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2020 (10) TMI 991 - AT - Income TaxReopening of assessment u/s 147 - Non independent application of mind - addition u/s 68 read with section 115BBE as against profit declared on account of commodity trading - HELD THAT - Name of the assessee as a broker has nowhere mentioned in the reasons recorded. Reasons have been recorded by the Investigating Officer without making any verification of facts and figures forwarded by the Investigation Wing what to talk of conducting independent enquiry. Assessee to prove the fact that the reasons recorded are vague and factually incorrect taken us to the audited balance sheet, profit loss account and Schedule IX, Sales and Other Income, particularly Schedule IX depicting sales and other income,which shows that assessee has booked profit from commodities at ₹ 149,19,900/- and not ₹ 1,37,250/-. This fact goes to prove that the AO has proceeded merely on the basis of report given by the Investigation Wing and has not preferred to verify the same from the audited financials brought before him by the assessee and in these circumstances, it is difficult to believe that he has applied his mind before recording the reasons requires for initiating the proceedings u/s 147/148. When AO was not even aware as to the actual profit earned by assessee from commodities and this fact has also not been verified by the Principal CIT from audited financial of the assessee, then it is difficult to believe as to how and under what circumstances he has made himself satisfied to proceed against the assessee u/s 147/148 of the Act. So, the entire process as to initiating the reopening is merely mechanical without any application of mind by the AO as well as sanctioning authority, Principal CIT, which has vitiated the entire proceedings. Reasons to believe recorded by the AO, which is replica of information received from the Investigation Wing, cannot be a tangible material per se sufficient to form reasons to believe; that even figures of buying, selling and profit booking qua commodity trading, are not in accordance with the audited financials of the assessee company which shows that there is absolutely no application of mind on the part of the AO - Decided in favour of assessee. Addition u/s 68 read with section 115BB - When assessee has specifically proved on record that it has earned profit of ₹ 59,56,410/- on commodity trading through R.K. Commodities (P) Ltd. registered with NMCE but AO has wrongly taken this amount as ₹ 41,45,405/- and treated the same as the profit earned by the assessee through manipulations without examining the evidence available on file, it is proved on record that all these documents were placed before the AO by the assessee vide letters dated 06.12.2017 and 29.12.2017,but he has not drawn any adverse inference against the claim of the assessee. Rather AO as well as ld. CIT (A) kept on essay writing spree on the basis of surmises in making the impugned addition by completely ignoring the evidence available on record, hence addition made by the AO and confirmed by the ld. CIT (A) is not sustainable on merit also. So, this ground is determined in favour of the assessee.
Issues Involved:
1. Legality of the initiation of proceedings under sections 147/148 of the Income-tax Act. 2. Validity of the addition of ?1,31,08,895 under section 68 read with section 115BBE of the Income-tax Act. Issue-wise Detailed Analysis: 1. Legality of the initiation of proceedings under sections 147/148 of the Income-tax Act: The assessee challenged the initiation of proceedings under sections 147/148 on several grounds, including: - The Assessing Officer (AO) did not apply his mind independently and relied on borrowed satisfaction from the Investigation Wing's report. - The figures recorded in the reasons were factually incorrect, indicating non-application of mind by the AO. - There was no proper, valid, and legal service of notice under section 148. - The requisite sanction under section 151 was granted mechanically. - The AO acted on mere surmises and suspicion for making fishing and roving inquiries, which is not in accordance with the law requiring "reason to believe" and not "reason to suspect." - There was no nexus between the reasons recorded and the escapement of income. - There was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The Tribunal noted that the AO recorded reasons based on information from the Investigation Wing, which identified the assessee as a beneficiary of bogus profits from commodity trading. However, the Tribunal found that the AO did not verify the information from the Investigation Wing or make independent inquiries before recording the reasons. The AO's reasons were based on incorrect figures and did not reflect the actual profit earned by the assessee, as shown in the audited financials. The Tribunal also noted that the Principal CIT granted approval for initiating proceedings mechanically, without verifying the actual profit figures. The Tribunal referred to the Delhi High Court's decisions in Pr. CIT vs. Meenakshi Overseas Pvt. Ltd. and Principal CIT vs. RMG Polyvinyl (I) Ltd., which held that information from the Investigation Wing cannot be considered tangible material per se without further inquiry by the AO. The Tribunal concluded that the initiation of proceedings under sections 147/148 was not legal and quashed the reopening. 2. Validity of the addition of ?1,31,08,895 under section 68 read with section 115BBE of the Income-tax Act: The assessee contended that the addition made by the AO under section 68 was not sustainable on merits because: - The addition was based merely on the Investigation Wing's report, which was never confronted to the assessee. - The documentary evidence provided by the assessee to prove the profit on commodity trading was neither examined nor controverted by the AO. - There was no evidence to prove that the assessee routed unaccounted money as profit on commodity trading. - The copies of replies from R.K. Commodities Services (P) Ltd., relied upon by the AO, were never supplied to the assessee. The Tribunal observed that the assessee declared a profit of ?1,49,19,900 on commodity trading, whereas the AO/CIT(A) made an addition of ?1,31,08,895 under section 68. The Tribunal found that the AO/CIT(A) made the addition based on surmises, as the figure of ?1,31,08,895 did not match any figures in the audited financials. The Tribunal noted that the assessee provided documents, including copies of accounts with R.K. Commodities (P) Ltd. and Smrat Commodity Broker Pvt. Ltd., which were not examined or controverted by the AO/CIT(A). The transactions were made through banking channels, as evidenced by the HDFC Bank statement. The Tribunal also noted that the AO issued notices under section 133(6) to NMCE and MCX but did not confront the assessee with the replies. The Tribunal concluded that the addition made by the AO and confirmed by the CIT(A) was not sustainable on merits, as it was based on surmises and ignored the evidence provided by the assessee. Conclusion: The Tribunal allowed the appeal filed by the assessee, quashing the reopening of the assessment under sections 147/148 and holding that the addition of ?1,31,08,895 under section 68 was not sustainable on merits. The order was pronounced on October 22, 2020.
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