EXCELLENCE FINANCE PVT LTD,MUMBAI vs. DCIT, CENTRAL CIRCLE 6(4), MUMBAI

We take up first the appeal in ITA No.206/Mum/2025for the AY 2014-15 and the decision made would apply mutatis mutandis to ITA No.207 and 208/Mum/2025.At the outset, we notice that the assessee has filed one additional ground(supra)w.r.t. notice issued u/s 143(2) of the Act. However, no separate request has been made in terms of Rule 11 of ITAT Rule. Besides, in the course of hearing neither any oral or written submission has been made in this regard. Therefore, the ground is not admitted and stands dismissed.

Brief facts of the case are that the assessee company is engaged in the business of Share Trading, Finance and Investments in Real Estate. It filed return showing Nil income for the relevant assessment year which was reopened u/s 148 of the Act and the assessment was made making certain additions which comprised of Loss from Derivatives and Unsecured Loans. According to the assessment order,in the course of search operations in the case of one Sri Sharad Darak, it was found that he was engaged in the activity of providing accommodation entries to various beneficiaries through shell companies managed and controlled by him.All the loans and share premium were stated to be in reality the unaccounted income of the beneficiaries. The assessee was also one of the beneficiaries having made transaction with M/s East West Finvest P.Ltd for Rs 3,40,00,000/-and Trimurti Finvest P. Ltd for Rs 1,17,00,000/- during the year.Besides,it was found from the 'Project Falcon' report of the Investigation wing, Mumbai that the assessee had incurred loss in premeditated equity/derivative trading of Rs 98,63,250/- creating artificial loss to avoid taxation as found in the report against several other entities.

1 The earlier AO i.e ITO Ward 1(1)(3),Mumbai having juri iction over the case, reopened the case after recording of reasons as reproduced in the assessment order.Sanction of ld. PCIT was also taken and notice u/s 148 was issued on 31.03.2021.It is stated that the assessee filed return and also certain objections which are stated to have been settled vide letter 01.09.2021.Meanwhile, the case was centralized with PCIT-1,Mumbai on 08.02.2022.Further,objections were considered and duly disposed of vide letter dated 12.03.2022.

2 The AO has narrated the findings of 'Project Falcon' report according to which the assessee had claimed bogus loss of Rs 98,63,250/-through the broker Nirman Share Brokers Ltd. which is stated to be involved in manipulating such transactions for the benefit of its members.Placing reliance on SEBI report and case of Rakhi Trading P.Ltd.(SC), he disallowed the loss treating it to be fictitious.

3 The AO also considered the transactions with East West Finvest P. Ltd. and Trimurti Finvest P. Ltd. as bogus on the basis of another report of the Investigation Wing revealing that one accommodation entry provider Sri Sharad Darak had admitted u/s 132(4) of the Act that all such companies were controlled by him and were meant to provide bogus accommodation entries.Moreover, survey was conducted in the case of M/s HNJ Stock Broking P. Ltd. Mumbai u/s 133A of the Act in the course of which the main person Sri Ritesh Lunkad, admitted that he was running many of the companies which had no substantive business activity and were only providing accommodation entries. As per the assessment order, the assessee as per sl.no.3 is one of the said companies.Sri Lunkad had accepted that he was receiving commission income for providing accommodation entries.Considering all such facts,the AO treated the aggregate amount of Rs 4,57,00,000/-as Unexplained credit u/s 68 of the Act.

In the subsequent appeal, the ld.CIT(A) in a consolidated order for AYs 2024-14/2015-16 and 2016-17 has elaborately discussed all the issues. Before him, the assessee contested the validity action u/s 148 of the Act inter alia claiming that recorded reasons were not provided; there was no tangible material before the AO for initiating action u/s 148;there was no reason to believe and there was no link between the material and formation of belief. Besides, the case was reopened only for making enquiry; the reopening was without application of mind and no income had escaped assessment. The ld.CIT(A) in detailed discussion noticed that there weresufficient materials brought on record by the AO who provided copy of recorded reasons alongwith relevant materials to the assessee. He placed reliance on Avirat Star Homes Ventuers P.Ltd(Bom) 102 taxmann.com 60, Spicy Sangria Hotels P.Ltd 111 taxman.com 491(Bom) etc. in respect of reopening based on report of Investigation wing. He rebutted all the above objections and dismissed the ground relating to reopening.

1 In respect of F&O loss, the assessee made submission before him inter alia claiming that the loss occurred in the ordinary course of business due to market fluctuations. In respect of SEBI report, it was contended that name of the assessee did not appear in it. All the transactions were carried out on online platform and it was not possible to know the identity of buyers or sellers.

