ARVIND RAMNIKLAL JHAVERI,MUMBAI vs. INCOME TAX OFFICER, WARD 34(1)(1), MUMBAI, MUMBAI

During the course of assessment proceedings, the Assessing Officer noticed that the return of income for the year under consideration was filed declaring loss from the business on account of future and options transactions, along with income from capital gains and income from other sources. He further substantial purchase of shares by the assessee and, in particular, investment of ₹4,83,25,338/- in equity shares. The assessee explained that the said investment represented the cost of acquisition of shares and was funded out of the sale proceeds of other shares and profits earned during the year, which were reinvested. The Assessing Officer, however, observed that the assessee had not furnished (i) complete bank statements of all her accounts, (ii) a statement of affairs, or (iii) a satisfactory fund- flow/cash-flow statement establishing the movement and utilisation of funds. He accordingly treated the sum of ₹4,83,25,338/- as unexplained money under section 69A of the Act and subjected the same to tax at the rate prescribed under section 115BBE while completing the assessment under section 143(3) read with section 144B of the Act on 26.03.2025.

On appeal, the learned CIT(A) confirmed the addition. The learned CIT(A) held, in substance, that although the assessee had furnished certain bank statements, broker statements and profit and loss reports, the material did not establish a complete and identifiable trail connecting the sale proceeds of shares and profits with the subsequent investments. It was further observed that the assessee had not furnished a comprehensive fund-flow statement, reconciliation or other working demonstrating the availability and utilisation of explained funds. The learned CIT(A), therefore, concluded that the assessee had failed to satisfactorily explain the nature and source of the investment of ₹4,83,25,338/- and upheld the addition under section 69A read with section 115BBE of the Act. The relevant finding of ld CIT(A) is reproduced as under: “During the appellate proceedings before the undersigned, the appellant reiterated the submissions made before the Ld. AO and contended that the investment in shares was genuine and was supported by broker statements and profit and loss reports obtained from Motilal Oswal / Stockrhino. The appellant has also filed copies of certain bank statements and reiterated that the source of purchase was reinvestment of consideration from sale of shares and profits earned during the year. All the documents furnished at appellate stage have been carefully examined and it is a settled position that when an appellant is found to have made investments or is found to be the owner of money, the onus squarely lies upon the appellant to satisfactorily explain the nature and source thereof with credible evidence. Mere filing of explanations without proper corroboration does not discharge the statutory burden. In the present case, the appellant's primary contention is that the investment was made out of reinvestment of sale proceeds and profits. However, this claim requires to be substantiated through a clear and complete fund trail demonstrating the movement of funds from sale of shares into bank accounts and thereafter into subsequent purchases. On careful perusal of the bank 3 statements furnished, it is noticed that the statements by themselves merely reflect various credits and debits but do not establish any direct correlation between specific sale proceeds and specific investments. There is no comprehensive fund flow statement, no reconciliation, and no working demonstrating that the funds utilised for purchase of shares emanated from explained sources. Further, the broker statements, F&O statements or profit and loss reports issued by brokers such as Motilal Oswal primarily establish the fact that transactions were undertaken on the trading platform and that certain profits or losses arose therefrom. These documents, however, do not establish the source of funds deployed for making the investments. A trading statement cannot substitute the statutory requirement of explaining the source of capital employed. The appellant has failed to demonstrate with cogent evidence that the initial and subsequent margins, pay-ins and investments were funded out of disclosed and explained sources. The explanation that the investments were made out of reinvestment of profits remains a bald assertion unsupported by documentary correlation. In absence of a proper fund flow depicting availability of funds and utilisation of funds, capital account and complete reconciliation, the explanation offered by the appellant remains unsubstantiated. The contention of the appellant that the transactions are genuine because they are routed through recognised brokers and banking channels is also not sufficient to explain the source of funds. Genuineness of transaction and explanation of source are two distinct requirements. Even a genuine transaction, if funded from unexplained sources, attracts the provisions of section 69A. In view of the above discussion, it is held that the appellant has failed to satisfactorily explain the nature and source of investment of Rs. 4,83,25,338/-. The action of the Ld. AO in treating the said amount as unexplained money u/s 69A and taxing the same u/s 115BBE is found to be justified and in accordance with law. In the facts and circumstances of the case and for the reasons discussed above, the addition of Rs. 4,83,25,338/- made by the Ld. AO u/s 69A r.w.s. 115BBE is hereby confirmed.”

At the outset, before us, the learned Counsel for the assessee sought admission of additional evidence placed at pages 104 to 112 of the paper book, comprising contract notes containing scrip-wise details and dates of sale. It was submitted that the said material would demonstrate that the investments in question were funded out of the sale proceeds of shares already held by the assessee and, therefore, directly addressed the basis on which the addition had been sustained. The learned Counsel submitted that the aforesaid evidence could not be produced before the Assessing Officer or the learned CIT(A), as the assessee, being a senior citizen, had relied upon the advice of her erstwhile tax consultant and was not properly advised to furnish the said material. It was accordingly prayed that the additional evidence be admitted in the interest of substantial justice and the matter be restored to the file of the Assessing Officer for fresh examination. The relevant part of application is reproduced as under: “2. The Document at Sr No. 6 being appellant's A/c in the books of his broker, Motilal Oswal Financial Services Ltd was not produced before the Ld. AO and the Ld. CIT(A) during the assessment as well as appellate proceedings, and hence, the same constitutes additional evidence for which I crave leave for admission of the same. The said additional evidence is sought to be produced to substantiate that I had made investment in/purchased shares out of sales proceeds of other shares and that no fresh/new funds were utilised for making such investment/purchase. 3. It is respectfully submitted that the above document was not produced before the departmental authorities as the appellant was not advised by its previous Tax Consultant to produce the said document. The appellant is a super senior citizen (age 81 years as on date) and totally relies upon the advice of its Tax Consultant. It is further submitted that it was due to the above circumstances that I was prevented from producing this most crucial document before the departmental authorities. 4. It is further submitted that the additional evidence is very much relevant to decide Ground No. 1. Therefore, in the interest of substantive justice, it is prayed before Your Honours that the said additional evidence may please be admitted. By admitting this evidence, no particular prejudice would be caused to the Revenue, but its refusal would cause great hardship to me, and I would not be able to explain my case on facts. Thus, in order to promote the cause of substantive justice, the admission of the additional evidence merits consideration. It is well settled principle of jurisprudence that the law is to make justice and not for preventing justice on rules of technicalities. Therefore, whenever the cause of substantive justice is pitted against the technical or procedural rules, the latter is expected to pave way for the former.”

We have considered the rival submissions and perused the material available on record. The additional evidence now sought to be placed on record comprises contract notes containing scrip- wise details of the sales and is, prima facie, directly relevant to the assessee’s explanation that the impugned investments were funded out of the sale proceeds of shares. The controversy, therefore, cannot be effectively adjudicated without examining the said material in conjunction with the existing evidence and the corresponding movement of funds. 7. The Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963 empowers the Tribunal to admit additional evidence where it considers that such evidence is necessary to enable it to pass orders, or for any other substantial cause. It is well settled that the Tribunal's jurisdiction under section 254(1) of the Act is wide enough to permit consideration of material bearing on the correct determination of tax liability, provided the requirements of natural justice are met.

The aforesaid evidences were not available before either of the lower authorities. In these circumstances, rather than adjudicating the issue on an incomplete evidentiary record, we consider it just and proper to admit the additional evidence and restore the matter to the file of the Assessing Officer for fresh examination. The order of the Ld. CIT(A) confirming the addition of Rs. 4,83,25,338/- under section 69A read with section 115BBE of the Act is set aside. The Assessing Officer shall examine the additional evidence, verify the fund trail claimed by the assessee, afford reasonable opportunity of being heard, and thereafter adjudicate the issue afresh in accordance with law. Needless to say, no opinion is expressed by us on the merits of the assessee’s explanation.

In the result, appeal of the assessee is allowed for statistical purposes. Order pronounced in the open Court on 10/09/2026.