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Facts
The assessee, M/s. VNG Impex P. Ltd., filed a return declaring a loss for AY 2012-13. The Assessing Officer (AO) made additions to the income based on cash credits and disallowed a claimed capital loss on share trading.
Held
The Tribunal held that the AO had not considered the detailed submissions and evidence provided by the assessee and had made additions without proper inquiry. The AO's findings were also noted to be contradictory to those in a subsequent assessment year.
Key Issues
Whether the additions made by the AO under Section 68 for alleged unexplained cash credits were justified, and whether the disallowance of short-term capital loss on share trading was correct.
Sections Cited
143(2), 142(1), 44AB, 68, 133(6), 145, 43(5), 143(3)
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Income Tax Appellate Tribunal, DELHI BENCH ‘F’: NEW DELHI
(Assessment Year: 2012-13) ACIT, Circle 26 (2), vs. M/s. VNG Impex P. Ltd., SF – 02, 2nd Floor, New Delhi. Southern Park, Park No.D-2, District Centre, Saket, New Delhi – 110 017. (PAN : AABCV5822D) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri S. Krishnan, Advocate REVENUE BY : Ms. Monika Singh, CIT DR Date of Hearing : 08.07.2025 Date of Order : 06.10.2025 O R D E R
PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER :
This appeal is filed by the assessee against the order of the ld. Commissioner of Income-tax (Appeals)-13, New Delhi (for short ‘ld. CIT (A)’) for the Assessment Year 2012-13.
At the time of hearing, ld. DR of the Revenue brought to our notice brief facts of the case are, assessee filed its return of income declaring loss of Rs.23,37,52,920/- on 29.09.2012. The case was selected for scrutiny and notices under section 143(2) of the Income-tax Act, 1961 (for short ‘the Act’) were issued by the ITO Ward 17(1) and served upon the assessee. He submitted that thereafter the case was transferred to Ward 26(1) and notices u/s 143(2) and 142(1) along with questionnaire were issued and served upon the assessee and in response, ld. AR of the assessee attended and submitted relevant information as called for. He submitted that however, the AO observed that the assessee has not produced books of account and vouchers during the assessment proceedings and further observed that assessee also not filed any tax audit report u/s 44AB of the Act stating that assessee is not covered under the tax audit report during the year under consideration.
Ld. DR further submitted that the AO observed that assessee is engaged in the business of share trading and has declared its nature of business in the return under Code 0204, which relates to trading (others). During the assessment proceedings, the AO observed that assessee has received Rs.11,45,00,000/- from M/s. Naïve Construction in four different dates and also received Rs.9,80,00,000/- from M/s. Vigil Real Estate on four different dates. He submitted that after collecting the information from the assessee on the abovesaid transactions along with confirmations, the AO observed from the ledger account and bank statements submitted by the assessee that in both the cases, assessee has declared in its balance sheet as on 31.03.2012 the liabilities of these creditors more than the outstanding and as per the bank statement, the payments of Rs.5,05,00,000/- in the case of Naïve Construction and Rs.3,30,00,000/- in the case of Vigil Real Estate for which the actual payment was made only on 18.06.2012. Therefore, AO treated the abovesaid expenditure declaration of liability as undisclosed income u/s68 of the Act. Accordingly, AO made the abovesaid addition.
4. Ld. DR of the Revenue submitted that AO observed from the Profit & Loss account for the year 31.03.2012 that assessee has claimed loss on sale of investment amounting to Rs.23,37,52,919/- and observed that in the return of income, assessee claimed short term capital loss of Rs.23,37,52,919 and the break up given in the return of income as under:- (i) Full value of consideration Rs.30,18,87,030/- Less : (ii) Cost of acquisition Rs.53,56,39,950 Balance : (-) Rs.23,37,52,920/ 5. When the assessee was asked to explain the above claim by issue of notice dated 18.02.2015 to provide the details of loss, details of each script, specifying the name of the security, date of purchase, number of shares, amount of purchase etc. along with copy of broker note pertaining to each transaction separately. Ld. DR submitted that in response, assessee vide letter dated 23.02.2015 submitted that assessee has already submitted relevant information and details of loss on sale of investment in the letter dated 31.01.2015. The AO observed that assessee has submitted copy of contract notes and one sheet showing calculation of capital gain (loss), hence assessee did not submit details as called for in the abovesaid notice. Since assessee failed to substantiate the loss claimed with the relevant documents, the AO sought information by issue of notice u/s 133(6) of the Act from the share broker, M/s. Share India Securities Limited. The information received from the share broker vide letter dated 22.12.2014. From the above, the AO observed that assessee has done share trading through the brokers in the following scripts on various dates as under :- Name of Scrip Shree Ashtavina KemrockInd Ltd. Spicejet Ltd. MVL Anant Raj Indus Finotex Chemica
6. Ld. DR submitted that from the above submission, AO observed that considering the nature, volume and frequencies of the transaction, income of the assessee from share transactions would fall under the head business or profession and no under the head capital gains. Therefore, the assessee is not entitled to any capital loss and assessee has not provided any details script-wise as asked for the loss of Rs.23,37,52,919/- cannot be treated as business loss and AO observed that assessee also made some jobbing income of Rs.1,87,171.96 before, he added the same as income and he disallowed the difference.
Further ld. DR submitted that during assessment proceedings, AO observed from the banks statement of Indian Bank maintained with Greater Kailash Branch, New Delhi that assessee had received the following amounts in the bank account on various dates as under :-
S.No. Date of Transaction Amount (Rs.) 1 11.07.2011 6,16,00,806/- 2 04.10.2011 2,00,00,000/- 3 29.03.2012 2,00,00,000/- 4 29.03.2012 5,00,00,000/- 5 29.03.2012 3,50,00,000/- 6 29.03.2012 3,00,00,000/- 7 30.03.2012 4,00,00,000/- Total 25,66,00,806/-
Accordingly, assessee was asked to submit the relevant information about the above receipts and in response, assessee submitted the information vide letter dated 23.02.2015 in which it was submitted that Sl.No.7 is the amount received back from Civic Marketing Private Limited which was given by the assessee to Civic Marketing Private Limited on 16.07.2011. Further it was submitted that Sl.No.2 is amount of Rs.2 crores received from Birbal Advisory Private Limited and the assessee provided confirmation from Birbal Advisory Private Limited. He submitted that after considering the above submissions, the AO rejected the same with the observation that assessee had not filed any clarification with regard to other transactions, however he has accepted the Sl.No.7 explanation provided by the assessee. Accordingly, the difference amount of Rs.21,66,00806/- was added to the income of the assessee u/s 68 of the Act and the AO determined the total taxable income of the assessee at Rs.30,03,00,537/-.
Ld. DR submitted that Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A) and filed the detailed submissions before the ld. CIT (A)-13, New Delhi. For the sake of brevity, the relevant submissions on the merits of the case are reproduced below :- “3. In this ground, the appellant has challenged the additions of three amounts made by the ld. A.O. for the purpose of computing its income. The first amount is Rs.5,05,00,000/-, added to the income under section 68 regarding "cash credits". The amount pertains to the transactions of loan with M/s Naive Constructions Pvt. Ltd. On page 2 of the assessment order, two tables have drawn, out of which the first one pertains to the aforesaid Naive. According to the table, the appellant received total amount of Rs.11,45,00,000/- from this concern on four dates between 04.04.2011 and 27.06.2011. In this connection, the appellant was required to produce any agreement, confirmed ledger account and the purpose of receipt. In response, the appellant filed confirmed ledger account, income tax particulars, bank statement and note on the transactions. It was explained that,- (i) the amount received has been returned to the creditor, (ii) the entries are accounted for in the balance sheet of both companies, (iii) confirmed ledger account is enclosed, and (iv) copy of ITR-V and bank statement of the aforesaid Naive Construction is enclosed. The evidence produced before the ld. AO is placed in the paper book at page nos. 16 to 26. Thereafter without making any further enquiry from the appellant, the ld. A.O. mentioned that the balance sheet of the appellant shows that out of Rs.11,45,00,000/- a sum of Rs.5,05,00,000/- was paid on 18.06.2012, after closing the accounts on 31.03.2012. This amount was not appearing in the balance sheet drown on 31.03.2012. Therefore, a hypothetical conclusion was drawn that this amount represents unexplained cash credit. 3.1 The facts are that the appellant had drawn cheque no.325251 on 31.03.2012 on Indian Bank for a sum of Rs.5,05,00,000/- in favour of Naive Construction Pvt. Ltd. The cheque was handed over to the said Naive on this very date. This is evidenced by fact that Naive accounted for this cheque in its books on 31.03.2012. However, Naive presented the cheque to its bank for clearance on a much later date and this cheque was debited in our account by our bank on 18.06.2012. On perusal of our bank statement, it will be seen that the cheque number is the same as mentioned by the said Naive in its confirmed ledger account. Thus, there is no discrepancy in the explanation furnished by the appellant. Therefore, there is no question of the amount being unexplained cash credit. In fact, the amount is not even a credit in the books of the appellant. It is a debit in the appellant's books and therefore the provisions of section 68 are not applicable to the facts of the case. 3.2 Although it is not necessary to make legal arguments looking to the facts of the case, yet it is submitted that provisions of section 68 are applicable in a case where a sum is found credited in the books of an assessee in a previous year, and the assessee furnishes no explanation regarding nature and source of the credit or the explanation furnished by him is not satisfactory in the opinion of the A.O. Further, the cases decided under the provision hold that this provision casts prima facie onus on the assessee for satisfactorily proving- (i) identity of the creditor, (ii) capacity of the creditor, (ii) and the genuineness of the transaction. Once these matters are proved on a prima facie basis, the onus shifts to the A.O. to prove that the credit represents income of the assessee. We may quote an illustrative case here of CIT vs. Oasis Hospital Pvt. Ltd. (2011) 333 ITR 119 (Del) to support the conclusion (paragraphs 11, 12 and 13). Coming to the facts of our case, it is clear that the ld. A.O. was satisfied about four credit entries made in the books in the name of Naive Constructions Pvt. Ltd. Therefore, there was no question of adding any amount to the income of the appellant u/s 68. Without making any further enquiry from the appellant, he concluded that the amount of Rs.5,05,00,000/- was paid to this party on 31.03.2012 but the amount was accounted for in the books on 18.06.2012. It is submitted this conclusion is factually incorrect. The real facts have been stated earlier and the same are repeated here for the sake of completeness of the arguments in this paragraph. The facts are that a cheque was issued in favour of Naive Construction on 31.03.2012, on the basis of which both parties made entries in the books. The said Naive encashed the cheque at much later date and consequently this very cheque was debited by the bank account in the account of the appellant on 18.06.2012. Thus there is not discrepancy as alleged. Further, provisions of section 68 are not applicable. Accordingly, it is prayed that this addition may be deleted.
The second amount is Rs.3,30,00,000/- added to the income under section 68 regarding "cash credits". The facts are similar to the facts in the case of Naive Construction Pvt. Ltd. However, the facts stated here for sake of completeness of the submission. The amount pertains to the transaction of loans with M/s Vigil Real Estates Pvt. Ltd. On page 2 of the assessment order, two tables have been drawn, out of which the second one pertains to the aforesaid Vigil. According to the table, the appellant received total amount of Rs.9,80,00,000/- from this concern on four dates between 05.04.2011 to 27.06.2011. In this connection, the appellant was required to produce any agreement, confirmed ledger account and the purpose of receipt. In response, the appellant filed confirmed ledger account, income tax particulars, bank statement and Tote on the transactions. It was explained that the amount received has been returned, the entries are accounted for in the balance sheet of both companies, confirmed ledger account, copy of ITR-V and bank statement of the aforesaid Vigil Real Estates are enclosed. The evidence produced before the ld. AO is placed in the paper book at page nos. 27 to 36. There after without making any enquiry from the appellant, the ld. A.O. mentioned that the balance sheet of the appellant shows that out of Rs.9,80,00,000/- a sum of Rs.3,30,00,000/- was paid on 18.06.2012( this date is wrongly mentioned and the correct date should be taken as 05.07.2012), after closing the accounts on 31.03.2012. This amount is not appearing in the balance sheet drawn on 31.03.2012. Therefore, a hypothetical conclusion was drawn that this amount was treated as unexplained cash credit u/s 68. 4.1 The correct facts in relation to the impugned amount of Rs.3,30,00,000/- are that the appellant had drawn cheque no. 209022 on 31.03.2012 on Indian Bank for a sum of Rs.3,30,00,000/- in favour of the said Vigil Real Estates Pvt. Ltd. The cheque was handed over to the said Vigil on this very date. This is evidenced by the fact that Vigil accounted for this cheque in its books on 31.03.2012. However, Vigil presented this cheque to its bank for its clearance on a much later date and this cheque was debited in our account by our bank on 05.07.2012. On perusal of our bank statement, it will be seen that the cheque number is the same as mentioned by the said Vigil in its confirmed ledger account. Thus, there is no discrepancy in the explanation furnished by the appellant. Therefore, there is no question of the amount being unexplained cash credit. In fact, the amount is not a credit in the books of the appellant. It is a debit in the books and therefore the provisions of section 68 are not applicable to the facts of the case. 4.2 Although it is not necessary to make legal arguments looking to the facts of the case, yet it is submitted that provisions of section 68 are applicable in a case where a sum is found credited in the books of an assessee in a previous year, and the assessee furnishes no explanation regarding nature and source of the credit or the explanation furnished by him is not satisfactory in the opinion of the A.O. Further, the cases decided under the provision hold that the provision casts prima facie onus on the assessee for satisfactorily proving-(i) identity of the creditor, (i) capacity of the creditor, (iii) and the genuineness of the transaction. Once these ingredients are proved on a prima facie basis, the onus shifts to the A.0. to prove that the credit represents the income of the assessee. We may quote an illustration case of CIT VS, Oasis Hospitalities Pvt. Ltd, (40 55K 119 (Del) (paragraph nos. 11. 12 & 13) to support this conclusion. Coming to the facts of our case, it is clear that the ld. A.O. was satisfied about four credit entries made in the books in the name of Vigil Real Estates Pvt. Ltd. Therefore, there was no question of adding any amount to the income of the appellant u/s 68. Without making any further enquiry, he concluded that the amount of Rs.3,30,00,000/- was paid to this party on 31.03.2012 but the amount was accounted for in the books on 05.07.2012. It is submitted this conclusion is factually incorrect. The real facts have been stated earlier and the same are repeated here for the sake of completeness of the arguments in this paragraph. The facts are that a cheque was issued in favour of Vigil Real Estate on 31.03.2012, on the basis of which both parties made entries in the books. The said Vigil encashed the cheque at much later date and consequently this very cheque was debited by the bank account in the account of the appellant on 05.07.2012. Thus, there is no discrepancy as alleged. In any case, provisions of section 68 are not applicable. Accordingly, it is prayed that this addition may also be deleted.
