ITO-34(2)(1), MUMBAI, MUMBAI vs. HARESH S JHAVERI HUF , MUMBAI

From the records, I noticed that there is a delay of 1 day in filing the present appeal, in this regard the revenue has explained the reasons which prevented them to tile the appeal in time.

After having heard the counsel for both the parties on this application and considering the entire factual position as explained before us and also keeping in view the principles laid down by the Hon’ble Supreme Court in the case of Land Acquisition Collector vs MST Kitji& Others, 1987, AIR, 1353 Supreme Court Wherein it has been held that where substantial justice is pitted against technicalities of non-deliberate delay, then in that eventuality substantial justice is to be preferred. In our view, the principles of advancing substantial justice are of prime importance. Hence, considering the explanation put forth by the assessee by justifiably and properly explaining the delay, which occurred in filing the appeal and construing the expression ‘Sufficient Cause’ liberally, I am inclined to condone the delay in filing the appeal. Consequently, the application filed by the assessee for seeking condonation of the delay stands allowed. The appeal is admitted to be heard on merits.

The revenue has raised the following grounds of appeal:

Ld. DR while relying upon the order of AO submitted that Ld. CIT(A) erred in deleting the disallowance and addition made on account of loss claimed by the assessee to the tune of Rs. 39,68,700/- incurred in currency derivatives segment and unexplained expenditure to the tune of Rs. 1,98,435/- u/s 69C of the Act. It was further submitted that Ld. CIT(A) has not appreciated the fact and findings given by the investigation wing in its report that various brokers including M/s Baba Bhoothnath Commex Pvt Ltd were involved in manipulative trades to contrive loss for their trading clients. It was further submitted that Ld. CIT(A) wrongly ignored the facts of the decision of Hon’ble Supreme Court in the case of SEBI Vs. Rakhi Trading P. Ltd, in civil appeal No. 1969 of 2011, wherein it was clearly mentioned that the transactions carried out by the assessee are manipulative / deceptive device to create desired loss and profit. Ld. DR also stressed upon the point that Ld. CIT(A) also ignored the decision in the case of PCIT Vs. Swati Bajaj (2022) 139 taxmann.com 352 (Calcutta HC), wherein it was held that the tax authorities are entitled to look into the surrounding circumstances to find out the realities and the matter has to be considered by applying test of human probabilities.

I have heard the counsels for both the parties, perused the material placed on record, judgements cited before us and also the orders passed by the revenue authorities. From the records, I noticed that in this case the investigation wing of the department had carried out investigation and enquiries under Project Falcon into transactions executed through United Stock Exchange (USE)[since merged with BSE] which revealed that a number of manipulative trades have been executed through the Exchange Platform in the currency derivative segment by the Member Brokers / Traders to provide accommodation entries of Profit / Loss to their clients/beneficiaries. As per which during the A.Y.2013-14 the assessee has carried out trading transactions in currency derivative segment of the Stock Exchange through the Member Broker M/s Baba Bhoothnath Commex Pvt. Ltd. and in the process has earned bogus loss of Rs.39,68,700/- during the FY 2012-13 Therefore additions were made.

In support assessee had relied upon and filed the copies of the order of CIT(A), NFAC, Delhi in the case of Karta of the assessee i.e Haresh Shantichand Jhaveri pronounced on 29/01/2025, wherein AO was accordingly directed to delete the addition of Rs.1,65,86,250/- made on account of losses incurred in Currency Derivative which was presumed by A.O. as non-genuine taking base of information through Project Falcon. Which has already been upheld by the Coordinate Bench of ITAT in the case of ACIT Vs. Haresh Shantichand Jhaveri in ITA No. 1971/Mum/2025.

Even otherwise the moot point for adjudication is whether, on the given facts and circumstances, the derivative transactions in the currency undertaken by assessee on the recognize stock exchange and resulting loss to the tune of Rs. 39,68,700/-, was a genuine financial transaction, or it was a colourable device solely aimed at claiming substantial tax benefit in the hand of the assessee.

In this regard, I noticed that the assessee, in the course of assessment proceeding, had brought on record the necessary particulars of transactions along with supporting documents relating to each transaction, viz, contract notes, ledger account of the broker, Demat account statement and relevant bank statement. On careful perusal of evidence brought on records, I find that assessee has satisfactorily discharge the primary owners cast upon it to substantiate the impugned transactions by furnishing all the relevant material evidence. In the course of assessment proceedings, the AO had merely doubted transactions under taken on the recognized stock exchange and resultant loss, primarily relying upon the report of the investigation wing (Project Falcon) and had brushed aside the plethora of documentary evidence furnished by the assessee. The report of the investigation wing relates to share transaction for providing bogus accommodation entry by the brokers. The AO had not pointed out the specific reference of the impugned transaction in his finding in the assessment order and primarily relied upon generalised report of the investigation wing. The AO had merely referred the statement of certain brokers; however, any such broker has not specifically mentioned the name of the present assessee. Further it is also pertinent to note that AO had failed to examine them on oath during the assessment proceedings in relation to the impugned transactions in derivative currency segment under taken by the assessee. It is also relevant to note that AO had not made any independent enquiry/verification during the assessment proceedings with regard to allegation of impugned transaction being colourable device to avoid the tax

All the transactions in derivatives segment had taken place on the platform of recognized stock exchange through registered stock broker namely M/s Baba Bhoothnath Commex Pvt ltd and payment had been made/received through banking channel.

The Coordinate Bench of ITAT in the case of Karta of the assessee in Haresh Shantichand Jhaveri (supra) had already decided the matter in favour of the assessee, the operative portion is reproduced herein below

After taking into account all relevant facts of the case and also in the light of coordinate bench decisions (supra) applicable to the facts of the case involving identical facts and circumstances, I do not find any infirmity in the conclusion drawn by the ld.CIT(A) which is therefore, affirmed. Consequently, grounds of appeal of the Revenue stands dismissed.