Major tax additions against stockbroker deleted due to unproven third-party data and past precedents.

By | September 24, 2026
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Major tax additions against stockbroker deleted due to unproven third-party data and past precedents.

Issue

Whether tax additions made on account of money market positions, unexplained moneys, trading profits, cash credits, and statutory adjustments for Assessment Year 1993-94 are sustainable in law without supporting evidence and contrary to established past precedents.

Facts

  • Money Market Transactions: The Assessing Officer (AO) made additions relating to Money Market Oversold Position (MMOP), non-delivery of Central Loan securities, and alleged money market difference receipts of Rs. 20.77 crores, while omitting negative opening balances accepted in AY 1992-93.
  • Unexplained Moneys & Share Trading: Additions were made under Section 69A regarding payments to SBI (Rs. 524.53 crores), share trading profits, and oversold share positions based on third-party data from RBI, Custodian, and BSE without supplying relied-upon documents to the assessee.
  • Accounting Method: The assessee consistently followed the cash system of accounting for interest on securities and loans, which had been previously accepted by the Tribunal.
  • Cash Credits & Investments: The assessee was unable to explain certain bank deposits after three rounds of litigation, while an addition of Rs. 4.45 crores under Section 69 included opening balances of Rs. 3.95 crores from prior years.
  • Procedural Adjustments: Issues were raised regarding arithmetical errors in M-1 trading loss, telescoping set-offs, Chapter VI-A deductions, TDS credits as directed by the Supreme Court, and interest under Section 220(2).

Decision

  • In Favor of Assessee:
    • Additions on MMOP, omission of negative opening balances, money market difference receipts, payments to SBI, share trading profits, and oversold share positions were deleted due to lack of evidence and consistency with past years’ decisions.
    • Directives were issued to adopt the correct trading loss figure of Rs. 3,29,49,085/-, maintain the cash system for interest income, allow telescoping benefits, grant Supreme Court-directed TDS credits, and levy Section 220(2) interest only from the date of default under the fresh demand notice.
  • In Favor of Revenue:
    • Addition on unexplained bank cash credits under Section 68 was upheld due to failure to provide a satisfactory explanation across multiple litigation rounds.
  • Partly In Favor of Assessee / Remanded:
    • Unexplained investment addition of Rs. 3.95 crores representing past opening balances was deleted, while the balance Rs. 0.50 crore and Mazda Industries transaction profit of Rs. 1.93 crores were remanded to the AO for verification.
    • Chapter VI-A deductions and dividend/interest restricted to actual receipts/registered holdings were directed for AO verification.

Key Takeaways

  • Natural Justice in Third-Party Additions: Revenue cannot sustain tax additions based on external data (RBI, Custodian, BSE) without providing supporting documents and evidence to the assessee.
  • Rule of Consistency: The Revenue cannot arbitrarily depart from an established cash system of accounting or verified opening balance treatments accepted in prior assessment years.
  • Opening Balances Excluded from Unexplained Investments: Additions under Section 69 cannot be levied on opening balance figures originating from preceding assessment years.
  • Fresh Demand Notice for Section 220(2) Interest: Where an assessment is set aside and remade, statutory interest for delayed payment runs strictly from the default date of the fresh demand notice.
IN THE ITAT MUMBAI BENCH ‘F’
Jyoti H. Mehta
v.
DCIT
Sandeep Gosain, Judicial Member
and BIJAYANANDA PRUSETH, Accountant Member
ITA Nos. 42 (MUM) of 2024 and 975 (MUM) of 2024
[Assessment years and 1993-94]
AUGUST  10, 2026
Vijay Mehta, Dharmesh Shah and Ms. Mitali Parekh for the Appellant. Dr. P Daniel, Spl. Counsel for the Respondent.
ORDER
1. These cross appeals filed by the assessee and revenue emanate from the order passed under section 250 of the Income-tax Act, 1961 (in short, ‘Act’) by the Commissioner of Income-tax (Appeals)-52, Mumbai [in short, ‘CIT(A)’], dated 19.12.2023 for the assessment year (AY) 1993-94. The assessee had initially raised 35 grounds of appeal, which were argumentative in nature. Hence, concise grounds were filed on 20.09.2024, which are as under:
“Money Market transactions
1. The Ld. CIT(A) has erred in not deleting the addition on account of money market oversold position of Rs. 1021,33,43,699/
2. The Ld. CIT(A) has erred in enhancing the total income of the assessee by Rs. 159,72,02,056/- being money market oversold position in respect of 11.5% Central Loan 2007.
3. The Ld. CIT(A) has erred in confirming the addition on account of unexplained money (payment made to SBI) amounting to Rs. 524,53,68,500/
4. The Ld. CIT(A) has erred in confirming the determination of loss from money market trading at Rs. 32,94,908/
5. The Ld. CIT(A) has erred in confirming the addition on account of money market difference earned by the appellant amounting to Rs. 20,76,95,398/-.
6. The Ld. CIT(A) has erred in not deleting the addition on account of interest on money market securities amounting to Rs. 143,66,88,450/-.
7 The Ld. CIT(A) has erred in confirming the addition on account of profit on transactions with Mazda Industries amounting to Rs. 2,81,00,000/-
Share Market transactions
8. The Ld. CIT(A) has erred in confirming the addition on account of income from dividend and interest of Rs. 2,25.59.454/
9. The Ld. CIT(A) has erred in confirming the addition on account of share market trading profit of Rs. 58,16,25,124/
10 The Ld. CIT(A) has erred in not deleting the addition on account of share market oversold position of Rs. 138,68,35,985/-
Other issues
11. The Ld. CIT(A) has erred in confirming the addition on account of unexplained credit in the bank account amounting to Rs. 6,16,39,480/- and Rs. 224/-.
12 The Ld. CIT(A) has erred in confirming the addition on account of unexplained investments on account of loans and advances given amounting to Rs. 4.45,10,514/
13. The Ld. CIT(A) has erred in confirming the addition on account of interest income from family members amounting to Rs. 7,40,00,000/- The Ld. CIT(A) has further erred in observing on pg. 309 of his order that hence, addition of Rs. 11.85 crores stand confirmed.’
14. The Ld. CIT(A) has erred in rejecting the books of the appellant.
15. The Ld. CIT(A) has erred in not accepting the cash method of accounting regularly followed by the appellant.
16. The Ld. CIT(A) has erred in not granting set off of addition on account of source of income against the application of income following telescoping theory of determination of income.
17. The Ld. CIT(A) has erred in denying the deduction on account of interest expense, business expenses, business loss and depreciation while computing the income of the appellant.
18. The Ld. CIT(A) has erred in not granting statutory deductions and allowances available to the appellant under Chapter VI-A of the Act.
19. The Ld. CIT(A) has erred in not granting credit on account of tax already paid by the appellant, TDS allowable as per law and the TDS as per the directions of the Hon’ble Supreme Court vide its order dated 13.02.2002.
20. The Ld. CIT(A) has erred in levying interest u/s 234A, 234B and 234C of the Act. The Ld. CIT(A) has further erred in not holding that the interest u/s. 234B of the Act should be levied on the taxes computed after considering tax deductible at source on the income assessed
21. The Ld. CIT(A) has erred in not holding that interest u/s. 220 of the Act would not be leviable in the facts of the present case.
22. The appellant craves leave to add to, amend, alter or delete all or any of the foregoing grounds of appeal.”
2. The ground of appeal raised by the revenue is as under:
“On the facts and in the circumstances of the case, the Ld.CIT(A) erred in deleting the addition of Rs. 13,91,00,000/- on account of alleged liabilities shown as ‘other income not shown in the books’ on the basis of the review of unaudited accounts prepared by M/s. Vyas & Vyas, from the audit report in case of the assessee’s family members wherein it was found that the interest stood quantified by the Auditors.”
ITA No. 42/MUM/2024 (AY:1993-94)
3. Facts of the case, in brief, are that the assessee did not file return of income for the AY 1993-94. The assessee, who is now deceased, was an individual and was the sole proprietor of the brokerage firm, M/s. Harshad S. Mehta. The said firm was a registered broker in the Bombay Stock Exchange. It was engaged in the business of trading and brokerage in capital and money markets. For the year under consideration, i.e. AY 1993-94, the assessee did not file his return of income purportedly due to several difficulties faced by him. The assessment was completed u/s. 144 of the Act on 29.03.1996 determining the total income of Rs.1,396.02 Cr. The assessee filed appeal against the assessment order before the CIT(A), who decided the appeal vide order u/s 250 of the Act dated 28.02.2003. As the assessee could not make the payment of any tax on account of his notification on 08.06.1992 under the Special Courts (TORTS) Act, 1992 and consequent attachment of all his assets and bank accounts, the CIT(A) dismissed the appeal filed by the assessee by invoking the provisions of S. 249(4)(b) of the Act. Against the said order, the assessee preferred second appeal before the Income-tax Appellate Tribunal (in short, “Tribunal”), which, vide its order dated 23.06.2008, set aside the matter back to the file of the CIT(A) with a direction to adjudicate the grounds of appeal on merits. Following the order of the Tribunal, the CIT(A) passed the order u/s 250 of the Act on 24.03.2010. He has dismissed the appeal on all the grounds and has, in effect, enhanced the assessment in respect of a few issues. The assessee filed further appeal before the Tribunal, which restored back the matter to the file of the AO vide order dated 13.05.2015. A fresh assessment order, in the present third round of litigation, was passed by the AO on 29.12.2016, wherein he has determined the total income at Rs.2,106.04 Cr. The AO has repeated all earlier additions made by the predecessor AO and has also made the additions in respect of the issues on which the income was enhanced by the CIT(A) in the 2nd round of litigation. Aggrieved by the above assessment order, the assessee preferred an appeal before the CIT(A), who has disposed of the same vide impugned order u/s 250 of the Act dated 19.12.2023. Since the CIT(A) has given part relief, both the parties are in appeal before Tribunal. As the grounds of appeal filed with the appeal memo were argumentative, the assessee has filed concise grounds of appeal vide letter dated 20.09.2024. The Ld. AR of the appellant has submitted 10 paper books and also filed written submission before the Tribunal. The Ld. AR of the assessee submitted that the AO has merely followed the orders passed in the earlier rounds of litigation and passed a high-pitched assessment by making huge additions, which is not possible due to the very short period of business carried on up to 08.06.1992 by the assessee. The Ld. Special Counsel for the department has mainly relied on the orders of the lower authorities.
4. Ground No. 1 pertains to the addition of Rs.1021,33,43,699/- on account of money market oversold position (MMOP). The AO, in the first round of litigation, has stated that the details about the transactions of the assessee in money market has been obtained by him from banks, financial institutions, companies and brokers. He has also gathered the details from the transactions as per bank accounts of the assessee as provided by the RBI as well as contract notes and deal files furnished by the assessee. Based on such information, the AO determined the position of opening stock, purchase, sale and closing stock. He also referred to the statements of the assessee and Shri Pankaj Shah (employee of the assessee) recorded during the course of search in the month of February and March, 1992. The AO arrived at a conclusion that in respect of eight securities, the assessee had negative closing stock. The value of such negative closing stock was determined at Rs.1021,33,43,699/-. The said details are compiled in Annexure M-1 to the assessment order. The said annexure and the typed copy of relevant portion of Annexure M-1 are available in paper book filed by the assessee. However, such details made available to the assessee vide Annexure M-1 to the assessment order dated 29.03.1996 was containing only opening and closing stock and no itemized details were made available to the assessee about purchases and sales arrived at by the AO in respect of each scrip. In 2009, such particulars were made available by the AO to the assessee pursuant to requests made by the assessee. This is recorded in para 58 of the order of CIT(A).
5. The above issue was adjudicated on merits for the first time by the CIT(A), in the second round of litigation, vide his order dated 24.03.2010. The CIT(A) has observed that Annexure M-1 is correct and complete in all respects. The CIT(A) has also held that the transactions recorded in Annexure M-1 are all delivery-based transactions. He has also observed that the claim of the assessee that the delivery of security was not given in respect of several transactions due to which various suits have been filed in the Special Courts by the counter parties cannot be accepted. This is for the reason that there is no nexus between the oversold position and suits filed by the counter parties against the assessee.
6. The addition of Rs.1,021.33 Cr. consisting of eight securities was found to be containing several errors and vide letter dated 17.08.2010, the AO has given a different working wherein the oversold position is shown at Rs.953,49,19,224/-. This working was prepared after removing certain obvious arithmetical errors which were brought on record by the AO in the year 2010.
7. The CIT(A) in the impugned order, has again confirmed the addition without giving any relief. The CIT(A) declined to follow the order of the Tribunal in the case of assessee for A.Y. 1990-91 by holding that the erroneous action by the AO in any one year cannot be the reason for perpetuating such errors. He held that the principles of res judicata do not apply to the income-tax proceedings. He also held that the finding of the Hon’ble Supreme Court in criminal proceedings were not placed before the Tribunal when the appeal for A.Y. 1992-93 was decided. The CIT(A) also declined to give the benefit of telescoping to the assessee. Regarding various claims made by the counter parties and the payments made by the assessee under the orders of the court, the CIT(A) observed that this do not change the fact that the assessee had appropriated the money in earlier years. The CIT(A) placed reliance on the order passed by his predecessor dated 24.03.2010 in the second round of litigation. Although in respect of certain small amounts, the CIT(A) has given a direction to the AO, the addition has primarily been confirmed by the CIT(A).
8. Aggrieved by the order of the CIT(A), the assessee has filed appeal before the Tribunal. The appellant has filed factual and legal paper books in support of the grounds raised in the appeal. The Ld. AR submitted that the entire addition is not only illegal and unsustainable but the same is the result of non-application of mind by the lower authorities. The business of the assessee was carried out only for 2 months and the assessee could not have earned such huge income as assessed by the AO in the impugned order. The alleged oversold position in 8 securities is non-existent and the same is the result of lack of appreciation of facts of the case. The detailed scrip wise explanation filed by the Ld. AR is reproduced below for ready reference;
“(i) 9% Hudco Bonds

8. As Annexure M-1 captures only sale transaction of Face Value of Rs.15 Cr. in respect of 9% Hudco Bonds (27/03), there is a short fall of Rs.14.26 Cr. (M.V.) for which addition has been made in the assessment order (PBP 137). As pointed out earlier, no particulars were given about purchase and sale transactions until 2009. The said particulars of purchase and sales are placed on (PBP 140), according to which there is purchase and sale of Face Value of Rs.15 Cr. and, hence, there is no oversold position. This is also accepted by the AO in his letter addressed to M/s. Dave and Girish & Co. (Solicitors of Standard Chartered Bank) dated 17.08.2010 (PBP 143). This letter has been written in the proceedings before the Special Court in M.A. No. 365 of 2003 in the case of Standard Chartered Bank v/s. Custodian and Ors. The AO has forwarded the details of Annexure M-1 along with this letter, according to which there is no oversold position in 9% Hudco Bonds (PBP 143, 144). Thus, the above addition does not survive.

9. Your Honours, at this stage, may kindly note the following startling facts demonstrating the most unjust and highhanded approach of the Department.

(i) The addition has been made of such huge amount in the year 1996 and till the year 2009, no particulars of purchase and sales were furnished.

(ii) Till date, the details about the counter party, rate, delivery etc. have not been made available. Unlike the annexures given by the AO in respect of capital market transactions, the AO has not given the details of counter party of the transaction in respect of money market transactions. This makes it extremely difficult, if not impossible, to find out as to which transaction the AO is refereeing to. This is more particularly so when the details compiled by the AO contain several errors like incorporating non-existent transactions, nondelivery transactions, transactions wherein the assessee has acted merely as a broker etc.

(iii) The assessee was kept in complete dark as to the communication based on which the AO has derived his conclusion. It is expected of the AO that not only such particulars are made available to the assessee but relied upon document is given to the assessee or at least made part of the annexure to the assessment order.

(iv) Most importantly, in spite of the admission of the errors, the addition has been confirmed right up to 19.12.2023, the date on which impugned order of CIT(A) has been passed and even in that order, merely a direction has been given to the AO and the addition has not been deleted. It would be interesting to note that the AO has neither given effect to the order of the CIT(A) dated 19.12.2023 nor has rectified the above error. In short, the above addition still continues in the record of the Department and the assessee is shown defaulter to the extent of demand on above addition.

(v) The above submission applies not only in respect of oversold position of 9% Hudco Bonds, but it applies also to oversold position in respect of Units 1964 Scheme, 17% NTPC Bonds, 11.5% Central Loan 2010 and 9% IRFC Bonds as is explained hereinafter.”

(ii) 9% Coal India

10. As per the details of purchase and sales of 9% Coal India Bonds (PBP 145, 146), assessee has sold bonds having face value of Rs. 11.50 Cr. and Rs. 15 Cr. and there was no opening stock or purchase. The oversold position has been arrived at F.V. 26.50 Cr. (M.V. 23.43 cr.). In this regard, it is submitted that in respect of both the above transactions, the physical delivery of bonds was not given and, hence, there is no oversold position. Since the assessee had received the money under the above transactions of sale of securities but securities were not handed over to the purchaser (in this case National Housing Bank), the said purchaser had filed FIR on 13.07.1992 against the assessee (PBP 147). As per the said FIR, National Housing Bank had issued the cheques in the name of ANZ Grindlays Bank Ltd. as they were given to understand that the securities were sold by ANZ Grindlays Bank to them. In the said FIR, the list of the transactions for which the payment was made by the National Housing Bank, but the corresponding delivery has not been received, has been given (PBP 166, 167). The impugned transactions of 9% Coal India Bonds are duly appearing at sr. no. 9 and 11 on PBP 166. It may kindly be noted that the date, market value and the name of security is matching with the details furnished by the AO (PBP 145).

11. It is submitted that the only details about the sale transactions, which has resulted into oversold position, made available to the assessee is the one which is on PBP 145. The said details completely tally with the details of transactions as per FIR on PBP 166. Needless to mention that if it is the case of the Revenue that the transactions mentioned on PBP 145 are different transactions, it is for the Revenue to come out with the particulars of the correct transactions according to them.

12. In fact, based on the above complaint contained in the FIR, the National Housing Bank also made a claim against Grindlays Bank and in fact recovered the amount from them. This is because, according to National Housing Bank, Grindlays Bank was responsible for money travelling to the bank account of Harshad Mehta without giving delivery of securities to NHB. Since Grindlays Bank was made to pay the amount to the NHB, the Grindlays Bank filed a suit (PBP 171) before the Special Court being Suit no. 28 of 1995 for the recovery of the said amount from the assessee. The said suit was ultimately decreed against the assessee on 25.07.2003 by the Special Court (PBP 187). Subsequently, the Hon’ble Supreme Court vide its order dated 02.05.2017 in Civil Appeal no. 6236 of 2010 (PBP 192) directed the Custodian to make the payment to the SCB who had taken over the erstwhile Grindlays Bank. Pursuant to the above order of the Hon’ble Supreme Court, the Special Court passed an order on 08.09.2017 in Custodian Report No. 4 of 2017 (PBP 198) directing the Custodian to release the payment of Rs.506.53 Cr. to Standard Chartered Bank (successor to Grindlays Bank). The Custodian in turn wrote to the SBI on 26.09.2017 (PBP 204) directing the SBI to make the above payment. The payment in fact was made on 27.09.2017 through the bank account of the assessee (PBP 208).

13. It would be relevant to note that similar set off in respect of decrees granted by the court have been given to the assessee in A.Y. 1992-93. Reliance is placed upon the discussion made by the CIT(A) in his order for A.Y. 1992-93 (PBP 483). The said order of the CIT(A) has been given effect by the AO after due verification wherein the relief has been granted by the AO himself (PBP 547). Further, the order of the CIT(A) for A.Y. 1992-93 has been upheld by the Tribunal after a detailed discussion (PBP 370-375).

14. Thus, it is established that no delivery has been effected pursuant to the above referred transactions and the said fact has been established with the help of series of documents discussed hereinabove. Therefore, there cannot be any oversold position in the above security.

(iii) Units 1964 Scheme

15. The details of purchase and sale transactions in Units 1964 Scheme given by the AO is on PBP 209 and the summary thereof is available on PBP 210. As per the said particulars, the assessee has entered into several transactions of purchase and sale of Units resulting into oversold position of F.V. 8,37,52,900 having market value of Rs. 124,66,87,020. As stated hereinabove, the said calculation contained mathematical errors and the correct position of shortfall as per letter of AO dated 17.08.2010 is F.V. 6,02,52,900 having market value of Rs. 89,07,85,752 (PBP 142, 143).

16. In respect of the above referred oversold position, attention is invited to the details of purchase and sale on PBP 209 wherein on 13.04.1992, two sales transactions of face value of Rs. 6.50 Cr. and Rs. 3.50 Cr. having transaction value of Rs. 99,77,50,000/- and Rs. 53,55,00,000/- respectively have been considered. It is submitted that both the above sales transactions were entered into with National Housing Bank (purchaser) and the delivery under these transactions were not given by the assessee to NHB. Attention is invited to the submissions made hereinabove, in respect of 9% Coal India and the FIR filed by National Housing Bank (PBP 147). On perusal of the annexure to the said FIR on PBP 166, it can be observed that both the above transactions are appearing in the table at Sr. no. 1 and 2 and the same is part of the claim of Rs. 506.54 Cr. made by NHB. As stated herein above, Grindlays Bank had filed a suit against the assessee and finally the assessee made payment to make good the default of non-delivery in respect of the above transactions. Therefore, it is evident that the delivery has not taken place in respect of the above referred two transactions having face value of Rs. 6.50 Cr. and Rs. 3.50 Cr. aggregating to Rs. 10 Cr. It is submitted that the entire oversold position of F.V. 6,02,52,900 would be wiped out once the above two nondelivery transactions are omitted.

(iv) 17% NTPC Bonds

17. In respect of 17% NTPC Bonds, the AO has tabulated the details of purchase and sale at PBP 211 and worked out the oversold position of F.V. 182.21 Cr. having a market value of Rs. 183,01,89,474/-. As stated hereinabove, the AO has rectified the obvious mathematical error and has come out with revised oversold position at F.V. 147,21,00,000 having market value of Rs. 147,25,89,474/- (PBP 142, 143). The revised working is available at PBP 212.

18. On perusal of the details of purchase and sale on PBP 211, it can be observed that

there are two sales transactions, one on 13.04.1992 of F.V. 50 Cr. having a market value of Rs. 49,90,95,890/- and the other on 20.04.1992 of F.V. 100 Cr. having market value of Rs. 100,09,52,054/-. It is submitted that both the above transactions are with National Housing Bank and the assessee had not given the delivery in respect of both the transactions. In this regard, reliance is placed upon the detailed submissions made in respect of 9% Coal India as well as Units 1964 Scheme hereinabove. Both the above transactions are mentioned in the FIR filed by NHB (PBP 166, 167 at Sr. no. 12 and 13). Since the delivery was not given in respect of both the above transactions, these have to be excluded while working out the closing stock position. It is submitted that if the above sale transactions of F.V. of Rs. 150 Cr. are ignored, the entire oversold position gets wiped out.

(v) 11.5% Central Loan 2010

19. The AO has given the details of purchase and sale of 11.5% Central Loan 2010, which is placed on PBP 213. The final position of the oversold position is available on PBP 214. As per the said details, the oversold position is of F.V. 549 Cr. having market value of Rs. 548,37,21,467/-. As stated above, the oversold position has been revised by the AO as per his letter dated 17.08.2010 (PBP 142-144). As per the said letter, the oversold position is of F.V. 539 Cr. having market value of Rs. 538,39,81,156/-. The said negative position has arisen because of the two reasons;

(i) Considering the opening stock of negative F.V. 454 Cr. having market value of Rs. 441,48,92,434/-.

(ii) Not considering the purchase transactions of F.V. 85 Cr.

The above reasons are explained in detail hereinbelow.

20. The AO has adopted the opening balance as negative F.V. 454 Cr. It may be noted that the above negative closing balance is due to certain transactions with SBI entered into last year wherein although the assessee had received the money, the corresponding delivery was not given. The AO, while completing the assessment for A.Y. 1992-93, arrived at the oversold position in 11.5% Central Loan 2010 at Rs. 454 Cr. However, considering the fact that no delivery was made and in fact in the month of April 1992, Harshad Mehta, consequently, was compelled to make the payment to SBI, the AO did not make any addition on account of the above referred oversold position (PBP 215-221). In fact, the AO took note of the Miscellaneous Petition no. 14 of 1995 filed by SBI wherein it has been recorded that the delivery in respect of the above security, amongst others, was not given by Harshad Mehta. The AO has observed that the oversold position stands explained and, therefore, the AO has not made any addition in respect of the above referred transactions resulting into oversold position. Thus, the above is liable to be treated as admission of the fact by the AO that wherever the delivery of securities have remained pending to be given to the bank no addition is liable to be made to the income of the assessee.

21. Surprisingly, in the year under consideration, the AO has calculated the oversold position by taking the negative opening balance. It is submitted, first and foremost, that there cannot be any negative opening stock. Further, what has been considered to be explained, due to non-delivery of securities in the last year, for which no addition was made in the last year, the same cannot become the subject matter of addition in the subsequent year by way of indirect route of adopting negative opening balance. It is submitted that the transactions giving rise to negative stock were those of the earlier year and, hence, by no stretch of imagination, an addition can be made in the year under consideration.

22. In any case, it has been accepted by the AO that delivery of securities was not made in respect of the above transactions even in the last year and to compensate the non-delivery, equivalent payment was made by the assessee in the year under consideration and, hence, no addition can be made on account of oversold position. It would be relevant to recall that the entire addition of oversold position is based on the assumption that transactions are delivery based. It is an admitted position that no delivery was made in the last year and it is nobody’s case that delivery has been made in the year under consideration. Therefore, the opening stock cannot be taken at a negative figure.

23. In fact, the issue of the negative opening balance came up for consideration before the Tribunal for A.Y. 1992-93. In that year, the AO, in respect of the same security i.e. 11.5% Central Loan 2010, had considered the opening negative balance of Rs. 103.39 Cr. This has been held to be unsustainable by the Tribunal for the detailed discussion made in para 9.48 of the order of the Tribunal (PBP 376-378). The assessee heavily relies upon the said order and submits that the above issue is fully covered by the said order of the Tribunal in the case of the assessee himself.

24. Another reason giving rise to the oversold position in 11.5% Central Loan 2010 is non-consideration of four purchase transactions of F.V. 25 cr., 10 cr., 25 Cr. and 25 Cr. aggregating to Rs. 85 Cr. The deal slip for all the four contracts are available on (PBP 222-225). The securities were purchased on 06.04.1992 from Bank of Madura and UCO Bank has acted as routing bank on behalf of the assessee. The assessee, in fact, made the payment for consideration of the above securities for an aggregate amount of Rs. 57,47,04,870.55. In response to one of the queries raised by the AO in the original assessment proceedings, the assessee had replied vide letter dated 21.03.1996 giving particulars of the payment made through the bank account (PBP 226-229). All the above four transactions were listed in the said communication and the bank statement showing the payment was also enclosed. From the above, it is evident that the assessee has purchased security of F.V. 85 Cr.

25. It is relevant to mention that the AO has gathered information from all the banks and other players in the money market who have dealt with the assessee. The AO has not brought on record the letter received from the Bank of Madura. It is submitted that if the said letter is produced by the AO, the above four transactions would get duly confirmed therein.

26. So far as the UCO Bank being used as a routing bank, attention is invited to the relevant portion of Janakiraman Committee (PBP 230-242). Attention is also invited to the observations on paras 8-10 (PBP 239, 240). Further, judicial notice has been taken of the above fact by the Hon’ble Special Court in MA no. 255 of 1994 dated 15.09.1995 at para 6 (PBP 246).

27. Considering the above position, it is submitted that the negative position of F.V. 539 Cr. has been incorrectly worked out because of incorrect consideration of opening negative balance of Rs. 454 Cr. and non-consideration of purchase transactions of Rs. 85 Cr. If both the above figures, i.e. Rs. 454 Cr. + 85 Cr. (aggregating to Rs. 539 cr.) is considered, the entire oversold position of Rs. 539 Cr. would be wiped out.

28. Without prejudice to the above and in addition to the above, the AO has erred in not only taking the opening balance as negative figure of F.V. 454 Cr. but he has also erred in not taking the positive opening balance as finally arrived at as a closing balance in A.Y. 1992-93. It is submitted that as per the similar annexure, being Annexure M-2 (PBP 550), prepared for A.Y. 1992-93, the negative closing balance of 11.5% Central Loan 2010 was F.V. 595.61 Cr. As the said oversold position was contested by the assessee, the Tribunal has adjudicated the same in its order for A.Y. 1992-93 at para 9.48 (PBP 376-378). As per the said order, the surviving negative balance of Rs. 29.70 Cr. was unsustainable as the AO had wrongly considered the opening negative balance of Rs. 103.39 Cr. It is submitted that once the said opening negative balance is removed, the surviving negative closing balance of Rs. 29.70 Cr. for A.Y. 1992-93 would turn into a positive balance of Rs. 73.65 Cr. The AO, while preparing the annexure for the year under consideration ought to have started with a positive balance of Rs. 73.65 Cr. This is without prejudice to the other arguments contained herein in respect of 11.5% Central Loan 2010.

