Routing of a legitimate expenditure through P&L Account isn’t a precondition to allow such expenditure Gujarat HC says Where assessee claimed share trading and future options losses and further, assessee had substantiated entire transactions by furnishing valid and statutorily accepted documents, merely debiting directly these items in capital account instead of in profit and loss account and, not routing share trading account through audited account under section 44AB, could not be a ground to disregard legally acceptable claim of assessee Assessee claimed losses on share trading and future and options along with overdraft interest – Assessing Officer disallowed claim of share trading and F&O losses but allowed OD interest on ground that these transaction were not routed through profit and loss account – Whether on fact, assessee was professional consultant and share trader and made transaction through recognized stock exchange and further, produced time stamped contract notes issued by broker containing unique client code and PAN of assessee, hence, transaction of future and option had fulfilled criteria of business as there was no element of investment – Held, yes – Whether since, transaction were not under cast of shadow or doubt and there was no dispute over quantum of loss computed by assessee as he had substantiated entire transaction by furnishing valid and statutorily accepted documents, merely debiting future and option losses and share trading in capital account instead of profit and loss account and not routed share trading accounts through audited account under section 44AB, could not be ground to disregard legally acceptable claim of assessee – Held, yes [In favour of assessee] FACTS:

• The Assessing Officer disallowed the claim of the respondent assessee of share trading and F&O losses allowing OD interest on the ground that these transactions were not routed through the profit and loss accounts.
• On appeal, Commissioner (Appeals) did not agree with the reasonings of the Assessing Officer and by observing that a consistent method of computation of income/loss was followed by the assessee from the earlier year. It of course noted that both F&O losses and the share trading along with the OD interest were not to be debited directly in the capital account, but, in consolidated P&I account of the appellant. However, considering otherwise many substantiating documents particularly the audited capital account, copies of account from the broker’s book, the support received from the stamped contract notes issued by the brokers containing unique client code and the PAN of the respondent assessee, it concluded that such activity were incorporated in the books from the trial balance, profit and loss account, capital account and the balance sheet prepared and audited. The transactions thus when were made through a recognized stock exchange and time stamped contract notes were issued, it was held that these transactions have fulfilled the criteria of the business considering the fact that there was no element of investment. It was also held that these transactions of future & options cannot be termed as capital. Thus, deleted addition made by the Assessing Officer.
• On appeal, Tribunal concurred with the findings of the Commissioner (Appeals) as far as future holding loss is concerned and held in favour of the assessee however, for share trading loss, it remanded the matter to Assessing Officer.

HELD:

• Therefore, when the transactions were not under any cast of shadow or doubt and there was no dispute over the quantum of loss computed by the appellant and the respondent-assessee had substantiated the entire transactions by furnishing otherwise valid and statutorily accepted documents, on merely debiting directly these items in capital account instead of in P&L account and thus, not routing share trading account through audited account under section 44AB cannot furnish a ground to disregard overwhelming legally acceptable evidences to reject the claim of assessee.
• In the instant case the item, as rightly pointed out by both the authorities, could not have been debited directly in the capital account but in view of voluminous documents substantiating the claim of the assessee. There is no reason to interfere.

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