TaxTMI 
TaxTMI 
2025 (9) TMI 1583
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....n paid on assumptions and presumptions; C. Rs. 3,53,89,637/- being the amount of loss suffered on intraday transactions on stock exchange treating the same as speculative in terms of section 43(5) of the Act; D. not allowing set-off of loss suffered on intraday transactions against profit earned by the assessee on commodity derivatives which are not chargeable to CIT in a sum of Rs. 4,42,20,153/-; E. initiating proceedings u/s 271 (1 )(c). The above action being arbitrary, fallacious, unwarranted and illegal must be quashed with directions for appropriate relief." 2. With regard to Ground Nos. (A) and (B), relevant facts of the case are, assessee filed its return of income declaring income of Rs. NIL and carry forward the loss of Rs. 9,55,53,675/-. The case was selected for scrutiny through CASS for examination of the following issues :- (i) Substantial increase in share capital in a year, (ii) Large squared-up loans, (iii) Large value sale of shares or unit reported in STT return, (iv) Large value sale of option in securities, (v) Large value of future derivatives, (vi) Mismatch in sales t....
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....nd received the report that these companies do not exist at the addresses. With the above report, the AO proceeded to invoke the provisions of section 68 of the Act with the following observations :- "1. Identity of all three shareholding companies could not be established as neither the letter sent by post could be served nor could the verification carried out by the Inspector of the department trace the companies. 2. As all the three shareholder companies are filing Return of Income at negligible income this confirms that creditworthiness of all three shareholder companies remained not proved. 3. As bank statement of all the three shareholder companies reveals immediate deposit in the form of RTGS from third party and immediate transfer to the assessee or any other party. There is negligible balance in the account of three companies in any date. Thus, genuineness of the transaction remained unproved. 4. The assessee failed to produce the directors of three shareholder companies. Thus the identity of these share holder companies remain unproved. 5. No dividend has been issued by the assessee company to three shareholders and there is no....
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.... towards the subscription for the share capital could not have been faulted for the mere reason that, they had emanated from the other deposits immediately made by them in that Bank, before doing the RTGS to the Assessee. The AO failed to realise that it is imprudent and against commercial practice for a finance company to keep funds idle or unutilised. Business prudence, enterprise and efficiency direct that the monies at the disposal of the business should be made to run as far and distant as possible to fetch incomes. The AO's objection based on this ground is totally misconceived. Further on that very ground for the AO to assert that the genuineness of the transaction remained unproved is simply compounding that serious error. The genuineness of any transaction can be verified from the drift and the potency of that transaction. In the subject case, all the transactions, even as per the admission of the AO, are through RTGS and being so, the genuineness of the transactions could not be legitimately called to question. 9.3 Further he submitted that the AO gave little or no time for the production of the directors before him. The AO failed to realise and appreciate that the dir....
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....lied upon by the AO of the apex Court in Mcdowells vs. CTO (1985)154 ITR 148, is totally distinguishable on facts. Mcdowells decision was not with regard to subscriptions of share capital and so to invoke that decision in a non-income tax matter to allege an accommodation entry and that too without an iota of proof is grossly fallacious and totally uncalled for. 9.6 There is no quarrel with the proposition enunciated by the Calcutta High Court in CIT vs. Precision Finance Pvt Ltd. (1994) 208 ITR 465(Cal) cited by the NFAC. Assessee in this case has complied with the requirements enunciated in that decision. The NFAC has wrongly distinguished the cases cited by the Assessee. 9.7 The observations of the NFAC in para 5.9 vis-a-vis the Delhi High Court in CIT vs. Nipun Builders and Developers Pvt Ltd. (2013) 30 Taxman 292, is totally inapplicable, because the directors in that case were not 500 kms away from the site of verification. 9.8 The final conclusions as arrived at by the Authorities are ex facie erroneous and untenable. With the returns of the three subscribing Companies on record and with their having paid for the shares through banking channels and with their direct....
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....o the income of the appellant. Accordingly, addition made by AO of Rs. 8,16,00,000/- is confirmed. Ground No. 2 of the appeal is dismissed." It will be noticed that both the Authorities have indulged in guesswork, shorn of any material or evidence. While the AO does not even divulge the basic facts relating to such alleged payments, the NFAC confirms the same by relying of Case Laws without even touching upon the facts. With such perfunctory approach, the addition made is fictitious and baseless which merits to be quashed in limine. 10. On the other hand, ld. DR of the Revenue brought to our notice details of documents submitted by the assessee before the lower authorities and also in the form of paper book and he brought to our notice financial statements and return of income of the investor companies placed on record. From the above documents, he submitted that all these investor companies do not have enough profit to support the investment made in the assessee company. Therefore, he relied on the findings of the lower authorities that these companies do not have financial capacity to make the investment in the assessee company and he relied page 30 of the order of the firs....
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....ctors, the assessee does not have power to direct those directors to present before the AO. The assessee has produced all relevant information including income-tax return of shareholders, if required the AO could have initiated proceedings to make sure that those directors were present before him. The time given to the assessee to produce them was also too short. It is also fact on record that these companies are in existence and they are filing return regularly. 13. Coming to the issue of declaring negligible income in their return of income, we observe that the Courts have held that any capacity of the investors cannot be the basis of determining the creditworthiness. It is the availability of funds with them which determines the creditworthiness of the companies. The balance sheet submitted by the assessee shows that they have enough reserves and surplus of funds available in their business. 14. Coming to the next issue of transferring the funds for making investment and maintaining very low bank balance of the investors have no relevance to determine the genuineness of the transaction. Further AO observed that the assessee has not declared any dividend. It cannot be a cri....
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....gnored the nature of business of the assessee and the provisions of the Act related thereto. The business of the assessee was to trade in equity derivatives and commodity derivatives and spot markets. The treatment of profit or loss arising from those various segments individually and in separate compartments was unjustified. It was also pointed out that if the loss from intraday equity segment was to be considered as speculative on the ground of non-levy of CTT then the profit from commodity derivatives on which also no STT was chargeable had also to be considered as speculative. In this way, both the loss and profit being of the same nature and genre the profit and loss had to be set-off against each other. It was also pointed out that in commodity trading, there is specific CTT exemption as per Government notification. The NFAC, however held that the intraday purchase and sale under Code 03, was speculative in nature due to the factum of there being no transfer or delivery. He submitted that by so saying, the NFAC, ignored the very nature of intraday trading business. That business, by its very nature cannot compel the transfer and delivery on the same day for any transaction to....
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.... paid commodity derivates of Rs. 6,27,50,102/- and has subjected the same to an assessment as business income. He has also assessed the same as business income. However, the loss of Rs. 4,42,20,153/- derived from agricultural commodities which were otherwise CTT exempt, has not been set-off against the profit. The AO has evidently made a distinction between the profit and loss from commodity derivatives based solely on the impost of CTT. The AO has omitted to consider the amendment effected to Sec.43(5) of the Act as quoted in the para 5.4 supra. In this way the order of the AO is erroneous both on facts and in law. The NFAC also did not read the law correctly by omitting to read the amendment in the law as aforesaid. It specifically ignored the amendment to the Sec.43(5) of the Act as explained through the two Explanations adduced to proviso (d) and (e) of Sec.43(5) of the Act. 19. Accordingly, he submitted that in this way, the order of the Authorities below disallowing a set-off of loss Rs. 3,53,89,637/- against the profit of Rs. 4,42,20,153/- is incorrect on facts and unsustainable in law. 20. On the other hand, ld. DR of the Revenue relied on the orders of the lower auth....