Tribunal quashes reopening, finds addition under section 68 unjustified.

The Tribunal allowed the appeal, quashing the reopening under sections 147/148 and holding the addition of Rs. 1,31,08,895 under section 68 was not sustainable. The Tribunal found the initiation of proceedings lacked legal basis, as the AO relied on incorrect information without independent verification. The addition under section 68 was deemed unjustified, as the AO failed to consider the evidence provided by the assessee. The order was issued on October 22, 2020.

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Issues Involved:
1. Legality of the initiation of proceedings under sections 147/148 of the Income-tax Act.
2. Validity of the addition of Rs. 1,31,08,895 under section 68 read with section 115BBE of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Legality of the initiation of proceedings under sections 147/148 of the Income-tax Act:

The assessee challenged the initiation of proceedings under sections 147/148 on several grounds, including:
- The Assessing Officer (AO) did not apply his mind independently and relied on borrowed satisfaction from the Investigation Wing's report.
- The figures recorded in the reasons were factually incorrect, indicating non-application of mind by the AO.
- There was no proper, valid, and legal service of notice under section 148.
- The requisite sanction under section 151 was granted mechanically.
- The AO acted on mere surmises and suspicion for making fishing and roving inquiries, which is not in accordance with the law requiring "reason to believe" and not "reason to suspect."
- There was no nexus between the reasons recorded and the escapement of income.
- There was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.

The Tribunal noted that the AO recorded reasons based on information from the Investigation Wing, which identified the assessee as a beneficiary of bogus profits from commodity trading. However, the Tribunal found that the AO did not verify the information from the Investigation Wing or make independent inquiries before recording the reasons. The AO's reasons were based on incorrect figures and did not reflect the actual profit earned by the assessee, as shown in the audited financials. The Tribunal also noted that the Principal CIT granted approval for initiating proceedings mechanically, without verifying the actual profit figures.

The Tribunal referred to the Delhi High Court's decisions in Pr. CIT vs. Meenakshi Overseas Pvt. Ltd. and Principal CIT vs. RMG Polyvinyl (I) Ltd., which held that information from the Investigation Wing cannot be considered tangible material per se without further inquiry by the AO. The Tribunal concluded that the initiation of proceedings under sections 147/148 was not legal and quashed the reopening.

2. Validity of the addition of Rs. 1,31,08,895 under section 68 read with section 115BBE of the Income-tax Act:

The assessee contended that the addition made by the AO under section 68 was not sustainable on merits because:
- The addition was based merely on the Investigation Wing's report, which was never confronted to the assessee.
- The documentary evidence provided by the assessee to prove the profit on commodity trading was neither examined nor controverted by the AO.
- There was no evidence to prove that the assessee routed unaccounted money as profit on commodity trading.
- The copies of replies from R.K. Commodities Services (P) Ltd., relied upon by the AO, were never supplied to the assessee.

The Tribunal observed that the assessee declared a profit of Rs. 1,49,19,900 on commodity trading, whereas the AO/CIT(A) made an addition of Rs. 1,31,08,895 under section 68. The Tribunal found that the AO/CIT(A) made the addition based on surmises, as the figure of Rs. 1,31,08,895 did not match any figures in the audited financials. The Tribunal noted that the assessee provided documents, including copies of accounts with R.K. Commodities (P) Ltd. and Smrat Commodity Broker Pvt. Ltd., which were not examined or controverted by the AO/CIT(A). The transactions were made through banking channels, as evidenced by the HDFC Bank statement.

The Tribunal also noted that the AO issued notices under section 133(6) to NMCE and MCX but did not confront the assessee with the replies. The Tribunal concluded that the addition made by the AO and confirmed by the CIT(A) was not sustainable on merits, as it was based on surmises and ignored the evidence provided by the assessee.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, quashing the reopening of the assessment under sections 147/148 and holding that the addition of Rs. 1,31,08,895 under section 68 was not sustainable on merits. The order was pronounced on October 22, 2020.

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