2019 (12) TMI 454 - AT - Income Tax

Addition on account of shortage in margin money - assessee has to pay margin money @ 7% of the value of transactions as per trading rules. - AO worked out peak credit of trading activity - Ld CIT(A) took the view that the AO was not correct in allowing deduction of ₹ 19,03,141/- against the margin money deposit computed on peak credit - Accordingly he directed the AO to enhance the addition. HELD THAT - The assessee did not produce any document/evidence to show that he did not make any margin money deposit as computed by the AO. The assessee has furnished Ledger account copy in the name of the assessee as available in the books of M/s Prasiddhi Multi Commodities - it cannot be comprehended that why the assessee could not procure a certificate from the broker with regard to the query raised by the AO. The enhancement made by Ld CIT(A) is not justified, as the reasoning/basis of enhancement was only presumption entertained by the ld CIT(A) - the enhancement made by Ld CIT(A) is deleted - However, since the assessee has failed to furnish any material/evidence to controvert the addition made by the AO in the assessment order, the Ld CIT(A) was justified in confirming the said addition. Appeal of assessee allowed in part.

Summary

Issues:
Assessment of margin money in derivative trading.

Detailed Analysis:

1. Assessment of Margin Money:
The appeal challenged the order confirming the addition made by the Assessing Officer (AO) and further enhancing it regarding the assessment year 2009-10. The AO calculated peak credit of trading activity at ?6,89,37,371 based on derivative transactions turnover of ?196.49 crores. The margin money shortage was assessed at ?8,87,246, which the AO added to the total income. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed this addition but disagreed with the AO's treatment of the initial investment as margin money. The CIT(A) directed the AO to enhance the addition by ?19,03,141, representing the initial purchase amount.

2. Contentions and Submissions:
The appellant argued that the books were audited, no margin money was paid, and the CIT(A) enhanced the addition without proper notice or opportunity. On the contrary, the Departmental Representative contended that margin money is mandatory in derivative trading, and the appellant had not provided evidence to support the claim of not paying margin money. The CIT(A) obtained a remand report confirming the requirement of margin money.

3. Judicial Analysis:
The Accountant Member noted that the appellant failed to produce evidence showing no margin money was paid. Despite claiming exemption due to creditworthiness, no supporting documents were provided. The broker's location contradicted the appellant's claim of living in a small town. The AO's calculation was estimated, and no attempt was made to verify actual payments. The CIT(A)'s enhancement was based on presumption, not supported by evidence, leading to its deletion. However, as the appellant did not refute the AO's addition with evidence, the CIT(A)'s confirmation of the original addition was deemed justified.

4. Decision:
The enhancement by the CIT(A) was deleted due to lack of substantiated reasoning, but the original addition by the AO was upheld as the appellant failed to provide evidence against it. The appeal was partly allowed, emphasizing the importance of providing concrete evidence in tax assessments.

In conclusion, the judgment focused on the assessment of margin money in derivative trading, highlighting the necessity of supporting claims with evidence and the role of presumption in tax assessments.