TMI Blog2020 (12) TMI 394X X X X Extracts X X X X X X X X Extracts X X X X ..... requirement of law set out in Section 147/148 of the Act before reopening the assessment for AY 2009-10 originally completed u/s. 153A/143(3) of the Act dated 31.03.2015, and as a consequence thereto, the order dated 29-12-2016 passed by the AO being without jurisdiction is held to be a nullity in the eyes of law. The assessee therefore, succeeds on this legal issue. The cross objections taken by the assessee for AY 2009-10, is thus allowed. As relying on Hon ble Supreme Court in the case of NDTV Ltd. [ 2020 (4) TMI 133 - SUPREME COURT] and other case laws, we hold that the reopening of the assessments for 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 . Bogus loss incurred in trading of commodities on the National Multi Commodity Exchange ( NMCE ) - HELD THAT:- AO had simply copy-pasted his reasoning of AY 2009-10 and did not even bother to examine the assessee s commodity transactions for AY 2014-15. Unlike AY 2009-10 to AY 2012-13, in the assessment order for AY 2014-15, there was no allegation by the AO that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 the Act. The AY 2014-15 was selected for regular scrutiny under CASS and the assessment was completed u/s 143(3) of the Act. In all these assessment orders for AYs 2009-10 to 2012-13 and 2014-15, the AO disallowed the losses incurred by the assessee in commodity transactions conducted on the NMCE platform. Inviting our attention to the appellate orders impugned in these appeals, the Ld. AR pointed out that the Ld. CIT(A) had given relief to the assessee on merits in all the assessment years and aggrieved by the same, the Revenue is now in appeal before this Tribunal. However, according to Ld. AR, the assessee had also challenged the legal validity of reopening under section 147/148 of the Act in AYs 2009- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 014 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. Referring to the above chronology of events, Shri Akkal Dudhewala pointed out that when the appraisal report which was the foundation on which the AO has based his reasons recorded was received by him only on 05-04-2016, then he (Ld. AR) wondered as to how the AO in the first place was able to record in his reasons recorded about the contents of the appraisal report from Ahmedabad which event was prior to issue of notice u/s. 148 on 31.03.2016. In such a scenario, according to Ld. AR, when the appraisal report was not available with him (AO) prior to the date on which he issued notice u/s 148 on 31-03-2016 [ viz., the last date for issue of notice for AY 2009-10 as per the period of lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the said information to form a belief that income chargeable to tax had escaped assessment. According to him, there is no requirement in law for the AO to explicitly demonstrate in his recorded reasons that there was any failure on the part of the assessee to disclose truly and fully all material facts in the course of assessment, but the same was inferable from the contents of the reasons. He thus submitted that the cross objections raised by the assessee did not have any merits and should be dismissed. 7. We have heard the rival submissions of both the parties. Before we advert to the facts in this case, let us first look into the well settled principles regarding r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 Bombay High Court, in the case of Hindustan Lever Ltd. vs. R.B. Wadkar [(2004) 268 ITR 332], has, inter alia, observed that ..........It is needless to mention that the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No inference can be allowed to be drawn on the basis of reasons not recorded. It is for the AO to disclose and open his mind through the reasons recorded by him. He has to speak through the reasons. Their Lordships further added that The reasons recorded should be self-explanatory and should not keep the assessee guessing for reasons. Reasons provide link between conclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 raised by way of issue of bonds to group entities actually represented the unaccounted funds belonging to the assessee. The AO accordingly reopened the concluded assessment after expiry of four years and within six years. On these facts the question posed by the assessee before the Hon ble Apex Court was, whether the assessee did not disclose fully and truly all material facts during the course of original assessment which led to the finalisation of the assessment order and undisclosed income escaping detection . Answering this question in favour of the assessee, the Hon ble Apex Court held as under: 24. Coming to the second question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra), 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 does not mean that there is true and full disclosure of facts. 28. We are unable to agree with this reasoning given by the High Court. The assessee as mentioned above made a disclosure about having agreed to stand guarantee for the transaction by NNPLC and it had also disclosed the factum of the issuance of convertible bonds and their redemption. The income, if any, arose because of the redemption at a discounted price. This was an event which took place subsequent to the assessment year in question though it may be income for the assessment year. As we have observed above, all relevant facts were duly within the kno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xemption 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. The main ground raised by the revenue is that the assessee did not disclose as to who had subscribed what amount and what was its relationship with the assessee. As far as the first part is concerned it does not appear to be correct. There is material on record to show that on 08.04.2011 NNPLC had sent a communication to the Deputy Director of Income Tax(Investigation), wherein it had not only disclosed the names of all the bond holders but also their addresses; number of bonds along with the total consideration received. This chart forms part of the assessment orders dated 3-8-2012 in the case of M/s. ND ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the assessing authority if he had pursued investigation on the basis of what has been disclosed. The Explanation to the section, gives a quietus to all such contentions; and the position remains that so far as primary facts are concerned, it is the assessee's duty to disclose all of them - including particular entries in account books, particular portions of documents and documents, and other evidence, which could have been discovered by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Section 147 of the Act only if the Revenue can show that the assessee had failed to disclose fully and truly all material facts necessary for its assessment. The requirement of law in this regard is that, the assessee must disclose the primary facts before the AO and the assessee is not required to give any further assistance to the AO by disclosure of other facts. Thereafter, it is for the AO to decide as to what inference should be drawn from the primary facts disclosed and, the non-disclosure of other facts which may be termed as secondary facts is not necessary, so as to em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0-2013. 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. 00080340009059, 00080340003059, 00990680017133, 00990690003832, 00990680002680, 00080340046627, 00080340039805 and 00990690003822 lying with HDFC Bank, Stephen House Branch, Kolkata were found during the search operation. Please furnish the statements of above mentioned Bank Accounts for the period 2006-07 to 2012-13. 2. Page No.4 of GRD/3 speaks about the investment made by the company in the form of FDs amounting to ₹ 13.22 Cr to different sector during the F.Y. 2010-11 to 2012-13. You are requested to furnish the year wise details of FDs m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dences. 12. Details of Interest paid of ₹ 6,16,047/- along with supporting evidences. 13. Details of Salary Bonus of ₹ 8,51,287/-, Bank Guarantee Charges of ₹ 1,59,135/-, Filing Fees of ₹ 1,500/-, Rent of ₹ 2,94,000/-, Rates and Taxes of ₹ 4,350/-, Foods Beverages of ₹ 90,009/-, Stipend of ₹ 99,709/- and Travelling Conveyances of ₹ 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 conducted on the platform of NMCE along with broker-wise ledger of the derivatives contracts executed during the years and the payments/receipts made in relation thereto. The AO by his order sheet entries dated 11.03.2015 23.03.2015 [Page 65 of paper book] acknowledged that the assessee had furnished all supporting documents as desired by him in respect of the reply furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ext, 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 income chargeable to tax had escaped assessment was absent at the material time when he issued notice u/s. 148 of the Act on 31- 03-2016, and therefore, the basic legal requirement of reopening u/s. 148 of the Act i.e. AO s formation of reasons to believe escapement of income prior to reopening of assessment was absent in the given facts of the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 assessment, which is the precise requirement of law . The Ld. AR thus contended that like in AY 2009-10, the AO had failed to satisfy the condition precedent in the first proviso to Section 147 of the Act in AYs 2010-11 and 2011-12 as well and therefore in terms of the law laid down by the Hon ble Supreme Court in the case of NDTV Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment 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 ₹ 1,64,99,732/- and such loss was not just a co-incidence, it was done so as to manage contrived losses to the extent of profit available in the books for the purpose of reduce income chargeable to tax and thereby reducing legitimate tax liabilities. The assessee filed return of income for A.Y. 2011-12 on 28.09.2011 showing total income of ₹ 13,90,470/- and was assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty 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 furnish the statements of above mentioned Bank Accounts for the period 2006-07 to 2012-13. 2. Page No.4 of GRD/3 speaks about the investment made by the company in the form of FDs amounting to ₹ 13.22 Cr to different sectors during the F.Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. Details of Transaction Charges of ₹ 2,07,57,010/- along with supporting evidences. 13. Details of Sharing of Arbitrager of ₹ 13,02,137/- along with supporting evidences. 14. Details of NCDEX Related Expenses of ₹ 2,07,147/- along with supporting evidences. 15. Details of MCX Related Charges of ₹ 7,38,068/- along with supporting evidences. 16. Details of Interest paid of ₹ 6,16,047/- along with supporting evidences. 17. Details of Salary Bonus of ₹ 44,27,390/-, Bank Guarantee Charges of ₹ 5,09,254/-, Filing Fees of ₹ 1,500/-, Rent of ₹ 2,94,000/-, Rates and Taxes of ₹ 6,850/-, Foods Beverages of ₹ 84,654/-, Software Expenses of ₹ 1,63,126/-, Stipend of ₹ 22,223/- and Travelling Conveyances of ₹ 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. is connected with this Group. During the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank Balance of ₹ 32,47,576/- and narration of each entry with supporting evidence. 7. Details of Fixed Deposit in Bank of ₹ 55,45,492/- and source thereof and interest accrued on Fixed Deposit of ₹ 22,86,136/- along with supporting evidences. 8. Details of Loans and Advances of ₹ 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 ₹ 66,71,744/- Statutory Dues of ₹ 7,78,024/- and Client Cash Margin Deposit of ₹ 27,89,439/- along with the supporting evidences. 10. Details of Income from Derivative Transactions of ₹ 3,26,24,607/- along with supporting evidences. 11. Details of Brokerage Income of ₹ 27,31,898/- along with supporting evidences. 12. Details of Interest income of ₹ 40,89,318/- along with the supporting evidences. 13. Details of Delivery Charges of ₹ 1,85,2,90/-, Transaction Charges of ₹ 1,98,62,729/-, Depository Charges of ₹ 1,85,290, Sharing of Arbitrager of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for reopening of the assessments of AYs 2010-11 2011-12 beyond four years. 26. Further a bare perusal of the reasons recorded (supra) also does not reveal any statement by the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of accounts by the Assessing Officer leading to excessive relief cannot be a ground for reopening and thus cannot confer jurisdiction on the Assessing Officer. Explanation 2 cannot be read in 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 invoki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. CIT (No. 1) [2004] 268 ITR 3322, held that the reasons in support of the proposed action under section 147 of the Act must necessarily reveal all facts or materials that had not been disclosed by the assessee fully 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 D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove reasons and those discussed in Paras 7 to 17 earlier and following the law laid down by the Hon ble Supreme Court in the case of NDTV Ltd. vs DCIT (supra), and other case laws, we hold that the reopening of the assessments for 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 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eve of an AO that income of assessee which was chargeable to tax has escaped assessment for that year. The words reasons to believe connote a positive act on the part of the AO of applying his mind to certain information or material and then come 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 forme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r year because of his failure to disclose fully and truly all material facts. It is no doubt true that the Court cannot go into sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong. 34. The Hon ble Supreme Court endorsing the Full Bench decision of the Hon ble Delhi High Court in CIT vs. Kelvinator of India Ltd. (supra) held in its order 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 invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... praisal report forwarded by the Investigation Directorate at Ahmedabad which had been prepared after conducting search and survey action on 18-12-2014 on Commodity Traders Group, in which the assessee was also covered u/s 133A of the Act. In the present case, we note that the regular assessment u/s 153A/143(3) of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppraisal report can be termed to trigger reason to suspect ; and upon receipt of this appraisal report, the AO ought to have conducted preliminary enquiries and tried to collect materials to connect assessee in this orchestrated wrong doing as suggested in the appraisal report; and if he had succeeded, in this exercise, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... medabad. Thus, in our view, without any reasons being independently recorded by the AO but on the basis of borrowed satisfaction of the DDIT (Inv.) cannot be the basis for reopening of assessment u/s. 147 of the Act. 38. We find that on similar facts and circumstances, the B Bench of this Tribunal in the case of Proficient 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 ₹ 58,23,420/-. In the case of the assessee information was received from the Forward Market Commission (FMC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng hands. The FMC audit had cleared the transactions of the company. A plain look at the reasons demonstrates that the re-opening was based on the information which was never examined or verified by the Assessing Officer before recording reasons for reopening of assessment. On these facts, we examine the legal position. 5.1. We find that this Bench of the Tribunal 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by only 25 brokers means most of the volume across the NMCE platform was created by only few brokers. viii. If we analyze a commodity series wise trading pattern across the NMCE platform then it is seen every year around 60% volumes of the trades has been created by only 10 brokers. ix. Even on day basis around 60% volumes of the trades has been created by only 10 brokers. x. Even on client 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Investigating Officer which has been extracted in parts in the assessment order, it is noted that not only had he not made any self-incriminating averment but instead he had substantiated the transactions conducted on NMCE. The relevant questions posed by the DDIT(Inv) and the answers given by the Director in his statement dated 23-04-2015 are as follows: Q.11 After going through the details of the monthly profit/loss 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm, which is an automatic exchange. Further, I can only say that we try our level best to earn profit in spite that we incurred losses only, this is nothing but our hard luck only. 42. It is noted that the Ld. CIT(A) after giving due consideration to the above facts found that there was no material discernible from the statement of the Director recorded u/s 131 based on which the AO could have inferred that the losses incurred in commodity transactions were contrived. The relevant findings recorded by the Ld. CIT(A) in this regard are as follows: 4. From the material on record, I find that in the course of assessment proceedings as well as the appellate proceedings, the appellant had placed before the authorities all 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation entries or that the transactions carried out by him on NMCE on behalf of the appellant were fictitious or bogus or in-genuine. For example, in Q No. 17 the broker was required to explain as to how come it is possible that purchase sale of the commodity happened with the clients of the same broker, to which he explained that the transactions are conducted on the floor of the Exchange and therefore they do not know who the buyer and seller is. Similarly in Q No. 18, the broker was required to explain why a peculiar pattern was noted in transactions of the assessee wherein loss was incurred, to which he explained that the transactions was conducted on the platform of the Exchange and that he had nothing to do with the same. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FY 2008-09 No fine levied NA M/s. Sahal Commodities Pvt. Ltd. FY 2008-09 FY 2009-10 FY 2011-12 FY 2013-14 FY 2010-11 ₹ 25,000 M/s.Sagun Dealer Pvt. Ltd. FY 2008-09 FY 2009-10 FY 2010-11 FY 2010-11 ₹ 80,000 46. From the aforesaid table, we find merit in the assessee s plea that barring the assessee s transaction through M/s Sagun Dealer Pvt. Ltd. in FY 2010-11, the fines imposed by the FMC on the brokers were with reference to specific periods which were different and distinct from the period in which the assessee transacted through these brokers. Hence, these fines levied by FMC, as referred to by the Ld. CIT, DR, did not have any bearing on the facts of the present case. We further note that, neither the AO nor the Ld. CIT, DR were able to bring on record the nature of fine imposed on the broker, M/s. Sagun Dealers Pvt. Ltd. for FY 2010-11 or for that matter any of the other brokers, and as to whether these fines were imposed with reference to the assessee s transactions with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could disprove the evidence adduced by the assessee to substantiate the transaction. So, the assessee has discharged the primary onus on it to prove the genuineness of the transaction. 48. The Ld. AR further invited our attention to the fact that, similar documentation was maintained by the assessee in respect of its commodity transactions on other exchanges as well. It is interesting to find that, all these transactions which were supported by similar documentation, were considered to be genuine and bonafide by the AO because the assessee had reported net gains therein. We thus note that the sole reason for which the AO questioned the genuineness of the transactions conducted on NMCE was only because the assessee reported overall loss. In our view, this approach of the AO was clearly untenable on the facts as well as in law. We are of the opinion that AO could not have blown hot and cold at the same time. On one hand, he on similar set of documentation accepts the transaction which yielded gains, whereas on similar set of document carried out in electronic platform, when loss occurred, he did not accept. In such a scenario, the AO is stopped from picking and choosing without h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... twenty five members. If that be the case, then there was empirical data available on record that substantially major part of the trading on NMCE was conducted by these twenty five members and therefore any member of public who conducted the commodity transactions on this Exchange necessarily transacted through any one of them and therefore no adverse inference could be drawn only against the appellant on the ground that the assessee engaged one of such Members for conducting its commodity transactions. Rather this information shows that the appellant chose to conduct its commodity transactions on NMCE through its Members who were actively involved in conducting trades and in a position to provide better service being well conversant with the market. The mere fact that the appellant s transactions involved 24 active members does not lead to conclusion that these active Members by themselves had formed a cartel . 50. The Ld. CIT, DR appearing on behalf of the Revenue was unable to controvert the above findings of the Ld. CIT(A). 51. The settled proposition of law is that, suspicion howsoever strong cannot partake the character of evidence. As held by the Hon ble Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e side and perused the materials available on record. The ld. AR submitted two papers books. First book is running in pages no. 1 to 88 and 2nd paper book is running in pages 1 to 34. Before us the ld. AR submitted that the order of the AO is silent about the date from which the broker was expelled. There is no law that the off market transactions should be informed to stock exchange. All the transactions are duly recorded in the accounts of both the parties and supported with the account payee cheques. The ld. AR has also submitted the IT return, ledger copy, letter to AO and PAN of the broker in support of his claim which is placed at pages 72 to 75 of the paper book. The ld. AR produced the purchase sale contracts notes which are placed on pages 28 to 69 of the paper book. The purchase and sales registers were also submitted in the form of the paper book which is placed at pages 76 to 87. The Board resolution passed by the company for the transactions in commodity was placed at page 88 of the paper book. On the other hand the ld. DR relied in the order of the lower authorities. 4.1 From the aforesaid discussion we find that the assessee has incurred losses from the off ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO in the assessment order for AY 2014-15, particularly Pages 12 to 36 of the said order, we note that the AO had simply copy-pasted his reasoning of AY 2009-10 and did not even bother to examine the assessee s commodity transactions for AY 2014-15. Unlike AY 2009-10 to AY 2012-13, in the assessment order for AY 2014-15, there was no allegation by the AO that the assessee had engaged in synchronized trading in this year. The charts and tables extracted by the AO analyzing the trades of the assessee pertained only to FYs 2008-09 to 2011-12 and there was nothing contained in the assessment order for AY 2014-15 which would even remotely suggest that the AO had applied his mind to the assessee s commodity transactions for AY 2014-15 and then arrived at a conclusion that it was contrived or bogus. When confronted with the aforesaid fact, even the Ld. CIT, DR could not controvert the same. We therefore, find merit in the assessee s alternate plea for AY 2014-15 that the reasoning given by the AO to disallow the loss incurred in commodity transactions in that year, was factually perverse and therefore rightly deleted by the Ld. CIT(A). 55. For the reasons discussed in the forego ..... X X X X Extracts X X X X X X X X Extracts X X X X
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