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TMI Blog2020 (12) TMI 394X X X X Extracts X X X X X X X X Extracts X X X X ..... these appeals the sole issue involved is, the disallowance of loss incurred by the assessee in trading of commodities on the National Multi Commodity Exchange (hereinafter referred to as the 'NMCE') treating it to be bogus. Briefly stated, the facts of the present case are that, search u/s 132 of the Income Tax Act, 1961 (hereinafter referred to as the "Act") was conducted against the 'Drolia' Group on 30-11-2012, to which the assessee belongs. Consequent thereto, notices u/s 153A dated 21-10-2013 were issued upon the assessee for AYs 2007-08 to 2012-13 and the assessments for all these years were completed u/s 153A/143(3) on 31-03-2015. Prior to completion of the said assessment, survey action u/s 133A was conducted upon the assessee on 18-12-2014 by the Investigation Wing Ahmedabad, in connection with the search conducted in the case of Commodity Traders Group at Ahmedabad. The Ld. AR of the assessee Shri Akkal Dudhewala, FCA brought to our notice that, the assessments for AYs 2009-10 to 2012-13 which were completed u/s 153A/143(3) on 31-03-2015, were reopened by the AO by issue of notice u/s 148 of the Act and thereafter the reassessments were completed u/s 147/153A/143(3) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 08-04-2016 requiring the AO to treat the return of income filed pursuant to notice u/s 153A of the Act, as the return in response to notice u/s 148 of the Act. In the same letter it is noted that the assessee requested the AO to supply the reasons recorded prior to reopening of the assessment. Pursuant to which AO vide letter dated 19-08-2016 supplied the reasons recorded for reopening of the assessment. Drawing our attention to the recorded reasons, the Ld. AR submitted that the recorded reasons proceeded on the basis of the information contained in the appraisal report prepared by Investigation Directorate, Ahmedabad in relation to the survey conducted u/s 133A of the Act on 18-12-2014 in the case of Commodity Traders Group [third party]. Inviting our attention to the order sheet entries made by the AO[Pages 63 of the Paper book], the Ld. AR Shri Akkal pointed out that the said order sheet contained entry for issue of notice u/s 148 on 31-03-2016 and in the same order sheet the following entry was made on 05-04-2016. "Appraisal report in the search & survey cases of "Commodity Trades Group of Ahmedabad" (Date of search - 18.12.2014) received by the undersigned." 4. Refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. AR relied on the decision of the Hon'ble Supreme Court in the case of New Delhi Television Ltd [NDTV] Vs DCIT (116 taxmann.com 151). He further submitted that even the reasons as recorded by the AO did not contain any averment to the effect that income had escaped assessment as a consequence of assessee's failure to disclose truly and fully all facts necessary for his assessment. According to the Ld. AR therefore, the AO's action of re-opening the assessment completed u/s. 143(3) after four years, deserves to be struck down for not satisfying the condition precedent set out in the first proviso to Section 147 of the Act. 6. Per contra, the Ld. CIT, DR Shri Vijay Shankar submitted that the AO was in possession of external material in the form of appraisal report based on which he had formed an opinion to re-open the assessment. According to Ld. CIT, DR, the AO was expected to only form a prima facie view and consequent tentative belief at the time of recording the reasons and not prove the same beyond doubt. He submitted that the survey conducted by the Investigation Wing, Ahmedabad revealed that the assessee had contrived losses and therefore the AO had rightly relied on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng reason to believe that such under- assessment has resulted from nondisclosure of material facts, must co-exist before the Income-tax Officer has jurisdiction to start proceedings after the expiry of four years. The Hon'ble Supreme Court in the case of M/s. Ganga Saran &Sons Pvt. Ltd Vs. ITO reported in 131 ITR 1 (SC) further held that, the expression " reason to believe" occurring in Section 147 is stronger than the expression "is satisfied" and this legal requirement has to be met in the reasons recorded before re-opening. The Hon'ble Court held that it has to be kept in mind that if an assessment (original assessment) has been made u/s. 143(3), the proviso to Sec. 147 further mandates that no action shall be taken under Section 147 after the expiry of 4 years from the end of the relevant assessment year unless there is failure on the part of the assessee to disclose fully and truly all facts necessary for his assessment for that assessment year. 9. It is well settled that the reasons as recorded for reopening the assessment, are to be examined on a standalone basis. Nothing can be added to the reasons recorded, nor anything be deleted from the reasons recorded. The Hon'ble Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue of notice, the failure on the assessee's part to truly and fully disclose all material facts in the course of original assessment. 11. This legal principle has been reiterated by the Hon'ble Supreme Court in the case of NDTV vs. DCIT (supra) wherein it was held that, the Revenue can take the benefit of extended period of limitation beyond four years and upto six years only if the Revenue can show that the assessee had failed to disclose fully and truly all material facts necessary for its assessment. In this case (NDTV), we note that the assessee had issued step-up convertible bonds to its subsidiary based in the United Kingdom (UK) named NDTV Network Plc. (hereinafter referred to as the 'NNPLC'). At the time of original assessment, the assessee had disclosed the issue of step-up coupon bonds for US$ 100 million to NNPLC. The assessee had also disclosed the details of entities who subscribed to this issue and also the fact that the bonds were discounted at a lower rate, before the assessment was finalized. Subsequent to completion of the original assessment, the AO was in receipt of information that the assessee had undertaken round tripping of funds and that these funds raise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period of limitation of 6 years for initiating proceedings under the first proviso section 147 of the Act. This can only be done if the revenue can show that the assessee had failed to disclose fully and truly all material facts necessary for its assessment. The assessee, in our view had disclosed all the facts it was bound to disclose. If the revenue wanted to investigate the matter further at that stage it could have easily directed the assessee to furnish more facts. 27. The High Court held that there was no "true and fair disclosure" in view of the law laid down by this Court in Phool Chand BajrangLal's case (supra), and the judgment of the Delhi High Court in Honda Siel Power Products Ltd. v. Dy. CIT [2011] 110 taxmann 2/197 Taxman 415/[2012] 340 ITR 53 (Delhi). We have already referred to the judgment in Phool Chand's case (supra), wherein it was held that where the transaction of a particular assessment year is found to be a bogus transaction, the disclosures made could not be said to be all "true" and "full". Relying upon the said judgment the High Court held that merely because the transaction of convertible bonds was disclosed at the time of original assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uarantee fees on the same which was added to its income. Without saying anything further on merits of the transaction we are of the view that it cannot be said that the assessee had withheld any material information from the revenue. 30. According to the revenue the assessee to avoid detection of the actual source of funds of its subsidiaries did not disclose the details of the subsidiaries in its final accounts, balance sheets, and profit and loss account for the relevant period as was mandatory under the provisions of the Indian Companies Act,1956. It is not disputed that the assessee had obtained an exemption from the competent authority under the Companies Act, 1956 from providing such details in its final accounts, balance sheets, etc. As such it cannot be said that the assessee was bound to disclose this to the Assessing Officer. The Assessing Officer before finalising the assessment of 03.08.2012had never asked the assessee to furnish the details. 31.The revenue now has come up with the plea that certain documents were not supplied but according to us all these documents cannot be said to be documents which the assessee was bound to disclose at the time of assessment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roved, what other facts can be inferred from them, and taking all these together, to decide what the legal inference should be. (9) There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet a possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income- tax Officer might have discovered, the Legislature has put in the Explanation, which has been set out above. In view of the Explanation, it will not be open to the assessee to say, for example - "I have produced the account books and the documents: You, the assessing officer examine them, and find out the facts necessary for your purpose: My duty is done with disclosing these account-books and the documents." His omission to bring to the assessing authority's attention these particular items in the account books, or the particular portions of the documents, which are relevant, will amount to "omission to disclose fully and truly all material facts necessary for his assessment." Nor will he be ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f certain other facts. We are of the view that the assessee had disclosed all primary facts before the assessing officer and it was not required to give any further assistance to the assessing officer by disclosure of other facts. It was for the assessing officer at this stage to decide what inference should be drawn from the facts of the case. In the present case the assessing officer on the basis of the facts disclosed to him did not doubt the genuiness of the transaction set up by the assessee. This the assessing officer could have done even at that stage on the basis of the facts which he already knew. The other facts relied upon by the revenue are the proceedings before the DRP and facts subsequent to the assessment order, and we have already dealt with the same while deciding Issue No.1. However, that cannot lead to the conclusion that there is non-disclosure of true and material facts by the assessee."[Emphasis given by us] 13. From the above binding ratio of decision of the Hon'ble Apex Court, the principle which thus emerges is that, the Revenue can take the benefit of the extended period of limitation of 6 years for initiating proceedings under the first proviso to Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansactions amounting to Rs. 5,82,07,948/- has been obtained by the assessee during the financial year corresponding to AY 2009-10.Therefore, he formed a belief that income of the assessee had escaped assessment in terms of Section 147 of the Act. Here, we note that the original assessment in the case of the assessee was completed on 31-03-2015 u/s 153A/143(3) of the Act. It was brought to our notice that the assessee's premise was searched on 30-11-2012 and consequent thereto, proceedings u/s 153A was initiated for the relevant AY 2009-10 on 21-10-2013. In the notice issued u/s 142(1) of the Act, dated 20-10-2014, [Pages 15 to 16 of the Paper book] the AO had specifically enquired the details of the assessee's transaction in commodity derivatives, extracts of the notice is as under: "A search and seizure operation was conducted in the case of Drolia Group on 30.11.2012. The assessee named GRD Commodities Ltd is connected with this Group. During the course of search, several books of accounts, documents and hard discs were found and seized. On perusal of the seized documents several documents were found which are related to the assessee. 1. Bank Accounts Bearing No. 000803400090 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Derivative Transactions of Rs. 19,45,782/- along with supporting evidences. 8. Details of Brokerage Income of Rs. 12,18,020/- along with supporting evidences. 9. Details of Transaction Charges of Rs. 23,99,420/- along with supporting evidences. 10. Details of NCDEX Related Expenses of Rs. 1,93,685/- along with supporting evidences. 11. Details of MCX Related Charges of Rs. 2,89,811/- along with supporting evidences. 12. Details of Interest paid of Rs. 6,16,047/- along with supporting evidences. 13. Details of Salary & Bonus of Rs. 8,51,287/-, Bank Guarantee Charges of Rs. 1,59,135/-, Filing Fees of Rs. 1,500/-, Rent of Rs. 2,94,000/-, Rates and Taxes of Rs. 4,350/-, Foods & Beverages of Rs. 90,009/-, Stipend of Rs. 99,709/- and Travelling & Conveyances of Rs. 80,298/- along with supporting evidences. 14. Books of accounts along with supporting evidences. Other supporting evidences." [Emphasis given by us] 16. It is noted that the assessee had replied to the above notice vide letter dated 19.02.2015 which is placed at Pages 17 and 32 of the paper book. Perusal of the reply shows that the assessee had furnished complete details of the commodities transactions condu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vey cases of Commodity Traders Group of Ahmedabad only on 05-04-2016. However, the notice for reopening, which is placed at Page 40 of the paper book, is dated 31-03-2016 (last date for issue of notice in respect of AY 2009-10). These events show that the AO had received the appraisal report five days after the issuance of notice on 31-03-2016. In this context, it has to be kept in mind the Hon'ble Apex Court has held in 258 ITR 317 and 253 ITR 86; the condition precedent for re-opening u/s 147 of the Act is that the AO should have 'reason to believe' escapement of income, and the 'reason to believe' postulate a foundation based on information and a belief based on reason. So we note that it is a legal necessity that a foundation based on information is a must before the AO has reason to believe escapement of income. So, here the appraisal report on which the AO builds the reason to belief was absent when he recorded the reason before invoking the reopening jurisdiction u/s. 147 by issuing notice u/s. 148 of the Act on 31.03.2016. Therefore, on these facts we discussed, we are inclined to uphold the contention of the Ld. AR that the foundation on which the AO based his belief that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leted assessments after the expiry of four years in terms of first proviso to Section 147 of the Act. According to the Ld. AR, a bald statement by the AO that, the assessee has not disclosed fully and truly all material facts will not meet the requirement of proviso to Section 147 of the Act, when the facts brought on record show that it was after due enquiry/investigation into the same issues that the original assessments were completed u/s 153A/143(3) of the Act on 31-03-2015. The Ld. AR thus submitted that, without spelling out as to which material facts did the assessee fail to disclose in the assessment proceeding, the AO could not have validly exercised his jurisdiction to reopen the assessment u/s 147 of the Act, read with the first proviso. Moreover the Ld. AR pointed out to us that the AO was fully aware that, in the original assessments, his predecessor had specifically enquired into the commodity transactions of the assessee and therefore, while recording his reasons to believe, which was the foundation of reopening, he consciously alleged only that the assessee did not disclose all material facts truly and correctly in its return of income rather than necessary for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt has occurred due to assessee's failure to disclose all material fact truly and correctly in its return of income. In order to assess/re-assess the said income chargeable to tax which has escaped assessment as aforesaid and to assess/re-assess any other income chargeable to tax which has escaped assessment and which may come to my notice during this proceeding, a notice u/s 148 of the said Act is required to be issued." "AY 2011-12 A search u/s 132 of the I.T. Act 1961 and survey u/s 133A of the said Act was conducted by the Investigation Directorate, Ahmedabad on 18.12.2014 in the case of Commodity Traders Group of Ahmedabad. In relation to the said action the assessee M/s GRD Commodities Ltd. of 238A AJC Bose Road, 6th Floor, Kolkata-700020 (PAN AACCG1217C) was covered by survey u/s 133A of the Act. Report of survey has been received from the Investigation Directorate, Ahmedabad wherein it is reported that the assessee had done trading on NMCE platform predominantly in the F.Y. 2010-11 relevant to A.Y. 2011-12 with a deliberate and malafide intention to book total loss of Rs. 1,64,99,732/- and such loss was not just a co-incidence, it was done so as to manage contrived lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst proviso to Section 147 of the Act. From the facts as available on record, we note that like in AY 2009- 10, the AO's predecessor before framing the original assessment u/s 153A/143(3) of the Act had specifically requisitioned the details of the commodity derivative transactions conducted by the assessee on NMCE. The specific enquiries made by the AO into the assessee's transactions in commodities vide his notices dated 20-10-2014 [available at Pages 12-13&14-15 of paper books for AYs 2010-11 & 2011-12] were as follows: "Notice u/s 142(1) of the Act - AY 2010-11 A search and seizure operation was conducted in the case of Drolia Group on 30.11.2012. The assessee named GRD Commodities Ltd is connected with this Group. During the course of search, several books of accounts, documents and hard discs were found and seized. On perusal of the seized documents several documents were found which are related to the assessee. 1. Bank Accounts Bearing No. 00080340009059, 00080340003059, 00990680017133, 00990690003832, 00990680002680, 00080340046627, 00080340039805 and 00990690003822 lying with HDFC Bank, Stephen House Branch, Kolkata were found during the search operation. Please furn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,762/- along with supporting evidences. 11. Details of Interest income of Rs. 45,27,975/- along with the supporting evidences. 12. Details of Transaction Charges of Rs. 2,07,57,010/- along with supporting evidences. 13. Details of Sharing of Arbitrager of Rs. 13,02,137/- along with supporting evidences. 14. Details of NCDEX Related Expenses of Rs. 2,07,147/- along with supporting evidences. 15. Details of MCX Related Charges of Rs. 7,38,068/- along with supporting evidences. 16. Details of Interest paid of Rs. 6,16,047/- along with supporting evidences. 17. Details of Salary & Bonus of Rs. 44,27,390/-, Bank Guarantee Charges of Rs. 5,09,254/-, Filing Fees of Rs. 1,500/-, Rent of Rs. 2,94,000/-, Rates and Taxes of Rs. 6,850/-, Foods & Beverages of Rs. 84,654/-, Software Expenses of Rs. 1,63,126/-, Stipend of Rs. 22,223/- and Travelling & Conveyances of Rs. 68,605/- along with supporting evidences. 18. Books of accounts along with supporting evidences. 19. Other supporting evidences." "Notice u/s 142(1) of the Act - AY 2011-12 A search and seizure operation was conducted in the case of Drolia Group on 30.11.2012. The assessee named GRD Capital Market Pvt. Ltd. i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 576/- and narration of each entry with supporting evidence. 7. Details of Fixed Deposit in Bank of Rs. 55,45,492/- and source thereof and interest accrued on Fixed Deposit of Rs. 22,86,136/- along with supporting evidences. 8. Details of Loans and Advances of Rs. 1,47,47,413/- and source of such loan, loam confirmation, copy of bank statement reflecting the loan transaction and name & complete address of the person/company/firm who have taken the loan from the company. 9. Details of Sundry Creditors for Expenses of Rs. 66,71,744/- Statutory Dues of Rs. 7,78,024/- and Client Cash Margin Deposit of Rs. 27,89,439/- along with the supporting evidences. 10. Details of Income from Derivative Transactions of Rs. 3,26,24,607/- along with supporting evidences. 11. Details of Brokerage Income of Rs. 27,31,898/- along with supporting evidences. 12. Details of Interest income of Rs. 40,89,318/- along with the supporting evidences. 13. Details of Delivery Charges of Rs. 1,85,2,90/-, Transaction Charges of Rs. 1,98,62,729/-, Depository Charges of Rs. 1,85,290, Sharing of Arbitrager of Rs. 53,64,105/-, NCDEX Related Expenses of Rs. 1,69,702/-, MCX related charges of Rs. 15,29,618/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO to the effect which would throw light as to what was found by the AO which can be construed to be a failure on the part of the assessee to disclose fully & truly the material facts necessary for assessment during the original assessment, recording of which was sine qua non and had to be spelt out by the AO in the reasons recorded to validly assume jurisdiction u/s. 147 of the Act. In this case, we note that the AO had made an averment that the assessee did not disclose all material facts truly and correctly in its return of income. It was not the AO's remark that the material facts relating to the transactions conducted on NMCE platform were not disclosed truly and fully in the assessments completed u/s 153A/143(3) of the Act, which is the precise requirement of law as can be discerned on reading of first proviso to section 147 of the Act and not as recorded by AO that assessee failed to disclose fully and truly all materials in the return. Therefore, we are unable to agree with the Ld. CIT, DR's contention that the AO had otherwise satisfied the condition precedent in first proviso to Section 147 of the Act by mentioning the same in his recorded reasons. Thus, in our view, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n isolation of section 147. It should be read in conjunction with the provisions in the section. The words for the purpose of this section appearing in Explanation 2 show that the conditions precedent for reopening assessment as laid down in section 147 have to be complied with. In instant case, since the conditions for assuming of jurisdiction under section 147 were not fulfilled, the notices under section 148 were uncalled for and warranted interference by appearing orders. If an authority assumes jurisdiction illegally which is not vested under the law it would be fit and proper for the writ Court to intervene. In the instant case, as there was no omission or failure on the part of the assessee to disclose truly and fully all material facts in the return, as the Assessing Officer sought to reopen the assessments due to wrong interpretation of accounts by the Assessing Officer which was not permissible under section 147 to assume jurisdiction, the assessee was justified in invoking the writ petition. Thus, the instant petition was to be allowed and, consequently impugned notices under section 147/148 were to be quashed." 28. In the case of Assam Co. Ltd Vs Union of India (15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and truly necessary for assessment so as to establish the link between the reasons and evidence. It was further held that the reasons so recorded cannot be supplemented by any affidavit or oral submissions as otherwise the reasons which were lacking in the material particulars would receive supplementation by the time those are subjected to Court' s scrutiny. 46. The notices admittedly do not exhibit as to what material facts were not truly and fully disclosed by the assessees necessary for assessment for the assessment years in question. The returns admittedly mention about the cess on green leaves paid and deductions as permissible were allowed. In view of the exposition of law on the point mentioned hereinabove, the inescapable conclusion is that the impugned notices in W.P. (C) No. 1163 of 2003 and W.P. (C) No. 1258 of 2003 are also not sustainable being barred by time." 29. We may also refer to the decision of in the case of Tao Publishing Pvt. Ltd. Vs DCIT (370 ITR 115) wherein the Hon'ble Bombay High Court has held that where the reasons supplied by the AO do not disclose that there was any failure on the part of the assessee to provide all the material facts, then it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r AYs 2010-11 & 2011-12 are bad in law in as much as the AO did not satisfy the condition precedent in first proviso to Section 147 of the Act which was sine qua non for usurping jurisdiction u/s 147 of the Act. As a consequence thereto, the orders passed u/s 147/153A/143(3) dated 29-12- 2017 for AYs 2010-11 & 2011-12 are held to be ab initio void and are therefore quashed. The Cross Objections for AYs 2010-11 & 2011-12 hence stands allowed. 31. Now we proceed to decide the Cross Objections for AY 2012-13. It was brought to our notice by both the parties that the original assessment for this year was framed by the AO u/s. 153A/143(3) of the Act dated 31-03-2015 and it was reopened by the AO u/s 147 of the Act within four years. The Ld. AR submitted that although the first proviso to Section 147 of the Act was not applicable in this year but the AO was still required to show that he had requisite 'reasons to believe' that the income had escaped assessment, based on which he had reopened the assessment, and such reasonable belief was formed on his 'own independent application of mind' and not 'borrowed satisfaction'. According to Ld. AR, perusal of the recorded reasons showed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome to a reasonable belief that income chargeable to tax has escaped assessment. In the circumstances, unless the AO himself genuinely entertains reason to believe that income has escaped assessment, he is not permitted to resort to reopening of assessment proceedings. It has been observed by the Constitutional Courts that the expression used in the Section viz., 'reasons to believe' is not a mere empty expression. 'Reason to believe' does not mean 'reason to suspect' or reason to re-examine the concluded issues. The reasons recorded must be based on some tangible information or material and such information or material must have live and direct nexus with formation of AO's belief that income chargeable to tax has escaped assessment. The relationship between the information or evidence with formation of belief must be live, real and proximate and should not be remote, vague or illusory. Further, the reason to believe must be formed by the AO's own objective appreciation of the information, material and evidence in his possession which he has gathered after completion of the assessment. We are aware that, at the time of formation of AO's belief, it is not necessary for him to show w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment." 33. In CIT vs. Kelvinator of India Ltd. reported in 256 ITR 1, the Full Bench of Hon'ble Delhi High Court held as under :- "31. In Bawa Abhai Singh"s case [2002] 253 ITR 83 (Delhi), a Division Bench of this court of which one of us (D. K. Jain J.) is a Member, clearly held (page 88) : "The crucial expression is "reason to believe". The expression predicates that the Assessing Officer must hold a belief . . . by the existence of