DMSONS METAL PVT LTD,MUMBAI vs. DCIT, CENTRAL CIRCLE-4(1), MUMBAI
Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: SHRI B.R. BASKARAN & SHRI ANIKESH BANERJEEDM Sons Metal Pvt Ltd 502, Peninsula Heights, Juhu Lane, Andheri (West), Mumbai- 400058 PAN: AACCD6037D vs DCIT, Central Circle-4(1), Mumbai 19th Floor, Air India Building Nariman Point, Mumbai-400 021 APPELLANT
Per Anikesh Banerjee (JM):
The instant appeal by the assessee was filed against the order of the Learned Commissioner of Income-tax (Appeals)-52, Mumbai *in short, ‘Ld.CIT(A)+, passed under section 250 of the Income-tax Act, 9161 (in short, ‘the Act’), for A.Y.
2015-16; date of order 16-02-2023. The impugned order was emanated from the order of the Learned Assistant Commissioner of Income-tax, Central Circle-4(1),
Mumbai order passed under section 147, date of order 13/04/2021. 2
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The following are the grounds raised by the assessee:- “1. The Ld CIT(A) erred in not appreciating that the Ld AO had passed the Assessment Order in haste without following the principles of natural justice and the impugned Assessment Order was to be cancelled.
2
The CIT(A) erred in not deleting the disallowance of Rs.1,26,88,604/- out of purchases though the purchases were fully verifiable and the payments were made through bank
3
Without prejudice to Ground No. 2. the Ld CIT(A) erred in sustaining the disallowance of Rs.15,86,075/-being 12.5% of the alleged bogus purchases of Rs.
1.26,88,604/-
4
The Ld CIT(A) erred in enhancing the addition of Rs.2.23,32,905/- to Rs.2,48,14,586/-on account of loss suffered in trading in options.
The Ld. CIT(A) erred in upholding the disallowance of loss suffered in option trading without appreciating that the transactions were supported by documentary. evidences and the account was settled through banking channel.
The Ld CIT(A) erred in not appreciating that the disallowance of loss was made by the Ld AO relying on third party evidences copies of which were not provided to the assessee thus violating the principles of natural justice.
7
The above grounds of appeal are without prejudice to one another.
8
The appellant craves leave to furnish Additional Evidence which may be relevant to the above Grounds of Appeal in course of the appeal proceedings.
9
The appellant craves leave to amend or alter any of the above Grounds of Appeal or to add new Grounds of Appeal during the course of appeal proceedings.”
The assessee's appeal was disposed of by an order dated 31/07/2023. Subsequently, the matter was recalled vide order in M.A. No.62/Mum/2024 dated
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30/01/2025 for the limited purpose of adjudicating grounds 4 to 6. The Learned
Authorised Representative (Ld. AR) apprised the Bench that the remaining grounds had already been adjudicated in the earlier order dated 31/07/2023. Accordingly, the present hearing is confined to the adjudication of grounds 4 to 6. 3. The Ld. AR, in the course of arguments, submitted that the assessee is engaged in the business of importing and stocking B.Q. plates. A survey was conducted at the assessee’s premises on 18/12/2017, following which the assessee filed its return of income. Subsequently, a notice under Section 148 of the Act was issued and duly served upon the assessee. In response, the assessee filed the same return as originally submitted under Section 139(1) of the Act.
During the assessment proceedings, the Ld. AO observed that the assessee had claimed a trading loss of Rs.2,48,14,586/- in connection with transactions in liquid stock options on the BSE. Relying on the report of the Investigation Wing, Unit-6,
Mumbai, the Ld. AO inferred that the assessee had incurred a fictitious loss through coordinated and pre-arranged trading in liquid stock options on the BSE.
Consequently, based on the information available, the Ld. AO restricted the disallowance to Rs.2,23,32,905/-, which was added back to the total income, as recorded in paragraph 6.9 of the impugned assessment order.
The assessee, however, contended that it was engaged in the regular import and export of goods, and that the claimed loss pertained to foreign currency fluctuations, which were intrinsically linked to its trading business. Accordingly, the assessee asserted that the loss was genuine and allowable under the provisions of the Act.Aggrieved by the disallowance, the assessee preferred an appeal before the Ld. CIT(A). After adjudicating upon the matter, the Ld. CIT(A) noted that since the assessee had recorded the loss amounting to 4
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Rs.2,48,14,586/- in its books of accounts, an enhancement notice was issued.
Consequently, the entire amount of Rs.2,48,14,586/- was sustained as disallowed, in place of the earlier restricted disallowance of Rs.2,23,32,905/-.
Dissatisfied with the appellate order, the assessee has now preferred an appeal challenging the impugned order.
