MILI SAMEER JOSHI,SANTACRUZ EAST V. INCOME TAX OFFICER, PIRAMAL CHAMBER LALBAUG

ITA 4520/MUM/2024

AI Insights

The case involves Mili Sameer Joshi, the Assessee, who appealed against the order of the National Faceless Appeal Center/Commissioner of Income Tax (Appeals) which had sustained the addition of Rs. 25,19,936/- to her income for the Assessment Year 2016-17. The addition was based on the claim that the Assessee had engaged in tax evasion through coordinated and premeditated trading in illiquid stock options, resulting in fictitious profits/losses. The Assessee argued that the transactions were already declared under section 44AD of the Income Tax Act, 1961, and taxed accordingly. The Tribunal agreed with the Assessee, leading to the deletion of the addition.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 470609 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: misc
• Other Referred Cases: Rakhi Trading Pvt. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V. K. CHATURVEDI
• Assessee Lawyers: PRATEEK JAIN; ISSUING NOTICE
• Keywords: Business income; Unexplained investment; Transactions in derivatives; Reason to believe; Borrowed satisfaction; Bogus
• Section: 147; 148; 250; 44AD

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “SMC”, MUMBAI BEFORE SHRI NARENDER KUMAR CHOUDHRY, JUDICIAL MEMBER ITA No.4520/M/2024 Assessment Year: 2016-17 Mili Sameer Joshi, E 41, Patel Park 144 Nehru Road, Kalina Santacruz East Mumbai Maharashtra – 400 029 PAN: AGHPJ8790M Vs. Income Tax Officer, Piramal Chamber, Lalbaug, DR SS Rao Marg, Parel, Mumbai, Maharashtra – 400012 (Appellant) (Respondent) Present for: Assessee by : Shri Prateek Jain, CA Revenue by : Shri V.K. Chaturvedi, Sr. D.R Date of Hearing : 12.12.2024 Date of Pronouncement : 21.01.2025 O R D E R Per : Narender Kumar Choudhry, Judicial Member: This appeal has been preferred by the Assessee against the order dated 14.08.2024, impugned herein, passed by the National Faceless Appeal Center (NFAC)/ Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) under section 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2016-17. ITA No.4520/M/2024 Mili Sameer Joshi 2 2. In this case, the return filed by the Assessee for the assessment year under consideration dated 28.03.2017 declaring total income at Rs.7,39,410/- was processed on 26.05.2017. Thereafter, the information was received from the DDIT (Inv.), Wing-6(3), Mumbai to the effect: “ That investigation was carried out under the \"Project Falcon' regarding claim of fictitious losses through coordinated and premeditated trading in illiquid stock options. During the investigation, it had come to notice that there were several instances/internal alerts, wherein a set of entities were consistently seen incurring trading loss by executing Reversal of trades in options on individual stocks (\"stock options\") in Equity Derivative Segment. However, it has also come into notice that along with Reversal of Trades, huge losses are being generated by various clients by letting the option expire. During the course of investigation under Project Falcon, statements under oath of various brokers were recorded. A perusal of the statements of Shri Sanjay Kumar Periwal and Shri Harshvardhan Kayan, showed that various clients traded in illiquid options with the sole motive of generating losses by letting the option expire rather than engaging in reversal of trade. Shri Sanjay Kumar Periwal in his statement has stated that \"these transactions are either expired or reversed on the same day within few seconds to few hours\". Similarly, Shri Harshvardhan Kayan has stated in his statement that “these trades would expire on weekly options or reversed within a few seconds to match the trades with each other\". Further, the Hon'ble Apex Court in a historic judgment in the case of Rakhi Trading Pvt. Ltd. on 08.02.2018 held that these trades are manipulative/deceptive device to create a desired loss and/or profit. Such synchronized trading is violative of transparent norms of trading in securities. Therefore, during the investigation it has been established that many clients have indulged into tax evasion through co-ordinated and pre-meditated trading in illiquid stock options on the Bombay Stock Exchange by claiming non-genuine and fictitious Profits/Losses on illiquid derivatives/equity on BSE. On verification of the details, it was seen that the Assessee has done transactions on BSE through ODYSSEY SECURITIES PVT. LTD. totaling to Rs.28,17,775/- during FY 2015-16. Therefore, it is clear that the assessee is one of the beneficiary by indulging into tax evasion through coordinated and premeditated trading in illiquid stock options on the Bombay Stock Exchange by claiming non-genuine and ITA No.4520/M/2024 Mili Sameer Joshi 3 fictitious Profits/Losses on illiquid derivatives/equity on BSE to the extent of Rs. 28, 17,775/- done during the year under consideration relevant to AY 2016-17”. 3. The Assessing Officer (AO), on verifying the aforesaid information, has seen that the Assessee has not disclosed the details of above transaction in the return for the A.Y. 2016-17 and therefore by forming the reason to believe that income chargeable to tax exceeding Rs.1,00,000/- has escaped assessment within the meaning of section 147 of the Act due to failure on the part of the Assessee to disclose fully and truly all material facts necessary for the assessment, the AO recorded the reasons for reopening and consequently reopened the case of the Assessee by issuing notice dated 21.07.2022 u/s 148 of the Act. The Assessee in response to the reopening of the case and issuing the notice u/s 148 of the Act, before the AO mainly emphasized and submitted as under: “Assessee had done the transaction through Odyssey Securities Private Limited amounting to Rs.28,17,775/- during FY: 2015-16 the assessee has done F & O transaction i.e. purchase and sale of shares without delivery of shares. Further, the turnover offered under business income u/s44AD is amounting to Rs. 28,66,910/- which includes the amount of Rs.28,17,775/- and offered net profit 10.57% of the turnover of Rs.28,66,910/-. We are hereby enclosing the Ledger copy and Contract Note copy along with Bank statement copy for your reference which reflects that the transaction has been taken place through banking channel and from computation of income: it can be evident that assessee has offered income from business u/s-44AD and therefore there is no escape of income for the period under the consideration. We further want to clarify you that, the notice has been issued by the officer without verifying the return of income filed by the assessee. As per the provision of the Income Tax Act, 1961, before issuing the notice u/s-148, there should be evidence which satisfies that there has been an escape of income in case of the assessee. However, as per the return of income filed by the ITA No.4520/M/2024 Mili Sameer Joshi 4 assessee, it is clearly evident that the assessee has already offered income from business u/s-44AD of the Act, so it seems that the notice has been issued without verifying the return of income of the assessee which is bad-in-law\" 4. The AO, thereafter also issued the notice 31.03.2023u/s 142(1) of the Act, in response to which, the Assessee prefers not to file any reply. 5. The AO though reproduced the claim/reply of the Assessee to the effect that the recovery offered under business income u/s 44AD of the Act is amounting to Rs.28,66,910/- which includes the amount of Rs.28,17,775/- and offered net profit @ 10.57% of the same, however, by reproducing the modus operandi adopted for fictitious F & O transactions, ultimately held that on the basis of material available on record it can be safely deduced that the Assessee company had taken fictitious profit/loss amounting to the tune of Rs.28,17,775/- by way of guarantee and premeditated trading in illiquid stock options on the Bombay Stock Exchange (in short “BSE”) by claiming non genuine and fictitious profit or losses on illiquid derivatives/equity on BSE, therefore total amount to the tune of Rs.28,17,775/- is chargeable to tax which has escaped assessment for the A.Y. 2016-17 and therefore the same is added to the total income of the Assessee as unexplained investment u/s 69A of the Act. 6. The Assessee, being aggrieved, before the Ld. Commissioner raised various grounds challenging the reopening of the proceedings and issuing the notice u/s 148 and the addition on merit. The Ld. Commissioner though affirmed the reopening of the proceedings, however, restricted the addition from Rs.28,17,775/- to Rs.25,19,936/- by observing and holding as under: ITA No.4520/M/2024 Mili Sameer Joshi 5 “8. Ground No.2 & 3 are relating to the fact that the appellant had offered the income on transactions of F&O u/s.44AD of the Act and hence, AO taxing the same has amounted to double taxation and the AO has taxed the income on the basis of the information from DDIT, Investigation Unit-6(3), Mumbai without applying his mind. The facts of the case are that the appellant had done the transactions in F&O trading and earned profit but offered only 8% on the turnover u/s.44AD of the Act. The DDIT, Investigation Wing-6(3), Mumbai through insight portal had uploaded the details of investigation carried under the Project Falcon' regarding claim of fictitious gains and losses. The Modus Operandi came to the knowledge of the department when the relevant brokers were subjected to search and on being confronted with evidences, confessed that they were engaged in providing bogus losses/gains on derivatives to the various beneficiaries. The data found in the searched premises was analysed and in the said analyses, the appellant was found to be the beneficiary of the said bogus transactions. Thus, the reason to believe was recorded on the basis of information received by the AO from the Investigation Wing. 8.1 The appellant's name was found as beneficiary after analysis of the data found in the search premises. The AO received the information from the Investigation Wing that as part of Project Falcon, the Wing detected tax evasion through manipulation and F&O segment. The Modus Operandi therein was to obtain fictitious gains/losses through bogus transactions of equity/derivative and currency trading for the various beneficiaries. The data obtained during search was analysed to identify the beneficiaries. The appellant was found to be one of the beneficiaries of transactions in currency derivatives. 8.2 As seen from the details furnished, the appellant is shown to have done the transactions of F&O. There are no evidences produced to show that the appellant was engaged in F&O trading in any other assessment year. This shows that this bogus transaction of gain was obtained by the appellant from the accommodation entry providers and offered just 8% of the turnover without offering the actual profit earned. Thus, the information received by the AO from Investigation Wing was a credible information which was after the search us. 132 of the Act and of the concerned persons and after recording their statements u/s. 132(4) of the Act and on the basis of data found in the search premises. The appellant was found to be beneficiary of bogus gains in the data found. Hence, this information used by ITA No.4520/M/2024 Mili Sameer Joshi 6 the AO cannot be said to be a borrowed satisfaction recorded for issue of notice u/s. 148 of the Act and from the assessment order, it is seen that the AO has analysed the data and has passed a speaking order that the appellant had concealed the particulars of Income. 8.3 The appellant has accepted that the F&O turnover done by her through ODC Securities Pvt. Ltd. was to the tune of Rs.28,17,775/- and offered net profit of 10.57%. It means the appellant has offered to tax Rs.2,97,839/- u/s 44AD of the Act. Whereas according to the AO, the appellant has earned F&O bogus profit of Rs.28,17,775/-, out of which only Rs.2,97.839/- was offered to tax warranting the balance amount of Rs.25,19,936/- to be brought to tax. The AO has brought to tax the entire amount of Rs.28,17,775/-. The AO is directed only to tax Rs.25,19,936/- as the said addition is sustained. The appellant gets relief of Rs.2,97,839/-, Ground No.2 & 3 are treated to have been partly allowed” 7. The Assessee, being aggrieved, is in appeal before this Court. The Assessee, at the outset, demonstrated the legal aspects of the case as well as the addition on merit. The Assessee has submitted that the AO while reopening of the case, simply relied on the information received from DDIT (Inv.), Mumbai and without verifying the return of income, took the cognizance and reopened the case of the Assessee by issuing the notice u/s 148 of the Act and without giving any opportunity to the Assessee. Further, no independent enquiry was made by the AO. If the case, would have been verified properly, then certainly the AO would not have made any addition as the Assessee before the AO has vehemently submitted that the transactions involved in the reasons for reopening have already been considered for declaring the income u/s 44AD of the Act. The Assessee further submitted that even before the Ld. Commissioner the Assessee had demonstrated that the said amount was already taken into consideration in the profit & loss account and subjected to tax @ 10.57% as net profit. However, the Ld. Commissioner affirmed the addition to the extent ITA No.4520/M/2024 Mili Sameer Joshi 7 of Rs.25,19,936/- by giving relief to the extent of Rs.2,97,839/- which was offered to tax by the Assessee u/s 44AD of the Act. 8. On the contrary, the Ld. D.R. refuted the claim of the Assessee by submitting that the Assessee has not only failed to substantiate her claim but also the case as made by the AO and affirmed by the Ld. Commissioner is based on the detailed analysis made by the DDIT (Inv.) and therefore the addition restricted to the extent by the Ld. Commissioner, may be affirmed by dismissing the appeal of the Assessee. 9. Heard the parties and perused the material available on record. Admittedly, the Assessee before both the authorities below has claimed that the transacted amount of Rs.28,17,775/- relates to the F & O transaction done through ODC Securities Pvt. Ltd. on BSE platform and was subjected to net profit of 10.57% which is a part of the total gross receipt of Rs.28,66,910/- as shown in the computation of income. The Ld. Commissioner even otherwise in the impugned order in para No.8.3 recognized the fact qua offering of net profit of Rs.2,97,839/- being 10.57% of Rs.28,17,775/-. Admittedly the Assessee had shown alleged transacted amount of Rs.28,17,775/- in the gross receipt i.e. Rs.28,66,910/- and therefore on this ground alone, the transacted amount of Rs.28,17,775/- cannot be subjected to addition entirely, without subtracting the purchase price. As the Assessee has already declared the net profit @ 10.57% on the aforesaid amount of F&O transaction, hence, on this count itself, the addition sustained to the extent of Rs.25,19,936/- by the Ld. Commissioner, is liable to be deleted. Thus, the addition is accordingly deleted. ITA No.4520/M/2024 Mili Sameer Joshi 8 10. As this Court has deleted the addition on merit, hence not delving into the legal aspects involved and raised by the Assessee, as adjudication of the same would prove futile exercise. 11. In the result, the Assessee’s appeal is allowed on merits. Order pronounced in the open court on 21.01.2025. Sd/- (NARENDER KUMAR CHOUDHRY) JUDICIAL MEMBER * Kishore, Sr. P.S. Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The DR Concerned Bench //True Copy// By Order Dy/Asstt. Registrar, ITAT, Mumbai. "