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2020 (12) TMI 394
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....er for the sake of convenience. 2. In all these appeals the sole issue involved is, the disallowance of loss incurred by the assessee in trading of commodities on the National Multi Commodity Exchange (hereinafter referred to as the 'NMCE') treating it to be bogus. Briefly stated, the facts of the present case are that, search u/s 132 of the Income Tax Act, 1961 (hereinafter referred to as the "Act") was conducted against the 'Drolia' Group on 30-11-2012, to which the assessee belongs. Consequent thereto, notices u/s 153A dated 21-10-2013 were issued upon the assessee for AYs 2007-08 to 2012-13 and the assessments for all these years were completed u/s 153A/143(3) on 31-03-2015. Prior to completion of the said assessment, survey action u/s 133A was conducted upon the assessee on 18-12-2014 by the Investigation Wing Ahmedabad, in connection with the search conducted in the case of Commodity Traders Group at Ahmedabad. The Ld. AR of the assessee Shri Akkal Dudhewala, FCA brought to our notice that, the assessments for AYs 2009-10 to 2012-13 which were completed u/s 153A/143(3) on 31-03-2015, were reopened by the AO by issue of notice u/s 148 of the Act and thereafter the reassessm....
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....-2016. In response, the assessee filed a letter dated 08-04-2016 requiring the AO to treat the return of income filed pursuant to notice u/s 153A of the Act, as the return in response to notice u/s 148 of the Act. In the same letter it is noted that the assessee requested the AO to supply the reasons recorded prior to reopening of the assessment. Pursuant to which AO vide letter dated 19-08-2016 supplied the reasons recorded for reopening of the assessment. Drawing our attention to the recorded reasons, the Ld. AR submitted that the recorded reasons proceeded on the basis of the information contained in the appraisal report prepared by Investigation Directorate, Ahmedabad in relation to the survey conducted u/s 133A of the Act on 18-12-2014 in the case of Commodity Traders Group [third party]. Inviting our attention to the order sheet entries made by the AO[Pages 63 of the Paper book], the Ld. AR Shri Akkal pointed out that the said order sheet contained entry for issue of notice u/s 148 on 31-03-2016 and in the same order sheet the following entry was made on 05-04-2016. "Appraisal report in the search & survey cases of "Commodity Trades Group of Ahmedabad" (Date of searc....
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....er the expiry of four years. In support of his contention, the Ld. AR relied on the decision of the Hon'ble Supreme Court in the case of New Delhi Television Ltd [NDTV] Vs DCIT (116 taxmann.com 151). He further submitted that even the reasons as recorded by the AO did not contain any averment to the effect that income had escaped assessment as a consequence of assessee's failure to disclose truly and fully all facts necessary for his assessment. According to the Ld. AR therefore, the AO's action of re-opening the assessment completed u/s. 143(3) after four years, deserves to be struck down for not satisfying the condition precedent set out in the first proviso to Section 147 of the Act. 6. Per contra, the Ld. CIT, DR Shri Vijay Shankar submitted that the AO was in possession of external material in the form of appraisal report based on which he had formed an opinion to re-open the assessment. According to Ld. CIT, DR, the AO was expected to only form a prima facie view and consequent tentative belief at the time of recording the reasons and not prove the same beyond doubt. He submitted that the survey conducted by the Investigation Wing, Ahmedabad revealed that the assessee had ....
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....having reason to believe that there has been under-assessment and (ii) his having reason to believe that such under- assessment has resulted from nondisclosure of material facts, must co-exist before the Income-tax Officer has jurisdiction to start proceedings after the expiry of four years. The Hon'ble Supreme Court in the case of M/s. Ganga Saran &Sons Pvt. Ltd Vs. ITO reported in 131 ITR 1 (SC) further held that, the expression " reason to believe" occurring in Section 147 is stronger than the expression "is satisfied" and this legal requirement has to be met in the reasons recorded before re-opening. The Hon'ble Court held that it has to be kept in mind that if an assessment (original assessment) has been made u/s. 143(3), the proviso to Sec. 147 further mandates that no action shall be taken under Section 147 after the expiry of 4 years from the end of the relevant assessment year unless there is failure on the part of the assessee to disclose fully and truly all facts necessary for his assessment for that assessment year. 9. It is well settled that the reasons as recorded for reopening the assessment, are to be examined on a standalone basis. Nothing can be added to the re....
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.... year, then the AO is duty bound to demonstrate in his reasons recorded prior to issue of notice, the failure on the assessee's part to truly and fully disclose all material facts in the course of original assessment. 11. This legal principle has been reiterated by the Hon'ble Supreme Court in the case of NDTV vs. DCIT (supra) wherein it was held that, the Revenue can take the benefit of extended period of limitation beyond four years and upto six years only if the Revenue can show that the assessee had failed to disclose fully and truly all material facts necessary for its assessment. In this case (NDTV), we note that the assessee had issued step-up convertible bonds to its subsidiary based in the United Kingdom (UK) named NDTV Network Plc. (hereinafter referred to as the 'NNPLC'). At the time of original assessment, the assessee had disclosed the issue of step-up coupon bonds for US$ 100 million to NNPLC. The assessee had also disclosed the details of entities who subscribed to this issue and also the fact that the bonds were discounted at a lower rate, before the assessment was finalized. Subsequent to completion of the original assessment, the AO was in receipt of informatio....
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.... with that at this stage. The issue before us is whether the revenue can take the benefit of the extended period of limitation of 6 years for initiating proceedings under the first proviso section 147 of the Act. This can only be done if the revenue can show that the assessee had failed to disclose fully and truly all material facts necessary for its assessment. The assessee, in our view had disclosed all the facts it was bound to disclose. If the revenue wanted to investigate the matter further at that stage it could have easily directed the assessee to furnish more facts. 27. The High Court held that there was no "true and fair disclosure" in view of the law laid down by this Court in Phool Chand BajrangLal's case (supra), and the judgment of the Delhi High Court in Honda Siel Power Products Ltd. v. Dy. CIT [2011] 110 taxmann 2/197 Taxman 415/[2012] 340 ITR 53 (Delhi). We have already referred to the judgment in Phool Chand's case (supra), wherein it was held that where the transaction of a particular assessment year is found to be a bogus transaction, the disclosures made could not be said to be all "true" and "full". Relying upon the said judgment the High Cour....
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..... This transaction was accepted by the assessing officer and it was clearly held that the assessee was only liable to receive a guarantee fees on the same which was added to its income. Without saying anything further on merits of the transaction we are of the view that it cannot be said that the assessee had withheld any material information from the revenue. 30. According to the revenue the assessee to avoid detection of the actual source of funds of its subsidiaries did not disclose the details of the subsidiaries in its final accounts, balance sheets, and profit and loss account for the relevant period as was mandatory under the provisions of the Indian Companies Act,1956. It is not disputed that the assessee had obtained an exemption from the competent authority under the Companies Act, 1956 from providing such details in its final accounts, balance sheets, etc. As such it cannot be said that the assessee was bound to disclose this to the Assessing Officer. The Assessing Officer before finalising the assessment of 03.08.2012had never asked the assessee to furnish the details. 31.The revenue now has come up with the plea that certain documents were no....
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....arises whether certain income received by an assessee is capital receipt, or revenue receipt, the assessing authority has to find out what primary facts have been proved, what other facts can be inferred from them, and taking all these together, to decide what the legal inference should be. (9) There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet a possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income- tax Officer might have discovered, the Legislature has put in the Explanation, which has been set out above. In view of the Explanation, it will not be open to the assessee to say, for example - "I have produced the account books and the documents: You, the assessing officer examine them, and find out the facts necessary for your purpose: My duty is done with disclosing these account-books and the documents." His omission to bring to the assessing authority's attention these particular items in the account books, or the particu....
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.... In our view the assessee disclosed all the primary facts necessary for assessment of its case to the assessing officer. What the revenue urges is that the assessee did not make a full and true disclosure of certain other facts. We are of the view that the assessee had disclosed all primary facts before the assessing officer and it was not required to give any further assistance to the assessing officer by disclosure of other facts. It was for the assessing officer at this stage to decide what inference should be drawn from the facts of the case. In the present case the assessing officer on the basis of the facts disclosed to him did not doubt the genuiness of the transaction set up by the assessee. This the assessing officer could have done even at that stage on the basis of the facts which he already knew. The other facts relied upon by the revenue are the proceedings before the DRP and facts subsequent to the assessment order, and we have already dealt with the same while deciding Issue No.1. However, that cannot lead to the conclusion that there is non-disclosure of true and material facts by the assessee."[Emphasis given by us] 13. From the above binding ratio of decision o....
