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TMI Blog2024 (6) TMI 266X X X X Extracts X X X X X X X X Extracts X X X X ..... ened 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 al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddhartha Nautiyal, Judicial Member For the Appellant : Shri Ram Awatar Dhoot, A.R. For the Respondent : Shri Santosh Kumar, Sr. DR ORDER PER SIDDHARTHA NAUTIYAL, JM: These appeals have been filed by the same Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals)-12, (in short Ld. CIT(A) ), Ahmedabad vide separate orders dated 20.09.2019 11.08.2023 passed for A.Ys. 2010-11 to 2012-13. Since common facts and issues for consideration are involved for the impugned years under consideration, all appeals are taken up together. 2. The assessee has raised the grounds of appeal:- ITA No. 1594/Ahd/2019 (A.Y. 2010-11) 1. That the reopening of Assessment was bad in law. 2. That the learned Commissioner of Income Tax (Appeal) has proceeded on erroneous belief and misconception of Saw in considering a Commission Income of Rs. 747610/-. 3. The amount of profit of Rs. 74761140/- is related to the A.Y. 2011-12 and not related to the A.Y 2010-11 in any way. So the A.O. has wrongly taken the value of Rs. 74761140/- for the A.Y 2010-11. 4. That the action of learned Commissioner of Income Tax (Appeal) to consider unaccounted Commission income from Trades Made For Clients is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of appeal on or before or in course of hearing. Challenge to reopening of assessment under Section 147 of the Act. 3. While discussing the assessee s challenge to reopening of assessment under Section 147 of the Act, we shall look at the reasons for reopening of assessment for A.Y. 2010-11 as well as for A.Y. 2011-12. 4. Before us, the Counsel for the assessee drew our attention to reasons for reopening of assessment for A.Y. 2010-11 and submitted that one of the reasons for reopening the assessment was that the assessee company has provided accommodation entries / contrived losses to Affluence Commodities Pvt. Ltd. and as result thereof, huge losses amounting to Rs. 90,00,00,000/- were provided to M/s. Affluence Commodities for which the assessee has earned unaccounted commission income amounting to Rs. 90,00,000/-. However, in the final assessment order, no addition on this count was made by the Assessing Officer. Accordingly, the reopening of assessment in the case of the assessee is bad in law and hence, liable to be dropped. 5. On going through the contents of the reasons for reopening of the assessment under Section 147 of the Act for A.Y. 2010-11, we observe that the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reasons for reopening the assessment, the Assessing Officer has given a detailed and categorical account of how the assessee was engaged in various suspicious transactions with various parties as per the information received from the Investigation Wing at Calcutta as well as from Investigation Wing at Raipur. The Assessing Officer observed that during the impugned year under consideration, the assessee had declared NIL income. However, the assessee had received substantial amount through various layers from bank accounts held with other parties. The Assessing Officer gave a detailed account of various parties from whom the assessee had received cash in his bank account in the reasons for reopening, and the entire modus operandi and the precise manner in which the assessee received money in his bank account by engaging in suspicious activities through various parties was elaborated. In the reasons for reopening, the Assessing Officer has also 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neficiary of accommodation entries and basis for formation of such belief were several inquiries and investigation by Investigation Wing that there had been escapement of income of assessee from assessment because of his failure to disclose fully and truly all material facts, reopening of assessment was justified. 9. In the case of Ultratech Transmission (P.) Ltd. 151 taxmann.com 20 (Ahmedabad - Trib.), the Ahmedabad ITAT held that where Assessing Officer reopened assessment of assessee based on a prima facie belief that assessee had raised bogus bills to evade taxes and no actual work was done by sub-contractors as claimed by assessee, since AO was not required to establish escapement of income while recording reasons for reopening, notice issued under Section 147 was valid. The ITAT made the following observations while passing the order: We have perused the reasons for issuance of notice under Section 148 of the Act and we observe that from the material before him, the AO formed a belief that the assessee had incurred bogus sub-contracting expenses. In our view, the AO has given detailed reasonings on the basis of which he formed the belief that in the instant set of facts, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from Investigation wing that assessee was a beneficiary of accommodation entries in respect of bogus sales and thereafter notice under Section 133(6) issued by AO to assessee was not responded by it, since AO had received tangible material from investigation wing and upon due satisfaction, he formed an opinion that assessee had received accommodation entries and amount concerning these transactions had escaped assessment, impugned reopening notice was justified. 12. Hence, looking into the assessee s set of facts and judicial precedents highlighted above, in our view, the assessee s challenge to reopening of reassessment is liable to be dismissed. On Merits (A.Y. 2010-11) 13. The additions have been made by the AO on primarily two counts for the impugned year under consideration. Firstly, the AO observed that during the year under consideration, the assessee was engaged in providing contrived losses to various parties on sale of certain illiquid commodities on the NMCE platform, for which the assessee was charging certain brokerage commission. Secondly, the assessee through a maze / layer of bank accounts of various third parties received certain amounts in his bank account, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss of Rs. 7,47,61,140/-) and added the same to the total income on account of unaccounted commission. In addition to the above, the AO received information from Investigation Wing, Calcutta that huge amounts were deposited in the bank accounts of M/s. Raj Laxmi Ornaments and M/s. Krishna Infotech and all the amounts were transferred to the bank accounts held by various other parties and finally the amounts so deposited reached to the bank account of the assessee after layering of funds in 2 to 8 bank accounts. The aggregate of such amounts was Rs. 75,00,000/- which was treated as unexplained cash credit in the hands of the assessee and added to his total income in absence of any explanation by the assessee. Similarly, the AO received information from Investigation Wing, Calcutta that cash was deposited in the bank accounts of various parties like M/s. Superior International (India), M/s. Roopa Trading Company and others and these amounts were transferred to the account of M/s. Vatika Merchants Pvt. Ltd. and others and finally reached the bank account of the assessee after layering of funds in 2 to 4 bank accounts and the aggregate of such amounts was Rs. 7,00,000/- was treated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... categorically admitted of the assessee having provided accommodation loss entry for earning brokerage income. The contention of the assessee in this case was that the opportunity of cross-examination of Shri Dhoot was not provided to it. However, Ld. CIT(A) observed that Shri Dhoot was not a third party, but was the principal person and the Director of the assessee itself and was engaged in providing bogus losses to various parties by using the NCME platform. On the argument of the assessee that there was no evidence against the assessee that it was a beneficiary of such unaccounted commission, the Ld. CIT(A) observed that on the basis of survey proceedings and statements of various parties / brokers recorded during search/survey and post search and survey proceedings on the Ahmedabad Commodity Group, it was observed that many concerns including M/s. Priyank Commodities Pvt. Ltd., M/s. Affluence Commodity and others had made commodity transactions through the assessee on NMCE platform and had booked huge losses constantly. These transactions were found to have been made in illiquid commodities, within small time gap and during the last quarter of the Financial Year and the clients ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the clients in NMCE platform. xi. NMCE had suspended some brokers - M/s Prime Commodities, M/s Aryan Commodities Pvt. Ltd. and M/s Star Commodities and some of the members had surrendered their membership cards after detection of irregularities in the FMC. These brokers were penalized by the NMCE for non-genuine trade practice. xii. During the course of survey proceedings in the case of the appellant M/s Jet Airways Pvt. Ltd., Shri Ram Awatar Dhoot the main person of the appellant had category accepted that in providing accommodation loss entry commission @ 0.004% of turnover and not on the commodity loss accommodation was received from the beneficiary. 6.1.5 It may also be worthwhile to bring to attention the fact of scam in commodity trading in the transactions by the parties and brokers of NSEL which ultimately defaulted and led to series of events after investigation by FMC. It was findings of the FMC that trades under taken on NSEL platform were not as per existing regulation and were against the law (Forwarding Contract Regulation Act 1952) and that various members and brokers had entered into transactions fraudulently and had helped various beneficiaries to book profits an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be real and true. Further, in view of the findings of the investigations carried out by the FMC, the NMCE and the Investigation Wing of IT Department at Ahmedabad and Kolkata, the affairs of the appellant have to be weighed on preponderance of probability and the over whelming circumstantial evidences going beyond the apparent facts as per the system generated documents. Under the circumstances I find no merit in the academic argument by the appellant and no basis to interfere in the addition made by the AO by treating the cash deposits in the bank accounts of other parties to be the income of the appellant. The appellant is the beneficiary of the deposits in its accounts. The addition of Rs. 75,00,000/- is confirmed. The related ground is rejected . 6.3 As to the addition of Rs. 7,00,000/- it is seen that as per the AO the appellant was also beneficiary to the extent of Rs. 7,00,000/- out of the cash deposited in the bank account of M/s Superior International (India) because the cash deposited in the bank accounts of M/s Superior International (India), M/s. Ganpati Traders, M/s. Anurag Trade Agency, M/s Roopa Trading Company and M/s AAR JAA International (India) reached to the ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein most of the trades were executed in less than a minute of placing the order. These transactions were secured on the same date. The client of the assessee had incurred consistent losses in almost every transactions and the same trend is observed in all clients, in which the assessee is dealing with. Even Shri Ram Awatar Dhoot, the Director of the assessee company has admitted that the assessee has been engaged in providing bogus loss accommodation entries to Affluence Commodities Pvt. Ltd. Therefore, looking at the totality of circumstances, the assessee has been engaged in providing false accommodation entries to various of it s clients by systematic misuse of the NMCE platform on which it has earned unaccounted brokerage income, which has not been offered to tax. Accordingly, the entire income, both brokerage as well as credits in the bank accounts through a layer of bank transactions are liable to be added as unexplained income of the assessee. 19. We have heard the rival contentions and perused the material on record. 20. Firstly, we shall deal with taxability of unaccounted brokerage income earned by the assessee by providing bogus losses to it s clients. The contention o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion as to what could be the reasonable amount which could be held to be taxable in the hands of the assessee, for allowing the Renukamata Society / real beneficiaries to operate the bank accounts, held in the name of the assessee. In the case of Geetaben Dineshchandra Gupta v. ITO 129 taxmann.com 346 (Gujarat) , the Gujarat High Court made the following observations: Thus, considering the totality of facts and the circumstances of the instant case vis-a-vis considering the settled legal position, it appears that there is direct nexus/live link between the material coming to the notice of the Assessing Officer and that for formation of his belief that there has been escapement of the income of the assessee from assessment in the year under consideration because of his failure to disclose fully and truly all material facts as from the inquiry/investigation by the Investigation Wing, some tangible material was found to substantiate the fact that the assessee was the provider of accommodation entries and that, the income from commission, ranging from 0.5 per cent to 1 per cent was not disclosed in return and thereby, the income chargeable to tax had escaped assessment for the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abad ITAT vide order dated 29-11-2022 held that since the assessee failed to provide complete details regarding the commission income, the commission income may be computed @ 0.25% in the hands of the assessee. While passing the order, the ITAT made the following observations: 8.2 Now coming to the instant facts, we observe that the assessee has been running several concerns in the name of himself and in the name of other persons who are engaged in the activities of taking cheques and cash and deposited the same in their bank accounts. The assessee s contention is that he is merely acted as a commission agent and hence only the commission amount should be subject to tax in its hands. However, the Department has observed that the assessee could not produce that complete details of beneficiaries with their names, complete addresses, PAN and other details of transactions. In the instant case, there are approximately more than 7000 beneficiaries and only in the case of 116 beneficiaries, the PAN has been identified. For 2752 entries, PAN has not been identified. For balance entries, only part details are available . If the assessee is submitting that he is liable to be taxed only on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, has not maintained cash book and bank book, he has not submitted any details of parties from whom the commission income has been earned, the assessee has not given any supporting documents to corroborate the correct rate at which commission income may be computed and the assessee has also not provided details/ list of parties who have made deposits to the tune of Rs. 158 crores in the bank accounts held by the assessee. The assessee has not come up with any details to substantiate its stand that the commission income may be restricted to 0.1% to 0.15%. Accordingly, looking into the instant facts, in the interests of justice, it would be reasonable to restrict the net commission income @0.25% of the total deposits in the bank account held by the assessee. In the result, ground number 1 of the assessee s appeal is partly allowed. 21. Accordingly, in the interest of the justice, looking into the instant facts it is held that 0.25% of the deposits / credits made in the bank accounts held by the assessee with Renukamata Society would be the income of the assessee, so as to serve the ends of justice. 23. Accordingly looking into the instant facts, in our view the unaccounted brokerage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee was actually engaged in malpractice of misuse of NMCE platform for providing bogus losses to it s clients. The Hon ble Supreme Court in the case of Sumati Dayal vs. CIT 80 Taxman 89 (SC) the Hon ble Supreme Court held that: This raised the question whether the apparent could be considered as real. Apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real and that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities. The Chairman of the Settlement Commission, in his dissenting opinion, had laid emphasis on the fact that the appellant had produced evidence in support of the credits in the form of certificates from the racing clubs giving particulars of the crossed cheques for payment of the amounts for winning of jackpots, etc. The Chairman had rejected the contention regarding lack of expertise in respect of the appellant and had observed that the expertise was the last thing that was necessary for a game of chance and anybody had to go and call for five numbers in counter and obtain a jackpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tices under sections 143(2) and 142(1) they have been directed to furnish the documents, the assessee have complied with the directions, appeared before the Assessing Officer and in many cases represented by Advocates/Chartered Accountants, elaborate legal submissions have been made both oral and in writing and thereafter the assessments have been completed. Nothing prevented the assessee from mentioning that unless and until the report is furnished and the statements are provided, they would not in a position to take part in the inquiry which is being conducted by the Assessing Officer in scrutiny assessment under section 143(3). The assessee were conscious of the fact that they have not been named in the report, therefore made a vague and bold statement that the non-furnishing of report would vitiate the proceedings. Therefore, merely by mentioning that statements have not been furnished can in no manner advance the case of the assessee. If the report was available in the public domain as has been downloaded and produced by the revenue, nothing prevented the assessees who are ably defended by the Chartered Accountants and Advocates to download such reports and examine the same an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Blanc Properties and Industries (P.) Ltd., ITA No. 614/Bom/87 dated 20.04.1994 A.Y. 1983-84 wherein the Tribunal held that the word evidence as used under section 143(3) covered circumstantial evidence also and cannot be confined to direct evidence and in tax jurisprudence the word evidence had much wider connotations. Further, the use of the word material in Section 143(3) showed that the Assessing Officer not being a Court could rely upon material which might not strictly be evidence admissible under the Indian Evidence Act, for the purpose of making an order of assessment. 28. The High Court of Bombay in the case of Sanjay Bimalchand Jain vs. Pr. CIT [2018] 89 taxmann.com 196 upholding the order of Nagpur Bench of the Tribunal holding that on the facts emergent in the case and the preponderance of probabilities, the entire capital gains claim were to be treated as fictitious and bogus. 29. On the preponderance of probabilities, in the case of Sanjay Kaul 119 taxmann.com 470 (Delhi), the Delhi High Court held that where assessee was not a regular investor in shares and had invested only in high risk stocks of obscure companies with no business activity or asset which were identi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of Hon ble Supreme Court in the case of Sumati Dayal (supra) and Hon ble Calcutta High Court in the case of Swati Bajaj (supra), and looking into the instant facts, this argument of the Ld. Counsel for the assessee is hereby rejected that additions are not liable to be sustained only on account of not providing opportunity of cross-examination. 33. In the result, in view of the aforesaid discussion, the brokerage commission income earned by the assessee is directed to be reduced to 0.25% of the bogus losses. 34. In the result, Ground Nos. 2, 3 4 of the assessee s appeal are partly allowed. Ground Nos. 5 6:- The CIT(A) erred in Rs. 75,00,000/- Rs. 7,00,000/- unaccounted income as unexplained income. 35. The brief facts in relation to these ground of appeal are that the Ld. 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. Before the AO or before the CIT(A) the assessee has not given any plausible explanation with regards to the source of such deposits made in his bank account and in no reason was given why such amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C, the NMCE and the Investigation Wing of IT Department at Ahmedabad and Kolkata, the affairs of the appellant have to be weighed on preponderance of probability and the over whelming circumstantial evidences going beyond the apparent facts as per the system generated documents. Under the circumstances I find no merit in the academic argument by the appellant and no basis to interfere in the addition made by the AO by treating the cash deposits in the bank accounts of other parties to be the income of the appellant. The appellant is the beneficiary of the deposits in its accounts. The addition of Rs. 75,00,000/- is confirmed. The related ground is rejected . 6.3 As to the addition of Rs. 7,00,000/- it is seen that as per the AO the appellant was also beneficiary to the extent of Rs. 7,00,000/- out of the cash deposited in the bank account of M/s Superior International (India) because the cash deposited in the bank accounts of M/s Superior International (India), M/s. Ganpati Traders, M/s. Anurag Trade Agency, M/s Roopa Trading Company and M/s AAR JAA International (India) reached to the bank account of the appellant after 2-4 layering and the amount was treated as unexplained cash c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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