Recorded share losses cannot be treated as undisclosed income in block assessment absent incriminating material

ORDER

Yogesh Kumar, U.S. Judicial Member.- The present appeal is filed by the Revenue and the cross objection filed by the Assessee against the order of Ld. Commissioner of Income Tax (Appeals)- Delhi-31 (‘Ld. CIT(A)’ for short), dated 10/12/2024 for the block period 01/04/1987 to 07/08/1997.

2. The grounds of appeal of the Revenue are as under:-

“1. On the facts and circumstances of the case and in law, the assessment order passed by the assessing officer is bad-in-law, without jurisdiction and barred by limitation and CIT(A) erred in not holding so.

2. On the facts and circumstances of the case and in law, the additions of Rs.45,03,39,610/- made by the assessing officer on account of alleged undisclosed income are beyond the scope and jurisdiction of provisions of Chapter XIV-B of Income Tax Act, 1961 and therefore, the additions made by the assessing officer are liable to be deleted.

3. On the facts and circumstances of the case and in law, the assessing officer erred in treating / assessing the amounts of Rs.45,03,39,610/- as undisclosed income.

4. On the facts and circumstances of the case and in law, the assessment order passed by the assessing officer is contrary to the provisions of section 158BG of the Income Tax Act, 1961 and CIT(A) erred in not holding so.”

The grounds of cross objection of the Assessee are as under:

“1. On the facts and circumstances of the case and in law, the assessment order passed by the assessing officer is bad-in-law, without jurisdiction and barred by limitation and Ld. CIT(A) erred in not holding so.

2. On the facts and circumstances of the case and in law, the additions of Rs. 45,03,39,610/- made by the Assessing Officer on account of alleged undisclosed income are beyond the scope and jurisdiction of provisions of Chapter XIV-B of Income tax Act, 1961 and therefore, the additions made by the assessing officer are liable to be deleted.

3. On the facts and circumstances of the case and in law, the assessing officer erred in treating/assessing the amounts of Rs. 45,03,39,610/- as undisclosed income.

4. On the facts and circumstances of the case and in law, the assessment order passed by the assessing officer is contrary to the provisions of Section 158BG of the Income Tax Act, 1961 and Ld. CIT(A) erred in not holding so.”

3. Brief facts of the case are that, a search and seizure operation under section 132 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) was carried out at the premises of the Assesseecompany on 07.08.1997. In response to notice under section 158BC of the Act issued by the assessing officer, the Assesseecompany filed the return for the block period (01.04.1987 to 07.08.1997) on 03.06.1999 declaring undisclosed income of Rs. NIL. Thereafter, the assessment was completed by the assessing officer vide assessment order dated 31.08.1999 made under section 158BC of the Act at undisclosed income of Rs. 22,70,16,610/-. Aggrieved by the assessment order and the additions made therein, the Assessee company filed appeal before CIT(A)-V, New Delhi on 30.09.1999. Various hearings took place before the CIT(A).Before the receipt of order of CIT(A), the Assessee company filed an application before the settlement commission on 09.05.2000. The CIT(A)-V New Delhi passed appeal order dated 31.03.2000 (which was received by the Assessee company after filing of application before settlement commission) The CIT(A) in its appeal order set aside the assessment order passed by the assessing officer with specific directions to A.O to pass a composite and speaking order after verification and after giving proper opportunity to the Assessee company of being heard.The settlement commission vide its order dated 04.09.2000 passed under section 245(D)(1) of the Act, allowed the application of the company to be proceeded with.The proceedings before settlement commission stood concluded on 10.03.2014 when the Chairman of the Settlement Commission pronounced an order stating that the case would revert to the assessing officer. However, Assessee company received a letter dated 03.07.2014 from the settlement commission requiring it to represent before the commission in further proceedings. Against the re-initiation of proceedings by the settlement commission, the Assesseecompany filed a writ petition before the Hon’ble Delhi High Court. The Hon’ble High Court passed an order dated 08.12.2016 accepting the contention of the Assessee and directed for further proceedings/fresh assessment by the A.O.After the above mentioned order dated 08.12.2016 of Hon’ble Delhi High Court, the assessing officer took up the assessment proceedings. The assessing officer issued notice u/s 142(1) dated 20.01.2017 asking the assessee to furnish certain information/details. The information/replies/details were duly submitted by the Assesseeto the assessing officer. The assessing officer did not point out any discrepancies in the details / information / replies submitted by the Assessee. The assessing officer also did not raise any further queries. Assessing officer passed the assessment order dated 03.02.2017 determining undisclosed income of Rs 45,03,39,610/-.

