Rajesh Kumar Khandelwal, JAIPUR V. Income Tax Officer, Ward – 2(1), Jaipur

ITA 14/JPR/2022

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 6460 (ITAT-JAIPUR)
• Duration Of Justice: 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-08-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 10-01-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Transactions in derivatives; Set aside
• Section: 147; 131; 68; 148; 271(1)(c); 143(3); 119

Judgement Text

vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR MkWa- ,e- ,y- ehuk] ys[kk lnL; ,oa MkWa- ,l- lhrky{eh] U;kf;d lnL; ds le{k BEFORE: DR. M.L. MEENA, AM & DR. S. SEETHALAKSHMI, JM vk;dj vihy la-@ITA. No. 14/JP/2022 fu/kZkj.k o"kZ@Assessment Years : 2010-11 Rajesh Kumar Khandelwal 114, Raja Colony, New Mandi Road, Dausa-303303. cuke Vs. Income Tax Officer, Ward-2(1), Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ASBPK0587D vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj l s@ Assessee by : None (Written Submission) jktLo dh vksj ls@ Revenue by : Shri Manoj Mehar (CIT) a lquokbZ dh rkjh[k@ Date of Hearing : 25/05/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 16 /08/2022 vkns'k@ ORDER PER: DR. S. SEETHALAKSHMI, J.M. This appeal by the assessee is directed against the order of the ld. CIT(A), National Faceless Appeal Central, Delhi [hereinafter referred to as (NFAC] dated 27.12.2021 for the AY 2010-11. 2. The assessee has raised the following grounds:- “1Under the facts and circumstances of the case the order passed by the Learned AO u/s 147/143(3) of the Income Tax Act, 1961 is void ab-initio and deserves to be quashed. 2. Under the facts and circumstances of the case the Learned CIT(A) has erred in confirming the addition of Rs. 54,29,800/- made by the learned ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 2 AO by treating the commodity transactions as fictitious/bogus and accommodation entry. 3. Under the facts and circumstances of the case the learned CIT(A) has erred in confirming the addition of Rs. 1,63,189/- on account of alleged commission paid @ 2% on alleged accommodation entry.’’ 3. None has appeared on behalf of the assessee, however Bench has decided to dispose of the appeal based on the written submissions dated 18-05- 2022 filed by the assessee and the materials available on record. 4. Brief facts of the case are that the assessee is an individual and is engaged in commodity trading. Return was filed on 19.09.2017 in response to notice u/s 148 dated 30.03.2017 declaring total income at NIL. The Assessing Officer has completed the assessment u/s 148/143(3) of the Income Tax Act, 1961 on 18.12.2017 inter-alia making the addition of Rs. 54,29,800/- by treating the commodity transactions as fictitious/bogus and accommodation entry. He has also made addition of Rs. 1,63,189/- on account of alleged commission paid @ 2% on alleged accommodation entry. 5. Aggrieved by the order of the Learned Assessing Officer the assessee preferred appeal before the Learned CIT(A). The Learned CIT(A) has confirmed the action of the Learned Assessing Officer and sustained the additions. 6. The AO assessed at Rs. 54,76,970/- u/s 143(3) read section 147 of the Income Tax Act, 1961 showing calculation of tax and interest chargeable, if any, is attached herewith forming part of this order. Charge interest u/s 234A/ 234B/234C and 234D, if any, a peer rules. Penalty proceedings u/s 271(1)(c) are initiated separately. ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 3 7. Being aggrieved by the AO the assessee preferred an appeal before the ld. CIT(A) and the findings are reproduced as under:- “4.3 I have carefully gone through the assessment order as well as the submissions filed by the appellant. It is clear from the facts of the case that the appellant was one of the beneficiaries of the misuse of NMCE platform which had come to light because of search action by the Investigation Wing of the Income-tax Department. It is further seen that the brokers through which the appellant had conducted his trades on the NMCE platform were also part of the group of such brokers whose activities were found to be suspicious. It can also been seen from the facts of the case that if the alleged loss of Rs.54,29,800/- were not arranged through the bogus trading of NMCE platform, the profit of the appellant from such transactions would have been at Rs.81,59,450/- whereas by arranging fictitious loss the profit of the appellant came down to Rs.27,29,750/-. It is pertinent to note here that the AO has added the amount arranged through bogus loss on NMCE platform only. The AO had not taken adverse view on transactions done through NCDEX or MCX. As far as transactions through NMCE is concerned the AO had received information from investigation wing that the appellant was one of the beneficiary of malpractices done on NMCE platform. The information received was based on credible investigations carried out by the Directorate of Investigation, and the Appellant's name was specifically mentioned as a beneficiary of bogus transactions entry discovered by such investigations, hence, on the basis of such information, the AO was justified in having a reasonable belief that the income of assessee had escaped assessment. It has been held in the case of Brijmohan Aggarwal vs. ACIT, 268 ITR 400 (All) that report of the Investigation Wing is information on the basis of which the A.O. can come to a reasonable conclusion. The case law mentioned by the appellant (without the citation) are in the context of long term capital gain whereas in this case the addition has been made under the head income from other sources. After considering the facts of the case, I have come to the conclusion that the AO has rightly treated the amount of Rs.54,29,800/- as fictitious loss. It is also a ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 4 general practice that for arranging such transactions some commission is paid by the beneficiaries to the brokers so the addition on this account of Rs.1,63,189/- made by the AO is also confirmed. The grounds of appeal No.1 & 2 are therefore Dismissed.” 8. Being aggrieved by the CIT (A), the assessee preferred an appeal before us. Before the ld AR for the assessee has reiterated its arguments in written submission dated 18.05.2022 which are as under: “The assessee is an individual and is engaged in commodity trading. Return was filed on 19.09.2017 in response to notice u/s 148 dated 30.03.2017 declaring total income at NIL. The learned Assessing Officer has completed the assessment u/s 148/143(3) of the Income Tax Act, 1961 on 18.12.2017 inter-alia making the addition of Rs._ 54,29,800/- by treating the commodity transactions as fictitious/bogus and accommodation entry. Thereafter the assessee demanded for reasons recorded for reopening of the case which was provided to the assessee. Reasons for issuing notice u/s 148 is ab-initio void: - In view of the request of the assessee the Learned Assessing Officer furnished reasons for issuing notice u/s 148. From the perusal of the aforesaid reasons discloses the following: - (i) The Learned Assessing Officer has made reference to a report received from the Investigation Wing, Calcutta wherein it has been concluded that client/member of NMCE were found to be involved in creating artificial volume and suspected evasion of income tax by misuse of NMCE platform. (ii) The Learned Assessing Officer has mentioned that from the report of the Investigation Wing, Calcutta it is gathered that assessee reduced his income to the extent of Rs. 54,29,800/-by misusing of NMCE platform. 3. No working of escaped income: - It is submitted that the perusal of the reasons recorded and facts mentioned above reveals that the Learned Assessing Officer in fact had no ground material for estimating escaped income at Rs. 54,29,800/-. He has not given any details of transactions entered ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 5 into by the assessee, the stock exchange where such transactions were conducted, the amount of transactions, the details of transactions including the scrips and their code number where client code modification was allegedly misused. It is not clear how the Learned Assessing Officer reached and worked out the quantum of escaped income of Rs. 54,29,800/-. He has simply referred to a report by Investigation Wing Calcutta but the contents of the report have not been mentioned. In the absence of the details the Learned Assessing Officer had no basis no ground for reaching to a conclusion that there was escapement of income. It is the material available and analysis of such material which can only lead to a prima-facie view that income chargeable to tax has escaped assessment. If there is no data and there is no analysis then obviously there is no link between a ground and conclusion reached that there was escapement of Income. In such circumstances it is a case where there were no grounds and no reasons for issuing notice u/s 148. Paramount Enterprises vs. Assistant Commission of Income tax Writ petition No. 2495j of 2016 dated 07.12.2016 (Bombay High Court). It is further submitted that in similar circumstances the Bombay High Court in another writ petition 2627 of 2016 in the case of Coronation Industries Ltd vs. DCIT order dated 23.11.2016 quashed the notice issued u/s 148 observing as under: - "We note that the reasons in support of the impugned notice accept the fact that as a matter of regular business practice, a broker in the stock exchange makes modifications in the client code on sale and / or purchase of any securities, after the trading is over so as to rectify any error which may have occurred while punching the orders. The reasons do not indicate the basis for the Assessing Officer to come to reasonable belief that there has been any escapement of income on the ground that the modifications done in the client code was not on account of a genuine error, originally occurred while punching the trade. The material available is that there is a client code modification done by the Assessee's broker but there is no link from there to conclude that it was done to escape assessment of a part of its income. Prima facie, this appears to be a case of reason to suspect ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 6 and not reason to believe that income chargeable to tax has escaped assessment." In view of the aforesaid decisions and the facts of the case being identical, the notice issued u/s 148 may kindly be quashed. In view of the aforesaid decisions and the facts of the case being identical, the notice issued u/s 148 may kindly be quashed. 4. Objections raised remained unsettled: - It is further submitted that after receiving reasons for issuing notice u/s 148 the assessee made objections wherein assessee had specifically mentioned that there are no details of any fictitious transaction/loss relating to understatement of income of Rs. 54,29,800/-. Request was made to provide the details of transactions counter parties, brokers etc. pertaining to misuse of NMCE platform. The objections of the assessee raised before the Learned Assessing Officer against issuance of notice u/s 148 are summarized as under: - (i) The assessee had specifically objected that in the reasons recorded there are no details of any fictitious transaction relating to fictitious loss of Rs. 54,29,800/-. Request was made to provide the details of transactions counter parties, brokers etc. pertaining to misuse of NMCE platform. (ii) There is no material mentioned in the reasons recorded for drawing the conclusion that there was misuse of client code modification. (iii) There are no details in the reasons recorded relating to use of misuse of NMCE or any claim of wrong crediting or non- crediting of transactions in the prime code. These required to be furnished before proceeding further in the matter of assessment. (iv)There is no material establishing any nexus between the misuse of NMCE platform and loss of Rs. 54,29,800/- The above objections raised by the assessee remained unsettled. Before completion of assessment the Learned Assessing Officer did not meet the objections of the assessee, did not provide the ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 7 details required by the assessee in respect of transaction where NMCE platform was misused. The Learned Assessing Officer has passed the assessment order without bringing any such material on record which may establish any nexus for resulting the loss of Rs. 54,29,800/-. On the other hand the Learned Assessing Officer has discussed and devoted para no. 8 in the assessment order in respect of some brokers activities without mentioning how it is relevant and related to the assessee. The be all and end all of the submission of the assessee is that in this case the Learned Assessing Officer has completed the assessment simply on the basis of suspicion, assumption, presumption and conjectures. And it is settled position of law that any suspicion however strong cannot take the place of evidence. The following case laws are quoted in support: - (i) Uma Charan Shaw & Brothers 37 ITR 271 (SC) (ii) CIT vs. Anupam Kapoor 299 ITR 179 (P&H) (iii) CIT vs. Dhiraj Lal Girdhari Lal 26 OTR 736 (iv) Dhakeshwari Cotton Mills 26 ITR 775 (SC) (v) State vs. Gulzari Lal Tondon 1979 AIR 1382 (SC) (vi) J.A. Naidu vs. State of Maharastra 1979 AIR 1537 (SC) It is submitted that the assessment has been completed without