SEASIDE PROJECTS PVT. LTD.,KOLKATA vs. ITO, WARD-5(1), KOLKATA

This appeal filed by the assessee is against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi vide Order No. ITBA/NFAC/S/250/2023-24/1059960493(1) dated 20.01.2024 passed against the assessment order by ITO, Ward-5(1), Kolkata u/s. 143(3)/147 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 13.12.2019 for AY 2012-13.

Grounds of appeal raised by the assessee are reproduced as under: “1) That on the facts and in the circumstances of the case the illegal notice u/s 148 issued by the AO and upheld by the CIT(A) is illegal and bad in law. 2) That on the facts and in the circumstances of the case the reopening of the case made by the AO u/s 148 of the Act, and the assessment framed u/s 147 by the AO and upheld by the CIT(A) is illegal, arbitrary and excessive.

Assessee did not respond to the notice issued by the Ld. AO in this respect. Ld. AO after referring to certain judicial precedents and without pointing out as to anything factual on what was the client code by which it was modified, who was the broker and in which scrips the trading was done for the benefit of the assessee completed the assessment. There is no whisper of any factual and specific data relating to the assessee on the allegation of assessee being beneficiary of client code modification. AO without bringing anything on record to evidently demonstrate his observations for initiating the impugned proceeding, concluded that “As per the information the assessee company is a beneficiary to the tune of Rs.27,93,150/- by way of client code modification during the FY 2011-12 relevant to AY 2012-13. The same is treated as bogus and arranged transaction and disallowed. Amount of Rs.27,93,150/- is added back to the total income of the assessee company for the FY 2011-12 corresponding to AY 2012-13.” 2.2. Aggrieved, assessee went in appeal before the Ld. CIT(A), who also confirmed the addition made by the Ld. AO. Aggrieved, assessee is in appeal before the Tribunal.

Before us, ld. Counsel for the assessee emphasized on illegality of the reopening proceedings undertaken by the AO which is for the sole purpose of verifying the contents of the information received from the Investigation Wing. According to the Ld. Counsel, such an approach of conducting fishing and roving enquiries is not permissible under the provisions of section 147 read with sec. 148 of the Act and ought to be quashed ab initio. He further submitted that no investigation or enquiry was carried out by the AO to ascertain the information received by him by applying his mind and bringing cogent material on record. According to him, even if the revenue’s theory of assessee having benefited by client code modification to earn the profits is accepted, then also the revenue had to bring on records some evidence to demonstrate that assessee had earned such a profit and the same has escaped from assessment. The material available and observations made by the AO in the impugned order is that there is a client code modification but there is no link from there to conclude that it was done to escape assessment of part of its income. Prima facie this appears to be a case of reason to suspect and not reason to believe that income chargeable to tax has escaped assessment. 3.1. On the merits of the case also, ld. Counsel submitted that the addition has been made without providing any details of scrip in which the alleged transaction took place or the name of the broker or the person who had benefited in the proceed of such alleged client code modification. The AO has simply followed the Investigation Report without application of mind which is not permissible in law.

Per contra, Ld. Sr. DR placed reliance on the orders of the authorities below and submitted that assessee has failed to provide

After hearing the rival contentions and perusing the material available on record, prima facie we are of the view that the impugned notice is without jurisdiction as it lacks reason to believe that income chargeable to tax has escaped assessment. As already noted above, AO initiated the proceeding for the purpose of verification of contents of the information received by him from the Investigation Wing. In this respect, he has made certain general observations. According to us, when the AO receives any such information, it is the bounden duty on his part to investigate the same and record substantive findings before impressing upon the assessee the tax liability. In the impugned assessment order, there is no mention and it is not discernible from it about the details of the scrip in which the alleged transaction took place resulting into the benefit of Rs.27,93,150/- on account of client code modification. Further, there are no details in respect of name of the broker or the person who eventually executed such transactions. We note that there is nothing on record or any fact or finding by the AO to suggest that the assessee and the other party as well as the brokers are in collusion to carry out the alleged transaction of transfer of profit by misusing the client code modification facility. Even if the broker would have been involved in such mischievous practice but to make an addition in the hands of the assessee by holding it as income escaping assessment, it is necessary to establish that the assessee and the other parties along with broker are in collusion. 5.1. Considering these observations and facts on record, we are in agreement with the submissions made by the Ld. Counsel and quash the impugned assessment order passed u/s. 147 read with section 143(3) of the Act. Accordingly, legal grounds taken by the assessee in Seaside Projects Pvt. Ltd., AY 2012-13 this respect are allowed. Since we have quashed the assessment order itself, grounds taken in respect of merits of the case are rendered academic in nature and are, therefore, not adjudicated upon. 6. In the result, appeal of the assessee is allowed. Order pronounced in the open court on 10th April, 2024.