2 The ld.CIT(A) observed that the impugned loss was incurred by trade reversal on the same day. The assessee did not furnish details of scripstraded.He placed reliance on the case of Shubham Investment and Finacap. P. Ltd in which the CIT(A)-54,Mumbai vide order dated 25.9.2023 had upheld similar addition.

3 As regard the addition of Rs 4,57,00,000/-,it was submitted by the assessee before the appellate authority that the impugned sums were advances received against sale of private equity shares as reflected in the Balance sheet.However,the amounts were returned back since no shares were sold to them.Since the amounts were squared off, there was no question of any accommodation entry. The assessee had all the explanations and evidences in support of the said transactions regarding nature and source thereof as per the books of account.Both the companies were also stated to be ‘Active' as per MCA site.The AO made the addition based on the statements of certain persons alleged to be entry providers. Despite request, respective statements were not provided by the AO to the assessee which was also denied opportunity to cross examine them.It was also submitted that the coordinate bench in the case of Shalimar Housing in ITA No.4079/Mum/2019 and Global Realcon P.Ltd in ITA No, 170-174/Mum/2020 has duly considered both the transactions from East West Finvest P.Ltd and Trimurti Finvest P.Ltd as genuine. Both of them were controlled by Sri Sharad Darak. However, the ld.CIT(A) relied on the case of Shubham Investment P.Ltd where CIT(A)-54,Mumbai vide order dated 25.9.2023 on similar facts upheld the addition.

Ground No. 1 is taken by the assessee before us in respect of reopening of the case u/s 147/148 of the Act. It is noticed that the AO received an information from DGIT (Inv.), Mumbai under 'Project Falcon' regarding coordinated and premediated trading on BSE engaging in reversal trades in illiquid stock options resulting in non- genuine business loss/profit to the beneficiaries. A specific information pertaining to assessee was received that it had generated fictitious loss in equity/derivative of Rs.98,63,250/- by trading in illiquid stock options on the BSE.Further,the reopening also related to certain loans/advances allegedly as accommodation entries from certain entry providers amounting to Rs 4,57,00,000/-.

1 The assessee had raised various objections to the reopening before the ld.CIT(A) as well inter alia claiming that the AO did not provide recorded reasons,approval of specified authorities was not taken, the reopening is based on a change of opinion and also it is based on borrowed reasons etc. The ld.CIT(A) after detailed discussion backed by various case laws held the reassessment proceedings valid and dismissed the grounds of the assessee in this regard. Before us, the ld.AR has argued that there was no escaped income and there was no failure to disclose fully and truly all material facts in the return. The assessee has prayed for quashing the reassessment proceedings by relying on the decision of the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. vs. Income Tax Officer (2002) 125 Taxman 963(SC) and decision relating to “Project Falcon” of Gujarat High Court in the case of provide the copy of the “Reasons Recorded" and copy of the “Approval Sought"whichhad not been provided with the copy of the “Reasons Recorded" during the entire assessment proceedings.

2 Besides, approval of Range 1(1), Mumbai was taken from a wrong authority especially sincefour years have lapsed from the end of the Assessment Year under reference. The AO alleged the assessee of having utilized the services of a broker named “Nirman Share Brokers Pvt. Ltd." who was involved in manipulating such transactions for the benefit of all his clients to the extent of the total value of Rs. 4,13,56,383/- and had further alleged him of being involved in the accommodation entry of bogus profit/ loss through option trade. It is claimed that the AO did not upload any of these mentioned documents despite the assessee emphatically requesting for it. The AO had neither uploaded the copies of the details nor the report regarding accommodation entries from various shell companies alleged to be operated by Shri Sharad Darak on the ITBA portal. Hence, it is amply clear that he was never in possession of the same.

3 Besides, it contended that the assessment order can never be treated as a speaking order by any stretch of imagination. In fact, the AO had chosen to remain completely silent on each and every objection raised by the assessee. Even the judicial rulings relied upon by him have no bearing whatsoever to the case of the assessee. The A.O has not complied with the procedure laid down in the landmark judgement in the case of GKN Driveshafts (India) Ltd. (supra).The Hon'ble Court in of the Act by concluding that re-opening of assessment which is merely based on analysis of trading data received under "Project Falcon" could not be used to form any reason to believe that income has escaped assessment and hence, such reasons recorded could not be held to be valid for assuming juri iction to re-open assessment. The Hon'ble taxmann.com 473 (Guj)held that that re-opening of assessment on the basis of information received under “Project Falcon" in insight portal regarding coordinated and premeditated trading on BSE by engaging in reversal trade and illiquid stock options resulting in non-genuine business loss/gain to assessee was liable to be quashed since such reopening notice was issued on borrowed satisfaction as no independent opinion was formed and amount of said non-genuine profit was already offered to tax in return of income during regular scrutiny assessment.

It may be stated here that during the hearing the Bench had requested the ld.DR to obtain specific comments of the AO in this regard on all the objections raised by the assessee. The report dated 07.07.2025 received from the AO i.e. ACIT, Central Circle-6(4) Mumbai is placed on record. He has submitted that the then AO i.e. ITO, Ward 1(3)(3),Mumbai had recorded reasons for reopening of the assessment and the same had been approved by the PCIT -1,Mumbai for AY 2014-15 and for AYs 2015-16 and 2016-17 by the Addl.CIT u/s 151 of the Act on ITBA system.The approvals were digitally signed requiring no signature.It is also stated that during reassessment proceedings, the assessee had raised several objections for all the yearswhich were rebutted and settled by the AO vide separate letters dated 01.09.2021.As per ITBA system,copy of proforma for recording of reasons for reopening for all the years were made available to the assessee as also the copies of approval u/s 151 of the Act. It is also submitted that the objections are liable to be dismissed in view of section 292BB of the Act as the assessee appeared and cooperated during assessment proceedings. In rebuttal, the ld.AR has repeated the same contentions made and now raised a new plea that there is no mention of order u/s 127 of the Act.

We have carefully considered all the relevant facts of the case.Perusal of the report and the annexures reveal that the AO duly intimated the reasons for reopening to the assessee during reopening proceedings which was also replied by the assessee raising certain objections which were duly responded by the AO.He has also submitted copies of proposals sent to the higher authorities seeking perusal and approval for issuance of notices u/s 148 of the Act.Perusal thereof reveals that the sanctioning authorities had duly recorded their respective satisfaction and approvals. We do not subscribe to the contentions that there was any violation of hon'ble Supreme Court judgement in the case of GKN Driveshaft by the AO. We do not find any infirmity in the action of authorities in so far as reopening is concerned.Rather,we find that the assessee despite being aware of the reasons for reopening kept on asking for the Investigation wing reports knowing fully well that during assessment proceedings, he would have ample opportunity of hearing by the authorities.At the point of initiation of reassessment proceedings itself asking for such details is not warranted and cannot be approved.It was also not correct to doubt the very existence of materials in hand with the AO though the fact remains that the recorded reasons had duly reflected the nature of information,source thereof and its implications with regard to the income of the assessee.

1 We are of the considered view that merely because the reopening was done on the basis of information received from DGIT (Inv.), Mumbai, it doesn't mean that the reopening was done on borrowed satisfaction. The AO had duly applied his mind and verified the information as received. He has given a specific finding that the loss of Rs 98,63,250/- by the assessee in the derivative trading was non- genuine and its income had escaped assessment. The correctness of the information as received by the AO has also not been disputed. The AO has given the details of the transactions of such fictitious profits/loss earned/incurred by the assessee in the recorded reasons. Accordingly, the AO issued notice u/s 148 of the Act to the assessee after recording reasons to believe and after seeking necessary approval of the competent authority. Thus, the notice considered valid as the same is issued after recording reasons on the basis of credible information from the Investigation Wing of the Department.

2 When the assessee had not given any information about the fictitious transactions in the return filed, the only option available with the AO on receipt of credible information from the Investigation Directorate was to reopen the assessment as provided in section 147 of the Act and make the verification. As the assessee had not shown any details of such fictitious transactions and the information in the possession of the AO was that assessee had incurred losses through fictitious transactions, the AO had reason to believe that its income had escaped assessment. Hon'ble Gujarat High Court in the case of Purviben Snehalbani Panchhigar [2019] 101 taxmann.com 393(2018) 409 ITR 124 (Guj.) had an occasion to examine an identical case. The Court has observed as under:- "

The return filed by the assessee were accepted without scrutiny, Since there was no scrutiny assessment, the Assessing Officer had to occasion to form any opinion on any of the issue arising out of the return filed by assessee. The concept of change of opinion would therefore no application it is equally well settled that at the stage of re-opening of the assessment, the court would not minutely examine the possible additions which Assessing Officer wishes to make. The scrutiny at that stage would be limited to examine whether the Assessing Officer had formed a valid belief on the basis of the material available with him that income chargeable to tax had escaped assessment. Both these aspects he been examined by the Supreme Court in Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 161 Taxman 316/291, which following observations may be noted, "

