2021 (4) TMI 453 - AT - Income Tax

Tribunal quashes invalid reassessment, upholds F&O loss claim. Revenue appeal dismissed, assessee's cross-objection allowed.

The Tribunal quashed the reassessment order due to the invalid reopening under Section 147 and upheld the CIT(A)'s decision on merits, allowing the ... Reopening of assessment u/s 147 - information received from the DDIT(Inv.), Unit-1(4), Mumbai - no independent application of mind by AO - Addition of Future & Option Loss (hereinafter referred to as “F&O loss”) from certain transactions carried out through its broker - HELD THAT:- We hold a strong conviction that the A.O had mechanically acted upon the information received from the DDIT(Inv.), Unit 1(4), Mumbai, and without even doing the bare minimum i.e consulting the assessment records of the assessee for the year in question as was indispensably required on his part for arriving at a bonafide belief that the income of the assessee chargeable to tax had escaped assessment therein reopened its concluded assessment. On the basis of our aforesaid observations, we are of a strong conviction that as the A.O had failed to independently apply his mind to the ‘material’ available on his record and mechanically acting on the information supplied by the Directorate of Income-tax (Inv.) had on the basis of incomplete and incorrect facts reopened the case of the assessee u/s 147 of the Act. We, thus, not being able to persuade ourselves to subscribe to the view taken by the CIT(A) that the A.O had validly assumed jurisdiction u/s 147 of the Act therein ‘set aside’ his order to the said extent. Accordingly, in the absence of valid assumption of jurisdiction by the A.O u/s 147 of the Act, the consequential assessment framed by him u/s 143(3) r.w.s 147, dated 29.03.2015 cannot be sustained and is quashed. Genuineness and veracity of F&O transactions - We are unable to persuade ourselves to subscribe to the view taken by the A.O, wherein adopting a predetermined approach he had discarded the documentary evidences that were furnished by the assessee in support of the authenticity of the F&O transactions, and had without giving any cogent reason held the same as bogus and accommodation transactions. As is discernible from the order of the CIT(A), we find that he had taken cognizance of the fact that the assessee in the course of the assessment proceedings had on the basis of supporting documentary evidences substantiated the authenticity of the F&O transactions, which however were not accepted by the A.O without any whisper of rebuttal or dislodging of the same. Also, the view taken by the A.O that the broker, viz. M/s Alliance Intermediaries & Network Pvt. Ltd. had issued bills to the assessee during the year in question despite having been debarred from trading was found by the CIT(A) to be factually incorrect and misconceived. Accordingly, the CIT(A) after deliberating at length had found favour with the claim of the assessee that it had carried out genuine F&O transactions and suffered the resultant loss during the year in question. We would not hesitate to observe that the A.O in the course of the reassessment proceedings had not even raised any doubt as regards the authenticity of the documents that were filed by the assessee in support of the F&O transactions in question. Ac CIT(A) had rightly concluded that as the assessee had submitted complete evidences in support of its F&O transactions which had not been disputed/rebutted by the A.O thus, the addition made on the basis of the general statement of Shri Mukesh Choksi (supra) as against the specific proved transactions cannot be sustained and had rightly been vacated by the CIT(A). Our aforesaid view that an admission of the aforementioned Shri. Mukesh Choksi, key person of Mahasagar Securities Pvt. Ltd. in his statement recorded under Sec. 132(4) of the Act that his group was engaged in providing accommodation entries would not on a standalone basis suffice for concluding that every transaction carried out through the group entities of the aforesaid person were to be held as ingenuine transaction is supported by the order of the Hon’ble High Court of Gujarat in the case of PCIT-3 Vs. Vineet Sureshchandra Agarwal [2017 (9) TMI 1924 - GUJARAT HIGH COURT] We find substantial force in the claim of the ld. A.R that as the broker in question, viz. M/s Alliance Intermediaries & Network Pvt. Ltd. was debarred from trading only w.e.f 23.04.2009 therefore, no adverse inferences as regards its transactions carried out during the year under consideration i.e the period relevant to A.Y 2008-09 were liable to be drawn. On a perusal of the order of