The DCIT, Circle-4(1)(1), Ahmedabad V. Shubhlaxmi Infrastructure Pvt. Ltd, Ahmedabad

ITA 100/AHD/2020

AI Insights

The case involves the Revenue appealing against the order of the CIT(A) which had deleted the disallowance of a bogus loss from currency derivative transactions amounting to Rs. 6,96,69,731. The assessee, Subhlaxmi Infrastructure Pvt. Ltd., engaged in civil construction, had incurred a substantial loss in currency derivative transactions on the MCX Exchange within a short period. The AO deemed this loss as bogus, citing lack of substantial evidence and the involvement of a broker known for providing accommodation entries. The CIT(A) reversed the AO's decision, leading to the Revenue's appeal. The Tribunal found that the CIT(A) had not adequately addressed critical issues raised by the AO, including the unusual nature of the transactions and the broker's background, and thus set aside the CIT(A)'s order for a re-evaluation.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124710 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2023
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 14-03-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 27-01-2020
• Other Referred Cases: Sumati Dayal vs. CIT, PCIT vs. Swati Bajaj
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Accommodation entries
• Section: 142(1); 133(6); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I .T .A . N o . 1 0 0/ A h d /2 0 20 ( A s se ss m e nt Y e a r : 20 12- 13 ) D C IT C ir cl e - 4 ( 1) ( 1) , A h m e da ba d V s. Su bh la x m i I n f ra s tr u ct u r e Pv t. Ltd . 18 , A mb ik a B h a w a n, B h u ya n gde v S o ci e t y, N r . A x i s B a nk , So l a R o a d , G h a tl od i ya , A h m ed aba d [ P A N N o. A A J C S 0 7 0 6 M ] (Appellant) .. (Respondent) Appellant by : Shri Tushar Hemani, Sr. Adv. & Shri Parimalsinh B. Parmar, A.R. Respondent by: Shri Durga Dutt, CIT D.R. D a t e of H ea r i ng 15.03.2023 D a t e of P r o no u n ce me nt 26.04.2023 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Revenue against the order passed by the Ld. CIT(Appeals)-8, (in short “CIT(A)”), Ahmedabad in Appeal No. CIT(A)-8/87/15-16 vide order dated 14.11.2019 passed for Assessment Year 2012-13. 2. The Revenue has taken the following grounds of appeals:- “1. Whether the Ld. CIT(A) has erred in law and on facts in deleting the disallowance of bogus loss from currency derivative transaction of Rs. 6,96,69,731/-?” ITA No. 100/Ahd/2020 DCIT vs. Subhlaxmi Infrastructure Pvt. Ltd. Asst.Year –2012-13 - 2 - 3. The brief facts of the case are that the return of income was filed by the assessee on 26.09.2012 declaring total income of Rs.3,32,54,719/-. The assessee is engaged in the business of Civil Construction. During the course of assessment proceedings, the AO observed that assessee has debited loss of Rs. 7,04,43,296/- from transactions in currency derivatives. The AO issued noticed dated 13.10.2014, under Section 142(1) to the assessee, which remained uncomplied with. The AO again issued notice dated 16.01.2015 and the assessee filed reply on 02.02.2015 by Tapal (Post). In the said submission, no contract notes in support of loss were submitted by the assessee. The AO observed that all the transactions of currency derivatives was carried out by the assessee on MCX Exchange between period 27.02.2012 to 22.03.2012 and thus resulting into a loss of Rs. 7,06,43,296/-. The AO observed that the assessee used the services of a broker namely M/s. Marigold Vanijya Pvt. Ltd., which is based out of Calcutta and does not have any officer or branch in Ahmedabad. In order to verify the genuineness of the above transaction, since the assessee had incurred a substantial loss of Rs. 7.06 crores only within a gap of one month, the AO issued notice under Section 133(6) to MCX Exchange vide letter dated 12.12.2014. Thereafter, the AO issued notice under Section 142(1) of the Act to the assessee dated 19.02.2015 calling for details regarding the aforesaid loss. In response thereto the assessee filed request for adjournment on 25.02.2015. Thereafter, assessee filed reply dated 02.03.2015 during the course of personal hearing on 05.03.2015. However, the AO observed that in the aforesaid reply, the assessee did not give details how he came ITA No. 100/Ahd/2020 DCIT vs. Subhlaxmi Infrastructure Pvt. Ltd. Asst.Year –2012-13 - 3 - in to contact with the above mentioned broker based out of Calcutta and also did not furnish the details of