Additions made towards loss on commodity transaction set aside, ITAT

Facts in Brief:

1. Assessee had incurred a loss in commodity transactions which was set off against income arising from purchase and sale of shares.

2. The assessee claimed that it is engaged in the speculation business of purchase and sale of shares and also dealing in commodities business.

3. Hence loss incurred on commodity transactions is eligible for set off against profit from sale of shares.

4. AO observed that the assessee has got interest income from lending activities also which is more than the income from share trading activities and accordingly held that the assessee falls under the exception clause provided in Explanation to Section 73 (of Income Tax Act, 1961). Then he proceeded to disallow the claim of loss on commodity transactions in the assessment.

5. On appeal, CIT(A) confirmed the disallowance holding that the entire loss on commodity transactions claimed by the assessee is fictitious in nature.

On appeal ITAT held,

6. We hold that without carrying out requisite enquiries as provided in the Act, merely treating the loss claimed to be a fictitious loss based on surmise and suspicion and by making general baseless allegations without bringing any evidence on record, the action of the Learned CIT(A) is unjustified.

7. Hence the only point to be addressed in this issue is as to whether the activity of trading in commodity transactions by the assessee could be construed as speculation activity in the facts and circumstances of the case in the context of section 73 (of Income Tax Act, 1961) read with its Explanation thereon. We find that the Learned AO had treated the assessee's activity of share trading to be normal business as according to him the principal business of assessee is granting of loans and advances.

8. He had reached this conclusion on the ground that interest income on loans of Rs. 35,21,584/- is more than the income from share trading of Rs. 13,62,106/-. Accordingly he held that the assessee's case falls under the exception to Explanation to Section 73 (of Income Tax Act, 1961).

9. Having concluded so, he ought to have treated the loss on commodity transactions as a normal business loss and allowed to be set off against the speculative income as admittedly in the instant case the profit from trading in shares has been accepted as arising from speculative business. Hence there was no need to make any addition towards loss on commodity transactions.

10. In view of the aforesaid facts and findings, we have no hesitation in directing the Learned AO to delete the additions made in the sum of Rs. 62,61,870/- in ITA No. 1876/Kol/2012 and Rs. 46,62,796/- in ITA No. 1875/Kol/2012. Accordingly, the grounds raised by the assessee in this regard are allowed.

11. In the result, the appeals of the respective assessee are allowed. 

Case Reference-Fairgrowth Enterprises(P)Ltd, ... vs Assessee