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Facts
The assessee's assessment for AY 2014-15 was reopened under Section 147. The Assessing Officer made an addition under Section 68 for alleged client code modifications in commodity trading, and disallowed expenses under Section 37. The CIT(A) confirmed both the addition and the disallowance, leading to the assessee's appeal before the Tribunal.
Held
The Tribunal dismissed the appeal regarding the Section 68 addition, holding that while the entire turnover value cannot be taxed, the profit element of Rs. 9,26,100/- from the alleged client code modification is taxable. For the Section 37 disallowance, the Tribunal allowed the appeal, finding that the expenses were genuinely incurred in AY 2014-15 despite being paid in the subsequent year.
Key Issues
Whether the reopening of assessment under Section 147 was valid; whether the addition under Section 68 for profit from client code modification in commodity trading was justified; and whether the disallowance of expenses under Section 37 was correct.
Sections Cited
147, 143(3), 148, 68, 37, 250, 234A, 234B, 234C, 234D, 271(1)(c)
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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: DR. B.R.R. KUMAR, VICE-SHRI SIDDHARTHA NAUTIYAL
O R D E R PER DR. B.R.R. KUMAR, VICE-PRESIDENT :
This appeal has been filed by the assessee against the order passed by the Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as "CIT(A)" for short) dated 25.03.2023 passed under Section 250 of the Income-tax Act, 1961 [hereinafter referred to as "the Act" for short], for Assessment Year (AY) 2014-15. 2. The grounds of appeal raised by the Assessee are as follows:-
“1. The learned CIT(A) has erred in law and on facts of the case in confirming action of ld AO of reopening the assessment u/s 147 of the Act. Under the facts and circumstances of the case, the action of reopening is without jurisdiction and in not permissible either in law or on facts.
The learned CIT(A) has erred in law and on facts of the case in confirming action of ld AO in making disallowance of Rs. 43,48,272/- u/s 37 of the Act. The learned CIT(A) failed to appreciate that the provisions are made only for those expenses which are actually incurred during the year but whose payment is made during Dharmdeep Commodities P Ltd Vs. ACIT Asst. Year : 2014-15 - 2– next year which is in accordance with the mercantile system of accounting and ICDS-X.
3. The learned CIT(A) has erred in law and on facts of the case in confirming action of ld. AO in making addition of Rs. 5,45,43,550/- u/s. 68 of the Act only on the basis of surmises and conjectures without any corroborative evidence.
Both the lower authorities failed to appreciate that Section 68 of the Act has no application in the facts and circumstances of the present case. As the transaction relates to commodity trading whereby only profit amount is exchanged, there is no credit of sum of Rs. 5,45,43,550/- in the books of accounts of the appellant
5. Both the lower authorities have erred in law and on facts of the case in confirming the addition without providing appellant with the opportunity to cross examine persons whose statements had been relied upon against the appellant.
6. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. The action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.
The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld. AO in levying interest u/s. 234A/B/C/D of the Act.
8. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in initiating penalty proceedings under Section 271(1)(c) of the Act.”
In this case, return of income was filed on 28.11.2014 declaring total income at Rs.98,32,060/-. The return was selected for scrutiny and order u/s 143(3) of the Act was passed on 25.11.2016 at Rs.98,32,060/-. Thereafter, the case was reopened vide order No. Pr.CIT(A)/Approval u/s 147/DCP/2018-19/2488 dated 25.02.2019. On 28.03.2019, notice u/s 148 of the Act was issued to the assessee to file a new return of income for the AY 2014-15. Notices were issued on 15.05.2019 and 18.06.2019 to the Return of Income for the AY 2014-15. Dharmdeep Commodities P Ltd Vs. ACIT Asst. Year : 2014-15 - 3– 3.1 The Assessing Officer issued a show-cause notice mentioning that they are in receipt of an information received from DDIT (Inv)-6(3), Mumbai wherein it is informed that assessee have made transactions making client code modifications. Relying on the report of the Investigation Wing, the Assessing Officer made addition of Rs.5,45,43,555/- u/s 68 of the Act, which the Ld. CIT(A) duly confirmed.
4. Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.
Addition u/s 68
We have gone through the facts on record. It reveals that the assessee has made a total profit of Rs.27,89,502/- on account of transactions in commodity trading. The Revenue alleged that the Client Code Modification has been done in the following three transactions viz.
Contract No. Commodity Amt. (Rs.) 10240 Paddy Rs. 1,98,24,750/- 11912 Cotton seed wash oil Rs. 1,95,30,000/- 12522 Sugar Rs. 1,51,88,800/- Total Rs.5,45,43,550/- 5.1 We have also examined the fact on record with regard to purchase value and sale value of these transactions which have been allegedly the part of dubious client code modifications. The same are as under:-
Commodity Purchase value Sales value Profit Paddy Rs. 1,95,12,900/- Rs. 1,98,24,750/- Rs.3,11,850/- Cotton seed wash oil Rs. 1,91,92,950/- Rs.1,95,30,000/- Rs.3,37,050/- Sugar Rs. 1,49,11,600/- Rs.1,51,88,800/- Rs.2,77,200/- Total Rs.5,36,17,450/- Rs.5,45,43,550/- Rs.9,26,100/- Thus, the undisputable facts in this case are that, Dharmdeep Commodities P Ltd Vs. ACIT Asst. Year : 2014-15 - 4– • The transaction value of the alleged client code modification was Rs.5,45,43,550/-, against the purchases of Rs.5,36,17,450/-. • The profit earned out of these transactions was Rs.9,26,100/-.
The Ld. AR vehemently argued that these transactions have been accounted for in the books of accounts. the profit element embedded therein has been offered for tax. such profit disclosed by the assessee has been accepted by Assessing Officer. Under such circumstances, ‘transaction value’ cannot be added under ‘section 68’. The profit of Rs.9,26,100/- is embedded in the total profit of Rs.27,89,502/-, offered to tax. Hence, no addition is called for.
The Ld. AR has placed reliance on the following judgements:
DCIT v. Damodardas Mohanlal Chokshi - ITA 554/Ahd/2023; 2. A CIT v. Radhika Jewellers -1 TA 201/Ahd/2023; 3. DCIT v. Radhika Daimonds - ITA 1632/Ahd/2024; 4. CIT vs. Vishal Exports Overseas Ltd. - TA 2471 of2009 (Guj)”; 5. CIT vs Kailash Jewellery House - ITA 613/2020 (Delhi HC); 6. ACIT vs Hirapanna Jewellers- (2021) 189ITD 608 (Visakapatnam); 7. Sanand Textiles Industries vs. DCIT-ITA 995/Ahd/2014; 8. ITO vs. Rajeshkumar Chhanalal Shah - ITA 2159/Ahd/2016;
The Ld. DR submitted that the entire transaction needs to be assessed to tax along with the profit thereof owing to ineligible client code modification.
On going through the facts, we hold that the turnover value in commodity transaction cannot be brought to tax; however, the profit though offered as regular Dharmdeep Commodities P Ltd Vs. ACIT Asst. Year : 2014-15 - 5– income has to be treated as per the provisions of Section 68 of the Act. Hence, the profit element embedded/earned in these transactions pertaining to client code modification is hereby confirmed and held to be taxable under Section 68 of the Act.
Appeal of the assessee on this ground is dismissed.
Expenses Payable
The Assessing Officer disallowed the expenses of Rs.43.48 lakhs on the ground that the provision of expenses is inadmissible u/s 37 of the Act. On going through the paper-book page Nos. 92 to 153, detailing the ledgers for the FY 2014-15 and 2013-14, break-up of the provisions, bills of the expenses, bank statements, it could be deciphered that the expenses were incurred in AY 2014-15 and the bills were raised in AY 2015-16 and accordingly payment was also made in 2015-16. There is no doubt about the genuineness of the expenses or incurring of the expenses. Since the expenses were proved to be incurred in the AY 2014-15 and only paid in the subsequent assessment year, we hold that no addition is called for during the year under consideration. While reiterating the taxability of the income to each assessment year, it is a matter on record that both the assessment years, the assessee is assessed at the same rate of tax.
Appeal of the assessee on this ground is allowed.
In the result, the appeal of the assessee is partly allowed.