SECURE MATRIX SOLUTIONS PRIVATE LIMITED,MUMBAI vs. INCOME TAX OFFICER WARD 8(1)(1), MUMBAI

Disallowance of Business Expenditure u/s 37 of the Income Tax Act, 1961: The Learned CIT(A) has erred in confirming the addition of 240,80,750/-made by the Assessing Officer (AO) by disallowing legitimate business expenses claimed by the appellant under Section 37 of the Income Tax Act, 1961. The said disallowance was made without any cogent reason and merely on conjecture and surmises. The appellant had provided detailed explanations regarding each expense, which was incurred wholly and exclusively for the purpose of the business. The expenses included business promotion, conveyance, professional charges, and salaries, all of which have a direct nexus with the appellant's business.

Wrong Classification of Speculative Loss under Section 43(5): The CIT (A) has erroneously confirmed the addition of ₹5,57,018/- by treating the derivative loss as speculative under Section 43(5) of the Act. The transactions in derivatives were conducted on a recognised stock exchange; hence, as per the proviso to Section 43(5), these transactions should not be classified as speculative.

Reclassification of Short-Term Capital Gains as Business Income: The Learned CIT (A) has erred in confirming the AO's reclassification of ₹11,12,454/ as business income instead of short-term capital gains (STCG). The shares were held as non-current investments in the balance with Kelton Securities, and the gains arising from their sale should be treated as capital gains, as disclosed by the appellant in the return of income.

Non-Consideration of Additional Evidence: The CIT(A) failed to consider the additional evidence requested to be submitted under Rule 46A of the Income Tax Rules. 1962. The appellant had valid reasons for the non- submission of documents during the assessment proceedings due to the ill health of its director, which was supported by medical documents. The rejection of additional evidence has resulted in the violation of principles of natural justice.

Initiation of Penalty under Section 271(1)(c): The CIT(A) has erred in confirming the initiation of penalty proceedings under Section 271(1)(c) without properly because there was no concealment of income or furnishing of inaccurate particulars of income. The appellant had disclosed all relevant facts, and the additions made by the AO are merely based on different interpretations of the law.”

On further appeal the CIT(A) confirmed the additions made by the AO by holding that “5.2.3 I have carefully gone through the facts of the case. assessment order and submissions of the appellant. The AO made addition of Rs.40,80,750/- on account of disallowance of expenditure claimed u/s 37 of the Act as the appellant failed to furnish cogent evidence to establish that the expenses relating to business promotion of Rs.1120983/-, legal and profession 119000 and professional expense of Rs.642795/- were incurred for the purpose of business when the nature of business is that of trading in share on its own account and not on behalf of clients.

2.4 It is noted that despite being provided ample opportunities during assessment proceedings and appeal proceedings (as discussed in para 4 above) the appellant has failed to furnish any document to substantiate its claim of expenses having been actually incurred and having incurred the same for business purpose. In view of the above, the action of the AO for disallowance of expenditure claimed u/s 37 of Rs.40,80,750/- is upheld. Accordingly, the ground of appeal raised is dismissed.”

3.3 I have carefully gone through the assessment order, submissions of the appellant and facts of the case. The AO has made addition on account of speculation loss on derivative scrips of Rs.5,18,734/-. The appellant has claimed that the AO has made factually incorrect statement about non- submission of contract notes for the derivative transactions entered into and 4 ITA 4737/Mum/2024 Secure Matrix Solutions Pvt. Ltd. thereby treating the loss incurred on the derivative transaction as loss from speculation business. The appellant has submitted that the contract notes for the derivative transactions have been attached in Annexure 1. On perusal of Annexure-1 submitted by the appellant it is seen that the appellant has furnished excel sheet of the transaction but has failed to furnish the contract notes of the same transaction.

3.4 Since the appellant has failed to furnish any document to counter the decision of the AO this office is left with no option but to accept the decision of the AO. In this context, reliance may be placed for the decision of the Hon'ble Supreme Court in the case of H.M. Esufali H.M. Abdulali (1973) 90 ITR 271 wherein the apex court has held that the appellate authority cannot substitute its own judgement in place on of the judgement of the AO unless it is shown that the judgement of the AO was biased, irrational, vindictive or capricious.

4.3 I have carefully gone through the facts of the case, assessment order and submissions of the appellant. The AO has made addition of Rs.11,12,454/- claimed by the appellant as short-term capital gain as business income. The appellant is engaged in the business of derivatives and shares. During the course of VC the appellant was specifically asked to explain the reason for claiming exemption on sale of shares as the appellant is dealing in the same business activities. The appellant has however failed to explained the same till date. Despite being provided sufficient opportunities, the appellant has failed to furnish any document which includes final financial statements as on 31.03.2014 & 31.03.2015 to support its claim. Hence, in absence of any supporting documents and details it is not possible to verify the submission of the appellant. On the other hand the AO has given snap shot of the ITR of the appellant on page 11 of the assessment order from which it is evident that the appellant has shown its current investments at Nil. In this backdrop, there exists no reason to differ from the view taken by the AO. Accordingly, the addition of Rs.11,12,454/- is upheld. The Grounds of appeal raised are dismissed. dismissed.”

None appeared for the assessee and we heard the ld. DR. The ld. DR submitted that the assessee has not furnished the required details as called for by the lower authorities and has been non-cooperative. Accordingly, the ld. DR prayed that the order of the CIT(A) may be confirmed.

In result, appeal is allowed for statistical purposes.