2018 (3) TMI 1967 - AT - Income Tax

Carry forward of speculation loss and short term capital loss - HELD THAT - Sec. 73 of the Act prescribes that any loss computed in respect of a speculation business shall not be set off except against the profit and gains, if any, of any speculation business. In the case before us, the assessee claimed that it has incurred a speculation loss during the year and in the absence of any speculation income, he sought to carry forward the same to the subsequent assessment year. For the reasons noted by us in the earlier part of this order, the Assessing Officer inferred that the speculation loss was not genuine and he denied the carry forward of the same. Whether it was permissible to carry forward and set-off such loss in the subsequent years for not more than four assessment years immediately succeeding the instant year? - It has been factually brought out that in the returns of income filed for the subsequent four assessment years, such loss was not set-off in the absence of any eligible income, i.e. speculation income. The aforesaid assertions of the assessee have been consistently made before the lower authorities and we find that the same is duly supported by the copies of returns of income placed in the Paper Book filed before us for Assessment Years 2008-09 to 2012-13. Under these circumstances, we find merit in the plea raised by the assessee that the action of the AO in denying the benefit of carry forward of speculation loss on the ground of it being non-genuine is of no consequence so far as the determination of assessee s tax liability in the instant as well as in the subsequent years is concerned. The action of the AO is quite nugatory and does not result in any variation in tax liability determined by the assessee in its returns of income in the instant as well as in the assessment years up to 2012-13 qua the said speculation loss is concerned. Therefore, we do not find any reasons to uphold the action of the income-tax authorities on this aspect. Carry forward of short term capital loss transacted through broker - As the preliminary plea by the assessee has not been properly adjudicated. Notably, the entire assessment is based on the findings and information resulting from search proceedings in the case of Shri Mukesh Choksi and his group concerns. The counter argument by the assessee was that M/s. Alankit Assignments Ltd. was not a concern related to Shri Mukesh Choksi and, in support, the relevant documents being broker note, bank statement, etc. was produced. We find that the said plea has not at all been addressed by the Assessing Officer or by the CIT(A). The aforesaid plea is a fundamental aspect, which needs to be thrashed out at the beginning itself, an approach which is conspicuous by its absence in the orders of the authorities below. Therefore, we deem it fit and proper to set-aside the aspect relating to assessment of assessee s claim of carry forward of short term capital loss back to the file of the Assessing Officer. Appeals of all the assessee are partly allowed.

Summary

Issues:
- Denial of claim for carry forward of Speculation Loss and Short Term Capital Loss
- Genuineness of transactions and treatment as accommodation entries

Analysis:
1. The judgment involves three appeals by different assessees from the same family for Assessment Year 2007-08, raising common issues. The lead case pertains to the order of CIT(A)-52, Mumbai dated 28.02.2017, concerning the denial of carry forward of Speculation Loss and Short Term Capital Loss. The Assessing Officer doubted the genuineness of the losses due to transactions with a concern controlled by Shri Mukesh Choksi, following search action in the Mahasagar Group of cases. The assessee provided evidence to support the transactions, including broker notes and bank statements.

2. The Assessing Officer and CIT(A) rejected the claims based on information from the search on Shri Mukesh Choksi, disregarding the evidence presented by the assessee. The assessee argued that the losses were genuine and should be allowed for carry forward. The ITAT noted that the speculation loss was not set-off in subsequent years due to lack of eligible income, rendering the denial of carry forward inconsequential for tax liability determination.

3. Regarding the Short Term Capital Loss, the assessee contended that transactions were through a broker not related to Shri Mukesh Choksi. The ITAT found that this aspect was not properly adjudicated, and the claim was based on the findings from the search proceedings. The case was remanded back to the Assessing Officer for appropriate verification of the claim, emphasizing the need for a thorough examination of the genuineness of the transactions.

4. The ITAT partly allowed the appeal of the lead case, directing the reassessment of the claim for carry forward of Short Term Capital Loss. The decision in the lead case applied mutatis mutandis to the other appeals from family members. Consequently, all appeals were partly allowed, emphasizing the importance of addressing the genuineness of transactions and providing a fair opportunity for the assessee to support their claims.