The third amount is Rs.21,66,00,806/-. In this connection, it has been mentioned that the appellant received a total sum of Rs.25,66,00,806/- on seven dates between 11.07.2011 to 30.03.2012 (pages no 49-50). The details of these receipts have been tabulated by the ld. A.O. on page 5 of the assessment order. As in the case of Naive and Vigil, the appellant was required to file any copy of agreement and explain why this amount should not be added to the income. The appellant submitted its written explanation in letter dated 23.02.2015. After considering the explanation, the ld. A.O. accepted the credit of Rs.4.00 crore appearing in the books on 30.03.2012 in respect of Civic Marketing Pvt. Ltd. as genuine pages no (45-50). The balance amount of Rs.21,66,00,806/- was added to the total income u/s 68 of the Act. In view of these facts, no further discussion is required in respect of the aforesaid credit of Rs.4.00 crore. The balance amount of Rs.21,66,00,806/- added to the income involves three parties. The details are discussed party- wise in the succeeding paragraph. 5.1 There is an addition of Rs.2.00 Crore in respect of credit on 04.10.2011. In the table on page no. 6 of the assessment order, the only mention made for adding this amount is that the explanation had been given but it is not tenable. Thus, the facts and appellant's contention have not been discussed and therefore the order is non speaking. The facts of receipt of this amount from M/s Birbal Advisory Pvt. Ltd. on 04.10.2011 are similar to the facts in the case of Naive Construction Pvt. Ltd, and Vigil Real Estates Pvt Ltd. The appellant had received e sum of Rs. 2.00 crore from the aforesaid Birbal on 04.10.2011. In support of the genuineness of the credit, confirmed ledger account, ITR-V, bank statement and a note on the transactions were filed pages no (38-44). It was explained that the money was returned to the said Birbal on 31.03.2012 by cheque no.209023 drawn on Indian Bank. Both the parties made accounting entries accordingly. However, Birbal Advisory Pvt. Ltd did not present the cheque for quite some time. Therefore, this cheque was later used to transmit the money to the credit of the said Birbal by RTGS on 16.07.2012. The ld. A.O. has accepted the genuineness of the receipt Rs.2.00 crore and therefore the provisions of section 68 are not applicable to the facts the case. The finding of the ld. A.O. seems to be that though the money was returned On 16.07.2012 as per bank account of both parties, the entries were made of 31.03.2012. Thus, the facts of the case, in so far as the return of the money is concerned, are same as in the case of Naive Construction Pvt. Ltd. and Vigil Real Estates Pvt. Ltd. For the sake of brevity, the submissions made in respect of these two parties are not repeated here. Relying on the discussion in paragraph nos. 3 and 4, it is argued that,- (i) there is no discrepancies, and (ii) the provisions of section 68 are not applicable. Accordingly, it is requested that the addition may be deleted.
We may now take up three entries at serial nos.3, 4 and 6 of the table on page 6 of the assessment orders of Rs.2.00 crore on 29.03.2012, Rs.5.00 crore on 29.03.2012 and Rs.3.00 crore on 29.03.2012. These entries aggregate to Rs.10.00 crore. These amounts were received from M/s Share India Securities Ltd. In the table drawn by the A.O., it has been mentioned against these entries that no explanation has been tendered by the appellant. However, the same is not correct. In appellant's letter dated 23.02.2013, it was explained that the company had paid Rs. 10.00 crore to aforesaid Share India by cheque nos. 209011 and 209012 dated 19.04.2011; and cheque nos. 457044 and 457045 dated 04.10.2011 of Rs. 3.00 crore, RS, 4.00 crore, Rs. 2.00 crore and Rs.1.00 crore respectively. These entries are reflected in the bank account of the appellant, which was filed in the course of assessment proceedings (pages no 51-53). The aforesaid Share India is a dealer in shares and had been acting as a broker for the appellant for the purchase and sale of shares. In view of this relationship of principal and broker, the sum of Rs. 10.00 crore was placed with the broker for undertaking transactions on behalf of the appellant. This money was returned by the broker through the aforesaid three cheques of Rs. 2.00 crore, Rs. 5.00 crore and Rs. 3.00 crore. Thus, the facts of the case are that a sum of Rs.10.00 crore was advanced to the share broker for the purpose of undertaking transactions on behalf of the appellant. The amount was subsequently returned by him by way of three cheques. All the transactions have been undertaken through banking channels. Without asking any further question, the ld. A.O. added the amount to the income by invoking the provisions contained in section 68. 6.1 It is submitted that the action of the ld. A.O. is not only unjustified but also high- handed. The appellant had furnished the explanation that the money was advanced to M/s Share India Securities Limited by way of four cheques on 19.04.2011 and 04.10.2011 for the business of the appellant. This money was returned on 29.03.2012 by three cheques. The details of cheques given and received were furnished. Yet, the A.O. mentions in assessment order that no explanation has been offered. This amounts to clear negation of rule of natural justice that the aggrieved party should be heard fairly and the explanation furnished by him must be considered before arriving at any Conclusion in the matter. This has not been done. Therefore the addition of Rs. 10.00 Crore is required to be dele ted straight way as it is against the very fundamental aspect of quasi judicial determination of the issues. 6.2 It may be submitted that principle of natural justice must be read in unoccupied interstices of the statute unless there is clear negation of it by express words. In this Connection, we rely on the decision in Vishnoo V Kamat Tarcar vs. ITO, (1994) 207 ITR 1040 (Bom). The consequence of violation of this principle is that the order is void, as held in Shreeram Durga Prasad (RB) vs. Settlement Commission, (1989) 176 ITR 169 (SC). It is therefore vociferously urged that the order may be declared a nullity and the ground may be allowed. 6.3 Without prejudice to this, it is clear from the bank account that the assessee received back its own money which was advanced to M/s Share India Securities Ltd. The A0 has himself made inquiry from this party u/s 133(6) in connection with share transactions of the appellant, and the reply from this party had been received. Thus, the identity of the party and its connection with the appellant as its broker had been established. No money has flown as income from this party in these transactions over and above the money advanced to it. Thus, the credits stand prima-facie explained under section 68. For making any addition in respect of these credits, the onus was on the A.O. and for this purpose he could have requisitioned further information from the broker, whose address was available with him or from the appellant. In absence of such enquiry, the addition is illegal. Therefore, it is prayed that the same may be deleted.
7. The balance amount of Rs.9,56,00,806/- is the sum of two entries of Rs.6,16,00,806/- on 11.07.2011 and Rs.3,50,00,000/- on 29.03.2012. In the table on page 6, these entries appear at serial nos. 1 and 5. The only reason furnished in making the huge addition of more than Rs. 9.50 crore is that no explanation has been tendered. This is a contrary to the facts on record. In the letter dated 30.02.2015, it was submitted that the appellant incurred loss of Rs.23,37,52,919/- in respect of transactions in shares of 12 companies. These shares were acquired at Rs.53,57,33,769/- and sold at Rs.30,19,80,849/( page nos. 55-56). It may be mentioned that these transactions have been under taken through Share India Securities Limited and Integrated Master Securities Pvt. Ltd. The contract notes from these brokers were also filed (pages 79-281). These facts are narrated here to show that the A.O. was aware that Share India Securities Ltd. was acting as appellant's broker and his address and other details available with him. The aforesaid two amounts represent the sale proceeds of the shares, which have been included in the overall sale amount of Rs.30,19,80,849/-. In letter dated 23.02.2015, it was informed to the assessing officer that the amount of Rs.6,16,00,806/- has been received from the broker against sale of shares of Kemrock Industries Ltd (pages 54-73). It was further informed that the amount of Rs.3,50,00, 000/- was received from the broker against sale of shares of Ananth Raj Industries and other Companies (Pages 74-75). The ld. A.O. did not make any further enquiry. Ignoring the explanation tendered by the appellant by mentioning that no explanation has been furnished, this amount was added to the income u/s 68. 7.1 The facts narrated above show that a genuine and valid explanation of the appellant has been completely ignored and that too without making any enquiry into it. Such an addition is starkly against the principal of natural justice, which requires that not only the explanation should be considered but also negated if it is not acceptable by furnishing cogent reasons. Nothing of this sort has been done. Coming to facts, the two amounts represent sale proceeds of the shares, which have been accounted for in the books. Therefore, no addition could have been made. Accordingly, it is prayed that the addition may be deleted.
8. Ground nos. 4, 5, 5.1 and 6 deal with two issues, pertaining to the loss incurred in purchase and sale of shares and nature of loss of Rs.1,87,172/- included in the overall loss of Rs.23,37,52,920/-. Before dealing with these grounds, it is brought to the notice of the ld. CIT(A) that the same matter had also come up before the ld. A.O. in the proceedings of immediately succeeding year, i.e. assessment year 2013-14. In that year, the appellant converted the investment in shares into stock in trade. In the assessment order of that year, completed by the same A.O., the loss up to the date of conversion has been held to be capital loss and the loss after the date of conversion has been held to be the business loss. A copy of this order is enclosed. The appellant has accepted this finding and therefore according to the appellant this decision settles the controversy regarding genuineness of loss and the head of income under which It should be classified. Thus, according to findings of the ld. A.O. for A.Y. 2013-14, the loss of Rs. 23,37,52,920/- should be computed under the head "Capital gains", and it should be allowed to be carried forward to subsequent years short-term capital loss. Nonetheless, the facts of this case are briefly discussed in the succeeding paragraphs. 8.1 In paragraph 3 on page 3 of the assessment order, it has been mentioned that the assessee claimed loss on sale of investment at Rs.23,37,52,919/-. In this connection, the consideration received was shown at Rs.30,18,87,030/- and cost of acquisition was Rs.53,56,39,950/-, The resultant loss was claimed to be short- term capital loss. The assessee was requested to produce computation of script wise loss, showing the name the security, no. of shares, amount of purchase, date of sale, the sale amount and the broker's note. The assessee was also requested to provide the copy of D-MAT account. In the alleged absence of the details, it was asked to state why the loss should not be disallowed. It is further mentioned that the assessee submitted the details in letter dated 23.02.2015 stating that the details of loss have already been furnished in letter dated 31.01.2015. This letter contains contract notes and a sheet containing computation of loss. However, the letter does not contain the name of the security, date of purchase, no. of shares, purchase price, date of sale, no. of shares, sale proceed and broker's notes. The copy of DMAT account has also not been provided. It appears that information was requisitioned from Share India Securities Ltd. u/s 133(6), which was received.
It is also mentioned that from the information, it is seen that the assessee dealt in shares of seven companies through this broker. Apart from this, it also came to notice that the assessee undertook jobbing transactions on 03.08.2011 and 21.012.201 1 resulting in loss of Rs.1,87,172/-. Thereafter, a very brief discussion has been made to the effect that looking to frequency of transactions the loss is to be considered as business loss. The loss of Rs.23,37,52,919/- was not allowed and the loss from alleged jobbing transactions was added to the income. 8.2 In this connection, it is submitted that the appellant had filed all the requisite evidence along with letter dated 31.01.2015. The loss in respect of script of 12 companies was computed at Rs.23,37,52,919/-. All contract notes from Share India Securities Ltd. and Integrated Mater Securities Private Ltd., date wise details of sale and purchase, DMAT account from Integrated Master Securities Pvt. Ltd. and AIR details in respect of purchase and sale of shares were furnished in this letter. It will be seen that all the details as required were furnished and therefore, there is no force in the finding of the ld. A.O. that the loss is inadmissible for not furnishing the requisite details. The details were furnished in respect of all the transactions and such details were obtained directly by A.O. from one broker, the said Share India. In such a situation the finding that the loss is inadmissible can only be said to be a perverse finding, which does not take into account the voluminous evidence on record about genuineness of transactions. In any case, the A.O.'s findings in A.Y. 2013-14 are directly in conflict with the findings given by him in this year. Looking to the voluminous evidence available on record, the ld. CIT(A) may be pleased to allow the loss of Rs.23,37,52,919/-. 8.3 Coming to the classification of loss, the A.O.'s findings in A.Y. 2013- 14 is in conflict with the findings of this year. In that year, it has been held that the assessee continued to hold the shares as investments till the date of conversion, which is 01.04.2012. The appellant has accepted this decision and therefore, this finding has become final. Therefore, the loss in this year should be held to be short-term capital loss on the basis of the rule of consistency. However, the matter is left to the discretion of the ld. CIT(A). 8.4 In so far as jobbing loss is concerned, it is submitted that the appellant is following FIFO method, which is the prescribed method u/s 145. The ultimate effect of the finding of the ld. A.O. is that this method has been changed to FIFO method as he held that the share purchased on the two dates were sold on the same dates. This does not take into account the previous holding of such shares. In the light of this fact, it is requested that following FIFO method, the loss may not be held to be speculation loss. In any case, since the transactions have led to short- term capital loss, the question of applicability of section 43(5) will not arise."
Ld. DR submitted that after considering the above submissions, ld. CIT (A) deleted the additions with regard to Naïve Construction and Vigil Real Estate by observing that the assessee has issued relevant cheques on 31.03.2012 to both the parties and handed over the same on the same date. Accordingly, the assessee has recorded the same in its books of account. As per the bank statement, relevant parties have encashed the same on 18.06.2012. Therefore, as far as the book keeping is concerned, the assessee has reduced the liabilities by paying physical cheque at the close of the year. Since the parties have encashed the same in the subsequent year it cannot be the reason to invoke the provisions of section 68, accordingly he deleted the same. Ld. DR objected for the relief granted to the assessee.
With regard to unexplained credits in the bank account of Rs.21,66,00,806/-, after considering the detailed submissions of the assessee, ld. CIT (A) deleted the same by observing as under :- “7.1 The AO has made an addition of Rs.2,00,00,000/- in respect of credit on 04.10.2011. In the table on page no. 6 of the assessment order, the AO has stated merely that "an explanation had been given but it is not tenable". The appellants contention therefore, is that the order is non-speaking. The facts of receipt of this amount from M/s Birbal Advisory Pvt. Ltd. on 04.10.2011 are similar to the facts in the case of Naive Construction Pvt. Ltd. and Vigil Real Estates Pvt. Ltd. The appellant had received a sum of Rs.2,00,00,000/- from the aforesaid Birbal on 04.10.2011. In support of the genuineness of the credit, confirmed ledger account, ITR-V, bank statement and a note on the transactions were filed. It was explained that the money was returned to the said Birbal on 31.03.2012 by Cheque no.209023 drawn on Indian Bank. Both the parties made accounting entries accordingly. However, Birbal Advisory Pvt. Ltd did not present the cheque Tor quite some time. Therefore, this cheque was later used to transmit the money to the credit of the said Birbal by RTGS on 16.07.2012. It is submitted that the addition has been made on the grounds that though the money was returned on 16.07.2012 as per bank account of both parties, the entries were made as of 31.03.2012. The appellant's arguments are that,- (i) there are no discrepancies, and (ii) the provisions of section 68 are not applicable. 7.2 The remaining three entries at serial nos. 3,4 and 6 of the table on page 6 of the assessment order are credits of Rs.2,00,00,000/- on 29.03.2012, Rs.5,00,00,000/- on 29.03.2012, and Rs.3,00,00,000/- on 29.03.2012. These entries aggregate to Rs.10,00,00,000/-. These amounts were received from M/s Share India Securities Ltd. In the table drawn by the A.O., it has been mentioned against these entries that no explanation has been tendered by the appellant. However, the appellant has stated that vide its letter dated 23.02.2015, it was explained that the company had paid Rs.10,00, 00,000/- to the aforesaid Share India by cheque nos. 209011 and 209012 dated 19.04.2011, and cheque nos. 457044 and 457045 dated 04.10.2011, of Rs.3,00,00,000/-, Rs.4,00,00,000/- Rs.2,00,00,000/- and Rs.1,00,00,000/- respectively. These entries are reflected in the bank account of the appellant, which was filed in the course of the assessment proceedings. The aforesaid Share India is a dealer in shares and had been acting as a broker for the appellant for the purchase and sale of shares. In View of this relationship of principal and broker, the sum of Rs.10,00,00,000/- Was placed with the broker for undertaking transactions on behalf of the appellant. This money was returned by the broker through the aforesaid three cheques of Rs.2,00,00,000/- , Rs.5,00,00,000/- and Rs.3,00,00,000/-. It is submitted that all the transactions have been undertaken through banking channels. However, without asking any further questions, the A.O. added the amount to the income by invoking section 68. It is submitted that the action of the A.O. was not only unjustified but also high-handed. The appellant had furnished a complete explanation regarding the transaction, nevertheless Yet, the A.O. has held that no explanation had been offered. It is clear from the bank account that the appellant had received back its own money which was advanced to M/s Share India Securities Ltd. The AO moreover, had made inquiry from this party u/s 133(6) in connection with the share transactions of the appellant, and the reply from this party had been received. Thus, the identity of the party and its connection with the appellant as its broker had been established. No money had flown as income from this party in these transactions over and above the money advanced to it. Thus, it is submitted that the credits stood prima-facie explained under section 68.
