2010 (5) TMI 838 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of short-term capital loss.
2. Disallowance of loss on purchase and sale of mutual fund units.
3. Reopening of assessment u/s 147.
4. Addition of unexplained cash credit u/s 68.
5. Disallowance of deduction for legal fees.

Summary:

1. Disallowance of Short-Term Capital Loss:

The assessee challenged the CIT(A)'s order confirming the disallowance of short-term capital loss of Rs. 4,58,770 made by the Assessing Officer (AO), treating the transactions with Richmond Securities Pvt. Ltd. (RSPL) as bogus. The AO based the disallowance on the statement of Mr. Mukesh Chokshi, Director of RSPL, who admitted that the transactions were not genuine and were settled in cash. The CIT(A) upheld the AO's decision, citing the lack of cross-examination request by the assessee and the circumstantial evidence against the assessee. The Tribunal, however, found the issue similar to a previous case (Rajkumar Sandeep Kumar HUF) where the Tribunal had ruled in favor of the assessee. Consequently, the Tribunal allowed the assessee's appeal and directed the AO to rectify the order accordingly.

2. Disallowance of Loss on Purchase and Sale of Mutual Fund Units:

The AO disallowed the short-term capital loss of Rs. 12,44,821 incurred on mutual fund units, suspecting a pre-determined intention to incur loss and earn exempted dividend income. The CIT(A) upheld the AO's decision. However, the Tribunal referenced the Hon'ble Bombay High Court's decision in CIT vs. Walfort Shares & Stock Brokers Pvt. Ltd., which validated such transactions as bona fide commercial transactions. Thus, the Tribunal allowed the assessee's appeal on this ground.

3. Reopening of Assessment u/s 147:

The assessee did not press this ground of appeal during the hearing, and it was dismissed as not pressed.

4. Addition of Unexplained Cash Credit u/s 68:

The AO treated the short-term capital gain of Rs. 12,29,457 from transactions with M/s. Gold Star Finvest as bogus and added it as unexplained cash credit u/s 68. The CIT(A) upheld the AO's decision. The Tribunal, finding the facts identical to a previous case (I.T.A. No. 1610/Mum/07), ruled in favor of the assessee and allowed the appeal on this ground.

5. Disallowance of Deduction for Legal Fees:

The assessee claimed a deduction of Rs. 20,000 for legal fees, which the AO did not allow. The CIT(A) rejected the claim, noting the absence of any discussion or addition/disallowance in the assessment order and the lack of substantiation during appellate proceedings. The Tribunal upheld the CIT(A)'s decision, finding no documentary evidence to support the assessee's claim.

Conclusion:

I.T.A. No. 1610/Mum/2007 is allowed, whereas I.T.A. No. 7100/Mum/2008 is partly allowed.

Pronounced on 14th May, 2010