2015 (10) TMI 1470 - AT - Income Tax

Addition on speculation loss - the same was not eligible for set off against the business income of the appellant as held by CIT(A) - whether the impugned transaction is of speculative in nature or not? - Held that - One of the tests to determine whether the transaction is done with an intention to speculate and make profit from the rate fluctuation is to see whether the assessee has sufficient funds to make the payment for purchases. If the assessee does not have money to make the payment for purchases, then the conduct of the assessee is suggestive of speculation. Undisputedly, the purchase and sales are supported by respective invoices. The transactions have also been confirmed by the respective parties. However, at the same time we find that the impugned transactions have not been verified by the AO from the respective parties which is a clear distinguishing factor from the facts of the decision relied upon in the case of Mobile Trading & Investment Pvt. Ltd. (2015 (6) TMI 637 - ITAT MUMBAI). In that case the parties were produced before the AO . We also find that in that case the AO has issued summons u/s. 131 of the Act to the dealers from whom the assessee claimed to have purchases and sales, such investigations are not made in the present case. Therefore, in the interest of justice and fair play, we restore this issue to the file of the AO. The AO is directed to verify the impugned transactions from the respective parties by making verifications from their end as per the provisions of the law. The AO is also directed to verify whether the assessee was having sufficient funds to make the first purchase and decide the issue afresh after giving reasonable and fair opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purpose.

Summary

Issues:
1. Addition of Rs. 2.61 crores by AO on different grounds.
2. Classification of loss as speculative by CIT(A).
3. Verification of impugned transactions by AO.

Analysis:
1. The appeal was against the Ld. CIT(A)'s order for the assessment year 2008-09. The assessee raised three grounds of appeal, but ground No.1 was not pressed and dismissed. Grounds 2 & 3 challenged the AO's addition of Rs. 2.61 crores and the classification of the loss as speculative by the CIT(A).

2. The AO observed a loss of Rs. 2.51 crores in the gold trading account of the assessee and added it to the total income, considering the transactions as sham. The assessee explained the transactions were to secure direct supply from MMTC due to lack of capital. The AO rejected the explanation and added the amount to the income.

3. The CIT(A) upheld the AO's decision, treating the loss as speculative under Sec. 43(5) of the Act. The CIT(A) noted the lack of evidence on delivery and dismissed the appeal. The assessee appealed, presenting documentary evidence and referring to a Tribunal decision in a similar case.

4. The ITAT considered the previous decisions and found the genuineness of the transactions not in dispute. The crucial question was whether the transactions were speculative. The ITAT noted the lack of verification by the AO from the respective parties, unlike in the referenced case. Therefore, the ITAT directed the AO to verify the transactions and the funds available to the assessee before deciding the issue afresh.

5. Consequently, the ITAT allowed the appeal for statistical purposes, emphasizing the need for fair verification and a fresh decision by the AO. The order was pronounced on 21.8.2015, setting aside the CIT(A)'s classification of the loss as speculative and requiring further investigation by the AO.