TaxTMI 
TaxTMI 
2025 (2) TMI 449
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....12-2011 assessing nil income. Later as per data relating to Client Code Modification (CCM) with the Department, it is found the assessee had entered into transaction through Mehta Finstock Pvt. Ltd. during assessment year 2009-10 amounting to Rs. 5,89,787/- which has escaped assessment, hence a notice u/s. 148 of the Act was issued on 30-03-2016. In response the assessee requested to treat the original return in compliance to 148 notice and to provide reasons recorded. The assessee was provided reasons recorded and then proceeded with the re-assessment. 2.1. The Assessing Officer issued a show cause notice that the CCM carried out by the Mehta Finstock Pvt. Ltd. on behalf of the assessee was not inadvertent error but has been used as a systematic tool so as to evade taxes. Further the CCM has been done amounting to Rs. 12,56,760/- and not Rs. 5,89,787/- [which was shown to the assessee vide order sheet entry dated 02-12- 2016] and the CCM made in the case of assessee in 63 transactions amounting to Rs. 12,56,760/- why not to be added in the hands of the assessee. In reply, the assessee stated he has never instructed the Broker to execute the above transaction and the assessee ha....
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....ellant that modifications had to be carried out due to human errors is to be considered, the fact cannot be ignored that chances of human error on all the occasions are negligible, in this case, 63 instances. * All the derivative transactions took place with same broker but on different dates. It is very unlikely that the same mistake will be committed by same person on various dates. Especially since the error in entry of client code has to be corrected on the same date. It is unlikely that the same broker will keep on making error and correcting it again and again within a short span of time. * All cases of client code modification are with the same broker and this also indicates collusion, since the appellant must be dealing with a number of brokers and all the losses due to CCM have been with one broker only. 4.4 The appellant relied on various case laws in support of its submissions. However, the facts in these cases are at variance with the facts in this case. Moreover, the addition made by the AO cannot be taken to be based merely on suspicions, conjectures and surmises, as he has collected information from the National Stock Exchange as well as th....
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....f accounts. Further in the original assessment proceedings vide replies dated 10-11-2011 and 18-11-2011 the assessee filed various details relating to the loss from the derivative business in shares and also produced copy of bank statements and other details. Even reasons recorded for reopening of assessment does not state that there was failure or omission on the part of the assessee to furnish the details, since the reopening is beyond four years period and there is no failure on the part of the assessee, the entire reopening itself is illegal and without jurisdiction. 5.1. Further, the CCM was neither thoughtful nor deliberate to set off profits against F & O losses, because the audited books of accounts as furnished in the paper book clearly indicates that there was already huge losses from sale of shares of Rs. 85,46,016/- which was not converted into profit by the alleged bogus loss of Rs. 12,56,750/- by doing CCM. Since the net result of the business was huge losses of Rs. 1,80,46,336/- as per the audited profit and loss account. In support of the same, the assessee relied upon the Bombay High Court Judgement in the case of Ashish Niranjan Shah vs. Union of India (2024) 1....
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....he same is applicable in loss cases also. The Report has been provided alongwith annexure in which above named assessee is also involved in the transaction that he has taken the benefit of reduction of income due to C.C.M. amounting to Rs. 5,89,787/- for FY 2008-09 i.e. A.Y. 2009-10. From the above facts, I have reason to believe that the income of Rs. 5,89,787/- has escaped the assessment which has been earned by the client. Therefore, there is suspicious thing which should be verified and has escaped upto the extent of Rs. 5,89,787/- for the year under consideration i.e. A.Υ. 2010-11." Though the escaped income is recorded to be Rs. 5,89,789/- during the course of assessment, it is said to be 12,56,760/-, the same was informed to the assessee vide order sheet entry dated 02-12- 2016. However, this amount of Rs. 12,56,760/- is not likely to change net loss of Rs. 1.8 crores claimed by the assessee in its profit and loss account. Further, there is no failure on the part of the assessee in disclosing the relevant materials before the Assessing Officer. 7.2. On an identical issue of wrong claim of CCM, Hon'ble Bombay High Court in the case of Ashish Niranjan Sh....
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....assessment can be taken after the expiry four years from the end of the relevant assessment year, unless the income escaping assessment has been caused by the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. That vital element is sorely missing in the instant case. 27. The imperative requirement of compliance with the ingredients of Section 147 and Section 148 is underlined in innumerable judgments. However, we note with approval, a judgment of a Division Bench of this Court cited on behalf of the Petitioner, in case of Hindustan Lever Ltd. v. R.B. Wadkar [2004] 137 Taxman 479/268 ITR 332 (Bombay) (per V.C. Daga and J.P. Devadhar JJ.), and profitably extract the following: 18. Reading of proviso to section 147 makes it clear that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceeding under sectio....
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....ed on evidence. The Assessing Officer, in the event of challenge to the reasons must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish vital link between the reasons and evidence That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Officer cannot be supplemented by filing affidavit or making oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced. 21 Having recorded our finding that the impugned notice itself is beyond the period of four years from the end of the assessment year 1996-97 and does not comply with the requirements of proviso to section 147 of the Act, the Assessing Officer had no jurisdiction to reopen the assessment proceedings which were concluded on the basis of assessment under section 143(3) of the Act. On this short count alone the....
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....forms the reasons to believe the process of arriving at such satisfaction cannot be a mere repetition of the report of investigation. The recording of reasons to believe and not reasons to suspect is the pre-condition to the assumption of jurisdiction under section 147 of the Act. The reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that income has escaped assessment. xxxxxxxx 36. In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the Assessing Officer one after the other. There is no independent application of mind by the Assessing Officer to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the Assessing Officer are at best a reproduction of the conclusion in the investigation report. Indeed it is a "borrowed satisfaction". The reasons fail to demonstrate the link between the tangible material and the formation of the reason to believe that income has escaped assessment." 23. Coming back to the present case, the reasons recorded by the Assessi....
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....] held as follows:- "Business loss/deductions -Allowable as (Bogus loss) - Assessment year 2010-11 - Assessee company filed its return of income which was accepted and an order was passed An information was received from National Stock Exchange (NSE) that there was change in code of assessee maintained with broker with respect to certain share transactions carried out in F and O segment - Assessing Officer held that assessee was able to shift out its profit of Rs. 1.02 crores and shift in loss of Rs. 83.63 lakhs by resorting to technique of client code modification (CCM) - It was noted that CCM might give rise to doubt/suspicion, however, it required detailed investigations from parties concerned to reveal truth Merely there were CCMs carried out by assessee could not be a basis to draw an inference against assessee Other corroborative evidences had to be brought suggesting that there was exchange of cash among parties involved in CCM - But it was noted that no such exercise was carried out by revenue - Further, number of transactions in respect of which client codes were modified were less than 1 per cent of total transactions carried out by assessee; therefore, such chan....