JOGINDER PAL SINGH,NEW DELHI vs. ITO WARD 16(4), NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘H’: NEW DELHI BEFORE, SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER

ITA No.2876/Del/2019 (ASSESSMENT YEAR 2010-11)

Joginder Pal Singh Income Tax Officer S-192, Panchsheel Park Ward-16(4) New Delhi-110017 Vs. Delhi PAN-AEFPS 4746A (Appellant) (Respondent) Appellant by Mr. Sachin Jain, and Mr. Rajnish Sharma, CAs Respondent by Mr. B.S. Anand, SR-DR

Date of Hearing 10/04/2023 Date of Pronouncement 12/04/2023

ORDER PER M. BALAGANESH AM: (1) This appeal of the assessee arises out of the order of the

Learned Commissioner of Income Tax (Appeals)-6, Delhi,

[hereinafter referred to as ‘Ld. CIT(A)’] in Appeal No.CIT(A), Delhi-

6/10263/2017-18 dated 05/03/2019 against the order passed by

Learned Income Tax Officer, Ward-16(4), New Delhi (hereinafter

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ITA No.2876/Del/2019 Joginder Pal Singh vs. ITO referred to as the ‘Ld. AO’) u/s 143(3) r.w.s 147 of the Income Tax

Act (hereinafter referred to as the ‘Act’) on 26/12/2017 for the

Assessment Year 2010-11.

“1 That both the lower authorities were not justified in making and confirming the reassessment order u/s 147 since the same was not in accordance with the Provisions of the Income Tax Act, 1961 and is illegal on account of various grounds. 2. That the reassessment order passed by the Ld. AO deserves to be quashed as void ab initio since the same was passed without issuing any notice u/s 143(2) of the Income Tax Act, 1961.

‘Ld. AR’) stated that ground No.2 raised supra by the assessee is

not pressed. The same is reckoned as a statement made from the Page 2 of 16

ITA No.2876/Del/2019 Joginder Pal Singh vs. ITO Bar and hence, ground no.2 raised by the assessee is hereby

dismissed as not pressed.

together herein.

materials available on record. The assessee is an individual and

filed his return of income for the AY 2010-11 on 13/10/2010

declaring total income of Rs.33,96,417/-. No scrutiny assessment

was framed on this return. Letter based on the information received

from the Investigation Wing, Mumbai through the Assistant

Director of Income (I&CI), New Delhi vide letter dated 09/10/2016

that the Modification of the Client Codes is a practice under which

brokers change the client codes in sale and purchase orders of

securities after the trades are conducted. The ADIT (I&CI), New

Delhi passed on this information to the Ld. AO of the assessee along

with information, list of such brokers, list of beneficiaries indicating

(CCM) amount of transactions, amount of profit and loss against

the name of each beneficiary obtained from National Stock

Exchange (NSE) for future course of action. The allegation leveled

thereon was that as a result of fictitious losses or profits, the Page 3 of 16

ITA No.2876/Del/2019 Joginder Pal Singh vs. ITO beneficiaries were either setting off their losses against the positive

income with the intention to evade the tax or were introducing their

undisclosed income. One such broker involved in the aforesaid

CCM activity was M/s Integrated Master Securities Pvt. Ltd. (IMSPL)

through whom the assessee herein has transacted. A survey u/s

133A of the Act was conducted on 24/06/2015 on M/s Integrated

Master Securities Pvt. Ltd. The Directors of IMSPL in the statements

recorded during the survey accepted the fact that the company had

misused client code modification facility and created non genuine

losses and profits which were given to different clients and

beneficiaries according to their requirements. In the said list of

beneficiaries, the assessee’s name also figured with the loss figure

of Rs.10,09,250/-. The Ld. AO observed that the aggregate

reduction in the income of the assessee comes to Rs.20,18,500/- on

account of such client code modification. Accordingly, he concluded

that he had reason to believe that income of the assessee to the

extent of Rs.20,18,500/- had escaped assessment and hence,

notice u/s 148 of the Act was issued on 28/03/2017. The main

case of the AO is that income of the assessee has escaped

assessment to the tune of Rs.20,18,500/- by way of shifting in Page 4 of 16

ITA No.2876/Del/2019 Joginder Pal Singh vs. ITO ascertained loss of Rs.10,09,250/- as appearing in the details

supplied by the ADIT (I&CI), New Delhi has been suppressed in the

books of accounts of the assessee with the connivance of the share

broker in consideration of commission paid therein in cash to the

brokers. Accordingly, the case of the assessee was reopened u/s

147 of the Act after obtaining the prior approval of the Pr.

Commissioner of Income tax, New Delhi. In response to the notice

issued u/s 148 of the Act, the assessee vide letter dated

20/04/2017 submitted that the return already filed on 13/10/2010

may be treated as return in response to notice u/s 148 of the Act.

The assessee sought for reasons recorded for reopening the

assessment. The Ld. AO supplied copy of the reasons recorded to

the assessee vide letter dated 05/07/2017 which reads as under:

“During the course of survey operation in the case of M/s Integrated Master Securities Pvt. Ltd. the statement of Directors of the company was recorded on oath. They had accepted that the company had misused client code modification facility and created non genuine losses and profits. These losses and profits were given to different clients/beneficiaries according to their requirement. The clients had taken fictitious losses to set off the loss against their profits with a view to reduce their tax liability. Some of the clients also took fictitious profits to cover up their undisclosed income or to set off these profits against huge losses. In the list of beneficiaries received from the office of DIT (I&CI) Mumbai, the name of Sh. Joginder Pal Singh, who has taken fictitious loss of Rs.1009250 during F.Y.2009-10 relevant to A.Y.2010-11 representing accommodation entry through misuse of client code Modification in F&O Segment by M/s Integrated Master Securities Pvt. Ltd. also appears.”

Page 5 of 16

ITA No.2876/Del/2019 Joginder Pal Singh vs. ITO 5.1. The assessee vide letter dated 15/07/2017 submitted before

the Ld. AO that he had not claimed any loss in the return of income

and that the amount mentioned in the sum of Rs.10,09,250/-

representing the loss does not figure in the ledger account of M/s

IMSPL maintained by the assessee. In other words, the assessee

submitted that there was no loss claimed in the return of income to

Rs. 10,09,250/- figured either in the books of accounts of the

assessee or in the ledger account of IMSPL maintained by the

assessee. Accordingly, the assessee pleaded for withdrawal of the

notice issued u/s 148 of the Act as it is based on incorrect

assumption of fact.

5.2. The Ld. AO, however, did not agree to the aforesaid contention

and issued u/s 142(1) to the Act seeking further details. The

assessee vide letter dated 16/10/2017 requested the Ld. AO to

dispose of the objection raised for the reasons recorded by way of

speaking order and also requested to provide the copies of

statement or details relied upon by the Ld. AO, which would

establish the escapement of income in the hands of the assessee.

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ITA No.2876/Del/2019 Joginder Pal Singh vs. ITO 5.3. Vide letter dated 24/10/2017, the Ld. AO furnished the

statement of loss transferred to the assessee in the sum of

Rs.10,09,250/- indicating the two separate transactions of

Rs.1,07,420/- and Rs.9,01,830/-. The assessee vide letter dated

30/10/2017 stated that the objections filed by the assessee were

not disposed of by passing a separate speaking order by the Ld. AO.

The assessee also furnished the ledger account of IMSPL as

appearing in the books of accounts of the assessee to drive home

the point that the two entries mentioned in the AO letter

representing loss figure of Rs.1,07,420/- and Rs.9,01,830/- does

not figure in the said ledger account. Vide letter dated 02/11/2017

the assessee filed detailed reply before the Ld. AO clearly objecting

to the entire re-opening made in this case by reiterating all the

relevant facts on record available with him together with the

relevant books of accounts. The assessee also explained the modus

operandi of Future and Options (F & O) transactions carried by him

together with the ledger account of the broker. The assessee

categorically denied having taken any fictitious loss from the said

broker which was also evident from the fact that no loss figure

reflected in the ledger account of the IMSPL. The assessee also Page 7 of 16

ITA No.2876/Del/2019 Joginder Pal Singh vs. ITO sought for approval in terms of section 151 of the Act. The assessee

also stated that all the details that were called for by the ld. AO in

the notice issued u/s 142(1) of the Act, were duly submitted already

to the extent available with the assessee. The assessee once again

requested vide his letter dated 02/11/2017 to produce the complete

details which were used against him to prepare his counter and

defense thereon. The Ld. AO vide letter dated 07/11/2017 supplied

the complete copy of the reasons recorded together with the

approval papers obtained u/s 151 of the Act for reopening the case.

These documents are enclosed in pages 22 to 33 of the Paper Book

filed before us. From the perusal of the proforma seeking approval

u/s 151 of the Act from the competent authority, we find that the

Ld. AO had mentioned the figure of Rs.20,18,500/- as income

escaping assessment in the hands of the assessee. At the same

time, the Ld. AO vide para 3.1 of Annexure-A attached with the

Proforma for seeking approval u/s 151 of the Act under the caption

‘Reasons for formation of belief’ had stated that income of the

assessee to the extent of Rs.1,70,650/- had escaped assessment.

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ITA No.2876/Del/2019 Joginder Pal Singh vs. ITO 6. From the above, there are three figures for which the Ld. AO

had reason to believe that income of the assessee had escaped

assessment, though pertaining to the same transaction of fictitious

losses. First, vide letter dated 05/07/2017, the Ld. AO says that

assessee had taken fictitious loss of Rs.10,09,250/-. Second, the

Ld. AO in the reasons recorded for reopening of assessment that too

in the prescribed proforma thereon says that income of the assessee

to the extent of Rs.20,18,500/- had escaped assessment. Thirdly,

the Ld. AO in the caption ‘Reasons for formation to belief’ states

that income of the assessee in the sum of Rs 1,70,650/- has

escaped assessment, while seeking approval u/s 151 of the Act

from the competent authority. The Ld. AO also issued summons

u/s 131 of the Act to M/s IMSPL. In response to the summons, M/s

IMSPL vide letter dated 06/11/2017 responded directly before the

Ld. AO as to how the modus operendi of client code modification

works and also explained that client code modification could be

carried out by the broker for rectifying the genuine human

punching errors which has been permitted by SEBI as well as Stock

Exchange. In the said letter, M/s IMSPL also furnished the ledger

account of the assessee during the financial year 2009-10 as Page 9 of 16

ITA No.2876/Del/2019 Joginder Pal Singh vs. ITO appearing in the books of IMSPL. The assessee pointed out the

three different figures mentioned in the reasons by the Ld. AO vide

letter dated 20/11/2017 filed before the ld. AO. In response thereto,

the Ld. AO issued a letter dated 28/11/2017 stating that the figure

of Rs.1,70,650/- has been inadvertently mentioned in the reasons.

In the said letter dated 28.11.2017, the Ld. AO stated that the

correct figure is Rs.10,09,250/- which had escaped assessment.

The ld. AO also gave the details of the same containing the broker

code, broker name, original client code, original client PAN, original

client name, profit/loss to original client because of client code

modification, modified client code, PAN of modified client, modified

client’s name and the profit or loss to modified client because of

client code modification. The assessee filed a letter dated

04/12/2017 in response to the letter issued by the Ld. AO dated

28/11/2017. In the said letter dated 04/12/2017, the assessee

again objected to the validity of reopening by taking shelter from

various case laws including the decisions rendered by the Hon’ble

Jurisdictional High Court.

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ITA No.2876/Del/2019 Joginder Pal Singh vs. ITO 7. The ld. DR argued that the letter dated 28/11/2017 issued by

the ld. AO represents the order passed by him disposing of the

objections raised by the assessee for reopening. In the said

order/letter dated 28/11/2017, the Ld. AO categorically states that

the correct figure of income escaping assessment is Rs.10,09,250/-.

The Ld. AO also gave details to supplement this figure. Whereas, we

find that the Ld. AO had erroneously added a sum of

Rs.20,18,500/-, towards disallowance of fictitious losses by stating

as under:

“12.3. I conclude therefore, in view of the foregoing discussion that the assessee Shri Joginder Pal Singh is one of the beneficiaries, who took the fictitious losses amounting to Rs.10,09,250/- to set off the loss against their profits with a view to reduce their tax liability by misusing the Client Code Modification facility in F&O Segment from the broker M/s Integrated Master Securities Pvt. Ltd. during the FY -2009-10 relevant to AY-2010-11. Therefore, the aggregate reduction in the income of the assessee comes to Rs.20,18,500/- on account of such client code modification. Accordingly, an addition of Rs.20,18,500/- is made to the income of the assessee for the FY-2009-10 relevant to AY-2010-11.” 8. This action of the Ld. AO was upheld by the Ld. CIT(A).

pointout the following:

(a) The Ld. AO in the reasons recorded for reopening the

assessment had mentioned a figure of Rs.20,18,500/- to be

the income escaping assessment in the hands of the assessee.

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ITA No.2876/Del/2019 Joginder Pal Singh vs. ITO (b) In the prescribed proforma seeking approval in terms of

section 151 of the Act for reopening of the assessment, the

Ld.AO had mentioned the figure of Rs.20,18,500/- as the

income escaping assessment in the hands of the assessee.

(c) The Ld. Addl.CIT / Ld. PCIT had accorded their

respective approvals in the prescribed proforma u/s 151 of the

Act taking cognizance of the figure of Rs.20,18,500/- as

income escaping assessment in the hands of the assessee.

(d) Whereas the Ld. AO in his letter dated 28/11/2017 had

categorically stated that the correct figure of income escaping

assessment in the hands of the assessee to be Rs 10,09,250/-.

(e) The reasons recorded by the Ld. AO were completely based

on the information received from I&CI Wing, New Delhi.

(f) Absolutely no independent enquiry was indeed carried

out by the Ld. AO as to whether the assessee had per se

claimed any loss in the sum of Rs.10,09,250/- in his return of

income. From the computation of income enclosed by the

assessee along with return of income which are also enclosed

in pages 2 and 6 of PB, we find that assessee had only earned

profit from its share transactions to the tune of Page 12 of 16

ITA No.2876/Del/2019 Joginder Pal Singh vs. ITO Rs.73,40,121/- and had not incurred any loss at all. Hence,

there is absolutely no claim of loss of Rs.10,09,250/- by the

assessee in his F&O Segment, whether fictitious or otherwise.

This fact was not even verified by the Ld. AO while recording

reasons for formation of belief that income of the assessee had

escaped assessment. Hence the reasons recorded by the Ld.

AO does not have live link to form a belief that income of the

assessee had escaped assessment. Similar is the case of Ld.

Addl. CIT/Ld. PCIT while according their respective approvals

u/s 151 of the Act.

(g) Hence, it could be safely concluded that reasons recorded

for reopening of the assessment were made on incorrect

assumption of fact.

(h) IMSPL had directly responded before the Ld. AO in

response to the summons issued by the Ld. AO to IMSPL. In

the said letter, IMSPL had indeed stated that client code

modifications are permitted to be made by any broker as

authorized by SEBI and Stock Exchange within the permitted

time after the closure of the stock market to rectify human

punching errors. Despite this, the Ld. AO had not even Page 13 of 16

ITA No.2876/Del/2019 Joginder Pal Singh vs. ITO bothered to first ensure as to whether there was any client

code modification per se carried out in the case of the

assessee. He simply relied on the information received from

the I&CI Wing, New Delhi and proceeded directly to reopen

the case of the assessee without making any enquiry on his

own either while recording the reasons or during the course of

reassessment proceedings. The reopening of assessment

deserves to be quashed on this point also.

(i) Since, the reopening in the instant case has been made

beyond four years from the end of the relevant assessment

year, the competent authority in terms of section 151 of the

Act for granting approval for reopening would be Ld. PCIT.

Admittedly in the instant case, the Ld. PCIT had accorded

approval as is evident from the documents filed on record.

Hence, the objection raised by the Ld. AR that the name of the

Ld. PCIT not being mentioned in the pre-printed notice u/s

148 of the Act dated 28/03/2017 would be mere technical and

deserves to be dismissed.

any loss in F&O Segment either in the sum of Rs.10,09,250/- or Page 14 of 16

ITA No.2876/Del/2019 Joginder Pal Singh vs. ITO 20,18,500/-. This is also evident from the ledger account of IMSPL

maintained by the assessee which is placed on record before the Ld.

AO. This fact is further evident from the ledger account of assessee

as maintained in the books of account of IMSPL which was also

placed on record before the Ld. AO. All these facts collectively go to

prove that even on merits, there is no case made out by the

Revenue that assessee had incurred fictitious losses on either

Rs.10,09,250/- or Rs.20,18,500/-. On the contrary, the assessee

had made actual profit on 73,40,121/- which was duly offered to

tax from the F&O Segment.

suffers from various legal infirmities and deserves to be quashed.

Even on merits, there is no case made out by the Revenue and

hence, the addition made in the sum of Rs.20,18,500/- is hereby

deleted. Accordingly, Grounds No.1, 3 and 4 raised by the

assessee are allowed.

disallowance of carry forward of loss of Rs.40,87,460/-. In view of

our decision quashing the reassessment proceedings above, the

adjudication of grounds no.5 & 6 become academic in nature. Page 15 of 16

ITA No.2876/Del/2019 Joginder Pal Singh vs. ITO 13. In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 12th April, 2023.

Sd/- Sd/- (CHALLA NAGENDRA PRASAD) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 12/04/2023 Pk/sps Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT

ASSISTANT REGISTRAR ITAT NEW DELHI

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