KULDEEP NARAYANLALJI KOTHARI, SURAT V. INCOME TAX OFFICER- WARD -1 (3)(7), SURAT

ITA 668/SRT/2023

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 8906 (ITAT-SURAT)
• Duration Of Justice: 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 10-01-2024
• Assessment Year: 2012-2013
• Appeal Filed On: 02-10-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SAPNESH SHETH
• Keywords: Reopening of assessment; Unexplained investment; Opportunity of being heard; Principle of natural justice; Transactions in derivatives; Additional evidence; Onus to prove; Reason to believe; Reassessment proceedings
• Section: 147; 148; 144; 139; 271B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM आयकर अपील सं./ITA Nos.654 & 668/SRT/2023 Assessment Years: (2011-12 & 2012-13) (Physical Hearing) Kuldeep Narayanlalji Kothari, 7/B, Govind Nagar, New Rander Road, Surat - 395001 Vs. The ITO, Ward – 1(3)(7), Surat èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AGUPK8379E (Appellant) (Respondent) Appellant by Shri Sapnesh Sheth, CA Respondent by Shri Vinod Kumar, Sr. DR Date of Hearing 11/01/2024 Date of Pronouncement 31/01/2024 आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned two appeals filed by the assessee, pertaining to Assessment Years (AYs) 2011-12 and 2012-13, are directed against the separate orders passed by the Learned Commissioner of Income Tax (Appeals), [in short “the ld. CIT(A)”], National Faceless Appeal Centre (in short ‘the NFAC’), Delhi, which in turn arise out of separate assessment orders passed by the Assessing Officer u/s 144 r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). 2. Since these two appeals relate to the same assessee, common and identical issues are involved, therefore these two appeals have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. The facts as well as grounds of appeal raised by the assessee in ITA No.654/SRT/2023 for 2 654 & 668/SRT/2023/AY.2011-12 & 2012-13 Kuldeep Narayanlalji Kothari assessment year (AY) 2011-12 have been taken into consideration for deciding these appeals en masse. 3. The grounds of appeal raised by the assessee in ITA No. 654/SRT/2023, for AY.2011-12 are as follows: “1. On the facts and circumstances of the case as well as on the law on the subject the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the assessing officer in passing ex-parte order u/s 144 of the I.T. Act. 2. On the facts and circumstances of the case as well as on the law on the subject the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre has erred in confirming the action of assessing officer in reopening assessment by issuing notice u/s 148 of the I.T. Act, 1961. 3. On the facts and circumstances of the case as well as on the law on the subject the learned Commissioner of Income Tax (Appeals), NFAC has erred in confirming the action of assessing officer in making addition of Rs.1,26,15,643/- as unexplained investment & Rs.14,805/- as alleged profit earned from commodity transactions. 4. It is therefore prayed that above addition made by assessing officer and confirmed by Commissioner of Income-tax (Appeals) may please be deleted.” 4. As per lead case in ITA No.654/SRT/2023, the facts necessary for disposal of the appeal are stated in brief. In the assessee`s case, the assessing officer observed that as per NMS, CIB and ITS data, the assesses has made transactions in multi commodity contracts of Rs.88,82,25,480/- during the financial year (F.Y.) 2010-11. On verification of records, it was observed by the assessing officer that assessee has not filed his return of income for assessment year (A.Y.) 2011-12, as per the provisions of section 139 of the Income Tax Act, 1961. Since said transaction was not disclosed by the assessee for the A.Y.2011-12, therefore, the assessing officer has reason to believe that profit earned on commodity transaction has not been offered for taxation, resulting into escapement of income within the meaning of 3 654 & 668/SRT/2023/AY.2011-12 & 2012-13 Kuldeep Narayanlalji Kothari section 147 of the I.T. Act, 1961 for AY.2011-12. Accordingly, after recording of reasons for reopening of assessment and obtaining due approval from appropriate authority, notice u/s 148 of the Act, was issued on 26/03/2018, requesting the assessee to file a return of income for A. Y. 2011-12, within 30 days of receipt of the notice. The notice was return unserved with remark “Addressee moved”. Subsequently, the notice was served by affixture at the premises of assessee on 11/04/2018. During the course of reassessment proceedings the following notices were issued to the assessee. However, there was no response to these notices from the assessee side. Sr. No. Notice under section Date of issue of notice Date of hearing/time permissible to furnish reply Attended /not attended 1. 148 26/03/2018 Within 30 days from receipt of notice Non Compliance 2. Reminder of 148 and intimation u/s 129 02/08/2018 09/08/2018 Non Compliance 3. 271F Show Cause Notice 12/09/2018 19/09/2018 Non Compliance Since, the assessee has failed to file the return of income for A.Y. 2011-12 and also failed to comply with notices issued. As no compliance from the assessee till 29/11/2018, therefore, a show- cause notice u/s 144 of the IT Act was issued to the assessee, vide letter dated 30/11/2018, to furnish explanation/reply on or before 07/12/2018. The relevant portion of final- show cause notice issued by assessing officer, is reproduced as under: “As you are aware that re-assessment proceedings are going on in your case for the assessment year 2011-12. Notices under section 148 of the Income Tax Act, 1961 was issued to you on 26.02.2018. However, till date, there is no response, it appears that no return of income has been filed despite elapsement of considerable period after the expiry of the due date specified in the notice u/s 148 of the I.T. Act The procedure of re- 4 654 & 668/SRT/2023/AY.2011-12 & 2012-13 Kuldeep Narayanlalji Kothari assessment has legally prescribed time schedule and the proceedings cannot be held back on account of failure of your comply with the s. 148 notice. As per law, the provisions of the Act apply to return u/s, 148 of the Act as if such return were a return required to be furnished under section 139. Thus, in the above scenario, you have failed to make the return required under section 139. In this manner, reassessment proceedings have been effectively prevented. Hence your assessment is not proposed to be made under section 144 of the IT Act, 1961 to the best of judgment of the under- signed. The proposal for best judgment assessment is laid down as under:  At the outset, it is clarified that an amount of Rs.2,66,46,764/- as described under is proposed to be added in the assessment order under section 144.  You have made transactions of Rs.88,82,25,480/- in multi commodity Transactions Contract during FY.2010-11, in this regard, you are hereby show cause as to why 2% of total transaction should not be considered as your unaccounted investment and 1% profit on total transaction should not be estimated for the year under consideration and added to the total income for AY.2011-12. Hereby, you are being given the final opportunity of being heard, You are requested to furnish the copy of your Ledger account from book of account of all brokers and annual profit and loss statement from all brokers supported by your bank statement for F.Y.2010-11 relevant A.Y.2011-12, as well the details alongwith all confirmatory documents and evidences for the purpose of verification and assessment. Your failure to comply with terms of this letter will force the Office of the undersigned to make the re- assessment of the total income or loss to the best of judgment and determine the sum payable by you on the basis of such assessment. Therefore you are given final opportunity to furnish the information called for in this Notice on or before 07.12.2018, at 3:00 p.m. In the event of failure on your part comply with this letter; it will be taken that you have nothing to submit and the assessment shall be made on the merits of the case and as per proposal as delineated above u/s 144 of the IT Act, 1961.” 5. The assessee neither attended nor furnished any reply in response to the show cause notice under section 144 of the Act. During the whole reassessment proceedings, neither the assessee nor AR of the assessee has furnished any reply. The assessee has been afforded sufficient opportunities, but has failed to comply with the various notices issued. In view of the above, it has proved that the assessee has deliberately avoided complying with the notices. In these 5 654 & 668/SRT/2023/AY.2011-12 & 2012-13 Kuldeep Narayanlalji Kothari circumstances, assessing officer has no option left but to finalize the assessment by passing order u/s 144 of the I.T. Act based on the information and material available on record. 6. During the re-assessment proceedings, on verification of ITS data of the assessee, it was noted by the assessing officer that the assessee has made commodity transaction of Rs.88,82,25,480/- during the F.Y.2010-11, the information has been obtained from MCX for F.Y. 2010-11, and it was noted by AO that the assessee has made commodity transactions during the year. On verification of the information it was observed that the assessee has earned profit of Rs.14,805/- on total commodity transaction of Rs.63,07,82,170/-. As the source of investment made for purchase of commodities of Rs.63,07,82,170/- through MCX during the F.Y. 2010-11 is remain unexplained and therefore, requires to be taxed in the hands of the assessee. Since, there was no compliance from the assessee, in regard to above investment, therefore, assessing officer finalized the assessment on the basis of Information/material available on record. Considering the above facts, an estimation has been made by AO @ 2% of purchase value i.e. Rs.63,07,82,170/-, which comes to Rs.1,26,15,643/- and the same has been treated as unexplained investment made by the assessee during the year under consideration and added to the total income of the assessee for the A.Y.2011-12. 7. Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has confirmed the action of the Assessing Officer, observing as follows: “7. Decision: In this case, the addition has been made by the Assessing Officer wroth Rs.1,26,15,643/- as unexplained investment. The appellant has made total commodity transaction of Rs.63,07,82,170/- through MCX. The appellant has shown that it has earned profit of Rs.14805/- on total 6 654 & 668/SRT/2023/AY.2011-12 & 2012-13 Kuldeep Narayanlalji Kothari commodity transaction of Rs.63,07,82,170/-. Since, no compliance was made by the appellant, the Assessing Officer made an estimation @ 2% of purchase value of Rs.63,07,82,170/- and made the addition of Rs.1,26,15,643/- as unexplained investment. 7.1 Now before me in the appellate proceedings, the appellant has filed additional evidence under rule 46A of the Income Tax Rules. This was sent to the Assessing Officer for comments as remand report. The Assessing Officer has submitted the remand report and mention that the appellant is a non-filer and the profit earned on commodity transaction has not been offered for taxation, resulting into escapement of income within the meaning of section 147 of the Income Tax Act,1961. In the reply to the remand report it has been submitted by the appellant that assessment cannot be reopened on the basis of borrowed satisfaction. Hon’ble Supreme Court in the judgment of M/s. Raymond Woolen Mills vs. CIT, it has been held that there should be prima facie satisfaction by the Assessing Officer. Hence, this ground of the appellant is dismissed. In the reply to the remand report again, it is seen that no details have been filed on the source of the investment in commodity. No details have been filed how income has been arrived on such huge transaction. Hence, it is clear that the appellant has failed to discharged the onus to prove the source of the transaction before the Assessing Officer and before me in the appellate proceedings and held that that documents submitted by the appellant is unable to prove the source of income for the huge investment. As a natural justice to the appellant, the Assessing Officer had already considered only 2% of impugned purchases as unexplained investment. Another contention before the Assessing Officer made by the appellant was that the losses made by the appellant have not been considered by the Assessing Officer. The Assessing Officer held that the net profit has been considered after taking into account losses occurred during the year under consideration. In the last para of the remand report, the Assessing Officer has held that despite turnover of Rs.88,82,25,480/-, which is stock and F&O segment of the appellant, the accounts of the appellant have not been audited. Hence, the Assessing Officer has already initiated penalty u/s 271B of the Income Tax Act, 1961. 7.2 I have gone through the written submission and the remand report. The copy of the remand report was sent to the appellant and reply was filed before me. The appellant has made submission before me that opportunity was provided during the course of assessment proceedings. It is interesting to note that even in remand proceedings, no source of investment was filed by the appellant before the Assessing Officer. Even before me no evidence has been filed regarding source of investment wroth Rs.63,07,82,170/-. Hence, I hold that even in remand proceedings and even before me in the appellate proceedings, the appellant has not discharged the onus of filing proper submissions. Hence, the order of the Assessing Officer is confirmed and appeal of the appellant is dismissed.” 7 654 & 668/SRT/2023/AY.2011-12 & 2012-13 Kuldeep Narayanlalji Kothari 8. Aggrieved by the order of ld. CIT(A), the assessee is in appeal before us. 9. Shri Sapnesh Sheth, Learned Counsel for the assessee submitted that reopening of assessment made under section 147/148 of the Act is bad in law.There is no whisper in the reasons recorded, of any tangible material which came to the possession of the assessing officer. It reflects an arbitrary exercise of the power conferred under section 147 of the Act.The AO was not having any material information to form "a reason to believe" that there was an escapement of income in the assessee`s case. Hence, reassessment proceedings may be quashed. 10. On merit, ld Counsel submitted that during the assessment proceedings, the assessee did not make compliance of various notices of the assessing officer. However, during the appellate proceedings, the assessee submitted entire documents and evidences before ld. CIT(A). The ld. CIT(A) called the remand report from the Assessing Officer. That is, the assessee submitted documents and evidences before the ld. CIT(A) which were sent to the file of Assessing Officer for remand report. The assessee submitted the reply of the remand report. The Ld. Counsel submitted that assessee has total investment of Rs.1,58,500/-, however the daily transactions done by the assessee in Commodities Stock Exchange have been added in the hands of the assessee, which is not acceptable, therefore, addition made by the Assessing Officer is bad in law. The ld Counsel submitted that assessee filed the following documents before the ld. CIT(A): • Ledger A/c of assessee from the books of Monarch. • Trade summary for F.Y. 2010-11 issued by above Monarch. 8 654 & 668/SRT/2023/AY.2011-12 & 2012-13 Kuldeep Narayanlalji Kothari • Ledger A/c of assessee from books of broker M/s India for F.Y. 2010-11 • Investor’s report series wise (summary) (MCX) for F.Y.2010-11 evidencing NP/Loss The above documents evidencing actual investment of only Rs.1,58,850/- is already filed on record of assessing officer during remand proceedings and it is absolutely clear that AO has failed to point out any defect in above records. When actual evidences are filed on record, there is no question of estimating investment on estimated rate of 2%. The assessee has done commodity transactions and it is a known fact that only the amount / value of transaction is high but the actual investment is low as transactions must be settled in a short period of time. In such case, the investment is only in respect of margin money / loss and the same has been paid to broker through cheque as evident from documentary evidences. Such nominal investment can be made either from past savings or from the income earned during the year under consideration. Thus, assessing officer has wrongly presumed the total investment in such commodity transaction as 2% of total value of commodity transactions and the same may be deleted. 11. On the other hand, Learned Senior Departmental Representative (ld. Sr. DR) for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 12. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other 9 654 & 668/SRT/2023/AY.2011-12 & 2012-13 Kuldeep Narayanlalji Kothari material brought on record. We note that the following documents and evidences were submitted before the ld. CIT(A), viz: (1) Chart showing working of net loss based on below mentioned details from Sr. No.4 to 8 (vide Pb.15 – 16), (2) Ledger A/c of assessee from the books of Monarch Projects & Finmarkets Ltd. (vide Pb.17-20), (3) Poftfolio Report for FY.2010-11 issued by Monarch Project & Finmarkets Ltd. (vide Pb.21), (4) Ledger A/c of assessee from books of broker M/s India Advantage Commodities Pvt. Ltd. (vide Pb.22), (5) Investor’s report series wise (summary MCX) for FY 2010-11 evidencing Net Profit/Loss (vide Pb.23). We have examined the above documents and evidences submitted by the assessee before the lower authorities. 13. So far the reasons recorded by the assessing officer to reopen the assessment under section 147/148 of the Act is concerned, we do not find any infirmity in the process of recording reasons and validity of reassessment proceedings. 