2018 (4) TMI 1361 - AT - Income Tax

Disallowance of claim on account of derivative transactions - bogus loss - Held that - The assessee has provided documentary evidence by way of contract notes, bank statements evidencing cheque payments for all these transactions, payment of security transactions tax before the Assessing Officer. The National Stock Exchange has confirmed that these transactions have taken place in the exchange and in the name of the assessee. 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. The impugned loss claimed by assessee is genuine loss in the above facts and circumstances of the case and therefore eligible for deduction. See M/s. Ratnabali Commodities vs ITO 2018 (4) TMI 1295 - ITAT KOLKATA - Decided in favour of assessee

Summary

Issues:
Disallowed claim on derivative transactions

Analysis:
The appeal was against the order of the Commissioner of Income Tax (Appeals) relating to Assessment Year 2008-09. The Assessing Officer disallowed the claim on derivative transactions, suspecting manipulation due to Client Code Modification (CCM) by the broker. The Assessing Officer sought verification from the stock exchange, which confirmed modifications. The assessee provided contract notes, banking channel payments, and confirmations to establish transaction genuineness. The Assessing Officer applied the theory of human probabilities, citing Supreme Court decisions. The First Appellate Authority upheld the disallowance, emphasizing improbability of human error in all transactions and dismissed the assessee's contentions based on Supreme Court rulings. The Tribunal analyzed a similar case where modifications were permitted by the stock exchange and confirmed genuine transactions based on supporting evidence. The Tribunal emphasized that the order should not be based on surmise and conjecture, citing Supreme Court precedents and directed deletion of the disallowance.

In conclusion, the Tribunal allowed the appeal, deleting the disallowance of the loss on derivative transactions, following the legal propositions established by the Co-ordinate Bench of the Tribunal and the evidence on record. The Tribunal found the disallowance unjustified and confirmed the genuineness of the claimed loss.