VIJAY GOEL & SONS HUF,NEW DELHI vs. ITO, WARD- 36(4), NEW DELHI

This appeal is filed by the Assessee against the order dated 28.9.2017 passed by the Ld. CIT(A)-12, New Delhi on the following revised grounds of appeal:-

jurisdiction and barred by limitation and is contrary to the provisions of section 147 to section 151 of Income Tax Act, 1961 and this notice was issued without application of mind and without verification of facts and without connecting the information with the assessee and accordingly, also the assessment order passed on the foundation of such notice are liable to be quashed. On the facts and circumstances of the case 1 and in law, the Commissioner of Income Tax (A) erred in not quashing the notice u/s 148 and the assessment order passed by the assessing officer.

that there can’t be any documentary evidence of negative premises. The onus to prove allegations was on the AO, which he wrongly shifted to assessee. The AO was required to give evidence as to alledged Client Code Modification was done at the behest of the assessee and the Commissioner of Income Tax

(Appeal) erred in confirming the addition of Rs.4,63,706/- made by the assessing officer on account of alleged contrived losses.

made any claim of loss of Rs. 4,63,706/- and the reasons given by CIT(A) for confirming the said additions are erroneous and not sustainable both on facts and in law and accordingly the addition of Rs. 4,63,706/- on account of alleged contrived losses is liable to be deleted.

4. on the facts and circumstances of the case and in law, the assessing officer erred in law and fact in addition of Rs.4,63,706

allegedly as concealed income, whereas the same was never claimed as loss by the assessee. There were genuine losses of Rs. 4,13,593.55 only, being paid to A to Z Stock Trade Private

Limited, the broker mentioned in reasons. Ld. Commissioner of Income Tax (Appeal) erred in confirming the addition of Rs.4,63,706/- made by the assessing officer on account of alleged contrived losses even after stating in his {CIT(A)} order that the transactions reported by the assessee of Rs.

4,13,593.55 are not those related to CCM. That the assessee had no other dealings with the broker named in the reasons.

5. The assessee craves to raise any other and/or additional

grounds of Appeal during the appellate proceedings with you honour’s kind permission.

2. The brief facts of the case are that an information email was received from ADIT (Inv.) Unit-1(3), Ahmedabad vide letter dated 18.3.2016 in respect of Client Code Modification (CCM) Dissemination of beneficiary client who have taken contrived losses and shifted out profit during the FY 2009-10. As per the information, the assessee availed contrived losses of Rs. 4,63,706/- by shifting out ascertained profit of Rs. 4,63,706/-. Hence, the proceedings u/s. 147 of the I.T. Act, 1961 has been initiated after recording the reasons that the income of Rs. 4,63,706/- has escaped assessment for the AY 2010-11. The statutory notice u/s. 148 of the Act has been issued on 29.3.2016 to the assessee to furnish return of income for the AY 2009-10. In response to the same, the assessee filed the requisite details. After examining the same, the 3 AO observed that assessee did not submit any documentary evidence in his support that client code modification has not been used in assessee’s case or the mistake cited by him was bonafide not malafide. It was further observed that no information is available with the assessee or broker to justify that the modification were done in the usual course of business and there was human error on the part of the client or broker and that there was no intention of shifting of profit / losses, hence, the AO held that client code modification to be malafide with the intention to transfer the profit to the other person so as to avoid payment of taxes and accordingly added a sum of Rs. 4,63,706/- to the income of the assessee vide his order dated 23.12.2016 passed u/s. 147 of the Act and assessed the income of the assessee at Rs. 8,60,240/-. Against the assessment order, the assessee has preferred appeal before the Ld. CIT(A)-12, New Delhi who vide his impugned order dated 28/9/2017 has dismissed the appeal of the assessee.

3. Ld. Counsel for the assessee submitted that the notice u/s 148 issued in this case is bad-in-law, without jurisdiction and barred by limitation and is contrary to the provisions of section 147 to section 151 of Income Tax Act, 1961 and this notice was issued without application of mind and without verification of facts and without connecting the information with the assessee and accordingly, also the assessment order passed on the foundation of such notice are liable to be quashed. He further submitted that Ld. CIT(A) wrongly not quashed the notice u/s 148 and the assessment order passed by the Assessing Officer. The Assessing 4 Officer erred in holding there can’t be any documentary evidence of negative premises. The onus to prove allegations was on the AO, which he wrongly shifted to assessee. He further submitted that The AO was required to give evidence as to alledged Client Code Modification was done at the behest of the assessee and the Commissioner of Income Tax (Appeal) erred in confirming the addition of Rs.4,63,706/- made by the assessing officer on account of alleged contrived losses. It was further submitted that the action of the Ld. CIT(A) is incorrect in confirming the addition of Rs.4,63,706/- made by the Assessing Officer on account of alleged contrived losses whereas assessee never made any claim of loss of Rs. 4,63,706/- and the reasons given by CIT(A) for confirming the said additions are erroneous and not sustainable both on facts and in law and accordingly the addition of Rs. 4,63,706/- on account of alleged contrived losses is liable to be deleted. In the last it was further submitted that the lower authorities erred in law and fact in addition of Rs.4,63,706 allegedly as concealed income, whereas the same was never claimed as loss by the assessee. There were genuine losses of Rs. 4,13,593.55 only, being paid to A to Z Stock Trade Private Limited, the broker mentioned in reasons.

Hence, the addition of Rs.4,63,706/- was wrongly made by the Assessing Officer on account of alleged contrived losses even after stating in his order that the transactions reported by the assessee of Rs. 4,13,593.55 are not those related to CCM. That the assessee had no other dealings with the broker named in the reasons. In view of above submissions, the ld. Counsel for the assessee has requested to allow the appeal of the assessee.

I find that Ld. CIT(A) has elaborately discussed the issue in dispute vide para no. 4.3.1 to 4.3.6 of the impugned order at page no. 10 to 14.

The relevant finding of the Ld. CIT(A)’s order is reproduced as under:-

“4.3.1 In the grounds of appeal the Appellant has expressed his grievance against the addition stating that there were only genuine losses of Rs.4,13,593.55. There were no contrived losses. The total payment made by the Assessee to M/s A to Z Stock Trade Pvt. Ltd., the broker was Rs.4,13,593.55 on 28.12.2009 i.e. around three months prior to the transactions done by the broker. As against the observations of the Assessing Officer to produce evidence with respect to Client Code Modification, the Appellant states that there cannot be any documentary evidence of a negative premise. It is alleged that the Assessing Officer is in the possession of wrong facts as amount of alleged contrived loss is matching with the bank statement of the Assessee. The Assessing Officer did not provide original statement given by M/s A to Z Stock Trade Pvt. Ltd. The Assessee was not allowed to confront M/s A to Z Stock Trade Pvt. Ltd.

4.3.2 In the Assessment Order, the Assessing Officer has observed that an information was received through e- mail from ADIT, Investigation, Unit-1(3), Ahmedabad in respect of Client Code Modification with the dissemination of beneficiary clients who have taken contrived losses and shifted out profit during FY 2009-10. The list includes the name of the Assessee having availed contrived losses of Rs.4,63,706/-. The Assessing Officer issued notice u/s 148 based on the information received.

4.3.3 Briefly, the Assessing Officer remarked that Investigation Director Ahmedabad conducted Survey u/s 133A to investigate into Orchestrated misuse of 'Client ('ode Modification' for tax evasion at the premises of 12 brokers across India. The Survey report was prepared on the basis of data received from M/s National Stock Exchange and after analysis of the data together with examination of the contention of the brokers. It was informed by the Investigation Wing that CCM has been used as a tool for tax evasion and only settled traders have been considered to arrive at the beneficiaries. The participants in the market admitted the use of CCM for margin management and loss shifting. The ADIT Investigation, on further verification found that the brokers misuse the facility of CCM. They admitted receipt of commission @ 0.5% to 2% on the amount of losses / profits for transferring such losses / profits to their clients. The brokers revised their computation of income and paid taxes on such commission. The Assessee is one of the beneficiaries of such design. The Assessee has maneuvered unaccounted funds / cash for getting the accommodation entry to reduce the taxable income. Based on this information the case was reopened by issuing the notice u/s 148 of the 1.1 . Act, 1961. During the assessment proceedings, the AR for the Appellant submitted that the Assessee had paid advance money to M/s A to Z Stock Trade Pvt. Ltd. in December 2009 and the cheque was cleared in January 2010. The transaction took place on lsl March 2010 resulting in loss which is alleged as manipulation. Nobody can visualize or fix the quantum of loss which can occur in 1, 2, 3 or many scrips. The Assessing Officer was not satisfied with the explanation of the Assessee with regard to modification of client code. Accordingly, the Assessing Officer held that the modification in the client code was done with malafide intention to avoid payment of taxes. The Assessing Officer has added Rs.4,63,706/-.

4.3.4 All the grounds taken by the Appellant are inter related, hence, taken together for the adjudication of the appeal. The Appellant has relied on the decision of Hon’ble High Court of Delhi in the case of Signature Hotels Pvt. Ltd. vs. ITO, Ward-8(4) in writ petition (Civil) number 8067/2010. In the decision the Hon’ble Court has elaborated 'reason to believe’. It is held by the Court that the Assessing Officer has to mandatorily record in writing the reason to believe. Sufficiency of reason is not a matter to be decided by the Writ Court. But existence of belief is the subject matter of the scrutiny. Notice u/s 148 can be quashed if the belief is not bonafide, or one based on vague irrelevant and non specific information. There should be a link between the reasons and the evidence / material available with the Assessing Officer. It is not necessary that material should conclusively prove the escapement. It is not necessary that Assessing Officer should have finally ascertained the fact by legal evidence or reached a conclusion, as this is determined and decided in the Assessment Order. 1 find that the Assessing Officer in the case under consideration had reason to believe that certain clients were benefited by their brokers using the method of Client Code Modification. The report to this effect was a received from the ADIT, Investigation. Ahmedabad disclosing the facts that survey was conducted at the premises of 1 2 brokers and a few of their clients across India. The ADIT also received information from National Stock Exchange in this regard. The ADIT' analyzed the data received from NSE, the contention of the brokers was considered by the Investigating Authority. The participants in the market admitted under oath that CCM was used for margin management and loss shifting. The list provided by the Investigation Wing included the name of M/s Vijay Goel & Sons HUE. In this way, it can be said that the Assessing Officer had in his possession very relevant information with precise details against the Assessee. Therefore, legal course of action availablVA witij-the. Assessing Officer was to reopen the assessment proceedings-T»v following due procedure. In this way I find that there was no infirmity in the procedure to reopen the assessment proceedings. The Appellant has- further relied on the decision of the Hon’ble High Court of Delhi in the case of Principal Commissioner of Income Tax-6, vs. Meenakshi Overseas Pvt. Ltd. ITA 692/2016. In this judgment it is held that the recording of reasons to believe and not reasons to suspect is the precondition to the assumption of jurisdiction u/s 147 of the I.T. Act. The reasons to believe must demonstrate link between the tangible material and the formation of belief or the reason that income has escaped assessment. The procedure followed by the Assessing Officer passes the test of scrutiny laid by the above decision of the Hon’ble High Court because the information with respect to the Assessee was definite. The quantum involved had to be investigated by reopening the assessment.

4.3.5 Major objections raised by the Appellant is that the impugned loss of Rs.4,63,706/- is not correct in terms of figures. To this effect, the Appellant has enclosed his copy of account in the books of M/s A to Z Stock Trade Pvt. Ltd. wherein two debit entries amounting to Rs. 17,689/- and Rs.3,95,904.55 aggregating to Rs.4,13,593.55 can be referred to. But I find that entry of Rs. 17,689/ is in respect of security transaction tax on 19.03.2010 and entry of Rs.3,95,904.55 only is in respect of daily future difference / MIM bill.

Therefore, the loss of Rs.4,13,593.55 does not appear to be related to Client Code Modification as is the case against the Assessee. The copy of the account does not appear to be certified by M/s A to Z Stock Trade Pvt. Ltd. It means the entry related to Client Code Modification must be different from those indicated by the Appellant. In the submission dated 18.04.2017 the Appellant has stated that the broker would have given the statement under duress and his statement would have been manipulated by the person in-charge. But this allegation has not been proved by the Appellant by giving any evidence. There is no evidence that broker has given any such statement to confess the manipulation under duress. The information with regard to Client Code Modification was received from National Stock Exchange. The information was not generated by the Investigation Wing of Ahmedabad. The Appellant has alleged that M/s A to Z Stock Trade Pvt. Ltd. has done criminal manipulation of the funds of the Appellant and has given such statement taking the shield of Income Tax Department Officers. The sum of this allegation is that the officers of Income Tax Department connived with the broker to usurp the money of the Assessee. If the Appellant was cheated by the broker by any such act. he should have filed a criminal case against the broker. But I find that no such action has been reported by the Appellant. On the other hand, I find that in the process, the Appellant is a beneficiary in whose case the loss has been booked by modifying the client code, thereby, reducing the taxable income. It is argued that margin management can be done by broker by usurping funds of clients with it. In this case, loss shifting is not the matter ; it is only the matter of usurping the funds of the Appellant. It is stated that huge voluminous transaction cannot be modified in one hour provided by the Stock Exchange. I am not convinced with the assertion of the Appellant because what required to be modified was only the client code for which limited time is given by the Stock Exchange. Now a days techniques have been evolved to get the data ready before hand for uploading on the site. Another argument by the Appellant is that if he had shifted the profits to an outsider, he would have received back corresponding amount from the recipient of the profit. However, the Assessing Officer has not brought any material on record to show that the profit was received back. This argument of the Appellant can also not be supported because the party receiving the profit, under manipulative schemes, cannot transfer the money either by book entry or by bank transaction. It is only the Assessee who can tell the manner of money received back.

4.3.6 After giving due consideration to the facts of the case and submission of the Appellant, I am convinced that the Appellant has not given satisfactory explanation with respect to the losses incurred by using Client Code Modification (based on the report received from National Stock Exchange and the inquiry' by the Investigation Wing, Ahmedabad). The grounds of appeal are not substantiated further to prove the allegations leveled by the Appellant. Accordingly, the grounds of appeal are decided against the Appellant and the order of the Assessing Officer is confirmed.”

6. After perusing the aforesaid finding, I am of the considered view that Ld. CIT(A) has passed a well reasoned, which does not need any interference on my part. Therefore, I uphold the order of the Ld. CIT(A) on the issues in dispute and reject the grounds raised by the assessee.