14. So far addition of Rs.1,26,15,643/- on merits, is concerned we note that during the course of assessment proceedings, assessing officer observed that assessee has purchased commodity contracts to the tune of 63,07,82,170/- during the year under consideration. Hence, assessee was asked to explain the source of investment in above transaction. Thereafter, as no reply was received from assessee, so a show-cause notice dated 30.11.2018 issued by AO asking assessee, as to why Rs.1,26,15,643/- being 2% of impugned purchases should not be treated as unexplained investment. However, as assessee was unable to reply to above notice due to reasons beyond his control, assessing officer proceeded to make huge addition of Rs.1,26,15,643/- as 10 654 & 668/SRT/2023/AY.2011-12 & 2012-13 Kuldeep Narayanlalji Kothari unexplained investment. In course of appellate proceedings, it was submitted by assessee that during the year under consideration, assessee has entered into multi commodity transaction through brokers Monarch Project & Finmarkets Ltd & India Advantage Commodities Pvt. Ltd. Further it is relevant to mention here that assessee has in fact invested only Rs.1,58,850/- as against Rs.1,26,15,643/- estimated by assessee. The above fact is quite evident on perusal of Ledger accounts of assessee in books of brokers. Also, the above investment of Rs.1,58,850/- is very nominal and the same can be made out of past savings and/or from income earned during the year under consideration. The above fact is quite evident on perusal of Ledger accounts of assessee in books of brokers. The assessee submitted following documents issued by broker Monarch Projects and Finmarkets Ltd and India Advantage Commodities Pvt Ltd: • Ledger A/c of assessee from the books of Monarch. • Trade summary for F.Y. 2010-11 issued by above Monarch. • Ledger A/c of assessee from books of broker M/s India for F.Y. 2010-11 • Investor’s report series wise (summary) (MCX) for F.Y. 2010- 11 evidencing NP/Loss On the basis of documents issued by broker we have compiled a chart showing details of transaction in commodity and result Profit/Loss as per which it is evident that assessee has incurred loss of Rs.91,611.29. It seems that AO has information of Profit/Loss as he has computed at Rs.14,805/- from commodity transaction in Para 6 of assessment order. However, assessee incurred loss and the same is almost thrice to the figure of Rs.91,611/- adopted by AO as profit. 11 654 & 668/SRT/2023/AY.2011-12 & 2012-13 Kuldeep Narayanlalji Kothari 15. The ld Counsel stated that it is a known fact in commodity transaction that only volume of transaction is high whereas the transactions are settled on net basis requiring very minimum investment. Thus, assessing officer has wrongly presumed the total investment in such commodity transaction, as 2% of total value of commodity transactions. This shows that assessing officer has absolutely no material on record which indicates that assessee made any investment from unaccounted income. Hence, addition of Rs.1,26,15,643/- is hereby deleted. 16. About addition of Rs.14,805/-, as alleged profit earned from commodity transactions, we note that during the year under consideration, assessee has incurred total loss of Rs.91,612/- from the impugned commodity transaction ( not the profit determined by AO at Rs.14,805/-. The same is quite evident from profit and loss report of broker Monarch Project & Finmarkets Ltd and India Advantage Pvt Ltd. Hence, when assessee has incurred loss from impugned transaction, assessing officer is not justified in estimating profit from the above transactions as no such profit is earned by assessee. Therefore, addition of Rs.14,805/- is hereby deleted. 17. In the result, appeal of the assessee (in ITA No.654/SRT/2023) is allowed. 18. Since, we have adjudicated the issue by taking the lead case in ITA No.654/SRT/2023 for AY.2011-12, the common and identical issue are involved in ITA No.668/SRT/2023 for AY.2012-13, therefore our above observations are mutatis mutandis applicable to the assessee’s appeal in ITA No.668/SRT/2023. 12 654 & 668/SRT/2023/AY.2011-12 & 2012-13 Kuldeep Narayanlalji Kothari 19. In the combined result, both appeals of the assessee (in ITA No.654 and 668/SRT/2023) are allowed. Registry is directed to place one copy of this order in all appeals folder / case file(s). Order is pronounced on 31/01/2024 in the open court. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat Ǒदनांक/ Date: 31/01/2024 SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat