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Facts
The assessee, Secure Matrix Solutions Pvt. Ltd., filed an appeal against the CIT(A)'s order for AY 2015-16, which upheld the Assessing Officer's additions. The AO had disallowed expenses, treated derivative losses as speculative, and reclassified short-term capital gains as business income.
Held
The Tribunal noted that the assessee failed to furnish required details and substantiate claims before the lower authorities. In the interest of natural justice, the Tribunal remitted the appeal back to the CIT(A) to provide one more opportunity to the assessee to present its case with relevant details.
Key Issues
Whether the assessee's failure to furnish required documentation justifies the disallowances and reclassifications made by the AO and sustained by the CIT(A)? Whether the assessee should be granted another opportunity to present its case before the lower authorities?
Sections Cited
250, 37, 43(5), 46A, 271(1)(c), 115JB
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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: JUSTICE (RETD.) C V BHADANG&
(Assessment Year: 2015-16) Secure Matrix Solutions Pvt. Ltd., ITO, Ward-8(1)(4), 662, 6th Floor, Aayakar Bhavan, 004, B Wing, Neelam Centr, Baburao Pendharkar Marg, M.K. Road, New Marine Line, Vs. Hind Cycle Road, Worli, Mumbai-400020. Mumbai-400030. PAN: AAQCS2083L Appellant) : Respondent) Appellant /Assessee by : None : Shri Swapnil Choudhary, Sr. DR Revenue / Respondent by : 04.09.2025 Date of Hearing Date of Pronouncement : 11.09.2025 O R D E R
Per Padmavathy S, AM:
This appeal by the assessee is against the order of the Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre (NFAC), Delhi [In short 'CIT(A)'] passed under section 250 of the Income Tax Act, 1961 (the Act) dated 15.07.2024 for Assessment Years (AY) 2015-16. The assessee has raised the following the grounds of appeal:
“1. The Order of CIT(A) is Against Facts and Law: The order passed by the Learned CIT(A) dismissing the appeal is erroneous, contrary to the facts of 2 ITA 4737/Mum/2024 Secure Matrix Solutions Pvt. Ltd. the case, and inconsistent with the provisions of the Income Tax Act, 1961. The CIT(A) has failed to properly appreciate the facts of the case and the evidence submitted by the appellant.
2. 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.
6. 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.”
3 ITA 4737/Mum/2024 Secure Matrix Solutions Pvt. Ltd.
The assessee is a company and filed the return of income for AY 2015-16 on 25.10.2015 declaring a total income of Rs. 11,12,480/- under the normal provisions of the Act and a book profit of Rs. 15,79,346/- under section 115JB of the Act. The case was selected for scrutiny and the statutory notices were duly served on the assessee. The Assessing Officer (A) completed the assessment by making the following additions/ disallowances:
(i) Disallowance of expenses as non-genuine - Rs. 40,80,750/- (ii) Addition on account of speculative loss - Rs. 5,57,018/- (iii) Short Term capital Gain treated as Business Income – Rs. 11,12,454/-
3. 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. 5.2.4 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.” 5.3.3 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. 5.3.4 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. 5.4.3 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.”
4. 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.
5 ITA 4737/Mum/2024 Secure Matrix Solutions Pvt. Ltd.
5. On perusal of the assessment order and the above extracted observations of the CIT(A), we notice that the main reason for AO to make the addition and the CIT(A) to sustain the said additions is that the assessee has not been furnishing the required details and that the assessee did not discharge the onus of substantiating the claims made in the return of income towards the impugned additions / disallowances. Considering the facts peculiar to the assessee and in the interest of natural justice and fair play, we are inclined to give one more opportunity to the assessee to represent the case property before the lower authorities. Accordingly, the appeal is remitted back to the CIT(A) with a direction to call for relevant details with respect to the impugned additions / disallowances and decide the case on merits in accordance with law. The assessee is directed to furnish the details as may be called for without seeking adjournments and co-operate with appellate proceedings. It is ordered accordingly.
In result, appeal is allowed for statistical purposes.