TaxTMI 
TaxTMI 
2025 (6) TMI 1520
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....ly, on the basis of information received from the Insight portal that the assessee had entered into trading in options derivative through Trade Reversal which was unexplained and which had resulted in non- genuine profit for the year under consideration, the Assessing Officer issued a notice u/s 148A(b) of the Act to the assessee, the details of which are as under: "GOVERNMENT OF INDIA MINISTRY OF FINANCE INCOME TAX DEPARTMENT OFFICE OF THE INCOME TAX OFFICER WARD 2, SATARA To, KAY POWER AND PAPER LIMITED GAT NO 454/457, GAT NO 454/457, At Post BORGAON, TAL SATARA TAL SATARA 415002, Maharashtra, India PAN Assessment Year Dated: DIN & Letter No AABCK1295P 2015-16 24/05/2022 ITBA/COM/F/17/2022-23/ 1043136092(1) Sir / Madam/ M/s. Subject: Subsequent proceedings with reference to section. 148A(b) in consequence to Hon'ble SC Order 04.05.2022 Letter Kindly refer to the Notice dated 30/06/2021 issued in your case u/s 148 of the Income Tax Act, 1961 for the A.Y. 2015-16. 2. In this regard, your attention is invited to the decision of the Hon. Supreme Court dated 04th May 2022, rendered in Civil Appeal No. 3005/2022 in the case of Union of India ....
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....ingly, further proceedings as envisaged in Sec. 148A(d) and 148 of the Income Tax Act, 1961 shall be initiated, without affording you any further opportunity of being heard. PUTHENPARAMBIL MUKUNDAN BINU WARD 2, SATARA" 3. The assessee in response to the same vide letter dated 28.06.2022 submitted that the derivative transactions mentioned in the notice for trading in equity shares were carried out on recognized stock exchange during the financial year 2014-15. All equity shares purchased and sold during the relevant period were in derivative segment. No delivery of any shares was taken by the company and all the transactions were made through the broker named "Sun Star Securities" having office at 56/33, Site-IV, Sahibabad Industrial Area, Gaziabad, U.P. It was submitted that the company earned net profit of Rs. 3,06,33,42/- in trading in equity shares during the financial year 2014-15. The amount is duly accounted for as "Profit on trading in derivatives" in the "Other income" group in Profit and Loss Account annexed to the annual report. The transactions of trading in derivative products were made from the Current Account of the company maintained with IDBI Bank. Further, the....
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....d to as 'TOLA') and as per the CBDT Notification No.20 dated 31-03-2021 and subsequent Notification No.38 dated 27-04-2021 according to which the time limit for issue of notice u/s 146 was extended to 30-04-2021 and 30-06-2021 respectively. The above notice was issued after obtaining the prior approval of the competent Authority as per the prevailing provisions of section 151 of the IT Act, 1961. The basis for issue of notice u/s 146 was as under- i. Brief of the Assessee : - The assessee is a company and has filed return of income u/s 139(1) of the I.T. Act for AY 2015-16 on 26/09/2015 declaring total income of Rs. NIL/- ii. Brief details of information collected/received by the AO: Information has been received from the Insight Portal, regarding Tax Evasion through trading in options derivative through Trade Reversal. M/s Kay Power and Paper Ltd. has bought scrips and same scrips sold immediately within few seconds at higher rate and huge profit has been booked on such transaction. On going through the transaction details, it is seen that, the sale time is earlier than time of buying. As per details, it is also seen that, the assessee has purchased and sold scripts at....
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....sessee, M/s Kay Power and Paper Ltd has traded in options derivative through Trade Reversal. The assessee has bought scrips and sold same scrips immediately within few seconds at higher rate and huge profit has been booked on such transaction. On going through the transaction details, it is seen that, the sale time is earlier than time of buying As per details, it is also seen that, the assessee has purchased and sold scripts at a price which are very less as compared to the market price on that particular day. During the FY 2014-15, M/s Kay Power and Paper Ltd. has made the transactions and booked the profit of Rs. 2,67,66,250/-. During the F.Y 2014-15, M/s Kay Power and Paper Ltd has made such transactions of options derivative reversal trades making non-genuine profit of Rs. 2,67,66,250/-, It is seen from the return filed by the assessee for the A.Y 2015-16 that assessee has set off losses of Rs. 52,91,606/- against the capital gains of Rs. 52,91,606/- The non-genuine profit of Rs. 2,67,66,250/- remains unexplained as the assessee has not submitted any satisfactory explanation regarding options derivative reversal trades transactions by which assessee gained non-genuine profit o....
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....ion of getting fictitious gain under project falcon by way of coordinated and premediated trading on stock exchange by engaging in illiquid stock options with M/s. Sunstar Securities during the financial year 2014-15 relevant Assessment Year 2015-16 being the sham transaction of Rs. 2,67,66,250/- Hence, the amount of Rs. 2,67,66.250/- (being the part of profit on trading in derivatives of Rs. 3,06,33,426/-) credited in the P&L account, just to set off the losses, is treated as unexplained credits u/s 68 of the Income Tax Act, 1961." 6. In appeal, the Ld. CIT(A) / NFAC rejecting the various explanations given by the assessee and relying on various decisions, upheld the re-assessment proceedings and sustained the addition made by the Assessing Officer. 7. Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal by raising the following grounds: 1. That the order dated 15.05.2024 passed u/s 250 of the Act, 1961 ("Act") by the National Faceless Appeal Centre is against law and facts on the file in as much as he was not justified to uphold the action of the Learned Assessing Officer, Income Tax Department in issuing notice under section 148 o....
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....that the notice in question is barred by limitation. Referring to the provisions of section 149(b) of the Act, he submitted that the basic condition for issue of notice u/s 148 of the Act is that it can be issued within ten years provided that income chargeable to tax represented, among other things, "in the form of an asset" or an "entry or entries in the books of account" exceeds and is likely to exceed Rs. 50 lakhs. He submitted that if the above provisions are extrapolated to the given case, it reveals that while the alleged income i.e. income from derivates is not represented by any asset, the income in respect of the same has been disclosed by the assessee company as income in the Profit and Loss Account, therefore, the mandatory conditions prescribed in section 149 of the Act are not fulfilled. Thus, the proceedings in question are barred by limitation. He submitted that the basic condition for the limitation for issue of notice u/s 148 of the Act to be extended beyond three years till ten years is that the Assessing Officer should have in his possession "books of account or other documents or evidence", which reveal that income represented in the form of "an asset" or "an e....
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....automation. (ii) It is further erroneously stated in paragraph 3 of the Office Memorandum that "To this end, as provided in the section 148 of the Act, the Directorate of Systems randomly selects a number of cases based on the criteria of Risk Management Strategy ." The term 'randomly' is further used Gauri Gaekwad 71/87 904.WP-1778-2023.doc at numerous other places in the Office Memorandum with respect to selection of cases for consideration/issuance of notice under Section 148 of the Act. Respondent is clearly incorrect in its understanding of the said Scheme as the reference to random in the said Scheme is reference to selection of Assessing Officer at random and not selection of Section 148 cases as random. If the cases for issuance of notice under Section 148 of the Act are selected based on criteria of the risk management strategy, then, obviously, the same are not randomly selected. The term 'randomly' by definition mean something which is chosen by chance rather than according to a plan. Therefore, if the cases are chosen based on risk management strategy, they certainly cannot be said to be random. The Computer/System cannot select cases on random but sel....
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....rence to risk management Gauri Gaekwad 73/87 904.WP-1778-2023.doc criteria in clause 3 of the Scheme is to the effect that the notice under Section 148 of the Act should be in accordance with the risk management strategy formulated by the board which is in accordance with Explanation 1 to Section 148 of the Act. In our view, the Revenue is misinterpreting the Scheme, perhaps to cover its deficiency of not following the Scheme for issuing notice under Section 148 of the Act. (iv) In paragraph 3.1 of the Office Memorandum, it is stated that the case is selected prior to issuance of notice are decided on the basis of an algorithm as per risk management strategy and are, therefore, randomly selected. It is further stated that these cases are 'flagged' to the JAO by the Directorate of Systems and the JAO does not have any control over the process. It is further stated that the JAO has no way of predicting or determining beforehand whether the case will be 'flagged' by the system. The contention of the Revenue is that only cases which are 'flagged' by the system as per the risk management strategy formulated by CBDT can be considered by the Assessing Officer for....
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....sibility at the time. Reading the said Scheme along with Section 151A of the Act makes it clear that neither the Section or the Scheme speak about the detailed specifics of the procedure to be followed therein. This argument of the Revenue is clearly contrary to the Scheme as the Scheme is very specific to provide, inter alia, that the issuance of notice under Section 148 of the Act shall be through automated location and in a faceless manner. Therefore, the Scheme is mandatory and provides the specification as to how the notice has to be issued. Further the argument of the Revenue that Section 151A of the Act takes into account that the procedure may be modified under the Act is without appreciating that if the procedure is required to be modified then the same would require modification of the notified Scheme. It is not open to the Revenue to refuse to follow the Scheme as the Scheme is clearly mandatory and is required to be followed by all Assessing Officers. (viii) The argument of the Revenue in paragraph 5.1 of the Office Memorandum that the Section and Scheme have left it to the Gauri Gaekwad 76/87 904.WP-1778-2023.doc administration to device and modify procedures with ti....
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....essment or even that there are circumstances that income has escaped assessment. He submitted that the Ld. CIT(A) / NFAC and the Assessing Officer have also not controverted / dealt with the issue of how income can be said to have escaped assessment particularly when the same has already been disclosed in the income tax return and offered for tax. 12. So far as the applicability of section 68 r.w.s. 115BBE of the Act is concerned, he submitted that the said amount is not a 'cash credit' since it reflects income in the ordinary course of its business activities although from a new / different source i.e. trading in options and derivatives in addition to its activities carried out earlier. He submitted that since the provisions of section 68 are not applicable, the provisions of section 115BBE are not attracted. Referring to the following decisions, he submitted that the amendment brought in sub-section (2) of section 115BBE by the Finance Act, 2016 would be applicable from 01.04.2017 i.e. A.Y. 2017-18 only: i) Shree Karthik Papers Ltd. vs. DCIT (2020) 118 taxmann.com 467 (Mad) ii) Vijaya Hospitality and Resorts Ltd. vs. CIT (2020) 114 taxmann.com 91 (Ker) iii) PCIT vs....
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.... 15. So far as the decision of the Hon'ble Supreme Court in the case of McDowell & Co. Ltd. relied on by the Ld. CIT(A) / NFAC is concerned, the Ld. Counsel for the assessee submitted that the Hon'ble Supreme Court in a subsequent judgment in the case of Union of India vs. Azadi Bachao Andolan (2003) 132 Taxmann 373 (SC) has observed as under: (i) If the Court finds that notwithstanding a series of legal steps taken by an Appellant, the intended legal result has not been achieved, the court might be justified in overlooking the intermediate steps, but it would not be permissible for the court to treat the intervening legal steps as non-est based upon some hypothetical assessment of the 'real motive' of the Appellant. In our view, the court must deal with what is tangible in an objective manner and cannot afford to chase a will-o'-the wisp. (ii) We are unable to agree with the submission that an act which is otherwise valid in law can be treated as non-est merely on the basis of some underlying motive supposedly resulting in some economic determent or prejudice to the national interest, as perceived by the respondents. 16. He also relied on the decision of ....
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....rities, however, there is no whisper of the same in the notice issued u/s 148. No such order of SEBI or statement of M/s. Sunstar Securities was ever provided to the assessee along with the notice u/s 148. He submitted that it is entirely in complete violation of the ratio laid down by the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. vs. ITO (2003) 259 ITR 19 (SC) wherein it has been held that non-providing to an assessee of complete reasons recorded (including sanction, documents relied upon, etc) is fatal to the validity of the re-assessment proceedings and that an Assessing Officer is bound to furnish reasons within a reasonable time. 19. So far as the merit of the case is concerned, he submitted that the assessee company has entered into reversal trades in various scrips. Such reversal trades entail reversal of sell or buy position on a contract with subsequent buy or sell positions with the same counter party during the same day. The said reversal trades were carried out off market through M/s. Sunstar Securities, a broker on the Mumbai Stock Exchanges. He submitted that there was no allegation of any manipulation in the price and volume of securities....
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....e scrips immediately within few seconds at a higher rate and huge profit has been booked on such transactions which according to the Assessing Officer is non- genuine profit to the extent of Rs. 2,67,66,250/- out of the profit of Rs. 3,06,33,426/-. Since the assessee did not submit any satisfactory explanation during the course of assessment proceedings, the Assessing Officer made addition of the same to the total income of the assessee u/s 68 r.w.s. 115BBE of the Act. We find the Ld. CIT(A) / NFAC upheld the validity of the re-assessment proceedings as well the addition on merit. It is the submission of the Ld. Counsel for the assessee that (a) the re-assessment proceedings initiated are barred by limitation, (b) such re-assessment proceedings are invalid especially when the income has duly been disclosed in the return of income and there is no escapement of income; (c) the notice has been issued by the jurisdictional Assessing Officer whereas the assessment has been framed by the NFAC and (d) so called statement of the broker was never provided to the assessee and the assessee has come to know of the same only after the assessment was completed and (e) there is not a whisper abou....
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....eriod of 3 years from the relevant assessment year. A perusal of the provisions of section 149 shows that the basic condition for the limitation for issue of notice u/s 148 of the Act to be extended beyond three years till ten years is that the Assessing Officer must have in his possession "books of account or other documents or evidence", which reveal that income represented in the form of "an asset", "expenditure in respect of a transaction or in relation to an event or occasion" or "an entry or entries in the books of account which has escaped assessment" amounts to or likely to amount to Rs. 50 lakhs or more. In the instant case, a perusal of the assessment order shows that the Assessing Officer has no evidence in his possession of any asset which could or did represent income having escaped assessment since the profit so earned and credited to the Profit and Loss Account has already been utilized for repayment of loan. Similarly, there is no evidence on record before the Assessing Officer that any expenditure in respect of a transaction or in relation to an event or occasion has escaped assessment. Thus, the first 2 conditions are not satisfied. So far as the third clause i.e.....