Shri Kiran Dhondopant Thakur, Belagavi V. DCIT, Central Circle, Belagavi

ITSSA 29/PAN/2018

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 4497 (ITAT-PANAJI)
• Duration Of Justice: 3 year(s) 10 month(s) 13 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 04-05-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: WT(D)
• Assessment Year: 2013-2014
• Appeal Filed On: 21-06-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RANJAN KUMAR
• Assessee Lawyers: SHRINIVAS NAYAK
• Keywords: Sale consideration of property below Jantri Value; Business income; Principle of natural justice; Fair market value; Speculation loss; Futures and options; Speculative transactions; Set aside
• Section: 131; 68; 132; 40A(3); 143(3); 54F; 153A; 43(5); 251; 143(2); 191; 43; 73; 13; 153; 119

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER & SHRI ANIKESH BANERJEE, JUDICIAL MEMBER IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) DCIT, Central Circle, Belagavi, Karnataka (Appellant) Vs. Shri Kiran Dhondopant Thakur Belagavi, Karnataka [PAN: AAZPT2219D] (Respondent) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) Shri Kiran Dhondopant Thakur, Belagavi, Karnataka. [PAN: AAZPT2219D] (Appellant) Vs. DCIT, Central Circle, Belagavi, Karnataka (Respondent) CO No. 16 to 17/PAN/2018 (Asst. Year: 2011-12& 2012-13) Shri Kiran Dhondopant Thakur, Belagavi, Karnataka. [PAN: AAZPT2219D] (Appellant) Vs. DCIT, Central Circle, Belagavi, Karnataka (Respondent) Appellant by Shri Shrinivas Nayak, C.A. & Shri N.N. Lotlikar, C.A. Respondent by Smt. Ranjan Kumar, CIT, D/R Date of Hearing 31.03.2022 Date of Pronouncement 05.05.2022 2 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur ORDER PER BENCH: This bunch of appeals comprising of seven appeals filed by the Revenue, two appeals filed by the assessee and two Cross Objections filed by the assessee against the order of Commissioner of Income Tax (Appeals)-2, Panaji, (Hereinafter referred to as “the CIT Appeal”) for assessment year 2009-10 to 2015-16. 2. Since, there are common issue involved in these cross appeals filed by the department and by the assessee for different assessment years, and therefore, we have heard these appeals on issue basis and accordingly decided by this consolidated order for the sake of brevity. The facts are taken from IT(SS)A No. 40/PNJ/2018 in respect of Assessment Year 2009-10 as a lead case to adjudicate the common issues of the revenue appeal. 3. In the revenue in IT(SS)A No. 40 to 46/PAN/2018, the issues are crystalised as follows: a) Addition u/s 56(2)(vii) being on-money paid by LMCS b) Addition u/s 73 carry forward and set-off of Speculative Loss on Derivatives. On issue of Additions u/s 56(2)(vii) being on-money paid by LMCS, CIT Appeal has deleted the following additions: Asst Year ITA No. Amount 2009-10 40/PNJ/2018 7,38,17,794 2010-11 41/PNJ/2018 9,37,81,572 2011-12 42/PNJ/2018 2,67,00,018 2012-13 43/PNJ/2018 1,97,19,879 3 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur 2013-14 44/PNJ/2018 3,20,30,814 2014-15 45/PNJ/2018 3,57,05,912 2015-16 46/PNJ/2018 1,71,34,351 3.1 In revenue’s appeal the ground No. 1 reads as under. (i) Whether in the facts and circumstances of the case and in law, the CIT(A) was right in deleting the addition u/s 56(2)(vii) despite the fact that the similar issue involved in the case of Lokmanya Multipurpose Coop Society Ltd., has not reached finality? 3.2 Brief facts of the case are that, search u/s 132 of the Income Tax Act’1961, was conducted on the premises of the asessee on 23.09.2014, subsequently in response to the notice u/s 153A of the Income Tax Act’1961, the assesee filled return of income on 09.06.2016. Further notices U/S 143(2) was issued and served on the assessee. In response to the subsequent notices / summons, the appellant appeared personally and also with his AR and submitted the details asked for by the assessing officer. The Assessing Officer (In short “the AO”) has passed the order u/s 153A r.w.s 143(3) of Income Tax Act 1961, dated 30.12.2016. The assessing officer while completing the assessment order has made additions for Unexplained receipts u/s 56(2)(vii) of the various amounts stated in para 3 above, being on-money paid by Lokamanya Multipurpose Co-operative Society Limited (In short “LMCS”) as the assessee was chairman and managing director of LMCS. 3.3 While making the additions assessing office in his order has concluded that, 4. The assessee is the Founder Chairman of the Lokmanya Multipurpose Co- op Society Ltd (LAC). It is undisputed fact that Sri. Kiran D. Thakur has 4 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur absolute control over the day to day activities of the Lokmanya Multipurpose Co-op Society Ltd (LMC) and all major transactions involving the sanction and disbursement of loans. During the course of search it was observed that there are gross violation in the conducting of its affairs by the LMC more so with regards to the transactions involving the Managing Committee Members and more especially in the case of the Founder Chairman i.e. Sri. Kiran D. Thakur. 4.1 During the search it was found that a Savings Account and Cash Credit Account bearing Account No.1 were created in the name of a non- existent entity "Lokmanya Constructions". There is no Account Opening Form or any identity proof with respect to these accounts. These accounts were used to siphon of money from the society. This account was opened on 03.04.2008 and money was withdrawn from these accounts periodically tilt the date of search. A total amount withdrawn during the period of 7 years is Rs.35,69,90,341/-. There is no evidence as to whom the amount withdrawn from these accounts is paid and for what purpose it is paid. The assessee Sri Kiran D. Thakur during the statements made u/s 132(4) has stated that the amounts were withdrawn and utilized under his directions. 4.2 These irregularities have been confirmed by the Assistant Registrar of Co- op Society, Belagavi, Sub Division, Belagavi in his inspection report conducted u/s 108 of Multi State Coop Societies Act, 2002 carried out on LMC on the directions of the RBI wherein in it is mentioned as under: "LMC has advanced loans to founder Chairman Et Director Sri. K.D. Thakur Et family and other Managing Committee Members...... • The loan application and resolution book were verified for the above loans. The mortgage loan, CC loan and individual loan have been sanctioned to Sri.K .D. Thakur and his family. • Proper documents have not been obtained in regards CC loan and repayment period has not been mentioned. • The son of loanee Prasad K. Thakur and daughter Sai K. Thakur are the sureties to the loan. • No proper security is obtained. • As per the information given by the CEO, the property documents regards to properties situated in various states are available but there is no encumbrance of the society on the property. • Documents pertaining to immovable properties have been kept in the soceity without registration in the office of sub registrar and found that loan has been advanced on such papers misusing the powers of the 5 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur Managing Committee and evaded the tax required to be given to Government and caused loss to the Revenue of the Government. • It is seen in many accounts that principle and interest has not been recovered. • The Committee has not taken any action to recover the loan and interest, the society in it’s by law no. 49 has provision to advance various types of loans. • The Managing Committee has powers to fix limit on CC loan and repayment period. But the Committee has not fixed any limits to such loans". 4.3 In his report with regards to Lokmanya Constructions the observation of the Assistant Registrar is as under: "it is not known to whom CC loan of Rs. 70.33 crores has been sanctioned and from whom loan application has been obtained and there is no action has been taken for recovery of the same. The amount of Rs. 70.33 crores and interest thereon is due and since the amount has not been recovered it opined that Managing Committee and the Secretary are fully responsible for this transaction." 4.4 Thus it can be seen that the assessee is simply misusing the funds of the society by indulging in irregular and unethical practices for diverting and siphoning the funds of the society. As regards the loans sanctioned to Lokmanya Constructions though the assessee has contended that these amounts were drawn through this account for making on- money payments with regards to the properties purchased by the Society. The said theory is only a self serving statement made by the founder chairman to cover up his misdoings. The theory of on- 'money payments fails as in the balance sheet of the society, the values of the properties purchased are mentioned at the registered value only and these amounts allegedly paid to the land lords from whom the land was purchased is not figuring in the balance sheet. The assessee's contention that the name of Lokmanya Constructions is appearing as debtor is also not acceptable as there is no such entity and even in the inspection report the inspecting officer has commented that it is not known to whom the loan is sanctioned. Further with regards to actual payments to the land lords the assessee could filed evidence only to the extent of 5.81 crores, which are also self made vouchers, virtually non-verifiable, as against the total withdrawal of 35.69 crores. Thereby, it is not known where the funds withdrawn from the society are utilized. 6 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur 4.5 It is fact that the funds have been withdrawn from the society which is duty accepted by the assessee also as having withdrawn. Since the assessee has failed to submit any evidence with regards to the utilization of funds, a show cause was issued asking him to explain/ furnish the evidence for utilizing the same. In the reply filed by the AR it is contended that the amount withdrawn was used for the purpose of buying properties for the society and no part of the payment was accrued to him and he acted on behalf of the management of the society. However, as the assessee has failed to furnish any evidence with regards to the utilization of the same, the following amounts withdrawn during the AYs 200910 to 2015-16 is treated as unexplained receipts in the hands of the assessee u/s 56. 3.4 Aggrieved assessee carried the matter with the CIT Appeal. While deciding the appeal, the CIT Appeal has allowed the appeal by observing as under: 5.3. I have gone through the assessment order and the submissions made by the ARs of the appellant. It is a fact which is not disputed by the appellant that LMC purchased several immovable properties as its current and fixed assets. The appellant in his statement u/s. 131 of the Act during the course of search admitted the payment of on-money in cash for purchasing the said immovable properties in the hands of LMC. The source of the said on-money paid is out of withdrawals from SB/CC A.Y. Amount withdrawn from "Lokmanya Constructions" "On money" receipt admitted by recipients U n e x p l a i n ed withdrawals of "Lokmanya Constructions" 2009-10 7,38,17,795 -- 7,38,17,795 2010-11 9,37,81,572 -- 9,37,81,572 2011-12 2,67,00,018 -- 2,67,00,018 2012-13 7,48,19,879 5,51,00,000 1,97,19,879 2013-14 3,20,30,814 3,20,30,814 2014-15 3,57,05,912 - 3,57,05,912 1,71,34,351 2015-16 2,01,34,351 30,00,000 Total 35,69,90,341 5,81,00,000 29,88,90,341 7 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur accounts in the name of Lokmanya Constructions, a dummy concern with HO Branch of LMC. The LMC during the appellate proceedings have admitted that the withdrawals made from the said SB/CC accounts were utilized for payment of on-money for purchasing the properties in the hands of LMC and the same are reflected in the Balance Sheet of LMC. During the assessment proceedings, the AO had questioned the submission of LMC about the on-money payment in absence of any documentary evidence including the values of the properties shown in the Balance Sheet of LMC. The contention of the AO was that the properties were shown at the consideration shown in the purchase deeds and hence, the on-money paid on these properties was not reflected either in the P & L account or Balance Sheet of LMC. 5.4. During the appellate proceedings before me in the case of LMC, the LMC have filed the recast/revised P & L account and Balance Sheet for the assessment year in appeal and in the said revised/recast statements, even the on-money paid in purchase of the immovable properties have been disclosed. Accordingly, the on money paid for the purchase of properties in cash in the hands of LMC have been brought to tax as per the provisions of section 40A(3) of the Act. Therefore, with the filing of revised/recast Balance Sheet and P & L account by LMC during the appellate proceedings and taxing the cash transactions u/s. 40A(3) of the Act in the hands of LMC goes to prove that the withdrawals made from the dummy account of Lokmanya Constructions were for the purpose of on-money payments of the immovable properties purchased in the hands of LMC and the on- money payments even stand reflected in the revised/recast final statements of LMC filed during appellate proceedings for the impugned assessment year. 5.5. In view of the above finding, in deciding the appeal of LMC, it is found that the funds withdrawn from the SB/CC accounts of dummy entity Lokmanya Constructions were utilized for purchasing the immovable properties in the hands of LMC. Therefore, the said withdrawals in no way have benefited the appellant. Even the AO has not been able to prove that the said withdrawals came to the appellant or were used by the appellant for purchase of any personal assets. Therefore, the amounts withdrawn from the SB/CC 8 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur accounts of Lokmanya Constructions cannot be brought to tax as unexplained receipts in the hands of the appellant. Thus, the ground of appeal on this count succeeds. The addition made by the AO of Rs.1,97,19,879/- stands deleted. Ground no.3 is allowed. 3.5. At the time of hearing, Department Representative argued that, though the properties are purchased by LMCS and all payments have been made by LMCS through the dummy CC/SB accounts created in the name of “Lokamanya Constructions”, assessee being founder chairman and managing director of the bank is involved in all these transactions and all withdrawal in cash for the purchase of properties have been made at the instruction of the assessee. Further Assessee in his own statement recorded u/s 132(4) of the Act, has admitted the on-account payments were made by withdrawing cash from SB/CC accounts. As such, Assessee has been benefited from such purchase of assets. As such, CIT Appeal has erred in deleting additions made by AO u/s 56(2)(vii). 3.6 Per contra, the Learned counsel for the assessee supported the finding of the Ld. CIT Appeal with the support of following written submission in paper book. 10 The ld AO has erred in making addition of Rs.3,20,30,814/- treating the same as Unexplained receipts u/s 56(2)(vii) of the IT Act, without going into the facts of the case. 10.1 The ld AO has applied the provision of 56(2)(vii) of the IT Act, to justify the addition, which are not applicable to the case. 10.2 The referred amount pertains to the “on money” paid, which has been added in the hands of Lokmanya Multipurpose Co- operative Society Ltd.,(LMCS) and the same is again added 9 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur by the AO in the hand of the appellant u/s 56(2)(vii) of the It Act, as the appellant is founder chairman of the LMCS. 10.3 The ld AO has also noted in their order that the appellant is chairman of the LMCS and has misuse the funds of the society by indulging in irregular and unethical practices for diverting and siphoning the funds of the society and also the irregularities have been noted by the Assistant Registrar of Co-op Society. 10.4 The AO has ignored the fact that the amount of “on money” has been paid by LMCS is towards the purchase of the immovable properties and the same has been duly noted in the books of LMCS. Hence there is no benefit drawn by the appellant from the said amount. 10.5 It is worth to note that, the appellant holds only 0.26% of shares in the LMCS, and by no means holding 0.26% shares makes him the beneficial owner of the payments made by LMCS. Copy of the shareholding of the LMCS is enclosed. Annex-2 10.6 The referred amount paid is towards the purchase of the immovable properties, which has been accounted in the books of the LMCS. Any benefit from the sale of the same will accrue to the LMCS and its shareholders. As such the appellant has neither misappropriated nor siphoned the money from the society as alleged by the AO. All the funds of the society has been duly used for the purpose of its object. It is that the appellant is the founder member of the society. 10.7 It is also worth to note that the decision towards the business of the society has been taken by the board and 10 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur the executive committee, which consist of the Chairman and other board members. The board consist of minimum 14 directors, who collectively taken the decision on the operations of the society. As such it is wrong to say that the appellant has total control over the operations of the LMCS. 10.8 The issue on hand has been thoroughly heard by the Hon. CIT(A), and the addition made by the AO has been rightly deleted by Hon. CIT(A) with the following noting’s “In the view of the above finding, in deciding the appeal of LMC, it is found that the funds withdrawn from the SB/CC accounts of Dummy entity Lokmanya Constructions were utilized for purchasing the immovable properties in the hands of LMC. Therefore, the said withdrawals in no way have benefited the appellant. Even the AO has not been able to prove that the said withdrawals came to the appellant or were used by the appellant for purchase of any personal assets. Therefore, the amounts withdrawn from the SB/CC accounts of Lokmanya Constructions cannot be brought to tax as unexplained receipts in the hands of the appellant. Thus, the ground of appeal on this count succeeds. The Addition made by the AO of Rs. 3,20,30,814/- stands deleted. Ground no.3 is allowed.” 3.7 The Ld AR of the assessee further argued that, asthe assessee is holding only 0.26% shares of the LMCS, and all properties have duly been accounted in the books of LMCS, learned AO has not brought anything on record as to how the assessee has got any benefits out of the property. Section 56(2)(vii) reads as follows: Income from other sources. 11 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur (2) In particular, and without prejudice to the generality of the provisions of sub- section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely :— (vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009 but before the 1st day of April, 2017,— (a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum; (b) any immovable property,— (i) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property; (ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration: Provided that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of this sub-clause: Provided further that the said proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by any mode other than cash on or before the date of the agreement for the transfer of such immovable property; (c) any property, other than immovable property,— (i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; (ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration : The ld. AR contended that from the reading of the section it is clear that, in order to apply section 56(2)(vii) the assessee should receive any sum of money, immovable property or any property other than immovable property without consideration or for consideration less then aggregate market value exceeding fifty thousand rupees. However, in the instant case, assessee has not received any property. 12 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur And as such, Ld. CIT(A)-2 has rightly deleted the additions made u/s 56(2)(vii). 3.8 We have gone through the rival submissions made by both Ld. CITDR and LD Authorised representative and perused the material on record and the submission filed before us. Admittedly, the disputed amount pertains to the “on money” paid, which has been added in the hands of Lokmanya Multipurpose Co-operative Society Ltd.,(LMCS) and again, the same amount is added by the AO in the hand of the appellant u/s 56(2)(vii) of the It Act, as the appellant is founder chairman of the LMCS. The AO alleged that the appellant is chairman of the LMCS and has misused the funds of the society by indulging in irregular and unethical practices for diverting and siphoning the funds of the society and also the irregularities have been noted by the Assistant Registrar of Co-op Society. It is seen that the AO has ignored the crucial fact that the amount of “on money” has been paid by LMCS is towards the purchase of the immovable properties and the same has been duly accounted for in the books of LMCS. The Ld. AR argued that therefore, there is no benefit drawn by the appellant from the said transaction. 3.8.1 We find that, the appellant holds only 0.26% of shares in the LMCS, (APB, Annexure-2) and by no means holding 0.26% shares makes him the beneficial owner of the payments made by LMCS. In facts, the referred amount paid was towards the purchase of the immovable properties, which has been accounted in the books of the LMCS. Thus, any benefit from the sale of the same will accrue to the LMCS and its shareholders. In our view, the appellant has neither misappropriated nor siphoned the money from the society as alleged by the AO. All the funds of the society 13 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur have been duly used for the purpose of its object. It is also seen that the decision towards the business of the society has been taken by the board and the executive committee, which consist of the Chairman and other board members. The board consist of minimum 14 directors, who collectively taken the decision on the operations of the society. As such, it is wrong to say that the appellant has total control over the operations of the LMCS. 3,8.2 While deciding the appeal of LMC, the Ld. CIT(A), has discussed that the funds were withdrawn from the SB/CC accounts of Dummy entity Lokmanya Constructions and were being utilized for purchasing the immovable properties in the hands of LMC. Therefore, the said withdrawals in no way have benefited the appellant. Without prejudice to above, the AO has not been able to prove that the said withdrawals came to the appellant or were used by the appellant for purchase of any personal assets within the meaning of section 56(2)(vii) of the Act. Therefore, the amounts withdrawn from the SB/CC accounts of Lokmanya Constructions cannot be brought to tax as unexplained receipts in the hands of the appellant. 3.8.3 In the backdrop of aforesaid discussion and considering the fact that assessee is holding only 0.26% shares of the LMCS, and all properties have duly been accounted in the books of LMCS, and that the AO has not brought anything on record as to how the assessee has got any benefits out of the property, we find no infirmity in the order of the ld. CIT Appeal in deleting the addition on the issue of on money receipts Under Section 56(2)(vii) of the Act. Accordingly, the order of CIT Appeal deleting the 14 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur addition is sustained in respect of all the assessment years. Thus, the department fails on the ground of appeals on this issue. 3.9 The facts of the appeals in IT(SS)A No. 41 to 46/PAN/2018 in respect of Assessment Year 2010-11 to 2015-16 are exactly identical to the facts of the appeal in IT(SS)A No. 40/PAN/2018 in respect of Assessment year 2009-10. Therefore, our decision given in IT(SS)A No. 47/PAN/2018, in respect of Assessment Year 2009-10, on the issue of “on money” receipts taxed Under Section 56(2)(vii) of the Act. shall apply in IT(SS)A No. 41 to 46/PAN/2018 in respect of Assessment Years 2010- 11 to 2015-16, in mutatis mutandis. 4. The next issue pertains to the addition’s u/s 73 of the Act, being carry forward and setoff of loss from trading in derivatives, where the CIT Appeal has deleted the following additions: Asst Year ITA No. Amount 2011-12 42/PNJ/2018 65,41,003 2012-13 43/PNJ/2018 21,35,96,751 2013-14 44/PNJ/2018 2,79,51,026 4.1 The facts are taken from revenue’s appeal in ITA No. 42/PNJ/2008, as a lead case where ground No. 2 to 3 for AY 2011-12reads as under: (ii) Whether in the facts and circumstances of the case and in law, the CIT(A) was right in holding that dealings in derivatives cannot be held to be speculative in nature based on the explanation to section 73 which is applicable only to the companies and not the assessee who is an individual ? (iii) Whether in the facts and circumstances of the case and in law, the CIT(A) was right in not appreciating the fact that the transaction were carried out 15 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur through unrecognised exchange by the assessee and hence the resultant losses are speculative in nature for which the reliance is placed on in the Bombay High Court decision in the case of Shri Bharat R Ruia (HUF) reported in 199 Taxman 87 (Bombay)? 4.2 That during the search assessment proceedings u/s 153A of the act, Ld. AO came across various losses claimed, carried forward and setoff as listed in para 4 of the assessment Order, being loss on trading of the derivatives. The Assessing Officer disallowed the claim and concluded that the losses on trading of derivatives are to be treated as speculative loss u/s 73 explanation 1 for following reasons. 4. During the year the assessee has traded in commodity derivatives on the Multi Commodity Exchange of India Ltd. Trading in commodity derivatives is a speculative business. Proviso (e) to Sec.43(5) which deems the eligible transactions in commodities to be non speculative, was inserted by the Finance Act, 2013 w.e.f. 01.04.2014. Sec. 43(5)(e) is reproduced for ready reference: (5) "speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips: Provided that for the purposes of this clause (a) ..................... (b) ..................... (c) ..................... (d) ....................... (e) an eligible transaction in respect of trading in commodity derivatives c a r r i e d o u t i n a r e c o g n i s e d a s s o c i a t i o n , w h i c h i s c h a r g e a b l e t o commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013),]] shall not be deemed to be a speculative transaction". 4.1 Mu l ti C om m o d i ty Ex c h an g e o f In d i a Lt d . i s n ot re c o g n i z ed a s s o c i a t i on p r i o r t o 01.04.2013 and Commodities Transactions Tax was also not chargeable before that date. (Vide Notification No.46/2009 dated 22.05.2009, recognition was given to MCX Stock Exchange Ltd. which is not to be confused with Multi Commodity Exchange of India Ltd. These are two 16 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur different exchanges). Therefore, the toss on trading in commodity derivatives is be treated as loss from speculative business and As per provisions of sec.73, the claim of adjustment of income from house property and income from other sources against the same shall be disallowed. Further such toss has to be carried forward and adjusted against the income from speculative business. The AR was asked to show-cause why the loss from the trading in derivatives in commodity should not be treated as speculative transactions and the set off the same restricted as per section 73 of the Income-tax Act, 1961. 4.2 The AR has argued that dealing in derivatives does not involve purchase and sale of shares and therefore loss on account of derivative trading cannot be speculation toss. This argument of the AR is not acceptable. Speculation transaction has been defined in section 43(5) to include purchase or sale of any commodity otherwise than by actual delivery or transfer of the commodity. It is an accepted fact that the assessee has traded in the derivatives of commodities without taking delivery of the underlying commodities. 4.3 In support of his contention, the AR of assessee has relied on the decision of Mumbai Bench of the ITAT in the case of DCIT V/s SSKI Investors Services P. Ltd (113 TTJ 511) and RB Securities Pvt. Ltd v/s ITO. The two decisions have been overruled by the Special Bench Kolkatta Special Bench decision in Shree Capital Services Ltd. Vs. ACIT (ITA No.1294 [Kol) of 2008 dated 31.07.2009). The Special Bench held that derivative is very much a commodity within the meaning of section 43(5) and that since there is no delivery of this commodity involved; the transaction was essentially speculative in terms of this section. Therefore, this argument of the assessee is not tenable. 4.4 The next contention of the AR is that the derivative transactions are carried out as part of business of the assessee and hence the loss incurred should be treated as non-speculative business loss and the definition of speculative transaction u/s 43(5) does not include derivatives in commodities. In this regard, the High Court of Madras in the case of Rajashree Sugars and Chemicals Ltd, Vs. Axis Bank AIR 2011 Mad 144 has held that derivatives are assets whose values are derived from the values of underlying assets. As the derivatives are based on the commodities and commodity is included in the definition of speculative transaction in section 43(5), the argument of the AR is untenable. 