2018 (5) TMI 2024 - AT - Income Tax

Disallowance of claim for loss incurred in the dealing in currency derivatives - HELD THAT - As submitted on behalf of the assessee before the CIT(A) as well as before us, expenditure was incurred by the assessee relating to the said transactions on account of brokerage, service tax and other charges levied by the broker and accordingly the total loss as claimed by the assessee. As pointed out this additional expenditure incurred by the assessee on account of brokerage, service tax and other charges was duly supported by the documentary evidence in the form of relevant bills issued by the broker and there was no reason whatsoever given by the CIT(A) for not accepting this explanation of the assessee. Genuineness of the transactions made by the assessee on MCX Stock Exchange Ltd. through broker Marigold Vanijya Pvt. Ltd. was duly established and the action of the authorities below in disallowing the claim of the assessee for the resultant loss in dealing in currency derivatives is not tenable. Therefore, delete the said disallowance and allow the appeal of the assessee.

Summary

Issues involved:
Disallowance of assessee's claim for loss in currency derivatives.

Analysis:
The appeal was against the disallowance of the assessee's claim for a loss of ?13,10,688 incurred in dealing in currency derivatives. The assessee, an individual deriving income from Futures, Options, and Shares, filed the return of income declaring a total income of ?22,11,320, including the claimed loss. The Assessing Officer (A.O.) received information that the broker was providing bogus losses in currency derivatives. The assessee explained that the transactions were genuine, supported by valid contract notes and payments made through cheques. However, the A.O. did not find the explanation acceptable and disallowed the claim. The Commissioner of Income Tax (Appeals) upheld the disallowance, leading to the appeal before the Tribunal.

The A.O. disallowed the claim based on the broker's admission of providing bogus losses and the profit shown in the transactions. However, the Tribunal noted that the A.O. verified the transactions with the stock exchange, confirming their genuineness. The transactions resulted in a small profit, but the assessee claimed a loss due to additional charges. The Tribunal found that the additional charges were supported by documentary evidence, and the A.O. failed to provide a valid reason for rejecting the explanation. Therefore, the Tribunal concluded that the genuineness of the transactions was established, and the disallowance was not justified. Consequently, the Tribunal allowed the appeal, deleting the disallowance of the loss in dealing in currency derivatives.

In conclusion, the Tribunal overturned the disallowance of the assessee's claim for loss in currency derivatives, emphasizing the genuine nature of the transactions supported by documentary evidence. The Tribunal found the A.O.'s reasoning insufficient to reject the claim and accepted the assessee's explanation regarding the additional charges incurred, leading to the allowance of the appeal.