2022 (9) TMI 293 - AT - Income Tax

Validity of Reassessment proceedings u/s 147 - receipt of information from the DDIT (Inv.), Kolkata about the systematic evasion of taxes by clients/members of NMCE - whether A.O. has erred in reopening of the case u/s 148 even after the case of the assessee was already assessed u/s 153A r.w.s 143(3)? - HELD THAT - As observed by the A.O in the reasons to believe , although the assessee had a/w. her return of income filed the copy of Profit Loss account, balance sheet etc. where various information/material was disclosed, however, the requisite material facts were embedded in such a manner that the material evidence could not be discovered by the A.O with due diligence - we are of the considered view that the 1st proviso to section 147 of the Act as had been pressed into service by the Ld. AR would by any means assist the case of the assessee before us. Thus, the Ground of appeal No.3 raised by the assessee is dismissed in terms of our aforesaid observations. Claim of the AR that the case of the assessee had been reopened by the A.O on the basis of a borrowed satisfaction of the Investigation Wing i.e. in a mechanical manner and without application of any independent mind on his part - We are afraid that the said contention of his being devoid and bereft of any merit cannot be accepted. On a bare perusal of the reasons to believe , it transpires that the A.O had after referring to the information about systematic evasion of taxes by clients/members of the NMCE that was shared with him by the DDIT (Inv.), Kolkata, had after culling out the facts involved in the case of the assessee arrived at a bonafide belief that the income of the assessee chargeable to tax had escaped assessment. We, thus, finding no merit in the claim of the Ld. AR that reopening of the assessee s case was merely based on a change of opinion by the A.O, reject the same. Thus, the Ground of appeal No.1 raised by the assessee is dismissed in terms of our aforesaid observations. A.O despite specific requests by the assessee had failed to provide a copy of the information on the basis of which adverse inferences as regards the NMCE profit earned by the assessee during the year was sought to be drawn - We are afraid that the same too does not find favor with us. Nothing has been brought to our notice by the Ld. AR which would reveal that the assessee had in the course of the proceedings before the lower authorities requested for a copy of the information that was received by the A.O from the Investigation Wing. On the contrary, we find that a careful perusal of the reasons to believe reveals beyond doubt the details on the basis of which the A.O had reopened the case of the assessee and thereafter proceeded with and framed the assessment in her case. Accordingly, finding no merit in the aforesaid claim of the assessee, we herein reject the same. Thus, the Ground of appeal No.4 raised by the assessee is dismissed in terms of our aforesaid observations. Profit from commodity trading on NMCE had already been offered by the assessee for tax in the return of income after setting-off of loss - There could have been no reason for the AO to infer any escapement of income on her part, we are afraid that the said misconceived view had been arrived at on the basis of half baked facts. Admittedly, the impugned profit from commodity trading on the NMCE platform of Rs.16,70,927/-, which after setting-off against the loss suffered by trading on the platform of MCX exchange of (Rs.8,56,575/-) was scaled down to an amount of Rs.8,23,352/- was disclosed by the assesee in her return of income. As the A.O had reopened the case of the assessee for the reason that she had booked pre-arranged gain in the garb of commodity trading on NMCE platform, which, thus, was not entitled for set-off against the loss suffered on the platform of MCX exchange, therefore, there was clear material before the A.O for forming a view that the income of the assessee chargeable to tax for the year under consideration had escaped assessment within the meaning of section 147 of the Act. Accordingly, finding no merit in the aforesaid claim of the assessee, we reject the same. Even if the profit from commodity trading on NMCE was to be held as unexplained cash credit u/s.68 there was no justification on the part of the A.O to have declined the assessee s claim for set-off of the MCX loss against the same - Though no infirmity either emerges as regards the assumption of jurisdiction by the A.O for reopening the case of the assessee u/s.147 of the Act or recharacterizing of the amount of the impugned profit claimed by the assessee to have been earned from commodity trading on NMCE platform as an unexplained cash credit u/s.68 of the Act, but the same would duly be entitled for set-off against the assessee s claim of loss from commodity trading on MCX platform. We, thus, in terms of our aforesaid observations modify the order of the CIT(Appeals) and direct the A.O to allow the assessee s claim for setting-off of loss - Grounds of appeal No. 5 6 allowed in terms of our aforesaid observations. Addition u/s 69C - Recharacterizing of NMCE profit as an unexplained cash credit u/s.68 of the Act, therefore, the addition made by the A.O u/s.69C of the Act towards commission which the assessee would have paid to the entry operator for obtaining accommodation entries is herein sustained.

Summary

Issues Involved:
1. Validity of reopening the case under Section 147/148.
2. Formation of reasons for reopening based on Investigation Wing's report.
3. Reopening of the case despite prior assessment under Section 153A r.w.s 143(3).
4. Violation of principles of natural justice by not providing information to the assessee.
5. Addition of Rs.16,70,927/- as unexplained credit under Section 68.
6. Disallowance of set-off of loss of Rs.8,56,575/- against income from NMCE.
7. Addition of Rs.33,420/- as commission paid for obtaining accommodation entry under Section 69C.

Detailed Analysis:

1. Validity of Reopening the Case under Section 147/148:
The assessee contended that the Assessing Officer (A.O.) erred in reopening the case based on a change of opinion formed during the 153A assessment proceedings. The Tribunal dismissed this ground, stating that the A.O. had new information from the Investigation Wing, Kolkata, regarding tax evasion through fictitious profits on the NMCE platform. This new information justified reopening under Section 147, and it was not merely a change of opinion.

2. Formation of Reasons for Reopening Based on Investigation Wing's Report:
The assessee argued that the A.O. formed reasons mechanically based on the Investigation Wing's report without proper analysis. The Tribunal found that the A.O. had independently assessed the information and formed a bona fide belief that income had escaped assessment. Thus, the reopening was not mechanical but based on substantial new information.

3. Reopening of the Case Despite Prior Assessment under Section 153A r.w.s 143(3):
The assessee claimed that since the case was already assessed under Section 153A r.w.s 143(3), reopening under Section 147 was invalid. The Tribunal held that the new information about fictitious profits was not available during the original assessment. Therefore, reopening was justified even after the prior assessment, especially since the assessee had not fully disclosed all material facts.

4. Violation of Principles of Natural Justice by Not Providing Information to the Assessee:
The assessee argued that the A.O. violated natural justice by not providing the information on which the reopening was based. The Tribunal found no evidence that the assessee requested such information during the proceedings. The reasons for reopening were clearly communicated, and the Tribunal dismissed this ground.

5. Addition of Rs.16,70,927/- as Unexplained Credit under Section 68:
The A.O. added Rs.16,70,927/- as unexplained credit under Section 68, claiming the profit from NMCE was fictitious. The Tribunal upheld this addition, agreeing with the A.O.'s assessment that the profit was pre-arranged and not genuine.

6. Disallowance of Set-off of Loss of Rs.8,56,575/- Against Income from NMCE:
The assessee's claim for set-off of loss from MCX trading against the NMCE profit was disallowed by the A.O. The Tribunal found merit in the assessee's claim, stating that the restriction on set-off of losses under Section 115BBE applied only from A.Y. 2017-18 onwards. Therefore, the set-off should be allowed for the assessment year in question (2011-12).

7. Addition of Rs.33,420/- as Commission Paid for Obtaining Accommodation Entry under Section 69C:
The A.O. added Rs.33,420/- under Section 69C as commission paid for obtaining accommodation entries. The Tribunal upheld this addition, agreeing with the A.O.'s assessment.

Conclusion:
The Tribunal partly allowed the appeals. It upheld the reopening of the case under Section 147, the addition of Rs.16,70,927/- as unexplained credit under Section 68, and the addition of Rs.33,420/- under Section 69C. However, it directed the A.O. to allow the set-off of the loss of Rs.8,56,575/- against the NMCE profit, as the restriction on set-off applied only from A.Y. 2017-18 onwards.