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TMI Blog2019 (4) TMI 1905X X X X Extracts X X X X X X X X Extracts X X X X ..... of broker for which the assessee was not responsible. 5. Ld. CIT(A) has erred in confirming the order of Ld. AO even when the Ld. AO failed to provide the details of the transactions where Client Code was modified. 6. Ld. Assessing Officer has erred both in law and on facts of the case in initiating penalty proceedings u/s 271(1)(c) read with section 274 of the IT Act, 1961. 7. The appellant craves leave to amend, delete or add any grounds of appeal before or during the course of hearing of the appeal." 3. In ground nos. 1 & 2 of the appeal, the assessee has challenged the reopening of assessment made u/s 147 of the Act is bad in law. 4. The Commissioner of Income Tax (Appeals) has decided the issue as under: "(1) The above ground challenges the action of the LI Assessing Officer in resorting to provisions of section 148 of the Act as being bad in law as would be apparent from the detailed submissions being made hereinafter. 2. S. 147 of the Act authorizes and permits an Assessing Officer to reassess the income chargeable to tax for any assessment year if he has "reason to believe that the said income for any assessment year has escaped assessment". The expression "esc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and not for "rectifying genuine errors" as permitted by SEBI (5) White the name of the Appellant does not appear in any of the investigations carried out by different wings of the Income-tax Department, the mere fact that certain entities individuals could have misused the facility1 has prompted the id Assessing Officer, without any independent appraisal or judicious application of mind, to tar ad such transactions with the same brush and to taint the same to be irregular, bogus and even fraudulent (6) A review of the reasons for issuing the impugned notice ids 147/148 of the Act for "alleged escapement of income" would reveal (hat they merely, in fact blindly, rely upon the information conveyed to the id Assessing Officer from independent sources Wings of the Department which has not been independently verified by any degree of application of mind or conducting any such enquiries. (8) As already discussed herein be ore the basis for the validity of any action u/s 147/148 of the Act has to be some 'tangible, substantive and specific belief that the "income of a particular assessee" in question has escaped assessment. The information on the basis of which such an actio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and examine the basis and material of the information. There was no dispute that the company had a paid-up capital of Rs. 90 lakhs and was incorporated on Jan 4, 1989 and was also allotted a permanent account number in September. 2001. Thus, it could not be held to be a fictitious person. The reassessment proceedings were not valid and were liable to be quashed." (10) In this connection reference may also he made to the following discussions wherein it has been held that any notice for reassessment issued on the basis of mere suspicion and without any independent application of mind is not valid.- Commissioner of Income-tax v. Smt. Paramjit Kaur [(2008) 168 Taxman 39 (P&H)]: Sarthak Securities Co. Pvt. Ltd. v. Income Tax Officer [(2010) 195 Taxman 262 (Delhi)]: Commissioner of Income-tax v SFIL Stock Broking Ltd. [(2010) 325 ITR 285 (Delhi)]: (11) The above view has also been recently affirmed by the Delhi High Court in the case of Pr. Commissioner of Income-tax v. G & G Pharma India Ltd [(2016) 384 ITR I47 (Delhi)] which their Lordships have dearly held that "prior to the reopening of the assessment, the AO has to. applying his mind to the materials concluded that he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e various limbs of the entire process and the extremely suspect nature as to the conclusion drawn to call for the notice to be filed at the initial stage itself and the notice to be filed. (14) In this connection reference may also be made to a recent decision of the Hon'ble Delhi High Court in the case of Principal Commissioner of Income-Tax v Meenakshi Overseas Pvt. Ltd. [(2017) 395 HR 677 (Delhi)] wherein the following pertinent observations have been made. "The reopening of the assessment under section 147 of the Income-tax Act, 1961 is a potent power not to be lightly exercised. It cannot he invoked casually or mechanically. The intent of the provision is the formation of belief by the Assessing Officer that income has escaped assessment The reasons recorded have to be based on some tangible material and that should he evident from a reading of the reasons. It cannot be supplied subsequently either during the proceedings when objections to the reopening are considered or even during the assessment proceedings that follow According to the first part of Section 147(1) it is a mandatory requirement that the Assessing Officer should have "reasons to belief" that any income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4- 05 was not legal " (16) In particular. Your Honour's attention is respectfully drawn to the following judicial pronouncements where their Lordships of the respective Courts have clearly held that the mu ice us NX of the Act was without jurisdiction as it lacked reason to believe that income chargeable to tax had escaped assessment since the reasons did not indicate the basis for the Ld Assessing Officer to come to a reasonable belief "that there had been any escapement of income on the ground that the modifications done in the client code was not on account of a genuine error, originally occurred while punching the trade and although there was material available to the effect that there was a client code modification done by the assessee's broker, there was no link from there to conclude that it was done with a view to escape assessment of a part of the assessee's income and prima facie, it was a case of reason to suspect and not reason to believe that income chargeable to tax had escaped assessment" Coronation Agro Industries Lid v Deputy Commissioner of Income-Tax [(2017) 390 ITR 464 (Bom)]: Harikishan Sunderlal Yirmani v Deputy Commissioner of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further reveled that in the case of the Assessee Client Code was modified 188 times during the year under consideration; out of which 105 times. Client Code was modified when the Assessee was original client. It means the Client Code of the Assessee was substituted by some other Client Code after execution of the transaction. In remaining 83 cases, the Assessee's Client Code was placed as modified Client in place of original Client's Code. On page 5 & 6 of the Assessment Order, the Assessing Officer has given the details of CCM in the case of the Assessee and resultant loss of Rs. 5,96,176/-. On page 7 & 8 of the Assessment Order, the Assessing Officer has given some details of original Client Code and modified Client Code demonstrating that the so called errors were not possible on the Qwerty Keyboard. 7.2 The Appellant has, inter alia, submitted that there should be a complete linkage and direct correlation between the formation of reason to believe and the conclusion as to the income escaping assessment. It is submitted that the reasons to believe for reopening the assessment must have a rational, intimate and direct connection or relevant bearing on the formation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. In a recent judgment, the Hon'ble Punjab & Haryana High Court in the case of Rakesh Gupta vs. C1T, Punehkula (2018), 93 taxinann.com 271 held that reassessment on the basis of information received from Pr. DIT. Investigation that Assessee had received bogus loss from his broker by CCM. was justified. 7.4 In view of the above facts and in the circumstances, I uphold the action of the Assessing Officer to initiate reassessment proceedings by issuing the notice u/s 148 of the IT Act." 5. We have heard the rival submissions and perused the orders of the lower authorities and material available on record. In the instant case, the assessee filed its original return of income on 30.09.2009 disclosing total income at a loss of Rs. 15,07,250/-. The said return of income was accepted u/s 143(1) of the Act. 6. Thereafter, the case of the assessee was reopened by issuance of notice u/s 148 of the Act. The Commissioner of Income Tax (Appeals) upheld the validity of the said notice. 7. I find that the reasons recorded for issuance of notice u/s 148 was as under: "REASONS FOR BELIEF THAT THE INCOME HAS ESCAPED ASSESSMENT IN THE CASE OF SHRI GOPAL GUPTA FOR THE ASSESSMENT YEAR 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Vs. ACIT (2007) 291 ITR 500/161 Taxman 316 (Supreme Court). The Hon'ble apex Court has held that:- "All that is required for the Revenue to assume valid jurisdiction u/s 148 is the existence of cogent material that would lead a person of normal prudence, acting reasonable, to an honest belief as to the escapement of income from assessment." Also, in the case of Phool Chand Bajrang Lal Vs ITO 203 ITR 456 (SC). The Hon'ble apex Court has held that:- "An assessment completed u/s 143(3) but later on information received which was indefinite, specific and reliable and the AO duly recorded the reasons for his belief that the assessee had not fully and truly disclosed particulars of his income and hence there was escapement of income. Held that the reopening of the case was valid." Also, in the case of Raymond Woollen Mills Ltd 236 ITR 34 (SC). The Hon'ble apex Court has held that:- "Assessee did not include certain direct manufacturing costs and fiscal duties in the valuation of closing stock. This came to light in the subsequent years assessment proceedings. We have only to see whether there was prima facie some material on the basis of which the Department coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taking place in derivatives transactions at the National Stock Exchange during March 2010. in this it was found that client code modification is being used for tax evasion. CCM is legally permitted to rectify inadvertent errors in punching the orders. however, there was concern that such modification could be misused for manipulative activities in the market. This has been established in the analysis of data by SEBI wherein it was established that Client Code Modification (CCM) done on NSE. F&O segment was of a nature that establishes that it was not for genuine purposes. This has been established true in the finding of the investigation unit while analysis the data for four years. In this regard, survey has been conducted by Ahmadabad Investigation Directorate u/s 133A of the IT Act. 1961 at the premises of 12 brokers and few of them clients across India on 23.03,2015. In this survey also was found that Client Code Modification (CCM) is being used as a tool for tax evasion by the brokers After analysis of data it was concluded that 4890 assessee have availed contrived losses of Rs. 1206,18.25.287/- in the four years out of which Rs. 580,12,39.534/- pertains to A.Y. 2009-10. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... modifications taking place in derivatives transactions at the National Stock Exchange during March 2010. In this it was found that client code modification is being used for tax evasion. CCM is legally permitted to rectify inadvertent errors in punching the orders, however, there was concern that such modification could be misused for manipulative activities in the market. This has been established in the analysis' of data by SEC! wherein it was established that Client Code Modification (CCM) done on NSE, F&O segment was of a nature that establishes that it was not for genuine purposes. This has been established true in the finding of the investigation unit while analysis the data for four years. In this regard, survey has been conducted by Ahmadabad Investigation Directorate u/s 133A of the IT Act, 1961 at the premises of 12 brokers and few of their clients across India on 23.03.2015. In this survey also was found that Client Code Modification (CCM) is being used as a tool for tax evasion by the brokers-. After analysis of data it was concluded that 4890 assessees have availed contrived losses of Rs. 1206,18,25,287/- in the four years out of which Rs. 580,12,39,534/- pert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s because of some malafide reason and the assessee has received cash in lieu of payment made for loss of Rs. 2,07,040/- in the case of M/s. Prashant Agencies Pvt. Ltd. and Rs. 2,47,312/- in the case of M/s. PPN Properties Private Limited. Thus, the above recording does not satisfy requirement of law which is mandatory for assuming jurisdiction to reopen the assessment. My above view is supported by decision of Hon'ble Bombay High Court in the case of Coronation Agro Industries Limited Vs. DCIT reported in 390 ITR 464. Therefore, the reassessment orders passed pursuant to the above recording are hereby quashed and ground of appeals of the assessee is allowed." 10. A perusal of the above, shows that Client Code Modification is legally permissible in case of mistake. In the instant case, the observation of the Assessing Officer is to the effect that due to Client Code Modification in two transactions, the assesse's income was reduced by Rs. 5,96,176/-. 11. We find that there is no material which has been brought out in the recorded reasons to show that Client Code Modification in the instant case was malafide or the assessee received Rs. 5,96,176/- in cash in lieu of the said Client ..... X X X X Extracts X X X X X X X X Extracts X X X X
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