2021 (2) TMI 176 - AT - Income Tax

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

The Tribunal quashed the reopening of the assessment under Section 147 due to incorrect and non-existent reasons and mechanical approval. Consequently, ... Reopening of assessment u/s 147 - addition on account of shifting ascertained losses - reason to believe or reason to suspect - HELD THAT:- It is well settled law that validity of the reassessment proceedings is to be determined on the basis of the reasons recorded for reopening of the assessment. AO in the same has mentioned that provisions of section 147(b) are applicable in this case for reopening of the assessment, however, this section does not exist in the statute for assessment year under appeal. Further, the entire reopening is based on information received from ADIT(Inv.) Ahmedabad for shifting out profits using client code modification. It is alleged in the reasons that on the basis of information received from ADIT(Inv.) M/s SMC Global Securities Limited broker has shifted out the profits using client code modification for the assessee to claim losses. Pr. CIT while approving the reasons merely mentioned “yes I am satisfied” The assessee filed objections to the reopening of the assessment and explained before AO that M/s SMC Global Securities Ltd. broker has not done anything for assessee and assessee did not deal with such broker, therefore, there is no question of loss claimed through this broker. The assessee further explained that assessee had carried out transactions through M/s Mansukh Securities Finance Limited. AO recorded incorrect and wrong facts in the reasons for reopening of the assessment. Though the AO rejected the objections of the assessee but in the rejection order confirmed that assessee carried out the transactions through Mansukh Securities Finance Limited, therefore, there is no question of assessee arranging any loss through transaction involving CCM through SMC Global Securities Broker. The reasons do not indicate the basis for the Assessing Officer to come to reasonable belief that there has been any escapement of income on the ground that the modifications done in the client code was not on account of genuine error, originally occurred while punching the trade. The material available is that there is a client code modification done by assessee broker which fact is also incorrect and there is no link from there to conclude that it was done to escape assessment of a part of its income. In case incorrect, wrong and non existing reasons are recorded by the AO for reopening of the assessment and that AO failed to verify the information received from Investigation wing, the reopening of the assessment would be unjustified and is liable to be quashed. Considering the above discussion, it appears to be a case of reason to suspect and not reason to believe that income chargeable to tax has escaped assessment, therefore, reopening of the assessment is bad in law and the AO would not get valid jurisdiction to proceed for reassessment. The decisions cited by the DR would not be applicable to the facts of the case - we set aside the orders of the authorities below and quash the reopening of the assessment. Resultantly all additions stands deleted. - Decided in favour of assessee. 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.