TMI Blog2019 (5) TMI 1705X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is allowed. - ITA No.4675/Del/2018 - - - Dated:- 16-5-2019 - Shri R.K. Panda, Accountant Member Assessee by: Shri Ved Jain, Advocate Shri Rishabh Jain, CA Revenue by: Shri S.L. Anuragi, Sr. DR ORDER This appeal by the assessee is directed against the order dated 11th June, 2018 passed by the CIT(A)-26, New Delhi, relating to Assessment Year 2010-11. 2. Facts of the case, in brief, are that the assessee is a private limited company and filed its return of income on 28th September, 2010 declaring a loss of ₹ 17,71,540/- which was processed u/s 143(1) of the Act on 25th January, 2011. Subsequently, a search and seizure operation u/s 132 of the IT Act was conducted in the assessee company and its group concerns. In response to notice u/s 153A, the assessee filed its return of income on 9th September, 2013 and assessment u/s 153A/143(3) of the Act was completed determining the total loss at ₹ 17,12,515/- wherein disallowance u/s 14A of ₹ 59,025/- was made in the hands of the assessee company. Subsequently, the Assessing Officer reopened the case of the assessee after recording the following reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee company has taken fictitious loss entry of ₹ 40,25,433/-, the Assessing Officer disallowed the amount of ₹ 40,25,433/- and added the same to the total income of the assessee. 4. Before the CIT(A), the assessee, apart from challenging the addition on merit, challenged the validity of the reassessment proceedings on the ground that the Assessing Officer who had issued the notice u/s 148 did not have the jurisdiction. The Assessing Officer who has passed the reassessment order never issued any notice u/s 148. Further, the Assessing Officer, without application of mind and on vague reasons has reopened the assessment which is not justified. It was further argued that the reasons supplied do not provide complete details on the transactions modified and the notice was not issued as per the mandate of law. Relying in various decisions, it was argued that it was a mere change of opinion and, therefore, the reassessment proceedings initiated by the Assessing Officer are bad in law. 4.1 However, the ld.CIT(A) was not satisfied with the arguments advanced by the assessee. After calling for a remand report from the Assessing Officer and after consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out giving it an opportunity to rebut the same. Book Profit computed u/s 115JB 8. (i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition of an amount of ₹ 40,25,433/- account of Client Code modification through broker. (ii)That the above addition has been confirmed rejecting the detailed explanation and evidences brought on record by the assessee. (iii) That the above addition has been made rejecting the contention of the assessee that the Client Code modification can only be done at the Stock Broker or Co Broker level and assessee neither being a stock broker nor commodity broker Client Code modification cannot be done by it. Normal Provisions of the Act 9. (i) On the facts and circumstances of the case, the learned CIT(A) has erred both facts and in law in confirming the addition of an amount of ₹ 40,25,433/- on account of Client Code modification through broker. (ii) That the above addition has been confirmed rejecting the detailed 10. On the facts and circumstances of the case, the CIT(A) has erred, both on explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court); (ii) Ranjeet Singh vs. ACIT 2008 (6) TMI 236 (ITAT, Delhi); (iii) Dr. (Mrs.) K.B. Kumar v. ITO 2010 (1) TMI 669 (ITAT Delhi); and (iv) CIT v. Anil Khosla 2008 (9) TMI 931 (Delhi High Court). 7. He submitted that the Assessing Officer has blindly relied upon the report of the Investigation Wing which itself is not based on any material against the assessee. The mere recording of reasons on the basis of reproduction of information from Investigation Wing and issuing notice for initiation of reassessment proceedings does not constitute application of mind much less independent application of mind. Therefore, the proceeding is without jurisdiction. For the above proposition, he relied on the decision of the Hon'ble Bombay High Court in the case of M/s Coronation Industries Ltd. vs. DCIT, vide Writ Petition No.2627 of 2016, order dated 23.11.2016, where it is held that mere client code modification by broker does not mean that any income has escaped assessment. Referring to the decision of the Hon'ble Bombay High Court in the case of PCIT vs. PAT Commodity Services Pvt. Ltd., vide ITA No. 1257 of 2016, order dated 15th January, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sons recorded as well as the assessment order, the Assessing Officer has not mentioned anywhere of any statement of broker of the assessee regarding the admission of any fictitious client code modification. He submitted that the addition has been made by the Assessing Officer despite assertions by the assessee that it is not into broking services and accordingly has not done any client code modification. He submitted that when the assessment order is based on the report of the Investigation Wing without any fresh and independent inquiry conducted by the Assessing Officer and when no broker has given any statement against the assessee, therefore, in the light of the judicial precedents cited above the addition made by the Assessing Officer and sustained by the CIT(A) should be deleted both under regular provisions and MAT provisions while computing the book profit. 10. The ld. DR, on the other hand, heavily relied on the order of the CIT(A). So far as the jurisdiction of the assessee is concerned, he submitted that the ld.CIT(A) has already decided the issue against the assessee which is self-explanatory and, therefore, the ground raised by the assessee on this issue shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was noted in the letter dated 25-3-1998 whereby the no objection of Commissioner of Income-tax, New Delhi was conveyed to the Commissioner of Income-tax, Ludhiana. It is also noted that thereafter the assessee submitted returns for the assessment years 1997-98 onwards at New Delhi. It is in these facts and circumstances that the Tribunal came to the conclusion that insofar as, the assessee was concerned, after the said transfer, it is only the revenue authorities at New Delhi who had jurisdiction over the assessee s cases and who were competent to issue a notice in terms of section 148 of the said Act. It may also be pointed that, pursuant to the issuance of impugned notice under section 148 of the said Act on 28.3.2003, when the notice under section 142(1) was issued to the assessee in December 2003, the assessee by her reply dated 21-1-2004 indicated that her Assessing Officer was not located in Ludhiana, but as the Income-tax Officer at New Delhi 12.1 I find, the coordinate Bench in the case of Dr. Mrs. K.B. Kumar (supra) has observed as under:- 7. In this view of the matter and respectfully following the decisions (supra), it is held that notice under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ient code modification by broker does not mean that any income has escaped assessment. The relevant observations of the Hon'ble High court reads as under:- 2. This petition challenges notice dated 31st March, 2016 issued under Section 148 of the Income Tax Act, 1961. The impugned notice seeks to reopen the assessment for Assessment Year 2009 10. The regular assessment proceedings were completed on 28th December, 2011 under Section 143(3) of the Act. 3. The reasons in support of the impugned notice relies upon the information received from the Principal Director of Income Tax that the petitioner has benefited from a client code modification by which a profit of ₹ 22.50 lakhs was shifted out by the petitioner's broker, resulting in reduction of the petitioner's taxable income. The only basis for forming the belief is the report from the Principal Director of Income Tax and the application of mind to the report of the Assessing Officer along with the record available with him. This information and application of mind has led the Assessing Officer to form a reasonable belief that there is not only an escapement of income but there has been failure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee on such basis. The issue eventually reached to the Tribunal. The Tribunal did accept the Revenue's theory of misuse of clients code modification facility. However, the Tribunal accepted the assessee's explanation and discarded the Revenue's theory that profit of the assessee's company were passed on to the clients. It was also noticed that the Revenue has not contended that the client code modification facility is often misused by the assessee to pass on losses to the investors, who may have sizable profit arising out of commodity trading against which such losses can be set off. The Revenue normally points out number of such instances of client code modifications as well as nature of errors in filling of the client code. At any rate, what can be taxed in the hands of the present assessee is the income escaping assessment. Even if the Revenue's theory of the assessee having enabled the clients to claim contrived losses, the Revenue had to bring on record some evidence of the income earned by the assessee in the process, be it in the nature of commission or otherwise. In the present case, the Assessing Officer has added the entire amount of doubtful ..... X X X X Extracts X X X X X X X X Extracts X X X X
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