2023 (8) TMI 1595 - AT - Income Tax

Proprietor's unsubstantiated capital increase remitted for fresh adjudication under section 250(4) powers

ITAT Gauhati set aside CIT(A)'s order and remitted the matter for de novo adjudication regarding unsubstantiated capital increase by assessee proprietor ... Unsubstantiated increase in the capital of the assessee - HELD THAT:- Assessee is a proprietor of vocational training institute in the name of H. P. Institute of Insurance. In the explanation for passing the transfer entries to substantiate the increase in capital, assessee has repeatedly submitted that books of account of H. P. Institute of Insurance showed a negative opening capital balance and to convert this negative capital balance into positive, for banking purposes, he has passed these entries from the books of proprietary concern to his personal statement of affairs. CIT(A) has not conducted any enquiry himself or caused to conduct an enquiry for examination of these transactions which have been claimed to be executed in the preceding years so as to ascertain whether these have been adequately subjected to taxation under the relevant provisions of the Act. CIT(A) despite claiming that he has exercised his powers u/s. 250(4) of the Act, there is nothing on record which enables us to discern that he has made enquiries or directed the AO to make further enquiry for the purpose of disposing of the appeal. He has simply taken on record, the material furnished by the assessee and after citing various judicial pronouncements, deleted the addition so made by the Ld. AO. There is a transaction with nephew of the assessee and there are another transactions with concern wherein again, assessee is the director. The nature of these transactions with the aforesaid related parties in most of the cases, have been explained to be gifts, without substantiating the source of the same. One of the items relates to dividend from RSWM which forms part of increase in the capital. Assessee has claimed that the transaction of shares of RSWM Ltd. is correctly reflected in the account of his HUF i.e. Pannalal Bhansali & Sons (HUF) of which assessee is the Karta. In one hand, assessee is claiming that the transaction of shares of RSWM Ltd. is on account of HUF and on the other hand, it is claiming the amount of dividend from the same shares, for passing entries into his capital account. There are contradictions in respect of transaction with daughter for which assessee submits that he had gifted certain shares to his daughter - These shares were sold by his daughter and the sale consideration received by the daughter was transferred to the assessee by way of part payments. The point which arises on this explanation by the assessee is if it is claimed to be a gift, why would there be a need of part payment by the daughter from the sale consideration received by her on sale of shares which have been gifted to her by the father i.e. the assessee. We thus find that there are discrepancies and contradictions in the submission made by the assessee which, more importantly, has been for the first time furnished before the CIT(A). Findings arrived at by CIT(A) on these submissions made by the assessee, in no way demonstrate, conduct of any enquiry either by himself or through the AO while disposing of the appeal, granting relief to the assessee. We also note that when the assessee is claiming that he has undertaken this exercise of making transaction entries for the banking purposes, to our mind, it would hardly make any difference since assessee would be always approaching the banks in an individual capacity where he would have to submit details of his capital whether it is forming part of the proprietary concern or his personal statement of affairs. We find it proper to set aside the impugned order of the Ld. CIT(A) on this issue and remit the matter back to his file for de novo adjudication. Accordingly, ground taken by the revenue in this respect is allowed for statistical purposes.' Addition towards LTCG and STCG on share transaction - Details and documents were furnished by the assessee for the first time before the Ld. CIT(A) who has claimed to call for these documents by exercising his powers u/s. 250(4). From perusal of the documentary evidence placed on record in the paper book, it is not discernible if the account is of the HUF or the individual and, therefore, it is difficult to appreciate how Ld. CIT(A) arrived at this conclusion to grant relief, when section 250(4) mentions about the conduct of enquiry or cause to make an enquiry by the AO, before disposing the appeal. Considering the facts and circumstances and the discussions made above, we find it proper to set aside the order of Ld. CIT(A) on this issue and remit the matter back to his file for de novo adjudication after taking into account the aforesaid observations and by conducting necessary enquiries either himself or by the Ld. AO Disallowance on account of loss on trading of commodity derivatives and F&O - We find it proper to set aside the order of Ld. CIT(A) on this issue and remit the matter back to his file for de novo adjudication after taking into account the aforesaid observations and by conducting necessary enquiries either himself or by the Ld. AO. He may call for a report from the Ld. AO on the enquiries conducted so as to arrive at appropriate conclusion. Issues Involved:1. Unsubstantiated increase in capital.2. Addition in respect of Long Term Capital Gain (LTCG) and Short Term Capital Gain (STCG).3. Disallowance of loss from trading in commodity and Futures & Options (F&O) derivatives.Issue-wise Detailed Analysis:1. Unsubstantiated Increase in Capital:The primary issue concerns the unsubstantiated increase in the capital of the assessee. The Assessing Officer (AO) observed a sharp rise in the capital amounting to Rs. 23,26,96,302/-, with Rs. 13,42,97,642/- claimed as capital brought in. The AO requested proof regarding the source and advancement of such funds, and whether these funds had been offered to tax in previous years. The assessee explained that the negative opening capital balance in the books of H. P. Institute of Insurance was converted into a positive balance for banking purposes by transferring entries to his personal statement of affairs. However, the AO found no conclusive proof regarding the acquisition time and source of funds, leading to the addition of the amount as unexplained cash credit under Section 68 of the Income-tax Act, 1961.The CIT(A) deleted the addition, observing that the transactions were entered into before the relevant previous year and thus Section 68 could not be applied. However, the Tribunal noted discrepancies and contradictions in the assessee's submissions, particularly concerning transactions with related parties and the lack of substantiation of the source of funds. The Tribunal found that the CIT(A) did not conduct or cause any enquiry to verify these transactions. Consequently, the Tribunal set aside the CIT(A)'s order and remitted the matter for de novo adjudication, directing necessary enquiries to be conducted.2. Addition in Respect of LTCG and STCG:The second issue pertains to the addition of Rs. 2,58,69,249/- related to LTCG and STCG. The AO noted discrepancies in the DMAT account concerning the opening balance of shareholding, concluding the exemption claim as untenable. The CIT(A) provided relief, stating the addition was based on the wrong DMAT account, i.e., of the HUF rather than the individual. However, the Tribunal highlighted that the CIT(A) did not conduct any enquiry to verify the evidence, despite exercising powers under Section 250(4). The Tribunal expressed doubt about the CIT(A)'s conclusion due to the lack of discernible evidence distinguishing the account as HUF or individual. The matter was remitted back to the CIT(A) for fresh adjudication with necessary enquiries.3. Disallowance of Loss from Trading in Commodity and F&O Derivatives:The third issue involves the disallowance of a loss of Rs. 20,22,293/- from trading in commodities and F&O derivatives. The AO disallowed the loss due to the lack of substantiated evidence, such as contract notes and transaction details. The CIT(A) upheld the disallowance, noting the assessee's failure to provide comprehensive details and evidence. The Tribunal found the CIT(A)'s decision appropriate due to the insufficient documentation provided by the assessee. However, for a thorough examination, the Tribunal remitted the issue back to the CIT(A) for de novo adjudication, ensuring necessary enquiries are conducted.Conclusion:The Tribunal allowed both the revenue's appeal and the assessee's cross-objection for statistical purposes, remitting all issues back to the CIT(A) for fresh adjudication with directions for conducting necessary enquiries and providing the assessee with a reasonable opportunity to be heard.