Tribunal allows appeal on loss claim from commodity transactions

The Tribunal allowed the appeal of the assessee, accepting the claim of loss from commodity transactions. The Tribunal found that the assessee provided specific details and documentary evidence to support the claim, while noting that the AO's rejection was based on mere suspicion without conducting necessary inquiries. The Tribunal held that suspicion alone cannot justify rejecting the claim, and considered the transactions non-speculative due to actual delivery taken by the assessee's agents. The AO was directed to accept the loss disclosed by the assessee and compute income accordingly.

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Issues Involved:
1. Denial of claim of loss in the stock business.
2. Confirmation of addition by not accepting the system of stock.
3. Disregard of evidence supporting the claim of loss.
4. Treatment of stock business as speculative loss.
5. Denial of interest expenses on unsecured loans.
6. Reliance on judgment of Supreme Court case Davenport & Co. Pvt. Ltd. Vs. CIT.

Detailed Analysis:

1. Denial of Claim of Loss in the Stock Business:
The assessee claimed a loss of Rs. 2,06,39,101 from commodity stock trading, which was disallowed by the Assessing Officer (AO) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The AO's disallowance was based on the absence of prior or subsequent similar transactions, lack of company scope for such trading, no intimation of change in object to authorities, and insufficient documentation supporting the rate of purchase and sale. The AO also found the explanation for selling commodities at a loss due to infection unconvincing. The CIT(A) noted that similar bogus loss claims were made by another group member, suggesting a pattern of tax avoidance.

2. Confirmation of Addition by Not Accepting the System of Stock:
The CIT(A) confirmed the AO's addition, rejecting the well-accepted system of stock business involving pakka arhtia and stockiest. The assessee argued that this system was disregarded without proper consideration of the evidence provided.

3. Disregard of Evidence Supporting the Claim of Loss:
The assessee contended that the CIT(A) failed to appreciate the evidence tendered, which supported the claim of loss incurred. The findings were based on borrowed inferences, disregarding the evidence and relying on irrelevant and extraneous considerations.

4. Treatment of Stock Business as Speculative Loss:
The CIT(A) treated the stock business as speculative loss, stating that the goods were not purchased by the assessee and no delivery took place. The assessee argued that in the stock business, it is a well-accepted system that goods remain with the arhtia, and thus, the order disregarded the principles of the stock business system.

5. Denial of Interest Expenses on Unsecured Loans:
The CIT(A) sustained the addition on account of interest paid to various persons, not appreciating that the interest was paid on unsecured loans taken for business use. The interest expense was rightly claimed in the profit and loss account.

6. Reliance on Judgment of Supreme Court Case Davenport & Co. Pvt. Ltd. Vs. CIT:
The CIT(A) applied the judgment of the Supreme Court in the case of Davenport & Co. Pvt. Ltd. Vs. CIT, West Bengal, which the assessee argued was not applicable as the facts of the case were entirely different.

Conclusion:
The Tribunal noted that identical issues were decided in favor of the assessee in the case of Smt. Anju Sharma Vs. ITO. The Tribunal found that the assessee provided specific details of purchase and sale of commodities, along with necessary documentary evidence such as bills, vouchers, and RTGS details. The AO did not conduct any inquiries from the pakka arhtias or entities from whom the wheat was purchased, relying instead on mere suspicion. The Tribunal held that suspicion, however strong, cannot be the sole basis for rejecting the claim of the assessee. The delivery taken by pakka arhtias as agents of the assessee was considered actual delivery, and thus, the transaction was not speculative. The Tribunal directed the AO to accept the loss disclosed by the assessee and compute the income accordingly.

Order:
The appeal of the assessee is allowed. The assessee's claim of loss from commodity transactions is accepted. The order was pronounced on 21/05/2020.

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