the CIT(A), we find that it was observed by him that Shri. Mukesh Choksi (supra) in his statement recorded u/s 132(4) (as reproduced in the body of the assessment order) had himself admitted that the bills were issued by him as membership was at the relevant point of time in force. In the backdrop of the aforesaid facts, we concur with the view taken by the CIT(A) that now when the broker, viz. M/s Alliance Intermediaries & Network Pvt. Ltd. was debarred from trading only w.e.f 23.04.2009 therefore, no adverse inferences as regards the bills issued by it during the year in question viz. A.Y 2008-09 were liable to be drawn. Thus as the assessee had in the course of the reassessment proceedings by drawing support from clinching documentary evidences substantiated the authenticity of the F&O transactions carried out through the aforesaid broker, viz. M/s Alliance Intermediaries & Network Pvt. Ltd., which had not been dislodged or disproved by the revenue therefore, the CIT(A) had rightly observed that no adverse inference as regards the authenticity of such F&O transactions and the resultant loss could have been drawn in the hands of the assessee. We, thus, concur with the view taken by the CIT(A) insofar the merits of the case are concerned and uphold his order to the said extent. - Decided in favour of assessee. Issues Involved:1. Validity of reopening proceedings under Section 147 of the Income Tax Act.2. Disallowance of Future & Option (F&O) Loss claimed by the assessee.Issue-wise Detailed Analysis:1. Validity of Reopening Proceedings under Section 147:The assessee contended that the reopening of the assessment under Section 147 was invalid as all material facts were disclosed during the original assessment proceedings. The original assessment was completed under Section 143(3) with a total income assessed at Rs. 4,14,25,800/-. The reopening was based on information from the DDIT(Inv.) that the assessee had obtained accommodation entries from Mahasagar Securities Pvt. Ltd. and its group entities, which were allegedly involved in providing bogus bills. The assessee argued that the reason for reopening, i.e., investment in shares amounting to Rs. 12,15,67,252/-, was factually incorrect as the assessee had not invested in shares but had incurred an F&O loss of Rs. 11,97,47,626/-.The Tribunal observed that the A.O had acted mechanically on the information received from the DDIT(Inv.) without forming an independent and bonafide belief that the income chargeable to tax had escaped assessment. The A.O failed to apply his mind to the material on record and did not consult the assessment records of the assessee. The Tribunal cited several judicial pronouncements, emphasizing that the A.O must independently apply his mind to the information received and not act on borrowed satisfaction. The Tribunal concluded that the reopening of the assessment was invalid due to non-application of mind by the A.O and quashed the reassessment order.2. Disallowance of Future & Option (F&O) Loss:The A.O disallowed the F&O loss of Rs. 11,97,47,626/- claimed by the assessee, treating it as an accommodation entry based on the statement of Shri Mukesh Choksi, director of Mahasagar Securities Pvt. Ltd., who admitted to issuing bogus bills. The assessee provided documentary evidence, including F&O bills, broker ledger accounts, and bank statements, to substantiate the genuineness of the transactions. The A.O, however, did not find favor with the assessee's submissions and disallowed the loss.The CIT(A) accepted the assessee's claim on merits, noting that the A.O did not rebut the documentary evidence provided by the assessee. The CIT(A) observed that the A.O's reliance on the statement of Shri Mukesh Choksi was misplaced as there was no specific mention of the assessee's transactions being bogus. The CIT(A) also noted that the broker, M/s Alliance Intermediaries & Network Pvt. Ltd., was debarred from trading only from 23.04.2009, which did not affect the transactions for the relevant assessment year 2008-09.The Tribunal concurred with the CIT(A) that the documentary evidence provided by the assessee substantiated the genuineness of the F&O transactions. The Tribunal observed that the A.O had not pointed out any infirmity in the documentary evidence and had acted on incorrect facts. The Tribunal upheld the CIT(A)'s order vacating the disallowance of the F&O loss.Conclusion:The Tribunal quashed the reassessment order due to invalid reopening under Section 147 and upheld the CIT(A)'s decision on merits, allowing the assessee's claim of F&O loss. The revenue's appeal was dismissed, and the assessee's cross-objection was allowed.