8. The balance amount in question of Rs.9,56,00,806/- is the sum of two credits of Rs.6,16,00,806/- on 11.07.2011, and Rs.3,50,00,000/- on 29.03.2012. In the table on page 6, these entries appear at serial nos. 1 and 5. The appellant has submitted that the huge addition of Rs.9,56,00,806/- has been made on the grounds that no explanation had been tendered. Whereas, the appellant had Submitted to the A0, vide letter dated 23.02.2015, that the appellant incurred Toss of Rs.23,37,52,919/- in respect of transactions in shares of 12 companies. These shares were acquired at Rs,53,57,33,769/- and sold at Rs.30,19,80,849/-. It was submitted that these transactions had been undertaken through M/s. Share India Securities Limited and M/s. Integrated Master Securities Pvt. Ltd. The contract notes from these brokers have been filed during the assessment and the appellate proceedings. It has been shown by the appellant that the aforesaid two amounts represent the sale proceeds of the shares, which have been included in the overall sale amount of Rs.30,19,80,849/-. Nonetheless, the AO has recorded that no explanation has been furnished and this amount was added to the income u/s 68.
Ld. DR submitted that with the above findings, ld. CIT (A) observed that assessee has submitted detailed submissions, however the AO has ignored and proceeded to make the addition without making any enquiry and without cogent reasons. The assessee has furnished sufficient proof as such to have discharged its onus u/s 68 of the Act. Accordingly, ld. CIT (A) allowed the grounds raised
by the assessee. Ld. DR submitted with regard to ground no.2 that datawise transactions are not submitted and collection wise details were also not verified.
13. With regard to disallowance of claim of loss on sale of investment and income from jobbing, ld. DR submitted that ld. CIT (A) observed that assessee has submitted the relevant information before the AO that in the proceedings in the immediately succeeding year i.e. AY 2013-14, the assessee has converted the investment in shares into stock-in-trade. In the above assessment order, the same AO completed the assessment order, the loss up to the date of conversion has been held to be capital loss and the loss after the date of conversion has been held to be business loss. A copy of the same is filed before him. The same was accepted by the assessee also. Therefore, by going through the assessment order passed u/s 143(3) for AY 2013-14, the loss of Rs.23,37,52,920/- should be computed under the head capital gains and should be allowed to be carried forward as short term capital loss. Further it was mentioned that the assessee claimed loss on sale of investment at Rs.23,37,52,919/-. In this assessment year, assessee has claimed the loss after sale consideration as short term capital loss. Further ld. CIT (A) observed that assessee has produced computation of script-wise loss and relevant details before the AO and also submitted broker’s note and copy of DMAT account. Ld. DR submitted that further ld. CIT (A) observed that AO also called for information from Share India Securities Ltd. u/s 133(6) which was submitted before him. Therefore, AO has observed that considering the frequency of the transaction, he treated the same as business loss and denied the capital loss claimed by the assessee. Ld. CIT (A) after going through the relevant grounds raised by the assessee relating to denial of capital loss and jobbing income held as under:- “10.1 In this connection, it is submitted that the appellant had filed all the requisite evidence along with its letter dated 31.01.2015. The loss in respect of scrips of 12 companies was computed at Rs.23,37,52,919/-. All contract notes from Share India Securities Ltd. and Integrated Master Securities Private Ltd., date wise details of sale and purchase, demat account, and AIR details in respect of purchase and sale of shares were furnished in this letter. It is seen from the assessment records that all the details as required were furnished and therefore, there is no force in the finding of the A.O. that the loss was inadmissible for want of furnishing the requisite details. The details were also obtained directly by the A.O. from one of the brokers, the said Share India. In such a situation the finding that the loss was inadmissible must be held to be unjustifiable. Moreover, the A.0.'s findings in A.Y. 2013-14 are directly in contradiction to the findings given by him in this year. Looking to the voluminous evidence available on record, the disallowance of the capital loss cannot be upheld. Further, considering the A.O.'s findings in A.Y. 2013-14 that the appellant continued to hold the shares as investments till the date of conversion, which is 01.04.2012, the loss in this year is held to be short-term capital loss on the basis of the rule of consistency. This finding in the A.Y. 2013-14 has not been disputed by the appellant, and has become final. Accordingly, the appellant succeeds at grounds of appeal nos. 5 and 6. 10.2 In so far as the jobbing loss is concerned, it is submitted that the appellant is following ‘First in First Out’ method, which is the prescribed method u/s 145. The ultimate effect of the finding of the A0, is that this method has been changed to ‘Last in Last Out' method as he held that the shares purchased on two particular dates were sold on the same dates, The appellant has submitted that this as not taken into account the previous holding of such shares. In the light of this fact, it is requested that following the FIFO method, the loss may not be held to be speculation loss. In any case, since the transactions have been held to have led to short term capital loss, the question of applicability of section 43(5) would not arise Accordingly, the addition of Rs.1,87,172/- is deleted.”
14. With regard to ground no.3, ld. DR submitted that ld. CIT (A) has not verified the actual loss and assessee failed to submit complete details. The genuineness of the investments were also not proved and further submitted that previous year decision/directions have no impact on the present assessment year. In this regard, he relied on the decision of NRR Iron & Steel P. Ltd. (2019) 412 ITR 161 (SC) and Durga Prasad More (1971) 82 ITR 540. He submitted that ld. CIT (A) has not applied the higher standard and independent enquiries before giving relief to the assessee.
