KAY POWER AND PAPER LIMITED,SATARA V. INCOME TAX OFFICER, WARD-2, SATARA

ITA 1436/PUN/2024

AI Insights

The case involves M/s. Kay Power and Paper Limited, which appealed against the orders of the CIT(A)/NFAC for the assessment years 2015-16 and 2016-17. The appeals were consolidated due to identical grounds being raised. The core issue was the validity of the reassessment notice issued under section 148 of the Income Tax Act, 1961, based on alleged non-genuine profits from derivative trading. The Tribunal found that the notice was issued beyond the permissible time limit and thus quashed it, leading to the allowance of the appeals. The Tribunal did not address other legal and merit-based challenges due to the primary finding regarding the limitation.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 471198 (ITAT-PUNE)
• Duration Of Justice: 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-11-2024
• Assessment Year: 2015-2016
• Appeal Filed On: 02-07-2024
• Other Referred Cases: Union of India vs. Ashish Agarwal, GKN Driveshafts (India) Ltd. vs. ITO, Vodafone International Holding B.V. vs. Union of India
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMNATH P MURKUNDE
• Assessee Lawyers: ASHWANI KUMAR
• Keywords: Opportunity of being heard; Reassessment proceedings; Unexplained cash credit; Depreciation; Reopening of assessment; Capital Gains; Principle of natural justice; Competent authority; Unabsorbed depreciation; Tangible material; Bogus
• Section: 148; 142(1); 250; 153A; 139(1); 68; 139; 44AB

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “A”, PUNE BEFORE SHRI R. K. PANDA, VICE PRESIDENT AND SHRI VINAY BHAMORE, JUDICIAL MEMBER ITA Nos.1436 & 1437/PUN/2024 Assessment Years : 2015-16 & 2016-17 M/s. Kay Power and Paper Limited, Gat No.454/457, At Post – Borgaon, Tal / Dist. Satara – 415002 Vs. ITO, Ward-2, Satara PAN: AABCK1295P (Appellant) (Respondent) Assessee by : Shri Ashwani Kumar Department by : Shri Ramnath P Murkunde Date of hearing : 18-11-2024 Date of pronouncement : 06-12-2024 O R D E R PER R. K. PANDA, VP : The above two appeals filed by the assessee are directed against the separate orders dated 15.05.2024 and 09.05.2024 of the Ld. CIT(A) / NFAC relating to assessment years 2015-16 and 2016-17 respectively. Since identical grounds have been raised by the assessee in both these appeals, therefore, for the sake of convenience, these were heard together and are being disposed of by this common order. ITA No.1436/PUN/2024 (A.Y. 2015-16) 2. Facts of the case, in brief, are that the assessee is a company engaged in the business of manufacturing and sale of Kraft Paper and Co-generation of Power. It 2 ITA Nos.1436 & 1437/PUN/2024 filed its return of income u/s 139 of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟) on 26.09.2015 declaring Nil income. The return was processed u/s 143(1) of the Act. Subsequently, on the basis of information received from the Insight portal that the assessee had entered into trading in options derivative through Trade Reversal which was unexplained and which had resulted in non- genuine profit for the year under consideration, the Assessing Officer issued a notice u/s 148A(b) of the Act to the assessee, the details of which are as under: ―GOVERNMENT OF INDIA MINISTRY OF FINANCE INCOME TAX DEPARTMENT OFFICE OF THE INCOME TAX OFFICER WARD 2, SATARA To, KAY POWER AND PAPER LIMITED GAT NO 454/457, GAT NO 454/457, At Post BORGAON, TAL SATARA TAL SATARA 415002, Maharashtra, India PAN AABCK1295P Assessment Year 2015-16 Dated: 24/05/2022 DIN & Letter No ITBA/COM/F/17/2022-23/ 1043136092(1) Sir / Madam/ M/s. Subject: Subsequent proceedings with reference to section. 148A(b) in consequence to Hon'ble SC Order 04.05.2022 Letter Kindly refer to the Notice dated 30/06/2021 issued in your case u/s 148 of the Income Tax Act, 1961 for the A.Υ. 2015-16. 2. In this regard, your attention is invited to the decision of the Hon. Supreme Court dated 04th May 2022, rendered in Civil Appeal No. 3005/2022 in the case of Union of India vs. Ashish Agarwal & others. As per para 10(i) of the said judgment, the respective impugned section 148 notices issued to the respective assessees shall be deemed to have been issued under section 148A of the IT Act as 3 ITA Nos.1436 & 1437/PUN/2024 substituted by the Finance Act, 2021 and treated to be show-cause notices in terms of section 148A(b). The Hon Apex Court has further directed that the respective assessing officers shall, within thirty days from the date of the judgment, provide to the assessees the information and material relied upon by the Revenue so that the assessees can reply to the notices issued 3. In compliance to the above direction, the information on the basis of which the reassessment notice u/s.148 of the I.T. Act referred to above was issued in your case, is furnished hereunder. The relevant material relied upon, which suggest escapement of income, is attached as annexure:- i. Brief of the Assessee :- The assessee is a company and has filed return of income u/s 139(1) of the I.T. Act for AY 2015-16 on 26/09/2015 declaring total income of Rs NIL/- ii. Brief details of information collected/received by the AO: Information has been received from the Insight Portal, regarding Tax Evasion through trading in options derivative through Trade Reversal M/s Kay Power and Paper Ltd has bought scrips and same scrips sold immediately within few seconds at higher rate and huge profit has been booked on such transaction. On going through the transaction details, it is seen that, the sale time is earlier than time of buying. As per details, it is also seen that the assessee has purchased and sold scripts at a price which are very less as compared to the market price on that particular day. During the FY 2014-15, M/s Kay Power and Paper Ltd. has made the transactions and booked the profit of Rs. 2,67,66,250/- 4. As per direction contained in para 10(ii) of the decision of the Hon. Supreme Court referred to above, the assessee has to furnish his/her response on the matter within two weeks from the date of furnishing of the relevant information. Accordingly, you may furnish your response in the matter on or before 08/06/2022 which shall be considered before passing an order u/s.148A(d) of the I.T. Act. 5. Kindly note that in case no response is received from your end within the time provided, it shall be presumed that you have nothing to say in the matter and accordingly, further proceedings as envisaged in Sec. 148A(d) and 148 of the Income Tax Act, 1961 shall be initiated, without affording you any further opportunity of being heard. PUTHENPARAMBIL MUKUNDAN BINU WARD 2, SATARA‖ 3. The assessee in response to the same vide letter dated 28.06.2022 submitted that the derivative transactions mentioned in the notice for trading in equity shares were carried out on recognized stock exchange during the financial year 2014-15. 4 ITA Nos.1436 & 1437/PUN/2024 All equity shares purchased and sold during the relevant period were in derivative segment. No delivery of any shares was taken by the company and all the transactions were made through the broker named “Sun Star Securities” having office at 56/33, Site-IV, Sahibabad Industrial Area, Gaziabad, U.P. It was submitted that the company earned net profit of Rs.3,06,33,42/- in trading in equity shares during the financial year 2014-15. The amount is duly accounted for as „Profit on trading in derivatives‟ in the „Other income‟ group in Profit and Loss Account annexed to the annual report. The transactions of trading in derivative products were made from the Current Account of the company maintained with IDBI Bank. Further, the amount of profit was received through the banking channels in the account of the company held in IDBI Bank. The amount so received was utilized for repayment of loans. All transactions are supported by contract notes from the broker. It was also submitted that no specific deduction or loss has been claimed in respect of derivative transactions. It was further submitted that the taxable profit for the year under consideration is Rs.52,91,606/- which is set off against brought forward unabsorbed depreciation and therefore, the gross total income is Nil. It was submitted that even after setting off of current year loss, the unabsorbed depreciation is of Rs.31,61,21,110/-. It was submitted that the net profit earned on derivative transactions referred to in the notice u/s 148 of the Act has been properly accounted for in the Profit and Loss Account and there is no attempt to avoid income tax. It was accordingly requested to drop the proceedings initiated u/s 148 of the I.T. Act, 1961. 5 ITA Nos.1436 & 1437/PUN/2024 4. However, the Assessing Officer was not satisfied with the submissions made by the assessee and rejected the same and issued notice u/s 148 dt 21.07.2022 of the Act, the details of which are as under: ―GOVERNMENT OF INDIA MINISTRY OF FINANCE INCOME TAX DEPARTMENT OFFICE OF THE INCOME TAX OFFICER WARD 2, SATARA To KAY POWER AND PAPER LIMITED GAT NO.454/457, GAT NO.454/457, At Post : BORGAON, TAL: SATARA, TAL: SATARA 415002, Maharashtra, India PAN: AABCK1295P Assessment Year: 2015-16 Dated: 21/07/2022 DIN & Order No: ITBA/COM/F/17/2022-23/ 1043967855(1) Sir/Madam/M/s. Sub: Proceedings u/s 148A(d) in consequence to Hon‘ble SC Order dated 04.05.2022 – Order Order u/s 148A(d) of the Income-tax Act, 1961. Sr no Particulars Information 1 Name & Address of the Assessee M/s. Kay Power And Paper Limited 2 PAN AABCK1295P 3 Status Company 4 Circle/Ward ITO, Ward-2, Satara 5 Asst. Year 2015-16 6 Date of Order 21/07/2022 7 Nature of Information Insight Information “01. Brief Facts:- The assessee, M/s Kay Power And Paper Limited (PAN: AABCK1295P) is a company. In this case, a notice u/s 148 for AY 2015-16 was issued on 30/06/2021 on the basis of information in possession of the AO after following the provisions of Taxation and Other laws (Relaxation and Amendment of Certain Provisions) 6 ITA Nos.1436 & 1437/PUN/2024 Act, 2020 (hereinafter referred to as ‗TOLA') and as per the CBDT Notification No.20 dated 31-03-2021 and subsequent Notification No.38 dated 27-04-2021 according to which the time limit for issue of notice u/s 146 was extended to 30- 04-2021 and 30- 06-2021 respectively. The above notice was issued after obtaining the prior approval of the competent Authority as per the prevailing provisions of section 151 of the IT Act, 1961. The basis for issue of notice u/s 146 was as under- i. Brief of the Assessee:- The assessee is a company and has filed return of income u/s 139(1) of the I.T. Act for AY 2015-16 on 26/09/2015 declaring total income of Rs. NIL/- ii. Brief details of information collected/received by the AO: Information has been received from the Insight Portal, regarding Tax Evasion through trading in options derivative through Trade Reversal. M/s Kay Power and Paper Ltd. has bought scrips and same scrips sold immediately within few seconds at higher rate and huge profit has been booked on such transaction. On going through the transaction details, it is seen that, the sale time is earlier than time of buying. As per details, it is also seen that, the assessee has purchased and sold scripts at a price which are very less as compared to the market price on that particular day. During the F.Y 2014-15, M/s Kay Power and Paper Ltd. has made the transactions and booked the profit of Rs.2,67,66,250/-. 02. Decision of Hon'ble Supreme Court of India: The Hon'ble Supreme Court of India in Civil Appeal No.3005/2022 in the case of Union of India & ors Vs. Ashish Agarwal and others dated 04-05-2022. As per para 10 of the above decision, Hon'ble Apex Court has directed to treat all the notices issued u/s 148 after 1-4-2021 (as per provisions of section 148 prior to 31- 03-2021) as notice u/s 148A(b) and directed to provide the information and material relied upon by the revenue to the assessee for issue of such notice, within 30 days from the date of order passed by Hon'ble Supreme Court of India i.e. 04- 05-2022 and to provide two weeks time to file the reply by the respective assessee to the AO and thereafter to pass the order u/s 148A(d) by the concerned AO to decide whether it is fit case for issue of notice u/s 148 or not. 03. Information and material shared with the assessee:- Following the directions of the Hon'ble Supreme Court of India as mentioned above and considering the CBDT Instruction No.01/2022 dated 11/05/2022 and ITBA step-by step document No.1 dated 12-05-2022 related to implantation of the decision of Hon'ble Supreme Court of India, the information and the material was provided to the assessee on 24/05/2022 and time of two weeks was provided to the assessee for submitting the response/reply. The time was given upto 08/06/2022 for filing the response/reply. The notice was duly served on assessee. 04. Reply of the assessee:- The assessee vide his letter dated 11/06/2022 requested 15 days adjournment to submit reply. As already 29 days has been given 7 ITA Nos.1436 & 1437/PUN/2024 to assessee to submit his response his request for adjournment was not granted and letter dated 23/06/2022 was sent to assessee for submission of his response on or before 24/06/2022. The assessee furnished its reply in this office on 28/06/2022. The assessee has submitted Annual Report for the F.Y 2014-15, Ledger A/c of SunStar Securities from 01/04/2014 to 31/03/2015, Profit on Trading in Derivative and computation of total income. ―05. Finding of the AO:- The submission of the assessee is duly considered. From the material on record, it emerges that the assessee, M/s Kay Power and Paper Ltd has traded in options derivative through Trade Reversal. The assessee has bought scrips and sold same scrips immediately within few seconds at higher rate and huge profit has been booked on such transaction. On going through the transaction details, it is seen that, the sale time is earlier than time of buying As per details, it is also seen that, the assessee has purchased and sold scripts at a price which are very less as compared to the market price on that particular day. During the FY 2014-15, M/s Kay Power and Paper Ltd. has made the transactions and booked the profit of Rs. 2,67,66,250/-. During the F.Y 2014-15, M/s Kay Power and Paper Ltd has made such transactions of options derivative reversal trades making non-genuine profit of Rs. 2,67,66,250/-, It is seen from the return filed by the assessee for the A.Y 2015-16 that assessee has set off losses of Rs. 52,91,606/- against the capital gains of Rs. 52,91,606/ The non-genuine profit of Rs. 2,67,66,250/- remains unexplained as the assessee has not submitted any satisfactory explanation regarding options derivative reversal trades transactions by which assessee gained non-genuine profit of Rs. 2,67,66,250/- for the year under consideration. The assessee has filed return of income for A.Y. 2015-16 on 26/09/2015 by declaring total income at Rs. Nil/-. The return of income filed does not commensurate with the non-genuine profit of Rs.2,67,66,250/-gained by the assessee during the year under consideration. Therefore, the options derivative reversal trades transactions by which assessee gained non-genuine profit of Rs.2,67,66,250/- remain unexplained. Therefore, I am satisfied that it is a fit case for initiating the proceedings u/s 147 of the IT Act, 1961 to assess the above-escaped income and assess any other income that may come to the notice during the assessment proceedings u/s 147 of the IT Act. 1961. 06. Moreover, for initiating proceedings u/s 147, the AO is not required to reach final conclusion with regards to the escapement of income. The AO at this stage only needs to possess such information which prima- facie suggests that some income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year. Final conclusion can be drawn only after completion of re- assessment proceedings and by giving the assessee due opportunities of being heard during the re-assessment proceedings 07. In view of the above facts, the information in my possession as mentioned above suggests that the income chargeable to tax of Rs.2,67,66,250/-, which is more than Rs.50 lakhs, and represented in the form of asset has escaped the assessment. Therefore this is a fit case for issue of notice u/s 148. 8 ITA Nos.1436 & 1437/PUN/2024 08. This order is passed with prior approval of the specified Authority viz. the Pr. CCIT, Pune vide No. PN/PCCIT/Coord/148/2022-23/2861 dated 20/07/2022.‖ 5. The Assessing Officer thereafter proceeded to complete the assessment. In order to verify the genuineness of profit of Rs.2,67,66,250/-, the Assessing Officer issued statutory notice u/s 142(1) of the Act to the assessee asking for certain information along with the documents in support of the same. During the course of assessment proceedings the Assessing Officer made addition of Rs.2,67,66,250/- u/s 68 r.w.s. 115BBE of the Act by recording as under: ―4. Keeping in view the materials available on record, facts and circumstances of the case, it is inferred that the assessee has failed to furnish the proper explanation with regard to the clandestine operation of getting fictitious gain under project falcon by way of coordinated and premediated trading on stock exchange by engaging in illiquid stock options with M/s. Sunstar Securities during the financial year 2014-15 relevant Assessment Year 2015-16 being the sham transaction of Rs.2,67,66,250/- Hence, the amount of Rs.2,67,66.250/- (being the part of profit on trading in derivatives of Rs.3,06,33,426/-) credited in the P&L account, just to set off the losses, is treated as unexplained credits u/s 68 of the Income Tax Act, 1961.‖ 6. In appeal, the Ld. CIT(A) / NFAC rejecting the various explanations given by the assessee and relying on various decisions, upheld the re-assessment proceedings and sustained the addition made by the Assessing Officer. 7. Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal by raising the following grounds: 1. That the order dated 15.05.2024 passed u/s 250 of the Act, 1961 (\"Act\") by the National Faceless Appeal Centre is against law and facts on the file in as much as he was not justified to uphold the action of the Learned Assessing Officer, Income Tax Department in issuing notice under section 148 of the Act in as much as (i)there are no circumstances suggesting that any \"income chargeable to tax\" has escaped assessment since the income alleged to have escaped assessment, already stands credited to the Profit 9 ITA Nos.1436 & 1437/PUN/2024 and Loss Account; (ii) there is no failure to disclose fully and truly all material facts necessary for assessment of income for the relevant assessment year nor has the Ld. Assessing Officer brought any material on record to prove such failure. (iii) there is no information within the meaning of Explanation to section 148 which suggests that income chargeable to tax has escaped assessment; (iv) notice u/s 148 has been issued by the jurisdictional AO and assessment framed by NFAC. 2. That the order dated 15.05.2024 passed u/s 250 of the Act by the National Faceless Appeal Centre (NFAC), Delhi is against law and facts on the file in as much as he was not justified to uphold the action of the Ld. Assessing Officer, Assessment Unit, Income Tax Department in - (a) treating the sum of Rs.2,67,66,250/- earned by the Appellant Company as profit on trading in derivatives amount as per the Profit and Loss Account as income from other sources assessable u/s 68 whereas the said amount has rightly been declared as income from business; (b) holding that income earned by the Appellant Company as profit on trading in derivatives was, allegedly, in the nature of fictitious profit: (c) treating the income earned from trading in derivatives as an unexplained credit u/s 68 r.w.s. 115BBE; and (d) not allowing set off of profit on trading in derivatives against brought forward losses. 3. That the order dated 15.05.2024 passed u/s 250 of the Act by the National Faceless Appeal Centre (NFAC), Delhi is against law and facts on the file in as much as he was not justified to uphold the action of the Ld. Assessing Officer in passing the appellate order without providing an opportunity of being heard to the Appellant Company either video conferencing or any other means as prescribed in the Departmental instructions for which a specific request was also made to the Ld. Commissioner of Income-tax (Appeals), NFAC. 4. That the Appellant craves to add, amend, alter, modify or delete any or all of the grounds of appeal before or at the time of hearing. 8. The Ld. Counsel for the assessee referring to the provisions of section 149 of the Act as stood at that time submitted that the notice in question is barred by limitation. Referring to the provisions of section 149(b) of the Act, he submitted that the basic condition for issue of notice u/s 148 of the Act is that it can be issued within ten years provided that income chargeable to tax represented, among other things, “in the form of an asset” or an “entry or entries in the books of account” exceeds and is likely to exceed Rs.50 lakhs. He submitted that if the above 10 ITA Nos.1436 & 1437/PUN/2024 provisions are extrapolated to the given case, it reveals that while the alleged income i.e. income from derivates is not represented by any asset, the income in respect of the same has been disclosed by the assessee company as income in the Profit and Loss Account, therefore, the mandatory conditions prescribed in section 149 of the Act are not fulfilled. Thus, the proceedings in question are barred by limitation. He submitted that the basic condition for the limitation for issue of notice u/s 148 of the Act to be extended beyond three years till ten years is that the Assessing Officer should have in his possession “books of account or other documents or evidence”, which reveal that income represented in the form of “an asset” or “an entry or entries in the books of account” has escaped assessment. In the instant case, there is no evidence in possession of the Assessing Officer of any asset which could and did represent that income has escaped assessment. The income earned from trading in derivatives was duly reflected in the accounts received in its bank account maintained with IDBI Bank and credited to the Profit and Loss Account. Therefore, such re-assessment proceedings being barred by limitation has to be quashed. 9. The Ld. Counsel for the assessee in his another plank of argument submitted that the notice dated 24.05.2022 issued u/s 148A(b) of the Act is in contravention with the provisions of section 151A of the Act. He submitted that the notice u/s 148 of the Act has been issued by the jurisdictional Assessing Officer whereas the assessment has been framed by the National Faceless Assessment Centre. Referring to the decision of the Hon‟ble Bombay High Court in the case of 11 ITA Nos.1436 & 1437/PUN/2024 Hexaware Technologies Ltd. vs. ACIT (2024) 464 ITR 430 (Bom), he submitted that the Hon‟ble jurisdictional High Court has extensively dealt with the issue of jurisdiction of jurisdictional Assessing Officer u/s 151A of the Act. It has categorically been held that the scheme is clear and unambiguous to provide that the notice u/s 148 of the Act shall be issued through automated allocation and in a faceless manner by the National Faceless Assessment Centre and not by the jurisdictional Assessing Officer. The Ld. Counsel for the assessee referring to the above decision of Hon‟ble Bombay High Court in the case of Hexaware Technologies Ltd. drew the attention of the Bench to the following sub-clauses of para 38 of the order, which read as under: ―38…… (i) It is erroneously stated in paragraph 3 of the Office Memorandum that \"The scheme clearly lays down that the issuance of notice under section 148 of the Act has to be through automation in accordance with the risk management strategy referred to in section 148 of the Act.\" The issuance of notice is not through automation but through \"automated allocation\". The term \"automated allocation\" is defined in clause 2(1)(b) of the said Scheme to mean random allocation of cases to Assessing Officers. Therefore, it is clear that the Assessing Officer are randomly selected to handle a case and it is not merely a case where notice is sought to be issued through automation. (ii) It is further erroneously stated in paragraph 3 of the Office Memorandum that \"To this end, as provided in the section 148 of the Act, the Directorate of Systems randomly selects a number of cases based on the criteria of Risk Management Strategy .\" The term 'randomly' is further used Gauri Gaekwad 71/87 904.WP- 1778-2023.doc at numerous other places in the Office Memorandum with respect to selection of cases for consideration/issuance of notice under Section 148 of the Act. Respondent is clearly incorrect in its understanding of the said Scheme as the reference to random in the said Scheme is reference to selection of Assessing Officer at random and not selection of Section 148 cases as random. If the cases for issuance of notice under Section 148 of the Act are selected based on criteria of the risk management strategy, then, obviously, the same are not randomly selected. The term 'randomly' by definition mean something which is chosen by chance rather than according to a plan. Therefore, if the cases are chosen based on risk management strategy, they certainly cannot be said to be random. The Computer/System cannot select cases on random but selection can be based on 12 ITA Nos.1436 & 1437/PUN/2024 certain well- defined criteria. Hence, the argument of respondents is clearly unsustainable. If the case of respondent is that the applicability of Section 148 of the Act is on random basis, then the provision of Section 148 itself would become contrary to Article 14 of the Constitution of India as being arbitrary and unreasonable. Randomly selecting cases for reopening without there being any basis or criteria would mean that the section is applied by the Revenue in an arbitrary and unreasonable manner. The word 'random' is used in clause 2(1)(b) of the said Scheme in the definition of \"automated allocation\". \"Automated allocation\" is defined in the said clause to mean \"an algorithm for randomised allocation of cases..... \". The term Gauri Gaekwad 72/87 904.WP-1778-2023.doc 'random', in our view, has been used in the context of assigning the case to a random Assessing Officer, i.e., an Assessing Officer would be randomly chosen by the system to handle a particular case. The term 'random' is not used for selection of case for issuance of notice under Section 148 as has been alleged by the Revenue in the Office Memorandum. Further, in paragraph 3.2 of the Office Memorandum, with respect to the reassessment proceedings, the reference to 'random allocation' has correctly been made as random allocation of cases to the Assessment Units by the National Faceless Assessment Centre. When random allocation is with reference to officer for reassessment then the same would equally apply for issuance of notice under Section 148 of the Act. (iii) The conclusion at the bottom of page 2 in paragraph 3 of the Office Memorandum that \"Therefore, as provided in the scheme the notice under section 148 of the Act is issued on automated allocation of cases to the Assessing Officer based on the risk management criteria \" is also factually incorrect and on the basis of incorrect interpretation of the Scheme. Clause 2(1)(b) of the Scheme defined 'automated allocation' to mean 'an algorithm for randomised allocation of cases by using suitable technological tools, including artificial intelligence and machine learning, with a view to optimise the use of resources '. The said definition does not provide that the automated allocation of case to the Assessing Officer is based on the risk management criteria. The reference to risk management Gauri Gaekwad 73/87 904.WP-1778-2023.doc criteria in clause 3 of the Scheme is to the effect that the notice under Section 148 of the Act should be in accordance with the risk management strategy formulated by the board which is in accordance with Explanation 1 to Section 148 of the Act. In our view, the Revenue is misinterpreting the Scheme, perhaps to cover its deficiency of not following the Scheme for issuing notice under Section 148 of the Act. (iv) In paragraph 3.1 of the Office Memorandum, it is stated that the case is selected prior to issuance of notice are decided on the basis of an algorithm as per risk management strategy and are, therefore, randomly selected. It is further stated that these cases are 'flagged' to the JAO by the Directorate of Systems and the JAO does not have any control over the process. It is further stated that the JAO has no way of predicting or determining beforehand whether the case will be 'flagged' by the system. The contention of the Revenue is that only cases which are 'flagged' by the system as per the risk management strategy formulated by CBDT can be considered by the Assessing Officer for reopening, however, in clause (i) in the Explanation 1 to Section 148 of the Act, the term \"flagged\" has been deleted by the Finance Act, 2022, with effect from 1 st April 2022. In any case, whether only 13 ITA Nos.1436 & 1437/PUN/2024 cases which are flagged can be reopened or not is not relevant to decide the scope of the Scheme framed under Section 151A of the Act, which required the notice under Section 148 of the Act to be issued on the basis of random allocation and in a faceless manner. (v) The Revenue has wrongly contended in paragraph 3.1 of the Office Memorandum that \"Therefore, whether JAO or NFAC should issue such notice is decided by administration keeping in mind the end result of natural justice to the assessees as well as completion of required procedure in a reasonable time. \" In our opinion, there is no such power given to the administration under either Section 151A of the Act or under the said Scheme. The Scheme is clear and categorical that notice under Section 148 of the Act shall be issued through automated allocation and in a faceless manner. Therefore, the argument of the Revenue is clearly contrary to the provisions of the Scheme. (vi) In paragraph 3.3 of the Office Memorandum, it is again erroneously stated that \"Here it is pertinent to note that the said notification does not state whether the notices to be issued by the NFAC or the Jurisdictional Assessing Officer (\"JAO\")......It states that issuance of notice under section 148 of the Act shall be through automated allocation in accordance with the risk management strategy and that the assessment shall be in faceless manner to the extent provided in section 144B of the Act.\" The Scheme is categoric as stated aforesaid that the notice under Section 148 of the Act shall be issued through automated allocation and in a faceless manner. The Scheme clearly provides that the notice under Section 148 of the Act is required to be issued by NFAC and not the JAO. Further, unlike as canvassed by Revenue that only the assessment shall be in faceless manner, the Scheme is very clear that both the issuance of notice and assessment shall be in faceless manner. (vii) In paragraph 5 of the Office Memorandum, a completely unsustainable and illogical submission has been made that Section 151A of the Act takes into account that procedures may be modified under the Act or laid out taking into account the technological feasibility at the time. Reading the said Scheme along with Section 151A of the Act makes it clear that neither the Section or the Scheme speak about the detailed specifics of the procedure to be followed therein. This argument of the Revenue is clearly contrary to the Scheme as the Scheme is very specific to provide, inter alia, that the issuance of notice under Section 148 of the Act shall be through automated location and in a faceless manner. Therefore, the Scheme is mandatory and provides the specification as to how the notice has to be issued. Further the argument of the Revenue that Section 151A of the Act takes into account that the procedure may be modified under the Act is without appreciating that if the procedure is required to be modified then the same would require modification of the notified Scheme. It is not open to the Revenue to refuse to follow the Scheme as the Scheme is clearly mandatory and is required to be followed by all Assessing Officers. (viii) The argument of the Revenue in paragraph 5.1 of the Office Memorandum that the Section and Scheme have left it to the Gauri Gaekwad 76/87 904.WP- 14 ITA Nos.1436 & 1437/PUN/2024 1778-2023.doc administration to device and modify procedures with time while remaining confined to the principles laid down in the said Section and Scheme, is without appreciating that one of the main principles laid down in the Scheme is that the notice under Section 148 of the Act is required to be issued through automated allocation and in a faceless manner. There is no leeway given on the said aspect and, therefore, there is no question of the administration to device and modify procedures with respect to the issuance of notice.‖ 10. Referring to the following decisions, he submitted that similar view has been taken where it has been held that where the notice u/s 148 of the Act was issued by the jurisdictional Assessing Officer and the assessment framed by the NFAC, in that situation, such proceedings are to be quashed: i) Jasjit Singh vs. Union of India (2024) 467 ITR 52 (P&H) ii) Jatinder Singh Bhangu vs. Union of India (2024) 466 ITR 474 (P&H) iii) Kankanala Ravindra Reddy vs. ITO (2023) 156 taxmann.com 178 (Telangana) iv) Ram Narayan Sah vs. Union of India (2024) 163 taxmann.com 478 (Gau) v) Royal Bitumen (P.) Ltd. vs. ACIT (2024) 164 taxmann.com 606 (Bom) vi) Pravina Jagdish Patel vs. ITO (20240 164 taxmann.com 659 (Bom) vii) Venus Jewel vs. ACIT (2024) 164 taxmann.com 414 (Bom) viii) Paras Mahendra Shah vs. Union of India (2024) 165 taxmann.com 546 (Bom) ix) L & T Finance Ltd. vs. ACIT (2024) 165 taxmann.com 331 (Bom) x) Swarn singh vs. ITO (2024) 163 taxmann.com 745 (Amritsar – Trib.) 11. In his third plank of argument, the Ld. Counsel for the assessee referring to paras 61 to 66 of the paper book submitted that the profit earned from trading in derivatives (options) has been disclosed in Note 19 of Notes to Financial Statements as part of „other income‟. He submitted that the assessee has entered into the transactions through M/s. Sun Star Securities, a broker registered in the 15 ITA Nos.1436 & 1437/PUN/2024 Bombay Stock Exchange and are duly supported by contract notes and are fully compliant with the regulatory and other applicable regulations / procedures. All the transactions were entered into through its account maintained with the IDBI Bank. Therefore, once the income, which is alleged to have escaped from being assessed to tax, has been duly recorded in the books of account and has been disclosed in the return of income filed u/s 139 of the I.T. Act, 1961, it cannot be said that the income has escaped assessment or even that there are circumstances that income has escaped assessment. He submitted that the Ld. CIT(A) / NFAC and the Assessing Officer have also not controverted / dealt with the issue of how income can be said to have escaped assessment particularly when the same has already been disclosed in the income tax return and offered for tax. 12. So far as the applicability of section 68 r.w.s. 115BBE of the Act is concerned, he submitted that the said amount is not a „cash credit‟ since it reflects income in the ordinary course of its business activities although from a new / different source i.e. trading in options and derivatives in addition to its activities carried out earlier. He submitted that since the provisions of section 68 are not applicable, the provisions of section 115BBE are not attracted. Referring to the following decisions, he submitted that the amendment brought in sub-section (2) of section 115BBE by the Finance Act, 2016 would be applicable from 01.04.2017 i.e. A.Y. 2017-18 only: i) Shree Karthik Papers Ltd. vs. DCIT (2020) 118 taxmann.com 467 (Mad) ii) Vijaya Hospitality and Resorts Ltd. vs. CIT (2020) 114 taxmann.com 91 (Ker) 16 ITA Nos.1436 & 1437/PUN/2024 iii) PCIT vs. Aacharan Enterprises (P.) Ltd. (2020) 117 taxmann.com 745 (Raj.) iv) Famina Knit Fabs vs. ACIT (2019) 104 taxmann.com 306 (Chandigarh – Trib.) v) ACIT vs. Sanjay Bairathi Gems Ltd. (2017) 84 taxmann.com 138 (Jaipur – Trib.) vi) ACIT vs. Sri Balaji Forgings (P.) Ltd. (2022) 144 taxmann.com 126 (Delhi- Trib.) vii) Karthick Natarajan vs. DCIT (2023) 154 taxmann.com 136 (Chennai-Trib.) 13. He submitted that in absence of information suggesting that any income chargeable to tax has escaped assessment and since there is no failure on the part of the assessee to disclose fully and truly all the material facts necessary for assessment of income for the relevant assessment year and since the Assessing Officer has not brought any material on record to prove such failure, therefore, such re-assessment proceedings are not in accordance with law. 14. So far as the various decisions relied on by the Ld. CIT(A) / NFAC are concerned, the Ld. Counsel for the assessee filed the following table and submitted that all those decisions are distinguishable and not applicable to the facts of the present case. S No. Case Laws Comments 1 Anshul Jain vs PCIT [(2022) 143 taxmann.com 38(SC) Harinder Singh Bedi vs Union of India [(2023) 147 taxmann.com 197 (Madhya Pradesh) Kailash Kedia vs ITO [(2023) 147 taxmann.com 126(Orissa) Deal with the issue of challenging issue of notice u/s 148 by way of a writ petition when an alternate efficacious remedy of appeal was available 17 ITA Nos.1436 & 1437/PUN/2024 2 Union of India vs Ashish Agarwal [(2022) taxmann.com 64(SC)] Issue of notices issued on or after 01.04.2021 under unamended section 148 of the Act. 3 Salil Gulati vs ACIT [(2023) 150 taxmann.com 50(SC)] Applicability of first proviso to section 149 and whether initiation of reassessment of proceedings during time-limit extended by TOLA are barred by limitation 4 Sahjeevan Cooperative Housing Society Ltd vs PCIT [(2023) 149 taxmann.com 244 (Bombay)] Reassessment was initiated in respect of income escaping assessment which had not been disclosed in the return of income. 5 Lakshman Prasad Agarwal vs Union of India [(2022) 140 taxmann.com 15(Calcutta)] Deals with the issue of legality of reassessment proceedings in a case where an assessee did not file objections. It nowhere talks about mere suspicion as being sufficient for a belief that income has, allegedly, escaped assessment. 15. So far as the decision of the Hon'ble Supreme Court in the case of McDowell & Co. Ltd. relied on by the Ld. CIT(A) / NFAC is concerned, the Ld. Counsel for the assessee submitted that the Hon'ble Supreme Court in a subsequent judgment in the case of Union of India vs. Azadi Bachao Andolan (2003) 132 Taxmann 373 (SC) has observed as under: (i) If the Court finds that notwithstanding a series of legal steps taken by an Appellant, the intended legal result has not been achieved, the court might be justified in overlooking the intermediate steps, but it would not be permissible for the court to treat the intervening legal steps as non-est based upon some hypothetical assessment of the 'real motive' of the Appellant. In our view, the court must deal with what is tangible in an objective manner and cannot afford to chase a will-o'-the wisp. (ii) We are unable to agree with the submission that an act which is otherwise valid in law can be treated as non-est merely on the basis of some underlying motive supposedly resulting in some economic determent or prejudice to the national interest, as perceived by the respondents. 18 ITA Nos.1436 & 1437/PUN/2024 16. He also relied on the decision of the Hon'ble Supreme Court in the case of Vodafone International Holding B.V. vs. Union of India (2012) 341 ITR 1 (SC), where it has been held that the transactions must be looked at as a whole and not dissected. 17. He submitted that while dealing with the ground challenging the absence of information / circumstances that income has, allegedly, escaped assessment, the Ld. CIT(A) / NFAC has referred to the availability of certain information with the department as regards specific transaction carried out by the assessee company in various scrips. He submitted that while the department may have information relating to certain transactions carried out by the assessee company available with it, however, it is not clear as to how the said details by themselves can be termed as „information‟ or „circumstances‟ as to income having escaped assessment in the case of the assessee company. 18. The Ld. Counsel for the assessee in his yet another plank of argument submitted that the complete reasons for initiation of re-assessment proceedings have not been provided to the assessee company. Referring to the notice issued u/s 148A(b) of the Act dated 24.05.2022 which is the basis for arriving at „reason to believe‟ that the income has escaped assessment is concerned, he drew the attention of the Bench to the contents of the notice and submitted that a mere generalized information without demonstrating the escapement of income represented in the form of assets of Rs.2,67,66,750/- for a particular year would not 19 ITA Nos.1436 & 1437/PUN/2024 suffice to legally issue a notice u/s 148 of the Act. He submitted that the assessee has earned profit of Rs.3,06,33,426/- out of which the Revenue is initiating the re- assessment proceedings for escapement of income of Rs.2,67,66,750/-. The so called information / letter / intimation received from the Investigation Wing which was relied upon by the Assessing Officer, does not clearly show as to whether (i) it contained any tangible material / information to suggest that income of the assessee company had escaped assessment or (ii) merely contained information / intimation or was in the nature of a direction issued for reopening of assessment. He submitted that although in the assessment order the Assessing Officer has relied upon the findings of SEBI and statement recorded during the course of survey u/s 133(1A) of M/s. Sunstar Securities, however, there is no whisper of the same in the notice issued u/s 148. No such order of SEBI or statement of M/s. Sunstar Securities was ever provided to the assessee along with the notice u/s 148. He submitted that it is entirely in complete violation of the ratio laid down by the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. vs. ITO (2003) 259 ITR 19 (SC) wherein it has been held that non-providing to an assessee of complete reasons recorded (including sanction, documents relied upon, etc) is fatal to the validity of the re-assessment proceedings and that an Assessing Officer is bound to furnish reasons within a reasonable time. 19. So far as the merit of the case is concerned, he submitted that the assessee company has entered into reversal trades in various scrips. Such reversal trades entail reversal of sell or buy position on a contract with subsequent buy or sell 20 ITA Nos.1436 & 1437/PUN/2024 positions with the same counter party during the same day. The said reversal trades were carried out off market through M/s. Sunstar Securities, a broker on the Mumbai Stock Exchanges. He submitted that there was no allegation of any manipulation in the price and volume of securities and the SEBI permits short selling. He also referred to the Guidance Note on Tax Audit u/s 44AB of the Act issued by the Institute of Chartered Accountant of India to buttress his argument that such transactions are commercially acceptable. Relying on various decisions, he submitted that the addition made by the Assessing Officer and sustained by the Ld. CIT(A) / NFAC is not justified. Even otherwise also, he submitted that once the income from option or derivatives being shown in the Profit and Loss Account, addition of the same again will amount to double addition of the same amount. He accordingly submitted that the order of the Ld. CIT(A) / NFAC be reversed and the grounds raised by the assessee be allowed. 20. The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A) / NFAC. He submitted that the Assessing Officer in the instant case, after following due process of law, has initiated re-assessment proceedings which has been upheld by the Ld. CIT(A) / NFAC. Referring to the decision of the Pune Bench of the Tribunal in the case of ITO vs. Splice Biotech Pvt. Ltd. vide ITA No.775/PUN/2023, relating to assessment year 2013-14, order dated 27.09.2023, he submitted that the Tribunal has allowed the appeal filed by the Revenue where the CIT(A) has deleted the addition made by the Assessing Officer by denying the claim for exemption of capital gains u/s 10(38) of the Act. 21 ITA Nos.1436 & 1437/PUN/2024 In that case, the Assessing Officer has held that the transaction of purchase of shares of the scrip S.K. Stock Dealers Pvt. Ltd. and subsequent sale is nothing but a bogus transaction. 21. The Ld. Counsel for the assessee in his rejoinder submitted that the facts in the case of Splice Biotech Pvt. Ltd. (supra) are completely different from the facts of the present case. In that case, the assessee had claimed deduction u/s 10(38) of the Act, whereas the assessee in the instant case has not claimed any such exemption and rather has offered the income to tax. 22. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of both sides. We have also considered the various decisions cited before us by both sides. We find the Assessing Officer in the instant case reopened the assessment on the ground that the assessee has bought scrips and sold the same scrips immediately within few seconds at a higher rate and huge profit has been booked on such transactions which according to the Assessing Officer is non- genuine profit to the extent of Rs.2,67,66,250/- out of the profit of Rs.3,06,33,426/-. Since the assessee did not submit any satisfactory explanation during the course of assessment proceedings, the Assessing Officer made addition of the same to the total income of the assessee u/s 68 r.w.s. 115BBE of the Act. We find the Ld. CIT(A) / NFAC upheld the validity of the re-assessment proceedings as well the addition on merit. It is the submission of the Ld. Counsel 22 ITA Nos.1436 & 1437/PUN/2024 for the assessee that (a) the re-assessment proceedings initiated are barred by limitation, (b) such re-assessment proceedings are invalid especially when the income has duly been disclosed in the return of income and there is no escapement of income; (c) the notice has been issued by the jurisdictional Assessing Officer whereas the assessment has been framed by the NFAC and (d) so called statement of the broker was never provided to the assessee and the assessee has come to know of the same only after the assessment was completed and (e) there is not a whisper about the statement in the reasons so recorded and therefore, the same is against the ratio laid down by the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. vs. ITO (supra). It is also his submission that short selling is not illegal and it is permitted by the SEBI. It is also his submission that since the assessee has already disclosed such profit in the Profit and Loss Account, therefore, the same is not undisclosed income. Further, it is not a loan and the assessee has already shown the same as income, therefore, the provisions of section 68 r.w.s. 115BBE of the Act are not applicable. 23. We find force in the arguments of the Ld. Counsel for the assessee that the notice issued by the Assessing Officer u/s 148 is barred by limitation. We find the provisions of section 149 of the Act as stood at that time relating to the time limit for issue of notice u/s 148 read as under: ―149. Time limit for notice. - (1) No notice under section 148 shall be issued for the relevant assessment year,— (a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b); 23 ITA Nos.1436 & 1437/PUN/2024 (b) if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of – (i) An asset; (ii) expenditure in respect of a transaction or in relation to an event or occasion; or (iii) an entry or entries in the books of account, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more: Provided that no notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April, 2021, if a notice under section 148 or 153A or section 153C could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of this section or section 153A or section 153C, as the case may be, as they stood immediately before the commencement of the Finance Act, 2021: …………… …………………………………………………………………………….‖ 24. It is an admitted fact that in the instant case, the notice u/s 148 has been issued after a period of 3 years from the relevant assessment year. A perusal of the provisions of section 149 shows that the basic condition for the limitation for issue of notice u/s 148 of the Act to be extended beyond three years till ten years is that the Assessing Officer must have in his possession “books of account or other documents or evidence”, which reveal that income represented in the form of “an asset”, “expenditure in respect of a transaction or in relation to an event or occasion” or “an entry or entries in the books of account which has escaped assessment” amounts to or likely to amount to Rs.50 lakhs or more. In the instant case, a perusal of the assessment order shows that the Assessing Officer has no evidence in his possession of any asset which could or did represent income having 24 ITA Nos.1436 & 1437/PUN/2024 escaped assessment since the profit so earned and credited to the Profit and Loss Account has already been utilized for repayment of loan. Similarly, there is no evidence on record before the Assessing Officer that any expenditure in respect of a transaction or in relation to an event or occasion has escaped assessment. Thus, the first 2 conditions are not satisfied. So far as the third clause i.e. an entry or entries revealing income chargeable to tax has escaped assessment is concerned, it is an admitted fact that the entry relating to trading in derivatives is already reflected in the books of account and the same has also been credited to the Profit and Loss Account and disclosed as income whereby the said entry does not reflect any income having allegedly escaped assessment. Thus the 3rd condition is also not satisfied. Since the notice has admittedly been issued beyond a period of three years and since the Assessing Officer does not have any evidence in his possession of any asset which represents income having escaped assessment and since the entry relating to trading in derivatives has already been disclosed in the books of account by crediting the profit to the Profit and Loss Account, therefore, the mandatory requirements of time limit for issue of notice u/s 148 of the Act has not been satisfied. Therefore, we agree with the contention of the Ld. Counsel for the assessee that the notice in question is barred by limitation keeping in view of the specific and express provisions of section 149(1)(b) of the Act. Therefore, the notice u/s 148 being not in accordance with law is liable to be quashed. We, therefore, quash the notice issued u/s 148 of the Act being barred by limitation. 25 ITA Nos.1436 & 1437/PUN/2024 25. Since the assessee succeeds on this legal issue, the other planks of arguments challenging the validity of re-assessment proceedings are not being adjudicated. Since the appeal of the assessee is allowed on account of validity of re-assessment proceedings, the grounds challenging the addition on merit become academic in nature and therefore are not being adjudicated. 26. In the result, the appeal filed by the assessee is allowed. ITA No.1437/PUN/2024 (A.Y. 2016-17) 27. After hearing both the sides, we find the grounds raised in ITA No.1437/PUN/2024 are identical to the grounds raised in ITA No.1436/PUN/2024. We have already decided the issue and the appeal filed by the assessee has been allowed. Following similar reasonings, grounds raised by the assessee in ITA No.1437/PUN/2024 are also allowed. 28. In the result, both the appeals filed by the assessee are allowed. Order pronounced in the open Court on 6th December, 2024. Sd/- Sd/- (VINAY BHAMORE) (R. K. PANDA) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; दिन ांक Dated : 6th December, 2024 GCVSR 26 ITA Nos.1436 & 1437/PUN/2024 आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: 1. अपीलार्थी / The Appellant; 2. प्रत्यर्थी / The Respondent 3. 4. The concerned Pr.CIT, Pune DR, ITAT, „A‟ Bench, Pune 5. गार्ड फाईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अधिकरण ,पुणे / ITAT, Pune S.No. Details Date Initials Designation 1 Draft dictated on 19.11.2024 Sr. PS/PS 2 Draft placed before author 20.11.2024 Sr. PS/PS 3 Draft proposed & placed before the Second Member JM/AM 4 Draft discussed/approved by Second Member AM/AM 5 Approved Draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr. PS/PS 7 Date of uploading of Order Sr. PS/PS 8 File sent to Bench Clerk Sr. PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R. 11 Date of Dispatch of order "