TaxTMI 
TaxTMI 
2019 (6) TMI 990
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....nal, Mumbai (hereinafter called "the tribunal") read as under:- "A) Re-opening is bad in law and reassessment order passed is liable to be quashed 1. The Ld. CIT(A) erred in confirming the reopening of the assessment without appreciating that the reopening of the assessment is bad in law, invalid and liable to be quashed in as much as- a) reasons recorded for reopening of the assessment are reason to suspect and not reason to believe. b) reopening is upon direction of third party and therefore borrowed reasons; c) without any tangible material available; and d) without any proper application of mind and even the amount referred in the reasons recorded is incorrect. Without prejudice to the above, on merits: B) Disallowance of part of F & O Loss - Rs. 31,98,597/- 2. The learned CIT(A) erred in confirming the disallowance of F & O loss of Rs,31,98,597/- only on the reason that there was Client Code Modification (CCM) done by the broker in respect of the transactions where loss of Rs. 31,98,597/ is incurred and hence, only on assumption and presumption the disallowance of loss of Rs. 31,98,597/- is withou....
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....o. DIT(I&CI)/CCM/2014-15 dated 27.02.2015 through learned PCIT that some brokers were misusing the Client Code Modification facility in the F&O segments on NSE and had created non-genuine profit and loss. It was observed by the AO that these Loses and Profits were given by these brokers to their different clients/beneficiaries according to their requirements. The AO observed that clients had taken fictitious loses to set off against their profits with a view to reduce their tax liability. As per information received by the AO, the assessee was one of the beneficiary of the Client Code Modification as the name of the assessee also appeared in the beneficiaries list who had taken fictitious F&O Loses through the broker Inventure Growth & Securities Ltd. (hereinafter called "Inventure") , during the financial year 2009-10 relevant to AY 2010-11, to the tune of Rs. 31,98,597.50, which income as per AO had escaped taxation , the details of which are as hereunder:- Original Client Name PAN Profit to original client because of client code modification Modified client name PAN loss to modified client because of client code modification G F L FINANCIALS INDIA AABCG05....
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....re modified as per the guidelines issued by the Exchange. We further submit to your honor that during the financial year 2009-10, we have more than Rs. 97,000 crore trading volume in NSE F&O segment Where as the total client code modification is less than 1% of the total trading volume." 3.7. The AO considered the aforesaid reply of the Broker Inventure and observed that they have not answered the specific question despite specifically asked to explain reasons and nature for such client code modifications in respect of the F&O transactions entered into by the assessee with them. The AO was of the view that the reply of the broker Inventure is evasive and general wherein specific replies were not given by Inventure.It is pertinent to mention that the enquiries with Brokers including Inventure was made by the AO after receipt of aforesaid information from learned DIT(I & CI) received through learned PCIT but before issuance of notice u/s 148 of the 1961 Act. 3.8 The AO also observed that spot verifications u/s 131(1A) of the 1961 Act was carried out by Revenue on brokers who were indulging in client code modifications and they have confirmed that they misused the facility of cl....
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.... are genuine but it did not found favour with Ld. CIT(A) , who was pleased to dismiss the appeal of the assessee on merits as well challenge raised by the assessee to the reopening of the concluded assessment by AO u/s 147 of the 1961 Act, but while so far as alleged commissions paid to broker Inventure on alleged bogus F&O Losses which were added as undisclosed income of the assessee by the AO to the tune of 5% of alleged bogus F&O Less, the learned CIT(A) was pleased to reduce the additions to the tune of 1% of the alleged bogus F&O Losses as against additions to the tune of 5% of alleged bogus F&O Losses made earlier by the AO in reassessment order, vide appellate order dated 31.07.2017 passed by learned CIT(A) , wherein learned CIT(A) held on merits as under:- "3.2 I have considered the finding of the Assessing Officer, rival submission of appellant and perused the evidence on record. I find that assessee has shown loss under Futures and Options of Rs. 97,44,423/- out of which loss of Rs. 31,98,597/- has been shown by way of Client Code Modification without any valid reason. The information received from the office of the DIT(I&CI) , Mumbai by letter dated 27.02.2015 d....
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....ion of unrecorded expenditure. Thus addition of expenditure of Rs. 31,986/- is sustained and balance amount of Rs. 1,27,944/- is deleted." 4.2 The assessee during the course of appellate proceedings before learned CIT(A) had also challenged reopening of the concluded assessment by the AO u/s 147 of the 1961 Act by raising additional grounds, which legal challenge to reopening of concluded assessment by the AO u/s 147 of the 1961 Act raised by the assessee also stood dismissed by learned CIT(A) , vide appellate order dated 31.07.2017 passed by learned CIT(A), wherein learned CIT(A) was pleased to hold as under: "5.5. I have considered reason for reopening for assessment, counter representation of Ld. Assessing Officer and Ld. Authorised Representative, carefully. I find that in this case there was no regular assessment u/s 143(3), but Return of Income was simply processed u/s 143(1) of the IT. Act. , hence no scrutiny was made nor was any disclosure of income of Client Code Modification. Subsequently information obtained by the then DIT(I&CI), Mumbai through investigation was communicated to Assessing Officer through Pr.CIT-16. On the basis of specific information that b....
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....ped assessment. It was fairly submitted by learned counsel for the assessee that originally assessment was not framed by Revenue u/s. 143(3) read with Section 143(2) of the 1961 Act but the return of income was originally processed by Revenue u/s. 143(1) of the Act . It was submitted by learned counsel for the assessee that impugned assessment year under consideration before the tribunal is AY 2010-11 and notice dated 23.03.2015 was issued by the AO to the assessee u/s. 148 of the Act, for reopening of the concluded assessment which is within four years from the end of the assessment year. The learned counsel for the assessee relied upon the decision of Hon‟ble Bombay High Court in the case of Coronation Agro Industries Limited v. DCIT reported in (2017) 390 ITR 464(Bom. HC). It was submitted by learned counsel for the assessee that all trades in F&O were done in the month of March 2010. The learned counsel for the assessee also relied upon the decision of Ahmadabad-tribunal in the case of Smt. Sunita Jain & Ors. v. ITO in ITA no. 501 & 502/Ahd./2016 vide orders dated 09.03.2017. It was submitted by learned counsel for the assessee that complete details were given to the AO a....
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....s done by the broker staff while executing trade orders which were later rectified through client code modifications with stock exchanges which can be done only within 30 minutes of the trade and there is no possibility of perpetrating any fraud on Revenue as the window for client code modification is available only for 30 minutes from the time of trade. 5.3. The Ld. DR submitted that assessee had indulged in F&O transactions wherein there were client code modification undertaken by the assessee in collusion with Brokers namely Inventure , with a view to defraud revenue wherein bogus fictitious loss in F&O to the tune of 31,98,579.50 was claimed as set off against other income‟s of the assessee. It was submitted by learned DR that the information was received from Director of Income-tax ( Intelligence & Criminal Investigations), Mumbai that the assessee is beneficiary of bogus F&O loss through client code modifications undertaken in F&O trades. It was submitted that reasons for reopening of the concluded assessment were recorded by the AO based on incriminating information received from Director of Income-tax ( Intelligence & Criminal Investigations), Mumbai and after maki....
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....sed income from brokerages . Our attention was drawn by learned DR to page 144 of the paper book filed with tribunal wherein judgment of Hon‟ble Bombay High Court in the case of Coronation Agro Industries Limited(supra) is placed and it was submitted by learned DR that Coronation Agro India Ltd.(supra) was a case wherein original assessment was framed by Revenue u/s. 143(3) while in the instant case the return was originally processed u/s 143(1) of the 1961 Act wherein no scrutiny assessment was framed by Revenue u/s 143(3) of the 1961 Act in the instant appeal before the tribunal. It was submitted by learned DR that in case of Coronation Agro(supra) the notice u/s 148 was issued beyond four years from the end of assessment year and the first proviso to Section 147 was applicable. It was submitted by learned DR that in the case of Smt. Sunita Jain(supra) relied upon by learned counsel for the assessee reopening of the concluded assessment by invoking provisions of Section 147 was not done with respect to client code modification and hence this case is also distinguishable. It was submitted by learned DR by referring to page 143 of paper book which is ledger account of Inventu....
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....e AO who has availed fictitious F&O Loss through the broker Inventure during the financial year 2009-10 relevant to impugned assessment year 2010-11. On receipt of information from learned DIT(I&CI), Mumbai through learned PCIT and prior to issuance of notice u/s 148 to the assessee, the AO conducted enquiries with broker Inventure by issuing notices u/s 133(6) of the 1961 Act asking as to client code modification entered in the F&O trade entered into by the assessee in financial year 2009-10 relevant to impugned assessment year 2010-11. The said broker gave reply vide letter dated 15.03.2015 which as per the AO the said reply filed by Broker Inventure was a general and evasive reply wherein specific query asked by the AO vis-a-vis client code modification entered into with reference to trade by assessee through the said broker was not answered by Inventure. The reply of the said broker Inventure vide letter dated 15.03.2015 is reproduced hereunder: "We are SEBI registered Stock Broker having more than 40000 clients and more than 1000 trading location. We have given the right to operate the trading terminal functions such as entering the order modifying the order, cancelli....
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....k Brokers P. Ltd(2007) 291 ITR 500(SC) is relevant. At the stage of issuance of notice u/s 148 what is required is a prima-facie belief that based on incriminating tangible information received by the AO that income has escaped assessment. There is a requirement of live link between the tangible incriminating material received by the AO and the formation of belief that the income of the assessee has escaped assessment before invoking provisions of Section 148 of the 1961 Act. There is also requirement of independent application of mind of the AO before reopening of the concluded assessment u/s 147 of the 1961 Act. In the instant case, the AO received information from learned DIT(I&CI), Mumbai through learned PCIT, Mumbai that the assessee is beneficiary of obtaining fictitious F&O Loss from broker which was manipulated losses by modifying client code modifications. It had come to notice that many brokers were indulging in the tax evasions through modification in client code modifications in FY 2009-10 wherein fictitious profit/losses were created which was given by these brokers to their clients/beneficiaries in consideration of brokerage income which was also not disclosed to Reve....
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....time permitted by the Stock Exchange after the trading hours. After the modification of client code is made, it is submitted to the Stock Exchange to modify the client code in the exchange data. The Stock Exchange then records this data as client code modification data. As per letter received from Pr. CIT-16, Mumbai No. PCIT-16/CCM/2014-15 dated 10-03-2015 along with a copy of letter No. DIT(I&CI)/CCM/2014-15 dated 27.02.2015 of Director of Income-tax(Intell. & CR INV.), Mumbai , it has emerged that many assesses have engaged in Tax evasion through client code modification during F.Y.2009-10 , with the help of brokers who have misused this facility of CCM for creating artificial losses/profits and providing such fictitious profit/losses to various clients by charging some commission. Since the clients have used the fictitious losses for the purpose of reducing their taxable income, the claim of losses needs to be included in their income. As per the details received, M/s Time Media & Entertainment Pvt. Ltd. (PAN AAACT1581C) is one of the Beneficiary of CCM as per the List of Beneficiaries under the Jurisdiction of Pr. CIT-16, Mumbai, whose PAN is under this jurisd....
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....committed by the staff of brokers while executing trade orders or shift is contemplated within relatives . The stock exchanges have also laid down the criteria‟s based on which client code modification are allowed . It is noted from the policy laid down by Bombay Stock Exchange that these client code modifications are allowed till 4 PM of the same day (NSE till 4.15 PM) in which securities trade is executed i.e. 30 minutes till after closure of trading hours. There is an further longer time extended for client code modifications with respect to currency derivatives with which we are not presently concerned. Say, if trade is executed on 01.01.2019 at 10.0 AM on stock exchange by Mr. A in buying 100 share of Company "X‟ through Broker "L‟ and the staff of the broker punches the client code of Mr. B while buying 100 shares of Company "X‟ , the client code modifications are allowed for genuine errors by BSE till 4 PM i.e. 30 minutes after closure of trading session of the same day which closes at 3.30 PM in securities market, wherein it was allowed to modify the trade to reflect 100 shares of Company "X‟ being bought by Mr. A by modifying client code of Mr....
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....t is stated by assessee that thereafter no transactions took place with said Broker Inventures and the account of the assessee with said Broker Inventure stood closed. Out of the total loss of Rs. 34,67,657.96 in F & O segment suffered by the assessee with respect to its trade with Broker Inventure , the F&O loss of Rs. 31,98,657.50 was inflicted with client code modifications and was held by the authorities below to be fictitious F&O Loss. The ratio of transactions of the assessee in F & O segment inflicted with client code modifications undertaken with Broker Inventure is as high as 92.21%. The said broker Inventure claimed in its reply to AO vide letter dated 15.03.2015, that its turnover is Rs. 97,000 crores and client code modifications undertaken by it is less than 1% but it failed to explain the reasons for undertaking client code modifications in the case of the assessee as high as 92.2% of the transactions with in short spell in the month of March 2010 itself which month incidentally was the last month of the fiscal year 2009-10 relevant to impugned assessment year 2010-11 where there could be an incentive to bring down income-tax by adopting unfair and illegitimate means ....
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....akesh Gupta v. CIT reported in (2018) 405 ITR 213(P&H) , wherein Hon‟ble Court took cognizance of the SEBI investigation being conducted with respect to client code modifications undertaken by Brokers on NSE in the month of March 2010, as under:- "13. In this regard, a letter dated 08.03.2016 from the Principal Director of Income-Tax (Investigation) Ahmedabad, is of vital importance. The letter was addressed to the Chief Commissioner of Income-tax, Panchkula. The subject of the letter referred to a survey report in respect of Client Code Modification (CCM) being forwarded regarding the dissemination of beneficiary clients who have taken losses and shifted out profits during the financial years 2008-09 to 2011-12. The letter explains that modification of the client code is a practice under which brokers change the client code in sale and purchase orders of securities after the trades are conducted. It further rightly explains that while it is permissible to rectify inadvertent errors, there were concerns that modifications could be made to manipulate the activities in the market. Thus, for instance, if a particular transaction is undertaken in the name of a client, it....
