2021 (2) TMI 176 - AT - Income Tax

Tribunal quashes assessment reopening under Section 147, deletes additions, allows assessee's appeal.

R.S. Shares And Securities Ltd. Versus ITO Ward 20 (4) New Delhi.

R.S. Shares And Securities Ltd. Versus ITO Ward 20 (4) New Delhi. - [2021] 86 ITR (Trib) 269 (ITAT [Del]) Issues Involved:1. Validity of reopening the assessment under Section 147 of the Income Tax Act.2. Addition on account of shifting ascertained losses of Rs. 4,94,027 due to client code modification.Issue-wise Detailed Analysis:1. Validity of Reopening the Assessment under Section 147:The assessee challenged the reopening of the assessment on the grounds that the Assessing Officer (AO) recorded incorrect and non-existent reasons, and the approval for reopening was granted in a mechanical manner. The AO mentioned reopening under Section 147(b) of the Act, which does not exist in the statute for the relevant assessment year. The AO also incorrectly named M/s SMC Global Securities Limited as the broker, whereas the assessee dealt with M/s Mansukh Securities Finance Limited.The Tribunal noted that the AO did not apply an independent mind to the information received from the Investigation Wing, Ahmedabad, regarding client code modification (CCM). The Tribunal referenced the case of M/s Stratagem Portfolio Pvt. Limited Vs. DCIT, where it was held that reopening of assessment based on such incorrect and non-existent reasons is invalid and bad in law.The Tribunal further observed that the reasons recorded by the AO did not indicate any tangible material to form a 'reason to believe' that income had escaped assessment. The AO's belief was based on suspicion rather than concrete evidence. The Tribunal cited several judicial precedents, including the Hon'ble Bombay High Court's decision in M/s. Coronation Agro Industries Ltd. vs. DCIT, which emphasized that reopening of assessment requires specific, relevant, reliable, and tangible material on record.The Tribunal concluded that the reopening of the assessment was not justified as it was based on incorrect facts and mechanical approval. Consequently, the reassessment proceedings were quashed.2. Addition on Account of Shifting Ascertained Losses of Rs. 4,94,027:The AO disallowed the ascertained loss of Rs. 4,94,027 due to client code modification and added it to the assessee's income. The assessee argued that the addition was made without any basis and that the transactions were genuine and supported by documentary evidence.The Tribunal noted that the AO's belief that the client code modification was done for evasion of tax was without any tangible material. The AO merely acted on the information received from the Investigation Wing without conducting an independent inquiry. The Tribunal referenced multiple decisions, including those of the ITAT Delhi Division Bench, which held that client code modification alone does not constitute valid grounds for addition unless there is concrete evidence of tax evasion.The Tribunal found that the AO's addition was speculative and based on generalized statements and theoretical assumptions. The assessee's transactions were supported by contract notes and account payee transactions, and there was no specific evidence to establish that the claim was not genuine. Therefore, the Tribunal deleted the addition made by the AO.Conclusion:The Tribunal quashed the reopening of the assessment under Section 147 due to incorrect and non-existent reasons and mechanical approval. Consequently, all additions, including the disallowance of ascertained losses of Rs. 4,94,027, were deleted. The appeal of the assessee was allowed in full.