(vi) 9% PFC Bonds

29. The details of purchase and sale of 9% PFC Bonds have been compiled by the AO and the same is placed on PBP 250. The oversold position has been worked out at F.V. 24.50 Cr. having a market value of Rs. 23,29,43,766/- (PBP 251). At the outset, it is submitted that the underlying security in respect of the above transactions is 17% PFC Bonds and not 9% PFC Bonds as erroneously considered by the AO This is evident from the documents on record as explained herein below.

30. The oversold position is on account of a sales transaction of F.V. 74.50 Cr. dated 11.04.1992. It is submitted that the above transaction has been entered into between Standard Chartered Bank and PNB Caps wherein the assessee has acted as a broker. In fact, both the above transactions mentioned in the details of purchase and sale on PBP 250 are the transactions in which the assessee has acted as a broker and the consideration value of the transactions have not been received or paid by the assessee nor any such amount is appearing in any of the bank statement of the assessee. The letter dated 11.12.1992 on (PBP 252) of Standard Chartered Bank confirming the above facts to the AO is placed at PBP 252, 280. From this, it is evident that the transactions do not pertain to the assessee. In fact, Standard Chartered Bank has also written one more letter dated 26.12.1992, confirming the above facts which is on (PBP 284, 287). Not only this, the delivery in respect of both the above transactions, which are between two banks, was settled through Bankers Receipt (BR) and the delivery has not been exchanged (PBP 287). From the above, it is evident that the AO himself had sufficient material to establish that the transactions were not undertaken by the assessee on a principal-to-principal basis. Therefore, it is submitted that the oversold position in 9% PFC Bonds do not survive.

(vii) 13% NTPC Bonds

31. The details of purchase and sale considered by the AO are available at PBP 290 and considering the solitary sale transaction appearing in the said detail, the oversold position has been worked out at F.V. 3.50 Cr. having market value of Rs. 3,25,50,000/- (PBP 291). The date of the transaction has been mentioned by the AO as 08.04.1992. It is submitted that the said transaction of receipt of money is nothing but loan received in running account from M/s. V.B. Desai, another well-known money market brokerage firm. The said amount has been received on 08.04.1992 and deposited in Grindlays Bank, M.G. Road branch. The necessary entries have been passed into the ledger accounts of M/s. V.B. Desai (PBP 292) and ANZ Grindlays Bank (PBP 293). It is submitted that there is no such transaction as reported by the AO If the AO has any such evidence, the same ought to have been brought on record. In the absence of such evidence, the transaction cannot be assumed nor the oversold position. Considering the above, the addition needs to be deleted.

(viii) 9% IRFC Bonds

32. The details of purchase and sale of 9% IRFC Bonds have been compiled by the AO and the same is appearing on PBP 295. The final oversold position is of F.V. 113 Cr. having market value of Rs. 101,02,11,739/-. As stated hereinabove, the AO has rectified the calculation of oversold money market position vide letter dated 17.08.2010 (PBP 142-144), according to which the correct oversold position is F.V. 143 Cr. having market value of Rs. 128,76,92,910/-. It is submitted that the above shortfall is on account of;

(i) consideration of non-delivery sale transactions of F.V. 25 cr., 20 cr., 5 cr., 11 cr., 10 Cr. and 15 Cr. aggregating to Rs. 86 cr., all dated 13.04.1992 with National Housing Bank.

(ii) non-consideration of purchase transaction of F.V. 30 Cr. from State Bank of Saurashtra; and

(iii) consideration of other sale transaction with delivery.

33. As regards the transactions with National Housing Bank of F.V. 86 cr., it is submitted that all the above transactions have taken place with National Housing Bank wherein the delivery was not given. In this regard, we rely upon our detailed submissions made hereinabove in respect of 9% Coal India, Units 1964 Scheme and 17% NTPC Bonds. It would be relevant to note that all the above six transactions dated 13.04.1992 are duly appearing at Sr. nos. 4, 5, 6, 7, 8 and 10 on (PBP 166) which is an annexure to the FIR filed by National Housing Bank. Reliance is placed upon the detailed submissions made herein above.

34. Further, the AO has not considered the purchase of F.V. 30 cr., 9% IRFC Bonds which was made from State Bank of Saurashtra on 24.09.1992. The deal slips for the same is at PBP 297. It may kindly be noted that the consideration payable for the above referred purchase was Rs. 27,74,81,168.86 as per the said deal slips. There was another purchase of Units on the same day from State Bank of Saurashtra for which the consideration payable was Rs. 1,84,98,732/- for which the deal slip has been placed at PBP 298. The total consideration payable for both the above purchases i.e. 9% IRFC Bonds and Units is Rs. 29,59,79,901.86. The amount has been paid through the bank account of the assessee with ANZ Grindlays Bank on 24.04.1992 itself by pay order no. 312073. A copy of the said bank account is at PBP 299. In respect of both the above transactions, Grindlays Bank was a routing bank, which is clearly mentioned in the above referred deal slips.

35. Lastly, the balance oversold position of F.V. 27 Cr. has also been incorrectly worked out by the AO who has solely relied upon the assumption that all transactions are backed by actual physical delivery. Several examples discussed hereinabove clearly establish that the said assumption is unsustainable. This issue has been discussed subsequently herein below wherein it has been pointed out that the Tribunal, in assessee’s own case, has taken a view that the assumption about the delivery is incorrect. Apart from this, it has been held that the money market securities are interchangeable and, hence, one security can be used in respect of transaction of other security. This has also been discussed subsequently hereinbelow. Considering the facts and circumstances in totality, the balance addition in respect of F.V. 27 Cr. also needs to be deleted.

36. Thus, the oversold position in respect of each of the 8 securities have been explained hereinabove. In addition, following further submission is being made.

37. It would be worthwhile to note that the AO had gathered voluminous details about the transactions effected by the assessee from several counter parties. While all the particulars like date, name of security, rate etc. have been collected by the AO, the most vital details about the delivery in pursuance to the transactions has not been gathered by the AO Instead, the AO has adopted an easy and convenient path of presuming delivery in respect of each and every transaction.

38. The above presumption is contrary to the findings of all other Departments/Committees/Courts, who have held that Harshad Mehta has obtained the money under the securities transactions without giving actual delivery of security.

39. All these arguments, including reports of various committees, were placed and discussed in detail before the Tribunal in the case of the assessee for A.Y. 199091. After a detailed discussion, the Tribunal (PBP 304, 306-327) has observed that the delivery had not taken place in respect of security transactions entered into by assessee. The Tribunal was pleased to delete the entire addition in respect of money market oversold position. For the year under consideration, when the above order of the Tribunal was relied upon and the CIT(A) was informed that not only the facts and circumstances of the case including the method of calculation of money market oversold position are identical for both the years but there are no distinguishing features, the CIT(A) has strangely observed that:

(i) the mistake in one year cannot be a ground to commit the same mistake in the other year; and

(ii) the principles of res judicata is not applicable to the income-tax proceedings.

40. The CIT(A) was blissfully unaware about the binding nature of the precedent rendered by the Tribunal. It is humbly submitted that apart from the factual position narrated hereinabove, this issue is fully covered by the order of the Hon’ble Tribunal.”

9. The Ld. AR further submitted, without prejudice to the above, that even if there is an oversold position in security, the addition cannot be made u/s 69 of the Act without netting off the value of securities (positive balance) at the end of the year. This is for the simple reason that the securities in the money market are interchangeable. Since the security has been used primarily for the purpose of pledge and the transactions are essentially those of lending and borrowing, the securities can be interchanged. This aspect has been considered in detail by the Mumbai Tribunal in assessee’s own case for A.Y. 1990-91. Since the assessee has much larger positive stock, the oversold position, if any, has to be set off before making any addition. The Ld. AR strongly relied upon the above referred order of the Tribunal.
10. The Ld. AR also submitted, without prejudice to the above, that even if any addition has to be made on account of oversold position in securities, only the profit element arising out of sale of security is to be added and not the entire amount. This has been so held by the CIT(A) in the case of assessee for A.Y. 1992-93 and the same has been upheld by the Tribunal.
11. The Ld. AR has also mentioned about the conduct of the Department. It was submitted that several relied upon documents have not been provided during last three decades in the assessment and appellate proceedings. Even during the present proceedings, the matter was adjourned on several occasions. Finally, when the matter was fixed for hearing on 31.12.2024, the Bench directed the DR to furnish the list of the documents relied upon by the AO which are required for the purpose of adjudication of the appeals. Specific mention was made about the evidence of delivery of securities. Attention was drawn to the proceeding sheet entry dated 06.12.2024 before the Tribunal. In compliance to the same, the assessee filed a letter dated 01.01.2025 to the Special Counsel wherein, in respect of ground No. 1, the following relied upon documents were mentioned.
“3) In respect of the addition on account of oversold money market security of Rs.1,021.33 Cr. (revised to Rs.953.49 Cr. vide letter dated 17.08.20 l 0), and for which a detailed securities wise break-up of transaction has been provided by the AO as per Paper book page no. 140,145,209,211,213,250,290 and 295).

(i) Name of the counter parties of purchase and sale.

(ii) Letters/information received from the counter parties.

(iii) Proof of delivery in respect of sale of securities tabulated on the above pages. As regards the delivery of securities, the cases where the banker’s receipt or SGL or physical delivery has been given may kindly be clarified based on the information gathered by the Department from various counter parties.

4) The assessee has purchased 11.5% Central Loan 2010 from Bank of Madura at a face value of Rs. 85 cr. on 06.04.1992. The deal slips are on PBP 222 – 225. The routing bank was UCO bank. In this respect, the letter written by Bank of Madura and UCO Bank to the AO is required to verify the correctness of the above transactions.
5) The AO has made the addition in respect of the shortage of securities of 9% PFC Bonds. It is the contention of the assessee that the name of the securities is 17% PFC Bonds and the assessee has acted only as a broker. The letters written by the counter parties in respect of these transactions (please see PBP 250) and any other particulars in respect of these transactions are required.
6) The assessee has purchased 9% IRFC Bonds from State Bank of Saurashtra at a face value of Rs. 30 cr. The deal slip is on PBP 297. The routing bank was Grindlays bank. In this respect, the letter written by State Bank of Saurashtra and Grindlays Bank to the AO is required to verify the correctness of the above transaction.”
11.1 . The Ld. AR submitted that in spite of the above specific request, the Department has not produced the requisite details. Hence, adverse inference has to be drawn against the Department. It should be held that the delivery of securities has not taken place and, hence, there is no question of any unexplained investment. He, therefore, argued that the entire addition is unsustainable and misconceived and deserves to be deleted in toto.
12. On the other hand, the Ld. Special Counsel strongly relied upon the orders of lower authorities. He submitted that adequate and reasonable opportunity of hearing was given to the assessee and the details requested for were provided to him. The assessee knows his business affairs more than anyone else but he deliberately avoided to provide necessary details and is unnecessary putting all blame on the department. The conduct of assessee was totally non-cooperative and he was all through waiting for the Department to unearth his unrecorded transactions, about which he was fully aware. Putting blame on Department without rebutting the evidence painstakingly gathered by the Department should not be entertained. He, therefore, requested to sustain the addition made by the AO, which has been rightly upheld by the CIT(A).
13. We have heard both sides and perused the materials on record. We have also carefully gone through the orders of lower authorities including those for AYs 1990-91, 1991-92 and 1992-93. We have also carefully perused the decisions relied upon by the Ld. AR including the orders of the Tribunal in appellant’s own case for AY 1990-91, 199192 and 1992-93. The Ld. AR submitted that the amount of addition made at Rs.1021.33 Cr. in respect of the impugned 8 securities is factually incorrect and the actual amount is Rs.953.49 Cr. We have perused page 142 to 144 of the paper book which is the letter addressed to M/s Dave and Girish & Co., Special Auditors, by the AO vide letter dated 17.08.2010. There is calculation error amounting to Rs.67.84 Cr. in respect of the following securities:
Security Amount of addition (Rs.)
9% HUDCO bonds 14.28 cr.
Units 1964 Scheme 35.60 cr.
17% NTPC bonds 35.68 cr.
11.5% C.L. 2010 9.99 cr.
9% IRFC bonds (27.73 cr.)
67.84 cr.

 

13.1 After removing these apparent errors, the total comes to Rs.953.49 Cr. As per the details contained in page 144 of the paper book (supra), the amount is also Rs.953,49,19,244.90. Hence, the correct amount of the MMOP is Rs.953,49,19,245/-.
13.2 The MMOP includes negative opening balance of 11.5% Central Loan 2010. We find that the same issued was decided by the Tribunal in appellant’s own case for the immediately preceding AY 1992-93 in Harshad S. Mehta v. Deputy Commissioner of Income-tax [2019] 102  (Mumbai)/ITA No.5702/Mum/2017 dated 14.01.2019. The Tribunal has considered the ground on the addition on account of money market oversold position and decided the issue in favour of assessee by observing as under:
9.48. The next sum of Rs.29,70,53,629/- included in Rs.223,83,58,173/-relates to the 11.5% Central Loan-2010. We heard the rival submission and carefully considered the same. We noted that the AO in Annexure M-2 page 445 of APB No. 2 computed the oversold position of 11.5% Central Loan-2010 at Rs.573.07 crores which has been arrived at by including opening negative balance of Rs.103,39,84,851/- in the negative value of the stock Rs 595,61,00,000/-. The AO vide his order dated 27.03.1995 has already allowed a relief to the assessee to the extent of Rs.441.48 crores included in the sum of Rs. 601.21 crores towards the assessee’s liability from the oversold position of Rs. 573.07 crores and thereby computed the oversold said security at Rs. 131.59 crores, out of which the AO while giving effect to the order of the CIT (A) dated 28.06.2017 reduced a sum of Rs. 101.88 crores and thereby the addition to the extent of Rs. 29,70,53,629/-remains sustained. The learned AR drawn our attention to M-2 at page 445 APB No.2 and from which we noted that the AO while computing the negative closing balance at Rs. 573.07 crores included negative Opening balance of Rs. 103.39 crores. If the said negative opening balance is excluded and taken as nil, the oversold stock balance will get 135 reduced The Ld. CIT-DR even though vehemently contended but could not draw our attention towards the evidence or the material from which the negative opening balance of Rs. 103.39 crores is taken. Since the addition has been made on the basis of the M-2 made by the AO, therefore the onus lies on the AO to prove how this figure had been arrived at or taken. The contention of the Ld. Counsel is that it should be taken as ‘Nil’. In the absence of any cogent material or evidence to support the said negative balance, we are of the view that the addition of Rs. 29,70,53,629/- cannot be survived. It is a settled law if the revenue wants to tax any income, the onus is on the revenue to prove that the assessee has earned income. Even otherwise, for the negative opening balance, addition cannot be made as per the provisions of Section 69 of the Act in the impugned assessment year. If an addition has to be made that has to be made in the earlier assessment year from which negative opening balance has been brought forward. We accordingly, delete the addition of Rs. 29,70,53,629/- out of the sum of Rs. 223,83,58,173/-.”
13. 3 The facts of the present issue are similar to the facts decided by the Tribunal in the above order. The Ld. Special Counsel has relied on the order of lower authorities, but has not brought anything on record to controvert the finding of the Tribunal, either on fact or on law. Hence, the addition on account of negative opening balance of Rs.441.49 Cr. in respect of 11.5% Central Loan 2010 is deleted.
13. 4 The Ld. AR submitted that the following securities were sold to National Housing Bank (NHB) without physical delivery of the securities. The details submitted in this regard is summarized below:
Security Addition (Rs.) Remarks
9% Coal India Ltd. 23.43 cr. Sr. no. 9 and 11 on PBP 166 r.w. PBP 145, 146.
Units 1964 Scheme 89.08 cr. Sr. no. 1 and 2 on PBP 166 r.w. PBP 209, 210.
17% NTPC Bonds 147.26 cr. Sr. no. 12 and 13 on PBP 166 and 167 r.w. PBP 211 and 212.
9% IRFC Bonds 77.45 cr. Sr. no. 4-8 and 10 on PBP 166 r.w. PBP 295 and 296.
337.22 cr

 

13.5 In this regard, the ld. AR submitted that physical delivery of the bonds was not given and hence, there is no question of oversold position. The assessee had, in fact, received money under the above transaction of sale of security but, the securities were not handed over to the purchaser, being NHB. NHB had issued cheque in the name of the assessee in the bank account maintained with ANZ Grindlays Bank Ltd., which had sold the impugned securities. NHB filed FIR against Grindlays Bank and recovered the amount from it. Grindlays Bank, in turn, filed a suit for recovery of amount from the assessee and the said suit was ultimately decreed against the assessee by the Hon’ble Special Court on 25.07.2003. Subsequently, the Hon’ble Supreme Court directed the Custodian to make payment to Standard Charted Bank (SCB), which had taken over the erstwhile Grindlays Bank. Pursuant to the order of the Hon’ble Supreme Court, the Special Court directed the Custodian to release the payment to SCB. The Custodian, in turn, directed SBI to make the above payment which was made on 27.09.2017 through the bank account of the assessee. It is, therefore, evident that no delivery was made by the assessee in respect of the above transaction. Had there been actual delivery of the impugned bonds, the Hon’ble Special Court and the Hon’ble Supreme Court would not have directed the assessee to make the payment. Hence, there was no oversold position in respect of the impugned securities. The order of CIT(A) is, accordingly, set aside and the AO is directed to delete the above addition.
13.6 The next addition pertains to oversold position of 9% Hudco Bonds. The Ld. AR submitted that no details were given about the purchase and sale of 9% Hudco Bonds until 2009. Subsequently, the particulars of sale and purchase had been given, which is at page 140 of the paper book, as per which, there is purchase and sale of face value of Rs.15 Cr. each and hence, there is no oversold position. The same is also evident from page 143 of the paper book which is addressed to M/s Dave and Girish & Co., the Special Auditor appointed in this case. In view of the above, the order of CIT(A) is set aside and the AO is directed to delete the addition of Rs.14.28 Cr.
13.7 The next issue pertains to addition of MMOP of Rs.96.91 Cr. and Rs.27.01 Cr. in respect of 11.5% Central Loan 2010 and 9% IRFC Bonds respectively. The Ld. AR submitted that the AO has not considered the purchase transactions in respect of the above bonds due to which, the impugned addition of oversold position was made. He submitted that there were 4 purchase transactions of face value of Rs.25 Cr., Rs.10 Cr., Rs.25Cr. and Rs.25Cr. aggregating to Rs.85 Cr. from Bank of Madura. The deal slips are in paper book pages(PBP) 222 to 225. The assessee had paid an aggregate amount of Rs.57,47,04,870/- in respect of above purchases. Regarding 9% IRFC Bonds, the AO has not considered purchased transaction of FV of Rs.30 Cr. from State Bank of Saurashtra which is evident from the deal slip at page 297 of the paper book. The Ld. Special Counsel has not controverted the assertion of the Ld. AR by bringing any new evidence on record. Hence, the AO is directed to delete the addition.
13.8 The next transaction considered by the AO in the MMOP of Rs.1021.33 Cr. is 9% PFC Bonds of Rs.23.29 Cr. The Ld. AR submitted that the underlying security is 17% PFC Bonds and not 9% PFC Bonds. He submitted that the assessee has acted as a broker in the aforesaid transaction which was entered into between Standard Charted Bank and PNB Caps. This is evident from pages 251 to 289 of the PBP. The market value of the closing stock was worked out at Rs.23,29,43,766/- (PBP 251). The Standard Charted Bank has mentioned PNB Caps as “counter party” and the assessee as “broker” at PBP 280. Hence, the assessee had not carried out the above transaction in his individual capacity. He was entitled for brokerage on the above transaction, which is liable for tax in the subject year and not the actual consideration of Rs. 23.29Cr. It is also not the case of the revenue that the assessee has not disclosed the brokerage income. Hence, the AO is directed to delete the addition.
13.9 The next amount in the MMOP is Rs.3.26Cr. in respect of 13% NTPC Bonds. The appellant has submitted that it was a loan transaction which was wrongly treated as sale transaction by the AO. In this regard, the Ld. AR has relied on PBP 291 to 293. The Ld. AR submitted that the impugned transaction of receipt of money is nothing but the loan received in the running account from M/s V.B. Desai, another brokerage firm. The amount was received on 08.04.1992 and deposited in the Grindlays Bank account. Hence, the transaction cannot be treated as oversold position. The revenue has not rebutted the explanation of the assessee by submitting any tangible evidence on record. Hence, the amount of loan received by the assessee cannot be added as sale transaction or MMOP. Accordingly, the AO is directed to delete the amount.
14. In the result, ground No.1 is allowed.
15. Ground No. 2 pertains to the addition of Rs.159,72,02,056/- on account of money market oversold position(MMOP) in respect of 11.5% Central Loan 2007. The above addition was not made by the AO in the original assessment proceedings. However, during the course of the hearing before the CIT(A) in the second round of litigation, the CIT(A) has enhanced the income of the assesse by Rs. 159,72,02,056/-. According to the CIT(A), in the oversold money market securities calculation for A.Y. 1992-93, there was an oversold position of Rs.601.21 Cr. on account of 11.5% Central Loan 2007 and 11.5% Central Loan 2010. The said amount of Rs. 601.21 Cr. was not considered for the purpose of addition in A.Y. 1992-93 as delivery was not given in respect of the transactions involving above referred two securities. However, in the assessment order in A.Y. 1993-94, the AO has observed that the source of the payment of Rs.601.21 Cr. made to SBI has not been explained. On this premise, while calculating money market securities oversold position for A.Y. 1993-94, opening balance of 11.5% Central Loan 2010 was taken as negative balance of face value of Rs.454 Cr. (Market value of Rs.441,48,92,433/-) but the negative balance in respect of 11.5% Central Loan 2007 has remained to be added in spite of a negative opening and closing balance of F.V. 170 Cr. (Market value Rs.159,72,02,056/-). According to the CIT(A), the said amount has been omitted to be included in the oversold position. He has relied upon the reasoning given by him in respect of the oversold position worked out by the AO in annexure M-1, which is the subject matter of ground No. 1 hereinabove. Accordingly, the CIT(A) enhanced the income by making the above referred addition. In the impugned order of the CIT(A), reliance has been placed upon the order passed by his predecessor.
16. The Ld. AR has submitted that the assessee had transactions with SBI during the previous year relevant to A.Y. 1992-93 wherein in respect of 11.5% Central Loan 2007 and 11.5% Central Loan 2010, he had received money from SBI but the delivery of securities was not given. Subsequently, the SBI compelled the assessee to make the payment to cover up the shortfall in securities. The fact of non-delivery of securities against the receipt of money has been accepted by the AO while passing the assessment order for A.Y. 1992-93. In spite of calculating the oversold position in above referred securities, he has not made any addition by observing that the assessee has not given the delivery to SBI.
16.1 The Ld. AR further submitted that while calculating money market securities oversold position for the year under consideration, the AO had started with a negative balance in respect of the above referred two securities. Consequently, in annexure M-1 for the year under consideration, the AO arrived at a negative closing balance of (i) Rs, 548.37 Cr. in respect of 11.5% Central Loan 2010 (after considering negative opening balance of Rs. 441.48 cr.) and (ii) Rs. 159.72 Cr. in respect of 11.5% Central Loan 2007 (after considering negative opening balance of Rs. 159.72 Cr.). While making the addition on account of money market oversold securities, the AO considered a negative balance of 11.5% Central Loan 2010 (Rs. 548.37 Cr.) but has not made any addition in respect of the negative balance of 11.5% Central Loan 2007 (Rs. 159.72 Cr.). The addition under consideration refers to the above amount of Rs. 159.72 Cr.
16.2 The Ld. AR also submitted that the above addition in respect of 11.5% Central Loan 2007 stands on an identical footing to that of 11.5% Central Loan 2010 wherein the negative opening balance of F.V. 454 Cr. has been considered by the AO. Arguments in respect of the negative opening balance of F.V. 454 Cr. has been made while dealing with ground No. 1 of the instant appeal. Since the facts of the two additions are identical, the Ld. AR strongly relied upon the submissions made by him on the issue of “11.5% Central Loan 2010.” The Ld. AR also submitted that the issue is fully covered in favour of the assessee vide order of the Tribunal in the case of the assessee for A.Y. 1992-93 (supra). He, accordingly, submitted that the impugned addition is unsustainable and deserves to be deleted.
17. On the other hand, the Ld. Special Counsel supported the orders of lower authorities.
18. We have heard both sides and perused the materials on record. We have also carefully gone through the decisions relied upon by the Ld. AR. This addition was not made by the AO in the original assessment order. The CIT(A) enhanced the income of the assessee in the second round of litigation by observing that the negative balance in respect of 11.5% Central Loan 2007 remained to be added in spite of a clear negative opening balance of face value of Rs.170 Cr., having market value of Rs.159,72,02,056/-. The Ld. AR submitted that though the appellant received money from SBI but delivery of the impugned securities was not given to the bank. Subsequently, the bank compelled the assessee to make the payment to cover up the shortfall in securities. The AO himself has accepted non-delivery of securities against receipt of money while passing the assessment order for AY 1992-93. It was also submitted by the Ld. AR that the AO started with negative balance in respect of the impugned share while calculating the oversold position for the subject year. He submitted that the explanation in respect of oversold position of 11.5% Central Loan 2010 in ground No.1 is applicable to the impugned issue of 11.7% Central Loan 2007. He submitted that the issue is fully covered by the order of Tribunal in assessee’s own case for AY 1992-93 in Harshad S. Mehta v. Deputy Commissioner of Income-tax   (Mumbai)/ITA No.5702/Mum/2017 (supra). The relevant portion of the order is reproduced below for ready reference and clarity:
“9.48. The next sum of Rs.29,70,53,629/- included in Rs.223,83,58,173/-relates to the 11.5% Central Loan-2010. We heard the rival submission and carefully considered the same. We noted that the AO in Annexure M-2 page 445 of APB No. 2 computed the oversold position of 11.5% Central Loan-2010 at Rs.573.07 crores which has been arrived at by including opening negative balance of Rs.103,39,84,851/- in the negative value of the stock Rs.595,61,00,000/-. The AO vide his order dated 27.03.1995 has already allowed a relief to the assessee to the extent of Rs. 441.48 crores included in the sum of Rs. 601.21 crores towards the assessee’s liability from the oversold position of Rs. 573.07 crores and thereby computed the oversold said security at Rs. 131.59 crores, out of which the AO while giving effect to the order of the CIT (A) dated 28.06.2017 reduced a sum of Rs. 101.88 crores and thereby the addition to the extent of Rs. 29,70,53,629/-remains sustained. The learned AR drawn our attention to M-2 at page 445 APB No.2 and from which we noted that the AO while computing the negative closing balance at Rs. 573.07 crores included negative Opening balance of Rs. 103.39 crores. If the said negative opening balance is excluded and taken as nil, the oversold stock balance will get 135 reduced The Ld. CIT-DR even though vehemently contended but could not draw our attention towards the evidence or the material from which the negative opening balance of Rs. 103.39 crores is taken. Since the addition has been made on the basis of the M-2 made by the AO, therefore the onus lies on the AO to prove how this figure had been arrived at or taken. The contention of the Ld Counsel is that it should be taken as ‘Nil’. In the absence of any cogent material or evidence to support the said negative balance, we are of the view that the addition of Rs. 29,70,53,629/- cannot be survived. It is a settled law if the revenue wants to tax any income, the onus is on the revenue to prove that the assessee has earned income. Even otherwise, for the negative opening balance, addition cannot be made as per the provisions of Section 69 of the Act in the impugned assessment year. If an addition has to be made that has to be made in the earlier assessment year from which negative opening balance has been brought forward. We accordingly, delete the addition of Rs. 29,70,53,629/- out of the sum of Rs. 223,83,58,173/-.”
18.1 The facts of the present issue are similar to the facts decided by the Tribunal in the above order. The Ld. Special Counsel has relied on the order of lower authorities, but has not brought anything on record to controvert the finding of the Tribunal, either on fact or on law. Hence, following the above decision of the Tribunal, the addition on account of negative opening balance of Rs.159.72 Cr. in respect of 11.5% Central Loan 2007 is deleted.
19. Ground No. 3 pertains to addition of Rs. 524,53,68,500/- on account of payment made to SBI. This addition was not made by the AO in the original assessment proceedings. Subsequently, during the course of the hearing before the CIT(A) in the second round of litigation, the CIT(A) has enhanced the income of the assessee by Rs. 524,53,68,500/-. The CIT(A) has observed that the assessee has made payment of Rs. 622.52 Cr. to the SBI by way of 10 cheques drawn through his bank account with Grindlays bank issued in the month of April 1992 and 1 payment made directly by Syndicate Bank as per the instructions of the assessee. The details of these cheques have been tabulated by the CIT(A) in his order and the same is extracted by the CIT(A) from the chart annexed by the SBI to their letter to CBI. According to the CIT(A), except an amount of Rs. 97,98,66,961/-, the source of payments made to SBI has not been proved and, hence, the balance amount of Rs. 524.53 Cr. (Rs. 622.52 Cr. – Rs. 97.98 cr.) was added to the total income. The CIT(A) observed the entries passed in the books of the assessee to be unreliable. He also found that there are several infirmities in the entries made in the books as it does not match with the deal file. This infirmity has been tabulated by the CIT(A) in his order. In the impugned order of the CIT(A), reliance has been placed upon the order passed by his predecessor.
20. The Ld. AR has assailed the above addition and submitted that the entire payment has been made from the regular bank accounts of the assessee with Grindlays Bank and Syndicate Bank and hence, it is incorrect to say that the payment made to SBI is out of unaccounted money belonging to the assessee. The details of the payment made to SBI, for which addition has been made, are as under;
(i) Payments made through bank account with Grindlays Bank;
Sr. No. Date Amount (In Rs. Cr.)
1. 13.04.1992 243.18
2. 18.04.1992 * 97.98
3. 18.04.1992 9.00
4. 18.04.1992 35.00
5. 20.04.1992 125.00
6. 20.04.1992 35.00
7. 21.04.1992 21.00
8. 21.04.1992 2.23
9. 24.04.1992 6.35

