2016 (4) TMI 427 - AT - Income Tax

Loss from commodity trading business disallowed - refusal to allow to be set off against any other income or to be allowed to be carried forward for future set off against the income from speculation business - Held that - We hold that without carrying out requisite enquiries as provided in the Act, merely treating the loss claimed to be a fictitious loss based on surmise and suspicion and by making general baseless allegations without bringing any evidence on record, the action of the Learned CIT(A) is unjustified. Hence the only point to be addressed in this issue is as to whether the activity of trading in commodity transactions by the assessee could be construed as speculation activity in the facts and circumstances of the case in the context of section 73 of the Act read with its Explanation thereon. We find that the Learned AO had treated the assessee s activity of share trading to be normal business as according to him the principal business of assessee is granting of loans and advances. He had reached this conclusion on the ground that interest income on loans of ₹ 35,21,584/- is more than the income from share trading of ₹ 13,62,106/-. Accordingly he held that the assessee s case falls under the exception to Explanation to Section 73 of the Act. Having concluded so, he ought to have treated the loss on commodity transactions as a normal business loss and allowed to be set off against the speculative income as admittedly in the instant case the profit from trading in shares has been accepted as arising from speculative business. Hence there was no need to make any addition towards loss on commodity transactions. - Decided in favour of assessee

Summary

Issues:
- Whether disallowance could be made towards loss on commodity transactions.

Analysis:
1. The appeals arose from separate orders of the CIT(A) for the assessment year 2008-09 in the cases of two different assesses. The issue in both appeals was identical, focusing on the disallowance of loss on commodity transactions.

2. The primary contention was whether the loss from commodity trading could be set off against other income or carried forward for future set off, as claimed by the assessee.

3. The assessee argued that the loss on commodity transactions should be allowed to set off against income from share trading and other sources, emphasizing that the loss was genuine and not fictitious.

4. The Tribunal examined the documents provided by the assessee, including contract notes and invoices from a registered commodity broker, confirming the legitimacy of the commodity trading activities. The Tribunal found no basis for the CIT(A) to treat the loss as fictitious.

5. The Tribunal criticized the CIT(A) for not conducting necessary inquiries with the commodity broker and for relying on irrelevant precedents to conclude the loss was bogus. The Tribunal held that the CIT(A)'s actions were unjustified.

6. Regarding the applicability of Section 73 of the Income Tax Act, the Tribunal determined that the loss on commodity transactions should be treated as a normal business loss and set off against speculative income from share trading.

7. Consequently, the Tribunal directed the Assessing Officer to delete the additions made towards the loss on commodity transactions in both appeals, allowing the grounds raised by the assessee.

8. Ultimately, the Tribunal allowed the appeals of the respective assesses, pronouncing the order in open court on 9th March 2016.