4. Aggrieved by the assessment order dated 03.02.2017, the Assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) vide order dated 10/12/2024, deleted the addition of Rs. 45,03,39,610/- made by the A.O. As against the order of the Ld. CIT(A), the Department preferred the Appeal on the grounds mentioned above.

5. The Ld. Departmental Representative arguing on the Revenue’s Appeal submitted that, the Ld. CIT(A) committed error in deleting the addition of Rs. 45,03,39,610/- made by the A.O. by disallowing losses claimed on sale of shares, wherein the Ld. CIT(A) has not appreciated the fact that the said losses were not genuine and the transactions were doctrine as opined by the A.O. based on the seized material. Further contended that, the Ld. CIT(A) failed to consider that the transactions of the Assessee were not supported by paper bills/vouchers of sales and the Ld. CIT(A) committed error by relying on the form of transaction which were not even substantiated by supporting documents ignoring the substance of the transaction as propounded by the Hon’ble Supreme Court in the case of Mc Dowell & Co. Ltd. v. CTO  (4) TMI 64. The Ld. Departmental Representative relying on the order of the A.O., sought for allowing the Appeal of the Revenue.

6. Per contra, the Ld. Assessee’s Representative submitted that the Ld. CIT(A) made detailed analysis of each and every transaction which were disallowed by the A.O., after examining entire documents on record. The Ld. Assessee’s Representative has taken us through the order of the Ld. CIT(A) in detail and relied on the order of the Coordinate Bench of the Tribunal in the case of H B Stock Holding Ltd. reported in (2002) (5) TMI, wherein the nature of the additions/disallowance and the basis/reasoning of additions were identical as the case of the Assessee and the Tribunal decided the issue in favour of the Assessee. Thus, Ld. Assessee’s Representative relying on the findings and conclusion of the Ld. CIT(A), sought for dismissal of the Appeal of the Revenue.

7. We have heard both the parties and perused the material available on record. The assessee company was engaged in the business of sale and purchase of shares and securities. Pursuant to the search and seizure operation under section 132 of the Act at the premises of the Assesseecompany on 07.08.1997, a notice under Section 158BC of the Act was issued by the assessing officer. AssesseeCompany filed the return for the block period (01.04.1987 to 07.08.1997) on 03.06.1999 declaring undisclosed income of Rs. NIL. After approaching the Settlement Commission and the Hon’ble High Court, finally an assessment order came to be passed on 03.02.2017 determining undisclosed income of the Assessee at Rs.45,03,39,610/-. The assessing officer completed the assessment by disallowing losses on sale of shares in various years. The gist of the reasons for disallowance of losses assigned by the A.O. are as under:-

(a). The losses claimed were not genuine

(b). The company was following different accounting years for Income tax purposes and companies Act.

(c). The transactions of sale purchase were done through group companies.

(d). The transactions were done off market.

(e). The transactions were not supported by proper bills.

8. During the first appellate proceedings before the Ld. CIT(A), it is the specific case of the Assessee that the Ld. A.O has erred in making in aggregate additions of Rs.45,03,39,610/- in the Block Period for alleged bogus losses, the additions are based on suspicion, conjectures, surmises and erroneous views ignoring and/or not appreciating the facts and law involved. The additions are illegal, arbitrary, without proper consideration of the appellant’s submissions/reconciliations and without proper consideration of the audited books of accounts, documents, records and confirmations which overwhelmingly support the genuineness of the transactions involved.

9. The Ld. CIT(A) after verifying the record found that each of the years falling in the block period, the Assessee Company has earned net profit in transaction of sale/purchase of shares and produce the details of year wise profit and loss disallowed/addition made by the A.O. After perusal of the record, the Ld. CIT(A) observed that the A.O. has disallowed almost all the losses and accepted all the profit transactions. Further while deleting the addition, the Ld. CIT(A) held as under:-

“8. From a perusal of the above tables, it is evident that the AO has disallowed almost all the losses and accepted all the profit transactions. The appellant has furnished before the AO as well as before me a detailedanalysis of each loss with supporting evidences. It is pertinent to note that the returns of income upto A.Y. 1995-96 were filed well before the date of search and all the transaction (whether of profit or loss) were duly recorded in the books of accounts/financial statements and were, thus disclosed in the income tax return. The return of income for A.Y. 1996-97 and A.Y. 1997-98 were not due for filing as on the date of search. In the return of income filed for A.Y. 1996-97 and A.Y. 1997-98 after the date of search (the due date for filing of return of income was after the date of search) all the transaction of profit/loss were duly disclosed in the return of income filed. There is no single transaction which was ‘undisclosed’.

All the transactions of sale/ purchase of shares (including the transaction, in respect of which, the AO has made the disallowance of loss were duly recorded the books of accounts as on date of search. The position of year wise filing of regular returns of income and assessment is as under:-

9. Losses have been disallowed as bogus by relying upon and making comparisons with rough and incomplete papers without pointing out any instance of any transaction which may have been found in the seized material but not found recorded in the books of accounts. The transactions which are recorded in the books of accounts can be considered in the regular assessments and not in the Block assessment under section 158BC of the Act. It is a matter of record that the books of accounts were produced not only in the original block assessment proceedings, but were also furnished in the regular assessment proceedings as is evident from various assessment orders relating to regular assessment proceedings. As a matter of fact, the AO has himself attached the chart showing complete details of opening stock, purchases, sales and closing stock with the assessment orders which are as per books of accounts and audited financial statements and all the transactions in respect of which losses have been disallowed by the AO are forming part of the chart prepared by the AO. The observations of the A.O. that the company was having different accounting year for the purpose of Companies Act and for the purposes of the Act is no ground for drawing adverse inference. At the relevant time, there was no bar under the law for having different accounting years for the purpose of Companies Act and for the purposes of the Act. The AO has not pointed out any transaction which is recorded in published balance sheet as per Companies Act and which is not recorded in Balance Sheet filed with income tax return and vice versa. With regard to the remarks of the AO that many of the transactions were carried out off market, there is substance in the submission of the appellant that at the relevant time there was no bar on the off-market transactions. Moreover, there are off market transactions in which the appellant has earned substantial profits which have been accepted by the AO. Thus, the AO was not justified in accepting the profits in off market transactions and disallowing the losses therefrom. The remarks of the AO that the employees of the main companies maintain books of accounts of some other companies, even if true, cannot be a ground for treating the disclosed and duly recorded transactions as undisclosed income. There is no bar under the law that accountants and professionals working on a full time basis in one organisation cannot work on part-time or on assignment basis in other organisations. The AO has made certain comments regarding concerns M/s. Yellow Saphire Investments Ltd., M/s. Miraculous Investment Co. Ltd. and M/s. Cornflower investments Ltd. The AO has not made any addition/disallowance in respect of transactions with M/s. Yellow Saphire Investments Ltd. and M/s. Miraculous Investment Co. Ltd. With regard to transactions with M/s. Cornflower investments Ltd, the AO has disallowed the losses but the profit in similar transactions with M/s. Cornflower investments Ltd have been accepted. Moreover, the transactions with M/s. Cornflower investments Ltd resulting into losses to the appellant, which have been treated as bogus by the AO in the case of the appellant, have correspondingly been treated as genuine by the AO in the assessment order made u/s 158BD in the case of M/s. Cornflower investments Ltd. Thus, the action of the AO in disallowing the losses is not sustainable in law as well as on facts.

10. to sum up:-

F.Y 1991-92

For the F.Y 1991-92 the net profit earned by the company in shares trading was Rs. 41,82,380/-. There were transactions wherein the appellant earned profit earned by the company in shares trading was Rs. 41,82,380/-. There were transactions wherein the appellant earned profit of Rs. 1,25,91,619/- and there were similar transactions in which the appellant incurred loss of Rs. 84,09.295/-. The AO has accepted all the transactions resulted into profit and has disallowed loss of Rs. 83,95,000/- i.e. almost all the transaction resulting into loss. The transactions of profit/loss are with the same parties and are supported by similar documentary evidences. All the transactions are duly recorded in the books of accounts and disclosed in the books of accounts as well as regular income tax returns filed. The appellant has furnished before the AO as well as before me detailed analysis and documentary evidence of each and every transaction of loss.Thus, the action of the AO in disallowing the losses cannot be held to be justified.

F.Y. 1992-93

For FY 1992-93, the AO has made addition of Rs. 80,68,217/- on amount of suppressed profit. As per Chart B-2 Annexed with the assessment order, the AO has stated that the profit shown in books of accounts is Rs. 3,82,74,456/- whereas the AO has computed profit of Rs. 4,63,42,673/-detailed as under: –

In respect of the above, the appellant had submitted before the AO that there was factual mistake in his working. The amount of profit of Rs. 3,82,74,456/- shown in the books of accounts and return of income was not in above two scrips only. The amount of profit of Rs. 3,82,74,456/-was in various scrips detailed as under:

Further, the AO has also erred in mentioning the figure of profit in the scrip of TISCO and DCM Ltd. From the above breakup of scrip wise profit/loss, it is evident that profit in the scrip of TISCO and DCM Ltd. were Rs. 3,27,45,438/- and Rs. 84,15,000/- respectively instead of Rs. 3,47,45,530/- and Rs. 1,15,97,143/- as mentioned by the AO. The details of profit earned by the appellant in the above two scrips is as under.

DCM Ltd.

TISCO

The above factual position was duly explained to the AO and details/working were submitted before the AO. The AO has not pointed out any discrepancy in the detail and working submitted by the appellant. Thus, the action of the AO in making the addition cannot be held to be justified.

F.Y. 1993-94

For the F.Y. 1993-1994 the net profit earned by the company in shares trading was Rs. 1,08,29,066/-. There were transactions wherein the appellant earned profit of Rs. 5,67,04,895/- and there were similar transactions in which the appellant incurred loss of Rs. 4,58,75,829/-. The AO has accepted all the transactions resulting into profit and has disallowed loss of Rs. 4,58,85,303/- i.e. almost all the transaction resulting into loss. The transactions of profit/loss are with the same parties and are supported by similar documentary evidences. All the transactions are duly recorded in the books of accounts and disclosed in the books of accounts as well as regular income tax returns filed. The appellant has furnished before the AO as well as before me detailed analysis and documentary evidence of each and every transaction of loss. Thus, the action of the AO in disallowing the losses cannot be held to be justified.

F.Y. 1994-95

For the F.Y. 1994-1995 the net profit earned by the company in shares trading was Rs. 2,08,84,198/-. There were transactions wherein the appellant earned profit of Rs. 15,84,92,489/- and there were similar transactions in which the appellant incurred loss of Rs13,76,08,291/-. The AO has accepted all the transactions resulting into profit and has disallowed loss of Rs13,76,08,290/- i.e. almost all the transaction resulting into loss. The transactions of profit/loss are with the same parties and are supported by similar documentary evidences. All the transactions are duly recorded in the books of accounts and disclosed in the books of accounts as well as regular income tax returns filed. The appellant has furnished before the AO as well as before me detailed analysis and documentary evidence of each and every transaction of loss. Thus, the action of the AO in disallowing the losses cannot be held to be justified. For the F.Y. 1995-1996 the net profit earned by the company in shares trading was Rs. 55,328/-. There were transactions wherein the appellant earned profit of Rs. 25,02,06,061/- and there were similar transactions in which the appellant incurred loss of Rs.25,01,50,733/-. The AO has accepted all the transactions resulting into profit and has disallowed loss of Rs. 25,01,58,960/- i.e. almost all the transaction resulting into loss. The transactions of profit/loss are with the same parties and are supported by similar documentary evidences. All the transactions are duly recorded in the books of accounts and disclosed in the books of accounts as well as regular income tax returns filed. The profit/loss in share transactions included the following:-

11. The AO has disallowed the amount of loss, but the same amount of profit in the identical transactions (same party and same documentary evidences) has been accepted by the AO. Thus, the AO was not justified in disallowing the losses and accepting the profits. The appellant has furnished before the AO as well as before me detailed analysis and documentary evidence of each and every transaction of loss. Thus, the action of the AO in disallowing the losses cannot be held to be justified.

12. There is also substantial force in the submission of the appellant that the AO has made huge addition as undisclosed income for the block period and that if the appellant had earned such huge amount of undisclosed income, then some evidence would have been found during the course of search of the corresponding undisclosed assets viz cash, investment, share or any other form of assets or some unexplained expenditure. It is a matter of record that during the course of search no undisclosed assets or expenditure have been found.

13. It is also pertinent to note that the cases of many of the companies (including M/s. Cornflower Investments Ltd.) with whom transactions have taken place and wherein losses have been incurred (which have been disallowed by AO) have been completed by A.O. u/s 158 BD and the transactions have been duly accepted and admitted as genuine in their cases. Therefore, there remains no basis for the AO to treat the transactions as non-genuine in the appellant’s case.”

10. It is also observed that, the Ld. CIT(A) while deleting the addition, relied on the order of the Tribunal in the case of H. B. Stock Holding Ltd (supra), wherein similar disallowances were made in the case of Group Companies i.e. H. B. Stock Holding Ltd. and the nature of additions and the basis/reasoning of additions in the said case were same as in the case of the Assessee herein. The Co-ordinate Bench of the Tribunal is while deleting the additionin IT(SS) Appeal No. 83 (Del)/2002 (Block Period 01/04/1987 to 07/08/1997, held as under:-

“6. We have heard the rival submissions and considered them carefully. We have also perused the material on which our attentions were drawn. We have also considered the various case laws relied upon by the learned counsel of the assessee. After considering all the material, we find that assessee deserves to succeed in its appeal in toto.

7. First, we will deal with the legal argument of the learned counsel in regard to that while completing the assessment under s. 158BC no addition or disallowance of claim of loss can be made, which were duly disclosed by filing the regular returns or shown in regular books of accounts. The main stress of the learned counsel of the assessee was that assessee-company has been maintaining regular books of accounts since the inception of the company and was filing its regular returns before the concerned tax authorities. Copies of the returns filed by assessee on the basis of regular returns are placed in the paper book at pp. A-180 to 189. These are for asst. yr. 1994-95 to asst. yr. 1997-98. We further find that assessments have also been completed for these years. Copies of the orders for these years are placed in the paper book from pp. A-190 to A-213. Assessment for asst. yr. 1994-95 was completed under s. 143(3) and assessment for asst. yr. 1995-96 was completed under s. 143(1)(a). Copy of order for asst. yr. 1996-97 passed under s. 143(3) is placed at pp. A-199 to A206 and for asst. yr. 1997-98 the copy of the order is placed at pp. A-207 to A213, which clearly shows that returns on the basis of regular books of accounts were prepared and were filed before the concerned AO ad the assessments were also completed. We further noted that assessment for asst. yr. 1997-98 was completed on 22nd March, 2000 i.e., after the date of order under s. 158BC for the block period, as the assessment for the block period was completed on 31st Aug., 1999. We further noted that for asst. yr. 1997-98 the assessee had shown loss of Rs. 10,34,06,607. Against this loss, the assessment was completed at Nil income. For the asst. yr. 1996-97 the loss was claimed at Rs. 6,96,64,604 against which the assessment was completed on a loss of Rs. 5,77,03,164. Likewise, in earlier years also the loss was discussed while completing the assessment under s. 143(3), means thereby the loss shown by assessee has already been discussed by the AO while completing the assessment under s. 143(3).

8. No doubt, the search took place on the assessee and other group concerns of assessee. Some material was found and seized and if any addition can be made, that can be made only on the basis of that material and not on the basis of any expenditure or income disclosed while filing the regular returns. We have seen the assessment order as well as order of the CIT(A) and found that they have mentioned at so many places in their orders that assessee has booked the ingenuine transactions in the books for claiming a higher loss. Almost each para of the AO says that assessee has booked ingenuine loss in its book of accounts, which clearly shows that all the transactions were entered by assessee in the regular books of accounts maintained in regular course of business. In some paragraph the AO stated that some of the entries made in Annex. A-53, are not in consonance with the entries entered in the regular books of accounts. In reply, the learned counsel has stated that, of course, there may be some difference in the items as per Annex. A-53, but if the journal is taken into consideration, then it will be found that all the transactions made by assessee have already been entered in the journal. It was also submitted that the assessee-company is a share broker and has entered into so many transactions with various parties and after compiling and reconciliation of all transactions with respective parties, then the final figure has been entered in the books of accounts. For further clarification, the intention of the Bench was drawn on the copy of compilation filed before the AO. Accordingly it was explained that if there was any discrepancy, that was due to the compilation of the entries on a later stage.

9. We further find that this is an admitted position that assessee has shown all the transactions in its books of accounts. This is amply clear from the remand report sent by the AO to the CIT(A). Copy of the remand report is placed in the paper book at pp. A-113 to A-121. The AO in para 13 of his remand report has clearly admitted that the loss shown by the assessee was a tutored and tailored loss. The observations of the AO in para 13 are as under:

“It has already mentioned in the assessment order that the books of account of the assessee have not been rejected. What has been disputed is the tutored and tailored lose making transaction which have been entered within the group companies to reduce its profits.” (sic)

9.1 Later on, in para 18, the AO has stated that

“As already mentioned there are various losses which are shown to have been incurred in the normal course of business but the seized documents are sufficient evidences to indicate that these losses have been tutored and tailored made. The outcome of certain transaction within the group companies, which have been entered into by the assessee to generate losses in the books which have been used to set off the income earned in the normal course of business.”

9.2 From these observations of the AO, it is amply clear that all the transactions were entered in the regular books of accounts maintained by it. We have already discussed somewhere above that on the basis of regular books of accounts, the returns have been prepared and filed by assessee before the date of search and we have also found that assessments for these assessment years have also been completed under s. 143(3), whereby the losses shown by assessee have already been discussed in those orders.

10. We further noted that main thrust of the AO to disallow the claim of loss was in regard to transactions entered with A. Nitin& Co. We find that the cheque of Rs. 6.25 crore was not paid by the assessee, but the same was received by assessee from A. Nitin Co. Confirmation of A. Nitin Co. was filed, whereby it was confirmed that they have made a payment of Rs. 6.25 crore to the assessee. On the contrary, the AO has observed in his order that assessee has made the payment of Rs. 6.25 crore to A. Nitin Co., which in fact, is incorrect. Therefore, in our considered view, doubting the transaction, was not justified at the end of the AO. Again we find that the CIT(A) also confirmed the action of the AO by merely saying that assessee has booked the ingenuine loss for lowering its profitability. But not a single instance has been brought on record that how the profits were converted into losses, neither any material was found which shows that any money paid by assessee through cheques has been received by assessee underhand; nor any transaction was found which was not genuine or was not entered in the regular books of accounts. The AO was placing reliance on Annexs. A-53 & A-35, but he has not considered the reconciliation along with reply dt.23rd Aug., 1999, filed by the assessee. If the reconciliation could have been considered, then in that case no difference would have been found, as all final entries were entered in regular books of accounts. The CIT(A) has also not considered the reconciliation filed by assessee. Both the lower authorities have presumed that assessee must have shown loss bearing transactions just to reduce its profitability. The transactions found entered by assessee with parties, like, A. Nitin& Co., Corn Flower, Suman Investment, M.F.L., S.B. Securities etc. either were confirmed by the respective parties or were found entered in the regular books of accounts. All payments were made through account payee cheques, either they were received by assessee or they were made by assessee. Even not a single transaction was found to be made in cash. Bank accounts were duly disclosed by the assessee and no account was found which was not disclosed by the assessee. Therefore, any transaction made by assessee cannot be said that they were not disclosed either in the regular books of accounts or before the lower authorities.

11. From the orders of the AO it is clearly established that no loss has been claimed by the assessee while filing the return for the block period. The return for the block period was filed at Nil undisclosed income. Copy of the same is placed in the paper book. The AO disallowed the claim of loss claimed by assessee in its regular returns for the asst. yrs. 1994-95 to 1997-98. We are not able to understand that how the AO disallowed the claim of loss claimed by assessee on the basis of regular returns. If the AO wants to disallow any claim that can be disallowed only on the basis of material found and only if the loss has been claimed by assessee while filing the return for the block period. As we have already stated that no loss whatsoever was claimed by assessee, as the return was filed at Nil undisclosed income. The assessment for the asst. yrs. 1994-95 to 1997-98 have already been completed either under s. 143(3) or under s. 143(1)(a) and the loss claimed by assessee has already been considered by the respective AOs either the same has been accepted of the same have been reduced. The details of such loss claimed and reduced we have already discussed in foregoing paragraphs earlier.

12. Various Benches of the Tribunal in the country and various High Courts have held that once the transactions have been shown in regular books of accounts and the returns on the basis of regular books of accounts have been filed, then on that basis no income or loss can be added or disallowed while making the assessment under Chapter XIV-B of the IT Act.

13. In the case of Parakh Foods Ltd. v. Dy. CIT(1998) 64 ITD 396 (Pune), the Pune Bench of the Tribunal has discussed the issue at great length, wherein it has been discussed in detail that what is undisclosed income and what can be added while assessing the income under s. 158BC. They have distinguished both the Chapter XIV-B and Chapter XIV. Chapter XIV is in regard to regular assessments completed under s. 143(3) or s. 148 and Chapter XIV-B is in regard to undisclosed income of block period which contains 10 years. Under Chapter XIV-B the charging of tax is computed under the provisions of s. 113 of the IT Act, which is 60 per cent of the total undisclosed income and under Chapter XIV, the tax is charged at normal rate, ranging between various categories of income. Further, it has been observed by the Pune Bench that “if the assessee has disclosed the particulars of income before the date of search and the AO draws an adverse inference and intends to assess the same as income, then such income cannot be treated as undisclosed income. For example, the assessee may claim a particular receipt as not taxable or may claim a particular expenditures allowable deduction under the provisions of IT Act. In such cases, if the assessee has disclosed particulars of such income or expenditure and the AO intends to take a different view, then such income, cannot be termed as undisclosed income, though the same may be considered for inclusion in the total income during the course of regular assessment or reassessment as the case may be, in accordance with law. The Supreme Court in the case of Indo-Aden Salt Mfg. & Trading Co. v. CIT (1986) 58 CTR (SC) 9 : (1986) 159 ITR 624 (SC), has held that it is the primary facts which are to be disclosed by the assessee and not inferential facts. It was not possible to agree with Revenue’s contention that s. 158B did not contemplate about disclosure of facts. The words for the purposes of this Act in the end of the definition clause under s. 158B are significant. Where the assessee has disclosed primary facts relating to the particulars of receipts and expenses either in the return or in the course of the assessment proceedings or where the return has not become due, such particulars have been duly recorded in the regular books of account prior to the date of search and the AO intends to assess the same then such income cannot be assessed as undisclosed income within the scope of s. 158B(b) merely on the ground that adverse inference is drawn by the AO. However, the AO may perhaps assess the same either by way of regular assessment or reassessment, as the case may be, in accordance with law.”

