2020 (2) TMI 975 - AT - Income Tax

Tribunal overturns decision, allows set off of trading losses. Concrete evidence key.

M/s. Samson Foundations Versus The Assistant Commissioner of Income Tax, Non Corporate Circle 5 (1) Chennai.

The Tribunal ruled in favor of the appellant, overturning the decision of the lower authorities to disallow the claim for set off of loss in trading ... Genuineness of loss from trading of shares - Set off of loss incurred in the business of purchase and sale of shares - penny stocks - AO made disallowance doubting the genuineness of the transactions of purchase and sale of shares - HELD THAT:- From the perusal of the order of the lower authorities there is nothing on record to say that report of the Director of Investigation Wing, Kolkata was made available to the assessee. Furthermore, the Assessing Officer had not established collusion of the assessee in the alleged fraud. M/s. Kodak Securities Ltd is not one of those banned entities by SEBI. The time gap involved between purchase and sale of shares is more than one year and shares were demated. In the circumstances, the transactions cannot be held as ‘’not genuine’’ merely based on suspicion. Suspicion however, be strong cannot take the place of proof. It is settled position of law that no addition can be made on mere suspicion. Therefore, we are of the considered opinion that disallowance of claim for set off of loss in trading of the transactions cannot be upheld. Hence, we reverse the order of the lower authorities and allow the appeal of the assessee. Issues Involved:1. Treatment of loss from sale of shares as Speculation Loss under Section 43(5) of the Income Tax Act, 1961.Analysis:The appellant challenged the order of the Commissioner of Income Tax (Appeals) regarding the treatment of the loss from the sale of shares as Speculation Loss under Section 43(5) of the Income Tax Act, 1961. The Assessing Officer disallowed the trading loss based on information from the Investigations wing, treating it as Penny Stocks. The appellant argued that the transactions did not fall under the ambit of Section 43(5) as they involved trading in shares of listed companies, supported by DEMAT statements, Contract Notes, and Bank Statements. The appellant contended that the order of the Commissioner of Income Tax (Appeals) was contrary to law, as they failed to appreciate the evidence provided and applied judicial precedents inapplicable to a partnership firm. The appellant sought the Tribunal to allow the loss claimed as Business Loss and restrict the levy of interest under sections 234B and 234C.The Tribunal noted that the Assessing Officer disallowed the claim for set off of loss arising from the sale of shares, suspecting the genuineness of the transactions. The Assessing Officer considered the shares as penny stocks based on a report from the Director of Investigation Wing, Income Tax Department, Kolkata. However, the Tribunal found that there was no evidence to suggest that the report was made available to the assessee, and collusion of the assessee in any alleged fraud was not established. The transactions were conducted through a registered broker, shares were demated, and the time gap between purchase and sale was over a year. The Tribunal emphasized that suspicion, no matter how strong, cannot replace proof, and additions cannot be made based solely on suspicion. Therefore, the Tribunal reversed the order of the lower authorities and allowed the appeal of the assessee.In conclusion, the Tribunal held in favor of the appellant, allowing the appeal and rejecting the disallowance of the claim for set off of loss in trading transactions. The Tribunal emphasized the importance of evidence over suspicion in determining the genuineness of transactions involving the sale of shares.