2018 (7) TMI 59 - AT - Income Tax

Tribunal quashes reassessment due to limitation, voiding addition of Rs. 1,62,75,825.

Prabhu Dayal Aggarwal Versus ACIT, Circle- 59 (1), New Delhi

The Tribunal allowed the appeal, quashing the reassessment proceedings initiated by the Assessing Officer as they were barred by limitation, rendering ... Reopening of assessment - proceedings initiated after a period of 4 years - Held that:- In the instant case the assessment was completed u/s 143(3) on 24.12.2011 and there is no allegation of any failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment for which income has escaped assessment. Therefore, the proviso to section 147 is clearly applicable to the facts of the present case. CIT(A) has not addressed the case of the assessee from this angle, therefore, his finding on the issue of validity of reassessment proceedings is incorrect and not in accordance with law. We, therefore, hold that the reassessment proceedings initiated after a period of 4 years from the end of the relevant assessment year where the original assessment was completed u/s 143(3) is barred by limitation and, therefore, void ab-initio. Such reassessment proceedings initiated by the Assessing Officer is bad in law and void ab-initio. Accordingly, the same is quashed - Decided in favour of assessee. Issues Involved:1. Validity of reopening of assessment under sections 147/148 of the Income-tax Act.2. Addition of Rs. 1,62,75,825/- due to client code modification (CCM) and treating it as contrived loss.Detailed Analysis:Issue 1: Validity of Reopening of Assessment under Sections 147/148:The assessee challenged the reopening of the assessment on the grounds that it was based on vague, unspecific, incomplete, and unreliable information. The original assessment was completed under section 143(3) on 24.12.2011, and the reopening notice under section 148 was issued on 31.03.2016, beyond the four-year period stipulated by the proviso to section 147. The assessee argued that there was no failure on their part to disclose fully and truly all material facts necessary for the assessment, and thus, the reopening was barred by limitation.The CIT(A) upheld the reopening, stating that the Assessing Officer (AO) had specific information regarding the conduct of the assessee that was previously unknown. The AO was required by law to process this information and examine if any income had escaped assessment. The CIT(A) referenced several rulings, including the Supreme Court decision in CIT vs. PVS Beedis Private Limited, to support the validity of the reopening.However, the Tribunal found that the AO did not mention the original assessment under section 143(3) in the notice issued under section 148 or in the reassessment order. The Tribunal noted that there was no allegation of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Consequently, the Tribunal held that the reassessment proceedings initiated after the four-year period were barred by limitation and thus void ab initio. The Tribunal quashed the reassessment proceedings on this basis.Issue 2: Addition of Rs. 1,62,75,825/- Due to Client Code Modification (CCM):The AO made an addition of Rs. 1,62,75,825/- to the assessee's income, alleging that the assessee had obtained accommodation entries through client code modification (CCM) facilities misused by the broker M/s Amrapali Aadya Trading & Investment Pvt. Ltd. The AO referred to a survey conducted under section 133A, which revealed large-scale client code modifications by the broker to facilitate losses and profits for clients. The AO relied on the statement of Shri Sanjeeva Kumar Sinha, Director of the broker company, who admitted to the misuse of CCM for purposes other than rectification of punching errors.The assessee argued that the AO's conclusions were misconceived and erroneous. They contended that keying mistakes are inevitable in the business of online share trading and that all transactions were genuine, conducted at market rates, and backed by payments or receipts. The assessee also argued that the broker's statement was recorded at variance with the terms of law and could not be used for any meaningful action.The CIT(A) rejected the assessee's arguments and upheld the AO's addition, stating that the AO had specific information regarding the misuse of CCM and that the addition was justified.However, since the Tribunal quashed the reassessment proceedings on the grounds of being barred by limitation, the arguments challenging the addition on merit were not adjudicated and became academic in nature.Conclusion:The Tribunal allowed the appeal filed by the assessee, quashing the reassessment proceedings initiated by the AO as they were barred by limitation and thus void ab initio. Consequently, the addition of Rs. 1,62,75,825/- due to CCM was not adjudicated on merit.