ITAT Mumbai Sends Back Offline Share Sale & Loan Adjustment Dispute for Fresh Review

Background of the Appeal

The dispute in ITO Vs Adhir Barter Private Limited (ITAT Mumbai) arose from an assessment framed under Section 143(3) of the Income Tax Act 1961 for Assessment Year 2017-18. The assessment order was passed on 30.12.2019 by the Income Tax Officer, Ward-9(1)(1), Mumbai.

The Revenue challenged the subsequent relief granted by the CIT(A)/National Faceless Appeal Centre, Delhi vide order dated 04.02.2025. Two key additions deleted by the CIT(A) were in dispute:

  • Addition of Rs. 6,24,72,800/- under Section 68 relating to an alleged sale of equity shares of Shree Ram Urban Infrastructure Ltd. (SRUIL); and
  • Addition of Rs. 6,50,000/- under Section 69C towards alleged unexplained expenditure in the name of Shah Casting Pvt. Ltd.

The ITAT Mumbai examined both these issues in detail and rendered a split outcome: the share transaction issue was remanded for fresh adjudication, while the deletion of the Section 69C addition was upheld.

Return Filing and Basic Facts

The assessee, Adhir Barter Private Limited, filed its return of income belatedly under Section 139(4) on 16.03.2018, initially declaring a loss of Rs. 4,68,54,600/-. A revised return was later filed, declaring total income at Nil.

During assessment, the Assessing Officer (AO) scrutinised:

  • The statement of long term capital loss (LTCL); and
  • Note relating to “Non-current Investments” in the financial statements as at 31.03.2017.

From these records, the AO noted that the assessee claimed to have sold 7,80,910 shares of SRUIL at Rs. 80/- per share, resulting in a substantial capital loss.

Core Transaction: Alleged Offline Sale of SRUIL Shares

Key Components of the Transaction as Claimed by the Assessee

From the assessee’s submissions before the AO and CIT(A), the following factual matrix emerged:

  1. Preferential Allotment of SRUIL Shares

    • On 10.02.2010, 7,80,910 shares of SRUIL were allotted to the assessee on a preferential basis against share warrants at Rs. 140/- per share, totalling Rs. 10,93,27,400/-.
    • The allotment was made directly by SRUIL. Supporting documents like allotment letter and warrant certificate were furnished.

  2. Claimed Sale to Rotunda Capital & Finance (1) Pvt Ltd (RCFPL)

    • The assessee claimed to have sold these 7,80,910 shares of SRUIL to Rotunda Capital & Finance (1) Pvt Ltd (RCFPL) during the relevant previous year.
    • The sale was stated to be offline, not routed through the stock exchange, and no STT was paid on the transaction.

  3. Sale Price and Market Rate

    • The sale price was asserted to be Rs. 80/- per share as on 31.03.2017.
    • The assessee submitted that the prevailing market price of SRUIL shares on 31.03.2017 was Rs. 62.55 per share at BSE.
    • It was argued that the assessee benefitted by being able to sell at a higher rate (Rs. 80/-) relative to the market price.

  4. Existing Loan from RCFPL and Adjustment of Consideration

    • The assessee had an outstanding loan from RCFPL arising from earlier years.
    • As per the assessee, the agreed sale consideration of Rs. 6,24,72,800/- (7,80,910 shares × Rs. 80/-) was not received in cash or via bank; instead, it was adjusted against the existing loan liability to RCFPL.
    • Even after this adjustment, the assessee showed a balance loan payable of Rs. 6,62,35,716/- as on 31.03.2017.

  5. Capital Loss and Return Position

    • On this alleged sale, the assessee computed a long term capital loss of Rs. 4,68,54,600/-.
    • Crucially, due to filing the return under Section 139(4), this LTCL was not eligible for carry forward and was not claimed as such in the return.

  6. Shareholding & DMAT Representation

    • The assessee submitted that the SRUIL shares were originally credited to its DMAT account, and also reflected in SRUIL’s books, to evidence genuine acquisition.

AO’s Doubts on Genuineness

The AO initiated deeper verification due to inconsistencies in shareholding data and the absence of banking channels:

  • Notices under Section 133(6) were issued to banks and DMAT depositories based on details provided by the assessee.
  • According to the assessee’s own working:
    • Opening balance of SRUIL shares as on 01.04.2016: 22,15,322 shares
    • Closing balance as on 31.03.2017 (after sale of 7,80,910 shares): 14,34,412 shares

However, from the **DMAT statement obtained from Stock Holding Corporation of India Ltd.