KETAN RAMANLAL SHAH HUF,MUMBAI vs. JCIT CENTRAL CIRCLE 1(4), MUMBAI

We will first take up the first issue raised in the Revenue’s appeal, i.e., the addition of undisclosed income based on diaries on substantive basis which is ground No.1 in department’s appeal for A.Y.2015-16 in ITA No. No.4465/Mum/2024; and ground No.1 & 2 of department’s appeal for A.Y.2019-20 in ITA No. 4464/Mum/2024. As noted above, a survey action was and others Vinay Ramanlal Shah and Others conducted on 03/12/2019. During the course of survey action two diaries, one red coloured which has index and various loose papers in between and one Green coloured which also contains index and various loose papers in between, which were found from the personal possession of Shri Jatin Shah, who was an employee of the Shah Coal group. In his statement recorded on 03/12/2019, Shri Jatin Shah stated that the particulars as mentioned in the diaries were recorded by him as per the instruction of Shri Vinay Shah. Immediately thereafter, statement of the assessee, i.e., Shri Vinay Shah was also recorded on 04/12/2019 at the same premises, wherein he was specifically asked about the replies given by the Shri Jatin Shah regarding the diaries. In response to the same, the assessee unequivocally denied of having any knowledge regarding the diaries or its contents.

Later on, when Shri Jatin Shah received the copy of the statement on 18/01/2020, he retracted the statement given by him by filing a retraction letter on 04/02/2020 which was submitted before the Ld. Dy. Director of Income Tax (Investigation) In this letter he has completely owned up the diaries and the transactions recorded in the said diaries. He has also stated that these transactions had nothing to do with the Shri Vinay Shah or his family members or any of entities. After such retraction given by Shri Jatin Shah, the assessee has also submitted a clarification letter on 08/02/2020 before DDIT(Inv) In this letter, the assessee has mentioned the same facts which and others Vinay Ramanlal Shah and Others were earlier submitted during the survey action that those two diaries do not belong to him.

In addition to the above, another statement of Shri Jatin Shah was recorded on 30/09/2020 by the Ld. DDIT (Inv.) wherein Shri Jatin Shah was again asked regarding the contents of the diary, In the said statement, Shri Jatin Shah explicitly stated that the diary belonged to him and had no relation with the assessee (Shri Vinay Shah) and his entities. He further explained the contents of the diary wherein he stated that he was engaged in the financing activity of arranging loans & advances to other parties. These transactions are carried out by him in cash and on which brokerage are charged on certain percentage basis and same is also derived in cash. It is important to note here that statement of Jatin Shah that diary belongs to him and all the transaction recorded therein pertains to him was accepted by the Investigation Wing.

The case of the assessee before the ld. AO as well as before the First Appellate Authority was that, firstly, Shri Jatin Shah has owned up the transaction recorded in the diary and Vinay Shah or any of his family members has nothing to do with nor they were aware of any such activity of Jatin Shah; and secondly, in his statement, Jatin Shah has duly explained that he was in the practice of facilitating loans in cash. On arrangement of such transactions, he was receiving a certain percentage of brokerage/commission in cash However, in order to buy peace of mind before the investigation wing, Shri Jatin Shah has offered income on account of the said diaries on peak credit basis of Rs. and others Vinay Ramanlal Shah and Others 49.35 Crores. The year wise segregation of the same was tabulated in the following manner:- A.Y. Total Receipt Total Payments Peak Peak Negative Peak Positive 2015-16 350,936,552 344,289,850 25,219,005 54,977,047 80,196,050 2016-17 445,977,342 451,276,920 44,374,626 13,194,402 19,155,623 2017-18 697,483,086 695,654,822 54,130,197 50,496,137 18,469,063 2018-19 853,759,469 433,730,739 - 426,044,385 362,353,846 2019-20 740,712,805 723,761,384 - 439,437,536 13,393,451 2020-21 386,422,335 573,533,739 - 433,155,539 3,473,291,589 3,222,247,454 49,35,67,733

Thus, Shri Jatin Shah accepted the transactions in the said diaries and offered income based on the entries made in the said diary in his own hand. The Investigation Wing has accepted the contention of Shri Jatin Shah that the diaries belong to him and the transactions recorded in the diaries are pertaining to Shri Jatin Shah. However, the investigation wing has re-worked the peak working by segregating the ledger accounts in the diaries in following three parts:-  Those ledgers which was both debit and credit entries are considered for peak working.  Those ledgers which only have the debit entries considered as unexplained expenditure u/s 69C of the Act.  Those ledgers which have only credit entries considered as unexplained income u/s 69A of the Act. The Investigation Wing has re-worked the peak income in the hands of Shri Jatin Shah at Rs. 79.13 Crores in different assessment years.

During the course of the assessment proceedings, ld. AO again recorded the statement of Shri. Jatin Shah on 17/02/2022 and 18/02/2022, wherein he has reconfirmed his position as taken in his earlier letter dated 04/02/2020 and statement recorded on 30/09/2020. Further, the statement of assessee, i.e., Shri Vinay Shah was also recorded on 04/02/2022 by the ld. AO, wherein, he has also reaffirmed his position and has denied any knowledge with respect to the impugned diaries. Thus, right from the stage of Investigation wing to the ld. AO, both Shri Jatin Shah and Shri Vinay Shah admitted that the ownership of the diaries and contents noted therein belongs to Shri Jatin Shah who has consistently accepted the diaries and contents therein whereas assessee has consistently denied any relation with the contents of the diaries.

The ld. AO in the assessment order has partly accepted the explanation of the assessee that the diaries belonged to Shri Jatin Shah and therefore, the income arising out of the same would be assessable in his hands. However, on the same breath, he held that certain ledgers containing abbreviation such as 'VRS', 'KRS', 'Kunal', etc. were related to the assessee, i.e., Shri Vinay Shah as it contained some personal expenses of Shri Vinay Shah and his family members. He relied upon the statement of Shri. Jatin Shah dated 03/12/2019 to hold that few ledgers allegedly containing notings related to Shri Vinay Shah and Shri Ketan Shah. He held that such ledgers will be taxed

Taking into those ledgers which allegedly belong to the assessee, AO has bifurcated notings into three parts, i.e., entries which are considered for peak working, income entries and expenses entries. While doing so, all the ledgers which contained notings of both receipts and payments were considered for peak working. However, wherever, the ledger contains only receipts, the same has been considered as unexplained money u/s 69A and wherever, the ledger contain only payments, the same has been considered as unexplained expenditure u/s 69C. In the this way, the year wise addition made in the hands of the assessee is tabulated as under:-

Thus, ld. AO has made both protective and substantive addition on various grounds based on the same notings contained in the diaries found from the possession of Shri Jatin Shah in the hands of the assessee.

The ld. CIT (A) in his detailed judgment after incorporating all the details from the notings of diary, statement of Shri Jatin Shah and assessee, observation and the findings of the ld. AO and others Vinay Ramanlal Shah and Others held that once the ld. AO has accepted that the ledgers in the diary have been maintained by Shri Jatin Shah in his personal capacity, then the funds utilised for making the transactions belongs to him and that all the transactions noted within the diary related to his financial business, therefore, it was not open for AO to split the transactions and attribute part of such transaction to another third party unless there were compelling reasons for the same. The ld. CIT (A) further observed that no corroborating evidence has been found in the possession of assessee, Shri Vinay Shah and other family members with respect to these transactions. He noted that ld. AO has not bought on record any other evidence which could provide live link between the diaries and family members of Shri Vinay Shah. He noted that ld. AO has relied only on the first statement of Shri Jatin Shah which was modified and retracted later and accepted by the Investigation Wing. On the other hand, assessee, right from the date of survey, when his own statement has been recorded, denied any knowledge about the diaries. This fact has nowhere been disputed by the ld. AO.

The ld. CIT (A) while passing the appellate order in the case of assessee has referred to appellate order passed in the case of Shri Jatin Shah wherein he held that, all the contents of the diaries, including income and expenditure shown in the diaries have been owned by Shri Jatin Shah, and as such, there is no material evidence or logical reason to attribute part of any transactions in the diary to Vinay Shah or his family members. No incriminating evidence whatsoever has been found in the and others Vinay Ramanlal Shah and Others hands of the other members of the family concerning these transactions. Accordingly, he held that AO was in error in unilaterally treating part of the transactions as having been carried out by other members of the family The Ld. CIT (A) in case of Jatin Shah held that ledger accounts which have both debit and credit entries but appear to bear the names of family members viz. 'VRS', 'KRS', 'Kunal', etc. are required to be substantially taxed in the hands of the Shri Jatin Shah. Accordingly, the peak balance taxed earlier in the hands of Shri Vinay Shah and Shri Ketan Shah should be subsumed in the peak calculated for the Shri Jatin Shah. Accordingly, the addition made by the AO in the hands of the assessee was deleted.

Ld. CIT (A) has given his impugned finding in the appeals of Shri Jatin Shah for the A.Yrs.2016-17 to A.Y.2019-20 and following the same has deleted the addition. The relevant observation and the finding read as under:- 6.7 The issue of taxability of peak credit and how the peak should be arrived has been decided by the undersigned in the appeals of Sh. Jatin R Shah for the years AY 2015-16 to AY 19-20 wherein I have held as under. 8.25 With respect to the action of the AO in treating the ledger accounts with the abbreviation 'VRS', 'KRS', 'Kunal', etc. as being related to Mr. Vinay Shah and his family members and accordingly treating the transactions as being owned and transacted by the Shah family members and therefore, proceeding to add the income arising out of such ledgers (peak credit) substantially in the hands of these persons, the appellant's submission is found tenable. Once the AO has accepted the appellant's submission that the ledgers in the diary have been and others Vinay Ramanlal Shah and Others maintained by him in his personal capacity, the funds utilised for making the transactions belong to the appellant and that all the transactions noted within the diary related to his financial business, it was not open to him to split the transactions and attribute part of such transaction to another third party unless there were compelling reasons for the same. It is noted that no corroborating evidence has been found in the possession of Vinay Shah and other family members with respect to these transactions. AO has not mentioned any other evidence which could provide live link between the diaries and family members of Sh. Vinay Shah. AO has relied only on the first statement of appellant which was modified later. On the other hand, Shri Vinay Shah, right from the date of survey, when his own statement has been recorded, denied any knowledge about the diaries. He states "Q.

We have heard both the parties and also perused the relevant finding given in the impugned orders as well as material referred to before us. As noted above, in this case the entire premise of the AO for making the addition is based on certain entries notings in the diaries found from the possession of Shri Jatin Shah. It is an admitted fact that at all the stages from the and others Vinay Ramanlal Shah and Others Investigation Wing to the stage of the First Appellate Authority, Shri Jatin Shah has owned up the diary and the contents contained therein and the assessee, i.e. Shri Vinay Shah has denied any recording of any transaction appearing in the said diary. Shri Jatin Shah had offered peak credit as his income which in principle has been accepted by the Investigation Wing, except that Shri Jatin Shah has worked out the peak credit at Rs.49.35 Crores whereas the Investigation Wing has re-worked the peak at Rs.79.13 Crores in the hands of Shri Jatin Shah. The ld. AO though has accepted that the diaries belong to Shri Jain Shah and the income arising out of the said entry shall be assessable in the hands of Shri Jatin Shah, however, at the same time he held that certain ledgers containing abbreviation such as VRS', 'KRS', 'Kunal', etc. were related to the assessee and contained certain personal expenses of Shri Vinay Shah and his family members, therefore, addition based on such ledgers should be made in the hands of the assessee. AO has also relied upon the statement of Shri. Jatin Shah dated 03/12/2019, ignoring the other statements recorded by the Investigation Wing and the ld. AO himself. Accordingly, ld. AO held that notings in the name of Shri Vinay Shah and Shri Ketan Shah will be taxed substantively in their hands whereas all other notings will be taxed substantively in the hands of the Shri Jatin Shah and accordingly, he has bifurcated the notings of both receipts and payments and has proceeded to make the addition of aggregate amount of Rs.11,91,22,132/- on substantive basis for different

First of all, one very important fact to be noted here is that there is no corroborative evidence found from the possession of the assessee or any of his family members with respect to the transactions recorded in the diary found from the possession of Shri Jatin Shah and there was nothing to provide any live link nexus between the entries in the diary which can relate to the family members of Shri Vinay Shah. The only issue was with regard to quantification of peak credit to be taxed in the hands of Shri Jain Shah. Year wise addition on account of peak balance in the hands of Shri Jatin Shah is as under:-

In so far as the quantum of peak credit which is liable to be taxed in the hands of Jatin Shah, we will discuss this issue while dealing in the appeal of Shri Jatin Shah. Accordingly, we uphold the order of the ld. CIT (A) holding that the entire entries made in the diary both with regard to debit and credit even which bear the names of family members of Shri Vinay Shah, cannot be taxed in the hand of the assessee as they have been substantively taxed in the hands of Shri Jatin Shah. Accordingly, the order of the CIT (A) is upheld and this issue raised by the department, i.e., ground No.1 in A.Y.2015-16 and ground No. 1 & 2 in A.Y.2019-20 are dismissed. and others Vinay Ramanlal Shah and Others 22. Now coming to the issue No.2 i.e., disallowance of non- genuine losses which has been raised in ground No.2 & 3 of Revenue’s appeal for A.Y.2015-16 i.e. in it had been stated that the assessee is actively engaged in trading equity market through delivery trading and derivative trading. Also, the assessee has earned dividend income. The break-up of the income earned by the assessee out of the various share trading activity is as under:- Sr. No. Nature of income Amount (in Rs.) 1. Dividend 17,53,460/- 2. Profit & Loss on 6,30,61,602/- Futures & Options 3. Long term capital 2,81,07,439/- gains Short term capital 2,86,72,873/- 4. gains 5. Profit & Loss on 2,71,057/- share trading

Further, with respect to the transaction carried out in the F & O market, the same has been done through various brokers and breakup of profit & loss for each broker is as under:- Sr. Broker Name Profit/-Loss No 1. Angel Broking F&O 14,12,50,609.9 7 and others Vinay Ramanlal Shah and Others 2. Angel Broking Pvt. Ltd. (US 1,40,72,009.88 Dollar Trading) 3. Angel Commodities Broking -2,26,79,006.38 (Gold Copper Silver 8s Zinc) 4. Affluence Shares and Stock Pvt Ltd -95,97,542.39 5. Globalworth Securities -5,40,93,335.00 6. Kotak Securities Limited 2,59,22,920.44 7. Trinay Securities Trading Pvt. Ltd. -3,73,59,620.23 8. Vijan Shares & Securities Pvt Ltd. 55,45,566.68 Net total 6,30,61,602.97 Thus, assessee has incurred net profit from all the transaction in F & O market amounting to Rs.6,30,61,602/-.

Ld. AO in the assessment order has doubted that transaction entered into with M/s. Trinay Securities Trading Pvt. Ltd. wherein a loss of Rs.3,73,59,620/- has been incurred. The ld. AO observed that in pursuance of part of Falcon Project, a survey action was carried in the case of the assessee to investigate Tax Evasion through trading in Illiquid Derivatives, Options Segment, through Trade Reversal on BSE/NSE/USE. It was alleged that the assessee has purchased and sold illiquid stock options on USE (United Stock Exchange) resulting into non genuine loss of Rs.3.73 Crs. for AY 2015-16.

During the course of survey action, statement of Shri Vinay Shah was recorded on 04.12.2019 wherein he was asked details and others Vinay Ramanlal Shah and Others regarding the trading in the option segment, SEBI order and statement of the broker which was recorded by the department. During his statement, assessee has clearly stated that he was not involved in predetermined trade to adjust books and if any irregularities as per SEBI, were done by the broker for which he has no knowledge. Further, the statement of assessee was again recorded on 27/12/2019 during the post survey proceedings wherein the statement of M/s. Goodluck Securities was shown to the assessee. In response to the same, the assessee incorrectly assumed that due to the said statement as well as SEBI order, the trades done by the broker were not genuine and accordingly, offered to withdraw the losses incurred in case of Vinay Shah HUF in its return of income. However, it is very relevant to note here that no disclosure was made with respect to the loss incurred by the assessee.

Before the ld. AO, the assessee had filed all the details pertaining to the transactions carried out with Trinay Securities Trading Pvt. Ltd. and further, the statement of the assessee was also recorded on 04/02/2022 wherein he clarified that the details relating to the transaction has already been submitted to prove the genuineness. The assessee had also explained in response to the show-cause notice dated 24/03/2022 that trades were done through proper exchange mode and the genuineness cannot be doubted based on some report or any order of SEBI which is not at all relevant in the case of the assessee. and others Vinay Ramanlal Shah and Others 27. However, the ld. AO has heavily relied upon the ad interim order of the SEBI and rejected the various explanation of the assessee holding that the loss incurred on trading in options are not genuine and disallowed the same. The AO in the assessment order passed as made various observation which summarized as under:-

Accordingly, ld. AO has disallowed the loss.

The ld. CIT(A) has allowed the claim of the loss amounting to Rs.3,73,59,620/- on the transaction entered into with M/s. Trinay Securities Trading Pvt. Ltd., The findings and the observation of the ld. CIT(A) are summarized hereunder:-  The Id. CIT(A) observed that assessee, is a regular trader in option / currency derivatives and the said fact has not been disputed by AO Further, it was also observed that assessee been working through various brokers in past as well as during the year. Such brokers include Angel Broking F&O, Angel Broking Commodities, Kotak Securities Limited, Affluence Shares and StockPvt. Ltd., Edelweiss Broking and Trinay Securities Trading Pvt. Ltd.  The ld. CIT(A) noted that assessee has shown profit from transactions from some brokers while losses in other transactions and the consolidated income / loss has been shown in the return of income and AO has not raised doubts about authenticity of trades done through any other broker. Hence, it is and others Vinay Ramanlal Shah and Others inferred that assessee has not entered into an isolated transaction with a pre-meditated intention but has been regularly trading in the same.

We have heard both the parties and also perused the relevant finding given in the impugned orders. The entire premise of the ld. AO for treating the transaction with M/s. Trinay Securities Trading Pvt. Ltd., is based on ad interim order of SEBI holding that assessee has done artificial and synchronized trading in the BSE by engaging in reversal trades in illiquid stock option which has resulted into a non-genuine business loss. Since assessee has also undertaken identical buy and sale of trades which has recorded the loss and therefore, the transaction is not genuine. The ld. CIT (A) from the basis of facts and material on record and after considering the reasoning given by the ld. AO has noted that assessee has been a regular trader in and others Vinay Ramanlal Shah and Others option / currency derivatives and has worked through various brokers in the past as well as during the year and assessee had shown profits from transaction with some brokers while losses in other transactions. The consolidated income / loss declared in the return of income have not been doubted nor AO has carried out any enquiry to dislodge the authenticity of the trades done through any broker. In such facts, it cannot be stated that only one isolated transaction was pre-meditated only to incur loss.

Further, during the course of survey not an Iota of evidence or incriminating documents have been found from any premises either from the brokers, counter parties or the assessee nor there is any information that assessee is connected with counter parties in the trade. The investigations carried out under the Falcon project and during the survey u/s.133A at the office premises of the assessee, no evidence has been gathered or found which can even remotely suggest that one particular transaction with M/s. Trinay Securities Trading Ltd., is 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, reflecting payment of requisite margin money to the brokers, copy of statement of accounts of the broker in the books of the assessee company etc., then to its belief such documentary evidence, ld. AO should have brought some material carried out enquiry to bring any adverse material on record. and others Vinay Ramanlal Shah and Others 32. One very important fact which has been noted by the ld. CIT (A) are that there are 17 counter parties to the assessee’s transaction which has been reproduced by the ld. AO in his order however, in the ad-interim of SEBI, none of these parties have even been mentioned or there is any whisper that they were indulged in synchronized trading. As regards to the statement of the assessee, during the survey wherein assessee has offered to withdraw the loss in light of the statement of the property of Goodluck Securities and ad-interim SEBI order, the same was given on the presumption that Ad-interim SEBI order was in force and the statement of Goodluck Securities was correct. However, nowhere assessee had finally offered any such loss or offered to disallow such loss.

In so far as SEBI ad-interim order, the same was passed exparte and it is also a matter of fact vide subsequent order dated 22/08/2016, SEBI has provided interim relief to the assessee giving permission to buy and sale commodities for taking position, liquidity shares, mutual funds etc. Later, even Ad-interim was vacated by the subsequent order of SEBI vide order dated 05/04/2018. Thus, the very basis on which ld. AO has disallowed the loss i.e. Ad-interim order of the SEBI itself stands vacated. Thus, his entire premise of the AO falters. Accordingly, the finding of the ld. CIT (A) is upheld, which in sum and substance is synthesized in the following manner:- i. Assessee is a regular and bonafide trader in derivative segment over many years has not been doubted by the AO. and others Vinay Ramanlal Shah and Others ii. Assessee has been taking services of many brokers to trade in this segment and has, during this year, traded through Trinay Securities. None of the other transactions have been doubted by the AO. iii. With regards to the transactions done through Trinay Securities, the assessee has provided all the necessary documents which have not been rebutted by the AO iv. It has not been demonstrated by AO that assessee has colluded with the counter parties to generate fake loss. v. The transactions have been done on the screen based trading system of Stock Exchange by payment of STT vi. The statement of Shri Vinay Shah has been recorded at the time of assessment proceedings and he has reiterated the genuine nature of transactions claiming that all necessary documents have been submitted before the AO. vii. The SEBI ad interim order dated 20.8.2015 which has been heavily relied by AO stands negated.

Thus, in light of these facts the addition made by the AO cannot be sustained and accordingly, the finding of the ld. CI T(A) is upheld and the grounds raised

The facts in brief are that assessee is a regular trader and investor in shares and securities. As a result of his investments, the assessee has also earned certain exempt income. The ld. AO observed that no disallowance u/s 14A of the Act has been made by the assessee as against the exempt income earned by it. Accordingly, applying the provision of section 14A r.w.r 8D the Ld. AO has computed the disallowance for each year. The said findings of the AO has been confirmed by the Ld, CIT(A).The year-wise disallowance and exempt income earned by the assessee is tabulated as under :- Assessment Year Exempt income 14 r.w.r earned 8D disallowance 2015-16 3,08,11,729 58,88,713 2017-18 6,57,08,86 1154618 2018-19 1,45,52,070 4,77,048 2019-20 1,24,471 1,24,471

Before us, the contention of the ld. Counsel for the assessee is that the assessee has not incurred any expenditure for earning of any exempt income and ld. AO has failed to establish as to how assessee has incurred expenditure in respect of the exempt income. He further submitted that ld. AO has not recorded his satisfaction to establish that there was some direct nexus of the and others Vinay Ramanlal Shah and Others expenses incurred in respect of exempt income which is mandatory requirement u/s.14A r.w.r. 8D. However, as an alternative plea, the ld. Counsel submitted that ld. AO while computing the average value of the investments as referred in Rule 8D, has considered all the investments made by the assessee. In this regard it is submitted that this is a settled issue by the decision of various courts that for the purpose of 14A disallowance, only those investment which have yielded exempt income should only be considered. In this regard, he placed reliance on the decision of Hon'ble Delhi High in the case of Cargo Motors (P.) Ltd. vs. DCIT reported in 145 taxmann.com 641, wherein it was held that; for purpose of making disallowance of expenses under section 14A as per rule 8D, only those investments were to be considered for computing average value of investments which yielded exempt income during relevant year. Before us, he has also given the working of disallowance after considering only those investments which has yielded exempt income during the year.

After considering the aforesaid submissions and on perusal of the relevant finding given in the impugned order, we find that assessee has earned exempt income on investments made and once there is exempt income, then the first onus is on the assessee to show whether assessee has incurred any expenditure for earning of the exempt income then it needs to be quantified; or if no such expenditure is attributable out of expenditure debited to the profit and loss account, then having regard to the nature of expenses debited and accounts assessee has to show and others Vinay Ramanlal Shah and Others that no expenditure can be attributed. Onus then shifts to the Ld. AO to record his satisfaction having regard to the nature of of account once the claim of the assessee has been made and after recording his satisfaction he can proceed to disallow u/s.14A r.w.r. 8D. Accordingly, we do not agree with the contention of the ld. Counsel that no disallowance can be made, because no where assessee has given any working as to why no expenditure can be attributed. However, we agree with the alternate contention of the assessee that disallowance u/s.14A should be confined only after considering those investments which have yielded exempt income during the year under consideration. The year wise disallowance after considering those investments which have yielded exempt income during the year is as under:-

Accordingly, AO is directed to verify the working and the disallowance u/s.14A should be restricted only after considering those investments which have yielded exempt income during the year as per the working given above in the above mentioned Jatin Rajnikant Shah 40. The additions and the issues which has been raised by the department as well as by the assessee in various issues are summarized as under:- Addition 2015-16 2016-17 2017-18 2018-19 2019-20 Assessee Assessee Department Assessee Department Assessee Assessee Department Appeal Appeal Appeal Appeal Appeal Appeal Appeal Appeal ITA ITA ITA ITA ITA ITA ITA ITA 4340/MUM/ 4338/MUM/2 4469/MUM/20 4336/MUM/2 4468/MUM/2 4335/MUM/20 4334/V1UM/2 4467/MUM/2 2024 024 24 024 024 24 024 024 Undisclosed 9,22,71,452 2,69,67, 169 - 1,80,38,096 - 20,26,94,588 3,79.84,180 - Income - Substantive - Peak Addition u/s. 2,55,78,795 - 1,37,34,550 - - 5,08,37,100 69A - Unexplained Money Addition u/s. - 1,37,71,102 - 1,76,02,060 - - 5,93,62,500 69C - Unexplained Expenditure Total 9,22,71,452 2,69,67,169 3,93,49,897 1,80,38,096 3,13,36,610 20,26,94,588 3,79,84,180 11,01,99,600 Addition

The first issue which is addition on account of undisclosed income based on diaries which has been raised by the assessee in various grounds in the following years:-  Ground no. 3,4,5 of assessee appeal for AY 2015-16.(ITA No. 4340/MUM/2024)

As noted above in the case of Vinay Ramanlal Shah, during the course of survey action on 03/12/2019 two diaries were found from personal possession of Shri Jatin Shah who is an employee of assessee group. In his initial statement on 03/12/2019, he has stated that particulars as mentioned in the diaries were recorded by him as per the instruction of Shri Vinay Shah. Immediately, next date i.e. 04/12/2019, Shri Vinay Shah whose statement was also recorded on 04/12/2019 at the same premises, wherein he was specifically asked about the replies given by Shri Jatin Shah regarding entries in the diaries. He denied having any knowledge regarding the diaries or its contents. Thereafter, once the assessee received the copy of the statement on 18/01/2020, he retracted from the said statement given by filing a retraction letter on 04/02/2020 submitted before the Dy. Director of Income Tax (Investigation). In this letter assessee has completely owned up the diaries and the transactions recorded therein and have also categorically stated that these transactions had nothing to do with the Mr. Vinay Shah or his family members. After such retraction given by and others Vinay Ramanlal Shah and Others assessee, Shri Vinay Shah has also submitted that a clarification letter on 08/02/2020 before DDIT(Inv).

Later on another statement of Shri Jatin Shah was recorded on 30/09/2020 before DDIT (Inv) wherein he was specifically asked regarding the contents of the diary and in the said statement, he categorically admitted that the diary belonged to him and there was no relation with the any of his entities with Shri Vinay Shah or his family members. He also explained the contents of the diary wherein he had stated that these entries pertain to his financing activity deriving of any individual capacity for arranging loans & advances to other parties for which he used to charge brokerage of certain percentage basis which is also derived in cash. In order to buy peace before the Investigation Wing, Shri Jatin Shah offered income on account of said diaries of peak credit basis of Rs.49.35 Crores. The detail of which has already been incorporated in the appeal of Shri Vinay Shah. The Investigation Wing accepted the contention of Shri Jatin Shah that diary belongs to him and all the transactions noted therein pertain to Shri Jatin Shah. However, the Investigation Wing has re-worked the peak credit by segregating the ledger accounts in the diaries in the following three parts. the same is tabulated as under :-  Those ledger which was both debit and credit entries are considered for peak working.  Those ledger which only have the debit entries considered as unexplained expenditure u/s 69C of the Act. and others Vinay Ramanlal Shah and Others  Those ledger which have only credit entries considered as unexplained income u/s 69A of the Act.

The investigation wing has treated the entire transaction in the hands of the Jatin Shah and thus re-worked the peak income in the hands of Shri Jatin Shah at Rs. 79.13 cores.

The ld. AO although relied upon the working done by the investigation wing and even held that the diaries belongs to the assessee and not Shri Vinay Shah, but he has taken drastic different position from the working done by the investigation wing. He has segregated ledgers containing abbreviations having reference to Shri Vinay Shah and Shri Ketan Shah and held that transaction in their ledger names were liable to be taxed in their hands. Such ledgers were excluded from the overall working in the hands of the assessee. He also noted that there were certain more ledgers contained in the diaries which had only receipts or payments. Accordingly, the ld. AO has reworked the peak credit in the hands of the assessee and other assessees, i.e. Shri Vinay Shah and Shri Ketan Shah in the following manner:-

After excluding the above ledger, the addition confirmed by the AO in the hands of the assessee is as under :-

Further, AO also held that the diaries are inextricably linked with the assessee and therefore, addition made in the case of Shri Vinay Shah and Shri Ketan Shah were made in the hands of the assessee on protective basis since assessee has not offered the income in his return of income. In view of the above, ld. AO has made addition on various counts based on the notings contained in the diaries in the hands of the assessee.

The ld. CIT (A) by and large accepted the contention of the assessee and his findings can be summarized in following part- i. The Ld CIT (A) in its order stated that once the AO has accepted that the ledgers in the diary have been maintained by assessee in his personal capacity, the funds utilised for making the transactions belong to the him and that all the transactions noted within the diary related to his financial business, it was not open for AO to split the transactions and attribute part of such transaction to another third party unless there were compelling-reasons for the same. ii. The Ld. CIT(A) observed that no corroborating evidence has been found in the possession of Shri Vinay Shah and other family members with respect to these transactions. AO has not and others Vinay Ramanlal Shah and Others bought on record any other evidence which could provide live link between the diaries and family members of Sh. Vinay Shah The Ld. CIT (A) noted that AO has relied only on the first statement of assessee which was modified later. On the other hand, Shri Vinay Shah, right from the date of survey, when his own statement has been recorded, denied any knowledge about the diaries. This fact has nowhere been disputed by the AO. Re: Entries recorded in the diary are rough jotting/dumb documents i. The assessee has also submitted before the AO as well as before the CIT(A) that many entries in the diary are not actual but are mere rough jottings made for personal purpose. However, the said contention of the assessee was rejected by the Ld. CIT(A) by stating that entries in the diaries are preciously recorded and the same cannot be said to be rough jottings. Re: Addition of commission income on the transactions recorded in the diaries; i. On a without prejudice basis, assessee during the course of assessment as well as during the course of appellate proceeding before the Ld CIT (A) submitted that assessee was engaged in the financing activity by arranging loans and advances between the parties and the said notings are recorded in the said diaries out of which the derives only commission/brokerage income. He was also engaged as an agent to transfer funds from one place to another for which he also charged commission. and others Vinay Ramanlal Shah and Others ii. The assessee also explained that there was no need of own cash being used since the cash was merely arranged between the parties as per their needs for which he charged brokerage @ 0.1% of transaction value in cash. However all these contentions has been rejected by the Ld. CIT (A).

Assessee had also submitted before us and before the ld. AO and ld. CIT (A) that nature of the financing activity can be gauged from the pattern of transactions recorded in the diaries. Thus, assessee was merely acting as a facilitator between the two parties who wanted to give and take loans. It was also pointed out that the very fact that fact assessee was earning commission income for arranging the transaction has been stated by him at various instances in his statement recorded before the investigation wing as well as before the AO. The relevant part of the statement is reproduced as under- Statement of Jatin Shah recorded on 30.09.2020 Q.23 Kindly state as to whether interest or brokerage income was received to you in the course of financing activities? Ans: Yes sir interest and brokerage income in cash was received to me which is also a part of the cash transactions found in the two diaries. Statement of Jatin Shah recorded on 18/02/2022 by the AO Q.38 It is seen from your return of income for various assessment years that you don't have capacity to be involved in the business of giving and taking of cash of the magnitude mentioned in the diary. Tetal of debit entries mentioned in the diary in 6 years is Rs. 3,47,27,91,589/- and total of credits entries mentioned in and others Vinay Ramanlal Shah and Others diaries in 6 F.Y.s is Rs. 322,22,47,454/-. Please explain the same. In this context, also explain why your post survey contentions should not be treated as an afterthought to protect Mr. Vinay R. Shah, director of M/s. Shah Coal Pvt. Ltd.? Ans. Sir, I would like to state that I was doing this business of arranging finance for various persons totally in cash in my own capacity to earn commission For earning the commission income, nobody has to invest any big amount in the business. Rather person who is engaged in the business of arranging finance needs to have good relations with the people. I am in employment since last 25 years and for last 13 years I am with M/s. Shah Coal Pvt. Ltd. In this period, I have developed my own relations with various persons of means. Using those relations, I have done this business which has been recorded in diaries. To avoid further questioning during survey proceedings on the contents of diaries, I had stated that contents of these diaries belonged to Shri Vinay R. Shah. Q.41 You are claiming that you were running a parallel business of financing activity in cash. Please explain the modus operandi of this business. Ans. Sir, this is a business where I am earning the commission for arranging funds for the person who needs funds for small time period and person who want to give his funds for small time period and in addition to the same sometime, I have also given services for collecting payment from one place and delivering the same at another place. This business does not require capital to be employed rather this business always needs good connections. Under this I have generally earned commission income for rendering services to various people. In this type of business, commission earned is 10 paisa for Rs 100 of transaction value. Q.61 If you have earned only commission than how you have owned up all unaccounted cash transactions in your statement dated 27.09.2020 before Investigation Wing, Mumbai. Ans. Sir, it is true that I am earning only commission income from the said transactions as recorded into these diaries. Further, the transactions recorded in diaries are of old period i.e. from FY 2014-15 to FY 2019-20. However, at that time I did not remember and others Vinay Ramanlal Shah and Others complete details for the ledger accounts maintained by me in diaries. I received cash from one person and deliver the same to other and the details of transaction done by me in this manner were recorded therein. However, I do not have any document to prove the statement that I have earned only commission income from the said transactions. Accordingly, to avoid litigations and to buy peace of mind I was ready to accept the amount recorded into diaries and offered the unaccounted income before investigation wing.

Thus, the contention of the assessee has been that it has earned commission/brokerage income to arrange such transactions. However, the same has been rejected by ld. AO on the ground that assessee has not provided the identity of the parties and has himself offered income on peak credit basis.

In this regard, it has been submitted that the identity of the parties has already mentioned in the impounded diaries and therefore, the question of proving identification doesn't arise. It has been clarified that in case of facilitation of transfer of cash, the assessee was not required to maintain the details of the parties once the commission of the assessee is received. Accordingly, it has been submitted that such peak was accepted by the assessee solely for the purpose of buying peace of mind and avoid litigation and on a presumption that there is no evidence to show the financing activity, he accepted the transaction as his own in order to avoid duplication of addition out of the same cash amount and he had offered income on peak credit basis. However, the fact and truth remains that the transaction pertains to facilitation of financing activity and the and others Vinay Ramanlal Shah and Others income which has been earned by the assessee is only brokerage/commission income.

Further, it was also submitted that that the assessee is a man of small means. He doesn't possess huge wealth which would justify the addition on peak credit which would mean that the source of loan funds belongs to the assessee. It is also submitted that even in course of survey proceedings, the department has not found any kind of cash, investment or assets which corroborates the amount of peak addition added by the AO in the assessment order.

However, the above contention of the assessee (for considering only commission as its income) was rejected by Ld. CIT(A) by stating that there is no evidence in the diary indicating that on each cash amount given, any commission of 0.01% has been charged by the assessee.

We have heard both the parties and also perused the relevant finding given in the impugned order. In so far as assessee’s plea that only commission of 0.01% which has been charged by the assessee alone should be taxed and not the peak credit, because there was no cash investment or assets were found which can corroborate the peak addition added by the ld. AO, we are not able to accept his arguments. We agree with the reasoning and finding of the ld. CIT (A), because once the entry and the transactions entered in the diary has been accepted by the assessee that he was involved in the giving cash loans, then onus was on the assessee to show that there was no initial and others Vinay Ramanlal Shah and Others investment made by the assessee. The peak takes into account not only investment but the income element embedded in such kind of undisclosed transactions. Accordingly, we confirm the concept of the addition made on account of peak credit and reject the assessee’s contention that only commission income should have been taxed.

Now coming to the addition of the transactions recorded in the diaries based on peak, the ld. CIT (A) has noted that in the present case, the income arising out of the diaries has to be added based on peak working. With regards to the ledger alleged to be belonging to Shri Vinay Shah and family, the Id. CIT(A) noted that once AO has accepted the assessee's submission that ledgers in the diary have been maintained by him in his personal capacity, the funds utilised for making the transactions belong to the assessee and that all the transactions noted within the diary related to his financial business, it was not open to him to split the transactions and attribute part of such transaction to another third party unless there were compelling reasons for the same. The ld. CIT(A) noted that no corroborating evidence has been found in the possession of Shri Vinay Shah and other family members with respect to these transactions during the course of survey. Moreover, Vinay Shah has never accepted the transactions recorded in the said diaries. Accordingly, the Id. CIT (A) held that the transaction which alleged to be belong to Shri Vinay Shah and family should not be considered separately. The Id. CIT(A) has then re-worked the peak working after including the ledgers which were allegedly belong to Shri Vinay Shah and and others Vinay Ramanlal Shah and Others family. The re-worked peak as computed by the Id. CIT(A) is reproduced as under :- A.Y. Taxed by AO Taxed by AO Taxed by AO Total peak credit in the hands in the hands in the hands to be taxed in of the of Mr. Vinay of Mr. Ketan assessee assessee Shah Shah 2015-16 8,09,54,300 1,08,05,500 15,22,000 9,32,81,800 2016-17 2,56,20,762 1,06,49,350 25,04,750 3,87,74,862 2017-18 15,19,136 1,50,67,160 14,51,800 1,80,38,096 2018-19 18,35,09,413 1,62,49,100 29,36,075 20,26,94,588 2019-20 - 3,60,58,930 19,25,250 3,79,84,180 Total 29,16,03,611 8,88,30,040 1,03,39,875 39,07,73,526

At this point it will be relevant to deal the issue No. 2 & 3 which is a separate taxation of unaccounted income and expenditure added u/s.69A and 69C to know what could be the net addition on account of peak credit and unexplained income and expenditure. This issue has been raised vide separate grounds in various issues which is summarized as under:-

The ld. CIT(A) in its order has accepted stand of AO and DDIT that the ledger which contains only debit or credit entries are required to be taxed separately either under section 69 A or section 69C of the Act. The Ld. CIT (A) while doing so, has also considered all those ledger which were taxed in the hands of Shri Vinay Shah and Shri Ketan Shah u/s 69A or 69C of the Act. The total of such unaccounted receipt and expenditure as computed by the Id. CIT (A) is reproduced as under:-

The Ld. CIT (A) has however allowed the telescoping benefit to the assessee. He observed that the funds arising out of the transactions contained in the diaries represent a common pool of funds and hence, income which has come into the system should be deemed to have been utilised for either making fresh loans or for incurring expenditure. Since both, the income as well as the expenditure have been noted in the same books and are a part of the same business activity benefit of telescoping while determining quantum of unaccounted expenditure should be allowed. Hence, he held that only the net income year wise after reducing corresponding expenditure will be taxed in the respective years. In case the expenditure is more than the income, the excess expenditure will be taxed in such year. Accordingly, the Ld. CIT (A) has re-computed the net addition to be made u/s 69A or 69C of the Act which is tabulated as under:- A.Y. Unexplained Unexplained expenses income u/s 69C u/s 69A and others Vinay Ramanlal Shah and Others 2015-16 10,10,348 - 2016-17 1,18,07,693 - 2017-18 - 38,67,510 2018-19 - 5,08,32,915 2019-20 - 1.84,22,722 Total 1,28,18,041 7,31,23,147

Further, the Ld. CIT (A) has allowed that telescoping of the above addition against the peak additions. The net peak addition confirmed the Id. CIT (A) is thus tabulated as under :- AY Total Addition Net Net Peak Addition u/s 69C 2015-16 9,32,81,800 10,10,348 9,22,71,452 2016-17 3,87,74,862 1,18,07,693 2,69,67,169 2017-18 1,80,38,096 1,80,38,096 2018-19 20,26,94,588 20,26,94,588 2019-20 3,79,84,180 3,79,84,180 Total 39,07,73,526 1,28,18,041 37,79,55,485

Thus, the ld. CIT(A) in way has accepted the stand of the ld. AO and ld. DDIT that the ledger which contains only debit or and others Vinay Ramanlal Shah and Others credit entries are required to be taxed separately either under section 69A or section 69C of the Act. The Ld. CIT(A) has considered all those ledger which were taxed in the hands of Shri Vinay Shah and Shri Ketan Shah after computing the unaccounted receipt and expenditure. The ld. CIT(A) has given a telescopic benefit of the assessee and has separately worked out the net peak addition and the addition u/s.69A and 69C, which for the sake of ready reference is summarized in the following manner:-

Before us it has been contended by the ld. Counsel for the assessee that once the peak has been worked out then there was no requirement for making separate addition on account of unexplained income and expenditure appearing in the ledger account because the entire premise of the assessee right from and others Vinay Ramanlal Shah and Others the inception is that all the entries in the diary belongs to the assessee and peak credit was worked out based on the entire entries.

On the other hand, ld. DR strongly relying upon the order of the ld. AO submitted that ld. AO has correctly taxed not only the peak credit as worked out by the Investigation Wing but also once it has been found from the diary that there were separate ledgers representing the name of Shri Vinay Shah and Shri Ketan Shah and others that means these entries belong to these persons and other family members and therefore, the addition has to be made separately and substantive basis in the hands of Shri Vinay Shah and Shri Ketan Shah, accordingly, on the issue of separate addition u/s.69A and 69C, he submitted that whatever is appearing in the diary should be taxed and no telescopic benefit should have been given.

After considering the submissions made by the parties and also on the perusal of the finding given by the ld. AO and ld. CIT (A), we hold that at this stage, the addition on account of peak credit is justified on the facts of the case, because, ostensibly there are clear cut entries and cash transaction of loan which assessee could not explain the nature and source of party wise entries. Thus, the admission of the assessee before the Investigation Wing and before the ld. AO that addition should be confined to peak credit cannot be rescinded. Accordingly, in principle, we uphold the addition made on account of peak credit. The total peak credit in various years was worked out and others Vinay Ramanlal Shah and Others to Rs. 39,07,73,526/-, which working is not in dispute by both the parties as same has been meticulously worked out by the CIT(A) and no defect has been pointed out in such working of peak credit. We also agree with the Ld. CIT (A) that thereafter, net addition made u/s.69C of Rs. 1,28,18,041/- has to be telescoped against the peak addition. The reason being that income as well as expenditure have been noted in the same books and as part of the same activity carried out by the assessee and therefore, benefit of telescoping while determining the quantum of unaccounted expenditure should be allowed and only the net income after reducing the corresponding expenditure shall be taxed in the respective years. The ld. CIT (A) has tabulated unexplained income and expenditure and thereafter, the net addition u/s.69A and 69C has been telescoped against the peak addition of Rs. 39,07,73,526/-. Accordingly, the net peak of Rs.37,79,55,485/- is confirmed.

Further, seperate addition u/s.69A aggregating to Rs. 1,28,18,041/- and aggregate addition u/s.69C of Rs.7,31,23,147/-, the same is also confirmed, because we agree with the reasoning given by the ld. CIT(A) that these are the separate ledgers on which income and expenditure has been accounted for and after benefit of telescoping the net income as well as expenditure has arrived in various years needs to be confirmed. Accordingly, the order of the ld. CIT (A) is upheld.

In the result, appeal of the assessee as well as appeal of the department is dismissed.

The issues in this appeal before us are tabulated in the following manner:-

The issues involved in this appeal are exactly similar to the issue in the appeals in the case of Shri Vinay Ramanlal Shah.

The ground No. 1 & 2 of the Revenue’s appeal for A.Y.2018- 19 is with regard to undisclosed income based on diaries made on substantive basis, we have already dealt this issue in detail and we have confirmed the finding of the ld. CIT (A) in the case of Shri Vinay Shah. Here in this case, ld. AO has made the addition on account of ledger found in the diary which has been owned up by Shri Jatin Shah in the year-wise addition made in the and others Vinay Ramanlal Shah and Others hands of the assessee made by the ld. AO which is tabulated hereunder:- A.Y. Receipts Payment Peak Total u/s 69A Income addition u/s 69C 2015-16 .- " 15,22,000 15,22,000 2016-17 - 25,04,750 25,04,750 2017-18 - 14,15,800 14,15,800 2018-19 -" 1,06,69,500 29,36,075 1,36,05,575 2019-20 2020-21 - - 36,96,200 36,96,200 Total - 1,06,69,500 1,20,74,825 2,27,44,325

The ld. CI T(A) has given a similar finding in this case also which was given in the case of Shri Jatin Shah and Shri Vinay Ramanlal Shah. Accordingly, the addition made by the ld. AO in the hands of the assessee is deleted.

In so far as next issue i.e. disallowance u/s.14A, the year wise disallowance and exempt income earned by the assessee are as under:- Assessment Exempt 14 r.w.r 8D Year income disallowance earned 2016-17 1,88,00,990 49,85,158 2017-18 1,00,29,476 19,55,220 2018-19 2,21,026 2,21,026 2019-20 3,33,859 3,33,859

Like in the case of Shri Vinay Ramanlal Shah, the contention of the assessee has been that he has not incurred any expenditure for earning exempt income because assessee is a regular trader and investor in shares and some of the investments has yielded exempt income.

We will take up the issue of disallowance of non-genuine losses which has been raised by the department in the following grounds:-

The brief facts are that assessee is a regular trader in equity market and derivative market. It has indulged into various trading instruments such as equity trading, derivative Futures and Options trading, currency trading, etc. during the year under consideration. Such trades are made on daily basis by the assessee which is apparent from the quantum of the trade entered into during the year under consideration. The break-up of income earned out of various trade activities were as under:-

Long term capital gains -1,41,540 4. Short term capital gains -9,24,270 5. Profit & Loss on share trading 2,41,776 6. Interest on bonds 49,750

Further, with respect to the transaction carried out in the F & O market, the same has been done through various brokers and break-up of profit & loss for each broker is as under:-

Angel Broking F&O 6,51,63,907 2. Angel Broking 48,18,318 Commodities 3. Dharamshi Securities 0 4. Edelweiss Broking 1,65,73,346 5. Goodluck Securities -8,71,78,327 Total -6,22,756 and others Vinay Ramanlal Shah and Others 76. Thus, assessee has incurred net loss from transaction in F & O market amounting to Rs 6,22,756/-. The Id. AO has doubted the transaction entered into with M/s. Goodluck Securities.

At the outset, ld. Counsel submitted that this issue is similar to the issue raised in the case of Vinay Ramanlal Shah. Here in this case also based on Falcon Project, a survey action was carried in the case of the assessee group to investigate Tax Evasion through trading in Illiquid Derivatives, Options Segment, through Trade Reversal on BSE/NSE/USE. It was alleged that assessee, Vinay Ramanlal Shah HUF has purchased and sold illiquid stock options on BSE resulting into non genuine loss of Rs.8.71 Crs. for AY 2015-16.

During the course of survey action, statement of Mr. Vinay Shah, Karta of the assessee was recorded on 04/12/2019 wherein he was asked details regarding the trading in the option segment, SEBI order and statement of the broker which was recorded by the department. During his statement, Vinay Shah has clearly stated that he was not involved in predetermined trade to adjust books and if any irregularities as per SEBI, were done by the broker for which he has no knowledge.

Further, the statement of assessee was again recorded on 27/12/2019 during the post survey proceedings wherein the statement of M/s. Goodluck Securities was shown to the assessee. In response to the same, the assessee incorrectly and others Vinay Ramanlal Shah and Others assumed that due to the said statement as well as SEBI order, the trades done by the broker were not genuine and accordingly, offered to withdraw the losses incurred in case of Vinay Shah HUF in its return of income.

Before the ld. AO assessee had submitted all the requisite details for the transaction carried out in F & O with all the brokers including Goodluck Securities. Further, in the statement recorded by the ld. AO of Vinay Shah on 04/02/2022 he has clarified that the details and submitted that this transaction was purely genuine. However, the ld. AO in his assessment order has purely relied upon Ad-interim order of SEBI and rejected the explanation of the assessee holding that loss incurred by the assessee are non-genuine. The observations of the ld.AO are summarized as under:-  It was alleged that assessee has done artificial and synchronized trading in the BSE by engaging in reversal trades in illiquid stock options resulting in non-genuine business losses based on the interim order of SEBI  The AO contended that assessee has undertaken identical buy & sale trades for contracts and consistently recorded losses. Further, it was also alleged that identical quantities of contracts are traded with the same counterparty for both the buy trade and sell trade  Further it was alleged that each of the trades have been squared within the same day and also there is large difference between buy rates and sell rates.  It was further observed that assessee was consistently making loss by trading in options on individual stocks/ currency Trading of these transactions appeared abnormal because they and others Vinay Ramanlal Shah and Others were consistently making significant loss by trades which were reversed with same counter parties either on the same day or the next day.  The losses and profits on reversal trades are a kind of tax evasion where the share broker facilitates either himself or by conniving with another broker to generate profit and loss for clients as per their requirement which may arise for varied reasons. In this regard, AO has relied upon the statement of various third parties recorded u/s 131.  AO has also relied upon the statement of the Shri Vinay Shah (karta of HUF) during the survey action to conclude that the losses are not genuine

The ld. CIT(A) has allowed the losses and set aside the finding of the ld. AO after detailed reasoning which was summarized as under:-  The Id. CIT(A) observed that assessee, is a regular trader in option / currency derivatives and the said fact has not been disputed by AO. Further, it was also observed that assessee been working through various brokers in past as well as during the year. Such brokers include Angel Broking F&O, Angel Broking Commodities,, Edelweiss Broking and Goodluck Securities.

Thus, the conclusions of the ld. CIT (A) are that- i. Assessee is a regular and bonafide trader in derivative segment over many years has not been doubted by the AO. and others Vinay Ramanlal Shah and Others ii. Assessee has been taking services of many brokers to trade in this segment and has, during this year, traded through Trinay Securities. None of the other transactions have been doubted by the AO. iii. With regards to the transactions done through Trinay Securities, the assesse has provided all the necessary documents which have not been rebutted by the AO iv. It has not been demonstrated by AO that assessee has colluded with the counter parties to generate fake loss v. The transactions have been done on the screen based trading system of Stock Exchange by payment of STT. vi. The statement of Shri Vinay Shah has been recorded at the time of assessment proceedings and he has reiterated the genuine nature of transactions claiming that all necessary documents have been submitted before the AO. vii The SEBI ad interim order dated 20.8.2015 which has been heavily relied by AO stands negated.

We have already dealt this issue in detail in the case of Vinay Ramanlal Shah wherein we have given finding that- Firstly, the sole reliance placed by the ld. AO at ad-interim order of SEBI has been vacated; Secondly, there is no adverse inference or material against the assessee; and and others Vinay Ramanlal Shah and Others Lastly, there is no reference or mention in the said ad-interim order of SEBI with regard to Goodluck Securities.

Thus, when SEBI for which reliance has been placed itself has been vacated, the stand of the ld. AO itself gets diminished. Accordingly, in view of the finding given in the case of Vinay Ramanlal Shah, the order of the ld. CIT(A) is confirmed and the grounds raised

In so far as addition of profit earned on derivative trading which has been raised by the Revenue in the appeal for A.Y.2015-16, the brief facts are that assessee is engaged in trading in equity market through delivery trading and derivative trading. The break-up of income earned by the assessee after various share trading activity is as under:-

Further, with respect to the transaction carried out in the F & O market, the same has been done through various brokers and break-up of profit & loss for each broker is as under:-

Here in this case the ld. AO has doubted the transaction entered into with Goodluck Securities on which assessee has earned profit of Rs.12,70,34,547/-. The reasons given by the ld. AO are exactly same which was given in the case of Vinay Ramanlal Shah HUF and Vinay Shah and finding of the ld. CIT(A) is pari materia. We have already decided this issue in detail and accordingly, we hold that the derivative trading and and others Vinay Ramanlal Shah and Others the transaction entered with M/s. Goodluck Securities are genuine and accordingly, no adverse inference can be drawn. Moreover here in this case, it is not a case of the derivative loss which was the case in the earlier appeals albeit, here in this case there was a derivative profit of Rs.2,70,34,547/- which has been offered to tax. The ld. AO has simply adopted the reasoning given in the other appeals and has made addition u/s.68. Once the assessee has duly disclosed the transaction in the books which has been offered as income from F & O, there is no question of any addition on account of unexplained cash credit. In any case, we have already held that the transaction with Goodluck Securities are genuine therefore, addition made by the ld. AO is deleted. Consequently, the addition u/s.69C assessee might have given commission for earning derivative income of Rs.12,70,34,547/- is also deleted.

Now, coming to the issue of disallowance u/s.14A which has been raised in the appeal for 2015-16, 2016-17 and 2020-21, the year-wise disallowance and exempt income earned by the assessee are as under:- Assessment Year 14 r.w.r 8D disallowance Amount (in Rs.) 2015-16 3,78,408/- 2016-17 11,55,0747- 2020-21 3,12,386/- Total 18,45,868/-

Here in this case also, the only issue is whether the disallowance u/s.14A should be disallowed to those investments which had yielded exempt income like in other appeals.

Before us, the ld. Counsel has given the working based on investment which had yielded exempt income. AY 14A Working Exempt 14A Working as per as per AO income Assessee 2015-16 3,78,408 10,01,929 93,047 2016-17 11,55,074 15,60,874 8,18,385 2020-21 3,12,386 8,42,918 23,647 94. Accordingly, the ld. AO is directed to verify the working and should restrict the disallowance only on those investments which had yielded exempt income. Accordingly, this ground is partly allowed. 95. In the result, appeal of the Revenue is dismissed and appeal of the assessee is partly allowed. 96. In the result, all the appeals of the Revenue are dismissed and all the appeals of the assessees are partly allowed. Order pronounced on 29th May, 2025.