Disallowance of losses in commodity dealings on broker statement; guidance on admissibility and acceptance of third-party confirmations

Disallowance of losses in commodity trading based solely on an uncorroborated and retracted broker statement is not acceptable; a retracted or uncorroborated statement recorded by investigation authorities cannot be used as evidence where corroboration is absent and the maker was not subject to cross-examination, and the revenue must produce other supporting material. A contemporaneous third-party confirmation addressed to the tax officer and books/cheque evidence must be accepted if no contrary evidence exists, shifting the evidentiary burden back onto the revenue to prove bogus transactions.

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Issues: Whether the disallowance of loss of Rs.26,36,957/- claimed by the assessee in commodity trading can be sustained where the Assessing Officer relied solely on an uncorroborated and retracted statement of a broker without providing the assessee an opportunity of cross-examination, and where the broker has issued a subsequent confirmation that transactions were genuine.

Analysis: The Assessing Officer made the addition based exclusively on a statement recorded by the broker before the investigation wing; that statement was later retracted and a copy was not furnished to the assessee. Under these facts, the assessee was entitled to an opportunity to cross-examine the deponent; in the absence of cross-examination, a retracted and uncorroborated statement cannot form the basis for an addition. The broker (M/s MVPL) subsequently furnished a letter confirming the transactions, stating they were carried out by account-payee cheques, recorded in the books of account and genuine. The Revenue produced no independent corroborative evidence to contradict the broker's confirmation or to sustain the allegation of bogus transactions. Where no contrary evidence exists, third-party confirmation supporting genuineness must be accepted.

Conclusion: The disallowance of loss of Rs.26,36,957/- is deleted and the appeal is allowed in favour of the assessee.

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