TaxTMI 
TaxTMI 
2018 (12) TMI 571
X X X X Extracts X X X X
X X X X Extracts X X X X
....ceedings initiated are illegal, untenable and therefore, unsustainable. 1.2 That the learned Commissioner of Income Tax (Appeals) has further failed to appreciate that reasons recorded mechanically without application of mind do not constitute valid reasons to believe for assumption of jurisdiction u/s 147 of the Act. 1.3 That approval granted is a mechanical approval and hence initiation of proceedings u/s 147 of the Act on this ground also is invalid. 2 That the learned Commissioner of Income Tax (Appeals) has further erred both in law and on facts in upholding an addition of Rs. 6,05,037/- representing alleged unexplained credit entries u/s. 68 of the Act. 2.1 That addition of Rs. 27,235/- being alleged profit shift6ed out by the appellant and Rs. 5,75,100/-, being alleged loss shifted by appellant aggregating to Rs. 6,02,335/- by adopting client code modification facility in connivance with broker is entirely unsubstantiated and, thus untenable. 2.2 That further more the learned Commissioner of Income Tax (Appeals) has proceeded to sustain the additions on mere speculation, generalized statements, theoretical assumptions and allegati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....10 declaring loss of Rs. 10,624/-. Subsequently, information was received from the Investigation Wing, Ahmedabad that client code is a practice under which brokers change the client codes in sale and purchase orders of securities after the trades are conducted. The case was accordingly reopened u/s. 147 of the Income Tax Act, 1961 (in short "Act") and Notice u/s. 148 of the Act was issued on 29.3.2017 to the assessee. Thereafter, order u/s. 143(3)/147 of the Act was passed on 08.12.2017, assessing the income at Rs. 5,95,410/- after disallowing loss of Rs. 6,02,335/- due to change of client code and disallowance of Rs. 3,702/- on account of commission of 2% for the entry. 3. Aggrieved with the aforesaid assessment order dated 08.12.2017, assessee appealed before the Ld. CIT(A), who vide his impugned order dated 01.6.2018 has affirmed the action of the AO and dismissed the appeal of the assessee. 4. During the hearing, Ld. Counsel of the assessee stated that learned Commissioner of Income Tax (Appeals) has grossly erred both in law and on facts in upholding the initiation of proceedings under section 147 of the Act and, completion of assessment u/s 147/143(3) of the Act without....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Corporation. 15. 103 ITR 437 (SC) ITO vs. Lakhamani Mewal Das. 16. 384 ITR 147 (Del.) Pr. CIT vs. G&G Pharma India Ltd. 17. ITA No. 4908/Del/2012 dated 31.3.2015 Jiten Gurnani vs. ITO 18. ITA No. 1372/D/2015 dated 28.10.2015 Unique Metal Industries vs. ITO 19. ITA No. 512/D/2015 dated 2.12.2015 Punjab Metal Store vs. ITO 20. ITA No. 5128/D/2015 dated 22.4.2016 Banke Bihari Properties (P) Ltd. v. ITO ITA No. 6558/D/2014 dated 31.8.2016 R.K. Garg Developers (P) Ltd. v. ITO 21. 299 ITR 383 (Del) CIT vs Atul Jain dated 23.5.2007 22. ITR 285 (Del) CIT vs SFIL Stock Broking Ltd. dated 27.4.2010 23. 329 ITR 110 (Del) Sarthak Securities Co. (P) Ltd. vs ITO dated 18 October 2010 24. 338 ITR 51 (Del) Signature Hotels (P) Ltd. vs. ITO dated 21.7.2011 25. ITA No. 1395/2008 (Del) Smt. Meera Kapoor vs. CIT dated 31.8.2012 26. 357 ITR 24 (Del) CIT vs. Suren International (P) Ltd. dated 7.5.2013 27. 357 ITR 330 (Del) CIT vs. Insecticides (India) Ltd. dated 20.5.2013 28. 303 ITR 155 (Del.) CIT vs. Indian Sugar and Gen. Ind. Ex dated 30.07.2007 29. 319 ITR 221 (Del)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and Notice u/s. 148 of the Act was issued on 29.3.2017 to the assessee. Thereafter, order u/s. 143(3)/147 of the Act was passed on 08.12.2017, assessing the income at Rs. 5,95,410/- after disallowing loss of Rs. 6,02,335/- due to change of client code and disallowance of Rs. 3,702/- on account of commission of 2% for the entry. I further note that the AO while recording the reasons for the belief that income has escaped assessment has recorded the reasons as under:- 1 Name and address of the assessee M/s Radiance Stock Traders Pvt. Ltd. C-159, 1^st floor, PhaseI, Ashok Vihar, New Delhi - 52 2 Permanent Account No. AACCR8298Q) 3 Status Company 4 District/circle/Range Ward 20(4), New Delhi 5 Assessment year in respect of which it is proposed to be issued notice u/s. 148 of the Income Tax Act. 2010-11 6. The quantum of income which has escaped assessment Rs. 6,02,335/- 7. Whether the clauses (a), (b) or (c) of the explanation 2 to the second proviso of section 147 are applicable. Yes, provisions of section 147(b) applicable. 8 Whether the assessment is proposed to be made for the first time? If reply is i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e facility ensures smooth functioning of the system and is to be used as an exception rather than routine. Client code modification means modification of client code after the execution of trade. Over a period of time, some persons, in connivance with brokers started using Client Code Modifications for purposes other than genuine errors. Contrary to its motive, CCM facility was being misused and brokers transferred gains or losses from one person to another by changing the code, in the garb of correcting an error. These gain or loss book entries were then used to evade taxes. 4. Non genuine CCM were carried out to book contrived losses. In some cases, this facility was used by brokers to transfer gains or losses from one party to another by modifying client codes in the guise of rectifying an error. It became a practice to book artificial profits or losses in March to impact tax liabilities. It is generally done by buying or selling stocks intraday so as to say consciously incurs a loss and use that as a tax offset. Client Code Modification (CCM) especially in the Futures and Options Segment (F&O) was being used a devise to evade taxes wherein the client codes were modifie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ailure of the assessee to disclose fully and truly all the material facts necessary for its assessment. Thus, this specific condition for reopening is hereby fully filled in the instant case as assessee has failed to disclose such material facts on its own earlier. The case is squarely covered under the provisions of section 147 of the Income Tax Act, 1961. 6. Since more than 4 years from the end of the since more than 4 years from the end of the relevant assessment year have elapsed, approval of Pr. Commissioner of Income Tax, Delhi -7 is solicited in terms of the provisions of section 151(1) of the Act. 12. Whether the Addl. CIT is satisfied on the reasons recorded by the AO that it is a fit case for issue of notice u/s. 148 of the I.T. Act, 1961 Addl. CIT, Range-20, New Delhi 13. Whether the Pr. Commissioner of Income Tax is satisfied on the reasons recorded by the DCIT, that it is a fit case for the issue of notice u/s. 148. Yes. I am satisfied. Sd/- Pr. Commissioner of Income Tax, Delhi -7, New Delhi" 6.1 After perusing the aforesaid reasons recorded, I find that 'information' was received on 21.3.2016 from Asstt. Dire....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e very same letter of the AO dated 15th September 2010 which has been reproduced in its entirely in the impugned order of the ITAT. He submitted that the AO was himself present in the Court and further efforts would be made to locate the materials on the basis of which the AO formed his opinion regarding reopening of the assessment. The Court was not prepared to grant further time for this purpose since it was not clear that the materials were, in fact, available with the Department. 12. In the present case, after setting out four entries, stated to have been received by the Assessee on a single date i.e. 10th February 2003, from four entities which were termed as accommodation entries, which information was given to him by the Directorate of Investigation, the AO stated: "I have also perused various materials and report from Investigation Wing and on that basis it is evident that the assessee company has introduced its own unaccounted money in its bank account by way of above accommodation entries." The above conclusion is unhelpful in understanding whether the AO applied his mind to the materials that he talks about particularly since he did not describe what those mater....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of notice u/s. 148 of the I.T. Act. Thereafter, the AO has mechanically issued notice u/s. 148 of the Act, on the basis of information allegedly received by him from the (Inv.)), Unit 1(3), Ahmedabad. Keeping in view of the facts and circumstances of the present case and the case law applicable in the case of the assessee, I am of the considered view that the reopening in the case of the assessee for the asstt. Year in dispute is bad in law and deserves to be quashed. My aforesaid view is fortified by the following decisions:- (A) Hon'ble Delhi High Court in the case of Pr. CIT vs. M/s NC Cables Ltd. in ITA No. 335/2015 has held as under:- 11. Section 151 of the Act clearly stipulates that the CIT(a), who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The mere appending of the expression 'approved' says nothing. It is not as if the CIT(A) has to record elaborate reasons for agreeing with the noting put up. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner. In the present case, the exercise appears to have been ritualistic and formal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....well settled law that reasons alone can be looked into and, cannot be supported by any supplementary or additional material. 6.6 I further note that Assessing Officer at page no. 2 of his assessment order dated 8.12.2017 u/s. 147/143(3) of the Act stated as under:- "Objection to reopening Assessee filed objection vide letter dated 24.11.2017 to the notice u/s. 148/reason recorded. Removal of objection The objection filed by the assessee were rejected vide order dated 27.11.2017." 6.6.1 After perusing the aforesaid extracts from the assessment order, it is evident that the assessee has raised objection to initiation of assessment proceedings u/s. 147 of the Act vide letter dated 24.11.2017 and the aforesaid objections were disposed of by the AO vide order dated 27.11.2017, which shows that the AO did not accept the objections so filed, he shall not proceed further in the matter with in a very short period of service of order disposing off objection, however, he has made the order of assessment u/s. 147/143(3) of the Act on 8.12.2017, which is not in accordance with law and not permissible. This view is fortified by the following decisions:- ....