INCOME TAX OFFICER WARD-28(5), CIVIC CENTRE J.L. NEHRU MARG, NEW DELHI V. MUKESH KUMAR AGGARWAL, NEW DELHI

ITA 1737/DEL/2024

AI Insights

The case involves Mukesh Kumar Aggarwal, a jeweler and proprietor of Aggarwal Jewellers, who faced scrutiny from the Income Tax Department for large cash deposits during the demonetization period and an abnormal increase in sales with decreased profitability compared to the previous year. The Assessing Officer (AO) made additions to Aggarwal's income under sections 69A and 69C of the Income Tax Act, 1961, treating the cash deposits as unexplained and disallowing a loss from commodity trading. Aggarwal appealed to the CIT(A), which resulted in relief for him, leading the Revenue to challenge this decision before the Tribunal. The Tribunal's decision favored Aggarwal, affirming the CIT(A)'s findings and dismissing the Revenue's appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 705491 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Assessment Year: 2017-2018
• Other Referred Cases: ITO Vs Shri M. Prabhakar, Umacharan Shaw & Bros vs CIT, CIT Vs Anupam Kapoor, Dhakeswari Cotton Mills Ltd Vs. CIT, Sanjeev Kapoor Case, Asst. CIT Vs Baldev Raj Charla & Others, CIT Vs Orrisa Corpn Pvt Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMIT KATOCH
• Assessee Lawyers: RANO JAIN
• Keywords: Speculation loss; Business income; Opportunity of being heard; Additional evidence; Accommodation entries; Transactions in derivatives; Non compliance; Speculative transactions
• Section: 133(6); 69C; 43(5)

Judgement Text

" 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘E’: NEW DELHI BEFORE SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER AND SHRI AVDHESH KUMAR MISHRA, ACCOUNTANT MEMBER ITA No.1737/Del/2024, A.Y. 2017-18 Income Tax Officer, Ward-28(5), E-2, Civic Centre, J. L. Nehru Marg, New Delhi Vs. Mukesh Kumar Aggarwal, A-20, Krishna Park Khanpur New Delhi PAN: AFHPA6442E (Appellant) (Respondent) Appellant by Sh. Amit Katoch, Sr. DR Respondent by Ms. Rano Jain, Adv. Ms. Mansi Jain, CA, Ms. Sakshi Rustogi, Adv. Date of Hearing 03/04/2025 Date of Pronouncement 30/06/2025 ORDER PER AVDHESH KUMAR MISHRA, AM The appeal of the Revenue for the Assessment Year (‘AY’) 2017-18 is directed against the order dated 31.01.2024 of the Commissioner of Income Tax (Appeals), NFAC, New Delhi [‘CIT(A)’]. 2. Following effective grounds have been raised in this appeal: “1. whether on the facts and in law, the Ld. CIT(A) have erred in allowing the addition u/s 69A of the I.T. Act, amounting to Rs. 1,10,78,500/- despite the factual finding of the AO that the assessee has deposited cash of Rs. 1,10,78,500/-. 2. whether on the facts and in law, the Ld. CIT(A) have erred in allowing the addition u/s 69C of the I.T. Act amounting to Rs.63,54,568/- despite the ITA No.1737/Del/2024 Mukesh Kumar Aggarwal 2 factual finding of the AO that the assessee has set off loss against income from PGBP incurred by him on trading in commodities to the tune of Rs. 63,54,568/-.” 3. The relevant facts giving rise to this appeal are that the assessee, a jeweler, is the proprietor of Aggarwal Jewellers. He filed his Income Tax Return (‘ITR’) on 29.03.2018 declaring Nil income (House Property income of Rs. 88,550/-, income of Rs. 9,57,895/- from jewellery business, loss of Rs. (-) 63,54,568/- from Commodity Business and income of Rs. 533/- under the head income from other sources). The case was selected for scrutiny under CASS for reasons that there were large cash deposits during demonetization period and there was abnormal increase in sales with lesser profitability as compared to preceding year. The Assessing officer (‘AO’) completed the assessment by making two additions, (i) Unexplained cash deposits of Rs.1,10,78,500/- under section 69A of the Income Tax Act, 1961 (‘Act’) and (ii) Addition of Rs.63,54,568/- under section 69C of the Act. Further, the AO disallowed the setting off of loss of Rs.63,54,568/- derived from commodity trading. Aggrieved, the assessee filed appeal and got relief. Hence, the Revenue is before us. 4. The Ld. Sr. DR argued vehemently. He, placing reliance on the assessment order, prayed for setting aside of the impugned order and upholding the assessment order. He contended that the orders of SEBI and MCX cancelling the Exchange membership of M/s Sumpoorna Comtrade Pvt. Ltd. and M/s Fairwealth Commodity Broking Pvt. Ltd. clearly demonstrated ITA No.1737/Del/2024 Mukesh Kumar Aggarwal 3 that they were engaged in providing accommodation entries and that was why they were engaged in failing to have proper control and checks over the said trade. The said malpractices were over the years and not a single incident happened in the subsequent year. 5. On the other hand, the Ld. Counsel, placing reliance on the factual finding of the Ld. CIT(A), prayed for dismissal of appeal. She contended that the Ld. CIT(A)’s order being self-explanatory, supported the assessee. She filed a Paper Book containing all documents filed before the authorities below. She contended that the AO held cash deposits of Rs.1,10,78,500/- as unexplained under section 69A of the Act solely on the reasoning that there was no cash withdrawal from the bank coupled with the assessee’s non-compliance to the final show-cause notice. The assessee filed detailed submission along with corroboratory evidence before the Ld. CIT(A), who remanded the matter back to the AO. In remand report; the AO, questioning the cash flow statement and regular cash deposits/withdrawals in/from bank, justified the addition of Rs.1,10,78,500/- as unexplained under section 69A of the Act. She drew our attention to the finding of the Ld. CIT(A) wherein he had held that the inference drawn by the AO was not justified. 5.1 With respect to second addition of Rs.63,54,568/- under section 69C of the Act, the Ld. Counsel’s argument were two folds; firstly, the loss was not the expenditure; hence the same could not be disallowed under section 69C of the Act and secondly, payments made to M/s Sumpoorna Comtrade Pvt. Ltd. ITA No.1737/Del/2024 Mukesh Kumar Aggarwal 4 and M/s Fairwealth Commodity Broking Pvt. Ltd. for purchasing commodities were not questioned by the AO. Undisputedly, payments made for purchasing commodities were much more than the sale consideration, which resulted loss. Further, she argued that the Revenue had not challenged the finding of the Ld. CIT(A) allowing loss of Rs. (-) 63,54,568/- derived from Commodity Business allowed for setting off of against the business loss. 6. We have heard both parties at length and have perused the material available on the record. We find merit in the arguments of the Ld. Counsel. The Ld. CIT(A)’s finding while deleting the addition of Rs.1,10,78,500/- is worth reproducing herein under as the same is well reasoned finding: “6.2 I have carefully gone through the assessment order, grounds of appeal, facts of the case, written submission uploaded, remand report filed by the AO and rejoinder uploaded by the appellant. AO has pointed out that there are hardly any cash withdrawals found on perusal of the bank statement submitted by the appellant and doubted the whole of the cash deposits of Rs. 1,10,78,500/-. Whereas, in the last para, he has alleged the excess cash deposit of Rs.88,80,829/- only. On the contrary, appellant claimed that cash deposited was out of cash withdrawals and cash available with him. The Appellant also submitted that finding of the AO is incorrect and without properly appreciating the material available on record. 6.3 In the background of the findings of the Assessing Officer and submissions of the Appellant, it is apposite to find out correct position of cash availability with the Appellant. To refute the finding of the AO, the Appellant submitted bank statements which are available at page no. 115 – 167 of the Paper Book. The Appellant also submitted cash flow statement of the current as well as immediately preceding year i.e. from 01-04-2015 to 31-03-2016 and from 01-04-2016 to 31-03-2017, which is available at page no. 168 – 173 of the Paper Book. In the remand report, AO has alleged that there was mistake in the cash flow statement which ITA No.1737/Del/2024 Mukesh Kumar Aggarwal 5 was accepted by the appellant. Through rejoinder to the remand report, appellant refuted finding of the AO and stated that the AO has wrongly appreciated reply submitted on 15-12-2023 by the Appellant. While going through the reply of the Appellant dated 15-12-2023, submitted to the AO during remand proceedings, it is found that allegation of the AO is not factually correct. Appellant has only stated that due to hiding of the inter receipt/payments column of individual and proprietorship firm, it appears that there is mistake in the cash flow statement. Appellant had clearly mentioned in the rejoinder that due to contra entries between Individual and proprietorship firm, cash flow does not have any impact, hence these columns were hided in the cash flow statement. 6.4 On perusal of the cash flow statement and bank statements uploaded by the appellant, it is found that the appellant is maintaining two bank accounts in his personal name i.e. in the name of Mukesh Kumar Aggarwal and another two bank accounts in the name of the proprietary firm M/s Aggarwal Jewellars. Cash flow along with bank statements would show that the appellant having adequate cash balance throughout the year. It is also seen from the submissions of the appellant uploaded during assessment proceedings (available at page no. 59 to 58 of the Paper Book) that during the course of assessment proceedings also, appellant submitted details of cash deposits clearly mentioning that these cash deposits are from the bank withdrawals only. It is also seen from the cash flow statement that hiding of contra entries between individual books and proprietary firm’s books does not impact cash flow statement as it is consolidated one. Appellant submitted that once cash was withdrawn from his own bank accounts, cash availability cannot be doubted. The Appellant also submitted that it is well settled position of law that cash deposits into bank out of previous withdrawals cannot be doubted unless the AO has any evidence to prove that the cash so withdrawn previously has been used for other purposes by the Assessee. On this issue, appellant had relied on the decision of ITAT, Hyderabad in the case of ITO Vs Shri M. Prabhakar, [Appeal no. 1727/Hyd/2014] as well as Umacharan Shaw & Bros vs CIT (37 ITR 271) (SC), CIT Vs Anupam Kapoor (166 Taxman l78)(P&H), Dhakeswari Cotton Mills Ltd Vs. CIT (26 ITR 775) (SC), Delhi Bench of ITAT in Sanjeev Kapoor Case: ITA 2019/Del/2010 and Asst. CIT VsBaldev Raj Charla & Others (121 TTJ, 0366). ITA No.1737/Del/2024 Mukesh Kumar Aggarwal 6 6.5 In response to finding of the AO in Para 1 of point no. 3 of the assessment order that “The case of the assessee selected for complete scrutiny for the reason large cash deposit during demonetization period and abnormal increase in sales with decrease in profitability as compared to preceding previous year”, it has been submitted by the appellant that in comparison to immediately preceding year, sales and profit have increased 74% and 154% respectively. The Appellant has also attached comparative chart of the financial results for FY 2015-16 along with ITRs. AO had made additions under section 69A of the Income tax Act, 1961 by alleging that cash deposited into bank from unknown sources whereas, the Appellant claimed that provisions of section 69A are not applicable as he is liable to maintain books of accounts and all the cash withdrawals and cash deposits have duly been recorded in the books of the appellant. 6.6 Having considered the above submission of the appellant, contention of the AO as well as documents available on record, it is clear that the appellant had sufficient cash balance at all the times and deposited cash out of the cash availability. On the issue of opening cash balance, it is made clear by the appellant vide rejoinder that opening cash balance was available with the appellant in his individual books and accordingly shown in the cash flow statement. Cash flow statement and bank statements collectively available at page no. 168-173 and 115-167 respectively of the paper book, would show that the appellant had withdrawn cash from one account and deposited in another mainly for the payment made to commodity brokers i.e. M/s Sampoorna Comtrade Pvt. Ltd. and M/s Fairwealth Commodity Broking Pvt. Ltd. From the assessment order, it is also noticed that the case was picked up for scrutiny to verify the large cash deposits during demonetization period and abnormal increase in sales with decreased profitability. From perusal of records, it is also observed that appellant deposited only Rs. 26,87,500/- during demonetization period and Rs. 1,10,79,000/- during the year under consideration. Though turnover increased during the year but it is also noticed that profit was also increased for the year under consideration. In view of the above facts and discussion, it can be concluded that cash deposited by the Appellant were out of cash available with him. Therefore, addition of ITA No.1737/Del/2024 Mukesh Kumar Aggarwal 7 Rs. 1,10,78,500/- made u/s 69A of the Act is unwarranted and is required to be deleted. Thus, Ground No. 5 of the appeal is allowed.” [Emphasized by us.] 7. We have given a thoughtful consideration to the entire facts of the case. None of the authorities below has held the said bank account from which cash claimed having withdrawn to make deposits is undisclosed bank account. Therefore, in such facts and circumstances, the inference emerged is that all transactions; deposits and withdrawals, in the said bank account are duly disclosed in the books of account and or statement of affairs of the appellant assessee unless proved otherwise. Before us, the Revenue has not brought any material on the record to demonstrate that any transaction appearing in any of the bank accounts (owned either in individual capacity or in proprietary concern) of the appellant assessee is unexplained. Thus, we do not find any infirmity, on this issue, in the order of the Ld. CIT(A). Therefore, the 1st ground raised by the Revenue fails accordingly. 8. The last issue is with respect to the taxability of Rs.63,54,568/- under section 69C of the Act. We find merit in the arguments of the Ld. Counsel. The Ld. CIT(A)’s finding while deleting the addition of Rs.63,54,568/- is worth reproducing herein under as the same is well reasoned finding: “6.9 I have carefully considered the facts of the case, finding of the AO in the assessment order as well as in the remand report, submissions made by the Appellant along with additional evidences furnished during appellate proceedings and through rejoinder. Appellant submitted that he is also been in the business of commodity trading through two brokers namely M/s Sampoorna Comtrade Pvt. Ltd. and M/s Fairwealth ITA No.1737/Del/2024 Mukesh Kumar Aggarwal 8 Commodity Broking Pvt. Ltd. The Appellant further submitted that since the AO did not provide opportunity of being heard, copy of statements of both the brokers could not be furnished and the AO on his own presumption, treated the loss as speculative, not allowed setoff with other income and also treated payments made to fund this loss as payments from undisclosed sources by ignoring bank statements already available with him. 6.10 During the appellate proceedings, the Appellant furnished copies of accounts from both the brokers. Copy of account of M/s Sampoorna Comtrade Pvt. Ltd. attached at page no. 205-218 of the paper book would show that the Appellant incurred a loss of Rs. 64,11,436/-. Whereas, copy of account of another broker M/s Fairwealth Commodity Broking Pvt. Ltd., available at page no. 219-220 of the paper book would show that the Appellant had earned an income of Rs.65,296/-. 6.11 Copy of accounts of the brokers would show that they have received payments through banking channels. While comparing the payments made to brokers with the bank statements submitted by the Appellant available at page no. 115 – 167 of the paper book, it is seen that all the payments made to commodity brokers are same as appearing the bank statements. Hence, there is no substance in the finding of the AO that payment made to commodity brokers are from undisclosed sources. 6.12 Through the Remand Report, the AO reported that statement furnished by the Appellant could not be verified as notices sent by him u/s 133(6) returned unserved by the postal authorities with the remark ‘Addressee left’. 6.13 Remand report furnished by the AO sent to the Appellant for his rejoinder. The Appellant through rejoinder submitted that no adverse inference can be drawn merely due to non-services of notices issued u/s 133(6). To strength his contention, the Appellant cited judgment of Hon’ble Supreme Court in the case of CIT Vs Orrisa Corpn Pvt Ltd. [159 ITR 78]. The Appellant also furnished various documents of both the companies, downloaded from the public domain, such as, profile of the company downloaded from the MCA, AOs information, copy of ITRs, audited financial statements including Auditors’ Report for the relevant financial year and more particularly, orders from regulatory authorities i.e. ITA No.1737/Del/2024 Mukesh Kumar Aggarwal 9 Securities Exchange Board of India (SEBI) in the case of M/s Fairwealthand Multi Commodity Exchange of India Limited (MCX), in the case of M/s Sumpoorna. 6.14 Audited Financial statement of Sumpoorna Comtrade Pvt. Ltd., (available at page no. 11 - 14 of the rejoinder) through which the Appellant did major transactions and incurred a loss to the tune of Rs. 64,11,436/- would show that the company had income from operations of over Rs. 2.1 crores and positive net worth. Similarly, audited financial statements of M/s Fairwealth Commodity Broking Pvt. Ltd. for the same year (available at page no. 229 - 248 of the rejoinder) would show that the company had an income from operations to the tune of Rs. 4.24 crores with a positive net worth. 6.15 Financial results of both the companies for the relevant year i.e. FY 2016-17 pertains to the assessment year under consideration, would show that both the companies have earned reasonably good income from operations i.e. from broking business. On perusal of Auditors Reports, no adverse comment was seen in the reports. 6.16 It is seen from the order dated 24-08-2021 of Multi Commodity Exchange of India Limited (MCX) (available at page no. 50 - 53 of the rejoinder) that the MCX expelled M/s Sumpoorna Comtrade Pvt. Ltd. due to non-compliance observed during the course of inspection for the financial year 2018-19. Relevant portion of the order can be seen as under: …… …… 6.17 Order of the Securities Exchange Board of India (SEBI) dated 19-07- 2023 (available at page no. 255 - 279 of the Rejoinder) would show that license of Fairwealth Commodity Broking P Ltd. was cancelled by the SEBI for irregularities/non-compliance for the period pertains to financial year 2018-19. Extracts of the relevant portion of the order is given as under: ……. ……. ITA No.1737/Del/2024 Mukesh Kumar Aggarwal 10 6.18 On perusal of both the above orders of MCX and SEBI, it is observed that the companies namely M/s Sumpoorna and M/s Fairwealth were expelled/ license cancelled due to non compliance for the succeeding years i.e. for FY 2018-19 and FY 2017-18 respectively. The year under consideration is AY 2017-18 relevant to the financial year 2016-17. From the orders of regulators i.e. SEBI and MCX it transpires that the broking companies did nothing wrong during the relevant period. Hence, it cannot be concluded that transactions entered with both the brokers by the appellant during the financial year 2016-17 are not genuine. 6.19 On the issue of non-service of notices issued by the AO under section 133(6), it can be seen that since the regulators cancelled license/ expelled the companies from trading activities, how they can continue their trading places running. Hence, contention of the AO is not justified. Further, AO has alleged that the loss incurred on commodity business is a loss on speculative business. Section 43(5) of the Act deals with speculative transactions. For better understanding, text of section 43(5) is being reproduced as under: ……. …….. 6.21 In this section, clause (e) was inserted by the Finance Act, 2013. After insertion of clause (e) in section 43(5), trading in commodity derivatives carried out in a recognized stock exchange which is chargeable to commodity transaction tax (CTT) shall not be treated as speculative transaction. Hence, the loss incurred on commodity business is not a speculative loss and is a normal business loss can be set off against other business loss. 6.22 On the issue of source of payments on account of the speculative of Rs. 63, 54,568/- as mentioned in the assessment order, it is noticed that payments made to the commodity brokers are through the bank accounts of the appellant which is duly reflected in the cash flow and bank statements furnished by the appellant. The payments made are tallied with the corresponding receipts appearing in the copy of accounts of the brokers. Hence, finding of the AO that payment made to brokers are out of undisclosed sources is incorrect. Through the rejoinder, appellant furnished various documents mentioned above in this order, would establish the identity of both the broking companies. The documents furnished by the appellant would also show that both the broking companies were in business operation during the ITA No.1737/Del/2024 Mukesh Kumar Aggarwal 11 year under consideration. The regulators i.e. SEBI and MCX cancelled license/expelled the broking companies for the irregularities found during subsequent financial years. All these information about these companies are available on public domain, however, AO had given his finding merely on the basis of non-service of notices u/s 133(6) during remand proceedings without appreciating the whole facts and circumstances of the case. Hence, finding of the AO that copy of accounts of the broking companies are not verified due to non-service of the notice issued u/s 133(6), cannot be accepted. Further, finding of the AO on the issue of loss incurred on commodity business is speculative loss or normal business loss has been settled after insertion of clause (e) in section 43(5) by the Finance Act, 2013. Therefore, addition of Rs. 63,54,568/- made by the AO u/s 69C of the Act is deleted. AO is also directed to allow set-off of the loss incurred by the appellant on commodity business being normal business loss. Thus, ground no. 3 and 4 of the appeal raised are allowed.” 9. We have given a thoughtful consideration to the entire facts of the case. We find merit in the contention of the Ld. Counsel that the loss derived from the commodity trading is not an expenditure incurred by the assessee; hence the same could not be disallowed under section 69C of the Act. Here in the present appeal, the finding of the Ld. CIT(A) directing the AO to allow set off of loss derived from the commodity trading against the business income has been not challenged by the Revenue. Thus, in such facts and circumstances, it is hereby inferred that the Revenue has accepted the loss (-) Rs.63,54,568/- derived from the commodity trading. Further, the AO has not questioned payments made for purchasing commodities which have been accounted for in the regular books of accounts/statement of affairs. Before us, the Revenue has not brought any material on the record to controvert the finding of the Ld. CIT(A). Thus, in view of the above observations, we do not find any infirmity, ITA No.1737/Del/2024 Mukesh Kumar Aggarwal 12 on this issue, in the order of the Ld. CIT(A). Therefore, the 2nd ground raised by the Revenue fails accordingly. 10. In the result, the Revenue’s appeal stands dismissed as above. Order pronounced in open Court on 30th June, 2025. Sd/- Sd/- (C. N. PRASAD) (AVDHESH KUMAR MISHRA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 30th/06/2025 Binita, Sr. PS Copy forwarded to: 1. Appellant 2. Respondent 3. PCIT 4. CIT(Appeals) 5. CIT-DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "