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2025 (2) TMI 35 - AT - Income TaxAllegation of Bogus transactions through commodity trading - Addition on account of Client Code Modification relating to commodity trading - CIT(A) deleted addition - HELD THAT - Report of the SFIO and DDIT (Inv.) which are the cornerstone of reopening of assessment u/s. 147 of the Act for all the three years which viz A.Ys 2012-13 2013-14 and 2014-15 do not in any manner establish or refer to any wrong doing or illegal activity of the assessee either through client code modification or in any other mode or manner. AO has further observed that through cogent evidence the assessee was able to establish that its own funds were utilized to conduct transactions on NSEL platform and the profits from such transactions have already been offered to tax. Thus no valid reason to interfere with the decision of FAA qua the deletion of additions made on account of Client Code Modification. Grounds are dismissed.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS 1. Additions on Account of Client Code Modification Relevant Legal Framework and Precedents: The additions were made under Sections 68 and 69 of the Income Tax Act, which pertain to unexplained cash credits and unexplained investments, respectively. The AO relied on reports indicating that the assessee engaged in bogus transactions through client code modifications. Court's Interpretation and Reasoning: The Tribunal observed that the First Appellate Authority had conducted a thorough examination of the facts and evidence. The Authority found that the transactions were genuine and conducted on the National Spot Exchange Limited (NSEL) platform, with no evidence of losses or non-genuine transactions. The Tribunal noted that the income from these transactions was offered for taxation, and there was no evidence of the assessee's involvement in client code modification. Key Evidence and Findings: The Tribunal highlighted the lack of specific allegations against the assessee in the SFIO and DDIT reports. It was noted that the assessee had provided substantial documentary evidence, including contract notes, bank statements, and ledgers, to support the genuineness of the transactions. Application of Law to Facts: The Tribunal applied the principles of Sections 68 and 69, concluding that the additions were unsustainable as the transactions were genuine and the income was already offered for taxation. Treatment of Competing Arguments: The Departmental Representative relied on the AO's observations, while the assessee's counsel supported the First Appellate Authority's reasoning. The Tribunal found the assessee's evidence compelling and noted the lack of Departmental evidence to the contrary. Conclusions: The Tribunal upheld the First Appellate Authority's decision to delete the additions, finding no basis for the allegations of bogus transactions through client code modification. 2. Reopening of Assessments Under Section 147 Relevant Legal Framework and Precedents: Section 147 of the Income Tax Act allows for the reopening of assessments if there is reason to believe that income has escaped assessment. The AO based the reopening on reports from SFIO and DDIT. Court's Interpretation and Reasoning: The Tribunal noted that the reopening was based on generalized allegations in the SFIO and DDIT reports, which did not specifically implicate the assessee. The Tribunal emphasized the necessity of concrete evidence to justify reopening. Key Evidence and Findings: The Tribunal referred to the AO's own findings for the AY 2013-14, where it was concluded that there was no escapement of income and no specific allegations against the assessee. The Tribunal found that similar reasoning applied to the years under dispute. Application of Law to Facts: The Tribunal concluded that the reopening of assessments was not warranted, as the evidence did not substantiate the claims of income escapement. Treatment of Competing Arguments: The Tribunal considered the Department's reliance on the SFIO and DDIT reports but found the assessee's documentary evidence and the AO's findings for AY 2013-14 more persuasive. Conclusions: The Tribunal held that the reopening of assessments for AYs 2012-13 and 2014-15 was invalid, as there was no substantive evidence of income escapement. SIGNIFICANT HOLDINGS Preserve Verbatim Quotes of Crucial Legal Reasoning: "The transactions in NSEL are made through members of NSEL, who are authorized brokers. The assessee has made the transactions under paired contracts... The amount is received as and when the transaction is completed." Core Principles Established: The Tribunal reinforced the principle that mere allegations without specific evidence cannot justify additions or reopening of assessments. It emphasized the need for concrete evidence to support claims of bogus transactions or income escapement. Final Determinations on Each Issue: The Tribunal dismissed the Revenue's appeals, upholding the First Appellate Authority's decision to delete the additions. It also dismissed the assessee's cross-objections as infructuous, given the resolution of the primary issues.
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