ACIT, CENTRAL CIRCLE - 4(3), KOLKATA vs. M/S. GRD COMMODITIES LTD., , KOLKATA

Per A. T. Varkey, JM:

All these appeals preferred by the Revenue and the Cross Objections preferred by the assessee are against the separate orders of theLd.CIT(A)-21, Kolkata, all dated 30.08.2018 for AYs 2009-10 to 2012-13& 2014-15. And since the issues involved are common, all the appeals and Cross Objections have been heard together. Both the parties also raised similar arguments on these issues. Accordingly, we dispose off all these appeals and Cross Objections by this consolidated order for the sake of convenience.

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section 147/148 of the Act in AYs 2009-10 to 2012-13which was not adjudicated by the Ld. CIT(A) since he had deleted the additions made by the AO on the merits of the appeals. The assessee has therefore filed Cross Objections (hereinafter referred to as the “CO”) in AYs 2009-10 to 2012-13 wherein this legal issue has been raised. The Ld. AR submitted that this legal issue, if found valid, goes to the root of the re-opening itself, and therefore pleaded that the CO’s filed by the assessee may be adjudicated first. Per contra, the Ld. CIT, DR Shri Vijay Shankar did not dispute the aforesaid plea of the Ld. AR. In our view as well, the legal issue raised by the assessee challenging the jurisdiction of the AO to reopen the assessment, if found valid, goes to the root of the matter, and therefore we deem it fit to first adjudicate the same.

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said order sheet contained entry for issue of notice u/s 148 on 31-03-2016 and in the same order sheet the following entry was made on 05-04-2016.

“Appraisal report in the search & survey cases of “Commodity Trades Group of Ahmedabad” (Date of search – 18.12.2014) received by the undersigned.”

5 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

reopened the assessment for AY 2009-10 after the expiry of four years. In support of his contention, the Ld. AR relied on the decision of the Hon’ble Supreme Court in the case of New Delhi Television Ltd [NDTV] Vs DCIT (116 taxmann.com 151). He further submitted that even the reasons as recorded by the AO did not contain any averment to the effect that income had escaped assessment as a consequence of assessee’s failure to disclose truly and fully all facts necessary for his assessment. According to the Ld. AR therefore, the AO’s action of re-opening the assessment completed u/s. 143(3) after four years, deserves to be struck down for not satisfying the condition precedent set out in the first proviso to Section 147 of the Act.

“147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which

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has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or re-compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub- section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:[Emphasis given by us]”

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the evidence....".The Court further held that, “He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Officer cannot be supplemented by filing affidavit or making oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced.”Therefore, the reasons are to be examined only as they were recorded by the competent officer before the issue of the notice.

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NNPLC. The assessee had also disclosed the details of entities who subscribed to this issue and also the fact that the bonds were discounted at a lower rate, before the assessment was finalized. Subsequent to completion of the original assessment, the AO was in receipt of information that the assessee had undertaken round tripping of funds and that these funds raised by way of issue of bonds to group entities actually represented the unaccounted funds belonging to the assessee. The AO accordingly reopened the concluded assessment after expiry of four years and within six years. On these facts the question posed by the assessee before the Hon’ble Apex Court was, whether the assessee did not disclose fully and truly all material facts during the course of original assessment which led to the finalisation of the assessment order and undisclosed income escaping detection. Answering this question in favour of the assessee, the Hon’ble Apex Court held as under:

“24. Coming to the second question as to whether there was failure on the part of the assessee to make a full and true disclosure of all the relevant facts. The case of the assessee is that it had disclosed all facts which were required to be disclosed. 25. The revenue has placed reliance on certain complaints made by the minority shareholders and it is alleged that those complaints reveal that the assessee was indulging in round tripping of its funds. According to the revenue the material disclosed in these complaints clearly shows that the assessee is guilty of creating a network of shell companies with a view to transfer its un-taxed income in India to entities abroad and then bring it back to India thereby avoiding taxation. We make it clear that we are not going into this aspect of the matter because those complaints have not seen light of the day either before the High Court or this Court and, therefore, it would be unfair to the assessee if we rely upon such material which the assessee has not been confronted with. 26. Even before the assessment order was passed on 03.08.2012, the assessing officer was aware of the entities which had subscribed to the convertible bonds. This is apparent from the communication dated 8-4-2011. The case of the revenue is that the assessee did not disclose the amount subscribed by each of the entities and furthermore the management structure of these companies. We are not in agreement with this submission of the revenue. It is apparent from the records of the case that the revenue was aware of the entities which subscribed to the convertible bonds. It has been urged that these are bogus companies, but we are not concerned with that at this stage. The issue before us is whether the revenue can take the benefit of the extended period of limitation of 6 years for initiating proceedings under the first proviso section 147 of the Act. This can only be done if the revenue can show that the assessee had failed to disclose fully and truly all material facts necessary for its assessment. The assessee, in our view had disclosed all the facts it was bound to disclose. If the revenue wanted to investigate the matter further at that stage it could have easily directed the assessee to furnish more facts. 27. The High Court held that there was no "true and fair disclosure" in view of the law laid down by this Court in Phool Chand BajrangLal's case (supra), and the judgment of the Delhi High Court in Honda Siel Power Products Ltd. v. Dy. CIT [2011] 110 taxmann 2/197 Taxman 415/[2012] 340 ITR 53 (Delhi). We have already referred to the judgment in Phool Chand's case (supra), wherein it was held that where the transaction of a particular assessment year is found to be a bogus transaction, the disclosures made could not be said to be all "true" and "full". Relying upon the said judgment the High Court held that merely because the

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transaction of convertible bonds was disclosed at the time of original assessment does not mean that there is true and full disclosure of facts. 28. We are unable to agree with this reasoning given by the High Court. The assessee as mentioned above made a disclosure about having agreed to stand guarantee for the transaction by NNPLC and it had also disclosed the factum of the issuance of convertible bonds and their redemption. The income, if any, arose because of the redemption at a discounted price. This was an event which took place subsequent to the assessment year in question though it may be income for the assessment year. As we have observed above, all relevant facts were duly within the knowledge of the assessing officer. The assessing officer knew who were the entities who had subscribed to other convertible bonds and in other proceedings relating to the subsidiaries the same assessing officer had knowledge of addresses and the consideration paid by each of the bondholders as is apparent from assessment orders dated 3-8-2012 passed in the cases of M/s. NDTV Labs Ltd. and M/s. NDTV Lifestyle Ltd. Therefore, in our opinion there was full and true disclosure of all material facts necessary for its assessment by the assessee.” [Emphasis given by us]

“29. The fact that step-up coupon bonds for US$ 100 million were issued by NNPLC was disclosed; who were the entities which subscribed to the bonds was disclosed; and the fact that the bonds were discounted at a lower rate was also disclosed before the assessment was finalised. This transaction was accepted by the assessing officer and it was clearly held that the assessee was only liable to receive a guarantee fees on the same which was added to its income. Without saying anything further on merits of the transaction we are of the view that it cannot be said that the assessee had withheld any material information from the revenue. 30. According to the revenue the assessee to avoid detection of the actual source of funds of its subsidiaries did not disclose the details of the subsidiaries in its final accounts, balance sheets, and profit and loss account for the relevant period as was mandatory under the provisions of the Indian Companies Act,1956. It is not disputed that the assessee had obtained an exemption from the competent authority under the Companies Act, 1956 from providing such details in its final accounts, balance sheets, etc. As such it cannot be said that the assessee was bound to disclose this to the Assessing Officer. The Assessing Officer before finalising the assessment of 03.08.2012had never asked the assessee to furnish the details. 31.The revenue now has come up with the plea that certain documents were not supplied but according to us all these documents cannot be said to be documents which the assessee was bound to disclose at the time of assessment. The main ground raised by the revenue is that the assessee did not disclose as to who had subscribed what amount and what was its relationship

