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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI MAHAVIR PRASAD & SHRI MANISH BORAD
1 Suyash Exim ITA 356 of 2020 and CO 19 of 2021 अपील�य अ�धकरण, इ�दौर �यायपीठ, इ�दौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER (Virtual hearing)
ITA No.356/Ind/2020 Assessment Year: 2011-12
ACIT-4(1), Indore … Appellant Vs. Suyash Exim P. Ltd., Indore PAN – AAGCS 2705 M … Respondent C.O. No.19/Ind/2021 Arising out of ITA No.356/Ind/2020 Assessment Year: 2011-12
Suyash Exim P. Ltd., Indore PAN – AAGCS 2705 M … Appellant Vs. ACIT-4(1), Indore … Respondent
Assessee by S/Shri Manjeet Sachdeva & Avinash Gaur, ARs Revenue by Shri P.K. Mitra, CIT Date of Hearing 25.11.2021 Date of Pronouncement 20.01.2022
2 Suyash Exim ITA 356 of 2020 and CO 19 of 2021 O R D E R PER MANISH BORAD, A.M
The above captioned appeal filed at the instance of the Revenue and Cross-objection filed by the assessee are directed against the order Ld. Commissioner of Income Tax(A)II, Indore dated 18.8.2020 in the assessment order passed u/s 147/143(3) of the I.T. Act by the DCIT-5(1), Indore on 28.12.2018. This appeal was filed on 31.12.2020 and Registry has informed that this appeal is time-barred by 48 days. Ld. CIT-DR submitted that due to current pandemic, the delay occurred which may be condoned in view of guidelines of Govt. of India and Hon’ble Supreme Court. On the other hand, ld. Counsel for assessee submitted that delay should not be condoned. We find that vide Gazette “CG-DL-E- 29092020-222110 No.63 New Delhi, 29/2020 issued by Secretary to Govt. of India, it has been directed that in computing the period of limitation for any appeal, the period for 20.3.2020 till 31.12.2020 or 31.3.2021, as the case may be, shall stand excluded. Further, the Hon’ble Supreme Court in Suo Motu Writ Petition (Civil) No.3 of 2020 dated 08.3.2021 has issued directions that in computing the
3 Suyash Exim ITA 356 of 2020 and CO 19 of 2021 period of limitation for any suit/appeal, the period for 15.3.2020 till 14.3.2021 shall stand excluded. Considering the same, we condone the delay in filing the departmental appeal and admit the same for hearing. The Revenue has raised the following grounds of appeal:
1) On the facts and in the circumstances of the case, and, in law, the learned CIT(A) was not justified in not appreciating the findings and establishment of the Assessing Officer. 2) On the facts and in the circumstances of the case, the ld. CIT(A) erred in deleting the addition of Rs.4,36,68,123/- whereas Assessing Officer had strongly established that the assessee manipulated the transactions claimed a bogus loss. 3) On the facts and in the circumstances of the case, the ld. CIT(A) erred in not considering the modus operandi of tax evasion through NMCE platform. 4) On the facts and in the circumstances of the case, the ld. CIT(A) was not justified in denying the information shared which was traced out during the investigation carried out by the Govt. Investigation Agency whereas it was proved in respect of several angle that the assessee allowed a synchronized commodity trading and misused NMCE platform. 5) On the facts and in the circumstances of the case, the ld. CIT(A) was not justified in not considering that the Assessing Officer had sufficient reason to believe to reopen the case u/s 147 of the Act. 6) On the facts and in the circumstances of the case, the ld. CIT(A) was not justified in deleting the addition of Rs.1,81,847/- by observing that the investment made by the assessee’s own fund and also the same assessee never debited interest bearing borrowed fund whereas it was clearly proved that the assessee debited interest of Rs.24,87,682/- in P & L account. 7) On the facts and in the circumstances of the case, the ld. CIT(A) was not justified in deleting the addition of Rs.1,81,847/- ignoring the fact that the assessee failed to comply the show cause notice issued by the Assessing Officer that automatically leads to understand the modus operandi of the assessee.”
