Order passed u/s 147 not borne out of any record is non-est

Saarthak Vanijya India Pvt Ltd Vs DCIT (ITAT Delhi)

ITAT Delhi held that order passed by AO u/s 147 of the Income Tax Act not borne out of any record is non-est in the eyes of law.

Facts- The assessee is engaged in the business of manufacturing of other paper articles. Return of income for AY 2013-14 was filed by assesses on 16.09.2013. Assessment u/s 153A was completed on 31.03.2016. The case of the assessee was re-opened u/s 148 of the I.T. Act, 1961. Accordingly, notice u/s 148 of the I.T. Act, 1961 dated 17.03.2021 was issued and served on the assessee. The Assessing Officer disallowed the loss of Rs.99,42,838/- and added it back to the total income of the assessee being bogus loss and also added an amount of 3,27,45,176/- being 2% of commission for availing bogus loss.

Notably, from the data made available under Project Falcon on the ITBA, the AO held that the assessee has purchased stock options for an aggregate / premium value amounting to Rs.82,14,35,931/- and sold the same for an aggregate premium value of Rs. 81,58,22,900/- resulting loss of Rs. 99,42,838/-.

Conclusion- Hence, it can conveniently held that the reasons derived by the AO on the alleged ground of income escaping assessment aggregating to Rs.4,26,88,014/- which consists of Rs.99,42,838/- being claim of artificial loss from trade reversal on Stock Exchange and the belief that the assessee has incurred an amount of Rs.3,27,45,176/- as commission paid for obtaining a loss of Rs.99,42,838/- is beyond logic and not borne out of any record. Hence, the order passed by the Assessing Officer u/s 147 dated “Nil” is to be treated non est in the eyes of law.

FULL TEXT OF THE ORDER OF ITAT DELHI

The present appeal has been filed by the assessee against the order of ld. CIT(A)-29, New Delhi dated 08.06.2022.

2. The assessee has raised the following grounds of appeal:

“1(i) That on the facts and circumstances, the CIT(A) was not justified in upholding the validity of notice u/s 148 dated 17/03/2021 even though the same was issued without recording proper reasons in terms of provisions of section 147 of the Income tax Act, 1961.

(ii) That the original assessment having been completed u/s 143(3)/ 153A vide order dated 31/03/2016 after detailed scrutiny, the assumption of jurisdiction u/s 147 after expiry of four years from the end of the assessment year in absence of any case of failure in terms of first proviso to section 147, the notice u/s 148 is invalid and barred by limitation.

(iii) That the loss suffered in trading in derivative segment on recognized stock exchange being part of record, the reopening u/s 147 is on account of re-appreciation of facts already on record and tantamount to change of opinion and as such the notice u/s 148 is not sustainable under the facts and law.

(iv) That the reasons for reopening having been recorded merely on the basis of information from investigation wing and in absence of any specific tangible material, the notice u/s 148 is illegal and not

2(i) That the reopening being without application of mind and without requisite enquiry, is not justified under the law as merely based on borrowed satisfaction.

(ii) That the allegation of non-genuine loss of Rs. 99,42,838/- and cash expenses of Rs. 3,27,45,176/- being purely based on conjectures and surmises and in absence of there being any adverse material or evidence against the appellant, the entire basis of reopening is mechanical and bad in law.

3. That the loss incurred in derivative segment on recognized stock exchange being genuine and allowable in terms of proviso to section 43(5) of the Income Tax act, 1961, there is no case of escapement of income in terms of section 147 of the Income Tax Act, 1961 and consequential reopening u/s 147 of the Income Tax Act, 1961.

4. That on the facts and circumstances of the case, the CIT(A) has erred in upholding the notice u/s 148 issued without proper approval in terms of section 151 of the Income Tax Act, 1961.

5(i) That on the facts and circumstances of the case, the CIT(A) has grossly erred in treating the loss of Rs. 99,68,982/- suffered in trading in derivative of recognized stock exchange as speculative loss thereby upholding the addition made by the assessing officer in total disregard to the provisions of section 43(5) of the Income tax Act, 1961.

(ii) That there being no dispute about genuineness of loss suffered, the CIT(A) was not justified in treating the same is speculative.

6(i) That on the facts and circumstances of the case, the CIT(A) was not justified in upholding addition to the extent of Rs. 1,99,380/- on the alleged ground of commission paid even though the impugned addition is purely on notional basis and not sustainable.

(ii) That once the genuineness of transaction carried out on recognized stock exchange stood accepted by CIT(A), the allegation of commission payment is inconsistent, self defeating and without any basis.

(iii) That in absence of there being any case of accommodation entry or payment of so-called commission, the addition is illegal and on arbitrary ”

3. The assessee is engaged in the business of manufacturing of other paper articles. Return of income for AY 2013-14 was filed by assesses on 16.09.2013. Assessment u/s 153A was completed on 31.03.2016. The case of the assessee was re-opened u/s 148 of the I.T. Act, 1961. Accordingly, notice u/s 148 of the I.T. Act, 1961 dated 17.03.2021 was issued and served on the assessee. The Assessing Officer disallowed the loss of Rs.99,42,838/- and added it back to the total income of the assessee being bogus loss and also added an amount of 3,27,45,176/- being 2% of commission for availing bogus loss.

Reasons recorded for re-opening:

4. In this case, information has been received by the AO under Project Falcon from DGIT(Investigation), Mumbai on 03.2020 through the Income-tax Business Application regarding (coordinated and premeditated) trading on the United Stock Exchange of India by engaging in reversal trades in illiquid stock options resulting in non-genuine business loss/gains to the beneficiary assessee and that the present assessee is a party to such manipulation.

5. From the data made available under Project Falcon on the ITBA, the AO held that the assessee has purchased stock options for an aggregate / premium value amounting to Rs.82,14,35,931/- and sold the same for an aggregate premium value of Rs. 81,58,22,900/- resulting loss of Rs. 99,42,838/-.

6. Both, buy and sell trades have been executed through the following brokers on the United Stock Exchange (USE) of India:

7. Analysis of information received by the AO: On perusal of materials available under Project Falcon on ITBA, and from perusal of statement of Shri Prakash Kumar Jajodia, Director of Share Broking company M/s Concord Vinimay Pvt Ltd, (Annexure of the report) recorded under section 131(1 A) of the Income-Tax Act, 1961 during the course of survey action under section 133A of the Income-tax Act, 1961 in the case of M/s Concord Vinimay Pvt. Ltd., it was observed that Prakash Kumar Jajodia, admitted that he along with his brother Kishan Kumar Jajodia were engaged in providing accommodation entries to various beneficiaries in lieu of commission in cash after charging fixed percentage of commission till FY 2015-16.

8. A Statement of Shri Vinay Jajodia, Director of Share Broking company M/s GIBIRAJ STOCK BROKING PVT LTD, was recorded under section 131(1A) of the Income-Tax Act, 1961 during the course of survey action under section 133A of the Income-tax Act, 1961. It is observed that Shri Vinay Jajodia, admitted, that he charged brokerage charges of total trade.

9. Enquiries made by the AO: as sequel to information collected/ received: On perusal of return filed, it is seen that the assessee did not claim the current year loss in its return of income filed for AY 2013-14. Thus, the assessee has failed to disclose truly and fully all material facts concerning its income for the assessment year under consideration.

10. Findings of the AO: From the information received from the DDIT(Investigation), Mumbai, it is found that the assessee company have been trade through M/s Concord Vinimay Pvt. And M/s Giriraj Stock Broking Pvt. Ltd. and booked losses.

These companies directors have accepted in their statements which were recorded during the survey operation conducted on these companies that they are providing accommodation entries to various beneficiaries in lieu of commission in cash after charging fixed percentage of commission till F.Y. 2015-16.

11. Following the case analogy in the case of the present assessee, the amount of such cash commission paid for availing non-genuine loss and paid commission @ 2% in cash works out as under:

12. Basis of forming reason to believe and details of escapement of income: In view of the foregoing facts, it is clear that the assessee has benefitted from engaging in reversal trades in illiquid stock options on the USE/BSE resulting in non-genuine loss amounting to Rs.99,42,838/- which has not been disclosed by the assessee and incurred cash expenses amounting to Rs. 3,27,45,176/-.

13. In view of the above information, the AO held that there were reason to believe that the amount of Rs.4,26,88,014/- (99,42,838 + 3,27,45,176 artificial loss and commission paid by M/s Saarthak Vanijya India Ltd. illegal scam of trading in shares and securities) is an income chargeable to tax which has escaped assessment for AY 20 13-14 in the case of assessee.

14. The ld. CIT(A) determined the commission paid by the assessee at Rs.1,99,380/- on the loss earned by the assessee of 99,42,838/-. The revenue has not filed any appeal against the order of the ld. CIT(A).

15. Heard the arguments of both the parties and perused the material available on record.

16. The pertinent facts are as under:

• The assessee did not claim the losses incurred.
• The case has been assessed u/s 153A of the Income Tax Act, 1961.
• The Giriraj Stock Broking Pvt. Ltd. who is a stock broker registered with BSE has categorically informed the ACIT that the assessee was never their client.
• Copies of the contract note have been examined.
• Notification No. 12/2011 [F.No. 142/20/2010-SO(TPL)] dated 25.02.2011. In exercise of the powers conferred by clause (ii) in the Explanation to clause (d) of the proviso to clause (5) of section 43 of the Income Tax Act, 1961 (43 of 1961), read with rule 6DDB of the Income Tax Rules, 1962, the Central Government hereby notifies the United Stock Exchange of India Ltd. as a recognized stock exchange for the purpose of the said clause with effect from the date of publication of this notification in the Official Gazette.

17. Hence, it can conveniently held that the reasons derived by the AO on the alleged ground of income escaping assessment aggregating to Rs.4,26,88,014/- which consists of Rs.99,42,838/- being claim of artificial loss from trade reversal on Stock Exchange and the belief that the assessee has incurred an amount of Rs.3,27,45,176/- as commission paid for obtaining a loss of Rs.99,42,838/- is beyond logic and not borne out of any record. Hence, the order passed by the Assessing Officer u/s 147 dated “Nil” is to be treated non est in the eyes of law.

18. In the result, the appeal of the assessee is allowed.

Order Pronounced in the Open Court on 23/05/2023.