4.5 The next contention of the AR is that the amendment brought w.e.f. lst April 2006, in clause (d) of the proviso to sub-section (5) of section 43, specifically provided that eligible transactions in trading carried out in 17 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur recognized Stock Exchange shall not be deemed to be speculative transaction. Even though the trading in MCX sx has been notified as recognized exchange for the purpose of section 43(5), subsequently from 22nd May 2009 and MCX is recognized from 2013, the recognition of Stock Exchange is merely clarificatory in nature, therefore, the same has to be construed retrospectively from the assessment year 2006-07. Hence, AR contended that recognition by the Central Govt. of the Stock Exchange from a later date will not debar the transaction as non-speculation, especially after 1st April 2006. Therefore, derivative trading through MCX sx Stock Exchange is non-speculation transaction and, therefore, the toss incurred in such transactions is to be treated as normal business loss. 4.6 In this regard, it may be noted that the MCX has been notified as a "recognized association" vide Notification dated 29.11.2013 for the purpose of proviso to clause (e) of section 43(5) The benefit u/s 43(5)(d) sought by the assessee is in respect of transactions on recognized stock exchanges and MCX being only a "recognized association" and not recognized stock exchange benefit would not be available to the assessee. 4.7 MCX, through which the assessee has carried out the transactions, is not a recognized stock exchange as required under the provisions of Section 43(5)(d) of the Act. As it can be seen from the above mentioned Notification dated 29- 11- 2013, the MCX, through which the assessee has carried out the transactions, is notified as a "recognized association" for the purposes of clause (e) of proviso to clause 5 of Section 43 of the Act. Clause (e) of proviso to sub-section (5) of Section 43 has recently been inserted by the Finance Act, 2013 w.e.f. 1st April, 2014, which reads as under:- "(e) An eligible transaction in respect of trading in commodity derivatives carried out in a recognized association, shalt not be deemed to be a speculative transaction," 4.8 Therefore, the exemption to the transactions given by the statute is w.e.f. 1-4-2014 and this is inserted by the Finance Act, 2013. Notification dated 29-11- 2013 issued by CBDT vide which MCX was notified as a "recognized association" under the provisions of clause (iii) of the Explanation to clause (e) of proviso to clause 5 of Section 43 of the Income Tax Act read with sub-rule 4 of Rule 6DDD of the Income Tax Rules, 1962. For the sake of convenience, the said notification is reproduced below:- "[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART 11, SECTION 3, SUB-SECTION (ii)] GOVERNMENT OF INDIA 18 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur MINISTRY OF FINANCE DEPARTMENT OF REVENUE CENTRAL BOARD OF DIRECT TAXES NOTIFICATION New Delhi, the 29th November, 2013 INCOME-TAX 5.0.3539 (E). – In exercise of the powers conferred by clause (iii) of the Explanation 2 of clause (e) of the proviso to clause (5) of section 43 of the income-tax Act, 1961 (43 of 1961) read with sub- rule (4) of rule 6DDD of the Income-tax Rules, 1962, the Central Government hereby notifies the multi Commodity Exchange of India Limited, Mumbai as a recognized association for the purposes of clause (e) of the proviso to clause (5) of the said section, with effect from the date of publication of this notification in the Official Gazette. 4.9 If the assessee is seeking benefit of clause (e) of proviso to Section 43(5), then such benefit can be extended to assessee only in respect of assessment year 2014- 2015 as the provisions of clause (e) of proviso to Section 43(5) are inserted by the Statute w.e.f. 1-4-2014. However, in the present case, the transactions done by the assessee relate to financial year 2011-12 and 2012-13. For these transactions, there was no provision in the statute to give the benefit to the assessee in respect of transactions of commodities, which are ultimately settled otherwise then by actual delivery or transfer of the commodity as per Section 43(5) of the Act. 4.10 The assessee has also contended that the prospective application of the provisions results in hardship to the assessee and the amendments being clarificatory in nature are to be applied retrospectively. in this regard, as per the explanatory notes to the Finance Act, 2013 the amendments made to section 43(5) take effect from 1' April and will accordingly apply in relation to AY 2014-15 and subsequent assessment years. Further, the Supreme Court in P Nageshwar Rao Vs. Govt. of AP [1994] Suppl [22] SSC 693, 694 [SC1 has held that where a Notification expressly mentions the tax imposed under a particular statute would be effective on and from a particular date its operation cannot be pre-paned to an earlier date. In the instant case the Notification of MCX for the purpose of clause (e) of 43(5) has been issued on 29.11.2013 and thus, would be applicable for AY 2014-15 onwards. Therefore, any derivative transactions on the MCX before this date would be treated as speculative transactions. 4.11 Thus the transactions in derivatives of commodities are considered as speculation business and the loss suffered is treated as loss from speculation business. As per provisions of sec.73, the claim of adjustment of income from house property and income from other sources against the same is disallowed. Further such loss is to be carried forward and adjusted against the income from speculative business. 19 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur 4.12 During the year the assessee has earned income of Rs.6,00,79,877/- from the activity of trading in commodity and futures and options. The assessee has also incurred loss of Rs.65,41,003/- in the business of speculation in stocks under the concern "Lokmanya samruddhi". The assessee has treated this loss from "Lokmanya Samruddhi" as speculation loss and carried forward the same u/s 73. However, as the activity of trading in commodities and futures and options is also considered as speculation business, the profit from this business is eligible for set off against the speculative loss from "Lokmanya Samruddhi". Since the income from speculation in commodity trading of Rs.6,00,79,877/- is included in the total income, the loss from "Lokmanya Samruddhi" of Rs.65,41,003/- is reduced from the total income and thus, no loss from speculation business is carried forward. 4.3 In the appeal, the CIT appeal has granted relief to the assessee by observing as under: 6.2. I have gone through the assessment order and the submissions made by the ARs of the appellant. At the outset, one needs to understand as to what exactly derivative means and what is exact meaning of transaction in respect of trading in derivative insofar as Income-Tax Act is concerned. To have clarity in understanding the actual legal meaning of the derivative trading vis-a-vis the speculative transaction, it is necessary to examine the characteristics and the features of the said transactions. A derivative is a financial instrument, the price of which has a strong correlation with an underlying commodity, currency, economic variable or financial instrument. The different types of derivatives are "future contracts, forward, swaps and options". They are traded on derivatives markets or over the counter (OTC). The market traded derivatives are standard but the OTC trades can be customized with regard to maturity, quantity, or pricing structure for a particular client. The disclosure of derivatives in financial statements is required by "Financial Reporting Standard-13". On the other hand, the speculative transaction as per section 43(5) means a transaction in which the contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by actual delivery or transfer of commodity or scrip. A derivative can also be traded on the value of the underlying shares but are not a trade in any actual stock. It does not have a physical existence. Derivatives are not a contract for purchase or sale of any physical commodity as such. 20 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur So, these are not speculative transactions in the strict sense of terms of section 43(5) of the Act. For the definition of derivatives section 2(ac) of the Securities Contract (Regulation) Act, 1956 can be referred. The derivatives derive its value from the prices or index of prices, of the underlying securities and not the prices of commodities or stocks themselves. 6..3. Definition of "speculative transaction" has been provided in Sub- section (5) of Section 43, which in so far as material for our purposes, is as follows:- '(5) "speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips: Provided that for the purposes of this clause- (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; [or] (d) an eligible transaction in respect of trading in derivatives referred to in clause [(ac)] of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognized stock exchange; [or] (e) an eligible transaction in respect of trading in commodity derivatives carried out in a [recognized association, which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013)] shall not be deemed to be a speculative transaction;’ 6.4. It would appear that the activities appearing in Clauses (a) to (e) are not to be deemed to be speculative transactions. Keeping the above provision in mind, it is necessary to consider whether section 43(5) of the Act would apply to the facts and circumstances of appellant's case. Section 43(5) deals with. 'speculative transaction' 21 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur and any income derived from the said speculative transactions shall be assessed as profits from speculation business. Proviso (d) to section 43(5) gives exemption to the eligible transaction in respect of trading in derivatives carried out in a recognized stock exchange. 6.5. Coming to the nature of transactions carried on by the appellant, it is seen that the appellant has traded in commodity derivatives through MCX and has earned profit from the said trading which has been held as profit from speculative business by the AO as the AO held that MCX was not recognized exchange for the transactions in the impugned assessment year. The said transactions carried by the appellant are carried electronically on screen based system and are supported by contract notes issued by the stock broker. The contract notes contain the unique identification number of the appellant and the PAN of the appellant. In terms of explanation to section 73(4) of the Act, the purchase and sale of shares is deemed to be speculative business if the same is settled otherwise than by actual delivery. A derivative is a financial instrument whose value depends on the value of other underline financial instruments which requires no initial net investment or little initial net investment that is settled at future date. Explanation to section 73(4) of the Act has been enacted to clarify beyond any doubt that share business of certain type of classes are deemed to be speculative in nature. Since, derivatives are not shares, they are excluded from the ambit of explanation to section 73(4) of the Act. This view is supported by ratio of decision of Hon'ble Calcutta High Court in the case of Asian Financial Services Ltd. Vs CIT reported in 70 Taxmann.com 9 (Cal.) and recent decision of Madras High Court in the case of CIT Vs Sri Vasavi Gold and Bullion Pvt. Ltd. (92 Taxmann.com 290 dated 20.02.2018). The Mumbal 'J' Bench of ITAT in the case of DCIT Vs SSKI Investors Services Pvt. Ltd. (113 TTJ 511) has observed that derivative trading does not involve any purchase and sale of shares and hence, the profit or loss on account of derivatives cannot be treated as speculation loss or profit. It was further observed that the dealings in derivatives being separate kind of transaction, cannot be held to be speculative in nature. 6.6. The decision in the case of OJT Vs Sri Vasavi Gold and Bullion Pvt. Ltd. (92 Taxmann.com 290 dated 20.02.2018) of Hon'ble Madras High Court is specifically on the facts which are identical to 22 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur the facts of the appellant. In the said case, the question of law before the Hon'ble High Court was as under: "The Tribunal has erred in not appreciating the fact that the assessee had traded the commodity through multi commodity stock exchange, an unrecognized exchange which is different entity from the MCX Stock Exchange which is a recognized exchange." 6.7. In deciding the said question of law, the Hon'ble Madras High Court held that transactions carried out by the assessee are non- speculative transactions and thus, section 43(5) of the Act is not attracted to the facts of the said case and likewise the assessee was trading in derivatives and not in shares, so the loss suffered by the assessee in trading in derivatives is excluded from the ambit of explanation to section 73 of the Act. 6.8. Thus, on the facts and circumstances of the appellant's case, the transactions carried on by the appellant are not speculative transactions as the said transactions are in derivatives. As derivative transactions being separate from trading in shares, provisions of explanation to section 73 of the Act shall not be applicable to such derivative transactions and therefore, the profits earned by the appellant are held to be not from speculative business. Accordingly, the AO is directed to tax the said income from derivatives as normal profits from non-speculative business. Hence, the AO is further directed not to set off this profit against the speculative loss incurred by the appellant in the impugned assessment year. The said unabsorbed speculative loss shall be allowed to be carried forward to the subsequent assessment year to be set off only against the speculative income. Ground no.4 is treated to have been allowed. 4.4 Before us, the Ld. Department representative contended that, the assessee did not trade in derivatives through recognised stock exchange as mandated in section 43(5)(d) and he further relied upon the decision of CIT v/s Bharat R. Ruia (Huf) 337 ITR 452. Ld. DR. Further referred to para 39 of the Judgement on page 13 as under. “39. In the result, we hold that the exchange traded derivative transactions carried on by the assessee during asst. yr. 2003-04 are 23 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur speculative transactions covered under s. 43(5) of the Act and the loss incurred in those transactions is liable to be treated as speculative loss and not business loss. We further hold that cl. (d) inserted to the proviso to s. 43(5) w.e.f. 1st April, 2006 is prospective in nature and the Tribunal was in error in holding that cl. (d) to the proviso to s. 43(5) applied retrospectively so as to apply to the transactions carried on by the assessee during asst. yr. 2003- 04.” Accordingly, the Ld. DR contended that in the above view, Ld. CIT Appeal has erred in deleting additions made u/s 73 of the Act. 4.5 Per contra, the Learned counsel for the assessee supported the finding of the Ld. CIT Appeal with the support of following written submission with support of a paper book. During the year, the appellant has carried out trading in commodity derivatives through Multi Commodity Exchange of India Ltd., whereby the appellant has incurred losses of Rs.2,39,05,858/-, as the same is business loss, the appellant have been set-off the loss against the other incomes during the year. Copy of the contract notes is enclosed. Annex-1 8.1 The ld AO has treated the commodity trading as speculative losses and have disallowed the set-off of the same with the other income during the year. 8.2 As the appellant has carried out trading in the commodity derivatives and through recognised stock exchange, the same has to be allowed as business and the provision of section 73 of the Income Tax Act’1961 is not applicable to the case. 8.3 We rely upon the identical issue in the matter of COMMISSIONER OF INCOME TAX VS VASAVI GOLD AND BULLION PVT LTD [TS-5518-HC-2018(MADRAS)-O], where it was held that “HC: Explanation to Sec 73 not applicable 24 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur to derivative transactions; Allows loss set off - Madras HC upholds ITAT order, allows set-off of loss incurred by assessee-company (having main business of jewellery) from trading in derivative transactions through Multi Commodity Stock Exchange (‘MCX’), against other business income; Rejects Revenue’s stand that assessee’s transaction was not an eligible transaction as contemplated in Sec. 43(5)(d); HC refers to ITAT’s findings that the transactions were carried out in a recognised MCX stock exchange, through a stock broker on a screen based system and was supported by contract notes, accordingly holds assessee's transactions as non-speculative applying clause (d) exemption; Also rejects Revenue’s stand that irrespective of the fact that the transaction qualifies as ‘eligible transaction’ in terms of exemption clause (d), the loss cannot be allowed in terms of Explanation to Sec. 73; HC rules that “derivative transactions being separate from trading in shares, provisions of Explanation to Section 73 will not be applicable to such transactions” 8.4 The matter has been thoroughly heard by the Hon. CIT(A), who has rightly deleted the addition made by the AO as per their order, with the following noting’s “Thus, on the facts and circumstances of the appellant’s case, the transactions carried on by the appellant are not speculative transactions as the said transactions are in derivatives. As derivative transactions being separate from trading in shares, provisions of explanation to section 73 of the Act shall not be applicable to such derivative transactions and therefore, the loss incurred by the appellant is held to be not from speculative business. Accordingly, the AO is directed to allow the said loss from derivative as normal loss from non- 25 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur speculative business. Hence, the AO is further directed to allow set off this loss against the income earned by the appellant in the other sources (other than salary) as claimed in the return of income in the impugned assessment year. The unabsorbed business loss shall be allowed to be carried forward to the subsequent assessment year to be set off against the business income. Ground no.3 is treated to have been allowed”. Ld. AR further argued that, in view of the above latest decision Madras High Court where the facts and circumstances are identical to the assessee, learned CIT(A)-2 is rightly deleted the additions made by learned AO. 4.6. We have heard rival contentions, perused the material on record and citations referred in support. The Ld. counsel of the assessee argued that, Assessee has traded in derivatives through Reliance Commodities Ltd., which is member of Multi Commodity Exchange of India Ltd. MCX Membership No. 29030; UMC given by FMC: MCX/TCM/CORP/0274, NSDL: DP ID: IN303132, CM-BP Id IN460256, CDSL: DP ID: 13041400. LD Produced contract note of Reliance Commodities Ltd., (In annexure 1). He contended that, Assessee has traded through recognised Stock exchange and thereby fulfilled criteria specified in clause d of section 43(5). Ld. AR again argued that, explanation to section 73 is only applicable to dealing in shares by limited companies and as the assessee is not a limited company and has dealt in derivatives, the explanation to section 73 is not applicable to the assessee. In rebuttal to the citation of “CIT v/s Bharat R. Ruia (Huf)”, (Supra) referred by Ld. DR, the counsel clarified that, this case law is pertaining to AY 2002-03 and the law is changed after insertion of clause (d) to the proviso to section 43(5) w.e.f. 26 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur 1 st April 2006. This has also been stated in para 39 of the same judgement as under. “39. In the result, we hold that the exchange traded derivative transactions carried on by the assessee during asst. yr. 2003-04 are speculative transactions covered under s. 43(5) of the Act and the loss incurred in those transactions is liable to be treated as speculative loss and not business loss. We further hold that cl. (d) inserted to the proviso to s. 43(5) w.e.f. 1st April, 2006 is prospective in nature and the Tribunal was in error in holding that cl. (d) to the proviso to s. 43(5) applied retrospectively so as to apply to the transactions carried on by the assessee during asst. yr. 2003-04.” 4.7 Admittedly, the Assesses appeals are for assessment years post amendment as stated by the counsel and therefore, the citation of CIT v/s Bharat R. Ruia (Huf) 337 ITR 452 is not applicable to the assessee’s cases. 4.8 In the case of “CIT v/s Vasavi Gold and Bullion Pvt. Ltd.”, (Supra) the Hon’ble Madras High Court wherein, vide para 18 & 19 of the judgement held as under: “18. Section 73 of the I.T. Act deals with "losses in speculation business". Explanation to Section 73 categorically states that in the case of a company, business of purchase and sale of shares is deemed to be speculative business. Here, in the instant case, the assessee had suffered loss in trading of derivatives carried through Multi Commodity Stock Exchange. As derivative transactions being separate from trading in shares, provisions of Explanation to Section 73 will not be applicable to such transactions and hence, the loss incurred by the assessee in derivative transactions through recognised stock exchange has to be set off against other business income as per provisions of the Act. 19. In the light of the above discussions, we are of the view that the transaction carried out by the assessee is a non speculative 27 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur transaction and thus Section 43(5) is not attracted to the facts of the instant case and likewise the assessee was trading in derivatives and not in shares, so the loss suffered by the assessee in trading in derivatives is excluded from the ambit of Explanation to Section 73.” 4.9 Respectfully, following the latest Judgement of Hon’ble Madras High Court, we hold that Section 43(5) is not attracted to the facts of the instant cases as the assessee was trading in derivatives and not in shares, so the loss suffered by the assessee in trading in derivatives which is excluded from the ambit of Explanation to Section 73 of the Act. 4.10 Accordingly, we find no merits in the department appeals, and therefore, the finding of the CIT(A), deleting addition on the issue of Trading in derivatives is hereby is sustained. 4.11 The facts of the appeals in IT(SS)A No. 43 and 44/PAN/2018 in respect of Assessment Year 2012-13 and 2013-14 are exactly identical to the facts of the appeal in IT(SS)A No. 42/PAN/2018 in respect of Assessment year 2011-12. Therefore, our decision given in IT(SS)A No. 42/PAN/2018, in respect of Assessment Year 2011-12, on the issue of Loss on trading in derivatives is excluded from the ambit of Explanation to Section 73 of the Act, shall apply in IT(SS)A No. 43 and 44/PAN/2018 in respect of Assessment Years 2012-13 and 2013-14, in mutatis mutandis. 5. Now, we shall take up the appeal of the assessee in IT(SS)A No. 29 to 30/PAN/2018, wherein the issues are crystalised out of the appeals as follows: a. Enhancement made by Ld. CIT(A)-2 by disallowing expenses u/s 40A(3) of the Income Tax Act. 28 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur b. Profit on sale of property. 5.1 In assessee’s appeal, Ground no. 2 to 5 reads as under. 2) The Assessment Order passed by the ld AO u/s 143(3) r.w.s 153A of the Income Tax Act’1961, and the enhancement made by the ld CIT(A) is without jurisdiction, misconceived and without following the principles of natural justice. 3)The ld CIT(A) has erred in enhancing the assessment made by the AO by Rs.50,60,000/- by applying provision of section 40(A)(3) of the Income Tax Act’1961, whereas the provisions of section 40(A)(3) of the Income Tax Act’1961 are not applicable to the case.. 4)The ld CIT(A) has tried their means to tax Rs.50,60,000/- which is oppose to the facts and bad in law. 5)The ld CIT(A) has erred in ignoring the binding judicial decision in the matter. 6. IN the appeal, Ld. CIT(A)-2 by way of enhancement disallowed an expenses u/s 40A(3) as detailed below: 6.1 Briefly, facts of the case are that, while deciding appeal of the assessee for A. Y. 2013-14, Ld. CIT(A)-2 has issued enhancement notice and upon conducting enquiry and perusal of reply of the assessee and remand report of the AO, Ld. CIT(A)-2 has enhanced the assessment by disallowing the expenses u/s 40A(3) being cash payment made by LMCS for purchase of property on behalf of the assessee which is more than Rs. 20,000/- as specified in the section. Asst. Year ITA NO Amount 2013-14 29/PNJ/2018 50,60,000/- 29 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur 6.2 While making the enhancement, Ld. CIT(A)-2 has observed as under: 9. During the course of appellate proceedings in the case of Lokmanya Multipurpose Co-operative Society Ltd. (LMC), for assessment year 2012-13 and 2013-14, it was found that LMC had made on-money payments in cash towards purchase of immovable properties which were shown as current assets and in some cases as fixed assets as well in the Balance Sheet. Prior to the search, the LMC was showing only the payments made by cheques/DDs for purchase of immovable properties as the cost of the properties purchased in the Balance Sheet. And the payments made in cash as part consideration for the said immovable properties were shown in the CC account of Lokmanya Constructions, a dummy loan account. 9.1. Subsequently, it was found that the advances for on-money paid in cash were shown as refunded in the books of LMC in A.Y. 2013-14. The details of payments and refunds received were examined with the bank statements. On verification, it was found that the immovable properties for which LMC had given the advance of on-money in cash were actually purchased by the appellant and his daughter Ms. Sai Thakur. Accordingly, the P & L account for the year ended 31.03.2013 of the appellant (property development P & L account) filed along with return filed u/s. 153A was examined. In the said P & L account, the appellant has shown purchase of property at Malgaon from Mr. Rawool for a total consideration of Rs.56,77,500/-. Out of the said amount, Rs.50,60,000/- was paid in cash initially by LMC which was subsequently transferred to the loan account of the appellant in the books of LMC. But the fact remains that the purchase consideration amounting to Rs.50,60,000/- was paid by the appellant other than by account payee cheque or draft. As the appellant had incurred the expenditure on purchase of immovable properties in cash (for making on-money payments), the provisions of section 40A(3) of the Act were found to be attracted. As the AO had not made any disallowance for the expenditure incurred in cash u/s. 40A(3) of the Act, an enhancement notice as per the provisions of section 251(2) of the Act dated 16.04.2018 was issued to the appellant and the same was duly served. In the enhancement notice issued, the appellant was asked to file their objection for the proposed enhancement being disallowance of expenditure claimed (purchase consideration} which is paid in cash as per the provisions of section 40A(3) of the Act. The ARs of the appellant vide letter dated 20.04.2018 made the following submissions: "(a) We wish to inform you that the provisions of section 40A(3) are not attracted where the borrower and the payee are identified and there is no material on record to doubt the 30 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur genuineness of the payment. The advance payment made in excess of the prescribed limit u/s. 40A(3) of the Act prior to the execution of the Sale Deed are not covered under the provisions of the said section. Further, we invite your kind reference to Rule 6DD of the I. T. Rules, 1962. In the present case on the examination the few sellers of the property have admitted the receipt of money. We have submitted the names and addresses of few sellers who insisted on payment in cash and the said sellers have paid the capital gain tax on the aggregate amount (i.e. including the on-money). Therefore it is submitted that the appellant's case falls under exceptional circumstances.' 9.2. I have gone through the objections raised by the ARs of the appellant for the proposed enhancement in the form of disallowance u/s. 40A(3) of the Act. The first objection of the AR of the appellant is that because the payment is genuine, the same does not come within the purview of section 40A(3) of the Act. The other objection is that the cash payment has been made before the execution of the sale deed and the same is also not covered by the provisions of section 40A(3) of the Act. Section 40A(3) of the Act speaks about the expenditure incurred and in respect of which the payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque or a draft exceeds Rs.20,000/-, no deduction shall be allowed in respect of such expenditure. So to say, the section is specific and without any ambiguity. The said section does not make any exception for the genuine payments and payments made before the execution of sale deed/issue of invoice etc. What the section speaks is that expenditure exceeding Rs.20,000/- if paid by a mode other than account payee cheque/draft, such expenditure is not allowable as deduction. Therefore, both the objections raised by the ARs of the appellant about the applicability of the provisions of section 40A(3) to the facts of appellant's case are accordingly rejected. 9.3. The other objection of the AR of the appellant is that the payments made by the appellant for purchase of immovable properties in cash are exempt as per the provisions of Rule 600 of I.T. Rules, 1962 as the sellers of the properties were examined and who admitted receipt of the additional consideration in cash. Rule 6DD of I.T. Rules, 1962 provides for certain exceptions for disallowance u/s. 40A(3) of the Act, As per the said Rule, if the payments are made to certain entities specified in the said Rule in a mode other than account payee cheque/draft exceeding Rs.20,000/-, such payments cannot be disallowed u/s. 40A(3) of the Act. The list includes RBI, Banks, Co-operative Primary Agricultural Credit Societies, LIC, Credit/Debit Cards, Payments made to purchase Agricultural/Forest produce, produce of Animal Husbandry/Dairy/Poultry/ Fishing/Horticulture, Cottage Industry, Salary payments, payments by money changers etc. However, the payments made for purchase of immovable properties which are current assets by mode other than account payee cheque/draft is not covered by the 31 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur exceptions given in Rule 6DD of I.T. Rules, 1962. Thus, the said objection that the payments made in cash by the appellant are covered by exceptions given in Rule ODD of I.T. Rules 1962 is also rejected. 9.4. Coming to the facts of the appellant's case, LMC made part payment of purchase consideration for purchase of Malgaon properties in cash by withdrawing the said cash from CC/SB accounts with HO Branch of LMC. During the course of search in the premises of LMC, the modus operandi of part payment of purchase consideration in cash was found and the same was accepted by LMC during search as well as during assessment proceedings. The appellant is the founder Chairman of LMC and controls the functioning of LMC. 9...5 During appellate proceedings in the case of LMC, revised/recast Trading, P & L account was filed by the ARs of LMC. From the said Trading, P & L account, it was found that LMC had incurred expenditure on purchase of immovable properties at Malgaon in cash. Initially, this property was to be purchased by LMC but subsequently, it was purchased by the appellant. Hence, the cash payment being on-money made by LMC was transferred to the account of the appellant by passing a journal entry in the books of LMC. The total cash payments made for purchase of the immovable properties at Malgaon as shown in the Trading account of LMC is Rs.50,60,000/-. 9.6 From the above analysis. it is proved that the appellant paid on-money in cash of Rs.50,60.000/- as seen from SB account of LMC from where the withdrawals of cash were made for making the said on-money payments. During appellate proceedings of LMC, the details of a transaction consisting of Rs.50,60,000/- were sought with dates and the ARs were asked to produce the statements of SB account and CC account of LMC. From the CC account produced, it is found that the cash paid as advance to M/s. Sawant, Parab & Rawool of Rs.50,60,000/- was received back and credited on 05.04.2012 in the books of LMC. However, this is a book entry in the books of LMC as the advance given in cash for purchase of Malgaon properties did not materialize and accordingly, the appellant's account was debited and LMC's CC account was credited. This is done as the details found during the course of search showed that the payments were made for purchase of properties at Malgaon, which could not be purchased by the LMC but ultimately were purchased by the appellant, founder Chairman of LMC. Thus, these advances made were transferred from the loan account of the LMC to the loan account of the appellant in the books of LMC. 9.7. These cash payments made of Rs.50,60,000/- for purchase of Malgaon property attract provisions of section 40A(3) of the Act. Therefore, the on-money paid which is admitted by the appellant in the capacity as founder Chairman of LMC, which is on-money paid on purchase of immovable properties at Malgaon amounting to 32 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur Rs.50,60,000/-, which is actually debited in the books of accounts of the appellant is disallowed u/s. 40A(3) for incurring the expenditure otherwise than by account payee cheque drawn on bank or account payee bank draft exceeding Rs.20,000/- and income of the appellant is enhanced by an amount of Rs.50,60,000/-. 9.8. The Courts have held that provisions of section 40A(3) of the Act are applicable to block assessment proceedings U/s. 153 BC/BD. The assessments u/s. 153A/C are search assessment and identical to the assessments u/s. 158BC/BD. The provision of section 40A(3) of Act would apply only where expenditure in question has been incurred and claimed in the computation of income. The Supreme Court, in the case of Attar Singh Gurmukh Singh v. /TO [1991] 191 ITR 667159 Taxman 11, reiterates this position as well. In the instant case, as the appellant ha s c l a im e d t he pa ym e nt o f o n-mo ne y a s e xpe ndit ur e in c a s h i n t he recast/revised statements and as the said expenditure has been claimed in the computation of income, the disallowance made under the said section and resultant enhancement made is supported by judicial pronouncements. The income of the appellant stands enhanced by Rs.50,60,000/-. 6.3 The Ld. Authorised Representative of the assessee submitted that ld CIT(A) has erred in enhancing the income of the appellant by Rs.50,60,000/-, which is bad in law with the support of a paper book which reads as under. 3.8 The hon. CIT(A) has applied provision of section 251 to enhance the income of the appellant. We note the relevant provision as below: Powers of the Commissioner (Appeals). 251. (1) In disposing of an appeal, the Commissioner (Appeals) shall have the following powers— (a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment; (aa) in an appeal against the order of assessment in respect of which the proceeding before the Settlement Commission abates under section 245HA, he may, after taking into consideration all the material and other information produced by the assessee before, or the results of the inquiry held or evidence recorded by, the Settlement 33 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur Commission, in the course of the proceeding before it and such other material as may be brought on his record, confirm, reduce, enhance or annul the assessment; (b) in an appeal against an order imposing a penalty, he may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty; (c) in any other case, he may pass such orders in the appeal as he thinks fit. (2) The Commissioner (Appeals) shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction. Explanation.—In disposing of an appeal, the Commissioner (Appeals) may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the Commissioner (Appeals) by the appellant. 3.9 As noted above, the Hon. CIT(A) has powers to step into the shoes of AO, but the action of CIT(A) cannot amount to replacement of the proceedings already carried out by the AO. 3.10 In the appellant case, the AO neither asked nor viewed the “on money” payments made by the appellant as expenses. As such the Hon. CIT(A) has to look at the issue on the same lines and use his power vested u/s 251 of the IT Act. 3.11 Further, section 40A(3) of the IT Act, treats the expenses / deduction claimed as actual and disallows the same incase the payment is made in cash above the specific limit. 3.12 As such the Hon. CIT(A) has exceeded his power u/s 251 of the IT Act’ to enhance the income of the appellant, which is bad in law. 3.13 We rely upon the judicial decision in the case of Hari Mohan Sharma v. Assistant Commissioner of Income-tax, Circle-63(1), New Delhi [2019] 110 taxmann.com 119 (Delhi - Trib.) were it was noted that “Section 251, read with sections 68 and 147, of the Income-tax Act, 1961 - Commissioner (Appeals) - Powers of (Power of enhancement) - Whether enhancement under section 251(1)(a) is prohibited on issues which have not at all been considered by Assessing Officer during assessment proceedings and Commissioner (Appeals) is not competent to enhance assessment 34 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur taking an income which was not considered expressly or by necessary implication by Assessing Officer - Held, yes - Assessee, an individual, disclosed capital gain on sale of property and also claimed exemption/deduction under section 54F as sale consideration was invested for purchase of another property - Assessing Officer noted that two residential properties were sold by assessee and, accordingly, deduction under section 54F was denied - Commissioner (Appeals) noted that property was never sold, as neither registry was made nor physical possession was given and source of money given by purchaser to assessee also could not be explained and, hence, he treated sales consideration as unexplained and made addition under section 68 - Whether since no inquiry was made by Assessing Officer on issue of capital gain shown by assessee and he had not at all considered issue of sales consideration received by assessee on sale of house as an issue of dispute before him, Commissioner (Appeals) could not have made enhancement holding that funds received by assessee was unaccounted income of assessee and chargeable to tax under section 68 - Held, yes [Paras 20 & 21] [In favour of assessee]” 3.14 In the case of COMMISSIONER OF INCOME TAX VS UNION TYRES [TS-5470- HC-1999(Delhi)-O], (1999) 157 CTR 286 (Delhi), (1999) 240 ITR 556 (Delhi), (1999) 107 TAXMAN 0447 (Delhi). The Hon. High Court held that. “12. Applying the above well settled principles of law to the facts of the instant case, we are of the view that the Tribunal was justified in holding that in calling for a remand report on the aforenoted four points the AAC had exceeded his jurisdiction. While computing the total business income of the assessee, the AO had estimated the sales at an enhanced figure and had applied a higher rate of gross profit. Thus, the only matter dealt with by the AO in the assessment order was the estimation of profits and gain of the business of the assessee. None of the aforenoted four points had any bearing on the question of estimation of either the sales or the gross profit rate. From the observations, extracted above, it is evident that the AAC had his doubts about the capacity of the assessee to raise finances for the purpose of goods and show a huge turnover in the very first year of his business. In other words, the enquiry orders by the AAC was to satisfy himself about the source of investment by the assessee. It is axiomatic that failure to prove the sources of investment will result in addition in the hands of the assessee under a different provision of law and will not have much 35 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur relevance in the estimation of sales and gross profit rate adopted by the AO. In our opinion, any addition on account of unexplained investment would constitute a new source of income which was not the subject-matter of assessment before the AO and, therefore, it was not open to the first Appellate Authority to direct the AO to conduct enquiry on the said four points. For the foregoing reasons, we answer the question in the affirmative i.e., in favour of the assessee and against the Revenue. No order as to costs.” 4 The ld CIT(A) has erred in enhancing the assessment made by the AO by applying provision of section 40(A)(3) of the Income Tax Act’1961, whereby Rs.50,60,000/- was paid by Lokmanya Multipurpose CO-operative Society Ltd., on behalf of the appellant for purchase of immovable property. 5 We note the provision of section 40A(3) of the Income Tax Act’1961 as below: “ 40A(3) Expenses or payments not deductible in certain circumstances. (3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, or use of electronic clearing system through a bank account [or through such other electronic mode as may be prescribed], exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure.” 5.8 As noted above the provision 40A(3) of the IT Act is applicable for the xpenses deductible, whereas in the appellant case, the appellant has not claimed any expenses but has incurred the amount as “on money” paid towards purchase of immovable properties, which are part of the current assets / investments of the appellant. 5.9 The ld CIT(A) has willfully mentioned in their order that the appellant has incurred expenditure of Rs.50,60,000/-, whereas it is worth to note that the appellant has invested in the property and have never claimed the same as expenses in their financials. Copy of the financials are enclosed. Annex-3 5.10 We rely upon the case of Westland Developers Pvt. Ltd., vs ACIT (I.T.A .No.- 1752/Del/2013) where it was held that “We have heard the rival submissions and perused the material available on record. The case law relied upon by the parties has been taken into consideration. On a consideration of the same we are of the view that 36 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur since in the facts of the present case the material issue is that the said expenditure was never claimed as assessee's business expenditure the occasion to make a disallowance of the same does not arise. On this fact there is no dispute as admittedly the expenditure was not claimed as an expense by the assessee and consequently has not been routed through its P&L A/c. In the circumstances, the occasion to make an addition of the same by way of a disallowance in these peculiar facts and circumstances of the case does not arise.” 6 From the above it is evident that the assessment order passed by the ld AO and also the enhancement made by the Hon. CIT(A), has been passed without considering the facts and the same is deserves to be set aside. 6.4 We have heard rival contentions, perused the material on record and citations referred in support on the issue of enhancement of income by the CIT Appeal. Before us, the ld. AR challenged the legality of enhancement by Ld. CIT Appeal with respect to powers of commissioner (Appeals) u/s 251(1) of the Act, by relying upon the decision of ‘Hari Mohan Sharma v/s ACIT’, Circle-63(1) New Delhi 110 Taxman 119 (Delhi –Trib) and CIT v/s Union Tyres 240 ITR 556 (Delhi High Court) wherein the judicial decisions prohibit CIT Appeal from making enhancement under fresh sections which were not considered by the AO in his assessment order. Ld. AR argued that in original assessment order, AO has only made additions u/s 56(2)(vii), disallowance of interest u/s 36(1)(iii) and disallowance of carry forward and setoff of loss u/s 73 being speculative loss. Nowhere in the impugned assessment order there is any mention of additions contemplated u/s 40A(3) of the Act. The Ld. AR argued that, section 251(1) empowers the Ld. CIT appeal to get into the shoes of the AO but certainly does not empower him to replace the AO and start fresh assessment proceedings. Thus, the Ld. CIT Appeal has 37 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur exceeded the powers given to him under section 251(1) and as such the enhancement needs to be set aside. 6.5 The Ld. DR agreed that, though there is no specific mention of section 40A(3) in the assessment order, but the chart given in page para 6.5 of the assessment order mentions about the cash payments made by the assessee and hence, Ld. CIT Appeal has not erred in making enhancement as per section 251(1). 6.6 On merits of the case, Ld. AR presented the profit and loss account of the assessee in page 31 of the paper book wherein he demonstrated that the alleged cash payment of Rs. 50,60,000/- has not been claimed as expenses and section 40A(3) only talks about assessee incurs any expenditure in respect of which payment or aggregate payments made to a person in a day otherwise than by an account payee cheque. It is seen that in the instant case, no such expenses are debited to the profit and loss account. As regards to alleged payments made by LMCS, the payments are made for purchase of fixed assets as on-money and all assets are accounted in the books of LMCS under Fixed Assets schedule of balance sheet. As such, section 40(3) is not applicable to the assessee. As regards to LMCS’s recasting of Trading, Profit and Loss account during the appeal proceedings before Ld. CIT appeal, being done at the instruction of Ld. CIT appeal, and even Revenue has objected such powers of the CIT Appeal in ground 3 of IT(SS)A NO. 47/PAN/2018 of LMCS. In view of the matter, as such, the appeal before CIT Appeal needs to be adjudicated on the basis of issues dealt with reference to relevant section of the Act before the AO at the time of assessment proceedings. 38 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur 6.7 In view of the aforesaid discussion, we accept the grievance of the assessee justified and we hold that the Ld. CIT(A)-2 has erred in law getting accounts recasted in appeal proceedings and making enhancement u/s 40A(3) a issue which is not arising out of the assessment proceedings. Therefore, the enhancement made by the Ld.CIT Appeal is deleted. 7. The last issue pertains to addition on account of profit on sale of properties, following additions of Ld. AO were sustained by Ld. CIT Appeal as under: Asst. Year ITA NO Amount 2014-15 30/PNJ/2018 51,08,00,000/- 7.1 Ld. AR of the assessee at the time of the hearing submitted that he is not pressing ground no. 1 to 9 of the appeal under ITA no. 30/PNJ/2018 and hence the assessee’s appeal in ITA no. 30/PNJ/2018 in respect of the Assessment Year 2014-15 is dismissed as not pressed. 8. The Cross objections filed by the assessee in CO No. 16 and 17/PAN/2018, the issues pertain to Interest disallowed u/s 36(1)(iii) wherein following additions of Ld. AO were sustained by Ld. (CIT(A)-2. Asst. Year CO NO Amount 2011-12 CO 16/PNJ/2018 1,03,562/- 2012-13 CO 17/PNJ/2018 27,25,688/- 8.1 Ld. AR of the assessee at the time of the hearing submitted that he is not pressing ground no. 1 to 4 of the appeal under cross objection no. 39 IT(SS)A No. 40 to 46/PAN/2018 (Asst. Year: 2009-10 to 2015-16) IT(SS)A No. 29 to 30/PAN/2018 (Asst. Year: 2013-14 & 2014-15) CO No. 16 to 17/PAN/2018 (Asst. Year : 2011-12& 2012-13) Shri Kiran Dhondopant Thakur CO16/PNJ/2018 and CO 17/PNJ/2018 and hence, both the CO16/PNJ/2018 and CO 17/PNJ/2018 in respect of the Assessment Years 2011-12 and 2012-13 respectively are dismissed as not pressed. 9. In the backdrop of the aforesaid discussion the appeals of the department and the assessee are disposed of in the terms indicated as above. Order pronounced in the open court on 05.05.2022 Sd/- Sd/- (Anikesh Banerjee) (Dr. M. L. Meena) Judicial Member Accountant Member Date: 05.05.2022 SC, Sr. P.S. Copy of the order forwarded to: (1)The Appellant:- (2) The Respondent :- (3) The CIT:- (4) The CIT (Appeals):- (5) The DR, I.T.A.T.:- True Copy By Order Sr. Private Secretary ITAT