2019 (3) TMI 1717 - AT - Income Tax

Disallowance of loss on rate settlement (contracts) - perusal of the order of the CIT(A) shows that while deciding the appeal the FAA has considered certain documents - HELD THAT - When these documents were filed for the first time before the CIT(A) the least he could have done was to call for a remand report from the Assessing Officer. In our understanding of the facts the CIT(A) has violated the basic principles of natural justice. Therefore, this issue is restored to the files of the Assessing Officer. The assessee is directed to furnish all the necessary evidences before the Assessing Officer and the Assessing Officer is directed to verify the same and decide this issue afresh after giving a reasonable opportunity of being heard to the assessee. Ground No.1 is allowed for statistical purpose. Disallowance of speculative loss on derivative trading on MCX - Whether it was not an approved stock exchange within the meaning of proviso (d) of section 43(5) ? - HELD THAT - There is some confusion over the exchange where the loss has arisen. The Assessing Officer has proceeded by considering that the transaction was done, through multi commodity stock exchange of India Limited whereas the FAA has proceeded on the premise that the transaction has been done through multi commodity stock exchange. Since the recognition has been given to MCX and not Multi commodity stock exchange of India limited, therefore, in our opinion this has to be verified again. We, therefore, restore this issue to the files of the Assessing Officer. The assessee is directed to demonstrate that his transactions were done, through the exchange which was subsequently notified as a recognized exchange. The Assessing Officer is directed to examine the evidences and decide the issue afresh. The ground No.2 is also allowed for statistical purpose.

Summary

Issues:
1. Correctness of order by CIT(A)-16, New Delhi dated 02.02.2016 for A.Y. 2010-11.
2. Deletion of addition of ?1,05,48,477 and sustaining addition of ?21,80,882 for disallowance of loss on rate settlement.
3. Deletion of addition of ?12,93,875 for disallowance of speculative loss on derivative trading on MCX.

Analysis:
1. The appeal challenged the CIT(A)'s order for A.Y. 2010-11. The primary grievance was the deletion of ?1,05,48,477 and sustaining of ?21,80,882 for loss on rate settlement. The ITAT found a violation of natural justice by the CIT(A) for not calling a remand report when new documents were submitted. The issue was sent back to the Assessing Officer for a fresh decision after the assessee provides necessary evidence.

2. Regarding the deletion of ?12,93,875 for speculative loss on MCX trading, the Assessing Officer disallowed the loss as speculative after analyzing section 43(5) provisions. The CIT(A) referred to a Delhi High Court judgment stating that transactions post 1.4.2006 on MCX should be considered as business transactions. The ITAT noted a discrepancy in the exchange where the loss occurred, directing the issue back to the Assessing Officer for verification based on the correct exchange used by the assessee.

3. The ITAT allowed the appeal for statistical purposes, highlighting the need for proper verification and adherence to legal principles in deciding on the additions made by the Assessing Officer. The judgment emphasized the importance of following legal precedents and ensuring accurate assessment based on the specific provisions of the Income Tax Act.