Section 147 authorises and the Assessing Officer income chargeable to lax if he has reason to believe that income to assess or reassess for any assessment year has escaped assessment. The word reason in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that Income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fast by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd v. 170 (1991 (191) ITR 662), for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant.In other words, at the initiation stage, what is required is reason to believe, but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove that statement is not the concern at that stage. This is so because the formation of belief the Assessing Officer is within the realm of subjective satisfaction ITO v. Selected Daluarband Coal Pvt Ltd. (1996 (217) ITR 597 (SC)] Raymond Woollen Mills Ltd. v.ITO (1999 (236) ITR 34 (SC)"

3 In the present case, the AO had received the material on record which would prima facie suggest that the assessee had incurred loss on fictitious transactions. The judgment in the case of Gokul Ceramics [2016] 71 taxmann.com 341/241 taxman 1 (Guj.), the Division Bench had examined the contention of the Assessing Officer proceeded on the basis of the information supplied by the department, and after referring to the several judgments, made following observations in para 9 which read thus:- "It can thus be seen that the entire material collected by the DGCEI during the search, which included incriminating documents and other such relevant materials, was along with report and show- cause notice placed at the disposal of the Assessing Officer.These materials prima facie suggested suppression of sale consideration of the les manufactured by the assessee to evade excise duty. On the basis of such material, the Assessing Officer also formed a belief that income chargeable to tax had also escaped assessment. When thus the Assessing Officer had such material available with him which he perused considered, applied his mind and recorded the finding of belief that income chargeable to tax had escaped assessment, the re-opening could not and should not have been declared as invalid, on the ground that he proceeded on the show-cause notice issued by the Excise Department which had yet not culminated into final ender. At this stage the Assessing officer was not required to hold conclusively that additions variably be made. He truly had to form a bona fide belief that income had escaped assessment.

4 In Phool Chand Bajrang Lal v. ITΟ [1993] 69 Taxman 627/203 ITR 456 hon'ble Supreme Courtheld that sufficiency of such reasons is not subject to judicial review, the only caveat being that the court can examine the record, if such material existed, it was held that the facts disclosed in the return, & found later to be unfounded or false, con always be the basis of a re-opening of assessment appears to us to be, to ensure that a party cannot get away by willfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say "you accepted my lie", now your hands are tied and you can do nothing". It would be travesty of justice to allow the assessee that latitude.

5 It is settled law that sufficiency or adequacy of the reasons for the issuance of the notice for reopening of the assessment is not required to be gone into at the stage of the reopening. It can never be said that the final outcome of the proceedings has been derived at by the authority by issuing a notice for reopening. On the basis of material before it as highlighted above, if the Assessing Officer was satisfied to harbour reasons to believe that there was escapement of income and if on such basis, he has exercised his powers under sections 147/148 of the Act, no fault can be found,

6 Similarly, Hon'ble Bombay High Court in the case of Hede Ferrominas Pvt. Ltd reported in 147 taxmann.com 215 (Bom) had occasion to examine whether there was sufficient material to form a reasonable belief that appellant's income had escaped assessment. The relevant para of the order is reproduced below:-

The Petitioner has not explained the amount of Rs 2,15,107 The Petitioner may have its own version about the receipt of the amount of Rs.6.74 crores. However, these are matters which can be locked into of the stage of reassessment. Based on the material available with the respondents, we cannot say that they either had no reason to believe or that their reasons to believe were based on some non-extend material or extraneous and irrelevant material.

7 In view of the above, we are satisfied, that the AO had sufficient information in his possession to form a reasonable belief that the assessee's income had escaped assessment by virtue of the fact that it had not shown any details of fictitious transactions in the return filed.

8 Further, the assessee also can't challenge the sufficiency of the information based on which the case was reopened. The objection of the assessee regarding approval is also not found correct as the approval in this case was granted by the PCIT-1, Mumbai. The contention of the assessee that approval was granted in a mechanical manner is also not found correct. From the copy of the approval as brought on record, it is found that the ld.PCIT had examined the reasons as recorded by the AO, applied his mind and thereafter granted his approval on being satisfied that it was a fit case for reopening. In view of these facts, we do not find any merit in the grounds taken by the assessee against the reopening of the case. Accordingly, ground no. 1as taken by the assessee is rejected and the finding of the ld. CIT(A) on the reopening of the case u/s 148 of the Act is upheld.Ground No.1 is dismissed.

Ground no.2 pertains to the addition made u/s 68 of the Act in respect of alleged fictitiou erivative loss made on the basis of the Investigation wing report called 'Project Falcon'. The AO has observed that the assessee incurred loss in premeditated manner in F&O transaction amounting to Rs 98,63,250/- out of total declared loss incurred of Rs 1,22,41,339/-.It is stated that all the transactions were made through a broker Nirman Share Brokers Pvt. Ltd. who was involved in manipulating such transactions for the benefit of all his clients and positions were squared up on the same day in a consistent manner.He has also noted that the Hon'ble Supreme Court in the case of Rakhi Trading Private Limited in CA No.1969 of 2001 has laid parameters which define manipulative trading and from the order and judgment of SEBI, the chief characteristics of manipulative reversal trades were as under:-

The trades by these entities, in many cases, contribute to 70% to 100% of total traded volume for the contracts on those days.

