PRABHU DAYAL AGGARWAL,NEW DELHI vs. ACIT, CIRCLE-59(1) , NEW DELHI

This appeal filed by the assessee is directed against the order dated 12.02.2018 of the CIT(A)- XXV, New Delhi relating to assessment year 2009-10.

Facts of the case, in brief, are that the assessee is an individual and is engaged in the business of sale & purchase of flat, plots, construction business and trading in shares etc. and filed his return of income on 31.07.2009 declaring total income of Rs.1,16,37,353/-. The Assessing Officer mentioned in the assessment order that the return was processed u/s 143(1). Subsequently, the Assessing Officer issued notice u/s 148 by recording the following reasons :-

In response to the notice u/s 148, the assessee submitted that the original return filed for assessment year 2009-10 may be treated as return filed in response to notice u/s 148 of the I.T. Act. Subsequently, the Assessing Officer issued notice u/s 143(2) of the I.T. Act. The Assessing Officer discussed the background of client code modification and manipulation of this facility, SEBI order, the modus operandi adopted etc.. He observed that a survey u/s 133A was conducted in the case of Amrapali Adya Trading and Investment Private Limited, which is a member of NSE and it was found to have indulged in large scale client codes modifications so as to facilitate losses and profits to the clients as per the requirement. He observed that the complete data of the client codes modified by the said member for the period from 01.04.2008 to 31.03.2012 was obtained from NSE. On perusal and analysis of the data it was found that the said broker has carried out highest client code modification on the NSE F&O segment for the three years combined. He also referred to the statement of Shri Sanjeeva Kumar Sinha, Director of the company which was recorded during the course of survey. In his statement, Shri Sanjeeva Kumar Sinha was confronted with the client code modification. He had stated that for misuse of CCM for the purposes other than rectification of punching errors penalty of Rs.20,00,000/- was levied on Amrapali Aadya by NSE. After analyzing the statement of Shri Sanjeeva Kumar Sinha, the Assessing Officer confronted the assessee regarding the same. Rejecting the various explanations given by the assessee and observing that the assessee had obtained accommodation entries through broker M/s Amrapali Aadya Trading & Investment Pvt. Ltd. by misusing the client code modification facilities to the tune of Rs.1,62,75,826/-, he made addition of the same to the total income of the assessee.

Before the ld. CIT(A), the assessee challenged the validity of the reopening of the assessment as well as the addition on merit. It was submitted that the original assessment was completed u/s 143(3) on 24.12.2011 after thorough scrutiny and there is no allegation of any failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment. It was submitted that there was no rational connection or live link between the message as received and the reasons of conclusion as to escapement of any income as recorded. It was argued that the information as communicated was not based on any evidence and was in the nature of an obiter. Relying on various decisions, it was argued that the reopening being bad in law and void ab-initio should be quashed.

So far as merit of the case is concerned, it was submitted that the conclusion drawn by the Assessing Officer are misconceived, erroneous and untenable. He has not taken a holistic view of the transactions. While keying mistakes are inevitable in this type of business, the Assessing Officer has lost sight of the fact of the end where such mistakes originally occurred. In terms of the organization of business activity, the broker has decentralized the trading operations. Consequently the data feeding errors are not isolated incidents confined to the end of the main broker. They spill over to others also who use the main broker's terminal. Then there is the default mechanism with the operating system. Irrespective of the data keyed sometimes the system turns intransigent and adamantly displays the previous code of the last transaction.

However, ld. CIT(A) was not satisfied with the arguments advanced by the assessee. So far as the validity of the reopening of the assessment is concerned, he upheld the action of the Assessing Officer by observing as under :-

So far as addition on merit is concerned, he also rejected the various arguments advanced by the assessee and upheld the action of the Assessing Officer.

Aggrieved with such order of the ld. CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds :-

Ld. counsel for the assessee strongly challenged the order of the ld. CIT(A) in upholding the reassessment proceedings. He submitted that the satisfaction note recorded by the Assessing Officer on the basis of the information as stated by him to be with the Department is wholly vague, unspecific, incomplete and unreliable. He submitted that the CCM is essential concomitant of online share trading. Mistakes are bound to happen. Such mistakes cannot be arbitrarily concluded to be manipulative. To put them in the shelf of contrived transaction critical evidence in the shape of exchange of monetary consideration is crucial. In absence of such evidence, the allegation of manipulation would fall flat on its face. The accusation would become at once erroneous and untenable.

Referring to the satisfaction note, he submitted that the Assessing Officer in the first part records that some brokers had misused the client code modification to transfer loss and profit on account of share transactions from one client to another. Saying so is being totally ambiguous and unspecific especially in absence of the name of the assessee or his broker friend mentioned in any of these dossiers. Further, the amount of Rs.1.62 crores determined by the Assessing Officer is not based on any concrete or credible evidence or tangible material.

He submitted that nothing is found from body of the assessment order that the original assessment was completed u/s 143(3) of the I.T. Act. Copy of the order passed u/s 143(3) is placed at page 43 of the Paper Book. Referring to the assessment order passed u/s 143(3)/147, he submitted that the Assessing Officer simply mentions that the return was processed u/s 143(1) of the I.T. Act.

He submitted that while making any addition if the Assessing Officer relied on any statement of any third party, due opportunity of cross-examination should have been granted to the assessee which in the instant case has not been done. Failure to do so is fatal to the cause of the utility of the statement as an evidence. For the above proposition, he relied on the decision of the Hon’ble Supreme Court in the case of M/s Andaman Timber Industries Ltd. vs. CIT reported in 281 CTR 241.

Referring to the decision of the Hon’ble Delhi High Court in the case of CIT vs. Pradeep Kumar Gupta reported in 303 ITR 95, he submitted that the reassessment proceedings were held to be invalid and unsustainable on account of the statement not being cross-checked through cross-examination. He submitted that the satisfaction as to the escapement of the income has to be of the Assessing Officer’s own satisfaction. If the Assessing Officer used such information from an outside source, such statement is required to be verified in its correctness. It cannot be based on any other person’s opinion or advice. For the above proposition, he relied on the decision of the Hon’ble Punjab & Haryana High Court in the case of CIT vs. Paramjit Kaur reported in 311 ITR 38, the decision of the Hon’ble Delhi High Court in the case of CIT vs. SFIL Stock Broking Ltd. reported in 325 ITR 285, the decision of the Hon’ble Delhi High Court in the case of Sarthak Securities Co. Pvt. Ltd. vs. ITO reported in 329 ITR 110, the decision of the Hon’ble Delhi High Court in the case of Pr.CIT vs. G & Pharma India Ltd. reported in 384 ITR 147 and Pr.CIT vs. Meenakshi Overseas (P) Ltd. reported in 395 ITR 677. He also referred to the decision of the Hon’ble Delhi High Court in the case of Rajiv Agarwal & Ors. vs. ACIT reported in 395 ITR 255 to the proposition that where the reopening is based on suspicion without any tangible supportive material the reassessment was held to be unsustainable in law.

On the point of CCM modification not resulting into a valid reassessment, he referred to the decision of the Hon’ble Bombay High Court in Writ Petition No.2627/2016 order dated 23.11.2016 and the decision of the Hon’ble Gujarat High Court in the case M/s GEETATAX vs. DCIT vide SCA No.20977 of 2016 order dated 20.12.2016. He accordingly submitted that both legally and factually addition could not have been made by the Assessing Officer in the reassessment proceedings.

Ld. DR on the other hand heavily relied on the order of the ld. CIT(A).

Referring to the decision of the Hon’ble Delhi High court in the case of Indu Lata Rangwala vs. DCIT reported in 286 CTR 474, he submitted that the Hon'ble High Court in the said decision has held that where initial return of income is processed u/s 143(1), it is not necessary in such a case for Assessing Officer to come across some fresh tangible material to form ‘reasons to believe’ that income has escaped assessment.

Referring to the decision of the Hon'ble Supreme Court in the case of Thakorbhai Maganbhai Patel vs. ITO reported in 78 taxmann.com 201, he submitted that the Hon'ble Supreme Court dismissed SLP against High Court’s ruling where reopening of assessment u/s 147 was held to be valid despite the Assessing Officer not passing speaking order against objections filed by the assessee.

Referring to the decision of the Hon’ble Delhi High Court in the case of Thakorbhai Maganbhai Patel vs. ITO reported in 392 ITR 444, he submitted that the Hon'ble High Court in the said decision has held that it is true that in the communications, the petitioner has requested for supply for documents.

Referring to the decision of the Hon'ble Supreme Court in the case of Aravali Infrapower Ltd. vs. DCIT reported in 2017-TIOL-42-SC-IT, he submitted that the Hon'ble Supreme Court in the said decision has held that reopening of assessment is justified, when the bank statements as well as the ITR form disclosing returns, raises more questions than satisfying the queries already raised.

Referring to the decision of the Hon’ble Delhi High Court in the case of Aravali Infrapower Ltd. vs. DCIT reported in 390 ITR 456, he submitted that the Hon'ble High Court in the said decision has held that where assessee company furnished only cheque numbers, but failed to provide bank details of share applicant and it was found that share applicants had meager income while investing huge sum of Rs.8 crores, reopening notice was justified.

Referring to the decision of Hon'ble Supreme Court in the case of Yogendrakumar Gupta vs. ITO reported in 51 taxmann.com 383, he submitted that the Hon'ble Supreme Court in the said decision has held that where subsequent to completion of original assessment, Assessing Officer on the basis of search carried out in case of another person, came to know that loan transactions of assessee with a finance company were bogus as said company was engaged in providing accommodation entries, it being a fresh information, he was justified in initiating reassessment proceedings in case of assessee.

Referring to the decision of the Hon'ble Supreme Court in the case of Raymond Woollen Mills Ltd. vs. ITO reported in 236 ITR 34, he submitted that the Hon'ble Supreme Court in the said decision has held that in determining whether commencement of reassessment proceedings was valid it has only to be seen whether there was prima facie some material on the basis of which the department could reopen the case. The sufficiency of correctness of the material is not a thing to be considered at this stage.

Referring to the decision of the Hon'ble Supreme Court in the case of ITO vs. Kasturbhai Lalbhai reported in 109 ITR 537, he submitted that the Hon'ble Supreme Court in the said decision has held that the intimation which the Income-tax Officer received from the audit department would constitute “information” within the meaning of section 147(b).

Referring to the decision of the Hon'ble Supreme Court in the case of CIT vs. P.V.S. Beedies (P.) Ltd. reported in 237 ITR 13, he submitted that the Hon'ble Supreme Court in the said decision has held that audit party had merely pointed out a fact which had been overlooked by Assessing Officer and this was not a case of information on a question of law. Reopening of case u/s 147(b) on basis of factual information given by internal audit party was valid in law.

Referring to the decision of the Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers (P.) Ltd. reported in 291 ITR 500, he submitted that the Hon'ble Supreme Court in the said decision has held that so long as the conditions of section 147 are fulfilled, the Assessing Officer is free to initiate proceedings u/s 147 and failure to take steps u/s section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings, even when intimation u/s 143(1) has been issued.

Referring to the decision of the Hon'ble Supreme Court in the case of Yuvraj vs. Union of India reported in 315 ITR 84, he submitted that the Hon'ble Supreme Court in the said decision has held that points not decided while passing assessment order u/s 143(3) was not a case of change of opinion. It was held that assessment was reopened validly.

Referring to the decision of the Hon’ble Gujarat High Court in the case of Ankit Financial Services Ltd. vs. DCIT reported in 78 taxmann.com 58, he submitted that the Hon'ble High Court in the said decision has held that where material recovered in search of another person indicated that assessee had received bogus share applications through accommodation entries, since assessee was beneficiary, initiation of reopening was justified.

Ld. counsel for the assessee, in his rejoinder, submitted that the various decisions relied by the ld. DR are distinguishable and not applicable to the facts of the present case. In the case of Paramount Communication (P.) Ltd. (supra) it is fact based transaction and therefore the same is not applicable. In the case of Indu Lata Rangwala (supra), the return was processed u/s 143(1) whereas in the present case the original assessment was completed u/s 143(3). In the case of R.K. Malhotra (supra) and in the case of P.V.S. Beedies (P.) Ltd. (supra) reopening was on the basis of audit objection and therefore is not applicable to the facts of the present case.

In the case of Ankit Financial Services Ltd. (supra), it was a search case and the material was recovered during the search which is not the case here. He submitted that the various other decisions relied on by the ld. DR are also distinguishable and not applicable to the facts of the present case. In none of those cases, there was assessment u/s 143(3) and reopening has been made beyond a period of 4 years from the end of the relevant assessment year and there is no allegation of any failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment. He accordingly submitted that grounds raised by the assessee should be allowed.

We have considered the rival arguments made by both the sides, perused the orders of the authorities below and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the original assessment in the instant case was completed u/s 143(3) on 24.12.2011 copy of which is placed at page 43 of the Paper Book, wherein the Assessing Officer had accepted the returned income of Rs.1,16,37,353/-.

In the result, the appeal filed by the assessee is allowed. Order pronounced in the open Court on this 29th June, 2018.