2024 (11) TMI 427 - AT - Income Tax

Section 69C additions for notional commission expenses and non-genuine purchases deleted following precedent decision

ITAT Mumbai deleted additions made under section 69C for notional commission expenses and non-genuine purchases. The AO had added 2% commission expenses, ... Notional addition of commission under section 69C - addition on account of non-genuine purchases by applying market commission rate - reliance on Project Falcon / investigation report without independent verification - deletion of additions in absence of contradictory material or independent inquiryNotional addition of commission under section 69C - reliance on Project Falcon / investigation report without independent verification - deletion of additions in absence of contradictory material or independent inquiry - Deletion of the notional commission addition made under section 69C for A.Y. 2015-16 - HELD THAT: - The Tribunal deleted the addition of notional commission which the AO computed at 2% and the CIT(A) partly sustained at 0.25%. The coordinate bench had earlier considered a similar factual matrix in respect of sister concerns and found that the AO had relied solely on the Investigation Wing's 'Project Falcon' report without carrying out independent inquiry, had not confronted the assessee with the statements relied upon, and had failed to examine contemporaneous material placed on record. The coordinate bench noted that many trades showing profits were accepted and that screen-based trading does not reveal counterparties, making a presumption of manipulation unsustainable without further verification. In the absence of any contradictory material or distinct factual differences in the present case, the Tribunal followed the coordinate bench's reasoning and deleted the notional commission addition. [Paras 8, 9]Addition on account of commission expenses under section 69C for A.Y. 2015-16 deleted; appeal allowed.Addition on account of non-genuine purchases by applying market commission rate - reliance on Project Falcon / investigation report without independent verification - deletion of additions in absence of contradictory material or independent inquiry - Deletion of the adhoc addition of 0.25% on purchases treated as non-genuine for A.Y. 2018-19 - HELD THAT: - The AO treated purchases from certain entities as non-genuine and made an adhoc addition of 0.25% of such purchases as deemed profit, relying on investigation reports and perceived lack of credentials of those entities. The coordinate bench, however, examined similar facts and recorded that where the assessee produced invoices, warehouse receipts, delivery orders, bank statements and GST returns verifying the purchases, and where allegations (such as filings from a particular IP or emails handled from group premises) were not substantiated by independent inquiry, an adhoc commission addition could not be sustained. Applying the same reasoning to the present case and noting absence of contradictory material or specific factual distinction, the Tribunal deleted the adhoc 0.25% addition on purchases. [Paras 17, 18]Adhoc addition of 0.25% on alleged non-genuine purchases for A.Y. 2018-19 deleted; appeal allowed.Final Conclusion: Both appeals allowed: the Tribunal deleted the notional commission addition under section 69C for A.Y. 2015-16 and the adhoc 0.25% addition on alleged non-genuine purchases for A.Y. 2018-19, following the reasoning of a coordinate bench in similar matters; consequential legal challenges to reassessment were rendered academic and left open. Issues Involved:1. Validity of reassessment proceedings under Section 147 of the Income Tax Act.2. Addition on account of non-genuine profit and commission expenses under Section 69C.3. Addition on account of non-genuine purchases.4. Levy of interest under Sections 234B, 234C, and 234D.Detailed Analysis:1. Validity of Reassessment Proceedings under Section 147:The assessee contested the initiation of reassessment proceedings, arguing that the notice under Section 148 was based on incorrect and insufficient grounds. It was highlighted that the original assessment had been completed with all relevant details on record, and there was no new tangible material justifying the reopening. The Tribunal noted that since the additions made on merits were deleted, the legal issues regarding the reassessment proceedings were rendered academic and were kept open, indicating that the Tribunal did not conclusively rule on this aspect but instead focused on the substantive issues.2. Addition on Account of Non-Genuine Profit and Commission Expenses under Section 69C:The case involved allegations of non-genuine profit from reversal trades in illiquid stock options, leading to an addition of INR 2,30,63,250. The AO further added commission expenses of INR 11,69,323 based on a presumed commission rate of 2%. The CIT(A) reduced this to 0.25%, resulting in an addition of INR 1,46,172. However, the Tribunal found that the AO's reliance on the Project Falcon report was misplaced, as the assessee's trades were in currency derivatives on the United Stock Exchange, not stock options on the Bombay Stock Exchange. The Tribunal noted that the AO failed to conduct independent inquiries and relied solely on the investigation report. Following a similar case involving the assessee's sister concern, the Tribunal deleted the addition for non-genuine profit and the notional commission under Section 69C, emphasizing the lack of evidence for such transactions being non-genuine.3. Addition on Account of Non-Genuine Purchases:For the assessment year 2018-19, the AO disallowed 0.25% of the total purchases from certain entities deemed non-genuine, resulting in an addition of INR 9,42,450. The Tribunal observed that the AO accepted the sales as genuine but questioned the purchases based on information from the DDIT (Investigation). The Tribunal found that the assessee provided sufficient documentation, including purchase invoices, warehouse receipts, and GST returns, to substantiate the genuineness of the purchases. The Tribunal criticized the AO for not conducting independent verification and relying on conjecture. Citing a similar decision in the case of the assessee's sister concern, the Tribunal deleted the addition, underscoring the lack of concrete evidence against the genuineness of the purchases.4. Levy of Interest under Sections 234B, 234C, and 234D:The assessee challenged the levy of interest under these sections. However, since the Tribunal allowed the appeals on substantive grounds by deleting the additions, the issues concerning the levy of interest were not specifically addressed, as they would be consequential to the main issues.Conclusion:The Tribunal allowed both appeals by the assessee for the assessment years 2015-16 and 2018-19, deleting the additions made on account of non-genuine profit, commission expenses, and non-genuine purchases. The validity of the reassessment proceedings was left open, as the substantive issues were resolved in favor of the assessee.