DCIT CC-8(2), MUMBAI, MUMBAI vs. ANTIQUE STOCK BROKING LIMITED, MUMBAI

The revenue has taken the following grounds: “1. 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. 11,05,03,274/on account of dealing errors, without appreciating 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 conclusively establish, at the relevant stage of assessment, that the transactions were fully squared off within the financial year?”

The brief facts of the case are that the assessee is engaged in the business of broking in segments of cash equities (that is delivery based trading in equities), equities derivatives and currency derivatives segments and primary market distribution services. The assessee is primary engaged in carried out arbitrage business, for its clients and both domestic and foreign institutional investors. The assessee filed the return by declaring total income Rs.9,99,68,440/-. The return was process u/sec. 143(1) of the Act and total income is determined the Rs.9,99,68,440/-. The case was selected under CASS for limited scrutiny. The notice u/sec. 142(1) was issued. Finally, the assessment was completed u/sec. 143(3) r.w.s. 144B of the Act with addition in following heads. “(i) Disallowance of dealing error of lows amount to Rs.11,05,03,274/- (ii) Disallowance of loss on open contract of Grasim Industries Ltd. of Rs.6,31,38,037/-.” The aggrieved assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) after considering the assessee’s submission called a remand report by a notice dated 22.01.2025. But it is stated that a search action was duly conducted in assessee’s premises u/sec. 132 of the Act on 11.12.2023 by DDIT (Inv.)-Unit- 5(1), Mumbai. As warrant was issued in the case of assessee’s case comes under the provision of explanation 2(i) of Section 148 of the Act. Finally, the Ld. AO completed the reassessment under Section 147 of the Act. The issue forming the subject matter of Ground No. 1 of the revenue's appeal was duly examined by the Ld. AO during the reassessment proceedings, and no infirmity was found in the submissions made by the assessee. Thereafter, the Ld. CIT(A), after considering the facts and material on record, passed the appellate order deleting both the additions made by the Ld. AO in the impugned order. Aggrieved by the relief granted by the Ld. CIT(A), the revenue has preferred the present appeal before us.

The Ld. AR argued and filed two paper books comprising pages 1 to 334 which have been placed on record. The Ld. AR contended that the assessee is maintaining the regulations of stock exchange, the contractual obligations in respect of the trading transaction must be settled typically on T+1 or T+2 basis since the broker is principally liable to stock exchange for transactions undertaken on behalf of its clients these are required to be settled by the broker within number of days prescribed from the transaction day that is T+1 or T+2. However, since the broker is acting on behalf of clients, eventually the clients are responsible for transactions undertaken by the broker on their behalf. However, while carrying out the transaction, there are instances where certain mistakes/errors, are committed by the assessee-company or the clients in executing the trade. On account of errors or mistakes either committed by the assessee as a broker or by the clients itself, the client may be disown this transactions and the client may refuse to satisfy its contractual obligation. So broker is primarily responsible for transaction undertaken 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 dealing error loss and accepted the assessee's claim by treating the expenditure, which had earlier been disallowed in the assessment order passed under Section 143(3), as an allowable deduction. Taking note of the findings recorded by the Ld. AO in the reassessment order, the Ld. CIT(A), while passing the appellate order under Section 250 of the Act dated 31.10.2025, duly considered those findings and granted relief to the assessee. The relevant observations of the Ld. CIT(A) contained in paragraphs 9.3.4 to 9.3.7 are reproduced below: “9.3.4. Crucially, in the assessment order passed under section 147 of the Act for the same assessment year, i.e., A.Y. 2020-21, dated 31/03/2025, the AO has examined the same issue in detail. In paragraph 7 of the said order, the AO has noted the detailed submissions and evidences filed by the appellant, including intimations to the stock exchange with reasons for the error. After a thorough verification, the AO in the reassessment proceedings has concluded in paragraph 8 of the order dated 31/03/2025 as follows: "In view of the above and considering the all the submissions and reasons for owning/incurring of such losses for assesses for confidence of the clients and relations with the exchange and also the decisions of various courts on the very same issue the claim of loss on account of dealing error is found to genuine loss incurred during the course of the business and the same is found allowable." 9.3.5. The finding of the AO in the reassessment proceedings for the same assessment year, after detailed verification, that the loss is a genuine business loss, cannot be ignored. The principle of consistency demands that the same issue be treated similarly in different proceedings for the same assessee for the same year, especially when a more detailed verification has been conducted in the subsequent proceedings. 9.3.6. The issue is also covered by several judicial pronouncements, including the decision of the Hon'ble Bombay High Court in the case of "CIT v Motilal Oswal Securities Ltd. (ITA No. 18 of 2016), where it was held that loss incurred by a share broker to ensure that it is not disqualified from carrying on its activities is an integral part of carrying on the business as a stock broker.

The Ld. AR submitted that the Securities and Exchange Board of India (SEBI), vide Circular dated 31.12.2018, discontinued the recognition of mark-to- market (MTM) losses in respect of stock derivatives by mandating compulsory monetary settlement. In support of this contention, the Ld. AR placed reliance on the said SEBI Circular, particularly 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:

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 the correct particulars before the Ld. AO vide replies dated 21.09.2022 and 23.09.2022. The relevant replies, along with the supporting documents, are placed at pages 152 to 233 of the APB. The Ld. AR further submitted that a detailed written submission explaining the issue, along with the supporting evidence, was also filed before the Ld. CIT(A) vide letter dated 31.01.2023. The said submission is enclosed at pages 256 to 324 of the APB. Inviting our attention to the impugned appellate order, the Ld. AR submitted that the Ld. CIT(A), after considering the entire material available on record, had recorded categorical findings in favour of the assessee. The relevant observations of the Ld. CIT(A), contained in the impugned appellate order, are reproduced below: “9.4. Ground No. 3 pertains to the disallowance of loss of Rs. 6,31,38,037/- on account of dealing in shares and securities. 9.4.1. The AO disallowed this loss by treating it as a loss on an open contract as on 31/03/2020, relying on an initial submission of the appellant dated 16/08/2022. The AO held that as per ICDS, loss on an open contract not settled during the year is not allowable. 9.4.2. The appellant, in its subsequent submissions and during the video conference, clarified that the initial submission was made inadvertently and was incorrect. The appellant submitted documentary evidence in the form of contract notes and a global report to demonstrate that the transactions were squared off within the financial year and the loss of Rs. 6,31,38,037 was a realized loss, not a mark-to-market loss on an open position. 9.4.3. The AO has disregarded the appellant's clarification and the documentary evidence, and has relied solely on the initial incorrect submission. It is a settled principle of law that an assessment has to be made on the basis of the correct facts and evidence on record, and an assessee cannot be taxed based on an admission or an error which is subsequently rectified with cogent evidence. The AO himself has notice, which shows that such admitted to a "typographical error” in the show cause notice errors can occur.

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 reveal that the assessee subsequently clarified, vide replies dated 21.09.2022 and 23.09.2022, that the earlier statement was the result of an inadvertent typographical error and furnished complete documentary evidence, including contract notes and transaction-wise details, demonstrating that the transactions in the GRASIM (F&O) scrip had been squared off during the relevant previous year. The same explanation, supported by documentary evidence, was also placed before the Ld. CIT(A). We further find merit in the contention of the Ld. AR that, pursuant to the SEBI Circular dated 31.12.2018 mandating compulsory cash settlement of stock derivatives, the impugned loss cannot be characterized as a notional mark-to-market loss on an outstanding derivative contract. The transaction-wise details placed in the APB also demonstrate that the loss arose from completed proprietary trading transactions and not from any open position remaining outstanding as on 31.03.2020. The Ld. CIT(A), after examining the contract notes, global reports and other contemporaneous records, has recorded a categorical finding that the transactions stood concluded during the relevant financial year and that the impugned loss was a realized business loss. The revenue has not placed any material before us to controvert these factual findings or to demonstrate that the documentary evidence relied upon by the Ld. CIT(A) is either incorrect or unreliable. The disallowance made by the Ld. AO is founded solely on the assessee's initial erroneous submission while completely ignoring the subsequent clarification and the supporting documentary evidence available on record. It is a settled principle that an assessment must be based on the correct facts and the evidence on record and not merely on an inadvertent or mistaken admission, particularly when such mistake has been duly explained and rectified with cogent evidence. The Ld. DR also could not point out any infirmity in the factual findings recorded by the Ld. CIT(A) or bring any material on record to establish that the impugned transactions remained open as on the close of the previous year. In the absence of any contrary evidence, we find no reason to interfere with the well-reasoned findings of the Ld. CIT(A). Accordingly, we uphold the order of the Ld. CIT(A) deleting the disallowance of Rs. 6,31,38,037/- made by the Ld. AO on account of dealing in equities and securities. Consequently, Ground Nos. 3 & 4 raised by the revenue stands dismissed.

In the result, the appeal of the revenue bearing ITA No.9307/Mum/2025 is dismissed. Order pronounced in the open court on 15th day of July 2026. Sd/- Sd/- (BIJAYANANDA PRUSETH) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,िदनांक/Dated: 15/07/2026 SAUMYA Sr.PS Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent. 3. आयकरआयु� CIT 4. िवभागीय�ितिनिध, आय.अपी.अिध., मुंबई/DR, ITAT, Mumbai 5. गाड�फाइल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, MUMBAI