SMT. SANTOSH GUPTA,JAIPUR vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-6, JAIPUR

That in the facts and circumstances of the case and in law, the CIT(A) grossly erred in sustaining the addition of Rs. 2,940/- as commission allegedly paid by the appellant to the broker without there being any material on record which could established that the said amount was paid by the appellant to the broker.

Briefly stated the facts of the case are that the assessee has filed her original return of income on 30.03.2011 declaring total income of Rs. 54,03,120/- which was processed u/s 143(1) of the Act. Subsequently, the notice u/s 148 was issued on 27.03.2017 after recording reasons to believe that income amounting to Rs. 1,49,950/- has escaped assessment within the meaning of section 147 of the Act. In response, the assessee filed her return of income on 10.04.2017 at total income of Rs. 54,03,120/- as originally filed. Subsequently, the notice u/s 143(2) and 142(1) were issued and the assessment was completed u/s 143(3) read with section 147 at an assessed income of Rs. 55,53,060/- holding that the assessee has misused facility of client code modification and she has shifted-in contrived loss of Rs. 1,47,000/- and in this way, she has reduced her taxable income. Further, an amount of Rs. 2,940/- was also added towards commission paid @ 2% on such accommodation to the brokers. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) who has since confirmed the said addition and now the assessee is in appeal before us.

During the course of hearing, the ld. AR raised the various contentions challenging the assumption of jurisdiction u/s 147 and the order so passed by the AO u/s 147 r/w 143(3) of the Act. One of the contentions which has been 3 & 496/JP/2019 Shri Vishnu Kumar Gupta, Jaipur Vs. DCIT, Circle-06, Jaipur raised by the ld AR is that the order so passed by the AO is in gross violation of principle of natural justice. It was submitted that the notice u/s 148 was issued merely on the basis of the information received from the ADIT (Inv.) Unit-1(3), Ahmedabad. The Appellant vide its letter dated 08.05.2017, 14.11.2017, 20.11.2017 repeatedly requested to provide copy of the information received from ADIT (Inv.) Unit-1(3), Ahmedabad, however the learned AO did not provide the same. It was submitted that the appellant also vide its letter dated 08.05.2017, 14.11.2017, 20.11.2017 repeatedly requested to provide copy of the statements of the brokers and clients who allegedly confirmed misuse of client code modification facility. However the learned AO did not provide the same. It was submitted that the appellant vide its letter dated 20.11.2017 (reply to SCN) requested to provide opportunity to cross examine the brokers and clients, who allegedly confirmed misuse of client code modification facility. However the learned AO did not provide the opportunity to cross examine the said brokers and clients. Further, the appellant vide its letter dated 20.11.2017 (reply to SCN) requested the AO to grant an opportunity of personal hearing before passing final order. However the learned AO passed the order on the next day i.e. 21.11.2017 without providing opportunity to be heard in person. It was accordingly submitted that the learned AO has passed the order in gross violation of natural justice and therefore the same deserves to be set aside. It was further submitted that similar contentions were raised before the ld. CIT(A) which he has summarily rejected. In support of his contention, the ld. AR placed reliance on the decision of Hon’ble Supreme Court in case of Andaman Timber Industries vs. Commissioner of C. Ex., Kolkata-II (2015) 281 CTR (SC) 241.

Per contra, the ld. DR submitted that in this case, information was received from ADIT (Inv.) Unit-1(3), Ahmedabad. From the information, it was gathered by the AO that fictitious profits and losses, were created by some 4 & 496/JP/2019 Shri Vishnu Kumar Gupta, Jaipur Vs. DCIT, Circle-06, Jaipur brokers by misusing the Client Code Modification facility in F&O segment on NSE during the F.Y 2009-10. The brokers were alleged to be indulging in transferring the fictitious losses to different clients to reduce their tax liability and also fictitious profit to other clients. In some cases of brokers as well as clients, survey u/s 133A was carried out and they confirmed having misused the facility of client code modification to create fictitious losses/profits and in transferring profits and losses from original clients to modified clients. From the details received, it was noticed that during the year under consideration assessee has shifted-in ascertained loss of Rs. 1,47,000/-. In this way, net reduction in income due to misuse of client code modification facility comes to Rs. 1,47,000/-. For taking in such contrived losses the assessee would have paid commission also. On the basis of statement of brokers, the AO estimate that the assessee would have paid commission @ of 2% which comes to Rs. 2,940 out of books of accounts. Basis the same, the reasons were recorded and notice u/s 148 was issued to the assessee. It was submitted that in this case, loss of Rs. 1,47,000/- on transaction of shares of Nifty NO was originally accrued to M/s Sandeep Stocks Pvt. Ltd. and this loss was shifted to the assessee through her broker M/s Maverick Share Brokers Limited. It was submitted that specific details were available with the Assessing Officer which were duly shared with the assessee and our reference was drawn to the show cause notice dated 14.11.2017 issued by the Assessing Officer in this regard and reassessment was completed bringing the same to tax. The ld DR accordingly supported the order of the lower authorities.

We have heard the rival contentions and perused the material available on record. We find that the AO has relied on certain information received from ADIT (Inv.) Unit-1(3), Ahmedabad and survey conducted at the premises of certain brokers and clients wherein statements of these persons were recorded. During the course of reassessment proceedings, we find that the assessee has 5 & 496/JP/2019 Shri Vishnu Kumar Gupta, Jaipur Vs. DCIT, Circle-06, Jaipur repeatedly asked the Assessing officer to share with her, copy of the information received from ADIT (Inv.) Unit-1(3), Ahmedabad, copy of the statements of the brokers and clients and have also asked for an opportunity to cross-examine these persons who have allegedly confirmed misuse of client code modification facility as evident from various communication/letters written to the AO and placed on record. It is also a fact that the AO having acknowledged said communication and request from the assessee has not acted upon the same and has not shared such information/statements and an opportunity to cross-examine these persons was also not provided. It is a settled legal proposition as laid down by the Courts from time to time that where any third party material or statement of any third party is to be relied upon by the Revenue against the assessee, the latter be provided an opportunity whereby such information and statements are shared and the assessee be allowed an opportunity to put forward her defence and objections in this regard. Further, where the assessee so desires, an opportunity to cross examine the persons whose statements are recorded be provided to the assessee. However, in the instant case, we find that the AO has not shared such information/statements and an opportunity to cross-examine these persons was also not provided and therefore, the principle of natural justice is clearly violated in the instant case which renders the order so passed by the AO as invalid in the eyes of law. We find that even during the appellate proceedings, the assessee was not made available any such statements and even the right of cross examination was denied by the ld CIT(A) who exercises the co-terminus powers as that of the AO. Thus, in view of the decision of the Hon’ble Supreme Court in case of CCE vs. Andaman Timber Industries (supra), the assessment based on statement of third party without giving an opportunity to the assessee is not sustainable in law. The Hon’ble Supreme Court in case of Andaman Timber (Supra) while dealing with the issue has held in para 5 to 8 as under:- 6 ITA Nos. 495 & 496/JP/2019 Shri Vishnu Kumar Gupta, Jaipur Vs. DCIT, Circle-06, Jaipur "5. We have heard Mr. Kavin Gulati, learned senior counsel appearing for the assessee, and Mr. K. Radhakrishnana, learned senior counsel who appeared for the revenue.

In light of aforesaid discussions, the statement of a third party cannot be sole basis of the assessment without given an opportunity of cross examination and consequently it is a serious flaw which renders the order a nullity. In light of the same, we don’t deem necessary to examine other contentions raised by the ld AR. The order so passed by the AO is hereby set-aside. The appeal of the assessee is thus allowed.

In both the parties fairly submitted that the facts and circumstances of the case are identical and similar contentions may be considered. As submitted by the both the parties, since facts and circumstances 8 ITA Nos. 495 & 496/JP/2019 Shri Vishnu Kumar Gupta, Jaipur Vs. DCIT, Circle-06, Jaipur of the case are exactly identical to facts and circumstances of the case in ITA No. 495/JP/2019, our findings and directions contained therein shall apply mutatis mutandis to this appeal. In the result, the matter is decided in favour of the assessee.