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TMI Blog2023 (1) TMI 781X X X X Extracts X X X X X X X X Extracts X X X X ..... t year 2013-2014 whereby income of Rs.12,56,35,840/- was declared. The case of the petitioner was selected in scrutiny. According to petitioner, a query was raised with regard to details in commodity trading by the petitioner vide notice under Section 142(1) of the Act and said notice was dated 02.07.2015. Petitioner is said to have replied to the said notice on 04.08.2015 and later on authority passed an order of assessment on 06.11.2015 assessing the income at Rs.12,62,44,910/-. [2.1] It is the case of the petitioner that subsequently ADIT (Inv) issued a summons under Section 131(1A) read with Section 131 of the Act on 12.12.2019, inter alia, seeking information regarding its Demat Account statements for the financial year 2012-2013 and 2013-2014 and additionally, trade details were also carried out on National Spot Exchange Limited (NSEL) along with ledger of NSEL. In response to the said summons, petitioner replied vide letter dated 18.12.2019 giving details sought for. However, disagreeing with the said submissions, respondent authority issued notice a under Section 148 of the Act on 23.03.2020 for reopening the assessment for the assessment year 2013-2014 and along with that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner has contented that action initiated by the respondent authority is impermissible in view of peculiar background of facts. He would submit merely on the ground simply information is received from DDIT that assessee has taken accommodation entries through the NSEL platform to the tune of Rs.3.15 crores, the case does not become ripe for reopening of assessment. In the absence of new, fresh and tangible material distinct different from what was forming part of assessment proceedings no steps of reopening of the assessment can be undertaken. Here in the instant case, on the basis of material already available during the assessment proceedings, reopening is sought to be undertaken and as such, when the scrutiny is already over and no fresh tangible material is available, such action is impermissible and for that purpose, by relying upon Shanti Enterprise reported in (2016) 76 taxmann.com 184, he seeks for proceedings being quashed. [5.1] Mr. Soparkar, learned advocate has further submitted that if the order under challenge of disposing of the objections as well as the notice under Section 148 of the Act if seen, prima facie reflects non application of mind and alleged satisfact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n concluded. Reopening of assessment is impermissible in the absence of any distinguishable material. It is further contended that apart from aforementioned situation, no income has escaped assessment; the purchase and sale of the commodities through NSEL platform has been correctly projected by the assessee and the figures of earned profit have also been indicated being a part of income which was already offered and as such, there is no income that has escaped assessment. When such is the situation, the action initiated now is impermissible. Hence, he prays for relief sought for being granted. [5.3] To substantiate his contention, a reference is made to judgments reported in Ganga Saran & Sons (P.) Ltd., (1981) 130 ITR 1 (SC), P.G. & W. Sawoo (P.) Ltd., (2016) 385 ITR 60 (SC) and Devesh Metcast, (2011) 12 taxmann.com 458 (Guj) and by referring to these judgments, it has been indicated that action which is sought to be initiated is not sustainable and impermissible in the eye of law. Hence, there is hardly any justification in such step against the petitioner. Hence, he contends relief prayed for may be granted. [5.4] Additionally, Mr. Soparkar, learned advocate has also pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the action for reopening the assessment came to be initiated against petitioner. In fact, during the course of investigation, with regard to position of stock as shown by NSEL in its website, one Shri Nilesh Patel in his statement has categorically admitted that in fact the physical delivery with regard to purchase and sale of commodities, as shown in the books of assessee group, never takes place and the investors and brokers are very well aware about this fact from the beginning. Only fictitious stock was shown in the NSEL warehouse by creating paper evidence and stock was never in- existence as can be seen from paragraph 4.2.4 on page 75 of petition compilation. [6.2] Mr. Raval, learned advocate has also submitted that this entire investigation has indicated that circumstances which are reflecting are clearly indicating that reopening of assessment in fact deserves to be undertaken with regard to petitioner company, a reference in specific has been made on page 77 and in this connection, the assessee was asked to furnish the brief nature of business, source of investment / trade carried out on NSEL platform along with supporting documents and other relevant details. But no sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, Mr. Raval, learned advocate has made reference to the following decisions:- (1) Income Tax Officer versus Purushottam Das Bangur reported in (1997) 224 ITR 362 (SC). (2) Phool Chand Bajrang Lal versus ITO reported in (1993) 203 ITR 456 (SC). (3) Principal Director of Income Tax (Investigation) versus Laljibhai Kanjibhai Mandalia reported in (2022) 140 taxmann.com 282 (SC). (4) Spicy Sangria Hotels (P.) Ltd. Versus ITO reported in (2019) 111 taxmann.com 491 (Bombay). (5) Raymond Woollen Mills ltd. Versus ITO reported in (1999) 236 ITR 34 (SC). (6) Backbone Projects Ltd. Versus ACIT reported in (2021) 437 ITR 144 (Guj). (7) Yogendrakumar Gupta versus ITO reported in (2014) 366 ITR 186 (Guj). (8) Hemjay Construction Co. (P.) Ltd. Versus ITO, Ward - 2(2) reported in (2019) 419 ITR 39 (Guj). (9) Special Civil Application No.15739 of 2021 in case of Jay Krishna Group though Bharvad Navghan Chhaganbhai versus ITO. (10) PCIT (Central) versus NRA Iron and Steel (P.) Ltd. Reported in (2019) 412 ITR 161 (SC). [6.5] After referring to aforementioned decisions, Mr. Raval, learned advocate has submitted that this is not a fit case, in which, action initiated is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -2014 and even the Demat Account statement was also asked for the aforesaid period. In addition to it, under the said communication, petitioner was asked to explain the treatment of NSEL transactions in its books of accounts / return of income, to furnish working of profit / loss earned by trading / investment activity carried on by the petitioner on National Spot Exchange Limited (NSEL) for the financial year 2012-2013 and 2013-2014 and tax treatment of the same. Additionally, the details regarding source of investment / trade carried out on NSEL platform, along with supporting documentary evidence and also the details whether there is any outstanding receivable from National Spot Exchange Limited (NSEL) as on 31.03.2013, 31.07.2013 and 31.03.2014 had been sought for. In response to this, petitioner appears to have replied on 18.12.2019 wherein in Item No.3 on page 33, it has been mentioned that there was no Demat Account for transactions of commodities through NSEL platform and what has been furnished is a copy of Ledger Accounts of the brokers of NSEL and though it has been mentioned that NSEL were backed by the delivery allocation slip in fact in one of the statement which has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the broker or by his in-house NBFC company. In this method only 10% gets reflected in the records and 90% of the amount goes unnoticed and unverified. Brokers via their NBFCs misused the fact that NSEL was not the notified exchange for the purpose of AIR or CIB reporting under the Income Tax Department. The source of fund of the broker and their in-house NBFC Company will result in unearthing large sum of unaccounted income, j) Use of ingenious methods of accounting by traders and brokers: May of the traders/ brokers on NSEL have shown income as income form "other sources" or "arbitrage income" as "net income" as against the "gross trading income" to avoid the provisions of compulsory tax audit and thereby avoiding complete scrutiny as to source of capital and funds. k) Evaded the provision of Section 44AB of the Act: In many cases the clients have violated the provision of compulsory tax audit under section 44AB of the Income Tax Act I) Wrongful and unlawful claim of expenses as bad debts: In July 2013 the NSEL operations were halted as per the directions by DCA. This had resulted into a statement in settlement of amounts of unsettled trades. Most of the traders and b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lectronic platform of NSEL whereby NKIL sells 100 kg. of castor seeds to another prospective investor/ client of another broker of NSEL for Rs. 100/-. The other prospective investor client of NSEL in turn executes a T+36 trade contract on the electronic platform of NSEL whereby it sells the castor seeds to another client of M/s. N.K Proteins Ltd. such as M/s. N.K Corporation (associate concern) for Rs. 110/-. Thereafter, the associate concern i.e. M/s. N.K. Corporation, carry out intra-group sale back to M/s. N.K. Proteins Ltd. to square off the sale/purchase transaction and to maintain the stock position. All the above three transactions are executed simultaneously . Thus, after the above set off of circular transactions, M/ s. N.K._Proteins Ltd. has to receive the amount on the 3rd day from prospective investor (T+3) and the subsidiary concern of M/s. N.K. Proteins Ltd. has to pay to the prospective investor after 36 days (T+36). To keep the process going a new T+3 contract is executed by with NSEL 2 to 3 days prior to the due date of making payment as per T+36 contracts. The funds receivable from such T+3 contract neutralized the fund outflow needed to settle the initial T+36 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n No. 13 of his statement as to whether any stock belonging to N.K. Group is lying in the accredited godown of NSEL, Shri Nilesh Patel submitted that a lease agreement was entered into in the year June, 2013 with NSEL, according to which, the warehouse of N.K. Industries Ltd. was given on lease to NSEL. However, the N.K. Group companies never kept any stock in the accredited godowns of NSEL and the lease agreement was entered into just for the purpose of fulfilling the procedure as laid down by FMC. It is also pertinent to mention here that in answer to question No. 15 in this regard, Shri Nilesh Patel stated that the storage capacity of washed cotton seed oil in the NSEL accredited warehouse is only 2000 MT and the storage capacity of Cotton Seed is 10000 MT. 4.2.2 All the above facts dearly establish the fact that N.K. Proteins Ltd. is the registered member of National Spot Exchange Ltd, and the group concerns of N.K. Proteins Ltd. namely, N.K. Industries Ltd. N.K. Corporation, Tirupati Retail (India) p Ltd. and Tirupati Protein P Ltd. had become the clients of M/s. N.K. Proteins Ltd. for carrying out the trading activities on the platform of National Spot Exchange Ltd and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reply to furnish the same. After taking out summary from the commodity transactions made by the petitioner for the financial year 2012-2013 and 2013-2014, it has been clearly opined that at many instances, the counter party member of the commodity transactions carried out by the assessee on NSEL platform is M/ s. N. K. Proteins Pvt. Ltd and out of total 148 sale transactions M/s. N. K. Proteins Pvt. Ltd. is counter party member in 48 transactions and in the same manner out of 124 sale transactions M/s. N. K. Proteins Pvt. Ltd. is a counter party member in 41 transactions and therefore, it was clearly found by the authority that NSEL platform was misused and exploited by unscrupulous brokers and traders to launder huge sums of money and undisputedly petitioner has traded through brokers. It has also been found prima facie by an authority that trade carried out by petitioner on NSEL platform for the relevant year as indicated above, where counter party member is M/s. N. K. Proteins Pvt. Ltd and trades are bogus and as such veracity and genuineness of the same deserves to be examined and it has been found that though summons dated 12.12.2019, the assessee was categorically asked to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tedly petitioner had traded through the brokers and as per the DDIT reports brokers had misused the platform of NSEL and it was categorically found on the admitted version of one Shri Nilesh Patel that physical delivery with respect to purchase and sale of commodities had never taken place and the investors and brokers were very well aware of this fact from the beginning. When that be so, the explanation which has been tendered by the petitioner was found to be not worthy of acceptance by the authority and in our opinion it has rightly resolved to reopen the assessment. A further fact is also noticed from the records that what has been supplied by petitioner is a mere Ledger Accounts extract of the brokers of NSEL and there was no Demat Account of transactions of commodities through NSEL platform and in addition thereto, the figures of profit and loss which has been indicated is in a consolidated form with income of Intra Ocular Lens & Trading of Opthalmic Surgical products and business. Hence, in such circumstance when authority clearly opined that case deserves to be reopened for assessment, this Court sitting in extraordinary equitable jurisdiction is not expected to either make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no assistance. [14] Here as can be seen from the background that assessment proceedings were undertaken earlier in a background which later on found by the authority inadequate and as such called upon the petitioner to furnish the details, but then when the specific report has unearthed the modus operadi, the authority found it necessary to reopen the assessment and as such the proposition which has been canvassed by the learned advocate that it is borrowed satisfaction or the order passed is without application of mind are not worthy of acceptance. In fact, petitioner has not truly and fully disclosed the material as has been demanded and as such it is always open for the respondent authority to reopen the assessment when the case is based upon a peculiar background or material unearthed subsequently. This is not even a case of change of opinion, but in fact, the detailed discussion undertaken herein before has led us to the situation where this Court is not finding safe to accept the stand of the petitioner in exercise of extraordinary jurisdiction and this Court is of the clear opinion that authority is specifically seized with the power and it is examining the process which wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in our opinion, acted beyond its jurisdiction in this regard. 43. To this we may add that if a court is of the opinion that a statutory authority cannot take an independent or impartial decision due to some external or internal pressure, it must give its reasons for coming to that conclusion. The reasons given by the court for disabling the statutory authority from taking a decision can always be tested and if the reasons are found to be inadequate, the decision of the court to by-pass the statutory authority can always be set aside. If the reasons are cogent, then in an exceptional case, the court may take a decision without leaving it to the statutory authority to do so. However, we must caution that if the court were to take over the decision taking power of the statutory authority it must only be in exceptional circumstances and not as a routine. Insofar as the present case is concerned, the High Court has not given any reason why it virtually took over the decision taking function of the authorities and for this reason alone the mandamus issued by the High Court deserves to be set aside, apart from the merits of the case which we have already adverted to." [16] In the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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