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TaxTMI 
TaxTMI 
TaxTMI 
2026 (5) TMI 93
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....d. CIT(A) erred in deleting the addition of Rs. 7,79,62,550/- made by the Assessing Officer as unexplained income u/s 68 arising from non-genuine profits through pre-arranged reversal trades in illiquid stock options, ignoring detailed findings of the AO based on Project Falcon data, broker statements, and trade pattern analysis? 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that mere inclusion of an amount in the Profit & Loss account does not establish the genuineness of the transaction; the source and nature of the income must be satisfactorily explained to the AO's satisfaction, failing which it is liable to be taxed as deemed income u/s 68? 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 19,49,064/-made u/s 69C of the IT Act, 1961 as unexplained commission expenditure, solely on the ground that the primary addition of Rs. 7,79,62,550/- was deleted, without independently examining the evidence and basis for the commission payment?" 4. Whether on the facts and in the circumstances of the case and in la....
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....rn analysis? Submission During the course of proceedings before the AO, the transaction details were provided and trade confirmation from broker which were provided and linked with the Department Information. With respect to the allegation that the Assessee company was trading in highly illiquid derivatives, each of the observations have been explained to be as incorrect and is available in Page 8 of the CIT (A) Order. In Paragraph 5.4.5, the CIT (A) has based on sound reasoning held that the findings of the AO based on Project Falcon data, broker statements and trade pattern are not applicable to the Appellant's case and has not made independent enquiry. 5.4.5 The AO has referred to the precedence in Project Falcon in making the addition. Although the conditions as in Project Falcon are not applicable to the facts of the case since the trade done by the appellant is not in zero age illiquid options, it is relevant to state that additions done after enquiries in the Project Falcon have been subject matter of appeal at different forums and the present judicial precedents and legal position is as under: (i) Prima Facie Data In....
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....In Paragraphs 5.4.3 and 5.4.4, the CIT(A) has upheld the genuineness of the profits by his observations. 5.4.3 As regards the observation of the AO that the profit of Rs. 7,79,62,500/- is a bogus profit as the appellant has always earned profit in trades that have been executed and which is highly unlikely without premeditated intention of booking losses for the counterparties, the fact remains that the appellant has booked profits and not losses that may lead to any undue benefit. In the instant year, there is no difference in tax rates between business income and unexplained cash credit and by offering this amount as business income as against the AO treating it as unexplained cash credit, the appellant is not benefitted in any manner. Thus, this is not a case wherein premeditated trades have resulted in losses leading to setting off of taxable income. This is also not a case wherein business profit in Futures & Options have been disguised as short term capital gains. 5.4.4 The AO has also observed that the all the trades executed by the appellant are zero trade age and that the appellant is trading in highly illiquid derivatives in which no major players were a....
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....ades in illiquid options were prevalent and that such manipulative practices were used to generate bogus losses or gains by companies. 7. After analyzing the factual position, it was noticed that these were routine transactions carried out by the assessee on the stock exchange, forming part of its regular business. The assessee, in this regard, furnished a reply before the AO stating that the said profit had been duly included in the Profit & Loss account, as evident from Note 18, "Revenue from Operations," in the financial statements. It was further observed that the factual finding of the AO was incorrect, as the assessee had already offered the said amount as income from operations. 8. In order to further prove that the said profit was genuine, the assessee demonstrated that it had consistently earned profits in trades executed. Even during the year under consideration, there is no difference in the tax rates between business income and unexplained cash credit, therefore, by offering this amount as business income as against the AO treating it as unexplained cash credit, the assessee is not benefited in any manner whatsoever. 9. We also noticed that this is not a case w....
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.... Falcon data or statements recorded during investigation is not sufficient to confirm tax evasion or unexplained income. There must be a direct and cogent link between the assessee's transactions and the alleged manipulated trades. 13. We are also of the view that adverse conclusions cannot be drawn solely on suspicion or presumption arising from Project Falcon data, particularly where the assessee has declared the profit arising from such activities in its financial statements and return of income. Thus, the subsequent addition based on Project Falcon findings would amount to double taxation. In this regard, reliance is placed on the decisions of the Coordinate Bench of Delhi ITAT in the case of Saarthak Vanijya India Pvt. Ltd. vs. DCIT and the Coordinate Bench of Mumbai ITAT in the case of Gokul Fuelchem Pvt. Ltd. vs. National Faceless Assessment Centre. 14. Moreover, the Ld. CIT(A) has also dealt with this issue in detail in its order, and the operative portion of the same is contained in Paras 5.4.4 to 5.4.6 and the same is reproduced herein below: 5.4.4 The AO has also observed that the all the trades executed by the appellant are zero trade age and that the app....
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....s must be given the opportunity to explain and substantiate the genuineness of their transactions. Mere invocation of "shell companies" or "accommodation entries" without substantive proof is impermissible. (iii) Double Taxation and Inclusion in Profit & Loss Account: Where the assessee has declared profits arising from such trading activities in its financial statements and returned income accordingly, subsequent additions based on Project Falcon findings constitute double taxation and are legally unsustainable. Various judicial forum including the Delhi ITAT in Saarthak Vanijya India Pvt Ltd vs DCIT, Mumbai ITAT in Gokul Fuelchem Private Limited, Mumbai vs National Faceless Assessment Centre etc. (iv) The Courts have been consistently holding that Project Falcon findings should be treated as a trigger for detailed inquiry rather than conclusive evidence. Any addition based purely on such data, without corroborative proof and in presence of declared income, is liable to be quashed by the appellate authorities. In the instant case the entire case of the AO is based on the general findings in the Project Falcon report without any corroborative or ....
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....onsequential to the findings of Ground Nos. 1 and 2, as discussed above. Since we have already upheld the order of the Ld. CIT(A) with respect to Ground Nos. 1 and 2, this ground raised by the Revenue also stands dismissed. 19. Ground No. 4 raised by the Revenue relates to challenging the order of the Ld. CIT(A) in deleting the addition of Rs. 75,00,000/- made under Section 68 of the Act. 20. In this regard, the Ld. DR appearing on behalf of the Revenue, while relying upon the assessment order, submitted that the addition under Section 68 of the Act was wrongly deleted by the Ld. CIT(A) solely on the basis of bank statements, confirmations, and repayment of the amount, without independent verification of the identity, creditworthiness, and genuineness of the lender, especially when the Investigation Wing had indicated that the lender was part of a network of entities engaged in providing accommodation entries. 21. On the contrary, the Ld. AR appearing on behalf of the assessee, while relying upon the order of the Ld. CIT(A), also relied upon the written submissions filed before us and the same is reproduced herein below: 4. Whether on the facts and in the circumst....
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....amount of Rs. 75,00,000/- was received by account payee cheque and was duly repaid in the same year. It is also stated that the transaction was reflected in the books of account and that the relevant confirmations and bank statements were filed. The AO has neither disproved these documents nor established that the transaction was a sham by issuing summons to the lender or conducting any further inquiry. It is further noted that no statement of any director of M/s. Bluemotion Exports Pvt. Ltd. has been placed on record, nor is there any other direct evidence linking the appellant to the broader network of entities alleged to be shell companies. The allegation that the lender lacks creditworthiness, by itself, cannot be the sole basis for making the addition unless the assessee's explanation is found to be false or lacking in documentary support. In the present case, there is no finding that the documentation furnished by the appellant was false or fabricated. 7.4.4 The appellant has also furnished the copy of reply dated 07.01.2023 filed before the AO in which details of Bluemotion Export Pvt Ltd was made available to her. Upon perusal of the bank statement, I find that....
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.... report of the Investigation Wing alleging that M/s Bluemotion Exports Pvt. Ltd. is a shell company involved in providing accommodation entries and that its funds were layered through various entities before reaching the assessee. 23. In this regard, the Ld. DR has drawn our attention to the fact that the Investigation Wing conducted enquiries in the case of M/s Shiv Shakti Trading and observed that the entity had frequent cash deposits in its bank account. The Investigation Wing also found that there were various inward transactions in the said bank account from entities like Shree Ganesh Traders, Salasar Trading Co., and Raghav Impex, and frequent outward transactions to entities like M/s Lakhdatar Vinimay Pvt. Ltd., Avlokan Vintrade Pvt. Ltd., Diagram Dealers Pvt. Ltd., Sonu Vanijay Pvt. Ltd., and Foreshore Distributions Pvt. Ltd. The report also stated that the present status of all these five companies with which Shiv Shakti Trading had outward transactions was "struck off." Enquiries in the case of Shiv Shakti Trading further revealed that the entity does not exist at its registered address. 24. After considering the entire factual position, we found that the conclusion....
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....entities before reaching the appellant. The Investigation wing conducted enquiries in the case of M/s Shiv Shakti Trading and observed that the entity has frequent cash deposit in its bank account. The investigation wing also found that there were various inward transactions in the said bank account from entities like Shree Ganesh Traders, Salasar Trading Co. Raghav Impex and frequent outward transactions to entities like M/s Lakhdatar Vinimay Pvt Ltd, Avlokan Vintrade Pvt Ltd, Diagram Dealers Pvt Ltd, Sonu Vanijay Pvt Ltd & Foreshore Distributions Pvt Ltd. The report also states that the present status of all these 5 companies with which Shiv Shakti Trading had outward transactions was "strike off. Enquiries in the case of Shiv Shakti Trading revealed that the entity does not exist at its address and the transactions in excess of Rs. 37 crores in the bank account of Shiv Shakti Trading remained unexplained. The investigation report further found out that the 5 companies to whom Shiv Shakti Trading was transferring funds did not do any real business and did not have any credit worthiness. Analysis of the bank statement of these 5 companies revealed that these companies hav....
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.... the AO that Bluemotion Export Pvt Ltd is a shell entity. 7.4.3 The appellant on the other hand has submitted that the amount of Rs. 75,00,000/- was received by account payee cheque and was duly repaid in the same year. It is also stated that the transaction was reflected in the books of account and that the relevant confirmations and bank statements were filed. The AO has neither disproved these documents nor established that the transaction was a sham by issuing summons to the lender or conducting any further inquiry. It is further noted that no statement of any director of M/s. Bluemotion Exports Pvt. Ltd. has been placed on record, nor is there any other direct evidence linking the appellant to the broader network of entities alleged to be shell companies. The allegation that the lender lacks creditworthiness, by itself, cannot be the sole basis for making the addition unless the assessee's explanation is found to be false or lacking in documentary support. In the present case, there is no finding that the documentation furnished by the appellant was false or fabricated. 7.4.4 The appellant has also furnished the copy of reply dated 07.01.2023 filed before....