2024 (6) TMI 266 - AT - Income Tax

Reopening of assessment u/s 147 - Reasons to believe - assessee providing bogus accommodation loss entry to beneficiaries - HELD THAT - In the final assessment order additions were also made in respect of bogus loss accommodation entries provided to these entities. Further, in the reasons for reopening, the Ld. AO also observed that the assessee received sums through layered transactions involving several bank accounts and the source of the above deposits remained unexplained in the hands of the assessee. In the assessment order passed u/s 147 of the Act, additions with respect to the aforesaid deposits were also made by the AO, which were later also confirmed by the Ld. CIT(A), with a detailed discussion in the appellate order. Therefore, looking into the instant facts, in respect of the reasons for which the case of the assessee was reopened under Section 147 of the Act, additions have been made by the AO, which were subsequently confirmed by the Ld. CIT(A) after detailed analysis of the assessee s set of facts, we are of the considered view that the AO has not erred in facts and in law in initiating proceedings under Section 147 of the Act in the assessee s set of facts. Reason to believe - assessee for providing accommodation losses to various entities - In the reasons for reopening, the Assessing Officer has 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. 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. 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 the material evidence could not be discovered by the AO even with due diligence. Accordingly, in view of the detailed modus operandi which was highlighted in the reasons for reopening of the case by the AO, we are of the considered view that the AO had sufficient reasons to believe that the assessee was engaged in providing bogus losses to various parties, for which he admittedly charged brokerage of 0.0004% (as admitted by principal Director of the assessee company) and further, the AO has also given a detailed account of various layers / bank accounts of various parties through whom certain unaccounted money was received by the assessee in his bank account. Accordingly, we are of the considered view that the AO had substantial material in his possession to come to the conclusion that there was escapement of income during the years under consideration, on account of deliberate suppression of facts by the assessee and the Ld. AO also after due diligence could not have unearthed this suppression of income from the books furnished by the assessee during the course of original assessment proceedings. It is a well settled law that for the purpose of reopening the assessment only a prima facie belief that income has escaped assessment is required at the time of initiation of reassessment proceedings. Decided against assessee. Taxability of unaccounted brokerage income earned by the assessee by providing bogus losses to it s clients - 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 - HELD THAT - 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. CIT(A) in their respective orders we are of the considered view that the Ld. CIT(A) has not erred in adding the unaccounted brokerage income in the hands of the assessee. On going through the instant facts, we are of the considered view that the assessee has not earned brokerage income as a percentage of the turnover, but looking into the instant facts, and the admission by Shri Ram Awatar Dhoot, the main person of the assessee of having provided accommodation loss entry, looking into the entire modus operandi carried out by the assessee firm by misuse of the NMCE platform on a systematic basis to provide bogus losses, the fact that the various brokers were also penalized by NMCE for non-genuine trade practices, we are of the considered view that Ld. CIT(A) has correctly observed that assessee has earned unaccounted brokerage income as a percentage of the bogus loss accommodation entry provided by the assessee to it s clients. Whether the AO / CIT(A) have correctly held that 1% of such bogus accommodation entry losses should be treated as unaccounted brokerage income of the assessee or whether a lesser percentage should be arrived at, looking into the mistake facts? - 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. Whether additions are liable to be sustained only on account of not providing opportunity of cross-examination? - In this case, we observe that from the detailed observations made by the Investigation Wing, the Ld. AO, the Ld. CIT(A), the facts which are coming from statements of various parties who have accepted having received bogus loss accommodation entries, the fact that the NMCE platform has been systematically misused by various parties including the assessee, the fact that the license of various brokers has been rescinded etc., all lead to the clear conclusion that the assessee has been systematically engaged in providing bogus losses to various clients by misusing the NMCE platform. Therefore, in view of the decision of Hon ble Supreme Court in the case of Sumati Dayal 1995 (3) TMI 3 - SUPREME COURT and ase of Swati Bajaj 2022 (6) TMI 670 - CALCUTTA HIGH COURT and looking into the instant facts, this argument of assessee is hereby rejected that additions are not liable to be sustained only on account of not providing opportunity of cross-examination. Thus brokerage commission income earned by the assessee is directed to be reduced to 0.25% of the bogus losses. Unaccounted income as unexplained income - 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 - HELD THAT - As it is seen that the assessee has provided no evidence before any of the Tax Authorities that the payments which were received by the assessee were paid to NMCE Ahmedabad. The assessee has been admittedly engaged in the business of providing bogus accommodation entries thereby earning unaccounted brokerage income and the assessee through a layer of transaction through the banking channels has received the aforesaid amounts in his bank account. The assessee has given no explanation with regards to the nature of these credit entries in his bank account and neither was the same offered to tax. The assessee has been consistently engaged in malpractices using the NMCE platform. No proof has been furnished by the assessee that this amount was deposited by the assessee with NMCE platform. Accordingly, in light of the above facts and looking into the totality of the circumstances, we find no infirmity in the order of Ld. CIT(A) and the AO so as to call for any interference.

Summary

Issues Involved:
1. Challenge to reopening of assessment u/s 147 of the Act.
2. Taxability of unaccounted brokerage income earned by the assessee by providing bogus losses to its clients.
3. Addition of Rs. 75,00,000/- and Rs. 7,00,000/- as unaccounted income.

Summary:

Challenge to Reopening of Assessment u/s 147 of the Act:

3. The assessee challenged the reopening of assessment u/s 147 for A.Y. 2010-11 and A.Y. 2011-12. The reasons for reopening included allegations of providing accommodation entries and contrived losses to Affluence Commodities Pvt. Ltd., resulting in unaccounted commission income.

4. The assessee argued that no addition was made on the count of accommodation entries in the final assessment, making the reopening bad in law.

5. The Tribunal noted that the case was reopened based on an Investigation Report from Calcutta, revealing the assessee's involvement in booking contrived commodity losses. The main person of the assessee company admitted to providing bogus accommodation entries.

6. The Tribunal upheld the reopening, stating that the AO had sufficient reasons to believe there was escapement of income due to deliberate suppression of facts by the assessee.

7. For A.Y. 2011-12, the reassessment was based on information from the Investigation Wing, indicating unaccounted money brought into books through several layers.

8. The Tribunal emphasized that only a prima facie belief of income escapement is required for reopening, citing judicial precedents supporting the AO's actions.

12. The Tribunal dismissed the assessee's challenge to the reopening of reassessment.

Taxability of Unaccounted Brokerage Income:

13. The AO made additions for unaccounted brokerage income and unexplained cash credits for A.Y. 2010-11, based on the assessee's involvement in providing contrived losses and receiving amounts through layered transactions.

14. The assessee argued that the commission income was already reflected in the books and that cross-examination opportunities were not provided.

15. The CIT(A) dismissed the appeal, highlighting the systematic misuse of the NMCE platform for booking losses and earning unaccounted commission.

16-20. The Tribunal upheld the CIT(A)'s decision, noting the comprehensive investigation and evidence of fraudulent transactions. The Tribunal also addressed the argument of non-provision of cross-examination, stating that the principal person of the assessee company had admitted to the activities.

21-23. The Tribunal referred to a similar case where commission income was restricted to 0.25% of the bogus losses, applying the same rate to the assessee's case.

24-32. The Tribunal rejected the argument of non-provision of cross-examination, emphasizing the totality of circumstances and the preponderance of probabilities in establishing the assessee's involvement in fraudulent activities.

33. The brokerage commission income was directed to be reduced to 0.25% of the bogus losses.

Addition of Rs. 75,00,000/- and Rs. 7,00,000/- as Unaccounted Income:

35. The AO and CIT(A) observed that the assessee received amounts through layered transactions, which remained unexplained.

36. The assessee argued that the amounts were received against payment of losses and were not income.

37. The Tribunal found no evidence supporting the assessee's claim that the amounts were paid to NMCE Ahmedabad and upheld the additions as unaccounted income.

38. The Tribunal dismissed the grounds related to the additions of Rs. 75,00,000/- and Rs. 7,00,000/-.

39. Similar additions for A.Y. 2011-12 and A.Y. 2012-13 were also upheld.

40. The appeal of the assessee was partly allowed.

This Order pronounced in Open Court on 31/05/2024.