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Facts
The assessee company filed a return declaring a loss. Information was received from DDIT (investigation) regarding client code modification by a broker, where the assessee was allegedly a beneficiary for a purchase contract of Rs. 55,00,000. The Assessing Officer (AO) made an addition of Rs. 57,59,971, which was upheld by the CIT(A).
Held
The Tribunal held that the reassessment proceedings were bad in law and void ab initio. The primary reasons were that the reassessment was initiated beyond the period of limitation without alleging failure on the part of the assessee to disclose material facts, based solely on an investigation report without independent application of mind, and in violation of principles of natural justice.
Key Issues
Whether reassessment proceedings initiated beyond 4 years, based on an investigation report without proper application of mind and without violating principles of natural justice, are valid.
Sections Cited
143(3), 147, 148, 149, 151, 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “F” BENCH, DELHI
Before: SHRI S RIFAUR RAHMAN & SHRI VIMAL KUMAR
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) O R D E R PER VIMAL KUMAR, JM:
The appeal filed by the assesse is against the order dated 15.04.2025 of the Ld. Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as “Ld. CIT(A)”), u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), arising out of order dated 24.12.2019 of the of the Ld. Assessing Officer/ITO Ward-15(2), Delhi (hereinafter referred to as “Ld. AO”), u/s 143(3) r.w.s. 147 of the Act for Assessment Year 2012-13.
Brief facts of the case are that, assessee Company filed return of income declaring total loss of Rs.97,526/-. Information was received from DDIT (investigation), Mumbai. On basis of information, the case was reopened u/s 147 of the Act and notice u/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
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) 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.
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.
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) without judiciously considering the submissions of the appellant and without providing opportunity of hearing (through video conferencing) is bad in law. Re: Validity of reassessment proceedings 2 That CIT(A) erred in not appreciating that reassessment proceedings are invalid since: (a) proceedings were barred by limitation prescribed in first proviso to section 147, (b) proceedings were initiated without there being valid 'reason to believe"; (c) proceedings were predicated on mere change of opinion; (d) there cannot be a case of escapement of income in appellant's hands, (e) the proceedings were barred by limitation under section 149, (f) certified copy of reasons were not provided, (g) legal objections filed were disposed of cryptically; (h) copy of complete reasons (along with investigation report/ material referred therein) were not provided; (i) sanction, as required under section 151 of the Act, if obtained, was not provided,
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) (j) reassessment proceedings were completed in gross violation of principles of natural justice Without prejudice - on merits 3 That on the facts and circumstances of the case and in law, the CIT(A) erred in upholding addition of Rs. 57,59,971/- [Rs.55,00,000 alleged to be value of transaction + Rs. 2,59,971 profit element) as income from undisclosed sources on account of alleged bogus forward purchase contract transaction. 3.1. That the CIT (A)/ assessing officer erred on facts and in law in alleging that the appellant was a beneficiary of non-genuine client code modification by appellant's broker viz.. Ashlar Commodities (P) Ltd. in NSEL 3.2. That the CIT(A)/ assessing officer erred on facts and in law in not appreciating that the appellant had not paid Rs.55,00,000 for purchase of forward purchase contract but has only paid the margin money and the net profit element of Rs.2,59,971 was duly recorded and offered to tax. 3.3. That the CIT(A) erred on facts and in law in not deleting the addition made by the assessing officer without even specifying the provisions/ section under which the addition is made. 3.4. That the CIT(A) erred on facts and in law in not appreciating that the addition has been made by the assessing officer purely based on some ex-parte investigation report and on conjectures and surmises.
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 P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) beneficiaries which had entered into a purchase contract of Rs.55,00,000/- on 14.03.2012.
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) There cannot be a case of escapement of income in appellant's hands;
(d) Reassessment has been initiated on mere change of opinion, in the absence of any new tangible material information available with the assessing officer;
(e) Reassessment is barred by limitation in terms of section 149 of the Act; (f) Certified copy of reasons was not provided;
(g) Legal objections filed were disposed of cryptically;
(h) Re-assessment was completed without providing copy of complete reasons (along with investigation report/ material referred therein);
(i) Sanction, as required under section 151 of the Act, if obtained, was not provided;
(j) Reassessment proceedings were completed in gross violation of principles of natural justice. 7. Each of the aforesaid contentions are briefly explained as under:
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) Re (a): Re-assessment barred by limitation in terms of proviso to section 147
In terms of proviso to section 147, where assessment had been completed under section 143(3) of the Act, reopening is not permissible beyond 4 years from 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.
In the present case, there is no assertion of any failure of the appellant to disclose fully and truly all material facts relating to its assessment in the reasons recorded or even in the order disposing of legal objections as well as the assessment order. Hence, the entire foundation of reassessment initiated beyond period of 4 years stands vitiated.
Reference in this regard may be made to following decisions wherein it has categorically been held that if the reasons recorded fail to mention specific failure on the part of assessee in fully and truly disclosing material facts in relation to such claim, initiation of reassessment is bad in law:
- Atma Ram Properties (P.) Ltd. v. DCIT: [2012] 343 ITR 141 (Del.) - Wel Intertrade (P.) Ltd. v. ITO: [2009] 308 ITR 22 (Del.)
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13)
- Haryana Acrylic Manufacturing Company v. CIT: [2009] 308 ITR 38 (Del.) - CIT v. Purolator India Ltd.: [2012] 343 ITR 155 (Del.) - Titanor Components Ltd. v. ACIT: [2012] 343 ITR 183 (Bom.) - Plus Paper Food Pac Ltd v. ITO: [2015] 374 ITR 485 (Bom.) - 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.)
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.
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
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) entries in books of accounts, particular portions of documents and other evidence disclosed. Once all the primary facts are before the assessing authority, the assessing officer requires no further assistance by way of disclosure. It is for the assessing officer to decide what inferences of fact can be reasonably drawn and what legal inferences have ultimately to be drawn. In this regard, reliance is placed on the following decisions:
- Calcutta Discount Co. Ltd. vs. ITO: [1961] 41 ITR 191 (SC) - CIT v. Foramer France: [2003] 264 ITR 566 (SC) - CIT vs. Motor & General Finance Ltd: [2009] 184 Taxman 465 (Del) - BLB Limited vs. ACIT: [2012] 206 Taxman 37 (Del) - D.T. & T.D.C. Ltd. vs. ACIT: [2010] 232 CTR 260 (Del) - CIT vs. Maruti Suzuki India Ltd: [2013] 215 Taxman 495 (Del) - JSRS Udyog Ltd. v. ITO: [2009] 313 ITR 321 (Del) - Vatika Ltd. vs. ITO: [2013] 357 ITR 170 (Del)
In view of the above, it is submitted that the reassessment proceedings are barred by limitation in terms of proviso to section 147 of the Act.
Re (b): There is no valid reason to believe reasons solely based on report of Investigation Wing
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) 14. Under the scheme of the Act, the assessing officer can initiate proceedings under section 147 of the Act only if he has "reason to believe" that any income has escaped assessment. Such belief has to be arrived at by the assessing officer on the basis of tangible/reliable information in the possession of the assessing officer. The reasons recorded must. therefore, show application of mind by the assessing officer. If the reasons recorded are vague or ambiguous or based on suspicion, conjectures and surmises, the proceedings initiated under section 147 of the Act are liable to be held as invalid and bad in law.
Reference in this regard may be made to following judgements:
It has been similarly held in the following decisions:
- Ganga Saran & Sons (P) Ltd vs. ITO 130 ITR 1 (SC) - Sheo Nath Singh vs. ACIT 82 ITR 148 (SC) - Biria VXL vs. ACIT 217 ITR 1 (Guj) - Multiscreen Media (P) Ltd. vs UOI 324 ITR 54 (Bom.) - ITO vs. Lakhmani Mewal Das 103 ITR 437, 448 (SC)
Reason to believe', it is submitted, cannot be equated with reason to suspect [refer Krown Agro Foods (P) Ltd vx ACIT: 375 ITR 460 (Deli. GS
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) Engineering & Construction Corporation vs DDIT (International Taxation): 357 ITR 335 (Del)
It is submitted that reassessment initiated 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)
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:
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) - The reassessment proceedings have been solely and mechanically initiated on basis of the Report received from the Deputy Director of Income Tax (Investigation). Mumbai alleging appellant was a beneficiary of the bogus profit/loss obtained through client code modification undertaken by the broker - Copy of Report of the investigation Wing has not been provided to the appellant as part of reasons recorded or during assessment. Accordingly, the said information could not be relied against the appellant or could not have been the basis material to reassess the income of the appellant. - It is a matter of record that no independent enquiry, whatsoever, was ever conducted by the assessing officer qua such alleged shifting of profits/loss through client code modification or no effort was made to ascertain if the purported information was correct or not, prior to recording of reasons.
Specific reliance in this regard is placed on following judgments wherein the Courts have been pleased to quash reassessment proceedings initiated on identical allegation of misuse of client code modification solely based on report of investigation wing:
- Harikishan Sunderlal Virmani v. DCIT: 394 ITR 146 (Gujarat) - Reopening of assessment beyond four years on basis of information received from Principal Director of Income Tax (Investigation), was not justified when there was no allegation of assessee's failure to disclose truly and fully material facts necessary for assessment - Coronation Agro Industries Ltd. v. DCIT: 379 ITR 456 (Bombay) - Held that the reasons did not indicate the basis for the Assessing Officer to come to 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 gen error, originally occurred while punching the trade; while material available was that there was a client code modification done by the assessee's broker but there was no link from there to conclude that it was done to escape assessment of a part of its income. Therefore, the reassessment notice was without jurisdiction. - Ram Nebhnani HUF v. ITO: [2025] 176 taxmann.com 231 (Bombay)-Where Assessing Officer issued a reopening notice on ground that entire amount of Rs.98.04 lakhs received by assessee through Client Code Modification (CCM) was undisclosed income, since net income from buy and sell transactions amounted to only Rs. 77,280, which was less than maximum amount which was not chargeable to income tax for P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) 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
In view of the aforesaid, notice dated 30.03.2019 issued under section 148 of the Act and the consequential assessment proceedings thus are, without jurisdiction and bad in law and liable to be quashed.
Re (c): There cannot be escapement of income in the hands of the appellant
At the outset, it is respectfully submitted that there is no escapement of income in the case of the appellant for the assessment year 2012-13 as explained hereunder:
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) 23. The so-called reasons forming the basis of the impugned reassessment proceedings, as provided to the appellant vide letter dated 25.07.2019 proceeds exclusively on the basis that "there are total 219 brokers who have made 51565 client code modifications and the volume of sale and purchase transactions is Rs.6311 crore pertinently, the "information" does not disclose, in any manner whatsoever, how income of the assessee has escaped assessment warranting initiation of reassessment proceedings under section 148 of the Act.
During the year under consideration, the appellant entered into a forward contract of ZINCINGDEL through the broker M/s. Ashlar Commodities (P.) Ltd, on 14.03.2012. The appellant deposited a margin amount with the broker. The contract was settled on the even date with the appellant earning profit.
In the reasons recorded, the assessing officer has without appreciating the facts erroneously treated the contract value of Rs.55,00,000 as an actual investment and alleged escapement of income. In this regard, it is respectfully submitted that no such amount was invested by the appellant in the acquisition of any asset. It is submitted that the assessing officer has failed to P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) consider that Rs.55,00,000 was the contract value (for which appellant only invested margin money and not entire value) and not the profit on commodity transaction. In this regard, it is submitted that the assessee had purchased a commodity of Rs.55,00,027.50 which was then sold for Rs 57,59,971.20. The contract note issued by the broker duly evidencing purchase and sale of the commodity is enclosed herewith at pages 65 to 66 of PB.
The only amount actually paid by the appellant was the margin deposit paid to the broker for entering into the forward contract. The settlement of contract resulted in a profit due to favourable movement in market prices, which was credited to the appellant's account. Moreover, the impugned transaction was one of the transaction entered into by the appellant through the broker, other similar transactions (as evident from contract note) stands accepted by the Revenue. There cannot be any comprehensible reasons to doubt the impugned transaction.
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.
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) 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.
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 law.
It is settled law that pre-condition of any escapement of income in the hands of the assessee is a sine qua non for initiation of reassessment proceedings [refer ITO Lakhmani Mewal Day (1976) 103 ITR 437 (SC), Divya Capital One (P) Ltd. vs. ACIT [2022] 139 taxmann.com 461 (Del). Angelatoni Test Technologies SRL vs. ACIT [2024/463 ITR 139 (Del); Vasanthi Ramdas Pai vs. ITO [2024] 159 taxmann.com 392 (Kar).
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) 31. It is submitted that once the income from the disputed transactions stands disclosed and subjected to tax, the basic jurisdictional condition prescribed under section 147 of the Act stands unfulfilled.
Re (d): Re-assessment initiated on mere "change of opinion no fresh tangible material
In the present case, as discussed in detail supra, original assessment under section 143(3) of the Act was completed after due application of mind by the assessing officer. The same is clearly evident from disclosures made and documents filed during the assessment for the relevant assessment year. Thus, initiation of reassessment is merely a change of opinion and not sustainable [refer ACIT v. ICICI Securities Primary Dealership Ltd [2012] 348 ITR 299 (SC), CIT v. Kelvinator of India: [2010] 320 ITR 561 (SC)- affirming CIT v Kelvinator of India Ltd. (2002) 256 ITR 1 (Del) (FB)].
Re (e): Reassessment is barred by limitation in terms of section 149 of the Act
In this regard, it is respectfully submitted, that proceedings initiated under section 147 cannot be regarded as having been validly initiated unless
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) reasons recorded for initiating the proceedings are served on the assessee within the period of limitation prescribed in section 149 of the Act, i.e, before the expiry of six years from the end of the relevant assessment year. (Refer. Harvana Acrylic Manufacturing Compony vs. CIT [2009] 308 ITR 38 (Del), Shri Balwant Rai Waliwa in Del/10]
In the present case, notice under section 148 of the Act dated 30.03.2019 was issued. Thereafter, the assessee, vide letter dated 11.06.2019. requested the assessing officer for providing reasons for reopening which were communicated much later on 25.07.2019 i.e. clearly after the expiry of the limitation period of six years from the end of the assessment years as provided under section 149 of the Act. For the said reasons too, it is respectfully submitted that the impugned reassessment 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):
During the course of reassessment proceedings, actual reasons recorded for initiating the aforesaid proceedings were furnished to the assessee-only
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) 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.
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
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 the conclusion
In the following decisions the Courts have consistently held that reassessment order passed by the assessing officer without first passing a separate speaking order disposing off the legal objection, is bad in law and is liable to be set aside;
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) - GKN Driveshafts (India) Pvt. Ltd.: 259 ITR 19 (SC) - Pr. CIT vs Tupperware: 236 Taxman 494 (Del) - PCIT v. Jagar Talkies Distributors: 85 taxmann.com 189 (Del.) - Haryana Acrylic Manufacturing Company vs. CIT 308 ITR 38 (Del) - CIT v. Videsh Sanchar Nigam Ltd: 340 (TR 66 (Bom.) - Ujagar Holdings Pvt. Ltd. vs. ITO:
(Del. Trib.) Re (i): No sanction under section 151 of the Act provided during assessment proceedings
It is respectfully submitted that though the notice under section 148 refers to sanction being obtained from PCIT-5, Delhi, but copy of sanction obtained, if any under section 151 of the Act has not been communicated to the appellant even till date. In the absence of copy of sanction being provided, the only conclusion that follows is that there exists no such sanction as required under section 151 of the Act and for this reason, too, the present proceedings are illegal and bad in law.
Re (j): Reassessment proceedings were completed in gross violation of principles of natural justice.
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) 40. Without prejudice, it is respectfully submitted that the assessment order has been passed in violation of principles of natural justice in as much as the sole basis of addition is Report of Investigation Wing of Mumbai, which has not been provided to the appellant to provide necessary rebuttal, despite repeated requests. No opportunity of cross examination of persons, who may have been summoned during the course of enquiry was provided to the appellant.
The said conduct of the assessing officer is in gross violation of the principles of natural justice. Such ex-parte material cannot, it is well settled, be relied on to draw any adverse inference against the appellant. Reliance in this regard is placed on the following decisions:
- Kishanchand Chellaram v. CIT: 125 ITR 713 (SC) - Saraswati Industrial Syndicate Ltd v. CIT: 237 ITR I (SC) - State of Punjab v. Bhagat Ram: AIR 1974 SC 2335 - Kalra Glue Factory v. Sales Tax Tribunal: 167 ITR 498 (SC) - CIT v. Pradeep 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)
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13)
- 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)
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 with the connivance of the broker, with an intent to evade taxes and has proceeded to make the addition by relying on the Report of the Investigation Wing.
Thus, the reassessment order calls for being quashed for the aforesaid reason too.
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) Grounds of Appeal No. 3 to 3.4-On Merits-Addition not sustainable
44. Without prejudice to the aforesaid, it is further submitted that addition made by the assessing officer as affirmed by the CIT(A) is not sustainable in law, inter alia, for the following reasons:
During the relevant financial year 2011-12, the appellant had entered into various transactions in connection with sale purchase of futures and options through a broker. viz. Mis Ashlar Commodities Pvt. Ltd. The broker had undertaken numerous derivative transactions for which the appellant receives Contract Note(s) from the broker, providing details of the various transactions carried out during the day and the net amount payable receivable. The appellant makes entries in its book of accounts with reference to such Contract Note(s) and the profit/ loss, as the case may be, in respect of derivative transactions so accounted for in the books at the year-end is considered while computing business income in the tax returns.
During the relevant previous year, the appellant bad credited a total of Rs. 3,15,38,089.23 in its books from commodity trading. The aforesaid amounts were clearly disclosed in the audited financial statements of the appellant for the year ended March 31, 2012 [refer page 17 of PB]
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) 47. In the assessment order, the assessing officer, merely on the basis of conjectures and surmises, alleged that the appellant entered into bogus transactions with the broker to the extent of Rs. 55,00,000 (purchase value of the contract) and Rs. 2,59,971 (profit) without providing any rationale or cogent basis thereto. The only basis stated is the report of Investigation Wing at Mumbai, without providing any further details qua such investigation and any direct evidence found against the appellant.
The appellant is unable to appreciate as to from where the amount of Rs.55,00,000 (alleged to be bogus purchase) resulting in alleged net addition in income of Rs.57,59,971 due to Client Code Modification has been arrived at by the assessing officer as the appellant neither has any information about such purchase amounts nor any such transactions were directed authorized by the appellant to be undertaken by the broker.
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 P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) 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]
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 transaction, it is submitted that the said conclusion has been arrived at without proper appreciation of facts and without due application of mind.
In this regard, it is submitted that the assessing officer has erroneously proceeded on the footing that the contract value of Rs.55,00,000 represents an actual investment made by the appellant. It is submitted that no such amount was invested by the appellant in the purchase of aforesaid commodity. The only amount actually paid by the appellant was the margin
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) deposit paid to the broker for entering into the forward contract. It is respectfully submitted that the appellant entered into a forward contract. By its very nature, a forward contract is a derivative transaction entered into for the purchase and sale of a specified commodity at a future date at an agreed price and does not entail the upfront investment of the full contract value. It is pertinent to note that the contract value merely represents the notional value of the underlying commodity and cannot be equated with an actual investment made by the appellant
On perusal of the aforesaid contract note, the following details can be clearly observed as under:
- Name of contract entered along with their respective trade time; - Quantity and rate per unit of quantity traded: - The purchase and sale values of execution of trade, - Service Tax, stamp duty and other charges etc.. - Detailed breakup of transaction and delivery charges pertaining to each trade.
Additionally, in so far as the allegation of the assessing officer relating to the profit element of Rs.2,59,971 is concerned, it is respectfully submitted that the said amount represents the profit earned by the appellant from the P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) aforementioned forward commodity contract and has already been duly offered to tax in the return of income.
On a perusal of the aforesaid, it will be appreciated that the aforesaid amounts with respect to purchase/ sale of commodities, stands duly reported in the profit and loss account and the return of income filed by the assessee for the year under consideration as already demonstrated above.
Without prejudice to the aforesaid, insofar as the assessing officer's allegation that the client code modification were done in order to provide fictitious profits and losses, it is respectfully submitted 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.
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 P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) 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 non- institutional trades to rectify a genuine error in entry of client code at the time of placing/modifying the related order.
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 modification had happened at the end of broker, the same would not automatically be deemed as a non-genuine bogus transactions entered to evade taxes, as erroneously assumed by the assessing officer in the instant case as well.
It would be appreciated that it is a well settled legal position that onus to prove that the apparent is not real is on the person who made such allegation [refer: CIT vs. Daulat Ram Rawatmull: [1973] 87 ITR 349 (SC)]. In the present case, considering that the said onus was on the assessing officer, the assessing officer did not discharge the same, on the contrary alleged in the order that the assessee failed to discharge the burden.
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) 59. It is pertinent to note that during the course of assessment proceedings, if the assessing officer was of the opinion that the appellant had entered into bogus transactions then the assessing officer was obligated to undertake enquiry with the third parties whose client code was modified for ascertaining as to whether the impugned transactions were reported in their books of accounts and whether the corresponding income was disclosed and offered to tax by such parties. Accordingly, the assessing officer tailed to discharge the onus placed on it to provide that client code modifications, if any, were made with the mala fide intent of evading taxes.
In this regard, it is submitted that once the aforesaid initial onus was discharged by the appellant, the onus was upon the assessing officer to prove that the transaction was not genuine, by bringing some adverse material on record in support of the said allegation Reference in this regard can be made to the following decisions:
- Kalwa Devadattam v. UOI: 49 ITR 165 (SC) - CIT vs. Daulat Ram Rawatmull: 87 (ITR 349 (SC) - CIT vs Durga Prasad More: 82 ITR 540 (SC)
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) 61. Under such circumstances, the assessing officer has grossly erred in alleging that the appellant company failed to discharge the onus placed upon it to prove the genuineness of the transactions undertaken by the appellant.
It is further submitted that the assessing officer has failed to point out any specific inaccuracy/fallacy on the documents filed by the appellant; the assessing officer has only referred to some report of investigation wing wherein client code is allegedly to have been modified and has simply presumed that the said transactions have 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.
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.
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) 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.
Reference in this regard may be made to following judgments wherein similar addition account of alleged client code modification have been deleted by the Courts/Tribunal:
- In the case of DCTT v. Gen X Commodities (p) Ltd.: [2025] 176 taxmann.com 918 (Delhi Trib.), it was held that where assessed was not a member of any exchange and could not execute client code modifications, and client code modifications carried out by its group concerns were found to be genuine and within SEBI's permissible limits, addition made by assessing officer on account of client code modification was unjustified. - DCIT v. Futurz Next Services Ltd.: [2022] 139 taxmann.com 199 (Delhi -Trib.) - The Jaipur Bench of the Tribunal in the case of DCIT v. Gyandeep Khemka: 197 TTJ 808, upheld the order of the CIT(A) in deleting the addition made on account of client code modification by the assessing officer relying solely on the report of Investigation Wing and without
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) bringing on record any fact or finding to suggest that the assessee and the other parties as well as the brokers are in collusion to carry out these transactions of transfer of profit from the account of the assessee in the accounts of other parties by misusing the client code modification facility. The Tribunal held that even if the broker has indulged in such mischievous practice, addition can only be made in the hands of the assessee if the assessing officer establishes that the assessee and the other parties acted in collusion with the broker and some money had exchanged between the parties/broker as a consideration for the transaction. - Chintan Jaswantbhai Shah v. ITO: [2021| 125 taxmann.com 439 (Ahd. Trib.)- It was held that client code modification carried out by broker could not be basis to draw an inference of transferring income of assessee; addition made to income of assessee merely on basis of client code modification done by broker of assessee was to be deleted. - Harendra Pratapray Doshi (HUF) v. ITO:
(Mum Trib.) - Vayoo Nandan Finance Company (P.) Ltd v. ITO: [2024] 159 taxmann.com 1636 (Delhi-Trib.) (SMC) - Canara Securities Ltd. v. DCIT: [2025] 171 taxmann.com 383 (Hyd.)- Where assessing officer disallowed loss claimed by assessee on ground that assessee was involved in transaction involving Client Code Modification (CCM) to absorb contrived losses from other 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.)
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) 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.
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 competent authority Principal Commissioner of Income Tax Delhi-05, New Delhi u/s 151(1) of the Act. An information has been received from DDIT(Inv.) Unit-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 company 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 Α.Υ.2012-13. On the basis of this information, the case was reopened under section 147 of the Act after obtaining approval from competent authority under section 151(1) of the Act vide letter F.No. Pr.CIT-05/HQ/u/s148/2018-19/2459 dated 31.03.2019. Accordingly notice under P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) section 148 of the Act issued on 31.03.2019. In response to the above notice u/s 148 of the Act, the assessee filed its return of income on 25/04/2019. The reasons to believe recorded for issuance of notice u/s 148 of the Act dated 31.03.2019 have been duly communicated to the assessee vide this office letter dated 25/07/2019. Assessee filed objections to reopening of the reassessment which was duly disposed of through speaking order passed vide letter dated 02.09.2019. Further notice under section 142(1) issued on 02.07.2019, 02.09.2019, 14.11.2019 and 10.12.2019 along with questionnaire and show cause notice was issued to assessee company on 10.12.2019. Thus opportunities were provided to assessee to explain the source of transaction related to purchase contract (ZINCINGDEL:QTY40Tons) of Rs.55,00,000/- entered on 14.03.2012 in NSEL, with profit element Rs.2,59,971/-involved in this transaction, thus 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 of assessee company is covered as per the proviso to section 147 and clause (c) of Explanation 2, as mentioned below:
If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for an 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 proceedings under this section or recompute the loss of the depreciation allowance
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) or any other allowance, as the case may be, for the assessment your concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice Issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that nothing contained in the fest proviso shall apply in a case where any Income in relation to any asset (including financial interest in any entity) located outside India chargeable to tax, has escaped assessment for any assessment year Provided also that the Assessing Officer may assess or reassess such Income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso
Explanation 2- For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tar bus escaped assessment, namely:- (a) where no return of income has been furnished 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 P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) (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 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 company M/s. Lasco Chemic (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 Chemia (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. Point (c) In the present case proceedings were not predicated on mere change of opinion. As there is new set of information available on record, which was not examined earlier during the assessment proceedings, based on 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 company 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. While filing return of income for A.Y.2012-13, assessee has not declared investment of Rs.55,00,000/- made during the F.Y.2011-12. Point (d) Assessee has stated in Ground that there cannot be escapement of income in appellant's hand".
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) As per information received from DDIT(Inv.) Unit-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 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 competent authority Principal Commissioner of Income Tax Delhi-05, New Delhi u/s 151(1) of the Act. Point (e) Assessee company has stated that the proceedings were barred by limitation under section 149; [Time limit for notice. 149. (1) No notice under section 148 shall be issued for the relevant assessment year
(a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b): (b) if three years, hut not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of (i) an asset; (ii) expenditure in respect of a transaction or in relation to an event or occasion, or P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) (iii) an entry or entries in the books of account, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more:] Provided that no notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April, 2021. If [a notice under section 148 or section 153A or section 153C could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of this section or section 153A or section 153C or the case may be], as they stood immediately before the commencement of the Finance Act, 2021: Section 149 before amendment by Finance Act 2021: (1) No notice under section 148 shall be issued for the relevant assessment year, (a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) or clause (c)1: (b) if four years, but not more than six years, have elapsed from the end of the relevant assessment your unless the income chargeable to tax which has escaped assessment 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 of through speaking order passed vide letter vide DIN No. ITBA/AST/F/17/2019- 20/1017711857(1) dated 02.09.2019. (copy attached)
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) Point (h) copy of complete reasons (along with investigation report/material referred therein) were not provided & Point (i)- sanction, as required under section 151 of the Act, if obtained, was not provided. Before issuing notice under section 148 dated 31.03.2019, prior approval from the specified authority is obtained and the same were provided to assessee along with reason for reopening of the case vide letter DIN no. ITBA/AST/F/17/2019-20/1016997449(1) on 25.07.2019. (Copy attached) So the contention of assessee company that copy of complete reasons (along with investigation report/material referred therein) were not provided and sanction, as required under section 151 of the Act, if obtained, was not provided, is not acceptable. Point (j) reassessment proceedings were completed in gross violation of principle of natural justice, The contention of assessee is not acceptable that reassessment proceedings were completed in gross violation of principle of natural justice as sufficient opportunities were provided in the form of Notice under section 142(1) issued on 02.07.2019, 02.09.2019, 14.11.2019and 10.12.2019 along with questionnaire and show cause notice dated 10.12.2019, before passing of Assessment order dated 24.12.2019. During the reassessment proceedings, assessee has neither provided satisfactory reply to the Show cause notice dated 10.12.2019, nor submitted any supporting evidence with respect to the source of transaction related to purchase contract (ZINCINGDEL:QTY40Tons) of Rs.55,00,000/- entered on 14.03.2012. Accordingly, assessment was completed on 24.12.2019 under section 143(3)/147 of the Act in the case after making an addition of Rs.57,59,971/- as income from undisclosed sources.
From examination of record, in light of aforesaid rival contentions, it is crystal clear that, ground No.1 and 2 of appeal are regarding validity of reassessment proceedings. The reassessment proceedings are on basis of information received from Investigation Wing, Mumbai, revealing that certain brokers allegedly misused client code modification facility for transferring fictitious losses and profits to different clients for reducing their
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) tax liability and that the assessee was one of the beneficiaries which had entered into a purchase contract of Rs.55,00,000/- on 14.03.2012.
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.
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.
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.
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) 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 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.
As per contract note, issued by broker page No.65-66 of paper book shows that assessee had purchased a commodity of Rs.55,00,027.50/- which was then sold for Rs.57,59,971.20/-. The profit arising from the impugned transaction stands duly offered to tax by the assessee in return of income for relevant assessment year as business income.
As per the reasons recorded by the Ld. AO, no specific allegation has been levelled against the assessee 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 assessee or its broker has been mentioned.
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) 75. Original assessment under section 143(3) of the Act was completed after due application of mind by the Ld. AO. The initiation of reassessment is merely a change of opinion and not sustainable.
Moreover, reassessment proceedings initiated u/s 147 cannot be regarded as having been validly initiated unless reasons recorded for initiating the proceedings are served on the assessee within the period of limitation prescribed in section 149 of the Act, i.e., before the expiry of six years from the end of the relevant assessment year.
During reassessment proceedings, actual reasons recorded for initiating were furnished to the assessee-only some text/gist of reason was provided. Copy of Investigation Wing report was not provided.
No sanction u/s 151 of the Act was provided during reassessment proceedings.
In view of above material facts apparent on record, the reassessment proceedings being illegal are set aside. Ground of appeal Nos.1 and 2 are accepted. Grounds of appeal Nos.3 to 3.4-on merits-being academic are left open.
P a g e | Lasco Chemie (P) Ltd. (AY 2012-13) 80. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 08.04.2026