communication between the assessee and the broker. Further, the AO also issued summoned to the directors of the assessee company and asked the director of the company to explain whether there was any resolution by the Board of Directors with regards to carrying out transactions in currency derivatives as it was not the regular business of the assessee. However, the director of the assessee company could not respond to the aforesaid query raised by the AO. Accordingly, AO was of the view that it was unusual for the assessee company, which was engaged in the business of civil construction to have incurred a substantial loss of Rs. 7.06 crores on the MCX Exchange and that too by way of dealing with a broker situated at Calcutta and within a very brief period of 1 month only. On enquiry being carried out by the AO with the jurisdictional AO of the aforementioned broker in Calcutta, it was found out that the above mentioned broker is engaged in providing bogus / loss entries to willing customers in return for the commission of 0.25% to 0.5%. Statement under Section 132(4) of the Act was recorded of Shri Sachet Sharaf, who was director in the above mentioned broker company in which he admitted that he used to give bogus loss / profit accommodation entries to willing customers in return for commission in cash. The AO further observed that the list of beneficiaries recovered from the premises of the above mentioned broker contained the name of the assessee company which was also made part of the appraisal report filing in this regard. Accordingly, the AO was of the view that the assessee had procured accommodation entry of loss from ITA No. 100/Ahd/2020 DCIT vs. Subhlaxmi Infrastructure Pvt. Ltd. Asst.Year –2012-13 - 4 - the above mentioned broker and therefore, the loss incurred by it is a bogus loss. Further the AO observed that on analysis of the derivative transaction carried out by the assessee on the MCX Stock Exchange, it was found that the only loss which comes out of the real transactions were actually carried out on the exchange was of Rs. 9,73,567/- only and not Rs. 7,06,43,296/- as given by the assessee. Similarly, the AO observed that there was mismatch in the number of trades also. In view of the above analysis, the AO held that the maximum loss which can be allowed to the assessee is only Rs. 9,73,576/- and therefore, the balance loss is a bogus loss, being only an accommodation entry. The AO issued a show-cause notice dated 16.03.2015 and copy of statement of Shri Kakalbhai Modh and Shri Sachet Saraf, directors of the broker company alongwith data provided by exchange was also provided by the assessee alongwith the show-cause notice. In response to the same, the assessee filed reply dated 20.03.2013 alongwith copy of contract notes in Tapal (by Post). In the said submission, the assessee submitted that the mismatch in the data in the exchange and the trade recorded by the assessee was due to some mistake on the part of the exchange. Further, the assessee also requested for an opportunity to cross-examine the brokers. After taking the submissions of the assessee on record the AO made an addition of Rs. 6,96,69,731/- on the ground that the same is only a bogus loss and only an accommodation entry. Further, the request of the assessee to allow cross-examination of the broker was denied on the ground that it was not possible at the fag end of the year who summon the broker for the purpose of cross-examination by the assessee. ITA No. 100/Ahd/2020 DCIT vs. Subhlaxmi Infrastructure Pvt. Ltd. Asst.Year –2012-13 - 5 - 4. In appeal before CIT(A), he allowed the appeal of the assessee on the following basis:- (i) Statement of Shri Sachet Saraf Director of Marigold Vanijya Pvt. Ltd. (in short “MVPL”) does not prove at all that the impugned loss is a bogus loss. The CIT(A) observed that name of the assessee does not appear in the statement of Shri Sachet Saraf. Further, the opportunity of cross-examination was also not afforded to the assessee despite his specific request. Further, in any case, Shri Sachet Saraf has retracted his statements. Hence, the said statement does not have any evidentiary value. (ii) There is no mismatch between the transactions confirmed by MCX-SX and MVPL. The CIT(A) observed that all the transactions are settled through account payee cheque and are appearing in the bank statement of the appellant. Further, these transactions are supported by contract notes issued by broker, trade number, trade time, contract description, quantity, total amount, brokerage and service tax charged by broker and no discrepancy has found in such details. (iii) The statement of the broker referred by AO in assessment order is not assessee specific and is a general statement. In the assessment order, AO has not referred to any seized material found during the search at the premises of above broker which can prove that assessee has also obtained any accommodation entry from him or has received cash against cheque payment made by appellant towards loss incurred in currency transaction. ITA No. 100/Ahd/2020 DCIT vs. Subhlaxmi Infrastructure Pvt. Ltd. Asst.Year –2012-13 - 6 - There is no cash trade or any transaction which can prove that assessee has obtained accommodation entries from such broker. 5. The Department is in appeal against the order passed by Ld. CIT(A) giving complete relief to the assessee on this issue. Before us, the Ld. D.R. primarily relied upon the observation made by the AO in the assessment order. He further contended that Ld. CIT(A) has not made any specific observation with regard to various issues raised by the Ld. AO in the assessment order. In response, Ld. Counsel for the assessee reiterated the arguments made before Ld. CIT(A) which are primarily to the fact that nothing incriminating as regard assessee’s transaction with MVPL was found during the course of search proceedings, statement of Shri Sachet Saraf, Director of MVPL and other statements do not contain anything incriminating as regards the assessee. The assessee was not allowed an opportunity to cross-examine the Directors of MVPL and on this count as well the assessment order is erroneous and bad in law. There is no mismatch between the transaction confirmed by MCX-SX and MVPL as alleged by the Ld. AO, the assessee has furnished detailed documentary evidences to prove the genuineness of the transaction and the Ld. AO has not been able to point out any discrepancy therein. Accordingly, in the instant facts the Ld. CIT(A) has not erred any facts and in law in giving relief to the assessee with respect to this addition. 6. We have heard the rival contentions and perused material on record. On going through the order passed by Ld. CIT(A), we are of the considered view that Ld. CIT(A) has not made any observations with ITA No. 100/Ahd/2020 DCIT vs. Subhlaxmi Infrastructure Pvt. Ltd. Asst.Year –2012-13 - 7 - respect to certain critical observations / issues raised by Ld. AO during the course of assessment proceedings. The Ld. CIT(A) has afforded relief to the assessee primarily on the ground that the transaction carried out by the assessee are duly supported by substantial documentary evidences, the statement of the Directors of MVPL have no evidentiary value since the name of the assessee does not appear in the aforesaid statement and further, the said statement was also subsequently retracted by the Directors of MVPL, the assessee was not granted an opportunity of cross-examination in the instant proceedings and the assessee has been able to completely substantiate all transactions duly supported by documentary evidences. However, we observe that the order of Ld. CIT(A) is completely silent on the issue raised by the Ld. AO that it is glaring fact on record that the assessee who is a Civil Contractor has incurred a loss of Rs. 7.06 crores within a period of only one month by engaging in trading activities on MCX-SX Exchange and that through a broker based out of Calcutta who does not have any office in Ahmedabad. Despite being asked, the assessee was not able to give any explanation as to how he came in contact with the aforesaid broker, and the assessee neither furnished copies of correspondences with the aforesaid broker and how he had engaged the services of such broker based out of Calcutta. It is observed that in the case of Sumati Dayal vs. CIT 80 taxmann 89 (SC), the Hon’ble Supreme Court has held that the apparent must be considered real until it is shown there are reasons to believe that the apparent is not the real and that the taxing authorities are entitled to look in to the surrounding circumstances to find out the reality ITA No. 100/Ahd/2020 DCIT vs. Subhlaxmi Infrastructure Pvt. Ltd. Asst.Year –2012-13 - 8 - and the matter has to be considered by applying the test of human probabilities. In the instant facts, in our considered view, Ld. CIT(A) has erred in not making any observations in the appellate order on this crucial aspect of assessee incurring a substantial loss of 7.06 crores on the MCX Stock Exchange within a period of less than one month, especially in light of the fact that assessee is engaged in the business of civil construction with no prior experience of such dealings on MCX Exchange. Further, as observed by the AO the assessee also has not been able to establish as to how and under what circumstances he engaged the services of MVPL, a broker based out of Calcutta who was having no office in the State of Ahmedabad. Further, the AO had made a specific observation in the assessment order at para 4.4 that a list of beneficiaries was recovered from the premises of the broker i.e. MVPL and it contained the name of the assessee company which was also made part of the appraisal report finalized in this regard. The AO observed that the above points out to the fact that assessee has procured accommodation entry of loss from MVPL and therefore, the loss incurred is a bogus loss. However, the Ld. CIT(A) has completely ignored this fact and has held in the appellate order that nothing incriminating as regards the assessee’s transaction with MVPL was found during the course of search proceedings at the premises. Further, we observe that Ld. CIT(A) given relief to the assessee on the basis of documentary evidences furnished by the assessee evidencing the fact that it had given details regarding the transactions carried out at MCX Exchange. Even in the case of PCIT vs. Swati Bajaj 139 taxmann.com 352(Cal) it was observed that the ITA No. 100/Ahd/2020 DCIT vs. Subhlaxmi Infrastructure Pvt. Ltd. Asst.Year –2012-13 - 9 - assessee had filed copy of contract notes in support of purchase and sale of shares, alongwith company details as well as evidences with respect to such claim of exempt income. However, the Calcutta High Court held that evidences put forth by the Revenue regarding entry operation fairly leads to the conclusion that assessee is one of the beneficiaries of accommodation entries receipts. The High Court held that it cannot be a case of intelligent investment or simple tax planning to gain benefit of LTCG earnings @ 491% over period of only 5 months which is beyond human probability and defies business logic of any business enterprises. The Calcutta High Court held that all these facts give credence to unreliability of entire transactions of shares giving rise to such capital gains as per ratio laid down by the Hon’ble Supreme Court in the case Sumati Dayal (supra). Accordingly, we observe that while adjudicating in the favour of assessee the Ld. CIT(A) has erred in completely ignoring the surrounding circumstances and making no observation whatsoever in respect of the fact that assessee incurred a huge loss of Rs. 7.06 crores on the MCX Stock Exchange and that too within a period of 30 days, the fact that assessee incurred such substantial loss through dealings with a broker situated in Calcutta having no office in Ahmedabad, CIT(A) erred in ignoring the fact that the enquiries by investigation was revealed that broker was engaged in providing accommodation entries and in the list of beneficiaries, the name of assessee was appearing as one of the persons receiving accommodation entries etc. Therefore, in light of the above observations, in our considered view, the Ld. CIT(A) has failed to take into cognizance the aforesaid glaring discrepancies raised by the AO as ITA No. 100/Ahd/2020 DCIT vs. Subhlaxmi Infrastructure Pvt. Ltd. Asst.Year –2012-13 - 10 - part of the assessment order, while affording relief to the assessee. In our considered view, the Ld. CIT(A) has failed in making any observation with respect to the aforesaid issues pointed out by the Ld. AO and hence the Ld. CIT(A) has not analyzed the facts and circumstances of the case comprehensively, while adjudicating the issue in favour of the assessee. In light of the above observation, the issue is being set-aside to the file of the Ld. CIT(A) to pass a fresh order in light of the observation / discrepancies pointed out by the Ld. AO in the assessment order. In result, the appeal is set-aside to the file of the CIT(A) with the above observations. 7. In the result, the appeal of the Revenue is allowed for statistical purposes. This Order pronounced in Open Court on 26/04/2023 Sd/- Sd/- (WASEEM AHMED) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 26/04/2023 TANMAY, Sr. PS TRUE COPY आदेश क त ल प अ े षत/ Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad