2018 (1) TMI 1520 - AT - Income Tax

Disallowance towards set off of fictitious losses - Addition towards unexplained expenditure - survey proceedings u/s 133A - HELD THAT - No spot verification u/s 131(1A) of the Act was carried out against the assessee and the addition was made merely on the basis general information. A search action u/s 132 of the Act was carried out in commodity market group of cases on 19/06/2007 wherein as per the Revenue some data pertaining to trade modification and client code changes of the brokers was collected. Subsequently survey proceedings u/s 133A of the Act was conducted on 25/03/2008 at the business premises of the assessee. The assessee offered additional income of 33, 22, 000/-. The whole case of the Revenue is that the assessee made huge client code modification resulting into loss of 2, 88, 55, 000/-. The case of the assessee is that all the transactions were made on recognized stock exchange i.e. MCX through authorized broker M/s Riddi Siddhi Bullions Ltd. and the assessee also furnished the code of contract note. CIT (Appeal) dully followed the decision of the Tribunal in the case of Income Tax Officer vs Pat Commodity Services Pvt. Ltd. 2015 (8) TMI 973 - ITAT MUMBAI and Sambhava Investment Ltd. 2014 (1) TMI 84 - ITAT MUMBAI and deleted the addition. The revenue authorities ignored the reply to question no.9 wherein the partner of the assessee denied of having made any request for any change in client code. The assessee also paid a margin money of 2.90 crores to RSBL which is evident from the statement of account of RSBL which has been adjusted against the losses of the assessee. Undisputedly the transactions have done through recognized exchange and no evidence has been brought on record to defy the transaction by any denial from exchange authorities. Thus we find no infirmity in the conclusion drawn by the Commissioner of Income Tax (Appeal). Identical is the situation for deleting the addition towards unexplained expenditure. Resultantly the appeal of the Revenue is dismissed.

Summary

Issues:
1. Disallowance of set off of fictitious losses
2. Addition made towards unexplained expenditure
3. Cross objection not pressed

Analysis:
1. The Revenue challenged the order of the Ld. First Appellate Authority, Mumbai, which deleted the disallowance of set off of fictitious losses and an addition towards unexplained expenditure. The Ld. DR argued for the Revenue, while the Assessee's representative defended the conclusion that the Assessee, being an investor and not a broker, should not be held responsible for any wrongdoing by the broker. The Tribunal considered the facts that the Assessee is engaged in shares and stock broking, declared income, and received a notice u/s 148. The Ld. Assessing Officer made additions, alleging fictitious losses and unexplained expenditure. The Assessee contended that no fictitious profit/loss was created, and the transactions were legitimate. The Tribunal upheld the Ld. Commissioner's decision, citing lack of evidence against the Assessee and following precedents, leading to the dismissal of the Revenue's appeal.

2. The Revenue also challenged the addition made towards unexplained expenditure. The Ld. Commissioner of Income Tax (Appeal) had deleted this addition, and the Tribunal found no fault in this decision. The Assessee's explanation, lack of evidence against them, and adherence to recognized stock exchange procedures were crucial factors in the Tribunal's decision. The Tribunal dismissed the Revenue's appeal, upholding the deletion of the addition towards unexplained expenditure.

3. The cross objection by the Assessee was not pressed by their counsel, leading to its dismissal. Ultimately, both the appeal of the Revenue and the cross objection of the Assessee were dismissed. The judgment was pronounced in open court in the presence of representatives from both sides on 03/01/2018.