SIDDHARTH FININVEST LEASING PRIVATE LIMITED,RAIGARH V. INCOME TAX OFIICER, WARD 4(1), KOLKATA, KOLKATA

ITA 1145/KOL/2023

AI Insights

The case involves Siddharth Fininvest Leasing Pvt. Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals) that upheld the reassessment order by the Income Tax Officer for the assessment year 2013-14. The reassessment was based on information from the Directorate General of Income Tax (Investigation) regarding alleged non-genuine business losses from derivative transactions. The Tribunal examined whether the reassessment was legally valid, considering the original assessment had been completed under section 143(3) of the Act, and whether there was any failure on the part of the assessee to disclose necessary facts.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 28704 (ITAT-KOLKATA)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reassessment proceedings; Reopening of assessment; Accommodation entries; Assessment record; Tangible material; Borrowed satisfaction; Bogus
• Section: 147; 143(3); 250

Judgement Text

" आयकर अपीलȣय अͬधकरण, कोलकाता पीठ ‘A’, कोलकाता IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH KOLKATA Before Shri Sanjay Garg, Judicial Member and Shri Rakesh Mishra, Accountant Member I.T.A. No.1145/Kol/2023 Assessment Year: 2013-14 Siddharth Fininvest Leasing Pvt. Ltd. .………. Appellant 15/71, Civil Lines, Raigarh (C.G), Chhattisgarh-496001. (PAN:AAACT3827B) vs. Income Tax Officer, Ward-4(1), Kolkata. ……..… Respondent Appearances by: Shri R. B. Doshi, AR appeared on behalf of the Appellant Shri Pradip Kumar Biswas, Addl. CIT appeared on behalf of the Respondent Date of concluding the hearing: October 16, 2024 Date of pronouncing the order: January, 08, 2025 आदेश / ORDER Per Sanjay Garg, Judicial Member : The present appeal has been preferred by the assessee against the order dated 25.08.2023 of the Ld. Commissioner of Income Tax, (Appeal), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the “Ld. CIT(A)”] passed u/s. 250 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2013-14. 2. The assessee in this appeal has taken following grounds: “1. Ld. CIT(A) erred in upholding order u/s. 147 passed by AO without appreciating that reasons recorded u/s. 148(2) were not provided to the appellant inspite of specific request made. Order u/s. 147 passed by AO and affirmed by Ld. CIT(A) is illegal, had in law and liable to be quashed. Conditions of sec. 147 are not fulfilled. 2. Ld. CIT(A) erred in upholding order u/s. 147 passed by AO without appreciating that initiation of reassessment proceedings and the issue of notice u/s. 147 is bad in law, illegal, ab initio void. Reassessment order passed by 2 ITA No. 1145/Kol/2023 Siddharth Fininvest Leasing P. Ltd. AY 2013-14 AO is illegal and unsustainable as it is opposed to law. Provisions of sec. 147 are not fulfilled in the case of appellant. 3. Ld. CIT(A) erred in upholding order u/s. 147 passed by AO without appreciating that the initiation of reassessment proceedings is illegal inasmuch as the failure on the part of appellant as required by first proviso to sec. 147 was not brought out in the reasons recorded for reopening. 4. Without prejudice to above grounds, initiation of reassessment is illegal and invalid inasmuch as approval granted u/s. 151 is not in accordance with provisions of law. There was no application of mind by the approving authority. Consequently, reassessment proceedings and the reassessment order are illegal and liable to be quashed. Ld. CIT(A) erred dismissing the plea of appellant. 5. Ld. CIT(A) erred in confirming addition of Rs.65,24,476/- made by AO on account of loss claimed by appellant on trading of derivatives treating it to be non genuine. The addition made by AO and confirmed by Ld. CIT(A) is arbitrary, baseless, illegal and not justified. 6. Ld. CIT(A) erred in confirming addition of Rs.15,00,000/- made by AO on account of cash deposits in bank account of appellant treating it to be unexplained invoking sec. 68. The addition made by AO and confirmed by Ld. CIT(A) is arbitrary, illegal and not justified. 7. The appellant reserves the right to amend, modify or add any of the ground/s of appeal.” 3. A perusal of the above grounds of appeal would reveal that the assessee in this appeal has assailed the impugned addition not only on merits but also on the legal ground that the reopening of the assessment u/s. 147 of the Act in this case was bad in law. 4. The brief facts of the case are that the assessee company filed its original return of income on 30.08.2013 and subsequently the return was revised vide acknowledgement number 192261061120614 dated 12.06.2013 declaring loss of Rs.3,83,082/-. The return was selected for scrutiny and the assessment was completed u/s. 143(3) of the Act on 09.03.2016 on total assessed loss of Rs.2,95,570/- and book profit of Rs.1,96,953/-. Thereafter, an information was received by the Assessing Officer under Project Falcon from DGIT (Investigation), Mumbai on 06/03/2020 through the Income-tax Business Application regarding coordinated and premediated trading on the Bombay Stock Exchange by engaging in reversal trades in illiquid stock 3 ITA No. 1145/Kol/2023 Siddharth Fininvest Leasing P. Ltd. AY 2013-14 options resulting in non-genuine business loss/gains to the beneficiary assessees and that the present assessee was beneficiary of such manipulation. That a detailed investigation was carried out by Securities & Exchange Board of India (SEBI) in the matter of reversal trades and 14,720 entities were identified to have indulged in acquiring accommodation entries through the mechanism of reversal trades. From the data made available under Project Falcon on the ITBA, the Assessing Officer (AO) noted that the assessee had purchased stock options for an aggregate premium value amounting to Rs.9,50,000/- and sold the same for an aggregate premium value of Rs.5,40,000/- resulting in a loss of Rs.4,10,000/-. Both buy and sell trades had been executed through the same broker, i.e. M/s Gee Bee Securities Pvt. Ltd. on the Bombay Stock Exchange. Further, the SEBI had been investigating cases involving reversal trades covering the period 01.04.2012 to 31.03.2013. In the interim report dated 20.08.2015, the SEBI had found that certain losses making entities for trading mainly in options on individual stocks which were thinly traded. That on majority occasions, the quantity of stock options bought and sold by the loss making entities in a contract was identical, however, there was a significant difference in the sale value and buy value of the transactions resulting into significant loss to the loss making entities. These loss-making entities at the first leg were seen to have been selling stock options at unreasonably low prices and in the second leg of the reversal trades, the options once sold by an entity at unreasonable low prices was subsequently paid back at substantially higher prices and thereby booking bogus losses. Since the AO noticed that the assessee was also beneficiary of such type of losses booked on stock options, he, therefore, formed the belief that the income of the assessee had escaped assessment and reopened the assessment u/s. 147 r.w.s. 148 of the Act. He, thereafter, in the reassessment proceedings treated the loss booked by the assessee as not genuine and made the impugned addition of Rs.65,24,476/- which was claimed by the assessee as loss on sale of derivative. The Ld. AO, further 4 ITA No. 1145/Kol/2023 Siddharth Fininvest Leasing P. Ltd. AY 2013-14 made addition of Rs.50,00,000/- on account of unexplained cash deposit in bank account of the assessee. Being aggrieved by the said order of the AO, the assessee preferred appeal before the Ld. CIT(A). 5. However, the Ld. CIT(A) vide impugned order dismissed the appeal of the assessee. 6. We have heard the rival contentions and gone through the record. At the outset, the Ld. Counsel for the assessee has invited our attention to the impugned assessment order to submit that in this case, the original assessment was completed u/s. 143(3) of the Act vide order dated 09.03.2016. The Ld. Counsel has further invited our attention to the relevant documents in the paper book to show that the AO had made extensive enquiry relating to the aforesaid losses claimed by the assessee in derivative segment. The Ld. Counsel in this respect, has brought our attention to the copies of the query letters issued by the AO dated 01.01.2016 and dated 22.02.2016, which have been placed at paper book pages 206 to 209 respectively, whereby, the AO had made a number of enquiries during the assessment proceedings and vide question no. 14 in letter dated 01.01.2016, all the required details and documents were called for relating to the derivative transactions entered into by the assessee and the AO had duly called for explanations relating to the method of valuing of unexpired contracts and relating to the loss and gain incurred by the assessee in derivative transaction. Similar type of query has also been further raised by the AO in letter dated 22.02.2016. The Ld. Counsel has further invited our attention to the reply/submissions of the assessee to the aforesaid queries, copies of which has been placed at paper book pages 210 and 211. The Ld. Counsel have also referred to the various details produced during the original assessment proceeding, copies of which have been placed at paper book pages 267 to 283. The Ld. Counsel, therefore, submitted that the issue of loss in derivative transaction was duly examined during the 5 ITA No. 1145/Kol/2023 Siddharth Fininvest Leasing P. Ltd. AY 2013-14 original scrutiny assessment proceedings and nothing adverse was found in this respect by the AO. 7. Ld. Counsel thereafter, has brought our attention to the reasons recorded dated 13.08.2021 for reopening of the assessment, copy of which has been placed at paper book page 186. The Ld. Counsel has submitted that the only reason for which the reopening was made in this case was based on the report of the Investigation Wing that certain entities were indulged in bogus loss booking in derivative transactions and that the aforesaid report of the Investigation Wing was based on interim order of the SEBI dated 02.01.2015 in respect of investigation made by the SEBI involving reversal trades covering period 01.04.2012 to 31.03.2013. 8. The Ld. Counsel has submitted that in this case, the reopening has been done after four years from the end of the relevant assessment year. He has submitted that in this case, the original assessment was carried out u/s. 143(3) of the Act, hence, as per the first proviso to sec. 147 of the Act, no action could have been taken by the AO u/s. 147 of the Act after the expiry of four years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all necessary facts necessary for his assessment for the assessment year under consideration. The Ld. Counsel inviting our attention to the reasons recorded for reopening of the assessment has submitted that there is no mention by the AO as to what was the failure on the part of the assessee to disclose fully and truly any material fact which was relevant for the original assessment carried out u/s. 143(3) of the Act. He, in this respect, has submitted that there is no allegation in the reasons recorded for reopening of the assessment that the assessee had failed to disclose any material fact in this case. He, therefore, has submitted that reopening in this case was bad in law being hit by the first proviso to sec. 147 of the Act. 6 ITA No. 1145/Kol/2023 Siddharth Fininvest Leasing P. Ltd. AY 2013-14 8.1. The Ld. Counsel has further submitted that in the reasons recorded, the AO has referred to the interim order dated 20.08.2015 of SEBI and has mentioned that the said order/report of the SEBI covers the period of cases of bogus loss booking from 01.04.2012 to 31.03.2013. The Ld. Counsel has further invited our attention to the copy of the interim report dated 20.08.2015, copy of which has been placed at paper book page 215 to 250 to show that in fact, the said interim report/order of the SEBI was relating to the investigations carried out by the SEBI for the period 01.04.2014 to 31.03.2015 i.e. relating to FY 2014-15 and not relating to FY 2012-13. He, therefore, has submitted the said order/report did not pertain to assessment year under consideration and, therefore, the AO, otherwise, was not supposed to reopen the assessment on the basis of interim report of the SEBI, which was not pertaining to the Assessment Year under consideration. 8.2. The Ld. counsel has further submitted that the reopening of the assessment in this case by the AO was without application of mind and without corelating information received from Investigation Wing with the facts of the assessee’s case. He has further submitted that all the facts relating to the transactions done by the assessee were available on record with the AO as the original assessment was carried out u/s. 143(3) of the Act. The Ld. Counsel has further submitted that in the reasons recorded, the AO has noticed that the assessee had booked alleged losses of Rs.4,10,000/- in derivative transaction, whereas, in the assessment carried out u/s. 147 of the Act, the AO had made addition of Rs.65,24,476/- in respect of loss booked in derivative transactions. The Ld. Counsel has submitted that it is apparent from record that after receipt of information from the Investigation Wing, the AO did not carry out necessary enquiries and did not corelate the information received from Investigation Wing with the assessment records of the assessee. He, therefore, has pleaded that the belief of the AO of escapement of income for the year under consideration was not based on his own satisfaction rater the reopening in this case, has 7 ITA No. 1145/Kol/2023 Siddharth Fininvest Leasing P. Ltd. AY 2013-14 been made on the basis of borrowed satisfaction from the Investigation Wing. That there was totally non-application of mind of the AO and, therefore, the reopening of assessment was bad in law. 8.3. The Ld. Counsel has further submitted that the reopening in this case has been made on the alleged interim report of the SEBI dated 20.08.2015, whereas, the original assessment order u/s. 143(3) of the act was passed in this case on 09.03.2016. He, in this respect has submitted that the alleged report of the SEBI dated 28.08.2015 was very much available in public domain and to the Income Tax Authorities before the passing of the assessment order u/s. 143 of the Act on 09.03.2016. He has submitted that after the passing of the assessment order dated 09.03.2016, no new information or report has come into existence and, therefore, since there was neither any new information nor there was any allegation of any failure on the part of the assessee to disclose fully and truly material facts, therefore, the reopening in this case based on a repot which was available earlier to the date of passing of assessment order, was not tenable and bad in law. 8.4. The ld. Counsel has further invited our attention to pages 253 to 260 of the paper book, which is a copy of final report of the SEBI dated 05.08.2018. The Ld. Counsel, in this respect, has submitted that in the interim report, there were preliminary observations that certain brokers were involved in providing bogus gains/losses to customers by making bogus transaction on Exchange in between their clients. He has further invited our attention to the reasons recorded for reopening of the assessment as well as to the impugned assessment order passed u/s.147 of the Act to show that in the case of the assessee the allegation was that the broker M/s. Gee Bee Securities Pvt. Ltd. (in short ‘M/s. GBSPL’) arranged such bogus loss for the assessee. The Ld. Counsel referring to the SEBI’s final report has submitted that even in the final report, the broker of the assessee namely M/s. GBSPL has been exonerated as nothing adverse was found in respect of the said 8 ITA No. 1145/Kol/2023 Siddharth Fininvest Leasing P. Ltd. AY 2013-14 broker of the assessee in respect of the aforesaid allegations. The Ld. Counsel in this respect has submitted that in the interim report of the SEBI there were observations of certain apparent bogus loss/profit booking. The SEBI had in this respect observed that further enquiries and investigations were required. That the reopening in the case of assessee was made on the basis of such interim report. However, in the final report, since nothing adverse was found against the broker of the assessee, therefore, the entire allegations against the assessee, which were based on assumptions and presumptions of the AO had been demolished in the light of the final report of the SEBI, hence, the reopening of the assessment as well as the impugned addition was not sustainable. The Ld. Counsel further inviting our attention to various documents on the file has submitted that even otherwise the assessee has provided all the details and evidences to prove the genuineness of the transactions. 9. The ld. DR, on the other hand, has relied on the finding of the lower authorities. 10. After considering the rival submissions, we are of the view that the reopening of assessment in this case u/s. 147 of the act was bad in law on various counts. Firstly, original assessment in this case was carried u/s. 143(3) of the Act and reopening has been made after four years from the relevant assessment year and the AO has failed to demonstrate as to any failure on the part of the assessee to fully and truly disclose all the material facts relating to the assessment including the aforesaid transaction carried out by the assessee in the derivative segment. Moreover, the issue relating to the losses incurred from derivative transactions was duly scrutinized and verified by the AO during the original assessment proceeding u/s. 143(3) of the Act. All the necessary information, evidences and explanation, whatsoever called for by the AO during original assessment proceeding, were duly furnished by the assessee. 9 ITA No. 1145/Kol/2023 Siddharth Fininvest Leasing P. Ltd. AY 2013-14 11. Secondly, the assessment has been reopened by the AO on the basis of borrowed satisfaction from the Investigation Wing. The AO, as observed above, did not corelate the information received from the Investigation Wing with the accounts and assessment records of the assessee, especially when all the record was available to the AO. As noted above, there is a lot of difference in the amount of derivative loss mentioned in the Investigation Wing’s report in the reasons recorded as compared to the actual derivative losses incurred by the assessee as noted in the assessment order. This shows that the AO even did not verify the facts relating to the derivative transactions and loss incurred thereto from the assessment record after getting information from the Investigation Wing. Therefore, the reopening in this case has been made by the AO on the basis of borrowed satisfaction from the Investigation of Wing. 12. Thirdly, the alleged interim report of the SEBI dated 20.08.2015 was very much available in public domain even before passing of original assessment order dated 09.03.2016 and no new information had come to the possession of department after passing of the assessment order dated 09.03.2016. The already existing and available report cannot be made basis to reopen the assessment subsequently. It has been held time and again that for reopening of the assessment, some new tangible material must come to the knowledge and possession of the AO to form the belief that the income of the assessee has escaped assessment. 13. Fourthly, the Ld. Counsel has duly demonstrated that the interim report of the SEBI was not relating to the financial year under consideration. The same in fact pertained to Financial Year 2014-15. 14. Fifthly, it has already been demonstrated that in the interim report of the SEBI, it was noted that the matter was required to be further investigated and further in the final report, the SEBI has not included the name of the broker of the assessee namely M/s. GBSPL in the list of suspects, therefore, 10 ITA No. 1145/Kol/2023 Siddharth Fininvest Leasing P. Ltd. AY 2013-14 nothing adverse even against the broker of the assessee found by the SEBI. Hence, the entire case of the revenue gets demolished on this count only. 15. In view of the above discussion, the reopening in this case is held to be bad in law and, therefore, the consequential assessment order passed u/s. 147 of the Act is hereby quashed. 16. Since we have allowed the appeal of the assessee on legal grounds, therefore, the issue on merits is rendered academic in nature and hence, not adjudicated. 17. In the result, the appeal of the assessee stands allowed. Order is pronounced in the open court on 08.01.2025 Sd/- Sd/- [Rakesh Mishra] [Sanjay Garg] लेखा सदèय/Accountant Member ÛयाǓयक सदèय/Judicial Member Dated: 08.01.2025 JD Sr. P.S Copy of the order forwarded to: 1. Appellant – Siddharth Fininvest Leasing Pvt. Ltd. 2. Respondent – ITO, Ward-4(1), Kolkata 3. CIT(A), NFAC, Delhi 4. Pr. CIT 5. CIT(DR), True Copy By Order Assistant Registrar, ITAT, Kolkata "