Ashok Kumar Mahajan Vs ITO (ITAT Delhi)
Property Sold, Derivatives Lost: ₹25.67 Lakh Addition Sent Back for Verification
An addition for unexplained funds cannot be sustained by stating that supporting documents were never furnished when those documents are available on record. In Ashok Kumar Mahajan through Legal Heir Lovesh Mahajan v. ITO, the Delhi ITAT found that the CIT(A)’s observations were contrary to the bank statements and property sale agreement produced by the assessee. It therefore restored the matter to the Assessing Officer for fresh examination of the ₹25,66,735 addition. However, the Tribunal declined to invalidate the assessment merely on the strength of the precedent cited regarding failure to mention a charging provision.
The Background: Sale Proceeds Used in Derivatives Trading
The dispute concerned Assessment Year 2016-17. During the relevant period, the assessee sold a shop bearing No.240, Azad Market, Delhi, for a total consideration of ₹46,10,000.
According to the assessee, the proceeds from this property sale were invested in derivatives trading. The trading resulted in a loss of ₹25,66,735.
The Assessing Officer questioned the source of funds used to meet the trading loss. The assessee explained that the money came from the sale of the shop.
However, during the assessment proceedings, the assessee admittedly could not produce the agreement to sell. In the absence of substantiating evidence, the Assessing Officer made an addition of ₹25,66,735, equivalent to the derivatives loss.
Thus, the controversy before the Tribunal concerned proof of the funding source. It was not an adjudication of whether the derivatives loss itself was allowable or eligible for set-off.
Additional Evidence Produced Before CIT(A)
The assessee challenged the addition before the first appellate authority and furnished additional evidence concerning the property transaction and movement of funds.
The material included bank statements and the property sale document. The assessee’s representative contended that the CIT(A) confirmed the addition without admitting these additional documents.
The CIT(A) took the view that the fundamental documents necessary to establish the connection between the property sale and share trading had not been furnished either before the Assessing Officer or before the appellate authority.
The addition was accordingly sustained through the appellate order dated 24 March 2026.
The assessee, represented through legal heir Lovesh Mahajan, then approached the Delhi Tribunal.
The Record Contradicted the Appellate Finding
The Tribunal examined the orders of the lower authorities and the documents available in the paper book.
It noted that the bank statements were placed at pages 17 to 20, while the agreement to sell dated 12 January 2016 was placed at pages 21 to 30.
Against this documentary record, the Tribunal found the CIT(A)’s observation—that the fundamental documents had not been furnished—to be incorrect.
The existence of the documents on record was therefore decisive in obtaining a fresh examination. The dispute could not be disposed of merely by treating the supporting material as absent.
At the same time, the Tribunal did not conclude that the agreement and bank statements conclusively established the source of every payment made towards derivatives trading.
Fresh Assessment Directed
The Tribunal expressly refrained from commenting on the documents furnished as additional evidence.
Instead, it considered it appropriate to restore the matter to the Assessing Officer for a de novo assessment, after considering the material furnished before the CIT(A).
The Assessing Officer was also directed to provide the assessee a reasonable opportunity to make submissions and decide the matter according to law.
This distinction is important. The ₹25,66,735 addition was not finally deleted on merits. The impugned appellate order was set aside, and the explanation of the funding source must now be tested against the documentary evidence.
The appeal was therefore allowed for statistical purposes.
Charging-Section Argument Did Not Succeed
The assessee also relied on Jag Mohan v. DCIT, ITA No.7055/Del/2017, decided on 7 January 2026.
The argument was that neither the Assessing Officer nor the CIT(A) had mentioned the section under which the addition was made, rendering the assessment bad in law.
The Tribunal rejected reliance on that precedent as misplaced. It explained that Jag Mohan involved a different factual situation in which the Assessing Officer had referred to a definition provision rather than the charging provision.
Consequently, that decision did not advance the assessee’s case.
The Tribunal’s conclusion was confined to distinguishing the cited precedent. It should not be read as a universal ruling that omission of the applicable provision can never affect an assessment.
Author’s Comments
Proof of a property sale and proof that its proceeds funded a particular transaction are connected but distinct requirements. The agreement establishes the claimed source, while the bank trail must connect the receipt of consideration with the funds transferred for trading.
