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Income Tax Appellate Tribunal, DELHI BENCH “F” DELHI
Before: SHRI KUL BHARAT & SHRI PRADIP KUMAR KEDIA
PER PRADIP KUMAR KEDIA, A.M.: The captioned appeal has been filed by the Assessee against the order of the Commissioner of Income Tax (Appeals)-XIV, New Delhi [‘CIT(A)’ in short] dated 02.12.2019 arising from the assessment order dated 20.12.2016 passed by the Assessing Officer (AO) under Section 147 of the Income Tax Act, 1961 (the Act) concerning AY 2009-10.
2. The grounds of appeal raised by the assessee read as under:
“1. On the facts and in the circumstances of the case and in law, Ld. C.I.T. (A) is upholding the re-assessment proceeding. The validity of re-assessment proceeding is incorrect and not in accordance with law. Re-assessment proceeding initiated after a period of four years from the end of the relevant assessment year where the original assessment was completed under Section 143(3) is barred by limitation and is void.
Assessing officer has not applied his mind in recording satisfaction note for re-opening the assessment. It is further submitted that non-application of mind by the superior authorities while giving approval for re-opening the assessment.
2. That Learned C.I.T.(A) has erred in law in confirming the decision of learned assessing officer, that the assessee has used CM (Client Code Modification) in shifting the losses of Rs.1802920/-. It is stated that assessee has provided all the relevant documents/evidence in support of loss so incurred and claim in return of income.
3. Learned C.I.T.(A) has not considered ground no.7 with regard charging interest under Section 234B and 234C of The Act and wrongly computing income tax demand.
4. That the order dated 02.12.2019 passed by the C.I.T.(A) is wrong, bad in law and illegal.”
3. The grounds of appeal raised by the assessee are two folds; (i) challenge to the assumption of jurisdiction under Section 147 r.w. Section 148 r.w. Section 151 of the Act; (ii) challenge to the action of the Assessing Officer in making certain additions/disallowances on merits in pursuance of assumption of jurisdiction under Section 147 of the Act.
4. When the matter was called for hearing, the ld. counsel for the assessee strongly voiced his objections on assumption of jurisdiction available under Section 147 of the Act and raised wide ranging objections towards lack of jurisdiction. The objections so raised are dealt with in the succeeding paragraphs at appropriate place. The ld. counsel also assailed the action of the Assessing Officer and CIT(A) on merits.
5. The Revenue, on the other hand, defended the action of the Assessing Officer and CIT(A) on the point of jurisdiction as well as on merits.
As noted above, the assessee has inter alia challenged the jurisdiction of the Assessing Officer assumed under Section 147 r.w. Section 148 r.w. Section 151 of the Act. Since the challenge to the legality of reopening involves jurisdiction which is fundamental and goes to the root of the whole controversy, it will be appropriate to adjudicate this aspect of the appeal first.
7. The reasons recorded under Section 148(2) and approval thereon by the Pr.CIT under Section 151 of the Act being germane to the adjudication of jurisdictional issue, are reproduced herein for easy reference:
PERFORMA FOR RECORDING THE REASONS FOR INITIATING PROCEEDINGS U/S 147/148 & FOR OBTAINING THE APPROVAL OF THE PRINCIPAL COMMISSIONER OF INCOME TAX, - 14, NEW DELHI
Name and address of the assessee Sh. Rakesh Kumar R/o D-631, Sarawati Vihar, Pitampura, Delhi.
PAN/GIR No. AAJPK4003C
Status Individual
District/Ward/Range Ward – 40(3), New Delhi
Assessment Year in respect of which 2009-10 it is proposed to issue notice u/s.148
6. The quantum of income which has Rs.18,02,920/- escaped assessment
Whether the provisions of Section Section 147(b) is applicable 147 (b) is' appli section147(a) or 147 (b) or 147(c) are applicable or both sections are applicable
8. Whether the assessment is proposed Yes to be made for the first time, if the reply is in the affirmative, please state:
a. Whether any voluntary return as Yes already been filed and b If so the dates of filing the said 06/01/2010 06/01/2010 return
9 If the answer to item 8 is in the N.A N.A negative, please state a The income originally assessed -
B Whether it is a case of under - assessment at too low a rate, assessment of which has been made, the subject of excessive relief or allowing loss or depreciation;
10. Whether the provision of Section N.A N.A. 150(1) is applicable. If the reply is in the affirmative, the relevant facts may be stated against item no.10 and it may also be brought out that provisions of section 150(2) would not stand in the way of initiating proceeding under Section 147.
11. Reasons for the belief that income An information via e-mail was has escaped assessment. received from ADIT (Inv.) Unit- 1(3), Ahmedabad vide letter No. ADIT (Inv) 1(3)/AHD/CCM/ Dissemination/ e-mail/ 15-16 dated 17.03.2016 in respect of Client Code Modification (CCM). Dissemination of beneficiary clients who have taken contrived losses and shifted out profits during the F.Y. 2008-09 to 2011- 12.
The Ahmedabad Investigation Directorate, as an institutional response to orchestrated misuse for client code modification for tax evasion, carried out coordinated limited purpose surveys us 133A of the Income Tax Act, 1961 at the premise of 12 brokers and few of their clients across India on 23.03.2015. the survey report was prepared by the ADIT(Inv) Unit- 13), Ahmedabad on the basis of data received from National stock Exchange (NSE). After analysis or data received from NSE and after considering the contention of brokers, it was concluded by the ADIT that CCM has been used as a tool for tax evasion and only settled trades have been considered to arrive at the beneficiaries.
The assessee who have taken losses of Rs. 1,00,000/- and above and assesses who have shifted out profits of Rs. 1,00,000/ - and above have been considered. The rationale of setting Rs. 1,00,000/- as limit is the threshold monetary limit of Rs. 1,00,000/- for re- opening cases beyond four years.
As per information received, it is seen that the assessee during the F.Y. 2008-09 has losses shifted in of Rs. 18.02,920/-resulting in net reduction in income of Rs. 18,02,920/- through Client Code Modification.
In view of above, I have reason to believe that the income of Rs. 18,02,920/-has escaped assessment on the reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment as per provision of the section 147 of the I.T. Act, 1961. Therefore, it is a fit case for issuance of notice u/s. 148 of the Income Tax Act, 1961 to the assessment.
Income Tax Officer Ward-40(3), New Delhi 12. Whether the Pr. Commissioner of Yes, I am satisfied, this is a fit Income Tax is satisfied on the case for the issuance of Notice u/s. reasons recorded by the Assessing 148 of the Income Tax Act, 1961. Officer that it is a fit case for the issue of notice under Section 148 of the Income Tax Act, 1961 Pr. Commissioner of Income Tax Delhi-14, New Delhi
With reference to the reasons so recorded and approval granted thereon by the Pr.CIT under Section 151 of the Act, the ld. counsel for the assessee contends that; (i) the assessment in the instant case was originally completed under Section 143(3) of the Act on 20.12.2016 and all the material facts were fully and truly disclosed as necessary for the assessment and consequently the jurisdiction assumed under Section 147 of the Act is without discharging the additional burden cast by the 1st proviso to Section 147 of the Act. The ld. counsel contends that the mandatory jurisdictional requirement under 1st proviso will not be fulfilled if the reasons do not, by themselves, indicate the nature of failure allegedly committed by the assessee to make full and true disclosure of all material facts. The assessee contends that the reasons recorded requires to explain the alleged suppression of facts committed by the assessee and merely repeating the statutory language of the provision regarding the failure on the part of the assessee to make full and true disclosure of all material facts is not, by itself, sufficient. In the absence of compliance of the 1st proviso, the issuance of notice dated 31.03.2016 under Section 148 of the Act is barred by limitation.
(ii) the ld. counsel submits that on a bare glance of reasons recorded it can be observed that the Assessing Officer has made bald allegations towards shifting of profits through Client Code Modification (CCM) based on so called information received from Ahmedabad Unit of the Department but however no specific details of transactions involving CCM is discernible from the reasons recorded. The reasons recorded are, thus, without the identity of the transactions alleged to be source of contrived losses and shifting of profits. The reasons recorded are thus clearly vague and non- descript and hence such reasons cannot be construed to hold ‘reason to believe’ towards escapement of chargeable income as contemplated in Section 147 of the Act. Consequently, the condition of main provisions of erstwhile Section 147 of the Act is also not fulfilled.
(iii) The Assessing Officer as per row no.8 of the approval memo (reproduced above) has proceeded on the assumption that the assessment proposed to be made for the first time in sharp contradiction to the fact on record that assessment was already carried out earlier vide order dated 24.08.2011 and hence the reasons recorded suffers from factual error of foundational nature.
(iv) the assessment proceedings have been initiated on the basis of incomplete and vague information received from ADIT (Inv.) Ahmedabad. The Assessing Officer has proceeded on the dotted lines based on such information as can be apparently seen from the reasons recorded in row no.11 of the approval memo reproduced above. No specific allegation appears to have been made against the assessee by the Investigation Unit as can be seen from the reasons recorded itself. The belief drawn by the Assessing Officer is without any substantive material against the assessee and is merely a pretense.
(v) the Pr.CIT has acted mechanically and perfunctorily while granting approval under Section 151 of the Act based on such vague information. The approval has been granted, firstly, on the basis of the assertion that Section 147(b) of the Act is applicable and secondly, the assessment is proposed to be made for the first time which is yet again incorrect. The ld. counsel contends that Section 147(b) does not exist under law and was deleted long back w.e.f. 01.04.1989. Even if it is assumed that clause (b) to Explanation to Section 147 has been purportedly referred, in that case also, such approval requires to be condemned as it glaringly suffers from non application of mind. Clause (b) to Explanation 2 applies only where a return of income has been furnished by the assessee but no assessment has been made and further subject to other requirements. As pointed out, in the instant case, the return filed had been duly subjected to regular assessment under Section 143(3) of the Act and therefore, clause (b) to Explanation 2 to Section 147 would not apply. A reference to the judgment of the Hon’ble Delhi High Court in the case of Best Cybercity (India) Pvt. Ltd. vs. ITO, 414 ITR 385 (Del) is made.
We find palpable merit in the plea of the assessee that the action of the Assessing Officer to assume jurisdiction is without sanction of law. A perusal of the case record would show that a completed assessment has been reopened on the grounds of purported misuse of National Stock Exchange Platform to obtain contrived loss and siphon out profits earned having regard to the information disseminated by ADIT (Inv.) Ahmedabad. The Assessing Officer has neither incorporated transaction-wise detail in the reasons recorded alleging fictitious losses nor it has been recorded anywhere in the reassessment proceedings. The so called belief formed towards escapement and initiation of vexatious proceedings is apparently without any elementary details. On a reading of reasons recorded, it gives an impression that Assessing Officer has acted on dotted lines at the dictate of investigation wing without application of mind on the basic and elementary facts. Besides, while recording the reasons, the Assessing Officer has not taken cognizance of the fact that assessment has already been framed under Section 143(3) of the Act in the past. Once the assessment has been carried out under Section 143(3) of the Act, the 1st proviso casts exemplary burden on the Revenue to shun embargo of limitation. The onus lies on the Revenue to point out that there is a failure on the part of the assessee to disclose material facts fully and truly indeed. The onus placed by 1st proviso has been clearly overlooked in the instant case. Furthermore, it is apparent that Pr.CIT has also acted perfunctorily while granting approval sought by Assessing Officer under the shelter of Section 147(b) of the Act as pointed out on behalf of the assessee.
We have thus no hesitation to hold that the jurisdiction assumed under Section 147 of the Act in the instant case suffers from multiple jurisdictional defects and hence such assumption of jurisdiction is outside the legal frame work so provided. The action invoked by the Assessing Officer and Pr.CIT are justiciable the jurisdiction assumed cannot be reactivated beyond the particular stage and after a lapse of time limit. It is evident that notice issued under Section 148 is without jurisdiction and consequent reassessment framed for Assessment Year 200-10 in question is bad in law and hence quashed.
10. In the light of the delineations made above, we are not inclined to adjudicate the action of the Assessing Officer on merits.
In the result, the appeal of the assessee is thus allowed. Order was pronounced in the open Court on 17/08/2023.