Facts as culled out from the orders of the Revenue Authorities with regard to grounds relating to reopening the case u/s 147/148 thereby making the addition of Rs. 4,36,68,123/- are that the
4 Suyash Exim ITA 356 of 2020 and CO 19 of 2021 assessee company was a private limited company registered under the Companies Act. An information was received by the AO from DDIT(Inv.) Unit 3(1), Kolkata that the appellant was one of the beneficiaries who had booked & contrived loss/profit by way of misuse of NMCE(National Multi Commodity Exchange) with the help of brokers/sub brokers by way of commodity transaction. Further, these brokers/sub brokers of NMCE were found to be involved in artificial trading by misuse of NMCE platform. It was also noticed by the AO that the assessee had shown loss of Rs. 30,08,250/- as per the information received from DDIT(Inv.), Unit no. 3(1), Kolkata. The AO has mentioned in its order that this loss was managed on account of total sale value of Rs. 2,52,48,070/- against the purchase of Rs. 2,82,56,320/-. The AO asked the assessee to submit it explanation in respect of the said transaction. The assessee submitted all the details before the AO but the AO was not satisfied with the same and made the addition to the assessee’s income accordingly.
Being aggrieved, the assessee went into appeal before the learned CIT(A) and learned CIT(A) deleted the addition.
5 Suyash Exim ITA 356 of 2020 and CO 19 of 2021
Being aggrieved, the Revenue is in appeal before this Tribunal. Before us, the ld. CIT-DR relied upon the order of the Assessing Officer.
Per contra, learned Counsel for the assessee relied on the order of the learned CIT(A).
We have considered the rival submissions of both the parties and gone through the material available on the file. We find that the reassessment proceedings were initiated on the basis of information received from DDIT (Inv.) Unit 3(1) which mentioned that the assessee was one of the beneficiaries who had booked & contrived profit/loss by misuse of NMCE platform, thus, the AO was not having any reason to believe to issue a notice u/s 148 of the IT Act. Further, the AO had referred to an amount of Rs. 30,08,250/- in the notice as having escaped assessment but had proceeded beyond the notice by considering the amount of transaction on NMCE platform at Rs. 43668123/- as speculation and had then proceeded to make an addition to that assessment. We also find that the AO
6 Suyash Exim ITA 356 of 2020 and CO 19 of 2021 had committed an error by stating that the reasons for issuing notice u/s 148 were provided to the assesse but the assessee had not filed any cross objection was wrong since the letter dated 15-10 2018 was not considered and ignored during the proceedings initiated u/s 147/143(3) of the Act. Further, the AO had not disposed the objection, so raised, by the assessee which was also technically incorrect. We find that Hon'ble Apex Court in the case of GKN Dive shafts (India) Ltd vs ITO and others 259 ITR 19 held that “when a notice under section 148 of the IT Act, 1961 is issued, the proper course of action for the notices is to file the return and if he so desires, to seek reasons for issuing the notices. The AO is bound to furnish reasons within a reasonable time. On receipt of reasons, the notice is entitled to file objections to issuance of notice and the AO is bound to dispose of the same by passing a speaking order."
Hon'ble Bombay High Court in the case of Bayer Material Science Pvt Ltd vs Deputy Commissioner of Income Tax and others (2016) 382 ITR 333 held:
“Reassessment Notice -Transfer Pricing-Draft assessment order Draft assessment order passed without disposing of objections filed
7 Suyash Exim ITA 356 of 2020 and CO 19 of 2021 by assessee to reasons for reopening assessment- Unsustainable - Income Tax Act, 1961, section 147.”
We find that during the year under consideration, the assessee was engaged in the business of trading of forward commodity derivatives on recognized commodity exchanges and was trading cum clearing member of NCDEX, MCX, NMCE and NBOT. The assessee did trading directly with the exchange and no broker was involved in any transaction. The assessee co. provided platform as a broker of the said recognized exchange to their clients for sale and purchase of commodity for which brokerage was charged from the clients. We find that during the course of assessment proceedings, the assessee submitted the copy Certificate of membership with National Multi Commodity Exchange or India Lid (NMCE), copy of ledger account of National Multi Commodity Exchange (NMCE), copy of two accounts of NMCE one being deposit account and the second was transaction account which gave the details of the transaction, copy of the trade file summary generated from the file provided by the exchange giving details of the transaction done by the assessee company on by NMCE, copy of KYC, copy of
8 Suyash Exim ITA 356 of 2020 and CO 19 of 2021 application form for Trading & Clearing Membership along with its enclosures which consist of bio-data of the directors of the assessee company, conduct certificate from National Board of Trade and other documents. We find that the assessee also submitted a chart showing the quantity and amount details which included both bought and sold quantity entered by the assesses company on the various exchange MCX, NCDEX. NMCEL, NBOT during the financial year 2010-11 relevant to assessment year under consideration. It is clear from this chart that out of the total transaction done at various exchanges, the transactions done at the NMCEIL by the assessee was 4.04% of the total transaction and the quantity and amount details which included both bought and sold quantity entered by the assessee company on the various exchange MCX, NCDEX, NMCEIL, NBOT during the financial year 2011-12 relevant to assessment year 2012 13 and financial year 2013-14 relevant to assessment year 2014-15. Further, it is also substantiated by the assessee through this chart that the total transaction done by the assessee at various exchanges, the transactions done at the NMCEIL was 1.67% of the total transaction done for the A.Y. 2012-
9 Suyash Exim ITA 356 of 2020 and CO 19 of 2021 13 and 1% for the A.Y. 2014-15 and the same was accepted by the AO. Further, the audit was carried out by Forward Markets Commission (FMC) of the NMCE Exchange for the F.Y. 2011 12 and no adversity was found in the audit conducted as is evident from the copy of audit conducted. Learned Counsel for the assessee contended that after going through the reasons recorded and communicated to the assessee for the A.Y. 2012-13, it is clear that the proceedings were 1nitiated u/s 148 of the Act for the same issue of AY 2012-13 also. Further, it is also a fact that the Assessing Officer, after considering the information received from DCIT (Inv) unit 3(1) and also the submission made by the assesse, accepted the contention of the assessee and had proceeded to complete the assessment at Rs. 2,16,65,480/- i.e. on the figure which was originally assessed u/s 143(3) on 19-03-2015 for A.Y. 2012-13. We also find that a similar issue was inquired into by the then AO for assessment year 2005-06 and after verifying all the details including NMCE and the nature of business, the results in respect of trading were accepted and not treated as speculation as is evident from the copy of query raised by the AO and the reply
10 Suyash Exim ITA 356 of 2020 and CO 19 of 2021 filed by the assessee and also the copy of assessment order for the A.Y. 2005-06. The assessee was doing regular trading since inception of commodity market and had taken membership as TCM (Trading and Clearing Member) in the year 2002-03 i.e. since early days of NMCE, MCA NCDEX and NBOT and the assessee had also cleared all the FMC Audit and Exchange Audits. The assessee had done all the transactions with the recognized exchange platform and the evidence of the transaction was also available in exchange records, therefore, we find force in the contention of the learned Counsel for the assessee that there were millions of users logged into the Commodity Exchange and as such, it was not possible for a few persons to control the price movement in the market. It was also contended by the learned Counsel for the assessee that there are stringent penalties provided for the future contracts itself, which makes it difficult for any trader to try and influence or manipulate the prices. Learned Counsel for the assessee also contended that the daily price fluctuation limit as 3%, expiry date as per contract being the 20th day of delivery of the month, penalties on delivery default, traders trading only with the exchange
11 Suyash Exim ITA 356 of 2020 and CO 19 of 2021 and not with the opposite parties, the person buying the commodity would not know who the seller was etc. We are of the view that the contentions raised by the learned Counsel for the assessee find support from the ratio laid down in the following judicial pronouncements:
(i) Pr. Commissioner of Income tax -13 Vs. Pat Commodity Services Pvt Ltd. (Bom) (HC) (ii)Proficient Commodities Pvt. Ltd Vs. DCIT Circle 5(1) Kolkata ITA NO. 2307/Kol/2017 ITAT Kolkata CIT vs Insceticides (India) Ltd 357 ITR 330 (Del), CIT vs SFIL Stock Broking Ltd. 325 ITR 285 (Delhi), M/s. Controlla Electrotech (P)Ltd vs DCIT in ITA Nos.1443 & 1444/Kol/2014 (ITAT, Kolkata), DY. COMMISSIONER OF INCOME TAX V. KBG LIFE INFRA PVT. LTD ITA NO. 951/IND/2016 DATED 12TH SEPTEMBER, 2018 (2018) 33 ITJ 641 (TRIB.- INDORE).
On consideration of above facts in the light of the judicial pronouncement, in totality, we find that the AO had incorrectly treated the income/loss, so claimed, by the assessee as speculative income and made the addition to the assessee’s income as the assessee had submitted all the details so required by the AO during the assessment proceedings and also considering the fact that the
12 Suyash Exim ITA 356 of 2020 and CO 19 of 2021 assessee was engaged in the business of trading of forward commodity derivatives on recognized commodity exchanges and was trading cum clearing member of NCDEX, MCX, NMCE and NBOT. Further, in the instant case, audit was done by Forward Markets Commission (FMC) for the F.Y. 2011-12 and no discrepancies were found by the audit party. Further, the AO had accepted the same transaction on the similar ground in the A.Y. 2012-13 and A.Y. 2005-06. Although, the principle of res-judicata is not applicable to Income Tax Proceeding, however the principal of consistency has to be followed. Hence, on the similar facts, the AO cannot change its opinion. On the legal ground, the AO was not having reason to believe to reopen the case which is the basic requirement for reopening the case u/s 148 of the Act. Further, objections of the assessee were also not disposed of by the Assessing Officer and the judicial pronouncements (supra) also supported the contentions of the assessee. Therefore, in light of the above facts, the reopening of the case was unjustified and also the addition on merit, so made, by the AO was unjustified in view of the aforesaid discussion. Thus, impugned order for deletion of addition on both the counts is
13 Suyash Exim ITA 356 of 2020 and CO 19 of 2021 confirmed and accordingly, departmental grounds on these issues stand dismissed.
The last issue is regarding the addition of Rs. 1,81,847/- u/s 14A of the IT Act, 1961. Facts, in brief, are that the Assessing Officer noted that the assessee has used the interest bearing borrowed fund for investment in shares to the extent of Rs.1,23,17,820/- and claimed exempted income in the computation of income amounting to Rs.1,81,847/-. The Assessing Officer worked out the disallowance as per Rule 8D at Rs.2,48,593 but since the assessee had claimed exempted income at Rs.1,81,847/-, the Assessing Officer restricted the disallowance u/s 14A to Rs.1,81,847/-. Being aggrieved, the assessee went into appeal and learned CIT(A) deleted the addition. Thus, the Revenue is in appeal before this Tribunal.
Before us, the ld. CIT-DR relied upon the order of the Assessing Officer.
14 Suyash Exim ITA 356 of 2020 and CO 19 of 2021 10. On the other hand, learned Counsel for the assessee relied upon the order of the learned CIT(A).
We have considered rival contentions and gone through the material available on record. We find that during the year under consideration, the assessee had received dividend income of Rs. 1,81,847/- and the same was received from the opening investment and investment was done by the assessee out of the own funds and the assessee had not made any investment out of the borrowed fund. Further, no fresh investment was made by the assessee during the year under consideration except investment of Rs. 16,440/- which was made in respect of purchase of shares in the IPO for which no expenditure was incurred by the assessee company during the relevant assessment year. The assessee had not incurred any expenses directly or indirectly for the purpose of earning exempt income. The assessee company had received interest income of Rs. 35,51,392/- and had paid interest of Rs. 23,64,981/- and as such the assessee company had earned net interest income. We find from the perusal of the copy of balance sheet that the assessee company had paid share capital of Rs.
15 Suyash Exim ITA 356 of 2020 and CO 19 of 2021 50,00,000/- and reserve and surplus of Rs. 5,72,57,110/- and as such own fund of the assessee company was Rs. 6,22,57,110/- against which investment in shares was made by the assessee company in shares out of its own fund as the AO could not record any specific finding which could show that the assessee had diverted the interest bearing funds which have been diverted for investments fetching exempted income. Our view is supported by the ratio laid down in the following judicial pronouncements:
Varjinder Singh Chhabra V. Jt. Commissioner of Income tax (2018) 33 ITJ 361 (Trib. – Indore)
“Disallowance – U/s 14A of the Income-tax Act, 1961 – AO made disallowance of Rs. 12.03 lacs u/s 14A treating interest for tax free income – CIT (A) restricted to it Rs. 4.51 lacs – The counsel for the assessee challenged the said disallowance on the grund that the assessee has sufficient interest free funds in the form of proprietor’s capital – HELD – ITAT finds that the closing capital balance was Rs. 1133.74 lacs and the investment fetching the exempted income are only to the tune of Rs. 78.84 lacs which is much less than the interest free funds available with the assessee – AO has not given any specific finding which could show that the assessee has diverted the interest bearing funds i.e. funds received on account of secured/unsecured loans which have been diverted for investments fetching exempted income – The lower authorities erred in making the disallowance of interest u/s 14A.”
16 Suyash Exim ITA 356 of 2020 and CO 19 of 2021 Commissioner of Income tax v. Hero Cycles Ltd (2009) 31 DTR (P&H) 301 “Business expenditure – Disallowance under s. 14A – Apportionment of expenditure – Where it is found that for earning exempted income no expenditure has been incurred, disallowance under s. 14A cannot stand – In view of finding of the Tribunal, it is clear that the expenditure on interest was set off against the income from interest and the investment in the share and funds was out of the dividend proceeds – in view of this finding of fact, disallowance under s. 14A was not sustainable. Conclusion: Disallowance under s. 14A requires finding of incurring of expenditure : where it is fund that for earning exempted income no expenditure has been incurred, disallowance under s. 14A cannot stand.” 12. On consideration of above facts in the light of the judicial pronouncements (supra), we find that the assessee had made investment out of its own funds pertaining to the earlier year funds and not from the borrowed funds. Further, no fresh investment was made by the assessee during the year except investment of Rs. 16,440/- in shares and the assessee was also having sufficient fund for investment, therefore, the assessee had not made any expenditure to exempt income. Thus, we do not find any reason to interfere with the order of the learned CIT(A) on this issue. Accordingly, departmental grounds with regard to addition of Rs.1,81,847/- are dismissed.
17 Suyash Exim ITA 356 of 2020 and CO 19 of 2021 13. So far as the grounds raised in Cross-objection filed by the assessee are concerned, we find that the grounds are raised mainly in support of the order of the learned CIT(A) and therefore, the same have now become infructuous and dismissed treating as not pressed.
In result, the departmental appeal and Cross-objection filed by the assessee are dismissed.
Order was pronounced as per Rule 34 of I.T.A.T., Rules 1963 on 20.01.2022
Sd/- Sd/- (MAHAVIR PRASAD) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore; �दनांक Dated : 20.01.2022 !vyas! Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file. By order Assistant Registrar, Indore