Shri Amit Dhariwal HUF, Bikaner V. ITO, Ward-2(1), Bikaner

ITA 224/JODH/2023

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 1665 (ITAT-JODHPUR)
• Duration Of Justice: 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2024
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Next Hearing Date: 18-03-2024
• Assessment Year: 2010-2011
• Appeal Filed On: 20-06-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Income from undisclosed sources; Principle of natural justice; Transactions in derivatives; Accommodation entries; Onus to prove
• Section: 147; 68; 148; 132; 142(1); 234B; 143(1); 143(2); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR. BEFORE: DR. S. SEETHALAKSHMI, JJUDICIAL MEMBER & SHRI RATHOD KAMLESH JAYANTBHAI, ACCOUNTANT MEMBER I.T.A. No.224/Jodh/2023 Assessment Year: 2010-11 Shri Amit Dhariwal HUF 1229 Dhariwal Mohalla, New Lane Gangasahar, Bikaner. [PAN:AAIHA2104F] (Appellant) Vs. ITO, Ward-2(1), Bikaner. (Respondent) Appellant by Rajendra Jain, Adv. Smt. Raksha Birla, CA Respondent by Sh. A.S. Nehra, Sr. DR Date of Hearing 19.03.2024 Date of Pronouncement 13 .06.2024 ORDER Per:DR. S. Seethalakshmi, JM: This appeal filed by assessee is arising out of the order of the ld. CIT(A) National Faceless Appeal Centre, Delhi dated 17.04.2023 for assessment year 2010-11, which in turn arise from the order dated 29.09.2017 passed under section 147/143(3) of the Income Tax Act (hereinafter referred to as the “Act”) by the ITO, Ward-2(1), Bikaner. 2. In this appeal, the assessee has raised following grounds: - “ 1. That reasonable opportunity of being heard was afforded hence the principal of natural justice was blatantly violated. I.T.A. No.224/Jodh/2023 Shri Amit Dhariwal HuF 2 2. The learned CIT(A) was wrong in law as well as in facts in rejecting the appeal in limine. 3. The learned CIT was unjustified in upholding the disallowance of the set off of loss from speculation income without considering the facts of the case. 3. During the course of hearing, the ld. AR of the asseessee has not pressed the Ground No. 1 & 2. Hence, the same are dismissed being not pressed. 4. Apropos Ground No. 3 of the assessee, brief fact of the case are that the assessee M/s Amit Dhariwal, being a Hindu Undivided Family (HUF), is running a proprietorship concern in the name and stile of M/s Arihant Online commodity, which is engaged in the business of trading in commodities on various platforms such as MCX, NCDEX and NMCE. The assessee filed its return of income for the impugned assessment year 2015-16 on 19.08.2010, declaring a total income of Rs. 56,990/-. The return of income was processed u/s 143(1) of the Act, accepting the returned income. Subsequently, the AO received specific information from Pr. Director of Income Tax (Inv.), Ahmedabad, that the assessee had availed the benefit jof accommodation entries provided by shell/paper companies, being member/brokers of National Multi Commodity Exchange, so as to introduce bogus speculative income from commodities transactions in the books of account. Accordingly, the AO initiated proceedings u/s 147 of the Act by way of issuing a notice u/s 148 of the Act dated 29.03.2017, requiring the assessee to file a return of income within 30 days from the date of receipt of notice. In response thereto, the assessee I.T.A. No.224/Jodh/2023 Shri Amit Dhariwal HuF 3 requested the AO to treat the original return of income filed on 19.08.2010 as return filed in response to notice issued u/s 148 of the Act. In view of the above, considering the assessee’s return, the AO treated the original return of income filed by the assessee on 19.08.2010 as return filed in compliance with notice issue u/s 148 of the Act. Accordingly, the AO continue the proceedings u/s 147 of the Act by issuing the statutory notices u/s 143(2) and 142(1) of the Act, calling for various details and documentary evidence regarding commodities transactions carried out by the assessee through NMCE platform, amount other. In response thereto, the ld. AR of the assessee appeared before the AO from time to time and furnished the requisite details and documents. After having considered the details and other documentary evidence furnished by the AR of the assessee, the AO framed the impugned assessment order u/s 143(3) r.w.s. 147 of the Act, dated 29.09.2017, determining the total income of the assessee at Rs. 29,79,318/- under the head income from other sources. While doing so, the AO treated speculative business income disclosed by the assessee of Rs. 29,79,280/- as income under the head income from other sources and denied the assessee’s cliam of set off of carry forward speculative business loss to the extent of Rs. 31,79,930/- and