2016 (11) TMI 388 - AT - Income Tax

Addition income u/s 68 - whether speculation profit was to be brought to tax in the assessee s hands as income from undisclosed sources? - Held that - CIT(A), on examination of the details thereof, observed that the assessee had not recorded any of the these transactions in his books of accounts; had not made any deposit with the sub-broker and not paid security transaction tax, had not got his accounts audited even though the turnover in this speculation business activity was in excess of ₹ 40,00,000/- as required under section 44AB of the Act. CIT(A) further observed that the sub-broker M/s. Falgun Finvest, with whom the assessee entered into these alleged speculative transactions, admitted that it was engaged in the business of giving havala entries for a fee and concluded that in view of the facts on record, it is clear that the assessee laundered his undisclosed income through this sub-broker M/s. Falgun Finvest as speculation profit/income in shares. That Shri Niraj Sanghvi, husband and POA holder of his wife Smt. Charu Sanghvi, Prop. Falgun Finvest admitted to the same We find that the learned CIT(A) observed that M/s. Falgun Finvest in letter dated 13.12.2010 has confirmed that it had issued bills to the assessee in respect of certain transactions that took place in Financial year 2002-03 done off market and not routed through the main broker, M/s. Ventura Securities Ltd. In this factual matrix of the case, finding that assessee has not been able to bring on record any material evidence to controvert the finding of the learned CIT(A), we uphold the action of the learned CIT(A) in bringing to tax in the assessee s hands, the undisclosed income as income from other sources, since the facts on record clearly establish that the assessee had not earned any speculation income but had merely laundered his undisclosed income for speculation profits by entering into dubious transactions in order to avail set off against brought forward unabsorbed speculation loss - Decided against assessee

Summary

Issues Involved:
1. Applicability of Section 68 of the Income Tax Act, 1961.
2. Validity of the speculative profit claim.
3. Opportunity to cross-examine key witnesses.

Detailed Analysis:

1. Applicability of Section 68 of the Income Tax Act, 1961:
The primary issue was whether the addition of ?15,03,799/- as unexplained income under Section 68 of the Income Tax Act, 1961, was justified. The assessee argued that the CIT(A) erred in confirming the AO’s order and that the application of Section 68 was erroneous and irrelevant. The CIT(A) and the Tribunal upheld the AO’s action, stating that the assessee had not earned any speculation profits but had merely laundered his undisclosed income through dubious transactions with M/s. Falgun Finvest. The Tribunal noted that the assessee failed to bring any material evidence to controvert the findings of the authorities below.

2. Validity of the Speculative Profit Claim:
The assessee claimed to have set off unabsorbed speculation loss of ?15,03,799/- against speculation income of the same amount. The AO and CIT(A) found that the transactions were not genuine and were designed to evade taxes. The CIT(A) observed several inconsistencies, such as the absence of deposits with the broker, non-payment of security transaction tax, and the fact that the transactions were not recorded in the books of accounts. The Tribunal agreed with these findings, noting that the sub-broker, M/s. Falgun Finvest, admitted to providing hawala entries for a fee and that the transactions were not routed through the main broker, Ventura Securities Ltd.

3. Opportunity to Cross-examine Key Witnesses:
The assessee contended that he was not given a proper opportunity to cross-examine Shri Niraj Sanghvi, whose statement was heavily relied upon by the AO. The Tribunal noted that the AO had provided the assessee with the opportunity to cross-examine Shri Niraj Sanghvi, and this opportunity was availed by the assessee’s Authorized Representative. The Tribunal found that the directions of the ITAT to provide an opportunity for cross-examination were duly followed, and the statements given by Shri Niraj Sanghvi were valid and legally binding.

Conclusion:
The Tribunal upheld the CIT(A)’s decision, confirming that the amount of ?15,03,799/- shown as speculation profit was to be brought to tax as income from undisclosed sources. The Tribunal found that the assessee had not earned any speculation income but had laundered his undisclosed income through dubious transactions with M/s. Falgun Finvest. The Tribunal dismissed the appeal, concluding that the assessee failed to provide material evidence to controvert the findings of the authorities below. The assessee’s appeal for A.Y. 2003-04 was dismissed.