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with the assessee. As far as the first part is concerned it does not appear to be correct. There is material on record to show that on 08.04.2011 NNPLC had sent a communication to the Deputy Director of Income Tax(Investigation), wherein it had not only disclosed the names of all the bond holders but also their addresses; number of bonds along with the total consideration received. This chart forms part of the assessment orders dated 3-8-2012 in the case of M/s. NDTV Labs Ltd. and M/s. NDTV Lifestyle Ltd. The said two assessment orders were passed by the same officer who had passed the assessment order in the case of the assessee on the same date itself. Therefore, the entire material was available with the revenue. 32. A number of decisions have been cited as to what is meant by true and full disclosure. It is not necessary to multiply decisions, as law in this regard has been succinctly laid down by a Constitution Bench of this Court in Calcutta Discount Co. Ltd. v. ITO AIR 1961 SC 372, wherein it was held as follows:— '(8)...The words used are "omission or failure to disclose fully and truly all material facts necessary for his assessment for that year". It postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material, and necessary for assessment will differ from case to case. In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion. From the primary facts in his possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise — the assessing authority has to draw inferences as regards certain other facts; and ultimately, from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable. Thus, when a question arises whether certain income received by an assessee is capital receipt, or revenue receipt, the assessing authority has to find out what primary facts have been proved, what other facts can be inferred from them, and taking all these together, to decide what the legal inference should be. (9) There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet a possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income- tax Officer might have discovered, the Legislature has put in the Explanation, which has been set out above. In view of the Explanation, it will not be open to the assessee to say, for example — "I have produced the account books and the documents: You, the assessing officer examine them, and find out the facts necessary for your purpose: My duty is done with disclosing these account-books and the documents." His omission to bring to the assessing authority's attention these particular items in the account books, or the particular portions of the documents, which are relevant, will amount to "omission to disclose fully and truly all material facts necessary for his assessment." Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the assessing authority if he had pursued investigation on the basis of what has been disclosed. The Explanation to the section, gives a quietus to all such contentions; and the position remains that so far as primary facts are concerned, it is the assessee's duty to disclose all of them — including particular entries in account books, particular portions of documents and documents, and other evidence, which could have been discovered by the assessing authority, from the documents and other evidence disclosed. (10) Does the duty however extend beyond the full and truthful disclosure of all primary facts? In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody

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else — far less the assessee — to tell the assessing authority what inferences — whether of facts or law should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences — whether of facts or law — he would draw from the primary facts. (11) If from primary facts more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority. How could an assessee be charged with failure to communicate an inference, which he might or might not have drawn?' A careful analysis of this judgment indicates that the Constitution Bench held that it is the duty of the assessee to disclose full and truly all material facts which it termed as primary facts. Nondisclosure of other facts which may be termed as secondary facts is not necessary. In light of the above law, we shall deal with the facts of the present case. 33. In our view the assessee disclosed all the primary facts necessary for assessment of its case to the assessing officer. What the revenue urges is that the assessee did not make a full and true disclosure of certain other facts. We are of the view that the assessee had disclosed all primary facts before the assessing officer and it was not required to give any further assistance to the assessing officer by disclosure of other facts. It was for the assessing officer at this stage to decide what inference should be drawn from the facts of the case. In the present case the assessing officer on the basis of the facts disclosed to him did not doubt the genuiness of the transaction set up by the assessee. This the assessing officer could have done even at that stage on the basis of the facts which he already knew. The other facts relied upon by the revenue are the proceedings before the DRP and facts subsequent to the assessment order, and we have already dealt with the same while deciding Issue No.1. However, that cannot lead to the conclusion that there is non-disclosure of true and material facts by the assessee.”[Emphasis given by us]

12 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

“A search and survey in the cases of Commodity Traders Group of Ahmedabad was conducted by Investigation Directorate, Ahmedabad on 18.12.2014. Subsequently, cases having jurisdiction outside the Gujarat region were approved for centralization in respective regions. It was communicated by the DGIT (Investigation) Kolkata to Investigation Wing Ahmedabad that vide his letter dated 11.02.2016 that cases pertaining to Kolkata Region have been centralized with the Undersigned . As per relevant of appraisal report of Commodity Traders Group of Ahmedabad it has been found that contrived losses amounting to Rs.5,82,07,948/- has been obtained during the F. Y 2008.09 i .e. A. Y 2009-10 by M/s. GRD Commodities Ltd. (PAN AACCG1217C), one of the assessee company pertaining to this group under this charge. In view of the above, I have reason to believe that income of the assessee at least to the extent of Rs.5,82,07,948/- had escaped assessment in terms of section 147 of the Act.”

“A search and seizure operation was conducted in the case of Drolia Group on 30.11.2012. The assessee named GRD Commodities Ltd is connected with this Group. During the course of search, several books of accounts, documents and hard discs were found and seized. On perusal of the seized documents several documents were found which are related to the assessee.

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As per return (A.Y. 2009-10) 1. Details of Unsecured Loan from Body Corporates of Rs.1,79,01,844/-, loan confirmation and source of such money, copy of bank statement reflecting the loan transaction and name, address & PAN of the person/company/firm who have given the loan to the company with supporting evidences. 2. Details of cash in hand of Rs.1,37,869/- with supporting evidences. 3. Details of Bank Balance of Rs.8,26,405/- and narration of each entry with supporting evidence. 4. Details of Fixed Deposit in Bank of Rs.2,90,00,000/- and source thereof and interest accrued on Fixed Deposit of Rs.15,98,635/- along with supporting evidences. 5. Details of Loans and Advances of Rs.1,12,86,387/- and source of such loan, loam confirmation, copy of bank statement reflecting the loan transaction and name & complete address of the person/company/firm who have taken the loan from the company. 6. Details of Sundry Creditor MCX (Commodities) of Rs.3,34,385/-. Sundry Creditors (Client) of Rs.11,04,911/-. Sundry Creditors for Expenses of Rs.9,93,470/-. Statutory Dues of Rs.98,727/- and Client Cash Margin Deposit of Rs.16,33,439/- along with supporting evidences. 7. Details of Income from Derivative Transactions of Rs.19,45,782/- along with supporting evidences. 8. Details of Brokerage Income of Rs.12,18,020/- along with supporting evidences. 9. Details of Transaction Charges of Rs.23,99,420/- along with supporting evidences. 10. Details of NCDEX Related Expenses of Rs.1,93,685/- along with supporting evidences. 11. Details of MCX Related Charges of Rs.2,89,811/- along with supporting evidences. 12. Details of Interest paid of Rs.6,16,047/- along with supporting evidences. 13. Details of Salary & Bonus of Rs.8,51,287/-, Bank Guarantee Charges of Rs.1,59,135/-, Filing Fees of Rs.1,500/-, Rent of Rs.2,94,000/-, Rates and Taxes of Rs.4,350/-, Foods & Beverages of Rs. 90,009/-, Stipend of Rs.99,709/- and Travelling & Conveyances of Rs.80,298/- along with supporting evidences. 14. Books of accounts along with supporting evidences. Other supporting evidences.” [Emphasis given by us]

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on the platform of NMCE along with broker-wise ledger of the derivatives contracts executed during the years and the payments/receipts made in relation thereto. The AO by his order sheet entries dated 11.03.2015 & 23.03.2015 [Page 65 of paper book] acknowledged that the assessee had furnished all supporting documents as desired by him in respect of the reply furnished in response to notice u/s 142(1) of the Act. All these facts considered cumulatively support the assessee’s contention that it had disclosed all the primary facts relating to its transactions on NMCE before the AO inter alia including the losses incurred in trading of commodities.

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the notice for reopening, which is placed at Page 40 of the paper book, is dated 31-03-2016 (last date for issue of notice in respect of AY 2009-10). These events show that the AO had received the appraisal report five days after the issuance of notice on 31-03-2016. In this context, it has to be kept in mind the Hon’ble Apex Court has held in 258 ITR 317 and 253 ITR 86; the condition precedent for re-opening u/s 147 of the Act is that the AO should have ‘reason to believe’ escapement of income, and the ‘reason to believe’ postulate a foundation based on information and a belief based on reason. So we note that it is a legal necessity that a foundation based on information is a must before the AO has reason to believe escapement of income. So, here the appraisal report on which the AO builds the reason to belief was absent when he recorded the reason before invoking the reopening jurisdiction u/s. 147 by issuing notice u/s. 148 of the Act on 31.03.2016. Therefore, on these facts we discussed, we are inclined to uphold the contention of the Ld. AR that the foundation on which the AO based his belief that income chargeable to tax had escaped assessment was absent at the material time when he issued notice u/s. 148 of the Act on 31- 03-2016, and therefore, the basic legal requirement of reopening u/s. 148 of the Act i.e. AO’s formation of reasons to believe escapement of income prior to reopening of assessment was absent in the given facts of the present case.

