[Case Study] Additions Based upon Annual Information Return (AIR)

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1. Case Study on Additions Based Upon Annual Information Return (AIR)

The Existing provisions of section 285BA of the Act, inter alia, provide for furnishing of Annual Information Return (AIR) by specified entities like Financial Institutions, Banks, Credit Card Agencies, Registrar of Properties, Capital Market Entities etc., in respect of the corresponding financial transactions being undertaken by the assessees crossing the specified threshold limits.

Thus, very often, the already concluded assessment cases are being reopened under section 147/148 on the basis of such AIR information.

On receipt of such Notice under section 148 of the Act, the assessee is required to reconcile the income and expenditure details as reflected in his ITR with that of the AIR information, in case of variance between the two.

The assessee is required to establish that the income as returned by him is commensurate with the value of financial transactions being reflected in the AIR and the financial transactions like share trading, purchase of any immovable property, cash deposits in bank accounts, credit card expenses, purchase of any vehicle, incurring expenditure on any foreign trip etc. are duly and fully accounted for in the ITR.

However, it is a well settled and established principle of Law that merely reopening of already concluded assessment on the sole basis of AIR information without any third-party independent enquiry by the assessing authority to corroborate the same, is infructuous and invalid in Law.

In the present Case Study, the assessee is in receipt of Show Cause Notice pursuant to re-assessment proceedings u/s 147 of the Act, wherein the assessing authority has proposed to make an addition of ` 5,00,00,000/-. The grounds for proposing such addition are:

On going through the ITD System and AIR Information available in this office it is seen that the assessee Mr XYZ, has made commodity transactions of ` 5,00,00,000/- during the F.Y. 2016-17 relevant to AY 2017-18.

On verification of data base of the department and information available with the undersigned it has been noticed that the assessee had not filed his Income Tax Return for the Asst. Yr. 2017-18. Since the assessee had not filed his ITR for the Asst. Yr. 2017-18, the source of transactions in commodities made by him cannot be examined/verified.

As the assessee has not furnished his ITR for the assessment year under consideration, the verification of the information that the assessee has made commodity transactions of ` 500,00,000 is not feasible and remained unexplained.

On receipt of such SCN, the assessee needs to e-file his reply to such SCN, in the e-Proceedings.

The ideal suggested re-assessment submission incorporating all the relevant and updated legal precedents, in order to represent and tackle this dicey and litigative issue in an effective and efficient way, is being shared for the benefit and ready reference of readers.

Mohanka Chambers, 142, i-Thum,
Tower B-1, Noida-201307,  Tel.: 9999981515
E-mail: camayank@smmohanka.com

Dated: March 18, 2022

To

The Learned Assessing Authority
National Faceless Assessment Centre
New Delhi

In the Matter of Smt. XYZ (hereinafter referred to as “the assessee”; PAN: ABCDE1234F; AY 2017-18.

Subject: Reply in Response to Show Cause Notice Cum Draft Assessment Order in Respect of Ongoing Income Escaping Assessment Proceedings for AY 2017-18.

Reference: Your Show Cause Notice bearing DIN ITBA/AST/F/143(3)(SCN)/2021-22/1234567890(1) dated 15.3.2022

Dear Assessing Authority,

This is in reference to the captioned Show Cause Notice, in respect of ongoing income escaping assessment proceedings for AY 2017-18, requiring the assessee to show cause as to why an addition of ` 5,00,00,000/-, on the basis of AIR information of commodities transactions, should not be made in the hands of the assessee.

It is respectfully submitted that the respondent assessee had undertaken intraday commodity transactions during the FY 2016-17, without earning any taxable income on the same and the complete details viz. commodity name, expiry date, buy quantity, buy value, sell quantity, sell value, net quantity, net value, average rate, closing price and net profit/loss, are being furnished and placed on record, as contained in the Statement of Days Net Position as provided by the duly registered recognised commodity exchange broker, and is enclosed as per Exhibit-1.

The said Statement of Days Net Position for the FY 2016-17, makes it duly evident that the net result of the said intraday commodities transactions for the entire FY 2017-18 is a profit/gain of ` 1,42,355.76 only and after deducting the turnover tax of ` 1,45,187.97 and surtax of ` 14,954.30 totaling to ` 1,60,142.27 being paid on the said commodity transactions, a net. Loss of ` 17,786.51 had been incurred by the respondent assessee.

Therefore, during the FY 2016-17, the respondent assessee had not earned any profit, whatsoever, on the commodity transactions being undertaken by her, and in fact had incurred a loss of ` 17,786.51 on such commodity transactions and the same had not even been claimed in her ITR for the AY 2017-18.

Further, the copy of the corresponding Financial Ledger of the assessee, pertaining to the above commodity transactions, for the FY 2015-16, as provided by the duly registered recognized commodity exchange broker, is also being furnished and placed on record enclosed as per Exhibit-II, for ready reference.

The perusal of the above financial ledger for the FY 2015-16, makes it duly evident that the assessee was having an opening credit balance of ` 14,12,813.83 with the said broker on 31-03-2016 and thereafter the same balance has been rotated/utilized in undertaking the impugned commodity transactions during the entire FY 2016-17 and no fresh/new funds had been inducted by the assessee in undertaking the impugned commodity transactions.

Therefore, in view of the above facts, it is duly and fully established that the assessee had not earned any taxable income in undertaking the impugned commodity transactions during the FY 2016-17 and in fact had incurred a loss on the said transactions, which had not even been claimed in her ITR for the AY 2017-18. Further, it is also duly and fully evident that the assessee had not inducted any new/fresh funds for undertaking the impugned commodity transactions during the FY 2016-17, and was having the opening credit balance with the broker, which has been utilized in undertaking the impugned commodity transactions.

In view of the above undisputed factual position, it is submitted that the impugned addition of ` 5,00,00,000/-  being arbitrary, factually misconceived and unlawful is liable to be dropped in its entirety.

The learned assessing authority is also requested to grant the assessee an appropriate opportunity of personal hearing through video conferencing, to the assessee company, before passing the final assessment order, in order to explain the above facts and binding legal propositions, in a better way.

 Thanking You.

Yours Sincerely
Mayank Mohanka, FCA
Partner
M/s S M Mohanka & Associates
(Authorised Counsel of Assessee)