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2016 (3) TMI 586 - ITAT KOLKATA

2016 (3) TMI 586 - ITAT KOLKATA - TMI - Disallowance of speculation loss - purchase and sale of silver and other metals by holding such loss as bogus and inadmissible - Held that:- The assessee has incurred losses from the off market commodity transactions and the AO held such loss as bogus and inadmissible in the eyes of the law. The same loss was also confirmed by the ld. CIT(A). However we find that all the transactions through the broker were duly recorded in the books of the assessee. The b .....

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tions. The ld. AR has also submitted the board resolution for the trading of commodity transaction. The broker was expelled from the commodity exchange cannot be the criteria to hold the transaction as bogus - Decided in favour of assessee

Speculation loss while computing the income u/s 115JB - Held that:- Having considered the decision of Hon’ble Supreme Court in the case of Apollo Tyres Ltd. (2002 (5) TMI 5 - SUPREME Court), we are of the view that the AO cannot reopen the accounts .....

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resaid P&L a/c. No adjustment is permissible in the book profit in respect of aforesaid amount under any of the cls. (i) to (vii) of the Explanation to s. 115JB. IN view thereof, it is held that the learned CIT(A) erred in directing the AO to reduce this amount from the book profit. - Decided in favour of assessee - ITA No.1070/Kol /2012 - Dated:- 3-2-2016 - Shri Mahavir Singh, Judicial Member and Shri Waseem Ahmed, Accountant Member For The Appellant : Shri S.M.Surana, Advocate For The Responde .....

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ts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of speculation loss of ₹ 22696157 arising from purchase and sale of silver and other metals by holding such loss as bogus and inadmissible. 2. For that on the facts and in the circumstances of the case, the learned Commissioner of Income Tax(Appeals) should have held that the said speculation loss of ₹ 22696157/- was incurred in the usual course of business c .....

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al course of appellant s business and consequently he should have directed the said loss to be carried forward. 4. For that on the facts and in the circumstances of the case, the learned Commissioner of Income Tax(Appeals) further erred in holding that the said speculation loss of ₹ 22695157/- has to be ignored for the purpose of computing income under section 115JB of Income Tax Act 1961 in complete disregard of the Balance Sheet & Profit & Loss Account prepared in accordance with .....

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115JB(1) and the provisos thereto. 2. Grounds No. 1 to 3 are common therefore they are clubbed together, the common issues raised by assessee in this appeal are that Ld. CIT(A) erred in confirming the order of Assessing Officer for disallowing the speculation loss of ₹2,26,96,157/- arising from purchase and sale of silver and other metals by holding such loss bogus and inadmissible. 2.1 The facts of the case are that assessee is a Private Limited Company and is engaged in the business of g .....

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e above loss but found that the above said broker was expelled by the NMCE for having involved in issuing forged and fraudulent contract notes. In reply to the show cause notice, assessee submitted that all these transactions are off market transaction so not passed through the commodity exchange. The assessee also submitted all the purchase and sale contracts notes before AO in support of its claim. However, AO disregarded the claim of assessee by treating the transactions as bogus. Accordingly .....

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rmed by the broker and were supported with bank statements and ledger copy of the account. The ld. AR also pointed out that the assessee was never confronted to the confirmation submitted by the broker, so the order passed by the AO is without providing the opportunity of being heard. However the CIT(A) disregarded the plea of the assessee and upheld the order of the AO by observing as under : 9. I have considered the observations of the Assessing Officer in the assessment order and submissions .....

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s from 15.03.2008 to 27.03.2008 by cheque in Sr. No. i.e. 35182 to 89. The amounts were being credited tin the account of the appellant regularly from some other sources and being debited to be paid to M/s Vatika Merchants Pvt. Ltd. During the appellate proceedings, the AR was asked to produce the data regarding the price of the silver to show such a huge fluctuation resulting into the loss of ₹ 2,26,96,157/- to the appellant. The date of each entry in the commodity exchange is recorded on .....

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Nickel, Sack, Gold, etc. The appellant has entered in to 169 transactions of silver out of which complete details were given for 158 transactions and the appellant incurred loss in all such transactions. There is never gain in any commodity transaction. The appellant has entered in to 42, 34, 5 and 3 transactions of ZINC, NICKLE, SACK and GOLD respectively and the appellant has incurred loss in all transactions except two in gold where it was old on same price. There is never gain in any of the .....

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ard Resolution or any authorisation by the competent person, given to somebody for entering into commodity trade. The appellant did not furnish the information who did the commodity trade transactions i.e. whether it was a director or employee, what was the experience of the said person(s) in the commodity trading and whether the said Director/employee has entered in these kind of transactions in individual capacity or otherwise ever before entering into these transactions on behalf of pp. He di .....

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the same at lower price and again buying at a higher price and selling at lower price and so on every day and completes huge number of transaction s on every day. There is no stock to be carried forward on the next day and rather after every purchase same amount is old to square up the account of sale and purchase. In the normal human transaction, it is not possible for a person who is indulging in commodity trading for Fourteen(14) days in an off market condition from a broker who has been sus .....

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n lift the veil of corporate entity and to pay regard to the economic realities behind the legal façade. Similarly, the Assessing Officer has power to disregard the corporate entity if it is used for tax evasion or to circumvent tax obligation or to perpetuate fraud. 2) The Hon'ble Delhi High Court in PNB Finance Ltd. v. Shri Shital Prasad Jain [1983] 54 Comp. Cas. 66 has held that the doctrine of piercing the corporate veil wherever necessary might be invoked by the Curt in the inter .....

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ities should look behind the real purpose of the transaction and deal with the consequence of the transaction in a mane with which it should have been dealt with otherwise. 3) Mere payment by account payee cheque is not sacrosanct nor can it make a non-genuine transaction genuine has been held by Hon'ble High Court of Calcutta in the case of CIT v Precision Finance (P)) Limited reported in 208 ITR 540 (Cal); [1995] 82 TAXMAN 31 (Cal). 4) An inference about the genuineness of apparent Commodi .....

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not genuine. It cannot be said that the explanation offered by the appellant in respect of the said payment has been rejected unreasonably. Further, relying on the judgment of the Hon'ble A Bench of the jurisdictional ITAT, Kolkata in ITA No. 1871/Kol/2008 dated 21-07-2011 in the case of ITO ward 7(3), Kolkata vs. M/s. Ellenbarrie Exim Ltd. for Assessment Year 2005-06 it is held that the action of the AO in the facts and circumstances of the case that all transactions pertaining to the so-ca .....

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nning in pages no. 1 to 88 and 2nd paper book is running in pages 1 to 34. Before us the ld. AR submitted that the order of the AO is silent about the date from which the broker was expelled. There is no law that the off market transactions should be informed to stock exchange. All the transactions are duly recorded in the accounts of both the parties and supported with the account payee cheques. The ld. AR has also submitted the IT return, ledger copy, letter to AO and PAN of the broker in supp .....

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rom the aforesaid discussion we find that the assessee has incurred losses from the off market commodity transactions and the AO held such loss as bogus and inadmissible in the eyes of the law. The same loss was also confirmed by the ld. CIT(A). However we find that all the transactions through the broker were duly recorded in the books of the assessee. The broker has also declared in its books of accounts and offered for taxation. In our view to hold a transaction as bogus, there has to be some .....

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ity exchange cannot be the criteria to hold the transaction as bogus. In view of above, we reverse the order of the lower authorities and allow the common grounds of assessee s appeal. 5. Next common grounds 4 and 5 are clubbed together. The issue raised by assessee in this appeal is that Ld. CIT(A) erred in confirming the order of AO by ignoring the speculation loss at ₹ 2,26,96,157/- while computing the income u/s 115JB of the Act. In the present case, AO has computed the tax liability u .....

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ded that the loss is bogus and inadmissible. When the transactions itself are doubtful, these cannot find place in the books of a/cs. For computing the loss incurred by the appellant. The commodity trading transactions are found to be bogus. The appellant has created these entries in a fraudulent manner jut to reduce the profit and to carry forward loss, if any in future adjustments. Therefore, once the genuineness of the transaction is doubtful, these cannot form a part of the P&L a/c. and .....

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deductible in the Profit and Loss Account. Therefore, it is held that the addition of ₹ 36538/- as STT and speculation loss of ₹ 226,96,157/- incurred in commodity transactions have been rightly added while determining the profit as per section 115JB of the Income Tax Act, 1961. These grounds of appeal are accordingly held to be dismissed. Being aggrieved by this order of Ld. CIT(A) assessee preferred second appeal before us. 7. We have heard rival parties of both sides and perused .....

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nder section 115 JB of the Act. We find from the orders various court that the AO is duty bound to accept the profit as shown in the profit & loss account of the assessee. We are putting our reliance in decisions of Hon ble Apex Court, Hon ble Delhi High Court and ITAT Delhi Bench which are given as under : Apollo Tyres Ltd. v. CIT 255 ITR 273 (SC), the relevant extract is reproduced below : Therefore, we are of the opinion, the AO while computing the income under s. 115J has only the power .....

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td. v. CIT 300 ITR 251 (SC) the relevant extract is reproduced below : 28. We have heard the learned counsel for the parties at length and carefully perused the written submissions filed by them. In our considered opinion, the controversy involved in this case is no longer res integra. A three Judge Bench of this Court in Apollo Tyres (supra) has clearly interpreted s. 115J of the 1961 Act. There is no scope for any further discussion. 29. Consequently, the appeals are allowed and the impugned o .....

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ed to be drawn in the P&L a/c as per the Companies Act. Therefore, we are of the view that the order passed by the AO was not erroneous, which is one of the preconditions for invoking jurisdiction under s. 263 of the Act. Since it was no erroneous, it could not have been termed to be prejudicial to the interest of the Revenue. In this view of the matter, we set aside the order of the learned CIT. In the result, ground No.2 is allowed. 5. We agree with the views expressed by the Tribunal. Con .....

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