thereby computing the income of the assessee as under:- Net profit as per P & L account 32,36,879 Less: bogus profit considered under income from other source 29,79,280 Balance net profit under head business income 2,57,599 I.T.A. No.224/Jodh/2023 Shri Amit Dhariwal HuF 4 Business income Net profit as discussed above 2,57,599 Income from other sources Bank Interest (as shown) 38 Bogus profit u/s 68 as discussed above 29,79,280 29,79,318 Total income 32,36,917 Less: B/f business Loss for AY 2008-09 (restricted to available business profit of current year) (-) 2,57,599 Balance total income 29,79,318 5. Being aggrieved by the order of the AO, the assessee filed an appeal before the ld. CIT(A). The Ld. CIT(A) observed that notices were issued on 06.01.2021, 17.02.2022, 01.11.2022 & 10.03.2023 requiring the assessee to file the details in support of grounds taken by the assessee. Since the assessee has not complied with the notices issued by the ld. CIT(A), therefore, he passed an order ex-parte. The extract of the order of the ld. CIT(A) is reproduced as under:- “6.6 I have carefully considered the grounds of appeal raised by the assessee and examined the issue under dispute in the light of the facts and circumstances of the case as emanating from the impugned assessment order u/s.143(3) rws 147 of the Act and relevant provisions provis of the statute. 6.7 At the outset, it may be noted that the assessee is engaged in the business of trading in commodities through various platforms/exchanges such as MCX, NCDX and NMCE. Accordingly, in the tax returns filed, the assessee has been disclosing income or loss, as the case may be, earned from commodities transactions as speculative business income/loss. For the impugned AY 2010-11, as per the return of income filed on 19.08.2010, the assessee disclosed an aggregate income of Rs.38,48,841/- earned from commodities transactions carried out through various platforms/exchanges such as MCX, NCDX and NMCE, which included income earned through NMCE platform of Rs.29,79,280/-. I.T.A. No.224/Jodh/2023 Shri Amit Dhariwal HuF 5 6.8 Further, while computing the total income, the assessee treated the income from commodities transactions as speculative business income and claimed set off of carry forward speculative business loss related to earlier AYs i.e., AY 2008-09 of (-) Rs.14,66,452/- and AY 2009-10 of (-) Rs.17,13,478/-, aggregating to (-) Rs.31,79,930/-. Accordingly, the assessee disclosed a taxable income of Rs.56,990/- under the head speculative business income. 6.9 At this juncture, as explained elsewhere in this order, it may be noted that the AO received specific information from the Investigation Wing that the assessee had availed the benefit of accommodation entries from shell/paper companies in order to introduce bogus profits in the guise of speculative business income earned through commodities transactions carried out through NMCE platform. As per the information received, the AO came to know that certain members/brokers of NMCE were found to be indulged in artificial trading of shares by misusing the NMCE platform, which included M/s. Motisons Commodities Pvt. Ltd. through which the assessee carried out trading in commodities transactions. 6.10 In view of the above, the AO examined the transactions carried out by the assessee on NMCE platform through the broker M/s. Motisons Commodities Pvt. Ltd. and found that the assessee disclosed net profit of Rs.29,79,280/- during the FY 2009- 10 relevant to the impugned AY 2010-11. On the basis of the above findings, during the course of assessment proceedings, the AO proposed to treat the said income/profit as bogus in nature and considered the same as income under the head Income from other sources, rather than speculative business income. in In response thereto, the assessee contended before the AO that it did avail any accommodation entries from M/s. Motisons Commodities Pvt. Ltd. 6.11 However, the AO rejected the same and based on entries made in the books of account and other documents produced during the course of assessment proceedings, the AO recorded a finding of fact that the assessee had availed of accommodation entries through the broker M/s. Motisons Commodities Pvt. Ltd. so as to introduce bogus speculative business income to the tune of Rs.29,79,280/- and set off of carry forward speculative business loss against the same. Accordingly, the AO treated the said income of Rs.29,79,280/- as income under the head Income from other sources by 11invoking the provisions of section 68 of the Act and brought the same to tax. In the process, the assessee's claim of set off of carry forward speculative business loss to extent of Rs. 29,79,280/- was denied. 6.12 Coming to the present appellate proceedings, as explained elsewhere in this order, even after providing sufficient time and opportunities of being heard, the assessee choose not to avail of the same and, therefore, the assessee did not furnish any written submissions in support of the grounds of appeal raised. At this juncture, it I.T.A. No.224/Jodh/2023 Shri Amit Dhariwal HuF 6 is important to note that, while filing Form No.35, the assessee has not filed any documentary evidence in support of its claim that it did not avail of any accommodation entries from M/s. Motisons Commodities Pvt. Ltd. while trading in commodities through NMCE platform. 6.13 On the other hand, as seen from the impugned assessment order, it is clearly stated that Investigation Wing of the Department at Ahmedabad and Kolkata had conducted extensive investigation by mounting searches u/s. 132 of the Act and surveys u/s.133A of the Act. Accordingly, as per the investigation report, it revealed the fact that the assessee had in fact carried out commodities transactions through the broker M/s. Motisons Commodities Pvt. Ltd. on NMCE platform and availed accommodation entries for an aggregate amount of Rs.29.79,280/- and introduced the same in the books of account in the guise of speculative business income. 6.14 As such, after examining the factual matrix of the case, including the investigation report, I am of the considered opinion that the assessee had introduced its unaccounted income from undisclosed sources as speculative business income in the guise of trading in commodities through the broker M/s. Motisons Commodities Pvt. Ltd. on NMCE platform. While doing so, the assessee claimed the benefit of set off of carry forward speculative business loss against bogus speculative business income. 6.15 In view of the above, the unaccounted income introduced by the assessee to the extent of Rs.29,79,280/- had escaped assessment within the meaning of section 147 of the Act. Thus, I don't find fault with the AO in treating the said income as unaccounted income of the assessee u/s.68 of the Act, which is assessable to tax under the head Income from other sources. Accordingly, the addition made by the AO to the extent of Rs.29,79,280/- is sustained. 6.16 The assessee has raised a ground against levy of interest u/s.234A and 234B of the Act. Since charging of interest u/s.234A and 234B of the Act is mandatory and consequential in nature, I don't find fault with the AO in charging the same. 6.17 Subject to the above discussion and observations, all the grounds of appeal raised by the assessee are dismissed. 7.0 In the result, the appeal filed against the order u/s.143(3) rws 147 of the Act for the AY 2010-11 is dismissed.” I.T.A. No.224/Jodh/2023 Shri Amit Dhariwal HuF 7 6. During the course of hearing, the ld. AR of the assessee submitted that the ld. CIT(A) has wrongly confirmed the action of the AO while as the case of the assessee is genuine which should be allowed in view of the documents made available by the assessee before the lower authorities. 7. On the other hand, the ld. DR supported the order of the ld. CIT(A) 8. We have heard both the parties and perused the materials available on record. Brief facts of the case are that the assessee is a HUF and derives business income from commodities trading on MCX, NCDEX and NMCE platform in the name & style of “M/s Arihant online commodities”. The entire commodity transactions are recorded in the books of accounts and supported from the documentary evidences. The books of accounts so maintained by assessee are subject to audit as per provisions of the law. It is noted that during the year under consideration, the assessee had earned net business income of Rs. 32,36,879/- in respect of trading of commodities and after claiming the set off of brought forward business loss of Rs. 31,79,930/- from business income had offered the balance income of current year for taxation in ITR. The breakup of profit earned by the appellant on commodities transaction from different exchange are as under:- I.T.A. No.224/Jodh/2023 Shri Amit Dhariwal HuF 8 MCX 6,97,983/- NCDEX 1,71,570/- NMCE 29,79,280/- Total 38,48,841/- The Bench noted the dispute relating to profit of Rs. 29,79,280/- in respect of transaction on NMCE platform. The AO had treated the said profit as bogus or non-genuine transaction and accordingly made the addition of Rs. 29,79,280/- as bogus profit u/s 68 of the Act which was sustained by the Ld CIT(A). The Bench noted that the nature of the commodity transactions as carried out by assessee as business transaction which are duly recorded and supported from legal & valid documentary evidence like contract notes/bills of transactions, copies of the ledger accounts of brokers, confirmations, copies of bank statements and, thereafter, all the transactions were carried out on the recognized exchanges through registered brokers i.e M/s Motisons Commodities Private Limited and effected through banking channels. The veracity of these facts & evidences has also not been doubted or controverted by the lower authority at stage of proceeding. It is noted that the main allegation of the AO was that the Assessee earned bogus profit of Rs. 29,79,280/- on NMCE and adjusted the loss of previous year and the same is artificial profit treated as unexplained income u/s 68 of the Act . The sole basis of addition was the investigation & enquiry by the DIT(Inv), Ahemdabad and on analyzing the I.T.A. No.224/Jodh/2023 Shri Amit Dhariwal HuF 9 report of investigation it was found that most of clients/brokers had booked contrived losses through shell & dummy entities to set off any income/profit available in books and not filed ITR. Apparently, it is noted that the very basis of addition i.e information obtained from investigation is irrelevant, immaterial and also contrary as the asssessee had derived profit on NMCE platform from the business transaction of online commodity trading and income from such transaction are disclosed in ITR under the head speculative business income. Further the business loss of Rs. 31,79,930/- claimed as set off were brought forward from A.Y 2008-09 & 2009-10 as verifiable from the copy of ITR as placed on record. Therefore, treating the genuine business transaction as unexplained income is not only illegal but factually incorrect and also against the principle of natural justice as such addition cannot be sustainable in law. Hence the Bench observed that the addition made by the AO and sustained by the Ld CIT(A) only on the basis of conjectures & surmises without any direct evidence to prove the transactions as non-genuine or sham or demonstrating assessee’s involvement in any kind of manipulation is illegal. It is also noted that no evidence collected by the AO from third parties is confronted to assessee nor any material brought on record to show that the brokers were held guilty of committing any wrong on NMCE nor the transaction of the appellant through broker were held non- genuine. Thus no opportunity of cross- examination of persons, on whose statements the revenue relies to make the I.T.A. No.224/Jodh/2023 Shri Amit Dhariwal HuF 10 addition, it provided to the assessee. Further the documentary evidence sustaining the transaction remained un-controverted. Therefore the genuineness of transaction had been proved and discharged. The addition is made based on a general report from the investigation wing which is not only against the principle of natural justice but also disregarding the principle laid down by Hon’ble Courts and Hon’ble Tribunals. The Bench relies upon following case laws. 1. The Hon’ble Supreme Court in the case of Omar Salay Mohamed Sait v. CIT [1959] 37 ITR 151 (SC) had held that no addition can be made on the basis of surmises, suspicion and conjectures. In the case of CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC) (SC) the Hon’ble Supreme Court held that, the onus to prove that the apparent is not real is on the party who claims it to be so. The burden of proving a transaction to be bogus has to be strictly discharged by adducing legal evidences, which would directly prove the fact of bogusness or establish circumstance unerringly and reasonably raising interference to that effect. The Hon’ble Supreme Court in the case of Umacharan Shaw & Bros. v. CIT (1959) [1959] 37 ITR 271 (SC) held that suspicion however strong, cannot take the place of evidence. 2. Further when the identical issue reached before the Hon’ble ITAT Jaipur Bench in the case of DCIT V/s M/s Pyramid Tradelinks Pvt. Ltd ITA NO. 512/JP/15 dated 27/07/2017, The Hon’ble Bench held that the FMC and investigation report not supported from any material evidence to show that the assessee was actually doing non-genuine trade cannot be used as basis for addition. I.T.A. No.224/Jodh/2023 Shri Amit Dhariwal HuF 11 Hence, in view of the above deliberations and case laws and also the facts and circumstances of the case, the Bench does not concur with the findings of the ld.CIT(A) and thus Ground No. 3 of the assessee is allowed. 9 In the result, the appeal of the assessee is partly allowed . Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 by placing the details on the notice board. Sd/- Sd/- (Rathod Kamlesh Jayantbhai) (DR. S. Seethalakshmi) Accountant Member Judicial Member Dated 13/06/2024 *Mishra 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