2022 (8) TMI 1540 - HC - Income Tax

Loss on derivative on the issue of loss in shares and securities and the issue of Coordination charge - ITAT deleted addition - HELD THAT - We faced a problem of going through the order passed by the Tribunal giving it an impression as if it is a detailed and reasoned order as we find that substantial portions of the order are extracts of what has been done by the CIT(A) while granting relief to the assessee. The discussion on the said issue is in paragraph 15 of the order passed by the Tribunal. Once again the Tribunal committed an error of observing that the Assessing Officer did not doubt the genuineness of the transactions carried out by the assessee which resulted in the loss. Precisely the Assessing Officer has doubted the genuineness by examining the conduct of the assessee. The modus adopted and applied the test of human probabilities and then arrived at a conclusion - Tribunal holds that the Assessing Officer has accepted the veracity of the documents filed by the assessee. This in our considered view is a wrong reading of the observations made by the AO. Thus we have no hesitation to hold that both the orders passed by the CIT(A) as well as the Tribunal are perverse and there is absolutely no case made out by the assessee for deleting the addition of loss from Future Option transactions. Therefore the first issue is answered in favour of the revenue and against the assessee. Loss in shares and securities - ITAT held that the CIT(A) was fully justified in his conclusion that the loss cannot be regarded as sham - We once again reiterate that CIT(A) has never recorded any such finding with regard to the nature of the transaction all that he has done is to confirm of the finding of the assessing officer and the loss was a speculative loss. Therefore the finding of the tribunal in paragraph 19 is absolutely perverse. Thus for the above reason we are of the considered view that the finding of the tribunal needs to be set aside and accordingly set aside. The order passed by the CIT(A) on the said issue stands confirmed and it shall be deemed that the confirmation is in its entirety with regard to the finding recorded by the assessing officer in paragraph 2 of the order wherein apart from treating the loss as a speculative loss he has also held that the transaction to be sham. For such reason the second issue is decided in favour of the revenue and against the assessee. Co-ordination charges - AO pointed out that the co- ordination charges is for procurement of property and the person rendering the service for the purchase of the property which was purchased by the assessee was much before than the service rendered by the said party - Thought fit to set aside the finding of the CIT(A) and remanded the matter to the assessing officer for fresh consideration making it clear that the burden will be on the assessee to prove the nature of services rendered and all the observations contained in paragraph 23 of the order will apply to this issue as well. We find that such an observation is irrelevant because paragraph 23 deals with the finding recorded by the assessing officer. Therefore we are of the view that the remand should be an open remand leaving all issues open to the assessing officer to be considered in accordance with law - No substantial question of law arising for consideration.

Summary

Issues Involved:
1. Loss on derivative to the tune of Rs. 3,19,76,907/-
2. Loss in shares and securities amounting to Rs. 37,95,659/-
3. Coordination charges to the tune of Rs. 51,00,000/-

Issue-wise Detailed Analysis:

1. Loss on Derivative (Rs. 3,19,76,907/-):
The assessee claimed a loss arising from future options transactions on the National Stock Exchange (NSE). The Assessing Officer (AO) scrutinized the transactions and found them to be suspicious, noting that all transactions within a 30-day period resulted in losses and were conducted in a manner suggesting they were sham and collusive. The AO concluded that the transactions were arranged to create a bogus loss for tax evasion purposes and disallowed the claimed loss.

The Commissioner of Income Tax (Appeals) [CIT(A)] reversed the AO's decision, stating that the AO's disallowance was based on mere doubts and suspicions without substantial evidence. The CIT(A) directed the AO to allow the loss from Future & Option transactions, deeming the AO's observations as based on improper interpretations and suspicions.

The Tribunal upheld the CIT(A)'s decision, but the High Court found both the CIT(A) and the Tribunal's orders to be perverse. The High Court noted that the AO had indeed doubted the genuineness of the transactions and had applied the test of human probabilities. The High Court restored the AO's order, disallowing the loss of Rs. 3,19,76,907/- and ruled in favor of the revenue.

2. Loss in Shares and Securities (Rs. 37,95,659/-):
The AO treated the loss from intra-day share transactions as speculative under Section 43(5) of the Income Tax Act, disallowing it as a business loss. The AO also noted that these transactions were sham, similar to the derivative transactions.

The CIT(A) confirmed the AO's finding that the loss was speculative. The High Court observed that the CIT(A) did not record any finding regarding the nature of the transactions being genuine or sham but merely confirmed the AO's speculative loss finding. The Tribunal's decision to consider the transactions as genuine was deemed perverse by the High Court, which set aside the Tribunal's order and confirmed the AO's finding that the transactions were speculative and sham, ruling in favor of the revenue.

3. Coordination Charges (Rs. 51,00,000/-):
The AO disallowed the coordination charges claimed by the assessee, stating that there was no evidence of services rendered by M/s. Onkar Management Pvt. Ltd. The AO also noted that an enquiry revealed no such concern existed at the claimed address, and the charges were deemed bogus.

The CIT(A) accepted the assessee's submissions and evidence, including a sworn affidavit from M/s. Onkar Management Pvt. Ltd., and held that the payment could not be disallowed under Section 37(1) or Section 40A(ia) of the Act.

The Tribunal noted that certain documents were produced for the first time before the CIT(A) and found that the nature of services rendered was not established. It remanded the matter to the AO for fresh consideration, emphasizing that the burden of proof lies with the assessee.

The High Court agreed with the Tribunal's decision to remand the matter but clarified that the remand should be open, allowing the AO to consider all issues afresh. The High Court deleted the Tribunal's direction that observations in paragraph 23 of its order would apply to this issue as well.

Conclusion:
The High Court partly allowed the appeal, ruling in favor of the revenue on the issues of derivative loss and loss in shares and securities, and remanded the issue of coordination charges for fresh consideration by the AO.