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Facts
The assessee, a stock broking company, filed its return for AY 2015-16. The AO reopened the case under Section 147 based on information regarding accommodation entries and reversal trades in F&O transactions. The reassessment order made additions, which were partly upheld by the CIT(A).
Held
The Tribunal held that the AO's addition, based on SEBI investigation reports, was made without providing the investigation report of the Directorate of Investigation to the assessee, violating principles of natural justice. Therefore, the case was remanded to the AO.
Key Issues
Whether the reassessment proceedings and additions made are valid when investigation reports relied upon by the AO were not provided to the assessee, violating the principles of natural justice.
Sections Cited
147, 144B, 151, 148, 143(3), 43(5)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI B.M. BIYANI, & SHRI DINESH MOHAN SINHA
आदेश/ O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by appeal-order dated 09.01.2024 passed by learned Commissioner of Income-Tax (Appeals)-National Faceless Appeal Centre, Delhi [“CIT(A)”] which in turn arises out of assessment-order dated 27.03.2022 passed by learned National Faceless Assessment Centre, Delhi [“AO”] u/s 147 read with 144B of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2015-16, the assessee has filed this appeal on following grounds:
Page 1 of 6 AY 2015-16 “1. That the impugned re-assessment notice dated 30/03/2021 for A.Y 2015- 16 is invalid and without jurisdiction as same been issued without prior mandatory approval of specified authority in terms of section 151 (1) of the Act (un-amended Section 151) and therefore the consequential proceeding in form of re-assessment o is invalid, without jurisdiction and void ab initio.
2. That the approval by specified authority mentioned u/s 151 (2) for re- assessment proceedings after the expiry of a period of four years from the end of relevant assessment year is without jurisdiction and contrary to section 151 (1) of the Act
That on the facts and circumstances of the case, the notice issued under section 148 by the AO is illegal, bad in law, without jurisdiction and barred by time limitation, hence, the reassessment order dated 27/03/2022 passed by the National Faceless Assessment Centre is also illegal, bad in law and without jurisdiction.
That there was no failure on the part of the assessee to disclose all material facts necessary for his assessment and, accordingly, the reassessment proceedings commenced after four years from the end of relevant assessment year is not sustainable under the law.
5. That on the facts and circumstances of the case the NFAC has erred in law or on facts upholding addition of Rs 1,76,77,125/- by alleging that the assessee had effected reversal trade and has shown non-genuine loss on share future and option transaction.
That the impugned addition has been made on the basis of preconceived notions in the form of misinformation received from SEBI in case of trading in stock options and the NFAC has neither checked nor verified the genuineness of the transaction and neither evaluated the transaction as per the provisions of the Income Tax Act and has passed the order on borrowed satisfaction received in form of vague misinformation.
That the impugned addition has been made in violation of principle of natural justice as copy of investigation report of SEBI and the investigation report of directorate of investigation, Mumbai -6 was never provided to the Page 2 of 6
That the impugned transaction is not covered under section 43 (5) of the Act as Speculative Transaction as clause (d) to section 43 (5) clearly provides that any transaction carried out in the FO nature at the BSE trading platform (BSE being recognized stock exchange) supported by contract note and ledger is a business transaction and any loss/profit arising from such transaction are to be treated as business gain/loss.”
Heard the learned Representatives of both sides and case-records perused.
3. The background facts leading to present appeal are such that the assessee is a company engaged in the business of stock broking and a registered trading member with NSE/BSE providing share trading to its clients. For AY 2015-16, the assessee filed original return declaring a total income of Rs. 46,24,390/- inclusive of income from F&O transactions. The original assessment of assessee was made by way of scrutiny assessment u/s 143(3) on 29.11.2017 accepting the returned income. Subsequently, the AO received an information from Director of Investigation, Mumbai, Unit-6 that the assessee was indulged in acquiring accommodation entries through the mechanism of reversal trade in F&O transactions; that the trades carried out by assessee exhibited all trails of reversal trade which have been declared by SEBI’s order and the Hon’ble Supreme Court in Civil Appeal No. 1969 of 2011, SEBI Vs. Rakhi Trading Co. Ltd., order dated 08.02.2018 as non-genuine. The AO observed that the assessee had made loss from certain F&O transactions of doubtful nature. One more information was received by Page 3 of 6 penny stock company “M/s Midland Polyland Ltd.” On the basis of these informations, the AO re-opened assessee’s case u/s 147 by issuing notice dated 31.03.2021 u/s 148. In response to this notice, the assessee re-filed return repeating the original income of Rs. 46,24,390/-. Ultimately, the AO completed re-opened assessment vide order dated 27.03.2022 u/s 147 after making two additions, namely (i) addition of Rs. 1,76,77,125/- on account of disallowance of loss from F&O transactions, and (ii) addition of Rs. 11,47,300/- on account of accommodation from shares of M/s Midland Polyland Ltd. Aggrieved, the assessee carried matter in first appeal before CIT(A). The CIT(A) upheld first addition but deleted second addition, this way the assessee succeeded partly in first-appeal. Now, the assessee is aggrieved by the first addition of Rs. 1,76,77,125/- made by AO on account of disallowance of loss from F&O transactions and upheld by CIT(A) and has approached this Tribunal by way of next appeal.
4. Thus, the issue before us is the addition of Rs. 1,76,77,125/- made by AO and upheld by CIT(A) on account of disallowance of loss from F&O transactions. Although the assessee has raised several grounds in Form No. 36 as noted in the beginning, the assessee’s claim in Ground No. 7 is very fundamental and goes to the root that the AO has made impugned addition without supplying copy of investigation order of SEBI and the investigation report of Director of Investigation, Mumbai, Unit-6. The AO has taken reference of these reports in Para 3.6 and 3.7 of assessment-order. While the Page 4 of 6 fact the Ld. AR of assessee has also filed a copy of SEBI order before us and pleaded also to show that no addition can be made on the basis of the order of SEBI as held by ITAT, Delhi Bench in Kundan Rice Mills Ltd. Vs. ACIT (2020) 120 taxmann.com 422], the Investigation Report of Director of Investigation, Mumbai, Unit-6 is an internal document of Income-tax Department which certainly needs to be provided by AO to assessee before taking any adverse action/view against assessee. Since the AO has not followed this step, as being strongly claimed by assessee/Ld. AR, the only remedy is to remand this case back to file of AO who shall provide the copy of report of Director of Investigation, Mumbai, Unit-6 to assessee to enable the assessee to make needful submissions. While doing so, the assessee shall be entitled to make all submissions including submissions qua the report of Director of Investigation, Mumbai, Unit-6, SEBI order and decision of Kundan Rice Mills (supra) and the AO shall consider entire submission of assessee and thereafter take an appropriate decision in accordance with law. Needless to mention that the AO shall give sufficient opportunities to the assessee and the assessee shall also avail those opportunities.
Accordingly, in these terms, the appeal of the assessee is allowed for statistical purpose.
Since we have restored the matter to AO, there is no need to adjudicate other grounds raised by assessee or other pleadings made by learned Representatives during hearing.