2021 (2) TMI 172 - AT - Income Tax

Reopening of assessment u/s 147/148 - addition u/s 69 - undisclosed loss in MCX transaction - HELD THAT - It is condition precedent before invoking jurisdiction u/s 147/148 of the Act that the AO has reason to believe that income chargeable to tax has escaped assessment for any assessment year - in the present case there is no material what to say of tangible material is available on record to establish that AO has reason to believe if income chargeable to tax has escaped assessment. The information of loss receipt from MCX was not deliberately mentioned by the AO in the reasons. Thus the AO did not have any definite material or information to record/reasons that there is an escapement of income in the case of the assessee. AO recorded incorrect and non-existing facts in the reasons recorded for reopening of the assessment. AO did not apply his mind to the material on record before recording reasons for reopening of the assessment. AO also failed to verify the information so received due to non-application of mind therefore reopening of the assessment would be unjustified and is liable to be quashed. Reopening of the assessment is illegal bad in law and is liable to be quashed. We accordingly set aside the orders of the authorities below and quash the reopening of the assessment. As may also be noted here that the AO without any justification and without bringing any material on record as to which broker assessee has given margin money for trading has made addition of 11, 49, 060/-. When the AO does not know as to who is the broker to whom alleged amount is given AO was not justified in making estimate based on general information that assessee has given the impugned amount to the broker for transaction in MCX. Since it is an admitted case that assessee suffered loss in MCX transactions therefore there was no justification to make estimated addition - Decided in favour of assessee.

Summary

Issues Involved:
1. Reopening of the assessment under sections 147/148 of the Income Tax Act.
2. Addition of ?11,49,060/- under section 69 of the Income Tax Act.

Detailed Analysis:

1. Reopening of the Assessment under Sections 147/148 of the Income Tax Act:

The core issue pertains to the validity of the reopening of the assessment by the Assessing Officer (AO). The AO initiated reassessment proceedings based on AIR information indicating that the assessee had made share and commodity transactions amounting to ?107,89,34,900/- during the assessment year under appeal without filing a return. The AO issued a notice under section 148 on 31.03.2018. However, the assessee contended that there was no tangible material to believe that income had escaped assessment. The reasons for reopening were based on guesswork, without specifying the exact amount of income that had escaped assessment, and no prior inquiry was made under sections 133(6) or 142 of the Act before recording the reasons.

The Tribunal emphasized that the validity of reassessment proceedings must be determined based on the reasons recorded for reopening. The AO's reasons, based on NMS information, merely hypothesized that income chargeable to tax had escaped assessment, without any specific tangible material. The AO's subsequent finding that the assessee suffered a loss of ?16,747/- in MCX transactions contradicted the initial assumption of income escapement. The Tribunal found that the AO did not apply his mind to the information and recorded incorrect and non-existing facts, rendering the reopening of the assessment unjustified and liable to be quashed.

2. Addition of ?11,49,060/- under Section 69 of the Income Tax Act:

The AO made an addition of ?11,49,060/- under section 69, estimating it as the margin money given by the assessee to the broker for transactions in MCX. The assessee challenged this addition, arguing that the margin money taken by the AO was baseless and based on mere imagination. The CIT(A) confirmed the addition, noting that the complete details of the broker were not filed by the assessee.

The Tribunal observed that the AO had no justification or material evidence to support the addition of ?11,49,060/-. The AO's estimation was based on general information without identifying the specific broker to whom the margin money was allegedly given. Since it was an admitted fact that the assessee suffered a loss in MCX transactions, the Tribunal found no justification for the estimated addition and deleted it.

Conclusion:

The Tribunal concluded that the reopening of the assessment was illegal and bad in law due to the lack of tangible material and incorrect facts recorded by the AO. Consequently, the addition of ?11,49,060/- was also deleted. The appeal of the assessee was allowed, and the orders of the authorities below were set aside.