2018 (4) TMI 425 - AT - Income Tax

Addition made u/s. 68 - Held that - Admittedly the assessee could not furnish any details relating to loan amount of ₹ 468.35 lakhs taken by him. There should not be any dispute that initial burden of proof is placed upon the assessee u/s. 68 i.e. the assessee is required to prove three main ingredients namely identity of creditors, creditworthiness of the creditors and genuineness of the transaction. Assessee has failed to discharge the initial burden of proof placed upon him u/s. 68. The requirement of proving cash credits would lie upon the assessee even in respect of funds received under portfolio management scheme. The tax authorities are justified in assessing the amount of ₹ 468.35 lakhs as unexplained cash credit. AO has assessed the same separately without specifying any head of income. The same may be assessed as income from other sources and the provisions of the Act may be applied accordingly. Not allowing claim of trading loss - Held that - When the assessee could not prove the claim of receipt of funds under portfolio investment scheme; when the funds were treated as unexplained cash credits and when the assessee has carried on share trading transactions in his own name, in our view, there should not be any bar in allowing the loss in his hands, simply for the reason that the assessee has transferred the said loss to the account of creditors. It is well settled principles of law that there is no estoppels against law, meaning thereby, merely because the assessee itself has transferred a portion of loss to the account of the third party, the same would not disentitled the assessee to claim correct amount of loss before the tax authorities. Accordingly, we are of the view that the loss incurred by the assessee has to be allowed in his hands Loss on trading of shares disallowed - Held that - Admittedly, trading transaction has been carried out by Mrs. J.S. Sardesai and Mr. Ashok Kapoor in their respective accounts. The only link is that the assessee has claimed to have advanced to these two persons. The Assessing Officer has also recorded that the contract notes and bills stand in the name of respective persons and not in the name of the assessee. Under these set of facts, we are of the view that the Assessing Officer as well as Ld CIT(A) was justified in rejecting the claim of the assessee. Accordingly, we uphold the order passed by the learned CIT(A) on this issue. Loss on futures and options disallowed - Held that - We noticed that the Assessing Officer did not find fault with them and did not raise any doubt about the genuineness of those documents. Under these set of facts, we are of the view that the Assessing Officer was not justified in rejecting the claim of loss trading on futures and options only for the reason that the assessee did not furnish confirmation letters obtained from the brokers - the learned CIT(A) was not justified in confirming the disallowance so made by the Assessing Officer. Accordingly, we set aside the order passed by the learned CIT(A) on this issue and direct the Assessing Officer to allow the claim of the assessee.

Issues involved:
1. Addition made under section 68 of the Income Tax Act
2. Not allowing claim of trading loss
3. Disallowance of loss on trading of shares
4. Disallowance of loss on futures and options

Issue 1: Addition made under section 68 of the Income Tax Act
The appeal was against the order confirming additions made by the Assessing Officer under section 68 of the Act. The assessee failed to provide details of creditors, creditworthiness, and genuineness of transactions, resulting in the unexplained cash credit assessment of ?468.35 lakhs. The assessee's alternative claim to allow the loss transferred to loan creditors was rejected due to lack of evidence. The Tribunal upheld the unexplained cash credit assessment, emphasizing the initial burden of proof on the assessee. The amount was to be assessed as income from other sources.

Issue 2: Not allowing claim of trading loss
The assessee incurred a loss on share trading and transferred it to loan creditors. Despite failing to prove receipt of funds under a portfolio investment scheme, the Tribunal allowed the loss in the assessee's hands. The Tribunal held that transferring the loss to creditors did not disentitle the assessee from claiming the loss incurred. The loss of ?468.35 lakhs transferred to third parties was directed to be allowed in the assessee's hands.

Issue 3: Disallowance of loss on trading of shares
The assessee claimed a loss on trading of shares incurred by other individuals, which the Assessing Officer disallowed. The Tribunal upheld the disallowance, stating that each assessee is a separate entity, and losses incurred by others cannot be claimed by the assessee. The Tribunal agreed with the Assessing Officer and CIT(A) in rejecting the claim for the loss on trading of shares.

Issue 4: Disallowance of loss on futures and options
The Assessing Officer disallowed the claim of ?115.18 lakhs arising from futures and options trading as the assessee did not provide confirmation letters from brokers. The Tribunal disagreed with this decision, noting that the assessee had submitted contract notes and ledger accounts, which were found genuine. The disallowance was set aside, and the Tribunal directed the Assessing Officer to allow the claim of the assessee.

In conclusion, the Tribunal partly allowed the appeal, upholding the addition under section 68 of the Act and the disallowance of loss on trading of shares, but directing the allowance of trading loss transferred to loan creditors and loss on futures and options.

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