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a failure on the part of the assessee to truly and fully disclose the facts in its assessment and to that extent the facts of AYs 2010-11 & 2011-12 were distinguishable from AY 2009-10. So, Shri Vijay Shankar, Ld. CIT, DR did not want us to interfere with the legal validity of the assessment framed u/s 147 for AYs 2010-11 & 2011-12. In his rejoinder, the Ld. AR of the assessee Shri Akkal Dudhewala invited our attention to the requisitions issued by the AO in the original assessment for these years (Pages 12-13 of the Paper book for AY 2010- 11 and Pages 14-15 of the Paper book for AY 2011-12) and then took us through the primary facts which were disclosed in the original assessment. Referring to the foregoing, he contended that all material facts had been truly and fully disclosed at the time of original assessment and therefore the AO could not have legally reopened these completed assessments after the expiry of four years in terms of first proviso to Section 147 of the Act. According to the Ld. AR, a bald statement by the AO that, the assessee has not disclosed fully and truly all material facts will not meet the requirement of proviso to Section 147 of the Act, when the facts brought on record show that it was after due enquiry/investigation into the same issues that the original assessments were completed u/s 153A/143(3) of the Act on 31-03-2015. The Ld. AR thus submitted that, without spelling out as to which material facts did the assessee fail to disclose in the assessment proceeding, the AO could not have validly exercised his jurisdiction to reopen the assessment u/s 147 of the Act, read with the first proviso. Moreover the Ld. AR pointed out to us that the AO was fully aware that, in the original assessments, his predecessor had specifically enquired into the commodity transactions of the assessee and therefore, while recording his reasons to believe, which was the foundation of reopening, he consciously alleged only that the assessee did not disclose all material facts truly and correctly in its return of income rather than necessary for the assessment, which is the precise requirement of law. The Ld. AR thus contended that like in AY 2009-10, the AO had failed to satisfy the condition precedent in the first proviso to Section 147 of the Act in AYs 2010-11 and 2011-12 as well and therefore in terms of the law laid down by the Hon’ble Supreme Court in the case of NDTV Ltd Vs DCIT (supra), he urged that the reopening of assessment u/s 147/148 of the Act for both these years be held to be bad in law.

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available at pages 29 and 43 of the respective paper books for those years. The relevant extracts are as follows:

“AY 2010-11

A search u/s 132 of the I.T. Act 1961 and survey u/s 133A of the said Act was conducted by the Investigation Directorate, Ahmedabad on 18.12.2014 in the case of Commodity Traders Group of Ahmedabad. In relation to the said action the assessee M/s GRD Commodities Ltd. of 238A AJC Bose Road, 6th Floor, Kolkata-700020 (PAN AACCG1217C) was covered by survey u/s 133A of the Act. Report of survey has been received from the Investigation Directorate, Ahmedabad wherein it is reported that the assessee had done trading on NMCE platform predominantly in the F.Y. 2009-10 relevant to A.Y. 2010-11 with a deliberate and malafide intention to book total loss of Rs. 1,50,78,769/- and such loss was not just a co-incidence, it was done so as to manage contrived losses to the extent of profit available in the books for the purpose of reduce income chargeable to tax and thereby reducing legitimate tax liabilities.

The assessee filed return of income for A.Y. 2010-11 on 30.09.2010 showing total income of Rs.12,12,420/- and was assessed u/s 153A/143(3) on 31.03.2015 for income amounting to Rs.12,46,170/-.

The income, so returned by assessee for AY 2010-11, is after setting off of loss of Rs. 1,50,78,769/- and this loss was not genuinely incurred by the assessee during the previous year 2009-10. Information in my possession reveals that such in genuine loss was set off against available profit with a malafide intention to reduce legitimate tax liabilities.

Therefore, I have reasons to believe that income chargeable to tax has escaped assessment within the meaning of Section 147 of the IT Act, 1961 and such escapement has occurred due to assessee’s failure to disclose all material fact truly and correctly in its return of income.

In order to assess/re-assess the said income chargeable to tax which has escaped assessment as aforesaid and to assess/re-assess any other income chargeable to tax which has escaped assessment and which may come to my notice during this proceeding, a notice u/s 148 of the said Act is required to be issued.”

“AY 2011-12

A search u/s 132 of the I.T. Act 1961 and survey u/s 133A of the said Act was conducted by the Investigation Directorate, Ahmedabad on 18.12.2014 in the case of Commodity Traders Group of Ahmedabad. In relation to the said action the assessee M/s GRD Commodities Ltd. of 238A AJC Bose Road, 6th Floor, Kolkata-700020 (PAN AACCG1217C) was covered by survey u/s 133A of the Act. Report of survey has been received from the Investigation Directorate, Ahmedabad wherein it is reported that the assessee had done trading on NMCE platform predominantly in the F.Y. 2010-11 relevant to A.Y. 2011-12 with a deliberate and malafide intention to book total loss of Rs. 1,64,99,732/- and such loss was not just a co-incidence, it was done so as to manage contrived losses to the extent of profit available in the books for the purpose of reduce income chargeable to tax and thereby reducing legitimate tax liabilities.

The assessee filed return of income for A.Y. 2011-12 on 28.09.2011 showing total income of Rs.13,90,470/- and was assessed u/s 153A/143(3) on 31.03.2015 for income amounting to Rs.14,58,720/-.

The income, so returned by assessee for AY 2011-12, is after setting off of loss of Rs.1,64,99,732/- and this loss was not genuinely incurred by the assessee during the previous year 2010-11. Information in

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my possession reveals that such in genuine loss was set off against available profit with a malafide intention to reduce legitimate tax liabilities. Therefore, I have reasons to believe that income chargeable to tax has escaped assessment within the meaning of Section 147 of the IT Act, 1961 and such escapement has occurred due to assessee’s failure to disclose all material fact truly and correctly in its return of income. In order to assess/re-assess the said income chargeable to tax which has escaped assessment as aforesaid and to assess/re-assess any other income chargeable to tax which has escaped assessment and which may come to my notice during this proceeding, a notice u/s 148 of the said Act is required to be issued.”[Emphasis given by us]

“Notice u/s 142(1) of the Act – AY 2010-11 A search and seizure operation was conducted in the case of Drolia Group on 30.11.2012. The assessee named GRD Commodities Ltd is connected with this Group. During the course of search, several books of accounts, documents and hard discs were found and seized. On perusal of the seized documents several documents were found which are related to the assessee.

19 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

As per return (A.Y. 2010-11) 1. Details of Unsecured Loan from Body Corporate of Rs.2,51,87,498/-, loan confirmation and source of such money, copy of bank statement reflecting the loan transaction and name, address & PAN of the person/company/firm who have given the loan to the company with supporting evidences. 2. Details of addition in Fixed Assets of Rs.74,720/- and source thereof along with supporting evidence. 3. Details of Sundry Debtors of Rs.2,71,029/- along with supporting evidences. 4. Details of cash in hand of Rs.3,12,642/- with supporting evidences. 5. Details of Bank Balance of Rs.1,19,318/- and narration of each entry with supporting evidence. 6. Details of Fixed Deposit in Bank of Rs.1,45,00,000/- and source thereof and interest accrued on Fixed Deposit of Rs.23,39,052/- along with supporting evidences. 7. Details of Loans and Advances of Rs.1,36,39,586/- and source of such loan, loam confirmation, copy of bank statement reflecting the loan transaction and name & complete address of the person/company/firm who have taken the loan from the company. 8. Details of Sundry Creditors for Expenses of Rs.43,27,463/- Statutory Dues of Rs.8,30,847/- and Client Cash Margin Deposit of Rs.37,83,439/- along with the supporting evidences. 9. Details of Income from Derivative Transactions of Rs.2,32,10,119/- along with supporting evidences. 10. Details of Brokerage Income of Rs.40,40,762/- along with supporting evidences. 11. Details of Interest income of Rs.45,27,975/- along with the supporting evidences. 12. Details of Transaction Charges of Rs.2,07,57,010/- along with supporting evidences. 13. Details of Sharing of Arbitrager of Rs.13,02,137/- along with supporting evidences. 14. Details of NCDEX Related Expenses of Rs.2,07,147/- along with supporting evidences. 15. Details of MCX Related Charges of Rs.7,38,068/- along with supporting evidences. 16. Details of Interest paid of Rs.6,16,047/- along with supporting evidences. 17. Details of Salary & Bonus of Rs.44,27,390/-, Bank Guarantee Charges of Rs.5,09,254/-, Filing Fees of Rs.1,500/-, Rent of Rs.2,94,000/-, Rates and Taxes of Rs.6,850/-, Foods & Beverages of Rs. 84,654/-, Software Expenses of Rs.1,63,126/-, Stipend of Rs.22,223/- and Travelling & Conveyances of Rs.68,605/- along with supporting evidences. 18. Books of accounts along with supporting evidences. 19. Other supporting evidences.” “Notice u/s 142(1) of the Act – AY 2011-12 A search and seizure operation was conducted in the case of Drolia Group on 30.11.2012. The assessee named GRD Capital Market Pvt. Ltd. is connected with this Group. During the course of search, several books of accounts, documents and hard discs were found and seized. On perusal of the seized documents several documents were found which are related to the assessee.

