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Income Tax Appellate Tribunal, MUMBAI BENCH “ A ”, MUMBAI
आयकर अपील�य अ�धकरण मुंबई पीठ “ ए ”,मुंबई �ी �वकास अव�थी, �या�यक सद�य एवं �ी एस. �रफौर रहमान, लेखाकार सद�य के सम� IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “ A ”, MUMBAI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER& SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER आअसं.3569/मुं/2019 (�न.व. 2009-10) (A.Y.2009-10) The Income Tax Officer -24(1)(2), Room No.605, Piramal Chambers, Jeejeebhoy Lane,Lalbaug, Parel, Mumbai 400 012 ...... अपीलाथ�/Appellant बनाम Vs. Shri Ashokkumar Murajmal Raimalani, 2nd Floor, 108, Zaveri Bazar, Andheri (West), Mumbai 400 058. PAN: AAAPR-8617-A .....��तवाद�/Respondent अपीलाथ� �वारा/ Appellant by : Shri Ashok Kumar Kardam –CIT DR ��तवाद� �वारा/Respondent by : Shri Ketan Shah सुनवाई क� �त�थ/ Date of hearing : 16/03/2023 घोषणा क� �त�थ/ Date of pronouncement : 09/06/2023 आदेश/ORDER PER VIKAS AWASTHY, JM:
This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-36, Mumbai [in short ‘ the CIT(A)’ ] dated 28/02/2019 for the Assessment Year 2009-10.
The Department has filed multiple sets of grounds of appeal, revised grounds of appeal and additional grounds of appeal on different dates. At the time of making submissions revised grounds of appeal referred by ld. Departmental Representative are reproduced herein below:
A. Whether, on the facts and in the circumstances of the case and in law, the Ld.CIT(A) is justified in deleting the addition made on account of artificial loss without appreciating the fact that from the data provided by the M/s Motisons Commodities Pvt. Ltd., it is revealed that the assessee has entered into transaction on National Multi Commodities Exchange Ltd. (NMCE) and that the assessee has booked artificial loss of Rs. 13,98,49,007/-?
B. Whether, on the facts and in the circumstances of the case and in law, the Ld.CIT(A) is justified in deleting the addition made on account of artificial loss without appreciating the fact that the information was shared by investigation wing Mumbai after analyzing the data received from investigation wing Ahmadabad and also the said transaction was confirmed by M/s Motisons Commodities Pvt. Ltd that the assessee has entered into transaction on National Multi Commodities Exchange Ltd (NMCE) platform and booked loss of Rs. 13,98,49,007/-
C. Whether, on the facts and in the circumstances of the case and in law, the Ld.CIT(A) is justified in deleting the addition without appreciating the fact that the assessee had created fictitious loss to set off his income to evades tax? D. Whether, on the facts and in the circumstances of the case and in law, the Ld, CIT(A) is justified in deleting the addition without appreciating the fact that the assessee had failed to raise any objection due to typographical error of wrong mentioning of date of issue of notice which could be condone as per section 292B of the IT Act, 1961 ?
E. Whether, on the facts and in the circumstances of the case and in law, the Ld.CIT(A) is justified in deleting the addition without appreciating the fact that the assessee had failed to raise any objection on the validity of notice before completion of assessment proceedings which could be condone as per section 292BB of the I T Act, 1961 ? ' 2. " The appellant prays that the order of the CIT(Appeals) on the above ground be set aside and that of AO be restored."
3." The appellant craves leave to amend or alter ay ground or to submit additional new ground which may be necessary."
Shri Ashok Kumar Kardam representing the Department submitted that the assessment in the case of assessee for assessment year 2009-10 was reopened on the basis of information received from the Investigation Wing that the assessee is one of the beneficiary of a scam whereby artificial losses were generated through systematic misuse of National Multi Commodities Exchange Ltd (NMCE) platform. A report of Forward Market Commission (FMC) dated 02/12/2012 clearly stated that NMCE platform was used by non- existent/bogus clients to artificially increase the volumes. The NMCE was used to book contrived losses , which were used to evade taxes. The assessee through his broker M/s Motisons Commodities Pvt. Ltd ( in short MCPL) had carried out transactions at NMCE. The aforesaid broker of the assessee is one of the tainted brokers. On examination of the trade data furnished by MCPL it was found that the assessee had booked artificial losses of Rs.13,98,49,007/- and in the process has earned profit of Rs.14,06,91,911/- during the Financial Year 2008-09. The Assessing Officer in reassessment proceedings made addition of the artificial losses booked by the assessee.
3.1 The ld. Departmental Representative submits that before issuance of notice u/s. 148 of Income Tax Act, 1961 [in short ‘the Act’], approval from the Competent Authority was sought on 30/03/2016. Thereafter, notice u/s. 148 of the Act was issued and served on the assessee. The date “29/03/2016” mentioned on the notice u/s. 148 is a typographical error. The notice was actually issued through e-mail on 30/03/2016 after seeking approval from JCIT. The CIT(A) has erred in holding that the notice u/s. 148 of the Act is not valid, as it has been issued prior to the approval from Competent Authority u/s. 151 of the Act. The ld. Departmental Representative submits that in the first place there is no defect in the notice issued u/s. 148 of the Act, assuming but not admitting that there was any procedural defect, the assessee never raised any objection before the completion of assessment. The provisions of section 292B makes it unambiguously clear that no assessment can be held as invalid merely for the reason of any defect or omission in issuance of notice, if such notice in substance and effect is in conformity with intent and purpose of the Act. The ld. Departmental Representative submits that the provisions of section 124 of the Act further makes it clear that the assessee is not entitled to question jurisdiction of the Assessing Officer unless he has raised objection within one month from the date of such notice. The assessee never objected to validity of the notice within one month of its issuance/service or even during assessment. The CIT(A) has erred in holding that there was no valid approval for initiating re-assessment proceedings.
3.2 The ld. Departmental Representative submits that the CIT(A) has erred in coming to the conclusion that there is no evidence on record to prove that the assessee has artificially increased the contrived losses. He submitted that the Investigation Wing had carried out a detailed enquiry with respect to misuse of NMCE platform by various brokers/clients to create artificial losses and evade taxes by setting them against book profits. Artificial losses were booked in a systematic manner and book entries were provided to various customers by the brokers. The assessee is one of such beneficiaries. The broker through whom assessee was transacting at NMCE i.e. MCPL was found to be involved in providing such bogus losses. He submitted that the CIT(A) has erred in allowing the appeal of assessee and deleted the addition. The the ld. Departmental Representative prayed for setting aside the impugned order and restoring the findings of the Assessing Officer confirming addition in the hands of the assessee.
Shri Ketan Shah appearing on behalf of the assessee vehemently supported the impugned order and prayed for dismissing appeal of Revenue. The ld. Authorized Representative of the assessee submits that notice issued u/s. 148 of the Act is defective as the same has been issued prior to seeking approval from the Competent Authority. He pointed that notice was issued on 29/03/2016, whereas, approval was sought on 30/03/2016. However, he fairly stated that the notice was served on assessee on 30/03/2016. The ld. Authorized Representative of the assessee placed reliance on the following decisions to contend that notice u/s. 148 issued prior to seeking approval u/s. 151 of the Act from Competent Authority is invalid:
(i) River Valley Madow & Township Pvt. Ltd. vs. DCIT, 284 Taxman 536 (Bom) (ii) CIT vs. Ramesh D. Patel, 362 ITR 492 (Guj). (iii) Tehmul Sethna vs. DCIT in A.Y. 2010-11 Decided on 07/12/2022. 4.1 The ld. Authorized Representative of the assessee submits that the CIT(A) has not only held reopening to be invalid on the ground of notice without authorization, the CIT(A) has also found inconsistency in the reasons recorded for reopening. He submitted that amount referred in reasons is Rs.3,34,97,949/-, whereas the Assessing Officer has made addition of Rs.13,98,49,007/-. The assessee has not entered into any transaction of the amount referred in the reasons for reopening. Once the addition in respect of reasons for which the assessment has been reopened is not made, no other addition is sustainable. To support this submission, he placed reliance on CIT vs. Jet Airways Ltd., 331 ITR 236(Bom).