reasons for holding such a belief. In other words, it contemplates existence of reasons on which the belief is founded and not merely a belief in the existence of reasons inducing the belief. Such a belief may not be based merely on reasons but it must be founded on information. As was observed in Ganga Saran and Sons P. Ltd. v. ITO [1981] 130 ITR 1 (SC), the expression "reason to believe" is stronger than the expression "is satisfied". The belief entert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er reported in 320 ITR 561, ".....that Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have link with the formation of belief." Therefore, if the fresh tangible material which the AO has in his possession is relevant to have nexus to the formation of belief then, of course, the AO would have the necessary jurisdiction to take action under the Act. What is required to be examined is not the adequacy or sufficiency of the grounds but the existence of belief. In our view, therefore all that one has to examine is that whether there was some material which, gave rise to prima facie view that income has escaped assessment and the belief was formed in good faith or was it mere pretence for initiating action u/s 147/148 of the Act. 35. In view of the above, now let us look into the facts involved in the present case to decide the legal grounds raised in the cross objection. For this, we first deem it fit to examine the reasons as recorded by the AO prior to reopening the assessment for AY 2012- 13, which read as follows: "A search u/s 132 of the I.T. Act 1961 and surve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, was completed post the survey action on 30-03-2015. During the relevant year, the assessee had derived profits as well as incurred losses in trading of commodities. In the course of regular assessment proceedings, the AO had required the assessee to furnish the particulars of the income derived in commodity transactions. In response, it is noted that the assessee had furnished the particulars as requisitioned inter alia including the transactions conducted on NMCE, MCX etc. along with the relevant supporting documents [Page 17 to 29 of the Paper book].We note that this fact has been acknowledged by the AO in his order sheet entries dated 20-2- 2015, 11-03-2015 & 23-03-2015, copy of which is available at Page 51 of the paper book. We therefore note that the AO was aware about the assessee's transactions in commodity derivatives on NMCE and the losses incurred therein. In the survey proceedings, an effort was made by the Investigating Officer to find out the genuineness of the trades conducted by the assessee on NMCE. From the statement of the Director which was recorded at the time of survey u/s 131 of the Act, we note that he had explained the modus operandi of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cise, then he could have summarized his finding of facts connecting the assessee to the alleged wrong doing in his 'reasons recorded' along with the modus-operandi as reported in the appraisal report to re-open, which could have exposed the live nexus and consequent cause and effect of escapement of income, which exercise the AO un-fortunately did not do in the present case. Having regard to the aforesaid facts, we find merit in the Ld. AR's contention that there was no tangible material contained in the appraisal report based on which the AO could have validly formed reason to believe that income chargeable to tax had escaped assessment which was completed u/s 153A/143(3) of the Act on 30-03-2015. Relying the decision of the Hon'ble Supreme Court in the case of CIT Vs Kelvinators of India Ltd (supra) and other case laws cited (supra), we are inclined to hold that the initiation of reassessment suffered from legal infirmity since the AO in the original assessment has already taken a view after enquiry and therefore, the impugned action of AO to reopen was based upon change of opinion by the present AO without there being any tangible material or material change in the underlying f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commodities Pvt Ltd Vs DCIT in ITA No. 2307 & 2308/Kol/2017 dated 02.11.2018 quashed the reassessments framed by the AO holding the reopening to be bad in law since the AO had not independently applied his mind to the information received from FMC regarding assessee's commodity transactions conducted on NMCE but had simply recorded the reasons based on borrowed satisfaction. The relevant findings of this Tribunal are as follows: "We first consider the issue as to whether re-opening of assessment is bad in law. The reasons recorded by the Assessing Officer for re-opening of the assessment for the Assessment Year 2010-11 is as follows:- "In this case the assessee had filed its ITR for A.Y. 2010-11 on 29.09.2010 disclosing total income of Rs. 58,23,420/-. In the case of the assessee information was received from the Forward Market Commission (FMC), the regulatory authority of commodity exchange that the assessee M/s. Proficient Commodities Private Limited had taken accommodation entries inform of bogus losses through National Multi Commodity Exchange (NMCE). The total loss incurred by the assessee on National Multi Commodity Exchange (NMCE) was Rs. 8,28,02,646/- during the F.Y. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal in the case of ACIT vs. M/s. Adhunik Cement Ltd. in ITA No. 1375/Kol/2017; Assessment Year 2009-10, under identical facts and circumstances held as follows:- ..... 6. Applying the propositions of law laid down in these case-law to the facts of this case we hold that the re-opening is bad in law as the Assessing Officer has not independently applied his mind to the material and has recorded reasons which are vague and based on borrowed satisfaction. Hence this ground of the assessee for both the Assessment Years are allowed." 39. Applying the decision rendered by the Tribunal in the case of Proficient Commodities Pvt Ltd Vs DCIT (supra) to the facts of the present case, we hold that the usurpation of jurisdiction u/s 147 of the Act was bad in law and void ab initio. Therefore, we are inclined to quash the order passed u/s 147/153A/143(3) dated 29.12.2017. The Cross Objections for AY 2012-13 therefore stands allowed. 40. For completeness, we would like to look into the merits of the disallowance of losses, for that we proceed to decide the appeals filed by the Revenue for AYs 2009-10, 2010-11, 2011-12, 2012-13 & 2014-15 wherein the Revenue assails the impugned order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t level most of the volume was created by top 100 clients only. Though, more than 269000 clients were registered on NMCE platform. xi. If we analyze client's participation on commodity series code wise then it can be observed that only few clients were dealing in specific series code. xii. If we analyze the client's participation on day basis then it can be seen that top 25 clients were creating almost 60 % volume of the entire NMCE exchange. xiii. Clear clustering among the brokers was found and as we narrow down our analysis criterion then clustering pattern will be more evident and the numbers of the clustering members will also decrease. xiv. If we analyze on day basis and took a specific series code then it can be seen that 2-3 brokers were trades mutually trades. xv. All the brokers of M/s GRD Commodities Ltd. were penalized by the NMCE for their involvement in non-genuine trade practices due to one or various reasons and some of them even don't available on the given address. xvi. When the director of the assessee company was confronted with the above fact vide Q. No. 16 of the statement recorded u/s 131 of the IT Act of dated 17.03.2015, as in view of the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred by the M/s GRD Commodities Limited on NMCE platform, which is submitted by you in your written submission and NMCE trade data which have been collected from exchange itself. It has been found that on nearly all the transactions in every commodity losses have been booked by the company." Q. "From above observations it clearly emerges that only losses have been made on NMCE consistently with a deliberate intention. Please explain the reason as why the M/s GRD Commodities Limited has consistently made losses on NMCE platform. Ans: "Sir, in this regard I can only state that there is no specific intention behind the same. Profits/losses is a part of business activities and earning profit of loss in any transaction on any exchange is not in our hand as all the transaction have been executed through automated exchange platform only. Further, the transactions executed on NMCE platform are the part of regular trading activities and absolutely there was no any malafide intention behind same." Q 12 "After going through the monthly details of the profit/losses made by you on NMCE platform and other than NMCE, it can be seen that on other exchanges you have incurred profit/los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the primary evidences and documents in support of commodity transactions conducted on NMCE through its registered Members. It appeared from the Ld. AR's submissions as well as the impugned order that a survey u/s 133A was conducted by the Investigation Wing at Ahmedabad against few members of NMCE who were acting as the brokers for third parties for their commodity transactions conducted on NMCE. On verification of the data accessed from the Members' records and cross verified from NMCE, it was gathered that these Members had conducted substantial number of commodity transactions for and on account of the appellant in which the loss was incurred by the appellant. Suspecting such transactions to be fictitious, the authorized officer at Ahmedabad had required the appellant to furnish particulars of its commodity transactions conducted on NMCE. In response the requisite information was provided by the appellant on 30.01.2015. From copy of the submissions made before the said ADIT, it appeared that the appellant had furnished before the said officer complete details of its transactions as requisitioned together with copies of the relevant documentary evidences supporting such transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame. 5. From the foregoing answers it is apparent that nowhere Shri Dhirendra Agarwal being the broker through whom the appellant had conducted its commodity transactions had admitted that the transactions were ingenuine or fictitious. I also find that both the questions as well as the answers thereto by the brokers were quite specific and there was no ambiguity or vagueness in the answers provided. In the circumstances therefore I do not find merit in the Ld. AO's finding that the answers given by the brokers were either evasive or vague or un-specific." 44. Another reason given by the AO for making the impugned disallowance was that some of the brokers were not found at their given address by the Investigation Directorate at Ahmedabad at the time when the survey was conducted upon the Commodity Traders Group. This according to the AO raised doubt in his mind regarding the identity of the brokers. In this regard, the Ld. AR invited our attention to the enquiries made by the AO from these very brokers u/s 133(6) of the Act in the course of re-assessment proceedings, copies of which were placed at Pages 57-61 of the Pape rbook for AY 2009-10 and Pages 46 of the Paper book for AY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers, and as to whether these fines were imposed with reference to the assessee's transactions with these brokers. We therefore hold that, when the assessee itself was never held guilty of committing any wrong doing by the FMC, nor was the AO able to bring on record any material that the regulatory authority had found the assessee's transaction through such brokers to be in-genuine requiring any penal action, then the losses incurred by the assessee on the NMCE platform could not have been doubted on this count. 47. As far as the Revenue's grievance viz., the assessee had obtained loss through synchronized trading with a set of counter-party brokers is concerned, we note that except for making unsubstantiated averments, the AO did not bring on record any evidence/material which could have supported his conclusion that the commodity transactions conducted by the assessee were bogus. It is noted that the AO did not even spell out the names of these counter-party brokers nor did he bring on record any material which could go on to show that these counter party brokers were engaged in synchronized trading. On the other hand, it is noted that the documentary evidences substantiating th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he did not accept. In such a scenario, the AO is stopped from picking and choosing without having in his possession material or evidence to take a different/adverse view. Such action of AO cannot be countenanced unless the AO was able to establish any link between the assessee and the counter party brokers and bring on record some evidence/material to show that the assessee was party to synchronized trading which the AO failed to do so, so we are of the opinion that the AO could not have disputed the genuineness of the loss. 49. We note that the Ld. CIT(A) had examined the relevant data referred to by the AO in the impugned order to infer the act of synchronized trading and found that this information referred to by the AO was a smoke screen and that it did not in any manner suggest that the assessee or any of the counter-party brokers were guilty of synchronized trading. The relevant findings recorded by the Ld. CIT(A) in this regard is as follows: "10. ... In the entire order the Ld. AO has made general and sweeping remarks based on certain irrelevant materials. E.g. The Ld. AO has doubted the genuineness because the transactions were squared off at short durations. However t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver strong cannot partake the character of evidence. As held by the Hon'ble Supreme Court in the case of Uma Charan Shaw & Bros Vs CIT reported in 37 ITR 271, howsoever grave the suspicion the AO may entertain, the suspicion cannot take place of the evidence or finding of fact. The suspicion on the AO's part can certainly prompt him to conduct enquiry & investigation but ultimate finding of the authority must be based on the material or evidences gathered by him and which has live nexus with the finding recorded by the authority after objective consideration of facts and evidences gathered. If the material or evidence gathered does not have any proximate cause with the finding ultimately reached, then the finding of the authority has to be held to be perverse and unsustainable. Here in the present case, as noted in the foregoing, the reasoning given by the AO to justify the impugned disallowance was based on mere suspicion and hearsay without bringing on record any tangible evidence/material to support the same. On the contrary, we note that the assessee had placed on record sufficient documentary evidences which substantiated its commodity transactions on NCME. As noted earlier, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foresaid discussion we find that the assessee has incurred losses from the off market commodity transactions and the AO held such loss as bogus and inadmissible in the eyes of the law. The same loss was also confirmed by the ld. CIT(A). However we find that all the transactions through the broker were duly recorded in the books of the assessee. The broker has also declared in its books of accounts and offered for taxation. In our view to hold a transaction as bogus, there has to be some concrete evidence where the transactions cannot be proved with the supportive evidence. Here in the case the transactions of the commodity exchanged have not only been explained but also substantiated from the confirmation of the party. Both the parties are confirming the transactions which have been duly supported with the books of accounts and bank transactions. The ld. AR has also submitted the board resolution for the trading of commodity transaction. The broker was expelled from the commodity exchange cannot be the criteria to hold the transaction as bogus. In view of above, we reverse the order of the lower authorities and allow the common grounds of assessee's appeal." 53. It is noted th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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