9911796707
TMI Blog2024 (6) TMI 266X X X X Extracts X X X X X X X X Extracts X X X X ..... ief and misconception of Saw in considering a Commission Income of Rs. 747610/-. 3. The amount of profit of Rs. 74761140/- is related to the A.Y. 2011-12 and not related to the A.Y 2010-11 in any way. So the A.O. has wrongly taken the value of Rs. 74761140/- for the A.Y 2010-11. 4. That the action of learned Commissioner of Income Tax (Appeal) to consider unaccounted Commission income from Trades Made For Clients is not sustainable as the Commissioner of Income Tax (Appeal) failed to provide the account no where such amount has been deposited. He also could not produce any material based upon which such assumption is possible. His statement does not bear the name Affluence Commodities Pvt. Ltd. and Priyank Commodities Pvt. Ltd. Moreover 1% commission having been received is purely based on guess work which is neither confirmed by the party nor accepted by the assessee. That the Assistant commissioner of IT erred in calculating commission @ 1% of turnover without any basis as contract note purely shows commission @ 0.004%, (Recipient). Even Mr. Ram Awatar Dhoot was also not allowed to be cross examined. 5. That the action of Commissioner of Income Tax (Appeal) to consider unac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has earned unaccounted commission income amounting to Rs. 90,00,000/-. However, in the final assessment order, no addition on this count was made by the Assessing Officer. Accordingly, the reopening of assessment in the case of the assessee is bad in law and hence, liable to be dropped. 5. On going through the contents of the reasons for reopening of the assessment under Section 147 of the Act for A.Y. 2010-11, we observe that the case of the assessee was reopened on the basis of Investigation Report received from the Investigation Unit at Calcutta, wherein it was found that the assessee was engaged in booking of contrived commodity losses for some parties in connivance with brokers / other members by mis-utilising the NMCE platform. The details of various parties to whom contrived losses was given by the assessee was tabulated in the reasons for reopening of assessment. Further, in the reasons for reopening the assessment, it was also categorically noted that during the course of survey proceedings in the case of the assessee, the main person of the assessee company Shri Ram Awater Dhoot has categorically accepted that his company had provided bogus accommodation entries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the precise manner in which the assessee received money in his bank account by engaging in suspicious activities through various parties was elaborated. In the reasons for reopening, the Assessing Officer has also observed that as per statement recorded during the course of survey, Shri Ram Awtar Dhoot, the main Director of the assessee company has admitted that the assessee is providing bogus accommodation loss entry to beneficiaries which was done by some of his employees. Further, the Director of the assessee company Shri Ram Awatar Dhoot also admitted that brokerage of 0.0004% was charged by the assessee for providing accommodation losses to various entities. The AO also observed that all this information was not available with the AO at the time of passing of original assessment order and it was only subsequently that this information was received from Investigation Wing situated at Calcutta and at Raipur. Further, the AO was also recorded that even though the assessee had produced books of accounts, annual report audited, Profit & Loss Account and balance sheet etc., the requisite material facts for the purpose of reopening of assessment were embedded in such a manner that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , notice issued under Section 147 was valid. The ITAT made the following observations while passing the order: "We have perused the reasons for issuance of notice under Section 148 of the Act and we observe that from the material before him, the AO formed a "belief" that the assessee had incurred bogus sub-contracting expenses. In our view, the AO has given detailed reasonings on the basis of which he formed the belief that in the instant set of facts, the AO was of the view / had reason to believe that the assessee has created bogus sub-contracting expenses and thus income had escaped assessment. It is a well settled principle of law that that while recording the reasons, the AO need not establish the escapement of income. The belief at that time is only prima-facie and not conclusive. In the case of Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC), the Hon'ble Supreme Court observed that the Court has only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. On the scope of re-opening u/s 147 of the Act observed as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... primarily two counts for the impugned year under consideration. Firstly, the AO observed that during the year under consideration, the assessee was engaged in providing contrived losses to various parties on sale of certain illiquid commodities on the NMCE platform, for which the assessee was charging certain brokerage commission. Secondly, the assessee through a maze / layer of bank accounts of various third parties received certain amounts in his bank account, which was treated by the AO as unaccounted income of the assessee. We shall first elaborate the facts for A.Y. 2010-11 and to understand the modus operandi of the assessee and the facts for this year shall apply to the other years as well, since the AO has made similar additions for A.Ys. 2010-11, 2011-12 and 2012-13. The assessee is a company and is a broker on the NMCE platform, Ahmedabad and is engaged in the business of earning commodity brokerage. The assessee filed it's original tax return for A.Y. 2010-11 declaring total income of Rs. 71,731/-. A search under Section 132 of the Act was conducted on Ahmedabad Commodity Traders Group on 18.12.2014 and the assessee was also covered in a survey under Section 133A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO received information from Investigation Wing, Calcutta that cash was deposited in the bank accounts of various parties like M/s. Superior International (India), M/s. Roopa Trading Company and others and these amounts were transferred to the account of M/s. Vatika Merchants Pvt. Ltd. and others and finally reached the bank account of the assessee after layering of funds in 2 to 4 bank accounts and the aggregate of such amounts was Rs. 7,00,000/- was treated as unexplained cash credit in the hands of the assessee, being beneficiary and this amount was added to the total income of the assessee. Thus, the assessment for A.Y. 2010-11 was completed determining total income of Rs. 90,19,341/- with additions of Rs. 7,47,610/- being unaccounted brokerage income @ 1% of contrived losses booked by the assessee for various client using the NMCE platform and the balance amounts of Rs. 75,00,000/- and Rs. 7,00,000/- were the amounts received by the assessee in his bank account through various layers as described in the assessment order. The AO also passed assessment order for various years i.e. A.Y. 2011-12 and A.Y. 2012-13, in which similar additions were made. The details of additions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d statements of various parties / brokers recorded during search/survey and post search and survey proceedings on the Ahmedabad Commodity Group, it was observed that many concerns including M/s. Priyank Commodities Pvt. Ltd., M/s. Affluence Commodity and others had made commodity transactions through the assessee on NMCE platform and had booked huge losses constantly. These transactions were found to have been made in illiquid commodities, within small time gap and during the last quarter of the Financial Year and the clients of the assessee booked losses through intra-day trades, whereas the clients had earned profits in other commodities exchanges. Booking of huge losses in the last quarter of the year through the assessee by using the NMCE platform has been consistent pattern. The statement recorded during search proceedings of various parties / brokers which revealed that these parties had booked contrived losses through active connivance of some brokers like M/s Jet Agencies Pvt. Ltd. and subversion of screen based trading platform like NMCE. It is also matter of record and in public domain that penalties have been imposed by NMCE on such brokers involved including the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the beneficiary. 6.1.5 It may also be worthwhile to bring to attention the fact of scam in commodity trading in the transactions by the parties and brokers of NSEL which ultimately defaulted and led to series of events after investigation by FMC. It was findings of the FMC that trades under taken on NSEL platform were not as per existing regulation and were against the law (Forwarding Contract Regulation Act 1952) and that various members and brokers had entered into transactions fraudulently and had helped various beneficiaries to book profits and losses to suit the requirements of those beneficiaries. The appellant having misused and allowed its clients to misuse the NMCE platform, having abetted in booking the losses by/for the clients by such illegal/irregular transactions cannot plead defense of mere documents and books. The circumstances have to prevail over the apparent documentations. 6.1.6 In view of these clear cut findings by the FMC, by the NMCE and by the Investigation Wing of the Income Tax Department in Ahmedabad and in Kolkata and undisputed involvement of the appellant in indulging in unfair practices, I find no merit in the academic arguments by the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the beneficiary of the deposits in its accounts. The addition of Rs. 75,00,000/- is confirmed. The related ground is rejected. 6.3 As to the addition of Rs. 7,00,000/- it is seen that as per the AO the appellant was also beneficiary to the extent of Rs. 7,00,000/- out of the cash deposited in the bank account of M/s Superior International (India) because the cash deposited in the bank accounts of M/s Superior International (India), M/s. Ganpati Traders, M/s. Anurag Trade Agency, M/s Roopa Trading Company and M/s AAR JAA International (India) reached to the bank account of the appellant after 2-4 layering and the amount was treated as unexplained cash credit in the hands of the appellant. This issue is similar to the issue related to addition of Rs. 75,00,000/- and following the decision related to the said issue in preceding paragraph, the addition of Rs. 7,00,000/- also is confirmed. The related ground is rejected. 7. The appeal for A.Y. 2010-11 is dismissed." 16. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(A) dismissing the appeal of the assessee. 17. Before us, the Counsel for the assessee reiterated the submissions which were also m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to various of it's clients by systematic misuse of the NMCE platform on which it has earned unaccounted brokerage income, which has not been offered to tax. Accordingly, the entire income, both brokerage as well as credits in the bank accounts through a layer of bank transactions are liable to be added as unexplained income of the assessee. 19. We have heard the rival contentions and perused the material on record. 20. Firstly, we shall deal with taxability of unaccounted brokerage income earned by the assessee by providing bogus losses to it's clients. The contention of the assessee has been that the brokerage earned by the assessee is on the turnover of it's clients and not a percentage of the losses booked by the client on sale of illiquid commodities on the NMCE exchange. However, the Counsel for the assessee has submitted that these additions are also not sustainable on the account of the fact that opportunity of cross-examination was not provided to the assessee. However, looking into the facts of the instant case and the entire gamut of transactions which has been unearthed by the Investigation Wing and further, in light of the observations made by the Ld. AO and the Ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer and that for formation of his belief that there has been escapement of the income of the assessee from assessment in the year under consideration because of his failure to disclose fully and truly all material facts as from the inquiry/investigation by the Investigation Wing, some tangible material was found to substantiate the fact that the assessee was the provider of accommodation entries and that, the income from commission, ranging from 0.5 per cent to 1 per cent was not disclosed in return and thereby, the income chargeable to tax had escaped assessment for the year under consideration. As emerges from the record, the petitioner has filed Rol for the assessment year 2012-13 disclosing income of Rs. 1.42,694 despite showing a huge turnover of Rs. 24,10,82,501 in the audited books of account. Further, a detailed investigation is carried out by the Investigation Wing and the outcome of the same prima facie substantiates the case of the department. Thus, formation of belief by the Assessing Officer that the income chargeable to tax has escaped assessment, based upon material derived during inquiry/investigation, appears to be justified. Thus, the petition failed and dismiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted as a commission agent and hence only the commission amount should be subject to tax in its hands. However, the Department has observed that the assessee could not produce that complete details of beneficiaries with their names, complete addresses, PAN and other details of transactions. In the instant case, there are approximately more than 7000 beneficiaries and only in the case of 116 beneficiaries, the PAN has been identified. For 2752 entries, PAN has not been identified. For balance entries, only part details are available. If the assessee is submitting that he is liable to be taxed only on the commission income so earned, then the onus is on the assessee to provide the basis as to how such commission income has been arrived at and list of beneficiaries and other details so that whether the correct amount of "commission income" has been offered to tax may be verified by the Department. The Department cannot be expected to find out the details of all beneficiaries itself and cannot accept whatever income or expenses are offered/claimed by the assessee, without the assessee providing any methodology of arriving at the same along-with supporting evidence viz. details of benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g into the instant facts, in the interests of justice, it would be reasonable to restrict the net commission income @0.25% of the total deposits in the bank account held by the assessee. In the result, ground number 1 of the assessee's appeal is partly allowed." 21. Accordingly, in the interest of the justice, looking into the instant facts it is held that 0.25% of the deposits / credits made in the bank accounts held by the assessee with Renukamata Society would be the income of the assessee, so as to serve the ends of justice." 23. Accordingly looking into the instant facts, in our view the unaccounted brokerage income on such bogus losses provided by the assessee by misusing the NMCE platform should be restricted to 0.25% of the losses provided to it's clients. 24. Before concluding this ground of appeal, it would also be pertinent to deal with the arguments of the Ld. Counsel for the assessee for dismissal of order under Section 147 of the Act for non-grant of opportunity of cross-examination. In the instant facts, the assessee had taken a argument that opportunity of cross-examining of Shri Ram Awatar Dhoot, who had made a statement that the assessee was providing accommod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applying the test of human probabilities. The Chairman of the Settlement Commission, in his dissenting opinion, had laid emphasis on the fact that the appellant had produced evidence in support of the credits in the form of certificates from the racing clubs giving particulars of the crossed cheques for payment of the amounts for winning of jackpots, etc. The Chairman had rejected the contention regarding lack of expertise in respect of the appellant and had observed that the expertise was the last thing that was necessary for a game of chance and anybody had to go and call for five numbers in counter and obtain a jackpot ticket and that books containing information are available which are quite cheap. This was a superficial approach to the problem. The matter had to be considered in the light of human probabilities." 25. In the case of Swati Bajaj 139 taxmann.com 352 (Calcutta) the High Court held that report submitted by the Investigation department could not be thrown out on the ground on account of non-furnishing of the investigation report or non-production of the persons for cross examination. The High Court made the following observations: "The report submitted by the Inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessing Officer in scrutiny assessment under section 143(3). The assessee were conscious of the fact that they have not been named in the report, therefore made a vague and bold statement that the non-furnishing of report would vitiate the proceedings. Therefore, merely by mentioning that statements have not been furnished can in no manner advance the case of the assessee. If the report was available in the public domain as has been downloaded and produced by the revenue, nothing prevented the assessees who are ably defended by the Chartered Accountants and Advocates to download such reports and examine the same and thereafter put up their defence. Therefore, the based on such general statements of violation of principles of natural justice the assessees have not made out any case. ... On preponderance of probabilities To prove the allegations, against the assessee, can be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and levelled and when direct evidence is not available, it is the duty of the Court to take note of the immediate and proximate facts and circumstances sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of making an order of assessment. 28. The High Court of Bombay in the case of Sanjay Bimalchand Jain vs. Pr. CIT [2018] 89 taxmann.com 196 upholding the order of Nagpur Bench of the Tribunal holding that on the facts emergent in the case and the preponderance of probabilities, the entire capital gains claim were to be treated as fictitious and bogus. 29. On the preponderance of probabilities, in the case of Sanjay Kaul 119 taxmann.com 470 (Delhi), the Delhi High Court held that where assessee was not a regular investor in shares and had invested only in high risk stocks of obscure companies with no business activity or asset which were identified as 'Penny Stocks', Assessing Officer had correctly concluded that assessee had entered into a pre-arranged sham transaction so as to convert unaccounted money into accounted money in guise of capital loss; alleged short term capital loss was rightly disallowed. 30. The Hon'ble Supreme Court in SEBI v. Kishore R. Ajmera [2016] 66 taxmann.com 288 has pointed out as to the important aspect with regard to the proximity of time between the buy and sell orders, prior meeting of minds, unnatural rise in the prices of the scripts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esult, Ground Nos. 2, 3 & 4 of the assessee's appeal are partly allowed. Ground Nos. 5&6:- The CIT(A) erred in Rs. 75,00,000/- & Rs. 7,00,000/- unaccounted income as unexplained income. 35. The brief facts in relation to these ground of appeal are that the Ld. AO and CIT(A) observed and held that the assessee through a series of layered transactions through banking channels has received certain amounts in his bank account, the source of which remained unexplained. Before the AO or before the CIT(A) the assessee has not given any plausible explanation with regards to the source of such deposits made in his bank account and in no reason was given why such amount was credited in his bank account. Before Ld. CIT(A), the assessee has made a blank statement that all the payments which were received by the assessee was immediately transferred to NMCE Ahmedabad and none of the receipts belonged to the assessee or was the income of the assessee. However, the CIT(A) observed that all the cash deposits in the bank accounts of various concerns ultimately reached the assessee and therefore, it was the assessee who was the ultimate beneficiary of deposits in the accounts held by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant is the beneficiary of the deposits in its accounts. The addition of Rs. 75,00,000/- is confirmed. The related ground is rejected. 6.3 As to the addition of Rs. 7,00,000/- it is seen that as per the AO the appellant was also beneficiary to the extent of Rs. 7,00,000/- out of the cash deposited in the bank account of M/s Superior International (India) because the cash deposited in the bank accounts of M/s Superior International (India), M/s. Ganpati Traders, M/s. Anurag Trade Agency, M/s Roopa Trading Company and M/s AAR JAA International (India) reached to the bank account of the appellant after 2-4 layering and the amount was treated as unexplained cash credit in the hands of the appellant. This issue is similar to the issue related to addition of Rs. 75,00,000/- and following the decision related to the said issue in preceding paragraph, the addition of Rs. 7,00,000/- also is confirmed. The related ground is rejected. 7. The appeal for A.Y. 2010-11 is dismissed." 36. The assessee is in appeal before us against the aforesaid additions confirmed by Ld. CIT(A). The Counsel for the assessee submitted that the deposits were made in bank accounts of other parties and no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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