2014 (1) TMI 984 - AT - Income Tax

Nature of loss on share transaction - speculative transaction or not - Held that - The clearing difference has been determined by the appellant on the basis of statement of purchase and sales of shares and securities made on his behalf by broker - A perusal of the ledger account of broker maintained in the books of the appellant and the contract notes issued by the said company clearly reveals that the broker has actually purchased and sold shares and securities on behalf of the assessee and necessary charges on account of STT, stamp duty and other statutory levies have been debited to the assessee s account - The purchase and sale is routed through demat accounts and the only way to find out the profit and loss on the purchase and sales of securities made through a broker is the account statement submitted by such broker from time to time. In the present case, the appellant has maintained all the regular books of accounts and all necessary details have been filed before the AO in the course of assessment proceedings - The loss claimed is normal business loss - Decided against Revenue. Interest free unsecured loans received - additions u/s 56 rw.s. 68 - Held that - the appellant has furnished all necessary evidence, namely, confirmations, copy of returns, copy of balance sheet and P&L A/c and the copy of bank statements evidencing obtaining and repayment of loans in question. Therefore, the primary burden placed on the appellant to prove the identity and creditworthiness of the creditors and genuineness of transactions was duly discharged - in the course of remand proceedings, all the creditors have appeared before the AO and their statements have been recorded. Therefore, the case of the appellant is that the issue of loans/cash credits cannot be decided on the basis of a solitary failure on the part of the appellant to produce the creditors in the course of assessment on short notice - merely because at a particular point of time they were not found at the given addresses would not be sufficient to hold that the said companies are non-existent entities and the transactions are bogus - Decided against Revenue.

Issues Involved:

1. Nature of loss on share transaction.
2. Addition under Section 68 of the Income Tax Act concerning interest-free unsecured loans.

Detailed Analysis:

1. Nature of Loss on Share Transaction

The primary issue revolves around whether the loss on account of intra-day trading in shares settled through clearing difference bills is speculative in nature. The assessee, engaged in trading stocks and shares as a sub-broker, claimed a loss of Rs. 66,35,210/- on account of clearing differences. The Assessing Officer (AO) treated this loss as speculative and separated it from other business losses for set-off and carry-forward purposes.

Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] considered the detailed submissions and found that the loss was determined based on statements of purchase and sales of shares and securities made on behalf of the assessee by M/s. Indus Portfolio (P) Ltd. The CIT(A) noted that the transactions were executed through demat accounts, and all necessary charges, including STT and stamp duty, were debited to the assessee's account. The CIT(A) concluded that the AO was not justified in treating the loss as speculative, directing it to be treated as a normal business loss, consistent with the treatment in previous and subsequent assessment years.

The Tribunal affirmed the CIT(A)'s order, noting that the findings were cogent and similar losses in other years were treated as normal business losses. Thus, the loss was not speculative but a normal business loss.

2. Addition Under Section 68 of the Income Tax Act Concerning Interest-Free Unsecured Loans

The second issue pertains to the addition of Rs. 1,55,00,000/- under Section 68 of the Income Tax Act, related to unsecured loans received by the assessee. The AO found that the assessee received loans from several entities but failed to prove the creditworthiness and genuineness of these transactions. The AO treated these amounts as unexplained cash credits, citing issues such as non-existent entities, lack of proper documentation, and the nature of transactions indicating accommodation entries.

Upon appeal, the CIT(A) reviewed additional documents and obtained a remand report from the AO. The CIT(A) found that the assessee provided necessary evidence, including confirmations, copies of returns, balance sheets, and bank statements, proving the identity and creditworthiness of the creditors and the genuineness of the transactions. The CIT(A) noted that the creditors were corporate entities registered with the ROC and regular income tax assessees. The creditors also appeared before the AO during remand proceedings and confirmed the loans and their repayments.

The CIT(A) further analyzed the balance sheets of the creditor companies, finding that they had sufficient funds to advance the loans. The Tribunal affirmed the CIT(A)'s order, noting that all documentary evidence was submitted, creditors confirmed the loans, and the loans were repaid in the subsequent financial year. The Tribunal found no infirmity in the CIT(A)'s order, holding that the loans were properly supported by evidence.

Conclusion

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s orders on both issues. The loss on share transactions was treated as a normal business loss, and the addition under Section 68 concerning unsecured loans was deleted, as the transactions were found to be genuine and adequately supported by evidence. The order was pronounced in the Open Court on 17/1/2014.

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