Routing of a legitimate expenditure through P&L Account isn't a precondition to allow such expenditure

Where claim of assessee regarding share trading and future options losses was substantiated by it by furnishing valid and statutorily accepted documents, merely debiting these items directly in capital account instead of in profit and loss account, could not be a ground to disregard legally acceptable claim of assessee.

Facts:

a) The Assessing Officer disallowed the assessee’s claim of share trading and F&O losses on the ground that these transactions were not routed through the profit and loss accounts;

b) On appeal, CIT (A) did not agree with the reasoning of the Assessing Officer and thus, deleted the said additions;

c) Further, the Tribunal concurred with the findings of the CIT (A) as far as future holding loss was concerned and held in favour of the assessee however, for share trading loss, it remanded the matter to Assessing Officer.

The High Court held in favour of assessee as under:

1) The transactions would not cast any doubt and there was no dispute over the quantum of loss computed by the assessee and it had substantiated the entire transactions by furnishing otherwise valid and statutorily accepted documents;

2) The Apex Court in case of Kedarnath Jute Mfg. Co. Ltd. v. CIT (1971) 82 ITR 363 had held that "whether the assessee is entitled to a particular deduction or not will depend upon the provision of law relating thereto and not on the view which the assessee might take of his rights nor the existence or absence of entries in the books of account be decisive or conclusive in the said matter";

3) Thus, merely debiting these items directly in capital account instead of in P&L account and thus, not routing share trading account through audited account under section 44AB couldn’t be deemed as a valid ground to disregard overwhelming legally acceptable evidences to reject the

4) In the instant case though 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 was no reason to interfere - CIT V. NAISHAD I. PARIKH (2013) 39 taxmann.com 191 (Gujarat)