TaxTMI 
TaxTMI 
2026 (3) TMI 1473
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....ignoring the facts brought on record establishing manipulation of derivative transactions as part of colourable device to generate fictitious gain with the aim to evade taxes due. 2. Whether on the facts and circumstances of the case and in law, the Learned CIT(A) erred in deleting the addition towards commission expenses by overlooking the fact that the entire transactions were stage managed with the object to facilitate the assessee to plough back its unaccounted income in the form of non-genuine profit? 3. Whether in the facts and circumstances of the case, the Learned CIT(A) was right in ignoring the fact that tax planning may be legitimate provided if it is within the framework of law, as colourable devices cannot be part of tax planning which cannot be encouraged ? 4. Whether on the facts and circumstances of the case, the Learned CIT(A) erred in deleting the disallowance of commission of Rs. 2,93,31,831/- purportedly incurred by the assessee towards payment to brokers who allegedly entered into the derivatives transactions at the behest of the assessee overlooking the fact that the entire transactions were stage managed with the object to facilitat....
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.... have held that the impugned sum was genuine and therefore rightly offered to tax by the assessee as their business income. 4. For that the respondent craves leave to submit additional cross objections and/ or amend or alter the cross objections already taken, either at the time of hearing of the appeal or before." 4. In the cross objection the assessee has raised a legal issue/ground regarding validity of reopening of the assessment which goes to the root of the matter. Therefore, first we consider the legal issue raised by the assessee in the cross objection in ground no.1. 5. The learned Authorised Representative of the Assessee has submitted that the assessee company is a member of National Stock Exchange of India and engaged in the trading in capital market, Futures and Options and currency derivatives. The assessee filed its return of income for the year under consideration on 12.09.2013 and scrutiny assessment was completed u/sec.143(3) of the Income Tax Act [in short "the Act"], 1961 on 24.02.2016 whereby the Assessing Officer made disallowance u/sec. 14A of the Act. Thereafter, the Assessing Officer on the basis of the information received from DGIT [Inv.], ....
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....#39;ble Gujarat High Court in the case of Ashvin Dye-Chem Industries VS. ITO 171 taxmann.com 687 (Guj.HC); 5.1. He has contended that the Assessing Officer failed to demonstrate that which material was not disclosed by the assessee during the course of original assessment. The learned Authorised Representative of the Assessee has submitted that all primary facts including the profit from the derivative trading were already disclosed in the return and examined by the Assessing Officer in the scrutiny assessment u/sec.143(3) of the Act. He has further submitted that even the reopening of the assessment is based on the incorrect and non-existing facts as the Assessing Officer has alleged trading in illiquid stock options, whereas the assessee has traded in currency futures which are liquid and recognized by Securities and Exchange Board of India [in short "SEBI"]. Therefore, the reasons recorded by the Assessing Officer are without application of mind and factually incorrect. The learned Authorised Representative of the Assessee has submitted that the reason recorded by the Assessing Officer shows non-application of mind without conducting any independent enquiry or satisfaction of....
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....ssessable to tax has escaped assessment and assessee failed to disclose fully and truly all the relevant facts necessary for the assessment by concealing the involvement of the assessee in reverse and circular trading of derivatives. In support of his contention, he has relied upon the following decisions: i. Judgment of Hon'ble Gujarat High Court in the case of Yogendra Kumar Gupta vs. ITO [2014] 366 ITR 186 [Guj.- HC]; ii. Judgment of Hon'ble Rajasthan High Court in the case of Ankit Agrochem (P.) Ltd. vs. JCIT, Range-1, Bikaner [2018] 253 Taxman 141 [Rajasthan-HC]; iii. Judgment of Hon'ble Gujarat High Court in the case of Ankit Financial Services Ltd. vs. DCIT, Circle-1(1)(2) [2017] 78 taxmann.com 58 [Gujarat-HC]; iv. Judgment of Hon'ble Supreme Court in the case of Securities and Exchange Board of India vs. Rakhi Trading Private Ltd., in Civil Appeal No.1969 of 2011 Dated 08.02.2018; v. Judgment of Hon'ble Calcutta High Court in the case of Pr. CIT-9, Kolkata vs. P L Goenka HUF in ITAT 241/2024 in IA No. GA/2/2024 dated 06.05.2025; 6.1. Thus, the learned DR has submitted that after the completion of the assessment u/sec. 143(3) o....
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....ee filed the return of income for the A.Y.2013-14 on 12.09.2013 declaring total income at Rs. Nil after setting off brought forward business loss of Rs. 7,85,708/-. An order under section 143(3) was passed on 24.02.2016 determining income at Rs. 91,260/- on account of disallowance under section 14A of the Income Tax Act. 2. In this case, information has been received under Project Falcon from DGIT(Investigation), Mumbai on 06.03.2020 through the Income-tax Business Application regarding coordinated and premediated trading on the Bombay Stock Exchange by engaging in reversal trades in illiquid stock options resulting in non- genuine business loss/gains to the beneficiary assessee and that the present assessee is a party to such manipulation. From the data made available under Project Falcon on the ITBA, it is seen that the assessee has purchased stock options for an aggregate premium value amounting to Rs 72,58,02,375/- and sold the same for an aggregate premium value of Rs 74,07,89,200/- resulting in a profit of Rs 1,49,86,825/-. Purchase of these trades have been executed through the broker GIRIRAJ STOCK BROKING PVT LTD on the Bombay Stock Exchange and sold to various par....
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....variation in purchase price and sale price. VIL (iii) 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. (iv) Time gap between purchase and sale transaction lasts few seconds and not more than an hour. (v) Insignificant change in the price of the underlying scrip as compared to the change in buy rates and sell rates. (vi) M Trading repeatedly in deep in-the-money options and deep out-of-the-money options on individual stocks, which were thinly traded. (vii) The trades by these loss-making entities, in many cases, contribute to 70% to 100% of total traded volume for the contracts on those days. 4. From perusal of return filed, it is seen that the assessee has admitted NIL income after claiming brought forward loss of Rs. 7,85,708/- in the return of income filed for assessment year 2013-14. 4.1 Further, on analysis of trading data received under Project Falcon, it is seen that the assessee has undertaken trades in the following unique contracts through its broker M/s Giriraj Stock Broking Pvt Ltd during FY2012-13 relevant ....
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.... 1,45,16,047 Sell turnover 74,07,89,200 1,48,15,784 Total 146,65,91,575 2,93,31,831 Thus, it is a reasonable inference that the present assessee has incurred commission expense of Rs 2,93,31,831/- in cash for availing non-genuine profit of Rs 1,49,86,825/- from trading in illiquid stock options. 4.5 Thus, based on the analysis of trade data as present in this paragraph and comparing with chief characteristics of reversal trades as discussed in para 3, it is seen that the assessee has indulged in generating non-genuine profit amounting to Rs 1,49,86,825/- by trading in illiquid stock options on the BSE during the period previous year 2012-13 and incurred cash expenses amounting to Rs 2,93,31,831/- in relation to it. 5. In view of the foregoing facts, it is sufficiently clear that the assessee has benefitted from engaging in reversal trades in illiquid stock options on the BSE resulting in non-genuine profit amounting to Rs 1,49,86,825/- which has been set off against other losses and incurred cash expenses amounting to Rs 2,93,31,831/-. This has resulted in income amounting to Rs. 4,43,18,656/- (Rs 1,49,86,825/- + Rs 2,93,31,831/-) escap....
