2024 (12) TMI 31 - AT - Income Tax

PCIT's revision order under Section 263 upheld for inadequate verification of NSEL commodity trading scam involvement

ITAT Mumbai upheld PCIT's revision order u/s 263 regarding assessee's involvement in NSEL commodity trading scam. AO failed to verify Client Code ... Revision u/s 263 - as per CIT assessee was one of the beneficiary in the scam of NSEL through its brokers in which case the ld. AO is said to have not made proper inquiry with respect to the impugned commodity transactions - assessee has entered into bogus commodity trading on NSEL by Client Code Modification (CCM) for which the AO has reopened the assessment but has not verified the information available in the Insight Portal/Investigation wing, thereby the information received has been unverified and unexplained which holds the assessment order to be erroneous in so far as it is prejudicial to the interest of the revenue HELD THAT:- AO has not verified the CCM data related to the assessee neither from the assessee nor from its brokers pertaining to the transactions made in July, 2013 which is when the assessee has booked loss in respect of investment made. The ld. AO has also not made any inquiry as to whether the assessee was involved in regular trading in the earlier occasion. It is also observed that the ld. AO has not looked into the fact whether the assessee has raised any complaint against the scam carried out by NSEL which the assessee claims to be the reason for the loss. AO has not inquired into the issue for which the reopening of assessment was initiated and has merely accepted the returned loss filed by the assessee without substantiating as to why he has arrived at the said conclusion. The assessee was also unable to explain whether it had filed the complete details along with the documentary evidence to establish the fact that it had not entered into any bogus trade transaction and whether or not it was one of the beneficiary to the NSEL scam. The assessment order is silent in respect of all these issues and more precisely the issue for which the reassessment was initiated. In the absence of the same, we find no infirmity in the order of the ld. PCIT in holding the assessment order to be erroneous in so far as it is prejudicial to the interest of the revenue. It is a case were the ld. AO has not dealt with or inquired into the issue which was the subject matter of the reassessment. We therefore are inclined to dismiss the grounds of appeal raised by the assessee and hereby uphold the order of the ld. PCIT. Decided against assessee. Issues:Challenging the order under section 263 as bad in law.Analysis:The appeal was filed by the assessee against the order of the Principal Commissioner of Income Tax, Mumbai-27, passed under section 263 of the Income Tax Act, 1961, for the Assessment Year 2014-15. The assessee contended that the original assessment order and re-assessment order duly considered the NSEL commodity loss, making the orders neither erroneous nor prejudicial to the revenue. The assessee argued that the re-assessment order should not have been treated as erroneous or prejudicial. The grounds of appeal highlighted the legal errors in the order under section 263 and requested its squashing. The assessee reserved the right to amend the grounds of appeal. The facts revealed that the assessee, a partnership firm, engaged in various businesses, including commodity arbitrage on NSEL, had filed its return of income declaring a total loss. The assessment was reopened due to alleged fictitious profits in commodity trading on NSEL. The assessment order under section 147 r.w.s. 144B of the Act determined the total income at Nil, accepting the returned loss.The Principal Commissioner of Income Tax invoked revisionary powers under section 263, deeming the assessment order erroneous and prejudicial to revenue due to the alleged involvement of the assessee in the NSEL scam. The order was set aside with directions for a fresh assessment. The assessee challenged this order before the Appellate Tribunal. The assessee's representative argued that the ld. AO had thoroughly examined the issue and accepted the returned loss after considering the details provided by the assessee during the assessment proceedings. The representative cited relevant legal precedents to support the argument. On the other hand, the Departmental Representative contended that the ld. AO did not adequately investigate the issue of Client Code Modification and the allowability of the loss set off against regular income. The Departmental Representative supported the order of the Principal Commissioner.After hearing both parties, the Tribunal observed that the ld. AO had not sufficiently inquired into the issue prompting the reassessment and had merely accepted the returned loss without proper substantiation. The Tribunal noted that the assessee failed to provide complete details or documentary evidence to refute the involvement in bogus trade transactions or the NSEL scam. The assessment order lacked clarity on crucial issues, and the ld. AO did not address the core matter of the reassessment. The Tribunal found no merit in the assessee's arguments and upheld the Principal Commissioner's order under section 263, deeming the assessment order erroneous and prejudicial to revenue. The Tribunal dismissed the appeal, affirming the Principal Commissioner's decision.In conclusion, the Tribunal's detailed analysis highlighted the shortcomings in the assessment process and emphasized the importance of thorough investigation and substantiation of claims in such cases. The decision underscored the necessity for assessing officers to diligently examine issues prompting reassessment and provide detailed justifications for their conclusions to prevent errors and protect revenue interests.