ACIT, CENTRAL CIRCLE - 2(4), KOLKATA, KOLKATA vs. M/S. ASIAN HOUSING & INFRASTRUCTURE PVT. LTD.,, KOLKATA

The main grievance of the revenue is against the action of the Ld. CIT(A) in deleting the disallowance of loss claimed by the assessee on account of derivative trading to the tune of Rs.3,49,14,478/-.

Brief facts of the case are that the AO noticed that a search and seizure operation u/s. 132 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) was conducted at the premises of the assessee on 11.04.2013 and it was noted by him that in the assessment year under consideration the assessee had shown loss of Rs.3,49,14,478/- on derivative trading in the P&L Account for the year. The AO acknowledges that the assessee had filed the details of such loss with the supporting documents namely, contract notes and bank statement. However, according to AO, the loss could not be allowed in the light of the statement of the broker [ whose name not revealed by AO] from whom he came to know that the assessee

We have heard rival submissions and gone through the facts and circumstances of the case. We note that there was a search action on the assessee’s premise on 11.04.2013 (AY 14-15 which is the relevant assessment year under consideration before us). During the course of search, it was found by the search party that the assessee was engaged in trading of derivative transactions in commodities which were not recorded in the books of account. Consequently, a disclosure of Rs.402.02 lacs was taken on account of such unrecorded transaction of derivatives for the AY 2013-14 was taken from the assessee and assessee offered tax on it. Since the search action happened on 11.04.2013 in the beginning of the AY 2014-15, the assessee thereafter started recording the derivative transaction in its regular books of account. We note that the assessee has carried out the derivative transactions through the USEI which has approval from the SEBI in the year 2010 onwards and this Exchange has been recognized by CBDT vide notification no. 12/2011 dated 25.02.2011. We note that the assessee carried out currency derivative transaction in USEI which is a Asian Housing & Infrastructure Pvt. Ltd., AY 2014-15 currency derivative arm of the Bombay Stock Exchange. The USEI is promoted by BSI and other 21 PSU banks and it deals only in currency derivative and interest swap options. The AO erred in finding that the assessee was not regular trader in the derivative market because the AO himself during the course of search has found that assessee is actively engaged in derivative trading and Rs.4,02,02,600/- was assessed to tax from the derivative trading for AY 2013-14 (previous assessment year) . However, when the assessee claimed the loss in this assessment year the AO has taken an about-turn and did not accept the same, which action of the AO cannot be countenanced. We note that the AO’s allegation that the SEBI has suspended the broker through whom the assessee had transacted the derivative business is not correct. We note that the broker of the assessee through whom assessee did derivative trading was M/s. EXPRO Securities which broker has not been suspended by SEBI or any other authorities. We also note that the assessee had prayed for the copy of the statement of the purported broker’s statement which the AO had heavily relied upon for drawing adverse inference against the assessee’s claim of loss suffered during derivative transactions. However, we note that the AO has not given a copy of the broker’s statement/adverse material to the assessee, so the statement of the broker which is adverse against the assessee cannot be relied upon by the AO for drawing adverse inference against the assessee. We note that the Hon’ble Supreme Court in the case of Kishanchand Chellaram Vs. CIT (1980) 125 ITR 713 (SC) held that any information gathered by the AO without confronting the same to the assessee did not have any evidentiary value and cannot be used for the purpose of assessment or other proceedings. We also note that the assessee’s plea to the AO to cross examine the so called broker whose statement was recorded by the AO was also not done by the AO which omission also makes the order of AO bad in the eyes of law as held by the Hon’ble Supreme Court in Andaman Timber Industries Vs. Commissioner of Central Excise 62 Taxman.com 3. (SC). The AO’s action for taxing the derivative income for AY 2013-14 and not accepting the loss for AY 2014-15 cannot be countenanced and, therefore, we do not find any infirmity in the order of the Ld. CIT(A) directing deletion of the addition made on this count and, therefore, the revenue’s ground of appeal is dismissed.

In the result, the appeal of the revenue is dismissed.