1 Thus, the AO held that the trades of the assessee in reversal trades in stock options had resulted in non-genuine loss through manipulative trading of stock options on the stock exchange and this could not be part of regular business activity of the assessee. The ld.CIT (A) confirmed the said addition.

Before us, it is contended by the ld.AR that the lower authorities erred in upholding the addition without appreciating full facts of the case. The assessee made the impugned transactions on the BSE platform through its registered broker and without any manualintervention.There is no case for making colluded transaction on the platform where all transaction are made online with unknown entities. It is submitted that the said loss occurred in the ordinary course of its business. The AO did not make any independent investigation of the issue and has relied on the Investigation wing report without appreciating the facts of the case.Moreover,out of total loss of Rs.1.22 cr disclosed by the assessee, he restricted the disallowance of Rs 98,63,250/- only which is not understandable as part of the transactions he himself has treated to be genuine.It is also submitted that the cited decision of Rakhi Trading P.Ltd (supra)is not applicable to the facts of the case. Moreover,the AO referredto an interim report from the SEBI which nowhere alleged the assessee was involved in manipulative transactions. The ld.AR argued that the entire loss on reversal trading was added back on the basis of the report of SEBI which has not conducted any enquiry against the assessee company. It has conducted the enquiry for other companies and the report is also not related to the impugned assessment year. Further, the AO failed to bring out any nexus of the assessee's transactions with any of the other parties involved in the transaction which clearly proved that the two parties involved in the transactions are itself two distinct parties. The AO neither summoned any one nor called upon any brokers/parties involved in the transaction. It is to be noted that without even bothering to make any enquiry, without summoning them or questioning them, he simply relying on the report, drew adverse view against the assessee. He further stated that the Department has not supplied any report to assessee. So, there is a gross violation of the natural justice for denial of reasonable opportunity to the assessee. It has not been provided with any information received under "Project Falcon" from DGIT (investigation), Mumbai. All the trades carried out by the assessee were completely genuine and did not warrant any adverse inference.

On the other hand, ld. DR strongly relied upon the order of lower authorities claiming that there was a specific report that certain entities were manipulating reversal trading by the parties to book fictitious and non-genuine losses and the assessee was one of the beneficiaries.Accordingly, the order of the AO should be sustained.

We have heard both the parties at length and also perused various materials referred to before us and the relevant finding given in the impugned orders. From the perusal of the assessment order, it is seen that the AO has solely relied upon the report of Investigation Wing known as 'Project Falcon'. He has not carried out any independent enquiry or any investigation and has ignored all the evidence placed before him in support of all the trade transactions. One very important fact which has been brought on record by the ld. AR that the assessee had done many trades during the year in derivatives out of which only certain trades have been selected by the AO holding it to be non- genuine. As submitted, the assessee is engaged in screen based electronic trading wherein it is not possible to chose or even know the counter party involved in any trade and the identities of the counter parties are not displayed on the screen at the time of the trading. Unlike the case of stock market where the SEBI has circuit breakers limits, however, no such limits are there in derivative markets and therefore, derivative markets are more volatile than the traditional stock market. Further, the assessee had produced all the relevant information in respect of the trades carried out to prove the genuineness of the transaction. However, AO has even failed to take note of such contract notes, bank statements etc. Thus, on these facts, it cannot be inferred that assessee was engaged in booking of loss through dubious devise only for certain transactions when all other transaction have been held to be genuine. The AO has misinterpreted the report to apply in assessee's case without independently analyzing the transactions. At least, he should have conducted some enquiry qua these transactions on which assessee had claimed loss instead of blindly relying upon the 'Project Falcon' report. Once the transactions are based on screen based electronic trading and the identities of the buyers and sellers are not displayed, then to presume that the transactions have been manipulated are non-genuine cannot be upheld. Thus, prima facie, there is no material that trade transactions in which assessee had incurred losses are non-genuine. There has to be basis and inquiry to arrive at any conclusion that out of many transactions, few were manipulated to show fictitious loss and were non-genuine. The profits/losses are incidental to transactions done on stock exchange/any other exchange. Merely because the transactions have resulted in loss, they cannot become bogus or artificial. All the supporting documents to prove the F&O transactions were produced by the assessee before the lower authorities which have been discarded by him without assigning any reason and other than the suspicion which has been raised by the AO on the strength of report of Investigation Wing.

