2018 (8) TMI 525 - HC - Income Tax

Speculation loss arising from commodity trading to the Assessee in off market transactions - added to its income or not - Tribunal held that there is no bar in undertaking off market transactions in commodities under the law and AO was duty bound to accept the profit shown in the Profit & Loss Account of the Assessee - Held that - This is essentially a finding of the Tribunal on fact. No material has been shown to us which would negate the Tribunal s finding that off market transactions are not prohibited. As regards veracity of the transactions, Tribunal has come to its conclusion on analysis of relevant materials. That being the position, Tribunal having analysed the set of facts in coming to its finding, we do not think there is any scope of interference with the order of the Tribunal in exercise of our jurisdiction under Section 260A of the Income Tax Act, 1961. No substantial question of law is involved in this appeal. The appeal and the stay petition, accordingly, shall stand dismissed.

Issues:
1. Whether speculation loss arising from commodity trading in off market transactions should be added to the income of the Assessee for the assessment year 2009-10.

Comprehensive Analysis:
1. The main issue in this case was whether the speculation loss from commodity trading in off market transactions should be included in the Assessee's income for the assessment year 2009-10. The Assessing Officer disallowed the claim for deduction under this head, considering the transactions as bogus due to lack of information provided to the stock exchange and involvement of a broker expelled for issuing fraudulent contract notes. This led to penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961. Additionally, the Assessee's Long Term Capital Gain was not reflected in the Profit & Loss Account but directly taken to capital reserve, resulting in undervaluation of book profit under Section 115JB.

2. The Commissioner of Income Tax (Appeals) upheld the Assessing Officer's decision, highlighting various discrepancies in the Assessee's conduct during the assessment proceedings. The findings included the absence of proper documentation, failure to produce necessary records for verification, and lack of information regarding the individuals involved in the commodity trading transactions. The Assessee's actions, such as not entering the Long Term Capital Gain in the Profit and Loss account and avoiding verification, raised suspicions of concealment of income and non-compliance with legal requirements.

3. The Tribunal, however, ruled in favor of the Assessee, stating that there is no prohibition on off market transactions in commodities under the law. Citing relevant legal precedents, the Tribunal emphasized that the Assessing Officer should accept the profit shown in the Profit & Loss Account unless concrete evidence proves otherwise. The Tribunal's factual analysis revealed that all transactions were duly recorded in the Assessee's books, supported by account payee cheques, purchase and sale contracts, and board resolutions authorizing commodity trading. The Tribunal concluded that the transactions were genuine and substantiated, reversing the lower authorities' decision to treat the losses as bogus.

4. The High Court, after reviewing the Tribunal's findings, determined that no substantial question of law was involved in the appeal. The Court dismissed the appeal and stay petition, upholding the Tribunal's decision that off market transactions are permissible and that the Assessee had provided sufficient evidence to support the legitimacy of the commodity trading transactions. The Court found no grounds for interference with the Tribunal's order under Section 260A of the Income Tax Act, 1961, and ruled in favor of the Assessee, resulting in the dismissal of the appeal with no order as to costs.

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