CASCADE HOLDINGS PVT. LIMITED,MUMBAI vs. DCIT CENTRAL CIRCLE 4(3), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “G”, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA No.1414/M/2019 Assessment Year: 1992-93 M/s. Cascade Holdings DCIT, Pvt. Ltd., Central Circle 4(3), 32, Madhuli, Vs. Air India Building, Dr. Annie Besant Road, 19th Floor, Worli, Mumbai – 400 018 Mumbai - 400020 PAN: AAACC5768N (Appellant) (Respondent) Present for: Assessee by : Shri Vijay Mehta, A.R. & Shri Dharmesh Shah, A.R.

Revenue by : Dr. P. Daniel, D.R. Date of Hearing : 04.02.2021 Date of Pronouncement : 09.04.2021 O R D E R Per Rajesh Kumar, Accountant Member: The present appeal has been preferred by the assessee against the order dated 31.12.2018 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 1992-93.

2 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. aside the matter to the file of Ld. CIT(A) for deciding the issues afresh. In the second round of litigation, the additions and disallowances were substantially confirmed by Ld. CIT(A) vide his impugned order dated 31.12.2018 and the aggrieved assessee is in appeal before us. The various grounds raised by the assessee are as under: “1) On the facts and the circumstances of the case, the Hon'ble CIT(A) erred in rejecting the Appellant's contention that the learned AO legally erred in invoking Section 144 of the Act and making best judgement assessment while assessing the income of the Appellant. 2) On the facts and the circumstances of the case, the Hon'ble CIT(A) erred in holding that there is no bar on the AO in resorting to the presumptions provided under section 292C or 132(4A) while completing the assessment and rejecting the Appellant's contention that presumptions raised under section 132(4A) of the Act cannot be used for making routine assessment. 3) On the facts and the circumstances of the case, the Hon'ble CIT(A) erred in rejecting the Appellant's contention that the learned AO erred in making the additions on the material and / information received from third parties without furnishing copies of the same for inspection and / or providing an opportunity of cross-examination. 4) On the facts and the circumstances of the case, the Hon'ble CIT(A) erred in upholding the action of the AO in making an addition of Rs. 81,15,850/- on account of the profits alleged to have been earned by the Appellant in the money market operations. The appellant respectfully requests for deletion of the said impugned addition. 5) On the facts and the circumstances of the case, the Hon'ble CIT(A) erred in upholding the action of the AO of making an addition of Rs. 1,92,05,6307- on account of the alleged speculative profit on trading in shares and the addition of Rs. 97,29,79,373/- on account of the alleged speculative profit arising on shares held which were presumed to be carried forward and squared up on or before 31.03,1992. The Appellant prays that the AO be directed to delete the said impugned addition. 6) On the facts and the circumstances of the case, the Hon'ble CIT(A) erred in holding that in In an eventuality of the additions made on the basis of incriminating seized material are finally deleted or restricted to an amount which is less than Rs.33,60,000/-, then addition of Rs. 33,60,000/- made on the basis of aggregate disclosure by the Harshad Mehta Group would survive. 7) On the facts and the circumstances of the case, the Hon'ble C!T(A) erred in upholding the action of the AO in allowing only Rs. 1.82.028/- as expenditure out of total expenditure of Rs. 3,49,042/- claimed by the Appellant. The Appellant respectfully requests for deletion of the said impugned addition. 8) On the facts and the circumstances of the case, the Hon'ble CIT(A) erred in upholding the action of the AO of disallowing short-term capital loss on sale of 9%

3 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. IRFC bonds amounting to Rs. 48,93,466/- by invoking Section 94(4) of the Act. The Appellant respectfully requests for deletion of the said impugned addition. 9) On the facts and in the circumstances of the case, the Hon'ble CIT(A) erred in upholding the action of AO in levying interest under Section 234A, 234B and 234C of the Income Tax Act, 1961. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at the time of hearing of the appeal, so as to enable the Honorable Members to decide this appeal according to the law.” 3. Ground Nos.1, 2 & 3 are general in nature and need no adjudication.

4 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. Ld. CIT(A) with the direction to examine the books of accounts which were filed as additional evidence before the tribunal. The Ld. A.R. submitted that even in the set aside proceedings the Ld. CIT(A) has not accepted the books of accounts and has not granted certain allowances/deductions as per the books of accounts. The assessee submitted that the additional ground is being raised as the same was not taken inadvertently at the time of filing the appeal against the order of Ld. CIT(A). The Ld. A.R. submitted that the issue raised in the additional ground of appeal is emanating out of the records before the authorities below and new facts are required to be brought on record or verified. The Ld. A.R. therefore requested that the same may kindly be admitted and decided in the interest of justice and equity. In defence of his argument, the Ld. A.R. relied on the following three decisions: 1. National Thermal Power Company Ltd. vs. CIT 229 ITR 383 (SC) 2. Jute Corporation of India Ltd. vs. CIT 187 ITR 688 (SC) 3. Ahmedabad Electricity Company Ltd. vs. CIT 199 ITR 359 (Bom.) The Ld. A.R., therefore, prayed that the ground may kindly be admitted and adjudicated.

5 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. factual issue as has been sought to be raised and racked up by the assessee. Therefore, the Ld. D.R. submitted that the additional ground may kindly be dismissed.

6 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. Rs.76,76,455/- and offered the same as income from speculation business in its books of accounts. It was submitted that the said books of accounts have been duly audited by the auditors and their genuineness can not be doubted or questioned in absence of any contrary evidences being brought on records , however, the Ld. CIT(A) dismissed the arguments of the assessee by observing and holding as under: “9.3 The contentions of the assessee have been duly considered. It is noted that the transactions of money market are always backed by banker's receipts (BRs) or actual bonds and thus, the profit / loss arising from money market transactions are non-speculative in nature. Further, the assessee has not provided an evidence to the contrary that the said money market profits are non-delivery based. Now it needs to be ascertained as to whether the other share trading losses which have been set-off by the assessee against this money market profits of Rs.81,15,850/- are delivery based or speculative in nature. For this purpose, the ledger of trading account of the assessee speculative in nature. For this purpose, the ledger of trading account of the assessee which was submitted along with its letter dated 05.10.2018 in course of the appellate proceedings was examined. From this ledger account, it was observed that the other entries are related to speculative trading of shares in forward market, which do not entail any delivery. This conclusion is also arrived since it is observed that both the sale as well as purchase transactions have been undertaken on the same date and only the difference has been credited / debited to the said trading account. Thus the other share market transactions forming a part of the said trading account are clearly speculative in nature. It is also pertinent to mention that the assessee vide this office letter dated 10.10.2018, was specifically asked to furnish details of the sale / purchase of shares as well as of money market transactions entered during the relevant year along with specific information as to whether delivery was taken / given and also proof. However, this was not submitted by the assessee, despite several reminders. Thus, the assessee has also not provided any evidence to suggest that the said other share trading transactions are delivery based transactions. It is therefore held that the assessee has wrongly claimed set off of the share trading losses which are speculative in nature against the money market profits of Rs 81,15,850/- which are non-speculative in nature. Therefore, no infirmity is found in the action of the AO of taxing the said entire amount of Rs 81,15,850/- related to money market transactions. Accordingly, ground No 4 of the appeal is dismissed.” 11. The Ld. A.R. submitted before the Bench that Ld. CIT(A) has failed to appreciate the facts as available on record. The Ld. A.R. submitted that profit from money market transactions of Rs.81,15,850/- is a speculative profit and eligible to be set off against the loss from share transactions which were of speculative in nature on which the assessee has incurred an

7 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. aggregate loss of Rs.76,76,455/-. The Ld. A.R. referred to the page No.70 of the paper book which is a share trading account and contains entries in respect of the aforesaid money market transactions and submitted that in the said account only the difference is credited as profit without taking total value of transactions of purchase and sale for the reason that assessee has not taken delivery of securities as the same was not intended. The Ld. A.R. submitted that these transactions were in fact settled without taking and giving any delivery and therefore assessee was entitled to only the difference between purchase and sale price of transactions. The Ld. A.R. submitted that had the assessee carried out these transactions by taking physical delivery it would have accounted for the purchase and sale of securities instead of difference amount. The Ld. A.R. submitted that these accounting entries have not been disputed or doubted by the AO. The Ld. A.R. submitted that the AO worked out the amount of addition only on the basis of the amounts of difference credited in the books of accounts which shows profit on account of net difference of purchase and sale prices and is of speculative in nature. The Ld. A.R. also referred to copies of contract notes and bills as submitted before the AO and dealt with by him at page No.6 para 5 of the assessment order and only after doing necessary analysis he has tabulated the profits under the head “Amount of difference” on page No.7 of the order. The Ld. A.R., therefore, prayed that the profit from money market transactions are in the nature of speculative profit and hence eligible for set off against loss from speculative transactions in shares. The Ld. A.R. also submitted that issue as to whether the money market transactions are speculative or

8 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. not has come up before the co-ordinate bench of the Tribunal in the case of Growmore Research & Assets Management Ltd. vs. DCIT ITA No.1785/M/2015 A.Y. 1990-91 wherein the co- ordinate bench of the Tribunal vide order dated 28.02.2017 has held that transaction of sale and purchase of units and government securities without taking actual delivery would fall within the ambit of speculative transactions as defined under section 43(5) of the Act and therefore are eligible for setting off against the losses from share market transactions. The Ld. A.R. finally prayed before the Bench that loss from share transactions of Rs.76,76,455/- may kindly be allowed to be set off and adjusted against the profit from money market transactions by setting aside the order of ld CIT(A) and AO may be directed to take the net difference 4,39,395/- as income.

9 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. the transactions of sale and purchase of securities are speculative transactions and so is the profit resulting from those transactions. The speculative transactions are defined under section 43(5) of the Act and are eligible to be set off against the loss of share transactions. Accordingly, we hold that the speculative loss from share market transactions of Rs.76,76,455/- is eligible to be set off against the profit from trading in money market securities at Rs.81,15,850/-. The case of the assessee is also covered by the decision of the co-ordinate bench of the Tribunal in the case of Growmore Research and Assets Management Ltd. vs. DCIT (supra) wherein the co- ordinate bench of the Tribunal has held as under: “3.6. We have gone through the orders passed by the lower authorities and submissions made by both the sides as well as judgment relied upon by both the sides before us. The only issue to be decided by us is whether the transactions carried out by the assessee of trading of money market securities was speculative or non-speculative in nature. During the course of hearing, Ld. Counsel demonstrated with the help of various evidences in the paper book in the form of contract notes and other documents to show that no deliveries were exchanged and only ‘difference’ amount was settled. Our attention was drawn on the ledger account containing details of trading of money market transactions showing that in all the cases only ‘difference’ amount of sale or purchase of money market securities has been credited or debited in the assessee’s a/c by the broker. These evidences have not been controverted by the Ld. Special Counsel of the Revenue. Thus, the admitted facts brought on record are that no deliveries were exchanged for carrying out money market transactions by the assessee. It is noted that in the identical circumstances ITAT in the case of Group companies of the assessee namely M/s. Growmore Leasing Investment held that such transactions would be speculated transactions by observing as under: “5.4 We have heard both sides in detail on this point. Shri Vijay Mehta, the learned Chartered Accountant appearing for the assessee, has placed before us a copy of the judgment in Suit No.1 of 2005 (O.S. Transferred Suit No.4018 of 1995) delivered on 17.4.2007, by the Special Court in the case of Canbank Financial Services Limited Vs. M/s.V.B.Desai The suit raised issues relating to the nature of legality of forward contract transactions in Government securities. Issues No.4 and 5 framed by the Special Court are as follows:- "4. Whether the Suit transactions are prohibited by the Securities Contract (Regulation) Act, 1956 as alleged in para V of the Written Statement?

10 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd.

11 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. 5.8. In the light of the judgment of the Special Court, as mentioned above, it is to be held that the forward transactions entered into by the assessee were not illegal. Therefore, the loss cannot be disallowed on that ground.” 3.8. Thus, from the above order it is clear that special court has held that the forward transactions in Government securities were not illegal. It was further held that these transactions were speculative transactions. As far as reliance placed by Ld. special counsel upon the judgment of Hon’ble Supreme Court in the case of M/s. Appollo Tyres Ltd. (supra) is concerned, it is noted that the said judgment merely analysed the scope of section 73 wherein expression used by the legislature was ‘shares’. On the other hand, the expression used in section 43(5) is not only ‘shares’ but ‘securities’ as well’. This distinction has been very well analysed by the Delhi Bench of the Tribunal in the case of ANZ Grindlays Bank v. DCIT (supra) wherein it has been held after considering aforesaid judgment of Hon’ble Supreme Court in the case of Appollo Tyres Ltd. (supra) that transactions of sale and purchase of units and government securities by the assessee through a broker without exchange of actual delivery would fall within the scope of speculative transactions as defined in section 43(5). Therefore, loss/profit from shares market transactions can very well be set off/adjusted against loss/profit of money market transactions. This issue has already been decided in favour of the assessee by the Tribunal in the case of group company of the assessee namely M/s. Growmore Leasing Investment (supra) as discussed above also. No distinction has been pointed out on facts or legal position by the Ld. Special Counsel of the Revenue, therefore respectfully following the order of the Tribunal in the case of M/s. Growmore Leasing Investment (supra) as well as ANZ Grindlays Bank v. DCIT (supra), we find that the claim of the assessee is allowable. Therefore disallowance made by the AO is directed to be deleted. Thus, ground no.2 is allowed.” 13. In view of the above facts and circumstances and also the decision of the co-ordinate bench of the Tribunal we are inclined to set aside the order of Ld. CIT(A) and direct the AO to assess the net income of Rs.4,39,395/- which is the difference between the profit from trading in money market securities of Rs.81,15,850/- and losses from share market transactions of Rs.76,76,455/- as both being of speculative nature.

12 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. held by the assessee on 24.01.1992 which were presumed to be carried forward and squared up on or before 31.03.1992.

13 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. showing the position on 4 different dates namely 24.01.1992, 12.02.1992, 18.02.1992 & 27.02.1992 in respect of scrips which were appearing on the seized papers. The AO observed that the position of various scrips shown in the name of the assessee on various dates has either to result in delivery or has to be squared up by sale of shares. Since the detail pertaining to squaring up of position was not available on record, the same is considered as squared up on 31.03.1992 or wherever information of change in position is available on the day when the position is changed. Based on this conclusion, the AO calculated the profit on squaring up of positions by presuming that on each day subsequent to the date of the sheet the position originally held in the name of the assessee was squared off calculation whereof are as under: Particulars Amount (in Rs.) Position between 24.01.1992 and 4,53,42,998 12.02.1992 Position between 12.02.1992 and (-)25,08,750 18.02.1992 Position between 18.02.1992 and 20,02,40,875/- 21.02.1992 Position between 27.02.1992 and 71,99,04,250 31.03.1992 TOTAL 97,29,79,373

14 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. “14.11 The contentions of the assessee have been duly considered. It is noted that in course of search action, documents were found which had details of the speculative transactions of trading in shares carried out by the assessee and also the scrip-wise position of the assessee on certain dates. The AO on the basis of these documents has made an addition of Rs 1,92,05,630/- being the speculation profit on trading in shares and addition of Rs 97,29,79,373/- being the speculation profit on transactions in shares held by the assessee as per the seized documents which were presumed to be squared up before 31.03.1992. The assessee in the appellate proceedings has objected to the said additions made by the AO on the ground that the said documents on the basis of which adverse inference has been drawn against it, were neither found from its business premises nor from the premises of any of the directors of the assessee. On this contention of the assessee, it is noted that searches were carried out on Harshad Mehta group on 27.09.1990 and 28.02.1992. There is no dispute that the assessee is also a part of Harshad Mehta group. Further, in course of the said searches, it was found that there is no entity wise demarcation of the various premises of Harshad Mehta group. It is noted that M/s Harshad Mehta, M/s Jyoti Mehta & M/s Ashwin Mehta are the broker entities of the Harshad Mehta Group and they in turn have carried out share market as well as money market transactions for themselves as well as the other entities of the Harshad Mehta Group. The seized material collected from the various premises of the Harshad Mehta Group pertains to all the different entities of this group. Therefore, the contention of the assessee that since the said documents were neither seized from its premises nor from the premises of any of its directors, the AO could not have made the addition on their basis, is rejected. On the contention of the assessee that the AO has wrongly relied upon the presumptions u/s 132(4), as noted earlier, the provisions of section 292C have been inserted by the Finance Act, 2007 with retrospective effect from 01.10.1975 with an intent to clarify that the presumptions provided in Section 132(4A) can be relied upon in any proceedings under this Act. This contention has also been duly addressed and rejected while adjudicating ground No 2 of the appeal of the assessee. 14.12 The assessee in the present appellate proceedings has contended that M/s J H Mehta, its broker was using the dummy name "CASCADE HOLDINGS /CASCADE" in respect of the shares purchased / sold on behalf of its various clients till the sauda book was validated / corrected and only thereafter the said transactions of the clients were posted in their respective ledgers and contract notes issued. It was submitted that the initial entries were being made by the junior staff of M/s. J.H. Mehta and therefore were prone to mistakes. The assessee contends that only few of the transactions as per the said seized documents relate to it and they have been duly recorded in its regular books and the bulk of the transactions relate to the other entities of its group namely M/s Growmore Leasing, M/s Growmore Research, M/s Harsh Estates, Jyoti H Mehta -investments, Jyoti H Mehta - trading, M/s Mazda Industries, Deepika Mehta, Harshad Mehta, Hitesh Mehta, Pratima Mehta, Rasila Mehta, Sudhir Mehta & Rina Mehta. In support of this claim, the assessee also submitted an affidavit of M/s J H Mehta confirming the same. 14.13 On the above contentions, it is noted that the reliance placed by the assessee on the affidavit submitted by M/s J H Mehta, confirming that only some of the