14. Similar view has been taken by the Bombay Bench in the case of Sunder Agencies v. Dy. CIT (1997) 59 TTJ (Mumbai) 610 : (1997) 63 ITD 245 (Mumbai), wherein it is held that “.within pale of Chapter XIV-B assessment could be made only in respect of the undisclosed income and such undisclosed income must come as a result of search. Sec. 158BA does not provide a licence to Revenue for making roving enquiries connected with completed assessment and it is beyond power of the AO to review the assessments completed unless some direct evidence comes to the knowledge of the Department as a result of search which indicates clearly the factum of undisclosed income. Without such evidence or material the AO is not empowered to draw any presumption as to the existence of undisclosed income. A presumption is an inference of fact drawn from other known or proved facts. It is rule of law under which Courts are authorised to draw a particular inference from a particular fact, until and unless the truth of such inference is disproved by other evidence. The scheme of Chapter XIV-B does not give power to the Revenue to draw the presumption in regard to the undisclosed income. The AO could proceed on the basis of material detected at the time of search and the evidence gathered. Under s. 132(4), the authorised officer may, during the course of search or seizure, examine on oath any person who is found to be in possession or control of any books of accounts, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Act.”

15. The Hon’ble Gujarat High Court has also held that both the proceedings are separate, i.e., under Chapter XIV and Chapter XIV-B and both the proceedings can be initiated separately. However, it has been clarified that no addition can be made on the basis of regular return filed before the search or before the due date while completing the assessment under Chapter XIV-B.

16. In the case of D.N. Kamani (HUF) v. Dy. CIT (1999) 65 TTJ (Pat)(TM) 504 : (1999) 70 ITD 77 (Pat)(TM), it has been held “Moreover in the assessment completed under s. 143(3) for the asst. yr. 1992-93, the AO had already accepted the accounts relating to the said 15 flats and there being no material evidence found during the course of search; it was beyond the power of AO to review the position already accepted.”

17. In the case of Dr. C. Balakrishnan Nair &Anr. v. CIT &Anr. (1999) 154 CTR A.Y. 1988-89 ITBA/APL/S/250/2024-25/1071042822(1) (Ker) 523 : (1999) 237 ITR 70 (Ker), the Hon’ble Kerala High Court has held that there was no violation of the provisions of the Act because the documents relating to capital gains and the assessee claimed exemption in respect of it under s. 54. Without any violation of IT Act the Respondents had no jurisdiction to invoke s. 158BC. Accordingly the notice was quashed and the respondents were prohibited from invoking the sections under Chapter XIV-B of the Act in the said Act.

18. In the case of Shaw Wallace & Co. Ltd. v. CIT (1999) 154 CTR (Cal) 105: (1999) 238 ITR 13 (Cal), similar view has been expressed by the Hon’ble High Court that where the regular returns have been filed and the assessments on the basis of regular returns have been made, then the AO is not empowered to review those regular returns while completing assessments under s. 158BC under Chapter XIV-B.

19. In the case of L.R. Gupta v. Union of India (1992) 101 CTR (Del) 179 : (1992) 194 ITR 32 (Del), wherein it has held that an assessee is under no obligation to disclose in his return of income all the monies which are received by him, which do not partake the character of income or income liable to tax. If an assessee receives admittedly a gift from a relation or earns agricultural income which is not subject to tax, then he would not be liable to show the receipt of that money in his income-tax return. Nondisclosure of the same would not attract the provisions of s. 132(1)(c). It has been further observed by the Hon’ble Delhi High Court that if the Department became aware that those receipts, not shown by assessee, are taxable in character, then Department can invoke the provisions of s. 148, but no action can be taken under s. 132(1)(c).