15. On the other hand, ld. AR of the assessee basically relied on the findings of the ld. CIT (A) and further submitted that all informations relating to the cheques which were handed over to both the parties on 31.03.2012 and confirmations were already submitted before the AO which AO has ignored the same. He brought to our notice pages 16 to 36 of the paper BOOK which is a letter dated 23.02.2015 submitted before the AO along with evidence. With regard to second ground, he submitted that evidence filed for all receipts vide letter dated 23.02.2015. With regard to amounts added by the AO pertain to three parties, he submitted that with regard to Birbal Construction, the issue is similar Vigil Construction and amount had been repaid on 31.03.2012 but party presented cheque later. Later, assessee made RTGS on 16.07.2012. With regard to Share India, he submitted that transactions duly explained and cheque numbers were referenced from bank statement and Share India was assessee’s broker and receipts were repayments of advances given for share transactions. He submitted that the details of advances along with cheque numbers as well as repayment along with cheque numbers were given. He further submitted that AO has obtained the confirmation from Share India. He submitted that balance amount is from assessee’s brokers, Share India Securities & Integrated Master Securities against sale of shares. With regard to ground no.3, he submitted that in succeeding year i.e. AY 2013-14, investments were converted into stock-in-trade and the very same AO has assessed income prior to date of conversion as capital loss and the assessment order is placed on record. He submitted that details filed vide letter dated 31.01.2015, adverted to before to in letter dated 23.02.2015. He submitted that AO’s finding as to non-filing of details is incorrect. He submitted that in any event, AO received all details from broker directly. With regard to jobbing profit, he submitted that vide letter dated 31.01.2015, details of capital gain/loss along with contract notes were submitted in the paper book.
16. Considered the rival submissions and material placed on record. With regard to Ground No.1, we observe that assessee has received funds from Naïve Construction and Vigil Real Estate, at the end of the year i.e. 31.03.2012, assessee has issued physical cheques to both the parties by making payment of Rs.5,05,00,000/- and Rs.3,30,00,000/- respectively, the assessee has recorded the above payment of cheques in its books of account and accordingly the liability was reduced to that extent. Since the parties have presented the cheque for collection and the cheques were honoured on 18.06.2012. Further assessee also submitted the relevant confirmation from these parties, therefore, these two transactions will not fall under the provisions of section 68 of the Act since all the details were already in the books of account. The AO has proceeded to make addition without application of mind. Accordingly Ground No.1 raised by the Revenue is dismissed considering the detailed findings of the ld. CIT (A).
17. With regard to unexplained receipts, we observe that the assessee has received various amounts from seven parties aggregating to Rs.25,66,00,806/-. The AO has accepted the submissions of the assessee on the 7th party and proceeded to add addition u/s 68 of the Act to the extent of Rs.21,66,00,806/-. With regard to above parties, the advance received from Birbal Advisory Private Limited, ld. CIT (A) observed from the detailed submissions made by the assessee that even in this case assessee has settled the amount on 31.03.2012 and the abovesaid party has presented the cheque subsequently. Since the assessee has presented the cheque beyond three months, the same was settled by RTGS on 16.12.2012. This information is also submitted before the AO which was also considered by the AO. With regard to transactions with Share India Securities Ltd., the same are against the advances of Rs.10 crores deposited by the assessee with the Broker, Share India Securities Ltd. being a share broker, assessee has transacted with them. All these informations were also submitted before the AO which he has not considered. We observe that Share India Securities Ltd. being a share broker has made repayment of advances given for share transactions. Further we observe that assessee has submitted cheque numbers as well as repayment details and further details were submitted along with confirmation from Share India Securities Limited. With regard to other amounts of Rs.6,16,00,806/- and Rs.3,50,00,000/- were also received from assessee’s brokers and these transactions were also receipt of sale consideration from Share India Securities Limited and Integrated Master Securities. We observe that all these evidences were placed on record at pages 38 to 75 of the paper book. After considering the detailed findings of the ld. CIT (A), we observe that AO has not considered any of the evidences submitted before him and proceeded to make additions without considering the same. Therefore, we do not see any reason to disturb the findings of the ld. CIT (A). Accordingly, Ground No.2 raised by the Revenue is dismissed.
18. With regard to Ground No.3, we observe that AO has observed that assessee has claimed short term capital loss during the year and the assessee was asked to submit the contract notes, calculations, etc.. Since the informations were not submitted he proceeded to verify the same by issue of notice u/s 133(6) to Share India Securities Limited who has submitted scrip-wise details before the AO. Since there is a volume and frequencies of transactions, the AO came to the conclusion that the assessee is not eligible to claim capital loss and it should be a business loss, accordingly he denied the short term capital loss claimed by the assessee. The ld. CIT (A) considered the findings of the succeeding assessment year by the same AO wherein investments were converted into stock-in-trade and the same officer has assessed the income prior to the date of conversion as capital loss. Accordingly, the assessment was completed. The assessee also filed details before the AO and similar details were also field before the ld. CIT (A) and ld. CIT (A) appreciated the above conversion of stock-in-trade in the subsequent year and on the date of conversion, he has allowed the capital loss on the date of conversion. The AO has taken a divergent view of allowing the short term capital loss in the subsequent assessment year, however denied the same in the current assessment year treating the same as business loss instead of capital loss. After considering the details and speaking order of the ld. CIT (A), we are inclined to dismiss Ground No.3 raised by the Revenue.
In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open court on this day of October, 2025.