2018 (4) TMI 874 - AT - Income Tax

Treating loss from derivative transactions as loss from speculation business - not allowing the setting off of this loss against regular business income and income from other sources - Held that - It is not clear from the records that whether the assessee had made any factual submissions before the ld AO that the loss of ₹ 19,63,492/- was incurred out of derivative transactions are not. We are not able to ascertain the same from the paper book filed by the assessee except placing reliance on Form 10DB filed by the ld AR. No doubt, if the said loss is incurred from derivative transactions, the same would not be speculation loss in terms of section 43(5)(d) of the Act. This requires factual verification by the ld AO. Hence we deem it fit and appropriate, in the interest of justice and fairplay, to remand this issue to the file of ld AO for denovo adjudication. The assessee is at liberty to furnish necessary documents and evidences in this regard in support of his contentions. Addition u/s 68 - unexplained cash credit - Held that - Some of the loan creditors had in fact appeared before the ld AO in response to the summons issued u/s 131 of the Act. The ld AO had not given any credit even for the parties who had appeared before him in response to summons u/s 131 of the Act. The assessee had also stated that more parties could have been produced before the ld AO during remand proceedings but for the sickness of the assessee. In these circumstances, we deem it fit and appropriate, in the interest of justice and fair play, to remand this issue to the file of the ld AO for de novo adjudication to give one more opportunity to the assessee to produce the parties who were not produced earlier before the ld AO. Accordingly, the Ground Nos. 2(a) to 2(c ) raised by the assessee are allowed for statistical purposes.

Summary

Issues:
1. Treatment of loss from derivative transactions as speculation loss.
2. Addition of unsecured loans under section 68 of the Income Tax Act.

Issue 1: Treatment of loss from derivative transactions as speculation loss

The appeal addressed whether the Assessing Officer (AO) was justified in treating a loss from derivative transactions as a loss from speculation business, disallowing its set-off against regular business income and income from other sources. The appellant, an individual running a petrol pump, had claimed a loss of &8377; 19,63,492 as regular business loss, set off against petrol bunk business income. The Income Tax Appellate Tribunal (ITAT) found the issue involved a mixed question of fact and law, requiring factual verification by the AO. The ITAT remanded the issue to the AO for de novo adjudication, allowing the appellant to furnish necessary documents and evidence, emphasizing the need for factual verification before determining the nature of the loss and its set-off eligibility.

Issue 2: Addition of unsecured loans under section 68 of the Income Tax Act

The second issue revolved around the addition of &8377; 11,37,227 as unexplained cash credit under section 68 of the Act. The AO observed discrepancies in the creditors' financial ability to afford loans, with some being daily wage earners. Despite summonses and statements recorded, the AO found insufficient evidence of creditors' creditworthiness and genuineness of transactions. The appellant submitted explanations, citing the absence of some creditors due to agricultural engagements and lack of banking facilities in the village. The ITAT noted that the three key aspects - identity of creditors, creditworthiness, and transaction genuineness - were not adequately proven by the appellant during assessment or remand proceedings. Consequently, the ITAT upheld the addition under section 68. However, considering the appellant's illness preventing creditor production, the ITAT remanded the issue to the AO for further adjudication, allowing the appellant an opportunity to present the missing creditors for verification.

In conclusion, the ITAT's judgment involved a detailed analysis of the treatment of losses from derivative transactions and the addition of unsecured loans under section 68 of the Income Tax Act. The decision emphasized the importance of factual verification, fair play, and providing opportunities for the appellant to substantiate claims and present evidence before the AO for a comprehensive assessment.