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Income Tax Appellate Tribunal, DELHIBENCH ‘H’, NEW DELHI
Before: Dr. B. R. R. KumarSh. Yogesh Kumar US
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the assessee against the order of ld. CIT(A)-28, New Delhi dated 07.03.2019.
2. Following grounds have been raised by the assessee:
“1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad both in the eye of law and on facts.
2. Learned CIT(A) ought to have held that that the Action of the Income Tax Officer in issuing notice u/s 148 is after limitation period i.e. after 6 years from end of the relevant assessment year as per the provision of section 149 of Income tax act 1961, which is unjust, illegal and void ab- initio.
3. Learned CIT(A) ought to have held that Action of the Income Tax Officer in assuming jurisdiction u/s 147/148 of the Act, and in passing an order u/s 143(3)/147 is illegal, bad in law and void ab-initio.
4. Learned CIT(A) ought to have held that Action of the Income Tax Officer in recording reasons on the basis of incomplete information / documents / whereabouts / proper breakup / calculation of the transactions or even to say the nature of transactions is unjust, illegal, arbitrary and against the facts and circumstances of the case.
5. Action of the Ld. CIT(A) in confirming the Action of the Income Tax Officer in mechanical reopening of the Assessment without having belief that the income had escaped Assessment as the information received from the Investigation Wing of the department was mechanically reproduced in reasons for reopening the assessment, is unjust, illegal, arbitrary and against the facts and circumstances of the case.
6. Action of the Ld. CIT(A) in confirming the Action of the Income Tax Officer in treating the Loss from Share Trading of Rs. 761,701/- as loss on account of Client Code Modification and therefore bogus is unjust, illegal and arbitrary and against the facts circumstances of the case.
7. Action of the Ld. CIT(A) in confirming the Action of the Income Tax Officer by treating the loss as bogus without rejecting books of accounts by invoking the Provisions of Section 145 (3) of the Income Tax Act 1961 is unjust, illegal and arbitrary and against the facts circumstances of the case.”
The re-assessment proceedings u/s 147/148 of the Income Tax Act, 1961 in this case have been initiated and the notice u/s 148 has been issued on 31.03.2017 after recording reasons as per provisions of sub section (2) of section 148 read with section 151 of the Income Tax Act. The proceedings u/s 147 have been started on the basis of information received from the investigation wing of the Department regarding inquires conducted in the case of client code modification transaction wherein brokers were indulged in transferring the fictitious losses to reduce their tax liability and also fictitious profit to clients. The investigation report with the list of beneficiaries of services of client code modification was forwarded by Directorate of Income Tax Investigation, Ahmedabad to the Assessing Officers.
The ld. A.R. filed objection to Re-opening Income Tax Assessment Proceedings for the A.Y.2010-11 vide letter dated 11.08.2017.
The major objections raised in the letter under reference are as under:-
1. Information on which case was reopened is vague. No independent investigation carried out.
2. AOs do not have list of transaction through which Client Code Modification has taken place. 3. The reason to reopen assessment must be tangible and should not based on wing’s report.
The reply given by the Assessing Officer to the objection are as under:
As is apparent from the reasons recorded and copy of the same since supplied and admitted to be received by you vide your letter under reference that an information was received from DIT (Investigation), Ahmedabad that complaints were being received by the Directorate that fictitious profit/losses were created by some brokers by misusing the client code modification facility in F&O Segment on NSE during March, 2011. Further, the said brokers were alleged to be indulging in transferring the fictitious losses to their clients to reduce tax liability and also fictitious profit to other clients. The matter was investigated by the Directorate on the basis of data obtained from NSE and after analyzing and mapping came to the conclusion that the brokers were in fact misusing client code modification to create non genuine losses and profit for forwarding the same to its clients/beneficiaries. Even in few cases of brokers, spot verification was carried out confirming the misuse of facility of client code modification in order to create fictitious losses/profits. They further admitted having received commission @ 0.5% upto 2% on such transactions. The names/particulars of brokers/clients involved in the client code modification were identified in cases involving profit/losses for F.Y.2009-10 and your name i.e. Sh. Vivek Jajoo appeared in the list of beneficiary who had taken accommodation entry in foe garb of fictitious loss amounting to Rs. 1,79,370/-……….
Thus, at the outset, the reasons recorded was based on the allegation that the assessee has obtained a fictitious loss of Rs.1,79,370/-.
The assessee vide letter dated 22.08.2017 sought the basis of reopening of the case.
“Ref No.891/22/W/48 Income Tax Officer, Ward- 26 (3), New Delhi.
Reg: Mr. VIVEK JAJOO AAGPJ2546Q Sub : Income Tax Case for Assessment Year 2010-11 Dear Sir, In regards to the above mentioned it is submitted that the Assessee is in receipt of copy of reasons recorded for re-opening the above case.
Your goodself in the reasons recorded have mentioned that information has been received through mail from Asstt. Director of Income Tax (Investigation), Unit 1(3), Ahmedabad dated 14-03-2016 including a detailed Survey Report of 589 Pages which was not readily available on last date of hearing i.e. 11-08-2017.
It is humbly prayed that the above mentioned report / e-mail if now obtained may kindly provided.”
Further, the assessee vide letter dated 29.08.2017 sought the details of transactions available with the revenue from the AO.
“Ref No. 891/22/W/48 Income Tax Officer, Ward- 26 (3), New Delhi.
Reg: Mr. VIVEK JAJOO AAGPJ2546Q Sub : Income Tax Case for Assessment Year 2010-11 Dear Sir, In regards to the above mentioned subject matter your goodself is humbly submitted to provide details of transactions in your possession which have been entered into by the Assessee or the Share Broker wherein any discrepancy has been noted by your goodself.”
Further, on 10.11.2017 the Assessing Officer was requested to furnish the details of the transactions allegedly entered by the assessee.
“Ref. No. 891/22/W/48 Income Tax Officer, Ward- 26 (3), New Delhi.
Reg: Mr. VIVEK JAJOO AAGPJ2546Q Sub : Income Tax Case for Assessment Year 2010-11 Dear Sir, In regards to the above mentioned subject matter attention is invited to your letter dated 08-09-2017 and is humbly submitted as under:-
It is now hereby requested that if your goodself has carried out all investigations post re-opening then the results of your investigation may please be confronted to the Assessee in order to enable him to make a suitable reply. It is further submitted that your goodself had issued Notice u/s 131 to the Share broker M/s Maheshwari Technical Services Pvt. Ltd. The outcome of the Investigation / statement recorded if intended to be used against the Assessee may please be shared.
If your investigations have not yielded any positive results for your goodself against the Assessee, then the proceedings may kindly be dropped.
3. We also humbly request you that the Addition made in the proceedings for Assessment Year 2009-10 in appeal before Ld. CIT(A), the remand report may please be sent earliest to avoid repetitive addition and proceedings.”
Vide letter dated 08.12.2017, the Assessing Officer issued a final show-cause determining the difference of Rs.2,00,820/- on account of Client Code Modification and issued a show-cause notice for addition of Rs.7,61,170/-. The said show-cause is as under:
“…The details of transaction entered into by you in future and option are also enclosed with this notice. On perusal of the Annexure 3 enclosed with this notice, it has been noticed that all the /transactions, in which client code has been modified by the broker, have been done in February 2010 to March 2010. Further, it has also been noticed the previous client code of almost all transaction, in which client code has been modified by the broker, is MN6. The details of transactions in which COM done by the broker are as follows:
S. Date of Original Traded Original Modified Modified Difference No. transactions Value Code Traded value Code 1 2 Feb. 2010 Rs. 1607190 MN6 Rs. 1569390 FV27 Rs. 37,800 2 2 Feb. 2010 Rs. 2136645 MN6 Rs. 2116455 FV27 Rs. 20,190 3 3 Feb. 2010 Rs. 5024010 MN6 Rs. 4924275 FV27 Rs. 99735 4 4 Feb. 2010 Rs. 3269695 MN6 Rs. 3226600 FV27 Rs. 43095 5 2 Feb. 2010 Rs. 4326045 MN6 * FV27 6 3 Feb. 2010 Rs. 5445075 MN6 * FV27 7 4 Feb. 2010 Rs. 3226600 MN6 * FV27 8 26 Feb. 2010 Rs. 7063590 R * FV27 9 8 March 2010 Rs. 1036225 R * FV27 As mentioned above, the timing and original client code of the transactions undertaken by the assessee in which client code has been modified by its broker, i.e. end of the year and same original client code in all alleged transaction. This fact makes it clear that the assessee has shifted in ascertained loss otherwise why all of a sudden client code would have modified by the broker of the transactions undertaken during the month of February and March only in such a manner which makes clear that it cannot be a human error and why no mistake, as claimed by the assessee and broker, undertaken by them prior to February and March.
You are therefore, requested to please provide the details of modified traded value of the transactions mentioned at S. No. 5- 9 to the above table. In absence of the same and keeping in view of the details/documents/facts provided/ confronted to you vide this notice and mentioned above, it is hereby show caused why the loss of Rs.7,61,701/- shifted in through Client Code Modification of the transactions mentioned in Table above and claimed in P & L Account may not be disallowed and added to your income.”
We have gone through the information received by the AO (PB-75) reflecting net reduction in income due to CCM of Rs.1,78,370/- and the number of transactions where loss was shifted being 5 and only one transaction where the profit was shifted. While concluding the assessment, the AO disallowed the total loss Rs.7,61,170/- claimed by the assessee in P&L account.
In nutshell, the re-opening was initiated on the basis of alleged bogus loss of Rs.1,78,370/-, the show cause determined the bogus loss of Rs.2,00,280/- and the final assessment concluded in disallowing the alleged bogus loss of Rs.7,61,170/.
We have gone through the history of the case and also the adjudication of the ld. CIT(A) for the current year as well as for the A.Y. 2009-10. We find that even after considering the enquiry based on information received from DIT(Investigation), the AO has not been above to arrive at any particular finding with respect to modification or change in transaction carried out on determination of facts of Client Code Modification like the details of beneficiary parties on account of whom the alleged loss has been suffered by the assessee and the computation of the said loss had not been given to the assessee, though numerous requests were made at the time of assessment proceedings. The law mandates that any material of evidentiary value which has adverse effect on the claim of other party/respondent has an evidentiary value then the same must be provided to the assessee to meet the principles of natural justice. There is no substantial basis to make the impugned addition even if an information has been received but the enquiry caused by the Assessing Officer has not resulted into any positive finding as the AO has not brought the same in the impugned assessment order. Therefore, impugned addition made by the AO is liable to be deleted.
In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 29/11/2022.