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2020 (6) TMI 43 - AT - Income TaxClaim of loss in the stock business denied - loss from commodity stock trading - not accepting the well accepted system of stock, wherein there is a pakka arthtia and other is stockiest - claim denied by the revenue authorities treating the same as bogus - HELD THAT - Assessee who filed sufficient documentary evidences to substantiate its claim of purchase and sale of commodity stock in the form of documents above giving details of all commodity stock transactions entered into, copy of account of the parties with whom transaction had been entered alongwith consignment purchase and consignment sale documents. Revenue has based its findings of the transaction being bogus merely on the basis of suspicion and there is no concrete evidence, nor any investigation carried out by it on the findings submitted by the assessee, to arrive at this conclusion. As held in the case of Anju Sharma 2019 (11) TMI 1297 - ITAT CHANDIGARH on identical facts and circumstances, we are unable to agree with the findings of the Revenue that the transaction could be held to be a bogus transaction - delivery taken by arhtias in the capacity of agent of the assessee is to be construed as actual delivery taken by the assessee, the transaction therefore cannot be treated as speculative also - Accordingly, we hold that the assessee be allowed its claim of loss of commodity transaction . Decided in favour of assessee.
Issues Involved:
1. Denial of claim of loss in the stock business. 2. Confirmation of addition by not accepting the system of stock. 3. Disregard of evidence supporting the claim of loss. 4. Treatment of stock business as speculative loss. 5. Denial of interest expenses on unsecured loans. 6. Reliance on judgment of Supreme Court case Davenport & Co. Pvt. Ltd. Vs. CIT. Detailed Analysis: 1. Denial of Claim of Loss in the Stock Business: The assessee claimed a loss of ?2,06,39,101 from commodity stock trading, which was disallowed by the Assessing Officer (AO) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The AO's disallowance was based on the absence of prior or subsequent similar transactions, lack of company scope for such trading, no intimation of change in object to authorities, and insufficient documentation supporting the rate of purchase and sale. The AO also found the explanation for selling commodities at a loss due to infection unconvincing. The CIT(A) noted that similar bogus loss claims were made by another group member, suggesting a pattern of tax avoidance. 2. Confirmation of Addition by Not Accepting the System of Stock: The CIT(A) confirmed the AO's addition, rejecting the well-accepted system of stock business involving pakka arhtia and stockiest. The assessee argued that this system was disregarded without proper consideration of the evidence provided. 3. Disregard of Evidence Supporting the Claim of Loss: The assessee contended that the CIT(A) failed to appreciate the evidence tendered, which supported the claim of loss incurred. The findings were based on borrowed inferences, disregarding the evidence and relying on irrelevant and extraneous considerations. 4. Treatment of Stock Business as Speculative Loss: The CIT(A) treated the stock business as speculative loss, stating that the goods were not purchased by the assessee and no delivery took place. The assessee argued that in the stock business, it is a well-accepted system that goods remain with the arhtia, and thus, the order disregarded the principles of the stock business system. 5. Denial of Interest Expenses on Unsecured Loans: The CIT(A) sustained the addition on account of interest paid to various persons, not appreciating that the interest was paid on unsecured loans taken for business use. The interest expense was rightly claimed in the profit and loss account. 6. Reliance on Judgment of Supreme Court Case Davenport & Co. Pvt. Ltd. Vs. CIT: The CIT(A) applied the judgment of the Supreme Court in the case of Davenport & Co. Pvt. Ltd. Vs. CIT, West Bengal, which the assessee argued was not applicable as the facts of the case were entirely different. Conclusion: The Tribunal noted that identical issues were decided in favor of the assessee in the case of Smt. Anju Sharma Vs. ITO. The Tribunal found that the assessee provided specific details of purchase and sale of commodities, along with necessary documentary evidence such as bills, vouchers, and RTGS details. The AO did not conduct any inquiries from the pakka arhtias or entities from whom the wheat was purchased, relying instead on mere suspicion. The Tribunal held that suspicion, however strong, cannot be the sole basis for rejecting the claim of the assessee. The delivery taken by pakka arhtias as agents of the assessee was considered actual delivery, and thus, the transaction was not speculative. The Tribunal directed the AO to accept the loss disclosed by the assessee and compute the income accordingly. Order: The appeal of the assessee is allowed. The assessee's claim of loss from commodity transactions is accepted. The order was pronounced on 21/05/2020.
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