SUNITA DEVI CHORDIA,CHENNAI vs. ITO NON CORPORATE WARD 6(3), CHENNAI

This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) -5, Chennai, dated 12.09.2017 and pertains to assessment year 2009-10.

The first issue arises for consideration is reopening of assessment under Section 147 of the Income-tax Act, 1961 (in short 'the Act').

Shri M. Abhishek, the Ld. representative for the assessee, submitted that the Assessing Officer processed the return under Section 143(1) of the Act and issued intimation. Thereafter without any further material, he reopened the same. Therefore, according to the Ld. representative, reopening of assessment is not justified at all.

Shri M. Abhishek, the Ld. representative for the assessee, further submitted that the issue on merit is with regard to setting off of loss to the extent of ₹5,87,965/-. According to the Ld. representative, the assessee earned income from purchase and sale of shares and money lending. In the Profit & Loss account, the assessee debited ₹17,77,865/- as loss from F&O transaction. According to the Ld. representative, the assessee explained before the Assessing Officer that the purchase and sale of shares were made through approved stock broker and the stock broker modified the client code since there was typographical error while typing the client code. According to the Ld. representative, the assessee has no knowledge about the client code modification by the broker. The Stock Exchange corrected the mistake as pointed out by the broker while entering the data in the terminal which was finalized in the premises of the broker’s office.

The Ld. representative for the assessee further submitted that the assessee has entered into 57 transactions in F&O, out of which, 23 transactions resulted in profit and 34 transactions resulted in losses. Out of 57 transactions, with regard to only one transaction there was a mistake committed by the broker while entering the data to his terminal which was subsequently corrected with the approval of the Stock Exchange. Therefore, according to the Ld. representative, when the Assessing Officer accepted 56 transactions, there was no reason to doubt only one transaction merely because the broker has committed mistake in changing client code. Without any material, according to the Ld. representative, the Assessing Officer disbelieved the explanation of the assessee and made the addition of ₹8,47,670/-.

On the contrary, Shri B. Sahadevan, the Ld. Departmental Representative, submitted that the Assessing Officer found that the assessee claimed a total loss of ₹17,77,865/-, out of which a loss of ₹5,87,965/- was due to client code modification. According to the Ld. D.R., the assessee had transactions with two stock brokers, namely, M/s Sun n Sun Fin Services and M/s Aryan Share & Stock Brokers Limited. According to the Ld. D.R., the Revenue has conducted survey in the premises of 12 brokers and few of the clients of the said brokers across the country in respect of client code modification. According to the Ld. D.R., it is the routine practice of the stock brokers to change the client code in sale and purchase of shares of the securities after the trades were completed. Even though it was permitted to rectify inadvertent error, according to the Ld. D.R., the brokers were misusing the opportunity of client code modification for manipulating the activities in the Stock Exchange. On perusal of the list, which was prepared by the National Stock Exchange, pursuant to the direction of the Finance Ministry, according to the Ld. D.R., the assessee’s name was also found in the list for manipulating the client code for the purpose of claiming loss in the transactions. Since the assessee’s name is found in the list prepared by the National Stock Exchange, according to the Ld. D.R., the Assessing Officer found that the claim of loss of ₹5,87,965/- is a bogus one, accordingly, the CIT(Appeals) confirmed the addition made by the Assessing Officer.

I have considered the rival submissions on either side and perused the relevant material available on record. The Assessing Officer processed the return under Section 143(1) of the Act and issued intimation. Subsequently, on the basis of the survey conducted by the Investigation Wing of the Department, it was found that by modifying the client code, the assessee was claiming bogus loss in the Profit & Loss account. Therefore, this Tribunal is of the considered opinion that when there was a survey in the premises of the assessee and on the basis of the survey material, the Assessing Officer reopened the assessment, it cannot be said that there was no new material which came to the knowledge of the Assessing Officer for the purpose of reopening the assessment. Therefore, this Tribunal do not find any reason to interfere in the reopening of assessment under Section 147 of the Act.

Now coming to the merit of the disallowance made by the Assessing Officer, it is not in dispute that Revenue conducted survey in 12 premises of the brokers and few clients of them across the country. The Revenue authorities found that by way of client code modification, the losses were shifted to the profit making investors. The Securities and Exchange Board of India conducted an enquiry pursuant to the observation made by the Finance Ministry. The Securities and Exchange Board of India prepared a list of persons who have claimed benefit of losses of more than ₹1 lakh. The assessee’s name was found in the list at Sl.No.40.

It is also not known whether the Revenue authorities recorded any statement either from stock broker or from any of the persons during the course of investigation. If such a statement was recorded, the Assessing Officer has to furnish the same to the assessee. Accordingly, the orders of both the authorities below are set aside and the Assessing Officer is directed to furnish a copy of the list said to be prepared by the Securities and Exchange Board of India and the statement if any recorded in the course of enquiry and thereafter decide the issue in accordance with law, after giving a reasonable opportunity to the assessee.

In the result, the appeal filed by the assessee is allowed for statistical purposes.