4.2 The ld. Authorized Representative of the assessee further submitted that Assessing Officer has not brought on record any evidence to show that the loss booked by the assessee is the result of alleged bogus transaction. The ld. Authorized Representative of the assessee further referred to the letter dated 18/11/2016(at page 79 of the paper book), letter dated 01/12/2016 (at page 72 of the paper book) and letter dated 14/12/2016 (at page 65 of the paper book) written by the assessee to the Assessing Officer during assessment proceedings. The assessee had furnished all the details of the transactions carried out during the relevant period. However, while passing the assessment order, the Assessing Officer has not made any averment with regard to the details furnished by the assessee or pointing any defect therein. Merely for the reason that some third parties have indulged in bogus transactions does not mean that the assessee is one of the beneficiaries of such bogus transactions. The ld. Authorized Representative of the assessee in support of his contentions placed reliance on the following decisions:
(i) Nu Power Renewable Pvt. Ltd. vs. DCIT, 94 taxmann.com 29(Bom) (ii) Sunberg Trade Link Pvt. Ltd. vs. ITO, 74 taxmann.com 16 (Guj) (iii)Narendrakumar Mansukhbhai Patel, 92 taxmann.com 259(Guj) 5. Rebutting the submissions made by ld. Authorized Representative of the assessee, the ld. Departmental Representative submits that notice u/s. 148 of the Act was served on the assessee through e-mail only on 30/03/2016, The ld. Departmental Representative referred to the copy of notice and the e-mail vide which notice was served at page 5 & 6 of the factual paper book filed by the Department. The ld. Departmental Representative pointed that from screenshot of the e-mail sent to the assessee it would be evident that the notice was issued on 30/03/2016 at 9.19 pm. Thus, the notice was issued after seeking necessary approval from the Competent Authority. No notice u/s. 148 of the Act was ever issued to the assessee through post.
We have heard the submissions made by rival sides and have examined the orders of authorities below. We have also considered the decisions on which ld. Authorized Representative of the assessee has placed reliance in support of his contention. From the grounds raised by the Revenue in appeal and the submissions advanced by the representatives of rivals sides, two issues emerge for our consideration:
(i) Whether the notice issued u/s. 148 of the Act is valid?
(ii)Whether the addition made by A.O on account of alleged losses claimed by the assessee on transaction at NMCE is sustainable?
The first issue is with regard to the validity of the notice issued u/s. 148 of the Act. The contention of the assessee is that the mandatory approval u/s. 151 of the Act before issuance of notice u/s. 148 of the Act was not taken by the Assessing Officer. The notice u/s. 148 of the Act (at page -5 of the paper book filed by the Department) bears the date 29/03/2016. The reasons for reopening assessment for assessment year 2009-10 are at pages 3 & 4 of the same paper book. The reasons for reopening also bear the same date i.e. 29/03/2016. The documents placed on record by the Department shows that the Assessing Officer on 29/03/2016 in the prescribed Performa forwarded the reasons recorded for initiating proceedings u/s. 148 of the Act for approval of the Competent Authority. The said Performa is at page – 2 of the Department’s paper book. The PCIT accorded its approval for issuing notice u/s. 148 of the Act on 30/03/2016. It was thereafter that the notice dated 29/03/2016 was served on the assessee through E-mail on 30/03/2016 at 9.19 pm. This fact is evident from screenshot of the E-mail placed on record by the Department at page – 6 of the paper book. The fact that the notice was served on the assessee on 30/03/2016 has not been disputed by the ld. Authorized Representative of the assessee. Apart from the notice issued through E-mail, no other notice u/s. 148 of the Act is available on record. On examination of the documents on record, we find that though on notice date mentioned is 29/03/2016, but the notice was actually served on the assessee through Email in the late evening of 30/03/2016. What is relevant here is the date of dispatch of notice after seeking approval from the Competent Authority u/s. 151 of the Act. The CIT(A) in para 4.1.10 of impugned order has observed that the notice u/s. 148 of the Act was issued by the Assessing Officer on 29/03/2016. The said observation is contrary to the documents on record. Though the notice is dated 29/03/2016 but it was issued and served on 30/03/2016 through E-mail.
The ld. Authorized Representative of the assessee has raised a fresh objection that when the notice u/s. 148 was issued to the assessee by the Assessing Officer through E-mail it was not an approved method of service of notice. He pointed that the provisions of section 151A were inserted w.e.f. 01/11/2020 in reference of the faceless assessment, whereby service of notice on registered E-mail was mandated. There is no provision of approval u/s. 151 to be uploaded online nor there any evidence on record to prove that the Revenue has sent the notice u/s. 148 of the Act through the Postal Authorities. The Assessing Officer has taken a shortcut to send the notice through E-mail in the absence of any provision. At the relevant point of time the notice could be served on the assessee through postal authorities only. In support of his submissions the ld. Authorized Representative of the assessee placed reliance on the decision in the case of Bhima Jewels vs. PCIT, 443 ITR 403(Ker).
We have given thoughtful consideration to the new argument raised by the ld. Authorized Representative of the assessee . Here it would be relevant to refer to the provisions of section 282 of the Act as amended by Finance (No.2) Act 2009 w.e.f. 01/10/2009, ( as relevant to the assessment year under appeal).
“Service of notice generally 282. (1) The service of a notice or summon or requisition or order or any other communication under this Act (hereafter in this section referred to as "communication") may be made by delivering or transmitting a copy thereof, to the person therein named,- (a) by post or by such courier services as may be approved by the Board; or (b) in such manner as provided under the Code of Civil Procedure, 1908 (5 of 1908) for the purposes of service of summons; or (c) in the form of any electronic record as provided in Chapter IV of the Information Technology Act, 2000 (21 of 2000); or (d) by any other means of transmission of documents as provided by rules made by the Board in this behalf. (2) The Board may make rules providing for the addresses (including the address for electronic mail or electronic mail message) to which the communication referred to in sub-section (1) may be delivered or transmitted to the person therein named. Explanation.-For the purposes of this section, the expressions "electronic mail" and "electronic mail message" shall have the meanings as assigned to them in Explanation to section 66A of the Information Technology Act, 2000 (21 of 2000).”
A perusal of the same shows that sub-section (2) empowers the Board to make rules providing for the address including e-mail on which notice could be served. Thus, Rule 127 was inserted in the Income Tax Rules, 1962 w.e.f. 02/12/2015 in line with the provisions of section 282(2) of the Act. No doubt the assessment year under appeal is assessment year 2009-10, however, reassessment proceedings in the case of assessee were initiated for the aforesaid assessment year in 2016. The provisions of section 282 by that time were amended to include service of notice through E-mail and the relevant Rules as referred to in section 282(2) were in place for service of notice. For the sake of ready reference, the relevant extract of Rule-127 for service of notice, summons, requisition order and other communication as applicable are reproduced herein below:
“127. (1) For the purposes of sub-section (1) of section 282, the addresses (including the address for electronic mail or electronic mail message) to which a notice or summons or requisition or order or any other communication under the Act (hereafter in this rule referred to as "communication") may be delivered or transmitted shall be as per sub-rule (2). (2) The addresses referred to in sub-rule (1) shall be- (a) for communications delivered or transmitted in the manner provided in clause (a) or clause (b) of sub-section (1) of section 282- (i) the address available in the PAN database of the addressee; or (ii) the address available in the income-tax return to which the communication relates; or (iii) the address available in the last income-tax return furnished by the addressee; or (iv) in the case of addressee being a company, address of registered office as available on the website of Ministry of Corporate Affairs”
Therefore, the service of notice though E-mail is one of the approved method of service of notice, in the instant case. It is not the case of assessee that the E-mail on which the Assessing Officer had sent notice was not the E-mail provided by the assessee to the Department or the notice was not served on the assessee on E-mail registered in PAN database. Thus, we find no merit in the new argument raised by ld. Authorized Representative of the assessee.
Thus, in the light of facts of the case and documents on record, the first issue (raised in ground D and E of appeal) is decided in favour of the Revenue and against the assessee.
The second issue in appeal is on merits of the addition. The case of Assessing Officer is that the assessee has booked artificial loss to the tune of Rs.13,98,49,007/- from the transactions carried out at NMCE through broker MCPL. The assessee has denied carrying out any such transaction at NMCE platform. The only transaction the assessee has admitted is that of Rs.36,110/- during the period relevant to the assessment year under appeal and the same was offered to tax in the return of income. The contention of the assessee is that during assessment proceedings a loss of Rs.13,98,49,007/- was never confronted by the Assessing Officer to the assessee. The alleged loss from transactions at NMCE referred to in the reasons for recording was Rs.3,34,97,949/- during the financial year 2008-09, which the assessee had denied. We find that the Assessing Officer has made addition of Rs.13,98,49,007/- merely on the basis of alleged summery trade data obtained by the Assessing Officer from third party and the same was ostensibly never confronted to the assessee. No cogent evidence is brought on record to show that MCPL had carried out transactions on which assessee has allegedly garnered loss at NMCE on the instructions/directions of the assessee. Further, no material has been brought on record by the Department to show that the assessee is one of the beneficiary of the alleged bogus loss transactions generated by the tainted brokers. The Assessing Officer has referred to one report by the Investigation Wing. However, no link is established by the Assessing Officer between the modus operandi referred to in the said report and the alleged bogus transactions imputed to the assessee at NMCE platform. The Assessing Officer at the back of assessee collected some information from NMCE and MCPL. The copies of the information collected were provided to the assessee for the first time during the first appellate proceedings. The CIT(A) has recorded the findings that there is no incriminating material for making addition. The findings of the CIT(A) have not been controverted by the Department with any cogent material on record. Thus, we find no reason to interfere with the findings of CIT(A) on this issue. Consequently, the second issue ( raised in Ground A to C of the grounds of appeal) is decided against the Revenue.
In the result, appeal by the Revenue is partly allowed.