20. Here in the instant case there may be that some of the entries have not been made by assessee in regular books of accounts, but those entries can be held that they may not partake the character of taxable income. And the meaning of undisclosed income was given with reference to s. 132(1)(c), therefore, we are of the view that same can be applied with reference to Chapter XIV-B. Accordingly we are of the view that the view of ours find fortified by the aforesaid decision of the Hon’ble Delhi High Court, because the assessee has submitted in his reply before the AO that some of the entries are not made because a consolidated entry has been made after adjusting both of the entries i.e., purchase of shares and sale of shares, but that do not have the charter of any taxable income.

21. Further as we have already discussed in detail that neither the AO, nor CIT(A) has brought any material on record that which part of the income was not disclosed by assessee while filing the return of income or which portion of loss claimed by the assessee in the regular returns, was not genuine. Merely ITBA/APL/S/250/2024-25/1071042822(1) presuming that assessee must have booked bogus losses to reduce its profitability, in our considered view, cannot be approved either on the facts of the present case or in the eyes of law. Various High Courts and even the Supreme Court has settled the issue that no addition can be made on presumption basis. If the AO wanted to disallow the claim of the assessee claimed in the regular returns, then some material has to be brought on record that these transactions were ingenuine. The transactions made with various parties were proved by the assessee; confirmations of all the parties were filed; particulars of their incometax, along with their filing of returns were furnished. Even in some of the cases the copies of assessment orders for the same year, in which the transactions were entered, were filed before the lower authorities, which they failed to consider.

22. Therefore, in view of these facts and circumstances and in view of the decisions already taken, we hold that there was no material with the AO to disallow the claim of loss claimed by the assessee while filing its regular returns of income, because there being no material evidence found during the search and, therefore, it was beyond the power of the AO to review the position already accepted while passing the assessments under s. 143(3) on the basis of regular returns filed in due course of time. Accordingly we delete all the additions made by the AO in the block period.

23. Since we have deleted the entire additions because of all the transactions were duly entered by the assessee in its books of accounts and the returns for the relevant assessment years were filed before the date of search and even the assessments of those years were also completed by the respective AOs. We have also discussed above regarding the scope of Chapter XIV-B to dispose off the present appeal regarding the undisclosed income, therefore, we refrain ourselves from expressing our view on the other aspects argued by the learned authorised representative or the lower authorities. This covers ground Nos. 1 to 13.”

11. It is also brought to our notice that the order of the Tribunal in the case of H. B. Stocking Ltd. (supra), has been upheld by the Jurisdictional High Court by dismissing the Appeal of the Revenue.

12. Further, as could be seen from the order of the Ld. CIT(A), the CIT(A) has made detailed analysis of each and every transaction where the assessing officer has made the disallowance. The CIT(A) has taken note of the fact that the assessing officer has disallowed almost all the losses and accepted all the profit transactions. Although the transaction of profit as well as loss were based on the similar documentation and were carried out with same parties. The CIT(A) has also taken note of the fact that return of income up to A. Y. 1995-96 were filed well before the date of search and all the transactions of profit as well as loss were duly recorded in the books of accounts and disclosed in the income tax returns. Similarly, the return of income filed for A.Y. 1996-97 & A.Y. 1997-98 (due date of filing ofreturn of income was after the date of search), all the transactions of profit & loss were duly disclosed in the return of income filed. The assessing officer has not pointed out any single transaction which was undisclosed or not recorded in the books of account. The observation of the assessing officer that assessee was having different accounting year for the purpose of Companies Act and for the purpose of Income Tax Act is out of context and not relevant as the assessing officer has not pointed out any transaction which is recorded in the balance sheet as per Companies Act but not recorded in the balance sheet as per Income Tax Act, and vice-versa.

13. The CIT(A) has also considered the fact that many of the companies with whom the assessee company had transactions, have been accepted by the assessing officer in their respective cases. The CIT(A) has also noted the fact that similar disallowance were made in the case of group company namely HB Stockholding Ltd. The Coordinate Bench in the case of HB Stockholding Ltd. (supra) deleted the disallowance made by the assessing officer, which has been confirmed by the Hon’ble Jurisdictional High Court. In view of the above facts and circumstances, as the Revenue has not brought any change of facts and circumstances on record and also not brought any contrary material to contradict the findings of the Ld. CIT(A). Thus, wefind no merit in the grounds of Appeal of the Revenue, accordingly, Grounds of appeal of the Revenue are dismissed.

14. In the result, Appeal of the Revenue is dismissed.

15. Since we have dismissed the Appeal of the Revenue, and confirmed the order of the Ld. CIT(A), the C.O. 94/Del/2025 filed by the Assessee is dismissed.