2019 (5) TMI 1705 - AT - Income Tax

Appeal Allowed, Notice Quashed, Reassessment Void | Insufficient Evidence | Decision Date: 16.05.2019

Rekhi Holdings Pvt. Ltd. Versus ACIT, Central Circle-14, New Delhi.

The Tribunal allowed the appeal, quashing the notice under Section 148 and the reassessment proceedings due to lack of jurisdiction and invalidity. The ... Addition being the profits of the company on account of large-scale client code modification - HELD THAT:- Hon'ble Bombay High Court in the case of PCIT vs. PAT Commodity Services Pvt. Ltd. [2019 (2) TMI 720 - BOMBAY HIGH COURT] has dismissed the appeal filed by the Revenue against the order of the Tribunal in deleting the addition being the profits of the company on account of large-scale client code modification. Since, in the instant case, the AO has not pointed out any basis or material or evidence to support his finding that the assessee has received entry of fictitious losses and has not spelt out in the reasons recorded as well as the assessment order as to on which scrips the assessee has taken loss entries and in the order nowhere it has been mentioned of any statement of broker of the assessee regarding the admission of any fictitious client code modification, therefore, opinion that the addition made by the AO and sustained by the CIT(A) is not justified. Accordingly, the ground raised by the assessee on merit is also allowed. - Appeal filed by the assessee is allowed. Issues Involved:1. Jurisdiction of the Assessing Officer (AO) in issuing notice under Section 148.2. Validity of reassessment proceedings under Section 147.3. Addition of Rs. 40,25,433/- on account of Client Code modification.4. Charging of interest under Sections 234A, 234B, 234C, and 234D.Detailed Analysis:1. Jurisdiction of the Assessing Officer (AO) in Issuing Notice under Section 148:The primary issue was whether the DCIT, Circle 21(1), New Delhi, had the jurisdiction to issue a notice under Section 148 on 20th March 2015, given that the jurisdiction over the assessee was with Central Circle-15, New Delhi, from 20th July 2012 to 3rd August 2017. The Tribunal found that the notice issued by DCIT, Circle 21(1), was without jurisdiction as it was issued by an officer who did not have jurisdiction over the assessee at that time. This was supported by several precedents, including CIT vs. Smt. Anjali Dua and Ranjeet Singh vs. ACIT, which established that a notice issued by an officer without jurisdiction is invalid.2. Validity of Reassessment Proceedings under Section 147:The Tribunal examined whether the reassessment proceedings initiated under Section 147 were valid. The assessee argued that the reassessment was based on vague reasons and constituted a mere change of opinion. The Tribunal agreed, noting that the AO had relied on a report from the Investigation Wing without conducting any independent inquiry. The Tribunal referenced the decision in M/s Coronation Industries Ltd. vs. DCIT, where it was held that mere client code modification by a broker does not constitute a reason to believe that income has escaped assessment. The Tribunal concluded that the reassessment proceedings were void and quashed the subsequent addition based on such reassessment.3. Addition of Rs. 40,25,433/- on Account of Client Code Modification:The Tribunal scrutinized the addition of Rs. 40,25,433/- made by the AO, which was based on the allegation that the assessee had taken fictitious loss entries through client code modification. The Tribunal found that the AO had not provided any material evidence or specific details about the scrips involved or any broker statements confirming fictitious client code modifications. The Tribunal referenced the decision in PCIT vs. PAT Commodity Services Pvt. Ltd., where it was held that without evidence of income earned by the assessee through such modifications, the addition was impermissible. Consequently, the Tribunal held that the addition was unjustified and allowed the assessee's appeal on this ground.4. Charging of Interest under Sections 234A, 234B, 234C, and 234D:The Tribunal did not specifically address the issue of charging interest under Sections 234A, 234B, 234C, and 234D. However, given that the reassessment proceedings and the subsequent addition were quashed, the charging of interest under these sections would also be rendered moot.Conclusion:The Tribunal allowed the appeal filed by the assessee, quashing the notice issued under Section 148 and the reassessment proceedings on the grounds of lack of jurisdiction and invalidity of the reassessment. The addition of Rs. 40,25,433/- was also deleted due to lack of evidence and proper basis. The decision was pronounced in the open court on 16.05.2019.