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TMI Blog2020 (11) TMI 860X X X X Extracts X X X X X X X X Extracts X X X X ..... t order ultimately passed by the Assessing Officer, no addition was made on this account. The Ld. PCIT found the order prima facie erroneous and prejudicial to the interest of the Revenue since, as per her, even though the quantum analysis clearly showed manipulation of profits by the assessee, yet the AO made no addition. Accordingly exercising her revisionary powers u/s. 263 of the Act, show cause notice was issued to the assessee and thereafter, after considering the reply of the assessee, the Ld. Pr. CIT held the order passed by the AO u/s. 147 of the Act to be erroneous so as to cause prejudice to Revenue and accordingly cancelled the assessment, directing fresh assessment on the issue. 3. The assessee has now come up in appeal before us raising the following grounds challenging the order of the Ld. PCIT. 1. That the Ld. Pr. Commissioner of Income Tax-2, Chandigarh has wrongly passed order under section 263 of Income Tax Act without jurisdiction over assessing officer who framed the assessment u/s. 143(3) r.w.s. 147 of Income Tax Act. 2. That the assessment order having been passed by the Assessing Officer after making due enquiry & due application of mind and taking into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 27/10/2016 for calling of information given by ACIT, Circle 3(1), Chandigarh to Mansukh Securities & Finance Limited, Chandigarh 47-47 6. Copy of reply dated 03/11/2016 by Mansukh Securities & Finance Limited to letter dated 27/10/2016 for calling of information given by ACIT,Circle 3(1), Chandigarh. 48-64 That Ld. PCIT by exercising her jurisdiction u/s. 263 on the very same issue was trying to impose her view for which purpose the said powers u/s. 263 could not be exercised. iii) That in any case, even on merits, the issue did not call for any addition since the Client Code Modification was an inadvertent punching error which had occurred in few cases out of the innumerable transactions undertaken by the assessee and the error was within the permissible normal range of punching errors. Our attention was drawn to the reply filed before the Ld. Pr. CIT placed at P.B. page no. 70-92 in this regard. 5. The Ld. DR on the other hand, has relied on the order of the Ld. PCIT. 6. We have heard the parties. We have also carefully gone through the order of the Ld. PCIT and the various documents placed before us in the form of paper book. On going through all the above we find th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red a generic explanation which is an articulate corroboration of the inference that the assessee has nothing to offer in terms of an explanation. As the assessee has brought down his taxable income by shifting out profits and shifting in the losses, the onus lay clearly lay on the assessee to justify the same as the department had already confronted the incriminating evidence and the order had been passed by AO at returned income without making inquiries or verification which should have been made. The assessee cannot merely shrug away from its responsibility to explain the clear cut data which shows that the profits of the assessee were shifted out. In support of this proposition relating to the responsibility of the assessee, an extract from the decision of Hon'ble ITAT (Mumbai) in the case of Ashok Goyal (HUF) Vs. ACIT in Income Tax 4172/Mum-2012 is reproduced hereunder: "Regarding Client Code Modification (in short CCM") related allegations of the AO, we find that the NSE has a definite policy in this regard We find the AO made enquiries with the NSE, who replied to the AO vide the letter dated 3.11.2010. The same is extracted at para 4.1 of the Assessment order. On pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show how the AO accepted the generic reply of the assessee particularly when the Client Code Modification clearly indicated by the number of edits that these were not genuine errors. As per guidance in the ruling mentioned supra above in Para 8 the assessee should have been asked by the AO to demonstrate * on what basis the client code 'CE' of the assessee was similar to the codes of the modified clients. * none of the documents placed on the file indicate how he accepted the explanation of the assessee in the fact of contrary evidence provided to him in the data shared by the Investigation Wing. * The assessee in its reply filed before A.O. in two pages placed at Annexure-2 has provided only a generic reply and the A.O. without making proper enquiry has accepted the same. * Even in 263 proceedings before the undersigned dated 25-03-2019, reproduced supra taxpayer has stated that CCM was carried out as a correction of inadvertent errors only and not for any shifting of profit and that these corrections are negligible in numbers and insignificant in amount involved as compared to the crores of transactions carried out by the company during the year under considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nformation pertaining to above Client Codes is placed on the assessment folder, however the Client Codes mentioned in the covering letter are STFRI01, SRI01, STFBS05 which do not tally with information supplied being SR101, QBS05, or that at annexure to computation being SR101, QR101, QB505. Income being accepted at returned under assessed without even examining even basic audited accounts particularly when the information collected u/s. 133(6) showed that net profits as a result of trading done by the taxpayer was much more than reflected in its Income tax Return." 6.2. Based on these findings, she had concluded that the order of the AO was erroneous, at page 14 of her order as under: The facts discussed supra when placed in the perspective of the above jurisprudence and provisions of section 263, inter-alia including Explanation 2(a) make it evident that the queries raised during revision proceeding u/s. 263 of the IT. Act, 1961 remain unverified and that the order was passed by AO without making enquiries or verification which should have been made and has resulted in a claim being allowed without enquiring into it. Perusal of the above table will show that income has been ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is fixed for hearing before the undersigned on 22.03.2019 at 11.00 A.M. In case of non-compliance, it would be presumed that you have nothing to say in this regard and order u/s. 263 would be passed on merits on the basis of material available on record. 6.4. As is evident from the above, the show cause notice mentions that it was to the notice of the Ld. Pr. CIT the assessee had availed contrived losses, however despite specific information to this effect no addition was made by the A.O. This, by no means can be read as the A.O. having made no inquiry on the issue, for which reason the Ld. Pr. CIT has held the order passed by the A.O. to be erroneous. 6.5. Further the Ld. Pr. CIT, has based her conclusion of the AO not having conducted enquiry, by pointing out, besides other things, that the AO had not looked into the statements of the transactions conducted by the assessee submitted by the brokers during assessment proceedings, which revealed clearly that the assessee had earned huge profits but had actually returned to tax less profits. But the assessee, we find, was never put to notice regarding this. The show cause notice finds no mention of the same. Clearly, the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share trading transaction, showing Net profit of 1158692.40 from annexure 1 to 12, 13 in the table above, actually has been taken from the mark to market ('mtm') adjustments on trading in Future and Options, being the total of Future Mtm 77,88,893 + option Mtm 37,98,019. Firstly, we find, that the figure has been incorrectly taken as Rs. 11,58,692.40 instead of Rs. 1,15,86,912.40. Further the 'mtm' markings are not the profits earned by the assessee on account of trading in futures and options, but represent the daily settlement of the unsold trades at their prevailing market price. Therefore, the Ld. PCIT we find has neither picked up the correct figures from the statement of accounts submitted by the brokers, nor understood what the figures represented and accordingly arrived at an incorrect finding that the assessee had not reflected true profits, running in crores, earned on trading in futures and options. 7.1. The vague and illogical show cause notice, the incorrect interpretation of documents by the Ld. Pr. CIT all show the arbitrary manner in which this extraordinary power to revise the order of the AO has been exercised by the Ld. Pr. CIT. 7.2. Further, we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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