 

(ii) Payment made directly by Syndicate Bank
Sr. No. Date Amount (In Rs. Cr.)
10. 21.04.1992 47.76
Total 622.52

 

*This payment has been held to be explained by the CIT(A) and no enhancement has been made in this regard.
(iii) The Ld. AR submitted that each and every amount deposited in the bank account with Grindlays Bank and the payment made through Syndicate Bank is explained and represents disclosed transactions of the assessee. In respect of the payments made from the bank account with Grindlays Bank, the CIT(A) has held the said payments to be unexplained because the corresponding amounts deposited in the said bank account have not been explained by the assessee. The list of such alleged unexplained credits and the reason for holding it to be unexplained is available in the table enclosed in the paper book. The Ld. AR has dealt with each of these deposits, which is reproduced below for ready reference and clarity:
(i) The deposit of Rs. 19.96 Cr. made on 13.04.1992 represents sale proceeds of 17% NTPC Bonds of F.V. 20 Cr. (contract no. 920413-BOS). It would be interesting to note that the said sale transaction has been acknowledged and duly accepted by the AO himself while preparing the Annexure M-2 to the assessment order. Attention is invited to the PBP 211 wherein the AO has considered the above sale transaction and has given complete particulars like date, face value, contract value and name of security. Further, the CIT(A) is also not disputing the above sale transaction. The limited objection of the CIT(A) is regarding the rate difference with deal file/break-up of deal file. It is submitted that the objection of CIT(A) is not understandable in as much as no break-up of deal file has been referred to by the CIT(A) nor the rate of transaction has been referred anywhere. In any case, irrespective of alleged rate difference, the receipt on account of sale of security cannot be held to be unaccounted or unexplained money. It would also be relevant to note that the AO has also calculated income on account of money market trading profit/loss, money market difference earned and interest on money market securities. All these incomes have been calculated by him based on purchase and sale of securities, inter alia, tabulated on PBP 211.
(ii) The deposit of Rs. 15.37 Cr. made on 13.04.1992 represents sale proceeds of 17% NTPC Bonds of F.V. 15 Cr. (contract no. 920413-B11). The said sale has been made by the assessee to SBI Capital Market Ltd. The above sale made by the assessee to SBI Capital Market Ltd. gets duly confirmed by the record of SBI Capital Market Ltd. which came to be filed by them before the Hon’ble Special Court. The above transaction has been recorded in the Deal diary of SBI Capital Market Ltd. which has been made part of criminal case document no. 04 of 1993 (PBP 468, 472). Therefore, the above transaction gets duly established and cannot be doubted. Consequently, the sale proceeds arising out of the said transaction cannot be said to be unexplained. The limited objection of the CIT(A) is ‘not in Deal file’. It is submitted that the objection of CIT(A) is not understandable in as much as no details or particulars has been referred to by the CIT(A).
(iii) The deposit of Rs. 99.00 Cr. (sic 99.775 cr.) made on 13.04.1992 represents sale proceeds of Units of F.V. 6.5 Cr. (contract no. 920413-B15). This deposit made on 13.04.1992 represents sale proceeds of Units of F.V. 6.5 Cr. (contract no. 920413-B15). It would be interesting to note that the said sale transaction has been acknowledged and duly accepted by the AO himself while preparing the Annexure M-2 to the assessment order. Attention is invited to the PBP 209 wherein the AO has considered the above sale transaction and has given complete particulars like date, face value, contract value and name of security. Apart from this, since the delivery against the above sale transaction was not given, the above sale transaction has been made part of the FIR filed by the NHB (PBP166 – Sr. no. 1).
Further, the CIT(A) is also not disputing the above sale transaction. The limited objection of the CIT(A) is ‘not in Deal file’. It is submitted that the objection of CIT(A) is not understandable in as much as no details or particulars has been referred to by the CIT(A). In any case, the receipt on account of sale of security cannot be held to be unexplained money. It would also be relevant to note that the AO has also calculated the income on account of money market trading profit/loss, money market difference earned and interest on money market securities. All these incomes have been calculated by him based on purchase and sale of securities, inter alia, tabulated on PBP 209.
(iv) The deposit of Rs. 54.325 Cr. (sic 53.55 cr.) made on 13.04.1992 represents sale proceeds of Units of F.V. 3.50 Cr. (contract no. 920413-B15). The deposit of Rs. 53.55 Cr. made on 13.04.1992 represents sale proceeds of Units of F.V. 3.50 Cr. (contract no. 920413-B15). It would be interesting to note that the said sale transaction has been acknowledged and duly accepted by the AO himself while preparing the Annexure M-2 to the assessment order. Attention is invited to the PBP 209 wherein the AO has considered the above sale transaction and has given complete particulars like date, face value, contract value and name of security. Apart from this, since the delivery against the above sale transaction was not given, the above sale transaction has been made part of the FIR filed by the NHB (PBP 166-Sr. no. 2).
Further, the CIT(A) is also not disputing the above sale transaction. The limited objection of the CIT(A) is ‘not in Deal file’. It is submitted that the objection of CIT(A) is not understandable inasmuch as no details or particulars has been referred to by the CIT(A). In any case, the receipt on account of sale of security cannot be held to be unexplained money. It would also be relevant to note that the AO has also calculated the income on account of money market trading profit/loss, money market difference earned and interest on money market securities. All these incomes have been calculated by him based on purchase and sale of securities, inter alia, tabulated on PBP 209.
(v) The deposit of Rs. 73.34 Cr. and Rs. 78.90 Cr. made on 13.04.1992 represents sale proceeds of various securities made to NHB. Both these transactions are confirmed by NHB inasmuch as NHB has filed an FIR on 13.07.1992 because the delivery against the above receipts were not given by the assessee. These transactions are appearing in the FIR filed by the NHB (PBP 166). A detailed factual background in respect of above FIR and subsequent payment by the assessee has already been given while dealing with Gr. No. 1 hereinabove. Since the sale transactions have been confirmed by NHB, the sale proceeds cannot be treated as unexplained. The objection of the CIT(A) that no details given is factually incorrect inasmuch as the AO has taken into consideration the above referred two sets of transactions while calculating the oversold position. The attention is invited towards PBP 295, 145 wherein the AO has tabulated the transactions of sale in 9% IRFC and 9% CIL, which includes the transactions under consideration.
(vi) The deposit of Rs. 10.24 Cr. made on 13.04.1992 represents sale proceeds of 17% NTPC Bonds of F.V. 10 Cr. (contract no. 920413-B19). The said sale has been made by the assessee to SBI Capital Market Ltd. The above sale made by the assessee to SBI Capital Market Ltd. gets duly confirmed by the record of SBI Capital Market Ltd. which came to be filed by them before the Hon’ble Special Court. The above transaction has been recorded in the Deal diary of SBI Capital Market Ltd. which has been made part of criminal case document no. 04 of 1993 (PBP 468, 472). Therefore, the above transaction gets duly established and cannot be doubted. Consequently, the sale proceeds arising out of the said transaction cannot be said to be unexplained. The limited objection of the CIT(A) is ‘not in Deal file’. It is submitted that the objection of CIT(A) is not understandable inasmuch as no details or particulars has been referred to by the CIT(A).
(vii) The deposit of Rs. 15.27 Cr. (sic 15.37 cr.) made on 13.04.1992 represents sale proceeds of 17% NTPC Bonds of F.V. 10 Cr. (contract no. 920413-B07). This transaction appearing in the table prepared by the CIT(A) is repetition of earlier transaction of the same date with same amount and same narration. This has been explained hereinabove at sr. no. (ii).
(viii) The deposit of Rs. 10.24 Cr. made on 13.04.1992 represents sale proceeds of 17% NTPC Bonds of F.V. 15 Cr. (contract no. 920413-B03). This transaction appearing in the table prepared by the CIT(A) is repetition of earlier transaction of the same date with same amount and same narration. This has been explained hereinabove at sr. no. (vi).
(ix) The deposit of Rs. 1.98 Cr. made on 13.04.1992 represents sale proceeds of Units of F.V. 13 lac (contract no. 920413-B21). The said sale has been made by the assessee to SBI Capital Market Ltd. The above sale made by the assessee to SBI Capital Market Ltd. gets duly confirmed by the record of SBI Capital Market Ltd. which came to be filed by them before the Hon’ble Special Court. The above transaction has been recorded in the Deal diary of SBI Capital Market Ltd. which has been made part of criminal case document no. 04 of 1993 (PBP 468, 472). Therefore, the above transaction gets duly established and cannot be doubted. Consequently, the sale proceeds arising out of the said transaction cannot be said to be unexplained. The limited objection of the CIT(A) is ‘not in Deal file’. It is submitted that the objection of CIT(A) is not understandable inasmuch as no details or particulars has been referred to by the CIT(A).
(x) The deposit of Rs. 31.62 Cr. and Rs. 4.76 Cr. made on 16.04.1992 represents sale proceeds of CIL Bonds of F.V. 35 Cr. and Rs.5 Cr. (contract no. 920416-B10 and B-22). These deposits are fully explainable. However, the detailed explanation is not being given here for the simple reason that the assessee has not made any payment to SBI out of these deposits. Both these deposits have been made by the assessee on 16.04.1992 whereas none of the payments have been made to SBI on 16.04.1992.
(xi) Similarly, the deposit of Rs. 4.76 Cr. made on 16.04.1992 represents sale proceeds of CIL Bonds of F.V. 5 Cr. (contract no. 920416-B22). Here again, since no payment has been made to SBI on 16.04.1992, detailed explanation has not been given.
(xii) The deposit of Rs. 32.55 Cr. made on 18.04.1992 represents sale proceeds of 9% IRFC Bonds of F.V. 36 Cr. (contract no. 920418-B49). It would be interesting to note that the said sale transaction has been acknowledged and duly accepted by the AO himself while preparing the Annexure M-2 to the assessment order. Attention is invited to the PBP 295 wherein the AO has considered the above sale transaction and has given complete particulars like date, face value, contract value and name of security. Further, the CIT(A) has not raised any objections whatsoever in respect of the above sale transaction (kindly see the remarks column on PBP 123). In any case, the receipt on account of sale of security cannot be held to be unexplained money. It would also be relevant to note that the AO has also calculated the income on account of money market trading profit/loss, money market difference earned and interest on money market securities. All these incomes have been calculated by him based on purchase and sale of securities, inter alia, tabulated on PBP 295.
(xiii) The deposit of Rs. 4 Cr. made on 18.04.1992 represents amount transferred from Bank of India, Stock Exchange Branch bank account of assessee’s brother Ashwin S. Mehta. It is nobody’s case that the said bank account is undisclosed. Since both the bank accounts are disclosed, the transfer of amount from the assessee’s brother’s bank account to assessee’s bank account cannot be said to be unexplained.
(xiv) The deposit of Rs. 3.55 Cr. made on 18.04.1992 represents sale proceeds of G E Shipping of 3 lacs shares (contract no. 920406-A001). This amount represents part payment received from Citi Bank in respect of sale consideration of 3 lacs shares [incorrectly mentioned as 2 lacs by CIT(A)] of Great Eastern Shipping @ Rs. 177.50. The relevant contract note is enclosed herewith at PBP 552. The total consideration is Rs. 5,32,50,000/-(3 lacs x 177.50) and the balance consideration of Rs. 1,77,50,000/- has been received on 20.04.1992, which is appearing at Sr. no. (xix) hereinbelow.
Interestingly, the AO himself has accepted the above transaction while working out the share market oversold position. Attention is invited to break-up of Annexure S-1 of the assessment order (PBP 553) which clearly shows the above referred transaction of sale of shares of 3 lacs.
(xv) The deposit of Rs. 5.20 Cr. made on 18.04.1992 represents sale proceeds of 17% NTPC Bonds of F.V. 5 Cr. The securities have been sold to M/s. V.B. Desai and for which the payment of Rs. 5,20,26,027.40 (along with another payment of Rs. 4,77,71,232.88) has been received by the assessee from them on 18.04.1992. The Deal slip in respect of the said transaction is enclosed at PBP 555. In light of the above deal slip, the objection of the CIT(A) that the transaction is not in deal file, is irrelevant.
(xvi) The deposit of Rs. 4.77 Cr. made on 18.04.1992 represents sale proceeds of 9% Hudco Bonds of F.V. 5 Cr. The deposit of Rs. 4.77 Cr. made on 18.04.1992 represents sale proceeds of 9% Hudco Bonds of F.V. 5 Cr. The securities have been sold to M/s. V.B. Desai and for which the payment of Rs. 4,77,71,232.88 (along with another payment of Rs. 5,20,26,027.40) has been received by the assessee from them on 18.04.1992. The Deal slip in respect of the said transaction is enclosed at PBP 556. In light of the above deal slip, the objection of the CIT(A) that the transaction is not in deal file, is irrelevant.
(xvii) The deposit of Rs. 15.02 Cr. made on 20.04.1992 represents sale proceeds of 17% NTPC Bonds of F.V. 15 Cr. (contract no. 920420-B10). It would be interesting to note that the said sale transaction has been acknowledged and duly accepted by the AO himself while preparing the Annexure M-2 to the assessment order. Attention is invited to the PBP 211 wherein the AO has considered the above sale transaction and has given complete particulars like date, face value, contract value and name of security. Further, the CIT(A) has not raised any objections whatsoever in respect of the above sale transaction (kindly see the remarks column on PBP 123). In any case, the receipt on account of sale of security cannot be held to be unexplained money. It would also be relevant to note that the AO has also calculated income on account of money market trading profit/loss, money market difference earned and interest on money market securities. All these incomes have been calculated by him based on purchase and sale of securities, inter alia, tabulated on PBP 211.
(xviii) The deposit of Rs. 5 Cr. made on 20.04.1992 represents sale proceeds of C. C. Asset of F.V. 5 Cr. (contract no. 920420-B14). This deposit represents proceed of sale of CC Asset to National Housing Bank on 20.04.1992 wherein Grindlays bank has acted as a routing bank. The sale transaction was for one day and the same was reversed on 21.04.1992. The corresponding deal slips are at (PBP 557, 558) and the corresponding receipt and payment is duly appearing in the bank statement of Grindlays Bank on 20.04.1992 of Rs. 5 Cr. (PBP 464) and 21.04.1992 of Rs. 5,00,30,187/- (PBP 465).
It may be noted that the security transactions are essentially transactions of lending and borrowing wherein securities are mentioned (often not delivered) as mortgage only. Many a times, where the securities are not identified the name of security is mentioned as CC Asset or Asset to Be Fixed (ATBF). In fact, the AO has calculated the stock position of CC Asset and ATBF in Annexure M-2 of A.Y. 1992-93 (PBP 550).
(xix) The deposit of Rs. 1.77 Cr. made on 20.04.1992 represents balance sale proceeds of 3 lacs shares of G. E. Shipping sold to Citi Bank on 06.04.1992. The initial payment of Rs. 3.55 Cr. was received on 18.04.1992. Reliance is placed upon the detailed explanation given in respect of receipt of the said amount of Rs. 3.55 Cr. hereinabove at Sr. no. (xiv).
(xx) The deposit of Rs. 99 Cr. and Rs. 1.09 Cr. (sic 100.09 cr.) made on 20.04.1992 represents sale proceeds of 17% NTPC Bonds of F.V. 100 Cr. (contract no. 920420-B05). The deposit of Rs. 99.00 Cr. and Rs. 1.09 Cr. made on 20.04.1992 represents sale proceeds of various securities made to NHB. Both these transactions are confirmed by NHB inasmuch as NHB has filed an FIR on 13.07.1992 because the delivery against the above receipts were not given by the assessee. These transactions are appearing in the FIR filed by the NHB (PBP 167). A detailed factual background in respect of the above FIR and subsequent payment by the assessee has already been given while dealing with Gr. No. 1 hereinabove. Since the sale transactions have been confirmed by NHB, the sale proceeds cannot be treated as unexplained. The objection of the CIT(A) that there are no separate entries of the two in Deal file is illogical. It is interesting to note that the computer programme in those days was not equipped to capture the figure of Rs. 100 Cr. Therefore, the above transaction of Rs. 100.09 Cr. was split into Rs. 99 Cr. and Rs. 1.09 Cr. However, in the bank statement, the full amount is correctly reflected. It may be noted that the CIT(A) has taken the two entries from the assessee’s books of account wherein the same contract number is mentioned. This also establishes the contradictory approach of the CIT(A) who has conveniently rejected the books of the assessee whenever it supported the case of the assessee. Further, the AO has taken into consideration the above transaction while calculating the oversold position in 17% NTPC Bonds. The attention is invited towards PBP 211 wherein the AO has tabulated the transactions of sale in 17% NTPC Bonds, which includes the transactions under consideration.
(xxi) The deposit of Rs. 46.47 Cr. made on 20.04.1992 represents sale proceeds of 5,000 ACC shares @ Rs. 5,975/- per share, 25,000 Apollo Tyres Ltd. shares at Rs. 350/- per share and 10 lacs Reliance Industries Ltd. shares at Rs. 400/- per share. The shares have been sold to Canfina and the aggregate sale proceeds has been received on 20.04.1992. The said sale transaction has been confirmed by Canfina in their letter dated 29.10.1994 (PBP 559) addressed to the AO himself. Thus, they cannot be any doubt about the above sale proceeds.
(xxii) The deposit of Rs. 8.00 Cr. made on 20.04.1992 represents sale proceeds of 2 lacs shares of RIL @ Rs. 400/- per share. The said sale transaction has been confirmed by Citi Bank Custodial Services vide their delivery report dated 20.04.1992 (PBP 561).
(xxiii) The deposit of Rs. 29.50 Cr. made on 20.04.1992 represents sale proceeds of Units of F.V. 12 lacs and 9% IRFC Bonds of F.V. 30 Cr. (contract no. 920420-B41). The deposit of Rs. 29.50 Cr. made on 20.04.1992 represents sale proceeds of 9% IRFC Bonds of F.V. 30 Cr. (contract no. 920420-B41) and F.V. 12 lacs Units (contract no. 920420-B39). The said sale has been made by the assessee to State Bank of Saurashtra. The above sale made by the assessee to State Bank of Saurashtra. gets duly confirmed by record of State Bank of Saurashtra, which came to be filed by them before the Hon’ble Special Court. The above transaction has been recorded in the Deal diary of State Bank of Saurashtra which has been made part of criminal case document no. 01 of 1996 (PBP 478). Therefore, the above transaction gets duly established and cannot be doubted. Consequently, the sale proceeds arising out of the said transaction cannot be said to be unexplained. The limited objection of the CIT(A) is ‘not in Deal file’. It is submitted that the objection of CIT(A) is not understandable inasmuch as no details or particulars has been referred to by the CIT(A).
(xxiv) The deposit of Rs. 17.50 Cr. made on 21.04.1992 represents sale proceeds of 13% NPC Bonds of F.V. 20 Cr. The deposit of Rs. 17.50 Cr. made on 21.04.1992 represents sale proceeds of 13% NPC Bonds of F.V. 20 Cr. The securities have been sold to M/s. V.B. Desai and for which the payment of Rs. 17,50,00,000/- has been received by the assessee from them on 21.04.1992. The Deal slip in respect of the said transaction is enclosed at PBP 562. In light of the above deal slip, the objection of the CIT(A) that the transaction is not in deal file, is irrelevant.
(xxv) The deposit of Rs. 18.50 Cr. made on 21.04.1992 represents sale proceeds of RF transactions of 18,000 shares of ACC Ltd. @ Rs. 6,000/- per share and 4,43,950 shares of Apollo Tyres Ltd. @ Rs. 252/- per share received from Pallav Sheth. Both the above transactions are appearing in break-up of Annexure S-1 prepared by the AO himself (PPB 565). The details of these RF transactions are also matching with the ledger account of Pallav Sheth, which is enclosed at PBP 566. Thus, there cannot be any doubt about the above receipt.
(xxvi) The deposit of Rs. 10.26 Cr. made on 21.04.1992 represents sale proceeds of 17% NTPC Bonds of F.V. 10 Cr. The securities have been sold to M/s. P. R. Subramaniyam & Sons and for which the payment of Rs. 10,26,91,780.82 has been received by the assessee from them on 21.04.1992. The Deal slip in respect of the said transaction is enclosed at PBP 563. In light of the above deal slip, the objection of the CIT(A) that the transaction is not in deal file, is irrelevant.
(xxvii)( The deposit of Rs. 2.50 Cr. made on 21.04.1992 represents amount transferred from Bank of India, Stock Exchange Branch bank account of assessee’s wife Jyoti Mehta. It is nobody’s case that the said bank account is undisclosed. Since both the bank accounts are disclosed and the transfer of amount from the assessee’s wife’s bank account to assessee’s bank account cannot be said to be unexplained.
(xxviii)( The deposit of Rs. 4.60 Cr. made on 21.04.1992 represents sale proceeds of Gesco received from Citi Bank. The assessee had purchased 2 lacs shares of Great Eastern Shipping at Rs. 170/- per share, 1 lac shares of Great Eastern Shipping at Rs. 212.50 and had sold 50,000 shares of Great Eastern Shipping at Rs. 185/- per share. The net amount receivable is 4.60 Cr. All the above three transactions are appearing in break-up of Annexure S-1 prepared by the AO
(xxix) The credit of Rs. 9.54 Cr. made on 21.04.1992 represents reversal of wrong debit made by the bank on preceding day i.e. 20.04.1992. This is duly supported by the erroneous debit appearing on the preceding day in the bank statement (PBP 464), narration of the rectification entry-AMT. ERR DR TO A/C ON 20.04.1992 NOW REV (PBP 465). In fact, the CIT(A) has also mentioned the same narration. Since this entry represents merely reversal of earlier entry, this cannot be held to be unexplained.
(xxx) The deposits of Rs. 2.50 cr., 3.00 cr., 4.50 cr., 36.20 cr., and 3.02 Cr. made on 22.04.1992. These deposits are fully explainable. However, the detailed explanation is not being given here for the simple reason that the assessee has not made any payment to SBI out of these deposits. All these deposits have been made by the assessee on 22.04.1992 whereas the payment to SBI was made prior to that date except one payment on 24.04.1992, which has a separate source in the form of deposit made on 24.04.1992.
(xxxi) The deposit of Rs. 15.55 Cr. made on 24.04.1992 represents sale proceeds of Units of F.V. 1.02 Cr. The deposit of Rs. 15.55 Cr. made on 24.04.1992 represents sale proceeds of 1.20 Cr. Units. The securities have been sold to M/s. V.B. Desai and for which the payment of Rs. 15,55,50,000/- has been received by the assessee from them on 24.04.1992. The Deal slip in respect of the said transaction is enclosed at PBP 564. In light of the above deal slip, the objection of the CIT(A) that the transaction is not in deal file, is irrelevant.
(xxxii) The deposit of Rs. 27.30 Cr. made on 24.04.1992 represents sale proceeds of 9% IRFC Bonds of F.V. 30 Cr. (contract no. 920424-B05). It would be interesting to note that the said sale transaction has been acknowledged and duly accepted by the AO himself while preparing the Annexure M-2 to the assessment order. Attention is invited to the PBP 295 wherein the AO has considered the above sale transaction and has given complete particulars like date, face value, contract value and name of security. Further, the CIT(A) is also not disputing the above sale transaction. The limited objection of the CIT(A) is ‘not in Deal file’. It is submitted that the objection of CIT(A) is not understandable inasmuch as no details or particulars has been referred to by the CIT(A). In any case, the receipt on account of sale of security cannot be held to be unexplained money. It would also be relevant to note that the AO has also calculated the income on account of money market trading profit/loss, money market difference earned and interest on money market securities. All these incomes have been calculated by him based on purchase and sale of securities, inter alia, tabulated on PBP 295.”
20.1 According to the Ld. AR, it is evident from the above that none of the deposits made in Grindlays Bank account is unexplained. Apart from this, it is unimaginable that the assessee would have crores of rupees of unaccounted receipt which came to be deposited in the disclosed bank account with Grindlays Bank, from where the payments have been made to the nationalised bank and other parties out of such unexplained receipt.
20.2 He further submitted that the CIT(A) has grossly erred in undertaking the exercise of comparing the particulars given in the contract note with the deal file as per the books of account, both of which have been discarded by the CIT(A) himself. In most of the cases, the CIT(A) has given reasons like “rate difference”, “not in deal file”, “no specific details” etc. The rate difference could be on account of the brokerage and such other reasons. Neither the rate nor the difference has been spelt out by the CIT(A). It is not known as to how the CIT(A) has found the transaction to be not in deal file. Even if the transaction is not in deal file, but the authenticity of the transaction has been established through independent evidence like court proceedings, confirmation of counter party etc. Hence, this cannot be treated as unexplained. Further, most of the receipts have been considered by the AO himself for the purpose of working out money market difference income, money market interest income, oversold position etc. Therefore, the CIT(A) was not justified in discarding the explanation of the assessee.
20.3 As regards the direct payment from Syndicate Bank of Rs. 47,76,44,931.51/-made on 21.04.1992, the Ld. AR submitted that the assessee had asked Syndicate Bank to make the payment of sale consideration of security (sold to Syndicate bank) directly to SBI. In support of this submission, attention was drawn to four deal slips evidencing sale of 9% IRFC Bonds (FV 40 Cr.), 13% RIN Bonds (FV 6 Cr.), 9% PFC Bonds (FV 3 Cr.) and 9% NHPC Bonds (FV 1 Cr.) for an aggregate consideration of Rs. 47,76,44,931.51/-. In all the four transactions, the securities were sold by the assessee through Grindlays Bank and the seller, as per the deal slip, is Grindlays Bank RT account. All the transactions took place on 21.04.1992 and the payment has directly been made by Syndicate Bank to SBI through cheque No. 321128 dated 21.04.1992. All the above 4 deal slips also contain the date of reversal of the transaction, which is 22.04.1992 i.e. very next day and the rates at which transactions would be reversed. Accordingly, all the 4 transactions were reversed on the next day and the payment of Rs. 47,80,63,924.52/- (Principal amount of Rs. 47,76,44,931.51 and interest thereon for 1 day) was made by the assessee to Syndicate Bank. This payment of Rs.47,80,63,924.52 is duly reflected in the bank account of the assessee. The Ld. AR submitted that this receipt along with cheque number has been confirmed by SBI wherein the name of Syndicate Bank is clearly appearing. The solitary reason given by the CIT(A) is that the SBI has received another cheque of Rs. 21 Cr. on 21.04.1992 wherein the cheque number is appearing whereas against the impugned payment received from Syndicate Bank, the cheque number and the amount is blank. In this regard, the Ld. AR submitted that the above observations of the CIT(A) is factually incorrect and on perusal of the statement given by SBI, the particulars like date, cheque number, name of the bank and the amount are clearly mentioned in respect of the above transaction. The CIT(A) has observed that the amount of Rs. 21 Cr. is not matching with the amount under consideration of Rs. 47,76,44,931/- and the receipt of Rs. 71 Cr. (Rs. 47,76,44,931.51 + 2,23,55,068.49 + 21,00,00,000/-) on 21.04.1992 is not matching with the amount of Rs. 47,76,44,931/-. It was submitted that the above observations are factually incorrect as the amount of Rs. 47,76,44,931/- is distinctly appearing in the statement of SBI and an aggregate amount of Rs. 71 Cr. arrived at by the CIT(A) includes the said amount of Rs. 47,76,44,931.51. Thus, there is no discrepancy whatsoever.
20.4 The Ld. AR further submitted that the impugned addition would result into taxing the same amount more than once. This has been explained as under;
DETAILS OF TRANSACTIONS WITH SBI
Sr.No. Particulars Treatment given by Department
1. During F.Y. 1991-92, Harshad Mehta sold certain securities to SBI and received sale proceeds from time to time. However, the corresponding securities were not delivered by Harshad Mehta to SBI. Following securities were short delivered as on 31.03.1992.

