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Facts
The assessee, a registered broker, incurred losses from BSE F&O (shares) and currency derivatives. The AO treated these losses as bogus and added them to the income. The CIT(A) confirmed the addition.
Held
The Tribunal held that the reliance on the SEBI ex-parte interim order, which was later set aside, was misplaced. The addition made by the AO was unsustainable as the foundation was demolished.
Key Issues
Whether the losses incurred from BSE F&O and currency derivatives transactions can be considered bogus and added to income when the primary evidence relied upon by the AO was set aside.
Sections Cited
143(2), 142(1), 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 31.07.2024 for the AY 2015-16.
2. The issue raised in ground no.1 is general in nature and need no specific adjudication.
The issue raised in ground no.2 is against the order of learned CIT (A) confirming the addition of ₹7,84,46,800/-, which was made by the learned AO on account of BSE F&O (shares) loss of ₹ 5,01,71,829/- and currency derivative loss of ₹2,75,70,970/-.
In the appellate proceedings, the learned CIT (A) affirmed the order of the learned AO after taking into consideration the reply of the assessee.
After hearing the rival contentions and perusing the materials available on record including the final order passed by the SEBI dated 28.02.2022, which was filed by the learned DR during the course of hearing, we observe that the assessee has incurred a loss from the BSE F&O (shares) of ₹5,01,71,829/- and BSE derivatives currency loss of ₹2,75,70,970/- in the transactions through broker M/s Goodluck Securities though, the assessee itself is a broker. We find that the main reliance was placed by the learned AO as well as by the learned CIT (A) on the ex-parte interim order passed by the SEBI dated 20.08.2015 which has been set aside. Therefore, as on date it has no binding force and strength to lend support to the view taken by the authorities below making and confirming the addition on account of F &O share loss and currency derivative loss. Therefore, as on date, the very foundation of the addition made stood demolished. So far as the final order passed by the SEBI dated 20.02.2023, as relied and referred by the ld DR , we observe that the same was rendered in the context of National Spot Exchange Limited and is not applicable to the Bombay Stock Exchange platform. Therefore, the reliance by the DR on this order is misplaced and wrong. Though, in the said order the certificate of registration of the assessee with National Spot Exchange limited was cancelled. The assessee has filed before the AO as well as before the learned CIT (A) all the evidences qua these transactions carried out on the Bombay Stock Exchange Platform with which no fault has been found by either of the authorities below and the only allegation is that assessee carried out this trade through M/s Goodluck Securities despite the fact that the assessee itself a stock broker. In our opinion, there is no bar in carrying out the transactions through any stock broker. The issue is squarely covered by the decision of the co- ordinate bench of this Tribunal in case of ACIT Vs. Vinay Ramanlal Shah and Ors. in for A.Y. 2019-20 and 4465/Mum/2024 for A.Y. 2015-16 vide order dated 29.05.2025, wherein similar issue has been decided in favour of the assessee at Para no. 31 to 34 as under:-
“31. Further, during the course of survey not an Iota of evidence or incriminating documents have been found from any premises either from the brokers, counter parties or the assessee nor there is any information that assessee is connected with counter parties in the trade. The investigations carried out under the Falcon project and during the survey u/s.133A at the office premises of the assessee, no evidence has been gathered or found which can even remotely suggest that one particular transaction with M/s. Trinay Securities Trading Ltd., is sham or non-genuine. Once the assessee has filed copies of contract notes in respect of the transactions of the derivative trading, copy of bank statements, reflecting payment of requisite margin money to the brokers, copy of statement of accounts of the broker in the books of the assessee company etc., then to its belief such documentary evidence, ld. AO should have brought some material carried out enquiry to bring any adverse material on record.
One very important fact which has been noted by the ld. CIT (A) are that there are 17 counter parties to the assessee’s transaction which has been reproduced by the ld. AO in his order however, in the ad-interim of SEBI, none of these parties have even been mentioned or there is any whisper that they were indulged in synchronized trading. As regards to the statement of the assessee, during the survey wherein assessee has offered to withdraw the loss in light of the statement of the property of Goodluck Securities and ad-interim SEBI order, the same was given on the presumption that Ad-interim SEBI order was in force and the statement of Goodluck Securities was correct. However, nowhere assessee had finally offered any such loss or offered to disallow such loss.
In so far as SEBI ad-interim order, the same was passed exparte and it is also a matter of fact vide subsequent order dated 22/08/2016, SEBI has provided interim relief to the assessee giving permission to buy and sale commodities for taking position, liquidity shares, mutual funds etc. Later, even Ad-interim was vacated by the subsequent order of SEBI vide order dated 05/04/2018. Thus, the very basis on which ld. AO has disallowed the loss i.e. Ad-interim order of the SEBI itself stands vacated. Thus, his entire premise of the AO falters. Accordingly, the finding of the ld. CIT (A) is upheld, which in sum and substance is synthesized in the following manner:- i. Assessee is a regular and bonafide trader in derivative segment over many years has not been doubted by the AO. ii. Assessee has been taking services of many brokers to trade in this segment and has, during this year, traded through Trinay Securities. None of the other transactions have been doubted by the AO. iii. With regards to the transactions done through Trinay Securities, the assessee has provided all the necessary documents which have not been rebutted by the AO iv. It has not been demonstrated by AO that assessee has colluded with the counter parties to generate fake loss. v. The transactions have been done on the screen based trading system of Stock Exchange by payment of STT vi. The statement of Shri Vinay Shah has been recorded at the time of assessment proceedings and he has reiterated the genuine nature of transactions claiming that all necessary documents have been submitted before the AO.
vii. The SEBI ad interim order dated 20.8.2015 which has been heavily relied by AO stands negated. 34. Thus, in light of these facts the addition made by the AO cannot be sustained and accordingly, the finding of the ld. CI T(A) is upheld and the grounds raised by the Revenue are dismissed.”
6. Therefore, respectfully following the same, we are inclined to set aside the order of learned CIT (A) and direct the learned AO to allow/ the set off/delete the addition.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 03.12.2025.