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Facts
The Revenue appealed against the CIT(A)'s order holding the reopening of assessment as invalid. The assessee had filed a cross-objection supporting the CIT(A)'s order and raising additional grounds. The case involved reopening of assessment beyond four years based on information regarding Client Code Modification (CCM) used to book contrived losses.
Held
The Tribunal held that the reopening of assessment beyond four years was invalid as the Assessing Officer (AO) failed to demonstrate that the assessee had failed to disclose fully and truly all material facts. The AO's action was considered a change of opinion, and the information from the Investigation Wing was not properly incorporated into the reasons for reopening.
Key Issues
Whether reopening of assessment beyond four years is valid when the AO relies on information from the Investigation Wing without demonstrating failure by the assessee to disclose material facts, and whether the AO's action amounts to a change of opinion.
Sections Cited
147, 148, 143(3)
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Income Tax Appellate Tribunal, DELHI BENCH “G”, DELHI
Before: SHRI VIKAS AWASTHY & SHRI AVDHESH KUMAR MISHRA
CO 141/Del/2023 (AY 2009-10) आदेश/ORDER
PER VIKAS AWASTHY, JM:
This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-28,New Delhi (hereinafter referred to as 'the CIT(A)’) dated 24.11.2017, for assessment year 2009-10, assailing findings of the CIT(A) in holding reopening of assessment as invalid.
The assessee has filed cross objection in appeal by the Revenue supporting the order of CIT(A) and also raising legal ground that the assessment order is illegal as the same has been passed without disposing of the objections filed by the assessee against reopening of assessment.
Ms. Maninder Kaur, representing the department narrating facts of the case submits that the assessment in the case of assessee for AY 2009-10 was completed u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act’) on 13.12.2011. Thereafter, on the basis of information received from ADIT (Investigation), Ahmadabad the case of the assessee was reopened and notice u/s. 148 of the Act was issued to the assessee. As per the information received from investigation wing non genuine Client Code Modification (CCM) were carried out by some persons in connivance with brokers to book contrived losses. The CCM facility was misused by the brokers to transfer gains or losses from one party to another by CCM in guise of rectification of an error. It became a practice to book artificial profits or losses to impact tax liability. As per the information received from the Investigation Wing, the assessee also used dubious method of CCM to reduce its income to the extent of Rs.54,80,532/-. The Assessing Officer (AO) recorded reasons for reopening. Since, reopening was beyond four years; CO 141/Del/2023 (AY 2009-10) the AO categorically stated that by withholding the fact of shifting of ascertained losses of Rs.54,80,532/-, the assessee has failed to disclose fully and truly all material facts necessary for it’s assessment. The AO in a detailed order explained the modus operandi as to how CCM is used to reduce tax liability and linking the said modus operandi to the case of assessee made addition of Rs.2,35,15,170/- vide assessment order dated 29.12.2016 passed u/s. 147 r.w.s. 143(3) of the Act. Against the said assessment order, the assessee carried the issue in appeal inter alia assailing validity of reopening of assessment. The CIT(A) vide impugned order held reopening of assessment as invalid. Against findings of the CIT(A), the Revenue is in appeal. The ld. DR submits that the Assessing Officer has recorded self speaking reasons for reopening the assessment and even at the time of passing assessment order, the AO has been able to substantiate as to how the assesee has failed to fully and truly disclose all material facts at the time of framing assessment and how CCM route was adopted by the assessee to reduce its tax liability. The ld. DR prayed for reversing the order of CIT(A) and upholding validity of assessment.
Au contraire, Dr. Rakesh Gupta appearing on behalf of the assessee vehemently defended the impugned order. The ld. Counsel for the assessee made threefold submissions in support of impugned order. The first limb of argument made by ld. Counsel for the assessee is, that the reassessment proceedings were initiated beyond the period of four years, therefore, first proviso to section 148 of the Act gets attracted. The AO ought to have recorded the reasons specifying that the assessee has failed to disclose fully and truly all material facts necessary for its assessment. In the instant case, though the AO has complied with the formality of section 148 of the Act but has failed to indicate what material information was CO 141/Del/2023 (AY 2009-10) withheld by the assessee at the time of filing return of income or at the time of assessment, that was necessary for completing the assessment. To support his arguments he placed reliance on the following decisions:- (i) E.I Dupont India (P.) Ltd. vs. DCIT 351 ITR 299 (Delhi); (ii) Himson Textile Engineering Industries Ltd., vs N N Krishnan 83 DTR 0132 (Guj HC); (iii) Bombay Stock Exchange Ltd. vs DDIT(Exemp) & Ors. 361 ITR 0160 (Bom) & (iv) Sabh Infrastructure ltd. vs ACIT 398 ITR 0198 (Delhi) 4.1. The second argument made by ld. Counsel for the assessee is, the reassessment proceedings are liable to be quashed as assessment cannot be reopened merely on the basis of CCM. In support of his contentions he placed reliance on following decisions:- (i) Coronation Agro Industries Ltd. DCIT, 390 ITR 464 (Bom.); (ii) M/s Vayoo Nandan Finance Company P. Ltd., vs. ITO, in decided on 23.01.2024 (Del.) 4.2. The third limb of argument of ld. Counsel for the assesee emanates from the ground raised
in cross objections. The ld. Counsel for the assessee submits that the AO was required to decide objections of the assessee against reopening by passing a separate speaking order in accordance with the law expounded by Hon’ble Apex Court in the case of GKN Driveshafts (India) Ltd., vs. ITO, 259 ITR
19. The assessee had filed objections against reopening of assessment on 19.12.2016. The AO without first deciding the objections filed by the assessee, passed the assessment order. The AO could not have passed reassessment order u/s. 147 of the Act without disposing of the objections of the assessee. Where such assessment order is passed, the same is liable to be quashed. In support of his CO 141/Del/2023 (AY 2009-10) argument he placed reliance on the decision in the case of PCIT vs. Tupperware India (P) Ltd. 65 taxmann.com 17 (Del).
