INCOME TAX OFFICER, MUMBAI V. JATIN JAYANTILAL DESAI, MUMBAI

ITA 3838/MUM/2024

AI Insights

The case involves an appeal by the Income Tax Officer against the order of the CIT(A), which had deleted the disallowance of Rs. 65,26,188/- of losses incurred in derivatives trading by the assessee, Jatin Jayantilal Desai. The AO had initially disallowed these losses based on information from the Investigation Wing, which suggested that the losses were fictitious and part of a scheme to evade taxes through trade reversals in derivatives. The CIT(A) found procedural lapses in the assessment, such as the lack of specific details and the opportunity for cross-examination regarding the statements used against the assessee. The ITAT, while acknowledging the procedural shortcomings pointed out by the CIT(A), decided to remand the matter back to the AO for a thorough re-examination, emphasizing the need for a fair opportunity for the assessee to contest the allegations.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 25630 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2025
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2015-2016
• Other Referred Cases: Union of India and Others V/s Ashish Agrawal, Jute Corp of India Ltd Vs CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RITESH JAIN
• Assessee Lawyers: SUNI MATHEWSSR.
• Keywords: Speculation loss; Tax effect; Opportunity of cross examination; Bogus
• Section: 147; 148; 142(1); 143(2); 250; 143(1)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI BEFORE HON’BLE SHRI SANDEEP GOSAIN, (JUDICIAL MEMBER) & HON’BLE SHRI PRABHASH SHANKAR, (ACCOUNTANT MEMBER) I.T.A. No.3838/Mum/2024 Assessment Year: 2015-16 Income Tax Officer Room No. 502, Piramal Chamber, Lalbaug, Parel, Mumbai-400012 Vs. Jatin Jayantilal Desai 755, Pedder Road Opp. Jaslok Hospital, Mumbai-400026 PAN:AAAPD5443L (Appellant) (Respondent) CO. No. 248/Mum/2024 Assessment Year: 2015-16 Income Tax Officer Room No. 502, Piramal Chamber, Lalbaug, Parel, Mumbai-400012 Vs. Jatin Jayantilal Desai 755, Pedder Road Opp. Jaslok Hospital, Mumbai-400026 PAN:AAAPD5443L (Appellant) (Respondent) Appellant by Shri.Ritesh Jain Respondent by Shri. Suni MathewsSR. D.R. Date of Hearing 16 .01.2025 Date of Pronouncement 05.02.2025 ORDER Per: SHRI. SANDEEP GOSAIN, J.M.: The present appeal has been filed by the revenue and CO filed by the assessee challenging the impugned order dated 04.06.2024, passed u/s 250 of the Income Tax Act, 1961 2 ITA No.3838/Mum/2024 & CO. 248/Mum/2024 Jatin Jayantilal Desai (‘the Act’), by the National Faceless Appeal Centre, Delhi (‘Ld. CIT(A)’) for the assessment year 2015-16. “ 1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 65,26,188/ of losses incurred in derivatives trading ignoring the fact that the action of the Assessing Officer was based on credible Information received from the DGIT Investigation Wing, Mumbai?\" 2. \"Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 65,26,188/ of losses incurred in derivatives trading without appreciating the fact that the assessee has traded through broker NS Broking Put Ltd and the counter parties Odyssey Securities Pvt Ltd & Kalyan Securities Put Ltd, were indulged in generating fictitious profits/losses through derivatives trading?\" 3. “Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 65,26,188/- by ignoring the fact that during the survey proceedings Mr. Harshvardhan Kayan, Managing Director of M/s Kayan Securities Pvt. Ltd has admitted on oath statement that, assessee had traded through the broker NS Broking Pvt. Ltd with counter parties Odyssey Securities Pvt. Ltd. and Kayan Securities Pvt. Ltd and that these trades were pre-arranged, reversal in nature, and conducted merely to generate non-genuine profit or loss?\" 4. The Tax effect involved in this case is Rs. 20,16,592/- , which is below the monetary limit prescribed by the CBDT Circular No 05/2024 Dated. 15.03.2024 However, this appeal u/s 253 of the Act, is being filed before Hon'ble ITAT.as the issue in this case falls under one of the exceptions specified in paragraph 3.1(h) of the CBDT's Circular No. 5/2024 dated March 15, 2024. Hence, this appeal is filed before the Hon'ble ITAT. 5. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary?\" 3 ITA No.3838/Mum/2024 & CO. 248/Mum/2024 Jatin Jayantilal Desai 2. As per the facts of the present case the assessee filed the return of income for the year under consideration which was processed u/s 143(1) of the Act. Subsequently on the basis of information received from the Investigating Wing, Mumbai, the assessment was reopened and notice u/s 148 of the Act was issued. Subsequently after the decision of the Honourable Supreme Court in the case of Union of India and Others V/s Ashish Agrawal in CA No. 3005/2022 notice u/s 148a(b) was issued on 27.05.2022 and another notice u/s 148 was issued on 30.07.2022 In response to the same the assessee filed the return on 30.08.2022 declaring a total income of Rs 5,71,290/-. Notices u/s 143(2) and 142(1) were issued and served. 3. The A.O on the basis of information received from the Investigation Wing Mumbai on the \"tax evasion through trading in illiquid derivatives, option segment, through trade reversal on NSE / BSE / USE\" undertaken through the project Falcon observed that the assessee has traded in currency derivatives through a SEBI registered broker M/s NS Broking Pvt. Ltd. and incurred fictitious losses of Rs. 65,26,128/-. It was further observed by the AO that the counter parties are Odyssey Securities Pvt. Ltd, and Kayan Securities Pvt. Ltd. and as per the report of the Investigation Wing Mumbai these parties were covered under search / survey action. Mr. Harshwardhan Kayan Managing Director of M/s Kayan Securities Pvt. Ltd. has agreed that the trades are prearranged and are reversal in 4 ITA No.3838/Mum/2024 & CO. 248/Mum/2024 Jatin Jayantilal Desai nature undertaken for generating non-genuine profit / loss without doing any actual trading through BSE. The AO on the basis of the information received from the Investigation Wing Mumbai disallowed the said loss and made an addition of Rs 65,26,188/- to the total income of the appellant. 4. Aggrieved by the order of assessment, assessee preferred appeal and Ld. CIT(A) after considering the facts of the case partly allowed the appeal and deleted the additions. 5. Aggrieved by the order of CIT(A) the revenue has challenging the present appeal before us and assessee has also filed cross objection. 6. The facts involved in the appeal and CO are common and hence clubbed and heard together and consolidated order is passed. Firstly we take up revenue appeal in ITA No. 3838/Mum/2024, A.Y 2015-16. 7. All the grounds raised by the department are interrelated and interconnected and relates to challenging the order of CIT(A) in upholding the disallowance of Rs. 65,26,188/- of losses incurred in derivative trading. Therefore we have decided to take up all these grounds together and to adjudicate the same through the present consolidated order. 8. We have heard the counsels for both the parties and have perused the material placed on record, judgement cited 5 ITA No.3838/Mum/2024 & CO. 248/Mum/2024 Jatin Jayantilal Desai before us and the orders passed by the revenue authorities. From the records we noticed that the AO received information which shows that the assessee had shown fiction profits / losses aggregating to Rs. 65,26,188/- during the year under consideration and thus artificially reduced the incidence of taxation on their profit by Rs. 65,26,188/-, which had escaped assessment. Therefore the case of the assessee was reopened u/s 147 of the Act to bring the income escaping assessment to tax for the above said assessment year. 8. As per the facts on record the assessee had traded through broker NS Broking Pvt Ltd which is Kolkata based broker. Further the counter party are Odyssey Securities Pvt Ltd, Kayan Securities Pvt Ltd. Further in this regard statement of Harshvardhan Kayan and Sanjay Bansal were recorded during the survey proceedings and the said Harshvardhan Kayan agreed that the transactions are pre- arranged and are reversal in nature. He further agreed that trades are merely for generating non genuine profit / loss and through this reversal trades the motivation was to generate bogus profit / loss without doing any actual trading through BSE. Although the assessee had traded in currency derivatives through proper banking channels, but the trade was carried on between few entities, some of the entities had intention to procure LTCG and some of the entities required STCL or speculation loss. Therefore, from the trading pattern it was found by the revenue authorities 6 ITA No.3838/Mum/2024 & CO. 248/Mum/2024 Jatin Jayantilal Desai that transaction squared off during the same day. Hence, in this way, fictitious losses generated through intraday trading was pre-planned through illiquid trading of derivatives through the broker form NS broking Private Limited through trade reversal on NSE/BSC for evasion of tax. Hence in this way assessee had also carried out trades which were pre-planned for generating fictitious losses through various brokers, thus additions were made by the AO. 9. The Ld. CIT(A) deleted the said additions by holding that the assessee had solely relied upon the statement of Harshvardhan Kayan of M/s Kayan Securities and apart from that there are no other details of such statement given in the assessment order, as to when the said statement was recorded, under which section it was recorded, date of the statement etc. The Ld. CIT(A) while deleting the addition also mentioned that neither of any such statement is abstracted in the assessment order nor the copies of the same were provided to the appellant during the assessment proceedings. It was further mentioned that the assessee was also not provided with any opportunity to cross examining the persons whose statements were used against the assessee. Even no case had been made out to bring on record that whether any such statement was given with specific reference to the assessee or not and how such statement of Mr. Harshwardhan Kayan can be used against the assessee. Apart from this technical observation Ld. 7 ITA No.3838/Mum/2024 & CO. 248/Mum/2024 Jatin Jayantilal Desai CIT(A) also observed that the trades undertaken by the assessee were through screen based trading platform of registered stock exchange BSE and no case has been made out by the AO that there was any connection or relation between the assessee and the counter parties. It was also pointed out that no specific details as to when the search / survey was conducted and when the statement of said Harshvardhan and Sanjay Bansal were recorded. 11. In our view although the assessee has traded in currency deviation through proper banking channels but trade was carried on between few entities, some of the entities had intention to procure LTCG and some of the entities require STCL or the speculation loss. From the trading it was noticed that transactions squared off during the same day. Therefore in these circumstances fictitious losses generated through intraday trading was pre-planned through illiquid trading of derivatives through the broker from NS Broking Pvt Ltd through trade reversal at NSE / BSE / USE for evasion of taxes. The only reply of the assessee that transaction was genuine as it was through banking channel is not substitutable as the assessee had created fictitious losses in equity / derivative trading of Rs. 65,26,188/- a scam was conducted through the syndicate of share broker, entry operator to provide fictitious loss / profit to the entities who had intention to evade tax, which was detected by the Investigation Wing. 8 ITA No.3838/Mum/2024 & CO. 248/Mum/2024 Jatin Jayantilal Desai Although in our view Ld. CIT(A) was right in point out that there are no other details of such statement given in the assessment order as to when the said statement was recorded, under which section it was recorded, date of statement etc., but at the same time additions cannot be deleted merely because of these irregularities. As in our view, Ld. CIT(A) appeal has coterminous powers with that of AO therefore, in other words, what an assessing officer can do, a Ld. CIT(A) can do and the same applies in the reverse i.e. what an assessing officer cannot do, a Ld.CIT(A) cannot do. Even otherwise an appellate authority, while hearing appeal against the order of a subordinate authority has all the powers which the original authority may have in deciding question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. For this proposition, reliance is placed on the decision of Hon’ble Supreme Court in the case of Jute Corp of India Ltd Vs CIT 1991, AIR, 241. Therefore in our view the interest of justice would be met only in case matter is restored back to the file of AO to provide the complete details of such statement of Mr. Harshavardhan Kayan and Mr. Sanjay Bansal, on whose statement the AO had placed reliance and further AO is directed to provide the complete details of said statement. AO is further directed to provide opportunity to 9 ITA No.3838/Mum/2024 & CO. 248/Mum/2024 Jatin Jayantilal Desai cross examination of such persons, whose statement was used against the assessee and after providing complete details and opportunity of cross examination to the assessee afresh order be passed. With these observations we restore these grounds raised by the department to the file of the AO for denovo adjudication leaving all issues wide open and to pass fresh order after providing opportunity to both the parties as per our above observation. Consequently these grounds raised by the revenue are allowed for statistical purposes. 12. Since we have already decided the appeal filed by revenue in ITA No. 3838/Mum/2024 for AY 2015-16 and remanded the matter back to the file of AO. Therefore in view of our above findings in ITA No. 3838/Mum/2024, the present CO filed by the assessee has become infructuous. 13. In the result the appeal filed by the revenue stands allowed for statistical purpose and CO filed by the assessee become infructuous. Order pronounced in the open court on 05/03/2025 Sd/- Sd/- (PRABHASH SHANKAR) (SANDEEP GOSAIN) Accountant Member Judicial Member Mumbai: Dated: 05/03/2025 KRK, Sr PS 10 ITA No.3838/Mum/2024 & CO. 248/Mum/2024 Jatin Jayantilal Desai Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By order (Asstt. Registrar) ITAT, Mumbai "