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2022 (7) TMI 843 - AT - Income TaxAdditional income from F O transactions - AO compared the details supplied by the assessee with the information received from stock exchange / commodity exchange and observed certain differences - HELD THAT - We observe that the Ld. AR has explained the methodology of F O transactions in the first instance - AR has, by means of the illustrations of various transactions appearing in the Statement of M/s Max Stock Broking Pvt. Ltd., explained vehemently that the impugned purchase / sale transactions were the open outstanding contracts of F O which were done in the previous year 2014-15 and expired in the previous year 2015-16. AR is right in stating that these purchase / sale transactions, though outstanding on 31.03.2015, did not represent closing / opening stocks of assessee. We also find strength in the argument of the AR that the loss arising from daily marking of these open outstanding transactions is allowable as per the decision in DCIT Vs. Edelweiss Capital Ltd. ( 2012 (10) TMI 223 - ITAT, MUMBAI - In view of the peculiar nature of F O transactions submitted by the Ld. AR, we are of the view that the Ld. AO has wrongly treated the open outstanding contracts as closing / opening stocks of the assessee and made re-working of profit. Therefore, the addition made by Ld. AO is not correct and deserves to be deleted. Accordingly, we accept the ground of assessee and delete the addition. - Decided in favour of assessee.
Issues Involved:
1. Addition of Rs. 8,12,571/- on account of additional income from F&O transactions. Detailed Analysis: Issue 1: Addition of Rs. 8,12,571/- on account of additional income from F&O transactions Background: - The assessee, engaged in day-trading of stock market, F&O transactions, and interest, filed a return declaring a total income of Rs. 5,20,033/- for the Assessment-Year 2015-16. - The assessment was completed u/s 143(3) at a total income of Rs. 13,32,600/-, after making an addition of Rs. 8,12,571/- on account of additional income from F&O transactions. - The Ld. AO observed discrepancies between the details supplied by the assessee and the information received from stock exchanges, leading to the addition. Assessee's Argument: - The assessee argued that the differences observed by the Ld. AO were due to outstanding open contracts of F&O, not closing/opening stocks. - The assessee contended that in F&O transactions, there is no concept of closing stock, only open positions marked to market. - The assessee cited the ICAI Guidance Note on Accounting for Equity Index and Equity Stock Futures and Options and a decision by ITAT Mumbai in Edelweiss Capital Ltd., arguing that the Ld. AO's method of treating F&O transactions as normal trading business was incorrect. Ld. CIT(A)'s Observations: - The Ld. CIT(A) upheld the addition, stating that the Ld. AO's determination of profit was based on trading data from NSE, which is more reliable than the private broker's data. - The Ld. CIT(A) disagreed with the assessee's argument that the Ld. AO treated the business as normal trading, noting that the Ld. AO considered market-to-margin balances. Tribunal's Findings: - The Tribunal noted the methodology of F&O transactions explained by the Ld. AR, emphasizing that F&O transactions involve open positions marked to market daily until squared off. - The Tribunal agreed that the Ld. AO incorrectly treated open outstanding contracts as closing/opening stocks, leading to the erroneous addition. - The Tribunal referenced the ITAT Mumbai decision in DCIT Vs. Edelweiss Capital Ltd., supporting the allowance of loss from daily marking of open outstanding transactions. Conclusion: - The Tribunal concluded that the addition of Rs. 8,12,571/- made by the Ld. AO was incorrect and deserved to be deleted. - The appeal of the assessee was allowed, and the addition was deleted. Order Pronouncement: - The order was pronounced as per Rule 34 of I.T.A.T. Rules 1963 on 02.06.2022.
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