PCIT Vs Jajodia Finance Limited (Calcutta High Court)
Summary: The Calcutta High Court considered the Revenue’s appeal under Section 260A of the Income Tax Act, 1961 against the order dated February 29, 2024 passed by the Income Tax Appellate Tribunal, A-Bench, Kolkata in ITA/614/Kol/2023 for Assessment Year 2014-15. The dispute concerned the deletion of an addition of Rs. 1,97,94,148/- made on account of share trading loss treated by the Assessing Officer as bogus.
The assessee, a NBFC involved in trading and investment in shares, had declared nil income after setting its net income against brought forward losses. The Assessing Officer noted a share trading loss of Rs. 1,97,94,148/- and observed that the trading was in shares of private limited companies and was conducted off-market. Information received from the Directorate of Investigation, New Delhi also referred to a search and seizure operation in the KLJ Group and a consequential survey at the assessee’s office. During the survey proceedings, the assessee’s director, Rajesh Kumar Surana, gave a statement on oath admitting that the assessee’s entry operator was involved in providing bogus entries for purchase and sale of investments and share applications against commission.
The Assessing Officer issued a show-cause notice proposing to disallow the share trading loss as bogus. The assessee did not submit a reply, and the assessment was completed under Section 143(3) on 16.12.2016. The CIT(A), Lucknow-3 dismissed the assessee’s appeal on 24.04.2023 after recording that the assessee had not participated despite opportunities. The Tribunal subsequently allowed the assessee’s appeal and deleted the addition.
The High Court found the Tribunal’s order perverse and held that the Tribunal had made factually incorrect observations regarding evidence allegedly filed before the Assessing Officer. The Court also noted that the alleged retraction of the director’s statement was made through an affidavit more than two years after the statement and after completion of the assessment. The Court further found no material showing that the assessee had requested cross-examination.
The High Court therefore set aside the Tribunal’s order, restored the Assessing Officer’s order dated 16.12.2016 as affirmed by the CIT(A) on 24.04.2023, allowed the Revenue’s appeal and answered the substantial questions of law in favour of the Revenue.
Assessment Proceedings and Share Trading Loss
The assessee filed its return declaring total income as nil. The return was processed under Section 143(1), resulting in a refund of Rs. 22,83,940/-. The case was subsequently selected for scrutiny and statutory notices under Sections 143(1) and 142(1) were served.
The assessee was stated to be a NBFC engaged in trading and investment in shares. During the relevant period, it received interest on loans of Rs. 2,45,85,201/- and reported a net loss of Rs. 1,97,94,148/- from trading in shares. After other business expenditure, the net income was Rs. 14,48,008/-, which was fully set off against brought forward loss, resulting in the return showing nil income.
The Assessing Officer observed that the assessee had acquired the share trading loss to set off its income and escape tax liability. The Assessing Officer also noted that the entire trading was in scripts of private limited companies and was treated as off-market trading.
Information from Directorate of Investigation and Survey Proceedings
During the assessment proceedings, information was received from the Directorate of Investigation, New Delhi concerning a search and seizure operation at the premises of the KLJ Group and a consequential survey at the assessee’s office at Kolkata.
The director of the assessee, Rajesh Kumar Surana, had given a statement on oath during the survey proceedings. According to the material considered by the Assessing Officer, he admitted that the assessee’s entry operator was involved in providing bogus entries for purchase and sale of investments, share applications and similar transactions against commission on the total transaction amount.
On the basis of the information and material available, the Assessing Officer issued a show-cause notice setting out the relevant particulars and informed the assessee that the information indicated that it did not have real business activity and that the share trading loss was bogus.
Assessment Order and First Appeal
The assessee was given sufficient time to respond to the show-cause notice but did not submit a reply. The Assessing Officer accordingly completed the assessment under Section 143(3) by order dated 16.12.2016 and disallowed the share trading loss of Rs. 1,97,94,148/- as bogus.
The assessee appealed before the Commissioner of Income Tax (Appeals), Lucknow-3. The CIT(A) dismissed the appeal by order dated 24.04.2023. The High Court noted from paragraph 4.1 of the CIT(A)’s order that the assessee did not participate in the appellate proceedings despite several opportunities.
ITAT Deletes the Addition
The assessee challenged the CIT(A)’s order before the Income Tax Appellate Tribunal, Kolkata. The Tribunal allowed the appeal through its order dated February 29, 2024.
The Revenue challenged the Tribunal’s decision before the Calcutta High Court under Section 260A of the Act, raising four substantial questions of law concerning the deletion of the Rs. 1,97,94,148/- addition, the evidentiary value of the statement recorded during survey proceedings, the Tribunal’s powers under Sections 254(1) and 255(6), and the retraction of the director’s statement.
Calcutta High Court’s Findings
Tribunal’s Finding Regarding Evidence Was Factually Incorrect
The High Court held that the Tribunal’s finding that the assessee had filed evidence before the Assessing Officer was factually incorrect. According to the Court, the assessee had responded to the statutory notices under Sections 143(2) and 142(1), but after the show-cause notice proposing to treat the share trading loss as bogus, the assessee did not substantiate the loss with documents and did not appear before the Assessing Officer.
The Court held that this aspect had been lost sight of by the Tribunal.
Retraction of Director’s Statement
The Tribunal had stated that the director’s statement dated 22.03.2016 had been retracted through an affidavit. The High Court noted that the alleged retraction was made beyond two years and after the assessment had already been completed on 16.12.2016.
The Court held that the Tribunal ought to have taken note of the legal position and rejected the retraction as an afterthought. The Court further observed that even if the Tribunal intended to examine the retraction, it should have considered whether the retraction was valid. According to the Court, no such exercise had been undertaken.
Finding Regarding Cross-Examination
The High Court also considered the Tribunal’s observation that the assessee had not been given an opportunity of cross-examination.
The Court found nothing on record indicating that the assessee had requested cross-examination. It therefore held that the Tribunal’s finding on this aspect was contrary to the facts.
Tribunal Order Held Perverse
After considering the factual background and the material on record, the High Court held that the Tribunal’s impugned order was perverse and an outcome of non-application of mind. The Court found that the Tribunal had failed to appreciate the factual background and the assessee’s conduct during the assessment and appellate proceedings.
The High Court accordingly concluded that the Tribunal’s order required interference.
Final Decision
The Calcutta High Court allowed the appeal filed by the Revenue. The impugned Tribunal order was set aside and the Assessing Officer’s order dated 16.12.2016, as affirmed by the CIT(A) dated 24.04.2023, was restored.
Consequently, the substantial questions of law were answered in favour of the Revenue.
Cases Discussed
- PCIT vs. Swati Bajaj — ITA no. GA/2/2022 dated 14.06.2022.
- Hukum Chand Mills Limited Versus CIT — Civil Appeals Nos. 411 to 415 of 1965.
FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT
The Court: This appeal filed by the revenue under Section 260A of the Income Tax Act, 1961 (the Act) is directed against the order dated February 29, 2024 passed by the Income Tax Appellate Tribunal, A- Bench, Kolkata (the Tribunal) in ITA/614/Kol/2023 for the assessment year 2014-15. https://taxguru.in/
The revenue has raised the following substantial questions of law for consideration:
“i. Whether in the facts and in the circumstances of the case the tribunal was justified in law to delete the addition of Rs 1,97,94,148/ made on account of bogus share trading loss claimed by the assessee which could not be substantiated by the assessee and give plausible explanation to the genuineness and the creditworthiness of the transaction in question.
ii. Whether on the facts and the circumstances of the case the tribunal was justified in law to hold that the statement recorded during the survey proceedings has no evidentiary value and further holding that the additions have been made in this merely on the basis of suspicion ignoring the judicial ratio laid down in the case of PCIT vs. Swati Bajaj in ITA no. GA/2/2022 dated 14.06.2022 where Hon’ble HC, Kolkata has held that the Tribunal should have gone deeper in cases of manifested large scam.
iii. Whether in the facts and in the circumstances of the case the tribunal was justified in law in not considering the settled position of law as held in the decision of Hon’ble Apex Court in the case of Hukum Chand Mills Limited Versus CIT in Civil Appeals Nos. 411 to 415 of 1965 that the tribunal has jurisdiction to frame the question raised for the first time since section 254 (1) and section 255 (6) of the Act contemplates the power exercisable by the Tribunal which are akin and equal to that of the power exercisable by the assessing authority which in the instant case the tribunal had not exercised such power which thereby giving rise to perversity for noncompliance?
iv. Whether the Learned Tribunal has committed substantial error in law, by ignoring that the Director of the assessee company has retracted his statement on oath on 22.03.2016 by filing an affidavit after 2 years from giving the said statement on oath after initiation of proceedings, hence the retraction is nothing but an afterthought and should not have been acceded to?”
We have heard Mr. Soumen Bhattacharjee, learned senior standing counsel for the appellant/revenue and Mr. Abhratosh Majumdar, learned senior advocate for the respondent/assessee.
The assessee filed its return of income declaring total income as ‘nil’ which was processed under Section 143(1) where a refund of Rs.22,83,940/- was raised and issued. The case was selected for scrutiny and statutory notices under Sections 143(1) and 142(1) were served on the assessee calling for particulars. In compliance with the same the authorised representative of the assessee appeared from time to time and explained the return and submitted the details called for. Upon perusal of the accounts and details, the Assessing Officer noted that the assessee is a NBFC involved in trading and investment in shares. Interest on loan was received during the relevant period to the tune of Rs.2,45,85,201/- and the net result of trading in shares is loss of Rs.1,97,94,148/-. After deducting other business expenditures, the net income was arrived at Rs.14,48,008/- which was fully set off against brought forward loss and the assessee company filed its return for the assessment year under consideration showing ‘nil’ income. On going through the details, the Assessing Officer found that the assessee company acquired its loss from share trading to set off its return income to escape tax and further also from that the entire trading in shares was in the script of private limited companies which was treated off market. In the meantime, information was received from the Directorate of Investigation, New Delhi that a search and seizure operation was carried out in the premises of KLJ Group and consequential survey had taken place in the office of the assessee at Kolkata. The director of the assessee Rajesh Kumar Surana had given a statement on oath where he admitted that the assessee company’s entry operator had involved in giving bogus entry for purchase and sale of investment, share application etc. against commission on total transaction amount. With this fact a show-cause notice was served on the assessee setting out all the relevant particulars and the assessee company was informed that the information shows that the assessee company does not have any real business activity and the loss shown from trading in shares is bogus. The assessee was directed to show-cause as to why the share trading loss of Rs.1,97,94,148/- should not be disallowed as bogus loss. Sufficient time was granted to the assessee to respond to the show-cause notice. The assessee though received the show-cause notice did not submit any reply and, therefore, the Assessing Officer proceeded and completed the assessment by passing an order dated 16.12.2016 under Section 143(3) of the Act.
The assessee filed an appeal before the Commissioner of Income Tax (Appeals), Lucknow-3. The appeal was dismissed by an order dated 24.4.2023 and from paragraph 4.1 of the said order it is evidently clear that the assessee did not participate in the proceedings and despite several opportunities granted by the appellate authority, the assessee did not appear before the appellate authority. Thus, the conduct of the assessee before the Assessing Officer as well as before the appellate authority would clearly show that they were avoiding the proceedings despite knowing the consequences. In such a factual background the appellate authority considered all the grounds raised by the assessee and dismissed the appeal. The assessee filed an appeal before the Tribunal challenging the order passed by the CIT(A), Lucknow-3. The Tribunal has allowed the appeal by the impugned order for which the revenue is aggrieved.
At the very outset, we need to point out that the order passed by the Tribunal is absolutely perverse and calls for interference. We support such conclusion with the following reasons:
The Tribunal has rendered a finding that the assessee has filed evidences before the Assessing Officer as called for during the course of assessment proceedings. This is an absolutely factually incorrect statement since the response of the assessee was to the statutory notices issued under Section 143(2) and 142(1) of the Act. After the assessee responded and furnished details, a show-cause notice was issued proposing to treat the share trading loss as a bogus loss. Admittedly, the assessee could not substantiate with documents that the share trading loss was a genuine loss. The assessee did not appear before the Assessing Officer. Therefore, this aspect of the matter has been lost sight of by the learned Tribunal. Apart from that, the learned Tribunal has stated that the statement given by the director on 22.3.2016 has been retracted by filing an affidavit. Admittedly, the alleged retraction is beyond the period of two years, that too after the assessment was completed by order dated 16.l2.2016. Therefore, the Tribunal ought to have taken note of the legal position and rejected such retraction as an afterthought. Even assuming that the learned Tribunal wanted to examine the retraction then the learned Tribunal should have gone into the facts and found as to whether the retraction was a valid retraction. No such exercise was done by the learned Tribunal rendering the impugned order as totally erroneous. That apart, the learned Tribunal has stated that the assessee has not been given an opportunity of cross-examination. There is nothing on record to indicate that the assessee made such a request for cross-examination. Therefore, we are at a loss to understand as to how the learned Tribunal could have accorded to such a finding which is contrary to facts. Thus, the impugned order being perverse and outcome of non application of mind, without appreciating the factual background and the non-cooperative attitude of the assessee requires to be set aside.
Accordingly, the appeal filed by the revenue is allowed. The impugned order is set aside and the order passed by the Assessing Officer dated 16.12.2016 as affirmed by the CIT(A) dated 24.4.2023 are restored. Consequently, the substantial questions of law are answered in favour of the revenue.
