2016 (10) TMI 1099 - AT - Income Tax

Disallowance of loss in trading of shares - genuine business loss incurred in the normal course of business - sham or fake share transactions - off market transactions undertaken by assessee - Held that - The undisputed fact is that all the impugned transactions were routed through Demat accounts. It is also an undisputed fact that the transactions have been done at market rates. Simply because some of the transactions are off market transactions it cannot be said that such transactions are sham or fake even the off market transactions have been done at market rates. The Assessing Officer has failed to bring any cogent material evidence on record which could suggest that the transactions are sham or bogus. It is pertinent to mention here that wherever there was a profit in similar off market transactions the A.O. has accepted the same. Therefore no merit in disbelieving the losses incurred by the assessee in the ordinary course of his business. - Decided against revenue

Summary

Issues: Revenue's challenge to deletion of addition on account of loss in trading of shares for A.Y. 2005-06.

Analysis:
1. The Revenue challenged the deletion of an addition of Rs. 4,99,44,800 on account of disallowance of loss in trading of shares of certain companies for the assessment year 2005-06.
2. The Assessing Officer (A.O.) observed that the assessee, a share broker, had incurred losses in trading shares of specific companies, suspecting them to be bogus.
3. The A.O. concluded that the losses were not genuine after verifying the Demat accounts of the companies in question.
4. The assessee contended before the ld. CIT(A) that the losses were genuine, supported by transactions routed through Demat accounts and banking channels at market rates.
5. The ld. CIT(A) found the transactions to be real, not merely book entries, as deliveries were through Demat accounts, payments via banking channels, and parties' confirmations provided.
6. The ld. CIT(A) held that the losses were genuine business losses incurred in the normal course of business, deleting the addition.
7. The Revenue's appeal was dismissed by the Appellate Tribunal, emphasizing that all transactions were through Demat accounts, at market rates, and the A.O. failed to provide evidence suggesting the transactions were sham or bogus.
8. The Tribunal upheld the ld. CIT(A)'s decision, stating that the losses were legitimate, considering the totality of facts and the absence of material evidence proving otherwise.

This detailed analysis outlines the Revenue's challenge, the A.O.'s suspicions, the assessee's defense, the ld. CIT(A)'s reasoning for deletion, and the Tribunal's affirmation of the decision based on the genuine nature of the transactions and lack of evidence supporting the Revenue's claim of the losses being sham or fake.