2019 (11) TMI 1297 - AT - Income Tax

Stock Loss in trading of wheat - genuine loss - HELD THAT - Suspicion however may be strong, but only on the basis of the suspicion claim of the assessee cannot be rejected. For buttressing this aspect, we would like to refer decisions of Hon ble Supreme Court in the case referred by the ld.counsel for the assessee in his synopsis viz. Omar Salay Mohamed Sait Vs. CIT, 1959 (3) TMI 2 - SUPREME COURT AND CIT Vs. Daulat Ram Rawatmull 1972 (9) TMI 9 - SUPREME COURT . In both these decisions, Hon ble Supreme Court propounded that claim of the assessee cannot be rejected on surmises, suspicion and conjecture. It is for the Assessing Officer to prove that apparent is not real. Similarly, as far as finding of the CIT(A) that the alleged loss is speculative loss, we are of the view that the ld.CIT(A) has based his finding on the ground that actual delivery was not taken. CIT(A) failed to appreciate that delivery taken by the Pakka Arhtias in the capacity of agent of the assessee is to be construed as actual delivery taken by the assessee. Therefore, in view of the above discussion, we are of the view that ld.Revenue authorities have failed to bring conclusive evidence for falsifying the claim of the assessee. We allow the appeal of the assessee and direct the Assessing Officer to accept the loss disclosed by the assessee on stock-loss of wheat, and thereafter compute the income of the assessee. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the loss of ?75,31,781/- claimed by the assessee on account of "Stock Loss" in trading of wheat is genuine.
2. If the loss is genuine, whether the capital gain arose to the assessee deserves to be set off against this loss.

Issue-wise Detailed Analysis:

1. Genuineness of Stock Loss Claim:
The primary issue in the appeal is the genuineness of the stock loss claimed by the assessee in trading wheat. The assessee filed a return declaring a total income of ?25,79,460/-, including income from house property, long-term capital gain, and a net loss from other sources. The Assessing Officer (AO) scrutinized the accounts and questioned the legitimacy of the ?75,31,781/- stock loss. The assessee provided detailed records of wheat purchases and sales, including the dates, quantities, rates, and expenses involved. The AO suspected the transactions, considering them manipulated to evade capital gains tax, especially since the long-term capital gain of ?78,83,716/- arose from selling office space in Gurgaon. The AO disbelieved the loss claim without summoning the entities involved in the wheat transactions, relying on circumstantial evidence and suspicion.

The Tribunal observed that the AO did not conduct a thorough investigation or issue summons to the entities involved, which was necessary to substantiate the claim's falsity. The Tribunal emphasized that suspicion alone, without concrete evidence, cannot disprove the assessee's claim. Citing Supreme Court judgments, the Tribunal highlighted that claims cannot be rejected based on surmises and conjecture. The AO's failure to verify the transactions with the involved entities weakened the case against the assessee.

2. Set-Off of Capital Gain Against Stock Loss:
The second issue pertains to whether the capital gain can be set off against the claimed stock loss. The Commissioner of Income Tax (Appeals) [CIT(A)] concurred with the AO but added that since the delivery of wheat was not taken by the assessee, the loss should be considered speculative and not eligible for set-off against long-term capital gain. The assessee countered this by arguing that the delivery taken by "Pakka Arhtias" (agents) should be considered as delivery taken by the assessee, referencing the Rajasthan High Court judgment in CIT Vs. Aditya Mills Ltd., which supports the notion that delivery by agents equates to actual delivery by the assessee.

The Tribunal agreed with the assessee, stating that the CIT(A) failed to appreciate that delivery by the agents is effectively delivery by the assessee. This interpretation aligns with legal precedents, thereby invalidating the CIT(A)'s speculative loss argument.

Conclusion:
The Tribunal concluded that the Revenue authorities did not provide conclusive evidence to disprove the assessee's claim. Therefore, the appeal was allowed, directing the AO to accept the stock loss of ?75,31,781/- and compute the assessee's income accordingly. The judgment underscores the importance of concrete evidence over suspicion in tax assessments and reinforces the principle that agent actions can be attributed to the principal in trading activities.