SHRI MANOJ KANHAIYALAL AGARWAL,MUMBAI vs. ACIT CIRCLE-17(2), MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

1. Reopening is Bad in Law

1. The Learned CIT(A) failed to appreciate that the notice u/s.148 dtd.31/03/2016 was issued on the basis of information received from Investigation Wing, Ahmedabad, thus there was no independent application of mind by the A.O. It is simply based on borrowed satisfaction of some other authority; hence the reopening is bad in law and is liable to be quashed.

2. The Learned CIT(A) erred in confirming the order of the AO without appreciating that the Assessing Officer neither disposed of the objection raised by the appellant on legal issue nor dealt with merits. Hence the reassessment is bad in law. II. Addition of Rs.21,65,635/- as reduction in income by using CCM (Client Code Modification)

3. The Learned CIT(A) erred in confirming the addition of Rs.21,65,635/- on the basis of information received from the Investigation Wing stating that the Assessee by using CCM facility indulged with entries to create fictitious profit and losses, and same was transfer to others, without appreciating the fact that CCM facility used for to rectify the mistake which were occurred at the time of trading and not for the creating a fictitious profit. Thus, addition of Rs.21,65,635/- as reduction in income may be deleted.

4. The Learned CIT(A) failed to appreciate that, the Appellant has neither received any benefits nor gain due to client code modification by broker, hence, addition cannot be made on notional basis in the hands of appellant.

5. Without prejudice to above, the benefit due to client code modification derived by the respective parties, officered in their respective return of income, hence addition cannot be made in the hands of appellant, which will lead to double taxation.

6. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal.”

3. The brief facts of the case are that the assessee filed its return of income on 14.09.2010 declaring total income to the tune of Rs.41,06,510/- for the A.Y.2010-11. The return was processed u/s 143(1) of the Act. The case was selected for scrutiny u/s 147 of the Act after recording the reasons for re-opening. Notice u/s 148 of the Act was issued and served upon the assessee. Thereafter, the notice u/s 148 of the Act was issued and served upon the assessee. The notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee was engaged in the business of Trading in shares & Securities (including Derivatives). The case of the assessee was reopened upon the information received from the Investigation Wing, Ahmadabad in which it was conveyed that the assessee along-with others has been identified as one of the beneficiary/provider by misuse of client code modification. The investigation wing of the Department having conducted spot verifications by way of surveys and inquiries and have noticed that some of the brokers and their clients have indulged in the practice of misuse of client code modification and thereby artificially shifting of profits and losses from original client code to modified client code with an intention to reduce the legitimate tax liability which would have been arisen had the original trades not been modified. The assessee company was a beneficiary and has obtained entry of Rs.21,65,635/-. Thereafter, by giving an opportunity of being heard to the assessee, the assessment was completed by adding the income in sum of Rs.21,65,635/-. The total income was assessed to the tune of Rs.62,72,144/- . Feeling aggrieved, the assessee filed an appeal before the CIT(A) who dismissed the appeal of the assessee by confirming the order of the AO, therefore, the assessee has filed the present appeal.

ISSUE Nos. 1 & 2 5. Under these issues the assessee has challenged the reopening of the assessment in view of the provisions u/s 147/148 of the Act. Bone contention of the assessee is that after the receipt of information received Investigation Wing, Ahmadabad no independent verification/inquiry was conducted to show the satisfaction of the AO for the escapement income of the assessee, therefore, the necessary compliance of u/s 147/148 of the Act has not been complied with, hence, the reopening is bad in law in view of the decision of Hon’ble Bombay High Court in the case of Nu Power Renewables (P.) Ltd. Vs. DCIT (2018) 94 taxmann.com 29 (Bom) & Pr. CIT Vs. Shodiman Investments Pvt. Ltd. (2018) 93 taxmann.com 153 (Bom). It is also argued that the objection raised by assessee was not disposed of by AO, therefore, the reopening is not justifiable in view of the decision in the case of Rabo India Finance Ltd. Vs. DCIT (2012) 346 ITR 81 (Bom), Bayer Materials Science Pvt. Ltd. Vs. DCIT 382 ITR 333 (Bom) & KSS Petron Pvt. Ltd. Vs. ACIT, of 2014 dated 03.10.2016. However, on the other hand, the Ld. Representative of the Department has refuted the said contention. The copy of assessment order dated 23.12.2016 speaks about the reopening of the case of the assessee u/s 147/148 of the Act on receipt of the information received from the Investigation Wing, Ahmadabad. After receipt of the information, there is no verification on record to which it can be assumed that there is escapement of income. Merely supply of information received from external sources i.e. the Investigation Wing, Ahmadabad and by not conducting the enquiry to arrive at this conclusion that the income has escaped, therefore, the AO has reasoned to believe to reopen the case u/s 147/148 of the Act because necessary ingredient is missing i.e. reason to believe the escapement of income. In this regard, we also find support of the decision in the case of Nu Power Renewables (P.) Ltd. Vs. DCIT (2018) 94 taxmann.com 29 (Bom) in which the Hon’ble High Court has Petitioner that the reasons recorded in support of the impugned notice, do not indicate any independent application of mind by the Assessing Officer to come to a reasonable belief that income chargeable to tax has escaped assessment for the purpose of assuming jurisdiction to issue the impugned notice. The reasons in support rely upon material/information received from DDIT (Inv.) under letter dated 22nd March, 2017. During the course of hearing, Mr. Suresh Kumar, learned Counsel for the Revenue handed over to us the information which was received under letter dated 22nd March, 2017 from DDIT (Inv.). It is the above communication which forms the tangible material for issuing the impugned notice. The aforesaid letter dated 22nd March, 2017 reads as under:— "Information has been received that NuPower Renewables Pvt. Ltd., has issued zero coupon rate Debentures of Rs.64 crores to Supreme Energy Pvt. Ltd., in F. Y. 2009-10. Supreme Energy Pvt. Ltd., has received unsecured loan/debenture of Rs.64 Crores from an undisclosd party which has been used to invest in the Debenture of NuPower Renewables Pvt. Ltd., As per balance sheet as on 31.03.2010 of Supreme Energy Pvt. Ltd., it is shown as unsecured loan of Rs.64,05,03,000/-. However, as per balance sheet as on 31.03.2011 and thereafter, it is shown as Optionally Convertible Debentures (Zeor Coupon) of Rs.64,00,00,000/-. The balance sheet of Supreme Energy Pvt. Ltd., obtained from the website of Ministry of Corporate Affairs (MCA) are enclosed. From the financials, Supreme Energy Pvt.Ltd., is prima facie a shell entity.

7. Therefore, it prima facie, it appears that the Assessing Officer has issued the impugned notice without himself coming to a reasonable belief that income chargeable to tax has escaped assessment. Thus, prima facie, the impugned notice is without jurisdiction.”

6. The Hon’ble Jurisdictional High Court in the case of Shodiman Investments Pvt. Ltd. (2018) 93 taxmann.com 153 (Bom) has held that re-opening on the basis of information received from without conducting any enquiry/own satisfaction is not justifiable.