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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO& SHRI D.S. SUNDER SINGH
Per Shri D.S.Sunder Singh, Accountant Member : These appeals are filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-9, Hyderabad in I.T.A.No.10310 &10311/DCIT, Circle-4(1)/2017-18 dated 25.06.2018 for the Assessment Year (A.Y.) 2009-10 and 2010-11. For the sake of convenience, these
2 I.T.A. No.372 & 373/Viz/2018, A.Y.2009-10 and 2010-11 Guthey Ramakrishna, Visakhapatnam appeals are clubbed, heard together and disposed of by a common order as under.
The assessee filed common ground challenging the issue of notice u/s 148 of the Income Tax Act, 1961(in short ‘Act’) in both the appeals. The assessee filed the return of income for the A.Y. 2009-10 on 29.09.2009, declaring total income of Rs.18,87,990/-. The assessment was completed u/s 143(1) of the Act. Subsequently, the Assessing Officer (AO) had issued the notice u/s 148 of the Act. In response to the said notice, the assessee filed the return of income requesting to treat the return of income already filed as return in response to the notice issued u/s 148 of the Act. Subsequently, the AO issued notice u/s 143(2) and 142(1) and completed the assessment on total income of Rs. 33,28,840/- for the A.Y.2009-10. In the assessment order, the AO made the addition of Rs.14,40,855/- relating to the profit on account of Client Code Modifications (in short ‘CCM’) shifted to other clients. Similarly for the A.Y. 2010-11, the reassessment was completed on total income of Rs.15,73,815/- against the returned income of Rs.12,70,540/- and the addition of Rs.3,03,275/- was made representing the income relating to CCM.
3 I.T.A. No.372 & 373/Viz/2018, A.Y.2009-10 and 2010-11 Guthey Ramakrishna, Visakhapatnam
The AO reopened the assessment after having recorded the reasons which are extracted from para No.2 of the assessment order and reads as under : “2. Subsequently, certain information emanated from the enquiries conducted by the Asst.Director of Income Tax (Inv), Unit-1(3), Ahmedabad was communicated to this office on 21.03.2016, the details of which are as under : “a. Consequent to observation of Finance Ministry about the modifications taking place in derivatives transactions at the National Stock Exchange (NSE), SEBI conducted a probe into ‘client code modification (CCM)” by brokers as such modifications could be misused for the manipulated activities in the market. b. The Ahmedabad Investigation Directorate conducted surveys at the premises of some brokers and clients across India on 23.03.2015. After analyzing the data received from NSE and considering the contention of brokers, the ADIT (Inv), Unit-1(3) found that CCM has been used as a tool for tax evasion. c. During the F.Y.2008-09 to 2011-12, 4890 assessees availed “contrived losses”. As per Annexure B(Soft copy) enclosed, the details of assessees who have taken losses of Rs.1 lakh and above and assessees who shifted out profit of Rs.1 lakh and above were considered.”
From the reasons recorded above, it is observed that as per the information received from the Asst.Director of Income Tax (Investigation), Unit-1(3), Ahmedabad, it has come to the notice of the department that modifications that were taking place in derivatives transactions at the National Stock Exchange (NSE) by brokers through CCM were misused for the manipulated activities in the market. As a result, the profits were shifted to other clients and contrived losses were availed. The
4 I.T.A. No.372 & 373/Viz/2018, A.Y.2009-10 and 2010-11 Guthey Ramakrishna, Visakhapatnam Investigation Wing of Ahmedabad Unit has passed on information stating that the assessee had availed the contrived losses for the year 2009-10 and 2010-11. The AO collected the information from the Ahmedabad Stock Exchange and noticed that certain profits earned by the assessee from trade of derivatives done through the share broker M/s Sree Bheemeswara Securities Pvt. Ltd. were shifted to other clients accounts to the tune of Rs.14,46,954.80 and ascertained profits of Rs.6,100/- were shifted to the assessee during the previous year relevant to the A.Y.2009-10 resulting in net reduction of income to the tune of Rs.14,40,854.80 in the hands of the assessee for the A.Y. 2009-10. Therefore, the AO believed that the assessee had shifted the profits, hence, issued notice u/s 148 of the Act. Before the AO, the assessee challenged the validity of issue of notice u/s 148 stating that CCM is very common in share trading due to mistakes committed by the employees in the office of the share broker and it is done at the level of share broker, but not by the assessee. Hence, there is no escapement of income in the case of the assessee. The AO rejected the contentions of the assessee and completed the assessment u/s 143(3) of the Act.
Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) confirmed the order of the AO.
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Against the order of the CIT(A), the assessee is in appeal before this Tribunal. During the appeal hearing, the Ld.AR submitted that the assessee is a share trader operating through M/s Sree Bheemeswara Securities Pvt. Ltd. and admitted the share trading income correctly in the return of income. The assessee has not shifted the profits derived by the assessee to any other clients and no other profits of the other clients were shifted to the assessee. Due to mistakes committed by the employees of Sree Bheemeswara Securities Pvt. Ltd., CCM was done in the case of the assessee without his knowledge. Therefore, argued that the AO had issued notice u/s 148 on the basis of the information received from the enquiries conducted by the Asst.Director of Income Tax (Inv), Unit-1(3), Ahmedabad with regard to the irregularities in CCMs which was general information suspecting the whole transactions of CCMs. There was no specific evidence or material available to the department with regard to shifting of profits by the assessee to any other client or vice versa. The AR further submitted that the AO has not made any enquiries and simply on the basis of the data received from the Investigation Wing, Unit-1(3), Ahmedabad, issued the notice u/s 148. The AO has not even conducted the preliminary enquiry to hold that the income chargeable to tax had escaped assessment in the
6 I.T.A. No.372 & 373/Viz/2018, A.Y.2009-10 and 2010-11 Guthey Ramakrishna, Visakhapatnam hands of the assessee. He further stated that the CCM is not the job of the share trader and it is the job of the operator. Therefore, argued that simply because of some data with regard to CCM was received by the AO, the AO is not permitted to reopen the assessment. The very reading of the reasons recorded shows that there was general suspicion with regard to misuse of CCMs for manipulated activities in the market. There was no specific information to the AO with regard to suppression of income of the assessee. Therefore, argued that on the general presumptions, no reason or belief can be formed for reopening the assessment, thus, argued that reopening of assessment is invalid, hence, requested to quash the notice issued u/s 148 of the Act. The Ld.AR also relied on the decision of Hon’ble Bombay High Court in the case of Pelican Portfolio Services Pvt. Ltd. Vs. ITO in Writ Petition No.2470 of 2016 dated 26.10.2016 reported in 97 CCH 0142 Mum HC.
Per contra, the Ld.DR argued that ADIT(Inv), Ahmedabad has conducted the enquiries and found that the assessee had indulged in manipulation of derivative transaction in CCMs and on the basis of the information received from the ADIT(Inv), the AO had issued the notice u/s 148. The Ld.DR further argued that the information received from ADIT
7 I.T.A. No.372 & 373/Viz/2018, A.Y.2009-10 and 2010-11 Guthey Ramakrishna, Visakhapatnam (Inv) constitutes information within the meaning of section 147(a) of the Act. Therefore, the Ld.DR argued that the AO has rightly issued notice u/s 148, hence, the same required to be upheld. The Ld.DR also relied on the decision of ITO Vs. Purushottam Das Bangur & Anr (1997) 090 taxman 0541. 7. Responding to the argument of the Ld.DR, the Ld.AR submitted that the case law relied upon by the department is not applicable in the assessee’s case. In the case of the assessee, the data was received regarding CCM done by the share brokers and there was no finding with regard to shifting of profits by the assessee. Therefore, the information received was general and suspicious in nature, whereas in the case of the decision relied upon by the Ld.DR of Hon’ble Supreme Court in the case of ITO Vs. Purushottam Das Bangur & Anr. (supra), specific information was passed on with regard to manipulation of scrip in the case of Maharaja Shree Umaid Mills Ltd., in Calcutta Stock Exchange. Therefore, on the basis of specific information of manipulation of transactions by Bangur Group information received from the CIT, the assessment was reopened. Thus, argued that the case law relied upon by the Ld.DR is applicable only to the case of Purushottam Das Bangur and cannot be applied to the assessee’s case.
8 I.T.A. No.372 & 373/Viz/2018, A.Y.2009-10 and 2010-11 Guthey Ramakrishna, Visakhapatnam
We have heard both the parties and perused the material placed on record. In the instant case, Ahmedabad Investigation Wing has conducted general enquiries and collected the data with regard to manipulations in CCMs. There was information to the Ministry of Finance with regard to misuse of CCMs in the market by shifting profits or availing the contrived losses. Therefore, the data having information with regard to CCMs was forwarded to the AO. From the data received, it was found that certain trade derivative transactions were done through share broker M/s Sree Bheemeswara Securities Pvt. Ltd. and the trading profits were shifted to the others to the tune of Rs.14,46,954/- in the assessee’s case, hence, the AO reopened the assessment. The AO did not conduct any enquiries to form belief that the assessee had indulged in the CCMs to shift the profits or to evade the tax. It is accepted practice that CCMs are undertaken for rectifying or correcting the errors on purchase of any shares after trading. If there is a wrong code entered while purchasing the transaction during the trading hours, that has to be corrected after getting confirmation from the clients. Therefore, CCM is a general activity which is carried out by the share brokers after trading hours for correcting the errors committed in trading. In the instant case, the assessee is a share trader and Sree
9 I.T.A. No.372 & 373/Viz/2018, A.Y.2009-10 and 2010-11 Guthey Ramakrishna, Visakhapatnam Bheemeswara Securities Pvt. Ltd. is a share Broker. CCMs were done at the share broker level, but not by the assessee. Therefore, when general suspicion arose with regard to manipulation of CCMs, it is incumbent upon the AO to make the enquiries on the data received from ADIT (Inv) to form belief for reopening the assessment. Identical issue has come up before the Hon’ble Bombay High Court in the case of Pelican Portfolio Services Pvt.Ltd. supra, wherein Hon’ble Bombay High Court held that there must be a link between the information received and the escapement of income chargeable to tax. On identical facts Hon’ble Bombay High court allowed the writ petition of the assessee holding that the information received from the ADIT, Unit-1(3), Ahmedabad on CCM do not prima facie indicate the reasons to believe that the income chargeable to tax had escaped assessment. For the sake of clarity and convenience, we extract para No.2 to 4 of the Hon’ble Bombay High Court which reads as under : “2. This petition challenges the notice dated 21 March 2016 issued under Section 148 of the Income Tax Act, 1961 (the Act) seeking to reopen the assessment for Assessment Year 2011-12. In the subject assessment year, the return was processed under Section 143(1) of the Act. The reasons in support of the impugned notice reads as under "In this case the assessee had filed return of income on 25.07.2011 declaring total income of Rs.89,840/ and the same was processed u/s.143(1). The case was not selected for scrutiny assessment for the year under consideration. As per information dissipated by the Assistant Director of Income tax (Investigation), Unit-1(3), Ahmedabad, revealed that on the basis of data received from National Stock Exchange (NSE), Client Code Modification (CCM) has been used as a tool for tax evasion. It is seen that the assessee had evaded tax through Client Code Modification
10 I.T.A. No.372 & 373/Viz/2018, A.Y.2009-10 and 2010-11 Guthey Ramakrishna, Visakhapatnam (CCM) in share transactions during F.Y. 2010-11 pertains to A.Y. 2011- 12 and create fictitious losses to the extent of QRs.17,70,845/. Thus a sum of Rs.17,70,845/ has escaped assessment for A.Y.2011-12 within the meaning of section 147 of the I.T.Act, 1961. In view of the above, I have reason to believe that the income to the extent of Rs.17,70,845/- chargeable to tax for A.Y.2011-12 has escaped assessment, as assessee has failed to disclose fully and truly all material facts necessary for its assessment in this case in terms of the provisions of section 147 of the I.T.Act." 3. The challenge in this petition is on the ground that the reasons as recorded do not indicate any reason to believe that income chargeable to tax has escaped assessment. The reasons, as recorded hereinabove, merely indicate that there was client code modification which lead to a non genuine loss. The reasons do not indicate, how the aforesaid facts led to the Assessing Officer having reason to believe that income chargeable to tax has escaped assessment. Therefore, prima fade there is absence of link between information obtained and escapement of income chargeable to tax. Thus, the reasons, as recorded, do not prima fade indicate the reasons to believe that income chargeable to tax has escaped assessment. 4. The contention on behalf of the Revenue that this would be done at the time of assessment, does not satisfy the jurisdictional requirement of Assessing Officer having reason to believe that the income chargeable to tax has escaped assessment at the 'time of Issuing the impugned notice.”
8.1. The Ld.DR relied on the Hon’ble Supreme Court in the case of ITO Vs. Purushottam Das Bangur and as rightly pointed out by the Ld.AR, in the cited case, there was specific information with regard to manipulation of share prices, thus, the Hon’ble Supreme Court held that reopening of assessment was valid. Therefore, the case law relied upon by the Ld.DR does not come to the help of the revenue. Since, the assessee’s case is squarely covered by the decision of Hon’ble Bombay High Court cited supra, respectfully following the view taken by the Hon’ble Bombay High Court, we are unable to uphold issue of notice u/s 148 of the act, accordingly we quash the notice and allow the appeal of the assessee.
11 I.T.A. No.372 & 373/Viz/2018, A.Y.2009-10 and 2010-11 Guthey Ramakrishna, Visakhapatnam I.T.A. 373/Viz/2018 9. The issue is identical for the A.Y. 2010-11 also, therefore, following the view taken by us in the A.Y.2009-10, we quash the notice issued u/s 148 and annul the assessments made u/s 143(3) r.w.s. 147 of the Act. Accordingly, appeals of the assessee are allowed. 10. In the result, appeals of the assessee are allowed.
Order pronounced in the open court on 30th October, 2019
Sd/- Sd/- (िी.दुगाा राि) (धड.एस. सुन्दर धसंह) (V. DURGA RAO) (D.S. SUNDER SINGH) न्याधयक सदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER नवशधखधपटणम /Visakhapatnam नदनधंक /Dated : 30.10.2019 L.Rama, SPS
12 I.T.A. No.372 & 373/Viz/2018, A.Y.2009-10 and 2010-11 Guthey Ramakrishna, Visakhapatnam आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- ननधधाऩरती/ The Assessee - Guthey Ramakrishna, D.No.53-21-12, 1. Chaitanyanagar, Maddilapalem, Visakhapatnam 2. रधजस्व/The Revenue - Dy.Commissioner of Income Tax, Circle-4(1), Visakhapatnam 3. The Pr.Commissioner of Income Tax-2, Visakhapatnam 4.The Commissioner of Income Tax (Appeals)-9, Hyderabad 5. तिभागीय प्रतितिति, आयकर अिीिीय अतिकरण, तिशाखािटणम/DR, ITAT, Visakhapatnam 6.गार्ड फ़ाईि / Guard file
आदेशािुसार / BY ORDER // True Copy //
Sr. Private Secretary ITAT, Visakhapatnam