AO cannot treat commodity losses as bogus merely because broker was expelled from commodity exchange

Principal CIT Vs Ms Blb Cables And Conductors Pvt. Ltd. (Calcutta High Court)

Assessee has incurred losses from the off market commodity transactions and the AO held such loss as bogus and inadmissible in the eyes of the law. The same loss was also confirmed by the ld. CIT(A). However we find that all the transactions through the broker were duly recorded in the books of the assessee. The broker has also declared in its books of accounts and offered for taxation. In our view to hold a transaction as bogus, there has to be some concrete evidence where the transactions cannot be proved with the supportive evidence. Here in the case the transactions of the commodity exchanged have not only been explained but also substantiated from the confirmation of the party. Both the parties are confirming the transactions which have been duly supported with the books of accounts and bank transactions. The ld. AR has also submitted the board resolution for the trading of commodity transaction. The broker was expelled from the commodity exchange cannot be the criteria to hold the transaction as bogus.

FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT

The Court :-The main point on which the Revenue presses this appeal is whether speculation loss arising from commodity trading to the Assessee in off market transactions would be added to its income or not for the assessment year 2009-10. The sum involved in such speculation loss is Rs.2,26,96,157/-. The Assessing Officer found claim for deduction under that head impermissible. He held :-

“From the return it has been found that the assessee has claimed loss in commodity trading of Rs.2,26, 96,157/-. On enquiry, the stock exchange NMCE (National Multi Commodity Exchange) reported that the transactions were not done in the name of this party and the broker through which the assessee said to have done the trading has been expelled by the NMCE after the broker Vatika Merchants(P) Ltd. ws found to had involved in issuing forged and fraudulent contract notes. In reply to the show cause that why it should not be treated as bogus, it has been submitted that “…As all these transactions are off market transactions, the same may not have passed through the commodity exchange. But that does not make these transactions bogus. We have produced all the purchase and sale contacts before you to prove the genuineness of the said transactions….” From the above submission it is clear that the transactions made were off market transactions and had not been informed to the Stock Exchange. Considering the above facts the transactions has been considered the assessee has furnished wrong particulars of income which amounts to concealment of income. The assessee has claimed it as speculation loss to be carried forward. So, the assessee has concealed income and furnished wrong particulars of income. For the above reasons penalty proceedings U/s 271(1)(c), Explanation-4 of the IT Act’ 1961 has been initiated.

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