DCIT Vs Santosh Promoters private Limited (ITAT Kolkata)
Summary: The appeal was preferred by the Revenue against the order of the Commissioner of Income-tax (Appeals), Kolkata-20, dated 05.12.2023 for Assessment Year 2012-13. The first dispute concerned deletion of an addition of ₹1,54,10,350/- made by the Assessing Officer on account of alleged bogus loss on current year derivatives.
The assessee was a broker with allotted client code No. CK-0477 for trading in currency derivatives at MCX Stock Exchange. The assessee had issued valid contract notes in respect of online trading and all transactions were accepted on the stock exchange platform. The transactions were conducted through banking channels. The Assessing Officer nevertheless treated the loss incurred by the assessee as bogus loss.
The CIT(A) deleted the addition after noting that the derivative transactions were carried out on the MCX stock exchange platform and that the Assessing Officer had not found any discrepancy in the trading. The CIT(A) noted that the Assessing Officer had relied upon information received from the Investigation Wing concerning transactions through M/s. Marigold Vanijya Pvt. Ltd. The statement of the director of that company, Sri Sachet Saraf, had been retracted. The CIT(A) also noted that the Assessing Officer had not carried out any further investigation. Although notice under Section 133(6) had been issued to MCX, only part reply was stated to have been received and the Assessing Officer did not discuss the report or reply. The statement of Sri Sachet Saraf had also not been provided to the assessee and cross-examination had not been allowed. The CIT(A) further referred to a co-ordinate Bench decision in which transactions in current year derivatives through M/s. Marigold Vanijya Pvt. Ltd. were held to be genuine.
The Tribunal, after considering the rival contentions and material on record, found that the CIT(A) had given a clear finding that the Assessing Officer had failed to bring any corroborating material against the assessee, whereas the assessee had produced all contract notes for transactions executed on the exchange. The Tribunal noted that the Assessing Officer had acted on the Investigation Wing report and the retracted statement of Shri Sachet Saraf. It found no infirmity in the CIT(A)’s order and upheld the deletion by dismissing grounds 1 and 2 of the Revenue’s appeal.
Grounds 3 and 4 concerned deletion of an addition of ₹3,63,137/- under the head capital gain made by invoking Section 50C of the Act. The assessee was a co-owner of the property sold. The property had been referred to the DVO in the case of M/s. Delight Suppliers Pvt. Ltd., another co-owner. The DVO’s valuation report, received after completion of assessment, estimated the value of the property as on 31.01.2012 at ₹12,07,89,700/-, whereas the assessee had declared sale consideration of ₹11,57,08,600/- as on the same date. The CIT(A) treated the difference as falling within the 5% safe harbour limit under the third proviso to Section 50C and deleted the addition.
The CIT(A) considered the Assessing Officer’s objection that the third proviso to Section 50C had been inserted by the Finance Act, 2018 with effect from 01.04.2019 and held, relying on judicial decisions referred to in the appellate proceedings, that the amendment was declaratory and curative and could operate retrospectively. Since the difference between the estimated value and declared consideration did not exceed 5%, the CIT(A) held that the assessee was entitled to the safe harbour and that no addition under Section 50C was sustainable. The CIT(A) also concluded that there was consequently no basis to disturb the written-down value for depreciation.
The Tribunal agreed with the conclusion of the CIT(A) that the difference was within the permissible limit under the third proviso to Section 50C. It accordingly upheld deletion of the addition and dismissed grounds 3 and 4.
Ground 5 concerned an alleged violation of Rule 46A of the Income-tax Rules, 1962 on the ground that fresh documents submitted before the CIT(A) had not been referred to the Assessing Officer. The Tribunal found that the assessee had submitted the document before the CIT(A) only pursuant to the CIT(A)’s direction and that no new documents had been furnished which were not already placed before the Assessing Officer. The Tribunal therefore found no merit in the ground and dismissed it.
Ground 6 concerned deletion of an addition of ₹69,00,861/- made by the Assessing Officer on account of an alleged difference between income shown in the Profit and Loss account and Form 26AS. The CIT(A) found that the gross amount reflected in Form 26AS included service tax, whereas the assessee accounted only for the revenue component in the Profit and Loss account and accounted for service tax separately. The CIT(A) therefore found no suppression of income. However, based on the assessee’s own admission, an amount of ₹39,936/- representing interest from CESC had not been included in total income, and the Assessing Officer was directed to add that amount.
