AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (11) TMI 1151
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.... 1. The learned CIT (A) 54, Mumbai erred in confirming the Act of the Ld. AO in issuing notice u/s 148 of the IT Act, 1961 without appreciating the facts of the case in right perspective. 2. The Learned CIT (A) 54, Mumbai erred in confirming the addition of Rs. 98,63,250/- u/s 68 of the Act, 1961 without appreciating the facts of the case in the right perspective. 3. The Learned CIT (A) 54, Mumbai erred in confirming the addition of Rs. 4,57,00,000/- u/s 68 of the Act, 1961 without appreciating the facts of the case in the right perspective. 4. The ground of appeal is without prejudice to the other. Additional Ground On the facts and circumstances of the case, the Ld. Assessing Officer erred in issuing notices u/s 143(2) of the Income Tax Act, 1961 dated 01.06.2021 for the above-mentioned Assessment Years in violation of CBDT Instruction F.No.225/157/2017/ITA-II dated 23.06.2017. Therefore, the said notices are invalid, and assessment framed pursuant thereto is vitiated in law. 3. We take up first the appeal in ITA No.206/Mum/2025for the AY 2014-15 and the decision made would apply mutatis mutandis to ITA No.207 and 208/Mum/2025.At th....
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....ng reliance on SEBI report and case of Rakhi Trading P.Ltd.(SC),he disallowed the loss treating it to be fictitious. 4.3 The AO also considered the transactions with East West Finvest P. Ltd. and Trimurti Finvest P. Ltd. as bogus on the basis of another report of the Investigation Wing revealing that one accommodation entry provider Sri Sharad Darak had admitted u/s 132(4) of the Act that all such companies were controlled by him and were meant to provide bogus accommodation entries. Moreover, survey was conducted in the case of M/s HNJ Stock Broking P. Ltd. Mumbai u/s 133A of the Act in the course of which the main person Sri Ritesh Lunkad, admitted that he was running many of the companies which had no substantive business activity and were only providing accommodation entries. As per the assessment order, the assessee as per sl.no.3 is one of the said companies. Sri Lunkad had accepted that he was receiving commission income for providing accommodation entries. Considering all such facts, the AO treated the aggregate amount of Rs 4,57,00,000/-as Unexplained credit u/s 68 of the Act. 5. In the subsequent appeal, the ld.CIT(A) in a consolidated order for AYs 2024-14/2015-16 ....
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....ders. Despite request, respective statements were not provided by the AO to the assessee which was also denied opportunity to cross examine them. It was also submitted that the coordinate bench in the case of Shalimar Housing in ITA No.4079/Mum/2019 and Global Realcon P.Ltd in ITA No, 170-174/Mum/2020 has duly considered both the transactions from East West Finvest P.Ltd and Trimurti Finvest P.Ltd as genuine. Both of them were controlled by Sri Sharad Darak. However, the ld.CIT(A) relied on the case of Shubham Investment P.Ltd where CIT(A)-54, Mumbai vide order dated 25.9.2023 on similar facts upheld the addition. 6. Ground No. 1 is taken by the assessee before us in respect of reopening of the case u/s 147/148 of the Act. It is noticed that the AO received an information from DGIT (Inv.), Mumbai under 'Project Falcon' regarding coordinated and premediated trading on BSE engaging in reversal trades in illiquid stock options resulting in non-genuine business loss/profit to the beneficiaries. A specific information pertaining to assessee was received that it had generated fictitious loss in equity/derivative of Rs. 98,63,250/- by trading in illiquid stock options on the BSE. Furth....
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....Besides, it contended that the assessment order can never be treated as a speaking order by any stretch of imagination. In fact, the AO had chosen to remain completely silent on each and every objection raised by the assessee. Even the judicial rulings relied upon by him have no bearing whatsoever to the case of the assessee. The A.O has not complied with the procedure laid down in the landmark judgement in the case of GKN Driveshafts (India) Ltd. (supra).The Hon'ble Court in the case of Sanjiv Dhiresh bhai Shah Vs. ITO 165 taxmann.com 179 (Gujarat High Court, 2024)quashed the notice issued under section 148 of the Act by concluding that re-opening of assessment which is merely based on analysis of trading data received under "Project Falcon" could not be used to form any reason to believe that income has escaped assessment and hence, such reasons recorded could not be held to be valid for assuming jurisdiction to re-open assessment. The Hon'ble Court in the case of Raajratna Stockholdings Pvt. Ltd. Vs. ACIT 170 taxmann.com 473 (Guj)held that that re-opening of assessment on the basis of information received under "Project Falcon" in insight portal regarding coordinated and premedi....
