$ * IN HIGH COURT OF DELHI AT NEW DELHI 9. + ITA 1869/2010 COMMISSIONER OF INCOME TAX ..... Appellant Through: Mr Kamal Sawhney, Senior Standing Counsel with Mr Ragvendra Singh, Junior Standing Counsel with Mr Shikhar Garg, Advocate. versus KUBER SECURITIES LTD. ..... Respondent CORAM: HON'BLE DR. JUSTICE S.MURALIDHAR HON'BLE MR. JUSTICE VIBHU BAKHRU ORDER % 05.10.2015 1. This appeal by Revenue under Section 260A of Income Tax Act, 1961 ( Act ) is directed against impugned order dated 31st July 2009 passed by Income Tax Appellate Tribunal ( ITAT ) in ITA No. 2352/Del/2005 for Assessment Year ( AY ) 1997-98. 2. By order dated 7th December 2011 Court framed following questions of law for determination: (1) Whether learned Income Tax Appellate Tribunal/Commissioner of Income Tax (Appeals) erred in deleting addition of Rs. 13,57,50,000 made by Assessing Officer on account of unexplained increase in shares capital? ITA 1869/2010 Page 1 of 6 (2) Whether learned Income Tax Appellate Tribunal/Commissioner of Income Tax (Appeals) erred in deleting addition of Rs. 19,98,774 made by Assessing Officer on account of unexplained increase in sundry creditors? (3) Whether learned Income Tax Appellate Tribunal/Commissioner of Income Tax (Appeals) erred in deleting disallowance of 50% expenditure amounting to Rs. 1,97,34,214 made by Assessing Officer under different head of profit and loss account? (4) Whether learned Income Tax Appellate Tribunal/Commissioner of Income Tax (Appeals) erred in deleting addition of Rs. 6,66,59,956 made by Assessing Officer on account of stock in trading particularly when same was shown in balance sheet and not in trading account? Question No. 1: Concerning alleged unexplained increase in shares capital 3. Assessee, Kuber Securities Limited, filed its return of income on 30 th November 1997 disclosing net loss of Rs. 3,93,28,695. Assessing Officer ( AO ) processed return under Section 143 (1) (a) of Act. AO noted that there has been increase in share capital during year under head Share Application Money from Rs. Nil as on 31 st March 1996 to Rs. 13,27,50,000 as on 31st March 1997. Since no details or ITA 1869/2010 Page 2 of 6 confirmation from share Applicants or proofs of identity or creditworthiness was furnished, entire amount was added under Section 68 of Act to income of Assessee. 4. Commissioner of Income Tax (Appeals) [ CIT (A) ], in order dated 28th February 2005, noted that learned counsel for Assessee has furnished details of all 14 subscribers from whom funds had been received by way of share application money. money was also shown to have been received through banking channels. After obtaining remand report from AO, CIT (A) concluded that AO has not commented anything adverse on additional evidences, copies of accounts and bank statements furnished by Assessee to AO. AO has not disapproved/doubted identity and genuinely of subscribers. CIT (A) accordingly concluded that all ingredients of Section 68 stands satisfied as far as receipt of share application money by Assessee company is concerned. Accordingly, CIT (A) deleted additions on this account. 5. ITAT has, in impugned order dated 31 st July 2009, upheld order of CIT (A) while relying on decision of judgment of Supreme Court in CIT v. Lovely Exports (P) Limited (2008) 216 CTR (SC) ITA 1869/2010 Page 3 of 6 195. above finding is purely factual and no materials have been placed on record by Revenue to counter this factual finding or to show it to be perverse. Court finds no reason to interfere with impugned order of ITAT. Question No. 2: Concerning alleged unexplained increase in sundry creditors to extent of Rs. 19,98,714. 6. AO made addition on basis of increase in total balance of sundry creditors as no details of confirmation from sundry creditors or proof of their identity or creditworthiness were furnished. CIT (A) noted submission of Assessee that increase in sundry creditors and sundry debtors are on account of business transactions in course of Assessee s stock broking business. Here again it was noted by CIT (A) that AO, in his remand report, did not doubt increase in sundry debtors while making addition for sundry creditors. He observed that increase in sundry debtors was interlinked with increase in sundry creditors and both were on account of pure business transaction of purchases and sale of share. CIT (A) was satisfied that increase in sundry creditors stands fully explained and established by Assessee. ITAT, while observing that there is no presumption that if increase in sundry creditors is proved, increase in ITA 1869/2010 Page 4 of 6 sundry debtors should also be taken as proved , found that AO did not examine details of each credit entry as was required by Section 68 and affirmed decision of CIT (A). On this issue this Court finds that Revenue is not able to controvert factual finding. Court finds no ground to interfere with impugned order of ITAT. Question No. 3: Concerning 50% disallowance of total expenses claimed under head of profit and loss account amounting to Rs.1,97,35,214 7. CIT (A) deleted disallowance on ground that AO had not spelt out any basis for making 50% disallowance and that there was no justification for such huge addition. ITAT agreed with CIT (A) that no case for making ad hoc disallowance was made by AO. Revenue is not able to persuade this Court to interfere with impugned order of ITAT which appears to be on sound legal basis. Question No. 4: Concerning stock in trade being shown in balance sheet and not in trading account 8. In absence of complete information, AO treated entire closing stock of shares appearing in profit and loss account as stock in trade and made addition of Rs. 6,66,59,956.75. CIT (A) noted that Assessee had chosen to show net effect of entire transactions taking into account opening stock, purchases, sales and closing stock. ITA 1869/2010 Page 5 of 6 Therefore, effect of closing stock stands automatically considered and reflected in accounts. Assessee had declared loss on trading in shares. With Assessee having followed mercantile system of accounting, it is not possible for it to show closing stock in trade in balance sheet without taking into account effect of credit entry passed for closing stock which necessarily had to be routed through profit and loss account. Since no adverse comment has been made by auditor and since same method of accounting had been followed by Assessee in earlier as well as subsequent year, CIT (A) concluded that there was no justification for addition. 9. ITAT affirmed above order. Court is unable to be persuaded to hold that any legal error has been committed by ITAT or CIT (A) in returning above finding. Consequently, no grounds have been made for interference with impugned order of ITAT. 10. appeal is accordingly dismissed. S. MURALIDHAR, J VIBHU BAKHRU, J OCTOBER 5, 2015Rk ITA 1869/2010 Page 6 of 6 COMMISSIONER OF INCOME TAX v. KUBER SECURITIES LTD