The Tribunal agreed with the CIT(A)’s factual finding that there was no difference in income between the Profit and Loss account and Form 26AS because service tax was included in Form 26AS but separately accounted for in the books. It accordingly upheld the CIT(A)’s order and dismissed the ground.
In the result, the Revenue’s appeal was dismissed. The order was pronounced in the open court on 20.11.2025.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by the Revenue against the order of the Commissioner of Income-tax (Appeals), Kolkata-20, (hereinafter referred to as the “Ld. CIT(A)”] dated 05.12.2023 for the AY 2012-13.
02. The issue raised in ground no.1 and 2 is against the deletion of addition of ₹1,54,10,350/- by the learned CIT (A) as made by the learned AO on account of bogus loss on current year derivatives.
03. The facts in brief are that the assessee is a broker with allotted client code No.CK-0477 for trading in currency derivatives at MCX Stock Exchange. The assessee had issued valid contract notes in respect of online trading and all the transactions were accepted on the stock exchange platform. All the transactions were through banking channel. However, the learned AO added the loss incurred by the assessee of ₹1,54,10,00,350/- as bogus loss.
04. In the appellate proceedings, the learned CIT (A) allowed the appeal of the assessee by holding that the assessee has indulged in derivative trading in MCX stock exchange and all the transactions were carried out at the stock exchange platform. The learned CIT (A) noted that the learned AO has not found any discrepancy in respect of such trading. The learned CIT (A) further noted that the learned AO has relied only the information received from Investigation Wing that the transactions through M/s. Marigold Vanijya Pvt. Ltd were not genuine. Besides the CIT (A) also noted that the director of the said company Sri Sachet Saraf, who gave statement during the proceedings u/s 132 of the Act retracted such statement which was relied upon by the AO. Ld. CIT(A) also noted that the learned AO has not carried out any further investigation. The learned CIT (A) also noted that the learned AO issued notice u/s 133(6) of the Act to MCX, however, only part reply was stated to be received n onetheless, the learned AO did not discuss anything about the said report/ reply. The learned CIT (A) also noted that the statement of Sri Sachet Saraf was not given to the assessee nor cross examination was allowed. Thereafter, the learned CIT (A) referred to co- ordinate Bench decision, wherein it has been held that the transactions in current year derivatives through M/s. Marigold Vanijya Pvt. Ltd were held to be genuine. Finally, the learned CIT (A) held that there were no corroborative evidences current year derivates trading through M/s. Marigold Vanijya Pvt. Ltd. were not genuine and thus, deleted the same.
05. After hearing the rival contentions and perusing the materials available on record including the appellate order, we find that the learned CIT (A) has given a very clear-cut finding on the issue that the learned AO failed to bring on record any material corroborating the allegation against the assessee whereas the assessee has filed all the contract notes for the transactions executed on the exchange before the learned AO. We note that the learned AO has only acted on the report of the investigation wing and retracted statement of Shri Sachet Saraf. Thus, we do not find any infirmity in the order of the learned CIT (A) and are inclined to up hold that the same on this issue by dismissing ground no. 1 and 2 in the appeal of the Revenue.
06. The issue raised in ground no.3 and 4, is against the deletion of addition of ₹3,63,137/- under the head capital gain by learned CIT (A) as made by the learned AO by invoking the provisions of Section 50C of the Act.
07. The facts in brief are that the assessee sold his property in which it was only co- owner. The sold property was referred to the DVO in case of M/s delight suppliers Pvt. Ltd. who was one of the co- owners in the said property along with the assessee. The valuation report of the DVO has been received after assessment was framed. A s per said valuation report, t he estimated value of the property as on 31.01.2012, was ₹12,07,89,700/-, whereas the assessee has declared the sales consideration of ₹11,57,08,600/- as on 31.01.2012. The learned AO added the different between sale consideration and the the learned CIT (A) deleted the addition stating the same to be falling under safe harbor limit of 5% as per third proviso to Section 50C of the Act by observing and holding as under:-
“ 4.3 I have carefully considered the facts of the case and submission of the appellant. Sold property was referred for valuation during assessment proceedings in the case of M/s. Delight Suppliers Pvt. Ltd., which is one of the co- owners of the property, along with assessee company. Valuation report of the DVO has been received after the assessment order was finalized. As per the valuation report, theestimated value of the property as on 31.01.2012 was Rs.12,07,89,700/- whereas assessee had declared the sale consideration of Rs.11,51,08,600/- as on 31.01.2012. Thus, the difference between the estimated value and the declared value was less than 5% of the declared value. As appellant in its submissions had claimed that safe harbour rule of 5%, as per the 3rd proviso to section 50C, would be applicable in its case in view of several judicial pronouncements, AO was asked to offer his comments on this issue. Vide letter dated 28.11.2022, AO has submitted that 3rd proviso to section 50C was inserted by Finance Act, 2018 and it was effective from 01.04.2019. AO has mentioned that there is no provision that this amendment would be applicable retrospectively, i.e. w.e.f. 01.04.2003. A.O. has also drawn our attention to the Explanatory Notes to Finance Act, 2018 which clearly mentions that the amendment would be effective from 01.04.2019. I have duly considered AO’s objections in this regard. But the facts remains that there are several decisions including those of Kolkata ITAT, as mentioned by the appellant in its submissions, which have held the insertion of 3rd proviso to section 50C of the I.T. Act to be declatory and curative in nature. It is held that this amendment is not a substantive amendment. Rather it is only a procedural amendment. Therefore, even when the statute does not specifically state so, such amendment are in the nature of retrospective amendment and these should be treated as effective from the date when 50C was introduced in the statute, i.e. w.e.f. 01.04.2003. As in the appellant’scase, the difference between the estimated value and the declared value does not exceed 5% of the declared value, assessee is entitled for safe harbour rule of 5% as per 3rd proviso to section 50C, as held in various judicial decisions, as mentioned in the preceding paras.
Coming to the addition in respect of depreciation, I agree with appellant’s submission that once the safe harbour rule of 5% is held to be applicable in appellant’s case, no addition could be made by invoking the provisions of section 50C. Consequently, assessee’s computation in respect of capital gains would be acceptable and consequently there will be no occasion to disturb the WDV in respect of buildings. This would also imply that depreciation worked out as per remaining WDV in the depreciation chart would be same as declared by the assessee. Hence, addition in respect of excess claim of depreciation is not sustainable. In view of the above discussion, addition of Rs.3,63,137/- under the head ‘capital gains’ is deleted.
08. Considering the facts of the above case and the order passed by the appellate authority, we are in full agreement with the conclusion drawn by the learned CIT (A) with regard to the difference being within the permissible limit as per third proviso to Section 50C of the Act Therefore, no addition can be made. Accordingly, we up hold the order of learned CIT (A) by dismissing the ground no. 3 and 4 in the appeal of the Revenue.
09. The issue raised in ground no.5, is against the order of learned CIT (A) violating the provisions of Section 46A of the Income T ax Rules, 1962 by not referring to the learned AO the fresh documents submitted before the learned CIT (A).
010. After hearing the rival contentions and perusing the materials available on record, we find that the assessee has submitted document before the learned CIT (A) only pursuant to the direction of the learned CIT (A) and no new documents were furnished which were not placed before the AO. T herefore, we do not find any merit in this ground and accordingly the ground no. 5 is dismissed.
011. The issue raised in ground no.6 is against the deletion of addition of ₹69,00,861/-, by the learned CIT (A) as made by the learned AO on account of difference between the income shown in Profit and Loss account vis-à- vis 26AS. The learned AO added the same on the ground that the assessee could not furnish any explanation and therefore, added the same to the income of the assessee.
012. In the appellate proceedings, the learned. CIT (A) deleted the addition by observing and holding as under:-
“5.3 I have carefully considered the facts of the case and submission of the the appellant. In Form 26AS statement gross amount shown therein includes service tax also. However, assessee is accounting only revenue component in the P & L A/c. and service tax has been accounted separately. Under the circumstances, there is no suppression income and hence, addition is not justified. However, as per assessee’s own admission an amount of Rs.39,936/- , being interest from CESC, was not included in the total income. Hence, AO is directed to add back this income to the total income of the assessee. In view of the above, addition to the extent of Rs.69,00,861/- (Rs.69,40,797 – Rs. 39,936) only is deleted.”
013. After hearing the rival contentions and perusing the materials available on record, we find that the learned CIT (A) has given a clear cut finding that there is no difference of income as shown in the Profit and Loss account vis-à- vis form 26AS. The learned CIT (A) recorded the finding of fact that the income shown in the form 26AS is inclusive of service tax also and thus, there appears to be apparent difference but as a matter of fact there was no difference as the service tax was included in the form 26AS whereas in the Profit and Loss account that was not included and shown separately. Considering these facts, we are inclined to hold the order of learned CIT (A) by dismissing the ground.
014. In the result, the appeal of Revenue is dismissed.
Order pronounced in the open court on 20.11.2025.