15 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. transactions as per the said seized documents pertain to the assessee, is misplaced since M/s J H Mehta is a part of Harshad Mehta group which together have been implicated in the stock market scam. Therefore, the said affidavit is held to be only self-serving in nature. Further, some glaring contradictions have been noted in the contents of the said affidavit of M/s J H Mehta and the contentions made by the assessee in the course of the present appellate proceedings, which are highlighted in the subsequent paras. 14.14 In the said affidavit of M/s J H Mehta, it was stated that during the relevant period some programming development was being undertaken for which certain test data was required and the said seized documents are actually printout of such test data. Accordingly, it was contended in the said affidavit that no reliance can be placed on the said seized documents for the purpose of computing the income of the assessee. The relevant portion of the affidavit of M/s J H Mehta is reproduced as under: "11. I say that Annexures 'A' and 'B' enclosed to the above referred assessment order of M/s. Cascade Holdings P. Ltd. do not represent transactions undertaken on behalf of M/s. Cascade Holdings P. Ltd. save and except to the extent that I have issued the contract notes which actually represent the transactions undertaken by M/s. Cascade Holdings P. Ltd, Further, I confirm that I have ......................... order, I deny that any profit has been made by Cascade Holdings P. Ltd. as computed in the assessment order on the basis of alleged positions outstanding on various dates as indicated on Page 4 of the assessment order and elsewhere, save and except to the extent I have issued the contract notes to M/s. Cascade Holdings P. Ltd. I say that there is no material to establish any alleged sales nor there is material to establish the alleged purchase.” 12. In respect of the contents of Annexure 'A' enclosed with the above referred assessment order, I state that during the relevant period some programming development was being undertaken particularly for organizing networking of programs and the programs were needing certain test data. I say that the seized list i.e. 30 pages as enclosed with the assessment order is actually a print out of such test data. I say that the same is not the list of actual transactions undertaken by me on behalf of M/s. Cascade Holdings P. Ltd. as concluded by the Assessing Officer in the order. In support of the same, I state as follows:- (i) that the last column containing 'C. No.' represents 'Contract Number". It may be noted that for practically each and every transaction listed in this above material, no contract number is mentioned. In fact, this conclusively establishes that these are not the actual transactions but only a test list. ..................................................in the alternative, I am open to establish the same directly to the ACIT or CIT(Appeals) by producing the relevant records. 14.15 However, in the present appellate proceedings, it has been contended that the said transactions as per the seized documents have actually taken place but

16 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. only some of them relate to the assessee and the balance relate to the other entities of the Harshad Mehta Group, etc. This itself shows that the claim made by M/s J H Mehta in her affidavit as well as the contentions now being made that the entire transactions do 'not pertain to the assessee but bulk of them pertain to other entities of the Harshad Mehta Group, is only an afterthought. Similarly, the other contention that the initial entries of the transactions carried out for the clients were being made by junior staff which were prone to mistakes, is also held to be an afterthought. 14.16 In the appellate proceedings it was contended that M/s J H Mehta was using the dummy name "CASCADE HOLDING/CASCADE" in respect of the various transactions undertaken for its clients prior to validation / correction. It was claimed that only after necessary validation / correction, the transactions entered by M/s J H Mehta on behalf of the clients were posted in their ledger accounts and thereafter contract notes were issued. This claim of the assessee as well as M/s J H Mehta cannot be accepted since from the client-wise break-up submitted, it is observed that it also includes the name of M/s J H Mehta itself as one of the clients. For example, as per the said client-wise break-up submitted, the position of ACC shares in respect of M/s J H Mehta as on 12.02.1992 is of 72080 shares. By no stretch of imagination, can the transactions carried out by M/s J H Mehta in the capacity of principal be included in the transactions carried out on behalf of the clients. There is a clear distinction between the transactions which are being carried out by the broker in the capacity of the principal and the transactions which are being carried out by the broker on behalf of the clients. Even in the mandatory reportings to the Stock Exchange by the broker, the transactions are segregated into (i) the transactions carried out in the capacity of principal and (ii) transactions carried out on behalf of the clients. Thus, the claim of the assessee that it was using a dummy name "CASCADE HOLDINGS /CASCADE" in respect of the various transactions undertaken for its clients prior to validation / correction is rejected. Moreover, no sensible person will use the name of its own related entity as a dummy name when the said related entity also happen to be its client. Therefore, the contention of the assessee that M/s. J.H. Mehta was using dummy name "CASCADE HOLDINGS /CASCADE" for noting the transactions undertaken for its clients prior to correction/validation, is rejected. 14.17 To ascertain the genuineness of the claim of the assessee that the said transactions as per the seized documents are in respect of the other entities of the Harshad Mehta Group, the ledger accounts of the said other entities in the books of M/s J H Mehta were examined. From the ledger accounts, it was observed that there is no actual payment / receipt by way of cash / cheque and there are only adjustments by way of Journal entries. Therefore, the assessee vide order sheet noting dated 08,10.2018 was asked to submit details of actual payments made other than the adjustments made by way of journal entry in respect of the shares purchased by the said other entities of the Harshad Mehta Group and details of actual receipts other than adjustments by way of journal entry for the shares sold by the said other entities. Moreover, the assessee was also asked to submit the proof of delivery with distinctive numbers since it was the claim of the assessee that the conclusion of the AO that the said transactions are forward transactions without delivery, is not correct. However, till the passing of the appellate order, the

17 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. desired information was not submitted. In respect of genuine share trading transactions carried out by a client through a broker, the features which are routinely found include features like (i) for a purchase transaction, at the end of the settlement period, either delivery of shares is taken or the same is carried over by doing badla (ii) For a purchase transaction which is not carried over, payment is made by the client to the broker and delivery of shares is taken by the broker from the Stock Exchange and which in turn is delivered to the client, (iii) for a sale transaction, at the end of the settlement period, either delivery of shares is given or the same is carried over by doing badla, and (iv) for a sale transaction which is not carried over, payment is received by the client from the broker and delivery of shares is given to the broker which in turn is delivered to the Stock Exchange. However, these critical features of actual payments / receipts as well as delivery of shares are found to be absent in the said transactions for which additions have been made by the AO and for which the assessee contends that the same have been undertaken primarily by the other entities of the Harshad Mehta Group. 14.18 In the instant case, it is noted that the AO on the basis of the notings on the said seized documents concluded that the assessee had a certain stock position in various scrips on different dates and since, the assessee could not provide any details of the ultimate fate of the said stock of shares and/or proof of delivery etc., he presumed that the same was carried forward and the position was squared up on or before 31.03.1992. On the other hand, the assessee in the present appellate proceedings contends that bulk of the said stock of shares comprised of shares of ACC, which were purchased by M/s. J.H. Mehta from certain 4 brokers of Calcutta Stock Exchange not only for the assessee but also for the other notified entities of Harshad Mehta Group. It is also claimed by the assessee that these shares have been subsequently registered in the hands of the assessee and the other notified entities of Harshad Mehta Group by the Custodian as per the order of the Hon'ble Special Court. However, it is noted that there is no evidence available with the assessee of proof of delivery with distinctive numbers for transfer of the said alleged shares by the said 4 brokers of Calcutta Stock Exchange to M/s. J.H. Mehta and thereafter to the said other notified entities of Harshad Mehta Group. It is pertinent to mention that most of the shares subsequently registered by the Custodian in the hands of the various entities of Harshad Mehta Group are tainted/benami shares seized by the various investigative agencies for which even Shri Harshad Mehta himself could not identify the owners for a substantial period of time and even now a large number of such tainted/benami shares are lying in a common pool created by the Custodian since, the owners have still not been identified. It is also noted that even while informing the Custodian about the ownership of the said tainted/benami shares, no proof of delivery was provided. Thus, the action of the AO of presuming that the said stock of shares as per the seized documents belong to the assessee which was carried forward and squared up on or before 31.03.1992, cannot be faulted. 14.19 The assessee has further contended that the total quantum of forward transactions undertaken by M/s J H Mehta on the various Stock Exchanges for all its clients is much less than the forward transactions carried out by the assessee alone as per the working of the AO and therefore the presumption of the AO that the said shares were carried forward and subsequently squared up by not taking delivery, is