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....on Directorate, Ahmedabad in relation to their search and survey action conducted in the case of Commodity Traders Group. According to the AO, the contents of the relevant appraisal report showed that contrived losses in commodity transactions amounting to Rs. 5,82,07,948/- has been obtained by the assessee during the financial year corresponding to AY 2009-10.Therefore, he formed a belief that income of the assessee had escaped assessment in terms of Section 147 of the Act. Here, we note that the original assessment in the case of the assessee was completed on 31-03-2015 u/s 153A/143(3) of the Act. It was brought to our notice that the assessee's premise was searched on 30-11-2012 and consequent thereto, proceedings u/s 153A was initiated for the relevant AY 2009-10 on 21-10-2013. In the notice issued u/s 142(1) of the Act, dated 20-10-2014, [Pages 15 to 16 of the Paper book] the AO had specifically enquired the details of the assessee's transaction in commodity derivatives, extracts of the notice is as under: "A search and seizure operation was conducted in the case of Drolia Group on 30.11.2012. The assessee named GRD Commodities Ltd is connected with this Group. During....
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....pany. 6. Details of Sundry Creditor MCX (Commodities) of Rs. 3,34,385/-. Sundry Creditors (Client) of Rs. 11,04,911/-. Sundry Creditors for Expenses of Rs. 9,93,470/-. Statutory Dues of Rs. 98,727/- and Client Cash Margin Deposit of Rs. 16,33,439/- along with supporting evidences. 7. Details of Income from Derivative Transactions of Rs. 19,45,782/- along with supporting evidences. 8. Details of Brokerage Income of Rs. 12,18,020/- along with supporting evidences. 9. Details of Transaction Charges of Rs. 23,99,420/- along with supporting evidences. 10. Details of NCDEX Related Expenses of Rs. 1,93,685/- along with supporting evidences. 11. Details of MCX Related Charges of Rs. 2,89,811/- along with supporting evidences. 12. Details of Interest paid of Rs. 6,16,047/- along with supporting evidences. 13. Details of Salary & Bonus of Rs. 8,51,287/-, Bank Guarantee Charges of Rs. 1,59,135/-, Filing Fees of Rs. 1,500/-, Rent of Rs. 2,94,000/-, Rates and Taxes of Rs. 4,350/-, Foods & Beverages of Rs. 90,009/-, Stipend of Rs. 99,709/- and Travelling & Conveyances of Rs. 80,298/- along with supporting evidences. ....
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....s noted in the recorded reasons earlier, the very premise of the AO for reopening the assessment for AY 2009-10 was the appraisal report of the search and survey cases of Commodity Traders Group of Ahmedabad. 19. On examination of the entries made by the AO in the order sheet [Page 63 of the Paper book], it is noted that the AO had received the appraisal report of the search and survey cases of Commodity Traders Group of Ahmedabad only on 05-04-2016. However, the notice for reopening, which is placed at Page 40 of the paper book, is dated 31-03-2016 (last date for issue of notice in respect of AY 2009-10). These events show that the AO had received the appraisal report five days after the issuance of notice on 31-03-2016. In this context, it has to be kept in mind the Hon'ble Apex Court has held in 258 ITR 317 and 253 ITR 86; the condition precedent for re-opening u/s 147 of the Act is that the AO should have 'reason to believe' escapement of income, and the 'reason to believe' postulate a foundation based on information and a belief based on reason. So we note that it is a legal necessity that a foundation based on information is a must before the AO has reason to believe escap....
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.... years (Pages 12-13 of the Paper book for AY 2010- 11 and Pages 14-15 of the Paper book for AY 2011-12) and then took us through the primary facts which were disclosed in the original assessment. Referring to the foregoing, he contended that all material facts had been truly and fully disclosed at the time of original assessment and therefore the AO could not have legally reopened these completed assessments after the expiry of four years in terms of first proviso to Section 147 of the Act. According to the Ld. AR, a bald statement by the AO that, the assessee has not disclosed fully and truly all material facts will not meet the requirement of proviso to Section 147 of the Act, when the facts brought on record show that it was after due enquiry/investigation into the same issues that the original assessments were completed u/s 153A/143(3) of the Act on 31-03-2015. The Ld. AR thus submitted that, without spelling out as to which material facts did the assessee fail to disclose in the assessment proceeding, the AO could not have validly exercised his jurisdiction to reopen the assessment u/s 147 of the Act, read with the first proviso. Moreover the Ld. AR pointed out to us that t....
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.... 1,50,78,769/- and this loss was not genuinely incurred by the assessee during the previous year 2009-10. Information in my possession reveals that such in genuine loss was set off against available profit with a malafide intention to reduce legitimate tax liabilities. Therefore, I have reasons to believe that income chargeable to tax has escaped assessment within the meaning of Section 147 of the IT Act, 1961 and such escapement has occurred due to assessee's failure to disclose all material fact truly and correctly in its return of income. In order to assess/re-assess the said income chargeable to tax which has escaped assessment as aforesaid and to assess/re-assess any other income chargeable to tax which has escaped assessment and which may come to my notice during this proceeding, a notice u/s 148 of the said Act is required to be issued." "AY 2011-12 A search u/s 132 of the I.T. Act 1961 and survey u/s 133A of the said Act was conducted by the Investigation Directorate, Ahmedabad on 18.12.2014 in the case of Commodity Traders Group of Ahmedabad. In relation to the said action the assessee M/s GRD Commodities Ltd. of 238A AJC Bose Road, 6th Floor, Ko....
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....d such escapement had occurred due to the assessee's failure to disclose all material facts truly and correctly in the returns of income filed for these years. 24. Admittedly both the assessments for AYs 2010-11 & 2011-12, were reopened by the AO, beyond four years. Therefore, apart from the requirement of law to form a reasonable belief that income otherwise chargeable to tax had escaped assessment, it was also incumbent upon the AO to satisfy the condition precedent set out in the first proviso to Section 147 of the Act. From the facts as available on record, we note that like in AY 2009- 10, the AO's predecessor before framing the original assessment u/s 153A/143(3) of the Act had specifically requisitioned the details of the commodity derivative transactions conducted by the assessee on NMCE. The specific enquiries made by the AO into the assessee's transactions in commodities vide his notices dated 20-10-2014 [available at Pages 12-13&14-15 of paper books for AYs 2010-11 & 2011-12] were as follows: "Notice u/s 142(1) of the Act - AY 2010-11 A search and seizure operation was conducted in the case of Drolia Group on 30.11.2012. The assessee named GRD Commod....
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....Details of Loans and Advances of Rs. 1,36,39,586/- and source of such loan, loam confirmation, copy of bank statement reflecting the loan transaction and name & complete address of the person/company/firm who have taken the loan from the company. 8. Details of Sundry Creditors for Expenses of Rs. 43,27,463/- Statutory Dues of Rs. 8,30,847/- and Client Cash Margin Deposit of Rs. 37,83,439/- along with the supporting evidences. 9. Details of Income from Derivative Transactions of Rs. 2,32,10,119/- along with supporting evidences. 10. Details of Brokerage Income of Rs. 40,40,762/- along with supporting evidences. 11. Details of Interest income of Rs. 45,27,975/- along with the supporting evidences. 12. Details of Transaction Charges of Rs. 2,07,57,010/- along with supporting evidences. 13. Details of Sharing of Arbitrager of Rs. 13,02,137/- along with supporting evidences. 14. Details of NCDEX Related Expenses of Rs. 2,07,147/- along with supporting evidences. 15. Details of MCX Related Charges of Rs. 7,38,068/- along with supporting evidences. 16. Details of Interest paid of Rs. 6,16,047/- along with sup....
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....2011-12) 1. Details of Introduction of Share Capital of Rs. 1,00,00,000/- and the name and complete address of the share applicants and source of such introduction of share capital along with supporting evidences. 2. Details of Security Premium Account of Rs. 4,90,00,000/- and name & complete address of the share applicants and the source of such share capital along with supporting evidences. 3. Details of investment in shares of Rs. 1,40,00,000/- along with source of investment in shares and supporting evidences. 4. Details of Sundry Debtors of Rs. 6,74,635/- along with supporting evidences. 5. Details of cash in hand of Rs. 1,29,338/- with supporting evidences. 6. Details of Bank Balance of Rs. 32,47,576/- and narration of each entry with supporting evidence. 7. Details of Fixed Deposit in Bank of Rs. 55,45,492/- and source thereof and interest accrued on Fixed Deposit of Rs. 22,86,136/- along with supporting evidences. 8. Details of Loans and Advances of Rs. 1,47,47,413/- and source of such loan, loam confirmation, copy of bank statement reflecting the loan transaction and name & complete address of the pers....
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....decessor, on the basis of the facts disclosed to him did not doubt the genuineness of the losses incurred by the assessee in the commodity transactions. On perusal of the reasons recorded by the AO to reopen such concluded assessments, we note that the AO was unable to demonstrate as to which relevant material fact did the assessee fail to declare truly or fully in the assessments completed u/s 153A/143(3) of the Act on 31-03-2015, based on which the AO had usurped jurisdiction u/s 147 to reopen the assessments beyond four years. We are therefore inclined to hold that the AO did not satisfy the condition precedent in the first proviso to Section 147 of the Act for reopening of the assessments of AYs 2010-11 & 2011-12 beyond four years. 26. Further a bare perusal of the reasons recorded (supra) also does not reveal any statement by the AO to the effect which would throw light as to what was found by the AO which can be construed to be a failure on the part of the assessee to disclose fully & truly the material facts necessary for assessment during the original assessment, recording of which was sine qua non and had to be spelt out by the AO in the reasons recorded to validly a....
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....ht to reopen the assessments as there was incorrect interpretation of account by the Assessing Officer. The recorded reasons did not speak of any omission or failure on the part of the assessee. Thus, admittedly there was no failure on the part of the assessee to disclose fully and truly all material facts in the assessment. Incorrect interpretation of accounts by the Assessing Officer could not confer jurisdiction on the Assessing Officer to issue notices under section 148 for reopening the assessments as sought to be made in the instant case. If there is no failure on the part of the assessee to disclosure fully and truly the material facts, wrong interpretation of accounts by the Assessing Officer leading to excessive relief cannot be a ground for reopening and thus cannot confer jurisdiction on the Assessing Officer. Explanation 2 cannot be read in isolation of section 147. It should be read in conjunction with the provisions in the section. The words for the purpose of this section appearing in Explanation 2 show that the conditions precedent for reopening assessment as laid down in section 147 have to be complied with. In instant case, since the con....
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....47 held in Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC), that the duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts and it is not its responsibility to advise the Assessing Officer with regard to the inference which he should draw therefrom. If such officer draws any inference which appears to be subsequently erroneous, a mere change of opinion would not justify initiation of action for reopening the assessment, it held. 45. The same view was expressed in Associated Stone Industries (Kotah) Ltd. v. CIT [1997] 224 ITR 5601 (SC). The Bombay High Court on the same issue in Hindustan Lever Ltd. v. R.B. Wadkar, Asstt. CIT (No. 1) [2004] 268 ITR 3322, held that the reasons in support of the proposed action under section 147 of the Act must necessarily reveal all facts or materials that had not been disclosed by the assessee fully and truly necessary for assessment so as to establish the link between the reasons and evidence. It was further held that the reasons so recorded cannot be supplemented by any affidavit or oral submissions as otherwise the reasons which were lacking in the material particulars wo....
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.... to the Petitioner do not disclose that there was any failure on the part of the Petitioner to provide all the material facts. That being the position, this ground could not have been taken up against the Petitioner at the time of disposing of the objections. Once this was not the basis for issuance of notice for Reassessment, it cannot be held against the Petitioner that the Petitioner had failed to make a true and full disclosure. It will have to be held that the Petitioner did not fail to make full and true disclosure of all material facts. The jurisdictional requirement for carrying out the reassessment, after the expiry of period of four years, is not fulfilled in the present case." 30. For the above reasons and those discussed in Paras 7 to 17 earlier and following the law laid down by the Hon'ble Supreme Court in the case of NDTV Ltd. vs DCIT (supra), and other case laws, we hold that the reopening of the assessments for AYs 2010-11 & 2011-12 are bad in law in as much as the AO did not satisfy the condition precedent in first proviso to Section 147 of the Act which was sine qua non for usurping jurisdiction u/s 147 of the Act. As a consequence thereto, the orders passed u....
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....e validity of the reasons recorded by the AO. According to him, when the AO was in receipt of information from the Investigation Directorate of the same Department, then rather than questioning the veracity of the report, he was duty bound to first reopen the assessment of the assessee and so he does not want us to interfere with the legal issue for AY 2012-13. 32. We have heard the rival contentions. It is well settled that, Section 147 of the Act permits the AO to reopen a concluded assessment if he has requisite 'reasons to believe' that income chargeable to tax escaped assessment. The fundamental pre-condition for valid initiation of proceedings u/s 147 is the formation of reasons to believe of an AO that income of assessee which was chargeable to tax has escaped assessment for that year. The words 'reasons to believe' connote a positive act on the part of the AO of applying his mind to certain information or material and then come to a reasonable belief that income chargeable to tax has escaped assessment. In the circumstances, unless the AO himself genuinely entertains reason to believe that income has escaped assessment, he is not permitted to resort to reopening of asses....
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.... has to be a cause and effect relationship between reasons recorded and the income escaping assessment. While dealing with this aspect of the matter, it is useful to bear in mind the observations made by Hon'ble Supreme Court in the case of ITO Vs Lakhmani Mewal Das [(1976) 103 ITR 437] that, "......the reasons for the formation of the belief must have rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of this belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the Court cannot go into sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to esc....
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....cious. An order of assessment can be passed either in terms of sub-section (1) of section 143 or sub-section (3) of section 143. When a regular order of assessment is passed in terms of the said sub-section (3) of section 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of the Indian Evidence Act judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong." 34. The Hon'ble Supreme Court endorsing the Full Bench decision of the Hon'ble Delhi High Court in CIT vs. Kelvinator of India Ltd. (supra) held in its order reported in 320 ITR 561, ".....that Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons m....
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....egitimate tax liabilities. Therefore, I have reasons to believe that income chargeable to tax has escaped assessment within the meaning of Section 147 of the IT Act, 1961 and such escapement has occurred due to assessee's failure to disclose all material fact truly and correctly in its return of income. In order to assess/re-assess the said income chargeable to tax which has escaped assessment as aforesaid and to assess/re-assess any other income chargeable to tax which has escaped assessment and which may come to my notice during this proceeding, a notice u/s 148 of the said Act is required to be issued." 36. Perusal of the above shows that the entire edifice of the recorded reasons is the appraisal report forwarded by the Investigation Directorate at Ahmedabad which had been prepared after conducting search and survey action on 18-12-2014 on Commodity Traders Group, in which the assessee was also covered u/s 133A of the Act. In the present case, we note that the regular assessment u/s 153A/143(3) of the Act, was completed post the survey action on 30-03-2015. During the relevant year, the assessee had derived profits as well as incurred losses in trading of c....
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....Commodities Private Limited, through whom the assessee had transacted on NMCE was neither found guilty of any suspicious activities nor was any fine imposed on it by FMC with reference to the assessee's transactions for the relevant Financial Year 2011-12. In the said circumstances, we note that, in the appraisal report, the DDIT(Inv) had only expressed an apprehension regarding the genuineness of the losses incurred. However, we note that there was no tangible evidence or material brought on record to justify the said apprehension. Instead, we note that the report of the DDIT(Inv) rested on preponderance of probabilities and had forwarded this to the AO for further investigating the same. So, at the most this appraisal report can be termed to trigger 'reason to suspect'; and upon receipt of this appraisal report, the AO ought to have conducted preliminary enquiries and tried to collect materials to connect assessee in this orchestrated wrong doing as suggested in the appraisal report; and if he had succeeded, in this exercise, then he could have summarized his finding of facts connecting the assessee to the alleged wrong doing in his 'reasons recorded' along with the modus-operand....
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....rding to its own discretion. If discretion is exercised under the direction or in compliance with some higher authority's instructions, then it will be a case of failure to exercise discretion all together." It has to be kept in mind that satisfaction recorded should be "independent" and "not borrowed" or "dictated" satisfaction. In the present case, it is evident that the AO did not apply his own mind to examine the information received from Investigation Directorate at Ahmedabad and therefore the reason to believe escapement of income cannot be said to be that of the AO, but at best it can be said to be an action mechanically carried out by the AO on receipt of report from Investigation Directorate at Ahmedabad. Thus, in our view, without any reasons being independently recorded by the AO but on the basis of 'borrowed satisfaction' of the DDIT (Inv.) cannot be the basis for reopening of assessment u/s. 147 of the Act. 38. We find that on similar facts and circumstances, the 'B' Bench of this Tribunal in the case of Proficient Commodities Pvt Ltd Vs DCIT in ITA No. 2307 & 2308/Kol/2017 dated 02.11.2018 quashed the reassessments framed by the AO holding the reopening to be bad i....
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....statement. Nothing turns out on this statement. In fact, NMCE has, in its action taken report, not framed any charges on account of this statement. A small token fee of Rs. 10,000/- was levied for non-production of bank books of HDFC. There is no allegation of wrong doing on the part of the assessee company in this audit report. When FMC audit does not find fault with the transactions of the assessee company and when the assessee company is not named in the FMC report, to base the reason on such information without verification, is bad in law. The assessee has produced all evidence to prove that the transactions are genuine and that he had participated as an arbitrager. There is no proof of cash changing hands. The FMC audit had cleared the transactions of the company. A plain look at the reasons demonstrates that the re-opening was based on the information which was never examined or verified by the Assessing Officer before recording reasons for reopening of assessment. On these facts, we examine the legal position. 5.1. We find that this Bench of the Tribunal in the case of ACIT vs. M/s. Adhunik Cement Ltd. in ITA No. 1375/Kol/2017; Assessment Year 2009-10, unde....
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....rived losses can also be seen from the fact that about 95% of the total losses (22.01 crores out of 22.98 crores) were incurred in the last four months of the respective financial years. Thus, till the December month of the every year the assessee has crystallized the profits and by booking losses in the last four months of the year, the same has been set off. v. M/s GRD Commodities Ltd. had incurred consistently losses in almost every transaction and the same trend has been observed in invariable all the series codes in which M/s GRD Commodities Ltd. has traded. vi. Prices discovery was not fair and rigged by the brokers, the same can be observed from the following points: vii. Around 70% volume of the trades has been created by only 25 brokers means most of the volume across the NMCE platform was created by only few brokers. viii. If we analyze a commodity series wise trading pattern across the NMCE platform then it is seen every year around 60% volumes of the trades has been created by only 10 brokers. ix. Even on day basis around 60% volumes of the trades has been created by only 10 brokers. x. Even on client level most of t....
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....llowance. At the time of hearing of appeal, the Ld. CIT, DR reiterated the findings of the AO and justified the action of AO. Per contra the Ld. AR of the assessee pointed out to us that , in the course of survey proceedings, the Director of the assessee was personally examined by the Investigating Officer and nothing contained in the statement revealed that the assessee had admitted of any wrong doing or had agreed to have availed contrived losses. The Ld. AR of the assessee also drew our attention to the submissions furnished by the assessee on 30.01.2015 in response to the requisition issued by the DDIT(Inv), Ahemdabad wherein complete details of commodity transactions with requisite documentary evidences was provided. Moreover on perusal of the statement of the Director recorded u/s 131 by the Investigating Officer which has been extracted in parts in the assessment order, it is noted that not only had he not made any self-incriminating averment but instead he had substantiated the transactions conducted on NMCE. The relevant questions posed by the DDIT(Inv) and the answers given by the Director in his statement dated 23-04-2015 are as follows: "Q.11 "After going throu....
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.... 140019151 Q. "On going through the above table, it is clear that trading in commodities on NCE and booking of losses therein have been done clearly and deliberately with the intention so as to reduce the book clearly and deliberately with the intention so as to reduce the book profits earned by trading on MCX NCDEX & ICEX and consequent tax payable by M/s GRD Commodities Limited. Please offer your comments in the regard." Ans: "Sir, as I have already told that nothing has been done deliberately and intentionally. The company has incurred losses on NMCE platform, which is an automatic exchange. Further, I can only say that we try our level best to earn profit in spite that we incurred losses only, this is nothing but our hard luck only." 42. It is noted that the Ld. CIT(A) after giving due consideration to the above facts found that there was no material discernible from the statement of the Director recorded u/s 131 based on which the AO could have inferred that the losses incurred in commodity transactions were contrived. The relevant findings recorded by the Ld. CIT(A) in this regard are as follows: "4. From the material on record, I find that in t....
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....eller/purchaser. This factual aspect was also taken note by the Ld. CIT(A) in his impugned appellate order, and his relevant findings in this regard are as follows: "4...... I also note that in the course of survey conducted against the brokers, statements on oath were recorded and in the impugned order the Ld. AO has extracted portion of the statement which Shri Dhirendra Agarwal had given before the ADIT(Inv). On careful perusal of the extracted portion of the statement, I find that nowhere the said broker had ever admitted that he had provided contrived losses or provided accommodation entries or that the transactions carried out by him on NMCE on behalf of the appellant were fictitious or bogus or in-genuine. For example, in Q No. 17 the broker was required to explain as to how come it is possible that purchase & sale of the commodity happened with the clients of the same broker, to which he explained that the transactions are conducted on the floor of the Exchange and therefore they do not know who the buyer and seller is. Similarly in Q No. 18, the broker was required to explain why a peculiar pattern was noted in transactions of the assessee wherein loss was incurre....
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....rokers did not pertain to the years in which the assessee had conducted transactions through them. For the sake of convenience, the relevant data has been tabulated below:- Name of Broker Year of Transaction with assessee Year in which Fine levied Amount of fine imposed M/s. Fast Track Merchants Pvt. Ltd. FY 2008-09 FY 2009-10 FY 2013-14 FY 2010-11 FY 2011-12 Rs. 50,000 Rs. 1,25,000 M/s. Quest Commodities India Pvt. Ltd. FY 2008-09 No fine levied NA M/s. Sahal Commodities Pvt. Ltd. FY 2008-09 FY 2009-10 FY 2011-12 FY 2013-14 FY 2010-11 Rs. 25,000 M/s.Sagun Dealer Pvt. Ltd. FY 2008-09 FY 2009-10 FY 2010-11 FY 2010-11 Rs. 80,000 46. From the aforesaid table, we find merit in the assessee's plea that barring the assessee's transaction through M/s Sagun Dealer Pvt. Ltd. in FY 2010-11, the fines imposed by the FMC on the brokers were with reference to specific periods which were different and distinct from the period in which the assessee transacted through these brokers. Hence, these fines levied by FMC, as referred to by the Ld. CIT, DR, did not have any bearing on the facts of the present case. We further note that, neith....
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....d we note that the onus casted upon assessee to prove the genuineness of the transactions has been discharged by it and neither the AO/Ld. CIT, DR could point out any infirmity in the document produced nor could adduce any adverse material to shift the burden/onus back on assessee or could disprove the evidence adduced by the assessee to substantiate the transaction. So, the assessee has discharged the primary onus on it to prove the genuineness of the transaction. 48. The Ld. AR further invited our attention to the fact that, similar documentation was maintained by the assessee in respect of its commodity transactions on other exchanges as well. It is interesting to find that, all these transactions which were supported by similar documentation, were considered to be genuine and bonafide by the AO because the assessee had reported net gains therein. We thus note that the sole reason for which the AO questioned the genuineness of the transactions conducted on NMCE was only because the assessee reported overall loss. In our view, this approach of the AO was clearly untenable on the facts as well as in law. We are of the opinion that AO could not have blown hot and cold at the sam....
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....es had formed a cartel and through synchronized trading the cartel members had created contrived losses to benefit the appellant. I however find that in the same order the Ld. AO himself has admitted that seventy percent of the entire trade volume during this period on NMCE was conducted by twenty five members. If that be the case, then there was empirical data available on record that substantially major part of the trading on NMCE was conducted by these twenty five members and therefore any member of public who conducted the commodity transactions on this Exchange necessarily transacted through any one of them and therefore no adverse inference could be drawn only against the appellant on the ground that the assessee engaged one of such Members for conducting its commodity transactions. Rather this information shows that the appellant chose to conduct its commodity transactions on NMCE through its Members who were actively involved in conducting trades and in a position to provide better service being well conversant with the market. The mere fact that the appellant's transactions involved 24 active members does not lead to conclusion that these active Members by themselves had f....
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....ench of this Tribunal had deleted the disallowance of loss incurred by the assessee in commodity transactions on NMCE during FY 2008-09, which was disallowed by the AO on the ground of being bogus in nature. The relevant findings of this Tribunal are as follows: "4. We have heard both the side and perused the materials available on record. The ld. AR submitted two papers books. First book is running in pages no. 1 to 88 and 2nd paper book is running in pages 1 to 34. Before us the ld. AR submitted that the order of the AO is silent about the date from which the broker was expelled. There is no law that the off market transactions should be informed to stock exchange. All the transactions are duly recorded in the accounts of both the parties and supported with the account payee cheques. The ld. AR has also submitted the IT return, ledger copy, letter to AO and PAN of the broker in support of his claim which is placed at pages 72 to 75 of the paper book. The ld. AR produced the purchase & sale contracts notes which are placed on pages 28 to 69 of the paper book. The purchase and sales registers were also submitted in the form of the paper book which is placed at pages 76 to ....