VIMAL NATVARLAL HAGDA,RAJKOT vs. ITO, WARD-2(1)(1), RAJKOT, RAJKOT

The grounds of appeal raised by the assessee are as follows: 1. The grounds of appeal mentioned hereunder are without prejudice to one another. 2. Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as the "CIT(A)"] erred in confirming addition made of Rs.19,92,000/-, on the alleged ground that the appellant failed to explain source of cash deposits of Rs. 19,92,000/-, alongwith necessary supporting evidences. The addition confirmed is unjustified and uncalled for, which deserves to be deleted, may kindly be deleted. 3. The Ld. CIT(A) erred on facts as also in law in not allowing set-off of loss of Rs. 17,74,005/-, suffered to the appellant from trading in derivatives through recognized stock exchange. The Action of the CIT(A) is completely prejudicial and bias, which may kindly be annulled. 4. Your Honour's appellant craves leave to add, to amend, alter, or withdraw any or more grounds of appeal on or before the hearing of appeal.

Succinctly, the factual panorama of the case is that assessee before me is an Individual.The assessee has not filed return of income under section 139(1) of the I.T. Act, 1961 for Assessment Year 2011-12. There was information in possession of the Department that the assessee has entered into the transactions in Multi Commodity Exchange of India Limited. Therefore, the Assessing Officer has recorded reason to believe that income chargeable to has escaped and accordingly, assessment proceedings were initiated u/s 147 of the Act. Notice u/s 148 of the Act was issued on 28/03/2014 and served upon the assessee. In response to notice u/s 148 of the Act, the assessee has filed return of income for Assessment Year 2011-12, on 15/4/2014 declaring total income of Rs. 65,570/-. The assessee has also requested to provide copy of reason recorded for re-opening the assessment. Notice u/s 143(2) & 142(1) of the Act were issued on 1/8/2014. The copy of reasons recorded for re-opening the assessment was also provided to the assessee. The assessee vide letter dated 8/8/2014 has filed objection in re-opening the assessment. The assessee is engaged in the business of trading in shares and derivatives of securities/commodities. During the year under consideration, the assessee was also dealing in commodity transactions in Multi Commodity Exchange of India Limited. As per the Profit & Loss Accounts, the assessee has received Misc. Income of Rs. 19,00,000/-, which the assessee has set off against the F & O loss of Rs. 17,74,005/-. Information has been obtained u/s 133(6) of the Act from the HDFC Bank, Palace Road, Rajkot. On verification of bank statement (A/c No. 03781000030836), it was found by the assessing officer that the Page | 2 assessee has made cash deposits of Rs.19,92,000/- in the saving bank account. In this connection, a show cause notice was issued on 09/03/2015. The assessing officer observed that assessee had deposited cash in saving account to facilitate the payments to the Marwadi Commodities Broker. It is, therefore, requested to explain the source of cash deposits made in the saving bank account. Further on verification of the Profit & Loss account submitted alongwith submission dated 8/8/2014, by assessee, it was noted by the assessing officer that assessee has shown Misc. Income of Rs.19,00,000/-. The assessee submitted before the assessing officer, written submission, dated 05/03/2015, wherein the assessee stated that he had derived income of Rs.19,00,000/- from trading/speculation in the shares, securities, commodities etc, in the "off market transactions. 5. However, assessing officer, rejected the above contention of the assessee, and held that since the assessee, has not furnished any supportive evidence in respect of transaction in "off market" shares/securities/commodity transactions, the entire cash deposits of Rs.19,92,000/- made in the Saving Account of HDFC Bank, was treated as the unaccounted income of the assessee and added back to the total income of the assessee.

Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before the Ld.CIT(A), who has confirmed the action of the assessing officer, therefore, the assessee is in further appeal before this Tribunal.

Shri Mehul Ranpura, Learned Counsel for the assessee submitted that assessing officer has already agreed that assessee had engaged in share trading in future and options and cash deposited, by the assessee is out of his income, from share trading in off market. However, against the income (cash deposit), the assessee needs set up of losses, in respect of the same business, which was Page | 3 not allowed to the assessee. Therefore, there is limited grievance of the assessee that total addition was made by the Assessing Officer to the tune of Rs.19,92,000/- and out of Rs.19,92,000/-, assessee has already shown/ disclosed income in the income tax return to the tune of Rs.65,570/-, therefore balance amount comes to Rs.19,26,430/- (Rs.19,92,000- Rs.65,570). The said remaining amount of Rs.19,26,430/-, should be set of against the total loss in the same business to the tune of Rs. 19,00,000/-. Therefore, balance amount comes to Rs. 26,430/- (Rs.19,26,430 – Rs.19,00,000). The said balance amount of Rs.26,430/- may be considered for estimated addition. The Ld. Counsel further submitted that an estimated addition on the amount of Rs. Rs.26,430/- may be made at the rate of @8% ,by following the provisions of section 44AD of the Act.

However, Ld. DR for the revenue submitted that on the balance amount of Rs. 26,430/-, the ad hoc estimated addition should be made @ 20% to protect the interest of revenue.

I have heard, both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. I note that the assessee is engaged in the trading of future and options in shares, in on market transactions and off market transactions. Therefore, in the same business, set off of losses should be allowed to the assessee. I note that assessee has declared already in the income tax return, the estimated amount to the tune of Rs.65,570/-, as income, therefore said amount is to be deducted from the total addition made by the Assessing Officer to the tune of Rs.19,92,000/-. Therefore, I find merit in the submissions of learned Counsel for the assessee to the effect that cash deposited, by the assessee is out of his income, from share trading in off market. However, against the income (cash deposit), the Page | 4 assessee needs set up of losses, in respect of the same business, which was not allowed to the assessee. Therefore, there is limited grievance of the assessee that total addition was made by the Assessing Officer to the tune of Rs.19,92,000/- and out of Rs.19,92,000/-, assessee has already shown/ disclosed income in the income tax return to the tune of Rs.65,570/-, therefore balance amount comes to Rs.19,26,430/- (Rs.19,92,000- Rs.65,570). The said remaining amount of Rs.19,26,430/-, should be set of against the total loss in the same business to the tune of Rs. 19,00,000/-. Therefore, balance amount comes to Rs. 26,430/- (Rs.19,26,430 – Rs.19,00,000). The said balance amount of Rs.26,430/- may be considered for estimated addition. Therefore, an estimated addition on the amount of Rs. 26,430/- should be made at the rate of @8%, by following the provisions of section 44AD of the Act. Hence, I direct the Assessing Officer to make the addition in the hands of the assessee to the tune of Rs.2114/- (8% of Rs.26,430) by following normal rate of income tax.

In the result, assessee appeal is partly allowed in above terms.