On remand, a clear reconciliation of sale receipts, bank credits and payments towards the derivatives account would help establish that connection. The chronology matters as much as the aggregate amounts.
The case also highlights the importance of accurately dealing with additional evidence. Documents already produced cannot be dismissed through a general observation that nothing was furnished. Their relevance and evidentiary value require examination.
Equally, the assessee’s legal argument illustrates why precedents must be matched to the actual defect alleged. A decision concerning reliance on a definition provision does not automatically resolve a case involving omission to specify a section.
Cases Discussed
- Jag Mohan v. DCIT, ITA No. 7055/Del/2017, ITAT Delhi, order dated 07.01.2026 — Relied upon by the assessee to contend that the assessment was bad in law because no section had been specified for the addition; distinguished by the Tribunal because Jag Mohan concerned an addition made by referring to a definition provision rather than the charging provision.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by the assessee is directed against the order of Additional/Joint Commissioner of Income Tax (Appeals)-4, Mumbai [in short ‘the CIT(A)’] dated 24.03.2026, for Assessment Years 2016-17.
2. The solitary issue assailed by the assessee in present appeal is addition of Rs.25,66,735/- sustained by the CIT(A).
3. Shri Saurav Rohatgi, appearing on behalf of the assessee submits that during the period relevant to assessment year under appeal, the assessee had sold immovable property (shop bearing no.240, Azad Market, Delhi) for a total consideration of Rs.46,10,000/-. The assessee invested the sale consideration from shop in derivatives. The assessee suffered loss of Rs.25,66,735/- in trading of derivatives. The Assessing Officer (AO) questioned the source of funds utilised for meeting the share trading loss. The assessee explained the source of funds i.e. from the sale of immovable property. Admittedly, during assessment proceeding assessee could not place on record copy of agreement to sell. The AO in absence of any substantiating evidence made addition of Rs.25,66,735/- i.e. the loss suffered by the assessee in trading of derivatives. The assessee carried the issue in appeal before the CIT(A). In First Appellate proceedings, the assessee furnished additional evidences in the form of bank statements and sale deed. The ld. AR of the assessee contended that the CIT(A) without admitting additional evidences confirmed the addition made by AO, hence, the present appeal.
4. Per contra, Shri Nirmal Nangia representing the department relying on findings of CIT(A) and the AO, prayed for dismissing appeal of the assessee.
5. Both sides heard, orders of the lower authorities examined. The limited issue for consideration in the present appeal is, addition of Rs.25,66,735/- confirmed by the CIT(A). The addition was made by the AO for the solitary reason that the assessee was not able to substantiate source of investment in shares. The assessee had furnished additional evidences before the CIT(A) in the form of agreement to sell and bank statements. The CIT(A) rejected the same and held that the fundamental documents required to established link between the property sold and share trading was neither furnished before the AO nor the CIT(A). I find the aforesaid observations of the CIT(A) contrary to the documents available on record. The assessee has filed a paper book containing bank statement at pages 17 to 20 and agreement to sell dated 12.01.2016 at pages 21 to 30 of paper book. Without commenting on the documents filed before the CIT(A) as additional evidences, I deem it appropriate to restore this matter to the AO for passing the assessment order denovo, after considering the documents furnished by the assessee before the CIT(A) and affording reasonable opportunity of making submissions to the assessee, in accordance with law.
6. The ld. AR of the assessee has placed reliance on the decision of Tribunal in the case of Jag Mohan vs. DCIT in ITA No.7055/Del/2017 order dated 07.01.2026 to contend that since no section is mentioned by the AO or the CIT(A) while making the addition, the assessment order is bad in law. I find that reliance placed by the AR on the decision rendered in the case of Jag Mohan (supra) is misplaced, as the said decision was on different set of facts where the AO had made addition referring to definition section not the charging section. Hence, the said decision would not advance the cause of assessee.
7. In the result, impugned order is set aside and appeal of the assessee is allowed for statistical purpose, in the above said terms.
Order pronounced in the open court on Wednesday the 30th day of September, 2026.
