TaxTMI 
TaxTMI 
2026 (7) TMI 1880
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....eciating that the assessee failed to furnish complete and transaction-wise documentary evidence to substantiate the genuineness and allow ability of the said loss? 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the loss arising from dealing errors was incidental to the business and allowable on the basis of commercial expediency, without establishing that the loss was wholly and exclusively incurred for the purpose of business as required under the Act? 3. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowance of loss of Rs. 6,31,38,037/-on account of dealing in shares and securities by accepting the assessee's subsequent retraction of its original submission, without appreciating that the assessee had initially admitted the loss to be in respect of open contracts as on 31.03.2020? 4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in law and on facts in holding that the losses claimed by the assessee were realized losses, without properly considering that the assessee failed to concl....
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....ent order passed u/sec. 143(3). The Ld. DR invited our attention the observations of the Ld. AO contained in paragraph no.4.6 and 4.7 in impugned assessment order which are reproduced as below: "4.6 Point wise rebuttal of reply of the assessee including analysis of any case law relied upon:- Vide notice us/. 142(1) dated 02.09.2022, the assessee was requested that in respect of error loss claimed during the year, you are requested to provide order placed by the client, document of confirmation of the order by the client, STP/Contact, clients daily trade log of the day in which error occurred and settlement/contract note (even if given earlier) in respect of some specific transactions in F & O and equity segment which were tabulated in the questionnaire. It is relevant to state here that documents were requested for some specific transactions on the basis of documents verified in processing the claim of the assessee made before the insurance company. Also, since, transactions of dealing error loss are huge, details were obtained for a few (6 for F & O and 11 for equity)randomly selected transactions of large amounts for different dates. However the require....
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....n on behalf of tis clients. So, the said error of the trading account is duly considered by the assessee its own expenses and booked in the accounts. The assessment was completed under Section 143(3) of the Act on 28.09.2022, wherein an addition on account of dealing error loss was made. Aggrieved by the said addition, the assessee preferred an appeal before the Ld. CIT(A). During the appellate proceedings, the Ld. CIT(A), vide letter dated 22.01.2025, invoked Rule 46A of the Income-tax Rules, 1962 and called for a remand report from the Ld. AO, seeking his comments on the additional evidence furnished by the assessee. However, the Ld. AO did not comply with the directions issued by the Ld. CIT(A) during the remand proceedings. It is an admitted fact that a search under Section 132 of the Act was conducted at the assessee's premises on 11.12.2023 by the DDIT (Inv.), Unit 5(1), Mumbai. Pursuant to the search action, proceedings under Section 147 were initiated, and a notice under Section 148 was issued. Thereafter, the reassessment was completed under Section 147 of the Act on 31.03.2025. In the reassessment proceedings, the Ld. AO examined the very issue relating to the deal....
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....n the reassessment order for the same year, the disallowance of Rs. 11,05,03,274/- is not sustainable. Accordingly, this ground of appeal is **allowed**". 6. We have heard the rival submissions and carefully considered the material available on record. The assessee is engaged in the business of share broking, and its case was selected for limited scrutiny. During the assessment proceedings, the Ld. AO disallowed the dealing error loss amounting to Rs. 11,05,03,274/- by treating it as a non-genuine expenditure. From the records, we find that the assessee had furnished all the documents and explanations called for by the Ld. AO in response to the notices issued under Section 142(1) of the Act during the assessment proceedings. Subsequently, a search under Section 132 of the Act was conducted at the assessee's premises, pursuant to which reassessment proceedings under Section 147 of the Act were initiated. In the reassessment proceedings, the Ld. AO specifically examined the issue of dealing error loss and accepted the assessee's claim by treating the expenditure as allowable. We further note that, during the appellate proceedings, the Ld. CIT(A) invoked Rule 46A of the Inc....
