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2021 (10) TMI 357 - Income Tax
Reopening of assessment u/s 147 - eligibility of reasons to believe - addition made on the basis of the report of the Investigation Wing - HELD THAT:- In the reasons for reopening of the assessment, it is clearly stated that not all client code modifications are in genuine. Otherwise, the same we would not have given a window of halfan- hour to the brokers to modify the client codes to correct the genuine errors. AO without any allegation has presumed that assessee has entered into nongenuine client code modification activities. Neither the brokerage examined nor the assessee is examined. In fact the non-genuine client code modification activities could be established on the basis of analysis of Levenshtein Distance of Digit Edit analysis where there are edits ranging from three to five in the client code, then it is obvious that the code is not modified but actually replaced. There is no such allegation on finding of AO.
There is no allegation in the reasons recorded by AO that there is any failure on part of the assessee to disclose fully and truly material facts of computation of the total income. It could not have been the duty of the assessee to disclose that there are client code modification made by the broker, when in fact profit or loss has been shown by the assessee before the assessing officer and same was scrutinized u/s 143 (3) of the act. It would be the duty of AO to decipher any inference, which he would like to draw.
AO has considered the addition by combining the profit earned by the assessee on account of client code modification and further a loss on account of client code modification. Therefore, in fact assessee has earned profit as well as loss because of client code modification whereas the learned assessing officer has considered both these figures as income of the assessee.
Addition stating that assessee has failed to provide any substantial evidence that can corroborated that the client code modification was bona fide it was the duty of the learned assessing officer to show that the client code modification made by the broker of the assessee which has resulted into the Under assessment of income of the assessee because of evidences in the possession of the learned assessing officer. We find that there is no reference of any such evidences but merely a fact that there is a client code modification wherein which has resulted into income as well as loss to the assessee.
Also noted that assessee has incurred a loss of ₹ 11.36 crores, the contrived loss even if it is presumed to be a bogus loss, it is merely ₹ 273,631 which would not have made any difference or saving in any tax to the assessee as assessee has assessed loss of more than ₹ 11.34 crores. This is not a clinching fact but it is a supportive fact to show that there is no intention of the assessee of saving of any tax even if the loss is held to be bogus. Merely on such facts the reopening or addition could not have been held invalid, but looking at the composite facts coupled with the other facts, it clinches the issue.
There is no examination of broker of the assessee to determine whether the client code modification is genuine as falling into the allowable definition given by SEBI or nongenuine. In absence of either extracting these facts by examining the broker or by the assessee, we do not find any reason that addition can be sustained on the merits of the case also. - Decided in favour of assessee.