settling the objections of the assessee in spirit and law. The Learned Assessing Officer has narrated the objections of the assessee in the assessment order regarding reasons for issuing notice u/s 148 perfunctorily and has not furnished the details required by the assessee which was basis material for completing the assessment. The assessment has been completed simply on the directions contained in the report of the Investigation Wing of the department without providing any opportunity to the assessee. The action of the Learned Assessing Officer is against the settled position of law that objections need to be settled first before completion of assessment otherwise such assessments are liable to be quashed. The following case laws are quoted is support: - ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 8 (I) GKN DRIVESHAFTS (INDIA) LTD. vs. INCOME TAX OFFICER & ORS. (SUPREME COURT OF INDIA) (2003) 259 ITR 19 (SC) Writ—Maintainability of petition—Objection in connection to notice under s. 148—As the reasons have been disclosed in these proceedings, the AO has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment. (ii) COMMISSIONER OF INCOME TAX vs. DEEPAK GUPTA (HIGH COURT OF ALLAHABAD) (2014) 266 CTR (All) 265 There was no search and seizure operation nor any coordinate investigation was required as there was no group of companies nor any incriminating material was seized at any place or places. It was during the course of assessment made by Asstt. CIT, Noida, who had assumed jurisdiction on the ground that he alone could have assessed the assessee as they had their office and business place in Noida, the order under s. 127(2) was obtained by making efforts. According to AO the assessee was seeking repeated adjournments. In the circumstances, it cannot be said that the assessee was either absconding from proceedings or was not available so as to form any opinion that service of notice was not possible. The assessee had filed objections, which were directed to be decided by the High Court. The Tribunal has rightly found that the reasons given by CIT(A) in deciding the objections were not sufficient as the transfer of jurisdiction was made on the request of AO to which objections were filed and were not decided by the AO. It was mandatory for the AO to decide objections and the exercise of discretion on the objections would in any case not validate the notice under s. 147/148. (iii) ALLANA COLD STORAGE LTD. vs. INCOME TAX OFFICER & ORS. (HIGH COURT OF BOMBAY) (2006) 287 ITR 1 (Born) Reassessment—Validity of reassess ment—Objec tion s by assessee vis-a-vis order of AO —The first respo ndent did not decide the objectio ns separ ately wh ich he is duty-bound to decide—Not only that in the first three writ petitions a common order has been passed on the objections as well as for the ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 9 reassessment—In the fourth matter, the assessment order does not disclose any decision on the objections at all and undoubtedly no such decision has been given separately on the objections—That being so, the orders of assessment passed in all these four petitions are quashed and set aside—The first respondent, after hearing the petitioners, will pass separate speaking orders on the objections which the petitioners have filed. (iv) GENERAL MOTORS INDIA (P) LTD. vs. DEPUTY COMMISSIONER OF INCOME TAX (HIGH COURT OF GUJARAT) (2013) 354 ITR 244 (Guj) Reassessment—Notice under s. 148—Maintainability of writ— Writ petition is maintainable where no order has been passed by the AO deciding the objection filed by the assessee under s. 148 and assessment order has been passed or the order deciding objection under s. 148 has not been communicated to the assessee and assessment order has been passed or the objection filed under s. 148 has been decided along with the assessment order— AO having passed reassessment order without first disposing of assessee's objections, the same was liable to be quashed. Ground No. – 2 Under the facts and circumstances of the case the Learned CIT(A) has erred in confirming the addition of Rs. 54,29,800/- made by the learned AO by treating the commodity transactions as fictitious/bogus and accommodation entry. Facts of the case: - The assessee is an individual and is engaged in commodity trading. Return was filed on 19.09.2017 in response to notice u/s 148 dated 30.03.2017 declaring total income at NIL. The learned Assessing Officer has completed the assessment u/s 148/143(3) of the Income Tax Act, 1961 on 18.12.2017 inter-alia making the addition of Rs. 54,29,800/- by treating the commodity transactions as fictitious/bogus and accommodation entry. He has also made addition of Rs. 1,63,189/- on account of alleged commission paid @ 2% on alleged accommodation entry. 2. Brief about client NMCE Platform – ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 10 As per the learned Assessing Officer misuse of NMCE flatform means change of the client codes after execution of trades. Stock Exchanges provide a facility to modify any client code after the trade has been executed to rectify any error or wrong data entry done by the dealers at the time of punching orders. However, such Client Code modification is subject to certain guidelines as to the time limit within which the client code modification is to be carried out, terminal / system on which such modifications can be done etc. The facility is mainly to provide a system for modification of client codes in case "genuine errors" in punching / placing the orders. It is to be used as an exception and not a routine. To prevent misuse of the facility Stock Exchanges levy penalty / fine for all non-institutional client code modifications. 3. Addition made is unlawful, illegal and unjust: - It is submitted that it is a case where the Learned Assessing Officer has passed the assessment order without knowing himself how the addition of Rs. 54,29,800/- is warranted. There is no material, absolutely no facts substantiating any calculation or any working determining concealment of income of Rs. 54,29,800/-. The order passed by the Learned Assessing Officer is clumsy it has discussed everything but not the material facts. Hence the assessment order passed is unlawful, illegal and unjust. In the reasons recorded the Learned Assessing Officer has observed that "As the transaction made at NMCE through the brokers M/s J.K.T. Trading, M/s R.K. Trading, M/s Rupam Trading, M/s Suruchi Trading, M/s R.S. Enterprises are found to be fictitious, hence the total profit shown from these transactions amounting to Rs. 81,49,450/- are treated as income from other sources and transactions amounting to Rs. 54,29,800/- is also treated as fictitious/bogus and the losses shown from these transactions are hereby disallowed." But unfortunately in the entire assessment order the Learned Assessing Officer has failed to furnish the details of entries either of fictitious profit or of losses. The Learned Assessing Officer himself does not appear to be sure whether the fictitious entries were of profits or of losses or whether there were entries at all. He has only mentioned in ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 11 para 5 that on the basis of data analysis, it was found that assessee had also arranged fictitious profit on so called commodity transaction through NMCE by passing certain amount of commission (around 2%) as per statement of dummy parties/brokers recorded during survey and proceedings. It is not understandable that when the Learned Assessing Officer has observed that the assessee has incurred profit of Rs. 54,29,800/- then where is the question of reducing profit by entering into these transactions. The Learned Assessing Officer has not provided details of such entries which he is alleging against the assessee. He has not confronted the assessee with these alleged entries of fictitious profits/losses on the basis of which addition had been made of Rs. 54,29,800/-. The assessee further submits that it has maintained regular books of accounts during the course of business. Such accounts stand audited. The auditors have not pointed out any such misuse of NMCE platform. In similar circumstances in the case of Abhishek Fincap Services Pvt. Ltd. ITA No. 2750/Del/2017 Assessment Year 2010-11 order dated 13.09.2017 the ITAT Delhi Bench deleted the entire addition made by the learned Assessing Officer observing as under:- “5. After considering the rival submissions, I do not find any merit in the appeal of the Revenue. The A.O. has not pointed out any basis or material or evidence to support his findings that assessee received any bogus entry of loss. The A.O. has not given any details how the addition has been worked-out to make the impugned addition against the assessee. The A.O. has not confronted any material or statement which may be incriminating in nature against the assessee so as to prove allegation of receiving accommodation entry of the loss. No material has been brought on record by the A.O. in support of his findings. There is no working given as to how the assessee has taken these loss entries. The Ld. CIT(A) on going through the statements of Kunal Khaleja and Subhash Chandra Khaleja which have been relied upon by the A.O. found that there is no co-relation between a sum of Rs.33,57,951 and the statements of the above broker with the assessee. The finding of fact recorded by the Ld. CIT(A) have not been rebutted through any evidence or material on record. No information is available on record as to how the assessee company has taken loss from these client code modification. ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 12 There is no working given in the assessment order as to how the impugned addition has been calculated by the A.O. and its basis. In the absence of any incriminating material available on record against the assessee, it is difficult to interfere with the findings of the Ld. CIT(A). It may also be noted here that even no details have been brought on record as to from whom assessee has taken the bogus entry of losses. Learned Counsel for the Assessee also demonstrated through P & L A/c that in assessment year under appeal the loss as compared to the earlier year has reduced to zero. Therefore, there is no question of making any addition against the assessee. The Ld. CIT(A) on proper appreciation of facts and material on record, correctly deleted the addition. Since the A.O. did not bring any evidence against the assessee to sustain the addition, therefore, 9 ITA.No.2750/Del./2017 M/s. Abhishek Fincap Services Pvt. Ltd., New Delhi. there is no reason to remand back the matter to the file of the A.O. for reconsideration as is argued by the Ld. D.R. The departmental appeal fails and is dismissed. 6. In the result, appeal of the department is dismissed. In the case of the assessee the facts are totally identical, hence the addition made by the learned Assessing Officer deserves to the dropped. It is further submitted that the case of the assessee is also covered by ITAT Jaipur Bench Jaipur in the case of Noble Industries in ITA no. 911/JP/2016 Assessment Year 2010-11 order dated 23.03.2017. The Hon'ble ITAT Jaipur Bench Jaipur has decided the case following the decision of Ahmedabad Bench in the case of Assistant Commissioner of Income Tax vs. Kunvarji Finance Pvt Ltd 119 DTR 1. In both these cases the Hon'ble ITAT Benches deleted the additions made on the allegation of misuse of client code modification. In view of the aforesaid facts the additions made in the case is unlawful and illegal. The same deserves to be deleted. The facts of the case are fully covered by the decisions cited above. 4. Addition is purely on assumption, presumption and suspicion: - The Learned Assessing Officer in fact had no ground material for making addition of Rs. 54,29,800/-. He has not given any details of transactions entered into by the assessee, the stock exchange where such transactions were conducted, the amount of transactions, the details of transactions including the scrips and ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 13 their code number where NMCE platform was allegedly misused. It is not clear how the Learned Assessing Officer reached and worked out the addition of Rs. 54,29,800/-. He has simply referred to a report by Investigation Wing Calcutta but the contents of the report have not been mentioned. In the absence of the details the Learned Assessing Officer had no basis for making the addition. It is more on the basis of doubt and suspicion than with reference to concrete facts that addition has been made by the Learned Assessing Officer. The Learned Assessing Officer never provided any material or details of transactions on the basis of which addition of Rs. 54,29,800/- was worked out so that assessee could have replied. In the assessment order also the Learned Assessing Officer has referred every other fact but those which are relevant to the framing of the assessment order. From the perusal of the assessment order one cannot derived any basis on which addition has been made. The Learned Assessing Officer has just sing a song about the action taken by the Investigation Wing, Calcutta and the misuse of NMCE platform. He has nowhere mentioned at how the assessee indulged in the misuse of client code modification. It is settled position of law that suspicious however strong cannot take place as evidence. The following case laws are quoted in support: - (i) Uma Charan Shaw & Brothers 37 ITR 271 (SC) (ii) CIT vs. Anupam Kapoor 299 ITR 179 (P&H) (iii) CIT vs. Dhiraj Lal Girdhari Lal 26 OTR 736 (iv) Dhakeshwari Cotton Mills 26 ITR 775 (SC) (v) State vs. Gulzari Lal Tondon 1979 AIR 1382 (SC) (vi) J.A. Naidu vs. State of Maharastra 1979 AIR 1537 (SC) 5. Addition is against the principles of natural justice:- It is further submitted that it was the duty of the Learned Assessing Officer to provide all the necessary facts before making assessment. Even the assessee did not attend the assessment proceedings. The facts should be mentioned in the show cause notice. The Learned Assessing Officer has completed the assessment without providing any opportunity to the assessee not ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 14 to speak to cross examine the concern brokers even the Learned Assessing Officer did not furnish names and statements of the so called brokers. Therefore it is a case where the Learned Assessing Officer has based the additions and completed the assessment with reference to third party statement but no opportunity was provided to the assessee. It is obviously a case where principles of natural justice have been violated. The assessment so completed is therefore ab-initio void. In the absence of required opportunity the assessee was bereft of furnishing any defense. The additions have been made arbitrarily. The following case laws are quoted in support: - (i) The Apex Court has observed that not allowing cross examination is a serious flaw and makes the order nullity. Andman Timber Ind. Vs. Commission of Central Excise (2015) 281 CTR 211 (SC). "not allowing the assessee to cross examine the witness by the adjudicating authority though the statement of those witnesses were made the basis of the impugned order, is a serious flaw which makes the order nullity in as much as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. (ii) COMMISSIONER OF INCOME TAX vs. BIJU PATNAIK HIGH COURT OF ORISSA 190 ITR 0396 Although answers can be recorded either in favour of the Department or against it, ultimately each answer would again become inconclusive on account of the final findings of fact of the Tribunal that ITO has not given reasonable opportunity to the assessee to rebut the statements recorded ex parte under s. 131 of the Act and to furnish explanation to some of the materials. It is true that Tribunal has not given due weight to the relevant and admissible evidence while recording the findings of fact. However, the findings of the Tribunal on such fact are also vulnerable as they may require reconsideration. If answers in respect of each of the questions are indicated in the absence of reasonable opportunity being afforded to the assessee, they would be of academic interest inasmuch as the answers against the assessee would become vulnerable on ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 15 account of the need to undo the absence or reasonable opportunity. A clear and conclusive finding binding on the parties can be given only after reasonable opportunity is given to the assessee as found by the Tribunal. No answer should be given in advisory jurisdiction which would not finally decide the issue since final finding can be arrived at only after giving reasonable opportunity to the assessee and explanation given by the assessee would have material bearing on the finding. It is necessary that the Assessing Officer gives opportunity to the assessee. Tribunal has not considered the evidence in its proper perspective while rendering the decision in appeal and accordingly, the findings of the Tribunal are vitiated in law. As the final fact-finding forum, the Tribunal has to consider the same again. Since Tribunal has recorded a finding that reasonable opportunity has not been given to the assessee to give rebuttal evidence and explanation, this can effectively be done by the Assessing Officer. The reference applications are disposed of as above leaving it to the Tribunal to pass consequential orders. (iii) PRAKASH CHAND NAHTA vs. COMMISSIONER OF INCOME TAX (HIGH COURT OF MADHYA PRADESH) (2008) 301 ITR 0134 : Assess ment—Validity—Opp ortunity of being he ard vis-à- vis statements of third party—Unaccounted silver ornaments and utensils were found and seized during the search at the assessee's premises—Assessee explained that the said silver items were purchased from one R & C o.-AO made addition to the income of the assessee after recording the statement of M, proprietor of R & Co., behind the back of the assessee—Not justified—AO has heavily relied upon the statement of M and has ignored the subsequent affidavit filed by M which is in variance of his original statement—Since the statement of M was used against the assessee and an affidavit was filed controverting the same, it was obligatory on the part of the AO to allow the prayer of assessee for cross-examination of M—AO having not summoned M under s. 131 in spite of the request of the assessee, evidence of M ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 16 could not have been used against the assessee—Therefore, the assessment order is vitiated (iv) HEIRS AND LRS OF LATE LAXMANBHAI S. PATEL vs. COMMISSIONER OF INCOME TAX (HIGH COURT OF GUJARAT ) (2010) 327 ITR 0290 Opportunity of being heard—During search of one R, key of bank locker along with two packets containing six promissory notes were recovered—Out of those six promissory notes, one was in the sum of Rs. 8,78,358 executed by one K in the capacity of partner of firm DCI—In his statement recorded during search, R stated that the key of locker and the two envelopes were handed over to him by the assessee—K also admitted in his statement recorded on the same day at 2.00 AM midnight that he had executed the pronote and signed it on behalf of DCI After obtaining a sum of Rs. 8,78,358-later, K filed an affidavit that his statement was recorded at late hours in the night under coercion and pressure—Subsequently, K along with two other partners of DCI, made a voluntary disclosure of a sum of Rs. 11 lacs including the amount of Rs. 8,78,358 and same was assessed in the hands of the three partners—Relying on the statement of R and the retracted statement of K, AO made addition of Rs. 8,78,358 under s. 68 in the hands of assessee also and the same was confirmed by CIT(A) and Tribunal—Not justified—Apparently, there was a violation of principles of natural justice as the statement of one of the important witnesses, namely, R on which heavy reliance was placed by the AO is neither referred to in the assessment order nor copy thereof was given to the assessee nor the assessee was given an opportunity of cross-examining the said R—Authorities could not be absolved from doing so on the ground that the facts stated by R were admitted by the assessee—K had not only retracted his earlier statement but also made a voluntary disclosure, along with two other partners of DCI, in the sum of Rs. 11 lacs which included the amount of pronote of Rs. 8,78,358—Legal effect of the statement recorded behind the back of the assessee and without furnishing the copy thereof to the assessee or without giving an ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 17 opportunity of cross- examination, is that if the addition is made, the same is required to be deleted on the ground of violation of the principles of natural justice—Orders of all the three authorities set aside and addition deleted. (v) COMMISSIONER OF INCOME TAX vs. EASTERN COMMERCIAL ENTERPRISES (HIGH COURT OF CALCUTTA) 210 ITR 0103 Assessee showing a gross profit rate of 5.2%—Revenue being of the opinion that assessee inflated purchases, called in evidence one S from whom assessee made purchases and applied G.P. rate of 30%—S denied having made any sales to assessee in the face of earlier affidavits confirming such sales—Statement of S not furnished to assessee nor opportunity to cross-examine him given—Cross examination is sine qua non of the due process of taking evidence and no adverse inference can be drawn against a party unless that party is put on notice of the case made out against him—Matter remanded for cross-examination of S with opportunity to assessee to furnish evidence to rebut the evidence of S (vi) KALRA GLUE FACTORY. vs. SALES TAX TRIBUNAL & ORS. (SUPREME COURT OF INDIA) 167 ITR 0498 Statement which was not tested by cross examination is not good evidence. In view of the aforesaid facts the assessment order passed deserves to be quashed. 6. Case of the assessee is covered by the ITAT Jaipur Bench Decision:- It is submitted that the case of the assessee is also covered by ITAT Jaipur Bench Jaipur in the case of Noble Industries in ITA no. 911/JP/2016 Assessment Year 2010-11 order dated 23.03.2017. The Hon'ble ITAT Jaipur Bench Jaipur has decided the case following the decision of Ahmedabad Bench in the case ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 18 of Assistant Commissioner of Income Tax vs. Kunvarji Finance Pvt Ltd 119 DTR 1. In both these cases the Hon'ble ITAT Benches deleted the additions made on the allegation of misuse of client code modification. 7. Submission made before the learned CIT(A) — The assessee has submitted before the learned CIT(A) that the assessee was doing commodity business on future basis. He has done commodity business from three exchanges; One is NCDEX, other is MCX and third is NMCE. During the year under consideration, the assessee has incurred loss of Rs 12,31,832.63 and Rs 18,75,914.65 from NCDEX and MX respectively. He assessee has also earned profit of Rs 30,02,755.98 from NMCE and incurred total RslI,030 as V Set Charges and accordingly the assessee was incurred net loss of Rs 1,16,031 which he has shown as net loss from business in his return of income filed on 19.09.2017 for the assessment year 2010-11 in compliance of notice u/s 148. The assessee was also done share transaction from Moti Sons Shares P Ltd. During the year under consideration, the assessee has purchased total shares of Rs 3,56,12,854 and sold the same for Rs 3,55,52,812 and thus he has incurred a short term capital loss of Rs 60,042 during the year under consideration in his return of income filed as narrated above. On the basis of information received from DGIT Ahmedabad, the assessing officer has issued a notice u\s 148 to the assessee without further equerry made at his own level which means the reason of reopening are only based on borrowed satisfaction and there is no satisfaction of the assessing officer. During the course of assessment proceedings, the assessee has submitted entire bank account, a complete details of share transaction with quantity and rate in the form of financial ledger of Motisons Ltd for the period 01.04.2009to31.03.2010. The assessee has also submitted complete details in the form of statement of all three exchanges transaction in the ledger of Moti Sons Commodities Ltd along with complete set of books of accounts. The assessing officer has issued show cause notice on 24.11.2017 without ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 19 considering any documents submitted by the assessee on dated 19.09.2017 and asked justification directly for fictitious loss of Rs 54,29,800 calculated on the basis of information received from DGIT, Ahmedabad. He has neither even point out any defects in the documents submitted by the assessee nor provide any details on the basis of which he has come on the conclusion that the assessee has committed those transactions and shown fictitious loss. He has also not brought any evidence or material in support the how and when the assessee has made transaction of those fictitious entries and made settlement transaction. The assessee has submitted reply of show cause on 06.12.2017 in which he has raised following objection and submit clarification. The objections raised by the assessee were also submitted before the learned CIT(A). It is further submitted before the learned CIT(A) that if it is accepted that these details pertain to assessee, then how the assessing officer has concluded that these entries are fictitious and other entries which was accepted by the assessee was correct. i.e the profit earned and shown in similarly type is treated as correct and loss incurred and shown in similarly type is fictitious. The assessee has submitted bank statement and books of accounts with statement of Motisons Commodities P Ltd has justify and that can be verified that the profit and loss earned and shown by the assessee was fully supported and amount of transaction is fully verified but the Assessing Officer has neither accepted these facts nor point out or justify that how the assessee has taken or paid cash for those alleged transaction. Only on the basis of third party, the conclusion made by assessing officer is totally borrowed satisfaction which is wrong and against the natural justice. Shri Suresh Kumar Agarwal Vs ACIT, The Delhi High Court held that" In these circumstances, the addition in the hand of the assessee is not sustainable when the details furnished by the assessee were not at all controverter by bringing cogent material and investigation made thereon by the Id assessing officer. The assessee has shown the long term capital gain ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 20 exempted u/s 10(38) of the act amounting to Rs 38,66,678. The purchase value of those share was Rs 17,56,121. The Id assessing officer has made the addition off full value of the consideration received by the assessee on the sale of those shares amounting to Rs 56,43,084. Thus ground number two of the appeal of the assessee is allowed. But the learned CIT(A) has not considered the aforesaid submission of the assessee and confirming the addition by observing that I have carefully gone through the assessment order as well as the submissions filed by the appellant it is clear from the facts of the case that the appellant was one of the beneficiaries of the misuse of NMCE platform which had come to light because of search action by the investigation Wing of the Income-tax Department. It is further seen that the brokers through which the appellant had conducted his trades on the NMCE platform were also part of the group of such brokers whose activities were found to be suspicious. It can also been seen from the facts of the case that if the alleged loss of Rs.54,29,800/- were not arranged through the bogus trading of NMCE platform, the profit of the appellant from such transactions would have been at Rs.81,59,450/- whereas by arranging fictitious loss the profit of the appellant came down to Rs.27,29,750/-, It is pertinent to note here that the AO has added the amount arranged through bogus loss on NMCE platform only. The AO had not taken adverse view on transactions done through NCDEX or MCX. As far as transactions through NMCE is concerned the AO had received information from investigation wing that the appellant was one of the beneficiary of was based on malpractices done on NMCE platform. The information received was based on credible investigations carried out by the Directorate of Investigation, and the Appellant's name was specifically mentioned as a beneficiary of bogus transactions entry discovered by such investigations, hence, on the basis of such information, the AO was justified in having, a reasonable belief that the income of assessee had escaped assessment. It has been held in the case of ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 21 Brijmohan Aggarwal vs. ACIT, 268 ITR 400 (All) that report of the Investigation Wing is information on the basis of which the A.O. can come to a reasonable conclusion. The case law mentioned by the appellant (without the citation) are in the context of long term capital gain whereas in this case the addition has been made under the head income from other sources. After considering the facts of the case, I have come to the conclusion the the AO has rightly treated the amount of Rs.54,29,800/- as fictitious loss. It is also general practice that for arranging such transactions some commission is paid by beneficiaries to the brokers so the addition on this account of Rs.1,63,189/-made by the AO is also confirmed. It is submitted that that learned CIT(A) has confirmed the action of the learned AO in a mechanical manner. He has not considered the submission of the assessee that transactions are through proper banking channel and are through SEBI registered brokers. Variation/fluctuation of prices are not in the hand of assessee. Prices can go up or down it depends on the buyers or sellers available in the market and there are many more factors which effect the prices. So the above observations of the learned Assessing Officer as well as the learned CIT(A) are not correct that the interested beneficiaries were able to book the fictitious loss. In view of the aforesaid facts the additions made in the case is unlawful and illegal. The same deserves to be deleted. The facts of the case are fully covered by the decisions cited above. Ground No.3- Under the facts and circumstances of the case the Learned CIT(A) has erred in confirming the addition of Rs. 1,63,189/- on account of alleged commission paid @ 2% on alleged accommodation entry. 1. Commissioner paid in lieu of alleged accommodation entry- It is submitted that the all the transactions of sale and purchase of shares were made through recognized stock exchange and the ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 22 only STT was charged on sale of shares. Other Than STT the assessee has not paid any commission for the sale and purchase of shares neither any claim was made in the return of income for commission payment by the assessee. When all the transactions were made through recognized stock exchange then there is no iota of evidence that the assessee has made any payment of commission/brokerage. 2. Statement of beneficiaries:- The AO contended that in the search/seizure operation conducted by the department in certain cases of entry providers and they have accepted in their statement that certain companies controlled by them, were engaged in providing accommodation entries. They have made only general statements and it is further not known that they stood committed to their statements or retracted later on. It is common knowledge that the Investigation Wing exerts pressure while recording statement at the time of search and the deponents later on retract from it. It is also not in the knowledge of the assessee as what is the position of assessments of these beneficiaries in view of their statements. All these facts tend to indicate that the statement of these beneficiaries was of no use so far as the assessee is concerned. Further the assessee should have given an opportunity to cross examine from these beneficiaries. It is also settled principle of law that statements which have not stood test of cross examination, cannot be used against the assessee. The assessee seeks support from the following decisions including Latest Decision of the Apex Court — (I) The Apex Court has observed that not allowing cross examination is a serious flaw and makes the order nullity. Andman Timber Ind. Vs. Commission of Central Excise (2015) 281 CTR 211 (SC). (ii) COMMISSIONER OF INCOME TAX vs. BIJU PATNAIK HIGH COURT OF ORISSA 190 ITR 0396 (iii) PRAKASH CHAND NAHTA vs. COMMISSIONER OF INCOME TAX (HIGH COURT OF MADHYA PRADESH) (2008) 301 ITR 0134 : (iv) HEIRS AND LRS OF LATE LAXMANBHAI S. PATEL vs. ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 23 COMMISSIONER OF INCOME TAX (HIGH COURT OF GUJARAT ) (2010) 327 ITR 0290 3. Addition is based on assumption and presumption:- It is submitted that the Learned Assessing Officer has no documents in his possession or any categorical statement of any person to support his finding that the assessee has taken any accommodation entry. The action of the Learned Assessing Officer is based merely on assumption and presumption. The learned Assessing Officer has no cogent evidence, which may establish that the assessee has paid any commission. The AO simply making assumptions and presumptions from the statement of beneficiaries and taking slip shot extracts of the statement has made additions on frivolous grounds. The same deserve to be deleted. It is submitted that no such presumption could be drawn by the AO merely on surmises and conjectures. In the absence of any cogent material in this regard, having been placed on record, the AO could not make the additions.” 9. On the other hand, the ld. CIT-DR relied on the order of ld. CIT(A) and stated that ld. CIT(A) has passed exhaustive order explaining the provisions of the Act. 10. We have heard both the parties and perused the materials available on record. Apropos Ground No. 1 to 3 of the assessee, the assessee is an individual who is engaged in the business of commodity trading. The AO noted that the assessee has not filed the return of income for the Assessment Year 2010-11 for which notice u/s 148 of the Act dated 30-03-2017 was issued by the AO. In compliance thereof, the return was filed by the assessee on 19-09-2017 declaring total income at Nil. Taking into consideration the return of income filed by the assessee, the AO completed the assessment u/s 148/143(3) of the Act vide his order dated 18-12-2017 and thus the made addition of Rs.54,29,800/- by treating the commodity transactions as fictitious / bogus and ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 24 accommodation entry and further the AO made an addition of Rs.1,63,189/- on account of alleged commission paid @ 20% on alleged accommodation entry. In first appeal, the ld. CIT(A) has confirmed the action of the AO by observing as under:- ‘’4.3.........After considering the facts of the case, I have come to the conclusion that the AO has rightly treated the amount of Rs.54,29,800/- as fictitious loss. It is also a general practice that for arranging such transactions some commission is paid by the beneficiaries to the brokers so the addition on this account of Rs.1,63,189/- made by the AO is also confirmed. The grounds of appeal No.1 & 2 are therefore dismissed.” 11. We have also meticulously gone through the orders of the lower authorities as well as the submission of the ld. AR of the assessee. From para 8 of the assessment order, it is noted that the AO has made additions as under:- ‘8........ As the transaction made at NMCE through the brokers M/s J.K.T. Trading, M/s R.K. Trading, M/s Rupam Trading, M/s Suruchi Trading, M/s R.S. Enterprises are found to be fictitious, hence the total profit shown from these transactions amounting to Rs. 81,49,450/- are treated as income from other sources and transactions amounting to Rs. 54,29,800/- is also treated as fictitious/bogus and the losses shown from these transactions are hereby disallowed.’’ However, we find that in the entire assessment order the AO has failed to furnish the details of entries either of fictitious profit or of losses. The AO was not sure whether the fictitious entries were of profits or of losses or whether there were entries at all. He has only mentioned in para 5 that on the basis of data analysis, it was found that assessee had also arranged fictitious profit on so called commodity transaction through NMCE by passing certain amount of commission (around 2%) as per statement of dummy parties/brokers recorded during survey and ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 25 proceedings. It is not understandable that when the AO has observed that the assessee has incurred profit of Rs. 54,29,800/-then where is the question of reducing profit by entering into these transactions. The AO has not provided details of such entries which he is alleging against the assessee. He has not confronted the assessee with these alleged entries of fictitious profits/losses on the basis of which addition had been made of Rs. 54,29,800/-. To this effect, the ld. AR of the assessee further submitted that it has maintained regular books of accounts during the course of business. Such accounts stood audited. The auditors have not pointed out any such misuse of NMCE platform. In similar circumstances in the case of Abhishek Fincap Services Pvt. Ltd. ITA No. 2750/Del/2017 Assessment Year 2010-11 order dated 13.09.2017 the ITAT Delhi Bench deleted the entire addition made by the AO. It is also noteworthy to mention that the AO has referred to the report of Investigation Wing, Calcutta but the contents of the report had not been mentioned. It is further notable that the AO had not provided the details of transactions on the basis of which addition of Rs.54,29,800/- was worked out and if the details had been provided to the assessee then he could have replied the same. Thus the assessee was deprived off from the opportunity to counter the reply. It is a settled position of law that suspicion cannot take place as a strong evidence. We find that the ld. CIT(A) has confirmed the action of the AO to this issue in question. 12. Further the Bench noted from the available records that as to how the AO has worked out the quantum of escaped income of Rs.54,29,800/-. He has only referred to report of Investigation Wingh Calcutta but the contents of the report has not been mentioned . Hence, ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 26 in the absence of the details the lower authorities had not basis or ground for reaching to a conclusion that there was escapement of income. 13. Further, the Bench noted that all the transactions of sale and purchase of shares were made through Stock Exchange and only the STT was charged on sale of shares. Except the STT, the assessee has neither paid any commission for the sale and purchase of shares nor any claim was made in the return of income for commission payment to the assessee. Thus when all the transactions are made through recognized stock exchange then there is no iota of evidence that the assessee has made any payment of commission / brokerage. In this view of the matter, we do not concur with the findings of the ld. CIT(A) on the issue of addition of Rs.54,29,800/- and further addition of Rs.1,63,189/- on the issue commission paid @ 2%. Thus the appeal of the assessee grounds 1 to 3 is allowed. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 16/08/2022. Sd/- Sd/- ¼ MkWa- ,e- ,y- ehuk ½ ¼MkWa- ,l-lhrky{eh½ (Dr. M.L. Meena ) (Dr. S. Seethalashmi) ys[kk lnL; @ Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 16/08/2022. *Santosh vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. vihykFkhZ@The Appellant- Rajesh Kumar Khandelwal, Dausa. 2. izR;FkhZ@ The Respondent- ITO, Ward-2(1), Jaipur. 3. vk;dj vk;qDr@ CIT ITA No. 14 /JP/2022 Rajesh Kumar Khandealwal vs. ITO 27 4. vk;dj vk;qDr@ CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur. 6. xkMZ QkbZy@ Guard File { ITA No. 14/JP/2022} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar