2013 (10) TMI 292 - HC - Income Tax

Disallowance on account of loss in share trading loss - Appellant had followed the consistent method of computation of income/loss from the earlier year Held that - Appellant had not proved before the A.O. As well as CIT(A) that shares loss was not speculative loss or delivery of share has been taken by the appellant or not - When the transactions themselves were not under any cast of shadow or doubt and there was no dispute over the quantum of loss computed by the appellant and the respondent assessee when had substantiated the entire transactions by furnishing otherwise valid and statutorily accepted documents, on merely debiting directly these items in capital account instead of in P&I account and thus not routing share trading account through audited account under section 44AB cannot furnish a ground to disregard overwhelming legally acceptable evidences to reject the claim of assessee Decided against the revenue.

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal regarding disallowance of loss in share trading & F&O activity along with OD interest.

Analysis:
[1.0] The appellant challenged the Tribunal's order, questioning the deletion of disallowance of Rs.66,52,220 on the grounds of loss in share trading & F&O activity along with OD interest. The Senior Counsel for the Revenue argued that the Tribunal overstepped its bounds by assuming the role of a Chartered Accountant. However, after hearing the arguments and examining the record, the tax appeal was not entertained.

[3.0] The Assessing Officer disallowed the claim of the assessee for share trading and F&O losses, allowing OD interest, stating that these transactions were not reflected in the profit and loss accounts. The Commissioner (Appeals) disagreed with the Assessing Officer's reasoning and ruled in favor of the assessee, deleting the addition. The Tribunal upheld this decision for future holding loss but remanded the matter to the AO for share trading loss.

[4.0] The CIT(Appeals) noted that the assessee followed a consistent method of income/loss computation, and although the F&O losses and share trading were not directly debited to the capital account, they were reflected in the consolidated P&I account. The Tribunal concurred with these findings, emphasizing the substantiating documents like audited reports, broker's book copies, and time-stamped contract notes, concluding that the transactions fulfilled business criteria.

[5.0] The Tribunal upheld the CIT(Appeals) findings, emphasizing the evidence presented by the appellant, including contract notes, audited reports, and supporting documents. It dismissed the Revenue's appeal on future and option transactions but set aside the issue of share loss for lack of evidence, remanding it to the AO.

[6.0] The Tribunal remanded the share loss issue due to insufficient evidence but supported the CIT(Appeals) decision on F&O activity. It highlighted that the mere accounting treatment of debiting items in the capital account instead of the P&I account does not invalidate legally acceptable evidence supporting the transactions.

[6.1] Reference was made to the Supreme Court's decision in Kedarnath Jute Mfg. Co. Ltd. vs. CIT, emphasizing that the deduction entitlement depends on the law, not the assessee's accounting treatment. In this case, despite the improper accounting treatment, the overwhelming evidence supported the assessee's claim.

[7.0] The Court observed that although the item should have been debited in the P&I account, the voluminous documents supported the assessee's claim. As no substantial question of law arose, the tax appeal was not further considered.