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.... Date Buy Quantity Buy_PREMIUM VALUE Sale_Qty Sale _PREMIUM VALUE Net Profit 1 GBPAUG2013 19-03-2013 3,000 Rs. 25,65,00,000.00 3,000 Rs. 25,98,60,000.00 Rs. 33,60,000.00 2 GBPAUG2013 20-03-2013 360 Rs. 3,06,00,900.00 360 Rs. 3,13,92,000.00 Rs. 7,91,100.00 3 USDAUG2013 19-03-2013 6,600 Rs. 37,29,33,000.00 6,600 Rs. 37,88,56,500.00 Rs. 59,23,500.00 4 JPYOCT2013 19-03-2013 400 Rs. 2,36,40,000.00 400 Rs. 2,48,01,000.00 Rs. 11,61,000.00 5 GBPNOV2013 20-03-2013 350 Rs. 3,00,72,875.00 350 Rs. 3,10,45,000.00 Rs. 9,72,125.00 6 GBPNOV2013 20-03-2013 120 Rs. 1,03,05,600.00 120 Rs. 1,06,34,700.00 Rs. 3,29,100.00 7 USDDEC13C58 21-03-2013 2,500 Rs. 17,50,000.00 2,500 Rs. 42,00,000.00 Rs. 24,50,000.00 Grand total Rs. 72,58,02,375.00 Rs. 74,07,89,200.00 Rs. 1,49,86,825.00 7.2. Thus, it is clear from the above details of 07 derivative transactions that the assessee carried out in the currencies such as Great Britan Pound, US Dollars and Japanese Yen. Therefore, the....
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....urrency to the same person or party. The details as given by the Assessing Officer in Para no.2 of the reasons clearly reveal that the assessee bought these currencies from different parties and sold to the different parties. Therefore, when the transactions of purchase and sale is not with the same party, then, it cannot be said to be a reversal trade for non-genuine or bogus profit or loss. It is also pertinent to note that the profit of Rs. 1,49,86,825/- is duly reported by the assessee at the time of filing the original return of income and therefore, to the extent of the profit disclosed by the assessee, it does not fall in the category of 'income assessable to tax has escaped assessment'. The only difference would be that the addition was finally made by the Assessing Officer u/sec.68 of the Act which was declared by the assessee as business profit. Therefore, it is not a case of non-disclosure of income on the part of the assessee which can be treated as the income escaped assessment, but the Assessing Officer has proposed to assess the said income by treating the profit as non-genuine. The Assessing Officer has not disputed the fact that the transactions are carried out on ....
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....ent is set aside and as a result, the order of assessment dated 23.03.2016 framed by the Assessing Officer pursuant to such notice also stands invalidated." 7.3. Accordingly, when the entire information received by the Assessing Officer from the Investigation Wing in respect of the manipulative trading in illiquid stock options, then, forming the belief by considering the derivative transactions in the currencies as the illiquid stock option is apparently based on incorrect and non-existing facts. It also reveals non-application of mind on the part of the Assessing Officer while issuing the notice u/sec.148 of the act as the reasons recorded by the Assessing Officer are not the Assessing Officer's own analysis of the relevant facts but appears to be the reproduction of the information as received from the Investigation Wing. Therefore, we find force in the contention of the learned Authorised Representative of the Assessee which is supported by various Judgments. In the case of Raajratna Stockholdings (P.) Ltd., vs. ACIT (supra), the Hon'ble Gujarat High Court while dealing with an identical issue has held in Para nos.8 to 12 as under: "8. Having considered rival submis....
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....espondent, after considering such information/ material received from other sources, consider the same with the material on record in the case of the petitioner assessee and thereafter, is required to form independent opinion that income has escaped assessment. Without forming such opinion solely and mechanically relying upon the information received from the other sources, the respondent-Assessing Officer could not have assumed the jurisdiction to reopen the assessment based on such information. This view is fortified by the decision of this Court in case of Harikishan Sunderlal Virmani v Deputy Commissioner of Income-tax [2017] 88 taxmann.com 548/394 ITR 146 (Gujarat). 12. Considering the facts the case, we are of the opinion that the respondent-Assessing Officer could not have assumed the jurisdiction merely and solely relying upon the information made available on the insight portal without forming any independent opinion on the basis of the material on record vis-a-vis the petitioner is concerned. The petition therefore, succeeds and is accordingly allowed. Impugned notice dated 30.03.2021 issued under section 148 of the Act is hereby quashed and set aside. Rule is ma....