18 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. not correct. In respect of this contention, it is relevant to note that other than the floor of Stock Exchange, the trading in shares can also be carried out between brokers in the capacity of principal to principal or client and principal, which need not be reported to the Stock Exchange . Therefore, the total transactions of a broker necessarily does not mean the transactions carried out on all the Stock Exchanges. Further, it is noted that the AO has made this presumption of carry forward and squared up only because the assessee could not furnish any details about the ultimate fate of the said shares and no proof of delivery was submitted. Even in the appellate proceedings, the assessee despite reminders has not furnished details with evidences of delivery in respect of the said shares. Further, as regards the contention of the assessee that as per the books of M/s. J.H. Mehta, the delivery based transactions of the assessee are of only 20,850 shares of ACC as against more than 3,00,000 shares as per the AO, it is noted that the claim of the assessee that the said transactions were carried out by M/s. J.H. Mehta on behalf of the other entities of the Harshad Mehta Group itself has been rejected earlier and therefore, this contention of the assessee cannot help its cause. 14.20 The assessee contends that the AO has made a number of presumptions which include (i) that the entire stock position was carried forward and squared up on 31.03.1992, (ii) though there was no noting in the said seized documents in respect of sale of the said stock position, it was presumed that the same were sold and the rates as on 31.03.1992 were applied only because the rates of various scrips as on 31.03.1992 were at its peak, (iii) deliberately it was presumed that the said shares were carried forward and squared up since if it would have been held that delivery of those shares was taken, the profits could have been taxed only on their actual sale. On these contentions of the assessee, it is noted that the AO had called for details of the said share transactions along with supporting evidences of delivery to verify whether the said transactions are of the nature of "speculative" or "non-speculative". However, this information was not submitted despite several reminders. Even in the present appellate proceedings, no evidences have been placed of delivery of the said shares. Therefore, the action of the AO of presuming that the said shares were transacted on carry forward basis and sold on 31.03.1992, cannot be faulted. 14.21 Further, the assessee contends that in Calcutta Stock Exchange, carry over was not allowed and therefore the conclusion drawn by the AO and the resultant additions after presuming sale on squaring up, is not correct. Moreover, the assessee also contended that if it had actually earned such huge profits, it would have received payments from the said 4 broker firms of Calcutta. On these contentions, it is observed that it is not the case of the AO that the said purchase/sale transactions in respect of the stock noted in the said seized documents were carried out at Calcutta Stock Exchange. The notings on the said seized documents suggested purchases at various stock exchanges and also outside the floor of Stock Exchange. However, there were no notings on the said seized documents related to the sale of the said stock and the assessee also could not even provide necessary evidences in respect of the ultimate fate, proof of delivery, etc. Thus the said contentions of the assessee are rejected.

19 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. 14.22 The assessee further submitted that as per the order of the Hon'ble Special Court, the stock of shares noted in the said documents have been duly registered in the hands of the said other entities of the Harshad Mehta Group and the profits arising on their subsequent sale have also been considered for taxation in the hands of the said other entities. Accordingly, it was contended that making the same addition again in the hands of the assessee will lead to double taxation. On this contention, it is noted that solely on the basis of the information provided by Shri Harshad Mehta about the ownership of shares, etc subsequently unearthed by the investigating agencies and handed over to the Custodian, the Hon'ble Special Court has passed the said order in respect of registration. However, this cannot be treated as a certificate issued by the Custodian or the Hon'ble Special Court about the ownership over the said shares. In any case, in absence of distinctive numbers and proof of delivery of shares, it is not possible to show that said shares registered in the names of the said other entities of the Harshad Mehta Group are the same as the shares for which the said additions were made in the hands of the assessee. This issue has also been adjudicated against the assessee by my Learned Predecessor in the case of Harshad Mehta for AY 1992-93 in IT 59/95-96 dated 24.03.2010. The relevant portion of the said appellate order on this issue is reproduced as under :- "The appellant has also raised the issue that the Assessing Officer did not have the authority to decide the ownership of shares in view of the orders of the Hon'ble Special Court as mentioned by the appellant in his submissions. This submission is misplace. In this context, I find that the Hon'ble Special Court has from to time passed orders delivered on 17.07.1996 and 29.03.1996 in three petitions immediately after submission of the list by the appellant. In these orders, the Hon'ble Special Court has directed that wherever the appellant had failed to disclose the names of the owners, such shares may be registered in the name of 'The Custodian, Special Court'. As may be noted, the Hon'ble Special Court while giving this direction has not given any finding that the shares in Question do not belong to the appellant. Subsequently, the Custodian had the occasion to made an application dated 23.07.2003 made by the Custodian in paras 11 and 12 of the application, before the Hon'ble Special Court seeking directions/order for transfer of shares belonging to the Harshad Mehta Group of Entities in the name of the Custodian. While making this application, attention of the Special Court was invited to the fact that the Custodian had convened a meeting of the Harshad Mehta Group Entities on 18.01.2003 for ascertaining the names of the entities to whom the shares belong. This meeting did not take place and was again reconvened on 23.01.2003. In this respect, following particular observations were made by the Custodian. "Para 11- However, even after detailed discussions and enquiry, it could not be ascertained as to which particular notified entities the said shares belonged. The notified entities expressed their inability to identify the entities to who the said shares belong. Accordingly, the Harshad Mehta Group entities unanimously requested the Custodian to transfer the said

20 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. shares in the name of the notified entities and / or the Custodian in a manner deemed fit by the Custodian................ Para 12 - Thus, the Harshad Mehta Group entities have failed to disclose the names of the entities to whom the said shares belong and also to carry out the correlation exercise. Further, they have left the discretion to the Custodian to have the shares transferred in a manner deemed fit by him. In view of this, it is the most humble prayer of the Custodian that in the petitions/applications in which there is no order for automatic transfer since the Harshad Mehta Group entities have failed to disclosed the names of entities to whom the shares belong, this Hon'ble Court may pass orders for automatic transfer of the said shares in the name of the Custodian." On this application, vide order dated 12.11.2003, the Hon'ble Special Court had the occasion to order that the companies shall transfer the shares in the favour of the Custodian and importantly, the company shall also transfer to the Custodian any accruals on those shares. In similar vein, vide its order dated 08.04.3002, the Hon'ble Special Court had the occasion to pass similar orders in respect of benami shares. While passing this order, the Hon'ble Special Court had the occasion to observe that despite repeated reminders, the appellant did not name the entities in whose favour, and the benami shares were to be transferred. The Hon'ble Special Court in this order, had the occasion to direct that the shares are to be dematerialized into the Depository Account of the Custodian. As I find, the appellant has not been able to give the names of the owner of these shares despite being given several opportunities by the Custodian. ............................. 14.23 The assessee, in the present appellate proceedings, has also submitted that the Hon'ble ITAT in the cases of Topaz Holdings P Ltd (supra) & Pallavi Holdings P Ltd. (supra), has held that the AO cannot presume sale of shares on 31.03.1993 and therefore, had deleted the addition. Accordingly, it was contended that the action of the AO of presuming that the said shares were squared up on 31.03.1992 and thereby determining its profits to be of Rs 97.3 crores, should also be deleted. In the instant case, it is noticed that the said documents seized had notings of the scrip-wise position of the shares held by the assessee on various dates. The assessee in course of the assessment proceedings was specifically asked by the AO to furnish the necessary details including the ultimate fate of the said shares along with evidences of delivery, etc. In the show cause notice issued, the assessee was specifically informed that on failure to furnish the requisite information along with evidences, it will be presumed that the said shares have been carried forward and squared up on 31.03.1992. However, there was no compliance by the assessee. Even in the present appellate proceedings, the assessee has neither furnished the requisite details of the ultimate fate of the said shares nor the proof of delivery of shares with details of distinctive numbers. Therefore, the action of the AO of presuming that the said shares were sold on 31.03,1992, cannot be faulted. Further, this issue has also been adjudicated by my Ld predecessor in the case of Harshad Mehta for AY 1992-93 in order dated 24.03.2010 in IT. 59/95-96 and the said case laws relied upon by the assessee have been distinguished. The relevant portion of the order on this issue is reproduced as under:-

21 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd.

"11.3.1 The appellant has placed reliance on some decisions in support of his claim. Looking into these decisions in the context of the facts in the appellant's case, I find the appellant's reliance on the decisions misplaced. In the case ACIT and M/s. Triumph International Finance Ltd., the decision has been given in the context of buying and selling on behalf of others. As may be noted, in the appellant's case buying and selling has been done on appellant's own account and not on behalf of others. Accordingly, this decision relied upon by the appellant is on a completely different premise. In similar vein, the facts in the cases M/s. Topaz Holdings Pvt. Ltd. and M/s. Pallavi Holdings Pvt. Ltd, are also different. As distinct from the facts in these cases, in the appellant's case, the Assessing Officer has explored all possible avenues as enumerate by him in clause (e) on page 61 to ascertain the probability of the physical availability of the shares. As, already discussed, the conduct of the appellant and the facts brought on record in this respect clearly point to the fact that the shares were sold. As against this, in the two cases cited by the appellant the fate of the shares was still unknown and it is in these circumstances that the Hon'ble ITAT held that the Assessing Officer cannot nick and choose selectively on one or some of the possibilities out of many other available. On the issue of the basis of pricing of the shares, the appellant has relied on the decisions dated 28.1.2002 and 28.2.2002 in the cases M/s. Pallavi Holdings Pvt. Ltd. and M/s. Topaz Holdings Pvt. Ltd. as given by CIT(A). These decisions are not applicable to the appellant's case, since as already discussed, in the appellant's case, the Assessing Officer has gone by established accounting principles and taken the prevalent price as on 31.3.2002 clued into the fact that the appellant had continued to carry on his business even after the search on 28.2.1992. The appellant has a/so placed reliance on four other decisions which have been listed while discussing the appellant's submissions. The appellant has, however, not spelt out how these decisions advance his case. In any case, the appellant's case, as discussed, is unique and different being based on the facts and findings peculiar to it. Accordingly, it is clearly distinguishable and stand on a completely different footing on account of the unique facts and sheer scale and magnitude of the findings. 14.24 As regards the contention of the assessee that the necessary inspection of the seized documents was not allowed, the same has already been addressed in Paras 5.3 to 5.5 of this appellate order and rejected.” 19. The Ld. A.R. submitted before us that the addition made by the AO as well as its subsequent confirmation by Ld. CIT(A) even in the second round of litigation is factually and legally incorrect. The Ld. A.R. submitted that admittedly the some loose sheets were found and seized at the time of search action which showed rough notings and contained some references to

22 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. dates like 27.1.1992, 12.02.1992, 18.02.1992 & 27.02.1992, however, no other evidence was found during the course of search which either confirms or corroborates any of these rough notings or the purchase of shares by the assessee. The Ld. A.R. submitted that the said rough sheets seized from the office of brokerage firm M/s. J.H. Mehta can not be accepted to be outstanding shares position of the assessee and thus it can not be presumed that shares were purchased by the assessee and assessee was holding these shares of various companies. The Ld. A.R. submitted that such sheets were regularly prepared by the brokerage firms before undertaking and accounting for the transactions and no presumptions can be made on the basis of such rough sheets as made by the AO. Since the broker, M/s. J.H. Mehta alongwith other family brokerage firms, were conducting the business operations from various locations like Bombay, Calcutta, Delhi and Madras etc. on all leading stock exchanges and from several offices in Bombay itself, such multiple locations were likely to create gaps in the flow of information relating to transactions undertaken or required to be undertaken in the market by the broker at the relevant point of time and their subsequent allocation amongst its several clients. In order to properly collate the information pertaining to the transactions, such 'Daily Position' rough sheets were prepared by the staff of the broker M/s J H Mehta to keep notings of the transactions as undertaken or required to be undertaken by the broker daily. This is evident from the fact that the sheet shows the notings which are unsystematic in nature, written in a very rough and haphazard manner and also does not bear any reference to the figures written nor signed by

23 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. any employee or the broker. The ld AR admitted that the noting 'Cascade' ' is also written without any correlation to any figure and that it cannot be deciphered whether the figures written across the said noting 'Cascade' are relevant or the figures written below. Moreover, the statement of position as on 24.01.1992 in the name of 'Cascade" also does not bear any reference to the Contract Notes and the details reflected in the column 'Contract No.' consists of dummy nos. [Ref, last Column of seized page enclosed at Page 21-35 of PB]. This proves that the notings are rough notings and jottings before the issue of Contract Notes in favour of actual clients and the same cannot be considered to be final, authenticated and reliable record of any actual and concluded transactions of purchase and sale of shares. Such notings on the sheets cannot be considered to be actual and final position in shares and further that the same is of the appellant. It is submitted that the brokerage firms, including M/s. J. H Mehta, follow a practice of issuing, the Contract Notes only after ascertaining all the facts of the orders and execution of transactions based on the final and correct transactions carried out for various clients at numerous Stock Exchanges. It is submitted that the said "modus operandi" followed by M/s J.H Mehta was also explained much prior to the date of search on 28,02.1992 in the present case. The ld AR invited the attention of the bench to the letter dated 21.01.1991 [Enclosed with letter dated 07.09.2020 filed before Your Honour which was filed before the DDIT (Inv.) pursuant to the earlier search carried carried out on 27.09.1990. In the said letter, Mr Harshad Mehta had explained the source of payments made for various investments made by this family members and corporate

24 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. entities, including the appellant. In the said letter, Mr. Harshad Mehta, as well as the other brokers of the family had explained the manner in which the transactions carried out by them for the clients were recorded in the loose sheets. It was duly explained that the notings on such loose sheets cannot be considered to be final unless reconciliation and authentication is carried out regarding them. The said crucial letter therefore proves that the daily position sheets found at the time of search from the premises of M/s. J H. Mehta cannot be considered to be correct and reliable account of the transactions much less it can be concluded to be pertaining to the appellant for the purpose of determining income of the appellant.

19.1. The ld AR argues that perusal of the seized pages shows that they are dumb documents reflecting rough jottings and notings of certain transactions undertaken by the broker. The perusal of the said sheets itself shows that they are not the details of actual transactions but mere rough jottings made on the sheets which are dumb documents - not reflecting any undisclosed income of the appellant. The ld. AR states that the sheets containing 'Daily Position' are found only in respect of 4 dates. If such sheets were regularly maintained, there would have been similar such other sheets for all the days, more particularly since the search in the present case was carried out on 28.02.1992 and the sheets are pertaining to the period up to 27.02.1992. Moreover, in such scenario, the sheets would have been marked final or signed by the concerned employees as mark of an internal check. No such markings or signatures are found on such sheets. Under these circumstances, if the sheets

25 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. were being regularly maintained and were supposed to reflect the correct and final position of the holdings of the appellant, sheets for each day would have been found and seized and would have been authenticated and signed by someone in the organization. The ld AR submitted that the AO has given substantial importance to the dates mentioned on each sheet. It is submitted that several such sheets found does not mention any date and time on the sheet. This proves that the sheets were used only for making rough jottings of the transactions either executed or to be executed by the broker, M/s. J H. Mehta in the shares of various companies on behalf of its several clients. The ld AR further referring to said sheets the remarks column states that on the said sheet reflects notings like 'Pending', 'N.T,', 'Check', etc. which proves that several entries recorded on the sheet could be mere orders which were not complete and were subject to checking hence not correct or reliable. In fact, in some of the sheets, the remarks column also reflects '?', 'Check', etc., which conclusively establishes that the notings in respect of these rows were either not known or had to be rechecked and the sheet represented only rough and unverified record subject to checking and re-checking. The ld AR therefore submits that the said sheets cannot be considered to reflect actual transactions and hence should be regarded as a dumb document consisting of rough notings and jottings about trading transactions carried out or yet to be carried out by the broker, M/s. J H. Mehta. Such sheets containing rough notings cannot be considered for the purpose of making additions without any corroborative evidences found as a result of search. The ld AR submits that no cognizance can be taken in respect of the

26 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. notings on such documents not reflecting true, correct and final position of the transactions undertaken by the brokerage firm of M/s j H Mehta much less they can be used to make numerous presumptions as made by AO to fasten any liability to pay tax on the appellant. The AR of the assessee submits that in order to make any addition on the basis of the notings reflected in such sheets, it is imperative on part of the AO to bring some corroborative evidences found as a result of search, which can substantiate the notings on the said sheets establishing concluded transactions undertaken by the appellant.

19.2 The ld AR submits that during the course of the assessment proceedings, the assessee had strongly denied the correctness of the sheets and the notings therein. In fact to corroborate the same, the assessee also filed the copies of the Ledger account of the broker, M/s J H Mehta, the Contract Notes pertaining to its actual transactions fully disclosing the particulars of the names of the clients for whom the transactions were undertaken by M/s J H Mehta, as well as the affidavit of the broker M/s J H Mehta denying the correctness of such notings on the sheets. The ld AR submits that once the assessee denies the correctness of the notings on the rough sheets and adduces sufficient evidences to prove the same, it becomes the duty of the AO to corroborate his claim with the help of concrete evidences found as a result of search to prove that alleged transactions reflected on the seized pages were actually undertaken by the assessee. Your Honour would notice that based on such seized pages, the AO has worked out an income of almost Rs.100 crores earned by the appellant in a period of just 2 months and that too without knowing as to the where of

27 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. the said income lying in the form of cash and the details of the counterparties with whom the ld. AR transactions are carried out. The ld AR submits that the business of stock broking is highly regulated both under the Securities Contract Regulation Act of 1956 as also by Rules, Regulations and Bye laws framed by the Bombay Stock Exchange of Bombay in 1957. The transactions undertaken on the floor of the Bombay Stock Exchange had to be reported to the Stock Exchange on a daily basis and settlement for these transactions was to be made by cheque only. Therefore it was not possible to undertake any transactions in cash or outside the books of account or settle them in any other manner except payment by cheques. Ld AR submits that the alleged profit is claimed to have been earned outside the books of account at a time when a massive raid was conducted by the department from 28.02.1992. This is more so when the income so determined by the AO is pertaining to the period February, 1992 to March, 1992 and the search was carried out on 28.02.1992.

19.3. The ld AR further contends that in spite of the seized material containing crucial transactions allegedly carried out by M/s J H Mehta, no statement was recorded thereon of any of the employees or officials either through the officers / employees of M/s J H Mehta at the time of search or by the AO causing any enquiries during the course of assessment proceedings and therefore the facts have not been ascertained. Even no declaration was sought by the Department from M/s J H Mehta or the assessee in respect of the income arising from the alleged transactions. This itself proves that the notings on these pages do not reflect the actual transactions earned out by M/s J H

28 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. Mehta for the appellant and the same are merely rough jottings and notings made by the staff of the broker M/s J H Mehta. In fact, looking at the size of the appellant company with the share capital of just Rs.200, it cannot be said that the appellant company was capable of earning income of such magnitude. The presumption of sale of such huge quantity of shares on one day is also not tenable as it is easy to examine and ascertain the transactions of M/s J. H Mehta undertaken on 31.03.1992 with the BSE.

19.4. As regards the presumption made by the AO of sale of all the positions on 31.03.1992, the AR relied upon the decision of Tribunal dated 24.08.2005 in the case of related companies Topaz Holdings Pvt. Ltd. v. ACIT [ITA No. 2828/Mum/2001] wherein, vide its order dated 24.08.2005, it was held that income cannot be determined by presuming sale of shares when no evidences have been found to establish that the shares were sold by the appellant. This proves that the Assessing Officer was not justified in presuming the squaring up of positions as on 31.03.1992, merely to determining the income for the year under appeal. The ld. AR submits that if any transactions were never intended to be brought into the books of accounts, there is no reasons why the broker, being an associate entity, would have used the name of the assessee for such unaccounted transactions outside the books of account since these could have been carried out by the broker without giving any name of the party. In light of the above, the ld AR prays that no addition can be made on the basis of such loose seized sheets, which are in the nature of dumb documents without any corroborative evidence found as a result of search. The settled

29 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. legal position in this regard, as held by the various courts, also establishes that such loose sheets without any corroborative evidence can at the most be regarded as a dumb document and no addition can be made on the basis of the same. In this regard, reliance is placed upon following decisions; a. N. K. Malhan v. DCIT [91 TTJ 938 (Del Trib)] [Page 199- 208 of PB No. 3] b. Atul Kumar Jain v. DCIT [64 TTJ 786 (Del Trib)] [Page 209-220 of PB No. 3] c. DCIT v. C. Krishna Yadav [12 taxmann.com 4 (Hyd) [Page 221-225 of PB No.3] d. Neeraj Goel v. ACIT [1TA no. 5952- 5956/Del/2017] dated 28.02.2019 [Page 226-235 of PB No.3] e. Suresh Virji Thakkar v. DCIT [ITA No. 5819- 5820/Mum/2017 & 109/Mum/2016] dated 01.10.2018 [Page 236-243 of PB No. 3] f. ACIT v. Sharad Chaudhary [55 taxmann.com 234 (Del Trib)] [Page 244-253 of PB No. 3] g. Shreeji Transport Services P. Ltd. v. DCIT [ITA No. 1353/Mum/2014] [Page 254-283 of PB No. 3] 19.5. The ld. AR submits that the assessment proceedings were concluded after making detailed inquiry in respect of the transactions carried out by the assessee. In this regard the ld AR refers to the letter dated 14.12.1994 issued by the AO a copy of which is filed at page 45-46 of PB wherein he has noted that certain enquiries were carried out by him with certain brokers to ascertain the details of purchases made by the assessee during the year. The Annexure to the said letter also reflects the details of the brokers, shares purchased, quantity and rate at which the shares were purchased by the assessee etc. Similarly, vide letter

30 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. dated 25,01,1995 copy of which is filed at Page no. 47-54 of PB, the appellant was also informed that enquiries were conducted by the AC, with other brokers pertaining to the share transactions of the assessee. The details of the share transactions are also reflected in the said notice issued to the appellant. The Annexure attached to the said notice gives complete details of the transactions carried out by the appellant in the shares of several companies through various brokers. The extensive enquiries conducted by the AO clearly prove that all efforts were made by him to ascertain complete details of purchase and sale of shares made by the appellant during the year. In spite of these extensive inquiries, no corroboration to the seized documents has been brought on record by the AO. It may be important to note that no addition has been made in respect of information obtained from the enquiries caused with the several brokers thereby establishing the fact that all the transactions pertaining to the assessee were correctly and properly recorded by the assessee and that none of the information reflected any unexplained investments in the hands of the appellant.

19.6. The ld AR further submits that the accounts of the assessee were duly audited which proves that all the transactions have been taken into account while finalising the accounts and getting them audited. All the transactions undertaken by the assessee on its own account have been duly recorded in the audited books and the profit has been determined therefrom. The appellant refers to and relies upon the following ledger accounts which reflect and record all the transactions undertaken by the appellant:

31 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. a. Trading A/c. reflecting the profit earned on various transactions carried out during the year filed Page 70-72 of PB b. Investment in shares A/c. recording all investments made by the appellant filed at Page 73-76 of PB. c. M/s. J H. Mehta A/c. in the books of the appellant recording purchases made by the appellant through her filed at Page 77-78 of PB. d. Account of the appellant and some of the other clients in the books of M/s. J H. Mehta filed at Page 79-84 of PB. 19.7. The ld AR submits that no doubt has been raised with respect to the transactions reflected in the books of the account. The appellant also refers to the affidavit issued by Smt. Jyoti H. Mehta filed at Page 85-93 of PB, wherein she has confirmed that the notings made on the various daily position sheets, as well as the statement showing position as on 24.01.1992 in the name of the assessee cannot be considered to be final and conclusive. She has confirmed that all the transactions which were made in the name of the assessee are supported by duly executed Contract Notes and that the same are duly accounted for by her in the books of accounts. In the said affidavit she has also denied any carryover or squaring up as indicated in the daily position sheets seized at the time of search. No adverse inference can be drawn in absence of any evidences being brought on record by the AO to disprove the facts stated in the said affidavit. Under these circumstances, the ld AR submits that the addition made on account of speculative profits amounting to Rs.1,92,05,630 and Rs.97,29,79,373/- are unjustified and incorrect and may kindly be deleted.

32 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. J.H. Mehta. The said papers contain the outstanding share position and have the assessee’s name mentioned in front of various scrips. The Ld. D.R. submits that the assessee has been given various opportunities to explain the said entries, however, assessee, despite several opportunities, fails to furnish any evidences to negate the notings in the said documents. The Ld. D.R. submits that since the additions were made on the basis of incriminating documents seized during the course of search and there was no way than to presume that assessee might have squared off these position at the year end. The Ld. D.R., therefore, prayed before the Bench that the order of Ld. CIT(A) may kindly be confirmed.

33 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. calculated the profit which aggregated to Rs.97,29,79,373/- details whereof has been given hereinabove. The assessee’s main contention is that apart from these daily position sheets which contained the rough notings and entries, no incriminating evidences have been found during the course of search which confirmed or corroborated the purchase and sale of shares by the assessee. Moreover, these sheets were recovered from the office of share brokerage firm M/s. J.H. Mehta and can not be taken as outstanding position of holding of the assessee of various scrips and shares. We note that the brokerage firm M/s. J.H. Mehta along with others connected brokerage entities were conducting various operations from various locations like Bombay, Kolkata, Delhi and Madras on all stock exchanges and also operating from several offices, in such a scenario the loose sheets which contained the rough notings as to the some shares against the name of the assessee can not be held to be the outstanding position of the shares in the hands of the assessee when there is no corroborating or substantive evidences brought on record by the AO despite having enquired from various brokers about the transactions of the assessee. We have examined the sheets and found that in some cases the name of the assessee appeared without any correlation to the figure. We find that these sheets are not signed by any employee of the brokerage firm and therefore in absence of any corroborative evidences, the addition made on the basis of these sheets can not be sustained. These are dumb documents consisting of rough notings about the trading transactions carried out or to be carried out by the broker. We also find merit in the arguments of the Ld. A.R. that search was conducted on the

34 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. assessee which is part of Harshad Mehta Group on 28.02.1992 and how it could be possible that the assessee has sold the shares between February 1992 and March 1992 of such magnitude. We also note that despite seized material containing transactions carried out by share brokerage firm M/s. J.H. Mehta, no statement was recorded of any employee or official of M/s. J.H. Mehta at the time of search or during the course of assessment proceedings and therefore the AO has not taken any steps to bring on record any material to corroborate the rough bottings on these sheets and merely proceeded on the basis of surmises and conjuncture. The case of the assessee is also squarely covered by the decision of a related company in the case of Topaz Holding Company Pvt. Ltd. vs. DCIT in ITA No.2828/M/2001 A.Y. 1992-93 and DCIT vs. M/s. Pallavi Holdings Pvt. Ltd. in ITA No.1912/M/2000 wherein the co- ordinate bench of the Tribunal had held that income can not be determined by presuming the sale of shares without no evidences have been found to establish that shares were sold by the appellant. The DR could not bring any decision to the contrary. In view of the above facts and circumstances and the ratio laid down in the two decisions of the co-ordinate bench of the Tribunal, we are not in agreement with the conclusion drawn by the Ld. CIT(A) on this issue. Accordingly, we set aside the order of Ld. CIT(A) and direct the AO to delete the addition of Rs.1,92,05,630/- and Rs.97,29,79,373/- made on the basis of notings in the papers/ daily position sheets. The ground No.5 is allowed.

35 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. on account proportionate share pertaining to the assessee out of disclosure made by Shri Harshad S. Mehta of Rs.100 crores for the entire Harshad Mehta Group.

36 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. Ld. CIT(A) also held that in case the addition made on the basis of incriminating material is of lesser amount of Rs.33,60,000/- then the balance addition would survive.

37 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. 26. We have heard the rival submissions of both the parties and perused the material on record. The undisputed facts are that Shri Harshad Mehta made a composite disclosure of Rs.100 crores for the entire group consequent to search action. We note that the breakup of the said disclosure was not available before the AO and he proportionately calculated the amount relating to the assessee at Rs.33,60,000/-. Now we note that the co- ordinate bench of the Tribunal in the first round of litigation has admitted the books of accounts as an additional evidence and restored the matter back to the file of the Ld. CIT(A) to decide the issues on the basis of books of accounts. We find merit in the contentions and arguments of the Ld. A.R. that the disclosure was made at a stage when the complete books of accounts were not available and it was not possible for the group to determine its correct income from share trading profit, dividend and capital gain etc. and the disclosure was purely on estimation basis. But now since the books of accounts are before the Revenue Authorities and contains all the information qua the income of the assessee by way of profit on share trading, dividend and capital gain etc and the actual income of the assessee has been assessed by the Revenue Authorities based on the bank statements and other accounting records, therefore the income as offered by way of composite disclosure by Shri Harshad Mehta can not be added to the income of the assessee. The case of the assessee also is squarely covered by the decision of the co- ordinate bench of the Tribunal in the related concern case of M/s. Orion Travels Pvt. Ltd. vs. ACIT (supra) wherein identical issue has been decided in favour of the assessee. We, therefore, respectfully, following the decision of the co-ordinate bench of

38 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. the Tribunal, set aside the finding of the Ld. CIT(A) and direct the AO to delete the addition. The ground no. 6 is allowed.

39 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. preliminary expenses of Rs.14,400/-. The Ld. A.R. submits that most of these expenses are to be mandatorily incurred and have to be provided at the year end. The Ld. A.R. submitted that audit fee has to be provided at the year end. Similarly, the professional fee for the two chartered accountants and advocates have also to be provided who have provided their services during the year. Similarly, the assessee has provided a bonus and ex- gratia payment as the same was payable to the employees relating to F.Y. 1991-92. The Ld. A.R. submitted that the preliminary expenses to the extent not allowable during the year were added back to the income of the assessee in the computation of income itself suo motto. The Ld. A.R., therefore, prayed that considering all these facts the disallowance may kindly be deleted.

40 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. date of payment by the assessee before the due date of filing the return. Therefore, we are not in agreement with the conclusion drawn by the Ld. CIT(A) that disallowance of Rs.1,67,014/- is not allowable. In our considered view, the expenses incurred by the assessee on account of staff welfare expenses of Rs.24,116/, audit fee of Rs.30,000/-, professional fee of Rs.35,000/- and preliminary expenses as claimed by the assessee are allowable expenses and AO is directed to allow the same. The remaining expenses in respect of bonus and ex-gratia need verification at the level of the AO and accordingly restored to the file of the AO with the direction verify the date of payment of bonus and ex- gratia payment and in case they are paid before due date of filing the return, needless to say that same are to be allowed. Otherwise the same may be allowed on payment basis in the subsequent years. The ground is partly allowed for statistical purposes.

41 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. by holding that provisions of section 94(4) of the Act are applicable to the assessee as assessee is engaged in the business of trading and money market and shares and therefore the assessee could not be treated as investment company. It was also held that even if the assessee has assumed to be an investment company, it will be entitled to short term capital loss of Rs.39,346/- which is the difference between the loss resulting from sale of 9% of IRFC bonds and amount of interest received on such bonds.

42 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. the Act the relevant income is brought to tax in the hands of counter party. In other words unless the interest income arising from securities deemed to be income of the owner, transferring the security to the appellant in terms of section 94(1) of the Act ,loss can not be disallowed in the hands of the appellant. In defence of his argument, the Ld. A.R. relied on the decision of the co-ordinate bench of the Tribunal in the case of related entity M/s. Growmore Leasing and Investment Ltd. vs. DCIT ITA No.2192/M/2015 A.Y. 1992-93 wherein the Hon’ble Tribunal vide its order dated 17.11.2017 has held that disallowance can not be made unless the effect of provisions of section 94(4) of the Act is given in the hands of Shri Harshad Mehta for A.Y. 1992- 93. The Ld. A.R., therefore, prayed that since no disallowance has been made in the case of Harshad S. Mehta, hence the pre- requisites of section 94(4) has not been satisfied and therefore prayed that disallowance made by the AO may kindly be deleted by setting aside the order of Ld. CIT(A).

43 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. Rs.48,93,466/-. The primary contentions of the Ld. A.R. of the assessee is that the provisions of section 94(4) of the Act can not be invoked unless and until the relevant income is brought to tax in the hands of the counter party under section 94(4) of the Act meaning thereby that unless the interest arising and accruing from the security is deemed to be the income of the owner who is Shri Harshad S. Mehta in the present case who transferred the securities to the assessee in terms of section 94(1) of the Act, the loss can not be disallowed in the hands of the assessee. We find that the issue is squarely covered by the decision of co-ordinate bench of the Tribunal in the case of related entities M/s. Growmore Leasing & Investment Ltd. (supra) wherein the co-ordinate bench of the Tribunal has decided the issue in favour of the assessee by holding as under: “6. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that that the assessee purchased 9% tax free IRFC bonds for the value of Rs. 50 crores from Harshad S Mehta for a total consideration of Rs.50,31,95,205/- on 26-09-1991 and sells the same within a short period of 15 days on 11-10-1991 for a total consideration of Rs. 47,87,32,877/-. In this process the assessee claimed loss of Rs. 2,44,62,328/- and also received tax free interest from these IRFC bonds at Rs. 1,84,50,000/-. Whether in such circumstances, in view of the provisions of section of 94(1) & (4) of the Act, the loss claimed by the assessee is to be disallowed. We have gone through the provision of section and the same reads as under:- 94. Avoidance of tax by certain transactions in securities,- (1) Where the owner of any securities (in this sub- section and in subsection (2) referred to as" the owner") sells or transfers those securities, and buys back or reacquires the securities, then, if the result of the transaction is that any interest becoming payable in respect of the securities is receivable otherwise than by the owner, the interest payable as aforesaid shall, whether it would or would not have been chargeable to income- tax apart from the provisions of this sub- section, be deemed, for all the purposes of this Act, to be the income of the owner and not to be the income of any other person. Explanation.- The references in this subsection to buying back or reacquiring the securities shall be deemed to include references to buying or acquiring similar securities, so however, that where similar securities are bought or

44 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. acquired, the owner shall be under no greater liability to income- tax than he would have been under if the original securities had been bought back or reacquired. (2) ----------------------------------- (3) ----------------------------------- (4) Where any person carrying on a business which consists wholly or partly in dealing in securities, buys or acquires any securities and sells back or retransfers the securities, then, if the result of the transaction is that interest becoming payable in respect of the securities is receivable by him but is not deemed to be his income by reason of the provisions contained in sub- section (1), no account shall be taken of the transaction in computing for any of the purposes of this Act the profits arising from or loss sustained in the business. (5)------------------------------------------- 7. From the above provision, it is clear that where the honour of any securities sales or transfers those securities and buys back or reacquire the securities, then, if the result of the transaction is that any interest becoming payable in respect of securities is receivable otherwise then by the owner, the interest payable thereof shall be deemed to be the income of the owner for the purposes of chargeable to income tax under this Act. It means that, in the present case before us, the IRFC bonds was owned by Harshad S Mehta and assessee purchase the same for a total consideration of Rs.50,31,95,205/- on 26-09-1991 and sells the same back to Harshad S Mehta within a short period of 15 days on 11-10-1991 for a total consideration of Rs. 47,87,32,877/-. In this process the assessee claimed loss of Rs. 2,44,62,328/- and also received tax free interest from these IRFC bonds at Rs. 1,84,50,000/-. By virtue of sub section (1) of section 94 of the Act, this interest will be income of Harshad S Mehta and not of the assessee. Similarly, in respect to loss sustained on account of this transaction has been clarified by sub section of section 94 of the Act, which states that any person carrying on a business consists wholly or partly in dealing in securities, buys or acquires any securities and sell back or re- transfer the securities then, if the result of the transaction is that, interest become payable in respect of securities is receivable by him but is not deemed to be his income in view of the provisions of sub section (1). Further, no account shall be taken of the transaction in computing for any of the purposes of this act, the profit arises from or loss sustained in the business. 7. We are of the view that the provisions of section 94(4) can be invoked only in case the provision of section 94(1) was applicable to the counter party. The loss on sale of securities can be disallowed only if the assessee in the course of business, bought and sold any securities and as a result of the transaction, interest was receivable by him which was not deemed to be his income by reason of Sec. 94(1) of the Act. The provisions of Sec. 94(4) would come into operation only if:- (i) Where any person is carrying on a business which consists wholly or partly in dealing in securities; (ii) Buys or acquires any securities and sells back or retransfers the securities;

45 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. (iii) The result of the transaction is that interest becoming payable in respect of the securities is receivable by him; and (iv) Such interest is not deemed to be his income by reason of the provisions contained in sub-section (1) According to us, it is a pre-requisite that the provisions of Sec.94(1) of the Act ought to be applied in the case of the actual owner of the securities from whom the same were bought by the assessee. However, the AO had failed to examine as to whether the provisions of Sec.94(1) of the Act had been applied in the case of the party from whom the shares in question were purchased and to whom the same were sold by the assessee. The bonds in question were purchased and re-sold to Harshad S. Mehta, but the provisions of Sec.94(1) of the Act had not been invoked in the said case, and, therefore, the provisions of Sec.94(4) of the Act could not be invoked in the case of the assessee. Going by the intent, we are of the view that the provisions of Sec.94(4) of the Act had been introduced with a view to levy tax on the interest income, which was being sought to be avoided by certain persons by carrying on transactions in shares and securities. The intention of the Legislature was to tax the interest income in the right hands, which had been avoided by transferring the shares and then repurchasing the some after the interest was received by the other persons. Therefore, it was necessary for the AO to prove that the assessee had attempted to avoid payment of tax. Since the interest income on 9% IREC Bonds was exempt from tax, there was no question of the assessee or Harshad S. Mehta adopting any such methods to avoid tax on the income. Further, we are of the view that the provisions of Sec.94(4) of the Act would apply only in cases where the assessee had carried on the transactions of purchase and sale of securities during the course of business and since the purchase and sale of the bonds in question was not a business activity, the provisions of Sec.94(4) of the Act was not applicable to the transaction. Accordingly, We direct the AO to allow the claim of set off of loss of Rs.2,44,62,328/- suffered from 9% IRFC Bonds, against profit from sale of shares.” 39. We, therefore, respectfully following the decision of the co- ordinate bench of the Tribunal set aside the order of Ld. CIT(A) and direct the AO to allow the set off of loss of Rs.48,93,466/- to the assessee as suffered by it from 9% of IRFC bonds against the profit on sale of shares. The ground no. 8 is allowed.

46 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. under section 234A, 234B & 234C is inevitable and is leviable in any case but same needs to be recomputed by the AO in terms of the decision of the co-ordinate bench of the Tribunal in the case of related entities M/s. Growmore Research and Assets Management Ltd. ITA No.1807 & 2192/M/2015 A.Y. 1992-93. The operative part whereof is reproduced as under: “24. At the outset, the learned Counsel for the assessee stated that the identical issue has been dealt with by the Tribunal in assessee’s own group cases, in the case of Harshad S Mehta vs. ACIT in ITA No. 3271/Mum/2015 for AY 2009-10 vide order dated 20.03.2017, wherein Tribunal has considered the issue and remanded the matter back to the file of the AO to recompute the interest under section 234A, 234B, 234C and also under section 220 of the Act by observing as under: - 4. After hearing both the parties and on perusal of the record including the orders of authorities below and case law relied upon by the ld.AR, we find that the issue in hand has been decided by the Coordinate Bench of the Tribunal vide para 6 and 6.1 in favour of the assessee. For the sake of convenience, we reproduce the above referred paras as under : “6. The only other issue in this appeal is with regard to the chargeability of interest under section 234A, 234B & 234C of the Act. On this aspect, pleas of the assessee are two fold. First, the plea is to the effect that the provisions of section 234A, 234B and 234C are not applicable to notified entity. This aspect of the matter is required to be held against the assessee following the judgment of the Hon’ble Bombay High Court in the case of Divine Holdings Pvt. Ltd( ITA No.3334 of 2010 dated 7/3/2012), as decided by our Co-ordinate Bench in the case Eminent Holdings Pvt. Ltd. in ITA NO.2139/Mum/2013 dated 18/6/2014, which also was a case of notified entity under the Special Court (Trial of Offences relating to transactions in Securities) Act, 1992. At the time of hearing this aspect of the matter was fairly conceded by the Ld. Representative of the assessee. 6.1 The second plea of the assessee is with regard to the quantum of interest chargeable under section 234A, 234B & 234C of the Act which is to the effect that the interest should be charged after considering the amount of tax deductible at source on the income assessed. Similar plea of the assessee was upheld by our Co-ordinate Bench in the case of Eminent Holdings Pvt. Ltd. (supra). Following the same, we deem it fit and proper to restore the matter back to the file of AO who shall recompute the interest chargeable under section 234A, 234B & 234C of the Act after considering the amount of tax deductible at source on the income assessed. Needless to mention, the AO shall allow the assessee a reasonable opportunity of being heard and thereafter, recompute the interest

47 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. chargeable under section 234A, 234B & 234C of the Act, as per law. Thus, on this aspect, the assessee partly succeeds.” 5. Respectfully following the decision of the Co-ordinate Bench of the Tribunal in assessee’s own case, we restore the issue to the file of the AO with a direction to recompute the interest u/s 234A, 234B and 234C after taking into account the tax deductible on total income of the assessee by affording fair and reasonable opportunity of being heard to the assessee.” 25. In view of the above, we direct the AO to recompute the interest under section 234A, 234B, 234C and 220 of the Act as held by Tribunal in the case of Harshad S Mehta (supra). This issue of assessee’s appeal is allowed for statistical purposes.” 42. Since the facts of the instant issue before us is identical vis-à-vis the coordinate bench decision supra, we accordingly, direct the AO to recompute the interest in terms of the above decision after taking into account the amount of tax deductible at source on the assessed income. Ground is allowed for statistical purposes.

48 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. business of the assessee. The ld AR submits that, therefore, the depreciation on these assets may kindly be allowed. The assessee has also filed a working of depreciation at page No.55 & 56 of the paper book and submits that Rs.4,72,678/- may kindly be allowed against the business income of the assessee.

Sd/- Sd/- (Amarjit Singh) (Rajesh Kumar) JUDICIAL MEMBER ACCOUNTANT MEMBER

49 ITA No.1414/M/2019 M/s. Cascade Holdings Pvt. Ltd. Mumbai, Dated: 09.04.2021. * Kishore, Sr. P.S. Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench //True Copy// [ By Order

Dy/Asstt. Registrar, ITAT, Mumbai.