M/S SANGHI CORPORATE SERVICES LTD ,MUMBAI V. JT CIT , SPL RANGE-35 , MUMBAI, MUMBAI

ITSSA 713/MUM/2002

AI Insights

Sanghi Corporate Services Ltd. appealed against the order of the CIT(A) which confirmed and enhanced the additions made by the Assessing Officer under section 158BC(c) of the Income-tax Act, 1961, for the block period 1988-1998. The additions were primarily based on alleged hawala transactions and unexplained cash deposits. The Tribunal examined the merits of the additions and the methods of assessment used by the lower authorities. It found that the commission income should be computed at a lower rate of 0.75% rather than the 5% applied by the Assessing Officer. The Tribunal also noted that many of the transactions were recorded in the regular books of accounts and thus should not attract additions under section 158BB.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 295056 (ITAT-MUMBAI)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 21-04-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: misc
• Other Referred Cases: Parashuram Pottery Works Co. Ltd. vs. ITO [1977] 106 ITR 1 (SC)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANYOGITA NAGPAL
• Assessee Lawyers: H. N. MOTIWALA
• Keywords: Speculation loss; Business income; Unexplained cash credit; Peak credit; Reopening of assessment; Capital Gains; Principle of natural justice; Accommodation entries; Block assessment; Speculative transactions; Bogus
• Section: 153; 22; 13; 73; 20

Judgement Text

"1 IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER IT(SS)A No. 713/MUM/2002 Assessment Year for Block Period 1988-1998 Sanghi Corporate Services Limited Flat No.1 Plot No. 12, Balmoral Apartment, Amritvan, Yashodham Goregaon (East), Mumbai 400063 (PAN: AAACS6368L) vs JT. Commissioner of Income- Tax SPL. Range-35, Mumbai CGO Building, Annex, M.K. Road, Mumbai 400020 Appellant Respondent Present for: Appellant by : Shri H.N. Motiwala, CA Respondent by : Smt. Sanyogita Nagpal, CIT DR Date of Hearing : 22.01.2025 Date of Pronouncement : 21.04.2025 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by the assessee is against the order of ld. CIT(A) XXXIII, Mumbai vide appeal No. CIT(A) XXXIII/Rg. 2(3)/IT/57-S/2000-01 dated 28.11.2002 passed against the assessment order by ld. JCIT, SPL. Range 36, Mumbai u/s.158BC(c) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 31.07.2000 for AYs with Block Period 1988- 1998. 2. Grounds taken by the assessee are reproduced as under: “1. The learned Commissioner of Income-tax (Appeals) ought to have cancelled the block assessment grounds: on the following (i) That the assessment is barred by limitation. I.T(SS)A. No.713/Mum/2002 Sanghi Corporate Services Ltd. A.Y.1988 to 1998 (Block Period) 2 (ii) That the assessment has been made in violation of rules of natural justice, as the appellant was not provided an opportunity to cross- examine those witnesses whose statements were recorded on the back of the appellant. 2. The learned Commissioner of Income-tax (Appeals) erred in confirming the additions of Rs. 1,46,09,250/- being 5% of the total deposits in bank account at Rs. 29,25,84,995/-, as commission income on hawala transactions which were not the transactions entered into by the appellant but, were entered by Shri Kamal Rathi, by opening various bank accounts eight banks through forgery. in 3. The learned Commissioner of Income-tax (Appeals) erred in enhancing the income of the appellant Company by Rs. 32,72,240/-. 4. The learned Commissioner of Income-tax (Appeals) erred in considering the office of Shri Kamal Rathi situated at Ganesh Prasad, Goregaon (E), as branch of the Company and further erred in considering the personal activities of Shri Kamal Rathi as the activities of the Company, on the basis of suspicions, surmises and doubts. 5. The learned Commissioner of Income-tax (Appeals) erred in assessing a sum of 85,481/- as commission on alleged hawala transactions of Rs. 17,09,627/- although, all the transactions were recorded in the regular books of accounts and entered through NSC BOLT and the same are outside the scope of section 158BB of the Income-tax Act. 6. The learned Commissioner of Income-tax (Appeals) erred in upholding the additions of Rs. 17,09,627/-, whereas out of the above, transactions worth Rs. 15,88,599/- were duly accounted for in the regular books of accounts of the Company and copies of those accounts were submitted before the CIT(A) and outside the scope of section 15888 and transactions worth Rs. 1,21,028/ of the F.Y. 96-97, are not relating to the appellant Company. 7. The learned Commissioner of Income-tax (Appeals) erred in confirming the additions of Rs. 98,77,879/- as unexplained cash deposits in the bank accounts, whereas all the transactions have been properly accounted in the books of account maintained by the appellant and are outside the scope of section 158BB. 8. The learned Commissioner of Income-tax (Appeals) erred in confirming the additions of Rs. 4 lacs which were transferred by Shri Kamal Rathi through pay orders, on the intervention of officials of NSE to Canara Bank NSE Clearing Account of the appellant Company. 9. The learned Commissioner of Income-tax (Appeals) erred in confirming the additions of Rs. 19,56,896/- as undisclosed income of the appellant Company, whereas these were the deposits in the personal account of Shri I.T(SS)A. No.713/Mum/2002 Sanghi Corporate Services Ltd. A.Y.1988 to 1998 (Block Period) 3 A.K. Sanghi and the same has been considered in his personal assessment, as same has nothing to do with the business of the Company. the 10. The learned Commissioner of Income-tax (Appeals) erred in confirming the additions of Rs. 26,68,939/- being the aggregate amount of deposits in Indian Overseas Bank, the entries of which bank accounts were not incorporated in the books of accounts of the Company, as the details of these transactions were available only with Shri Kamal Rathi and the appellant submitted the copy of Bank Statement together with a broad analysis of the Bank account, the same is also outside the scope of section 158BB. 11. The learned Commissioner of Income-tax (Appeals) erred in confirming the additions of 1,62,46,606/- Rs. as adjustments and speculation losses against business income, whereas these were the transactions entered on account of various clients the transactions of the Company through NSE BOLT and duly recorded in the books of the appellant Company and copies of those accounts were filed before CIT(A) and these are not in the nature of either trading loss or speculation loss at all. The same are outside the scope of section 158BB. 12. The learned Commissioner of Income-tax (Appeals) erred in confirming the additions of Rs. 15,28,604/- which were relating to the transactions entered through NSE BOLT with M/s. Sonu Investments and these are entered in the regular books of accounts and outside the scope of section 158BB. The amount of Rs. 15,28,604/- is aggregate of debit for the period 1-4-96 to 31-3-98 Rs. 15,28,604/- being total of nine bills for 96-97 Rs. 3,50,000/- and total of thirteen bills for 97-98 Rs. 11,78,604/-. 13. The learned Commissioner of Income-tax (Appeals) erred in confirming the additions of Rs. 4,40,000/- as unaccounted shares premium at the rate of Rs. 8/- per share on 55,000 shares assuming that the Company had a public issue in the year 1996 whereas the Public issued was in the year, 1994. 14. The learned Commissioner of Income-tax (Appeals) erred in confirming the additions of Rs. 4,42,000/- being cheques on hand and reflected in the Balance sheet under the head cash and bank balances. 15. The appellant craves the leave to add, amend, alter and/or delete any of the above grounds of appeal at or before the time of hearing.” 3. Brief facts of the case as culled out from the records are that assessee is a share brokers and was operating in National Stock Exchange (NSE), with card No.07758. A search action u/s.132 of the Act was carried out in the case of assessee on 18.06.1998 at its registered office at Fort and I.T(SS)A. No.713/Mum/2002 Sanghi Corporate Services Ltd. A.Y.1988 to 1998 (Block Period) 4 branch office at Goregaon in Mumbai and also at the residence of director of the assessee company. During the course of search, various incriminating documents and lose papers were ceased resulting in detection of number of undisclosed bank accounts used in the course of conduct of business by the assessee. 3.1. Assessee was operating from its registered office i.e. Fountain Chambers, I-C, Nanabhai Lane, Fort, Mumbai-400001, and it had branch office at 3 Jyotsna Prakash, Opp. Goregaon Station, Goregaon(E), Mumbai-400063. From this branch office, assessee operated up to May 1998 and after that, the branch office was shifted to 3-Ganesh Prasad, Jayprakash Nagar, Road No.1. Goregaon (E), Mumbai-400063. Assessee company has two full time directors namely, Mr. A.K. Sanghi and Mr. S.L. Sanghi, of whom Mr. A.K. Sanghi is the Managing Director. Assessee became a Public Limited Company during assessment year 1995-96. Up to February 1998, there were three outside directors namely, Mr. H.S. Punamia, Mr. J.G. Verma and Mr. N.C. Jain. During February 1998, there was a move to change the management of the assessee company, as a result of which three new directors were appointed in place of three outside directors. The three new directors are Mr. Sanjay E. Ferns, Mr. Vijay Chandok and Mrs. Poonam Sanghi W/o. Mr. A.K. Sanghi. In this regard, Form No.32 was filed with the Registrar of Companies. However, subsequently during December 1998, there was again change in the management and Mr. S.E. Ferns and Mr. Vijay Chandok were not re- elected as Executive Directors. From December-1998 onwards, there were three directors including the two full time directors and Mrs. Poonam Sanghi. Mr. Kamal K. Rathi was working in this company as a sub-broker on commission basis and was in-charge of its Goregaon branch office. I.T(SS)A. No.713/Mum/2002 Sanghi Corporate Services Ltd. A.Y.1988 to 1998 (Block Period) 5 3.2. Ld. AO observed that assessee had admitted about the following bank accounts as its disclosed accounts: 1) Canara Bank, NSE Branch, Pune A/c.No.2142 2) Canara Bank, NSE Branch, Mumbai A/c.No.50489 3) Canara Bank, NSE Branch, Mumbai A/c.No.40058 4) Jaihind Co-op Bank Ltd., Mumbai A/c.No. 1763 5) Canara bank, Tamarind Lane, Mumbai A/c.No.21225 6) Bank of Madura, Mumbai A/c.No.349731 7) Shamrao Vithal Co-op. Bank Ltd OD-165 8) Shamrao Vithal Co-op Bank Ltd. OD-66 3.3. Apart from the above, ld. AO observed that during the course of search, following four accounts were also found which were not earlier disclosed: 1) CITI Bank, D.N.Road, Mumbai A/c. No.843749-003 2) Vijay Bank, Chira Bazar, Mumbai Current A/c. No.4915 3) Janalaxmi Co-op Bank Ltd., Thakurwar Current A/c. No. 100 4) Central Bank, Main Branch, Fort, Mumbai A/c No.718791 3.4. In this respect, ld. AO noted that the aforesaid four accounts not disclosed in the books of account of the assessee were used for the purpose of issuing cheques/demand drafts/pay orders for bogus share transactions to various clients. He also took note of another set of four accounts which were discovered in the post search investigation and were also used for clandestine operations by the assessee. These four bank accounts are: 1) National Co-op Bank Ltd., Fort Branch, Mumbai A/c. No. 3547 2) Raigad Sahakari Bank Ltd. Kalachowki, Mumbai A./c. No.1344 3) The Bank of Rajasthan, Kalbadevi, Mumbai A./c. No. 121 4) The Akola Janata Comm. Co-op Bank Ltd. A./c. No.338 I.T(SS)A. No.713/Mum/2002 Sanghi Corporate Services Ltd. A.Y.1988 to 1998 (Block Period) 6 3.5. In this respect, Mr. A. K. Sanghi director of the assessee stated during the course of search as well as in the post search proceedings that these accounts were opened by Mr. Kamal K. Rathi who was in-charge of Goregaon branch office and from these accounts, he started issuing bogus bills of share transactions to various individuals and HUFs without the knowledge and permission of the other directors of the assessee. Mr. A.K. Sanghi maintained that these accounts were opened without the knowledge of the assesse and thus, assessee cannot be made responsible for the operations carried out in the same. However, ld. AO rejected the claim of the assessee. 3.6. In this regard, he noted that Mr. Kamal K. Rathi in his statement made u/s.132(4) on 18.08.1998 had admitted that assessee was getting a commission of 0.5 % on account of bills issued for speculation profit and 3% on account bills for long term capital gains issued by the assessee. Thus, ld. AO noted that various cash and demand drafts/cheques were deposited in these accounts by various parties and against the same, assessee had issued cheques/pay orders and demand drafts towards bogus profit made by these individuals/HUFs on account of non-existing shares transactions. During the block assessment proceedings, Mr. Kamal K. Rathi was asked to indicate from these accounts as to which of the amounts issued to various individual are on account of speculation profit and which of the amounts issued to various individuals are on account of profit on long term capital gain/loss. According to the Ld. AO since, the transactions in the aforesaid eight bank accounts could not be segregated in respect of entries for speculation profit/loss and long-term capital gain/loss, the statement made by Mr. Kamal K. Rathi of having I.T(SS)A. No.713/Mum/2002 Sanghi Corporate Services Ltd. A.Y.1988 to 1998 (Block Period) 7 commission receipt ranging between 0.5% to 3% is not justifiable. He thus, proceeded to hold that all the transactions are long term capital gain/loss transactions and calculated commission by adopting an adhoc rate of 5% on the deposits in these accounts. 3.7. In this respect, observations made by the ld. AO at page 47 of his order are extracted below: “Thus from the above statement of Mr. Kamal K. Rathi, it will be seen that, he has not able to distinguish from the above transactions in the eight bank accounts as to which are the entries for speculation profit/loss and which are long term capital gains/loss. it is also seen that the entries are enormous in number. In this regard, Mr. Kamal K. Rathi is not at all able to justify his earlier statement u/s.132(4) of the LT. Act on dated 18-08-1998 as to how he has estimated the commission receipts on account of hawala transactions varying between 0.5% to 3%. It has already been stated that such type of hawala/accommodation entries are available by the brokers in the stock exchange and generally the charging rate of commission is anywhere between 5 to 6%. However, in the absence of any cooperation from the assessee company and in the absence of any sensible justify from Mr. Kamal K. Rathi, it is decided on conservative basis to adopt 5% as the commission received on all these transactions. Since Mr. Kamal K. Rathi has not been able to segregate speculation transactions from long term capital gains in these accounts, it is decided to treat all these transactions are long term capital gain/loss transactions and calculated commission at the rate of 5% on these deposits.” [emphasis supplied by us by underline] 3.8. Ld. AO held that since, Mr. Kamal K. Rathi was in charge of the operations and since the assessee was in the full knowledge of the transactions in these accounts, all the entries in these accounts were taken as long term capital gain entries on which commission income was determined by applying adhoc rate of 5% on the total credits from the date of opening of these accounts to the date of search. Details of the same is tabulated as extracted from page 49 of the impugned order: I.T(SS)A. No.713/Mum/2002 Sanghi Corporate Services Ltd. A.Y.1988 to 1998 (Block Period) 8 Name of the Bank/Branch A/C No. Total Deposits CITI Bank, D.N. Road 843749003 4,09,00,000 Vijaya Bank, Chira Bazar 4915 13,24,00,000 Janlaxmi Co-op bank Ltd., Thakurwar 100 9,26,00,000 Central Bank, Fort 718791 14,80,00,000 Bank of Rajasthan, Kalbadevi 64212 51,69,608 The National Co-op Bank Ltd, Fort 3547 53,25,981 Raigad Sahakari Bank Ltd. Kala Chowki 1344 3,89,400 GRAND TOTAL (Rs.) 29,25,84,995 3.9. Ld. AO thus, arrived at total amount of deposits in these accounts at Rs. 29,25,84,995/- from which two transactions of Rs.3 lacs and Rs.1 lac each were taken out to be treated separately while dealing with the issue relating to cash deposits. Accordingly, commission @ 5% was calculated on the amount of Rs.29,25,84,995/- minus 4 lacs at Rs.1,46,09,250/- which was treated as undisclosed income of the assesse for the block period, earned on account of commission on accommodation entries. 4. Aggrieved, assessee went in appeal before the ld. CIT(A) who enhanced the said income by Rs. 32,72,240/-, totaling to Rs.1,78,81,490/-. For the purpose of enhancement, in para 5.6 of his order, ld. CIT(A) noted that after the assessment was over, a copy of statement of bank account bearing no.3547 from National Cooperative Bank Limited, Fort branch was obtained which had deposits of Rs.7,07,70,779/- in the period from 23.01.1998 to 18.06.1998. On this amount also. by applying the rate of 5%, commission income of Rs. 35,38,539/- was computed. Assessee had objected to the enhancement by submitting that this account was not open by any of the authorized persons of the assessee. After giving credit of Rs.2,66,299/- for the amount which had already been taken in the block assessment, ld. CIT(A) enhanced the income of the assessee by Rs.32,72,240/- and dismissed the I.T(SS)A. No.713/Mum/2002 Sanghi Corporate Services Ltd. A.Y.1988 to 1998 (Block Period) 9 grounds raised by the assessee in this respect. Aggrieved by this, assessee is in appeal before the Tribunal for which Ground No. 2 and 3 are raised and considered for adjudication. 5. In Ground No.1, assessee has raised legal issues relating to assessment being barred by limitation and is in violation of principles of natural justice. We will first deal with the merits of the case, for the grounds raised. 6. Before us, ld. Counsel for the assessee vehemently submitted that all the entries in the aforesaid bank accounts pertain to accommodation entries and not on account of long-term capital gains transactions as held by the ld. AO. He thus, submitted that commission @ 0.5% only should be applied for the purpose of computing the commission income on such entries in the aforesaid bank accounts. In this respect, on perusal of the observations of ld. AO, we note that he has referred to the statement of Mr. Kamal K. Rathi recorded during the course of search wherein, he has stated about the percentage of commission being 0.5% on account of bills issued for speculation profit and 3% on account of profit on long term capital gains, issued by the assessee. In this regard, ld. AO notes that the charging rate of commission on such type of transactions generally, ranges between 5% to 6% and in absence of cooperation from the assessee, he proceeded to adopt the rate of 5% on all the transactions to arrive at commission income in the hands of the assessee. The Ld. CIT(A) also has affirmed the addition so made on an estimate basis and has gone further to enhance it by applying the same adhoc percentage of 5% on entries in the other four bank accounts found during the post-search investigation. I.T(SS)A. No.713/Mum/2002 Sanghi Corporate Services Ltd. A.Y.1988 to 1998 (Block Period) 10 6.1. In the given set of facts and circumstances of the present case where it relates to period from 1988-1998 which is more than 25 years old now, it is imperative to bring finality to such stale matters where neither the revenue nor the assessee are in a position to substantiate their respective claims with corroborative documentary evidences. Approach adopted by ld. AO while making the assessment is that of resorting to an estimate based on statement given by Mr. Kamal K. Rathi in the course of search, though, adopting the higher side of the percentage so as to be conservative in making the addition towards commission income in the hands of the assessee. The question which arises in our minds is why the rate of 5% and not any other since statement of Mr. K. Rathi refers to arrange 0.5% to 3% as noted by Ld. AO himself in his order while resorting to rate of 5%. 6.2. Hon’ble Supreme Court in the case of Parashuram Pottery Works Co. Ltd. vs. ITO [1977] 106 ITR 1 (SC) observed, though in the context of reopening of assessment after the expiry of four years, that, “It has been said that the taxes are the price that we pay for civilization. If so, it is essential that those who are entrusted with the task of calculating and realising that price should familiarise themselves with the relevant provisions and become well-versed with the law on the subject. Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue. At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.” I.T(SS)A. No.713/Mum/2002 Sanghi Corporate Services Ltd. A.Y.1988 to 1998 (Block Period) 11 6.3. Keeping the aforesaid observation of Hon’ble Supreme Court in the background as well as taking into account the approach of ld. AO and the submissions made by the ld. Counsel, in the interest of justice and fair play, we find it appropriate to adopt a percentage of 0.75% instead of 5% to arrive at commission income in the hands of the assessee on the transactions/entries in the aforesaid eight bank accounts including that of enhancement made by ld. CIT(A). Thus, ld. AO is directed to re-compute the commission income by applying 0.75% to treat it as commission income in the hands of the assessee. For the balance, assessee gets the relief. Accordingly, ground no.2 and 3 are partly allowed. 6.4. Ld. AO noted a similar issue while making adjustment of speculation loss of Rs.1,62,46,606/-. He noted that assessee is also indulged in speculation business i.e. speculation trading in shares. From the analysis of trading account, he observed that transactions of purchase and sale of shares undertaken by the assessee were never meant to result in delivery since, assessee did not have sufficient balance in its bank account at the time of purchase of shares and no physical stock of such shares at the time of sale. According to him, these purchase and sale transactions are “short purchase” and “short sales” where there is no delivery and no physical positions of the shares. These transactions were entered with the intent to earn speculative income. Ld. AO also noted about assessee having involved in ‘dabba’ transactions which are stated to be speculative transactions not carried out in stock exchange but directly with the clients. Ld. AO analyzed the statement of income and profit and loss account of the assessee for the block period. According to him, assessee is a brokerage house which is engaged in business of purchase and selling of shares on behalf of various clients earning brokerage/commission income on the I.T(SS)A. No.713/Mum/2002 Sanghi Corporate Services Ltd. A.Y.1988 to 1998 (Block Period) 12 transaction carried out by it on behalf of its client. Since assessee is a mid- sized organization and therefore it does not have major overheads to incur. Analyzing such scenario, he further observed that assessee company should not have incurred loss during various assessment years as assessee though it has shown loss in assessment years 1997-98, 1998-99 and 1999-2000. 6.5. Ld. AO alleged that losses incurred in these assessment years are nothing but speculative losses which the assessee has diverted as shown in the statement on account of five parties. Based on statement of account produced by the assessee in this respect, ld. AO computed the speculative losses which is tabulated below: 1996-97 Debit Bills Credit Bills Net Loss (Rs.) Gajanan Investments 54,25,663 41,18,085 13,07,577 SCSL Trading A/c. 1,78,61,851 90,10,804 88,51,047 TOTAL 1,01,58,625 1997-98 Sanghi Corporate Services Trading A/c. 31,14,985 21,63,939 9,51,049 SCSL Trading A/c. 88,15,186 55,97,219 32,17,966 Praveena Kambli 5,74,400 2,33,363 3,41,036 R.S. Jaju 22,37,873 65,944 15,77,928 TOTAL 60,87,981 GRAND TOTAL (Rs.) 1,62,46,606 6.6. Ld. AO thus, treated the above tabulated amount of Rs.1,62,46,606/- as speculative loss for the block period and added it to the income as undisclosed income. In this respect, he held that assessee may carry forward this speculation loss as per section 73 and adjust it against speculation profit in the subsequent years. I.T(SS)A. No.713/Mum/2002 Sanghi Corporate Services Ltd. A.Y.1988 to 1998 (Block Period) 13 6.7. On the above issue, contention of the assessee is that loss incurred by it is a genuine loss arising out of transaction of buying and selling of shares which has been presumed to be speculative in nature. From the perusal of the orders of authorities below, we note that the said amount of speculation loss as alleged by the Ld. AO has been arrived at based on entries in the accounts of five different parties as tabulated above. These are also in the nature of accommodation entries as dealt in ground no. 2 and 3 above. In this respect, ld. AO has noted that assessee could not furnish bills issued in respect of these transactions except for statement of account. Taking the same view as dealt in ground no. 2 and 3 above, we find it appropriate to compute income on these transaction by applying the rate of 0.75%. With this treatment, at the same time, carry forward and set off of this loss in subsequent years is disallowed. Accordingly, ld. AO is directed to re-compute the income on total transaction value of Rs.1,62,46,606/- by applying the rate of 0.75% as held in ground no.2 and 3 above. For the balance, assessee gets a relief without carry forward and set off of the same. Thus, ground No. 11 is partly allowed. 7. For ground no.4, ld. Counsel for the assessee submitted it as not pressed. Accordingly, ground no.4 is dismissed as not pressed. 8. We now take up ground nos. 5, 6, 7, 8, 9, 12 and 14 together, for which the common contention of the assessee is that transactions pertaining to these grounds are recorded in the regular books of accounts and therefore, there cannot be any addition u/s. 158BB of the Act for the same. For each of the above stated grounds, submissions made by the ld. Counsel to substantiate the claim made and those by the ld. CIT DR are considered. We deal with the same as under. I.T(SS)A. No.713/Mum/2002 Sanghi Corporate Services Ltd. A.Y.1988 to 1998 (Block Period) 14 8.1. Ground no.5 is in respect of addition of Rs. 85,481/- towards commission presumed by ld. AO by alleging the transactions amounting to Rs.17,09,627/- as hawala transactions. In this respect, ld. Counsel pointed out from page 51 of the impugned assessment order wherein ld. AO himself has noted that names of the persons for these transactions are found in the official books of accounts of the assessee and tabulated the details for the same. On the amount appearing in the table, ld. AO presumed that assessee must have received commission charges @ of 5% and thus, made an addition of Rs. 85,481/- as undisclosed income. It was submitted by the ld. Counsel that on page 51 of the assessment order, the transactions entered with the parties are recorded in the official books of accounts amounting to Rs. 17,09,627/- (for FY 1996-97 Rs.6,50,478/- and for FY 1997-98 Rs.10,59,149/-) on which the ld. AO has presumed that these are hawala transactions and estimated commission on such transactions at 5% amounting to Rs 85,481/-. These transactions are made by the assessee with the parties on NSE Bolt which is a share trading platform. All parties are appearing in the books of accounts except the following parties mentioned below for whom assessee has no idea from where the ld. AO has picked up these parties as they are not the parties of the assessee, totaling to Rs.1,21,058/-: i. G.P Gupta HUF - Rs. 50,429/- ii. Ashok Gupta HUF - Rs. 31,250/- iii. Rajan Mahendra - Rs, 39,349/- List of party-wise transactions for all is tabulated below: I.T(SS)A. No.713/Mum/2002 Sanghi Corporate Services Ltd. A.Y.1988 to 1998 (Block Period) 15 Name of the Party Amount in FY 96-97 Amount in FY 97-98 Reference to pg.no. in thick paper book (our ledger accounts) Asha Singhal Rs. 33,200/- Rs. 47,609/- 135-136 Manju Singhal Rs. 21,723/- Rs. 20,673/- 137-138 Hastimal Kesrimal HUF Rs. 79,230/- - 139 Janu Mohan Minesh Rs. 2,17,657/- - 140 Janu Mohan Minesh Rs. 6,087/- - 140 N.C. Jain HUF Rs. 38,240/- - 141 S.L. Mehra (referred as S.L. Mishra) Rs. 50,018/- - 142 Asha Gopal Raghani Rs. 13,329/- - 143 Asha Singhal Rs. 21,042/- - 144 Atul V Shah Rs. 20,799/- - 145 Meeta Gupta Rs. 29,125/- - 146 Amisha M Vadalia (referred as Vaaliya) - Rs. 1,36,000/- 147 Dhanlaxmi V. Mehta Rs. 1,42,500/- 148 Hastimal V. Mehta Rs. 47,731/- 149 Hemaxi V. Mehta Rs. 41,250/- 150 Mohan P. Gupta HUF Rs. 21,564/- 151 Mitesh V. Mehta HUF Rs. 96,250/- 152 Manish V. Mehta HUF Rs. 94,000/- 153 Matharidevi H Mehta Rs. 50,099/- 154 Monika Singhal Rs. 31,148/- 155 Pawan H Mehta Rs. 32,900/- 156 R.P. Singhal and Sons HUF Rs. 91,757/- 157 Rahul Bansal Rs. 50,602/- 158 Vinay Singhal HUF Rs. 23,568/- 159 Yogendra Kumar Singhal HUF Rs. 35,558/- 160 Bhavya V Mehta HUF Rs. 95,940/- 161 TOTAL Rs. 5,29,450/- Rs. 10,59,149/- 8.2. Similarly, for the addition of Rs.17,09,627/- contested by the assessee vide ground no. 6, ld. AO alleged these to be hawala transactions. From the perusal of observation made by Ld. AO in para 6 at page 53 of I.T(SS)A. No.713/Mum/2002 Sanghi Corporate Services Ltd. A.Y.1988 to 1998 (Block Period) 16 the impugned assessment order, it is noted that they all denote surmises and conjunctures on the part of ld.AO. 8.3. In the given set of facts, it is an admitted factual position that these are recorded in the books of account for which relevant documentary evidences are placed on record in the paper book (details already tabulated above). Observations of ld. AO are mere presumptions which have no legs to stand in view of the corroborative documents. Considering the factual position and submissions made by the assessee, additions made are deleted. Accordingly, ground no. 5 and 6 are allowed. 8.4. For the addition of Rs.98,77,879/- towards unexplained cash deposit in the bank accounts of the assessee contested vide ground no.7, according to the assessee, all these cash deposit are recoded in its books of account. It is further submitted by the assessee that at pages 54 to 58 of the impugned assessment order, ld. AO has reproduced all the entries in this respect from where itself it is discernible that whatever cash received from the clients was deposited into the bank accounts on the same date. This is an uncontroverted fact recorded by the ld. AO in the impugned order while tabulating the details. For the doubts raised by the ld. AO about the genuineness of the clients, assessee furnished 51 clients’ names with their addresses. According to the assessee, cash was received for business purpose of buying and selling of shares on the NSE Bolt and making clearing pay-in payments to the NSE. Reference was made to page no. 115 of the paper book wherein one of the clients named C.P Vyas responded to the ld. AO by submitting that letter sent to him was served on the wrong address, hence he had sought for a fresh date for summons. Attention was drawn to page nos. 187 to 263 of the paper book containing I.T(SS)A. No.713/Mum/2002 Sanghi Corporate Services Ltd. A.Y.1988 to 1998 (Block Period) 17 ledger account of parties showing that cash had been given by the said parties for the business transactions. Assessee also contended that during that period, there was no NEFT or RTGS facility available, hence assessee had no choice but to transfer the cash from one of their own bank accounts to NSE clearing A/c held with Canara Bank. Assessee also furnished Client Registration Application Form of one client M/s Sandesh Investments whose address also appears in the list of 51 clients to prove the genuineness. 8.5. What emerges from the above narrative is that deposit of cash is duly recorded in the books of account of the assessee which has been corroborated by the ledger accounts of parties from whom cash was received and utilized for the purpose of business. Assessee received cash from its clients which was immediately deposited in its bank accounts for the conduct of business. According to the ld. AO, no satisfactory explanation was furnished by the assessee nor assessee produced the parties in the course of assessment to establish the genuineness of the cash receipts. It is important to note that assessee has evidently demonstrated that deposit of cash happened immediately on receipt from its client and recorded in its books of account. In the given set of facts and circumstances, the addition made by the ld. AO is not tenable. The addition so made is deleted. Accordingly, ground no.7 is allowed. 8.6. In respect of ground no. 8 for the addition of Rs.4 lacs in respect of transfer by Mr. Kamal K. Rathi, ld. Counsel submitted that Mr. Kamal K. Rathi had given two bank drafts of Rs.3 lacs and 1 lac each on behalf of his clients which assessee had accounted in its books of accounts. He also pointed to the observation of ld. AO in para 8 at page 69 wherein he noted I.T(SS)A. No.713/Mum/2002 Sanghi Corporate Services Ltd. A.Y.1988 to 1998 (Block Period) 18 that names of both the parties to whom bank draft were issued appear in the regular books of the accounts of the assessee. Hence, there is no reasons for Ld. AO to make the said addition. Ld. AO has merely apprehended that this transaction is not possible in the normal accounting standard and principle and took an adverse view to make the addition. In the given set of facts when the impugned transactions are duly recorded in the books of account and addition is based on apprehension of the ld. AO, we delete the same to allow ground no. 8 raised by the assessee. 8.7. For the addition of Rs. 19,56,896/- in respect of deposit in saving bank account of Mr. A. K. Sanghi in account no. 21325 with Canara Bank, Tamarind Lane, branch Mumbai contested by the assessee vide ground no. 9, ld. Counsel submitted that this amount has already been assessed in the hands of Mr. A.K. Sanghi who is the managing director of the assessee. To corroborate this fact, reference was made to the assessment order passed in the case of Mr. A.K. Sanghi for the block period 01.04.1988 to 18.06.1998 by ld. AO ACIT (Inv.), Circle-11(1), Mumbai. From the perusal of the said assessment order placed in the paper book, it is noted that addition of Rs.33,31,424/- has been made in the hands of Mr. A.K. Sanghi for which ld. AO observed that the deposits in the said bank account is treated as undisclosed income of the assessee for the block period pertaining to the AY 1995-96 and 1999-2002. Amount added as undisclosed income in the hands of Mr. A.K. Sanghi includes the amount of Rs.19,56,896/- treated by the ld. AO in the present case of the assessee as undisclosed income which were deposited in the aforesaid bank account with Canara Bank. Since, this amount has already been subjected to tax in the hands of Mr. A.K. Sanghi as stated above, the same cannot be I.T(SS)A. No.713/Mum/2002 Sanghi Corporate Services Ltd. A.Y.1988 to 1998 (Block Period) 19 subjected to tax again in the hands of the assessee. Accordingly, ground no.9 raised by the assessee in this respect is allowed. 8.8. For the addition of Rs. 15,28,604/- in respect of transactions with M/s. Sonu Investments contested vide ground no. 12, ld. Counsel for the assessee submitted that M/s Sonu Investments was a client of the assessee who was buying and selling shares on behalf of its clients from the Bombay Stock Exchange (BSE). When search party came at the place of assessee, bills of M/s Sonu Investments were lying in the premises of the assessee for which it could not explain the Assessing Officer as to what transactions M/s Sonu Investments had undertaken for its clients. Ld. Assessing Officer called the Proprietor of M/s Sonu Investments named Mr. Vipul Shah who explained the transactions in his books of accounts. Assessee thus, claimed that it was not concerned about the said transactions. Ld. Counsel also referred to page 86 of the impugned assessment order to submit that ld. AO resorted to presumption for the purpose of making this addition. According to him, in this respect, ld. AO observed that “however it is seen that for these transactions, bills have issued to M/s. Sonu Investments and since profit has been shown to M/s. Sonu Investments, the assessee company must have sold its own profit which it has not accounted for its books of accounts.” 8.9. Considering the submissions made, it is noted that certain bills of M/s. Sonu Investments were found at the place of the assessee which were required to be explained by the assessee. In this respect, copies of ledger accounts were submitted by Mr. Vipul Shah who is the proprietor of M/s. Sonu Investments to demonstrate that the transaction relating to the bills found were recorded in his books of accounts. Since, these transactions I.T(SS)A. No.713/Mum/2002 Sanghi Corporate Services Ltd. A.Y.1988 to 1998 (Block Period) 20 pertained to client of M/s. Sonu Investments, assessee was not in a position to explain the same. However, ld. AO concluded that since these transactions are not recorded in the books of the accounts of the assessee, assessee must have sold its own profit which is not accounted for in its books of accounts and thus, made the addition. In the given set of facts and circumstances and as explained by the assessee, we do not find any reasons to sustain the addition made by the Ld. AO which is based merely on presumption. Accordingly, ground no. 12 is allowed. 8.10. For the addition of Rs.4,42,000/- pertaining to cheques received and in encashed later on 05.04.1997, as contested by the assessee vide ground no.14, ld. Counsel submitted that assessee had received two cheques dated 31.3.1997 of Rs. 3,32,000/- and Rs. 1,10,000/- respectively from its clients in respect of business transactions. The said cheques were subsequently deposited in bank account with Shamrao Vithal Co-op Bank Ltd. on 05.04.1997. For this, corresponding entry has been reflected in the bank statement of Shamrao Vithal Co-op Bank Ltd., placed in the paper book on page nos. 273 and 274. From the perusal of the bank statement and as explained by the ld. Counsel, it is noted that these transactions are recorded in the books of accounts of the assessee and therefore, cannot be subjected to addition u/s.158BB. Accordingly, ground no.14 raised by the assessee is allowed. 9. Ground No.10 is in respect of addition of Rs.26,68,939/- on account of aggregate amount of deposit in Indian Overseas Bank, entries of which were not incorporated in the books account of the assessee. In this respect, assessee had submitted a copy of the bank statement together with broad analysis of the said account though, the details of these transactions were I.T(SS)A. No.713/Mum/2002 Sanghi Corporate Services Ltd. A.Y.1988 to 1998 (Block Period) 21 available only with Mr. Kamal K. Rathi. Ld. AO in this respect observed that assessee had another bank account with Indian Overseas Bank, Fort branch bearing account no. 7621 which was not disclosed and was discovered during the block assessment proceedings. Assessee was asked to explain the transactions in this bank account which has not been disclosed in its books of accounts. In this respect, assessee submitted that it had considered this account in its account by giving the “net effect” of the credit and debit entries. The submission so made by assessee was not accepted by the ld. AO and he proceeded to add the entire deposit in this account as unexplained cash credit totaling to Rs.26,68,939/-, up to the date of search. 9.1. Ld. Counsel for the assessee pointed out to page 265 and 266 contained the paper book which is the copy of bank statement. From this, he submitted that there are various entries of deposits and withdrawals both, in cash and cheques for which a net effect was given in the books of accounts. It was submitted without prejudice to take the peak balance of this account for the purpose of sustaining the addition in this regard. According to him, in reference to the bank statement peak balance comes to Rs.5,05,544/-. 9.2. We have perused the bank statement and find that submission made by the Ld. Counsel is a plausible contention to sustain the addition of Rs.5,05,544/- by taking the peak balance of this account instead of taking the entire credit entries in this account for the purpose of addition as done by the Ld. AO since there are entries for withdrawal and deposits, both in cash and cheques. Accordingly, we direct the ld. AO to treat the peak balance of Rs. 5,05,544/- for the purpose of addition in this respect of I.T(SS)A. No.713/Mum/2002 Sanghi Corporate Services Ltd. A.Y.1988 to 1998 (Block Period) 22 transactions in this bank account. For the balance, assessee gets the relief. Accordingly, ground no.10 is partly allowed. 10. In respect, of ground no. 13, ld. AO noted that assessee has received share premium on 55,000 shares @ Rs.8/- per share prior to it going public. He noted from the three bills M/s. Sonu Investments had purchased 55,000 shares @ of Rs. 18 per share in the name of three different persons. According to him, purchase transaction took place during the period 24.08.1995 and 04.08.1995 which is the period prior to the period when assessee had gone for public issue. According to the ld. AO, assessee was a closely held company prior to 1996 and its shares were not listed, having face value of Rs.10/- per share. According to him, since the shares were sold at Rs.18/- having face value of Rs.10, assessee had received Rs.8/- per share on 55,000 shares which was added as share premium in the hands of the assessee. 10.1. In this respect, it was submitted that assessee was listed on Bombay Stock Exchange on 11.02.1995 which was before the period considered by the ld. AO. Assessee had very categorically disowned these transactions and submitted that these might have been purchased by M/s. Sonu Investments on the recognized stock exchange, to which assessee is not a party. Addition made by the ld. AO is based on presumption, without any basis except for three bills found in the name of M/s. Sonu Investments. In this regard, from the perusal of material, nothing cogent has been brought on record to establish that the transaction is the one undertaken by the assessee. This addition refers to bills of certain broker which suggests that M/s. Sonu Investment had purchased 55,000 shares @ Rs. 18/- per share. It is also a fact that assessee had gone public prior to the I.T(SS)A. No.713/Mum/2002 Sanghi Corporate Services Ltd. A.Y.1988 to 1998 (Block Period) 23 date of transaction as alleged by the ld. AO. Thus, the presumption made by ld. AO of assessee being closely held company does not hold good. Accordingly, the addition so made is deleted. In the result, ground no.13 is allowed. 11. Appeal of the assessee has been adjudicated on the merits of the case in terms of our observations and findings stated above for each of the grounds raised by the assessee. Legal issue raised by the assessee vide ground no. 1 are not adjudicated upon and accordingly kept open. 12. In the result, appeal of the assessee is partly allowed. Order pronounced in the open court on 21.04.2025. Sd/- Sd/- [Amit Shukla] [Girish Agrawal] Judicial Member Accountant Member Dated: 21.04.2025. Divya R. Nandgaonkar Stenographer Copy to: 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. 5. Guard File CIT BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai "