2017 (11) TMI 193 - AT - Income Tax

Tribunal Upholds Speculation Profit Treatment, Allows Capital Loss Claim

Bhag Chand Chhabra, HUF Versus Income Tax Officer, Kolkata

Bhag Chand Chhabra, HUF Versus Income Tax Officer, Kolkata - Tmi Issues Involved:1. Treatment of speculation profit as unexplained cash credit under section 68 of the Income Tax Act, 1961.2. Disallowance of short-term capital loss of Rs. 1,00,000.Issue-Wise Detailed Analysis:1. Treatment of Speculation Profit as Unexplained Cash Credit:The assessee, a HUF, declared speculation profit of Rs. 3,00,805/- in its return of income for the year under consideration. This profit was claimed to have been earned through transactions made in the National Multi Commodity Exchange of India Limited (NMCE) via broker M/s. Jagtarni Commodities Pvt. Limited. The Assessing Officer (AO) issued notices under section 133(6) to both the broker and NMCE to verify the claim. NMCE responded that the assessee was never registered with the Exchange and that the broker was never active on the Exchange. The broker did not respond to the notice. Consequently, the AO treated the speculation profit as unexplained cash credit under section 68 and taxed it at 30% as per section 115BBE.The assessee challenged this action before the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the profit was shown on an accrual basis and received by cheque in the subsequent financial year, thus not applicable under section 68 for the relevant assessment year. The assessee also contended that the broker's identity was established and any default by the broker should not adversely affect the assessee.The CIT(A) upheld the AO's decision, citing suspicions about the transactions and referencing the NMCE's letter and the broker's non-compliance. The CIT(A) concluded that the transactions were 'suspicious' and 'dubious,' and the AO had rightly considered the surrounding circumstances.Upon further appeal, the Tribunal noted that the AO's enquiry with NMCE revealed that neither the assessee nor the broker was active on the Exchange and that the broker was expelled for issuing fraudulent Contract Notes. The Tribunal agreed with the CIT(A) that the genuineness of the speculation profit was not established and upheld the treatment of the amount as unexplained cash credit under section 68, dismissing the assessee's appeal on this ground.2. Disallowance of Short-Term Capital Loss:The assessee declared a short-term capital gain of Rs. 1,12,118/- and set it off against a short-term capital loss of Rs. 1,00,000/- from the sale of shares of M/s. Paul & Chakraborty Pvt. Limited. The AO examined the transactions and found that the shares were purchased from a family member and sold to another family member, with no monetary involvement as the transactions were done through journal entries. The AO also noted discrepancies in the fair market value of the shares and the shareholders' list.The assessee contended that transactions with family members were regular and supported by journal entries. However, the CIT(A) confirmed the AO's disallowance, finding no merit in the assessee's submissions.The Tribunal, upon review, found that the AO's disallowance was based on the transactions being with family members and the fair market value discrepancy. The Tribunal noted that similar transactions with family members were accepted by the AO and that substantial monetary transactions were adjusted against the share transactions. The Tribunal concluded that the disallowance was not well-founded and set aside the CIT(A)'s order, directing the AO to allow the short-term capital loss of Rs. 1,00,000/-.Conclusion:The appeal was partly allowed, with the Tribunal upholding the treatment of speculation profit as unexplained cash credit under section 68 but allowing the claim for short-term capital loss.