4. During the assessment proceedings, the Ld. AO explicitly stated that, based on information received from the Investigation Wing, Unit-6, Mumbai, the alleged addition was duly confirmed. The Ld. AO concluded that the assessee had generated a fictitious loss through stock market option trading. The relevant excerpts from paragraphs 6 to 6.2 of the assessment order are reproduced below:
“6. Disallowance of claim non-genuine loss of derivative trading
6.1 On perusal of your financials, it is seen that assessee have shown loss amounting to Rs. 2,48,14,586/- in other operating revenue head under profit and loss account.
6.2
During the assessment proceedings information received from Investigation wing -Unil-6 (Inv.), Mumbai regarding claim of fictitious losses through coordinated and premeditated trading in illiquid stock options on the Bombay Stock Exchange, it had come to notice that there are several instances/internal alerts wherein a set of entities were consistently seen incurring trading loss by executing Reversal of trades in options on individual stocks ("stock options") in Equity Derivative Segment. However, it has also come into notice that along with Reversal of Trades, huge losses are being generated by various clients by letting the options expire.”
On the other hand, the Ld.AO has considered the submission of the assessee, where the assessee claimed that this loss is not from the liquid option but it is a foreign currency loss related to import of material for business purpose. The relevant excerpts from paragraph 6.8 of the assessment order are reproduced below: -
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“6.8 The submission of the assessee is considered but not acceptable in the light of facts and circumstances as under:
Assessee have stated that he is importing materials from foreign country for the business purpose against which the payment is to be made in foreign currency and they have entered into such transaction to cover up foreign exchange transactions. However, assessee have not substantiated its claim with the documentary evidence. Assessee have not submitted the underlying item documentary evidences for hedging of imports for every foreign exchange transaction, On review of the data for foreign exchange it seems that in majority of the cases the foreign exchange transaction is not adjusted against the import payments it is merely daily trade transaction in currency having buy and sale on the same day executed in fraction of seconds to few minutes. Normally business books forward contract with authorised dealer bank to hedge their import payments mentioned the period of contract and expected date of payment. However, no such hedging transaction emanates from the contract note submitted by assessee.
On perusal of the contract notes it is seen that the assessee has traded in 66 unique contracts and has undertaken both sell as well as buy trades in each of the contracts. Further, it is relevant to mention that the buy quantity and sell quantity for each of the 66 contracts in which trades have been undertaken by assessee is almost identical. Also, it is seen that by trading in the 66 contracts enumerated in the table above, the assessee has consistently recorded losses for almost each of the contract. The sample contract highlighting the similar trade quantity, their prices, time lag between buy and sale is reproduced as under.”
The Ld. DR fully relied on the orders of the revenue authorities; but has not made any comment on the fact of the case. 7. We have heard the rival submissions and perused the documents available on record. It is observed that the Ld. AO disallowed an amount of Rs.2,23,32,905/- based on the report from the Investigation Wing, Unit-6, Mumbai, treating the assessee’s loss as one arising from transactions in liquid stock options on the BSE.The assessee has vehemently denied this characterization, contending that 6 ITA 762/Mum/2023 DM Sons Metals Pvt Ltd the alleged loss was incurred in connection with the import of goods and was duly recorded in its books of accounts as an adjustment for foreign currency losses. However, we find that the Ld. AO did not conduct any independent verification of the assessee’s claims and instead relied solely on the report of the Investigation Wing while finalizing the assessment.This factual inconsistency was duly raised before the Ld. CIT(A), yet no specific adjudication was made on this issue. Furthermore, while the Ld. AO had disallowed a loss of Rs.2,23,32,905/-, the Ld. CIT(A) enhanced the disallowance to Rs.2,48,14,586/-, in line with the amount claimed by the assessee in its books of accounts as loss from business.In our considered view, the entire matter has been improperly adjudicated without due consideration of the assessee’s submissions. Therefore, we deem it appropriate to remit the issue for reconsideration by the Ld. AO, directing a fresh adjudication on its merits. Accordingly, the assessee’s grounds of appeal numbered 4 to 6 are set aside and restored to the file of the Ld. AO for further examination. Both the Ld. AR and the Ld. DR have accepted the view of the Bench and have raised no objections. Needless to say, the assessee shall be afforded a reasonable opportunity of hearing during the reassessment proceedings. At the same time, the assessee is expected to act diligently and cooperate with the assessment process to ensure expeditious disposal of the matter. 8. Considering the above, grounds 4 to 6 of the assessee’s appeal are allowed for statistical purposein terms of afore said observation.
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In the result, appeal of the assessee bearing ITA 762/Mum/2023 is partly allowed.
Order pronounced in the open court on 28th day of March 2025. (B.R. BASKARAN)
JUDICIAL MEMBER
Mumbai,दिन ांक/Dated: 28/03/2025
Pavanan
Copy of the Order forwarded to:
अपील र्थी/The Appellant , 2. प्रदिव िी/ The Respondent. 3. आयकरआयुक्त CIT 4. दवभ गीयप्रदिदनदि, आय.अपी.अदि., मुबांई/DR, ITAT, Mumbai 5. ग र्डफ इल/Guard file.
BY ORDER,
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(Asstt.