The DCIT-2(1), Indore V. Shri Nandlal Manglani, Indore

ITSSA 34/IND/2017

AI Insights

The case involves six appeals by the Revenue against the composite order of the CIT(A) which deleted the additions made by the AO for the assessment years 2003-04 to 2009-10. The Revenue challenged the CIT(A)'s decision, arguing that the assessee, a broker in commodity exchange, failed to substantiate that the profits from transactions were transferred to clients and not retained by him. The High Court had earlier remanded the matter back to the CIT(A) for a fresh decision after the Tribunal's earlier order was set aside. The Tribunal found that the CIT(A) did not comply with the High Court's directions and relied on earlier findings which were set aside, leading to the remand of the matter to the AO for a detailed investigation.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134579 (ITAT-INDORE)
• Duration Of Justice: 6 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 05-04-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 28-02-2023
• Assessment Year: 2004-2005
• Appeal Filed On: 21-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Additional evidence; Corroborative evidences; Set aside
• Section: 13

Judgement Text

आयकर अपीलीय अिधकरण, इंदौर ायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER ITA Nos.33 to 38/Ind/2017 Assessment Years: 2003-04 to 2008-09 DCIT, 2(1), Indore बनाम/ Vs. Shri. Rajendra Manglani L/H of Late Shri Nandlal Manglani 56, Gulmarg Colony, Indore, M.P. (Appellant /Revenue) (Respondent / Assessee) PAN: ACVPM 4434 H Revenue by Sh. P.K. Mishra, CIT DR Revenue by None (Written req.) Date of Hearing 01.03.2023 Date of Pronouncement 06.04.2023 आदेश/O R D E R VIJAY PAL RAO, J.M.: These six appeals by the Revenue are directed against the composite order of CIT(A) dated 4.11.2016 for the assessment years 2003-04 to 2009-10, respectively. 2. None has appeared on behalf of the assessee respondent when these appeals were called for hearing despite the fact in the past the assessee took repeated adjournments of hearing of these appeals. The learned AR of the assessee namely S.K. Sachdeva and Company has IT (SS) A Nos. 33 to 38/Ind/2017 Sh. Nandlal Manglani Page 2 of 10 filed a letter dated 28 th February, 2023 wherein it is stated that due to the bad financial condition of the assessee group they are not cooperating with him for providing relevant documents/ instructions as well as profession fees. Accordingly, he has requested to withdraw his authority / power of attorney to represent the assessee-respondent in these appeals. On going through the record and facts it transpires from the earlier order-sheets, that the assessee is not serious in contesting these appeals filed by the Revenue and the learned AR of the assessee has also expressed his inability to represent the assessee in these matters. Accordingly, the Bench proposes to hear and dispose of these appeals ex parte. 3. The revenue has raised common grounds in these appeals arising from the identical facts and circumstances except the quantum of addition made by the AO and deleted by the CIT(A). Therefore, for the sake of convenience, these appeals are heard together and are being disposed of by this composite order. This is second round of litigation as earlier these appeals were decided by this Tribunal, vide order dated 29.07.2013 in ITSS(A) Nos. 94 to 100/Ind/2012 and ITA Nos. 101, 102/Ind/2012, whereby the appeals of the Revenue were dismissed and order of the then CIT(A) dated 31.01.2012 was upheld. The Revenue challenged the orders of this Tribunal before the Hon’ble jurisdictional High Court and vide order dated 30.10.2014, the Hon’ble High Court has set aside the earlier order of this Tribunal and remanded the matters to the record of the CIT(A) for fresh adjudication as under:- “On due consideration of the aforesaid we are of the view that learned Commissioner as well as learned Tribunal erred in proceeding with the matter and admitting the additional evidence IT (SS) A Nos. 33 to 38/Ind/2017 Sh. Nandlal Manglani Page 3 of 10 filed by the assessee without granting further time to verify the same and submit a report Thus, we set aside the impugned orders dated 23-08-2013, 29-07-2013, 23-08-2013 passed by the income Tax Appellate Tribunal, by answering the questions of law in favour of the appellant/department and remit the matter back to the learned Commissioner of Income Tax (Appeals) with a direction that sufficient time be granted to the department to verify the documents and rebut that evidence and thereafter decide the controversy afresh in accordance with law, as early as possible and endeavour shall be made to conclude it within a period of six months from the date of receipt of certified copy of the order. The substantial questions of law raised in all these batch of appeals are answered in favour of the revenue and all the appeals are allowed. We make it clear that the order passed will not stand in the way of the commissioner of Income Tax (Appeals)/Assessing Officer to comply with the other direction of the Tribunal Insofar as in consideration of the materials produced by the assessee is concerned. In the result, ITA No.6/2014 and other connected appeals (ITANos.7/2014,8/2014,9/2014,10/2014,11/2014,12/2014,31/201 4,14/2014,15/2014,16/2014,17/2014,18/2014 and 19/2014) are allowed on the same terms. No costs.” 4. Thus, the appeals of the Department were allowed and the matter was remanded back to the record of the CIT(A) with a direction that sufficient time be granted to the Department to verify the documents and rebut the evidence and thereafter decide the controversy afresh, in accordance with law. The CIT(A), vide impugned composite order has reiterated the finding as it was in the earlier round of litigation and thereby deleted the addition made by the AO for all the assessment years. Since, the facts and circumstances for all the six assessment years are identical therefore, for the sake of convenience, assessment year 2003-04 is taken as a lead case for the purpose of considering the facts related to the common issue. 5. The learned CIT DR has pointed out that the AO has made the addition on account of the profit earned by the assessee through IT (SS) A Nos. 33 to 38/Ind/2017 Sh. Nandlal Manglani Page 4 of 10 forward trading on commodity exchange but claimed to be the profit of his clients which was not supported by any evidence during the assessment proceedings. He has further submitted that the AO specifically pointed out that the assessee has not produced any record to establish that the transactions were carried out by the assessee for and on behalf of the clients at commodity stock exchange because there was no reference or particulars of clients appearing in the record of the exchange. The learned DR has submitted that all the transactions were carried out by the assessee in his own name and the profit was also received by the assessee from these transactions but the assessee has transferred these profits to the alleged clients who were not registered members or even have not entered into any agreement with the assessee as per the exchange record. Thus, in those facts and circumstances, the assessee was required to prove the fact that certain transactions were carried out by the assessee for and on behalf of the alleged clients are genuine and assessee has not transferred the profits of his own transactions in favour of the alleged clients to avoid the tax liability. The learned DR has submitted that assessee has claimed to have carried out forward / future transactions at commodity exchanged on his own behalf and also on behalf of the clients but failed to substantiate the claim of the transactions carried out on behalf of the clients. Further, when the matter was remitted back by the Hon’ble High Court to the record of the CIT(A), the remand report was called for examination of the additional evidence filed by the assessee during the first round of appeal before the CIT(A). The AO issued random notice to 40 persons related to different assessment years seeking the relevant details of income, profit & loss account, balance-sheet transaction in NBOT IT (SS) A Nos. 33 to 38/Ind/2017 Sh. Nandlal Manglani Page 5 of 10 (Commodity Exchange). Out of the 40 letters, the replies were received only in respect of 15 cases. In 13 cases, the letters were received back with the remarks left or not found while in 12 cases, no reply was received despite service. Therefore, in the majority of cases either, the persons were not found at the given address or no reply was received by the AO. The details of the reply from 15 persons is given in the remand report wherein the AO has pointed out that in various cases either no income was disclosed or a nominal income was disclosed by these persons which is not matching with the claim of transfer of profit by the assessee. The CIT(A) despite the remand report of the AO has deleted the addition by following the earlier orders passed by the CIT(A) and this Tribunal, which were set aside by the Hon’ble High Court while remanding the matter to the CIT(A) for fresh adjudication. Therefore, the learned CIT DR has submitted that the impugned order of the CIT(A) is not inconformity with the directions of the Hon’ble High Court to pass a fresh order, in accordance with law. He has relied upon the orders of the AO. 6. We have considered the submissions of the learned CIT DR and also carefully perused the impugned order of the CIT(A). The assessee is a broker in Commodity Exchange and filed his return of income for the assessment year 2003-04 on 31st July, 2010 declaring total income of Rs. 12,91,630/-. During the scrutiny assessment, the AO noted that the assessee has claimed to have carried out transactions for and on behalf of his clients on the commodity exchange and thereby the profits from those transactions were also transferred to the clients. The AO verified the nature of transactions and functioning of stock exchange as well as registered brokers with the stock IT (SS) A Nos. 33 to 38/Ind/2017 Sh. Nandlal Manglani Page 6 of 10 exchange carrying out the transactions on behalf of its clients. The AO noted that the client’s name do not appear in the record of the commodity exchange and the commodity exchange has transferred the profit and loss accruing on account of transactions carried out by the assessee without any reference to any of the clients. Accordingly, the AO asked the assessee to explain the nature of transactions and proof that the transactions are actually carried out on behalf of the clients and not his own transactions. In response, the assessee filed the submissions which were not framed satisfactory by the AO for want of any supporting evidence and consequently the AO made the addition on account of claim of profit pertaining to the clients being rejected. The CIT(A) has allowed the claim of the assessee and deleted the addition made by the AO. 7. In the second round of appeal, the CIT(A) forwarded the additional evidence to the AO for his comments and remand report. The AO in the remand report has stated that he sent letters to 40 persons randomly relating to different assessment years seeking relevant details of return of income, profit and loss account, balance- sheet and transactions in NBOT (Exchange). The AO received the reply only from 15 persons and that too were not satisfactory. The assessee has admitted the fact that the agreement with the clients were not registered with the exchange in the absence of public awareness as well as no prior receipt of any margin money from its unregistered member clients but transferring the difference of marked to market to clients or vice-versa. Therefore, when the assessee is not having the practice of taking the margin money from its clients then a heavy burden is cast upon the assessee to establish that the transactions IT (SS) A Nos. 33 to 38/Ind/2017 Sh. Nandlal Manglani Page 7 of 10 are actually carried out for and on behalf of the clients. In the normal course, an agent is placing the orders on the stock exchange on behalf of the clients only on the basis of the written instructions which are in the shape of instructions slip in order of serial numbers to show the details with a chronological order based on such instructions. When the assessee is not taking the margin money from the client at the time of placing the order and only after settlement of the forward trading orders at stock exchange, the outcome of such transaction is claimed to have been settled with the client either by transferring of the profit to the account of the client or debiting the ledger of the client by a short fund in the shape of loss in a transaction. There is no independent record or evidence in the shape of prior bank transactions of taking the margin money or blocking the fund of the client at the time of placing the order of forward trading at commodity exchange or agreement with the clients registered with exchange or written instructions for carrying out the transactions on behalf of the clients. The assessee has claimed these transactions only based on the ledger accounts of the various clients maintained by the assessee. Therefore, in these facts and circumstances, it is necessary to substantiate the claim of the transactions carried out for and on behalf of the client by producing some positive evidence to show that the clients have admitted all these transactions carried out by the assessee on their behalf. 8. In the first round of litigation, the CIT(A) accepted the claim of the assessee based on certain additional evidence in the shape of confirmation filed by the assessee from certain clients without the same was verified and rebutted by the AO. After the matter was IT (SS) A Nos. 33 to 38/Ind/2017 Sh. Nandlal Manglani Page 8 of 10 remanded back by the Hon’ble High Court to the record of the CIT(A) for deciding the same afresh after providing a sufficient time to the Department to verify the documents and rebut the evidence, the AO in the remand proceedings conducted a limited enquiry by issuing the notice to the 40 persons and received only 15 replies. Therefore, the remaining 25 persons have either not responded to the notice or were not found at the given address. Further, out of these 15 replies received, the AO has recorded the facts in the remand report regarding their details of income. In most of the cases, the income was nominal or there is no income reported by these persons. The replies were also stated to be incomplete. It is pertinent to note that the scope of enquiry in the remand proceedings during the pendency of the appeal before the CIT(A) is very limited as the AO could not go beyond a limit due to time constraint and nature of enquiry. The CIT(A) has placed reliance on the earlier finding of the CIT(A) which was confirmed by this Tribunal, ignoring the fact that those findings of the CIT(A) and Tribunal in the earlier round of appeal were set aside by the Hon’ble High Court and therefore, instead of giving an independent finding on the basis of the evidence produced by the assessee which was verified by the AO only to a limited extent the CIT(A) has passed the impugned order based on the earlier findings which is not in accordance with the direction of Hon’ble High Court. Thus, in the facts and circumstances of the case, when majority of the persons to whom the AO issued notices have not responded then the finding cannot be given based on incomplete enquiry that too in respect of only 15 cases who responded to the notice of the AO. Accordingly, in the facts and circumstances of the case and in the interest of justice, we are of the considered view that this matter requires a detailed and proper enquiry at the level of IT (SS) A Nos. 33 to 38/Ind/2017 Sh. Nandlal Manglani Page 9 of 10 the AO to find out the correct facts to decide the claim of the assessee regarding the transfer of profit to the accounts of the clients arising from forward transactions carried out at the commodity exchange. Hence, the impugned order of the CIT(A) is set aside and matter is remanded to the record of the AO for fresh adjudication in the light of the above observation. Since, the issue involved in all the appeals is common and based on identical facts therefore, the above finding is applicable in mutatis mutandis for all the assessment years. 9. In the result, the appeals of the Revenue are allowed for statistical purpose. Order pronounced on 06 /04/2023 in open court. Sd/- Sd/- (B.M. BIYANI) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER Indore/Allahabad िदनांक/Dated : 06.04.2023 Sh Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore 1. Date of taking dictation 20.03.2023 IT (SS) A Nos. 33 to 38/Ind/2017 Sh. Nandlal Manglani Page 10 of 10 2. Date of typing & draft order placed before the Dictating Member 24.03.2023 3. Date on which the approved draft comes to the Sr. P.S./P.S. .03.2023 4. Date on which the approved draft is placed before other Member 5. Date on which the fair order is placed before the Dictating Member for pronouncement 6. Date on which the file goes to the Bench Clerk 7. Date on which the file goes to the Head Clerk 8. Date on which the file goes to the Assistant Registrar for signature on the order 9. Date of dispatch of the Order