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Facts
The assessee invested ₹1,250,000 in bitcoin trading and subsequently received ₹621,683 as compensation due to a cyber-attack. The Assessing Officer added ₹600,795 as unexplained investment under Section 69, which was upheld by the CIT(A). The assessee contended that the entire investment was disclosed and the compensation resulted in a loss.
Held
The Tribunal held that the entire investment in bitcoin was disclosed, and the compensation received resulted in an overall loss, not taxable gain. Therefore, the addition made by the Assessing Officer was incorrect. The matter was remitted to the Assessing Officer for further verification of the loss and confirmation that no taxable gain exists.
Key Issues
Whether the investment in bitcoin and subsequent compensation received are to be treated as unexplained investment, and if the loss incurred in such transactions is to be considered.
Sections Cited
147, 144, 148, 148A, 142(1), 69, 115BBD
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘SMC’ BENCH : BANGALORE
Before: SHRI PRASHANT MAHARISHI, VICE –
ORDER
PER PRASHANT MAHARISHI, VICE – PRESIDENT
1. Assessee, Appellant, Upama Roy filed captioned appeal for assessment year 2018–19, contesting the NFAC [ The Ld. CIT (A) ] Delhi’s order dated 11, July 2025, which upheld the reassessment order under section 147 r/w 144 of the Income Tax Act, 1961, issued by the Income Tax Officer on January 30, 2024. The assessee is dissatisfied with the decision and has filed an appeal on several grounds that (1) the learned CIT(A) incorrectly classified a genuine investment as unexplained under section 69 of the Act; (2) documentary evidence substantiating the loss was overlooked; (3) capital loss was erroneously characterized as income; Page 2 of 4 (4) section 115BBD was misapplied; and (5) there was a violation of the principles of natural justice.
The brief facts of the case indicate that the assessee filed his income tax return on 22 July 2018, declaring a total income of ₹2,846,830 after claiming deductions of ₹150,000 and other permissible deductions. The assessee reported a salary income of ₹3,196,833 and income from house property.
Subsequently, information was received regarding the assessee's involvement in trading, specifically the sale and purchase of bitcoins, with capital gains not disclosed in the income tax return. It was determined that, for the relevant assessment year, the assessee transacted in bitcoins amounting to ₹18,50,795 yet failed to declare the corresponding capital gains.
Consequently, a notice under Section 148 was issued, providing the assessee with an opportunity to be heard on 24 March 2022 via the registered email address on record. As the assessee did not furnish the required details, the Assessing Officer deemed it appropriate to proceed with the issuance of the notice under Section 148 of the Act. Accordingly, an order under Section 148A(d) was passed on 5 April 2022, accompanied by the notice under Section 148.
The assessee was afforded multiple opportunities, including a notice under Section 142(1) and a show cause notice dated 16 January 2024, requesting an explanation regarding the nature and source of bitcoin trading.
The assessee stated an investment in bitcoin during the year of ₹1,250,000 and an agreement with Secure Bitcoin Traders Private Limited, involving a transfer of ₹628,317. Thus, investment of RS 12.50 lakhs was liquidated for above amount and there is a loss. The Investment is through bank account of assessee.
However, the Assessing Officer noted information indicating an investment of ₹1,850,795. Upon review, the Assessing Officer rejected the assessee's contention and concluded that investments in bitcoin totaled ₹18,50,795 according to Page 3 of 4 available information, while bank statements reflected only ₹1,250,000. Therefore, the balance sum of ₹600,795 was added under Section 69 of the Income Tax Act, as per the assessment order passed under Section 147 read with Section 144B on 30 January 2020, resulting in the determination of the assessee’s total income at ₹3,447,625 compared to the returned income of ₹2,846,813.
Dissatisfied with the above addition, the assessee challenged the inclusion of ₹600,795 before the learned CIT(A). The assessee submitted its response to the learned CIT(A); however, the learned CIT(A) upheld the addition.
The assessee has appealed, arguing that the lower authorities denied a proper hearing and ignored full transaction details, making an unsupported addition. Authorized representative was heard.
Shri Ganesh R Ghale, the departmental advocate, strongly supported the lower authorities' decisions.
After hearing both sides and reviewing the orders from lower authorities, it is established that the assessee invested ₹1,250,000 in bitcoin during the year but claimed a loss. The compensation agreement with Secure Bitcoin Traders Pvt Ltd offered ₹628,317 due to a cyber-attack, though it did not specify the original investment amount. However, records show bitcoin transactions totaling ₹1,850,795. The assessing officer added ₹600,695 as unexplained investment under section 69 of the Income Tax Act for FY 2017-18 (AY 2018-19), and CIT-A did not accept the assessee's explanation. Despite the lack of detail in the agreement, the original investment was confirmed, and only the compensatory sum was received, resulting in a loss of ₹621,683. Therefore, the addition should not have been made, as both the investment and compensation were disclosed.
According to the information provided to the learned assessing officer, the assessee initially invested ₹ 1,250,000 in bitcoin trading and subsequently received compensation of ₹ 621,000. Both the original investment and its Page 4 of 4 realization, which resulted in a loss, were combined, leading to an addition to the income of the assessee.
Given the circumstances, it is evident that the assessee has already been taxed on an amount paid via cheque, which should not be classified as unaccounted income. Additionally, the assessee experienced a loss in bitcoin trading, investing ₹ 1,250,000 and receiving compensation of only ₹ 621,683. Therefore, the investment is disclosed, and the compensation resulted in an overall loss; consequently, there is no income subject to taxation for the assessee. Nevertheless, the lower authorities did not accurately note these facts. We hereby remit the entire matter to the learned assessing officer, instructing the assessee to provide evidence substantiating the loss incurred and confirming that no taxable gain exists. The assessing officer is directed at verifying the information and re- examining the issue accordingly. In conclusion, the solitary ground raised by the assessee is allowed as detailed above.
In the result appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 1st April, 2026.