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....of GKN Driveshaft by the AO. We do not find any infirmity in the action of authorities in so far as reopening is concerned. Rather, we find that the assessee despite being aware of the reasons for reopening kept on asking for the Investigation wing reports knowing fully well that during assessment proceedings, he would have ample opportunity of hearing by the authorities. At the point of initiation of reassessment proceedings itself asking for such details is not warranted and cannot be approved. It was also not correct to doubt the very existence of materials in hand with the AO though the fact remains that the recorded reasons had duly reflected the nature of information, source thereof and its implications with regard to the income of the assessee. 8.1 We are of the considered view that merely because the reopening was done on the basis of information received from DGIT (Inv.), Mumbai, it doesn't mean that the reopening was done on borrowed satisfaction. The AO had duly applied his mind and verified the information as received. He has given a specific finding that the loss of Rs 98,63,250/- by the assessee in the derivative trading was non-genuine and its income had escaped a....
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.... year has escaped assessment. The word reason in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that Income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fast by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd v. 170 (1991 (191) ITR 662), for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is reason to believe, but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have f....
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.... appears to us to be, to ensure that a party cannot get away by willfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say ''you accepted my lie'', now your hands are tied and you can do nothing". It would be travesty of justice to allow the assessee that latitude. 8.5 It is settled law that sufficiency or adequacy of the reasons for the issuance of the notice for reopening of the assessment is not required to be gone into at the stage of the reopening. It can never be said that the final outcome of the proceedings has been derived at by the authority by issuing a notice for reopening. On the basis of material before it as highlighted above, if the Assessing Officer was satisfied to harbour reasons to believe that there was escapement of income and if on such basis, he has exercised his powers under sections 147/148 of the Act, no fault can be found, 8.6 Similarly, Hon'ble Bombay High Court in the case of Hede Ferrominas Pvt. Ltd reported in 147 taxmann.com 215 (Bom) had occasion to examine whether there was sufficient material to form a reasonable belief that appellant's income had escaped ass....
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....he case of Rakhi Trading Private Limited in CA No.1969 of 2001 has laid parameters which define manipulative trading and from the order and judgment of SEBI, the chief characteristics of manipulative reversal trades were as under:- 1. Identical purchase and sale quantity 2. Huge variation in purchase price and sale price. 3. Trades carried out between same party and counter-party i.e. if a client A purchased X qty from a counter-party client B, then A sells X qty to B only. 4. Time gap between purchase and sale transaction lasts few seconds and not more than an hour. 5. Insignificant change in the price of the underlying scrip as compared to the change in buy rates and sell rates scrip ENT 6 Trading repeatedly in deep in-the-money options and deep out- of-the- money options, which were thinly traded. 7. The trades by these entities, in many cases, contribute to 70% to 100% of total traded volume for the contracts on those days. 9.1 Thus, the AO held that the trades of the assessee in reversal trades in stock options had resulted in non-genuine loss through manipulative trading of stock options on the stock exchange a....
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....mpletely genuine and did not warrant any adverse inference. 11. On the other hand, ld. DR strongly relied upon the order of lower authorities claiming that there was a specific report that certain entities were manipulating reversal trading by the parties to book fictitious and non-genuine losses and the assessee was one of the beneficiaries. Accordingly, the order of the AO should be sustained. 12. We have heard both the parties at length and also perused various materials referred to before us and the relevant finding given in the impugned orders. From the perusal of the assessment order, it is seen that the AO has solely relied upon the report of Investigation Wing known as 'Project Falcon'. He has not carried out any independent enquiry or any investigation and has ignored all the evidence placed before him in support of all the trade transactions. One very important fact which has been brought on record by the ld. AR that the assessee had done many trades during the year in derivatives out of which only certain trades have been selected by the AO holding it to be non-genuine. As submitted, the assessee is engaged in screen based electronic trading wherein it is not possi....
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....f account and AO has not pointed out any mistake/wrongdoing in such transaction. A genuine transaction, in absence of any cogent contrary evidence, could not be considered as a colourable device to evade taxes, merely on the basis of general observations, devoid of any specific factual finding which is relevant to the impugned transaction. On similar facts, we place reliance on hon'ble Gujrat High Court in the case of Banyan & Berry Vs CIT (1996) (222 ITR 831) (Gujarat), Sandip Kumar Parsottambhai Patel Vs ITO (2022) (137 taxmann.com 373) (Surat-Trib.),Champalal Gopiram Agarwal [2023] 155 taxmann.com 66 (Gujarat)/[2024] 460 ITR 277 (Gujarat)[25-07-2023]. In the case of Gokul Fuelchen Pvt Ltd., ITA No. 187/Mum/2024 dated 29.07.2024, it was held that trading loss on account of derivatives currency transaction on the recognized stock exchange could not be denied on in the absence of any specific findings by the AO. In the case of Abans Commodities(I) Pvt. Ltd. Mumbai ITAT, in ITA no.3315/Mum/2024, AY 2014-15, likewise, it was held that derivatives loss on recognized stock exchange could not be denied on the basis of general report of the Investigation Wing unless the AO has independen....
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....uently, grounds no.2 of appeal is allowed. 13. Ground no.3 pertains to the addition of unsecured loans of Rs 4,57,00,000/-. The AO has concluded that the above unsecured loans had been received from the companies controlled by Shri Sharad Darak who is a well known accommodation entry provider of Indorerunning dummy companies through which he provided entries to needy persons. Before the lower authorities, it was contended that the impugned loans were, in fact, advances for purchase of shares which did not materialize and the amounts were duly refunded back to these entities. Therefore, there is no element of accommodation entries in the said transactions. Moreover, both the concerns are active companies on MCA Portal having sufficient reserves and surplus to make such advance. The transactions made from these known entities through banking channels could not be doubted merely on the basis of certain Investigation Report. The assessee has also placed reliance on Global Realcon Pvt. Ltd. Vs. ACIT(Central)-1, Indore. [IT(SS)A No.170 to 174/Ind/2020 (A.Υ. 2012-13 & 2014-15 to 2017-18)] and JCIT(OSD)-CC-7(4) Vs. M/s. Shalimar Housing & Finance Ltd. (I.TA. No. 4079/Mum/2019 (&....
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....he loan transactions carried out by the assessee in that appeal with Trimurti Finvest Pvt. Ltd Purvi Finvest Pvt. Ltd., KK Patel Finance Ltd. and East West Finvest P. Ltd. as genuine loan transactions. 17. We have given thoughtful consideration to the plea of the ld.AR that the Department declined its request for allowing a cross- examination of the alleged accommodation entry provider Sri Sharad Dakar. We are of the considered view that the A.O was obligated to have facilitated to the assessee a cross-examination as their statements, inter alia, were made the for initiating proceedings u/s 147 of the Act as well as for drawing adverse inferences as regards the authenticity of the loan transactions. Our view is supported by the judgment of the Hon'ble Supreme Court in the case of M/s. Andaman Timber Industries Vs. Commissioner of Central Excise, Kolkata-II, C.A No.4228 of 2006 (SC) dated 02.09.2015. In the aforesaid case, the Tribunal had upheld the rejection by the lower authorities of the assessee's request for allowing a cross-examination of the dealers whose statements were relied upon by the adjudicating authority while passing its order by observing that the plea of no cro....
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....oresaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity....
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....dverse inferences as regards the authenticity of the loan transaction, as had been drawn by the A.O, cannot be summarily accepted. Accordingly, in all fairness, the matter requires to be restored to the file of the A.O with a direction to facilitate the cross examination of Shri Sharad Darak (supra) and also, any other person/persons on whose statements adverse inferences as regards the authenticity of the loan transaction in question have been drawn in the case of the assessee. 17.3 Before parting, we shall deal with the ld. AR's claim that as the ITAT, Indore in the case of M/s. Global Realcon Pvt. Ltd. Mumbai Vs. ACIT (Central)-1, Indore, IT(SS)A No.170 to 174/Ind/2020 (supra), and other orders of co-ordinate Benches of the Tribunal, had held, that the loan received by the respective assessee's before them from the above concerns were found to be genuine, therefore, on the said count itself the adverse inferences drawn by the A.O as regards the authenticity of the loan transaction in question in the present case is liable to be vacated, we are unable to concur with the said claim of the ld. AR. for the reason that as per the mandate of Section 68 of the Act, as the assessee i....
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.... 2. The Learned CIT (A) 54, Mumbai erred in confirming the addition of Rs. 55,21,650/- u/s 68 of the Act, 1961 without appreciating the facts of the case in the right perspective. 3. The Learned CIT (A) 54, Mumbai erred in confirming the addition of Rs. 3,63,50,000/- u/s 68 of the Act, 1961 without appreciating the facts of the case in the right perspective. 21. Ground no.1-In this case original assessment was made u/s 143(1) of the Act and therefore clause(b) to Explanation to section 147 was applicable and approval was rightly taken from Addl.CIT. 22. Ground no.2 pertains to loss of Rs 55,21,650/- from Derivative trading on the report of Project Falcon. Although the total loss disclosed by the assessee amounted to Rs 2,14,82273/-,the AO disallowed only the above sum. 23. Ground no.3 pertains to alleged accommodation loans taken from Sri Sharad Dakar controlled companies i.e. M/s East West Finvest P.Ltd Rs 2,43,00,000/-,M/s Jyoti India P.Ltd Rs 85,00,000/- and M/s Trimurty Finvest P.Ltd Rs 35,00,000/- aggregating to Rs 3,63,50,000/-. 24. Since all the above grounds are already deliberated and decided by us in the appeal for AY 2014-15(supra), the decision re....