ITAT Quashes Reassessment based on Vague Information received from Investigation Wing regarding  Transactions in National Multi Commodity Exchange

The  Delhi bench of Income Tax Appellate Tribunal (ITAT) has recently quashed reassessment based on vague information received from the investigation wing regarding  transactions in National Multi Commodity Exchange (NMCE).

The assessee  Gulshan Investment Co. Ltd.  is a registered Non Banking Finance Company (‘NBFC’) and is engaged in the business of purchase and sale of shares, securities, commodities and mutual funds, trading in derivatives, future & option and also derivatives of commodities in commodity exchanges.

After filing the return of income the Original assessment was completed under section 143(3) of the Income Tax Act determining the total income of the assessee at Rs.26,26,406/-and made disallowance under section  14A of the Income Tax Act in the sum of Rs.9,91,240/-.

Thereafter, the Assessing Officer received an information from Investigation Wing, Kolkata, according to which certain entities were identified to be involved in facilitating bogus loss or profit to other real beneficiaries based on Forward Marketing Commission (FMC) report that members of National Multi Commodity Exchange (NMCE) were found to be involved in creating artificial volume and suspected evasion of Income Tax.

Hence the Aseessing Officer (AO) initiated reassessment proceedings  under Section   147 of the Income Tax Act alleging that the assessee company is one of the beneficiary of accommodation entries obtained by allegedly routing through the NMCE .

The Assesee objected to the reassessment proceedings. The Asessing Officer disposed of this objection of assessee and reassessment proceedings were proceeded with by issuing notice under Section  143(2) and 142(1) of the Income Tax Act.

Then, the Assessing Officer dismissing the entire submissions of the assessee proceeded to make an addition under Section   68 of the Income Tax Act in respect of profit derived from derivative transactions in the sum of Rs.1,79,21,950/- by treating it as accommodation entries.

After obtaining the information from the Kolkata Investigation Wing, the AO issued notice under Section 133(6) of the Income Tax Act.

The assessee had responded to this notice  by furnishing the entire requisite details and also enclosing the copy of the account of the broker through whom the transactions were made by the assessee on National Multi Commodity Exchange (NMCE).

Assessee submitted that the  transactions are carried out through  assessee’s broker i.e., M/s R.K. Commodities Pvt. Ltd. They had not made any transaction with those Sub-brokers mentioned in the reasons.

Further transactions carried by it in derivatives through its broker M/s R.K. Commodities Pvt. Ltd.The profit earned from these transactions are duly reflected in Income Tax Return already filed by it.

Thus there was no additional profit earned by the assessee in the sum of Rs.1,79,21,950/- from derivatives as alleged by the AO in the reasons and that both are one and the same, as the figure reflected by the assessee is exclusive of service tax and brokerage and the figure mentioned in the reasons is inclusive of service tax and brokerage.

It was pointed out by the tribunal that it is the bounden duty of the AO to at least verify the transactions from the return filed by the assessee as to whether the said sum has already been disclosed by the assessee in the return.

This preliminary verification of the facts from the Income Tax Return of the assessee would have enabled the AO to accept the contentions of the assessee that income is already offered to tax. But the preliminary verification also was not even carried out by the  AO.

AO in the instant case was carried away by the information received from the Investigation Wing and considered the same as sacrosanct.

AO did not have any information which had a live link to form a belief that income of the assessee escaped assessment warranting reopening within the meaning of section 147 of the Income Tax Act.

Moreover , the AO in the original scrutiny assessment proceedings had examined the entire transactions of commodity / derivatives trading during the course of original assessment proceedings.

Therefore the two member bench of the tribunal comprising Chandra Mohan Garg,( Judicial Member) and M. Balaganesh, (Accountant Member) held that  reassessment proceedings are initiated based on vague information received from the Investigation Wing, Kolkata which only gives reasons to suspect and not reason to believe.

Thus the bench  allowed the appeal filed by the assesee.

Sashi Tulsiyan, counsel appeared for the assessee. Maimum Alam, counsel appeared for the revenue. 

To Read the full text of the Order CLICK HERE

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