DCIT Vs M B Trade Link Pvt. Ltd. (ITAT Mumbai)
Section 68 Cannot Tax The Same Profit Twice – Client Code Modification Allegation Needs More Than An SFIO Report
Commodity profit caught in the NSEL net
The assessee was engaged in regular business activities & also undertook commodity trades through an authorised broker.
The assessment was reopened on the basis of information received from the Serious Fraud Investigation Office [SFIO] concerning alleged irregular transactions undertaken on the National Spot Exchange Ltd. [NSEL] platform.
According to the information, several persons had booked bogus speculative or non-speculative gains & losses through NSEL transactions. The assessee was alleged to be one of the beneficiaries of Client Code Modification [CCM] transactions carried out through its broker, Anand Rathi & Associates.
The Revenue also relied upon a broker’s statement that no actual delivery of commodities had taken place in the trades executed on the NSEL platform.
Based principally upon this information, the AO treated commodity-trading profit of ₹1,50,460 as unexplained income u/s 68.
Profit was already sitting in the return
The assessee had filed a revised return & subsequently furnished another return in response to notice u/s 148.
In that return, it disclosed aggregate profit of ₹4,77,852 from trading in securities & forward commodity transactions as business income. The disputed amount of ₹1,50,460 was already included in this disclosed trading profit.
The amount arose from commodity transactions undertaken on 24.05.2013 & 27.06.2013 through the authorised broker. The corresponding Sauda report contained particulars of the commodities, quantities, purchase & sale values, rates & settlement.
Indeed, the AO himself reproduced the relevant trade details in the assessment order. The records showed that identical quantities of commodity contracts were purchased & sold on the respective dates, resulting in the profit of ₹1,50,460.
Thus, this was not an unidentified credit suddenly appearing in the assessee’s books. It represented the computed result of disclosed commodity transactions forming part of the business income already offered in the return.
One profit cannot be taxed under two labels
The AO disregarded the fact that the profit had already been credited to the trading account & included in the returned business income. He proceeded to add the same amount once again as unexplained income u/s 68.
The CIT(A) held that this approach resulted in double taxation of the identical amount.
Section 68 applies where a sum is found credited in the books of an assessee & the assessee either furnishes no explanation regarding its nature & source or the explanation offered is found unsatisfactory.
Here, the nature & source of the credit stood fully explained. It was commodity-trading profit supported by the broker’s trade records & already incorporated in the assessee’s computation of income. The AO could not simultaneously rely upon the Sauda report to identify the amount & ignore that very report while examining the explanation for its source.
An income already offered under one head cannot again be added u/s 68 merely by changing its label from “trading profit” to “unexplained credit”.
Investigation information is a starting point—not the final assessment
The CIT(A) found that the AO had simply relied upon the information received from the SFIO without undertaking an independent verification of the assessee’s specific transactions.
No adverse comment was made on the contract notes, Sauda report, trading records, return of income or other evidence furnished by the assessee. Nor did the AO demonstrate how the disputed profit was fictitious when the underlying purchase & sale transactions were available on record.
General information alleging misuse of Client Code Modification facilities by a broker may justify an enquiry. However, it cannot by itself establish that every transaction of every client of that broker is bogus.
The assessment must rest upon evidence concerning the assessee’s own transaction. The AO cannot substitute a general investigation report for examination of the documentary evidence placed before him.
Prism Share Trading settles the controversy
The CIT(A) relied upon ITO v. Prism Share Trading Pvt. Ltd., ITA No. 5650/Mum/2017, order dated 30.11.2018.
In that case, the Mumbai ITAT held that duly evidenced commodity profit could not be treated as unexplained cash credit u/s 68 merely on the basis of general allegations surrounding commodity transactions.
The Tribunal also examined whether regular losses could be set off against income treated as unexplained. It held that the restriction introduced in section 115BBE against set-off of losses operated prospectively from AY 2017-18.
Before that amendment, there was no statutory embargo preventing the set-off of an otherwise eligible loss even where an amount was assessed under the deeming provisions.
The present case concerned AY 2014-15, well before the amended restriction took effect. Therefore, even assuming that the profit could be assessed u/s 68, the assessee’s eligible business loss could not be denied set-off merely by invoking section 115BBE.
Non-appearance did not rescue the Revenue’s weak case
Despite service of notice on more than three occasions, no one appeared for the assessee before the ITAT. The Tribunal therefore heard the Revenue & decided the matter on the basis of the available record.
Nevertheless, the absence of the assessee could not improve the merits of the Revenue’s appeal. The CIT(A)’s order was supported by the trading records, disclosure in the return & applicable judicial precedent.
The Revenue could not demonstrate that the CIT(A) had ignored any material evidence or that the profit remained unexplained.
Decision
The ITAT held that the CIT(A) had correctly appreciated the facts. The impugned profit of ₹1,50,460 was already included in the trading income of ₹4,77,852 offered by the assessee.
The AO’s attempt to add it once again u/s 68 resulted in impermissible double taxation. Further, the addition had been made solely upon general information without proper examination of the evidence furnished by the assessee.
The deletion of the addition was accordingly upheld & the Revenue’s appeal was dismissed.
Cases Discussed
- ITO v. Prism Share Trading Pvt. Ltd., ITA No. 5650/Mum/2017, order dated 30.11.2018
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, MUMBAI
1. This appeal by Revenue is directed against the order of ld. CIT(A)dated 03.11.2025 for Assessment Year (AY) 2014-15. The Revenue has raised following grounds of appeal:
“1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the fact that as per Serious Fraud Investigation Officer (SFIO) report, most of the entities/Individuals booked bogus speculative & non speculative gain and losses by trading on the NSEL platform and assessee is also one of the beneficiaries of such scam.
2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in overlooking the fact that the statement of one of the brokers wherein it is clearly stated that “no physical delivery of goods took place at any time whatsoever in all trades executed on NSEL.
3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in considering the fact that the assessee had earned profit of Rs. 1,50,460/- on account of Client Code Modification transaction and that the assessee has shown Nil income after adjusting loss.”
2. None appeared on behalf of the assessee despite service of notice on more than three occasions. Therefore, we are left with no option except to hear the submissions of the learned Senior departmental representative (DR) for the Revenue and on the basis of material available on record.
3. The learned Senior Departmental Representative (ld. DR) for the Revenue submits that the case of the assessee was reopened on the basis of information received from the Serious Fraud Investigation Officer (SFIO). In the said information, it was reported that the assessee is one of the persons who was a beneficiary of transactions involving Client Code Modification CCM). The share broker of the assessee, namely, Anand Rathi and Associates, was indulging in providing client code modification. The learned CIT(A), while allowing relief to the assessee, ignored the vital facts and information. The learned Senior DR prayed that the order of the Assessing Officer be restored by reversing the findings of the learned CIT(A).
4. We have considered the rival submissions of the learned Senior DR and the material available on record. We find that the AO made an addition of Rs. 1,50,000/- on account of client code modification. We find that the learned CIT(A) allowed relief to the assessee by taking the view that before him the assessee submitted that the AO erred in computing the total income of Rs. 1,50,460/- as against the returned loss of Rs. 1,11,48,812/-. The assessee submitted that it was engaged in normal business activities and also undertook commodity trades through an authorised broker.
The assessee filed a revised return earlier and subsequently filed a return in response to notice issued under section 148 wherein profit from trading in securities and forward commodity transactions amounting to Rs. 4,77,852/- was disclosed as business income. The component of Rs. 1,50,460/- represented the profit from commodity trades undertaken on 24 May 2013 and 27 June 2013 through broker, such fact is supported by the assesseswritten submission, wherein it has been stated that “the assessee has already offered the income of Rs. 4,77,852/- as Profit in Trading in securities and Forward Market. This statement is further substantiated by the Sauda report reproduced by the AO himself in the assessment order. The extract clearly shows that buy and sell transactions for the same quantity of commodity contracts were executed on the same dates and resulted in the profit figure of Rs. 1,50,460/-. This leaves no doubt that the profit is not an unexplained credit but a trading result arising out of completed business transactions. The AO disregarded the fact that the profit was already credited and offered in the computation of income and instead proceeded to add the same as unexplained income under section 68 of the Act. The A.O further held that it represented speculative profit not eligible for set-off against business loss. The addition so made by the A.O has therefore resulted in double taxation of the same profit. The provision of section 68 of the Act can be invoked only when there exists a credit in the books for which the assessee fails to provide a satisfactory explanation regarding its nature and source. In the present case, the appellant has fully explained the nature and source of the said profit. The AO himself has reproduced the contract note details including quantity, value, rates and settlement. Once the profit forms part of the trading results and appears in the return filed in response to notice under section 148, treating it again as unexplained income is legally untenable. The ld CIT(A) also relied on the decision of Tribunal in ITO vs. Prism Share Trading Pvt. Ltd., in ITA No. 5650/Mum/2017 dated 30.11.2018, wherein it was held that the AO was not justified in treating duly evidenced commodity profit as unexplained cash credit under section 68 of the Act. The Tribunal further examined whether loss can be set off against such income and held that section 115BBE restricting set-off was amended only with effect from assessment year 2017-18. In the year involved in that appeal (assessment year 2013-14), there was no statutory embargo on allowing set-off of loss. The Tribunal held that “there was no embargo to claim set off of losses in the year under consideration.” Therefore, even if the addition is assumed to be under section 68, the set-off of loss cannot be denied prior to AY 2017-18 because the amendment to section 115BBE is prospective only. In the present case, the assessment year involved is AY 2014-15, which falls prior to the amendment. Hence the assessee is legally entitled to set off its regular business loss against the commodity trading profit already offered.
5. We find that ld. CIT(A) while allowing relief to the assessee held that AO simply relied upon the information without actual verification of the facts. No comments were made on the various evidences furnished by the assessee. The learned CIT(A) clearly held that the addition cannot be made solely on the basis of information without making any comments on the various evidences furnished by the assessee. Thus, we find that the order of the learned CIT(A) is based on proper appreciation of facts. Accordingly, we do not find any merit in the grounds of appeal raised by the Revenue. In the result, the grounds of appeal raised by the Revenue are dismissed.
6. In the result, appeal filed by Revenue is dismissed.
Order was pronounced in open court on 17/08/2026