1 It is also noted that the assessee regularly undertakes such transaction in the normal course of its business and this not the only transaction. He has been showing income arising from shares and derivatives trade regularly. Further, it was noted that all the transactions were duly accounted for in the books of account and AO has not pointed out any mistake/wrongdoing in such transaction. A genuine transaction, in absence of any cogent contrary evidence, could not be considered as a colourable device to evade taxes, merely on the basis of general observations, devoid of any specific factual finding which is relevant to the impugned transaction. On similar facts, we place reliance on hon'ble Gujrat High Court in the case of Banyan & Berry Vs CIT (1996) (222 ITR 831) (Gujarat),Sandip Kumar Parsottambhai Patel Vs ITO (2022) (137 taxmann.com 373) (Surat-Trib.),Champalal Gopiram Agarwal [2023] 155 taxmann.com 66 (Gujarat)/[2024] 460 ITR 277 (Gujarat)[25-07- 2023]. In the case of Gokul Fuelchen Pvt Ltd., ITA No. 187/Mum/2024 dated 29.07.2024, it was held that trading loss on account of derivatives currency transaction on the recognized stock exchange could not be denied on in the absence of any specific findings by the AO. In the case of Abans Commodities(I) Pvt. Ltd. Mumbai ITAT, in ITA no.3315/Mum/2024, AY 2014-15, likewise, it was held that derivatives loss on recognized stock exchange could not be denied on the basis of general report of the Investigation Wing unless the AO has independently analysed the transactions and has arrived the findings.

2 The entire premise of the AO for treating the transaction is based on the Investigation wing report. The book results declared in the return of income have not been doubted nor the AO has carried out any enquiry to dislodge the authenticity of the trades done through any broker. From the investigations carried out under the Project Falcon, no evidence had been gathered or found which could even remotely suggest that particular transactions were sham or non-genuine. Once the assessee has filed copies of contract notes in respect of the transactions of the derivative trading, copy of bank statements, copy of statement of accounts of the broker in the books of the assessee company etc., the AO should have brought some material, carried out enquiry to bring any adverse material on record.There is no iota of evidence w.r.t. action taken by SEBI or the Department in the case of such counter party and the underlying motive of those parties behind such reversal. The transactions so executed were settled through online portal of stock exchange only and cannot be done directly with buyer or seller as they are unknown to each other. Moreover, matching of transactions on the exchange is done by Exchanges and there is no role of assessee or its broker and in case transactions do not match, they are reversed by them. In case of F&O transactions, the difference in bid and ask price is also uncontrolled and is reflected on the online portal of exchanges based on the demand and supply and such bid and ask price also varies with the strike rate of a particular scrip and is available online to all the traders without any control by assessee. Thus, prima facie, there is no material that trade transactions in which assessee had incurred losses were non- genuine. There has to be basis and inquiry to arrive at such conclusion that out of many transactions, few were manipulated to show fictitious loss and were non-genuine which is lacking here.

3 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 similar facts and circumstances, we do not find any merit in the conclusion drawn by the lower authorities. We set aside the appellate order and the AO is accordingly directed to delete the disallowance. Consequently, grounds no.2 of appeal is allowed.

Ground no.3 pertains to the addition of unsecured loans of Rs 4,57,00,000/-. The AO has concluded that the above unsecured loans had been received from the companies controlled by Shri Sharad Darak who is a well known accommodation entry provider of Indorerunning dummy companies through which he provided entries to needy persons. Before the lower authorities,it was contended that the impugned loans were, in fact, advances for purchase of shares which did not materialize and the amounts were duly refunded back to these entities.Therefore,there is no element of accommodation entries in the said transactions.Moreover,both the concerns are active companies on MCA Portal having sufficient reserves and surplus to make such advance. The transactions made from these known entities through banking channels could not be doubted merely on the basis of certain Investigation Report. The assessee has also placed reliance on Global Realcon Pvt. Ltd. Vs. ACIT(Central)-1, Indore. [IT(SS)A No.170 to 174/Ind/2020 (A.Y. 2012-13 & 2014-15 to 2017-18)] and JCIT(O )-CC- 7(4) Vs. M/s. Shalimar Housing & Finance Ltd. (I.TA. No. 4079/Mum/2019 (A.Y 2013-14)].It was also stated that the assessee was neither provided with the statements of Sri Darak recorded by the Department nor any cross examination was allowed.

On perusal of assessment order, it is noticed that the AO has not made any independent enquiry to disprove the identity, creditworthiness, genuineness of transaction. He has also not enquired into the nature and source of unsecured loans. Neither any information pertaining to Mr. Sharad Darak nor any copy of the statement of Mr. Darak, either recorded or otherwise have either been confronted to the assessee or does any statement mentioning its name of the being involved in availing accommodation entries as alleged have been brought on record. The AO has only given emphasis on some enquiries conducted in the past and given a general findings and made additions. No specific finding about the companies proving the transactions done in the year under consideration bogus has been given in the assessment order.

The ld.DR has placed reliance on the orders of authorities below.

We find that Coordinate ‘G’Bench Mumbai, in its Order pronounced on 01.06.2021 in the case of JCIT vs. M/s. Shalimar Housing and Finance Limited in. ITA no. 4079/Mum/2019, in which the Ujjain in Appeal No. ITA/522/Ind/2014 vide is Order dated 14/07/2016 (ITAT, Indore) has held that the loan transactions carried out by the in the assessee's income on account of loans taken by the respective assessees from the various companies controlled by Shri Sharad Darak. The Bench held the loan transactions carried out by the assessee in that appeal with Trimurti Finvest Pvt. Ltd Purvi Finvest Pvt. Ltd., KK Patel Finance Ltd. and East West Finvest P. Ltd. as genuine loan transactions.

We have given thoughtful consideration to the plea of the ld.AR that the Department declined its request for allowing a cross- examination of the alleged accommodation entry provider Sri Sharad Dakar. We are of the considered view that the A.O was obligated to have facilitated to the assessee a cross-examination as their statements, inter alia, were made the for initiating proceedings u/s 147 of the Act as well as for drawing adverse inferences as regards the authenticity of the loan transactions. Our view is supported by the judgment of the Hon'ble Supreme Court in the case of M/s. Andaman Timber Industries Vs. Commissioner of Central Excise, Kolkata-II, C.A No.4228 of 2006 (SC) dated 02.09.2015. In the aforesaid case, the Tribunal had upheld the rejection by the lower authorities of the assessee's request for allowing a cross-examination of the dealers whose statements were relied upon by the adjudicating authority while passing its order by observing that the plea of no cross examination granted to the various dealers would not help the appellant case since the examination of the dealers would not bring out any material which would not be in the possession of the appellant themselves to explain as to why their ex factory prices remain static. It observed that since we are not upholding and applying the ex -factory prices, as we find them contravened and not normal price as envisaged under section 4(1), we find no reason to disturb the Commissioner's orders. On appeal, the Hon'ble Apex Court was of the view that the failure on the part of the adjudicating authority to allow to the assessee an opportunity to cross-examine the aforementioned persons whose statements were made the very basis of the impugned order was a serious flaw which rendered the order as nullity inasmuch as it amounted to violation of the principles of natural justice. It was observed by the hon'ble Apex Court that though the assessee had requested for an opportunity to cross-examine the aforementioned persons but the said requests were turned down by the adjudicating authority. Considering the fact that the Tribunal had upheld the orders of the lower authorities which had turned down the assessee's request for a cross-examination, the Hon'ble Apex Court held the order of the Tribunal as totally untenable. Referring to the observations of the Tribunal that cross-examination of the persons concerned would not serve any purpose, the Hon'ble Apex Court was of the view that it was not for the Tribunal to have taken recourse to any guess work as to for what purposes would have been served by the assessee by carrying out cross- examination. For the sake of clarity, the observations of the Hon'ble Apex Court are culled out as under: "We have heard Mr. Kavin Gulati, learned senior counsel appearing for the assessee, and Mr. K. Radhakrishnan, learned senior counsel who appeared for the Revenue. According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross- examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause Notice. We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal."

1 Considering the aforesaid judgment of the Hon'ble Apex Court, we are of the view that the AO remained under a statutory obligation to have facilitated a cross-examination. The assessee could have dispelled the material that the A.O acted upon to disprove the authenticity of the loan transaction only if it was provided an opportunity to cross-examine the lender company which had allegedly referred the name of the assessee as a beneficiary of an accommodation entry.

2 The fact that the name of the assessee had figured as one of the beneficiaries of accommodation entries from East West Finvest P.Ltd, Tirupati Finvest P.Ltd and M/s. Jayant Security and Finance P.Ltd., which in turn, was based on the statement of Shri Sharad Darak as well as information received from ADIT(Inv.) Bhopal, therefore, the assessee was vested with a statutory right to dispel the same by seeking cross-examination of the said person, which had wrongly been declined by the AO. As the very declining of the assessee's request for seeking cross-examination of the aforementioned lender company clearly militates against the mandate of law, therefore, the adverse inferences as regards the authenticity of the loan transaction, as had been drawn by the A.O, cannot be summarily accepted. Accordingly, in all fairness, the matter requires to be restored to the file of the A.O with a direction to facilitate the cross examination of Shri Sharad Darak (supra) and also, any other person/persons on whose statements adverse inferences as regards the authenticity of the loan transaction in question have been drawn in the case of the assessee.

