NARAYAN SECURITIES LTD,NEW DELHI vs. DCIT CIRCLE-17(2), NEW DELHI

PER ANADEE NATH MISSHRA, AM: (A) This appeal by Assessee is filed against the order of Learned

Commissioner of Income Tax (Appeals)-6, Delhi [Ld. CIT(A)”, for

short], dated 23/07/2019 for Assessment Year 2011-12. Grounds

taken in this appeal are as under:

“1. That the Commissioner of Income Tax Appeals[‘CIT(A)’]erred on facts and in law in upholding validity of reassessment proceedings initiated under section 147 through the issuance of notice under section 148 of the Page 1 of 5

ITA No.7768/Del/2019 Narayan Securities Ltd. Vs DCIT Income Tax Act, 1961 (‘the Act) and not quashing the same on the ground of being illegal, bad in law and void-ab-mitio. 1.1 That the CIT(A) erred on facts and in law in not appreciating that reliance placed by the assessing officer on the report from investigation wing for allegingthat the appellant had acted as an ‘exit provider’for providing bogus entries of exempt Long term Capital Gain (‘LTCG’)/Short Term Capital Loss(‘STCL’)/business lossto various beneficiaries from whom shares of M/s SVC Resources Ltd. (‘SVC Ltd. ) were purchased by the appellant, without any independent verification / satisfaction of the assessing officer, did not constitute valid “reason to believe” to assume jurisdiction under section 147 of the Act. 1.2 That the CIT(A) erred on facts and in law in holding that the appellant was precluded from raising objections to assumption/validity of reassessment proceedings in view of provisions of 292BB of the Act without appreciating that the said provision only precluded the assessee from raising objections relating to service of notice and not from raising legal objections qua assumption/validity of reassessment proceedings, which goes to root of the matter and could be raised at any stage. 1.3 Without Prejudice, that the CIT(A) erred on facts and in law in not appreciating that the appellant had duly objected against assumption of jurisdiction under section 147 during the course of assessment proceedings.

1.4 Without prejudice, that the order passed by the assessing officer is illegal, bad in law and void-ab-initio since the assessing officer proceeded to pass the re-assessment order without first disposing off the legal objections raised by the appellant.”

(B) In this case, assessment order dated 23/12/2018 was

passed by the Assessing Officer u/s 143(3) of Income Tax Act;

wherein the assessee’s total income was assessed at Rs.63,00,879/-

(rounded off to Rs.63,00,880/-) as against the returned income of

Rs.57,22,440/-. In the assessment order an addition of

Rs.5,78,439/- was made on account of commission income, at the

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ITA No.7768/Del/2019 Narayan Securities Ltd. Vs DCIT rate of 5% on purchase of shares amounting to Rs.1,15,38,775/-.

In the aforesaid assessment order there is no discussion regarding

the basis on which rate of commission income has been determined

@ 5%; and the estimation of commission income has been made on

ad hoc rate of 5% on the purchase amount of shares. The assessee

filed appeal against the assessment order in the office of the Ld.

CIT(A). Vide impugned appellate order dated 23/07/2019, the Ld.

CIT(A) dismissed the assessee’s appeal. The present appeal before

us has been filed by the assessee against the aforesaid impugned

appellate order dated 23/07/2019 of the Ld. CIT(A).

(B) At the time of hearing before us, Ms. Manisha Lahoti, CA,

the Ld. Authorized Representative (“AR” for short) for the assessee

submitted that the assessee was a share broker. She further

submitted that the aforesaid purchase of shares amounting to

Rs.1,15,38,775/- was made by the assessee on its own account;

and not on behalf of any client. She contended that there was no

question of receipt of any commission income in respect of the

aforesaid purchases because purchases were made by the assessee

on its own account and not on account of any client. The idea that

the assessee has received commission from itself was ill-conceived, Page 3 of 5

ITA No.7768/Del/2019 Narayan Securities Ltd. Vs DCIT she contended. She also submitted that the ad hoc rate of 5%

adopted by the Assessing Officer was arbitrary, baseless and

without any supporting material. The Ld. Departmental

Representative did not dispute the submissions made by the AR for

assessee, on facts; but however, relied on the assessment order.

(C) We have heard both sides. We have perused the materials

on record. The relevant facts are not in dispute. It is not in dispute

that the assessee is a share broker. It is also not in dispute that the

aforesaid purchase of shares amounting to Rs.1,15,38,775/- has

been made by the assessee on its own account and not on behalf of

any client. It is, therefore, inconceivable that the assessee would

receive commission from itself for purchases made on its own

behalf. We agree with the submission of the Ld. AR of the assessee

that the aforesaid addition of Rs.5,78,439/- on account of

commission on shares purchased by the assessee on its own

account, was ill-conceived. In view of the foregoing; and in the

specific facts and circumstances of the present appeal before us, we

set aside the impugned appellate order dated 23/07/2019 of the

Ld. CIT(A) and we direct the Assessing Officer to delete the addition

of the aforesaid amount of Rs.5,78,439/-. Page 4 of 5

ITA No.7768/Del/2019 Narayan Securities Ltd. Vs DCIT

(C.1) As we have directed the Assessing Officer, in foregoing

paragraph (C) of this order, to delete the aforesaid addition of

Rs.5,78,439/-, the grounds of appeal relating to merits of the

addition are treated as allowed. The grounds of appeal relating to

initiation of proceedings u/s 147 read with section 148 are not

being adjudicated because these grounds are merely academic in

nature and need not be decided, in view of the fact that on merits,

the addition has already been deleted by us.

(D) In the result, this appeal is treated as partly allowed.

Order pronounced in the Open Court on 28/02/2023.

Sd/- Sd/- (CHALLA NAGENDRA PRASAD) (ANADEE NATH MISSHRA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 28/02/2023 Pk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT

ASSISTANT REGISTRAR ITAT NEW DELHI

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