MONEY MAGNUM CONSTRUCTIONS,MUMBAI vs. PRINCIPAL COMMISSIONER OF INCOME TAX, CIRCLE- 27, MUMBAI, MUMBAI

The order passed under section 263 of the Act is bad in law and requires to be squashed. All the above grounds are without prejudice to each other appellant craves leave to add, amend, alter modify, vary, omit or substitute any of the aforesaid grounds of appeal

The ld. PCIT vide notice u/s. 263 dated 20.02.2024 invoked the revisionary powers and held that the assessment order is erroneous and prejudicial to the interest of the revenue thereby setting aside the assessment order with the direction to pass fresh assessment order for the reason that the assessee was one of the beneficiary in the scam of NSEL through its brokers viz. Anand Rathi Commodities Pvt. Ltd. (ARCL) and Motilal Oswal Commodities Brokers Pvt. Ltd., (MOCL) in which case the ld. AO is said to have not made proper inquiry with respect to the impugned commodity transactions.

Aggrieved by the said order, the assessee is in appeal before us and challenging the order of ld. PCIT.

The ld. AR for the assessee stated that the assessee’s case was reopened for the reason that the assessee has entered into bogus trades on NSEL where the loss incurred has been set off against its regular business income. The ld. AR further stated that the assessee has sought for the details of the investigation wing data, the statement recorded, the seized material and details of client code modification, etc. along with other details during the assessment proceeding and the ld. AO has also furnished the same to the assessee. The ld. AR further stated that the ld. AO on several occasion has sought for the details pertaining to the impugned transactions from the assessee and only after perusal of the same, the assessment order was passed by the ld. AO. The ld. AR further contended that once the ld. AO has inquired into the issue and had taken a plausible view then there is no question of invoking revisionary powers u/s. 263 of the (A.Y. 2014-15) Money Magnum Constructions vs. Pr. CIT Act holding the assessment order to be erroneous and prejudicial to the interest of the revenue. The ld. AR relied on the following decisions : - a. CIT Vs. Gabriel India Ltd. 203 ITR 108 (Bom) (HC) b. Synthetic & Art Silk Mills Research Association Vs. CIT (Exemption) [2024] 158 taxmann.com 264 (Mumbai –Trib.) c. Impact Foundation (India) Vs. CIT (Exemptions) [2023] 149 taxmann.com 189 (Mumbai-Trib.).

The ld. DR on the other hand controverted the said fact and stated that the ld. AO has not inquired into the modus operandi of the Client Code Modification in which assessee was one of the beneficiary. Further, the ld. DR contended that the ld. AO in the assessment order has merely reproduced the submission of the assessee but had failed to give a detailed finding as to how the assessee was not a beneficiary of the said scam. The ld. DR iterated that the entire submission of the assessee was merely on Section 43(5)(e) of the Act and the assessee has failed to give any reply pertaining to the Client Code Modification which is the main crux of the reasons for reopening. The ld. DR also contended that the ld. AO has also not dealt with the issue of the allowability of loss to be set off with the regular income of the assessee. The ld. DR submitted that the ld. PCIT order is a detailed speaking order and prayed that the same be upheld.

We have heard the rival submissions and perused the materials available on record. It is observed that the ld. PCIT has invoked the revisionary powers u/s. 263 of the Act for the reason that the assessee has entered into bogus commodity trading on NSEL by Client Code Modification (CCM) for which the ld. AO has reopened the (A.Y. 2014-15) Money Magnum Constructions vs. Pr. CIT assessment but has not verified the information available in the Insight Portal/Investigation wing, thereby the information received has been unverified and unexplained which holds the assessment order to be erroneous in so far as it is prejudicial to the interest of the revenue as per Section 263 of the Act. It is observed that the assessee has entered into commodity arbitrage transactions on National Spot Exchange Ltd. (NSEL) through recognized exchange brokers of NSEL viz. M/s. Anand Rathi Commodities Pvt. Ltd. (ARCL) and Motilal Oswal Commodities Brokers Pvt. Ltd. (MOCL) and payments were made to the said brokers based on the contract notes issued by them which were outstanding and receivable from NSEL. The assessee is said to have earned income from the said transaction until July, 2013, until the government had stopped the trading activities at NSEL and a circular dated 31.07.2013 was issued by NSEL suspending trading in one day forward contracts and deferring settlement to 15 days by stating that there has been loss of trading interest in the market due to underlying uncertainties leading to trade inequilibrium. The circular had also merged the delivery and settlement of outstanding contracts, which the assessee contends that it was also a victim of NSEL’s scam, thereby resulting in a loss of Rs. 8,68,70,608/- which was carried out through the two recognized exchange brokers of NSEL amounting to Rs. 3,89,03,405/- relating to ARCL and Rs. 4,79,67,203/- relating to MOCL. The assessee further contended that similar to the transaction on BSE and NSE, the buyer and the seller are not known to each other and the settlement was always through the exchange platform of NSEL through paired trader’s contract, were the buyer/seller was not known to each other. The assessee then narrated the entire modus operandi of the scam in which the assessee contends (A.Y. 2014-15) Money Magnum Constructions vs. Pr. CIT that it was not in any way related to the said scam. The ld. AR for the assessee had argued that the ld.AO has examined the said issue and only after being convinced with the assessee’s submission, the assessment order was passed which implies that the ld. AO has applied his mind accepting the returned loss.

The ld. PCIT in her order has held that the ld. AO has not understood the nature of transaction and has not made inquiry as to whether the trading and investment activity had involved actual delivery of goods or was mere case of Client Code Modification (CCM). The ld. PCIT has rejected the assessee’s contentions that the NSEL is a national level electronic spot trading platform for around 52 commodities operating in 16 states in India carrying out its activity since 2007. It works with compulsory delivery at any one or more delivery points and has warehouses which are approved certified and designated by NSEL as per their Bye-laws. The ld. PCIT further stated that there were total of 219 brokers who have made 51,565 Client Code Modification (CCM) and the total volume of sales and purchase transaction was Rs. 6,311 crores as per the investigation report. Out of the same, the maximum Client Code Modification (CCM) were done by ARCL amounting to Rs. 3,073.48 crores and on summon issued u/s. 131 of the Act, its president Shri. Chetan Pitamber Bharkharda revealed that there was no physical delivery of goods in any of the transactions carried out on NSEL platform and the same has been reproduced in the ld. PCIT’s order. The ld. PCIT had also discussed the details of the investigation done by the investigation team and the Serious Fraud Investigation Office (SFIO). That being so, the ld. AO has not verified the CCM data related to the assessee neither from the assessee nor from its brokers pertaining to the transactions made in July, 2013 which is when the assessee has (A.Y. 2014-15) Money Magnum Constructions vs. Pr. CIT booked loss in respect of investment made. The ld. AO has also not made any inquiry as to whether the assessee was involved in regular trading in the earlier occasion. It is also observed that the ld. AO has not looked into the fact whether the assessee has raised any complaint against the scam carried out by NSEL which the assessee claims to be the reason for the loss. Further, the ld. AO has also not verified the source of investment which was part of the investigation report and has merely called for the bank statement which was submitted by the assessee without explaining the source of fund. The ld. PCIT for the abovementioned reason has held the assessment order to be erroneous and prejudicial to the interest of the revenue were the assessee has merely claimed losses u/s. 43(5)(e) of the Act.

In the above factual matrix of the case, we are of the considered opinion that the ld. AO has not inquired into the issue for which the reopening of assessment was initiated and has merely accepted the returned loss filed by the assessee without substantiating as to why he has arrived at the said conclusion. The assessee was also unable to explain whether it had filed the complete details along with the documentary evidence to establish the fact that it had not entered into any bogus trade transaction and whether or not it was one of the beneficiary to the NSEL scam. The assessment order is silent in respect of all these issues and more precisely the issue for which the reassessment was initiated. In the absence of the same, we find no infirmity in the order of the ld. PCIT in holding the assessment order to be erroneous in so far as it is prejudicial to the interest of the revenue. It is also pertinent to point out that the case laws relied upon by the assessee is not applicable in the present case as they are distinguishable on the facts of this case and this is evidently not a case were the ld.