2023 (5) TMI 62 - AT - Income Tax

Bogus loss from currency derivative transaction - CIT-A deleted the disallowance - HELD THAT - We observe that while adjudicating in the favour of assessee the Ld. CIT(A) has erred in completely ignoring the surrounding circumstances and making no observation whatsoever in respect of the fact that assessee incurred a huge loss of Rs. 7.06 crores on the MCX Stock Exchange and that too within a period of 30 days, the fact that assessee incurred such substantial loss through dealings with a broker situated in Calcutta having no office in Ahmedabad, CIT(A) erred in ignoring the fact that the enquiries by investigation was revealed that broker was engaged in providing accommodation entries and in the list of beneficiaries, the name of assessee was appearing as one of the persons receiving accommodation entries etc. Therefore,CIT(A) has failed to take into cognizance the aforesaid glaring discrepancies raised by the AO as part of the assessment order, while affording relief to the assessee. CIT(A) has failed in making any observation with respect to the aforesaid issues pointed out by the Ld. AO and hence the Ld. CIT(A) has not analyzed the facts and circumstances of the case comprehensively, while adjudicating the issue in favour of the assessee.T he issue is being set-aside to the file of the Ld. CIT(A) to pass a fresh order in light of the observation/discrepancies pointed out by the Ld. AO in the assessment order. In result, the appeal is set-aside to the file of the CIT(A) with the above observations. Appeal of the Revenue is allowed for statistical purposes.

Summary

Issues Involved:
1. Deletion of disallowance of bogus loss from currency derivative transaction of Rs. 6,96,69,731/-.

Summary:

Issue 1: Deletion of disallowance of bogus loss from currency derivative transaction of Rs. 6,96,69,731/-

The Revenue filed an appeal against the order of the CIT(A) which deleted the disallowance of a bogus loss claimed by the assessee from currency derivative transactions amounting to Rs. 6,96,69,731/-. The AO had observed that the assessee, engaged in civil construction, reported a substantial loss from currency derivatives within a short period, using a broker based in Calcutta who had no office in Ahmedabad. The AO deemed the transactions as accommodation entries, supported by statements from the broker's director admitting to providing bogus entries in exchange for commissions.

In appeal, the CIT(A) ruled in favor of the assessee on several grounds: the broker's statements did not specifically implicate the assessee, the transactions were settled through account payee cheques, and there was no evidence of accommodation entries. The CIT(A) also noted that the assessee was denied the opportunity to cross-examine the broker.

The Department contended that the CIT(A) failed to address critical observations made by the AO, including the improbability of a civil contractor incurring such a loss in currency derivatives and the lack of explanation on how the assessee engaged the Calcutta-based broker. The Tribunal found that the CIT(A) did not adequately consider these issues or the surrounding circumstances, which suggested that the loss was not genuine. It cited the Supreme Court's decision in Sumati Dayal vs. CIT, emphasizing that apparent transactions must be scrutinized for their reality.

Consequently, the Tribunal set aside the CIT(A)'s order and remanded the case back to the CIT(A) to re-evaluate the issues raised by the AO and pass a fresh order.

In the result, the appeal of the Revenue is allowed for statistical purposes.

This Order pronounced in Open Court on 26/04/2023