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2024 (3) TMI 435 - HC - Income TaxAddition made on account of negative brokerage - ITAT deleted addition as Tax Authorities have not given proper justification in presuming that the loss shown by the assessee is bogus one and constitutes negative brokerage - HELD THAT - Noting the illustrations, the ITAT has decried the AO s finding of these transactions to be bogus transactions without bothering to examine contract notes supporting these transactions. More so since the contract notes were seized by the Revenue and were in the custody of the Department itself. Despite holding crucial evidence sufficient to test the veracity of testing Assessee s explanation, the AO proceeded to hold the transactions as bogus transactions only on the basis of his own perceptions based on conjectures and surmises. ITAT held the transactions to be sufficiently explained and also observed that the AO not having made any addition of identical nature in the earlier years or subsequent year despite the operation of Assessee being identical in nature for all the years. We find that the entire issue is based on a factual appreciation of evidence before the AO and examined by the ITAT. We agree with the findings of the ITAT on this issue. No substantial question of law arises in the issue. Addition on account of a disparity/mismatch in the stock of shares - According to the AO, the statement of closing stock when compared with the list of closing stock of shares as furnished by Assessee did not tally - ITAT deleted addition - HELD THAT - ITAT has delved in detail in the issue and held that there was nothing on record to contradict the explanation of Assessee. As per the market mechanism, Assessee is entitled to sell his rights in favour of another person instead of applying for the shares. This right to apply for shares cannot be understood to be an undisclosed asset . Assessee has furnished specific information with corroborating evidence and no substantial question of law arises from this issue. We, thus, agree with the view of the ITAT regarding deletion of the addition by the AO relating to undisclosed stock. Addition on account of credit balance in the account of M/s Champaklal Devidas - assessee had failed to discharge its onus to prove the genuineness of the claim - ITAT deleted addition and noticed the observation of CIT (A) that the accounts relating to AY 1987-88 were very much available with the AO and hence his observation that there was no evidence was incorrect - HELD THAT - As repayment made by Assessee in subsequent years were considered while holding the transaction to be bogus. Most importantly, the ITAT noticed that the assessment of J. P. Gandhi was also done by the same AO and the profits declared by him were all accepted. All the transactions were routed through bank accounts. The mere fact that Champaklal Devidas has not charged interest on the outstanding loan does not justify holding the transactions to be bogus. The ITAT has relied on the well-settled proposition of law that tax authorities are not entitled to sit in an arm chair of a businessman to regulate business affairs. Hence, the third issue also based on facts and the view of the AO on the basis of general observations, surmises and conjectures de hors any substantial material as rejected by the ITAT is correct. Addition of unexplained cash credit - ITAT perused the opening balance of each of the lenders and concluded that the amounts were not received by way of fresh credit and thus there is no question of assessing the same under Section 68 - HELD THAT - There is sufficient material provided by Assessee and hence, the ITAT has deleted this addition correctly. Disallowance of interest paid to bank and others - ITAT has discussed at length the method of usage of bank overdraft facility to purchase and sell securities and deleted addition - HELD THAT - Drawing support from a decision of this Court in the case of Commissioner of Income Tax v Reliance Utility and Power Limited 2009 (1) TMI 4 - BOMBAY HIGH COURT ITAT directed the AO to delete this disallowance. Even on the issue relating to disallowance of interest paid on security, the ITAT held that AO was persuaded to direct additions without examining the ledger account of Assessee and only on general presumptions. The ITAT has further held that no case of bogus booking is made out. The entire issue is based on the ledger accounts and evidence before the AO, perused by the CIT(A) and, thereafter by the ITAT. It is clearly based on facts in the case and no question of law arises for our consideration. Disallowance of loss on securities transactions - AO disallowed this claim only on the basis that Assessee has passed general entries to book losses. In the second round of proceedings, the AO changed his reasoning and held that Assessee failed to furnish explanation - ITAT noticed vouchers relating to transactions filed by Assessee and also that the transactions were by way of account payee cheque only thus deleted addition - HELD THAT - ITAT held that a conclusion of booking bogus loss cannot be drawn without constructive examination of evidence. The further issue of levy of interest under Sections 139(8) and Section 217 of the Act is consequential and hence, does not require separate adjudication. Thus on all the issues, the ITAT has overturned the directions of AO on facts and appreciation of evidence and material on record. The ITAT has thus rejected the appeal preferred by the Revenue. Gravity of the matter, being related to the Harshad Mehta scam - The gravity of the scam as referred to by Revenue does not permit us to go beyond the materials available on record and substitute our view with that of the ITAT, which is firmly based on perusal of evidence and findings on record. The AO has failed to base his findings on examination of relevant evidence which was either in the possession of the Revenue itself or ought to have been collected in a systematic manner justifying his conclusions. We do not find any infirmity in the view taken by the ITAT in the impugned judgment and order.
Issues Involved:
1. Negative Brokerage 2. Mismatch in Stock of Shares 3. Loan Transactions with M/s. Champaklal Devidas 4. Unexplained Cash Credits 5. Disallowance of Interest Paid 6. Loss on Securities Transactions Summary: 1. Negative Brokerage: The first issue pertains to the addition of Rs. 19.61 Lakhs as negative brokerage. The AO disallowed losses shown by the Assessee, terming them as 'negative brokerage' and alleging them to be bogus transactions aimed at reducing profit. The ITAT examined the transactions and found that the AO failed to consider the Assessee's explanations and supporting contract notes. The ITAT concluded that the transactions were sufficiently explained and not bogus. The High Court agreed with the ITAT, stating that the issue is based on factual appreciation of evidence and no substantial question of law arises. 2. Mismatch in Stock of Shares: The Revenue challenged the ITAT's deletion of an addition of Rs. 20,59,607/- due to a mismatch in the stock of shares. The ITAT found that the AO made errors in treating 'renunciation of right' as 'sale of shares' and did not address specific mistakes pointed out by the Assessee. The High Court agreed with the ITAT, noting that the Assessee provided specific information with corroborating evidence, and no substantial question of law arises. 3. Loan Transactions with M/s. Champaklal Devidas: The AO questioned the genuineness of loan transactions involving Rs. 1,26,12,036/- with M/s. Champaklal Devidas. The ITAT found that the AO's observations were based on general conjectures and not supported by substantial material. The ITAT noted that the transactions were routed through bank accounts and that the assessment of J. P. Gandhi, the proprietor of Champaklal Devidas, was accepted by the same AO. The High Court agreed with the ITAT, stating that the issue is based on facts and no substantial question of law arises. 4. Unexplained Cash Credits: The AO added amounts received from various persons as unexplained cash credits under Section 68 of the Act. The ITAT found that the amounts were not fresh credits but opening balances, and sufficient material was provided by the Assessee. The High Court agreed with the ITAT's deletion of these additions. 5. Disallowance of Interest Paid: The AO disallowed interest paid to the bank and others amounting to Rs. 8,99,443/-. The ITAT found that the AO's adverse view was based on a comparison of balance sheet figures without proper examination. The ITAT directed the AO to delete the disallowance, drawing support from the decision in Commissioner of Income Tax v Reliance Utility and Power Limited. The High Court agreed with the ITAT, stating that the issue is based on facts and no substantial question of law arises. 6. Loss on Securities Transactions: The AO disallowed the Assessee's claim of loss on securities transactions, alleging that the Assessee booked losses through general entries. The ITAT found that the AO failed to verify the claim by examining corresponding purchases, sales, and market rates. The ITAT held that a conclusion of booking bogus loss cannot be drawn without constructive examination of evidence. The High Court agreed with the ITAT, stating that the issue is based on facts and no substantial question of law arises. Conclusion: The High Court dismissed the appeal, finding no merit in the Revenue's contentions and agreeing with the ITAT's findings based on the factual appreciation of evidence. The appeal was dismissed with no order as to costs.
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