2018 (9) TMI 1902 - AT - Income Tax

Unexplained cash sales - HELD THAT - As regard the request of the Ld. DR for verification of the purchases corresponding to sale of ₹ 45.50 Lacs is concerned, we find that before the CIT(A) the assessee has already submitted that no purchases were made corresponding to claim of sale of ₹ 44.50 lakhs and it was explained as received in excess in another purchase transaction. The assessee has not controverted this finding before us, thus, in view of the factual finding, we do not feel any requirement of restoring the matter to the lower authorities for verification of purchases. On the issue of double addition we find that when the explanation of the cash sales of the assessee is rejected and the cash seized of ₹ 44.50 Lacs is held as an unexplained, the said cash sales cannot be retained as part of the sales of the assessee during the year under consideration. Accordingly, we direct the Assessing Officer to exclude the cash sales of ₹ 44.50 credited in books of account on 30/03/2011 out of the total sales declared by the assessee, for the purpose of return of income filed. The ground no. 1 of the appeal is accordingly dismissed. Asst Commissioner powers to enhancement - HELD THAT - In the case of CIT Vs Shapoorji Palloonji 1962 (2) TMI 12 - SUPREME COURT held that although the appellant Asst Commissioner has powers to enhance the assessment, but he has no power to travel beyond the record to enhance assessment of any year by discovering new source of income either in the return made by the assessee or the assessment order passed by the Income-tax Officer. Since the issue of adjustment of losses from futures and options against the business income is arising from the return of income filed by the assessee, in our opinion, it is well within the powers of the Ld. CIT(A) to make additions in view of the finding of the Hon ble Supreme Court in the case of CIT Vs Shapoorji Palloonji Mistry 1962 (2) TMI 12 - SUPREME COURT . Accordingly, the ground 2.1 of the appeal is dismissed. Whether the Explanation in section 73 has an overriding effect on section 43(4) - claim of the assessee is that the activity of trading in futures and options is not a speculative activity in view of the provisions of section 43(4) of the Act, and, thus, the loss on account of said activity of trading in future and option is eligible for setoff against other losses from non-speculative business? - HELD THAT - Contention of the Ld. counsel not to invoke Explanation below section 73(4) in case of futures and options transaction of the assessee, is also rejected. In view of the binding decision of the Hon ble Delhi High Court DLF COMMERCIAL DEVELOPERS LIMITED 2013 (7) TMI 334 - DELHI HIGH COURT followed by the Ld. CIT(A), we are not examining the decisions cited by the Ld. counsel as to whether same are applicable in the facts of the instant case.

Summary

Issues Involved:
1. Addition of ?44,50,000/- as unexplained cash.
2. Enhancement of income by ?74,57,230/- based on the judgment of the Hon'ble Delhi High Court in the case of CIT Vs. DLF Commercial Developers Ltd.

Detailed Analysis:

1. Addition of ?44,50,000/- as Unexplained Cash:
Facts and Background:
- During a search operation on 28/03/2011, cash of ?58,00,000/- was found at the assessee's premise.
- ?13,50,000/- was explained and released, while ?44,50,000/- was seized as unexplained.
- The assessee claimed the seized cash represented cash sales of sugar, recorded in the books on 30/03/2011.

Assessment and CIT(A) Findings:
- The Assessing Officer (AO) rejected the explanation, treating the cash as unaccounted under section 69A of the Income-tax Act, 1961.
- The Ld. CIT(A) upheld the AO's decision, citing inconsistencies in the assessee's explanation regarding the source of the cash and the nature of the sugar sold.

Tribunal's Observations:
- The Tribunal noted the assessee's failure to explain the source of ?44,50,000/- during the search.
- The explanation of cash sales was deemed an afterthought, with discrepancies in the type of sugar and the lack of verification of corresponding purchases.
- The Tribunal upheld the addition of ?44,50,000/- as unexplained cash but directed the AO to exclude the same amount from the total sales declared by the assessee to avoid double addition.

Conclusion:
- The addition of ?44,50,000/- as unexplained cash was confirmed, but the corresponding cash sales were to be excluded from the total sales declared in the return of income.

2. Enhancement of Income by ?74,57,230/-:
Facts and Background:
- The Ld. CIT(A) observed losses on sale of derivatives and import of sugar, proposing that these should be treated as speculative business losses under section 73 of the Act.
- A notice under section 251(2) was issued, proposing the disallowance of these losses against current year’s profit from other businesses.

Assessee's Arguments:
- The assessee argued that the CIT(A) was not justified in denying the adjustment of losses from derivative transactions against other business income.
- It was contended that derivative transactions are not speculative as per section 43(5) of the Act.

CIT(A) and Tribunal Findings:
- The Ld. CIT(A) followed the decision of the Hon'ble Delhi High Court in CIT Vs. DLF Commercial Developers Ltd., holding that the Explanation to section 73 has an overriding effect on section 43(5).
- The Tribunal upheld the CIT(A)'s decision, stating that the Explanation to section 73 applies to derivative transactions, thus treating the loss from such transactions as speculative and not eligible for setoff against non-speculative income.

Conclusion:
- The enhancement of income by ?74,57,230/- was confirmed, treating the losses from derivative transactions as speculative and not eligible for setoff against other business income.

Final Order:
The appeal of the assessee was dismissed, and the order was pronounced in the open court on 20th Sept., 2018.