2016 (4) TMI 671 - AT - Income Tax

Loss relating to trading in gold and silver - business loss OR speculation loss - Held that - In view of the order in the case of Varsha Corporation 2015 (6) TMI 124 - ITAT MUMBAI we are inclined to uphold the order of the Assessing Officer that loss arising out of the commodities dealt with by the assessee i.e gold, silver, copper, zinc, natural gas, nickel etc are to be considered as speculation loss only and the assessee is not entitled to set off the same against business income of the assessee. - Decided against assessee Addition made towards inflated purchase of gold - Held that - The common practice in the jewellery business cannot prove genuineness of the purchases made by the assessee. Further, the Sales Tax Department is only concerned with the sales tax on the sales made by the assessee. They are not certifying the correctness of the local purchases made by the assessee. Being so, it cannot be considered as the evidence produced by the assessee is foolproof. Since the assessee has not produced all relevant records to prove the genuineness of the local purchases made by the assessee, the Assessing Officer is justified in disallowing the claim towards the local purchases of old gold jewellery made by the assessee. - Decided against assessee Addition made u/s 68 towards sundry creditors - Held that - CIT(A) simply observed that I find that the Assessing Officer after due verification has not commented adversely on any of the explanation given by the appellant and deleted the addition. The findings of the CIT(A) is very cryptic. There are no details on the basis of which he has given relief to the assessee. Hence, in our opinion, it is appropriate to remit the matter back to the file of the CIT(A) for reconsideration. The ld. CIT(A) shall pass a detailed order in accordance with law.

Issues Involved:
1. Treatment of speculative loss vs. business loss.
2. Deletion of addition towards inflated purchase of gold.
3. Deletion of addition made under Section 68 towards sundry creditors.
4. Deletion of addition towards unexplained cash deposits under Section 68.

Issue-wise Detailed Analysis:

1. Treatment of Speculative Loss vs. Business Loss:

The assessee, engaged in trading gold, silver, and diamond jewelry, transacted in commodities on the MCX Stock Exchange Ltd. The Assessing Officer (AO) disallowed the set-off of a speculative loss of Rs. 1,42,27,933 against the profit of non-speculative business, deeming it speculative under Section 43(5) of the Act. The AO noted that the transactions in commodities like crude oil, zinc, and nickel had no nexus to the assessee's business of gold and silver trading. The CIT(A) partially allowed the assessee's claim, recognizing Rs. 37,31,630 related to gold and silver as business loss, while treating Rs. 1,04,96,303 related to other commodities as speculative loss. The Tribunal upheld the AO's decision, emphasizing that MCX was not a recognized stock exchange during the relevant period, thus the entire loss was speculative and not eligible for set-off against business income.

2. Deletion of Addition Towards Inflated Purchase of Gold:

For the assessment years 2007-08 and 2008-09, the AO disallowed purchases of old gold amounting to Rs. 1.06 crores and Rs. 2.36 crores respectively, due to the assessee's failure to produce details of the parties from whom the gold was purchased. The CIT(A) deleted the addition based on the common practice in the jewelry business and the acceptance of sales by the Sales Tax Department. However, the Tribunal found this reasoning insufficient, noting that the common practice and sales tax acceptance do not prove the genuineness of purchases. The Tribunal upheld the AO's disallowance, as the assessee failed to provide adequate evidence.

3. Deletion of Addition Made Under Section 68 Towards Sundry Creditors:

For the assessment year 2007-08, the AO added Rs. 2.10 crores as unexplained cash credit under Section 68, representing chit collections, security deposits, and purchases, due to lack of explanation and supporting evidence. The CIT(A) deleted the addition, citing the AO's lack of adverse comments on the explanations provided. However, the Tribunal found the CIT(A)'s findings cryptic and lacking detailed analysis. The matter was remitted back to the CIT(A) for reconsideration and a detailed order.

4. Deletion of Addition Towards Unexplained Cash Deposits Under Section 68:

For the assessment year 2007-08, the AO added Rs. 63.47 lakhs as unexplained cash credit under Section 68, noting that the assessee failed to explain the source and nature of cash deposits. The CIT(A) deleted the addition, referencing the AO's verification of invoices and ledger accounts without adverse comments. The Tribunal found the CIT(A)'s findings general and lacking in detail. The issue was remitted back to the CIT(A) for reconsideration and a detailed order.

Conclusion:

The Tribunal allowed the Revenue's appeals partially and dismissed the assessee's appeal. The matters regarding inflated purchase of gold and unexplained cash deposits were remitted back to the CIT(A) for detailed reconsideration. The treatment of speculative loss was upheld as per the AO's original assessment.

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