3 Before parting, we shall deal with the ld. AR's claim that as the ITAT, Indore in the case of M/s. Global Realcon Pvt. Ltd. Mumbai Vs. ACIT (Central)-1, Indore, IT(SS)A No.170 to 174/Ind/2020 (supra), and other orders of co-ordinate Benches of the Tribunal, had held, that the loan received by the respective assessees before them from the above concerns were found to be genuine, therefore, on the said count itself the adverse inferences drawn by the A.O as regards the authenticity of the loan transaction in question in the present case is liable to be vacated, we are unable to concur with the said claim of the ld. AR. for the reason that as per the mandate of Section 68 of the Act, as the assessee is statutorily obligated to put forth an explanation as regards the "nature" and "source" of the sum credited in its books of account, therefore, the said statutory obligation cannot be dispensed with merely on the basis that the a loan transaction between the same lender company and a third party had been held to be genuine by the co-ordinate Benches of the Tribunal. As the facts of every case stands on an independent footing, therefore, the ld. AR's contention that no adverse inferences qua the loan transaction in question could have been drawn, for the reason that the loan transaction between the lender and a third party had been accepted as genuine by the co-ordinate benches of the Tribunal do not find favor with us. In respect of all the above named loan creditors, by furnishing the documentary evidences as discussed hereinabove, the assessee could be able to fully discharge its onus of proving all the three ingredients as contemplated u/s.68 of the Act.

4 We note that the assessee has not filed necessary documents to prove its identity, creditworthiness of these companies and also filed bank statement reflecting the transactions before us. From the Paper book containing 90 pages filed before us, it appears that these details were not submitted before the lower authorities as well. It is clear that the initial burden is upon the assessee to explain the nature and source of the share application money received by the assessee. In order to discharge this burden, it is required to prove the identity of shareholder, genuineness of transaction and creditworthiness of lenders by furnishing relevant ITRs, respective confirmations, bank statements etc. Once these documents are produced, the assessee would have satisfactorily discharged the primary onus cast upon him. Thereafter, it is for the AO to scrutinize the same and in case he nurtures any doubt about the veracity of these documents, to probe the matter further.

Thus, the ground of appeal no.3 raised by the assessee is allowed for statistical purposes in terms of the aforesaid observations.

In the result, appeal of the assessee is partly allowed.

ITA No.207/MUM/2025 (A.Y. 2015-16)

Ground no.1-In this case original assessment was made u/s 143(1) of the Act and therefore clause(b) to Explanation to section 147 was applicable and approval was rightly taken from Addl.CIT.

Ground no.2 pertains to loss of Rs 55,21,650/- from Derivative trading on the report of Project Falcon.Although the total loss disclosed by the assessee amounted to Rs 2,14,82273/-,the AO disallowed only the above sum.

Ground no.3 pertains to alleged accommodation loans taken from Sri Sharad Dakar controlled companies i.e. M/s East West Finvest P.Ltd Rs 2,43,00,000/-,M/s Jyoti India P.Ltd Rs 85,00,000/- and M/s Trimurty Finvest P.Ltd Rs 35,00,000/- aggregating to Rs 3,63,50,000/-.

Since all the above grounds are already deliberated and decided by us in the appeal for AY 2014-15(supra),the decision rendered therein applies mutatis mutandis to the instant year as well, partly allowing the appeal.

ITA No.208/MUM/2025 (A.Y. 2016-17)

Gr. No.1 In this case original assessment was made u/s 143(1) of the Act and therefore clause(b) to Explanation to section 147 was applicable and approval was rightly taken from Addl.CIT.

Ground no. 2 pertains to disallowance of loss of Rs 4,76,400/- from Derivative trading on the report of Project Falcon.

Since all the above grounds are already deliberated and decided by us in the appeal for AY 2014-15(supra),the decision rendered therein applies mutatis mutandis to the instant year as well partly allowing the appeal.

In the result, all the aforesaid appeals of the assessee are partly allowed. Order pronounced in the open court on 28/10/2025. NARENDER KUMAR CHOUDHRY (न्यायिक सदस्य /JUDICIAL MEMBER) Place: मुंबई/Mumbai दिनांक / Date 28.10.2025 Lubhna Shaikh / Steno PRABHASH SHANKAR (लेखाकार सदस्य/ACCOUNTANT MEMBER) आदेश की प्रतिलिपि अग्रेषित/