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Facts
The assessee filed a return for AY 2011-12 declaring a loss. The case was reopened under Section 147 based on information that the assessee traded in commodities worth Rs. 5,99,250/- and received interest income of Rs. 2,16,102/-, both allegedly undisclosed. However, during the assessment, the AO disallowed a significant trading loss of Rs. 82,67,778/-, which was not part of the initial reasons for reopening, on the grounds that it was a "bogus loss." The CIT(A) upheld the AO's decision.
Held
The Tribunal held that the reopening of the assessment was not justified because the addition of Rs. 82,67,778/- made by the AO was not based on the initial reasons recorded for reopening the assessment. Citing a Gujarat High Court decision, the Tribunal stated that an addition cannot be made merely on suspicion without proper reasons. As the assessment itself became invalid due to this discrepancy, the Tribunal allowed the appeal.
Key Issues
Whether the reopening of assessment under Section 147 is valid when the final addition made by the AO is not based on the initial reasons recorded for reopening, but on a different issue (disallowance of a large trading loss).
Sections Cited
Section 147, Section 148, Section 143(1), Section 143(3), Section 131, Section 132, Section 133A, Section 234A, Section 234B, Section 234C, Section 274, Section 271(1)(c), Section 151, Section 142(1), Section 129, Section 2(40), Explanation 2 to Section 147
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Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH
Before: Ms. Suchitra Kamble & Shri Narendra Prasad Sinha
आदेश/ORDER
Per Suchitra Kamble, Judicial Member:
This is an appeal filed against the order dated 14-06- 2023 passed by National Faceless Appeal Centre(NFAC), Delhi for assessment year 2011-12.
2. The grounds of appeal
are as under:-
1. The Ld. CIT(A) has erred in law and on facts of the case in confirming action of Ld. AO of reopening the assessment u/s. 147 of the Act. Under the facts and circumstances of the case, the action of reopening is without jurisdiction and in not permissible either in law or on facts.
Bindu Dharmesh Bhatt, A.Y. 2011-12 2. The Ld. CIT(A) has erred in law and on facts of the case in confirming action of the Ld. AO in disallowing loss of Rs. 82,67,778/-. Under the facts and circumstances of the case, loss being genuine, ought to have been allowed.
3. Both the lower authorities have erred in law and on facts of the case in confirming the addition without supplying necessary material to the Appellant on the basis of which impugned addition has been made and also not providing Appellant with the opportunity to cross examine persons whose statements were recorded u/s. 131/132/133A of the Act.
4. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. The action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.
5. The Ld. CIT(A) has erred in law and on facts of the case in confirming action of the Ld. AO in levying interest u/s. 234A/B/C of the Act.
6. The Ld. CIT(A) has erred in law and on facts of the case in confirming action of the Ld. AO in initiating penalty proceedings u/s. 274 r.w.s. 271(1)(c) of the Act.
7. The Appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.
Total tax effect 24,80,333/-”
3. The original return of income was filed on 30-09-2021 declaring business income of Rs. nil with current loss of Rs. (-) 82,67,738/-. The same was accepted u/s. 143(1) of the Act. Information received from DDIT, Investigation, Kolkata was found that the assessee has traded on the NMCE platform and purchased commodities scrip to the tune of Rs. 5,99,250/- during the assessment year 2011-12. The assessee’s case was reopened u/s. 147 of the Act. Notice u/s. 148 dated 29-03-2018 was issued after recording reasons. The said notice u/s. 148 was served upon the assessee and in response to the said notice, 2 Bindu Dharmesh Bhatt, A.Y. 2011-12 the assessee filed submissions dated 10-05-2018. The assessee submitted before the Assessing Officer that the return of income for assessment year 2011-12 was filed on 30-09-2011, should be treated as return of income against notice u/s. 148 of the Act. The assessee is engaged in the business of share investment. After taking cognizance of the assessee’s reply, the Assessing Officer observed that assessee purchased commodities worth Rs. 46,23,25,903/- and sold the same for Rs. 45,38,26,890/- within the time span of only 5 days i.e. from 24-03-2011 to 30-03-2011. The assessee has purchased the commodity from M/s. Darpan Commosales KTULP Pvt. Ltd. From the perusal of the income tax return for assessment year 2011-12, it was evident that assessee has capital of Rs. 30,43,718/- which includes 19,77,980/- as fixed assets and Rs. 10,00,000/- in other normal current asset. He purchased commodity at Rs.46,23,25,903/- and sold for Rs. 45,38,26,890/-. Thus, gross loss in trading transaction was Rs. 82,67,738/-. Thereby, the Assessing Officer observed that assessee does not have capacity to bear loss of Rs. 82,67,378/-. The Assessing Officer therefore made disallowance of bogus loss at Rs. 82,67,778/-.
4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.
5. As regards ground no. 1 relating to reopening u/s. 147, the Ld. A.R. submitted that the addition is not based on the reasons recorded for reopening. The reasons for reopening was only for two counts, firstly in respect of that the assessee purchased commodity scrip of Rs. 5,99,250/- from Darpan Commosales KTULP Pvt. Ltd. which was disclosed in the ITR and secondly, Bindu Dharmesh Bhatt, A.Y. 2011-12 that the assessee has received interest of Rs. 2,16,102/- from ICICI Bank which was disclosed in the ITR. The ld. A.R. submitted that AO, vide show cause notice dated 04.12.18 called upon the assessee to show cause as to why "undisclosed income of Rs.8,15,352/-" (i.e. Rs.5,99,250 + Rs.2,16,102) should not be added. The Assessee vide letter dated 10.12.2018 submitted before the Assessing Officer that the interest income of Rs.2,16,102/-, was part of total interest of Rs.2,70,173/- credited to P&L account. For the purchase of commodities scrips of Rs.5,99,250/- from "Darshan Commodities" via KTUPL, the assessee requested the Assessing Officer to supply copy of statement available with the Assessing Officer. The Assessing Officer vide another SCN dated 21.12.2018, called upon the assessee to show cause as to why loss of Rs.82,67,738/- incurred in relation to commodities should not be disallowed. In view of assessee's reply dated 10.12.18, 2nd SCN is silent on issues referred in reasons for reopening. Eventually, the Assessing Officer framed the assessment whereby "loss of Rs.82,67,738/-" incurred in relation to commodities was disallowed. The Assessing Officer has not made any addition in respect of issues referred to in reasons for reopening. The Ld. AR submitted that the issues referred to in reasons for reopening were "investment in commodities" and "interest income". However, while framing assessment, addition was made in respect of "loss" but no addition was made with respect to issues referred to in reasons for reopening. The Ld. AR submitted that it is well settled that if no addition has been made in respect of the issue for which the case was reopened, reopening is not justified. The Ld. AR relied upon the following decisions: i) CIT vs. Mohmed Juned Dadani -355 ITR 172 (Guj); ii) CIT vs. Jet Airways-331 ITR 236 (Bom); Bindu Dharmesh Bhatt, A.Y. 2011-12 iii) Ranbaxy Laboratories Ltd. - 336 ITR 136 )Del); The Ld. AR further submitted that as regards not disclosing "investment in commodities" amounting to Rs.5,99,250/- in ITR, no such investment has been made by the assessee. As regards not disclosing "interest income" amounting to Rs.2,70,173/- in ITR, such interest income is part of larger interest income offered for tax in ITR. The very fact that no fact addition has been made by the Assessing Officer in respect of the aforesaid issues while framing assessment proves that "jurisdictional facts", based on which the case was reopened, are "incorrect". The Ld. AR relied upon the following decisions: i) Manish P. Kiri vs. ACIT - SCA 15475 of 2015; ii) Mumtaz Haji Mohmad Memon vs. ITO - 408 ITR 268 (Gujarat); iii)Kolahai Infotech Pvt. Ltd. vs. ITO - (409 ITR 595 (Delhi); Thus, the Ld. AR submitted that the reopening is not justified, hence, consequential assessment order is not justified and the same may be quashed.
The ld. D.R. relied upon the assessment order and the order of the CIT(A).
We have heard both the parties and perused all the material available on record. The reason for reopening as per notice u/s. 142(1) dated 12-10-2018 was annexed to the same and are as follows:- “1. Brief details of the assessee:- The assessee is an individual and filed return of income on 30.09.2011 declaring therein total income of Rs. (-) 82,67,738/-. The said return of income was processed u/s 143(1) of Income-tax Act, 1961. On verification of the ITD/ITBA Systems, it is noticed that the case of the assessee was not subjected to scrutiny assessment.
Brief details of information collected / received by the AO:-
As per information received on 23.03.2018 from the Dy. Director of Income Tax (Inv.), Unit-3(1), Kolkata the assessee has traded on the NMCE platform and purchased the commodities scrips to the tune of Rs. 5,99,250/- during the F.Y. 2010-11 relevant to A.Y. 2011-12.
Analysis of the information collected The information has been analyzed and it is found that the assessee has purchased the commodities scrips of Rs. 5,99,250/- from Darpan Commodities via Kalkut Tie Up Private Limited.
Enquiries made by the AO as sequel to information collected/received:-
The assessee has traded on NMCE platform and purchased the commodities scrips of Rs. 5,99,250/-which has not been disclosed in the ITR.
On the perusal of ITS detail, it is seen that the assessee has received interest of Rs. 2,16,102/- from ICICI Bank Limited during the F.Y. 2010-11 relevant to A.Y. 2011-12 but the same was not offered for taxation in the ITR.
Findings of the AQ-On the perusal of the return of income, it has been seen that the assessee has shown loss of Rs. 82,67,738/- and has shown investment of Rs. 2,69,811/-only under the head of equity shares. The from the Dy. Director of Income Tax (Inv.), Unit-3(1), Kolkata, the NMCE platform has been used by assessee has not shown any investment made by him on NMCE platform. As per information receive clients/members for the systematic evasion of taxes. The assessee has purchased the commons Scrips of Rs. 5,99,250/- from Darpan Commodities via Kalkut Tie Up Private Limited which was not Commissioner of income disclosed by the assessee in the ITR. Hence, it is clear that the above said purchase has been made through undisclosed income.
On the perusal of ITS detail, it is seen that the assessee has received interest of Rs 2,16,102-11 from ICICI Bank Limited during the FY 2010-11 relevant to AY 2011-12. On examination of return of income of the assessee, it is found that the assessee has shown interest income of Rs. 44,965/- which is an altogether different sum and the same has nothing to do with the interest of Rs. 2,16,102/-. Hence, it is believed that the assessee has not disclosed the interest income of Rs. 2,16,102/-in ITR. Therefore, I have reason to believe that in this case income of Rs 8,15,352/- [15,99,250-+2,16,102/-] has escaped assessment for the relevant assessment year 2011-12.
6 Basis of forming reasons to believe and details of escapement of income:-
The assessee is found to have traded in NMCE platform and purchased the commodities scrips of Rs. 5,99,250/- which has not been Bindu Dharmesh Bhatt, A.Y. 2011-12 disclosed by the assessee in the ITR. Hence, it is believed that the above said purchase has been made through undisclosed income. Further it is also found that the assessee has received interest of Rs. 2,16,102/- from ICICI Bank Limited during the F.Y. 2010-11 relevant to A.Y. 2011-12 but the same was also not offered for taxation in the ITR. In view of above, there is a reason to believe that income to the tune of Rs. 8,15,352/-15,99,250 +2,16,102) has escaped assessment. 7 Applicability of the provisions of section 147/151 to the facts of the case- In this case, a return of income was filed for the year under consideration but no scrutiny assessment u/s 143(3) of the Act was made. Accordingly, in this case the only requirement to initiate proceedings u/s. 147 is reason to believe which has been recorded above in Para 6. It is pertinent to mention here that in this case the assessee has filed return of income for the year under consideration but no assessment as stipulated u/s 2(40) of the Act was made and the return of income was only processed u/s 143(1) of the Act. In view of the above, provisions of clause (b) of explanation 2 to section 147 are applicable to facts of the case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment. In this case, more than four years have lapsed from the end of the assessment year under consideration. Hence, necessary sanction to issue notice u/s 148 has been obtained separately from the Principal Commissioner of Income-tax Vadodara-1, Vadodara as per the provisions of section 151 of the Act. This notice is being issued u/s 142(1) r.w.s. 129 of the Act due to the change of incumbent.”
The contention of the assessee is that assessment was reopened merely on the suspicion and the addition was not made on the basis of reasons recorded while reopening. The amount mentioned on Darpan Commosales via KTULP Pvt. Ltd. was Rs. 5,99,250/- but the addition is made of Rs. 82,67,778/- which was totally absent in para 5 of the reasons recorded. Thus, the contentions of the assessee appears to be correct that no addition was made on the basis of reasons recorded for reopening. Thus the addition is merely on the suspicion. The ld. A.R relied upon the decision of the Hon’ble Gujarat High Court in Bindu Dharmesh Bhatt, A.Y. 2011-12 case of CIT vs. Mohmed Juned Dadani 355 ITR 172 (Gujarat) which categorically stated that merely on suspicion the addition cannot be made when the proper reason are not mentioned. Thus, the said ratio is applicable in the present assessee’s case as well. Therefore, the assessment itself is not justified. Since the assessment itself becomes invalid, we are not taking up on the merits of the case at this juncture. The appeal of the assessee is allowed.
In result appeal of the assessee is allowed. 8.