20 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

21 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

Other supporting evidences.” [Emphasis given by us]

22 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

that assessee failed to disclose fully and truly all materials in the return. Therefore, we are unable to agree with the Ld. CIT, DR’s contention that the AO had otherwise satisfied the condition precedent in first proviso to Section 147 of the Act by mentioning the same in his recorded reasons. Thus, in our view, the usurpation of jurisdiction u/s. 147 by the AO to re- open the assessment completed u/s. 147 of the Act after four years is bad in law and, therefore, has to be struck down for not satisfying the jurisdictional fact and law which is a condition precedent to legally assume jurisdiction to reopen assessment after 4 years from the end of the relevant assessment year.

“In the instant case, the assessments for both the assessment years were made under section 143(3). There was no dispute that the notices under section 147 were issued beyond four years from the end of the relevant assessment years. Thus, in order to initiate action under section 147 after the expiry of four years from the end of relevant assessment years, there should have been either failure or non-disclosure on the part of the assessee. From the recorded reasons it was found that the Assessing Officer was seeking to reopen the assessments since there was an ‘incorrect interpretation of accounts by the Assessing Officer’ and for that ‘the assessee got the benefit of loss’ for the assessment year 1992-93 which was carried forward to the subsequent years. In the instant case, it had nowhere been recorded that there was failure or improper disclosure on the part of the assessee. However, the Assessing Officer sought to reopen the assessments as there was incorrect interpretation of account by the Assessing Officer. The recorded reasons did not speak of any omission or failure on the part of the assessee. Thus, admittedly there was no failure on the part of the assessee to disclose fully and truly all material facts in the assessment. Incorrect interpretation of accounts by the Assessing Officer could not confer jurisdiction on the Assessing Officer to issue notices under section 148 for reopening the assessments as sought to be made in the instant case. If there is no failure on the part of the assessee to disclosure fully and truly the material facts, wrong interpretation of accounts by the Assessing Officer leading to excessive relief cannot be a ground for reopening and thus cannot confer jurisdiction on the Assessing Officer. Explanation 2 cannot be read in isolation of section 147. It should be read in conjunction with the provisions in the section. The words for the purpose of this section appearing in Explanation 2 show that the conditions precedent for reopening assessment as laid down in section 147 have to be complied with. In instant case, since the conditions for assuming of jurisdiction under section 147 were not fulfilled, the notices under section 148 were uncalled for and warranted interference by appearing orders. If an authority assumes jurisdiction illegally which is not vested under the law it would be fit and proper for the writ Court to intervene. In the instant case, as there was no omission or failure on the part of the assessee to disclose truly and fully all material facts in the return, as the Assessing Officer sought to reopen the assessments due to wrong

23 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

interpretation of accounts by the Assessing Officer which was not permissible under section 147 to assume jurisdiction, the assessee was justified in invoking the writ petition. Thus, the instant petition was to be allowed and, consequently impugned notices under section 147/148 were to be quashed.”

“43. As noticed hereinabove, except in W.P. (C) No. 1163 and W.P. (C) No. 1258 of 2003, the impugned notices had been issued before the expiry of four years from the end of the relevant assessment year. The attempt made on the part of the respondents to contend that the omission on the part of the assessees to mention in their return that the cess on green tea leaves was paid under the 1990 Act amounts to failure to make full and true disclosure of all material facts necessary for assessments has to be mentioned only to be rejected. There is no dispute that at the time of assessment, the assessees were permitted deduction on the above count and the composite income under rule 8(1) was accordingly computed. At no point of time was any reservation expressed by the respondent authorities as to the nature of the payment or the entitlement of the assessees to be extended the benefit of deduction thereof on the basis of the disclosure made in the returns. The respondent authorities thus have to be firmly held only to the reasons and/ or the grounds narrated in the impugned notices. Not only is this stand absent in the impugned notices, the same do not indicate as well as to what material facts had not been fully and truly disclosed by the assessees. 44. The Apex Court while dwelling on the scope of the requirement to disclose fully and truly all material facts as comprehended in the proviso to section 147 held in Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC), that the duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts and it is not its responsibility to advise the Assessing Officer with regard to the inference which he should draw therefrom. If such officer draws any inference which appears to be subsequently erroneous, a mere change of opinion would not justify initiation of action for reopening the assessment, it held. 45. The same view was expressed in Associated Stone Industries (Kotah) Ltd. v. CIT [1997] 224 ITR 5601 (SC). The Bombay High Court on the same issue in Hindustan Lever Ltd. v. R.B. Wadkar, Asstt. CIT (No. 1) [2004] 268 ITR 3322, held that the reasons in support of the proposed action under section 147 of the Act must necessarily reveal all facts or materials that had not been disclosed by the assessee fully and truly necessary for assessment so as to establish the link between the reasons and evidence. It was further held that the reasons so recorded cannot be supplemented by any affidavit or oral submissions as otherwise the reasons which were lacking in the material particulars would receive supplementation by the time those are subjected to Court’ s scrutiny. 46. The notices admittedly do not exhibit as to what material facts were not truly and fully disclosed by the assessees necessary for assessment for the assessment years in question. The returns admittedly mention about the cess on green leaves paid and deductions as permissible were allowed. In view of the exposition of law on the point mentioned hereinabove, the inescapable conclusion is that the impugned notices in W.P. (C) No. 1163 of 2003 and W.P. (C) No. 1258 of 2003 are also not sustainable being barred by time.”

24 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

assessee to provide all the material facts, then it will have to be presumed that the assessee did not fail to make full and true disclosure of all material facts and hence the jurisdictional requirement set out in the first proviso to Section 147 for initiating reassessment, after the expiry of period of four years, shall be held to be not fulfilled. The relevant observations of the Hon’ble High Court is extracted below:

“9. The learned counsel for the Petitioner rightly pointed out that the ground that the Petitioner had failed to disclose all the relevant material was not incorporated in the Reasons supplied to the Petitioner. The object of furnishing Reasons for reopening, is to put the assessee to notice as to why the Assessing Officer has reason to believe that income has escaped assessment. Apart from this position, in the present case the Reasons supplied do not state that there was any failure on the part of the Petitioner to provide material particulars. That an assessee has not made a full and true disclosure of facts, is one of the jurisdictional requirement for proceeding with reassessment after a period of four years. In the case of Hindustan Levers v. R.B. Wadkar, [2004] 268 ITR 332/137 Taxman 479, this Court had held that the notices for reassessment would stand or fall on the basis of Reasons and the Reasons cannot be improved upon, substituted or supplemented. This view has been followed by this Court in several other cases. 10. As stated above, the reasons supplied to the Petitioner do not disclose that there was any failure on the part of the Petitioner to provide all the material facts. That being the position, this ground could not have been taken up against the Petitioner at the time of disposing of the objections. Once this was not the basis for issuance of notice for Reassessment, it cannot be held against the Petitioner that the Petitioner had failed to make a true and full disclosure. It will have to be held that the Petitioner did not fail to make full and true disclosure of all material facts. The jurisdictional requirement for carrying out the reassessment, after the expiry of period of four years, is not fulfilled in the present case.” 30. For the above reasons and those discussed in Paras 7 to 17 earlier and following the law laid down by the Hon’ble Supreme Court in the case of NDTV Ltd. vs DCIT (supra), and other case laws, we hold that the reopening of the assessments for AYs 2010-11 & 2011-12 are bad in law in as much as the AO did not satisfy the condition precedent in first proviso to Section 147 of the Act which was sine qua non for usurping jurisdiction u/s 147 of the Act. As a consequence thereto, the orders passed u/s 147/153A/143(3) dated 29-12- 2017 for AYs 2010-11 & 2011-12 are held to be ab initio void and are therefore quashed. The Cross Objections for AYs 2010-11 & 2011-12 hence stands allowed.

25 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

had requisite ‘reasons to believe’ that the income had escaped assessment, based on which he had reopened the assessment, and such reasonable belief was formed on his ‘own independent application of mind’ and not ‘borrowed satisfaction’. According to Ld. AR, perusal of the recorded reasons showed that it was based on the dictate of the Investigation Directorate, Ahmedabad (Appraisal Report) and that there was no independent application of mind by the AO to the information received from the Investigation Directorate at Ahmedabad. The Ld. AR thereafter also took us through the contents of the appraisal report and the enquiries conducted by the Investigation Directorate at Ahmedabad to show that there was no tangible material contained therein, based on which a prudent person could form a reasonable belief that the assessee had contrived losses in the trades conducted on NMCE platform resulting in income escaping assessment. Assailing the action of the AO, the Ld. AR submitted that the reasons were recorded by him on surmises and conjectures and therefore his action of reopening the assessment was clearly bad in law. Per contra, the Ld. CIT, DR submitted that since the reopening for AY 2012-13 was within a period of four years; in order to reopen the assessment, the AO was only required to form a prima facie belief that income had escaped assessment and that the appraisal report of Investigation Directorate at Ahmedabad constituted sufficient tangible material to form a reasonable belief for reopening the assessment. According to Ld. CIT, DR, whether the contents of the appraisal report were ultimately found to be tenable or not on merits were a matter of re- assessment and the same could not be gone into at the time of testing the validity of the reasons recorded by the AO. According to him, when the AO was in receipt of information from the Investigation Directorate of the same Department, then rather than questioning the veracity of the report, he was duty bound to first reopen the assessment of the assessee and so he does not want us to interfere with the legal issue for AY 2012-13.

26 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

to tax has escaped assessment. In the circumstances, unless the AO himself genuinely entertains reason to believe that income has escaped assessment, he is not permitted to resort to reopening of assessment proceedings. It has been observed by the Constitutional Courts that the expression used in the Section viz., ‘reasons to believe’ is not a mere empty expression. ‘Reason to believe’ does not mean ‘reason to suspect’ or reason to re-examine the concluded issues. The reasons recorded must be based on some tangible information or material and such information or material must have live and direct nexus with formation of AO’s belief that income chargeable to tax has escaped assessment. The relationship between the information or evidence with formation of belief must be live, real and proximate and should not be remote, vague or illusory. Further, the reason to believe must be formed by the AO’s own objective appreciation of the information, material and evidence in his possession which he has gathered after completion of the assessment. We are aware that, at the time of formation of AO’s belief, it is not necessary for him to show with absolute certainty that income chargeable to tax escaped assessment, but at the same time, the AO is required to demonstrate through his reasons that he was having in his possession adequate material on the basis of which a man of ordinary prudence would prima facie form a reason to believe that income chargeable to tax have escaped assessment. The relevant material should clearly indicate to the reader that in fact there existed correlation between the material and AO’s formation of belief. The reasons should not merely disclose need for an inquiry which may result in detection of an income escaping assessment. Instead there must be something tangible which indicates, even if not establishes, the escapement of income from assessment. It is only on this basis that the Assessing Officer can form the belief that income has escaped assessment. It is also important to bear in mind the subtle but important distinction between factors which indicate an income escaping the assessment and the factors which indicate a legitimate suspicion about income escaping the assessment. The former category consists of the facts which, if established to be correct, will have a cause and effect relationship with the income escaping the assessment. The latter category consists of the facts, which, if established to be correct, could legitimately lead to further inquiries which may lead to detection of an income which has escaped assessment. There has to be a cause and effect relationship between reasons recorded and the income escaping assessment. While dealing with this aspect of the matter, it is useful to bear in mind the observations made by Hon’ble Supreme Court in the case of ITO Vs Lakhmani Mewal Das [(1976) 103

27 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

ITR 437] that, “......the reasons for the formation of the belief must have rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of this belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the Court cannot go into sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment.”

“31. In Bawa Abhai Singh"s case [2002] 253 ITR 83 (Delhi), a Division Bench of this court of which one of us (D. K. Jain J.) is a Member, clearly held (page 88) : "The crucial expression is "reason to believe". The expression predicates that the Assessing Officer must hold a belief . . . by the existence of reasons for holding such a belief. In other words, it contemplates existence of reasons on which the belief is founded and not merely a belief in the existence of reasons inducing the belief. Such a belief may not be based merely on reasons but it must be founded on information. As was observed in Ganga Saran and Sons P. Ltd. v. ITO [1981] 130 ITR 1 (SC), the expression "reason to believe" is stronger than the expression "is satisfied". The belief entertained by the Assessing Officer should not be irrational and arbitrary. To put it differently, it must be reasonable and must be based on reasons which are material. In S.Narayanappa v. CIT [1967] 63 ITR 219, it was noted by the apex court that the expression "reason to believe" in section 147 does not mean purely a subjective satisfaction on the part of the Assessing Officer, the belief must be held in good faith ; it cannot be merely a pretence. It is open to the court to examine whether the reasons for the belief have a rational nexus or a relevant bearing to the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To that limited extent, the action of the Assessing Officer in initiating proceedings under section 147 can be challenged in a court of law." It was further held that, “40. …. We are therefore of the opinion that section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceeding upon his mere change of opinion”. It was further observed as under :- “43. We also cannot accept the submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded an analysis of the materials on the record by itself may justify the Assessing Officer to initiate a proceeding under section 147 of

28 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

the Act. The said submission is fallacious. An order of assessment can be passed either in terms of sub-section (1) of section 143 or sub-section (3) of section 143. When a regular order of assessment is passed in terms of the said sub-section (3) of section 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of the Indian Evidence Act judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong.”

“A search u/s 132 of the I.T. Act 1961 and survey u/s 133A of the said Act was conducted by the Investigation Directorate, Ahmedabad on 18.12.2014 in the case of Commodity Traders Group of Ahmedabad. In relation to the said action the assessee M/s GRD Commodities Ltd. of 238A AJC Bose Road, 6th Floor, Kolkata-700020 (PAN AACCG1217C) was covered by survey u/s 133A of the Act. Report of survey has been received from the Investigation Directorate, Ahmedabad wherein it is reported that the assessee had done trading on NMCE platform predominantly in the F.Y. 2011-12 relevant to A.Y. 2012-13 with a deliberate and malafide intention to book total loss of Rs.14,00,19,151/- and such loss was not just a co-incidence, it was done so as to manage contrived losses to the extent of profit available in the books for the purpose of reduce income chargeable to tax and thereby reducing legitimate tax liabilities. The assessee filed return of income for A.Y. 2012-13 on 29.09.2012 showing total income of Rs.30,79,420/- and was assessed u/s 153A/143(3) on 31.03.2015 accepting the return income.