Rebutting the contentions raised by the assessee, the ld. DR submitted that reopening of assessment on the basis of CCM was upheld by various High Courts including the judgment rendered by Hon’ble Jurisdictional High Court. To support his contentions, she placed reliance on the following decisions:- (i) Seema Gupta vs. ACIT, 160 taxmann.com 574 (Delhi) (ii) Rampuria Industries & Investment Ltd., vs. DCIT 82 taxmann.com 78 (Cal.) (iii) Rakesh Gupta vs. CIT, 93 taxmann.com 271 (P&H) 5.1. In respect of argument that assessment order passed without deciding objections of the assessee hence liable to be quashed, the ld. DR placed reliance on the decision rendered in the case of Home Finders Housing Ltd. vs. ITO 93 taxmann.com 371 (Mad.). She pointed that against said order SLP filed by assesee has been dismissed.
We have heard the submissions made by rival sides and have examined the orders of authorities below. We have also considered the decisions on which reliance has been placed by the respective sides in support of their submissions. The short issue for adjudication before us in this appeal is; Whether in facts and circumstances of the case reopening of assessment beyond four years is valid? 7. To decide the issue in hand, it would be imperative to refer to the reasons recorded for reopening which are foundation of reassessment proceedings. The relevant excerpts of the reasons recorded for reopening are as under:- “The transaction which involved CCM, as per information received under the report of the investigation Wing are as under:-
CO 141/Del/2023 (AY 2009-10) Name of Address of Name of When OC When MC Net the beneficiary the broker (Ascertained (Ascertained reduction beneficiary profit losses income shifted out) shifted in) due to CCM Super Star D-6/6032/2 Bharat 75590 -54049942 -5480532 Innovation Ground rasayan P. Ltd Floor, finance ltd Vasant Kunj, New Delhi Thus, the assessee has shifted in ascertained loss of Rs. (-5480532/-through a transaction involving CCM. As per information sent by Investigation Wing, Ahmedabad it has also been observed that in survey at the office of M/s. Brisk Infrastructure and Developers Private Limited situated at D-6/6032/2 GF, Vasant Kunj, New Delhi on 23.03.2015 was also carried out. During the course of survey the statement of Shri Harish Gahlot, Promoter and Director of M/s. Brisk Infrastructure were recorded u/s 133A of the Act. as per their statements recorded:-
1. 1. He had no knowledge of trading in shares/securities/futures and options etc.
2. Shri Harish Gahlot in his statement when he was asked as to whether his company BIDPL has ever trades in securities/shares/futures and options. He categorically denied the same and stated that the company is only engaged in real estate development. However, when confronted with the losses obtained by BIDPL in F& O segment through client code modification he evaded the questions. Further, during the course of survey it was gathered that the losses obtained in F&O segment through CCM were used to set-off the business profits during the A. Y. 2009-10. It is also relevant to mention here that Shri Harish Gahlot is also a director in the company of M/s. Super Star Innovation Private Ltd. further, on perusal of record it has been observed that this company is also engaged in the business of real estate business same as in his another company namely M/s. Brisk Infrastructure and Developers Pvt. Ltd. It proves the modus oprendi of the director of the company Shri Harish Gahlot that he run the business of real estate and the loss incurred is nothing but to set off the profit during the A.Y. 2009-10.
CO 141/Del/2023 (AY 2009-10) Thus, a careful scrutiny of information received from the Investigation Wing and analysis of report, date of transactions and verification of ITR/assessment record lead to an irresistible conclusion that client code modification had been carried out in the case of assessee to shift in ascertained losses of Rs. -5480532/-. By shifting in the above losses through contrived transactions by means of CCM, the assessee has artificially depressed its profits. By withholding these facts surrounding the transaction during the regular assessment proceedings, the assessee has failed to disclose fully and truly all the material facts necessary for, its assessment."
It is an undisputed fact that the original assessment in the case of present assessee/respondent was made u/s. 143(3) of the Act accepting the returned income. During the course of assessment proceedings, the AO had issued questionnaire dated 18.07.2011. In response to the said questionnaire, the assessee furnished requisite details as required by the AO including the details relating to the loss suffered by the assessee in share transactions. It is also an undisputed fact that the assessment for AY 2009-10 in the case of assessee was reopened after expiry of four years from the end of relevant assessment year. Since, the assessment was reopened beyond four years, the first proviso to section 147 of the Act gets triggered. Accordingly, no action u/s. 147 of the Act can be undertaken unless the AO is able to show that income chargeable to tax has escaped assessment for the impugned assessment year by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The AO while recording reasons for reopening has to specify in an unambiguous manner as to what material information the assessee has failed to disclose fully and truly at the time of filing return of income or during assessment.
A perusal of the reasons would show that the AO has reopened assessment merely on the basis of information received from Investigation Wing that the CO 141/Del/2023 (AY 2009-10) assessee has artificially suppressed its profits by shifting in losses through contrived transactions by means of CCM. The fact of losses on transaction of share has been disclosed by the assessee in the return of income and during assessment proceedings, the assessee had furnished requisite details in response to the questionnaire issued by the Assessing Officer. It is not emanating from the reasons recorded for reopening as to what material details the assessee has failed to fully and truly disclose. In our considered view, the reopening of assessment after receipt of information from Investigation Wing by the AO is nothing but change of opinion. It is a well settled law that assessment cannot be reopened merely on the basis of change of opinion. [RE: CIT vs. Kelvinator of India Ltd. 320 ITR 561 (SC)].
The Hon’ble Delhi High Court in the case of E.I Dupont India (P.) Ltd. vs DCIT (supra) has held that where assessment is reopened after four years from the end of the relevant assessment year, it was incumbent upon the Assessing Officer to demonstrate that there was failure on the part of the assessee to fully and truly disclose all material facts necessary for its assessment. Similar, view has been taken by the Hon’ble Jurisdictional High Court in the case of Sabh Infrastructure ltd. vs ACIT (supra), wherein the Hon’ble High Court held the reopening to be invalid for the following reasons:- “15. The assessment proceedings, especially those under section 143(3) of the Act, have to be accorded sanctity and any reopening of the same has to be on a strong and sound legal basis. It is well-settled that a mere conjecture or surmise is not sufficient. There have to be reasons to believe and not merely reasons to suspect that income has escaped assessment. In this case, the reasons failed to mention what facts or information was withheld by the petitioner. Merely relying upon the statement of Mr. Navneet Kumar Singhania that the companies in question were CO 141/Del/2023 (AY 2009-10) "paper companies", by itself, is insufficient to reopen the assessment, unless the Assessing Officer had further information that these companies were non-existent after making further inquiries into the matter. It is clear that the Assessing Officer did not make any inquiry or investigation, if these companies were in fact "paper companies". No effort has been made to establish the connection between the statement of Mr. Navneet Kumar Singhania and the five companies. 16. xxxxxx 17. In the facts of this case, the primary facts have not been shown to be false. The five companies do exist. They did subscribe to the share capital of the petitioner. They did pay the money to the petitioner. All the five companies are assessed to tax. These are the primary facts. The reasons to believe rely upon a letter received from the Investigation Wing and Mr. Chaudhary submits that this letter was in fact an investigation report. The report does not form part of the reasons and neither was it annexed to the reasons. Interestingly, even the counter-affidavit is silent as to the material which has not been disclosed by the petitioner. The counter-affidavit merely states that the information was specific and the information would be provided to the petitioner during the assessment proceedings. Thus, if the Revenue had any basis to show that the primary facts were incorrect, the same ought to have been set out in the reasons to believe. That has not been done in the present case.
Thus, the petitioner cannot be said to have failed to disclose fully and truly all the material facts. This being a jurisdictional issue, the assumption of jurisdiction under sections 147 and 148 of the Act was erroneous. The notice dated March 20, 2015 and the subsequent order dated February 1, 2016 deserve to be and are hereby quashed.”
In the instant case, the fact of loss on transaction of shares was disclosed by the assessee. It was incumbent upon the AO during assessment proceedings to examine the same. The assessee had furnished detailed information that was sought by the AO during assessment. The AO accepted the loss on examination of details furnished by assessee. It is not emerging from the reasons, what facts or information was withheld by the assessee. The loss arising from CCM as CO 141/Del/2023 (AY 2009-10) mentioned in reasons for reopening is the same loss that has been declared by the assessee and examined by the AO during scrutiny assessment u/s. 143(3) of the Act. In light of facts of the case and the decisions discussed above, we concur with the findings of the CIT(A). Accordingly, impugned order is upheld and appeal of the Revenue is dismissed.
In the result, appeal of the Revenue is dismissed.
In so far as, other contentions raised by the assessee challenging validity of reopening of assessment, since we have dismissed appeal of the Revenue, the alternate arguments have become academic, hence, are not deliberated upon.
The CO of the assessee becomes infructuous as we have upheld the impugned order passed by the First Appellate Authority.