2020 (9) TMI 1012 - AT - Income Tax

Losses eligible to be carried forwarded and consequently for set off in subsequent years - Business or speculation loss - claimed on commodity and derivatives and share derivatives as speculation loss - HELD THAT - Assessee s activity/loss is covered in currency and futures and options, which have been carried out/claimed as per proviso/clause (d) to section 43(5) of the Act read with Explanation 1 thereto and the said Notification No. 2/2006 so 89( E ), dated 25-1-2006. AO erred in assessing/adding all the losses, which the assessee claimed on commodity and derivatives and share derivatives as speculation loss. Since the assessee s case is covered in Explanation 1 to section 43(5)(d) of the Act and assessee s transaction was an eligible transaction, it cannot be termed as speculative transaction . Since the Revenue has not challenged the finding of fact on this issue by the Ld. CIT(A) that the commodity have taken place through registered broker on the portal of the NSE through screen based trading system, the finding of fact crystalizes and therefore, as per law the action of Ld. CIT(A) is correct and we find no infirmity in the impugned order of the Ld. CIT(A) in allowing the same as business loss. Assessee has filed his return of income u/s. 139(4) belatedly because the assessee was an individual and his accounts need not be audited u/s. 44AB - AO misdirected himself and fell in error as rightly noted by the Ld. CIT(A). According to the threshold limit as per section 44AB of the Act in this assessment year was of ₹ 60 lakhs and as per section 44AB of the Act the law enforced for the AY 2012-13 the limit was of ₹ 60 lakhs and it was enhanced to ₹ 1 crore only for the AY 2013-14. After going through the details of derivatives chart, which is evident from P L account, which show the total of favourable and unfavourable differences exceed ₹ 60 lakhs and therefore, the assessee was required to get his accounts audited u/s 44AB of the Act. Since the return of income was filed on 26-09-2016 claiming losses incurred during the year (AY under consideration), the assessee was eligible to carry forward his losses as business loss. We find no infirmity in the impugned order of the Ld. CIT(A) in adjudicating this issue. Therefore, this ground (no.1) of revenue s appeal is dismissed. Unexplained cash credit u/s. 68 - unapproved creditworthiness of the loan creditor - CIT-A deleted addition - HELD THAT - Assessee received ₹ 60 lakhs from Sh. G.R Poddar and the AO in the scrutiny proceedings u/s 143(3) of the Act has accepted the identity, creditworthiness and genuineness of the loan transaction with Shri G.R.Poddar. Since the AO himself has accepted the identity, creditworthiness and genuineness of the lender, who is the elder brother of the assessee, who has given loan in the AY 2013-14, it does not stand to logic why the loan for this AY should be disallowed when the very same elder brother/lender of the assessee has given the loan to the assessee. Therefore, the said loan cannot be suspected / doubted. We find no infirmity in the impugned order of the Ld. CIT(A) and therefore, we dismiss this ground no.2 of the revenue s appeal. Short term capital loss - disallowance as assessee did not produce any details or contract regarding this issue and has failed to prove the nature of transaction - HELD THAT - CIT(A) has found that all the transactions were carried out through the registered broker electronically on the portal of the NSE through Screen Based Trading System and supported by time stamped contract notes. As brought to the notice of CIT(A) that the deliveries have been effected through depository accounts and the payment was through banking channels and, therefore, CIT(A) found that AO has simply disbelieved the claim even though the assessee had filed the complete details of Short term capital loss along with ledger of assessee in the books of broker. Taking note of the contract notes, the Ld. CIT(A) found that assessee carried out short-term transaction therefore, he directed to allow the claim of the assessee on this ground. We find no infirmity in the action of Ld CIT(A) on this issue. - Decided against revenue.

Summary

Issues Involved:

1. Eligibility of carrying forward losses incurred during the year.
2. Deletion of addition on account of unexplained cash credit under Section 68 of the Income Tax Act, 1961.
3. Direction to allow Short Term Capital Loss.
4. Alleged violation of Rule 46A of the Income Tax Rules, 1962 by Ld. CIT(A).

Issue-wise Detailed Analysis:

1. Eligibility of Carrying Forward Losses:

The revenue contested the Ld. CIT(A)'s decision to allow the assessee to carry forward losses incurred during the year for set off in subsequent years. The AO had denied this on the grounds that the assessee, an individual not required to audit accounts under Section 44AB, filed the return belatedly under Section 139(4) on 26-09-2012 instead of the due date 31-07-2012. The Ld. CIT(A) found that the assessee’s transactions in commodity trading were conducted through registered brokers on the NSE portal, making them non-speculative under Notification No. 2/2006. The Tribunal upheld the Ld. CIT(A)'s findings, noting that the transactions were eligible and not speculative, thus allowing the losses to be carried forward.

2. Deletion of Addition on Account of Unexplained Cash Credit:

The AO had added ?1,88,75,000/- as unexplained cash credit under Section 68, questioning the genuineness of the loan from the assessee’s elder brother, settled in Singapore. The Ld. CIT(A) found that the assessee provided sufficient evidence, including the lender's passport and bank account details, proving the loan's identity, creditworthiness, and genuineness. Furthermore, similar loans from the same lender were accepted in subsequent assessments. The Tribunal agreed with the Ld. CIT(A), finding no reason to doubt the loan transactions for the year under consideration.

3. Direction to Allow Short Term Capital Loss:

The AO disallowed a short-term capital loss claim of ?5,70,328/- due to lack of supporting details. The Ld. CIT(A) noted that the assessee had provided complete transaction details, including ledgers and contract notes, which were conducted through registered brokers on the NSE portal. The Tribunal upheld the Ld. CIT(A)’s decision, confirming the transactions were genuine and electronically documented, thus allowing the short-term capital loss claim.

4. Alleged Violation of Rule 46A:

The revenue claimed that the Ld. CIT(A) violated Rule 46A by accepting fresh evidence without seeking a remand report from the AO. However, the Tribunal found that the documents in question were already acknowledged in the AO’s assessment order. Since no new evidence was introduced at the appellate stage, the Tribunal dismissed this ground of the revenue’s appeal.

Conclusion:

The Tribunal dismissed the revenue’s appeal on all grounds, finding no infirmity in the Ld. CIT(A)’s order. The decisions on carrying forward losses, deletion of unexplained cash credit addition, and allowance of short-term capital loss were upheld, and the alleged violation of Rule 46A was found unsubstantiated. The appeal was dismissed in its entirety.