MONEY MAGNUM CONSTRUCTIONS,MUMBAI V. PRINCIPAL COMMISSIONER OF INCOME TAX, CIRCLE- 27, MUMBAI, MUMBAI

ITA 2445/MUM/2024

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The case involves Money Magnum Constructions, a partnership firm engaged in various businesses including commodity arbitrage on the National Spot Exchange Ltd. (NSEL). The firm filed a return declaring a total loss, which was initially accepted by the AO. However, following information about fictitious profits from commodity trading through CCM, the case was reopened. The PCIT later found the reassessment order to be erroneous as it did not adequately address the implications of the CCM on the firm's transactions. The Tribunal's decision emphasized the need for a thorough inquiry into the nature of the transactions and the actual delivery of goods, which was not sufficiently conducted by the AO.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 473790 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2024
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 09-09-2024
• Assessment Year: 2014-2015
• Appeal Filed On: 06-05-2024
• Other Referred Cases: CIT Vs. Gabriel India Ltd. 203 ITR 108 (Bom) (HC), Synthetic & Art Silk Mills Research Association Vs. CIT (Exemption) [2024] 158 taxmann.com 264 (Mumbai \\u2013Trib.), Impact Foundation (India) Vs. CIT (Exemptions) [2023] 149 taxmann.com 189 (Mumbai-Trib.)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SANYOGITA NAGPAL
• Assessee Lawyers: PARESH SHAPARIA
• Keywords: Business income; Reopening of assessment; Bogus
• Section: 147; 148; 143(3); 143(1); 263; 264

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI OM PRAKASH KANT, AM AND MS. KAVITHA RAJAGOPAL, JM ITA No. 2445/Mum/2024 (Assessment Year: 2014-15) Money Magnum Constructions Plot No. 157 Samruddhi, 18th Road, Near Ambedkar Garden, Chembur (E), Mumbai-400 071 Vs. Pr. CIT, Circle-27 Room No. 401, 4th Floor, Tower No. 6, Vashi Railway Station, Commercial Complex, Vashi, Navi Mumbai-400 703. PAN/GIR No. AACFN 9126 C (Assessee) : (Respondent) Assessee by : Shri. Paresh Shaparia Respondent by : Ms.Sanyogita Nagpal Date of Hearing : 09.09.2024 Date of Pronouncement : 27.11.2024 O R D E R Per Kavitha Rajagopal, J M: This appeal has been filed by the assessee, challenging the order of the learned Principal Commissioner of Income Tax, PCIT, Mumbai-27 (‘ld. PCIT for short), passed u/s.263 of the Income Tax Act, 1961 (‘the Act'), relevant to Assessment Year (‘A.Y.’ for short) 2014-15. 2. The assessee has raised the following ground of appeal: I. “ORDER PASSED UNDER SECTION 263 IS BAD IN LAW: 1. On the facts and in the circumstances of the case and in law, the Learned Pr. CIT 27 erred in treating the order under section 147 r.w.s 144B of the Income- tax Act, 1961 (the Act) dated 24 March 2022 (re-assessment order) as erroneous and prejudicial to the interest of the revenue and thereby setting aside the order. 2. On the facts and in the circumstances of the case and in law, the Learned Pr.CIT 27 failed to appreciate the fact that the original assessment order as well as re- assessment order have duly considered the transaction of NSEL commodity loss of Rs 2 ITA No.2445/Mum/2024 (A.Y. 2014-15) Money Magnum Constructions vs. Pr. CIT 8,68,70,608 whereby the orders passed are neither erroneous nor prejudicial to the interest of revenue. 3. The Learned Pr. CIT. Mumbai-27 ought not to have treated re-assessment order passed under section 147 dated 24 March 2022 as erroneous or prejudicial to the interest of revenue. 4. The order passed under section 263 of the Act is bad in law and requires to be squashed. All the above grounds are without prejudice to each other appellant craves leave to add, amend, alter modify, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal.” 3. Brief facts of the case are that the assessee is a partnership firm engaged in the business of construction, real estate developer, finance, commodity arbitrage on NSEL, through recognized brokers, investment, etc. and the assessee had filed its return of income dated 30.09.2014, declaring total loss of Rs. 4,05,79,259/-. The same was processed u/s. 143(1) of the Act. The assessee’s case was then selected for scrutiny under CASS for the reason that there was ‘mismatch in sales turnover reported in audit report and ITR’ and ‘mismatch in amount paid to related persons u/s. 40A(2)(b) of the Act reported in audit report and ITR’. The ld. AO then passed the assessment order u/s. 143(3) dated 28.11.2016 determining total loss at Rs. 4,05,79,259/- after making a disallowance of Rs. 65,305/-. Subsequently, the assessee’s case was reopened vide notice u/s. 148 dated 31.03.2021 by the ld. AO for the reason that, based on the information from the investigation wing of the Income Tax Department the assessee has obtained fictitious profits in commodity trading in NSEL by Client Code Modification (CCM) were the assessee is said to have entered into bogus trades creating a loss of Rs. 8.68 crores in its P & L Account which has been set off by the assessee against its regular business income. The ld. AO passed the 3 ITA No.2445/Mum/2024 (A.Y. 2014-15) Money Magnum Constructions vs. Pr. CIT assessment order u/s. 147 r.w.s. 144B of the Act dated 24.03.2022 determining total income at Rs. Nil by duly accepting the returned loss. 4. The ld. PCIT vide notice u/s. 263 dated 20.02.2024 invoked the revisionary powers and held that the assessment order is erroneous and prejudicial to the interest of the revenue thereby setting aside the assessment order with the direction to pass fresh assessment order for the reason that the assessee was one of the beneficiary in the scam of NSEL through its brokers viz. Anand Rathi Commodities Pvt. Ltd. (ARCL) and Motilal Oswal Commodities Brokers Pvt. Ltd., (MOCL) in which case the ld. AO is said to have not made proper inquiry with respect to the impugned commodity transactions. 5. Aggrieved by the said order, the assessee is in appeal before us and challenging the order of ld. PCIT. 6. The ld. AR for the assessee stated that the assessee’s case was reopened for the reason that the assessee has entered into bogus trades on NSEL where the loss incurred has been set off against its regular business income. The ld. AR further stated that the assessee has sought for the details of the investigation wing data, the statement recorded, the seized material and details of client code modification, etc. along with other details during the assessment proceeding and the ld. AO has also furnished the same to the assessee. The ld. AR further stated that the ld. AO on several occasion has sought for the details pertaining to the impugned transactions from the assessee and only after perusal of the same, the assessment order was passed by the ld. AO. The ld. AR further contended that once the ld. AO has inquired into the issue and had taken a plausible view then there is no question of invoking revisionary powers u/s. 263 of the 4 ITA No.2445/Mum/2024 (A.Y. 2014-15) Money Magnum Constructions vs. Pr. CIT Act holding the assessment order to be erroneous and prejudicial to the interest of the revenue. The ld. AR relied on the following decisions : - a. CIT Vs. Gabriel India Ltd. 203 ITR 108 (Bom) (HC) b. Synthetic & Art Silk Mills Research Association Vs. CIT (Exemption) [2024] 158 taxmann.com 264 (Mumbai –Trib.) c. Impact Foundation (India) Vs. CIT (Exemptions) [2023] 149 taxmann.com 189 (Mumbai-Trib.). 7. The ld. DR on the other hand controverted the said fact and stated that the ld. AO has not inquired into the modus operandi of the Client Code Modification in which assessee was one of the beneficiary. Further, the ld. DR contended that the ld. AO in the assessment order has merely reproduced the submission of the assessee but had failed to give a detailed finding as to how the assessee was not a beneficiary of the said scam. The ld. DR iterated that the entire submission of the assessee was merely on Section 43(5)(e) of the Act and the assessee has failed to give any reply pertaining to the Client Code Modification which is the main crux of the reasons for reopening. The ld. DR also contended that the ld. AO has also not dealt with the issue of the allowability of loss to be set off with the regular income of the assessee. The ld. DR submitted that the ld. PCIT order is a detailed speaking order and prayed that the same be upheld. 8. We have heard the rival submissions and perused the materials available on record. It is observed that the ld. PCIT has invoked the revisionary powers u/s. 263 of the Act for the reason that the assessee has entered into bogus commodity trading on NSEL by Client Code Modification (CCM) for which the ld. AO has reopened the 5 ITA No.2445/Mum/2024 (A.Y. 2014-15) Money Magnum Constructions vs. Pr. CIT assessment but has not verified the information available in the Insight Portal/Investigation wing, thereby the information received has been unverified and unexplained which holds the assessment order to be erroneous in so far as it is prejudicial to the interest of the revenue as per Section 263 of the Act. It is observed that the assessee has entered into commodity arbitrage transactions on National Spot Exchange Ltd. (NSEL) through recognized exchange brokers of NSEL viz. M/s. Anand Rathi Commodities Pvt. Ltd. (ARCL) and Motilal Oswal Commodities Brokers Pvt. Ltd. (MOCL) and payments were made to the said brokers based on the contract notes issued by them which were outstanding and receivable from NSEL. The assessee is said to have earned income from the said transaction until July, 2013, until the government had stopped the trading activities at NSEL and a circular dated 31.07.2013 was issued by NSEL suspending trading in one day forward contracts and deferring settlement to 15 days by stating that there has been loss of trading interest in the market due to underlying uncertainties leading to trade inequilibrium. The circular had also merged the delivery and settlement of outstanding contracts, which the assessee contends that it was also a victim of NSEL’s scam, thereby resulting in a loss of Rs. 8,68,70,608/- which was carried out through the two recognized exchange brokers of NSEL amounting to Rs. 3,89,03,405/- relating to ARCL and Rs. 4,79,67,203/- relating to MOCL. The assessee further contended that similar to the transaction on BSE and NSE, the buyer and the seller are not known to each other and the settlement was always through the exchange platform of NSEL through paired trader’s contract, were the buyer/seller was not known to each other. The assessee then narrated the entire modus operandi of the scam in which the assessee contends 6 ITA No.2445/Mum/2024 (A.Y. 2014-15) Money Magnum Constructions vs. Pr. CIT that it was not in any way related to the said scam. The ld. AR for the assessee had argued that the ld.AO has examined the said issue and only after being convinced with the assessee’s submission, the assessment order was passed which implies that the ld. AO has applied his mind accepting the returned loss. 9. The ld. PCIT in her order has held that the ld. AO has not understood the nature of transaction and has not made inquiry as to whether the trading and investment activity had involved actual delivery of goods or was mere case of Client Code Modification (CCM). The ld. PCIT has rejected the assessee’s contentions that the NSEL is a national level electronic spot trading platform for around 52 commodities operating in 16 states in India carrying out its activity since 2007. It works with compulsory delivery at any one or more delivery points and has warehouses which are approved certified and designated by NSEL as per their Bye-laws. The ld. PCIT further stated that there were total of 219 brokers who have made 51,565 Client Code Modification (CCM) and the total volume of sales and purchase transaction was Rs. 6,311 crores as per the investigation report. Out of the same, the maximum Client Code Modification (CCM) were done by ARCL amounting to Rs. 3,073.48 crores and on summon issued u/s. 131 of the Act, its president Shri. Chetan Pitamber Bharkharda revealed that there was no physical delivery of goods in any of the transactions carried out on NSEL platform and the same has been reproduced in the ld. PCIT’s order. The ld. PCIT had also discussed the details of the investigation done by the investigation team and the Serious Fraud Investigation Office (SFIO). That being so, the ld. AO has not verified the CCM data related to the assessee neither from the assessee nor from its brokers pertaining to the transactions made in July, 2013 which is when the assessee has 7 ITA No.2445/Mum/2024 (A.Y. 2014-15) Money Magnum Constructions vs. Pr. CIT booked loss in respect of investment made. The ld. AO has also not made any inquiry as to whether the assessee was involved in regular trading in the earlier occasion. It is also observed that the ld. AO has not looked into the fact whether the assessee has raised any complaint against the scam carried out by NSEL which the assessee claims to be the reason for the loss. Further, the ld. AO has also not verified the source of investment which was part of the investigation report and has merely called for the bank statement which was submitted by the assessee without explaining the source of fund. The ld. PCIT for the abovementioned reason has held the assessment order to be erroneous and prejudicial to the interest of the revenue were the assessee has merely claimed losses u/s. 43(5)(e) of the Act. 10. In the above factual matrix of the case, we are of the considered opinion that the ld. AO has not inquired into the issue for which the reopening of assessment was initiated and has merely accepted the returned loss filed by the assessee without substantiating as to why he has arrived at the said conclusion. The assessee was also unable to explain whether it had filed the complete details along with the documentary evidence to establish the fact that it had not entered into any bogus trade transaction and whether or not it was one of the beneficiary to the NSEL scam. The assessment order is silent in respect of all these issues and more precisely the issue for which the reassessment was initiated. In the absence of the same, we find no infirmity in the order of the ld. PCIT in holding the assessment order to be erroneous in so far as it is prejudicial to the interest of the revenue. It is also pertinent to point out that the case laws relied upon by the assessee is not applicable in the present case as they are distinguishable on the facts of this case and this is evidently not a case were the ld. 8 ITA No.2445/Mum/2024 (A.Y. 2014-15) Money Magnum Constructions vs. Pr. CIT AO after considering the submission of the assessee has taken one of the possible view. It is a case were the ld. AO has not dealt with or inquired into the issue which was the subject matter of the reassessment. We therefore are inclined to dismiss the grounds of appeal raised by the assessee and hereby uphold the order of the ld. PCIT. 11. In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open court on 27.11.2024 Sd/- Sd/- (Om Prakash Kant) (Kavitha Rajagopal) Accountant Member Judicial Member Mumbai; Dated: 27.11.2024 Karishma J. Pawar (Stenographer) Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT- concerned 4. DR, ITAT, Mumbai 5. Guard File BY ORDER, (Dy./Asstt.Registrar) ITAT, Mumbai "