's Principle:
The High Court reiterated the Supreme Court's principle that the Tribunal is a fact-finding body, and its findings on the genuineness of transactions should not be interfered with unless they are perverse or based on irrelevant material.

Conclusion:
The High Court concluded that the Tribunal had taken into account all relevant materials and had not considered any irrelevant material. The transactions were genuine and conducted on the floor of MCX. Therefore, no substantial question of law arose from the Tribunal's order. The appeal was dismissed with no order as to costs.