ITAT Orders Deletion of Disallowed F&O Loss of Rs. 1.34 Cr Due to Lack of Evidence, Relief Granted to Assessee.

The ITAT allowed the appeal filed by the assessee, directing the AO to delete the disallowance of the F & O loss of Rs. 1,34,95,517/-. The ITAT found no concrete evidence supporting the disallowance, as the transactions were backed by proper documentation. The judgment was pronounced on 29/07/2024, granting relief to the assessee.

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Issues: Disallowance of F & O loss of Rs. 1.35 crores in the assessment year 2015-16.

Detailed Analysis:
1. The assessee appealed against the disallowance of F & O loss of Rs. 1.35 crores by the AO in the assessment year 2015-16. The AO reopened the assessment after finding that the assessee had incurred losses in reversal trade through a broker involved in manipulative practices.

2. The assessee contended before the Ld CIT(A) that the F & O transactions were legitimate and carried out in the normal course of business. However, the Ld CIT(A) upheld the disallowance, stating that it was the assessee's responsibility to prove the genuineness of the transactions, which the assessee failed to do. The loss was attributed to client code modification by the broker.

3. The ITAT observed that the AO relied on a report of the investigation wing regarding manipulative practices, but the assessee's transactions were supported by contract notes and invoices. The ITAT found no fault in the assessee's documentation or banking transactions. Notably, the assessee was not directly investigated by SEBI or the Income Tax Department, and the broker did not specifically identify the assessee's transactions as bogus.

4. Referring to a Bombay High Court case, the ITAT concluded that client code modification by the broker does not necessarily indicate income escapement. The disallowance was primarily based on the investigation wing's report, which was deemed insufficient to discredit the genuine transactions supported by proper documentation. Consequently, the ITAT set aside the Ld CIT(A)'s order and directed the AO to delete the disallowance of F & O loss of Rs. 1,34,95,517/-.

5. Ultimately, the ITAT allowed the appeal filed by the assessee, emphasizing the lack of concrete evidence to support the disallowance of the F & O loss. The judgment was pronounced on 29/07/2024, granting relief to the assessee in this matter.

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