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Income Tax Appellate Tribunal - Kolkata

M/S. Abhinandan International Private ... vs Dcit, Circle - 10(1) , Kolkata on 9 February, 2023

IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH KOLKATA

       BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER
      AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER

                     ITA No.2508/Kol/2018
                    Assessment Year: 2010-11


 Deputy   Commissioner    of           Abhinandan       International
 Income-Tax,   Circle-10(1),           Private Limited.
 Kolkata                               'Shikaria Pride', 95A, Park
                                 Vs.
                                       Street, 7th floor, Kolkata-
                                       700016
                                       (PAN: AACCA7962N)

 (Appellant)                                       (Respondent)
                                 &
                       C.O. No. 1/Kol/2019
                    In ITA No.2508/Kol/2018
                    Assessment Year: 2010-11

 Abhinandan       International        Deputy Commissioner of
                                Vs.
 Private Limited.                      Income-Tax,   Circle-10(1),
                                       Kolkata
 (Assessee/Cross objector)                       (Respondent)


     Present for:
     Revenue by       : Shri Vijay Kumar, Addl. CIT, Sr. DR
     Assessee by      : Shri A. K. Tibrewal, FCA

     Date of Hearing             :   23.11.2022
     Date of Pronouncement       :   09.02.2023

                             ORDER

PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:

This appeal filed by the revenue and cross objection by assessee are against the order of Ld. CIT(A)-4, Kolkata vide Appeal No. 42/CIT(A)-4/2017-18 dated 13.08.2018 passed against the assessment order by DCIT, Circle-10(1), Kolkata u/s. 147/143(3) of 2 ITA No.2508/Kol/2018 Abhinandan International Pvt. ltd., AY 2010-11 the Income-tax Act, 1961 (hereinafter referred to as the "Act"), dated 16.12.2017.

2. Grounds raised by the revenue are reproduced as under:

"1] That on the fact and circumstances of the case, the Ld. CIT(A)-4, Kolkata erred in deleting the addition of Rs. 2,99,85,863/- u/s. 68 of the Act by wrongly holding that what could be added even in case of bogus or contrived transaction is net result of purchase and sale and not the entire sales, without appreciating material facts and evidences of this case. 2] That on the facts and circumstances of the case, the Ld. CIT(A)-4, Kolkata erred in deleting addition of Rs.5,76,752/- (Rs.5,99,755 (-) Rs.23,003) u/s. 37(1) of the Act by wrongly holding that in these kind of transaction, commission is paid on profit or loss generated from bogus commodity trading and non on entire turnover when it is crystal clear that the transaction is nothing but a bogus trading."

2.1. Grounds raised by the assessee in its Cross objection are re produce d as under:

"1. That, on the f acts and in the c ir cums tances of the c ase , the Ld. Co mmiss ioner of Income Tax (Appeals ) erred in co nc lud ing that the co mmodit y tr ans actions en tered in to by the assessee co mpany were bog us in nature when the s ame were backed b y proper documen tar y evidences and tha t the tr ans actio ns were through banking channels and the same were no t f ound to be f alse or f abr ica ted.

2. That, on the f ac ts and cir cumstan ces of the c ase , the Ld. Co mmiss ioner of Inco me T ax (Appeals) erred in conf ir ming the additio n of Rs.23,003, be ing 2% of the Rs.11,5 0,152, as co mmiss ion paid f or arr anging co mmodity prof it on the alleg atio n that the s aid commodity prof it earned by the assessee co mpany was bogus in natu r e."

3. Brief facts as culled out from records are that assessee filed its return of income on 07.07.2010 reporting income at nil after claiming set off of the brought forward business loss and unabsorbed depre ciation. In the return filed by the assessee, it had offere d income from speculative business of Rs.11,50,151/- earned out of speculation business in commodities done at National Multi Commodity Exchange (NMCE), Ahmedabad. The said re turn was processe d u/s.

Abhinandan International Pvt. ltd., AY 2010-11 143(1) of the Act vide intimation dated 12.02.2011, which was subsequently rectified u/s. 154 of the Act with the last order passed u/s. 154 dated 20.07.2016. Subsequently, a notice u/s. 148 of the Act dated 31.03.2017 was issued on the asse ssee and served thereon. Assessee filed its return in response to the said notice u/s. 148 reporting total income at nil. Ld. AO observed that assesse e had derived speculative income from commodities through member/broke r of NMCE, Fast Track Marchants Pvt. Ltd. Ld. AO further noted that trades were executed with the counter-party clients M/s. Fairdeal Vincom Pvt. Ltd. and M/s. Anand Share Broking (P) Ltd. Assessee submitted copy of contract note s, bank statements and other relevant documents to substantiate its claim.

3.1. In the course of assessment, ld. AO issue d summons u/s. 131 of the Act to Fast Track Merchants Pvt. Ltd. as well as two counter party clients. In response to this, the broker made its submission through post whe re as the other two parties did not respond. Ld. AO furthe r noted that platform of NCME is exploited unscrupulously to contrive and generate bogus profit / loss so as to e nable the bene ficiary for se tting off annual profit in the books or se tting off loss in the books to ultimately evade the due taxes. From his inquiry, Ld. AO also noted from the ROC data that Fairdeal Vincom Pvt. Ltd. had been amalgamated and Anand Share Broking Pvt. Ltd. had been struck off. Ld. AO made further inquiry by issuing a letter to NMCE for gathering information in response to which NMCE replied and gave the details of the transaction undertaken through the broker Fast Track 4 ITA No.2508/Kol/2018 Abhinandan International Pvt. ltd., AY 2010-11 Merchants Pvt. Ltd. From the data supplied by NMCE in respect of the assessee, ld. AO noted that there is a difference of Rs.3,598/- in the speculative profit reported by the assessee and that given by NMCE. Ld. AO thus, concluded the assessment by noting that the contrived profit of Rs.11,53,750/- is merely a front, which also has been set off against brought forward losses. The re al picture has not been explained in respect of source of investme nt or trading to an e xtent of Rs.2,88,33,975/-. He thus, made an addition of Rs.2,99,87,725/- in respect of total sale proceeds. He further estimated a commission @ 2% on the said amount and added it by disallowing u/s. 37(1) of the Act. Aggrie ved, assessee went in appeal before the ld. CIT(A).

3.2. Before the Ld. CIT(A), assessee reiterated the submissions, the details in respect of the transactions under taken by the assessee is tabulated below:

C ont r a ct N o. D at e Di f f er en ce Br ok er age Ser vi ce T ax bein g ( Rs. ) ( Rs. ) Pr of it /L os s N et of Br oke r age & S. T a x ( R s. ) 00 00 03 79/ 09 10 21. 07. 2 009 4, 9 8, 71 9, 58 1, 376. 50 142. 92 00 13 78/ 0910 24. 02. 2 010 4, 98, 900. 61 1, 450. 00 149. 39 00 15 60/ 0910 12. 03. 2 010 1, 52, 531. 23 4 25. 0 0 43. 7 7 Tot al 11, 5 0, 15 1. 4 2 3, 262. 50 336. 08 3.3. In respect of the difference of Rs.3,598/- between the de tails furnished by the asse ssee and NMCE, it was submitted by assessee that it is owing to brokerage and service tax which was charged by the broker and was not part of the transactions of purchase and sale. The details in this respe ct as furnished by the assessee are tabulated be low:

Abhinandan International Pvt. ltd., AY 2010-11 C ont r a ct N o. D at e Br o ker age Ser vi ce Ta x Tot al ( Rs. ) ( Rs. ) ( Rs. ) 00 00 03 79/ 09 10 21. 07. 2 009 1, 3 87. 5 0 14 2. 92 1, 53 0. 42 00 13 78/ 0910 24. 02. 2 010 1, 45 0. 0 0 14 9. 39 1, 599. 39 00 15 60/ 0910 12. 03. 2 010 425. 00 43. 77 4 68. 7 7 Tot al 3, 26 2. 5 0 33 6. 08 3 598. 58 3.4. Assessee submitted that the amount of Rs.2,99,87,725/- which has been treated by the Ld. AO as conce aled amount. in fact represented the value of sales transaction of commoditie s against purchase of Rs.2,88,33,775/-. Thus, the diffe re nce of sale and purchase amounting to Rs.11,50,152/- after brokerage and service tax was offered as speculation profit in the return filed by the assessee. Assessee also explained that the transaction of purchase and sale of commodities were settled on the same day and there was no de livery affe cted by assessee or broker in respect of such purchases and sales. Thus, the addition made by the Ld. AO is without any basis.

3.5. Conside ring the submissions made by the assessee, Ld. CIT(A) obse rved that AO has added the e ntire turnover of the commodities to the assessee's income. According to him, what to be added even in case of bogus or contrived transaction is, the net result of purchase and sale, and not the entire sales. Ld. CIT(A) also noted that assessee has already shown the net result of purchase and sale of commodities transaction as income in its return and thus de leted the addition of Rs.2,99,85,863/-. Howe ver, Ld. CIT(A) directed the ld. AO to compute commission on the commodity transaction by taking 2% of the net speculative income reported by the assessee as against what Ld. AO took as 2% of the total sales value. Further, Ld. CIT(A) while 6 ITA No.2508/Kol/2018 Abhinandan International Pvt. ltd., AY 2010-11 disposing ground no. 10 in respe ct of allowing set off of brought forward loss and de preciation noted that the commodity profit has been held to be bogus. For the purpose of allowing set off of brought forward loss/depreciation, Ld. CIT(A) observed that either this profit does not e xist or alternatively the Ld. AO has to allow the set off of past losse s and thus, he directed the Ld. AO to allow set off of brought forward losses/depreciation. Aggrieved, the revenue is now in appeal be fore the Tribunal.

3.6. On the same issues the assessee has filed its Cross objection by challenging the issue relating to holding of speculative profit as bogus by Ld. CIT(A) and dire ction given to adopt disallowance of commission @ 2% on the impugned speculative profit.

4. Before us, Ld. Sr. DR submitted that Ld. AO had concrete evidence from the forward market commission regarding artificial trading volume and tax evasion transaction undertaken by some members and clients in NMCE, Ahmedabad for abnormal amount of loss had been booked by the said entities in the case of trading of commodities in NMCE. He strongly submitted that the loss/profit booked by the entities was not genuine and camouflaged with the help of some members and clients of NMCE. According to him, assessee has also been found to have book profit through NMCE which it has set off with brought forward depreciation/loss. He also stated that Ld. AO has made nece ssary enquiries and found that the two counter party clients namely, Fairdeal Vincom Pvt. Ltd. and 7 ITA No.2508/Kol/2018 Abhinandan International Pvt. ltd., AY 2010-11 Anand Share Broking Pvt. ltd. had no real existence but were paper companies which were used to act as fake counter party for generating profit/loss as desired by the bene ficiary party. He thus, strongly supported the order of Ld. AO.

4.1. Per contra, Ld. Counsel for the assessee reiterated the submissions which were made before the Ld. AO and Ld. CIT(A), which are narrated above and are not repeated here for the sake brevity.

5. We have heard the rival conte ntions and perused the material available on record. We take note of the findings given by the Ld. CIT(A) in para 4.3 and 5 which are extracted be low:

"4.3. I have peru sed the Submissio ns of the ld. AR and the Assess ment Order. The AO has added the en tire turnov er of the co mmod ities to the assessee's inco me . Wha t cou ld be ad ded even in c ase of bog us or contr ived tr ans ac tion is ne t result of purchase and s ale and not the entire s ales. To give an ex ample, if an assessee sho ws bo gus purch ase of Rs. 5 crore and bogus sale of Rs. 5.01 crore then wh a t cou ld be add ed at mos t is the d if f erence i.e. Rs. 1 lakh not the entire amo unt Rs. 5.01 crore. This has been held by many cour ts of and is a tr ite law as of no w. Theref ore, add itio n of Rs.2,99,85,863/- canno t be sus tained and th e same is dele ted.

The second issue is th at the assesse e is sho wing an in co me f rom th is alleged bog us tr ans action. Since the assessee has alre ady of f ered this in co me f or taxa tion, theref ore, the s ame c an no t be taxed twic e. In v ie w of the above discuss ion add itio n of Rs. 2,99,85,863/ - is hereby deleted.

The th ird connec ted issue is regarding add itio n f or commiss io n f or 2 per cen t on th e co mmodity tr ansaction. Here also the Ld. AR pleaded th at commiss ion is nor mally earned on the prof it or loss given and no t on the entire turnover made. I agree with the contention of the Ld. AR th at nor mally in these kind of tr ans ac tion, co mmission is paid on prof it or loss generated f ro m bogus co mmodity trading and no t on entire turnover. Theref ore, the AO is d irec te d to tax 2 per cen t of Rs.11,50,152/ - as co mmiss ion income.

Abhinandan International Pvt. ltd., AY 2010-11 In v ie w of the abo ve disc ussion, Gro und NO.8 and 9 are Par tly Allo wed.

5. Ground No. 10 is reg ard ing no t allo wing se t of f of brought f or war d losses an d deprec iation. Since the co mmod ity prof it h as been held to be bo g us, theref ore, either this prof it does no t ex is t or alternative ly th e AO has to allo w se t of f of pas t lo sse s. He c anno t do bo th. In vie w of the above, the AO may allo w se t of f of brough t f or ward losses/ deprec iation."

5.1. From perusal of these findings, Ld. CIT(A) has come to a conclusion to sustain the addition of the net result of purchase and sale and not the entire sale and thus, deleted the addition made by the Ld. AO. However, while dealing with ground no. 10 in para 5, Ld. CIT(A) has held the commodity profit to be bogus. We note that while holding so, Ld. CIT(A) has not given his explanations, reasoning and the basis for arriving at such a conclusion. From these findings given in two paragraphs by the Ld. CIT(A) it is not discernible as to how and on what basis, Ld. CIT(A) has arrived at this conclusion. In the entire order, Ld. CIT(A) has merely e xtracted the observations of the Ld. AO and the submission of the assessee without dealing with them objectively and analytically. Accordingly, to meet the ends of justice and fair play, we find it proper to remit the matter back to the file of Ld. CIT(A) with a direction to pass a speaking order by considering the material placed on record and available through the enquiries made by the Ld. AO, by affording reasonable opportunity of hearing to the assessee. The asse ssee is also given opportunity to furnish its submissions and other details in support of its claim be fore the Ld. CIT(A). Accordingly, both the appeal of the re venue and the Cross objection of the asse ssee are allowed for statistical purposes.

Abhinandan International Pvt. ltd., AY 2010-11

6. In the result, both the appe al of the revenue and the Cross objection of the assessee are allowed for statistical purposes.

Order pronounce d in the open court on 09thFebruary, 2023.

     Sd/-                                           Sd/-
(Sanjay Garg)                                  (Girish Agrawal)
Judicial Member                                Accountant Member

                Dated: 09th     February, 2023

JD, Sr. P.S.
Copy to:
     1. The Appellant:
     2. The Respondent:.
     3. CIT(A)-4, Kolkata.
     4. The Pr. CIT,       , Kolkata
     5. DR, ITAT, Kolkata Bench, Kolkata
     //True Copy//
                                                        By Order
                                           Assistant Registrar
                                 ITAT, Kolkata Benches, Kolkata