2018 (8) TMI 668 - AT - Income Tax

Additions on account of F & O (Future & Options) loss - loss on derivatives - NSE reported that no trading were found for the combination of member and client code during the period from April 01, 2009 to March, 31, 2010 in Future & Options segment - Held that - The said transactions have been duly reflected in the financial account in the books of broker of M/s. SSPL. Due to off market transaction, the assesse did not enter into the transaction and the broker of SSPL did not inform the NSE and in support of this, filed ledger account of assesse and records of M/s. SSPL showing the 1) Order No. 2) Date & 3) Trading Time etc. The CIT-A examined the books of account, ledger account of assesse and records of broker of M/s. SSPL and found satisfied that the transaction in respect of share i. e order date, trading and time etc were recorded. - No additions - Decided against the revenue.

Summary

Issues:
1. Disallowance made under section 14A of the Act.
2. Addition on account of F & O (Future & Options) loss.

Issue 1: Disallowance made under section 14A of the Act:
The case involved an appeal by the Revenue against the order of the Commissioner of Income Tax (Appeals) concerning disallowances made under section 14A of the Act. The appellant contended that no disallowance could be made on dividend income earned from shares held as stock-in-trade. However, the Tribunal referred to the decision of the Hon'ble Supreme Court in Maxopp Investment Ltd and a Co-ordinate Bench decision in M/s. Maruti Traders & Investors, remanding the matter to the AO for re-evaluation. The Tribunal emphasized that the AO should ascertain the disallowance amount from the assessee's accounts rather than directly applying Rule 8D(2) of the Rules. Consequently, the impugned order of the CIT-A was set aside, and the matter was remanded for fresh adjudication as per the Supreme Court's decision.

Issue 2: Addition on account of F & O (Future & Options) loss:
The second issue revolved around the addition of a significant amount on account of F & O loss. The AO added the loss to the total income of the assessee, citing contradictory responses and lack of verification from the National Stock Exchange (NSE). However, in the first appellate proceedings, the assessee provided detailed explanations supported by ledger accounts and records, asserting that the transactions were legitimate but not entered into the NSE's books due to off-market nature. The CIT-A, relying on a previous ITAT Bombay decision, ruled in favor of the assessee, leading to the deletion of the addition. The Tribunal, after considering the facts and the ITAT Bombay decision, upheld the CIT-A's order, emphasizing the genuineness of the transactions and dismissing the appeal raised by the Revenue.

In conclusion, the Tribunal's judgment addressed the issues of disallowance under section 14A of the Act and addition on account of F & O loss, providing detailed analyses and references to legal precedents to support its decisions. The Tribunal remanded the first issue for re-evaluation by the AO and upheld the CIT-A's decision on the second issue, ultimately dismissing the Revenue's appeal.