2018 (4) TMI 1295 - AT - Income Tax

Disallowance of loss made on account of transactions in derivatives - bogus loss - client s code and name modification initiated - Held that - As decided in assessee s own case for the A.Y 2009-10 2017 (6) TMI 1211 - ITAT KOLKATA that modifications are permitted by NSE and such modification carried out within the prescribed time limit provided by NSE. Indeed the client s code and name were modified in respect of transactions claimed by assessee. However, on perusal of record. We find that the impugned transactions were carried out through banking channel and all the supporting evidence such as contract note, payment of STT were filed at the time of assessment proceedings. We also find that Ld. CIT(A) confirmed the order of AO on the basis of his guess-work as evident from his appellate order saying there is a possibility that the modifications might have been made to accommodate the appellant as the broker of the appellant was a sister concern. The details furnished by the assessee in respect of transactions giving rise to the loss were exactly matching with the details furnished by the NSE. In none of the case Authorities Below have brought on record where any mismatch is found between the books of the assessee and the confirmation received from NSE. Had there been any manipulation in the impugned loss then it could have been revealed from the confirmation received from NSE. Therefore, the modifications in the client s name and code cannot justify the impugned loss as bogus and the impugned loss claimed by assessee is genuine loss - Decided in favour of assessee

Summary

Issues:
Whether the CIT(A) was justified in confirming the disallowance of loss made by the AO on account of transactions in derivatives.

Analysis:
The appeal by the Assessee challenged the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of loss from derivative transactions for the A.Y 2008-09. The primary issue was whether the CIT(A) was correct in confirming the disallowance of the loss amounting to ?5,46,885. The Assessee argued that a similar issue had been decided in their favor in a previous case for the A.Y 2009-10, where the Tribunal had held that modifications made by the broker were within permissible limits set by NSE. The Assessee contended that the loss claimed was genuine and supported by evidence such as contract notes and STT payments. The Departmental Representative agreed that the issue was similar to the previous case but raised concerns about the modifications exceeding guidelines and the adjustment of profit from other sources. The Tribunal noted that the issue was indeed covered in favor of the Assessee by the previous order for the A.Y 2009-10, where the Tribunal had found the modifications permissible and the loss genuine. The Tribunal emphasized that the modifications were made within the prescribed time limit by NSE and that there was no tangible material to treat the loss as bogus. The Tribunal also highlighted that the details provided by the Assessee matched those from NSE, indicating no manipulation. The Tribunal concluded that the CIT(A) was unjustified in confirming the disallowance of the loss on derivative transactions and directed the deletion of the same, allowing the Assessee's appeal.

Conclusion:
The Tribunal ruled in favor of the Assessee, holding that the CIT(A) was not justified in confirming the disallowance of the loss from derivative transactions. The Tribunal found that the loss claimed was genuine, supported by evidence, and the modifications made by the broker were within permissible limits. Therefore, the disallowance of the loss amounting to ?5,46,885 was directed to be deleted. The appeal of the Assessee was allowed, and the order was pronounced on 30-08-2017.