Kundan Rice Mills Ltd. Vs ACIT (ITAT Delhi)
Factual Background
Kundan Rice Mills Ltd., a long-time trader and member of commodity exchanges such as MCX, declared losses from trading in futures and options (F&O) during the relevant assessment year. The company had consistently conducted such trades for over a decade and maintained proper books of account recording all transactions.
The Assessing Officer (AO), while relying on an ad-interim SEBI order dated 20/22.08.2015, disallowed the claimed losses, questioning the economic rationale of the trades and suspecting them to be colorable devices for creating artificial losses. The AO required detailed justifications and documentary evidence from the assessee and ultimately disbelieved the genuineness of the transactions without carrying out an independent investigation.
Assessee’s Contentions
The assessee argued that:
-
It had consistently engaged in similar F&O trading in past years, which had never been questioned.
-
The trades were executed via screen-based platforms where counterparty identities are not known, a fact even acknowledged in the AO’s order.
-
It complied with all requirements of the commodity exchanges and paid Securities Transaction Tax (STT).
-
All transactions were backed by contract notes, bank statements, and broker accounts.
-
The SEBI interim order referred by the AO was later vacated by SEBI itself via its order dated 05.04.2018.
-
No objection or action was taken by the BSE or SEBI against the assessee’s specific trades.
-
The trading losses declared in the previous assessment year (Rs. 18.81 crore) were accepted without any disallowance, thus invoking the principle of consistency as laid down in Radhasoami Satsang v. CIT [(1992) 193 ITR 321 (SC)].
SEBI’s Orders
Initially, SEBI passed an ad-interim ex parte order on 20/22.08.2015 based on suspected circular trading by certain entities, including the assessee. The order stated that some parties deliberately booked losses to aid their counterparties in tax evasion.
However, after considering representations and objections, SEBI diluted the restrictions and, finally, via order dated 05.04.2018, disposed of the proceedings without any findings on merits, stating that:
