AADINATH SECURITIES PVT LTD,MUMBAI vs. ITO WARD 4(1)(3), MUMBAI

Therefore the AO reopened the assessment under section 147 of the Income Tax Act, 1961 (the Act) for the reason of non-disclosure / non-reporting of the impugned transaction and that the income chargeable to tax has escaped assessment. The AO issued a notice under section 148 of the Act in this regard to the assessee. The assessee filed its response stating that the impugned transaction has already been declared by the assessee as part of its income from derivative transactions and submitted relevant documents in this regard. The assessee further submitted before the AO that there is no concealment of income on the part of the assessee with regard to the impugned transaction and therefore, there cannot be any addition towards the same. The AO however did not accept the submissions of the assessee and made the addition under section 68 of the Act treating the impugned transaction of Rs. 1,45,000/- as fictitious and made addition under section 68 of the Act. On further appeal the CIT(A) confirmed the addition made by the AO. The assessee is in appeal before the Tribunal against the order of the CIT(A).

The ld. Departmental Representative (DR) on the other hand submitted that the re-opening is done by the AO with a reason that the assessee has entered into fictitious transactions and therefore, the same cannot be held as invalid. Accordingly, the ld. DR purported the order of the lower authorities.

We have heard the parties and perused the material available on record. We will first look at the reason for re-opening the assessee's case as extracted below:

On account of non-disclosure/ non-reporting of the transactions entered by the assessee company, the total income of the assessee company for the financial year 2014-15 relevant to A.Y.2015-16 has escaped assessment as per provisions of Section 147 of the I.T. Act and thus it has led to the escapement of income to such extent”

From the perusal of the above, it is clear that the reasons as recorded by the AO for reopening the assessment is that certain income has escaped assessment. The argument of the assessee is that the above stated transaction has already been included as part of the income offered to tax by the assessee and therefore, there is no non-disclosure / non-reporting as has been stated in the reasons recorded. In order to substantiate the claim that the assessee has included the above transaction in the income declared our attention was drawn to various documents as extracted below: Schedule to Profit & Loss A/c Purchases 6,78,47,108.18 1,01,03,276.01 Derivative Losses in Shares 17,60,575.61** -------------------------------------------------- 6,96,07,683.79 1,01,03,276.01 ** SN Name of Broker Nature Amount 1 Wellworth Stock & Broking Derivative Gain 91,72,545 Ltd 2 Aadinath Securities Derivative Loss (1,14,45,861) Intraday Gain 5,12,741 Trading Loss in Shares & Total Commodities (17,60,575)

After a combined perusal of the above documentary evidences we see merit in the contention of the ld AR that the reason for reopening being the assessee has un-disclosed income towards the impugned transaction is factually incorrect. We notice that the Co-ordinate Bench in assessee's own case for AY 2014-15 has considered a similar issue on identical facts and held that “7. From the above details, it can be seen that the derivative gain of ₹.1,27,27,019/- from M/s. Latin Manharlal Securities Pvt., Ltd., is duly recorded in the financial statements returned for the year under consideration. Therefore, the very basis for the reopening of the assessment is found to be factually incorrect. A close perusal of the notice and the observations of the Assessing Officer show that the entire proceedings revolve around the fact that the alleged parties have claimed losses and accordingly evaded taxes. Whereas the facts discussed hereinabove show that the assessee has earned derivative gains of ₹.1,27,27,019/- from M/s. Latin Manharlal Securities Pvt., Ltd. Therefore, the entire observations / basis of the assessment is factually incorrect. Since the assessment has been reopened on the wrong facts the impugned assessment order deserves to be quashed. 8. As mentioned elsewhere, the assessee has included the profit of ₹.1,27,27,019/- in its profit and loss account for the year under consideration, however, while concluding the assessment order the Assessing Officer has again made addition of ₹.1,27,52,200/- by holding as “It is held that the assessee has routed back its own undisclosed money in the guise of profit from alleged share transaction and the same is added to the income of the assessee under section 68 of the Income-tax Act.”

Considering the facts of the case in totality from all possible angles be it factual or legal, we do not find merit in the impugned assessment. The Ld. CIT(A) grossly erred in confirming the same and therefore the orders of the authorities below deserve to be set-aside. The Assessing Officer is directed to delete the impugned addition”

The coordinate bench has deleted the addition for the reason that the very basis for the reopening of the assessment is found to be factually incorrect since the assessee has already disclosed the impugned transaction in its statement of income. This fact is identical to the year under consideration also as can be seen from the documents extracted herein above i.e. Financial Statements, Breakup of derivative income / loss etc. The coordinate bench has also considered the issue the transaction being held as fictitious and deleted the addition on that count also. Therefore respectfully following the above decision we direct the AO to delete the addition made under section 68 of the Act.

In the result, appeal of the assessee is allowed. Order pronounced in the open court on 27-06-2024. Sd/- Sd/- (ANIKESH BANERJEE) (PADMAVATHY S) Judicial Member Accountant Member *SK, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT BY ORDER,