2015 (1) TMI 749 - HC - Income Tax

Loss on account of intraday trading in shares - whether speculative in nature? - Held that - Both the CIT (Appeal) and the ITAT took into consideration the assessee s explanation that certain intraday transactions broadly described as clearing differences , were held over in the sense that the delivery had to be obtained. The assessee had also apparently argued before the concerned authorities and placed a chart reflecting the transactions to support the submission that even in respect of intraday sales, consideration had passed. A look at the order of the CIT (Appeal) as well as ITAT nowhere reflect this position. Even the discussion of the assessing officer while including a sum of ₹ 66,35,210/- would show that the no rationale has been given as to whether in fact consideration flowed for the intraday purchases and sales effected by the assessee so as to take it out of the mischief. Thus the matter should be considered afresh and express findings recorded as to whether in fact intraday purchases and sales made by the assessee were jobbing transactions and whether consideration has passed. - Decided in favour of assessee for statistical purposes. Interest-free loans secured by the assessee - addition under Section 68 - Held that - All the seven creditors of the assessee had confirmed the transactions. Their creditworthiness was established in the sense that relevant documents in support of their possessing and requisite funds to advance loans to the assessee were examined. It was also noticed that this amount was represented by the assessee to the said creditors. In the circumstances, the appropriate course if the assessing officer felt that being interest-free, certain amounts were deemed to be included as income-was to do so in accordance with law rather than proceeding under Section 68 as he did. The mandate of the law as explained in CIT V. Lovely Exports (P) Ltd. 2008 (1) TMI 575 - SUPREME COURT OF INDIA is that onus is upon the assessee to disclose the true identity of the creditor and the creditworthiness of the said party. In this case since the identity and creditworthiness had been established, genuineness was a matter of inference. This Court is satisfied that both the CIT and ITAT acted in consonance with law. No substantial question of law arises in this count.

Summary

Issues:
1. Whether the assessee's loss on intraday trading in shares is speculative and liable to be treated as such?
2. Whether interest-free loans secured by the assessee are liable to be added under Section 68 of the Act?

Issue 1:
The revenue challenged the ITAT's order regarding the assessee's loss on intraday trading and loans. The assessing officer treated the loss as speculative under Section 73(1) and added the loans back under Section 68. However, the CIT and ITAT disagreed, stating the transactions were not speculative, and the shares were purchased on a firm basis. The CIT(Appeal) found that the loss was not speculative, considering the evidence provided by the assessee, and directed to treat it as a normal business loss. The Court agreed that the matter should be reconsidered to determine if the intraday transactions were jobbing transactions and if consideration had passed, instructing the CIT(Appeal) to call for a remand report.

Issue 2:
Regarding the addition of loans under Section 68, both the CIT and ITAT examined the matter thoroughly. The creditors confirmed the transactions, and their creditworthiness was established. The assessing officer should have treated the amounts as income if deemed necessary, rather than proceeding under Section 68. The law mandates the assessee to disclose the true identity and creditworthiness of the creditor, which was done in this case. As the identity and creditworthiness were proven, genuineness was inferred. The Court found that both the CIT and ITAT acted in accordance with the law, and no substantial question of law arose in this regard. The appeal was partly allowed based on these findings.