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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI VIJAY PAL RAO & SHRI B.M. BIYANI
आदेश / O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by appeal-order dated 02.11.2022 passed by learned Commissioner of Income-Tax (Appeals)-3, Bhopal [“Ld. CIT(A)”], which in turn arises out of assessment-order dated 01.03.2022 passed by learned ACIT, Central Circle-2, Indore [“Ld. AO”] u/s 147 read with 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2015-16, the assessee has filed this appeal on following grounds:
1.1 That impugned order passed by the Ld. CIT(A) sustaining the order passed by the ld. AO u/s 147/143(3) is bad in law, without jurisdiction, it is based on incorrect interpretation of law and without allowing proper and reasonable opportunity of being heard, moreover the facts have also been incorrectly construed.
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Aditi Enterprises Private Ltd., Indore ITA No.434/Ind/2022 – AY 2015-16 1.2 That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in sustaining the order passed by the ld. AO u/s 147/143(3) without appreciating the fact that the ld. AO issued notice u/s 148 on the basis of doubtful and borrowed information from the SEBI and investigation Wing of the Department. 1.3 That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in sustaining the order passed by the ld. AO u/s 147/143(3) without appreciating that the reason recorded for issuance of notice u/s 148, is just conclusions over doubtful information, without any factual enquiry/back material on record. 1.4 That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in sustaining the order passed by the ld. AO u/s 147/143(3) without appreciating the facts that the ld. AO has not made any enquiry from the SEBI registered broker through whom transaction was punched on the Stock Exchange and also from the broker of counterparty and so also from the counterparty who according to assumption and presumption of the ld. AO earned profit.
1.5 That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in sustaining the order passed by the ld. AO u/s 147/143(3) without appreciating the facts that the ld. AO has not confronted/provided any information to the assessee regarding the enquiry made and evidences collected by him behind the back of appellant company. 1.6 That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in sustaining the order passed by the ld. AO u/s 147/143(3) without appreciating that the mechanical and rubber stamp approval has been given by the Pr. CIT u/s 151.
That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in sustaining the addition of Rs. 44,50,250/- made by the ld. AO u/s 69C by alleging that loss incurred by the appellant company in F&O is doubtful as per the investigation of SEBI and department.
That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in sustaining the order passed by ld. AO u/s 147/143(3) without appreciating the fact that loss incurred by the company in F&O is from screen based transaction which is genuine loss and therefore addition could not be made u/s 69C on the basis of probability and doubtful information.
That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in sustaining the addition of Rs. 44,50,250/- made by the ld. AO u/s 69C without appreciating the fact that code modification is made by the SEBI registered broker as per the guidelines of SEBI and without the knowledge of appellant company.
That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in sustaining the action of ld. AO for charging interest u/s 234B at Rs. 11,55,084/- and u/s 234D at Rs. 4,39,131/-
Heard the learned Representatives of both sides at length and case- records perused.
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Aditi Enterprises Private Ltd., Indore ITA No.434/Ind/2022 – AY 2015-16 3. Brief facts leading to present appeal are such that the assessee is a private limited company engaged in the business of trading and commission agent of paper. During relevant year, the assessee also entered into F&O transactions. For the relevant assessment year, the assessee filed original return on 21.09.2015 declaring a total income of Rs. 34,18,160/-, inclusive of income from F&O transactions, which was processed u/s 143(1). Subsequently, the AO received an information from Investigation Wing through the Insight Portal of department that the assessee had made loss from certain F&O transactions of doubtful nature of Rs. 44,50,250/-. The AO further noted that the assessee had undertaken those loss-making transactions with the support of M/s Geometry Vanijya Pvt. Ltd. Accordingly, the AO re-opened assessment through notice dated 31.03.2021 u/s 148 in response to which the assessee re-filed return repeating the original income of Rs. 34,18,160/-. The assessee then requested the AO to provide copy of reason recorded for re-opening of assessment which the AO supplied, copy of reasons available at Page No. 66-67 of Paper-Book. Then the assessee filed objections on the reasons but the AO rejected assessee’s objections vide order dated 28.01.2022, copy filed at Page No. 80-83 of Paper-Book and also re-produced by AO in Para 4 of assessment-order. Ultimately, the AO continued the proceeding of re-opened assessment and asked the assessee to make submissions. The assessee made a detailed submission raising several objections which is re-produced by AO in Para 5 of assessment-order. However, vide Para No. 6-8 of assessment-order, the AO rejected assessee’s submissions by placing a heavy reliance on SEBI order No. WTM/RKA/ISD/25/2016 dated 17.02.2016 passed against M/s Geometry Vanijya Pvt. Ltd., the broker through whom the assessee did transactions. The AO held that assessee’s broker was found by SEBI to have been involved in manipulations and fraudulent transactions due to which the assessee was also able to acquire bogus loss from F&O transactions. Finally, the AO completed re-opened assessment holding that the loss of Rs. 44,50,250/- declared by assessee in F&O transactions was bogus; accordingly he disallowed such loss. Aggrieved, the assessee filed first-
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Aditi Enterprises Private Ltd., Indore ITA No.434/Ind/2022 – AY 2015-16 appeal to CIT(A) but did not get any relief. Still aggrieved, the assessee has come in next appeal before us on various grounds as re-produced earlier. We proceed to discuss various grounds in their seriatim.
Ground No. 1 (consisting of 1.1 to 1.6):
In these grounds, the assessee has challenged the proceeding undertaken by AO u/s 147.
Ld. AR for assessee carried us to grounds, the orders of lower- authorities, documents filed in Paper-Book and submitted that the assessee has several reasons to challenge the proceedings having been done by AO as under:
(i) The AO issued notice u/s 148 dated 31.03.2021 to re-open assessment of AY 2015-16; thus the AO took action after expiry of four years from end of assessment-year, the four years’ period having already expired on 31.03.2020. Such action has been taken merely on the basis of report of Investigation Wing, Bhopal and therefore not sustainable owing to the bar imposed in proviso to section 147.
(ii) That the AO has taken action from ‘borrowed information’ received from Investigation Wing, Bhopal. It is judicially well-settled that no action can be taken u/s 147 on the basis of ‘borrowed information’.
(iii) That the whole exercise of section 147 undertaken by AO is on the bedrock of SEBI order dated WTM/RKA/ISD/25/2016 dated 17.02.2016 passed in the case of M/s Geometry Vanijya Pvt. Ltd., the broker through whom the assessee did transactions. The AO has clearly noted this fact on Page No. 3 of aforesaid rejection-order dated 28.01.2022 filed at Page 80-83 of Paper-Book and also re-produced in Para 4 of assessment-order. Ld. AR has filed a copy of aforesaid SEBI order dated 17.02.2016 at Page No. 84- 106 of Paper-Book. Drawing our attention to same, Ld. AR firstly submitted that the said order has been passed on M/s Geometry Vanijya Pvt. Ltd. and
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Aditi Enterprises Private Ltd., Indore ITA No.434/Ind/2022 – AY 2015-16
there is no allegation or action by SEBI against assessee at all and it is not at all a case of SEBI or Income-tax department that the assessee was engaged in any manipulative transactions. Secondly, the aforesaid SEBI order dated 17.02.2016 was an ‘ex-parte ad interim order’ which is subsequently set aside by SAT / Hon’ble Supreme Court order dated 01.07.2016, as narrated in SEBI’s Order No. WTM/RKA/ISD/94/2016 dated 12.08.2016, copy filed at Page No. 107-121 of Paper-Book, relevant Para No. 10 of same is re-produced below for an immediate reference:
“10. I have considered the submissions of the concerned TMs in the context of the aforesaid orders passed by Hon’ble SAT and the order dated July 01, 2016 passed by Hon’ble Supreme Court in the matter. I note that in terms of those orders, the interim order dated February 17, 2016 has been set aside and the directions issued thereby are not in operation since the Hon’ble SAT had set aside the said interim order.” Therefore, the order dated 17.02.2016, which was the foundation of department’s action u/s 148/147 against assessee, is set aside. Ld. AR submitted that in such a case when the basis of very action is not surviving, the entire proceeding leading to passing of order u/s 147 has no legs to stand. Ld. AR relied heavily upon a decision in similar facts rendered by ITAT, Delhi Bench in Kundan Rice Mills Ltd. Vs. ACIT (2020) 120 taxmann.com 422 (Delhi Trib.), the relevant paras are re-produced below:
14.1 The A.O. in the assessment order has started doubting business loss suffered by assessee in trading because of the ad-interim order of SEBI dated 20/22-8-2015. The A.O. referring to and reproducing the said order in the assessment order has asked for the explanation of assessee and directed the assessee to file details of past practice/practice of assessee in executing such trades, reasons for such unreasonableness and irrational financial behaviour, details of all trades engaged in by assessee and identification of counter-party and provisions of Income-tax Act applicable for such trades. The reply of assessee is noted above. The assessee explained before A.O. that it has acted as a bona fide trader as have been doing in past and complied with all procedures and requirements of the stock exchange. At the time of relevant transactions/trades assessee would not have any idea of any profit or loss in the said transaction. The assessee is not connected with the counter-parties in the trade and there is no grievance of any of the investor or BSE. The assessee in support of the explanation filed copies of the contract notes in respect of the transactions in question of derivative tradings [PB 69-109], copies of the bank statements of the assessee company reflecting payment of requisite margin money to brokers [PB 110-128], copies of the statements of accounts of Brokers in the books of the assessee company [PB 129-139], copy of the letter dated 1-10-2015 filed before SEBI seeking details of trades conducted by assessee [PB 140-149], trade details of assessee company as provided by SEBI in response to such letter [PB 150-158],
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Aditi Enterprises Private Ltd., Indore ITA No.434/Ind/2022 – AY 2015-16
analysis of trade data supplied by SEBI to prove that assessee company has only carried out transactions with three parties out of 25 parties mentioned in the Order of the SEBI [PB 159-162], copy of the Circular dated 23-7-2012 issued by SEBI about eligibility criteria for stock in derivatives segments complied by assessee [PB 163-164], chart showing the proportion of transactions carried out by assessee company in various scrips through BSE [PB165], analysis of price on which trades were executed by the assessee company [PB 166-167] and copy of the Order of the SEBI dated 5-4- 2018 disposing off the proceedings initiated vide Order dated 22-8-2015 [PB 298- 306]. The subsequent Order of the SEBI dated 5-4-2018 in paras 16 and 17 held as under :
"16. Based on the above, without going into the merits of the case, I am of the view that there is no need to continue the directions issued against the entities mentioned at Table-1 above vide Interim Order dated August 20, 2015 and Confirmatory Orders dated July 30, 2016 and August 22, 2016, and that the Adjudication Proceedings initiated by SEBI would adequately meet the ends of justice and regulatory objectives.
I, therefore, in exercise of the powers conferred upon me under section 19 of the Securities and Exchange Board of India Act, 1992 read with sections 11, 11(4) and 11B thereof, do hereby dispose of the proceedings initiated vide Interim Order dated August 20, 2015 as confirmed vide Orders dated July 30, 2016, and August 22, 2016, against all the entities mentioned in Table 1, with immediate effect without any further directions. The Adjudication Officer shall continue and conclude the proceedings in accordance with the SEBI Act, 1992 and SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, and pass appropriate order on merits, at the earliest, uninfluenced by this order, since this order is, passed without examining the merits, in consonance with the regulatory objective that imposition of monetary penalty as per law in line with similarly placed entities would meet the ends of justice."
14.2. The above Order clearly show that SEBI has subsequently directed that there is no need to continue with the directions issued against the assessee company and others vide Orders dated 20/22-8-2015 and dated 22-8-2016 relied upon by authorities below. Thus, in principle, the interim order and subsequent orders of the SEBI which is the basis of passing the assessment order in question have been vacated by the SEBI itself. The assessee filed complete documentary evidences before the authorities below and explained that in Screen based Electronic Trading, it is not possible to choose the counter-party for trading and assessee paid STT on the same transaction and transactions are done with the Members/Brokers and sub-brokers which fact have not been disputed by the authorities below. The assessee has also proved that all the transactions are carried out through banking channel and as per guidelines issued by the SEBI by making payment of margin money and transactions are proved by contract notes. There is also no allegation made by BSE against any of the transactions carried out by the assessee company. All the transactions are carried out and settled through banking channel through BSE. No action have been taken by BSE against any of the party. The A.O. has further referred to the subsequent order of the SEBI dated 22-8-2016 in the assessment order and in para 22 of the aforesaid order of the SEBI, it is clearly directed that "Therefore, at this juncture, pending investigation, I am not incline to take any cognizance of their submissions that the entities have paid the tax. Moreover, this issue will require detailed verification from the Income-tax Department."
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Aditi Enterprises Private Ltd., Indore ITA No.434/Ind/2022 – AY 2015-16
However, the A.O. as well as the Ld. CIT(A) have not conducted any investigation in any on the documentary evidences filed by assessee. The Ld. CIT(A) has gone to the extent in holding that "no separate investigation is required to be done by the A.O. to disallow the bogus loss". PB 24 shows notes No. 25 with regard to other expenses to show that in preceding A.Y. 2014-15 assessee has suffered loss on trading in Commodity Exchange in a sum of Rs. 18,81,82,852/- which have not been disallowed by the authorities below as per submissions of the Learned Counsel for the Assessee. Thus, following the principle of consistency, the A.O. should not have disallowed the similar loss which is lesser amount in assessment year under appeal. We rely upon Judgment of Hon'ble Supreme Court in the case of Radhasoami Satsung v. CIT [1992] 60 Taxman 248/193 ITR 321. Thus whatever query was raised by the A.O. on the basis of the ad-interim order of the SEBI, assessee successfully explained all the issues supported by the documentary evidences in which no discrepancy have been found out by the authorities below.
14.3 The A.O. however relied upon ad-interim order of the SEBI dated 20/22-8-2015 in which it was found prima facie that profit making entities were deliberately making repeated losses through their reversal trading in stock option which do not make economic sense and facilitating their counter-parties, thus, contravening the provisions of SEBI Act and restrain such entities from buying or selling or dealing in the Securities Markets and their objections were called for. The A.O. further referred to the Order of the SEBI dated 22-8-2016 in which SEBI released the confirmatory order and interim order was diluted with permission to the assessee and others for dealing in the scrips. It was further directed in the said order that these directions shall continue to be in force till further directions. These facts clearly show that the ad-interim order of the SEBI was passed without hearing the objections of the assessee and when objections of the assessee were considered, the interim order was diluted by giving permission to the assessee to deal in the transactions. Ultimately, both the orders of the SEBI relied upon by the A.O. have been vacated by the SEBI vide order dated 5- 4-2018. Thus, there were no material available with the authorities below so as to conclude that assessee has entered into any dubious or other transactions deliberately to show business loss. In such circumstances, it was imperative on the part of the authorities below to examine the issue on merit and to decide whether assessee has suffered genuine business losses out of the transactions/trades in question. However, the authorities below did not examine the issue on merits and merely relying upon the ad-interim order concluded the issue against the assessee. It is also clear from these facts that the ad-interim order which was passed exparte - Whether would disclose any binding precedent or ratio which may be binding on the Income-tax Department?". In our humble view, it would not be binding precedent. It may create some suspicion or doubt. It is well settled Law that "suspicion howsoever strong may be but it cannot take place of legal proof." The Ld. D.R. submitted that if the test of human probability is applied to the facts and circumstances of the case, it would prove that assessee has not suffered genuine business loss. However, such a principle is to be applied to weigh the evidences of either side and draw a conclusion in favour of the party which has more favourable factors in his side. Further in the present case the findings of the A.O./Ld. CIT(A) are merely based upon the findings given by the SEBI in ad-interim order and subsequent order which have been vacated subsequently by the SEBI. Even such orders cannot be relied upon at this stage as there were nothing against the assessee so as to conclude that assessee has not suffered genuine business loss because the SEBI itself have mentioned in its Orders that the issue will require detailed verification from the Income-tax Department. The issue before the SEBI Authorities were in fact violation of SEBI provisions and Rules and they have not adjudicated upon if there were any violation of the Income-tax provisions which they also were not competent to deal with it. Therefore, reliance placed by the A.O. of such Orders which are ultimately vacated was totally misplaced and cannot be read against the assessee.”
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Aditi Enterprises Private Ltd., Indore ITA No.434/Ind/2022 – AY 2015-16 Ld. AR made a line by line reading of the aforesaid order of ITAT, Delhi Bench vis-à-vis the case of present appeal and submitted that the underlying issue in the present case of assessee is almost identical in every respect to that before ITAT, Delhi Bench. Hence, the AO’s action u/s 148/ 147 is not sustainable, being on the basis of SEBI order dated 17.02.2016 which was ultimately vacated by order of Hon’ble SAT and order dated July 01, 2016 passed by Hon’ble Supreme Court as clearly narrated in SEBI’s subsequent Order No. WTM/RKA/ISD/94/2016 dated 12.08.2016.
Per contra, Ld. DR for revenue heavily relied upon orders of lower- authorities. He submitted that the AO has rightly proceeded on the basis of information received from Investigation Wing which in turn was based on SEBI’s order. Ld. DR submitted that SEBI is also a govt. department and Investigation Wing is a part of Income-tax Department itself. Therefore, the AO had a strong reason to believe, based on such information shared by SEBI and Investigation Wing, that the assessee has declared bogus loss which has resulted in escapement of income. Ld. DR submitted that the AO’s action cannot be said to be faulty in the situation. Therefore, his action must be upheld.
We have considered rival submissions of both sides and perused the orders of lower-authorities as also the document filed in the Paper-Book and the judicial ruling in Kundan Rice Mills Ltd. (supra) relied by Ld. AR. Apropos to this ground, Ld. AR has raised three contentions before us as noted in earlier paragraphs. So far as first contention that the AO can’t take action u/s 147/148 after 4 years on the basis of report of Investigation Wing/SEBI, this contention fails at the threshold itself for the reason that first proviso to section 147 applies only when the original assessment was made u/s 143(3)/147 whereas in the present case, the original assessment was processed u/s 143(1). The second contention raised by Ld. AR that the AO cannot take action u/s 147 on the basis of ‘borrowed satisfaction’ is also meritless because in the present case, though the AO received information
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Aditi Enterprises Private Ltd., Indore ITA No.434/Ind/2022 – AY 2015-16 from Investigation Wing but after receiving such information, applied his own mind and made a reason to believe that there was escapement of income. Needless to mention that there is no legal bar in receiving information from Investigation Wing. Now we are left with third and last contention. Precisely, it is the contention of Ld. AR that the AO took action u/s 148/147 on the basis of SEBI order dated 17.02.2016 but that order was vacated by SAT / Hon’ble Supreme Court. This factual aspect of setting aside is not rebutted or controverted by revenue. Therefore, we can safely conclude that the very basis of AO’s action, namely the order dated 17.02.2016 of SEBI, was non-est at the time of issuing notice u/s 148 dated 31.03.2021 by AO. The ITAT, Delhi in Kundan Rice Mills Ltd. (supra) has also concluded “Therefore, reliance placed by the A.O. of such Orders which are ultimately vacated was totally misplaced and cannot be read against the assessee.” Faced with this situation, we are inclined to hold that in the present case, the AO’s action u/s 148 leading to passing of order u/s 147 cannot be treated as a valid action. Consequently, we are inclined to quash the proceeding done by AO. Ordered accordingly. The assessee succeeds in this ground.
Ground No. 2 to 4:
In these grounds, the assessee has challenged the merit of disallowance/addition of Rs. 44,50,250/- made by AO. Since we have already quashed the proceeding undertaken by AO u/s 147, it would be unnecessary to deal with these grounds which are on merits. Therefore, these grounds are left open.
Ground No. 5:
In these grounds, the assessee claims that the CIT(A) has erred in sustaining the action of AO in charging interest u/s 234B and 234D.
During hearing before us, these grounds are not pleaded by either side. Further, the levy of interest is statutory and as per provisions of the
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Aditi Enterprises Private Ltd., Indore ITA No.434/Ind/2022 – AY 2015-16 Act. Therefore, these grounds do not require any adjudication from us, the same are hereby dismissed as non-pressed.
Resultantly, this appeal of assessee is allowed.
Order pronounced in the open court on 02.01.2024.
Sd/- sd/- (VIJAY PAL RAO) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore �दनांक /Dated : 02.01.2024. CPU/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Indore Bench, Indore
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