Disallowance of Loss on Trading in Shares and Communities based on fictitious transactions not permissible when evidence adduced: ITAT [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that disallowance of loss on trading in shares and Communities based on fictitious transactions is not permissible when the evidence is adduced.

Ankit GirishkumarVasani, the assesseeis a trader and investor in shares and commodities.  During the year under consideration, he incurred a loss of Rs.1,24,17,318/- in trading in shares and commodities.  The AO received information from the Investigation wing of the Income tax department, Ahmedabad that the assessee has obtained fictitious transactions to generate a loss of Rs.1,24,17,318/-.

The AO reopened the assessment by issuing notice u/s 148 of the Act on 29-03-2016.  The AO completed the assessment u/s 144 of the Act by disallowing the above-said loss.The CIT(A) confirmed the order of the AO. 

It was contended that he has carried out share trading transactions with four brokers, out of which the transactions entered with one broker were held to be bogus and the AO has accepted the trading transactions entered with other brokers.

He further submitted that client code modification happens at the end of the stockbroker and the assessee is not related to the same. Further argued that the client code modification is carried out to correct the usual human error and such kind of modifications up toa certain level is also permitted by SEBI. 

A Coram of Shri B.R. Baskaran (AM) & Shri Pavan Kumar Gadale (JM) observed that the claim of the assessee is duly supported by various pieces of evidence and further the code modifications carried out by the stock broker should not affect the claim of the assessee unless it is proved that the assessee has colluded with the stock broker in modifying. 

While allowing the appeal filed by the assessee, the Tribunal quashed the orders passed by the tax authorities.

To Read the full text of the Order CLICK HERE

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