2022 (6) TMI 1198 - AT - Income Tax

Disallowance on account of purchase of shares - Addition of commission expenditure u/s.69C - HELD THAT - As purchase and sale of share transactions were carried out by the assessee through the registered brokers i.e. Alankit Assignments and RBK Share Broking and Speculative transactions were carried out through the registered broker i.e. Alliance Intermediates and Network Pvt. Ltd. The assessee had incurred short term capital loss and earned long term capital gains in respect of purchase and sale of shares carried out through Alankit Assignments and RBK share broking which has been duly disclosed in the return of income. Assessee had only incurred speculation loss in respect of future and option transactions carried out through Alliance Intermediates and Network Pvt. Ltd during the year and this loss has not been set off with any speculation profit either during the year or in any subsequent assessment years. This factual aspect has been ignored by the lower authorities in the instant case and the addition has been merely made based on information received from a third party and ignoring the documents placed on record. Also in the case of Ms. Kokila S. Ajmera 2018 (3) TMI 1967 - ITAT MUMBAI this Tribunal under same set of facts had categorically held that the speculation loss incurred by those individuals (who are relatives of this assessee before us) had not claimed set off of the same with future speculation income. Even if the speculation loss incurred by the assessee is treated as non-genuine the same would be of no consequence so far as the determination of tax liability of the assessee in the instant case as well as in the subsequent years is concerned. The entire disallowance has been made on complete incorrect assumption of facts and on mistaken premise. We categorically hold that there is no purchase of shares made by the assessee through Alliance Intermediates and Network Pvt. Ltd which was claimed as deduction in return of income. Hence there is absolutely no question on making any disallowance on account of purchase of shares in the assessment. Hence the same is hereby directed to be deleted. Once the disallowance made on account of purchase of shares is deleted the alleged related commission expenditure u/s.69C also automatically gets deleted. Hence the grounds raised by the assessee are allowed.

Summary

Issues involved:
1. Disallowance of purchase of shares through M/s. Alliance Intermediates and Network Private Limited.
2. Disallowance of related commission expenditure.

Issue 1: Disallowance of purchase of shares through M/s. Alliance Intermediates and Network Private Limited:

The appeal in ITA No.2746/Mum/2019 for A.Y.2007-08 questioned the disallowance of Rs.7,89,745 on the alleged purchase of shares through M/s. Alliance Intermediates and Network Pvt. Ltd. The assessment was reopened under section 147 of the Income Tax Act based on information received during a search and seizure action. The assessee contended that the transactions were speculative in nature, not actual share purchases, and provided detailed documentation to support this claim. Despite the evidence presented, the assessing officer proceeded with the disallowance. The CIT(A) upheld the decision without adequately considering the assessee's submissions. However, upon further review, the ITAT found that the disallowance was based on incorrect assumptions and directed the deletion of the disallowance amount. The ITAT emphasized that no actual purchase of shares through the mentioned broker had taken place, and therefore, the disallowance was unwarranted.

Issue 2: Disallowance of related commission expenditure:

In addition to the disallowance of the share purchase amount, a related commission expenditure of Rs.39,487 was also questioned. The assessing officer added this amount under section 69C of the Act. The assessee argued that since no actual transactions of share purchase occurred through M/s. Alliance Intermediates Pvt. Ltd., there was no basis for the commission expenditure. The ITAT, after reviewing the case and finding that the disallowance of the share purchase was incorrect, also directed the deletion of the related commission expenditure. The ITAT's decision was based on the lack of actual share purchases through the mentioned broker, which rendered the commission expenditure disallowance invalid.

In conclusion, the ITAT ruled in favor of the assessee, allowing the appeal and directing the deletion of both the disallowance of share purchase amount and the related commission expenditure. The judgment highlighted the importance of factual accuracy and evidence-based assessments in determining tax liabilities, emphasizing that decisions should not be made solely on third-party information without proper verification of the facts presented by the taxpayer.