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....rred in this transaction is shown as Rs. 6,31,38,037/- where it is also stated - "Includes Rollover". (In the SCN, loss from the transaction of Grasim Industries Ltd. was inadvertently written as Rs. 6,31,52,017/- instead of Rs. 6,31,38,037/-). It was from the bills, it was seen as transaction in F & O segment. Again, the assessee made submission on 16.08.2022 on this issue which is again reproduced as under (also reproduced in SCN): "Also note that the position of transaction particularly with respect to GRASIM INDUSTRIES LIMITED (NSE Script code EQGRASIM) which was initially due to a reason of error have been accounted in Error Account and afterword as decided by the Management on Market Prospect transferred to Dealing in Shares & Securities to keep it as OWN POSITION. Accordingly, Losses incurred from the date of Error till 30/09/2019 of Rs. 212,15,400/- were transferred from "Dealing Error Loss" to "Loss on dealing in shares & securities" Hence, Overall Loss of Rs. 631,38,0877- with respect to GRASIM INDUSTRIES LIMITED (NSE Script code EQGRASIM) was taken from the date of error till 30-03-2020 as Loss due to dealing in share & securities for FY 2019-2....
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....arly paragraph 2 thereof, which reads as under: "In furtherance to the aforesaid circular, it has been decided that the final settlement shall be made in cash for all stock derivatives." On the strength of the above Circular, the Ld. AR contended that the assessee could not have recognised or booked any notional MTM loss in its books without violating the directions issued by SEBI. It was further submitted that the impugned loss was an actual trading loss arising from transactions that were settled on the very same day and, therefore, was neither contingent nor notional in nature. The Ld. AR also invited our attention to pages 325 to 326 of the APB, wherein the transaction-wise details of the profit/loss arising from trading in the securities of GRASIM (F&O) have been furnished. The relevant tabular statement is reproduced below: LOSS FROM DEALING IN SHARES & SECURITIES Security - GRASIM (F & O) Sr.No. BUY DATE BUY QTY BUY RATE BUY AMT SELL DATE SELL QTY SELL RATE SELL AMT GAIN/LOSS 1 31.05.2019 125250 890.68 11,15,58,162 27.06.2019 125250 927.75 11,62,00,990 46,42,829 2 27.06.2019 12....
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.... -2,025 23 16.07.2019 1500 929.90 13,94,850 16.07.2019 1500 924.08 13,86,113 -8,738 24 19.07.2019 750 877.90 6,58,425 19.07.2019 750 877.40 6,58,050 -375 25 24.07.2019 4500 874.22 39,34,012 24.07.2019 4500 876.68 39,45,075 11,063 26 20.08.2019 4500 724.64 32,60,880 20.08.2019 4500 727.89 32,75,505 14,625 27 03.09.2019 1500 697.18 10,45,770 03.09.2019 1500 695.08 10,42,620 -3,150 28 13.09.2019 3000 721.00 21,63,000 13.09.2019 3000 717.73 21,53,190 -9,810 29 Sec. Trx Tax 61,926 -61,926 1,09,55,46,891 1,03,23,46,927 -6,31,99,963 9. The Ld. AR further contended that the Ld. AO had proceeded on an erroneous premise owing to a typographical error in the assessee's submissions. It was submitted that the assessee had duly clarified the inadvertent error and furnished th....
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....39;s proprietary trading activities and is not a notional loss on an open contract. Therefore, the AO's basis for disallowance is factually incorrect. 9.4.5. In view of the evidence on record, the loss of Rs. 6,31,38,037/- is held to be an allowable business loss. The disallowance made by the AO is deleted. This ground of appeal is accordingly **allowed**. 9.5. Ground No. 4, being general in nature, does not require any separate adjudication. 10. Accordingly, the appeal of the appellant for A.Y. 2020-21 against the order u/s 143(3) is Allowed." 10. We have heard the rival submissions and perused the material available on record. The short controversy involved in the present ground is whether the loss of Rs. 6,31,38,037/- claimed by the assessee on account of dealing in equities and securities represents a notional mark-to-market (MTM) loss on an open contract or a realized business loss arising from completed transactions. We find that the Ld. AO disallowed the claim primarily on the basis of an initial submission made by the assessee, wherein it was stated that the loss represented a mark-to-market loss on an open position. However, the records re....