ITO Vs Everfine Alloys Private Limited (ITAT Mumbai)
Assessees were engaged in trading of alloys, shares, derivatives & mutual funds. Their books consistently treated shares as inventory, with trading income offered as business income. Substantial trading turnover was reported – ₹809.59 crores (A.Y. 2013–14), ₹52.39 crores (A.Y. 2014–15) & ₹37.40 crores (A.Y. 2015–16).
AO reopened assessments relying on Investigation Wing’s report on Naresh Jain group, alleging manipulation of Nysaa scrip used for accommodation entries. Based on third-party statements & non-response of some counterparties to notices u/s 133(6), AO treated Assessees’ losses & profits in Nysaa shares as unexplained income u/s 68.
CIT(A) deleted additions noting that:
- Assessees were regular traders in hundreds of scrips, not isolated penny stock investors.
- Trades were through recognised stock exchanges with STT duly paid, supported by broker notes & bank entries.
- Losses in one year & modest profits in subsequent years contradicted the allegation of contrived gains.
- No nexus was shown between Assessees & alleged entry operators; no opportunity of cross-examination was provided.
Tribunal concurred with CIT(A). It held that mere reliance on investigation report & third-party statements without independent inquiry cannot sustain additions. Since Assessees disclosed transactions as taxable business income, invocation of Sec. 68 was misplaced. Revaluation loss in A.Y. 2013–14 was also held allowable as per accounting standards (AS-2). Accordingly, Tribunal dismissed Revenue’s appeals & upheld deletion of additions of ₹2.55 crores (A.Y. 2013–14), ₹80.42 lakhs (A.Y. 2014–15) & ₹19.83 lakhs (A.Y. 2015–16).
