AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (4) TMI 968
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..../s 148 of the Act was issued. Ld. AO noted that, the assessee company was beneficiary of client code modification and the broker M/s Ashlar Commodities (P) Ltd. modified the name from original client M/s B B Portfolio (P) Ltd to the assessee company M/s Lasco Chemie (P) Ltd for the purchase contract of Rs. 55,00,000/- and date of transaction was 14.03.2012 relevant to the AY 2012-13. 3. On completion of proceedings, Ld. AO passed order dated 24.12.2019 made the addition of Rs. 57,59,971/-. Against order dated 24.12.2019 of Ld. AO, the assessee filed appeal before Ld. CIT(A), which was dismissed vide order dated 15.04.2025. 4. Being aggrieved, the appellant-assessee preferred an appeal raising following grounds of appeal:- 1. That the National Faceless Appeal Centre [('NFAC')/('CIT(A)')] erred on facts and in law it not holding that the reassessment order dated 24.12.2019 passed by the assessing officer under section 143(3) r.w.s. 147 of the Income-tax Act, 1961 ('the Act') was beyond jurisdiction, bad in law and void-ab-initio 1.1 That on the lacts and circumstances of the case and in law, the impugned order passed by the CIT(A) witho....
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....stigation report and on conjectures and surmises. 5. Ld. Authorized Representative for appellant-assessee submitted that, on perusal of the reasons recorded for initiation of reassessment proceedings [refer page 44-46 of PB), it is noted that the sole basis of reopening is some ex-parte the information received from the Investigation Wing, Mumbai, revealing that certain brokers were allegedly misusing client code modification facility for transferring fictitious losses and profits to different clients for reducing their tax liability and that the appellant was one of the beneficiaries which had entered into a purchase contract of Rs. 55,00,000/- on 14.03.2012. 6. It is respectfully submitted that the reassessment proceedings and the consequent reassessment order dated 24.12.2019 passed under section 147 r.w.s 143(3) of the Act are without jurisdiction, bad in law and void ab initio, inter alia, for the following reasons: (a) Reassessment is barred by limitation as being initiated after 4 years in terms of proviso to section 147 of the Act; (b) There is no valid reason to believe that income has escaped assessment in the hands of the assessee; (c) Th....
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.... - Kalpataru Sthapatya (P.) Ltd v. ITO: [2013] 215 Taxman 479 ( Guj.) - Kaira District Cooperative Milk Producers Union Ltd. v. ACIT: [1995] 216 ITR 371 (Guj.) 11. Without prejudice, it is most respectfully submitted that there was, even otherwise, on the facts of the case and in law, no failure on the part of the assessee in disclosing fully and truly all material facts necessary for assessment in connection with the aforesaid issue and the assessing officer had, after verifying the claim(s) and forming opinion, allowed the same in the regular assessment proceedings. In this regard, it is submitted that in the audited financial statements, profit from commodity trade was shown separately in "Other Income' [refer page 17 of the PB), which includes profit from impugned transaction. The same was, accordingly, recorded in the return of income and was duly offered to tax. 12. The Courts have in this context held that in so far as primary facts are concerned, it is the assessee's duty to disclose all of them, including particular entries in books of accounts, particular portions of documents and other evidence disclosed. Once all the primary facts are before the ....
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....ted merely on the basis of vague report of the investigation wing/ appraisal report, without any independent application of mind, is beyond jurisdiction, bad in law and void ab initio, as has been held in the following legal decisions: - ACIT vs. Dhariya Construction Company 328 ITR 515 (SC) - ITO vs Lakhmani Mewal Das: 103 ITR 437 (SC) - Jaimam Investments vs. ACIT: 439 ITR 154 (Bom.) - Revolation Forver Marketing (P) Ltd. v. ITO: 413 ITR 400 (Del) - Pr. CIT vs RMG Polyvinyl (1) Ltd. 396 1TR 5 (Del) - PCIT vs. Meenakshi Overseas (P.) Ltd. 395 ITR 677 (Del) - PCIT vs G & G Pharma India Ltd. 384 ITR 147 (Del.) - CIT v SFIL Stock Broking Ltd: 325 ITR 285 (Del) - CIT vs. Vinceta Jain and Atul Jain: 299 ITR 383 (Del) 19. In the facts of the present case, the reasons recorded stated that the name of appellant company appeared in the list of beneficiaries of client code modification alleged to be undertaken by some brokers. In this regard, it would be pertinent to note that: - The reassessment proceedings have been solely and mechanically initiated on basis of the Report received from the Deputy ....
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....hich was not chargeable to income tax for assessment year in question, no income chargeable to tax had escaped assessment in assessee's hand- Revenue's SLP stands dismissed in [2025] 176 taxmann.com 623 (SC). - Aashish Niranjan Shah v. Uol: [2024] 167 taxmann.com 561 (Bom) - PCIT v. Prabhu Dayal Aggarwal: [2023] 456 ITR 84 (Del.)- Reopening of assessment based on a statement made by a director of assessee's share broker qua illegal client code modification, without giving opportunity to assessee to cross-examine him, was not justified. Further, the proceedings were also held to be time barred in terms of first proviso to section 147 of the Act - DCIT v. Modern India Ltd.: [2025] 211 ITR 270 (Mum Trib.)- Since the report of investigation which was cornerstone of reopening of assessment did not in any manner establish or refer to any wrongdoing or illegal activity of assessee and further, assessee was able to establish that the transactions on NSEL platform, reopening was held to be unjustified 21. In view of the aforesaid, notice dated 30.03.2019 issued under section 148 of the Act and the consequential assessment proceedings thus a....
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....ons (as evident from contract note) stands accepted by the Revenue. There cannot be any comprehensible reasons to doubt the impugned transaction. 27. In this regard, it is respectfully submitted that the aforesaid profit arising from the impugned transaction stands duly offered to tax by the appellant in its return of income for the relevant assessment year as business income. 28. It is further submitted, that as per the reasons recorded by the assessing officer, no specific allegation has been levelled against the appellant company of involvement in any fraudulent activity on NSEL. The information received from the DDIT (Investigation), Mumbai merely states that there are total of 219 brokers who have made 51565 client code modifications. It is emphatically submitted that nowhere in the said information, the name of the appellant or its broker has been mentioned. 29. In view of the aforesaid, it is respectfully submitted that the impugned reassessment proceedings have been undertaken by the assessing officer without fulfilling the mandatory pre-condition of 'income chargeable to tax has escaped assessment and hence, the same is wholly without jurisdiction and bad in l....
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....ent proceedings are bad in law and rightly quashed by the CIT(A). Re (f) and (h): Non-furnishing of complete reasons (alongwith the investigation report material referred therein and certified copy of reasons): 35. During the course of reassessment proceedings, actual reasons recorded for initiating the aforesaid proceedings were furnished to the assessee-only some text/gist of reason was provided. Further, even the copy of investigation wing report which formed the sole basis of reopening is also not provided to the appellant. 36. Not providing the actual reason recorded and the material forming the basis of so-called reasons vitiates the entire reassessment (refer GKN Driveshafts (India) Pvt. Ltd. 259 ITR 19 (SC), Sabh Infrastructure Ltd v ACIT (2017) 398 ITR 198 (Del)- Revenue's SLP dismissed. Re (g): Legal objections filed were disposed of cryptically 37. It is submitted that the disposal of legal objections vide orders dated 19.08.2019 and 02.09.2019 was merely an idle formality. It is respectfully submitted that a speaking order is an order that explicitly states the reasons for the decision. Such an order "speaks" for itself by detailing the rationale behind t....
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.... Kumar Gupta: 207 CTR 115 (Del) - Sona Electric Company v. CIT: 152 ITR 507 (Del) - CIT v. Eastern Commercial: 210 ITR 103, 110 (Cal) - P.S. Abdul Majeed v. STO 209 ITR 821. 823 (Ker) - CIT v. Sham Lal: 127 ITR 816 (P&H) - Mukand Singh and Sons v. Presiding Officer: 107 STC 300 (P&H) - Anupam Agencies v. State of Punjab: 98 STC 338 (P&H) - Prakash Chand Mehta v. CIT: 220 ITR 277, 279 (MP) - CTT v. D.M.Doshi: 239 ITR 315 (Guj) - Amarjit Singh Bakshi (HUF): 263 ITR (AT) 75 (Del) (TM) @ 151 - Mahes Gulabrai Joshi v CIT: 95 ITD 300 (Mum.) - Monga Metals (P) Limited: 67 TTJ 247 (All) - Verma Roadways v. ACIT: 75 ITD 183 (All) - Sarita Devi Kajaria v. ITO: 89 ITD 109 (Kol) (TM) - ITO v. Pukhraj N. Jain: 95 ITD 281 (Mum.) - Obulapuram Mining Company (P.) Ltd v. DCIT: 160 ITD 224 (Bang) 42. It is submitted that the case of the appellant is squarely covered by the aforesaid decisions since in the present case as well the assessing officer has failed to prove that the appellant and the third parties have colluded and undertaken client code modification wit....
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....sactions were directed authorized by the appellant to be undertaken by the broker. 49. It is emphatically reiterated that the appellant entered into a forward contract with the aforementioned broker. The broker had, inter alia, purchased commodity of Rs. 55,00,027.50 which was then sold for Rs. 57,59,971.20 on the even date. Accordingly, the appellant had made a profit of Rs. 2,59,971 which was duly offered to tax by the appellant in the relevant income tax return. In this regard, it is submitted that during the course of reassessment proceedings, the appellant placed on record the complete details of the transactions entered into during the relevant previous year as follows: - Copy of contract note dated 14.03.2012 issued by the broker M/s. Ashlar Commodities Pvt. Ltd. duly evidencing the aforesaid purchase and sale including other transactions as well [pages 65 to 66 of PB] and - Copy of detail and working of profit from commodity trade amounting to Rs. 3,15,38,089 (page 57 of PB] 50. Insofar as the assessing officer's allegation that the purchase contract entered into by the appellant with the broker amounting to Rs 55,00,000 is a bogus not a gene tra....
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....that the appellant does not have any knowledge of any of the aforesaid transactions being undertaken by broker(s) nor any such modification has been done with the authorization of the appellant. 56. It is further submitted that Client Code Modification by a broker is not impermissible and can take place in genuine circumstances. In this regard, reference may be made to the directions issued by SEBI vide Circular No. MCX/T&S/032/2007 22nd Jan. 2007, wherein SEBI had directed that modification of up to 1% of the total traded value of securities shall be permissible and no penalty thereof shall be levied on brokers for such rectification. The aforesaid Circular was later superseded vide Circular No. DNPD/6/2011 dated 05.07.2011 wherein it has been categorically stated that Stock Exchange may allow for modifications of client codes of noninstitutional trades to rectify a genuine error in entry of client code at the time of placing/modifying the related order. 57. Thus, it would be appreciated that even the SEBI considers a modification as normal on account of human element involved in the process of securities transactions: In view of the above, assuming some client code modifica....
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....ve been made with an intent to evade taxes without even cross-verifying the said transactions from the books of account of the appellant/third parties, nothing has been brought on record to prove that client code modification has been misused by the appellant in connivance with the broker to suppress income for the relevant assessment year. 63. It is thus respectfully submitted that in the instant case, addition made in the impugned assessment order is based on mere suspicion and an ex-parte investigation report, which in turn is based on conjectures and surmises, and proceeds on various incorrect facts, without examination the basic details facts of the appellant. 64. On perusal of the above, it may be noted that the commodity transaction undertaken by the assessee in the relevant assessment year 2012- 13 stands fully corroborated and has also been duly disclosed and examined during regular assessment proceedings. Thereby, the unfounded suspicion of the assessing officer that the transaction entered through the broker are suspicious and non-genuine is unwarranted and based on incorrect appreciation of facts as demonstrated supra. 65. Reference in this regard may be made t....
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....her parties, in absence of any findings that assessee had given specific instruction to broker to make such CCM, assessee could not be held responsible in such modification and thus, loss could not be disallowed. - DCIT v. Kaizen Stock Trade (P.) Ltd.: [2021] 130 taxmann.com 236 (Ahd Trib.) 66. In that view of the matter, the allegations made by the assessing officer are devoid of any merit and, therefore, the impugned addition of Rs. 57,59,971 made by the assessing officer, on mere surmises and conjectures, deserves to be deleted. 67. Ld. Departmental Representative submitted factual report dated 28.11.2025, inter alia, mentioning as under:- The then Assessing Officer had reasons to believe that income has escaped assessment in the case of the assessee Lasco Chemie Private Limited for the assessment year 2012-13 on the basis and analysis of credible information received from the office of the DDIT(Inv.) Unit 6(3), Mumbai, the proceeding u/s 147 of the Income Tax Act 1961 was initiated by recording the reasons thereof and subsequently notice u/s 148 of the Act was issued on 31-03-2019 and served upon the assessee after taking statutory approval from the comp....
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.... total amounting to Rs. 57,59,971/-. In the absence of satisfactory explanation and without supporting evidence, Assessment order passed (copy attached) under section 143(3) r.w.s 147 of the Act at income of Rs. 56,62,450/- on 24.12.2019 after making addition of Rs. 57,59,971/- treating the transaction related to purchase contract being not a genuine transaction and thus income from undisclosed sources. In determining whether commencement or re-assessment proceedings was valid it has only to be seen whether there was prime facie some material on the basis of which the Department could re -open the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. (Raymond Woolen Mills Ltd. Vs. ITO (1999) 238 ITR 34(SC); Deshraj Udyog Vs. ITO (All) 318 ITR 6 and ITO Vs. Lakhmani Mewal Dass (SC) 103 ITR 437. In view of the above, thus the reassessment order passed on 24.12.2019 under section 143(3) r.w.s. 147 of the Income tax Act, 1961 is valid and within jurisdiction. Point-wise Comments: Point (a) The reassessment proceedings are not barred by limitation as per the provisions of section 147 of the Act as the case....
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....d by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tits (b) where a return of income has been furnished by the assessee hut no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E; (c) where an assessment has been made, but (i) income chargeable to tax has been underassessed: or (ii) such income has been assessed at too low a rate or (iii) such income has been made the subject of excessive relief under this Act: or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed Point (b) In the case reassessment proceedings were initiated with valid "reason to believe" as per information received from DDIT(Inv.) Unit-6(3), Mumbai v....
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....nit-6(3), Mumbai vide letter dated 15.03.2019 that Serious fraud Investigation office (SFIO) carried out investigation in NSFL and forwarded its report to Pr.CCIT, Mumbai. On the basis of SFIO report that several brokers were indulging in transferring fictitious losses to different clients to reduce their tax liability and also fictitious profit to other clients, the details of client code modification were called from NSEL and as per the data there are total 219 brokers who have made 51565 client code modification and the volume of sale and purchase of transaction is Rs. 6311 crores. The assessee coinpany M/s. Lasco Chemie(P) Ltd. is also one of the beneficiary of such client code modification and in the case of assessee company the broker M/s. Ashlar Commodities (P) Ltd. modified name the original client from M/s. BB Portfolio(P)Ltd.(PAN:AABCB8010B) to the assessee company M/s. Lasco Chemie (P)Ltd. for the purchase contract (ZINCINGDEL) of Rs. 55,00,000/- and date of transaction was 14.03.2012 relevant to A.Y.2012-13 Since the Assessing Officer had reasons to believe that income has escaped assessment in the case of the assessee Lasco Chemie Private Limited for the asses....
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.... amounts to or is likely to amount to one lakh rupees or more for that year. (c) if four years, but not more than sixteen years, have elapsed from the end of the relevant assessment year unless the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment. Explanation-In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 of section 147 shall apply as they apply for the purposes of that section. The present case of assessee company is not covered in proviso to section 149(1) as the notice is issued within 6 years time from the relevant A.Y 2012-13. Point (f) certified copy of reason not provided; It is pertinent to mention here that copy of reasons from where reason to believe was drawn and the same were provided to assessee vide letter DIN No. ITBA/AST/F/17/2019-20/1016997449(1) on 25.07.2019. (Copy attached) Point (g) legal objections filed were disposed of cryptically; Assessee filed objections to reopening of the reassessment which was duly disposed o....
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.... of the beneficiaries which had entered into a purchase contract of Rs. 55,00,000/- on 14.03.2012. 69. Assessee filed return of income on 26.09.2012 page No. 1 of paper book. Regular assessment was completed u/s 143(3) of the Act on 31.10.2014 page No.73 to 74 of paper book. 70. The reassessment proceedings for AY 2012-13, were initiated through notice dated 31.03.2019 u/s 148 of the Act page No.41 of paper book. In terms of proviso to Section 147, where assessment was completed under section 143(3) of the Act, reopening is not permissible beyond 4 years from the end of relevant assessment year, unless income has escaped assessment by reason of failure of the assessee to disclose fully and truly all material/primary facts necessary for assessment. 71. The reassessment proceedings were initiated on basis of report of Investigation Wing. Reasons recorded stated that the name of assessee-company was appeared in the list of beneficiaries of client code modification alleged to be undertaken by some brokers. 72. A Coordinate Bench in PCIT v. Prabhu Dayal Aggarwal: [2023] 456 ITR 84 (Del.)- Reopening of assessment based on a statement made by a director of assessee's share....