PRINCIPAL COMMISSIONER OF INCOME TAX-1, vs. RAJESH KUMAR KHANDELWAL

Facts

The Revenue (Principal Commissioner of Income Tax-1) is appealing against an order of the Income Tax Appellate Tribunal (ITAT). The ITAT had deleted additions of Rs. 54,29,800/- made by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The additions were on account of alleged fictitious profits introduced by the assessee, Rajesh Kumar Khandelwal, through misuse of the National Multi-Commodity Exchange (NMCE) platform. The AO had also added Rs. 1,63,189/- as commission paid for these alleged accommodation entries. The assessee had filed a 'nil' return for Assessment Year 2010-11 in response to a notice under Section 148.

Held

The High Court held that the ITAT's decision to delete the additions was not based on patent illegality or perversity. The Tribunal's findings were based on a reappreciation of the evidence on record, and the issue of whether transactions were bogus or genuine is essentially a finding of fact. The ITAT had noted that the AO failed to furnish details of the alleged fictitious entries, was unsure if they were profits or losses, and did not confront the assessee with these entries. The Tribunal also found that the assessee was not afforded an opportunity to cross-examine parties and that all transactions were made through the recognized stock exchange, with only STT charged. The ITAT concluded there was no evidence of commission/brokerage payment. The High Court found no perversity, patent illegality, or violation of statutory provisions by the ITAT, and therefore, the appeal did not involve any substantial question of law.

Key Issues

1. Whether the ITAT was justified in deleting the addition of Rs. 54,29,800/- made on account of alleged fictitious profits, considering the findings of the AO and CIT(A) based on data analysis and statements of penalized/suspended brokers involved in artificial trading? 2. Whether the ITAT was justified in deleting the addition of Rs. 1,63,189/- on account of commission paid for acquiring alleged accommodation entries? Assessee's Contentions: The assessee argued that the ITAT's findings were based on a reappreciation of evidence and were purely findings of fact. The assessee contended that the ITAT found no perversity or patent illegality in its decision. The ITAT noted that the assessee maintained regular, audited books of accounts, and the auditors did not point out any misuse of the NMCE platform. The assessee also argued that they were not confronted with the alleged fictitious entries and were not provided with details of transactions or an opportunity to cross-examine parties. Revenue's Contentions: The Revenue argued that the AO and CIT(A) relied on clinching material based on data analysis indicating the assessee brought fictitious profits by misusing the NMCE platform. The Revenue contended that the brokers involved admitted to booking bogus losses to facilitate accommodation entries. The Revenue argued that the ITAT should not have interfered with the findings without recording satisfaction that the material relied upon by the AO was insufficient. The Revenue submitted that the appeal involves a substantial question of law.