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Facts
The assessee, a share broker, declared a loss for AY 2015-16. Information from DGIT (Investigation) alleged coordinated, premediated trading involving reversal trades in illiquid stock options, resulting in non-genuine business losses. The AO reopened the case, issued notices, but the assessee did not fully comply, leading to an ex-parte assessment and disallowance.
Held
The Tribunal condoned the delay in filing the appeal, considering it bonafide and unintentional. The Tribunal noted that both lower authorities' orders were ex-parte and that additional evidence produced by the assessee was crucial. Therefore, the case was remanded to the AO for fresh adjudication.
Key Issues
Whether the delay in filing the appeal should be condoned and whether the case should be remanded for fresh adjudication considering the ex-parte orders and new evidence.
Sections Cited
143(1), 147, 148, 143(2), 142(1), 144, 144B, 250, 271(1)(c), 253
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI PRABHASH SHANKAR
Per : Narender Kumar Choudhry, Judicial Member:
This appeal has been preferred by the Assessee against the order dated 02.02.2024, impugned herein, passed by the National Faceless Appeal Center (NFAC)/ Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short „the Act‟) for the A.Y. 2015-16.
M/s. PJS Securities LLP 2. In this case, the Assessee being a share broker firm had declared its income at loss of Rs.64,25,006/- by filing its return of income for the assessment year under consideration on dated 31.08.2015, which was neither processed u/s 143(1) of the Act nor selected for regular assessment.
Subsequently, an information was received under Project Falcon from DGIT (Investigation), Mumbai through the Insight Portal 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 assessees including the Assessee being a party to such manipulation and beneficiary of an amount of Rs.25,25,450/-.
Secondly, on the aforesaid information the reasons for reopening the case u/s 147 of the Act were recorded and the case of the Assessee was reopened by issuing the notice dated 30.03.2021 u/s 148 of the Act, in response to which the Assessee though filed its return of income but did not e-verify the same within the due date but e-verified only on 07.02.2022 and therefore the same was treated as invalid return by the system and consequently no notice u/s 143(2) of the Act could be issued. Subsequently, though the notices u/s 142(1) of the Act dated 02.07.2021 & 16.12.2021 were issued to the Assessee, however, the same were not responded to within due date by the Assessee and therefore in the constrained circumstances the Assessing Officer (AO) passed the order on the basis of material available on record u/s 144 r.w.s. 147 r.w.s. 144B of the Act. The AO ultimately made the disallowance of Rs.25,03,775/- by observing and holding as under: “3.1 In the case of the assessee the trading in F & O option was executed on the following dates as per reply of the assessee- Date Narration Loss amount 03.12.2014 F&O 20141203 1521825 12.12.2014 F&O 20141212 1006027 Total 2527852
As per information on records the following transaction was carried out by the assessee- Scrip Name- Asian Paints Ltd. Trade Value per share Qty Trade Value Purchase Price 50.50 43000 2171500 Sale Price 15.15 43000 651450 Loss incurred 1520050 Actual Loss 1520050
Scrip Name: R Power Trade Value per share Qty Trade Value Purchase Price 2 516000 1032000
Sale Price 0.05 516000 25800 Loss incurred 1006200 Actual Loss 1006200 M/s. PJS Securities LLP From the above table it is noticed that the loss incurred by the assessee is Rs.25,25,450/-. The orders for put and call are separated by a minimum amount of time of only seconds. Considering the synchronized manner of placing buy and sell orders within seconds of each other, reversing of the trades within a short time with widely varying pieces of the two legs of trade in the same contract without any basis for such wide variation. I find that the reversal trades executed by the notices were non genuine in nature and created an impression of genuine trading volumes in respective contracts. 3.2. Hon'ble Supreme Court in the case of Rakhi trading (P) ltd. One of the cases similar to the assessee delivered on 08.02.2018 in CA no. 1969 of 2011 has categorically stated that: "Nobody intentionally trades for a loss. An intentional trading for loss per se is not a genuine dealing in securities." Trading is always with aim to make profits. But if one party consistently makes loss and that too in preplanned and rapid reverse trade, as has been carried out by the traders in the instant case the price delivery system is itself is affected. Except the parties who have prefixed the price, nobody is in the position to participate in the trade., in so far as the impugned transactions are concerned, it is seen that the market of the underlying shares had remained unmoved altogether, then there was no question of getting panic... therefore, squaring off the position appears to adjust the financial results with a view to avoid the tax incidence though an unfair trade practice or for some ulterior purpose." The Apex court in a historic judgment in the case of Rakhi Trading (P) Ltd. On 08.02.2018 upheld the findings of SEBI. In the aftermath of the investigation and action taken by the SEBI, the BSE took corrective measures to ensure that reversal trades do not take place and as a result of such measures, the turnover in BSE stock Options has been reduced almost 'Nil". 3.3 Based on the above findings, the loss of Rs.25,03,775/- claimed by the assessee in ITR (Although the same is Rs.25,25,450/-) is disallowed as being non-genuine. (Disallowance of non-genuine Loss: Rs.25,03,775/-)”
The Assessee, being aggrieved, challenged the said addition as well as the assessment order by filing first appeal before the Ld. Commissioner, however, in spite of affording six opportunities eventually made no compliance. Therefore, in the constrained M/s. PJS Securities LLP circumstances the Ld. Commissioner more or less on the same footing as of the AO affirmed the aforesaid addition and the assessment order by dismissing the appeal of the Assessee.
The Assessee, being aggrieved, challenged is in appeal before us.
At the outset, we observe that there is a delay of 240 days in filing of the instant appeal, in respect of which the Assessee has claimed as under: “4) That The Hon'ble CIT(A) through NFAC has passed the order u/s 250 of the Act on 02.02.2024, wherein he confirmed the addition made by the Ld. AO. However, the appellant was under presumptions that since, the Ld. AO has disallowed the losses there will be no tax liability arises in the hands of the appellant. Therefore, under the mistaken belief the appellant thought that there is no requirement of filing the appeal. 5) That upon receipt of the show cause notice of Penalty u/s 271(1)(c), the appellant took the legal consultancy and was advised to file the appeal against the impugned disallowance of business losses, hence the appellant is in appeal before you. Accordingly, the appellant has filed an appeal before Hon'ble ITAT, Mumbai, on 26.12.2024, accompanied by an application for condonation of delay stating the above facts. 6) That, as per the provisions of section 253 of the Act, the appeal before the Tribunal was required to be filed within 60 days from the date of receipt of notice. In the present case the order of the Hon'ble CIT(A)/ NFAC on 02.02.2024, accordingly, the respondent was required to file appeal till 02.04.2024. However, due to aforementioned reason, the appeal is being filed on 26.12.2024. Accordingly, it is submitted that in the present case there is a delay of 267 days in filing the appeal 7) That in brief, the appellant submit that the delay was due to the misunderstanding of implication of the assessment order and assessee has no intension to delay the process of filing appeal. Further, the said delay is a bonafide and the respondent had no purposeful intention in delaying the filing of the appeal. It is therefore humbly submitted that the delay in filing the appeal may kindly be condoned in the interest of justice.”
M/s. PJS Securities LLP 8. The Assessee more or less has claimed that the Ld. Commissioner vide impugned order confirmed the addition made by the AO and therefore it was presumed by the Assessee that since the AO has disallowed the losses, there will not be any tax liability in the hands of the Assessee. Therefore, under the mistaken belief the Assessee thought that there is no requirement of filing the appeal. However, on receipt of show cause notice of penalty u/s 271(1)(c) of the Act the Assessee took the legal consultancy and was advised to file the appeal against the impugned disallowance of business losses and accordingly the Assessee has filed the appeal, however, with a delay of 240 days in filing the same.
On the contrary, the Ld. D.R. refuted the claim of the Assessee.
We have given thoughtful considerations to the rival claims of the parties on the point of limitation, mistaken belief as claimed by the Assessee cannot be a ground for condonation of delay. However, considering the delay as bonafide and unintentional and inadvertent, we observe that the issue involved in the instant appeal remained to be adjudicated in its right perspective and proper manner by the authorities below as both the orders are ex- parte and therefore considering the peculiar facts and circumstances in totality and for just and proper decision of the case and substantial justice, we are inclined to condone the delay, however, subject to deposit of Rs.11,000/- in the Revenue Department under “other heads” within 15 days from the receipt of this order on which the Assessee has agreed to.
Coming to the merits of the case, as we have observed above that both the orders passed by the authorities below are ex-parte and the Assessee has filed an application/petition u/r 29 of the Sr. No. Particulars Whether submitted before A.O.
ITR Acknowledgment, Computation of Total Yes Income, Audited Financial for A.Y. 2015-16 2. Notice issued u/s 148 of the Act, dated NA 30.03.2021 3. Copy of Reason recorded for reopening, dated NA 10.02.2022 4. Copy of Objection letter filed by appellant on Yes 04.03.2022 5. Disposal of Objection dated 31.01.2022 NA 6. Notices issued u/s 142(1) of the Act, dated NA 02.07.2021 & 16.12.2021 7. Replies filed to the notices issued u/s 142(1) of Yes the Act 9. Contract notes a. Asian Paints Limited No b. Reliance Power Limited No 10. Statement of Profit & Loss in Derivative Segment No 13 Brokers Ledger No 14. Bank Statement of the appellant No on the grounds that assessment proceedings were initiated on 30.03.2021 while issuing notice u/s 148 of the Act and concluded on 29.03.2022. The period involved in the assessment proceedings was admittedly Covid-19 pandemic, when the entire nation was on hold and therefore the Assessee was unable to look into the matter properly and comply with the notices issued during the assessment proceedings. Thereafter, during the first appellate proceedings before this Ld. CIT(A) on consultation with the Assessee‟s previous CA, the Assessee was advised that no further action is required as the AO had disallowed losses and therefore there will not be any tax liability or implication and on the basis of this advice and under M/s. PJS Securities LLP bonafide belief that no action was required, the Assessee did not comply with the notices issued during the first appellate proceedings. However, on advice from another legal consultant, the Assessee filed documents concerning the appeal and therefore filing the same before this Hon‟ble Court as additional evidences, which are important and plays a vital role in disposing of the present appeal in hand.
On the contrary, the Ld. D.R. refuted the claim of the Assessee.
We have heard the parties and perused the material available on record. No doubt the documents produced by the Assessee are essential and paramount for proper and just adjudication of the issue involved in the instant appeal, however, it is a fact that both the authorities below have not examined the same, as the Assessee never produced before the authorities below. Considering the reasons stated by the Assessee as bonafide and unintentional, we are inclined to admit the additional evidence as per the provision of rule 29 of the Rules. As we have observed above that the documents filed by the Assessee before us remained to be examined by the authorities below and therefore for just and proper decision of the case and substantial justice, we are inclined to remand the instant case to the file of the AO for decision afresh by considering the documents referred to above as filed u/s 29 of the Rules before us. The Assessee is also directed to file the said documents before the AO. Hence, the case is remanded to the file of the AO for decision afresh.
We clarify that in case of subsequent default, the Assessee shall not be entitled for any leniency.
Order pronounced in the open court on 28.03.2025.