Central Loan 2007 F.V. 170 Cr. (Rs. 173.33 cr.)
Central Loan 2010 F.V. 454 Cr. (Rs. 573.08 cr.)
Total F.V. 624 Cr. (Rs. 746.41 cr.)
 While completing the assessment for A.Y. 1992-93, the AO has determined the closing oversold position of Central Loan 2007 and Central Loan 2010. However, he has not made any addition on account of oversold position in respect of transactions with SBI by observing that the delivery of securities has not been given by the assessee. This is based on development of subsequent year wherein SBI has made a claim against Harshad Mehta after detection of shortfall in their stock position.

However, the AO has made addition in respect of value of oversold position of Central Loan 2010 in A.Y. 1993-94 (part of Gr. No. 1). Further, CIT(A) enhanced the income of assessee for A.Y. 1993-94 in respect of value of oversold position of Central Loan 2007 (Gr. No. 2).
2. During March/April 1992, upon detection of non-delivery of securities, SBI compelled Harshad Mehta to make payment for shortfall in securities.
3. Harshad Mehta paid Rs. 622.52 Cr. to SBI during the period from 13.04.1992 to 24.04.1992. Harshad Mehta sourced the above amount from:

(i) Rs. 97.98 Cr. – proceeds of sale of securities received from Grindlays Bank.
(ii) Rs. 47.77 Cr. – proceeds of sale of securities received from Syndicate Bank (directly transferred to SBI).
(iii) Rs. 476.77 cr.- Payment made from bank a/c with Grindlays Bank. (The balance in Grindlays Bank account was generated mainly due to proceed of sale of securities (without delivery) of Rs. 506.54 Cr. to National Housing Bank.)
 The CIT(A) enhanced the income of the assessee by holding that the source of the amount paid by Harshad Mehta to SBI is not explained except to the extent of Rs. 97.98 Cr. The CIT(A) made the addition of Rs. 524.53 Cr. (Rs. 622.51 Cr. – Rs. 97.98 cr.) (Gr. No. 3).
4. Later, NHB recovered the money from Grindlays Bank, who in turn claimed it from Harshad Mehta. Under the orders of Special Court and Supreme Court, Harshad Mehta paid the amount to Grindlays Bank. The AO has presumed that there was delivery of security by Harshad Mehta to National Housing Bank in respect of sale of securities to NHB. The AO ignored the claim made by NHB/Grindlays Bank against Harshad Mehta, which has been upheld by the Special Court and Supreme Court. The said assumption of AO has resulted into oversold position for which addition has been made to the total income of the assessee in A. Y. 1993-94 (part of Gr. No. 1).

 

20.5 Apart from this, the Ld. AR has submitted that several relied upon documents have not been provided during last 30 years in the assessment and appellate proceedings. Even during the present proceedings, the matter was adjourned on several occasions. During the course of hearing on 06.12.2024, the Bench directed the DR for producing the relied upon documents and evidence of delivery before the Bench on 31.12.2024. The DR requested for adjournment on 31.12.2024. Since the case is to be heard on the basis of many factual/technical issues, keeping the case as part heard matter for long time was not feasible. Hence, the matter was released. However, in compliance to the direction of the Bench, the assessee addressed a letter dated 01.01.2025 to the Special Counsel, wherein, the following relied upon documents in respect of ground No.3 were mentioned.
“7) The evidence in support of the remarks made by the CIT(A) (in the second round of litigation) in the last column of table on page 69 to 71 of his order (PBP 122 -124).
8) Letters written by the counter parties in respect of the transactions mentioned in the above table. These details include the letters written by banks, financial institutions as well as, in respect of share transactions, share market brokers.”
20.6 In spite of the above, the Department has neither produced the requisite details before the Tribunal nor given the same to the appellant for rebuttal. The Ld. AR submitted that in view of the above facts, adverse inference has to be drawn against the Department and the ground may be allowed. The Ld. AR relied upon the decisions of group cases, were under similar facts and circumstances, the Tribunal has decided in favour of the assessee.
21. We have heard both sides and perused the materials on record. This addition was not made in the original assessment order. However, the CIT(A) enhanced income of the assessee by observing that the assessee made payment of Rs.622.52 Cr. to SBI by 10 cheque drawn from bank account with Grindlays Bank and one payment made directly by Syndicate Bank. Except for an amount of Rs.97.98 Cr., the source of payment to SBI was not proved and hence, the balance amount of Rs.524.43 Cr. [Rs.622.52 Cr. -Rs.97.98 Cr.] was added to the total income. The Ld. AR submitted that the entire payment has been made from regular bank account of the assessee with Grindlays Bank and Syndicate Bank. He submitted that nobody would deposit crores of rupees of unaccounted receipt in the disclosed bank account. He has given details of all the deposits in these two accounts and submitted that all of those are out of disclosed transactions, being the sale proceeds of securities, bonds, units etc. It also includes amount transferred from bank account of assessee’s brother, Shri Ashwin S. Mehta as per the details provided in the submission reproduced above at para 19 at serial (i) to (xxxii). The Ld. AR submitted that all these transactions are duly recorded in the regular books of account and hence, the same cannot be added as unexplained. The Ld. Counsel for the revenue has not rebutted the assertion of the Ld. AR with tangible evidence. The revenue has also not provided the documents relied upon by it to the appellant despite specific request made by the appellant in this regard and the direction issued during the current proceedings by the Tribunal. The underlying evidence to support the impugned addition is evidently absent in the multiple proceedings that have been ongoing for the last three decades. Hence, the order of CIT(A) is set aside and AO is directed to delete the addition. The ground is, accordingly, allowed.
22. Ground No. 4 pertains to the determination of money market trading loss at Rs.32,94,908/-. The AO has determined the money market trading loss at Rs.32,94,908/-. In the first round, he stated that he has obtained the details of money market transactions of the assessee and based on such details, he has prepared Annexure M-1. He has determined the figure of money market trading loss at Rs.32,94,908/- in his order based on the working given by him in Annexure M-1. Based on the same annexure, he has also determined the money market oversold position, which was the subject matter of ground No. 1 in this appeal. It was contended before the CIT(A) in the second round of litigation that the loss determined by the AO as per Annexure M-1 is Rs.3,29,49,085/- and not Rs.32,94,908/-. The CIT(A) has accordingly directed the AO to verify this aspect.
23. The Ld. AR submitted that in the impugned order, the AO has merely adopted the total income as per the order giving effect to the order of the CIT(A) in the second round of litigation (dated 24.03.2010). The said issue was again raised before the CIT(A) who has confirmed the determination of incorrect loss figure of Rs.32,94,908/- as against the correct loss figure of Rs.3,29,49,085/-. It is submitted that the correct figure is very much appearing in Annexure M-1 to the assessment order and, hence, AO may be directed to adopt the correct figure.
24. On the other hand, the Ld. Special Counsel supported the orders of lower authorities.
25. We have heard both sides and perused the materials on record. We find from annexure M-1 placed at PBP 137 and 138 that the profit has been shown at (-) Rs.3,29,49,085.70 and not (-) Rs. 32,94,908/-. The order of CIT(A) is,accordingly, set aside and the AO is directed to adopt money market trading loss at Rs.3,29,49,085/-. The ground is allowed.
26. Ground No. 5 pertains to the addition of Rs.20,76,95,398/- on account of money market difference. The AO, in the original assessment order has observed that the assessee has acted as a principal in various money market securities transactions. The AO has come to the conclusion that the assessee received the difference between purchase and sale transactions of money market securities and the same has been tabulated by him as Annexure M-3. The total money market difference received by the assessee, as per Annexure M-3 prepared by the AO, is Rs.20,76,95,398/-. It was contended before the CIT(A) that the difference tabulated in the Annexure M-3 of the assessment order is in fact payments made by the assessee and not the receipt of the assessee. Such contention of the assessee has been recorded by the CIT(A) in the impugned order. However, instead of deleting the addition on this account, he has confirmed it by giving reasons in respect of each of items tabulated in Annexure M-3.
27. The Ld. AR, at the outset, submitted that the entire annexure M-3 has been prepared on erroneous impression of the AO that the amounts consisting of Rs.20,76,95,398/- are receipts of the assessee. As a matter of fact, all these amounts are payments made by the assessee and are accordingly appearing in the bank statement of the assessee. In fact, such contention of the assessee has not been rejected by the CIT(A). It seems that the mistakes have occurred due to the information given by the counter parties who would have described the transaction as amount received by them. Naturally, therefore, the amounts received by the counter party would be the amounts paid by the assessee from his bank account and, therefore, cannot be the income of the assessee on account of difference received by the assessee.
27.1 The Ld. AR pointed out, by way of an example, the letter of Standard Chartered Bank, which shows the receipt of Rs.55,62,150/- on 06.04.1992 (Sr. No. 42) as “Recd. as diff. in Con/Del rates”. The AO has treated it as a receipt of the assessee and adopted the same narration in the remark’s column of Annexure M-3. Thus, the amounts have been wrongly held to be receipts instead of payments. Similar is the case in respect of the payments made by the assessee to Standard Chartered Bank on 21.04.1992 amounting to Rs.191.34/-. The narration mentioned by Standard Chartered Bank as ‘Excess Recd.’ has been adopted by the AO while preparing Annexure M-3.
27.2 The Ld. AR also submitted that the CIT(A), in the impugned order, in spite of accepting the factual position that the amounts tabulated in Annexure M-3 are not receipts and, therefore, the addition on account of money market difference cannot be upheld, has confirmed the addition. The CIT(A) has given strange and irrelevant reasons for confirming the addition. The Ld. AR has filed submission in respect of each of the items tabulated in the Annexure M-3 by the AO are as under;
a. “Payment of Rs. 3,14,39,301/- made on 06.04.1992 from Grindlays Bank

As it is evident from page no. 131 of CIT(A)’s order, the assessee has explained the complete particulars of transaction which was between Grindlays Bank and Bank of America wherein the assessee was a broker. It was also submitted that the above amount is paid by the assessee. The CIT(A) has observed that ‘the appellant is required to explain as to how these transactions have emanated and the entire sequence of transactions’. It is submitted that the objection raised by the CIT(A) is not understandable. The CIT(A) has not rejected the submission of the assessee that amount is not received but paid nor issued any notice of enhancement to convert the addition under some different head nor he has pointed out as to on what account and under which head the addition is sustained.

b. Payment of Rs. 5,46,25,000/- made on 10.04.1992 from Grindlays Bank

This payment has been made to Bank of America, being the half yearly interest on 11.5% GOI 2007 F.V. 95 Cr. The assessee had sold the said security and pending the transfer of the security had received the interest on security, which was to be passed on to the purchaser of the security i.e. Bank of America. The CIT(A) has observed that ‘the appellant is required to explain as to how these transactions have emanated and the entire sequence of transactions and also as to how its claim of payment of interest is a valid one’. It is submitted that the objection raised by the CIT(A) is not understandable. The CIT(A) has not rejected the submission of the assessee that amount is not received but paid nor issued any notice of enhancement to convert the addition under some different head nor he has pointed out as to on what account and under which head the addition is sustained.

c. Payment of Rs. 55,62,150/- made on 06.04.1992 from UCO Bank

This payment has been made from the bank account with UCO bank (PBP 568) to Standard Chartered Bank being the difference paid on the transactions entered into between BOI mutual fund and Standard Chartered Bank. This has been duly confirmed by the Standard Chartered Bank (PBP 287 – Sr. no. 42). The CIT(A) has observed that ‘the appellant has not brought contemporaneous or independent evidence’. The CIT(A) has not rejected the submission of the assessee that amount is not received but paid nor issued any notice of enhancement to convert the addition under some different head nor he has pointed out as to on what account and under which head the addition is sustained.

d. Payment of Rs. 1,21,18,000/- made on 06.05.1992 from Bank of India

This payment has been made from the bank account with Bank of India (PBP 569) to Bank of Madura being the difference paid on the transaction entered into between Bank of Madura and Prime Securities. The CIT(A) has observed that ‘the appellant has not brought contemporaneous or independent evidence’. The CIT(A) has not rejected the submission of the assessee that amount is not received but paid nor issued any notice of enhancement to convert the addition under some different head nor he has pointed out as to on what account and under which head the addition is sustained.

e. Payment of Rs.62,50,000/- made on 07.04.1992 from Grindlays Bank

This payment has ‘been made to Punjab National Bank being the difference paid on the transactions entered into between Punjab National Bank and Syndicate Bank. The CIT(A) has observed that ‘the appellant has not brought contemporaneous or independent evidence’. The CIT(A) has not rejected the submission of the assessee nor issued any notice of enhancement to convert the addition under some different head nor he has pointed out as to on what account and under which head the addition is sustained.

f. Payment of Rs. 9,77,50,000/- made on 07.04.1992 from SBI

This payment has been made to SBI (PBP 570) being the half yearly interest on 11.5% GOI 2007 F.V. 170 Cr. The assessee had sold the said security and pending the transfer of the security had received the interest on security, which was to be passed on to the purchaser of the security i.e. SBI. The CIT(A) has observed that ‘the appellant has not brought contemporaneous or independent evidence’. The CIT(A) has not rejected the submission of the assessee nor issued any notice of enhancement to convert the addition under some different head nor he has pointed out as to on what account and under which head the addition is sustained.”

27.3 The Ld. AR submitted that rest of the amounts which are part of addition made by the AO as per Annexure M-3 are very small amounts i.e. Rs. 191.34, Rs. 5.13 and Rs. 0.87 (all are payments and not receipts) and, hence, not discussed. One more amount of Rs. 49,250/- is credit amount, for which no addition has been made (in fact addition has been reduced) and, hence, not discussed.
27.4 The Ld. AR also submitted that several relied upon documents have not been provided from the beginning of the original assessment proceedings and consequent appellate proceedings. He referred to the letter dated 01.01.2025 by the assessee to the Ld. Special Counsel to provide the following:
“Ground No.5

9) The basis of observations made in remarks column on page no. 127 – 130 of the impugned order of the CIT(A) dated 19.12.2023.

10) Letters received from the counter parties including the banks in respect of the transactions tabulated on the above referred pages.”

27.5 He submitted that despite the above request, the Department has not produced the requisite details. He requested, in view of the above facts, that inference has to be drawn against the Department.
28. On the other hand, the ld. Special Counsel relied on the orders of lower authorities.
29. We have heard both sides and perused the materials on record. We have also carefully gone through Annexure M-3 at PBP 567 and letters of Standard Charted Bank at PBP 284, 287, 288, UCO Bank at PBP 568 and Bank of India at PBP 569. The Ld. AR submitted that the impugned amounts pertain to payments made by the assessee and not the receipts of the assessee. He submitted that the assessee had made submission to the above effect before the CIT(A) who has given irrelevant reasons for confirming the addition. He submitted that the payment by the assessee would be receipt by the counter parties, but due to the confirmation of counter parties to the above effect, the CIT(A) has misconstrued the impugned sums as receipts by the assessee. We have gone through the documents relied upon by the Ld. AR and find that the lower authorities have misunderstood the content of such documents. The revenue has not been able to controvert the explanation of the appellant that the impugned sums represent payments by the assessee to the counter parties. No addition is warranted for any payment by the appellant from his regular and disclosed sources of income. Hence, the addition is deleted and the ground is allowed.
30. Ground No. 6 pertains to addition of Rs.143,66,88,450/- on account of interest on money market securities. In the original assessment order, the AO observed that the assessee has acted as a principal in various money market securities transactions. The AO has come to the conclusion that the assessee has received interest on specified dates on money market securities held by him. He assumed the securities held by the assessee based on the opening stock (taken same as the closing stock of last year’s assessment order), purchase and sales (as per information gathered by him). The working of such interest has been tabulated by him as Annexure M-2. The total interest on money market securities has been arrived at by the AO at Rs. 143,66,88,450/-.
30.1 During appellate proceedings, the assessee contended that the addition was made without causing any enquiry and merely on a presumption basis. The assessee also pointed out several arithmetical errors in the working of the AO and further argued that the AO has also taken into account interest on tax-free securities. It was also submitted that the assessee is following cash system of accounting and, hence, no income can be taxed unless the same is received by the assessee. Reliance was also placed upon the order of the appellate authorities in the earlier years in the case of the assessee. The CIT(A) has, however, held that since the accounts of the assessee has been rejected, the assessee cannot be said to be following cash system of accounting.
31. The Ld. AR submitted before us that the AO has presumed that the stock of securities determined by him have been actually owned by the assessee; that the same has been registered in the name of the assessee; and that assessee has received the interest from the respective government and other authorities. The AO has neither obtained/verified his working from the respective government or other authorities nor has he cross-checked the receipt of interest from the assessee’s bank account. He submitted that while making addition on account of “money market oversold position”, money market interest, money market difference etc., the AO has obtained all the particulars of money market transactions of the assessee from the RBI, different banks, other brokers etc. and also cross checked, in some cases, such details with the bank account of the assessee. However, no such exercise has been done while making the impugned addition.
31.1 The Ld. AR also submitted that the issue under consideration is squarely covered by the order of the Tribunal in assessee’s own case for A.Y. 1992-93 in Harshad S. Mehta v. Deputy Commissioner of Income-tax (Mumbai)/ITA No.5702/Mum/2017 (supra). Under the identical facts and circumstances and in an identical manner, the AO had calculated and made the addition on account of interest on money market securities. It was pleaded before the Tribunal in A.Y. 1992-93 that the assessee is following the cash system of accounting and, hence, the addition made on account of interest on assumed stock of money market securities worked out on mercantile basis, cannot be sustained. The Tribunal accepted the submission of the assessee and held that since the assessee is following the cash system of accounting, only that much of the interest which has been received by the assessee can be taxed. It was also held that the addition on account of interest worked out on the mercantile system of accounting cannot be taxed. The Tribunal also relied upon the finding of the Tribunal in assessee’s own case for A.Y. 1989-90 in ITA No.5773/Mum/1998 which is part of common order for AYs 1988-89 and 1989-90 dated 02.01.2008, wherein the cash system of accounting has been accepted. Thus, the issue is squarely covered by the above referred order of the Tribunal for AY 1992-93.
31.2 Regarding the observation of the CIT(A) that since the assessee’s books for the year under consideration have been rejected, the assessee cannot be allowed to follow the cash system of accounting and that the order of the Tribunal for A.Y. 1992-93 (supra) cannot be followed, the Ld. AR submitted as under:
(a) “The rejection of books of account for the year under consideration has been challenged vide Gr. no. 14 and the assessee relies upon the submissions made in respect of the said ground.
(b) In any case, the rejection of books does not mean that the method of accounting followed by the assessee is also rejected. Even in a best judgment assessment, the determination of income has to be as per the provisions of the Act and keeping in mind the principles of reasonableness and consistency. The rejection of books of account do not give unbridled licence to the Revenue to impose the method of accounting or determine the income based on whims and fancies of the Assessing Officer [Sri Shankar Khandasari Sugar Mills v. CIT 193 ITR 669 (Kar) ].
(c) In any case, the Assessing officer himself, in his order, has observed that the assessee is following Hybrid system of accounting (PBP 1), which is different that the conclusion arrived at by the CIT(A).
(d) The assessee has relied upon the finding of the Tribunal in A.Y. 1992-93 and in the said case also the books of account were rejected and hence, there are no distinguishing feature between A.Y. 1992-93 and the year under consideration. At this stage, it would be interesting to note that the above addition of Rs. 143.66 Cr. was also challenged before the CIT(A) in the second round of litigation. While disposing of the said ground, the CIT(A), in the second round of litigation at PBP 102, para 10.4, had observed that the similar addition has been made in A.Y. 1992-93. He has further observed that the grounds of addition, the appellant’s submissions and facts of the assessment year are similar. Accordingly, he has followed the decision taken by him in A.Y. 1992-93 and upheld the addition. He has further observed that the discussion made by him in A.Y. 1992-93 is to be taken as a part of the order passed by him. The important point to be noted is that when the issue of interest on money market security was decided against the assessee, the CIT(A) finds the facts of the case and the reasons for addition to be similar for A.Ys. 1992-93 and 1993-94. However, it is found that when for A.Y. 1992-93, the addition has been deleted by the Tribunal, the CIT(A) refuses to follow the order of the Tribunal on the ground that the facts are different.
(e) It would be interesting to note that the cash system of accounting has been accepted not only in the earlier years but also has been accepted in the subsequent years. Further, for the subsequent years also the AO has not made any addition of money market interest income on the basis of assumed income as per mercantile system of accounting. This is true in respect of all the subsequent years till today. Thus, the cash system of accounting has been accepted by the AO himself.
(f) In any case, the CIT(A) is also incorrect in observing that the assessee himself has accepted, during the course of the assessment proceedings, vide order sheet noting dated 25.03.1996 (page no. 12 of assessment order) that he is following accrual method of accounting. It is submitted that what has been referred to by the AO on page no. 12 of the assessment order is the letter of the assessee and not the proceeding sheet entry. Secondly, there is no such letter or submission made by the assessee before the Assessing Officer. The observation made by the Assessing Officer on PBP 11 seems to be the result of copy paste error (as he was passing several orders simultaneously).”
31.3 The Ld. AR further submitted that, in any case, the stock position arrived at by the AO is erroneous. The AO has taken the opening stock same as closing stock as per last year’s assessment order. However, the last year’s stock position has not been accepted by the Tribunal and, thus, the opening stock as taken by the AO for the year under consideration is also erroneous. Further, various entries of purchase and sales of securities have been found to be incorrect and the same have been demonstrated while discussing ground No. 1 of the present appeal. Thus, no reliance can be placed on the working of the AO
31.4 The Ld. AR also submitted that the CIT(A) has erred in not correctly appreciating and disposing of the objections raised before him. For example, the relief of Rs. 19.60 Cr. ought to have been granted by the CIT(A) holding that the interest of 9% tax-free securities is not taxable. Once, it is held that the nature of security was tax-free, there is no question of taxing interest on it and, hence, the CIT(A) ought not to have set aside the matter to the file of the AO. Similarly, in respect of other items wherein the relief has been sought, the CIT(A) either rejected the contention without looking at the details furnished to him or has simply set aside the matter to the AO with a direction to verify. It was submitted that the CIT(A) ought to have granted the relief based on the detailed submissions made before him.
31.5 Lastly, the Ld. AR submitted that several relied upon documents have not been provided from the beginning of the original assessment proceedings and consequent appellate proceedings up to the level of the Tribunal. He referred to the letter dated 01.01.2025, by the assessee to the Ld. Special Counsel to provide the following:
“11) Letters received from PS Us and other issuing authorities in respect of the securities mentioned in Annexure M-2 to the assessment order including the details of payments of interest made by them to the assessee.
12) Any positive evidence suggesting the payment of interest on money market securities to the assessee.
13) Out of interest on money market securities listed in Annexure M-2, which are the interest receipts arising from on tax-free securities.”
31.6 Despite the above request, the Department has not provided the requisite details. He, therefore, requested that inference has to be drawn against the Department.
32. We have heard both sides and perused the materials on record. The AO has held that all the securities are actually owned by the assessee. Further, the AO has also calculated interest on tax-free securities. He has also calculated the interest on mercantile system of accounting. The Ld. AR submitted that the assessee would receive interest only from the securities which are registered in his name. Further, the AO has also not cross verified the receipt of interest from the bank accounts of the assessee. The Ld. AR contended that assessee is following cash system of accounting and hence, no income can be taxed unless the same is actually received by the assessee. We find that similar issue had come up for consideration before the Tribunal in appellant’s own case for AY 1989-90 in ITA No.5773/Mum/1998 dated 02.01.2008. The relevant part of the order is reproduced below for ready reference:
“5.21. Next, we will consider the argument of the assessee in respect of Ground No.21 The assessee is aggrieved by the addition of Rs. 24,72,795. The addition has been made on account of alleged interest income on the basis of mercantile system of accounting. The Assessing Officer has observed that the assessee has not offered the above interest income on the ground that he is following cash system of accounting in respect of such income. It was noted by the Assessing Officer that the assessee is earning interest from his family members, who are following mercantile system of accounting. On that basis, the Assessing Officer held that the interest income in the hands of the assessee also should be collected on the basis of mercantile system of accounting.
5.22 The learned Chartered Accountant submitted that though the claim of the assessee was that he was following cash system of accounting in respect of interest income, it was concurrently rejected by the Assessing Officer as well as the CIT(A). He drew our attention towards the fact that in assessment year 1988-89 also a similar dispute arose for consideration. In that year, the issue was decided against the assessee by the CIT(A) on the ground that the assessee had not maintained any books of account, and therefore, there was no question of following cash system of accounting. The said order of the CIT(A) was upheld by the Tribunal in ITA No.8024/Mum/1994 through their order dated 30.6.2004. The learned Chartered Accountant submitted that the facts pertaining to the assessment year 1988-89 are not applicable for the assessment year under appeal. In assessment year 1988-89, the Tribunal has rejected the stand of the assessee regarding the cash system of accounting. In that year, the CIT(A) had relied on the decision of the Calcutta High Court in the case of CIT v. Hindustan Motors Limited [202 ITR 839 ). The CIT(A) has also observed that the assessee’s stand cannot be accepted in the absence of books of account. In a short order, the learned Chartered Accountant submitted that, the Tribunal declined to interfere in the findings arrived at by the CIT(A).
5.23 The learned Chartered Accountant submitted that the issue considered by the Calcutta High Court in the case of Hindustan Motors Limited, were entirely different and it was not a case of cash system of accounting being followed by the assessee. In that case, the assessee was admittedly following mercantile system of accounting Here, it is not the case. In the present case, in respect of interest income, the assessee is following cash system.
5.24 The learned Chartered Accountant further submitted that there is catena of decisions to support the proposition that it is for the assessee to choose its own method of accounting. In the present case contrary to the observation made by the CIT(A), the assessee had maintained books of account. Therefore, in any way, the decision for the assessment year 1988-89, are distinguishable on the facts of that case.
5.25 The learned Chartered Accountant further relied on the decision of the Bangalore Bench in the case of Bajaj Ashok Chunilal v. DCIT [293 ITR (AT) 48]
5.26 On the other hand, the learned Standing Counsel submitted that it would be in the fitness of the things that the Tribunal follows its earlier order. He further submitted that in the earlier decision of the Tribunal in assessee’s own case, the Tribunal has considered all the arguments before arriving at the decision.
5.27 We considered the rival contentions and perused the decision of the Hon’ble Calcutta High Court considered by the CIT(A) for the assessment year 1988-89. We find that decision of the High Court in the case of CIT v. Hindustan Motors Lid is not applicable to the present case. In that case, the assessee was admittedly following mercantile system of accounting and the issue was at what point of time the interest income accrued to the assessee. As far as the assessment year 1988-89 was concerned, the assessee had not maintained books of account, whereas for the impugned assessment year, the assessee has maintained books of account. Therefore, the order of the Tribunal for the earlier assessment year would not apply in the present case. Even otherwise, we find that in a case where the books of account are not maintained or rejected by the Assessing Authority, and income is determined on the basis of best judgement, still, the assessee’s choice regarding the method of accounting cannot be ignored. The books of account, is not the only crucial point to be considered on this issue. The consistent practice followed by the assessee has also to be looked into. Whether assessee has maintained books of account or not, if the assessee follows cash system to recognize income from interest and realize interest income only on actual receipts, the said system should be accepted and the interest should be considered only for actual receipts. Therefore, we find that the emphasis on the rejection of books of account, are overplayed by the authority.
5.28 The assessee is consistently following the cash system of accounting in respect of interest income. That is, he is recognizing interest income only on actual basis. This consistent position should not be overlooked on the ground that the other relatives of the assessee are recognizing interest income on mercantile basis. Therefore, in the facts and circumstances of the case, we find that the lower authorities were not justified in assuming interest income in the hands of the assessee on mercantile basis.
5.29 In the facts and circumstances of the case, we delete the addition.”
32 .1 The Tribunal in assessee’s own case for AY 1992-93 in ITA No.5702/Mum/2016 dated 14.01.2019 has also referred to its earlier decision and has approved the cash method of accounting followed by assessee in respect of interest income. The Ld. Special Counsel has not distinguished the above decisions either on facts or on law. Hence, there is no reason as to why the decision of the Tribunal in assessee’s own case for the immediately preceding year will not be applicable to the instant appeal. The order of CIT(A) is accordingly set aside and the addition made stands deleted.
33. Ground No. 7 pertains to addition of Rs. 2,81,00,000/- on account of profit on transactions with Mazda Industries. The AO has dealt with this issue in the first round of litigation wherein he has observed that the assessee had not given any details regarding his transactions with Mazda Industries Ltd. He further observed that Mazda Industries Ltd. had transactions with assessee in 9% IRFC bonds and has incurred loss of Rs.2.81 Cr. The AO, therefore, has concluded that the loss incurred by Mazda Industries Ltd. would automatically be profit of the assessee. Therefore, he has made the addition of Rs.2.81 Cr. on account of the profit in the transactions with Mazda Industries Ltd. Before CIT(A), the assessee pleaded that he had not entered into any transactions in 9% IRFC bonds with Mazda Industries Ltd., as alleged by the AO. It was clarified that the assessee has entered into the transaction with Mazda Industries Ltd. in respect of 9% Coal India Ltd. It was pointed out that Mazda Industries Ltd. has sold 9% CIL bonds having F.V. 40 Cr. at Rs.36,14,79,452/-. The bonds were, purchased by Grindlays Bank, acting in the capacity of routing bank for the assessee. The bonds were in turn, sold by Grindlays Bank to Citi Bank (F.V. 35 cr.) at Rs. 31,62,94,520/- and SBI Capital Market Ltd. (F.V. 5 cr.) at Rs. 4,76,84,931/-. The assessee enclosed the ledger accounts of 9% CIL bonds and Mazda Industries Ltd. The assessee also enclosed deal slips, bank statement and daily diary of SBI Capital Market Ltd. as available in the CBI charge sheet (Special Case no. 4 of 1993). However, in the impugned order, the CIT(A) has completely ignored the submission of the assessee and in a cryptic conclusion merely followed the order passed by his predecessor.
34. Before us, the Ld. AR submitted that the CIT(A) has not considered the facts of the case and he has not appreciated true nature of transactions with Mazda Industries Ltd. He has arrived at an artificial and mechanical conclusion. The complete particulars regarding the transaction with Mazda Industries Ltd., as submitted by the Ld. AR, is tabulated below.
Details of transactions in 9% Coal India Ltd.
Sr. No. Date of transaction Face Value Seller Buyer Amount (In Rs.) Profit of the assessee (In Rs.)
1. 28.03.1992 40 Cr. V.B. Desai Grindlays (RT) 37,28,54,794 1,68,00,000
2. 28.03.1992 40 Cr. Grindlays (RT) Mazda 38,96,54,794
3. 16.04.1992 40 Cr. Mazda Grindlays (RT) 36,14,79,452 25,00,000
4. 16.04.1992 35 cr. Grindlays (RT) Citi bank 31,62,94,520
5 Cr. -do- SBI Cap 4,76,84,931 36,39,79,452
Total 1,93,00,000

 

34.1 According to the Ld. AR, it is evident from the above details that Mazda Industries Ltd. had purchased 9% CIL bonds of F.V. 40 Cr. on 28.03.1992 at Rs. 38.97 Cr. The same has been sold by Mazda Industries Ltd. on 16.04.1992 at Rs. 36.15 Cr. In the above sequence of events, Mazda Industries Ltd. has incurred a loss of Rs. 2.81 Cr. It would be relevant to note that the above referred security had an interest payment date of 01.04.1992 and, hence, Mazda Industries Ltd. would have received half yearly interest of Rs. 1,80,00,000/- on this security on 01.04.1992.
34.2 The Ld. AR further submitted that since Grindlays Bank acted as routing bank for assessee, the assessee has earned Rs.1,68,00,000/- on account of transactions which took place on 28.03.1992 (A.Y. 1992-93) with M/s. V.B. Desai and Mazda Industries Ltd. Similarly, in respect of the transactions which took place on 16.04.1992, the assessee has earned Rs.25,00,000/- in the transactions with Mazda Industries Ltd. and Citi Bank/SBI Capital Market. The relevant deal files establishing the above transactions are part of paper book. All the payments have been made through regular banking channel. The relevant documents in terms of list of cheques found from Grindlays bank, bank book, bank statement, ledger account of 9% CIL bonds, ledger account of Mazda Industries Ltd. and pay-in-slips and daily diary of SBI Capital Market Ltd. as available in the CBI charge sheet (Special Case no. 4 of 1993) are enclosed in the paper book. Considering the above facts, he submitted that the addition of Rs. 2.81 Cr. made by the AO is unsustainable.
34.3 Lastly, the Ld. AR submitted that several relied upon documents have not been provided from the beginning of the original assessment proceedings and consequent appellate proceedings till the proceedings before the Tribunal. He referred to the letter dated 01.01.2025, by the assessee to the Ld. Special Counsel to provide the following:
“14) Letters written by V.B. Desai, Grindlays Bank, Citi Bank and SBI Cap in respect of transactions in 9% IRFC Bonds with Mazda Industries Ltd.
15) Letters written by V.B. Desai, Grindlays Bank, Citi Bank and SBI Cap in respect of transactions in 9% Coal India Bonds with Mazda Industries Ltd.
16) Kindly note that the above list is not exhaustive, and you may consider producing any other details/documents which may be considered appropriate in support of any of the additions made by the AO/CIT(A).”
34.4 He submitted that despite the above request, the Department has not provided the requisite details. In view of the above facts, adverse inference has to be drawn against the Department.
35. On the other hand, the Ld. Special Counsel relied on the orders of lower authorities.
36. We have heard both sides and perused the materials on record. The Ld. AR submitted that the assessee has not entered into any transaction of 9% IRFC Bonds with Mazda Industries Ltd. However, he had entered into transaction with the said party in respect of 9% CIL Bonds. Mazda Industries Ltd. had purchased 9% CIL Bonds of FV of Rs.40 Cr. on 28.03.1992 for a consideration of Rs.38.97 Cr. The same was sold by it for Rs.36.15 Cr., thereby incurring loss of Rs.2.81 Cr. However, Mazda Industries Ltd. have received half yearly interest of Rs.1.80 Cr. on 01.04.1992 on this transaction. Since Grindlays Bank acted as routing bank for assessee, the assessee had earned income of Rs.1.68 Cr. on account of the transaction between V.B. Desai and Mazda Industries Ltd. Similarly, the assessee earned Rs.25,00,000/- in the transactions between Mazda Industries Ltd. and CITI Bank/SBI Capital Market. The assessee had requested to supply the details in this regard vide letter dated 01.01.2025 (supra) to the Ld. Special Counsel. However, the same was not provided to the assessee during the assessment or appellate proceedings or even during the proceedings before the Tribunal. In view of the above facts, the order of CIT(A) cannot be upheld and the AO is directed to delete the same. However, the issue is remanded back to the AO for the limited purpose of verification as to whether the profit of Rs.1,93,00,000/- (Rs.1,68,00,000 + Rs.25,00,000) mentioned by the Ld. AR in the submission before the Tribunal has been offered to tax by the appellant. In the result, the ground is partly allowed for statistical purpose.
37. Ground No. 8 pertains to the addition of Rs. 2,25,59,454/- on account of dividend and interest income. The AO in the initial order observed that the closing stock of shares and securities included both registered and unregistered shares and debentures. Thereafter, the AO asked the assessee as to why dividend and interest income should not be calculated applying the published details of dividend or interest rate on the aggregate of (i) closing stock determined in AY 1992-93 and (ii) the shares/debentures acquired after 01.04.1992. In response to the same, the assessee raised several objections and explained as to why the said holding should not be considered for the purpose of determining the dividend/interest income. The AO disregarded the contention of the assessee and held that the dividend and interest income is to be calculated on the basis of June holding by adopting the published rate of dividend and interest of the relevant companies. The dividend and interest income was accordingly determined by the AO at Rs.1,32,03,513/-. However, while determining the total income, the addition on account of dividend/interest was incorrectly stated at Rs. 2,25,59,454/-.
37.1 This issue was first decided by the CIT(A) in the second round of litigation. While deciding the issue the CIT(A) observed that the dividend and interest income has been taxed on the basis of information collected from the office of Custodian and that the basis of holding as well as the rates have been clearly spelt out by the AO in the assessment order. Based on these findings, the CIT(A) confirmed the addition made by the AO. The CIT(A) also relied upon the findings given by his predecessor. He has further observed that the dividend yield of Indian stock market is around 1 – 2%. The CIT(A) was therefore of the view that since the portfolio of the appellant would also fetch similar returns, the dividend and interest income was rightly determined at Rs.2,25,59,454/-.
37.2 Before us, the Ld. AR submitted that the correct quantum of addition should be taken at Rs. 1,32,03,513/- as determined at para 4.1, page 40 of the assessment order as against addition of Rs. 2,25,59,454/- while computing the total income. It was also submitted that in the assessment order passed by the AO, the income from dividend and interest was determined by applying published details of dividend and interest declared on the June holding of the appellant arrived at by him.
37.3 The Ld. AR submitted that the impugned holding was determined by the AO on the basis of the holding determined in AY 1992-93 and the information with respect to the purchases of the assessee after 01.04.1992. He submitted that the details of published rates of dividend and interest declared as well as the June holding of the assessee have not been provided to him even though requested to the AO/CIT(A). The Ld. AR also submitted that dividend and interest cannot be taxed on presumptive basis. The dividend and interest paid by the company was duly credited to the bank account of the appellant. Since, the appellant was notified w.e.f. 08.06.1992, most of the dividend/interest receipts were deposited by the Custodian under the orders of Hon’ble Special Court. No company would ever pay such income in cash and therefore the AO was not justified in estimating the same. Further, it was also argued that dividend /interest cannot be received by the appellant in respect of unregistered holding. The dividend/interest on unregistered holding would be earned and received by the registered holder of securities. The AO has estimated income even on such unregistered holding which is incorrect. The Ld. AR, therefore, submitted that the appellant had received dividend and interest income to the tune of Rs.9,05,030/- during the year and therefore, the correct income of the appellant should be determined at Rs.9,05,030/- as evident from the ledger account of dividend and interest income.
37.4 The Ld. AR also submitted that the issue of addition on account of dividend and interest income on presumptive basis applying the published rate of dividend and interest was subject matter of dispute in case of the other related parties. He relied upon the decision in the case of CIT v. Aatur Holdings (P.) Ltd. [2008] 302 ITR 92 (Bombay) wherein the identical issue was involved for adjudication before the Hon’ble Bombay High Court. The Hon’ble High Court held that only registered shareholder would be entitled to receive dividend. The Hon’ble High Court also held that the ownership of the assessee could not have been recognized in respect of non-delivered or unregistered shares or benami shareholding or in respect of shares which are lost or stolen as the dividend may not have been received by the assessee in case of such category of shares. Identical issue was also decided in the case of Pallavi Holdings Pvt. Ltd. v. CIT [ITA(L) No. 520 of 2007] by the Hon’ble Bombay High Court vide order dated 12.03.2008. The said order of the Hon’ble Court was challenged before the Hon’ble Supreme Court and the SLP filed by the Department in SLP (Civil) No. 29922 / 2008 was dismissed. Thus, the issue of determining the dividend income on estimated basis has attained finality.
37.5 The Ld. AR also submitted that similar additions were also made in case of family members which came to be deleted by Tribunal in the following cases: (i) Jyoti H. Mehta v. ACIT [ITA No. 436/Mum/2023, dated 27-10-2023] and (ii) Growmore Leasing and Investment Ltd. v. Dy.CIT [ITA No. 452/Mum/2023, dated 17-3-.2025].
37.6 The Ld. AR also submitted that only that dividend income could be brought to tax which was received by the appellant and deposited in the bank account of appellant. Therefore, the amounts deposited in the bank account of the appellant ought to be treated as dividend / interest earned and received by the appellant. Hence, the addition made by the AO on presumptive basis deserves to be deleted. Without prejudice to the above, the Ld. AR submitted that the actual amount of dividend and interest received during the year by the appellant was Rs. 9,05,030/-. Since, the appellant was following cash method of accounting, only the amount actually received by him could be taxed. In this regard, the Ld. AR relied on the decision of the Tribunal in appellant’s own case for AY 88-89 in Harshad S. Mehta v. Dy.CIT [IT Appeal No. 5518 (Mum) of 2007, dated 2-1-2008] and in ITA No. 5702/Mum/2017 dated 14.01.2019 wherein, in the context of interest on money market, the ITAT accepted the cash method of accounting followed by the appellant. Thus, in the facts of appellant’s case and taking into account the method of accounting followed by the appellant, only that dividend can be brought to tax which have been actually received by the appellant and the same cannot be compared with the other assessees’ who follow mercantile system of account. The appellant relied upon the decision of the Hon’ble Andhra Pradesh High Court in the case of B.V. Venkatesam v. CIT  [1985] 154 ITR 217 , wherein it was held that the dividend income would be taxable in the hands of the assessee on receipt basis if the assessee is following cash method of accounting.
37.7 Without prejudice to the above, the Ld. AR also submitted that the addition has been made by the AO on the June holding of the appellant as arrived at by him in the assessment order for AY 92-93 by taking the published rate of dividend and interest of the relevant companies. It was submitted that the said holding determined by the AO has undergone modification in view of the order of the ITAT in Harshad S. Mehta v. Deputy Commissioner of Income-tax   (Mumbai)/ITA No.5702/Mum/2017 dated 14.01.2019 in the case of the appellant for AY 92-93. Hence, the dividend and interest income determined on the basis of the said holding cannot be stated to be correct and hence the same needs to be recomputed. Further, the holding in shares and securities ought to be considered only after giving effect to the sale of shares reflected in the books of account.
38. On the other hand, the Ld. Special Counsel relied on the orders of lower authorities.
39. We have heard both sides and perused the materials on record. We have also gone through the orders relied upon by the Ld. AR. The Ld. AR contended that the dividend and interest income was determined at Rs.1,32,03,513/- by the AO but he has added Rs.2,25,59,454/-. We find that the AO in the assessment order for AY 1993-94 u/s 144 dated 29.03.1996 had worked out the interest/dividend income at Rs.1,32,03,513/-. However, while computing the total income he has added Rs.2,25,59,454/-. Such addition has been confirmed by the CIT(A). The Ld. Special Counsel was not able to furnish any details so as to sustain the patently excess addition made by the AO. Hence, the AO is directed to delete the excess addition of Rs.93,55,941/- (Rs.2,25,59,454 – Rs.1,32,03,513).
39.1 We shall now discuss about the remaining addition. The Ld. AR submitted that the breakup and basis on which the above income was derived has not been provided to the assessee despite repeated requests. The Ld. AR invited our attention to the letter of assessee dated 01.01.2025 to the Ld. Special Counsel requesting to supply (i) the details of the dividend and interest income actually received by the assessee from the Custodian during the year; (ii) the holding of the assessee in shares and securities in the month of June, which was considered by the AO as the base for the purpose of calculating dividend and interest income and (iii) the published rates of dividend and interest declared by the companies and the working of the divided and interest income in respect of each scrip aggregating to Rs. 2,25,59,454/-. Such details were not provided by revenue to affirm the addition made by the AO. Hence, the addition is liable to be deleted. In this regard, the Ld. AR has relied on the following decisions of group cases, namely, (i) Pratima Mehta for AY 1992-93 in ITA No.416/Mum/2023 dated 26.10.2023, (ii) Hitesh S. Mehta for AY 1992-93 in ITA No.6026/Mum/2017 dated 31.08.2020, (iii) Deepika A. Mehta for AY 1992-93 in ITA No.379/Mum/2023 dated 05.04.2024 and (iv) Deepika A Mehta for AY 1989-90 in ITA No.3269/Mum/2015 dated 24.10.2016. Since the details and supporting evidences were not provided by the AO, the addition is liable to be dismissed in view of the above decisions.
39.2 The Ld. AR also submitted that no addition can be made on estimated basis. He submitted that assessee had received dividend interest income of Rs.9,05,030/- and addition to the above extent can only be made. He also submitted that the Hon’ble Bombay High Court in case of CIT v. Atur Holdings Pvt. Ltd. (supra) has held that only registered shareholder would be entitled to receive the dividend; and in respect of unregistered shares, dividend may not have been received by the assessee. Similar issue was decided in case of Pallavi Holdings Pvt. Ltd. by the Hon’ble Bombay High Court and the SLP filed by the department was dismissed by the Hon’ble Supreme Court. There is no reason as to why the ratio of the above decisions should not be applicable to the instant appeal and addition of interest income be not restricted to the interest on the shares registered in name of the assessee.
39.3 We also find that similar additions made in case of family members i.e. namely, Jyoti H. Mehta (supra) and Growmore Leasing and Investments Ltd. (supra) were deleted by the Tribunal. Since the Ld. Special Counsel has not been able to distinguish the above decisions on facts or in law, following the above decisions, the addition is liable to be deleted.
38.4 The Ld. AR has also submitted that the assessee is following cash method of accounting and hence, dividend and interest received during the year to the extent of Rs.9,05,030/- can only be taxed. For this reliance has been placed in appellant’s own case decided by the ITAT in ITA No.5518/Mum/2007 (supra) and Harshad S. Mehta (supra). We have already reproduced the relevant part of the decision at para 32 and 32.1 of this order. Hence, following the reasons given therein, the AO is directed to restrict the addition to the extent actually received by the assessee. The ground is allowed in the above terms.
40. Ground No. 9 pertains to addition of Rs.58,16,25,124/- on account of share market trading profit. The AO, in the first round of litigation, has observed that the details of the transactions of the assessee in stock market has been obtained by him from RBI, Custodian, BSE, companies, brokers and counter parties. He had also gathered the details of bank transactions of the appellant from the contract notes furnished by the assessee. Based on such information, the AO determined the opening stock, purchase, sale and closing stock in various scrips and summarised the same in Annexure S-1 to the assessment order. The AO arrived at the conclusion that in respect of 10 securities, the appellant had sold shares during the year and earned trading profit of Rs. 58,16,25,124/-. He also held that in respect of 7 scrips, the appellant had a negative closing stock and the value of such negative closing stock was determined at Rs. 138,68,35,985/-.
40.1 The above issue was adjudicated on merits for the first time by the CIT(A) in the 2nd round of litigation vide appellate order dated 24.03.2010. The CIT(A), in the impugned order dated 19.12.2023 passed in the 3rd round of litigation, has again confirmed the addition without giving any relief. The CIT(A), while deciding the said issue against the appellant, followed the order of his predecessor for AY 92-93 passed on 24.03.2010. He also observed that the claim of the appellant that the transactions were carried out on behalf of other parties cannot be accepted unless all the documentary evidences are furnished and verified by the AO. He also disregarded with the claim of the appellant that the transactions were carried out on behalf of the family members. The CIT(A) also rejected the contentions of the appellant with respect to the transaction undertaken with V. B. Desai (‘VBD’) and held that in view of the decision of the Hon’ble Special Court dated 01.11.2002, the contention of the appellant that the transaction cannot be treated as sale does not merit acceptance.
40.2 The Ld. AR, at the outset, submitted that the said addition has been made on the basis of the evidences gathered by the AO from the 3rd parties providing the details of transactions undertaken by them with the appellant. He submitted that the said evidences gathered by the AO were never provided to the appellant in spite of repeated requests. He submitted that inspection was provided by the AO for AY 92-93 and AY 93-94 simultaneously. The appellant vide letter dated 23.11.1995 submitted that the inspection for AY 93-94 would start immediately upon completion of the inspection of document for AY 92-93. However, without granting any further opportunity, the inspection proceedings were abruptly closed by the AO, vide letter dated 05.12.1995. The appellant vide letter dated 11.12.1995 vehemently objected to such abrupt closure of the inspection and requested to grant inspection of evidences for effective representation. The appellant submitted that several correspondences were made to the AO and the CIT(A) for these evidences starting from 28.11.1995 to 01.09.2023. These correspondences were filed in the paper book. However, the evidences on the basis of which the said details were compiled were still not provided to the appellant. It was, therefore, argued that the additions deserve to be deleted on the said ground alone. On identical issue, addition has been deleted by the ITAT for want of evidences in the following cases:
(i) Hitesh S. Mehta v. Dy.CIT [ITA No. 538 (Mum) 2012,dated 1-5-2013] for AY 92-93
(ii) CIT v. Hitesh S. Mehta [ITXA No. 2490 of 2013, dated 7-6.2016].
(iii) Hitesh S. Mehta v. Dy.CIT [ITA No. 5190/Mum/2017. dated 31-8-2020] for AY 9293
(iv) Pratima H. Mehta v. ACIT [ITA No. 3443/Mum/2012,dated 5-9-2014] for AY 93-94
(v) Deepika A. Mehta v. ACIT [ITA No. 379/Mum/2023, dated ,5-4-2024] for AY 9293
(vi) Deepika A. Mehta v. Dy.CIT [ITA No. 3269/Mum/2015, dated 24-10-2016] for AY 89-90.
40.3 In light of the above binding decisions of the Tribunal in the case of various family members, the Ld. AR submitted that the entire addition of Rs. 58,16,25,124/- made on account of share market trading profit deserves to be deleted.
40.4 The Ld. AR also submitted that during the course of hearing before the Tribunal, the Ld. DR was directed to provide all evidences based on which additions were made in the impugned assessment order. The Ld. DR had provided copy of the letter dated 29.05.2025 which referred to the reply dated 11.06.2018 filed by AO before ITAT during the proceedings for AY 92-93. The letter shows that the same relates to the proceedings for AY 92-93 and the averments made therein does not deal with proceedings for AY 93-94. Moreover, it was argued that the said contentions of Revenue in the said letter dated 11.06.2018 were considered by Tribunal while deciding the appeal for AY 1992-93. The Ld. AR also submitted that vide letter dated 01.01.2025, the Ld. Special Counsel was requested by the assessee to furnish “Information and evidence received from Reserve Bank of India, Bombay Stock Exchange and third parties about the transactions of purchase and sale in stock market and payment thereof by the assessee.” However, no details were provided till completion of the hearing.
40.5 Without prejudice to the above, the Ld. AR submitted that Annexure S1 consisted of all the scrips in respect of which information was gathered. However, the addition was made only in respect of 10 scrips as tabulated below:
Sr. No. Date of transaction Name of the counter party No. of shares purchase d No. of shares Sold Rate Purchase value (Rs.) Sale Value (Rs.) Trading Profit (Rs.)
ACC Ltd.
1 09-04-1992 Allahabad Bank – 60,000 10,000 – 60,00,00,000 34,34,77,592
29-04-1992 V B Desai 60,000 – 10,350 62,10,00,000 –
13-05-1992 V B Desai – 63,500 5,550 – 35,24,25,000
16-04-1992 Hiten P Dalal – 19,000 7,200 – 13,68,00,000
20-04-1992 Pallav Sheth – 18,000 6,000 – 10,80,00,000
20-04-1992 Canara Bank – 5,000 5,975 – 2,98,75,000
Total 60,000 1,65,500 62,10,00,000 1,22,71,00,000
RELIANCE INDUSTIRES
2 18-04-1992 CITI Bank 1,92,770 415 – 7,99,99,550 16,17,29,052
22-04-1992 CITI Bank 41,900 448 – 1,87,50,250
22-04-1992 CITI Bank 50,000 395 – 1,97,50,000
22-04-1992 CITI Bank 7,230 415 – 30,00,450
28-04-1992 CITI Bank 8,100 448 – 36,24,750
10-04-1992 CITI Bank 15,00,000 400 – 60,00,00,000
13-05-1992 V B Desai 86,980 305 – 2,65,28,900
16-04-1992 Hiten P Dalal 4,33,000 330 – 14,28,90,000
20-04-1992 Canara Bank 10,00,000 400 – 40,00,00,000
22-04-1992 CITI Bank 50,000 – 355 1,77,50,000 –
Total 50,000 30,19,980 1,77,50,000 1,29,45,43,900
APOLLO TYRES
3 20-04-1992 Canara Bank 30,000 292 – 87,50,100 7,11,48,934
20-04-1992 Pallav Sheth 4,43,950 252 – 11,18,75,400
28-04-1992 Rajesh H Shah 750 350 – 2,62,500
Total 4,74,700 – 12,08,88,000
TATA TEA
4 13-05-1992 V B Desai – 1,66,200 600 – 9,97,20,000 1,11,39,603
05-05-1992 Pannalal Kejriwal 50 – 348 17,382 – –
Total 50 1,66,200 17,382 9,97,20,000
CASTROL
5 13-05-1992 V B Desai 75,750 1,350 – 10,22,62,500 23,53,311
Total – 10,22,62,500
TATA STEEL
6 27-04-1992 CITI Bank 1,00,000 575 5,75,00,000 19,21,370
Total 1,00,000 – 5,75,00,000
TISCO (RT)
7 07-04-1992 Pannalal Kejriwal 150 – 689 1,03,350 –
07-04-1992 Pannalal Kejriwal 50 – 644 32,202 –
21-04-1992 Pannalal Kejriwal 50 – 679 33,943 –
21-04-1992 Pannalal Kejriwal 6 – 348 2,086 –
05-05-1992 Pannalal Kejriwal 50 – 654 32,700 –
05-05-1992 Pannalal Kejriwal 10 – 751 7,513 –
05-05-1992 Pannalal Kejriwal – 3,300 302 – 9,96,270 2,12,304
Total 316 3,300 2,11,794 9,96,270
ANDHRA VALLEY
8 11-05-1992 Chandravadan Desai – 500 2,080 – 10,40,000 5,55,000
Total 500 10,40,000
ABS PLASTIC
9 10-04-1992 IDBI 3,000 – 125 3,75,000 – –
10-04-1992 Bombay Stock Exchange 3,000 135 – 4,05,000 46,158
Total 3,000 3,000 3,75,000 4,05,000
L & T LTD
10 20-04-1992 Canara Bank – 1,70,000 154 – 2,61,59,600 -1,09,58,200
Total 1,70,000 2,61,59,600
Grand Total. 63,93,54,176 2,93,06,15,270 58,16,25,125

 

40.6 The Ld. AR further submitted that the additions on account of trading profits was incorrect. It was contended that the sale transactions considered by the AO were not pertaining to the holding of the appellant but pertained to the holding of the clients for whom the appellant had sold the shares acting as a broker. It was submitted that the appellant had earned brokerage out of the said transactions, which was duly accounted for in the books.
40.7 The Ld. AR has provided scrip-wise explanation to substantiate that the sale transactions alleged to be of the appellant did not constitute sale of shares by the appellant.
40.8 ACC Ltd.: The Annexure S-1 captured sale transactions in respect of 1,65,500 shares based on information received from 3rd parties. The said information also reflected purchase of 60,000 shares by the appellant. According to the AO, there was opening stock of 1,13,140 shares as per the assessment order for AY1992-93. The details of purchase transactions in ACC Ltd. gathered by the AO from the enquiries with the third parties is as follows:
Sr. No. Name of the party No. of shares Rate Sale value Addition on account of trading profit
1. V. B. Desai 60,000 10350 62,10,00,000

 

40.8.1 The details of the sale transactions in ACC Ltd. gathered by the AO from the enquiries with the third parties is as follows:
Sr. No. Name of the party No. of shares Rate Sale value Addition on account of trading profit
1. Allahabad Bank 60,000 10,000 60,00,00,000 34,34,77,592
2. V B Desai 63,500 5,550 35,24,25,000
3. Canara Bank 5,000 5,975 2,98,75,000
4. Hiten P Dalal 19,000 7,200 13,68,00,000
5. Pallav Sheth 18,000 6,000 10,80,00,000
Total… 1,65,500 122,71,00,000

 

40.8 .2 In respect of the aforesaid sale of 60,000 shares, the Ld. AR submitted that the said transaction represents Ready Forward (“R/F”) transaction undertaken by the Appellant with VBD for their clients, M/s. All Bank Finance Ltd. (a subsidiary of all Allahabad bank) (‘AllBank’). Hence, the purchase transactions and its reversal do not constitute purchase and sale of shares resulting into profit/ loss in the hands of the appellant. The Ld. ARsubmitted that R/F transactions are in the nature of short-term loan from one bank to another bank disguised in the form of security transaction. It was submitted that in case of R/F deal, the borrowing bank sells the security to another bank and receives the consideration. These securities are agreed to be bought back at a fixed price at the end of the period of the loan at slightly high price. The difference represents interest on loan. The said nature of transaction has been accepted by the Jankiraman Committee appointed by RBI in their first interim report of May, 1992. The said report specifically refers to the impugned transaction in 60000 shares of ACC Ltd to be R/F deal. Even the ITAT, in case of the appellant for AY 1990-91, had explained and accepted the R/F transactions to be in the nature of short term loans. As regards the facts of the present case, the said transaction in respect of 60,000 shares of ACC Ltd. was part of the R/F transactions undertaken by the appellant with AllBank through their broker, VBD. The said transaction was entered into by the appellant on 09.04.1992 whereby against the receipt of funds of Rs. 60 Cr. by the appellant, the ready leg for sale of 60,000 shares of ACC Ltd. was entered into at the rate of Rs. 10,000/- per share with the forward leg of reversal on 29.04.1992 determined at the rate of Rs. 10,350/-per share and the delivery of the shares agreed on 25.05.1992. The difference represented interest payable by the appellant on the said R/F transaction.
40.8.3 Subsequent to the execution of the above transaction, since the price of the shares of ACC Ltd. started falling, the counter party, AllBank requested for additional security to make up for the shortfall between the prevailing market price and the rate at which the forward leg was to be performed. Accordingly, VBD delivered further shares belonging to the appellant and his family members to AllBank by way of pledge until the reversal of the above R/F transaction takes place. It was submitted that the reversal of transaction could not take place and in the meantime the appellant and his brokerage firm, M/s. Harshad S. Mehta, got notified u/s 3(2) of the Special Courts Act, 1992 on 08.06.1992 and consequently all the assets of the appellant and his family members got simultaneously attached and came under the control and management of the Custodian. The appellant stated that even the shares delivered to AllBank under the ready leg of the R/F transaction got automatically attached on 08.06.1992. Therefore, AllBank filed a claim for recovery by filing Miscellaneous Petition No. 49 of 1993 before Hon’ble Special Court to seek permission of the Hon’ble Court to liquidate the shares already received by it under the aforesaid R/F transaction so as to recover the amount lent by it under the said R/F transaction. This Petition was adjudicated and disposed of by the Hon’ble Special Court vide its order dated 01.11.2002. The copy of the suit and the order passed has been filed before the ITAT in the paperbook.
40.8.4 Without prejudice, the details of transactions alleged to be unexplained by the AO also includes the purchase transactions for 60,000 shares of ACC Ltd. at the price of Rs. 62,10,00,000/-. If the contentions of the appellant that the sale of 60,000 shares represented R/F deal and not sale transaction was not accepted, the Appellant ought to be granted deduction of the cost of these shares which was also determined by the AO in the assessment order. If the cost of Rs. 62.10 crores was considered and allowed as deduction, it would transpire that the appellant had suffered loss in the said transaction. Hence, even on the said count, the addition made by the AO on account of alleged profit from transactions in 60,000 shares of ACC Ltd. was incorrect and unjustified.
40.8.5 With respect to the transaction in 63,500 shares of ACC Ltd, the AO has held that the transaction constituted sale of shares by the Appellant to VBD on 13.05.1992. The Ld. AR submitted that out of 63,500 shares, 60,000 shares represent the same transaction which has been explained in foregoing paras. Further, transaction in balance 3,500 shares was also part of the suit filed by AllBank Finance before Hon’ble Special Court and that the facts relating to the said transaction is identical to the transactions for 60,000 shares above. It was also submitted that these 3,500 shares constituted pledge of the securities by VBD to AllBank and therefore not sale of securities. In any case, that these securities belong to the family members of the appellant and therefore these shares cannot be treated as sale of shares by the appellant. The details of the additional securities provided by VBD to AllBank is forming part of the ‘Exhibit X’ to the petition filed by AllBank before the Hon’ble Special Court. The said Exhibit X filed by AllBank shows that out of the balance 3,500 shares, 3,000 shares belonged to Mr. Ashwin S. Mehta and 500 shares belonged to Mr. Hitesh S. Mehta. These shareholders whose shares were handed over by VBD to AllBank had objected to such pledge of shares before the Hon’ble Special Court in their affidavits. In light of the above submissions, the Ld. AR submitted that the said transaction in the shares of 63,500 shares of ACC Ltd. cannot be held as sale of shares of the appellant.
40.9 Canara Bank: With respect to 5,000 shares of ACC Ltd. transacted by Canara Bank., the Ld. AR submitted that on 20.02.1992 (i.e. AY 92-93), M/s. J. H. Mehta had purchased 5,000 shares of ACC Ltd. from Canbank Financial Services @ 5,925/- for aggregate consideration of Rs. 2,96,25,000/- The said transaction was later squared off on the same day @ Rs. 5,975/- for a consideration of Rs. 2,98,75,000/-. The consideration of Rs. 2,98,75,000/- was received by the appellant on behalf of M/s. J. H. Mehta on 20.04.1992. It appears that the sale of shares by Canbank Financial Services has been incorrectly reported by the AO to be on 20.04.1992. The sale transaction does not pertain to the appellant and hence no addition can be made on account of sale of the said shares in the hands of the appellant. Reliance was placed on the several evidences such as (i) Ledger A/c. of Canbank Financial Services in the books of M/s. J. H. Mehta for AY 92-93 and AY 93-94, (ii) ledger A/c. of the appellant in the books of M/s. J. H. Mehta for AY 93-94 reflecting the receipt of the funds from Canbank Financial services, (iii) ledger A/c. of M/s. J. H. Mehta in the books of the Appellant for AY 93-94 and (iv) letter issued by M/s. J. H. Mehta dated 31.07.2009 confirming the said transactions undertaken by them with Canbank Financial Services. The Ld. AR also relied upon a letter dated 29.10.1994 addressed by Canbank Financial Services to the AO filed in the course of legal proceedings before the Hon’ble Special Court which revealed the details of the above transactions alongwith several other transactions wherein the appellant has been held to be a broker and not the party to the transaction. In view of the above, the addition made by the AO on account of sale of 5,000 shares of ACC Ltd. for the value of Rs. 2,98,75,000/- in the hands of the appellant was incorrect. 40.9.1 With respect to transactions in 19,000 shares with Hiten Dalal and 18,000 shares with Pallav Sheth, as per the details provided by the AO, a transaction was carried out on 16.04.1992 for sale of 19,000 shares of ACC Ltd. with Hiten Dalal. These details also show a transaction carried out on 20.04.1992 for sale of 18,000 shares of ACC Ltd. with Pallav Sheth. However, it was contended that no such sale transactions have been carried out by the appellant. The AO had not provided the evidence gathered by him from third parties on the basis of which it has been alleged that the appellant had sold 19,000 shares to Hiten Dalal and 18,000 shares to Pallav Sheth. In fact, a transaction in 19,000 shares of ACC Ltd. with Hiten Dalal were reflected in the books of M/s. J. H. Mehta and that too as and by way of pledge against loan received which was evident from the ledger account of Hiten Dalal in the books of M/s. J. H. Mehta for AY 93-94 reflecting pledge of shares and receipt of loan by M/s. J.H. Mehta.
40.9.1-40.9.2 The Ld. AR submitted that unless the said evidences relied upon by the AO are provided, the appellant cannot explain the said transaction or rebut it. Hence, unless the evidence is based on which the additions are made are provided to the appellant, no such addition can be sustained.
40.10 Reliance Industries Ltd. (‘RIL’): The Annexure S-1 captured sale transactions in respect of 32,69,980 shares of RIL based on information received from 3rd parties. The said information also reflected purchase of 50,000 shares by the Appellant. According to the AO, there was opening stock of 6,75,845 shares of RIL as per the assessment order for AY1992-93.
40.10.1 The details of purchase transaction in RIL gathered by AO from the enquiries with third parties are as follows:
Sr. No. Name of the party No. of shares Rate Sale value Addition on account of trading profit
1. Citibank 50,000 355 1,77,50,000 –

 

40.10.2 The details of the sale transactions in RIL gathered by the AO from the enquiries with the third parties is as follows:
Sr. No. Name of the party No. of shares Rate Sale value Addition on account of trading profit
1. Citibank 1,92,770 415 7,99,99,550 16,17,29,052
2. Citibank 7,230 415 30,00,450
3. Citibank 41,900 447.50 1,87,50,250
4. Citibank 8,100 447.50 36,24,750
5. Citibank 50,000 395 1,97,50,000
6. V. B. Desai 86,980 305 2,65,28,900
7. Canara Bank 10,00,000 400 40,00,00,000
8. Citibank 15,00,000 400 60,00,00,000
9. Hiten Dalal 4,33,000 330 14,28,90,000
Total. 32,69,980 129,45,43,900

 

40.10.3 The Ld. AR submitted that the above referred transactions do not represent sale of shares by the appellant. The detailed explanation in respect of each of the transactions is given below.
40.10.4 The Ld. AR submitted that the details reflect 5 different transactions of sale of RIL shares aggregating to 3,00,000 shares (1,92,770+7,230+41,900+8,100+ 50,000) made by the appellant. It was submitted that during the year, the appellant had sold 3,00,000 shares of RIL belonging to its client M/s. Harsh Estates Pvt. Ltd. to Citibank at different rates. The details of the said transactions are given below:
Sr. No. Date of transaction No. of shares Rate Sale value
1. 02.04.1992 50,000 447.50 2,23,75,000
2. 07.04.1992 50,000 395 1,97,50,000
3. 08.04.1992 2,00,000 415 8,30,00,000

 

40.10.5 Since the said shares were sold by the appellant in the capacity of broker acting for and on behalf of M/s. Harsh Estates Pvt. Ltd., the same cannot be held to be sale of shares of the appellant. In support of the same, the appellant filed the following evidences:
(a) Ledger A/c. of Citibank in the books of the appellant for AY 93-94.
(b) Contract notes dated 02.04.1992 and 07.04.1992 and delivery quantity report dated 20.04.1992 issued by the appellant to M/s. Citibank
(c) Ledger A/c. of Harsh Estates Pvt. Ltd. in the books of the appellant for AY 93-94
(d) Contract note dated 02.04.1992, 07.04.1992 and 08.04.1992 issued by the appellant to Harsh Estates Pvt. Ltd.
(e) Letter dated 17.07.2009 issued by M/s. Harsh Estates Pvt. Ltd. confirming the said transactions undertaken by them with the appellant.
(f) Computation of income of M/s. Harsh Estates Pvt. Ltd. for AY 93-94 alongwith Audited Profit and Loss A/c. and Balance Sheet of M/s. Harsh Estates Pvt. Ltd. for the year ending 31.03.1993 and break-up of the profit on sale of shares as per P & L A/c.
40.10.6 In view of the above, the Ld. AR submitted that the addition made by the AO on account of sale of 3,00,000 shares of RIL for the value of Rs. 12,51,25,000/- in the hands of the assesse was incorrect and liable to be deleted.
40.10.7 As regards the addition for 86,980 shares, Ld. AR submitted that the said transaction does not constitute sale of shares by the appellant. According to the AO, the transaction constitutes sale of 86,980 shares by the appellant to VBD on 13.05.1992 and is part of the R/F deal with AllBank Finance. The details of the shareholders in respect of pledged shares of 86,980 shares were provided in Exhibit X to the petition filed by AllBank and that even otherwise the addition cannot arise in the hands of the appellant. It was therefore contended that the nature of addition is identical to the addition in the shares of ACC Ltd. and hence for the explanation provided in respect of the shares of ACC Ltd., the addition deserved to be deleted.
40.10.8 In support of the same, reliance was placed on the affidavit filed by Mr. Sudhir S. Mehta, Mrs. Deepika A. Mehta, Mrs. Rasila S. Mehta and Mr. Hitesh S Mehta before the Hon’ble Special Court. Accordingly, the Ld. AR submitted that the said transaction in the shares of 86,980 shares of RIL for the sale consideration of Rs. 2,65,28,900/- cannot be held as sale of shares of the appellant.
40.10.11 With respect to the holding of 10,00,000 shares of RIL, the Ld. AR contended that as per the details provided by the AO, a transaction was carried out on 20.04.1992 for sale of 10,00,000 shares of RIL with Canara Bank. On 08.04.1992, M/s. J. H. Mehta had sold 10,00,000 shares of RIL belonging to its clients to Canbank Financial Services @ 400/- for an aggregate consideration of Rs. 40,00,00,000/-. The said shares sold by M/s. J H Mehta belonged to Growmore Research & Assets Management Ltd., Cascade Holdings Pvt. Ltd. and Fortune Holdings Pvt. Ltd. The Ld. AR has also filed the following evidences before the ITAT to establish that the transaction does not pertain to the appellant.
a. Ledger A/c. of Canbank Financial Services in the books of the M/s. J. H. Mehta for AY 93-94.
b. Breakup of the receipt of Rs. 46,47,85,000/- by the Appellant on behalf of M/s. J.H. Mehta
c. Ledger A/c. of M/s. J. H. Mehta in the books of the Appellant for AY 93-94
d. Ledger A/c. of the Appellant in the books of M/s. J. H. Mehta for AY 93-94
e. Contract note dated 08.04.1992 issued by M/s. J. H. Mehta to Canfina.
f. Ledger A/c. of Growmore Research and Assets Management Ltd. in the books of the M/s. J. H. Mehta for AY 93-94.
g. Contract note dated 08.04.1992 issued by M/s. J. H. Mehta to Growmore Research and Assets Management Ltd.
h. Computation of income along with the statement of capital gains in case of Growmore Research and Assets Management Ltd. for AY 93-94 along with the profit and loss A/c. and balance sheet of the company for AY 93-94
i. Trading A/c. in the books of M/s. Jyoti H. Mehta for AY 93-94
j. Ledger A/c. of Cascade Holdings Pvt. Ltd. in the books of M/s. J. H. Mehta for AY 93-94
k. Contract note dated 08.04.1992 issued by M/s. J. H. Mehta to Cascade Holdings Pvt. Ltd.
l. Trading A/c. in the books of Cascade Holdings Pvt. Ltd. for the year ending 31.03.1993.
m. Audited profit and loss A/c. and balance sheet of Cascade Holdings Pvt. Ltd. for the year ending 31.03.1993 along with breakup of the profit on sale of shares in P & L A/c.
n. Ledger A/c. of Fortune Holdings Pvt. Ltd. in the books of M/s. J. H. Mehta for AY 93-94
o. Contract note dated 08.04.1992 issued by M/s. J. H. Mehta to Fortune Holdings Pvt. Ltd.
p. Trading A/c. in the books of Fortune Holdings Pvt. Ltd. for the year ending 31.03.1993.
q. Audited profit and loss A/c. and balance sheet of Fortune Holdings Pvt. Ltd. for the year ending 31.03.1993 along with break-up of the profit on sale of shares in P & L A/c.
40.10.12 The Ld. AR also relied upon a letter dated 29.10.1994 addressed by Canbank Financial Services to the AO filed in the course of legal proceedings before the Hon’ble Special Court which revealed the details of the above transactions along with several other transactions wherein the appellant has been held to be a broker and not the party to the transaction. In view of the above, the addition made by the AO on account of sale of 10,00,000 shares of RIL for the value of Rs. 40,00,00,000/- in the hands of the appellant was incorrect.
40.10.13 With respect to transaction in 15,00,000 shares, the Ld. AR explained that a transaction was carried out on 10.04.1992 for sale of 15,00,000 shares of RIL with Citibank. He submitted that no such transaction was undertaken by the appellant. He also submitted that Citibank had effected purchase of 15,00,000 shares of RIL with ANZ Grindlays Bank through their broker, Hiten P. Dalal. The said transactions cannot be treated as the sale of RIL shares by the appellant. In support of the said claim, the Ld. AR also relied upon 3rd Interim Report of Janakiraman Committee dated 23.08.1992. The above enquiries show that the subject transaction of sale of 15,00,000 shares of Reliance Industries Ltd. was undertaken by Citibank through broker, Hiten P. Dalal and not by the appellant. On 10.04.1992, the appellant has received Rs. 60 crores from Hiten P. Dalal as loan against shares of various companies. The said receipt was also duly reflected by the appellant in the books of account. In view of the above, the transaction of sale of 15,00,000 shares of RIL cannot be added in the hands of the appellant.
40.10.14 With respect to the transaction in 4,33,000 shares, the Ld. AR contended that the AO has not provided the evidence gathered by him from third parties on the basis of which it has been alleged that the appellant had sold 4,33,000 shares to Hiten Dalal. Hence, no explanation can be provided unless the evidences relating to the said transaction is provided by the AO. No addition can also be made due to failure of the AO to provide the underlying evidences.
40.11 Apollo Tyres Ltd. (‘APL’): The Annexure S-1 captured sale transactions in respect of 4,74,700 shares of APL based on information received from 3rd parties. According to the AO, there was opening stock of 18,59,754 shares of APL as per the assessment order for AY1992-93. The details of the transactions in APL gathered by the AO from the enquiries with the third parties is as follows:
Sr. No. Name of the party No. of shares Rate Sale value Addition on account of trading profit
1. Canara Bank 30,000 291.67 87,50,100 7,11,48,934
2. Pallav Sheth 4,43,950 252 11,18,75,400
3. Rajesh H. Shah 750 350 2,62,500
Total. 4,74,700 12,08,88,000

 

40.11.1 With respect to 30,000 shares, the Ld. AR contended that as per the details provided, a transaction was carried out on 20.04.1992 for sale of 30,000 shares of APL with Canara Bank @ 291.67 per share aggregating to Rs. 87,50,000/-. On verification of the records, no such sale of 30,000 shares is found in the books of Appellant. However, on 25.02.1992 (i.e. AY 92-93), M/s. J. H. Mehta had sold 25,000 shares of APL belonging to its client, M/s. Orion Travels Pvt. Ltd. @ 350/- for consideration aggregating to Rs. 87,50,000/-. The consideration for the aforesaid transaction was received by the appellant on behalf of M/s. J. H. Mehta on 20.04.1992. It appeared that the AO has incorrectly considered the aggregate value of transaction of Rs. 87,50,000/- to be of 30,000 shares @ 291.67 instead of 25,000 shares @ 350/-per share. In support, reliance was placed on the following evidence
a. Ledger A/c. of Canbank Financial services in the books of M/s. J. H. Mehta for AY 92-93 and AY 93-94.
b. Chart showing breakup of the consideration of Rs. 46,47,85,000/-.
c. Ledger account of M/s. J. H. Mehta in the books of the appellant for AY 93-94
d. Ledger account of appellant in the books of M/s. J. H. Mehta for AY 93-94
e. Ledger A/c. of M/s. Orion Travels Pvt. Ltd. in the books of M/s. J. H. Mehta for AY 92-93
f. Contract note dated 25.02.1992 issued by M/s. J. H. Mehta to M/s. Orion Travels Pvt. Ltd.
g. Trading A/c. in the books of M/s. Orion Travels Pvt. Ltd reflecting the said transaction
h. Computation of income of M/s. Orion Travels Pvt. Ltd. for AY 92-93 along with audited financial Statements of M/s. Orion Travels Pvt. Ltd. for the year ending 31.03.1992 and the break-up of the Profit / Loss on sale of shares reflected in P & L A/c.
40.11.2 The Ld. AR also relied upon a letter dated 29.10.1994 addressed by Canbank Financial Services to the AO filed in the course of legal proceedings before the Hon’ble Special Court which reveals the details of the above transactions along with several other transactions wherein the appellant has been held to be a broker and not the party to the transaction. In view of the above, the addition made by the AO on account of sale of 25,000 shares of APL for the value of Rs.87,50,000/- in the hands of the appellant was improper.
40.11.3 With respect to transaction in 4,43,950 shares and 750 shares in APL, as per the details provided by AO, a transaction was carried out on 20.04.1992 for sale of 4,43,950 shares of APL with Pallav Sheth. Similarly, the details also show a transaction was carried out on 28.04.1992 for sale of 750 shares of APL with Rajesh H. Shah. However, no such sale transactions have been carried out by the appellant. The AO has not provided the evidence gathered by him from third parties on the basis of which it has been alleged that the appellant had sold 4,43,950 shares of APL to Pallav Sheth and 750 shares to Rajesh Shah. Unless the said evidences are provided, the appellant cannot explain the said transaction. Therefore, unless the evidence based on which the additions are made are provided to the appellant, no such addition can be sustained.
40.12 Tata Tea Ltd.: The Annexure S-1 captured sale transactions in respect of 1,66,200 shares of Tata Tea Ltd. based on information received from 3rd parties. The said information also reflected purchase of 50 shares by the Appellant. According to the AO, there was opening stock of 61,144 shares of Tata Tea Ltd. as per the assessment order for AY1992-93. The details of the transactions in Tata Tea Ltd. gathered by the AO from the enquiries with the third parties is as follows:
Sr. No. Name of the party No. of shares Rate Sale value Addition on account of trading profit
1. V. B. Desai 1,66,200 600 9,97,20,000 1,11,39,603
Total. 1,66,200 9,97,20,000

 

40.12.1 As regards the addition for 1,66,200 shares of Tata Tea Ltd., the Ld. AR submitted that the said transaction does not constitute sale of shares by the appellant. According to the AO, the transaction constituted sale of 86,980 shares by the appellant to VBD on 13.05.1992 and was part of the R/F deal with AllBank Finance. The details of the shareholders in respect of pledged shares of 86,980 shares were provided in Exhibit X to the petition filed by AllBank. Even otherwise, the addition cannot arise in the hands of the appellant. The Ld. AR contended that the nature of addition is identical to the addition in the shares of ACC Ltd. and, hence, for the explanation provided in respect of the shares of ACC Ltd., the addition deserved to be deleted.
40.12.2 In support of the same, reliance was placed on the affidavit filed by Pratima Hitesh Mehta, Deepika A. Mehta, Rasila S. Mehta, Sudhir S. Mehta and the appellant before the Hon’ble Special Court. In light of the above submissions, the Ld. AR submitted that the said transaction in the shares of 1,66,200 shares of Tata Tea ltd. for the sale consideration of Rs. 9,97,20,000/- cannot be held as sale of shares of the appellant.
40.13 Castrol Ltd.: The Annexure S-1 captured sale transactions in respect of 75,750 shares of Castrol (I) Ltd. based on information received from 3rd parties. According to the AO, there was opening stock of 2,220 shares of Castrol (I) Ltd. as per the assessment order for AY1992-93. The details of the transactions in Castrol (I) Ltd. gathered by the AO from the enquiries with the third parties is as follows:
Sr. No. Name of the party No. of shares Rate Sale value Addition on account of trading profit
1. V. B. Desai 75,750 1,350 10,22,62,500 23,63,311
Total. 75,750 10,22,62,500

 

40.13.1 The explanation provided by the appellant in respect of the said transaction was identical to the explanation provided in respect of shares of ACC Ltd. and transactions with AllBank Finance Ltd. The Ld. AR also relied upon the affidavits filed by the various shareholders to whom these shares belonged to. In light of the above submissions, he submitted that the said transaction in the shares of 75,750 shares of Castrol Ltd. for the sale consideration of Rs. 10,22,62,500/- cannot be held as sale of shares of the appellant.
40.14 Tata Steel Ltd.: The Annexure S-1 captured sale transactions in respect of 1,00,000 shares of Tata Steel Ltd. based on information received from 3rd parties. According to the AO, there was opening stock of 5,500 shares of Tata Steel Ltd. as per the assessment order for AY1992-93. The details of the transactions in Tata Steel Ltd. gathered by the AO from the enquiries with the third parties is as follows:
Sr. No. Name of the party No. of shares Rate Sale value Addition on account of trading profit
1. Citibank 1,00,000 575 5,75,00,000 19,21,370
Total. 1,00,000 5,75,00,000

 

40.14.1 As explained, as per the details provided, on 07.04.1992, the appellant had sold 1,00,000 shares of Tata Steel Ltd. belonging to M/s. Orion Travels Pvt. Ltd. to Citibank @ 575/- for an aggregate consideration of Rs. 5,75,00,000/-. The sale transaction does not pertain to the appellant and hence no addition can be made on account of sale of the said shares in the hands of the appellant. Since the said shares were sold by the appellant in the capacity of the broker, the same cannot be held as sale of shares of the appellant. In this regard, reliance was placed on the following evidence
a. Ledger A/c. of Citibank in the books of the Appellant for AY 93-94.
b. Contract note dated 07.04.1992 issued by the Appellant to M/s. Citibank c. Ledger A/c. of the M/s. Orion Travels Pvt. Ltd. in the books of the Appellant for AY 93-94
d. Contract note dated 07.04.1992 issued by the Appellant to M/s. Orion Travels Pvt. Ltd.
e. Letter dated 17.07.2009 issued by M/s. Orion Travels Pvt. Ltd. confirming the said transactions undertaken by them with the Appellant.
f. Computation of income of M/s. Orion Travels Pvt. Ltd. for AY 93-94 alongwith the working of capital gains alongwith audited Profit and Loss A/c. and Balance Sheet of M/s. Orion Travels Pvt. Ltd. for the year ending 31.03.1993 and break-up of the profit on sale of shares as per P & L A/c.
40.14.2 Without prejudice, the Ld. AR submitted that the AO has also reported opening stock of 55,682 shares of TISCO (RT). Further, information was received for purchase of 316 shares of TISCO (RT) during the year. The AO considered the said holding separate from the holding in shares of Tata Steel Ltd. Since TISCO (RT) and Tata Steels Ltd. are the same scrip, the AO ought to have computed the profit on sale of shares after considering the holding in the shares of TISCO (RT) and its corresponding cost. To the said extent, the addition ought to have been deleted.
40.15 TISCO (RT): The Annexure S-1 captured sale transactions in respect of 3,300 shares of TISCO (RT) based on information received from 3rd parties. The said information also reflected purchase of 316 shares by the appellant. The details of the transactions in TISCO (RT) gathered by the AO from the enquiries with the third parties is as follows:
Sr. No. Name of the party No. of shares Rate Sale value Addition on account of trading profit
1. Pannalal Kejriwal 3,300 301.90 9,96,270 2,12,304
Total. 3,300 9,96,270

 

40.15.1 As per the details provided by the AO, a transaction was carried out on 05.05.1992 for sale of 3,300 shares of TISCO (RT) with Pannalal Kejriwal. However, no such sale transaction has been carried out by the appellant. The AO has not provided the evidence gathered by him from third parties on the basis of which it has been alleged that the appellant had sold 3,300 shares of TISCO (RT) to Pannalal Kejriwal. Unless the evidence based on which the additions are made are provided to the appellant, no such addition can be sustained.
40.16 Andhra Valley: The Annexure S-1 captured sale transactions in respect of 500 shares of Andhra Valley based on information received from 3rd parties. According to the AO, there was opening stock of 510 shares of Andhra Valley as per the assessment order for AY1992-93. The details of the transactions in Andhra Valley gathered by the AO from the enquiries with the third parties is as follows:
Sr. No. Name of the party No. of shares Rate Sale value Addition on account of trading profit
1. Chandravadan Desai 500 2080 10,40,000 5,55,000
Total. 3,300 9,96,270

 

40.16.1 As per the details provided by the AO, a transaction was carried out on 11.05.1992 for sale of 500 shares of Andhra Valley with Chandravadan Desai. However, no such sale transaction has been carried out by the appellant. The AO has not provided the evidence gathered by him from third parties on the basis of which it has been alleged that the appellant had sold 500 shares of Andhra Valley to Chandravadan Desai. Unless the evidence based on which the additions are made are provided to the appellant, no such addition can be sustained.
40.17 ABS Plastics: The Annexure S-1 captured sale transactions in respect of 3,000 shares of ABS Plastics based on information received from 3rd parties. The said information also reflected purchase of 3,000 shares by the appellant. According to the AO, there was opening stock of 307 shares of ABS Plastics as per the assessment order for AY1992-93. The details of the transactions in ABS Plastics gathered by the AO from the enquiries with the third parties is as follows:
Sr. No. Name of the party No. of shares Rate Sale value Addition on account of trading profit
1. Bombay Stock Exchange 3,000 135 4,05,000 46,159
Total. 3,000 4,05,000

 

40.17.1 As per the details provided by the AO, a transaction was carried out on 10.04.1992 for sale of 3,000 shares of ABS Plastics with Bombay Stock Exchange. However, no such sale transaction has been carried out by the appellant. The AO has not provided the evidence gathered by him from third parties on the basis of which it has been alleged that the appellant had sold 3,000 shares of ABS Plastics to Bombay Stock Exchange. Unless the evidence based on which the additions are made are provided to the appellant, no addition can be sustained.
40.18 Larsen & Toubro Ltd. (L & T): The Annexure S-1 captured sale transactions in respect of 1,70,000 shares of L & T based on information received from 3rd parties. According to the AO, there was opening stock of 2,38,990 shares of L & T as per the assessment order for AY 1992-93. The details of the transactions in L & T gathered by the AO from the enquiries with the third parties is as follows:
Sr. No. Name of the party No. of shares Rate Sale value Addition on account of trading profit
1. Canara Bank 1,70,000 153.88 2,61,60,000 (-) 1,09,58,200
Total. 1,70,000 2,61,60,000 (-) 1,09,58,200

 

40.18.1 The details provided by the AO shows that a transaction was carried out on 20.04.1992 for sale of 1,70,000 shares of L & T with Canara Bank. On verification of the records, it transpired that on 20.04.1992, M/s. J. H. Mehta had sold 1,70,000 shares of L & T to Canbank Financial Services (Subsidiary of Canara Bank) @ Rs.150.88 per share for an aggregate consideration of Rs. 2,61,60,000/-. It appeared that the said transaction has been reported in the name of the appellant. The Ld. AR submitted that sale transaction does not pertain to the appellant and hence no addition can be made on account of sale of the said shares in the hands of the appellant. In this regard, reliance was placed on the following evidences:
a. Ledger A/c. of Canbank Financial Services in the books of M/s. J. H. Mehta for AY 93-94.
b. Ledger A/c. of M/s. J. H. Mehta in the books of the Appellant for AY 93-94
c. Ledger A/c. of the Appellant in the books of M/s. J. H. Mehta for AY 93-94.
40.18.2 The Ld. AR also relied upon a letter dated 29.10.1994 addressed by Canbank Financial Services to the AO filed in the course of legal proceedings before the Hon’ble Special Court which revealed the details of the above transactions along with several other transactions wherein the appellant has been held to be a broker and not the party to the transaction. In view of the above, the addition made by the AO on account of sale of 1,70,000 shares of L & T Ltd. for the value of Rs. 2,61,60,000/- in the hands of the appellant would be incorrect.
41. On the other hand, the Ld. Special Counsel relied on the orders of lower authorities. He submitted that the AO has determined the trading profit on the basis of information gather by him from the RBI, Custodian, BSE, concerned companies, brokers and counter parties. Hence, the conclusion of the AO cannot be doubted. The appellant has not brought on record any fresh evidence on record to rebut the findings of the AO, which has been rightly sustained by the CIT(A).
42. We have heard both sides and perused the materials on record. We have also carefully gone through the detailed script-wise submission made by the assessee. The AO has made the impugned addition on account of share market trading profit after obtaining details of transactions undertaken by the assessee in the stock market. The AO has obtained necessary details from BSE, Custodian, RBI, brokers, counter parties and the companies concerned. On the basis of such information, the AO determined the opening stock, purchase, sale and closing stock in various scrips. He found that the assessee sold shares of 10 securities and earned trading profit of Rs.58,16,25,124/-. In respect of 7 scrips, there was negative closing stock of Rs.138,68,35,985/-, which is subject matter of appeal in ground No.10. Ground No. 9, being dealt here, pertains to the share market trading profit of Rs.58,16,25,125/-.
42.1 The Ld. AR submitted that the impugned addition is not justified as evidences in support thereof where not brought on record in spite of multiple requests made to the AO and CIT(A) by the assessee. It was also submitted that though inspection for AY 1992-93 was allowed, inspection for the subject AY 1993-94 was not allowed. The appellant also submitted that though summary of transaction in shares with 3rd parties were provided, but the underlying evidences based on which the summary was prepared were never provided to the assessee. The appellant has given the details of correspondence between him and the AO wherein several requests were made but the details were not provided by the AO. In this regard, he has relied on the decision in case of Hitesh S. Mehta (supra) where the Tribunal observed that if the AO does not provide the material, the addition cannot be made and hence, the issue was set aside to the file of AO. The Hon’ble High Court has upheld the finding of the Tribunal. We also find that in cases of other family members, namely, dated 05.09.2014 (supra) Pratima H. Mehta and Deepika A. Mehta (supra), similar view was taken by the Tribunal. We also note that during the course of hearing before the Tribunal, direction was given by the Bench to the Ld. DR vide proceedings sheet entry dated 06.12.2024 to produce relied upon documents. Subsequently, the appellant had also addressed a letter to the Ld. Special Counsel on 01.01.2025 to provide “Information and evidence received from Reserve Bank of India, Bombay Stock Exchange and third parties about the transactions of purchase and sale in stock market and payment thereof by the assessee.” However, no such details were produced by revenue. Hence, following the decisions cited supra, due to failure of the AO to provide the relied upon documents, the addition is liable to be deleted.
42.2 Be that as it may, we shall also discuss hereinbelow the merit of additions in respect of the impugned scrips namely, ACC Ltd., Reliance Industries Ltd., Apollo Tyres Ltd., Tata Tea Ltd., Castrol Ltd., Tata Steal Ltd., TISCO (RT), Andra Valley, ABS Plastics and Larsen Ltd. and Turbo Ltd. (L&T) due to the elaborate submissions made during the proceedings before the Tribunal.
42.3 Regarding sale of ACC shares, the appellant submitted that the said transactions represent Ready Forward (RF) transaction undertaken by the assessee with V.B. Desai (VBD) for its client M/s All Bank Finance Ltd., a subsidiary of Allahabad Bank. Hence, the computation by the AO does not constitute purchase and sale of shares resulting into profit in the hands of the assessee. The Ld. AR submitted that RF transactions are in the nature of short-term loan from one bank to another, disguised in the form of security transaction. In case of RF deal, the borrowing bank sells the security to another bank and receives the consideration. These securities are agreed to be bought back at a fixed price at the end of the period of the loan at a slightly higher price. The difference represents interest on loan. The Ld. AR submitted that even the Janakiraman Committee appointed by RBI has accepted such RF deal. The Tribunal in appellant’s own case for AY 1990-91 (supra) has also accepted the RF transaction to be in the nature of short-term loan. The Ld. AR submitted that the reversal transaction could not take place due to various reasons and the assessee and his brokerage firm subsequently got notified u/s 3(2) of the Special Courts Act, 1992. All assets of the assessee and his family members and their bank accounts were attached and came under the control of the Custodian. The Allahabad Bank filed a claim for recovery before the Hon’ble Special Court so as to recover the amount lent under the RF transactions.
42.4 The ld. AR submitted, in the alternative, that the alleged transaction includes purchase of 60,000 shares of ACC Ltd. If the cost of the shares is considered and allowed as a deduction, there would be loss in the impugned transaction. In conclusion, the Ld. AR submitted that the addition cannot be sustained in any manner.
42.5 Regarding the sales of 63,500 shares of ACC Ltd. to V.B. Desai, the assessee has submitted that the same pertains to additional securities belonging to the assessee and his family members which were handed over to Allahabad Bank in connection with the sale of shares mentioned in the earlier paragraph. The appellant submitted that out of the above shares of 63,500 shares, 60,000 shares represents those shares which were initially handed over by the appellant and were lying with Allahabad Bank under RF deal. It was also submitted that the remaining 3500 shares of ACC Ltd. constituted pledge of the securities by VBD to AllBank and was not sale of securities. It was also submitted that these securities belong to family members of the appellant and hence, cannot be treated as sale of shares by the appellant. Hence, the addition cannot be sustained.
42.6 Regarding the sale of 5000 shares of ACC Ltd. by Canara Bank, the ld. AR submitted that the transaction pertains to M/s J.H. Mehta which was squared off but the consideration was received by the assessee on behalf of M/s J.H. Mehta. Hence, the sale does not pertain to the appellant and accordingly, the profit cannot be added in his hands. The Ld. Special Counsel was not able to counter the submission of the Ld. AR.
42.7 The AO has also added profit of Rs.16,17,29,052/- on account of sale of 32,69,980 shares of RIL. The Ld. AR submitted that the transactions do not represents sale of shares by the appellant. He submitted that 3,00,000 shares of RIL were sold by the appellant as a broker acting for an on behalf of M/s Harsh Estates Pvt. Ltd. He has filed various evidences in support of the above claim. Hence, he requested for deletion of the related addition.
42.8 As regards, sale of 89,980 shares to VBD, the Ld. AR submitted that these do not constitute sale of shares of RIL by appellant. It was part of RF deal with AllBank Finance. The nature of this transaction is identical to the transaction in case of ACC Ltd. shares discussed above. Hence, he requested for deletion of the related addition.
42.9 With regard to sale of 10,00,000 shares of RIL to Canara Bank, the Ld. AR submitted that M/s J.H. Mehta sold these shares belonging to her clients to CanBank Financial Services, a subsidiary of Canara Bank. The shares belong to Growmore Research & Asset Management Ltd., Cascade Holding Pvt. Ltd. and Fortune Holding Pvt. Ltd. The ld. AR has filed various evidences as mentioned in the submission of the appellant before the Tribunal. The ld. AR also submitted that CanBank Financial Services Ltd., in course of legal proceedings before the Hon’ble Special Court, has held the appellant to be a broker and not the party to the transaction. Hence, the addition towards profit of sale of shares cannot be made in the hands of the appellant.
42.10 With respect to sale of 15,00,000 shares of RIL, the Ld. AR submitted that no such transaction was undertaken by the appellant. He submitted that CITI Bank purchased 15,00,000 shares of RIL from ANZ Grindlays Bank through their broker, Hiten P. Dalal. In support, he has relied on the 3rd interim report of Janakiraman Committee. However, the appellant received loan of Rs.60 Cr. from Hiten P. Dalal against shares of various companies. Hence, the Ld. AR requested not to make any addition in this regard.
42.11 With respect to sale of 4,33,000 shares of RIL, the Ld. AR submitted that the AO has not provided the evidence gathered by him from 3rd parties on the basis of which he concluded that appellant sold these shares to Hiten Dalal. Hence, the addition cannot be made.
42.12 Regarding sale of 4,74,700 shares of Apollo Tyres Ltd., the Ld. AR submitted that no shares were sold by the appellant to Canara Bank or Pallav Sheth. He submitted that M/s J.H. Mehta had sold 25,000 shares of APL belonging to her client, Orion Travels Ltd. to Canara Bank. The Ld. AR also submitted that the assessee had also not carried out sale transactions of 4,43,950 and 750 shares with Pallav Sheth and Rajesh Shah respectively. The AO has not provided the evidence collected from 3rd parties on the basis of which the conclusion has been arrived at by him. Hence, no addition can be made.
42.13 Regarding sale of 1,66,200 shares of Tata Tea Ltd., the Ld. AR submitted that the above transaction with VBD does not constitute sale of shares by the appellant. He submitted that the nature of transaction is similar to the RF deal with AllBank Finance in respect of shares of ACC Ltd., which was explained in detail in earlier grounds. The Ld. AR has also placed on record copies of the affidavits filed by Pratima Hitesh Mehta, Deepika A. Mehta, Rasila S. Mehta, Sudhir S. Mehta and the appellant before the Hon’ble Special Court. Hence, the said transaction in 1,66,200 shares of Tata Tea ltd. for a consideration of Rs. 9,97,20,000/- cannot be held as sale of shares by the appellant so as to add the profit in the name of the assessee.
42.14 Regarding sale of 75,750 shares of Castrol Ltd., the Ld. AR submitted that the facts are similar to the case of share marketing trading in case of ACC Ltd. discussed above. The appellant had also filed affidavits of various shareholders to whom the impugned shares belonged to.
42.15 With respect to the sale of 1,00,000 shares of Tata Steel Ltd., the Ld. AR submitted that the sale transaction does not pertain to the appellant and the shares were sold by him in the capacity of a broker. Hence, the addition cannot be made.
42.16 With respect to sale of shares of TISCO (RT), Andra Valley and ABS Plastics, the ld. AR submitted that no such sale transactions were carried out by the assessee and the AO has also not provided the evidence gathered by him from 3rd parties on the basis of which he has concluded that the appellant had sold 3300, 500 and 3000 shares of TISCO (RT), Andra Valley and ABS Plastics. Hence, no addition could be made.
42.17 Regarding sale of 1,70,000 shares of L&T, the Ld. AR submitted that the shares were sold by M/s J H Mehta to CanBank Financial Services. The transaction does not pertain to the appellant. Hence, no addition can be made in the hands of the appellant. The ld. AR also submitted that in course of legal proceedings before the Hon’ble Special Court, the appellant has been held to be a broker and not a party to the transaction. Hence, the addition is not sustainable.
42.18 We have again perused the details and evidences in the light of the detailed submission as above. We find that in cases of ACC Ltd. and Castrol Ltd., the transactions represent RF transactions undertaken by the appellant with VBD, and hence, the purchase transactions and their reversal do not constitute purchase and sale of shares giving rise to profit in the hands of the appellant. As held by the Tribunal in earlier year, RF transactions are in the nature of short-term loan from one bank to another in the guise of security transactions. The borrowing bank sales securities and receives consideration and the securities are bought back at a fixed price at the end of loan period at slightly high price. This represents interest on loan. This has been accepted by the Janakiraman Committee appointed by RBI in its interim report of May, 1992. The co-ordinate Bench of ITAT has also accepted RF transactions to be in the nature of short-term loan in ITA No.8025/Mum/1994 dated 25.09.2008 (PBP 956 to 963). Hence, no additions on account of shares market trading profit could be made in respect of the above RF transactions.
42.19 We also find that the 500 shares of ACC Ltd., 10,00,00 shares of RIL, 25000 shares of APL and 1,70,000 shares of L&T were sold by M/s J.H. Mehta and not by the appellant. The revenue has not bought anything to disprove the claim of the appellant that these shares belong to the assessee, Hence, the addition cannot be made in the hands of the appellant.
42.20 In the light of above facts, we are of the considered opinion that the basis on which the AO made the addition was misconceived and not warranted. The AO has also not given the evidence requested by the appellant to rebut his findings. The Ld. AR has relied on various decisions in case of members of the assessee group, i.e, para 39.1 of this order, where similar additions were deleted due to failure of AO to produce and supply the underlying evidences in connection with the subject addition. Considering the factual matrix of the case and the decisions cited supra, we set aside the order of CIT(A) and direct the AO to delete the addition. The ground is allowed.
43. Ground No. 10 pertains to addition of Rs.138,68,35,986/- on account of oversold position in shares. The Ld. AR, at the outset, submitted that the facts and the basis of the addition on account of oversold position in shares challenged in this ground is identical to the facts and the basis of addition on account of share market trading profit. On the identical facts and details obtained from the 3rd parties with respect to the transactions in shares undertaken by the appellant, wherever, the sale of shares was more that the opening stock as determined in the assessment order for AY 1992-93 and the purchases during the year, the said excess sale was considered as the oversold position. The AO arrived at a conclusion that in respect of 7 scrips, the appellant had a negative closing stock and the value of such negative closing stock was determined at Rs.138,68,35,985/-. The Ld. AR submitted that the evidences gathered by the AO were never provided to the appellant in spite of repeated requests. This issue has been explained in foregoing paras.
43.1 Without prejudice, the Ld. AR submitted that the addition on account of oversold position in shares in 7 securities was incorrect and the same was the result of lack of appreciation of facts of the case. The script wise explanation, as submitted by the Ld. AR is summarized below:
43.2 In respect of the securities of Reliance Industries Ltd. (‘RIL’), Tata Tea Ltd., Castrol (I) Ltd. and Tata Steel Ltd., the Ld. AR submitted that the Annexure S-1 captured sale transactions in shares of RIL, Castrol (I) Ltd., Tata Tea Ltd. The AO made addition on account of profit on sale of shares to the extent he could extract holding details of the appellant. He also made addition on account of oversold position in shares for sale in excess of holding determined. In the ground no. 9, the Ld. AR has already explained that these transactions considered as sale by the AO in the hands of the appellant was not correct. The said explanation covered sale of shares of the aforesaid companies also. In view of the said explanation, he submitted that the addition made by the AO on account of oversold position in shares of the above 4 companies ought to have been deleted.
43.3 Great Eastern Shipping (GE Shipping): The Annexure S-1 captured sale transactions in respect of 6,50,000 shares of GE Shipping based on information received from 3rd parties. According to the AO, since the appellant neither had any opening stock of the shares of the said company nor had any purchases during the year, the entire sale of 6,50,000 shares of GE Shipping at the value of Rs. 11,77,50,000/- constituted oversold position in shares.
43.3. 1 The details of the transactions in GE Shipping gathered by the AO from the enquiries with the third parties is as follows:
Sr. No. Name of the party No. of shares Rate Sale value Addition on account of Oversold Position
1. Citibank 2,00,000 178 3,55,00,000 3,55,00,000
2. Citibank 1,00,000 178 1,77,50,000 1,77,50,000
3. Citibank 2,00,000 170 3,40,00,000 3,40,00,000
4. Citibank 1,00,000 213 2,12,50,000 2,12,50,000
5. Citibank 50,000 185 92,50,000 92,50,000
Total. 6,50,000 11,77,50,000 11,77,50,000

 

43.3. 2 Citibank – 6,00,000 shares: In respect of 6,00,000 shares (2,00,000 + 1,00,000 + 2,00,000 + 1,00,000), the details reflected five different transactions of sale of GE Shipping shares aggregating to 6,50,000 shares allegedly made by the appellant. The perusal of the record showed that during the year, the appellant had sold 5,56,500 shares of GE Shipping belonging to its various clients to Citibank at different rates. Similarly, balance 43,500 shares sold were belonging to the appellant. The details of the said transactions are given below:
Sr. No. Name of the seller Name of the buyer Date of transaction No. of shares Rate Sale value
1. Eminent Holdings Pvt. Ltd. Citibank 02.04.1992 10,000 212.50 21,25,000
2. Zest Holdings Pvt. Ltd. Citibank 03.04.1992 51,300 170 87,21,000
3. Zest Holdings Pvt. Ltd. Citibank 06.04.1992 4,00,000 175.60 7,02,40,000
4. Jyoti H. Mehta Citibank 03.04.1992 48,700 170 82,79,000
5. Harsha D. Shah Citibank 02.04.1992 46,500 212.50 87,81,250
6. Harshad S. Mehta (‘appellant’) Citibank 02.04.1992 43,500 212.50 92,43,750
6,00,000

 

43.3. 3 The balance 43,500 shares constituted sale of the shares of the appellant. The Ld. AR submitted that these sale transactions cannot be added as oversold position in the hands of the appellant. In this regard, reliance was placed on the following evidence on record:
a. Ledger A/c. of Citibank in the books of the appellant for AY 93-94.
b. Contract notes dated 06.04.1992 issued by the appellant to Citibank
c. Ledger A/c. of M/s. Eminent Holdings Pvt. Ltd. in the books of the appellant for AY 93-94
d. Contract note dated 10.04.1992 issued by the appellant to M/s. Eminent Holdings Pvt. Ltd.
e. Letter dated 17.07.2009 issued by M/s. Eminent Holdings Pvt. Ltd. confirming the said transactions undertaken by them with the appellant.
f. Audited financial Statements of M/s. Eminent Holdings Pvt. Ltd. for the year ending 31.03.1993 alongwith the break up of the profit on sale of shares.
g. Ledger A/c. of M/s. Zest Holdings Pvt. Ltd. in the books of the appellant for AY 93-94
h. Contract note dated 03.04.1992 and 06.04.1992 issued by the appellant to M/s. Zest Holdings Pvt. Ltd.
i. Letter dated 17.07.2009 issued by M/s. Zest Holdings Pvt. Ltd. confirming the said transactions undertaken by them with the appellant.
j. Computation of income of M/s. Zest Holdings Pvt. Ltd. for AY 93-94 alongwith Audited financial Statements of M/s. Zest Holdings Pvt. Ltd. for the year ending 31.03.1993 and the break up of the profit on sale of shares.
k. Ledger A/c. of Jyoti H. Mehta in the books of the appellant for AY 93-94
l. Letter dated 17.07.2009 issued by Jyoti H. Mehta confirming the said transactions undertaken by them with the appellant.
m. Ledger A/c. of Harsha D. Shah. in the books of the appellant for AY 93-94
n. HSM-Investment A/c. in the books of the appellant for AY 93-94.
43.3. 4 In light of the above submissions, the Ld. AR submitted that the said transaction in the shares of 5,56,000 shares of G. E. Shipping cannot be held as sale of shares of the appellant. The appellant can only be taxed in respect of 43,500 shares sold @212.50 per shares. Consequently, the addition on account of oversold position in shares of 6,00,000 shares of G. E. Shipping cannot be held to be income in the hands of the appellant.
43.3. 5 The Ld. AR submitted that 43,500 shares of G. E. Shipping, constitute sale of shares belonging to the appellant. The AO ought to have granted deduction on account of cost of acquisition in respect of the shares purchased by the appellant and only the profit element should have been assessed as income. The books of account reflect cost of purchase of these shares purchased during AY 92-93. The evidences in respect of these purchases were as follows:
a. Ledger A/c. of Investment in share debenture A/c for AY 92-93
b. Ledger A/c of M/s. J. H. Mehta in the books of the appellant for AY 92-93
c. Ledger A/c of the appellant in the books of M/s. J. H. Mehta for AY 92-93
43.3. 6 Without taking cognizance of the purchases made by the appellant, the AO treated the entire sale as oversold position in shares. The appellant therefore prayed that the AO may kindly be directed to tax only the profit element out of the purchase of the shares
43.3. 7 As regards the balance transaction of 50,000 shares of GE Shipping, it was submitted that the said transaction has been incorrectly recorded by the AO as a sale transaction. The said transaction represented purchase of shares on behalf of Citibank Ltd. The Ledger account reflecting the purchase on behalf of Citibank Ltd. was placed on record. The copy of the contract note dated 07.04.1992 issued by the appellant to Citibank was also placed on record. It was, therefore, submitted that the said transaction of 50,000 shares does not constitute sale transaction and, therefore, the same cannot be added as part of oversold position in shares.
43.4 Tata Power Ltd.: The Annexure S-1 captured sale transactions in respect of 12,695 shares of Tata Power Ltd. based on information received from 3rd parties. According to the AO, since the appellant neither had any opening stock of the shares of the said company nor had any purchases during the year, the entire sale of 12,695 shares of Tata Power Ltd. constituted oversold position in shares.
43.4.1 The details of the transactions in Tata Power Ltd. gathered by the AO from the enquiries with the third parties is as follows:
Sr. No. Name of the party No. of shares Rate Sale value Addition on account of Oversold Position
1. V. B. Desai 12,695 1,850 2,34,85,750 2,34,85,750
Total. 12,695 2,34,85,750 2,34,85,750

 

43.4.2 The Ld. AR submitted that the said transaction in 12,695 shares of Tata Power Ltd. did not constitute sale of shares by the appellant. According to the AO, the transaction constituted sale of 12,695 shares by the appellant to VBD on 13.05.1992. In the ground No. 9, it has been explained that the said transaction constituted pledge of shares by VBD with AllBank and was part of the R/F deal in 60,000 shares of ACC Ltd. Hence, the same did not constitute oversold position in shares. Moreover, the details of the shareholders of the pledged shares were provided in Exhibit X to the petition filed by AllBank which showed that except 5,689 shares, other shares belonged to other family members and, hence, do not constitute sale of shares by the appellant.
43.5 Ruchi Soya Ltd.: The Annexure S-1 captured sale transactions in respect of 75,000 shares of Ruchi Soya Ltd. based on information received from 3rd parties. According to the AO, since the appellant neither had any opening stock of the shares of the said company nor had any purchases during the year, the entire sale of 75,000 shares of Ruchi Soya Ltd. constituted oversold position in shares.
43.5.1 The details of the transactions in Ruchi Soya Ltd. gathered by the AO from the enquiries with the third parties is as follows:
Sr. No. Name of the party No. of shares Rate Sale value Addition on account of Oversold Position
1. Citibank 42,600 212 90,31,200 90,31,200
2. Citibank 7,400 212 15,68,800 15,68,800
3. Citibank 25,000 275 68,75,000 68,75,000
Total. 75,000 1,74,75,000 1,74,75,000

 

43.5.2 The Ld. AR submitted that the above referred transactions do not represent sale of shares by the appellant. The above details reflect 3 different transaction of sale of Ruchi Soya Ltd. shares aggregating to 75,000 shares allegedly made by the appellant. The perusal of the record showed that during the year, the appellant had sold 75,000 shares of Ruchi Soya Ltd. belonging to Smt. Jyoti H. Mehta to Citibank at different rates. The details of the said transactions are given below:
Sr. No. Date of transaction No. of shares Rate Sale value
1. 06.04.1992 50,000 212 1,06,00,000
2. 08.04.1992 25,000 275 68,75,000
75,000 1,74,75,000

 

43.5.3-43.5.4 Since the said shares were sold by the appellant in the capacity of the broker, the same cannot be held as sale of shares of the appellant. In this regard, reliance was placed on the following evidences:
a. Ledger A/c. of Citibank in the books of the appellant for AY 93-94.
b. Ledger A/c. of Mrs. J. H. Mehta in the books of the appellant for AY 93-94.
c. Ledger A/c. of the appellant in the books of J. H. Mehta for AY 93-94.
d. Contract notes dated 06.04.1992 and 08.04.1992 issued by the appellant to M/s. Citibank
e. Letter dated 17.07.2009 issued by M/s. J. H. Mehta confirming the sale of 75,000 shares of Ruchi Soya by the appellant on their behalf.
43.5.5 In light of the above submissions, the Ld. AR submitted that the said transaction in the shares of 75,000 shares of Ruchi Soya Ltd. for the sale consideration of Rs. 1,74,75,000/- cannot be held as sale of shares of the appellant.
44. On the other hand, the Ld. Special Counsel support the order of lower authorities.
45. We have heard both sides and perused the materials on record. We find that the facts and the basis of the addition on account of oversold position in shares in the impugned ground are similar to the previous ground pertaining to the addition towards share market trading profit. In case the sale of shares was more than the opening stock and the purchases during the year, the said excess sale was considered as oversold position. We find that the oversold position in respect of shares of RIL, Tata Tea Ltd., Castrol India Ltd. and Tata Steel Ltd. is on the same basis, which led to addition on account of share market trading profit. The Ld. Counsel for revenue has not been able to rebut the submissions of the appellant. He has not bought any new and tangible materials on record to take a different view. Hence, following the reasons given in ground No. 9, the AO is directed to delete the addition.
45.1 Regarding oversold position of the shares of G.E. Shipping, the appellant has stated that he has sold 5,56,500 shares belonging to his various clients to CITI Bank. These shares did not belong to him. He has furnished details and supporting evidences in this regard. The revenue has neither provided any underlying evidence for the impugned addition nor has been able to bring any contrary evidence to disprove the claim of the appellant. Hence, the addition is deleted.
45.1.1 In respect of the balance 43,500 shares of G.E. Shipping, the Ld. AR submitted that these shares belong to the assessee. Since, the shares belong to the assessee, the sale transaction cannot be added as oversold position. No contrary evidence was filed by the revenue that these were unexplained shares of the assessee. Hence, the AO is directed to delete the addition.
45.2 Regarding the remaining 50,000 shares of G.E. Shipping, it was submitted that the said transactions represent the purchase of shares on behalf of CITI Bank Ltd. Since the shares were purchased on behalf of a client of the assessee and did not belong to the assessee, there cannot be any oversold position in respect of these shares. It is also not the case of revenue that assessee has not disclosed the brokerage income on this transaction. Hence, addition cannot be sustained.
45.3 Regarding oversold position of 12,695 shares of Tata Power Ltd., the assessee submitted that the transaction constitutes pledge of shares by VBD with AllBank and was part of RF deal in 60,000 shares of ACC Ltd. Similar issue has been decided in favour of the assessee in ground No.9 above. Hence, following the same reason, the addition is deleted.
45.4 Regarding sale of 75000 shares of Ruchi Soya Ltd., the appellant submitted that he has sold these shares belonging to Mrs. Jyoti H. Mehta to CITI Bank. The shares were sold in the capacity of a broker and hence, cannot be held to be sale of shares owned by the appellant. No contrary evidence has been filed by the revenue. It is also not case of revenue that the related brokerage income has not been recorded in the regular books of the assessee. Hence, the addition is deleted.
45.5 In the result, the ground is allowed.
46. Ground No. 11 pertains to addition on account of credits in the bank account of Rs.6,16,39,480/- and Rs.224/-. In the said ground, the appellant has challenged the addition on account of 2 entries in the bank account of Rs.6,16,39,480/- and Rs.224/-, which were added by the AO as unexplained receipt in assessee’s bank account. The Ld. AR submitted that since a massive search action was carried out by the department and various other government agencies, the appellant had lost complete records as the same were seized by the various agencies. The appellant, therefore, could not trace records relating to the said bank receipts added by the AO. The assessee had also addressed letter to the bank seeking explanation for the nature of deposits and the parties who have paid the said amount. However, no response was received by the appellant. In view of the difficulties faced by the appellant over the years on account of search action and the subsequent notification under the Special Courts Act, the Ld. AR requested that the appellant may be granted one opportunity to obtain the details from the bank and explain the transaction. This is more so because no part of the transaction can remain unexplained as the same were completely scrutinized by the various government agencies and the Special Court appointed auditors.
47. On the other hand, the Ld. Special Counsel relied on the orders of lower authorities. He submitted that the nature and source of credits could not be explained by the assessee in any of the three rounds of litigation. Hence, the unexplained nature of the credits is fully established. Hence, the addition may be sustained.
48. We have heard both sides and perused the materials on record. The appellant has not been able to explain the impugned credits in his bank account. The Ld. AR submitted that due to dislocation of the records on account of search by the Incometax Department and other agencies, all records are dislocated not readily available. However, we find that adequate and reasonable opportunity of being heard was granted to the assessee in the three rounds of litigation over a period of more than three decades. The assessee has not been able to satisfactorily explain the nature and source of the impugned cash credits. Hence, the order of the CIT(A) is upheld and ground is dismissed.
49. Ground No. 12 pertains to addition of Rs. 4,45,10,514/- on account of loans and advances given. The aforesaid addition was first made by the CIT(A) by way of enhancement in the course of second round of litigation vide order dated 24.03.2010. As per the said appellate order, vide letter dated 11.12.2009, the AO had informed the CIT(A) that M/s. Girish & Vyas, Special Auditors, had occasion to observe during examination of the books of the assessee that the he had given certain loans and advances to some parties other than the family members and group concerns. It was also observed that the full name and address of the parties to whom loans and advances were given were not available and, therefore, the balance could not be reconciled. The AO had, accordingly, proposed that full details of the said loans and advances and the sources of the loans and advances be called upon from the appellant failing which the income of the appellant be enhanced. Accordingly, the appellant was asked by the CIT(A) vide letter dated 14.01.2010 to explain these loans and advances and the source of the same. The appellant had filed its explanation and the details of the loans and advances and source from which these loans and advances had been given. However, disregarding the said explanation, the CIT(A) enhanced the income of the appellant by Rs. 4,45,10,514/- treating the loans and advances as alleged unexplained investments u/s. 69 of the Act.
49.1 The CIT(A), in the impugned order passed in the third round of litigation, has again confirmed the said addition. While deciding the said issue, he held that no books of account have been furnished by the appellant before him and, therefore, the question of the said investment in the form of loans and advances having not been recorded in the books of account does not arise. He, therefore, rejected the contentions of the appellant that addition could not have been made u/s. 69 of the Act. The CIT(A) further held that the addition on account of opening balance of the loans and advances was also correct in view of the fact that these balances have been reported as on 08.06.1992. The CIT(A) also rejected the prayer of the appellant for telescoping of the said addition against the addition on account of source of income made by the AO.
49.2 The Ld. AR submitted that by making the aforesaid addition, the CIT(A) had brought to tax an entire new source of income during the appellate proceedings which is beyond the powers granted to him u/s. 251 of the Act. It was submitted that the validity of such enhancement can be challenged in the third round of litigation. It was submitted that there must be something to show that the AO had applied his mind to the particular subject matter or the particular source of income with a view of its taxability or its non-taxability in order to enable the CIT(A) to make an addition using the powers of enhancement. In the present case, the issue of loans and advances given and the source of these loans and advances was never subject matter of discussion or dispute during the course of assessment proceedings. Under these circumstances, the CIT(A) could not have raised the said issue and make addition by way of enhancement.
The appellant had relied upon the following decisions:
a. Growmore Research and Assets Management Ltd v. Dy.CIT [ITA No. 504/Mum/2019,dated 30-3-2021] for AY 1992-92
b. Lokenath Tolarann v. CIT  161 ITR 82 (Bom.)
c. CIT v. Sardari Lal & Co.  251 ITR 864 (Del.) (FB)]
49.3 The Ld. AR also submitted that although the aforesaid order of the CIT(A) was set aside by the Tribunal vide its order dated 13.05.2015 to the file of AO for deciding these issues afresh, the AO could not have made the said addition more so when the addition itself was beyond the scope of powers available to the CIT(A) in the second round.
49.4 Without prejudice to the above, the Ld. AR also submitted that the aforesaid addition was also devoid of merits since the same has been made invoking the provisions of s. 69 of the Act. The provisions of s. 69 clearly show that an addition can be made under these provisions if the assessee is found to have made investments in the relevant financial year which are not recorded in the books of account. In other words, these provisions are applicable only for the purpose of making addition of investment made in the year under appeal and which are found to be unrecorded in the books of account. In case of the appellant, these investments in the form of loans and advances were admittedly found recorded in the books of account. This is evident from the following findings of the authorities and other evidences:
a. Proposal of the AO to the CIT(A) for enhancement of income vide letter dated 11.12.2009
b. The order of the CIT(A) dated 23.04.2010 referring to the auditor’s report in respect of certain loans and advances found to have been recorded in the books
c. The ledger account of these parties from the books of account reflecting the balance
d. Extract of the report of M/s. Vyas & Vyas, special auditor
49.5 He submitted that, in fact, some of the loans added were also pertaining to earlier year and therefore the same cannot be treated as unexplained investments in the year under appeal as the same falls outside the ambit of s. 69 of the Act. In this regard, reliance was placed on the following decisions:
a. Ushakant N. Patel v. CIT 282 ITR 553 (Guj.)
b. CIT v. Mrugesh Jaykrishna  245 ITR 638 (Guj.)
c. Dy. CIT v. Singla Enclave Developers (P.) Ltd.  [2014] 149 ITD 177 (Chandigarh – Trib.) (Chd.) ]
49.6 The Ld. AR, therefore, prayed that the aforesaid addition made u/s. 69 of the Act is legally not tenable and therefore may kindly be deleted.
49.7 Without prejudice to the above, the Ld. AR also submitted that out of the total loans and advances amounting to Rs. 4,45,10,514/-, loans and advances to the tune of Rs. 3,95,41,589/- represented the loans given in the earlier years and remaining outstanding as on 31.03.1993. It was submitted that the aforesaid addition constitute an addition on account of opening balance and therefore the same cannot be validly added in the year under appeal.
49.8 As regards the balance advances of Rs. 49,68,925/-, it was submitted that even the said loans cannot be treated as unexplained in the hands of the appellant. It was submitted that these advances have been given out of the regular bank account of the appellant and out of the regular source of income earned by the appellant. The source of the said loans and advance given during the year was evident from the ledger account of the parties, bank book of the appellant reflecting the source of the funds out of which advances are given and corresponding bank statements. In any case, it was submitted that loans and advances were subject matter of recovery proceedings initiated by the custodian before the Hon’ble Special Court in respect of the following parties.
Sr. No. Name of the Parties Matter No. Addition make by AO
1. Deepak Vadhani and Kalpana Vadhani M.A. No. 93 of 1993 25,00,000
2. K.J. Investments M.A. No. 101 of 1993 32,74,000
3. Space Builders Pvt. Ltd. M.A. No. 56 of 1993 1,35,00,000
4. Shrishma Fine Chemicals M.A. No. 286 of 1993 1,00,00,000
5. Romil Exports M.A. No. 369 of 1993 1,75,00,000
6. Premier Housing M.A. No. 48 of 1993 1,28,925

 

49.9 He submitted that the aforesaid suits filed by the custodian clearly prove that the transactions were fully explained and that the loans and advances given were verifiable. In light of the above, the Ld. AR submitted that even these loans and advances cannot be treated as income in the hands of the appellant.
50. On the other hand, the Ld. Special Counsel relied on the orders of lower authorities.
51. We have heard both sides and perused the materials on record. Though no ground has been raised by the appellant regarding enhancement of income in respect of a new sources of income, we deem it proper to deal the matter since it involves jurisdictional issues. The Ld. AR submitted that validity of the enhancement can be challenged in the third round of litigation. We find that the order of CIT(A) was set aside by the Tribunal to the file of AO for deciding the issues afresh. The Ld. AR contended that AO could not have added the impugned amount in the set aside assessment order. The contention of the Ld. AR is not tenable. Being a subordinate authority, the AO was bound by the direction of the Tribunal. The remedy lies elsewhere; the assessee could have challenged order of the Tribunal before Hon’ble High Court. Hence, the action was the AO was in accordance with law and cannot be set aside.
51.1 Be that as it may, the power of enhancement by the CIT(A) in respect of a new sources of income has attracted judicial attention in a number of cases. Section 251(1)(a) of the Act grants the CIT(A) statutory power of enhancement in an appeal against an order of assessment. As held by the Hon’ble Supreme Court in case of CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225 (SC) , the scope of CIT(A) power is co-terminus with that of AO. He can do what the AO cannot do and also direct him to do what he has failed to do. These are special and exceptional attributes of the jurisdiction of the first appellate authority, which is not bestowed even upon in the higher appellate authorities. In absence of any statutory provision, the CIT(A) is vested with all the plenary powers which the subordinate authority may have in the matter. Amounts relating to new sources of income of items not considered by the AO from the point of view of their assessability can be added by the CIT(A) in the appeal before him, as held by the Hon’ble Supreme Court in CIT v. Nirbheram Deluram [1997] 224 ITR 610/91   (SC) . It is also not the case of the assessee that he was not provided a reasonable opportunity of showing cause against such enhancement, as per the requirement of sub section (2) of section 251 of the Act. Hence, there was no infirmity either in the order of the CT(A) or the AO.
51.2 On merit, the Ld. AR contended that the addition of Rs.4,45,10,514/- includes outstanding balance of Rs.3,95,41,589/- as on 31.03.1993, for which loans and advances were given in the earlier years. Thus, it constitutes opening balance of the year, which cannot be added to the income of the assessee. Regarding the balance advances of Rs.49,68,925/- the Ld. AR submitted that these advances were given from the regular bank account of the assessee and out of the regular source of income earned by the appellant. The Ld. AR submitted that the loans and advances were subject matter of recovery proceedings and the transactions were fully explained and verifiable. The Ld. Special Counsel has not controverted the claim of the appellant by bringing any contrary evidence on record. After considering the submission as above, the AO is directed to delete Rs.3,95,41,589/-, being the opening balance the loans and advances of the earlier years as on 01.04.1992. Regarding the remaining amount of Rs.49,68,925/-, the matter is remanded back to the file of the AO for limited purpose of verification as to whether the same were from regular sources of income disclosed in the books of the assessee. The assessee should be granted reasonable opportunity of being heard. Thus, the ground is allowed for statistical purpose.
52. Ground No. 13 pertains to addition of interest Rs. 7,40,00,000/- on account of income from family members. This addition was first made by the CIT(A) by way of enhancement in the course of second round of litigation vide order dated 24.03.2010. As per the said appellate order dated 24.03.2010, interest income of Rs. 11,85,00,000/-had accrued to the appellant for AY 1992-93 and was added accordingly. The said addition during AY 1992-93 was made on the basis of the proposal received from the AO, vide letter dated 11.12.2009. Accordingly, following his findings for AY 1992-93, the appellate order was passed on 24.03.2010 by enhancing the income of the appellant on account of interest earned by the appellant from the family members amounting to Rs. 7,40,00,000/-.
52.1 The CIT(A), in the impugned order passed in the 3rd round of litigation, has again confirmed the said addition. The CIT(A) in the order observed that although identical addition made by way of enhancement by his predecessor during AY 1992-93 was deleted by the Tribunal, appellant was following mercantile system of accounting during the year under appeal. Further, it was alleged that no proper maintenance of accounts was found in the case of appellant. Based on the said findings, the addition made by the AO was confirmed by the CIT(A).
53. At the very outset, the Ld. AR pointed out that while dismissing the said ground, CIT(A) has inadvertently referred the addition to be of Rs. 11,85,00,000/- instead of Rs. 7,40,00,000/-, which needs to be corrected. He submitted that the addition made by the CIT(A) in the 2nd round of litigation by way of enhancement is beyond his powers and jurisdiction and, therefore, the same is unjustified on the said ground alone. This issue is identical to the issue raised in Ground no. 12.
53.1 In any case, it was contended that the identical addition made by the CIT(A) in the order for AY 1992-93 has been deleted by the Tribunal vide their order in case of the appellant in ITA No. 5702/Mum/2017 dated 14.01.2019. Since the addition for AY 1992-93 has been deleted for the identical reasons, the impugned addition made in the year under appeal also deserves to be deleted. It was further submitted that the appellant has been following cash system of accounting over the years and the same was also accepted by the Tribunal in various years. Hence, the issue was squarely covered by the findings of ITAT in case of the appellant for AY 92-93 in Harshad S. Mehta case (supra).
54. On the other hand, the Ld. Special Counsel relied on the orders of lower authorities.
55. We have heard both sides and perused the materials on record. We find that similar issue had come up for consideration before the co-ordinate Bench in appellant’s own case for AY 1992-93 Harshad S. Mehta (supra). The Tribunal decided the issue as under:
“22.5. We have heard rival contentions and carefully considered the same along with the order of the tax authorities. We noted that a similar issue regarding the addition on account of interest receivable from the family members has arisen in the case of the assessee in the AY 1989-90 in ITA/637/Mum/2007 wherein vide order dt. 2nd January 2008 this Tribunal duly considered the order of this Tribunal in the case of the assessee for AY 1988-89 on which the Id. DR has vehemently relied and came to the conclusion under para 527 that the order of the Tribunal for that AY would not apply in the present case (during AY 89-90). It was, further held that in a case where the books of accounts are not maintained or rejected by the assessing authority and income is determined on the basis of best judgement, still assessee choice regarding the method of accounting cannot be ignored. The books of account is not the only crucial point to be considered on this issue. The consistent practice followed by the assessee has also to be looked into whether assessee has maintained books of accounts or not, if the assessee follows cash system of accounting to recognize income from interest and realizes interest income only on actual receipt basis, such system should be accepted and interest should be considered only for actual receipts. The assessee has consistently followed cash system of accounting in respect of interest income. This consistent position cannot be overlooked on the ground that other relatives of assessee are recognizing interest income on mercantile basis. Tribunal, thus in AY 89-90 deleted the addition before us even though the Ld. DR vehemently relied on the order of the authorities below but could not bring to our knowledge any decision contrary to the decision of the Tribunal for the AY 89-90. In assessee’s own case holding that interest income has to be recognized in the case of the assessee on actual receipt basis. The Id DR even did not deny that the assessee was following the cash system of accounting in respect of interest income. We, therefore following the decision of this Tribunal in the case of the assessee for AY 89-90 in ITA no. 637/Mum/2007 set aside the order of the AO on this issue and delete the addition of Rs. 11,85,00,000/-. Thus, the ground no 23 of assessee’s appeal is allowed.”
55.1 The Ld. Special Counsel has not distinguished the above case either on fact or on law. We also find that the co-ordinate Bench in assessee’s own case for AY 1989-90 in ITA No.5773/Mum/1998 (supra) and for AY 1990-91 in ITA No.8025/Mum/1994 (supra) has allowed the appeal on similar issue. Following the above decisions, the ground is allowed.
56. Ground No. 14 pertains to rejection of books of account. Since the AO has made addition in respect of some of the income on the basis of the books of account which are separately contested, the said ground rejecting the books of accounts is academic in nature and is left open.
57. Ground No. 15 pertains to non-acceptance of cash method of accounting followed by the appellant. The Ld. AR submitted that certain additions have been made by the AO in the course of original assessment proceedings, the appellate proceedings in 2nd round of litigation as well as in the impugned assessment proceedings in respect of income chargeable to tax in the hands of the appellant on accrual basis. It has been held by the AO and CIT(A) that the income of the appellant is to be determined following mercantile system of accounting and hence income is chargeable to tax on accrual basis in the hands of the appellant.
57.1 The Ld. AR submitted that the said finding of the AO and CIT(A) were factually incorrect. The appellant had been following cash method of accounting regularly over the years. The said cash method of accounting had been accepted by the Tribunal in case of the appellant in the following cases:
(a) Harshad S. Mehta (supra) [ITA No. 5702/Mum/2017] for AY 1992-93 dated 14.01.2019
(b) Late Harshad S. Mehta [Legal Heir Smt. Jyoti H. Mehta] v. DCIT [ITA No. 5773/Mum/1998] for AY 1989-90 dated 20.01.2008
(c) Harshad S. Mehta [L/H Smt. Jyoti H. Mehta] v. ACIT [ITA No. 8025/Mum/1994] for AY 1990-91 dated 25.09.2008
57.2 In view of the above, the appellant submitted that the income of the appellant ought to be determined on the basis of cash method of accounting regularly followed by the appellant.
58. On the other hand, the Ld. Special Counsel relied on the orders of lower authorities.
59. We have heard both sides and perused the materials on record. We find that this issue had been adjudicated by the Tribunal in appellant’s own case for AYs 198990, 1990-91 and 1992-93 in ITA Nos.5773/mum/1998, 8025/Mum/1994 and 5702/Mum/2017 (supra) respectively. We have also extracted the relevant part of the order in para 32 of this order. The Ld. Special Counsel has not been able to distinguish the above decision either on facts or in law. Hence, following the above decisions of the coordinated bench of the Tribunal, the ground is allowed.
60. Ground No. 16 pertains to not granting set off of addition on account of source of income against application of income following telescoping theory of determination of income. The Ld. AR submitted that the appellant had raised ground for granting set off of addition on account of source of income against the expenses/application of income following telescoping theory. It was submitted that income earned can be said to have been utilized for making alleged unexplained investment or unexplained expenditure. It was, therefore, contended that once some source of income is assessed in the hands of the appellant, the investment allegedly added by the AO ought to be presumed, in absence of evidence to the contrary, out of source of income assessed to tax in the order. In other words, the appellant should be granted the benefit of “telescoping” in respect of alleged unexplained income. The appellant relied upon the following decisions:
a. Harshad S. Mehta (supra) [ITA No. 5702/Mum/2017] for AY 1992-93 dated 14.01.2019
b. CIT v. Jawanmal Gemaji Gandhi [1985] 151 ITR 353 (Bom) ]
61. On the other hand, the Ld. Special Counsel relied on the orders of lower authorities.
62. We have heard both sides and perused the materials on record. We find that the co-ordinate Bench in assessee’s own for AY 1992-93 (supra) has decided the issue and allowed set off and telescoping of unexplained investment or expenditure against receipt/income assessed in the hands of the assessee. Following the same, we direct the AO to allow telescoping benefit after giving effect to this order on various additions. The ground is allowed for statistical purpose.
63. Ground No. 17 pertains to not granting deduction on account of interest expenses, business expenses, business loss and depreciation while computing income of the appellant. The appellant has not pressed this ground and hence, the ground is dismissed as not pressed.
64. Ground No. 18 pertains to not granting deduction statutory deductions and allowances available under Chapter VI-A of the Act. The appellant had claimed deduction and allowances under Chapter VI-A during the year. This had not been allowed by the AO and CIT(A). The appellant merely contended that statutory deductions and allowances under Chapter VI-A ought to be allowed while determining the income. The AO is directed to verify the claim of the assessee and allow deduction as per law. Thus, the ground is allowed for statistical purpose.
65. Ground No. 19 pertains to not granting credit on account of tax paid by the appellant as per directions of the Hon’ble Supreme Court. The Ld. AR submitted that pursuant to the order of the Hon’ble Supreme Court dated 13.02.2002 in the case of Chief Commissioner of Income-Tax v. Custodian [CA no. 7672 of 1999], it was held that the department must appropriate TDS pertaining to the period after 08.06.1992 against the tax liability for the period from 01.04.1991 to 08.06.1992. Since such credit for the said pre-paid taxes has not been granted while passing the assessment order, the AO is directed to grant credit of the taxes paid by the appellant as per the direction of the Hon’ble Supreme Court. The ground is allowed.
66. Ground No. 20 pertains to not holding that interest u/s. 234B of the Act should be levied on the taxes computed after considering tax deductible at source on income assessed. The Ld. AR submitted that the CIT(A) vide his order had directed the AO to verify and grant credit of the due taxes to the appellant as per the law. Thus, this ground becomes academic in nature and does not require adjudication.
67. Ground No. 21 pertains to not holding that interest u/s. 220 of the Act would not be leviable. The Ld. AR submitted that the interest u/s. 220 of the Act in case of de novo assessment need not be charged from date of original assessment order but rather from fresh assessment order. This has not been allowed by the CIT(A). The appellant submitted that since the Tribunal had set aside the case of the appellant to the file of AO for de novo adjudication of the issues challenged in appeal before them, the interest u/s. 220 of the Act could only have been levied pursuant to the consequential assessment order passed by the AO. However, the AO has levied interest from the date of the original assessment order passed in the present case and included in the aggregate demand raised, which is contrary to the said legal position. This view has also been held by the Tribunal in the case of the appellant in following cases:
a. Harshad S. Mehta (supra) [ITA No. 5702/Mum/2017] for AY 1992-93 dated 14.01.2019
b. Dy.CIT v. Harshad S. Mehta [ITA No. 6227/Mum/2018] for AY 1992-93
68. On the other hand, the Ld. Special Counsel relied on the orders of lower authorities.
69. We have heard both sides and perused the materials on record. This issue has been decided by the Tribunal in appellant’s own case for AY 1992-93, the relevant part of the order is reproduced below for ready reference ad clarity:
“30.10. Now, coming to the various grounds taken by the Revenue being ground no. 9 to 12 regarding the levy of interest u/s 220(2) of the Act. We have heard the rival submissions and carefully considered the same. We noted that this Tribunal vide its order dt. 20.01.2017 in the case of M/s Orion Travels Pvt. Ltd. v. ACIT (ITA 939/MUM/2009) in which the Tribunal directed the AO to charge interest u/s 220(2) under Income Tax Act after 30 days of serving of demand notice from the fresh assessment order. We, therefore, noted that in the case of CIT v. Chika Overseas Pvt. Ltd [2012] 247 CTR 134 (Bombay) , has taken the similar view. The decision Hon’ble Delhi High court in the case of Girnar Investment Ltd v. CIT [2012] 340 ITR 529 (Delhi) dt. 5.01.2012 as relied by the Ld. DR and not of Bombay High Court. The Jurisdictional High Court decision is binding on us. We noted the CIT(A) while holding that the interest u/s 220(2) is to be levied only from the due date of issuance of fresh notice of demand, considered these binding case laws as well as CBDT circular no 334 (F no 400/3/81-ITCC) dated 3-4-1982 issued by CBDT, which we perused and in our view the case of the assessee falls within paragraph 2 (i) of the said circular. In view of this legal position, we do not find any illegality or infirmity in the order of the CIT(A) directing the AO to charge interest u/s 220(2) from the date of default of the fresh demand notice issued after the fresh assessment made in consequence of the order of the appellate authorities. Thus, the ground no 8 to 12 of the Revenue stands dismissed, while ground no 32 to 35 of the assessee are allowed to the extent stated above.”
69.1 Since the above decision has not been controverted by bringing any new material on record or any contrary decision, following the above decision, the ground is allowed.
70. In the result, the appeal of the assessee is partly allowed.
ITA No.975/Mum/2024 (AY 1993-94)
71. Ground No. 1 of the revenue’s appeal pertains to addition of Rs. 13.91,00,000/-on the basis of review of unaudited accounts prepared by M/s. Vvas and Vyas, C.As. During the course of 2nd round of litigation, the CIT (A), vide his order dated 24.03.2010, had enhanced the income of the appellant by Rs.13,91,00,000/-. The CIT (A) referred to the statement of affairs prepared by M/s. Vyas and Vyas, CAs, Special Auditors. He observed that the statement of affairs on the liability side reflects on amount of Rs. 83,51,53,713/-as other income not shown in books and that the said income has not been assessed to tax. Therefore, he proposed enhancement of income for A.Y. 1992-93 and A.Y. 1993-94 by Rs. 83.51 crores. Out of the said amount, Rs. 69.63 crores were added in the hands of the appellant for A.Y. 1992-93 and the balance amount of Rs.13.91 crores was added by way of enhancement in his order for A.Y. 1993-94. The above amount was also added by the AO in the impugned assessment order under appeal during the set aside proceedings. However, since the addition was already deleted by the Tribunal in case of the appellant for A.Y, 1992-93, the CIT (A) in the impugned order under appeal, deleted the said addition following the findings of the Tribunal for A.Y.1992-93. The department is in appeal against the said order.
72. At the outset, the Ld. AR submitted that the said addition has been made by way of enhancement of income which is beyond the scope of power of enhancement u/s. 251 of the Act. In this regard, the ld. AR relied upon the submission made with respect to ground no.12 of the assessee’s appeal.
72.1 Without prejudice, he submitted that the said addition was made on the basis of the report of Vyas & Vyas, CAs, who stated in their report that the appellant had earned income of Rs. 83.51 crores as income during the various years. Out of the said income of Rs. 83.51 crores, income to the tune of Rs. 69.63 crores were added in A.Y. 92-93 and Rs. 13.91 crores were added in the year under appeal. He submitted that the said income was determined the AO on account of the fact that the appellant had illegally utilized funds belonging to banks, etc. which he was not authorized to. He used the funds without paying interest. Hence, according to the said auditors, the appellant had earned benefit of using funds without paying interest. The said benefit was determined and calculated @ 16% on the funds utilized by the appellant.
72.2 The Ld. AR submitted that the income cannot be determined on the basis of an estimation and presumption that the appellant had earned benefit by using the funds belonging to the banks without paying interest. The alleged saving of interest cannot partake the character of income. The statute does not grant power to the AO on taking presumptive incomes determined in such manner. He submitted that the said issue was also dealt with by Tribunal in case of the appellant at para 24-24.7 at their order for A.Y. 92-93 in ITA No. 5702/MUM/2017 dated 14.01.2019[page 1719-1754, page 17331738 of PB No. 11. The findings of the Tribunal are reproduced in the order by the CIT(A). Further, time and again, the Tribunal has held that the addition should not be made on presumption and surmises. The addition, if any, can be made only on the basis of positive and reliable material. In this regard, reliance is placed on following decisions:
(a) Jyoti H. Mehta v. ACIT [ITA No. 1921 (Mum) of 2007,dated 13-12-2007] for A.Y. 1994-95.
(b) Jyoti H. Mehta v. ACIT [ITA No. 3211 (Mum) of 2012,dated 21-3-2014] for A.Y. 1992-93.
(c) Harshad S. Mehta v. DCIT [ITA No. 637 (Mum) of 2007],dated 2-1-2008] for A.Y. 1989-90.
72.3 In view of the said findings, the appellant submits that the addition made by the CIT(A) by way of enhancement in the 2nd round of litigation and reiterated by the AO ought to be deleted.
73. On the other hand, the Ld. Special Counsel relied on the order of AO.
74. We have heard both sides and perused the materials on record. We have also gone through the decision of the ITAT in appellant’s own case for AY 1992-93 in Harshad S. Mehta (supra), wherein the issue was decided as under:
“24.6. We have heard rival contentions and carefully considered the same along with the orders of the authorities below. We noted that the said addition has been made mainly on estimate basis on account of liabilities which were shown as other income in the review of the unaudited accounts of the assessee prepared by M/s Vyas & Vyas as on 8.6.1992 when the search has taken place. It was noted that the liabilities were to the extent of Rs 83,51,53,713/-. In the 2nd ground of the appeal before the CIT(A), the CIT(A) on the basis of the order of his predecessor dt. 24.3.2010 made an enhancement out of the said sum for Rs 13,91,00,000/- in AY 93-94 and the balance amount of Rs 69,63,00,000/- in the impugned assessment year. The Id. AR therefore contended that this income is simply based on certain presumption of M/s Vyas & Vyas, chartered accountants, and there is no evidence whatsoever that the assessee has earned or received any such income. During the course of hearing, we specifically asked the Id. DR the basis of this income. From page 1163 of the APB no 5, we noted that M/s Vyas & Vyas, chartered accountants, vide para 9 of his letter dt. 30.11.2009 computed the figure of 83.51 crores taking the interest rate at 16% on the funds illegally utilised by the assessee belonging to banks. The relevant para of the report of Vyas & Vyas how this income of 83.51 crores were estimated and taken in the statement of affairs as on 8-6-92 are reproduced as under:

“7. accordingly while qualifying the report we prepared consolidated statement of affairs as at 8.6.1992 alongwith notes. The notes under the consolidated statement of affairs are self explanatory.

8. as regards other income not shown in books, it is submitted that the same have been calculated on estimate as per our finding from Jankiraman committee report, HSM illegally utilized funds belonging to banks etc. which he was not authorised to use. HSM got the benefit of the use of funds without paying interest. We have calculated interest which was saved by HSM as interest income wherever it was possible. In absence of complete details we could not ascertain the extent of benefit received by HSM in some of the cases reported in the Jankiramen Committee Report.

9. we calculated tentative figure of Rs 83.51 crore while taking interest rate of 16% p.a. (lower side) which is outcome of the findings of the Jankiraman Committee report refer page no. 18 to 24 of our report of M/s HSM. (Annexure A).”

24.7. From the above paras of the report of M/s Vyas & Vyas, chartered accountants, it is apparent that the income of Rs 83.51 crore was estimated by estimating the interest @16% on the funds illegally utilised by the assessee belonging to banks out of which a sum of Rs 69.63 cr was added during the impugned assessment year. This report proved that the said income had neither accrued nor received by the assessee. The addition has been made on the presumption that the assessee would have been benefited by this amount. This is the settled law that no addition can be made until and unless the income is accrued or received by the assessee. No iota of evidence was brought to our knowledge which may prove that an income had accrued to or received by the assessee. Income tax is leviable on the income which is chargeable as per the provision of section 5 of the Act. Section 5 of the Act nowhere makes any nominal income to be chargeable to tax. We, therefore, in the absence of any evidence being placed before us about the accrual or receipt of the income by the assessee, delete the addition so made. Thus, the ground no. 25 of assessee’s appeal stand allowed.”
75. The Ld. Special Counsel has not neither brought any fresh material to the contrary nor has been able to distinguish the decision, either on fact or in law. Hence, following the above decision in assessee’s own case, the ground is dismissed.
76. In the result, the appeal of the revenue is dismissed.
77. In combined result, the appeal of the assessee is partly allowed and the revenue’s appeal is dismissed.