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.... carried by DIT(I&CI), Mumbai after obtaining the approval of the CBDT . The notices were issued to NSE calling for relevant details as under : "(i) Details of all such modifications in the format prescribed under Rule 6DDA(v) of the Income Tax rules separately for institutional and non institutional clients. (ii) Details of trade time stamp for each transaction where modifications have been carried out. (iii) Details of all done in the modified and original client code (even those where code were not changed) for relevant dates: (iv) KYC copy of the clients included in the above where value of transaction exceeds Rs. One crore. The replies received from the NSE is as under:- "The number and value of modifications in the client code have gone up dramatically in the month of March, 2010 compared to earlier and succeeding months. This is illustrated in the following table and pertains to Non-institutional clients only in the equity derivatives segment (there is no change in the number of modifications in Institutional accounts consisting mainly of Mutual Funds and FIIs). Month No. of modifications Value of modifications in crore o....
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....ely occur. viii) Code changes reported by the Exchange have been made to set off a trade made in normal trading hours though screen based trading in some earlier trading session. To clarify, a code change cannot take place from a static position it is always done to set off a trade which has already taken place. (ix) There has always been practice on Dalal Street of booking artificial profits or losses in March to Impact tax liabilities. This requires buying or selling stocks intra-day so as to consciously incur a loss and use that as a tax offset. (Or conversely to create a profit where carried forward or current year losses are available). This is normally done during normal trading hours using synchronized trades (called 123 trades: where orders are placed at the same time in system.) x) The role of code modifications comes when these synchronized trades do not work due to market volatility. To clarify, suppose there are two clients, A that wants to book a loss and B that want to book a gain. (xi) So A buys stock 'x' from, B at Rs. 100 a share in anticipation that the closing market price will be Rs. 90 rupees. But instead the stock, t....
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....into low profit offered for taxation. (f) There are total of 1113 transaction on sale side involving transaction value of Rs. 40,51,75,893/- and 1353 transaction on buy side involving transactions value of Rs. 40,79,95,691/-. These transactions are recorded between 04.03.2010 to 25.03.2010 i.e. within a span of 9 trading sessions on 4th, 5th, 9th, 10th , 11th, 15th, 22nd,23rd and 25th of March., 2010. (g) This is absolutely very strange on part of any broker or an employee of a broker to so many human errors within a span of just 9 trading sessions in a particular pattern and timing involving such huge money and stakes in crores of rupees without the connivance of the broker and the client. (h) A list of transactions as reported in the NSE with regard to the above stated client code modifications are enclosed and forming part of this order as annexure -A to this order. (i) It could be seen from the above Annexure -A, the modifications are done in the trading hours which is against the normal trading trends and practices. Normally the genuine errors could be traced only at the end or towards the end of the trading session and corrected or modified....
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....axes. The AO observed that the onus lies on the assessee to prove that these transactions are genuine. The A.O. finally concluded that the assessee's transactions have no commercial purpose apart from the avoidance of tax liability and are sham transaction. The A.O. also cited several case laws in support of his conclusion are illustrated vide his order page No. 20 to 24 to come to conclusion that these are not genuine transactions but sham and colorable transactions with objective of evading taxes. The A.O. accordingly disallowed the loss claimed of Rs. 3,67,83,146/- and added the same to total income of the assessee, vide assessment order dated 28-03-2013 passed u/s 143(3) of the 1961 Act. The learned CIT(A) while deciding first appeal observed that directions were issued by learned Addl. CIT u/s 144A to AO to cause verifications from NSE as to factual position as per submissions of the assessee and to ascertain correct facts on the basis of information so gathered afterwards from various sources which was not done by the AO . The learned CIT(A) observed that the AO was also directed by learned Addl. CIT vide orders dated 22-03-2013 u/s 144A to determine whether client c....
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....ming to certain conclusions without any material on record is completely flawed to the extent that it has made the order of learned CIT(A) enter the arena of perversity and this order of learned CIT(A) cannot be sustained in the eyes of law and is liable to be set aside. The powers of the learned CIT(A) is co-terminus with the powers of the AO including powers to enhance assessment, after following due procedures as contemplated by law. Attention is drawn to Section 251(1)(a) and 251(2) of the 1961 Act which provides as under : "Powers of the [Commissioner (Appeals)]. 251. (1) In disposing of an appeal, the [Commissioner (Appeals)] shall have the following powers- (a) in an appeal against an order of assessment, he may confirm, reduce, enhance or 7 annul the assessment [(aa) ****** (b) ****** (c) ****** (2) The [Commissioner (Appeals)] shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction. Explanation.-In disposing of an appeal, the [Commissioner (Appeals)] may consider and decide a....
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....ore of rupees December 2009 December 2009 2.75 lakhs 21,896 January 2010 3.36 lakhs 28,860 February 2010 4.05 lakhs 35,241 March 2010 6.18 lakhs 48,794 April 2010 1.62 lakhs 11,882 (ii) The increase in the client code modifications in the equity derivative segment in March, 2010, is in spite of the fact that trading volume and turnover actually fell during this months. (iii) The number of client code modifications in the currency derivative segment in March, 2010 was 19395 and the value thereof was Rs. 13282 crores while the comparative figures for January, 2010 was 863 modifications for a total value of Rs. 461crores. (iv) The above facts would indicate that the modifications made were part of an organized tax evasion racket which should be dealt with firmly. (v) the important point to note is that client codes of deals carried out were changed by the brokers after the close of normal trading hours. The income tax act u/s 43(5) normally considers any transaction in which a contract for purchase or sale of any commodity including shares is settled other than by actual delivery or transfer as a speculat....
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.... CIT(A) . It was only in response to initial enquiry conducted by DIT(I&CI) based on newspaper reports from NSE that NSE confirmed that there was a spectacular rise in client code modifications in March 2010 which indicates towards tax evasion, which information was passed on by DIT(I&CI) to the AO. No enquiry could be conducted by AO during assessment proceedings nor in response to directions of Addl. CIT dated 22-03-2013 . The learned CIT(A) also did not conducted any enquiry nor directed AO to conduct any enquiry during appellate proceedings. The powers of learned CIT(A) are co-terminus with the powers of the AO including power of assessment. When the powers are granted by statute, the same need to be exercised in a manner to achieve the mandate of the 1961 Act to compute correct taxes in the hands of tax-payer. The powers cannot be used in an arbitrary manner otherwise the orders passed in pursuance of such arbitrary use of powers will enter the arena of perversity. The learned CIT(A) was fully aware that the AO could not comply with directions of learned Addl. CIT issued u/w 144A to conduct relevant enquiry, examination and verification as was directed by learned Addl. CIT due....
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....f the AO as the facts surrounding the case clearly and strongly suggests and points to a collusive action on the part of the assessee and brokers who were acting in concert to avoid and evade taxes, which needed further probe to come to definitive conclusions as was rightly directed by learned Addl CIT vide directions dated 22-03-2013 u/s 144A of the 1961 Act. The huge magnitude of client code modifications in the last month of the previous year as well in the case of the assessee all the client code modifications being accorded and ascribed to punching errors cannot be mere chance to say that it is in the realm of suspicion or speculation .Rather the circumstances seen cumulatively takes it to a higher pedestal than being mere a suspicion. We are conscious of the fact that suspicion howsoever strong cannot take the place of proof. The liability to tax under the provisions of the 1961 Act is required to be fastened on the touchstone of preponderance of human probabilities , and strict proof / evidences as required under Indian Evidence Act, 1872 may not be pressed to fasten the tax-liability. No-doubt the assessee has placed on record broker confirmations but perusal of these confo....
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....ent codes are maintained by the assessee with the same broker and the reasons to have multiple codes. As could be seen above that large number of client codes are maintained by the assessee with the broker namely Wellworth Share and Stock Brokers Limited namely code numbers 61495,7744,10057, 8428, 74561, 6449 , 8014, 7015,74562 etc. Regarding the contention of the assessee that NSE/SEBI permits the client code modifications, we have gone through the relevant circulars which are placed in paper book/page 68-72, we have observed that the said circulars clearly allows only ‗genuine' client code modifications of transactions in the stock exchange. If the transaction is held to be ‗non-genuine', we are afraid circulars of NSE/SEBI relied upon will not be applicable. Reference is drawn to circular no 663 dated 29-07-2010( Ref. No.: NSE/INVG/2011/184840 issued by NSE wherein it is clearly stipulated as under(relevant portion is extracted below): " The Exchange has provided the facility of client code modification only to rectify genuine errors. Further, as per point 2(a) and 3(B) of the SEBI circular date dated July 5, 2011 , the following client code modifications wo....
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.... that large number of transactions with large magnitude were affected by client code modifications in the month of March 2010 which was itself categorized by NSE were effected towards tax evasion . Similarly , the assessee has placed reliance on decision of Hon'ble Bombay High Court in the case of Coronation Agro Industries Limited v. DCT in ITA no. 2627 of 2016 vide judgment dated 23-11-2016 wherein Hon'ble Bombay High Court was seized with an issue of escapement of income u/s 148 of the 1961, wherein Hon'ble jurisdictional High Court held that the notice u/s 148 of the 1961 Act was without jurisdiction as it lacks reason to believe that income chargeable to tax has escaped assessment and on facts it was held that the AO is suspecting income to have escaped assessment rather having reasons to believe that income has escaped assessment. These cases relied upon by the assessee were clearly distinguishable and are not relevant for deciding the instant appeal wherein facts are materially different as set out above. For Now, we are of the considered view, the appellate order of the learned CIT(A) cannot be sustain in the eyes of law as it is suffering from serious flaw and is perverse ....
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....a perusal of the chart, it is evident that it was not a case of one or two CCMs. The CCM has been used 74 times between 19.12.2008 and 10.09.2009. 21. In Sheo Nath Singh v. AAC [1971] 82 ITR 147 (SC), relied upon by Mrs. Suri, the Supreme Court held:- "In our judgment, the law laid down by this court in the above case is fully applicable to the facts of the present case. There can be no manner of doubt that the words "reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court." It is important to note that the Supreme Court found in that case that there was no material or fact which had been stated in the reasons for starting th....
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....he Bombay Stock Exchange Directory and other information. The said letter of Shri Bagai was received by the Income Tax Officer on March 26, 1974. On March 27, 1974, he issued a notice under Section 147 (b) of the Act whereby the assessee was informed that the Income Tax Officer had the reason to believe that assessee's income chargeable to tax for the assessment year 1969-70 had escaped assessment and, therefore, the assessing authority proposed to reassess the income for the said assessment year and the assessee was required to deliver to him a return in the prescribed form of his income for the said year. Feeling aggrieved by the said notice, the assessee filed Writ Petition No. 1177 of 1974 in the Rajasthan High Court. ** ** * &nb....
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.... The judgment clearly applies to the case before us. The reliance upon the information supplied by the ADIT was justified. There is nothing to indicate that the information collected did not pertain to or was not concerned with the persons referred to. The respondent made his own inferences on the basis thereof. 24. In AGR Investment Ltd. v. Addl. CIT [2011] 9 taxmann.com 62/197 Taxman 177/333 ITR 146 (Delhi), relied upon by Mr. Putney, in a challenge to the initiation of proceedings under Section 147 of the Act, the Delhi High Court held that specific information received from the office of Director of Income Tax (Investigation) regarding transactions entered into by the assessee Company for accommodation entries is not a change of opinion and is material for the AO having reason to believe that income had escaped assessment. We respectfully agree with this view. 25. The AO had in his possession information collected by a Wing of the department, specially constituted for the purpose of collecting information. The data concerning the assessee was part of the information received. The information was specific and not vague. In challenge to initiation of pro....
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....e material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. We are of the view that the court cannot strike down the reopening of the case in the facts of this case. It will be open to the assessee to prove that the assumption of facts made in the notice was erroneous. The assessee may also prove that no new facts came to the knowledge of the Income-tax Officer after completion of the assessment proceeding. We are not expressing any opinion on the merits of the case. The questions of fact and law are left open to be investigated and decided by the assessing authority. The appellant will be entitled to take all the points before the assessing authority. The appeals are dismissed. There will be no order as to costs." 29. In Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 161 Taxman 316/291 ITR 500 (SC), relied upon by Mr. Putney, the Supreme Court held :- '16 Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment.....
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....material found in the survey conducted for the assessment year 2002- 03 was being used in the assessment year 1999-2000 without there being any basis that the material pertained to the relevant assessment years. It was observed that the reason recorded was that the AO had a mere suspicion that there was a likelihood of there being a discrepancy in the stocks in the earlier years also based on the fact that there was a discrepancy in the stock when the survey was conducted on 07.03.2002. There Court, therefore, held that this was merely a reason to suspect and not a reason to believe. In the case before us, the material pertained to the assessment year in question itself. 33. Decision of the Allahabad High Court in Dass Friends Builders (P.) Ltd. v. Dy. CIT [2006] 153 Taxman 282/280 ITR 77 does not support the petitioner's case. The Allahabad High Court set aside the re-opening as rejection of the account books for the assessment year 1996-97 was being made a basis to determine the profit percentage for the assessment year 1995-96 without there being any material for the relevant assessment year. 34. Mrs. Suri relied upon the following observations of the Supre....
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....t before such action is taken the requirements of the law should be satisfied. The live link or close nexus which should be there between the material before the Income-tax Officer in the present case and the belief which he was to form regarding the escapement of the income of the assessee from assessment because of the latter's failure or omission to disclose fully and truly all material facts was missing in the case. In any event, the link was too tenuous to provide a legally sound basis for reopening the assessment. The majority of the learned Judges in the High Court, in our opinion, were not in error in holding that the said material could not have led to the formation of the belief that the income of the assessee respondent had escaped assessment because of his failure or omission to disclose fully and truly all material facts. We would, therefore, uphold the view of the majority and dismiss the appeal with costs." Mr. Putney did not and indeed could not dispute any of the observations. He however rightly contended that they do not apply to the present case. In the case before us, there is a direct nexus or live link between the material coming to the notice of ....
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....o believe those conclusions were recorded by the AO and that the crucial link between the information made available to the AO and the formation of belief was absent. That is not so in the case before us. There is a clear link between the information analysed by the AO and the relevant transactions. For the same reasons, the decision of the Delhi High Court in Pr. CIT v. RMG Polyvinyl (I) Ltd. [2017] 83 taxmann.com 348/249 Taxman 610/396 ITR 5 (Delhi) does not carry the petitioner's case further. 38. In Chhugumal Rajput v. S.P. Chaliha [1971] 79 ITR 603 (SC), the Supreme Court allowed the assessee's appeal on the finding that the ITO had not set out any reasons for coming to the conclusion that it was a fit case to issue notice under section 148. The material on the basis of which the proceedings had been initiated was not mentioned in the record. The reasons only referred to certain communications without adverting to the facts contained therein. The ITO had not even come to a prima facie conclusion that the transactions were not genuine. It was also observed that the ITO had only a vague feeling that the transactions may be bogus. It is in these circumst....
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....ome for the assessment year 2009-10 on September 30, 2010 declaring therein total income of Rs. 2,09,39,600/-. Subsequently, the case was selected in CASS within the meaning of section 143(3) of the Act. The assessment proceedings was completed under section 143(3) of the Act on November 30, 2010 determining the assessed income at Rs. 2,09,60,910/-. 2. Thereafter, information has been received from the Principal Director of Income Tax (Investigation), Ahmedabad vide confidential letter No. PDIT (Inv)/AHD/CCM/Dissemination/15-16 dated March 8, 2016. On perusal of the data supplied by the office of the Principal Director of Income- tax (Investigation), Ahmedabad it is noticed that assessee carried out share trading through the broker, Guinness Securities Limited. And as per the guidelines of the SEBI the client code of the assessee with the aforesaid broker was WW/2647. In order to verify the genuineness of the modification of client code in the case of the assessee, by applying Levenshtein distance analysis or digit edit analysis utility, in those cases where the assessee is original client and transactions were carried out from assessee's client code then subs....
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....s and contrived nature of the code change. From the reasons recorded, it does not appear that verification of the material on record there is independent formation of opinion by the Assessing Officer and that any income has escaped assessment due to any failure on the part of the assessee in not disclosing truly and correct facts/material necessary for assessment. From the reasons recorded, it appears that the impugned reopening proceedings are on the borrowed satisfaction. No independent opinion is formed. On the plain reading of the reasons recorded what emerges is that the Assessing Officer on considering the information received from the Principal Director of Income-tax (Investigation), Ahmedabad, reassessment proceedings have been initiated on the ground that the income escaped assessment. However, there is no assertion regarding the basis on which material on record, he has come to such conclusion. Therefore, the material on the basis of which the Assessing Officer seeks to assume the jurisdiction under section 147 of the Act is the information received from the external source viz. the Principal Director of Income-tax (Investigation), Ahmedabad. It cannot be disputed that on....
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....d by him. They do not by any stretch of imagination constitute borrowed satisfaction. It is his personal satisfaction on an analysis of information received, which with respect is perfectly in accordance with law. In our view, the AO in that case had reason to believe that the income had escaped assessment. Whether this prima-facie view would have been finally endorsed or not, especially in view of the fact that the matter involved only one CMM, is irrelevant. We are, with respect, unable to agree with the finding of the Gujarat High Court that the reopening was on borrowed satisfaction and that no independent opinion had been formed. Nor do we subscribe to the view that there was no assessment regarding the material on record on the basis of which the AO had come to the conclusion. The material, the information received was analysed and the decision was based thereon pursuant to an independent application of mind. The AO had considered the material on record and formed an independent opinion on the basis thereof. In the circumstances, we are, with respect, unable to agree with the decision of the Gujarat High Court. 42. Even if in the case before us, the AO had t....
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.... to the conclusion that this is a fit case to issue notice under Section 148. The material that he had before him for issuing notice under Section 148 is not mentioned in the report. In his report he vaguely refers to certain communications received by him from the C.I.T., Bihar and Orissa. He does not mention the facts contained in those communications. All that he says is that from those communications "it appears that these persons (alleged creditors) are name lenders and the transactions are bogus". He has not even come to a prima facie conclusion that the transactions to which he referred are not genuine transactions. He appears to have had only a vague feeling that they may be bogus transactions. Such a conclusion does not fulfil the requirements of Section 151 (2). What that provision requires is that he must give reasons for issuing a notice under Section 148. In other words he must have some prima facie grounds before him for taking action under Section 148. Further his report mentions : "Hence proper investigation regarding these loans is necessary. In other words his conclusion is that there is a case for investigating as to the truth of the alleged transactions. That is....
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....r have come to the conclusion on the material before him that this is a fit case to issue notice under Section 148. The important safeguards provided in Sections 147 and 151 were lightly treated by the Income-tax Officer as well as by the Commissioner. Both of them, appear to have taken the duty imposed on them under those provisions as of little importance. They have substituted the form for the substance." (Emphasis Supplied) This judgment does not support the petitioner's case. It is clearly distinguishable. As noted in the earlier part of paragraph 9, the Supreme Court held that the reasons recorded by the ITO for initiating proceedings under Sections 147 and 148 were not in accordance with law. As in that case, the Commissioner merely accorded permission under Section 151 without stating any reason himself it is axiomatic that his order would also not be in accordance with Section 151. The case before us is entirely different. We have found that the reasons recorded by the AO justify the initiation of proceedings under Sections 147 and 148. As the Principal Commissioner agreed with these reasons, it was not necessary for him in his order according sanctio....
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....ing that these client code modification undertaken by them were bogus transactions. These brokers paid taxes on surrendered commission income earned by them from creating artificial loss/profits which was passed on to their clients/beneficiaries. 3. The AO received incriminating information received from DIT(I & IC), Mumbai through learned PCIT, Mumbai that many brokers were manipulating client code modifications with an intent to defraud Revenue and evade taxes. The name of the assessee was listed as one of the beneficiaries of obtaining fictitious F&O loss through brokers. The learned DR has filed such tangible incriminating information received by the AO wherein assessee name is listed as one of the beneficiary of said fictitious F&O Losses , which is placed in file. 4. The AO issued notices u/s 133(6) to Brokers including Inventure through which the assessee undertook transactions in F&O to confirm the genuineness of these transactions. The said Broker Inventure gave evasive and general reply not giving specific replies to queries raised by the AO as to its transactions with the assessee. The aforesaid notice was issued by the AO after receiving incriminating ....
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.... exchanges were genuine within guidelines of SEBI/Stock Exchanges. In the midst of tangible incriminating material received by the AO, the onus was on the assessee to rebut the same based on cogent evidences which assessee failed in the instant case. 12. Specific tangible incriminating information was received by the AO from Director(Intelligence & Criminal Investigation) through PCIT that the assessee is indulging in manipulation in client code modification in F&O trade , wherein assessee was listed as one of the beneficiaries of bogus F&O loss which was set off against other income to reduce taxes. 13. Originally scrutiny assessment was not framed by the AO u/s. 143(3) read with Section 143(2) of the 1961 Act but return of income was processed by Revenue originally u/s 143(1) of the 1961 Act. Since, no scrutiny assessment was originally framed then it could not be said that the AO formed any opinion originally on these F& O Losses suffered by the assessee which was inflicted with client code modifications . Thus, it could not said that there is any change of opinion of the AO while invoking provisions of Section 147 of the 1961 Act in re-opening of the concluded....
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....ide order dated 09.03.2017 quashed reassessment as the same was based on the statement recorded of one Mr Mukesh Choksi and the copy of the same was not supplied to the tax-payer and cross examination was also not provided to the tax-payer. It was a case of providing accommodation entries in penny shares and manipulation in the prices of the shares to provide fictitious losses/profits in shares. The said case is thus distinguishable on factual matrix and was decided on its own merits. We also note that assessee also relied upon decision of tribunal in Gyandeep Khemka(supra) which was not related to client code modifications undertaken in the month of March 2010 which month was peculiarly affected by sudden spurt in client code mondifications and also the percentage of trade inflicted with client code modification was not as high in the case of Gyandeep Khemka(supra) which was merely 0.47% while in the case of the assessee client code modifications were as high as 92.2% . Thus, in the case of Gyandeep Khemka(supra) , client code modifications were within tolerable zone/limits as was 0.47% of the total trade and hence the said case is not of any help to the assessee. We also note tha....