ITAT Quashes Reassessment Against Assessee in NSEL Scam Matter: Says No Failure to Disclose Material Facts [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT), has quashed the reassessment initiated against Asha Viren Raj for Assessment Year 2012-13. The Tribunal held that the reopening of assessment after four years was invalid since there was no failure on the part of the assessee to disclose material facts during the original assessment.

The case revolved around transactions allegedly routed through the NSEL platform, where the Serious FraudInvestigation Office (SFIO) reported widespread Client Code Modifications (CCM) by brokers, allegedly to facilitate bogus trades. The Income Tax Department, acting on this report, reopened assessments of several individuals, including the appellant, on suspicion that these trades reflected unexplained income.

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In the present case, the assessee’s original assessment was completed under Section 143(3) in 2015. However, in 2019, the AO reopened the case under Section 148, alleging that the assessee had executed commodity trades worth over ₹2.17 crore through Anand Rathi Commodities Pvt. Ltd., involving purchases of ₹1.07 crore and sales of ₹1.09 crore, and that such transactions were not properly disclosed.

The assessee argues that the original assessment proceedings had fully examined the income and expenditure accounts, including the commodity trades in question and that the AO failed to demonstrate any failure by the assessee to disclose full and true facts, which is a mandatory precondition for reopening after four years, as per the first proviso to Section 147.

The assessee asserted that the alleged client code modifications were actions of the broker and not of the assessee, who had no role or knowledge of any irregularities. It was submitted that the AO erroneously added the entire gross sales of ₹1.09 crore as unexplained cash credit, without deducting the purchase cost of ₹1.07 crore, despite the assessee already declaring a profit of ₹2.29 lakh in her books.

The ITAT examined closely the reasons recorded for reopening and concluded that there was "not even a whisper" in the recorded reasons alleging non-disclosure by the assessee. It observed that the original assessment had considered all relevant documents, including the financial statements and profit and loss account, where the commodity trades were duly reflected.

Relying on several judicial precedents, including the Bombay High Court decisions in TAO Publishing Pvt. Ltd., Sound Casting Pvt. Ltd., and First Source Solutions Ltd., the Tribunal reaffirmed that in cases where assessments are reopened beyond four years, it is essential for the Department to establish a failure on the part of the assessee to disclose material facts. In this case, no such failure was demonstrated.

The Tribunal found that the AO incorrectly taxed the entire sale value of ₹1.09 crore, ignoring the fact that the assessee had already shown purchases of ₹1.07 crore, leaving a profit of ₹2.29 lakh, which was duly offered to tax. The Tribunal noted that the addition should, at best, have been limited to any unexplained profit, which had already been disclosed.

The Bench consisting of Narendra Kumar Billaiya (Accountant Member) and Sandeep Singh Karhail (Judicial Member) on considering the lack of jurisdictional validity for reopening and the absence of any merit in the addition, quashed the reassessment proceedings and deleted the addition under Section 68, thereby granting full relief to the assessee.

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