2024 (1) TMI 1069 - AT - Income Tax

ITAT deletes estimated margin money addition while upholding derivative loss disallowance under section 43(5)

Kulvinder Nath Marwah Versus ACIT Circle-29 (1) New Delhi

The ITAT Delhi ruled in favor of the assessee regarding derivative transaction losses. The AO had denied set-off of derivative losses against wine shop ... Allowability of Derivative loss - Business loss or speculative transaction - AO denied the set off of the derivative loss against the profits of the wine shop. - Estimation of income on the basis of alleged payment of margin monies - AO concluded that the assessee had not carried out the derivative transactions through a stock broker or sub-broker or intermediary registered u/s 12 of the SEBI Act and accordingly treated the said derivative transaction as a speculative transaction in terms of section 43(5) of the Act and disallowed the same. HELD THAT:- It is not in dispute that transactions were entered by the assessee with three sub brokers - The maximum amount of investment on one date of derivative transaction was Rs 1,27,20,985/- considering in aggregate of all the three parties. It is not in dispute that the assessee had incurred total loss in derivative transactions amounting to Rs 14,43,040/- which was separately disallowed by the ld. AO in the assessment. This point was not agitated by the assessee before the ld. CIT(A). Plea of the assessee is that she had not deposited any margin money with the sub-brokers - We find that the ld. AR placed on record the ledger account copies of the three sub-brokers along with contract notes of their respective brokers. - The total loss incurred by the assessee out of doing transactions with aforesaid three parties which has been paid by the assessee on the following dates from her bank account maintained with State Bank of India The sources for making the aforesaid payments are drawn from the books of accounts regularly maintained by the assessee and in any case, the same is not disputed by the revenue before us. Considering the various evidences submitted by the assessee as stated supra, we are inclined to accept to the contentions of the assessee and the loss of Rs 14,43,040/- alone had to be disallowed which had already been done by the ld. AO in the assessment and accepted by the assessee by not filing any appeal. Hence there is no need to make any separate addition on account of alleged payment of margin monies on an estimated basis and accordingly, the addition made in the sum is hereby deleted. Decided in favour of assessee. Issues involved:The only effective issue in this appeal is whether the disallowance made on account of derivative loss was justified.Comprehensive details of the judgment:1. The Assessee had claimed a loss on derivatives, which the Assessing Officer (AO) disallowed as speculative transactions under section 43(5) of the Income Tax Act. The AO denied the set off of the derivative loss against the profits of the wine shop, as the transactions were not carried out through a registered intermediary.2. The AO treated certain investments made on behalf of the Assessee in derivative transactions as unexplained investments under section 69 of the Act. The Assessee explained that these transactions were carried out through recognized stock exchanges and submitted details of transactions with sub-brokers.3. The Commissioner of Income Tax (Appeals) considered the evidence and estimated margin monies at 10% of total transactions, sustaining an addition of Rs 12,72,098. However, the Assessee argued that no margin money was deposited with sub-brokers and the losses were funded through regular banking channels.4. The Assessee provided ledger account copies of sub-brokers and contract notes, showing that the losses incurred were physically funded by the Assessee through her bank account. The total loss of Rs 14,43,040 was paid from the Assessee's bank account on specific dates.5. The Tribunal accepted the Assessee's contentions and held that the disallowance of Rs 14,43,040 was justified and already done by the AO. As the Assessee did not appeal against this disallowance, no separate addition on account of alleged margin monies was necessary. Therefore, the addition of Rs 12,72,098 was deleted, and the appeal of the Assessee was allowed.Separate Judgment: None. Judges: Shri M. Balaganesh, Accountant Member and Shri Anubhav Sharma, Judicial Member.