SANJAY SURESHCHANDRA SHAH,PUNE vs. INCOME-TAX OFFICER, WARD - 14(3), PUNE

PER R.S.SYAL, VP : This appeal by the assessee is directed against the order passed by the CIT(A)-7, Pune on 05-11-2018 in relation to the assessment year 2010-11.

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profits and losses. Survey action u/s.133A of the Act was

carried out at the premises of 12 such brokers and few of their

clients across India on 23-03-2015. The name of the assessee

was found in the list of such beneficiaries for having received

fictitious losses of Rs.3,59,567.50. The Assessing Officer

initiated re-assessment proceedings and finalised the

assessment by making addition of this sum. The ld. CIT(A)

sustained the addition. The assessee is aggrieved by the

initiation of re-assessment as well as the confirmation of

addition on merits.

material on record. A copy of reasons, which led to the

issuance of notice u/s.148 dated 27-02-2017, has been placed at

page 1 of the paper book, which reads as under :

“In this case, a letter was received from ITO Ward 2(2), Pune bearing No. Pn/ITO Wd 2(2)/SSS/2015-16/804 dt.23/03/2016 enclosing therewith the letters of Pr.CIT-2, Pune and Pr. DIT(Inv.) Ahmedabad bearing Nos. PN/Pr.CIT-2/CCM/Sharing of info/2015-16/3614 dt.22/03/2016 and PDIT(Inv.) /AHD/CCM/ Dissemination / 15-16 dt.08.03.2016 respectively. Vide the above letter the Pr.DIT(Inv.) Ahmebadad has provided information on “modification of client codes by brokers” and the beneficiary clients have taken losses and shifted out profits during the F.Y. 2008-09 to 2011-12. Modification of client codes is a practice under which

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brokers change the client codes in sale and purchase orders of securities after the trades are conducted. SEBI conducted a probe into “modification of client codes” by brokers pursuant to observations by the Finance Ministry about many such modifications taking place in derivatives transactions at the National Exchange during March, 2010.

As per the above information the assessee has taken losses and shifted out profits of Rs.3,59,568/- in the F.Y. 2009-10. The assessee has filed his return of income on 13.10.2010 declaring a gross total income of Rs.7,97,046/- and after claiming a deduction of Rs.1,10,344/- has shown a total income of Rs.6,86,700/-.

Taking into consideration the amount involved and unverifiable financial transactions it is clear that the income liable to be taxed has escaped assessment within the meaning of section 147 for the A.Y. 2010-11.

I am therefore satisfied that it is a case for issue of notice u/s.148 of the IT Act, 1961.”

material in the form of letter was received from the ITO, Ward-

2(2), Pune accompanied by letter of Pr. DIT (Investigation),

Ahmedabad providing information of modification of client

codes by brokers and the beneficiary clients. As per the above

information, the assessee had received losses amounting to

Rs.3,59,568 in the previous year relevant to the assessment year

under consideration. The contention of the assessee that

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reassessment on such basis is wrong, in my considered opinion,

is completely unfounded.

ITO (1999) 236 ITR 34 (SC) has held that there should be

reason to believe about the escapement of income at the stage

of initiation of reassessment proceedings. Sufficiency or

correctness of such material cannot be considered at that stage.

The Hon’ble Apex Court has held in ACIT vs. Rajesh Jhaveri

Stock Broker (P) Ltd. (2007) 291 ITR 500 (SC) that : `The

word "reason" in the phrase "reason to believe" would mean

cause or justification. If the AO has cause or justification to

know or suppose that income had escaped assessment, it can be

said to have reason to believe that an income had escaped

assessment. The expression cannot be read to mean that the AO

should have finally ascertained the fact by legal evidence or

conclusion’. Explaining the position further, it laid down that :

`at the initiation stage, what is required is "reason to believe",

but not the established fact of escapement of income. At the

stage of issue of notice, the only question is whether there was

relevant material on which a reasonable person could have

formed a requisite belief. Whether the materials would

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conclusively prove the escapement is not the concern at that

stage. This is so because the formation of belief by the AO is

within the realm of subjective satisfaction.’

the Hon’ble Supreme Court in Phoolchand Bajrang Lal and

Anr vs. ITO and Anr (1993) 203 ITR 456 (SC), in which AO’s

jurisdiction to initiate reassessment was challenged. Repelling

the assessee’s arguments, the Hon’ble Supreme Court held that

an ITO acquires jurisdiction to reopen assessment under s.

