Principal Commissioner Ofincome Tax Central-2, Kolkata v. M/S. Grd Commodities Ltd

ITAT/42/2022IA NO.GA/2/2022 IN THE HIGH COURT AT CALCUTTASpecial Jurisdiction [Income Tax]ORIGINAL SIDE PRINCIPAL COMMISSIONER OFINCOME TAX CENTRAL-2, KOLKATA -Versus- M/S. GRD COMMODITIES LTD. Appearance:Mr. Smarajit Roychowdhury, Adv.Mr. Soumen Bhattacharjee, Adv....for the appellant. Mr. J. P. Khaitan, Sr. Adv.Mr. Pratyush Jhunjhunwala, Adv... . for the respondent. BEFORE: The Hon’ble JUSTICE T.S. SIVAGNANAM -And- The Hon’ble JUSTICE HIRANMAY BHATTACHARYYA Date : 3[rd] January, 2023. The Court : This appeal filed by the revenue under Section 260A of the Income Tax Act, 1961 (the ‘Act’ forbrevity) is directed against the order passed by the Income TaxAppellate Tribunal, “C” Bench, Kolkata (the Tribunal) dated14[th] December, 2022 in IT(SS)A No.120/Kol/2018 and cross-appealin CO No.123/Kol/2018 for the assessment years 2009-10 and2012-13. The revenue has raised the following substantialquestions of law for consideration: (i)Whether on the facts and in the circumstancesof the case and in law the learned Income TaxAppellate Tribunal erred in ignoring thattransactions were beyond the realm ofcommercial reality and the assessee was thebeneficiary of a series of false losses in allseries codes, arising from synchronisedtransactions orchestrated by a cartel creatingartificial volumes in illiquid commoditieswith 97% trades executed within a minute andsquare-off intra-day, with the solitary motiveto reduce the incidence of tax ?of the case and in law the learned Income TaxAppellate Tribunal erred in ignoring thattransactions were beyond the realm ofcommercial reality and the assessee was thebeneficiary of a series of false losses in allseries codes, arising from synchronisedtransactions orchestrated by a cartel creatingartificial volumes in illiquid commoditieswith 97% trades executed within a minute andsquare-off intra-day, with the solitary motiveto reduce the incidence of tax ? (ii)Whether on the facts and in the circumstancesof the case and in law can it be concludedthat complete disclosure of facts of shamtransaction in the books of accounts willconstitute true disclosure of facts ? (iii)Whether on the facts and in circumstances ofthe case the Income Tax Appellate Tribunalerred in reviewing the adequacy andsufficiency of subjective satisfaction reachedby the Assessing Officer for initiatingproceedings under Section 147 of the Act,despite the fact that there were materialhaving undeniable nexus with the alleged andspurious commodity trading losses claimed ?the case the Income Tax Appellate Tribunalerred in reviewing the adequacy andsufficiency of subjective satisfaction reachedby the Assessing Officer for initiatingproceedings under Section 147 of the Act,despite the fact that there were materialhaving undeniable nexus with the alleged andspurious commodity trading losses claimed ? We have heard Mr. Smarajit Roychowdhury, learnedstanding counsel assisted by Mr. Soumen Bhattacharjee, learned Advocate appearing for the appellant/department and Mr. J. P.Khaitan, learned senior counsel assisted by Mr. PratyushJhunjhunwala, learned Advocate appearing for therespondent/assessee. Two issues fell for consideration before the learnedTribunal, first of which dealt with by the learned Tribunal wasregarding the validity of the reopening of the assessment. Thesecond was on the merits of the matter. As against the orderof assessment dated 29[th] December, 2016, the assessee hadpreferred appeal before the Commissioner of Income Tax(Appeals)-21, Kolkata (CITA). Before the CITA therespondent/assessee not only raised contention regarding themerits of the matter but also contended that the reopening ofassessment was bad in law as there was no reason to believeavailable with the assessing officer on the date when thenotice for reopening was issued i.e., on 31[st] March, 2016. TheCITA allowed the appeal on merits but rejected the contentionsof the assessee regarding the validity of the reopening. The revenue was on appeal before the Tribunal withregard to the findings of the CITA on the merits of the matterand the respondent/assessee filed cross-appeal as against thefindings of the CITA upholding the validity of the reopening ofthe assessment.The learned Tribunal heard both the matters togetherand, at the first instance, took up for consideration the validity of the reopening proceedings and has recorded thefollowing factual finding with regard to the assessment year2009-10:“19. On examination on the entries made by the AO inthe order sheet [Page 63 of the paper book], it is noted thatthe AO had received the appraisal report of the search andsurvey cases of Commodities Traders Group of Ahmedabad only on05-04-2016. However, the notice for reopening which is placedat Page 40 of the paper book, is dated 31-03.2016 (last date-for issue of notice in respect of AY 200910). These eventsshow that the AO had received the appraisal report five daysafter the issuance of notice on 31-03-2016. In this context, ithas to be kept in mind the Hon’ble Apex Court has held in 258ITR 317 and 253 ITR 86; the condition precedent for re-openingu/s 147 of the Act is that the AO should have ‘reason tobelieve’ escapement of income, and the ‘reason to believe’postulate a foundation based on information and a belief basedon reason. So we note that it is a legal necessity that afoundation based on information is a must before the AO hasreason to believe escapement of income. So, here the appraisalreport on which the AO builds the reason to belief was absentwhen he recorded the reason before invoking the reopeningjurisdiction u/s. 147 by issuing notice u/s. 148 of the Act on31.03.2016. Therefore, on these facts we discuss, we areinclined to uphold the contention of the Ld. AR that thefoundation on which the AO based his belief that incomechargeable to tax had escaped assessment was absent at thematerial time when he issued notice u/s. 148 of the Act on 31-03.2016, and therefore, the basic legal requirement ofreopening u/s. 148 of the Act i.e. AO’s formation of reasons tobelief escapement of income prior to reopening of assessmentwas absent in the given facts of the present case. 20.For the reasons set out above, we thus hold thatthe AO did not comply with the requirement of law set out inSection 147/148 of the Act before reopening the assessment forAY 2009-10 originally completed u/s. 153A/143(3) of the Actdated 31.03.2015, and as a consequence thereto, the order dated29-12-2016 passed by the AO being without jurisdiction is heldto be a nullity in the eyes of law. The assessee, therefore,succeeds on this legal issue. The cross objections taken by theassessee for AY 2009-10, is thus allowed.” For the assessment year 2012-13 it is seen that a moreelaborate exercise was conducted by the Tribunal examining asto whether there was material available in the hands of theassessing officer when he issued notice for reopening theassessment and the Tribunal has recorded the following factualfindings :“However, we note that there was no tangible evidenceor material brought on record to justify the said apprehension.Instead, we note that the report of the DDIT(Inv) rested onpreponderance of probabilities and had forwarded this to the AOfor further investigating the same. So, at the most thisappraisal report can be termed to trigger ‘reason to suspect’;and upon receipt of this appraisal report, the AO sought tohave conducted preliminary enquiries and tried to collectmaterials to connect assessee in this orchestrated wrong doingas suggested in the appraisal report; and if he had succeeded,in this exercise, then he could have summarised his finding offacts connected the assessee to the alleged wrong doing in his‘reasons recorded’ along with the modus-operandi as reported inthe appraisal report to re-open, which could have exposed thelive nexus and consequent cause and effect of escapement of income, which exercise the AO unfortunately did not do in thepresent case. Having regard to the aforesaid facts, we findmerit in the Ld. AR’s contention that there was no tangiblematerial contained in the appraisal report based on which theAO could have validly formed reason to believe that incomechargeable to tax had escaped assessment which was completedu/s 153A/143(3) of the Act on 30.-03.2015. Relying the decisionof the Hon’ble Supreme Court in the case of CIT Vs. KelvinatorsIndia Ltd. (supra) and other case laws cited (supra), we areinclined to hold that the initiation of reassessment sufferedfrom legal infirmity since the AO in the original assessmenthas already taken a view after enquiry and therefore, theimpugned action of AO to reopen was based upon change ofopinion by the present AO without there being any tangiblematerial or material change in the underlying facts which werealready known to the AO at the time of passing of the regularassessment.” On a perusal of the above, it is clear that on the datewhen the notice for reopening was issued i.e. on 31[st] March,2016 there was no tangible material available in the hands ofthe assessing officer to justify reopening the assessment.Before us this factual position, as recorded by the Tribunal,could not be assailed by the revenue. The learned Tribunal notstopping with the finding that the reopening of the assessmentwas bad in law has proceeded to consider the factual positionin detail and affirmed the factual finding rendered by theCITA. Thus, we are fully convinced to hold that there is nosubstantial question of law arising for consideration in thisappeal. Accordingly, the appeal filed by the revenue (ITAT/42/2022) fails and is dismissed. Consequently, the application for stay (IA No.GA/2/2022) also stands closed. (T.S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.) S.Das/As.