TaxTMI 
TaxTMI 
2019 (4) TMI 1905
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....cation (CCM) was done to rectify the genuine errors held at the end of broker for which the assessee was not responsible. 5. Ld. CIT(A) has erred in confirming the order of Ld. AO even when the Ld. AO failed to provide the details of the transactions where Client Code was modified. 6. Ld. Assessing Officer has erred both in law and on facts of the case in initiating penalty proceedings u/s 271(1)(c) read with section 274 of the IT Act, 1961. 7. The appellant craves leave to amend, delete or add any grounds of appeal before or during the course of hearing of the appeal." 3. In ground nos. 1 & 2 of the appeal, the assessee has challenged the reopening of assessment made u/s 147 of the Act is bad in law. 4. The Commissioner of Income Tax (Appeals) has decided the issue as under: "(1) The above ground challenges the action of the LI Assessing Officer in resorting to provisions of section 148 of the Act as being bad in law as would be apparent from the detailed submissions being made hereinafter. 2. S. 147 of the Act authorizes and permits an Assessing Officer to reassess the income chargeable to tax for any assessment year if he has "r....
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.... certain brokers, wherein it has been determined that the facility of Client Code Modification has been allegedly used as a means of tax evasion and not for "rectifying genuine errors" as permitted by SEBI (5) White the name of the Appellant does not appear in any of the investigations carried out by different wings of the Income-tax Department, the mere fact that certain entities individuals could have misused the facility1 has prompted the id Assessing Officer, without any independent appraisal or judicious application of mind, to tar ad such transactions with the same brush and to taint the same to be irregular, bogus and even fraudulent (6) A review of the reasons for issuing the impugned notice ids 147/148 of the Act for "alleged escapement of income" would reveal (hat they merely, in fact blindly, rely upon the information conveyed to the id Assessing Officer from independent sources Wings of the Department which has not been independently verified by any degree of application of mind or conducting any such enquiries. (8) As already discussed herein be ore the basis for the validity of any action u/s 147/148 of the Act has to be some 'tangible, ....
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.... disclosed escapement of income. The annexure was not a pointer and did not indicate escapement of income. Further, the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. There was no dispute that the company had a paid-up capital of Rs. 90 lakhs and was incorporated on Jan 4, 1989 and was also allotted a permanent account number in September. 2001. Thus, it could not be held to be a fictitious person. The reassessment proceedings were not valid and were liable to be quashed." (10) In this connection reference may also he made to the following discussions wherein it has been held that any notice for reassessment issued on the basis of mere suspicion and without any independent application of mind is not valid.- Commissioner of Income-tax v. Smt. Paramjit Kaur [(2008) 168 Taxman 39 (P&H)]: Sarthak Securities Co. Pvt. Ltd. v. Income Tax Officer [(2010) 195 Taxman 262 (Delhi)]: Commissioner of Income-tax v SFIL Stock Broking Ltd. [(2010) 325 ITR 285 (Delhi)]: (11) The above view has also been recently affirmed by the Delhi High Court in the case of Pr. Commissioner of Income-tax v. G &....
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.... at the said conclusion been disclosed in any manner thereby pointing to the tenuous nature of the link between the material and the conclusion drawn. The said action pointing to the absence of a direct link between the various limbs of the entire process and the extremely suspect nature as to the conclusion drawn to call for the notice to be filed at the initial stage itself and the notice to be filed. (14) In this connection reference may also be made to a recent decision of the Hon'ble Delhi High Court in the case of Principal Commissioner of Income-Tax v Meenakshi Overseas Pvt. Ltd. [(2017) 395 HR 677 (Delhi)] wherein the following pertinent observations have been made. "The reopening of the assessment under section 147 of the Income-tax Act, 1961 is a potent power not to be lightly exercised. It cannot he invoked casually or mechanically. The intent of the provision is the formation of belief by the Assessing Officer that income has escaped assessment The reasons recorded have to be based on some tangible material and that should he evident from a reading of the reasons. It cannot be supplied subsequently either during the proceedings when objections to t....
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....the reasons to believe that income had escaped assessment So error had been committed by the Appellate Tribunal in concluding that the initiation of the reassessment proceedings under section 147/148 to reopen the assessments for the assessment year 2004- 05 was not legal " (16) In particular. Your Honour's attention is respectfully drawn to the following judicial pronouncements where their Lordships of the respective Courts have clearly held that the mu ice us NX of the Act was without jurisdiction as it lacked reason to believe that income chargeable to tax had escaped assessment since the reasons did not indicate the basis for the Ld Assessing Officer to come to a reasonable belief "that there had been any escapement of income on the ground that the modifications done in the client code was not on account of a genuine error, originally occurred while punching the trade and although there was material available to the effect that there was a client code modification done by the assessee's broker, there was no link from there to conclude that it was done with a view to escape assessment of a part of the assessee's income and prima facie, it was a case of reaso....
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....ed the case of the Assessee on the basis of the information received from Pr. DIT, Investigation. The data received from NSE revealed that the Assessee had reduced its taxable income to the extent of Rs. 5,96,176/- during FY 2008-09 relevant for AY 2009-10 by using CCM. The analysis of the data further reveled that in the case of the Assessee Client Code was modified 188 times during the year under consideration; out of which 105 times. Client Code was modified when the Assessee was original client. It means the Client Code of the Assessee was substituted by some other Client Code after execution of the transaction. In remaining 83 cases, the Assessee's Client Code was placed as modified Client in place of original Client's Code. On page 5 & 6 of the Assessment Order, the Assessing Officer has given the details of CCM in the case of the Assessee and resultant loss of Rs. 5,96,176/-. On page 7 & 8 of the Assessment Order, the Assessing Officer has given some details of original Client Code and modified Client Code demonstrating that the so called errors were not possible on the Qwerty Keyboard. 7.2 The Appellant has, inter alia, submitted that there should be a comp....
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....ssment proceedings was valid it has only to be seen whether there was prima facie some material on the basis of which the department could reopen the case. It may be seen from the above discussion that the Assessing Officer prima facie had material to initiate reassessment proceedings in the case of the Assessee. In a recent judgment, the Hon'ble Punjab & Haryana High Court in the case of Rakesh Gupta vs. C1T, Punehkula (2018), 93 taxinann.com 271 held that reassessment on the basis of information received from Pr. DIT. Investigation that Assessee had received bogus loss from his broker by CCM. was justified. 7.4 In view of the above facts and in the circumstances, I uphold the action of the Assessing Officer to initiate reassessment proceedings by issuing the notice u/s 148 of the IT Act." 5. We have heard the rival submissions and perused the orders of the lower authorities and material available on record. In the instant case, the assessee filed its original return of income on 30.09.2009 disclosing total income at a loss of Rs. 15,07,250/-. The said return of income was accepted u/s 143(1) of the Act. 6. Thereafter, the case of the assessee was reopened by is....
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....lso held- "We are aware of the legal position that at the stage of issuing the notice u/s 148, the merits of the matter are not relevant and the Assessing Officer at that stage is required to form only prima facie belief or opinion that income chargeable to tax has escaped assessment" Here it would be worthwhile to mention that in the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd. Vs. ACIT (2007) 291 ITR 500/161 Taxman 316 (Supreme Court). The Hon'ble apex Court has held that:- "All that is required for the Revenue to assume valid jurisdiction u/s 148 is the existence of cogent material that would lead a person of normal prudence, acting reasonable, to an honest belief as to the escapement of income from assessment." Also, in the case of Phool Chand Bajrang Lal Vs ITO 203 ITR 456 (SC). The Hon'ble apex Court has held that:- "An assessment completed u/s 143(3) but later on information received which was indefinite, specific and reliable and the AO duly recorded the reasons for his belief that the assessee had not fully and truly disclosed particulars of his income and hence there was escapement of income. Held that the reopening o....
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....(BVAHD/CCM/Dissemination-mail 15-16 dt. 11.03.2016 forwarding of survey report in respect of client code modification. Vide the letter it has been informed that client codes is a practice under which brokers change the client codes in safe and purchase orders of securities after the trades are conducted. In this regard. SEBI has conducted prove into modification of client codes by brokers, pursuant to observations by the Finance Ministry about many such modifications taking place in derivatives transactions at the National Stock Exchange during March 2010. in this it was found that client code modification is being used for tax evasion. CCM is legally permitted to rectify inadvertent errors in punching the orders. however, there was concern that such modification could be misused for manipulative activities in the market. This has been established in the analysis of data by SEBI wherein it was established that Client Code Modification (CCM) done on NSE. F&O segment was of a nature that establishes that it was not for genuine purposes. This has been established true in the finding of the investigation unit while analysis the data for four years. In this regard, sur....
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.... Information has been received from Investigation wing Ahmadabad vide letter No. ADIT (inv.) l(3)/AHD/CCM/Dissemination/e-mail/l5-16 dated 11.03.2016 forwarding of survey report in respect of client code modification. Vide the letter it has been informed that client codes is a practice under which brokers change the client codes in sale and purchase orders of securities after the trades are conducted, in this regard, SEB1 has conducted probe into modification of client codes by brokers, pursuant to observations by the Finance Ministry about many such modifications taking place in derivatives transactions at the National Stock Exchange during March 2010. In this it was found that client code modification is being used for tax evasion. CCM is legally permitted to rectify inadvertent errors in punching the orders, however, there was concern that such modification could be misused for manipulative activities in the market. This has been established in the analysis' of data by SEC! wherein it was established that Client Code Modification (CCM) done on NSE, F&O segment was of a nature that establishes that it was not for genuine purposes. This has been established t....
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....ed as reason to suspect only. In the recording the Assessing Officer has admitted that client code modification is legally permissible in case of mistake. Further the recording states the assessee M/s. Prashant Agencies Pvt. Ltd. has suffered a loss of Rs. 2,07,040/- in a transaction in which client code modification was involved. Similarly in the case of M/s. PPN Properties Private Limited recording states that the assessee has suffered a loss of Rs. 2,47,312/- in a transaction in which client code modification was involved. However, there is no material on record to show that prima facie the said client code modification was because of some malafide reason and the assessee has received cash in lieu of payment made for loss of Rs. 2,07,040/- in the case of M/s. Prashant Agencies Pvt. Ltd. and Rs. 2,47,312/- in the case of M/s. PPN Properties Private Limited. Thus, the above recording does not satisfy requirement of law which is mandatory for assuming jurisdiction to reopen the assessment. My above view is supported by decision of Hon'ble Bombay High Court in the case of Coronation Agro Industries Limited Vs. DCIT reported in 390 ITR 464. Therefore, the reassessment orders passed p....