29 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

The income, so returned by assessee for AY 2012-13, is after setting off of loss of Rs.14,00,19,151/- and this loss was not genuinely incurred by the assessee during the previous year 2011-12. Information in my possession reveals that such in genuine loss was set off against available profit with a malafide intention to reduce legitimate tax liabilities. Therefore, I have reasons to believe that income chargeable to tax has escaped assessment within the meaning of Section 147 of the IT Act, 1961 and such escapement has occurred due to assessee’s failure to disclose all material fact truly and correctly in its return of income. In order to assess/re-assess the said income chargeable to tax which has escaped assessment as aforesaid and to assess/re-assess any other income chargeable to tax which has escaped assessment and which may come to my notice during this proceeding, a notice u/s 148 of the said Act is required to be issued.” 36. Perusal of the above shows that the entire edifice of the recorded reasons is the appraisal report forwarded by the Investigation Directorate at Ahmedabad which had been prepared after conducting search and survey action on 18-12-2014 on Commodity Traders Group, in which the assessee was also covered u/s 133A of the Act. In the present case, we note that the regular assessment u/s 153A/143(3) of the Act, was completed post the survey action on 30-03-2015. During the relevant year, the assessee had derived profits as well as incurred losses in trading of commodities. In the course of regular assessment proceedings, the AO had required the assessee to furnish the particulars of the income derived in commodity transactions. In response, it is noted that the assessee had furnished the particulars as requisitioned inter alia including the transactions conducted on NMCE, MCX etc. along with the relevant supporting documents [Page 17 to 29 of the Paper book].We note that this fact has been acknowledged by the AO in his order sheet entries dated 20-2- 2015, 11-03-2015 & 23-03-2015, copy of which is available at Page 51 of the paper book. We therefore note that the AO was aware about the assessee’s transactions in commodity derivatives on NMCE and the losses incurred therein. In the survey proceedings, an effort was made by the Investigating Officer to find out the genuineness of the trades conducted by the assessee on NMCE. From the statement of the Director which was recorded at the time of survey u/s 131 of the Act, we note that he had explained the modus operandi of the company’s business. He also substantiated the transactions conducted on NMCE through their authorized members and replied to all the queries raised in that regard by his letter dated 30-01-2015. Further in the statement so recorded under oath on 23-04-2015 u/s 131 of the Act, either there was any admission of any wrong-doing or was there any self- incriminating averment made by the Director of the assessee company. On the contrary, it is

30 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

noted that the Director had given statement to the effect reiterating the genuineness of the transactions conducted by the assessee on NMCE. It is further observed that the Investigating Officer had also examined one of the brokers through whom the assessee had transacted on the NMCE platform and in his statement recorded u/s 131 of the Act, wherein the broker had affirmed the transactions conducted on NMCE. We note that there was nothing contained in the broker’s statement from which one could even remotely infer that the commodity transactions conducted by the assessee were in-genuine or fictitious. The Ld. AR also drew our attention to the Investigating Officer’s findings regarding the enquiries conducted by the Forwards Marketing Commission (hereinafter referred to as ‘FMC’) against the brokers, through whom the assessee had transacted on NMCE. Referring to the same, he pointed out that the broker, M/s Sahal Commodities Private Limited, through whom the assessee had transacted on NMCE was neither found guilty of any suspicious activities nor was any fine imposed on it by FMC with reference to the assessee’s transactions for the relevant Financial Year 2011-12. In the said circumstances, we note that, in the appraisal report, the DDIT(Inv) had only expressed an apprehension regarding the genuineness of the losses incurred. However, we note that there was no tangible evidence or material brought on record to justify the said apprehension. Instead, we note that the report of the DDIT(Inv) rested on preponderance of probabilities and had forwarded this to the AO for further investigating the same. So, at the most this appraisal report can be termed to trigger ‘reason to suspect’; and upon receipt of this appraisal report, the AO ought to have conducted preliminary enquiries and tried to collect materials to connect assessee in this orchestrated wrong doing as suggested in the appraisal report; and if he had succeeded, in this exercise, then he could have summarized his finding of facts connecting the assessee to the alleged wrong doing in his ‘reasons recorded’ along with the modus-operandi as reported in the appraisal report to re-open, which could have exposed the live nexus and consequent cause and effect of escapement of income, which exercise the AO un-fortunately did not do in the present case. Having regard to the aforesaid facts, we find merit in the Ld. AR’s contention that there was no tangible material contained in the appraisal report based on which the AO could have validly formed reason to believe that income chargeable to tax had escaped assessment which was completed u/s 153A/143(3) of the Act on 30-03-2015. Relying the decision of the Hon’ble Supreme Court in the case of CIT Vs Kelvinators of India Ltd (supra) and other case laws cited (supra), we are inclined to hold that the initiation

31 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

of reassessment suffered from legal infirmity since the AO in the original assessment has already taken a view after enquiry and therefore, the impugned action of AO to reopen was based upon change of opinion by the present AO without there being any tangible material or material change in the underlying facts which were already known to the AO at the time of passing of the regular assessment.

32 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

“We first consider the issue as to whether re-opening of assessment is bad in law. The reasons recorded by the Assessing Officer for re-opening of the assessment for the Assessment Year 2010-11 is as follows:- "In this case the assessee had filed its ITR for A.Y. 2010-11 on 29.09.2010 disclosing total income of Rs.58,23,420/-. In the case of the assessee information was received from the Forward Market Commission (FMC), the regulatory authority of commodity exchange that the assessee M/s. Proficient Commodities Private Limited had taken accommodation entries inform of bogus losses through National Multi Commodity Exchange (NMCE). The total loss incurred by the assessee on National Multi Commodity Exchange (NMCE) was Rs.8,28,02,646/- during the F.Y. 2009-10. I have therefore, reasons to believe that the income of the assessee to the extent of Rs.8,28,02,646/- has escaped assessment. A notice u/s 148 of the I.T. Act, 1961 is issued." A perusal of the above reasons demonstrate non-application of mind by the Assessing Officer to the information received from Forward Market Commission. A perusal of the assessment order demonstrates that in the report of the FMC there is no allegation whatsoever made that the assessee had booked bogus losses. The information was general in nature and the assessee company was not named. The Assessing Officer was duty bound to apply his mind to the information received prior to coming to the conclusion that he has reason to believe that income subject to tax has escaped assessment. This information received and the material had to be prima facie examined and the material has to have live link with the formation of belief that income subject to tax has escaped assessment. The Assessing Officer has discussed in detail the serious irregularities that have taken place in NMCE and the investigation by FMC, from para 3 to 3.6 at pages 2 to 5 of his order. There is no material or allegation against the assessee in these paragraphs. The allegations are against some other persons. Para 3.7., was regarding Shri Manoj Desai's statement. Nothing turns out on this statement. In fact, NMCE has, in its action taken report, not framed any charges on account of this statement. A small token fee of Rs.10,000/- was levied for non-production of bank books of HDFC. There is no allegation of wrong doing on the part of the assessee company in this audit report. When FMC audit does not find fault with the transactions of the assessee company and when the assessee company is not named in the FMC report, to base the reason on such information without verification, is bad in law. The assessee has produced all evidence to prove that the transactions are genuine and that he had participated as an arbitrager. There is no proof of cash changing hands. The FMC audit had cleared the transactions of the company. A plain look at the reasons demonstrates that the re-opening was based on the information which was never examined or verified by the Assessing Officer before recording reasons for reopening of assessment. On these facts, we examine the legal position.

33 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

5.1. We find that this Bench of the Tribunal in the case of ACIT vs. M/s. Adhunik Cement Ltd. in ITA No. 1375/Kol/2017; Assessment Year 2009-10, under identical facts and circumstances held as follows:- ….. 6. Applying the propositions of law laid down in these case-law to the facts of this case we hold that the re-opening is bad in law as the Assessing Officer has not independently applied his mind to the material and has recorded reasons which are vague and based on borrowed satisfaction. Hence this ground of the assessee for both the Assessment Years are allowed.”

“Hence, in view of the facts discussed as above, it can be concluded that i. In order to execute synchronized transactions M/s GRD Commodities Ltd. has dealt in illiquid commodities only. ii. The Transactions executed by M/s GRD Commodities Ltd. were synchronized can further proved by the fact that about 97% transactions were executed within a minute. iii. The fact that almost all the transactions were squared off within the same day also proves that the transactions were synchronized. iv. The transactions were synchronized and executed with a clear intention to book the contrived losses can also be seen from the fact that about 95% of the total losses (22.01 crores out of 22.98 crores) were incurred in the last four months of the respective financial years. Thus, till

34 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

the December month of the every year the assessee has crystallized the profits and by booking losses in the last four months of the year, the same has been set off. v. M/s GRD Commodities Ltd. had incurred consistently losses in almost every transaction and the same trend has been observed in invariable all the series codes in which M/s GRD Commodities Ltd. has traded. vi. Prices discovery was not fair and rigged by the brokers, the same can be observed from the following points: vii. Around 70% volume of the trades has been created by only 25 brokers means most of the volume across the NMCE platform was created by only few brokers. viii. If we analyze a commodity series wise trading pattern across the NMCE platform then it is seen every year around 60% volumes of the trades has been created by only 10 brokers. ix. Even on day basis around 60% volumes of the trades has been created by only 10 brokers. x. Even on client level most of the volume was created by top 100 clients only. Though, more than 269000 clients were registered on NMCE platform. xi. If we analyze client’s participation on commodity series code wise then it can be observed that only few clients were dealing in specific series code. xii. If we analyze the client’s participation on day basis then it can be seen that top 25 clients were creating almost 60 % volume of the entire NMCE exchange. xiii. Clear clustering among the brokers was found and as we narrow down our analysis criterion then clustering pattern will be more evident and the numbers of the clustering members will also decrease. xiv. If we analyze on day basis and took a specific series code then it can be seen that 2-3 brokers were trades mutually trades. xv. All the brokers of M/s GRD Commodities Ltd. were penalized by the NMCE for their involvement in non-genuine trade practices due to one or various reasons and some of them even don’t available on the given address. xvi. When the director of the assessee company was confronted with the above fact vide Q. No. 16 of the statement recorded u/s 131 of the IT Act of dated 17.03.2015, as in view of the above points, it is clear that these transactions one NMCE platform were not executed as part of normal trade practice but, with, the deliberate intention so as to reduce book profits and avoid payment of taxes legitimately payable by the assessee. In response to the same the assessee have submitted only mechanical reply and contested that all the transaction were done through automated exchange and by that time they don’t know that who the counterparty/broker were. However, he did not gave any reasonable explanation as why this has happened did not make any comments regarding their malafide intention. The relevant portion of the statement of the director of the assessee company is being reproduced as hereunder:…… xvii. The transaction on NMCE platform were synchronized and done with the clear intention to incur losses only can also be seen form the fact that losses incurred by the M/s GRD Commodities Ltd. were set-off against the book profit earned from business activities other trading on NMCE.”

35 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

the assessee also drew our attention to the submissions furnished by the assessee on 30.01.2015 in response to the requisition issued by the DDIT(Inv), Ahemdabad wherein complete details of commodity transactions with requisite documentary evidences was provided. Moreover on perusal of the statement of the Director recorded u/s 131 by the Investigating Officer which has been extracted in parts in the assessment order, it is noted that not only had he not made any self-incriminating averment but instead he had substantiated the transactions conducted on NMCE. The relevant questions posed by the DDIT(Inv) and the answers given by the Director in his statement dated 23-04-2015 are as follows:

“Q.11 “After going through the details of the monthly profit/loss incurred by the M/s GRD Commodities Limited on NMCE platform, which is submitted by you in your written submission and NMCE trade data which have been collected from exchange itself. It has been found that on nearly all the transactions in every commodity losses have been booked by the company.” Q. “From above observations it clearly emerges that only losses have been made on NMCE consistently with a deliberate intention. Please explain the reason as why the M/s GRD Commodities Limited has consistently made losses on NMCE platform. Ans: “Sir, in this regard I can only state that there is no specific intention behind the same. Profits/losses is a part of business activities and earning profit of loss in any transaction on any exchange is not in our hand as all the transaction have been executed through automated exchange platform only. Further, the transactions executed on NMCE platform are the part of regular trading activities and absolutely there was no any malafide intention behind same.” Q 12 “After going through the monthly details of the profit/losses made by you on NMCE platform and other than NMCE, it can be seen that on other exchanges you have incurred profit/losses, however, on NMCE platform you have incurred only losses and that too consistently for your year i.e. FY 2008-09 to 2011-12. Please offer your comment in this regard.” Ans: “Sir, in this regard I can only state that this is merely a coincidence that were have incurred only losses on NMCE platform and there is no specific reasons for the same.” Q.13 “On perusal of the details provided by you it is seen that During the FY 2008-09 to 2011-12, till December, substantial profits have been crystallized in commodity trading on other exchange i.e. MCX, NCDEX & ICEX. Further, losses made on NMCE have been only in the last four months of the financial year i.e. Dec-March month. A comparison the profits made till December on MCX, NCDEX & ICEX and the losses made on NMCE during the last quarter is made hereunder:” MONTH 2008-09 2009-10 2010-11 2011-2012 Total Cumulative Profits made on MCX, NCDEX & ICEX by M/s GRD 60053215 23003956 254038363 89247482 Commodities Limited from Apr-Dec Total losses obtained from 48516583 15078769 16499732 140019151 NMCE during the Dec-March

36 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

Q. “On going through the above table, it is clear that trading in commodities on NCE and booking of losses therein have been done clearly and deliberately with the intention so as to reduce the book clearly and deliberately with the intention so as to reduce the book profits earned by trading on MCX NCDEX & ICEX and consequent tax payable by M/s GRD Commodities Limited. Please offer your comments in the regard.” Ans: “Sir, as I have already told that nothing has been done deliberately and intentionally. The company has incurred losses on NMCE platform, which is an automatic exchange. Further, I can only say that we try our level best to earn profit in spite that we incurred losses only, this is nothing but our hard luck only.” 42. It is noted that the Ld. CIT(A) after giving due consideration to the above facts found that there was no material discernible from the statement of the Director recorded u/s 131 based on which the AO could have inferred that the losses incurred in commodity transactions were contrived. The relevant findings recorded by the Ld. CIT(A) in this regard are as follows:

“4. From the material on record, I find that in the course of assessment proceedings as well as the appellate proceedings, the appellant had placed before the authorities all the primary evidences and documents in support of commodity transactions conducted on NMCE through its registered Members. It appeared from the Ld. AR’s submissions as well as the impugned order that a survey u/s 133A was conducted by the Investigation Wing at Ahmedabad against few members of NMCE who were acting as the brokers for third parties for their commodity transactions conducted on NMCE. On verification of the data accessed from the Members’ records and cross verified from NMCE, it was gathered that these Members had conducted substantial number of commodity transactions for and on account of the appellant in which the loss was incurred by the appellant. Suspecting such transactions to be fictitious, the authorized officer at Ahmedabad had required the appellant to furnish particulars of its commodity transactions conducted on NMCE. In response the requisite information was provided by the appellant on 30.01.2015. From copy of the submissions made before the said ADIT, it appeared that the appellant had furnished before the said officer complete details of its transactions as requisitioned together with copies of the relevant documentary evidences supporting such transactions. Thereafter on 17.03.2015, ShriBimalDrolia, the Director of the appellant, personally appeared before the ADIT(Inv), Ahmedabad in compliance to the summons u/s 131 and his statement on oath was recorded. In the impugned order the Ld. AO has extracted part of the recorded statement from which I find that nowhere the Director had admitted of any wrong doing or agreed to have availed contrived losses. I therefore find that no incriminating information or evidences were gathered by the Investigation Wing at Ahmedabad when the Director of the appellant was examined….”

37 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

also taken note by the Ld. CIT(A) in his impugned appellate order, and his relevant findings in this regard are as follows:

“4…… I also note that in the course of survey conducted against the brokers, statements on oath were recorded and in the impugned order the Ld. AO has extracted portion of the statement which Shri Dhirendra Agarwal had given before the ADIT(Inv). On careful perusal of the extracted portion of the statement, I find that nowhere the said broker had ever admitted that he had provided contrived losses or provided accommodation entries or that the transactions carried out by him on NMCE on behalf of the appellant were fictitious or bogus or in-genuine. For example, in Q No. 17 the broker was required to explain as to how come it is possible that purchase & sale of the commodity happened with the clients of the same broker, to which he explained that the transactions are conducted on the floor of the Exchange and therefore they do not know who the buyer and seller is. Similarly in Q No. 18, the broker was required to explain why a peculiar pattern was noted in transactions of the assessee wherein loss was incurred, to which he explained that the transactions was conducted on the platform of the Exchange and that he had nothing to do with the same. 5. From the foregoing answers it is apparent that nowhere Shri Dhirendra Agarwal being the broker through whom the appellant had conducted its commodity transactions had admitted that the transactions were ingenuine or fictitious. I also find that both the questions as well as the answers thereto by the brokers were quite specific and there was no ambiguity or vagueness in the answers provided. In the circumstances therefore I do not find merit in the Ld. AO’s finding that the answers given by the brokers were either evasive or vague or un-specific.” 44. Another reason given by the AO for making the impugned disallowance was that some of the brokers were not found at their given address by the Investigation Directorate at Ahmedabad at the time when the survey was conducted upon the Commodity Traders Group. This according to the AO raised doubt in his mind regarding the identity of the brokers. In this regard, the Ld. AR invited our attention to the enquiries made by the AO from these very brokers u/s 133(6) of the Act in the course of re-assessment proceedings, copies of which were placed at Pages 57-61 of the Pape rbook for AY 2009-10 and Pages 46 of the Paper book for AY 2014-15. It is thus noted that not only the identity of the brokers stood established but on perusal of their replies, we note that they had also furnished requisite information to substantiate the assessee’s commodity transactions on NMCE. Having regard to these material facts we find the AO’s doubt regarding the existence of brokers was factually misplaced.

38 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

for procedural irregularities and there was no allegation of wrong doing nor was such fine levied by the FMC with reference to the transactions in respect of the assessee. He further brought to our notice the token fines levied by the FMC on the brokers did not pertain to the years in which the assessee had conducted transactions through them. For the sake of convenience, the relevant data has been tabulated below:-

Name of Broker Year of Year in which Amount of Transaction Fine levied fine imposed with assessee FY 2008-09 M/s. Fast Track Merchants Pvt. FY 2010-11 Rs.50,000 FY 2009-10 Ltd. FY 2011-12 Rs.1,25,000 FY 2013-14 M/s. Quest Commodities India Pvt. FY 2008-09 No fine levied NA Ltd. FY 2008-09 FY 2009-10 M/s. Sahal Commodities Pvt. Ltd. FY 2010-11 Rs.25,000 FY 2011-12 FY 2013-14 FY 2008-09 M/s.Sagun Dealer Pvt. Ltd. FY 2009-10 FY 2010-11 Rs.80,000 FY 2010-11

39 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

40 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

assessee reported overall loss. In our view, this approach of the AO was clearly untenable on the facts as well as in law. We are of the opinion that AO could not have blown hot and cold at the same time. On one hand, he on similar set of documentation accepts the transaction which yielded gains, whereas on similar set of document carried out in electronic platform, when loss occurred, he did not accept. In such a scenario, the AO is stopped from picking and choosing without having in his possession material or evidence to take a different/adverse view. Such action of AO cannot be countenanced unless the AO was able to establish any link between the assessee and the counter party brokers and bring on record some evidence/material to show that the assessee was party to synchronized trading which the AO failed to do so, so we are of the opinion that the AO could not have disputed the genuineness of the loss.

“10. … In the entire order the Ld. AO has made general and sweeping remarks based on certain irrelevant materials. E.g. The Ld. AO has doubted the genuineness because the transactions were squared off at short durations. However the mere fact that the transactions were squared off in short duration resulting in loss cannot by itself be the reason to question the genuineness of the loss, if the facts on record proved that such transactions had in fact been carried out on the Exchange and these were reflected in the records of the Exchange at the material time and no falsity or infirmity is shown therein. The mere fact that the assessee squared off the transactions within a short period resulting in loss may raise the question about the assessee’s prudence but for such reason one cannot hold that the loss was not genuine or bogus. In the impugned order the Ld. AO also emphasized on the fact that the assessee had conducted its commodity transactions during the period FY 2008-09 to FY 2013-14 principally through four brokers and the analysis of trades showed that the counter party brokers involved in these transactions numbered twenty. By referring to this statistic the Ld. AO concluded that these twenty-four parties had formed a cartel and through synchronized trading the cartel members had created contrived losses to benefit the appellant. I however find that in the same order the Ld. AO himself has admitted that seventy percent of the entire trade volume during this period on NMCE was conducted by twenty five members. If that be the case, then there was empirical data available on record that substantially major part of the trading on NMCE was conducted by these twenty five members and therefore any member of public who conducted the commodity transactions on this Exchange necessarily transacted through any one of them and therefore no adverse inference could be drawn only against the appellant on the ground that the assessee engaged one of such Members for conducting its commodity transactions. Rather this information shows that the appellant chose to conduct its commodity transactions on NMCE through its Members who were actively involved in conducting trades and in a position to provide better service being well conversant with the market. The mere fact that the appellant’s

41 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

transactions involved 24 active members does not lead to conclusion that these active Members by themselves had formed a cartel….”

42 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

loss incurred by the assessee in commodity transactions on NMCE during FY 2008-09, which was disallowed by the AO on the ground of being bogus in nature. The relevant findings of this Tribunal are as follows:

“4. We have heard both the side and perused the materials available on record. The ld. AR submitted two papers books. First book is running in pages no. 1 to 88 and 2nd paper book is running in pages 1 to 34. Before us the ld. AR submitted that the order of the AO is silent about the date from which the broker was expelled. There is no law that the off market transactions should be informed to stock exchange. All the transactions are duly recorded in the accounts of both the parties and supported with the account payee cheques. The ld. AR has also submitted the IT return, ledger copy, letter to AO and PAN of the broker in support of his claim which is placed at pages 72 to 75 of the paper book. The ld. AR produced the purchase & sale contracts notes which are placed on pages 28 to 69 of the paper book. The purchase and sales registers were also submitted in the form of the paper book which is placed at pages 76 to 87. The Board resolution passed by the company for the transactions in commodity was placed at page 88 of the paper book. On the other hand the ld. DR relied in the order of the lower authorities. 4.1 From the aforesaid discussion we find that the assessee has incurred losses from the off market commodity transactions and the AO held such loss as bogus and inadmissible in the eyes of the law. The same loss was also confirmed by the ld. CIT(A). However we find that all the transactions through the broker were duly recorded in the books of the assessee. The broker has also declared in its books of accounts and offered for taxation. In our view to hold a transaction as bogus, there has to be some concrete evidence where the transactions cannot be proved with the supportive evidence. Here in the case the transactions of the commodity exchanged have not only been explained but also substantiated from the confirmation of the party. Both the parties are confirming the transactions which have been duly supported with the books of accounts and bank transactions. The ld. AR has also submitted the board resolution for the trading of commodity transaction. The broker was expelled from the commodity exchange cannot be the criteria to hold the transaction as bogus. In view of above, we reverse the order of the lower authorities and allow the common grounds of assessee's appeal.” 53. It is noted that the Hon’ble jurisdictional Calcutta High Court has dismissed the appeal preferred by the Revenue against the above order by their judgment dated19.06.2018 in GA No.747 of 2017.Respectfully following the law laid down in the aforesaid judgment (supra) which is binding upon us, and applicable to the facts of the present case, thus we do not find any infirmity in the impugned order of the Ld. CIT(A).

43 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

adverse inference against assessee qua this AY 2014-15, without any evidence/material. It is noted that the appraisal report did not raise any apprehension regarding the loss incurred by the assessee in FY 2013-14. Upon perusing the reasoning given by the AO in the assessment order for AY 2014-15, particularly Pages 12 to 36 of the said order, we note that the AO had simply copy-pasted his reasoning of AY 2009-10 and did not even bother to examine the assessee’s commodity transactions for AY 2014-15. Unlike AY 2009-10 to AY 2012-13, in the assessment order for AY 2014-15, there was no allegation by the AO that the assessee had engaged in synchronized trading in this year. The charts and tables extracted by the AO analyzing the trades of the assessee pertained only to FYs 2008-09 to 2011-12 and there was nothing contained in the assessment order for AY 2014-15 which would even remotely suggest that the AO had applied his mind to the assessee’s commodity transactions for AY 2014-15 and then arrived at a conclusion that it was contrived or bogus. When confronted with the aforesaid fact, even the Ld. CIT, DR could not controvert the same. We therefore, find merit in the assessee’s alternate plea for AY 2014-15 that the reasoning given by the AO to disallow the loss incurred in commodity transactions in that year, was factually perverse and therefore rightly deleted by the Ld. CIT(A).

Order is pronounced in the open court on 04.12.2020. Sd/- Sd/- P. M. Jagtap) (Aby. T. Varkey) Vice President Judicial Member Dated :04.12.2020

Jd.(Sr.P.S.)

44 IT(SS)A Nos.120-123/Kol/2018 & C.O. Nos. 123 to 126/Kol/2018 GRD Commodities Ltd., AYs- 2009-10 to 2012-13

Copy of the order forwarded to:

2 Respondent –M/s. GRD Commodities Ltd., 7, B. B. Ganguli Street, Kolkata-700 012. 3. CIT(A)-21, Kolkata. (sent through e-mail)

/True Copy, By order,

Assistant Registrar ITAT, Kolkata.