NATIONAL COMMODITY & DERIVATIVES EXCHANGE LIMITED,MUMBAI vs. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 15(1)(2), MUMBAI

PER RATNA DASGPUTA, AM

The present appeal by the assessee arises out of order dated 15/12/2025 of the National Faceless Appeals Centre – hereinafter referred to as Ld. CIT(A) - under section 250 of the Income-tax Act, 1961- hereinafter referred to as "the Act" - which, in turn, emanated

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from order dated 27/03/2024 u/s 143(3) of the Act by the Assessment Unit – hereinafter referred to as Ld. AO.

Without prejudice to the above, 2. Re.: Addition on account of large value receipts or repayment of loans - Rs. 1,37,80,000/-

2.1. On the facts and in circumstances of the case and in law, the CIT(A) has erred in confirming the addition made by the AO under section 68 of the Act on account of large value receipt or repayment of loans which actually pertains to receipt and repayment of deposits received from the members, routed through banking channels, of the Appellant for its membership.

2.2. On the facts and in circumstances of the case and in law, the CIT(A) has failed to appreciate that the Appellant had provided member wise details of deposits received / repaid on account of membership deposits.

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3.1. On the facts and in circumstances of the case and in law, the CIT(A) failed to appreciate that there was no dissatisfaction recorded by the AO regarding the correctness of the disallowance made by the Appellant.

Without prejudice to the above

3.2 On the facts and in circumstances of the case and in law, the CIT(A) has erred in confirming the addition made by the AO of Rs. 30,35,000 under section 14A of the Act by applying rule 8D of the income-tax rules, 1962 and not considering suo- moto disallowance made by the Appellant of Rs. 1,18,421.

3.3. On the facts and in circumstances of the case and in law, the CIT(A) failed to appreciate that this issue is covered by Appellant's own case for AY 2007-08 to AY 2010-11 and AY 2013-14 and AY 2014-15.

3.4. On the facts and in circumstances of the case and in law, the CIT(A) failed to appreciate that no expenditure was incurred for earning the exempt income and no fresh investments were made during the year

4.1. On the facts and in the circumstances of the case, the order passed by the Ld. CIT(A) is bad-in-law and void-ab-initio as the CIT(A) has not provided an opportunity of hearing in terms of section 250(1) of the Act, and hence ought to be struck down.

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5.1. On the facts and in circumstances of the case and in law, the CIT(A) has erred in confirming the erroneous consequential interest levied under section 234B of the Act of Rs. 51,83,331. 6. Re.: Penalty initiated under Section 270A and 271AAC of the Act 6.1. On the facts and in circumstances of the case and in law, the CIT (A) has erred in confirming the initiation of penalty proceedings initiated under section 270A of the Act 6.2. On the facts and in circumstances of the case and in law, the CIT (A) has erred in directing the AO to examine the applicability of penalty initiated under section 271AAC of the Act. 3. Briefly stated, the facts of the case are that the assessee, a national level stock exchange dealing in agricultural commodities, filed its return of income on 21/10/2022 declaring total loss of Rs. 15,45,84,829/- & claiming a refund of Rs. 3,48,53,878/-. The case was selected for scrutiny, and in the ensuing assessment proceedings, the Assessing Officer made an addition of Rs. 1,37,80,000/- u/s 68 of the Act on account of large value receipt or repayment of loans other than through banking channels, and Rs. 30,45,000/- u/s 14A of the Act.

3.1 In appeal against this order before the Ld. CIT(A), the assessee contended that the addition u/s 68 of the Act was erroneous as there were no unsecured loans taken or repaid during the year, and that the amount pertains to deposits received from members for

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membership of NCDEX. The deposits, as stated, are refundable in nature and that all receipts and repayments were routed through banking channels. As regards disallowance u/s 14A, the assessee submitted that suo motu disallowance of Rs. 1,18,421/- had been made in the return of income, that no specific expenditure was incurred for earning exempt income, and that the investments were made from surplus funds & not borrowed funds. The Ld. CIT(A), however, did not accept the assessee's explanation. Observing that the assessee had not provided complete details to establish the identity, genuineness and creditworthiness of the depositors, he confirmed the addition made by the Ld. AO u/s 68 of the Act. The Ld. CIT(A) also upheld the Ld. AO’s disallowance u/s 14A of the Act, stating that the AO had rightly invoked Rule 8D and that the assessee's reliance on earlier years' orders does not create any binding precedent because res judicata does not apply to income- tax proceedings. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before this Tribunal.

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should have been issued by the Jurisdictional Assessing Officer. This issue was raised by the assessee before the Ld. CIT (A) as well. He has dealt with this at length in pages 26-27 of his order, which is reproduced hereunder:-

“5.1.3 I have carefully examined this ground. Section 144B of the Act, as substituted by the Finance Act, 2022 with effect from 01.04.2022, provides for faceless assessment. Section 144B(1) lays down the procedure for faceless assessment, and section 144B(2) empowers the CBDT to prescribe the cases in which faceless assessment shall be made. 5.1.4 The CBDT vide Order No. 187/3/2020-ITA-1 dated 31.03.2021 specified that assessment proceedings initiated on or after 01.04.2021 (other than those in Central Charges and International Taxation charges) shall be completed under section 144B of the Act. The said notification specifically covers cases where notice under section 143(2) has been issued by the Assessing Officer or the Prescribed Income-tax Authority. 5.1.5 In the present case, the notice u/s 143(2) was issued by the Assessment Unit of the NFAC, which is the mechanism through which faceless assessments are conducted. The faceless assessment scheme is designed to eliminate human interface and bring transparency and efficiency in the assessment process. 5.1.6 The Hon'ble Supreme Court in Union of India vs. Ashish Agarwal (2022) 141 taxmann.com 92 (SC) has upheld the constitutional validity of the faceless assessment scheme under section 144B. The Court held that the scheme is a valid exercise of legislative power and does not violate any constitutional provisions. 5.1.7 Further, in Sanjay Bimalchand Jain vs. UOI (2023) 149 taxmann.com 250 (Bombay), the Hon'ble Bombay High Court held that the faceless assessment scheme is a complete code in

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itself and the Assessment Unit functions as the assessing authority under the scheme. 5.1.8 The appellant's reliance on the requirement that notice must be issued by the "prescribed income-tax authority" is misplaced. Under the faceless assessment scheme, the Assessment Unit acts through the NFAC, which is the prescribed mechanism for conducting faceless assessments. The notice issued through this mechanism is valid and in accordance with law. 5.1.9 The appellant has not demonstrated any prejudice caused due to the faceless assessment procedure. The appellant was given adequate opportunity to present its case, submit documents, and make representations. All principles of natural justice have been followed. 5.1.10 Moreover, even if there were any procedural irregularity (which is not admitted), the same would not render the assessment void ab initio unless it has caused prejudice to the assessee. The Hon'ble Supreme Court in Keshav Mills Co. Ltd. vs. CIT (1953) 23 ITR 230 (SC) held that mere irregularity in procedure does not vitiate the assessment unless it has occasioned failure of justice. 5.1.11 In view of the above discussion and considering the legal position, I hold that the assessment proceedings conducted under the faceless assessment scheme are valid and in accordance with law. The notice issued by the Assessment Unit through NFAC is a valid notice under section 143(2) of the Act. This ground of appeal is accordingly dismissed.” The assessee has not shown how the finding of the Ld. CIT(A) is incorrect in law. We find no infirmity in the decision as above, and the assessee’s first ground of appeal is hereby dismissed.

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Departmental Representative strongly supported the orders of the lower authorities. The Ld. AR for the assessee, on the other hand, submitted additional evidence in the form of a Paper Book containing 561 pages. These documents, filed before this Tribunal for the first time, are primarily for establishing the genuineness of the alleged deposits from the members. Since this fresh documentation could not be placed before the Ld. CIT(A) and the same requires close examination, we have taken a considered view to restore this matter back to the Ld. CIT(A) for fresh adjudication as per law after proper verification of the new evidence. Further, although no additional evidence has been adduced in connection with disallowance u/s 14A of the Act, this issue also needs a closer look considering that the Ld. CIT(A) has not deliberated on the computation, holding that the assessee has not disputed the computation but only the applicability of Rule 8D. Since the other main issue stands remanded to the file of the Ld. CIT (A), we also restore this issue to the Ld. CIT(A) to examine afresh the basis of disallowance u/s 14A of the Act pursuant to verification, inter alia, of the assessee’s claim that the facts of the instant year are identical to those or earlier Assessment Years where the Hon'ble ITAT, in the assessee's own case, had restricted the disallowance u/s 14A to 1% of the dividend income. Needless to state, he will give the assessee sufficient opportunity of being heard.

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Order pronounced in the open Court on 31/08/2026

Sd/- Sd/- (BEENA PILLAI) (RATNA DASGPUTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 31/08/2026 Z.U., P.S. Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.

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BY ORDER,

//True Copy// (Assistant Registrar) ITAT, Mumbai