In a major relief to Morgan Stanley India Company Ltd., the Income Tax Appellate Tribunal (ITAT), Mumbai Bench allowed loss on account of error trading transaction.
The ITAT was of the view that the error trade loss is incidental to the business of the assessee and therefore the assessee should be allowed to claim.
The tribunal directed the AO is directed to delete the disallowance made in respect of loss on account of error trading transaction.
Facts
The assessee is a company engaged in the business of providing financial services including providing institutional equity sales and trading services to both domestic and overseas institutional clients.
For the Assessment Year (AY) 2012-13 the assessee filed a return of income declaring a total income of Rs. 327,52,69,310 under regular provisions of the Act and a book profit earned at section 115JB of the Income Tax Act at Rs. 306,26,14,293.
The case was selected for scrutiny and the Assessing Officer (AO) made a disallowance towards error trade loss, interest income and disallowance under section 14A. The CIT(A) on further appeal confirmed the disallowance/additions made by the AO.
During the course of assessment, the AO notice that the assessee has claimed loss of Rs. 17,79,806/- on account error trade. The AO called on the assessee to furnish the nature of loss and to justify the claim with evidence.
The assessee submitted that during the course of regular business of rendering broking services to client due to various reasons such error in the name of the script, etc. the clients do not take delivery and the said transaction is booked in the name of the assessee only. When these transactions are subsequently squared off the same may result in either loss or gains which are accounted as arising out of error trade.
The assessee argued that the loss is incurred in the regular course of business and therefore, the same should be allowed as deduction. The AO did not accept the submissions of the assessee and held that the error trade loss is not incurred on behalf of the clients and therefore, they cannot be claimed as business loss. The appeal of the CIT(A) confirmed the disallowance.
ITAT allowed the appeal and held that marginal error in share trading is incidental to the business of the assessee, therefore, there is no reason that assessee has wrongly claimed loss, therefore, AO is directed to allow the claim of the assessee.
Case Details
Case Name – Morgan Stanley India Company Ltd. v/s ACIT
Court – Income Tax Appellate Tribunal Mumbai
Appeal No – I.T.A. No. 2448/Mum/2024
Judicial Members – Ms Padmavathy S, Am & Shri Rahul Chaudhary, Jm
Date of Pronouncement – 30/07/2024