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Facts
The assessee, a broker, incurred a loss of ₹1,54,10,350/- from currency derivative trading, which the AO added as bogus loss based on third-party information and a retracted statement. The AO also made an addition of ₹3,63,137/- under Section 50C for capital gains on a co-owned property sale due to a valuation difference, and an addition of ₹69,00,861/- for a discrepancy between P&L income and Form 26AS income.
Held
The Tribunal upheld the CIT(A)'s deletion of the bogus loss, finding no corroborative evidence from the AO and confirming the genuineness of transactions. It also affirmed the deletion of the Section 50C addition, agreeing that the valuation difference was within the 5% safe harbor limit and the proviso is retrospective. Furthermore, the deletion of the 26AS discrepancy was upheld, clarifying it was due to service tax inclusion in 26AS.
Key Issues
Whether the deletion of bogus loss on derivative trading, deletion of addition under Section 50C for capital gains, deletion of addition for P&L vs 26AS income difference, and the admission of fresh evidence before CIT(A) were justified.
Sections Cited
132, 133(6), 50C, Rule 46A
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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
This is an appeal preferred by the Revenue against the order of the Commissioner of Income-tax (Appeals), Kolkata-20, (hereinafter referred to as the “Ld. CIT(A)”] dated 05.12.2023 for the AY 2012-13.
The issue raised in ground no.1 and 2 is against the deletion of addition of ₹1,54,10,350/- by the learned CIT (A) as made by the learned AO on account of bogus loss on current year derivatives.
The facts in brief are that the assessee is a broker with allotted client code No.CK-0477 for trading in currency derivatives at MCX Stock Exchange. The assessee had issued valid contract notes in respect of
In the appellate proceedings, the learned CIT (A) allowed the appeal of the assessee by holding that the assessee has indulged in derivative trading in MCX stock exchange and all the transactions were carried out at the stock exchange platform. The learned CIT (A) noted that the learned AO has not found any discrepancy in respect of such trading. The learned CIT (A) further noted that the learned AO has relied only the information received from Investigation Wing that the transactions through M/s. Marigold Vanijya Pvt. Ltd were not genuine. Besides the CIT (A) also noted that the director of the said company Sri Sachet Saraf, who gave statement during the proceedings u/s 132 of the Act retracted such statement which was relied upon by the AO. Ld. CIT(A) also noted that the learned AO has not carried out any further investigation. The learned CIT (A) also noted that the learned AO issued notice u/s 133(6) of the Act to MCX, however, only part reply was stated to be received nonetheless, the learned AO did not discuss anything about the said report/ reply. The learned CIT (A) also noted that the statement of Sri Sachet Saraf was not given to the assessee nor cross examination was allowed. Thereafter, the learned CIT (A) referred to co-ordinate Bench decision, wherein it has been held that the transactions in current year derivatives through M/s. Marigold Vanijya Pvt. Ltd were held to be genuine. Finally, the learned CIT (A) held that there were no corroborative evidences in regard to show that the transactions in
After hearing the rival contentions and perusing the materials available on record including the appellate order, we find that the learned CIT (A) has given a very clear-cut finding on the issue that the learned AO failed to bring on record any material corroborating the allegation against the assessee whereas the assessee has filed all the contract notes for the transactions executed on the exchange before the learned AO. We note that the learned AO has only acted on the report of the investigation wing and retracted statement of Shri Sachet Saraf . Thus, we do not find any infirmity in the order of the learned CIT (A) and are inclined to uphold that the same on this issue by dismissing ground no. 1 and 2 in the appeal of the Revenue.
The issue raised in ground no.3 and 4, is against the deletion of addition of ₹3,63,137/- under the head capital gain by learned CIT (A) as made by the learned AO by invoking the provisions of Section 50C of the Act.
The facts in brief are that the assessee sold his property in which it was only co-owner. The sold property was referred to the DVO in case of M/s delight suppliers Pvt. Ltd. who was one of the co-owners in the said property along with the assessee. The valuation report of the DVO has been received after assessment was framed. As per said valuation report, the estimated value of the property as on 31.01.2012, was ₹12,07,89,700/-, whereas the assessee has declared the sales consideration of ₹11,57,08,600/- as on 31.01.2012. The learned AO added the different between sale consideration and the valuation as per stamp valuation authority u/s 50C of the Act while
the learned CIT (A) deleted the addition stating the same to be falling under safe harbor limit of 5% as per third proviso to Section 50C of the Act by observing and holding as under:-
“4.3 I have carefully considered the facts of the case and submission of the appellant. Sold property was referred for valuation during assessment proceedings in the case of M/s. Delight Suppliers Pvt. Ltd., which is one of the co-owners of the property, along with assessee company. Valuation report of the DVO has been received after the assessment order was finalized. As per the valuation report, theestimated value of the property as on 31.01.2012 was Rs.12,07,89,700/- whereas assessee had declared the sale consideration of Rs.11,51,08,600/- as on 31.01.2012. Thus, the difference between the estimated value and the declared value was less than 5% of the declared value. As appellant in its submissions had claimed that safe harbour rule of 5%, as per the 3 rd proviso to section 50C, would be applicable in its case in view of several judicial pronouncements, AO was asked to offer his comments on this issue. Vide letter dated 28.11.2022, AO has submitted that 3 rd proviso to section 50C was inserted by Finance Act, 2018 and it was effective from 01.04.2019. AO has mentioned that there is no provision that this amendment would be applicable retrospectively, i.e. w.e.f. 01.04.2003. A.O. has also drawn our attention to the Explanatory Notes to Finance Act, 2018 which clearly mentions that the amendment would be effective from 01.04.2019. I have duly considered AO’s objections in this regard. But the facts remains that there are several decisions including those of Kolkata ITAT, as mentioned by the appellant in its submissions, which have held the insertion of 3 rd proviso to section 50C of the I.T. Act to be declatory and curative in nature. It is held that this amendment is not a substantive amendment. Rather it is only a procedural amendment. Therefore, even when the statute does not specifically state so, such amendment are in the nature of retrospective amendment and these should be treated as effective from the date when 50C was introduced in the statute, i.e. w.e.f. 01.04.2003. As in the appellant'scase, the difference between the estimated value and the declared value does not exceed 5% of the declared value, assessee is entitled for safe harbour rule of 5% as per 3 rd proviso to section 50C, as held in various judicial decisions, as mentioned in the preceding paras. Coming to the addition in respect of depreciation, I agree with appellant's submission that once the safe harbour rule of 5% is held to be applicable in appellant's case, no addition could be made by invoking the provisions of section 50C. Consequently, assessee’s computation in respect of capital gains would be acceptable and consequently there will be no occasion to disturb the WDV in respect of buildings. This would also imply that depreciation worked out as per remaining WDV in the depreciation chart would be same as declared by the assessee. Hence, addition in respect of excess claim of depreciation is not sustainable. In view of the above discussion, addition of Rs.3,63,137/- under the head ‘capital gains’ is deleted.
The issue raised in ground no.5, is against the order of learned CIT (A) violating the provisions of Section 46A of the Income Tax Rules, 1962 by not referring to the learned AO the fresh documents submitted before the learned CIT (A).
After hearing the rival contentions and perusing the materials available on record, we find that the assessee has submitted document before the learned CIT (A) only pursuant to the direction of the learned CIT (A) and no new documents were furnished which were not placed before the AO. Therefore, we do not find any merit in this ground and accordingly the ground no. 5 is dismissed.
The issue raised in ground no.6 is against the deletion of addition of ₹69,00,861/-, by the learned CIT (A) as made by the learned AO on account of difference between the income shown in Profit and Loss account vis-à-vis 26AS. The learned AO added the same on the ground that the assessee could not furnish any explanation and therefore, added the same to the income of the assessee.
In the appellate proceedings, the learned. CIT (A) deleted the addition by observing and holding as under:-
“5.3 I have carefully considered the facts of the case and submission of the appellant. I have also gone through the reconciliation statement submitted by the appellant. In Form 26AS statement gross amount shown therein includes service tax also. However, assessee is accounting only revenue component in the P & L A/c. and service tax has been accounted separately. Under the circumstances, there is no suppression income and hence, addition is not justified. However, as per assessee’s own admission an amount of Rs.39,936/-, being interest from CESC, was not included in the total income. Hence, AO is directed to add back this income to the total income of the assessee. In view of the above, addition to the extent of Rs.69,00,861/- (Rs.69,40,797 – Rs. 39,936) only is deleted.”
After hearing the rival contentions and perusing the materials available on record, we find that the learned CIT (A) has given a clear cut finding that there is no difference of income as shown in the Profit and Loss account vis-à-vis form 26AS. The learned CIT (A) recorded the finding of fact that the income shown in the form 26AS is inclusive of service tax also and thus, there appears to be apparent difference but as a matter of fact there was no difference as the service tax was included in the form 26AS whereas in the Profit and Loss account that was not included and shown separately. Considering these facts, we are inclined to hold the order of learned CIT (A) by dismissing the ground.
In the result, the appeal of Revenue is dismissed.
Order pronounced in the open court on 20.11.2025.