CHINMAY IMPEX PRIVATE LIMITED,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-1(1)(3), AHMEDABAD

This appeal is filed by the assessee against the order of the National Faceless Appeal Centre (NFAC), Delhi, (in short ‘the CIT(A)’) dated 28.02.2024 for the Assessment Year 2013-14.

The brief facts of the case are that return of income for A.Y. 2013-14 was filed on 30.09.2013 declaring total income of Rs.13,79,950/-. Subsequently, the AO received an information from DGIT (Inv.), Mumbai that assessee had entered into reversal Impex Private Limited vs. ITO] A.Y. 2013-14 - 2 – trades in illiquid stock options resulting in non-genuine business profit. As per this information, a profit of Rs.28,98,000/- was generated by the assessee by trading in illiquid stock options on the BSE during the F.Y. 2012-13 relevant to A.Y. 2013-14. Based on this information, the AO recorded his reasons and reopened the case for re-assessment under Section 147 of the Act after obtaining approval of the competent authority. The assessment was completed under Section 147 r.w.s. 144B of the Act on 30.03.2022 at total income of Rs.42,77,950/-.

Aggrieved with the order of the AO, the assessee had filed an appeal before the First Appellate Authority, which was decided vide the impugned order.

Now, the assessee is in appeal is before us.

The assessee has taken following grounds in this appeal:

The Ld. CIT (A) has erred in law and on facts in upholding validity of reopening of assessment though the Ld. AO has assumed jurisdiction on the basis of some non specific & vague information.

Per contra, Shri Purushottam Kumar, Sr. DR submitted that the reopening done by the AO was based on specific information Impex Private Limited vs. ITO] A.Y. 2013-14 - 4 – received in the case of the assessee. The AO had not only analyzed the information as received but had also applied his mind and verified from the records whether this income was disclosed in the accounts of the assessee or not. Ld. Sr. DR contended that it was not open for the assessee to challenge the sufficiency of the information received. He further submitted that the reason as recorded by the AO was duly approved by the PCIT, after independent application of mind. On merits, he supported the orders of the AO and the CIT(A). It was explained that the assessee did not cooperate in the course of the assessment proceeding and the details were filed by the assessee towards the fag end of limitation period i.e. only on 29.03.2022 with a request for hearing, which was allowed virtually on 30.03.2022. He also questioned the transfer of profit derived from the ‘currency derivatives transaction’ to ‘exchange rate fluctuation account’ and doubted the correctness of this treatment.

In rejoinder, the Ld. AR reiterated that since the assessee had already disclosed the profit derived from the currency derivatives transaction in the accounts, the addition made by the AO was wrong and led to double taxation. He, therefore, requested that matter may be set aside to the AO to verify the fact of double taxation.

We have considered the rival submissions and the materials brought on record. Ground Nos. 1 to 5 taken by the assessee are in respect of reopening of the case. It is found that the AO had Impex Private Limited vs. ITO] A.Y. 2013-14 - 5 – received an information from DGIT (Inv.), Mumbai under project Falcon regarding coordinated and premediated trading on BSE engaging in reversal trades in illiquid stock options (Stock derivation and currency derivative) resulting in non-genuine business loss/profit to the beneficiary. A specific information pertaining to assessee was received that the assessee had generated fictitious profit in equity/derivative of Rs.28,98,000/- by trading in illiquid stock options on the BSE. Based on this information, the AO had recorded his reasons under Section 147 of the Act and initiated the proceedings after obtaining the approval of the competent authority. The contention of the assessee that the reopening was based on borrowed satisfaction is not found correct. The reopening has to be based on the basis of an information in the possession of the AO. Merely because the reopening was done on the basis of information received from DGIT (Inv.), Mumbai, it doesn’t mean that the reopening was done on borrowed satisfaction. The AO had applied his mind and verified the information as received. A copy of the reason recorded by the AO has been brought on record. The AO has given a specific finding in his reason that the income was Rs.28,98,000/- earned by the assessee in the derivative trading was non-genuine profit and that this income had escaped assessment. In view of detailed reason as recorded by the AO, the contention of the assessee that the reopening was done on borrowed satisfaction is not found correct. The correctness of the information as received by the AO has also not been disputed.

As regarding merits of the case, the assessee has admitted that profit of Rs.28,95,773.78 was generated in trading of USD derivatives, which was carried out through a broker Giriraj Stock Broking Pvt. Ltd. A copy of the contract note and the ledger account of the broker has been filed. It was explained that this profit of Rs.28,95,773.78 was taken to “Exchange Rate Fluctuation Account” and the closing balance of Rs.5,90,902.99 as appearing in the ledger account of “Exchange Rate Fluctuation” was duly disclosed as income in the audited Impex Private Limited vs. ITO] A.Y. 2013-14 - 7 – accounts. The assessee has pointed out that an amount of Rs.5,90,903/- was disclosed as income on account of Foreign Exchange fluctuation in Schedule-17, which was part of other income. The assessee has also submitted that all these documents were filed before the AO in the course of assessment proceeding.

It appears from the assessment order that assessee had made compliance and filed details only on 29.03.2022 while the case was getting barred by limitation on 31.03.2022. Therefore, the AO might not have sufficient time to verify the details as filed by the assessee. The contention of the assessee that the profit on Rs.28,98,000/- as added by the AO under Section 68 of the Act was already disclosed in the accounts of the assessee, requires verification. There is considerable force in the argument of the assessee that if this amount was already disclosed in the accounts, the addition as made by the AO will result in double taxation. The assessee has, however, not explained as to why the profit of Rs.28,98,000/- derived in trading of USD derivative through the broker Giriraj Stock Broking Pvt. Ltd was not shown separately as income and why it was taken to “Exchange Rate Fluctuation Account”. The correctness of the transactions as appearing in “Exchange Rate Fluctuation Account” also requires to be verified in view of the treatment as given by the assessee. Since, the assessee had filed the details at the very fag end, these might not have been verified by the AO due to paucity of time. Therefore, in the interest of justice, we deem it proper to set aside the matter Impex Private Limited vs. ITO] A.Y. 2013-14 - 8 – to the file of the Jurisdictional AO with a direction to verify the contention of the assessee as well as the issues as discussed above and to decide the matter on merits of the case after giving a proper opportunity of hearing to the assessee.

In the result, the appeal preferred by the assessee is allowed for statistical purposes.