TMI Blog2019 (4) TMI 1905X X X X Extracts X X X X X X X X Extracts X X X X ..... reto cannot be sustained. We, therefore, set aside the impugned order of reassessment passed u/s 147 of the Act and allow this ground of appeal of the assessee. - ITA No. 6628/Del/2018 - - - Dated:- 12-4-2019 - Sh. N. S. Saini, Accountant Member Assessee by : Sh. Pancham Sethi, FCA Revenue by : Sh. S. L. Anuragi, Sr. DR ORDER This is an appeal filed by the assessee against the order of CIT(A)-12, New Delhi dated 13.07.2018. 2. The assessee has raised following grounds of appeal: 1. On the facts and circumstances of the case, the order passed u/s 250(6) by the Ld. CIT(A) confirming the assessment order passed u/s 143(3) r.w.s. 147 by the Ld. Assessing Officer is bad in law. 2. The Ld. CIT(A) has erred both in law and on the facts of the case by upholding the action of the Ld. ASSESSING OFFICER to initiate reopening and reassessment of the case u/s 147 of the Income Tax Act 1961. 3. Ld. CIT(A) has erred in confirming the addition of ₹ 5,96,177/- made by Ld. AO u/s 143(3) r.w.s. 147 by treating certain share transactions as bogus. 4. Ld. CIT(A) has erred in not recognizing the fact that the Client Code Modification (CCM) was done to rect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for reopening an assessment must have a rational, intimate and direct connection or relevant bearing on the formation of the belief. The existence or otherwise of such a belief on the pan of the Assessing Officer, is not a mere question of limitation but the very foundation of his jurisdiction. Accordingly, the law clearly postulates the presence of the following four essential ingredients for the issue of a notice u/s 148 of the Act: (a) existence of some material(s) and not mere fancy imagination, speculation or suspicion: (b) an application of mind by the Assessing Officer to such material: (c) a nexus between such materialist and the belief of escapement of income from assessment, and (d) an inference based on reason drawn by the Assessing Officer that income has escaped assessment. (4) In the instant ease a review of the reasons furnished for the issue of notice u/s 148 and consequent framing of the reassessment in the Appellant s case make it clear that the same are based on information received from the Pr DIT (Investigation), based on the results of surveys carried out on certain brokers, wherein it has been determined that the facility of Client Code Modific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout any concrete evidence, lead to a formation of belief as to escapement of income in the ease of the Appellant. (9) In this connection attention is also invited to the decision of the Lordships of the Delhi High Court in the case of Signature Hotels Pvt. Ltd. vs Income Tax Officer and Another [(2012)] 20 taxmann.com 797 (Delhi)/ wherein it has been held as follows: - Held, allowing the petition. that the reassessment proceedings were initiated on the basis of information received from the Director of Income- tax (Investigation) that the petitioner had introduced money amounting to ₹ 5 lakhs during financial year 2002-03 as stated in the annexure According to the information, the amount received from a company, S. was nothing but an accommodation entry and the Appellant was the beneficiary The reasons did not satisfy the requirements of section 147 of the Act There was no reference to any document or statement, except the annexure The annexure could not he regarded as a material or evidence that prima facie showed or established nexus or link which disclosed escapement of income. The annexure was not a pointer and did not indicate escapement of income. Further, the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d ab-initio and bad in law and deserves to be quashed and declared non-est. (13) In addition it may also be noted that the conditions precedent justifying an issue of notice u/s 148 of the Act also include the existence of certain tangible material(s) and a definite nexus between the same and the conclusion as to escapement of income which clearly is absent in the instant case as would he evident from the discussions hereinafter The material in the instant case is enquiries conducted on certain brokers wherein it has been only allegedly and not with any degree of certainty determined that the facility of CCM has been allegedly misused. On the basis of the said investigation and its results Appellant has been, again allegedly, identified as one of the ultimate beneficiaries which forms the basis for drawing a conclusion as to escapement of income and issue of notice its 148 of the Act. It may be respectfully submitted that neither the manner of identification of the Appellant being an ultimate beneficiary nor the basis of arriving at the said conclusion been disclosed in any manner thereby pointing to the tenuous nature of the link between the material and the conclusion drawn. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not reasons but only conclusions and a reproduction of the conclusion in the investigation report received from Director (Investigation). It was a borrowed satisfaction . The expression accommodation entry was used to describe the information set out without explaining the basis for arriving at such a conclusion. The basis for the statement that the entry was given to the assessee on his paying unaccounted cash was not disclosed. Who was the accommodation entry giver and how he could be said to be a known entry operator were not mentioned the source for all the conclusion li as the investigation report. The tangible material which formed the basis for the belief that income had escaped assessment must be evident from a reading of the reasons. The reasons failed to demonstrate the link between the tangible material and the formation of the reason to believe that income had escaped assessment. The Assessing Officer had not independently considered the tangible material which formed the basis for the reasons to believe that income had escaped assessment So error had been committed by the Appellate Tribunal in concluding that the initiation of the reassessment proceedings unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y took place between 2009 and 2011 after which SEBI tightened its norms to curb the practice. Before the SEB1 actions, the Indian markets were seeing CCM to the tune of ₹ 50000 to ₹ 60000 Cr. a month, which came down to just about ₹ 100 Cr. after SEBI action. The probe also showed the quantum of such modifications was much higher during March, compared to other months, which hinted towards the tax evasion. A search seizure action was conducted in the case of Amrapalli Group of Ahmadabad on 26.10.2012 on the analysis of CCM by ACFL (A group entity involved in broking) it was found that CCM was used as a tool to systematically shift profits and losses. On the deeper study it was found without exception that the persons who had got book profits in their books had obtained losses so to set off their book profits. The Investigation Wing, Ahmedabad collected information in this regard from Stock Exchanges / Commodity Exchanges. The Assessing Officer reopened the case of the Assessee on the basis of the information received from Pr. DIT, Investigation. The data received from NSE revealed that the Assessee had reduced its taxable income to the extent of ₹ 5,96,176 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer has in detail narrated the facts in the Assessment Order. 1 he Assessing Officer not only extracted the facts from the report received by him, he applied his mind in the light of the findings of the Investigation Wing. Further, it was clear from the keyboard of the computer that, a person may type an adjacent alphabet when a genuine error is committed. But the data analysis shows that there are no such genuine errors in the case of identified beneficiaries. The entity from which the profits were shifted out and the losses were shifted in had taxable business income which was reduced due to shifting in of the losses. At the stage of reopening of the assessment, the sufficiency or correctness of the material is not a thing to be considered by the Assessing Officer, as held by Hon ble Supreme Court in the case of Raymond Woollen Mills Ltd. vs. ITO Others (1999), 236 ITR 34 (SC). In this ease, the Apex Court held that in determining whether commencement of reassessment proceedings was valid it has only to be seen whether there was prima facie some material on the basis of which the department could reopen the case. It may be seen from the above discussion that the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lls under the territorial jurisdiction of this circle who shifted out the profit of ₹ 652089 and shifted in loss of ₹ 1248265 thus he had reduced his income by ₹ 596177/- through Client Code Modification (CCM) done through broker M/s Gaurav Investments consultancy (Pvt.) Ltd. during the Finance Year 2008-09. Hence, I have reason to believe that income to the extent of contrived losses of ₹ 596177/- have escaped assessment within the meaning of section 147 the Income Tax Act, 1961. It is pertinent to mention that in the case of CIT Vs Nova promoters Flnlease (P) Ltd.(\TA No. 342 of 2011) dated 15.02.2012, the Hon'ble Delhi High Court, which is the jurisdictional High Court, held that as long as there is a 'live link' between the material which was placed before the Assessing Officer at the time when reasons for reopening were recorded, proceedings u/s 147 would be valid. The Court also held- We are aware of the legal position that at the stage of issuing the notice u/s 148, the merits of the matter are not relevant and the Assessing Officer at that stage is required to form only prima facie belief or opinion that income chargeable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tigation Wing, Ahmadabad and the reasons for belief that income has escaped assessment has been sufficiently demonstrated. Accordingly, necessary approval u/s 151 of the I.T. Act, 1961 is solicited to issue notice u/s 148 of the I.T. Act to re-open the assessment u/s 147 of the I.T. Act, 1961. 8. We find that in the case of M/s. Prashant Agencies Pvt. Ltd. and PPN Properties Pvt. Ltd. Vs ITO in ITA Nos. 3059 3060/Del/2018, order dated 16.01.2019, the Tribunal dealt with the similar issuance of notice u/s 148 of the Act by following the decision of the Hon ble Bombay High Court in the case of Coronation Agro Industries Ltd. Vs DCIT 390 ITR 464 (Bom.). In that case, the reasons recorded were as under: M/s. Prashant Agencies Pvt. Ltd. Dated : 03.06.2016 Information has been received from Investigation wing Ahmadabad vide letter F No ADIT(Inv.) I (BVAHD/CCM/Dissemination-mail 15-16 dt. 11.03.2016 forwarding of survey report in respect of client code modification. Vide the letter it has been informed that client codes is a practice under which brokers change the client codes in safe and purchase orders of securities after the trades are conducted. In this regard. SEBI has c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was chargeable to tax I am satisfied that on account of failure on the part of the assessee to disclose truly and fully all the .material facts necessary for assessment for the above assessment year the income chargeable to tax to the tune of ₹ 2,07,040/- has escaped assessment within meaning e; Section 147 of the l.T. Act 1961. Since, four years has been expired from the end of the relevant assessment year, the reasons recorded above for the purpose of reopening of assessment is put up for kind satisfaction or Pr Commissioner of Income Tax -07, New Delhi in terms of the proviso to Section 151( 1 ) of the IT Act 1961. M/s. PPN Properties Pvt. Ltd. Dated : 23.06.2016 Subject: Providing reasons recorded for re-opening of case u/s. 147 of the IT Act, 1961for A.Y. 2009-10-reg. Please refer to your letter dated 03.06.2016 on the subject mentioned above. In this regard, as requested by you the reasons recorded before issuance of notice u/s. 148 are reproduced as under:- Information has been received from Investigation wing Ahmadabad vide letter No. ADIT (inv.) l(3)/AHD/CCM/Dissemination/e-mail/l5-16 dated 11.03.2016 forwarding of survey report in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,312.5 (-) 2.47,312.5 However, the above facts clearly establish that such malpractices have been adopted to change the client code deliberately to create losses. Since the above amount of ₹ 2,47,312.5/- has escaped assessment for the A.Y. 2009-10, which was char geable to tax, 1 am satisfied that on account of failure on the part of the assessee to disclose truly and fully all the material facts necessary for assessment for the above assessment year, the income chargeable to tax to the tune of ₹ 2,47.3 12.5 /- has escaped assessment within meaning of Section 147 of the IT. Act 1961. Since, four years has been expired from the end of the relevant assessment year, the reasons recorded above for the purpose of reopening of assessment is put up for kind satisfaction of Pr. Commissioner of Income Tax - 7, New Delhi in terms of the proviso to Section 151(1) of the IT Act 1961. 9. The Tribunal in respect of the above reasons has held as under: 20. On perusal of the above recording shows that it was not at all a reason to believe envisaged u/s 147 of the Act, at best the same can be considered as reason to suspect only. In the record ..... X X X X Extracts X X X X X X X X Extracts X X X X
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