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Facts
The assessee, Smt. Nikki Pachisia, filed a return of income declaring Nil income. The Assessing Officer (AO) initiated reassessment proceedings under section 147 of the Income Tax Act, 1961, alleging escapement of income. The AO made additions based on a claim of bogus profits from commodity trading and commission paid. The CIT(A) upheld the AO's additions.
Held
The Tribunal held that the reasons recorded for reopening the assessment were vague and based on a 'reason to suspect' rather than tangible material, indicating a lack of application of mind by the AO. The Tribunal found factual inconsistencies in the reasons provided for reopening.
Key Issues
Whether the reopening of assessment under Section 148 was based on valid reasons and proper application of mind by the AO, and whether the additions made were justified.
Sections Cited
148, 147, 143(3), 68, 69C
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Income Tax Appellate Tribunal, JAIPUR BENCHES,”SMC’’ JAIPUR
Before: Hon’ble SHRI SANDEEP GOSAINvk;dj vihy la-@ITA No.615/JP/2024
fu/kZkfjrh dh vksj ls@Assessee by : Shri S.R. Sharma CA, & Shri R.K. Bhatra, CA jktLo dh vksj ls@Revenue by: Mrs. Monisha Choudhary, Addl. CIT-DR lquokbZ dh rkjh[k@Date of Hearing : 24/06/2024 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 10/07/2024 vkns'k@ORDER PER: SANDEEP GOSAIN, JM This appeal filed by the assessee is directed against order of the ld. CIT(A) dated 16-03-2024, National Faceless Appeal Centre, Delhi [ hereinafter referred to as (NFAC) ] for the assessment year 2011-12 raising therein following grounds of appeal:- ‘1. hat on the facts and in the circumstances of the case the ld CIT(A) is wrong, unjust and has erred in law in not accepting plea of the appellant that the proceedings initiated by the ld AO by issue of notice
2. That the ld CIT (A) is further wrong and has erred in law in upholding the finding recorded by the Id AO that profit of Rs. 2393145/- earned by the appellant through recognised commodity exchange (NMCE) was allegedly bogus & earned by Client Code Modification facility and in further confirming action of the Id AO in charging the said profit to tax as unexplained cash credit u/s 68 of the IT Act, 1961 after rejecting submission of the appellant that it was income earned from Business and correctly declared by the appellant.
3. The ld CIT (A) is further wrong and has erred in law in confirming finding recorded by the ld AO that the appellant has allegedly paid commission @2% on profits of Rs. 2393145/- referred to in ground No (2) above resulting in upholding addition of Rs. 47862/- to the income of the appellant u/s 69C of the IT Act, 1961 as unexplained expenditure.’’ 2.1 The brief facts of the case are that assessee is an individual and filed return of income declaring Nil income after set off of losses which was processed under section 143 (1) of the Income Tax Act. There after AO initiated proceedings for reopening and recorded reasons under section 147. In compliance to notice under section 148, the assessee filed return of income declaring same income of Rs. Nil. and AO completed assessment rejecting explanation filed by the assessee and assessed the speculation profit in community trading on NMCE declared by the assessee in her return as unexplained credit under section 68 I T Act. 2.2 On appeal ld. CIT(A) upheld the additions made by the AO and consequently dismissed the Appeal filed by the assessee.
3 SMT. NIKKI PACHISIA VS ITO, WARD 5(2), JAIPUR 2.3 Aggrieved by the said order, assessee preferred the present appeal before the Bench on the grounds mentioned here in above 2.4 At the very outset while challenging Ground No. 1 of Grounds of appeal learned AR while relying upon his written statement also reiterated the same arguments as were raised by him before the lower authorities. It was submitted that notice issued under section 148 of the Income Tax Act is wrong and bad in law as the same has been issued on the basis of vague, incorrect, incomplete reasons and without any tangible basis of escapement of income. In this regard the mistake in the reasons recorded have been summarized which are mentioned here in below:- ‘’(i) Sr. No. 11 of Form for recording reasons - It is mentioned that assessee filed her return of income on 27.07.2011 declaring Rs. 1,84,450/-, whereas, the returned income was Nil.
(ii) Sr. No. 11 (6) of Form- basis of information reason to be believe and detail of escapement of income. In this coloum, the learned AO has mentioned the amount of escaped income at Rs. 2,23,200/- (Rs. Two Lacs, Twenty Three Thousand Two Hundred). Whereas in the assessment order, the said income has been taken at Rs. 23,93,145/-, The said income is also declared by the appellant in her return of income.
(iii) Sr. No. 11 (6) of Form - The name of sub broker (ledger file) is mentioned M/s Siddheswari Dealers Pvt. Ltd. as against the correct name of sub broker M/s Motisons Commodity Pvt. Ltd.’’ It was further submitted that the information on which basis proceeding started are totally wrong and do not relate to the assessee. It was also submitted that the 4 SMT. NIKKI PACHISIA VS ITO, WARD 5(2), JAIPUR reasons are vague because the transaction is done at the end of the broker and his responsibilities cannot be shifted to the assessee. The ld. AR also tried to explain the modus operandi of commodity business on national multi commodities exchange (NMCE) and in this regard submitted that during the share market working time on terminal, the transactions are being ordered by the clients to the registered members. On placing the order, the said members allot client code to the concerned clients. In appellant’s case broker also followed the same procedure and the brokers office punches the ordered quantity of commodities, rates and client codes on terminal. It was further submitted that the appellant does all the transactions in commodities only through broker M/s Motisons commodity Private Limited and no transactions were done with M/s. siddheshwari Dealers Private Limited. In this regard, the Appellant has submitted complete details of transactions , copy of contract note of broker and copy of bank account for verification and submitted that the speculation profit earned by the Appellant was accepted by the AO and therefore the additions made may be deleted 2.5 However on the contrary learned DR objected to the arguments of the ld. AR of the assessee and relied upon the orders passed by the revenue authorities 2.6 I have heard the counsel for both the parties and have also gone through the orders passed by the revenue authorities and the judgements cited by the respective parties. At the very outset I noticed that the factual mistakes in the reasons recorded have already been summarized as under:-
5 SMT. NIKKI PACHISIA VS ITO, WARD 5(2), JAIPUR ‘’(i) Sr. No. 11 of Form for recording reasons - It is mentioned that assessee filed her return of income on 27.07.2011 declaring Rs. 1,84,450/-, whereas, the returned income was Nil.
(ii) Sr. No. 11 (6) of Form- basis of information reason to be believe and detail of escapement of income. In this coloum, the learned AO has mentioned the amount of escaped income at Rs. 2,23,200/- (Rs. Two Lacs, Twenty Three Thousand Two Hundred). Whereas in the assessment order, the said income has been taken at Rs. 23,93,145/-, The said income is also declared by the appellant in her return of income.
(iii) Sr. No. 11 (6) of Form - The name of sub broker (ledger file) is mentioned M/s Siddheswari Dealers Pvt. Ltd. as against the correct name of sub broker M/s Motisons Commodity Pvt. Ltd.’’ 2.7 After having gone through the mistakes pointed out before me, I am of the view that there are certainly a factual inconsistency in reopening the assessment. Therefore the reasons recorded in the present case at best can be treated to be a reason to suspect which is not sufficient for reopening the assessment under section 148 of the act. The requirement of application of mind is also missing in the present case. There is no independent application of mind by the AO to tangible materials and reasons and the AO failed to demonstrate Live link between tangible material and formation of reason to believe that Income had escape assessment. On this preposition I find that the similar issue had also been addressed by the Hon'ble High Courts and Co-ordinate benches of ITAT and it was held in the case of ITO vs Surendra Dalal (ITA No. 7714/Del/2019) and the facts of said case are appearing at Page No. 4, Para No. 4 of the Hon'ble Bench 6 SMT. NIKKI PACHISIA VS ITO, WARD 5(2), JAIPUR order however, for ready reference and sake of convenience, the said para is reproduced here in below:- ‘’4. Ld. Counsel for the assessee referring to page 4 of the Paper Book which are the reasons recorded for issue of notice u/s 148 of the Act submitted that the assessment was proposed to reopen on the ground that no return of income has been filed by the assessee for the year under consideration when in fact the assessee had filed return of Income on 31.03.2010 declaring taxable income of Rs. 1,96,190/-, Ld. Counsel submits that the assessment was reopened based on an information received from DDIT vide letter dated 21.03.2016, wherein it has been stated that assessee has invested more than 15 crores in construction of house in Rohtak. Ld. Counsel submits that these are two reasons recorded for ratio of notice u/s 148 for reopening of the assessment of the assessee. Ld Counsel submits that there are factual inconsistencies in the reasons recorded u/s 148 in as much as it is stated in the reasons that no return has been filed which is contrary to record as the assessee in fact filed return of income. Ld. Counsel further submitted that in the reasons recorded it is stated that Information was received from DDIT(Inv.) that the assessee invested more than 15 crores in construction of house property. The Ld. Counsel submits that except stating that the assessee has invested more than 15 crores nothing has been stated in the reasons to co- relate the statement."
2 The Hon'ble Bench after relying the judgments of Hon'ble Delhi High Court and Hon'ble Gujarat High Court held as follows: 14. The ratio of the above decisions applies to the facts of the assessee's case. In the case on hand the AO is not disputing that the assessee filed return of income. If this is the fact, there is certainly a factual inconsistency in reopening the assessment that the assessee has not filed any return of income. Secondly, in the reasons stated the AO believed that the income escaped assessment only based on the report of the DDIT(Inv.) that the income had escaped more than 15 crores. However, we observe 7 SMT. NIKKI PACHISIA VS ITO, WARD 5(2), JAIPUR that what is the basis for 15 crores is not specified in the reasons. This is only a bald statement that the income of the assessee has escaped assessment for more than 15 crores without spelling out any details which is said to have been given in the DDIT report. Therefore, the reasons recorded in the present case at best can be treated to be a reason to suspect which is not sufficient for reopening the assessment u/s 148 of the Act. The requirement of application of mind is missing the present case, there is no independent application of mind by the AO to tangible materials and reasons and the AO failed to demonstrate live link between tangible material and formation of reason to believe that income had escaped assessment.
In view of the above, we hold that the reassessment made in the section 143(3) read with section 147 of the Act is bad in law and the re-assessment order is quashed. As we have quashed the reassessment on the preliminary legal ground of jurisdiction, various other grounds raised
by the assessee on merits are not decided as they become only academic at this stage. Ground Nos. 1 to 5 are allowed."
3. The appeallant also relying on the judgment of Hon'ble High Court of Bombay in case of BIC Cello (India) (P) Ltd. Vs ACIT 160 Taxmann.Com 474 held as follows:- Where Assessing Officer issued reopening notice on ground that as per AIR information assessee had deposited cash of Rs. 3.73 crores in its bank account and assessee-company submitted that there was deposit of only Rs. 1.87 crores which represented cash sales and was offered to tax, since Assessing Officer without examining details of cash deposited had recorded reasons for reopening, impugned reopening notice was to be set aside.’’ 8 SMT. NIKKI PACHISIA VS ITO, WARD 5(2), JAIPUR 2.8 In view of the aforesaid observations and respectfully following the judicial precedents relied upon here in above I have no hesitation in quashing the Reassessment proceedings as they are not sustainable in the eyes of law 2.9 Apart from above, I have also considered the modus operandi of commodities business on national multi commodities exchange wherein it has been specifically put forth by the appellant that during the share market working time on terminal, the transactions are being ordered by the clients to the registered members/brokers. On placing the order, the said members/brokers allot client code to the concerned client(s). In appellant's case, broker also followed the same procedure and the broker's office punches the ordered quantity of commodities, rates and client code(s) on terminal. The appellant do all the transactions in commodities only through broker M/s Motisons Commodity Pvt. Ltd. and no transactions were done with M/s Siddheswari Dealers Pvt. Ltd. In view of the above facts, the transactions noted in the reasons recorded on the basis of which the assessment under appeal has been completed was not done by the assessee and accordingly, do not relate to assessee. The facts are also supported by the assessment order as the learned AO has not provided any details to support his action and also not providing the copy of alleged information from the DDIT(Inv.), Kolkata and the alleged statement of broker(s) recorded behind back of the assessee. During the assessment proceedings, the appellant submitted complete details of transactions, copy of contract note of broker and copy of bank account