2017 (6) TMI 1211 - AT - Income Tax

Treating the loss in the transactions of derivatives as bogus loss - modification carried out in the name and code of the assessee by the broker - Held that - Indeed the client s code and name were modified in respect of transactions claimed by assessee. However, on perusal of record, we find that the impugned transactions were carried out through banking channel and all the supporting evidence such as contract note, payment of STT were filed at the time of assessment proceedings. We also find that Ld. CIT(A) confirmed the order of AO on the basis of his guess-work as saying - there is a possibility that the modifications might have been made to accommodate the appellant as the broker of the appellant was a sister concern . CIT(A) has confirmed the order of AO on his own surmise and conjecture which is not permissible in the eyes of law. Ld. DR has also not brought anything on record contrary to the advance arguments placed by Ld. AR for the assessee as well as no defects of whatsoever has been pointed out in the documents produced by assessee in support of its impugned loss. We also find whatever modifications were carried out by the broker they were carried out within the time permitted by the NSE for the purpose of modification. Thus we hold that the impugned loss claimed by assessee is genuine loss and allowable deduction - Decided in favour of assessee.

Summary

Issues:

1. Whether the loss of ?19,76,538/- in derivatives transactions claimed by the assessee is genuine or bogus.

Analysis:

Issue 1:

The sole issue raised by the assessee was regarding the treatment of the loss of ?19,76,538/- in derivatives transactions as bogus by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) (CIT(A)). The AO disallowed the loss due to suspicions of manipulation, such as modifications in client code and name without instructions from the assessee, and similar loss disallowed in the previous assessment year. The CIT(A) upheld the AO's decision, suggesting the modifications were made to benefit the appellant and its sister concern. The CIT(A) dismissed the appeal, citing suspicions of manipulation and reduction of taxable income. The assessee then appealed to the Appellate Tribunal.

Upon thorough consideration, the Tribunal found that the modifications were made within the permitted time by the National Stock Exchange (NSE) and that all transactions were conducted through banking channels with supporting evidence like contract notes and payment of Security Transaction Tax (STT). The Tribunal noted that the CIT(A) confirmed the AO's decision based on guesswork and conjecture, which is impermissible in law. It was observed that no mismatches were found between the assessee's books and NSE's confirmation, indicating no manipulation. Relying on legal precedents, the Tribunal held that the impugned loss was genuine and not subject to addition based on suspicion. The Tribunal allowed the assessee's appeal, directing the AO to treat the loss as eligible for deduction.

In conclusion, the Tribunal overturned the decisions of the lower authorities and allowed the assessee's appeal, emphasizing the genuine nature of the claimed loss in the derivatives transactions.