Genuine share-trading loss cannot be disallowed for lack of prudence when exchange records and banking evidence support the transactions.

Genuine share-trading loss supported by exchange records, demat entries and banking channels cannot be disallowed merely because the tax authority views the investment decision as commercially imprudent. The revenue failed to show that the assessee engaged in market manipulation or created an artificial loss, and reliance on the companies' book values or SEBI action against their promoters did not establish that the assessee's own transactions were bogus. The ITAT Hyderabad therefore treated the loss as a real business loss and deleted the disallowance.

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Issues: Whether the disallowance of business loss arising from purchase and sale of shares on the stock exchange was sustainable.

Analysis: The shares were bought and sold through a recognised stock exchange through a registered broker, with payment routed through banking channels and the transactions reflected in the trading and demat accounts. The revenue did not dispute the purchase or sale transactions as such, nor bring material to show that the assessee participated in market manipulation or booked an artificial loss. The reliance on book value and on SEBI action against the companies' promoters did not establish that the assessee's own transactions were bogus. A taxpayer's commercial decision cannot be disallowed merely because the Assessing Officer considers it imprudent, where the transactions are otherwise lawful and supported by evidence.

Conclusion: The loss was held to be a real business loss and the disallowance was deleted in favour of the assessee.

Final Conclusion: The appeal was allowed and the addition on account of disallowance of share-trading loss did not survive.

Ratio Decidendi: A genuine share transaction carried out through a recognised exchange and supported by documentary evidence cannot be disallowed merely on the ground that it lacked business prudence, absent material showing artificial or bogus loss.

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