DCIT CENTRAL CIRCLE 2(2) , MUMBAI V. M/S. SUCHIR CHEMICALS PVT.LTD, MUMBAI

ITA 444/MUM/2022

AI Insights

The case involves M/s. Suchir Chemicals Pvt. Ltd., which was accused by the revenue of engaging in client code modification transactions on the National Spot Exchange Limited (NSEL), leading to the routing of unaccounted income. The original assessment declared a total income of \\u20b9.2,29,524, which was later reopened, and the income was reassessed to \\u20b9.9,36,08,570, primarily due to these alleged modifications. The CIT(A) found that the Assessing Officer had not adequately substantiated these claims, leading to the dismissal of the revenue's appeal. The Tribunal upheld the CIT(A)'s decision, emphasizing the lack of credible evidence from the Assessing Officer.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123202 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-10-2022
• Assessment Year: 2012-2013
• Appeal Filed On: 07-03-2022
• Other Referred Cases: CIT v. Jansampark Advertising & Marketing (P.) Ltd., WElspun India Ltd. v. DCIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Business income; Income from undisclosed sources; Opportunity of being heard; Transactions in derivatives
• Section: 147; 68; 148; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “B”, MUMBAI BEFORE SHRI AMIT SHUKLA, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NO.444/MUM/2022 (A.Y: 2012-13) DCIT – Central Circle – 2(2) Old CGO Building Room No. 806, 8 th Floor M.K. Road, Mumbai V. M/s. Suchir Chemicals Pvt. Ltd., 2 nd Floor, Shiv Ashish Andheri Prade, Mumbai – 400005 PAN: AAFCS3798F (Appellant) (Respondent) Assessee Represented by : Shri Rushabh Mehta Department Represented by : Shri Chetan M. Kacha Date of Hearing : 11.10.2022 Date of Pronouncement : 05.01.2023 O R D E R PER S. RIFAUR RAHMAN (AM) 1. This appeal is filed by the revenue against order of the Learned Commissioner of Income Tax (Appeals)-48 [hereinafter in short “Ld.CIT(A)”] dated 31.01.2022 for the A.Y.2012-13. 2. Brief facts of the case are, assessee is engaged in the business of F&O transaction. The original return of income was filed on 20.09.2012 declaring total income at ₹.2,29,524/-. The case was reopened u/s 147 of 2 ITA NO.444/MUM/2022 (A.Y: 2012-13) M/s. Suchir Chemicals Pvt. Ltd., Income-tax Act, 1961 (in short “Act”), on the basis of information received from DDIT (Inv.)-Unit 6(3) Mumbai dated 15.03.2019 with regard of client code modification transactions on the National Spot Exchange Limited (NSEL). Accordingly, notice u/s. 148 of the Act was issued and served on the assessee after recording reasons for reopening of the case. In response to the above notice assessee filed its return of income on 15.04.2019 declaring the same income declared in original return of income. 3. The assessment was completed on 28.12.2019 u/s. 143(3) r.w.s. 147 of the Act, assessing total income at ₹.9,36,08,570/- by making the addition u/s. 68 of the Act on account of client code modification transactions made on the NSEL platform to the extent of ₹.8,55,84,200/- and ₹.5,02,500/- being rental income not disclosed by the assessee. 4. During the re-assessment proceedings assessee intimated to the Assessing Officer that M/s. Suchir Investments & Finance Pvt. Ltd. & M/s.Vinati Wax Ind. Pvt. Ltd. was amalgamated in the assessee company w.e.f. 01.04.2013 by the order of the Hon'ble Bombay High Court dated 24-01-2014. The Assessing Officer brought on record that the notices u/s. 148 of the Act cannot be issued in the case of above said 3 ITA NO.444/MUM/2022 (A.Y: 2012-13) M/s. Suchir Chemicals Pvt. Ltd., amalgamated companies since these companies are amalgamated with the assessee company, accordingly, the transactions entered by all these companies with its broker M/s. Anand Rathi Commodities Pvt. Ltd., through which all the three companies have entered into transactions were considered in this assessment, for the sake of clarity the details are submitted in the below chart: Name of the Entity Purchase Transaction Value Sale Transaction Value Total Transaction Value Suchir Chemicals Pvt. Ltd. 95,06,250 97,26,750 1,92,33,000 Suchir Investments & Finance Pvt. Ltd. 2,90,13,750 3,00,05,775 5,89,89,650 Vinati Wax Ind. Pvt. Ltd. 36,45,000 37,16,550 73,61,550 TOTAL 8,55,84,200 5. Accordingly, assessee was asked to furnish the details of explanation with regard to the above transactions. In response, assessee vide letter dated 25.12.2019 filed its submissions, for the sake of clarity it is reproduced below: - “With reference to above, we hereby submit to your goodself the details and documents as under: 1. The Global P&L Reports of assessee M/s Suchir Chemicals Pvt. Ltd, and amalgamated companies viz., M/s Suchir Investments and Finance Pvt. Ltd. and M/s. Vinati Wax Ind Pvt, Ltd. in the name of Sauda Summary as received from NSEL are enclosed herewith as Annexure I for your ready reference 2. NSEL transactions were not done through Demat Account. There was a separate NSEL account opened for the same. 3. Since the transactions of Sale and Purchase in NSEL are F&O transactions profits arising from the same are taxed as business income and not Long Term/Short Term Capital Gain. 4 ITA NO.444/MUM/2022 (A.Y: 2012-13) M/s. Suchir Chemicals Pvt. Ltd., Copy of duly filed ITR Form and acknowledgement in ITR V Bearing e-filing acknowledgement number 463785661150419 along with Computation of Total Income for the captioned assessment year is enclosed herewith as Annexure 2 for your ready reference. Copies of Computation of Total Income, ITR Forms and e-filing acknowledgments of amalgamated companies are also enclosed for your reference. 4. With respect to your honour 's query on availability- of margin money on date of client code modification, we would like to draw your kind attention to the fact that the assessee was not involved in client code modification and the assessee and both of the amalgamated companies were trading in their own names without any information of such modification. Moreover, in NSEL there is not margin money 5. Details of Profit/Loss arising out of investment on the NSEL is as per Annexure J, Profit from sale of investments as shown in hooks is enclosed herewith as Annexure 4. 6. Details of entire turnover on NSEL is as enclosed in Annexure 3. The entire turnover on NSEL is duly reflected in ITR which can be perused from Annexure 4. 7. No bad debts have been claimed on account of capital tosses in respect of NSEL Transact ions. 8. The trading or investment activity was not hacked with actual delivery of goods. ^ Thus on perusal of documents enclosed it is clear that all the transactions on NSEL are duly reflected in ITR and profit from the same is offered as business income.” 6. The Assessing Officer rejected submissions made by the assessee and he has analysed the client code modification trend and various modus operandi adopted by the various brokers are reproduced in his order. He came to the conclusion that assessee is one of the beneficiaries of the above said client code modifications, accordingly, he came to the conclusion that assessee has shifted out its profit and shifted its losses by 5 ITA NO.444/MUM/2022 (A.Y: 2012-13) M/s. Suchir Chemicals Pvt. Ltd., modifying the client code and thereby getting undue benefit and routed its unaccounted income to the tune of ₹.8,55,84,200/- and accordingly, he made addition u/s. 68 of the Act. 7. Aggrieved assessee preferred an appeal before the Ld.CIT(A). Assessee has raised grounds on reopening as well as on merit of making the alleged unaccounted income u/s. 68 of the Act. However, Ld.CIT(A) dismissed the ground raised by the assessee on reopening of assessment. However, he considered the submissions made on the merits, for the sake of clarity it is reproduced below: - "1. The appellant had duly disclosed the correct state of affairs while filing the return of income for the assessment year 2012-13 and paid due taxes thereon. The appellant had also submitted the details as called for by the Ld. AO during the course of assessment proceedings. Further it was also mentioned that all the contract notes for purchase and sale of commodities are available with the appellant. The net receipt on sale and purchase of commodity are made through proper banking channels. The appellant is also having with it the brokers ledger account in its books and appellant's ledger account in brokers books. Thus, it is submitted that all the documents are available with the appellant to prove that appellant has entered into genuine transactions. However, the AO never examined any of these documents: in fact, the AO never called for the said material documents in the course of assessment proceedings. It appears that the AO was pre- determined to make the addition, come what may. In fact, the Ld. AO has not issued show cause notice before making the addition, which is in gross violation of the principles of natural justice for which reason alone the addition is legally unsustainable. Hence, the appellant was not allowed reasonable opportunity of being heard and to file requisite details. 6 ITA NO.444/MUM/2022 (A.Y: 2012-13) M/s. Suchir Chemicals Pvt. Ltd., 20. Without considering the submissions of the appellant, without calling for and examining relevant material, the Ld. AO has hastily and unjustly concluded that the appellant has shifted out its profit and shifted in the losses by modifying the client code thereby getting undue i benefits by way of routing its unaccounted income and has thus made an addition of Rs. 8,55,84,200/- as alleged unexplained income u/s 68 of the Act. It is also submitted that the AO made addition of both purchases and sales (total transaction value) which is clearly against all cannons of law and justice, assuming any addition is called for, though not agreeing, the AO ought to have limited the addition to the profit arising out of the transactions. The case of the appellant is that no addition is called for in the absence of any material in the possession of the AO to hold that appellant had routed its unaccounted money into the books through the modus operandi of client code modification. 21. It is submitted that the appellant had no knowledge about the NSEL's or broker's act of client code modification. The appellant is genuine trader and has entered into genuine transactions. It is submitted that it is not the case that appellant has entered into commodity trading through the above mentioned alleged brokers only. It is submitted that the appellant has acted bonafide and is not involved into any of the alleged modification activities of NSEL." 8. After considering the above submissions, Ld.CIT(A) decided the issue in favour of the assessee by observing as under: - “30. In my considered view, only on the basis of information received from the Investigation Wing regarding Client Code Modification (CCM) facility being mis-utilised by the appellant, is not sufficient to conclude that all the trading on NSEL in F & O division, carried out through the broker M/s Anand Rathi Commodities Pvt. Ltd to the extent of Rs.8,55,84,200/- is bogus and non-genuine. Without making further enquiry related to the appellant, no addition can be attempted. The information from the Investigation wing is a piece of evidence to initiate in-depth independent investigation to be carried out by the AO, on the basis of documentary evidences given by the appellant. However, the AO has solely relied on the information from the Investigation 7 ITA NO.444/MUM/2022 (A.Y: 2012-13) M/s. Suchir Chemicals Pvt. Ltd., Wing without converting it in credible piece of evidence. I find that the Assessing Officer has not attempted any enquiry at his level as evident from the assessment order to convert the information into credible evidence related to the appellant for making an addition. The appellant on his part has provided ample evidences to establish the genuineness of the transactions. Even these documentary evidences are not rebutted by the AO. ........ ........ 34. When the AO is completely silence about the no. of CCM undertaken by either of the concerns M/s Suchir Chemicals Pvt. Ltd. and its two amalgamated companies i.e., Suchir Investments & Finance Pvt. Ltd. and Vinati Wax Ind. Pvt. Ltd., the AO's treatment of entire sale and purchase transaction values of Rs. 8,55,84,200/- under F & 0 segments undertaken through it's broker Anand Rathi Commodities Ltd. loses its credibility. Treating the entire sale and purchase transaction values of Rs.8,55,84,200/- as non-genuine means for each purchase transaction as well as each sale transaction, CCM was done. This is a far fetching proposition put forward by the AO devoid of any backing, evidences or proof. If purchases are manipulated and non-genuine, how corresponding sales is also manipulated and non-genuine.” 9. Aggrieved revenue is in appeal before us by raising following grounds in its appeal: - 1. Whether the Ld. CIT(A) has erred both in law and on facts in deleting the addition Rs. 8,55,84,200/-representing loss claimed and incurred by allegedly misusing the client code modification mechanism by the broker of the appellant 2. Whether, the Ld. CIT(A) has erred both in law and on facts in failing to appreciate the findings of the assessing officer and overlooking the finding made during the assessment proceedings 3. Whether the Ld. CIT(A) has failed to appreciate the details/justification given by the AO and therefore addition made and that the AO had established that transactions were not genuine and thus the addition made was correct by giving detailed clarification after through verification of the submission made by the assessee.” 8 ITA NO.444/MUM/2022 (A.Y: 2012-13) M/s. Suchir Chemicals Pvt. Ltd., 10. At the time of hearing, Ld. DR submitted that the assessment was reopened on the basis of the information from Investigation Wing that there is rampant misuse of client code modification, accordingly, he brought to our notice Page No. 1 of the assessment order in which Assessing Officer has discussed in detail the issue of client code modification. Further, he brought to our notice Para No. 5.9 of the Assessment Order and supported the conclusions of the Assessing Officer in which Assessing Officer has clearly brought on record that assessee failed to justify and offer proper explanation to prove the genuineness of the transaction. Further, the entire transactions structured pre-planned to route the unaccounted income into the company and various analysis made by the Assessing Officer and he objected to the deletion of the additions proposed by the Assessing Officer with proper analysis by Ld.CIT(A). Accordingly, he supported the findings of the Assessing Officer. Ld. DR relied on the following decisions: - (i). CIT v. Jansampark Advertising & Marketing (P.) Ltd., [2015] 56 taxmann.com 286 (Delhi) (ii). WElspun India Ltd. v. DCIT [2019] 104 taxmann.com 267 (Mumbai – Trib). 11. On the other hand, Ld. AR brought to our notice Page No. 82 of the Paper Book which is the statement of the broker and in the statement 9 ITA NO.444/MUM/2022 (A.Y: 2012-13) M/s. Suchir Chemicals Pvt. Ltd., nowhere the broker has mentioned the name of the assessee. Therefore, merely relying on the general trend of misuse of client code modification it is not proper to make the addition in the hands of the assessee without bringing on any cogent material on record. Assessee has reported all the transactions in its Books of Accounts and reported the profits properly and he supported the findings of the Ld.CIT(A). 12. Considered the rival submissions and material placed on record, we observe that Assessing Officer has received information from Investigation Wing in which assessee along with other amalgamated companies has modified client code of the transactions made with its broker M/s. Anand Rathi Commodities Pvt. Ltd. Therefore, the broker is involved in such misuse of client code modification accordingly, he was asked to verify the transactions with the assessee company. We observe from the records that Assessing Officer has collected the information from the assessee in which assessee along with its amalgamated companies entered into transactions based delivery as well as F & O transactions with its broker as per which assessee along with its amalgamated companies purchased and sold the transactions to the extent of ₹.8,55,84,200/-. From the record, we observe that Assessing Officer has not collected or brought on record how many client code modifications made by the 10 ITA NO.444/MUM/2022 (A.Y: 2012-13) M/s. Suchir Chemicals Pvt. Ltd., assessee, just because assessee’s name was listed as one of the party who has made client code modifications during the year the Assessing Officer proceeded to presume that all the transactions entered by the assessee both purchases as well as sales with the broker involved in the Client code modification. He proceeded to make the total transactions made by the assessee as unaccounted income on account of client code modification. 13. It is fact on record that the client code modifications are made at the end of the trading day if there is any mistake on recording the transactions it is modified (this is as per rules framed by NSEL). All these modifications are done at the broker end and as per the procedure laid down by NSEL, client code modifications can be carried out by the broker himself or at the request of the assessee. If the client code modifications carried out by the broker on his own, then the details have to be collected from the broker and if there are any client code modifications requested by the assessee then we can analyse the request made by the assessee and check the reasons of such request made by the assessee. In the given case we notice that Assessing Officer has not collected any information from the broker nor from the assessee before reaching the conclusion. Further, we observe that there is no analysis made by the 11 ITA NO.444/MUM/2022 (A.Y: 2012-13) M/s. Suchir Chemicals Pvt. Ltd., Assessing Officer in how many transactions client code modifications were made. Therefore, it clearly indicates that Assessing Officer proceeded to make the addition without making proper verification/enquiry. In the absence of any cogent material or any evidences on record we are inclined to agree with the findings of the Ld.CIT(A) and we do not see any reason to interfere with the findings of the Ld.CIT(A). Accordingly, the grounds raised by the revenue are dismissed. 14. In the result, appeal filed by the revenue is dismissed. Order pronounced in the open court on 05 th January, 2023 Sd/- Sd/- (AMIT SHUKLA) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 05/01/2023 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Assessee 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum