Vikas Chowdhary Vs ITO (ITAT Delhi)
It is well settled law that validity of the reassessment proceedings is to be determined on the basis of the reasons recorded for reopening of the assessment. The reasons are reproduced above. The AO as per NMS information which was pushed into the ITD system came to know that assessee has made transactions amounting to Rs. 107.89 crores with National Multi Commodity Exchange. No return has been furnished by assessee. The AO, therefore, deemed that income chargeable to tax assessment in a sum of Rs. 1 lakh or more has escaped assessment. The AO, however, in the assessment order has clearly mentioned that he has also called for information from MCX u/s 133(6) of the IT Act intimating that assessee has suffered loss of Rs. 16,747/-. Thus, assessee did not earn any income or profit from MCX transaction. The loss suffered by assessee out of MCX transaction could never be considered as income chargeable to tax has escaped assessment. The AO did not refer to this statement in the reasons recorded for reopening of the assessment. The AO has not brought any tangible material on record which gives rise to believe that income has escaped assessment. The AO merely on hypothecation of figures estimated that there is a deemed escapement of income of the amount which is likely to amount Rs. 1 lakh or more. No exact amount of income escaping assessment has been mentioned in the reasons for reopening of the assessment. No bank statement or any tangible material or report of investigation conducted u/s 133(6) has been mentioned in the reasons. The AO merely presumed that since assessee did not file the return of income, therefore, there is a deemed escapement of income. This fact is also incorrect and non-existing because the authorities below have accepted in the impugned orders that ultimately assessee has suffered loss of Rs. 16,747/- in MCX transaction in the assessment year under appeal. Thus, assessee was not required to file the return of income u/s 139 of the Act in respect of the loss suffered by assessee in assessment year under appeal. Section 149(1)(b) of the Act provides that “no notice u/s 148 shall be issued for relevant assessment year, — if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to Rs. 1 lakh or more for that year”. The AO in the present case, based his reasons for reopening of the assessment as per NMS information pushed into ITD system and information called u/s 133(6) from MCX. None of these information have provided if assessee has earned income of Rs. 1 lakh or more. Rather it merely provides the amount of the transaction conducted by assessee on MCX and ultimately assessee suffered loss in MCX transaction, therefore, there was no reason for the AO to believe that income chargeable to tax for Rs. 1 lakh or more have escaped assessment. Thus, the conditions of section 149(1)(b) of the Act are not satisfied in the present case. It is condition precedent before invoking jurisdiction u/s 147/148 of the Act that the AO has reason to believe that income chargeable to tax has escaped assessment for any assessment year. However, in the present case, there is no material what to say of tangible material is available on record to establish that AO has reason to believe if income chargeable to tax has escaped assessment. The information of loss receipt from MCX was not deliberately mentioned by the AO in the reasons. Thus, the AO did not have any definite material or information to record/reasons that there is an escapement of income in the case of the assessee. The AO recorded incorrect and non-existing facts in the reasons recorded for reopening of the assessment. The AO did not apply his mind to the material on record before recording reasons for reopening of the assessment. The AO also failed to verify the information so received due to non-application of mind, therefore, reopening of the assessment would be unjustified and is liable to be quashed.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal by assessee has been directed against the order of Ld. CIT(Appeals)-12, New Delhi dated 30.10.2019 for AY 2011-12, challenging the reopening of the assessment u/s 147/148 of the IT Act and addition of Rs. 11,49,060/- u/s 69 of the IT Act.
2. I have heard Ld. Representatives of both the parties through Video Conferencing and perused the material on record.
3. Briefly the facts of the case are that in this case, AIR Information available on record shows that assessee had made share and commodity transactions with Multi Commodity Exchange amounting to Rs. 107,89,34,900/- during assessment year under appeal and no return has been filed. The AO, therefore, initiated reassessment proceedings u/s 147 of the IT Act and issued notice u/s 148 to the assessee on 31.03.2018. The AO noted that there is no compliance to the statutory notices. The AO further noted that during the assessment year under appeal assessee had made transactions in commodity with Multi Commodity Exchange (MCX) amounting to Rs. 107,89,34,900/-. Further information was called from MCX u/s 133(6) of the IT Act which shows that assessee had trading in Market to Market (MTM) and result is showing loss of Rs. 16,747/-. This loss is not declared in the return of income. The AO, therefore, estimated the income of assessee at Rs. 5 lakhs for doing the business activity. The AO also observed that generally it is seen that the broker takes/uses the margin money for trading which is provided by the client for initial trading given to the broker to exposure upto ten times of the margin money. AO further observed that the first transaction of the assessee was to the tune of Rs. 1,14,90,600/-. Hence, the amount of Rs. 11,49,060/- is considered reasonable amount be given by assessee to the broker for transaction in MCX. The AO, accordingly, made the addition of Rs. 11,49,060/-.
4. The assessee challenged the reopening of the assessment as well as both the additions before Ld. CIT(A). The submission of the assessee are reproduced in the impugned order in which the assessee briefly explained that there was no tangible material which give rise to believe that income has escaped assessment. Since assessee did not have any taxable income in assessment year under appeal, therefore, assessee was not liable to file the return of income u/s 139(1) of the Act. In fact in MCX transaction for assessment year under appeal, assessee has suffered loss of Rs. 16,747/- which would not disclosed any escapement of income. Thus, the AO did not apply his mind for recording the reasons for reopening of the assessment. The reasons are based on guess work only. No exact amount is specified in the reasons for escapement of income. No bank account or any tangible material is brought on record for recording the reasons for reopening of the assessment. No prior enquiry is made u/s 133(6) of the IT Act or 142 of the Act prior to recording the reasons. Since no amount is quantified, therefore, it could not be unexplained investment made by assessee. When foundation fails, the super structure falls. The assessee relied upon judgment of the Delhi High Court in the case of G&G Pharma India (ITA No. 545/2015) and Meenakshi Overseas (ITA No. 692/2016), etc. It was submitted that there is no nexus or live link between the material which had come to the notice of AO to form the belief that there was escapement of income in the case of the assessee. Both the additions are made without bringing any material against the assessee. The assessee paid only Rs. 100/- for opening the DMAT account in M/s Karobaar Commodities Pvt. Ltd. from his saving bank account. The assessee has given petty amount in cash as margin money which is non-taxable quantum income up to Rs. 1,60,000/-for intraday transaction. This would indicate that as per annexure obtained from MCX the amount was only Rs. 71,360/-, therefore, margin money which could have given by the assessee can never be more than Rs. 1 lakh, therefore, margin money taken by the AO of Rs. 11,49,060/- is absolutely baseless and based on mere imagination only. The Ld. CIT(A) did not accept the contention of the assessee and confirm the reopening of the assessment. However, Ld. CIT(A) noted that addition of Rs. 5 lakh is made merely on guess work because the AO has obtained information from MCX that assessee suffered loss amounting to Rs. 16,747/- u/s 133(6), therefore, addition of Rs. 5 lakh was deleted. The Ld. CIT(A), however, confirm the addition of Rs. 11,49,060/- because complete details of the broker have not filed.
5. Ld. Counsel for assessee reiterated the submissions made before authorities below and has referred to copy of the reasons recorded for reopening of the assessment, copy of which is filed at page 37 of the appeal paper which is reproduced as under:
