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Computation of income discrepancy between declared and actual income for assessment year 2001-02. Analysis: The appeal before the Appellate Tribunal was filed by the assessee challenging the order of the CIT(A) for the assessment year 2001-02. The main issue raised by the assessee pertained to the computation of income, with declared income at Rs. 46,73,220 and actual income at Rs. 1,27,42,880. Both parties presented their arguments before the Tribunal regarding this issue. The assessee had purchased units of various mutual funds during the assessment period at a total cost of Rs. 4,78,27,064 and later sold them for Rs. 3,89,61,839, resulting in a trading loss of Rs. 88,65,225. However, the assessee had received dividends of Rs. 80,54,660 from these units before selling them. The Department contended that the loss was not incurred in the normal course of trading but was more akin to an investment activity. The Assessing Officer (AO) concluded that the loss was a short-term capital loss and not eligible to be set off against business income. The AO further observed that the transactions appeared to be for dividend income rather than regular business activity. The CIT(A) upheld the AO's decision, leading to the appeal before the Tribunal. The Tribunal analyzed the facts of the case, noting that the transactions were genuine and the purchase, sale, and dividend receipt were all duly executed. Despite a short gap between these transactions, the Department suspected the motive behind the transactions was to offset high income. The Tribunal referred to a CBDT instruction clarifying such transactions should not be treated as null and void unless proven to be for tax avoidance. The Tribunal also considered the legislative amendment prohibiting similar transactions from the assessment year 2002-03 onwards. The Tribunal referenced previous decisions where similar issues were considered. In one case, the Tribunal allowed the claim of dividends stripping, noting that the legislature had later introduced provisions to tax such transactions. The Tribunal emphasized the genuineness of the transactions and the absence of doubt regarding the purchase and sale prices. It distinguished the present case from instances of tax evasion through dubious methods, as the transactions were within legal parameters. Based on these considerations and precedents, the Tribunal found in favor of the assessee, allowing the appeal and directing the AO to accept the returned income. In conclusion, the Tribunal allowed the assessee's appeal, highlighting the genuineness of the transactions and the absence of tax evasion motives. The decision was based on legal precedents, legislative amendments, and the specific facts of the case, leading to the deletion of the addition made by the AO and acceptance of the returned income.
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