MIKER FINANCIAL CONSULTANTS PVT. LTD.,MUMBAI V. WARD-10(2)(4), MUMBAI

ITA 849/MUM/2024

AI Insights

The case involves Miker Financial Consultants Pvt. Ltd., which appealed against the order of the Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC) confirming the reopening of its assessment for the Assessment Year 2017-18. The reopening was based on allegations that the assessee had earned bogus Long Term Capital Gains (LTCG) from trading in shares of Kushal Ltd., a penny stock. The AO had added Rs. 80,46,876 as unexplained cash credit under section 68 read with section 115BBE of the Income Tax Act and Rs. 1,60,938 as unexplained expenses under section 69C read with section 115BBE. The assessee contested that these additions were unjustified and that the reopening of the assessment was bad in law, lacking tangible material and proper sanction under section 151 of the Act. The Tribunal found discrepancies in the AO's findings and directed a fresh examination of the case.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126302 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LEYAQAT ALI
• Assessee Lawyers: REEPAL TRALSHAWALA
• Keywords: Set aside; Business income; Unexplained cash credit; Income from undisclosed sources; Reopening of assessment; Capital Gains; Principle of natural justice; Tangible material; Borrowed satisfaction; Bogus; Grounds of appeal; Satisfaction; Subsequent Assessment; National Faceless Appeal; Exempt long term capital gain; Trading in Shares; Commissioner; Exempt LTCG; Statistical purposes; Purchases; Transactions; No income; Exempt; Deleted; Trading transactions; Gross Purchase
• Section: 147; 148; 144; 142(1); 250; 68; 69C

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, ‘B’ BENCH MUMBAI BEFORE: SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER & SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER ITA No. 849/MUM/2024 (Assessment Year : 2017–18) Miker Financial Consultants Pvt. Ltd. Company B-6-7, Shree Siddhivinayak Plaza, Oshiwara, Off Link Road, Andheri West, Mumbai-400053. Vs. Ward-10(2)(4), 2nd floor, R. No. 213, Aayakar Bhavan, M.K.Road, Mumbai-400020. PAN/GIR No. AAECM1798G (Appellant) .. (Respondent) Assessee by Shri. Reepal Tralshawala Revenue by Shri. Leyaqat Ali, Sr. DR Date of Hearing 07/04/2025 Date of Pronouncement 23/04/2025 आदेश / O R D E R PER VIKRAM SINGH YADAV (A.M): The present appeal has been preferred against the impugned order dated 12.01.2024 passed in Appeal no. NFAC/2016-17/10124811 by the Ld. Commissioner of Income–tax(Appeals)/ National Faceless Appeal Centre (NFAC) [hereinafter referred to as the “CIT(A)”] u/s. 250 of the Income- Tax Act, 1961 [hereinafter referred to as \"Act\"] for the ITA no. 849/MUM/2024 Miker Financial Consultants Pvt. Ltd. 2 Assessment year [A.Y.] 2017-18, wherein the assessee has taken the following grounds of appeal: “ A. Reopening of the assessment is bad in law and liable to be quashed 1. The NFAC [CIT(A)] erred in confirming the reopening of the assessment without appreciating that there is no income that has escaped assessment and the net profit earned from trading transactions of shares including in shares of Kushal Ltd. is duly reflected in the trading and profit and loss account and not disputed by the AO and hence, the reopening of the assessment is bad in law and liable to be quashed. 2. The NFAC [CIT(A)] failed to appreciate that the reasons recorded for reopening of the assessment including the figure stated therein is contrary to the facts of the case and that the Appellant has NOT earned any exempt Long Term Capital Gains (LTCG) nor earned any Short Term Capital Gains (STCG) and thus, no question of any income escaping assessment by way of bogus exempt LTCG. 3.The NFAC (CIT(A)) failed to appreciate that the information of alleged escapement of income is wrong and contrary to the facts of the case and reopening of assessment is without any application of mind and merely reason to suspect based on borrowed satisfaction without any tangible material and no such material or evidence or any other documents furnished to the Appellant and hence, the reopening of the assessment is bad in law and liable to be quashed. 4. Without prejudice to the above, the NFAC [CIT(A)] failed to appreciate that the AO failed to obtain proper sanction u/s.151 of the Act and hence, the reopening of the assessment is bad in law and liable to be quashed. Without prejudice to the above: B. Natural Justice: 3. The NFAC [CIT(A)) failed to appreciate that the order passed by the AO u/s. 144 of the Act was in complete violation of principles of natural justice and inspite of facts placed on record, the NFAC [CIT(A)] failed to take cognizance of the same including the various wrong and factually incorrect observations made by the AO in the assessment order passed and hence, the NFAC ought to have quashed the assessment order. C. Addition confirmed of Rs.80,46,876/- u/s.68 r.w.s. 115BBE of the Act is unjustified and liable to be deleted: 4. The NFAC [CIT(A)] has erred in confirming the addition made by AO of Rs.80,46,876/-u/s.68 r.w.s. 115BBE of the Act without appreciating that:- a) the Appellant has NOT earned any LTCG of the amount of Rs.80,46,876/- and neither this amount is sale / trade value and there is no bogus transaction /accommodation entry nor Appellant is beneficiary of any such alleged bogus transaction; b) No such amount of Rs.80,46,876/- (or Rs.40,79,014/-) is received from anyone and entry reflected in books of account or bank statement of Appellant so as to make addition u/s.68 of the Act; ITA no. 849/MUM/2024 Miker Financial Consultants Pvt. Ltd. 3 c) the provisions of sec.68 r.w.s. 115BBE of the Act does not apply to the facts of the present case; d) the trading transaction of the Appellant in shares of Kushal Ltd. is genuine and the net profit earned thereon of Rs.40,79,014/- is part of trading and profit and loss account and duly accepted by the AO as part of the returned income; e) in immediate subsequent AY 2018-19, the identical set of trading transactions in shares of Kushal Ltd. is accepted as genuine in the assessment order passed by AO; and thus, there is NO unexplained cash credit of the amount of Rs.80,46,876/-[or Rs.40,79,014/-] and hence, the addition made u/s.68 r.w.s 115BBE of the Act is without any justification and needs to be deleted. D. Addition of Rs.1,60,938/- as unexplained expenses u/s.69C r.w.s. 115BBE: 5. The NFAC [CIT(A)] has erred in confirming the addition made by AO of Rs.1,60,938/- u/s.69C r.w.s. 115BBE of the Act without appreciating that the Appellant has not obtained any bogus accommodation entry of LTCG as alleged and not paid any commission @2% as alleged and thus, the addition made of Rs.1,60,938/- is without any justification and liable to be deleted. 6. The Appellant craves leave to add, amend, alter or delete all or any of the aforesaid grounds of appeal.” 2. Briefly the facts of the case are that the assessee company filed its return of income, declaring total income of Rs. 5,20,553/-. Subsequently the case of the assessee was reopened basis information that shares of M/s. Kushal Trade Limited, being a penny stock, listed on BSE has been used to facilitate introduction of unaccounted income of members/beneficiaries in form of exempt capital gains or short term capital gains and notice u/s. 148 was issued on 31.03.2021 which was duly served on the assessee. There was however no compliance on the part of the assessee. Thereafter, notice u/s. 142(1) was issued on 29.06.2021 and another notice u/s. 142(1) was issued on 07.12.2021 and in absence of complete details/submissions made by the assessee company, the assessment proceedings were completed u/s. 147 r.w.s 144B of the Act vide order dated 28.03.2022 ITA no. 849/MUM/2024 Miker Financial Consultants Pvt. Ltd. 4 wherein an amount of Rs. 80,46,876/- was brought to tax u/s. 68 r/w section 115BBE of the Act and an addition of Rs. 1,60,938/- u/s. 69C of the Act. 3. As per the Assessing officer, the assessee has neither filed any return of income in response to notice u/s. 148 nor submitted complete details. The assessee was given necessary opportunity to make the submissions however assessee preferred to keep silence and no plausible submission was made. As per the AO, the transactions of shares were not governed by market factors prevalent at relevant time in such trade but same were product of design and mutual connivance on part of the assessee and operators, and the assessee resorted to a preconceived scheme to procure LTCG by way of prize difference in share transactions not supported by market factors and cumulative events in such transactions reveals that the same was devoid of any commercial nature and fell in realm of not being bonafide and impugned LTCGs was held not allowable and the credit found in the bank account of the assessee towards sale proceeds from sale of the scrip from M/s. Kushal Trade Ltd. to the extent of Rs. 80,46,876/- was accordingly added to the income of the assessee u/s. 68 r.w.s 115BBE of the Act. Further 2% of Rs. 80,46,876/- amounting to Rs. 1,60,938/- was brought to tax u/s. 69C towards payment of commission for providing accommodation entry. ITA no. 849/MUM/2024 Miker Financial Consultants Pvt. Ltd. 5 4. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A) and he has since confirmed the findings of the AO. Against the said order, the assessee is in appeal before us. 5. During the course of hearing, the Ld. AR submitted that the assessee has carried out trading in certain shares and securities and net profit amounting to Rs. 5,20,553/- arising from the trading transactions are disclosed in the financial statement and offered to tax as business income and the AO has accepted and taxed the same as business income. It was submitted that in respect of shares of M/s. Kushal Ltd, the assessee has made total purchases of Rs. 81,68,32,232/- and had done total sales of Rs. 82,09,11,246/- and has earned net profit of Rs. 40,79,014/-. It was submitted that the purchase as well as the sale value is part of the total purchases and total sales duly disclosed in the profit and loss account and therefore the net profit earned on shares of M/s. Kushal Ltd. has been duly offered to tax as business income. It was further submitted that the AO has wrongly referred to the total trade value of Rs. 80,46,876/- in the reason so recorded and also the addition has been made wrongly of the said amount. 6. It was further submitted that the AO has made various observation in the assessment order which are contrary to the facts of the case. It was submitted that the AO has stated that the assessee has not made any compliance in response to section 148. However the fact of the case are that the assessee ITA no. 849/MUM/2024 Miker Financial Consultants Pvt. Ltd. 6 has duly filed the return of income in response to the notice u/s. 148 available at APB page 3-54. It was further submitted that in para 5.1 of the assessment order, the AO has referred to the facts of some other assessee and which doesn’t relate either to the assessee or to the transactions so undertaken by the assessee. It was further submitted that in para 6.1 to para 7.3.2 of the assessment order, the AO has referred to general modus operandi as to how bogus LTCG/STCGs and business loss is generated in dealing with penny stock and these observation have nothing to do with the facts of the assessee case. It was submitted that the assessee has not earned any LTCG but has earned business income which has been duly offered and accepted by the AO. It was submitted that amount of Rs. 80,46,876/- as referred to by the AO is not credited in the bank account of the assessee and it is not aware from where AO has arrived at said figure and what is the basis there of. It was submitted that the trading in shares is offered as business income and gross purchase, sales and closing stock are duly reflected in the profit and loss account. The total purchase value of shares of M/s. Kushal Ltd. was Rs. 81,68,32,232/- and total sale value was Rs. 82,09,11,246/- there by resulting in a profit of Rs. 40,79,014/- and which has been duly reflected and offered as part of the profit and loss account. It was further submitted that for A.Y. 2018-19, the assessment was reopened by issuance of notice u/s. 148 and wherein one of the issue relates to allegation of obtaining accommodation entry in ITA no. 849/MUM/2024 Miker Financial Consultants Pvt. Ltd. 7 shares of M/s. Kushal Ltd. and in response to the show- cause, the assessee filed detail response and taking the same into consideration, the AO passed final assessment order dated 28.03.2023 accepting the contention of the assessee that it has not earned any LTCGs and thereby no addition was made and the return income was accepted. It was accordingly submitted that the Revenue cannot take contradictory stand for the impugned assessment year where for the subsequent assessment year, the submissions of the assessee has been duly accepted. It was further submitted that the AO has made further addition of Rs. 1,60,938/- towards alleged commission paid for obtaining accommodation entry, however the facts of the case are that the assessee has not taken any accommodation entry nor there is evidence on record to the same effect and therefore the findings of the AO deserve to be set aside. It was submitted that even ld CIT(A) has not appreciated the said inconsistency and submissions of the assessee and therefore, the findings of the ld CIT(A) also deserve to be set-aside and necessary relief be provided to the assessee. 7. Per contra, the Ld. DR was heard who has relied on the order and the findings of the lower authorities. 8. We have heard the rival contentions and pursued the material available on record. We find that it is case where the AO has proceeded ex-parte against the assessee on account of non- compliance on part of the assessee. In its submissions, the ITA no. 849/MUM/2024 Miker Financial Consultants Pvt. Ltd. 8 assessee has submitted that in response to notice u/s 148, the assessee did file its return of income disclosing the share purchase and sale transactions in shares of Kushal Ltd and has offered the net profit of Rs 40,79,014/- as business income whereas the AO has alleged that the assessee has earned bogus LTCG of Rs 80,46,876/-. We therefore find that there is clearly a disconnect between the facts of the case as submitted by the assessee and what has formed the basis for making the addition and passing of the assessment order. There is thus a disconnect in terms of quantum of transactions and resultant profits/gains, secondly, where the transaction in shares has already been offered to tax, how the AO without disturbing the same, can bring the same transaction to tax again is something which needs to be examined. In light of the same, we are of the considered view that the matter need to be examined afresh by the AO basis the return of income already furnished by the assessee in response to notice u/s 148 of the Act. The assessee would be at liberty to submit the necessary submissions/documentation as so advised and/or called for by the AO and the AO shall examine the same as per law by providing reasonable opportunity to the assessee. All the contentions are thus left open and the assessee would be at liberty to raise the same before the AO. 9. In the result, the appeal of the assessee is allowed for statistical purposes. ITA no. 849/MUM/2024 Miker Financial Consultants Pvt. Ltd. 9 Order pronounced in open court on 23.04.2025. Sd/- (SANDEEP SINGH KARHAIL) Sd/- (VIKRAM SINGH YADAV) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 23/04/2025 Anandi Nambi, Steno Copy of the Order forwarded to: BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// "