147(a) r/w s. 148 only if on the basis of specific, reliable and

relevant information coming to his possession subsequently, he

has reasons which he must record, to believe that by reason of

omission of failure on the part of the assessee to make a true

and full disclosure of all material facts necessary for his

assessment during the concluded assessment proceedings, any

part of his income, profit or gains chargeable to income-tax has

escaped assessment. He may start reassessment proceedings

either because some fresh facts come to light which were not

previously disclosed or some information with regard to the

facts previously disclosed comes into his possession which

tends to expose the untruthfulness of those facts. In that case,

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the ITO was held to have rightly initiated the reassessment

proceedings on the basis of subsequent information, which was

specific, relevant and reliable.

decisions in which initiation of reassessment on the basis of

report of the Investigation Wing has been held to be invalid. In

the like manner, the ld. DR has also referred to certain decisions

in which view has been taken in favour of the Revenue, such as,

Rajat Export Import Pvt. Ltd. vs. ITO (2012) 341 ITR 135

(Del); AGR Investment Ltd. vs. Addl.CIT and Anr (2011) 333

ITR 146 (Del); CIT vs. Nova Promoters And Finlease (P) Ltd.

(2012) 342 ITR 169 (Del); and AG Holdings Pvt. Ltd. vs. ITO

(2013) 352 ITR 364 (Del). On going through such decisions, it

is observed that the predominant view is in favour of upholding

the initiation of reassessment proceedings on the basis of the

report of the Investigation Wing indicating the receipt of

accommodation entries by the assessee, which is fortified by

the above-referred judgments of the Hon’ble Supreme Court.

(Bom), the AO initiated the reassessment on the basis of some

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information indicating the assessee as a beneficiary to

accommodation entry. The assessee challenged the initiation of

reassessment by way of a writ. Dismissing the petition, the

Hon’ble jurisdictional High Court held that at the stage of

initiation of reassessment, the AO is not required to have

conclusive evidence that income chargeable to tax has escaped

assessment. As the reasons recorded for reopening established a

link between the material available and the conclusion reached

by the AO for reopening the assessment, the Hon’ble High

Court refused to interfere by observing that the expression

`reason to believe’ cannot be read to mean that the AO should

have finally established beyond doubt that income chargeable

to tax has escaped assessment. Similar view has been taken by

the Hon’ble Gujarat High Court in Pr. CIT VS. Laxmiraj

Distributors Pvt. Ltd. (2019) 410 ITR 495 (Guj) and the SLP

filed by the assessee against such judgment has since been

dismissed in (2018) 405 ITR (St) 27.

AO received information from the Investigation wing about the

beneficiaries of accommodation entries, which included the

name of the assessee. There was a close nexus between report

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of the Investigation Wing and the formation of belief by the

Assessing Officer about the escapement of income of the

assessee for the year under consideration. Such information was

specific, not general or vague. Thus, it is abundantly clear that

such a material was sufficient enough for the Assessing Officer

to initiate the reassessment. In my considered opinion, no

exception can be taken to the view canvassed by the Assessing

Officer in initiating the reassessment on this score. The ground

taken by the assessee is thus dismissed.

the AO made an addition of Rs.3,59,568/- on the basis of

information received by him that the assessee was one of the

beneficiaries by means of obtaining loss of Rs.3,59,568/-

through modification of client codes. It is seen from the details

furnished by the assessee at page 28 that net capital gain of

Rs.31.757.91 was reported by the assessee. Such figure of net

capital gain has certain positive figures, means profits and

others negative, means losses. The total such negative figures

is definitely in excess of the amount of addition made by the

AO. It deciphers that all the loss items included in such list

were not genuine. Since the AO has not divulged the details of

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such bogus losses, the assessee could not get an opportunity to

specifically make out his case as to the genuineness of the loss

claimed by him. I find that even the impugned order does not

discuss about the details of such fictitious losses. In my

considered opinion, the ends of justice would meet adequately

if the impugned order is set aside and the matter is restored to

the file of AO. I order accordingly and direct him to put across

the details of such losses allegedly taken by the assessee by

client code modification and then seek the assessee’s reply

before jumping to the conclusion of the genuineness or

otherwise of such losses. Needless to say, the assessee will be

given reasonable opportunity of hearing.

purposes.

Order pronounced in the Open Court on 20th March, 2019.

Sd/- (R.S.SYAL) उपा�य�/ VICE PRESIDENT उपा�य� उपा�य� उपा�य�

पुणे Pune; �दनांक Dated : 20th March, 2019 सतीश

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आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत / Copy of the Order is forwarded to : क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत आदेश आदेश आदेश अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. आयकर आयु�(अपील) / 3. The CIT (Appeals)-7, Pune 4. The Pr. CIT-6, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “SMC” / 5. DR ‘SMC’, ITAT, Pune; गाड� फाईल / Guard file. 6. // True copy // आदे आदेशानुसार शानुसार/ BY ORDER, आदे आदे शानुसार शानुसार

// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

Date 1. Draft dictated on 20-03-2019 Sr.PS 2. Draft placed before author 20-03-2019 Sr.PS 3. Draft proposed & placed JM before the second member 4. Draft discussed/approved JM by Second Member. 5. Approved Draft comes to Sr.PS the Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *