Setting aside the addition of entire purchase and sales transactions with a sub-broker as cash credits under Section 68 of the Income Tax (I-T) Act by the assessing officer (AO), the Mumbai bench of I-T appellate tribunal (ITAT) says only the profit disclosed could be considered as undisclosed income under Section 68 of the Act.
In an order earlier this month, the ITAT bench of Sandeep Gosain (judicial member) and Prabhash Shankar (accountant member) says, "...we find sufficient merits in the contention of the assessee that the addition made by the AO adding entire purchase and sale transactions as unexplained credit under Section 68 of the Act is not justified. Neither the AO nor the commissioner of I-T (appeals) (CIT(A)) appreciated that the impugned transaction, even though considered as non-genuine, involved purchase as well as sale; the assessee received only the profit thereon. The alleged accommodation entry at the best could be restricted to the profit only. It is equally true that the assessee at no point denied having made the transaction, which the investigation wing of the department found sham and made only with the intention of money laundering. However, it is equally true that the assessee has duly disclosed the profit from said speculation business in commodities trading as income in the return and such a fact has not been denied by the authorities below."
"In the present case, the claim of so-called profit at the best could be considered to be treated as the cash routed through the sub-broker to give it a colour of legitimacy. This is the amount returned back to the assessee through banking channels by an intricate process of placement, layering and integration as in a typical case of money laundering. Therefore, only the profit disclosed could be considered as undisclosed under Section 68 and not sale or purchase transactions," the bench says.
Mumbai-based Vijay Maneklal Bhansali had filed an appeal before the ITAT challenging an order passed by CIT(A). He contended that the National Faceless Appeal Centre (NFAC) erred in confirming an addition of Rs4.89 crore under Section 68 of the Act, where the AO has failed to appreciate that the provisions of Sections 147 and 148 of the Act are not applicable when assessment is to be based on a search initiated on a third party.
"The NFAC erred in confirming the addition of Rs4.89 crore under Section 68 of the Act by adding the sum of total purchase and sales transactions through book entries in respect of commodities futures speculative transactions," he added.
During the hearing, ITAT referred to a report from the Forward Market Commission (FMC) stating that 'clients and members of National Multi Commodity Exchange (NMCE) were found to be involved in creating artificial volume and suspected evasion of I-T by misuse of NMCE platform'.
After a survey by the principal director of I-T (investigation) at Ahmedabad at the premises of NMCE, an analysis was performed using backup taken from the exchange. After the analysis, several entities were identified that had booked bogus losses and information was shared with the concerned director-general of I-T (investigation).
Based on the investigation, the director-general of I-T (investigation) found that most of the entities who had booked bogus losses were dummy entities that had facilitated bogus losses or profit to other real beneficiaries. On the basis of this investigation, it was informed that the transactions entered into by Jet Air Agencies Pvt Ltd during the period relevant to assessment year (AY)10-11 were fictitious transactions to accommodate accumulated bogus loss and profit. It was also found that Mr Bhansali was also one of the beneficiaries of such accommodation entry. His transactions with the sub-broker were of Rs4.89 crore which was treated as a non-genuine transaction and added as income from other sources under Section 68 of the Act.
At first, Mr Bhansali denied any transaction with Jet Air Agencies, the sub-broker, but later accepted it saying it was a genuine transaction.
However, during the hearing, the counsel for Mr Bhansali vehemently agitated the addition of Rs4.89 crore contending that his client received only Rs9.32 lakh being profit from the commodities transactions.
Considering the facts, the Tribunal says it finds sufficient merits in the contention of Mr Bhansali that the addition of Rs4.89 crore made by the AO considering the entire purchase and sale transactions as unexplained credit under Section 68 of the Act is not justified and is liable to be deleted.
(ITA1799/MUM/2024 Date: 13 January 2025)
