GAUTAM SURENDRA JAGGI ,MUMBAI V. ACIT, 27(1)-VASHI , MUMBAI

ITA 5545/MUM/2024

AI Insights

The case revolves around the reassessment of income for the Assessment Year 2013-14 concerning Gautam Surendra Jaggi, who was alleged to have benefited from client code modifications (CCM) through his broker, Anand Rathi Commodities Limited, resulting in unaccounted income. The Income Tax Department initiated reassessment proceedings based on information from the DDIT (Inv.), Unit 6(3), Mumbai, following an investigation by the SFIO into NSEL. The assessee contested the validity of the reassessment, arguing that the proceedings were initiated without proper jurisdiction and that the additions made under section 68 were unfounded. The Tribunal, referencing a similar case (M/s. Coronation Agro Industries Ltd. vs. DCIT), concluded that the notice under section 148 lacked a reasonable basis and thus quashed the reassessment order.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 469876 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2013-2014
• Other Referred Cases: M/s. Coronation Agro Industries Ltd. vs. DCIT in W.P. No. 2627 of 2016
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PUSHKARAJ BHANGEPATIL; DR
• Assessee Lawyers: SHAILESH SHAH; AR
• Keywords: Set aside; Reassessment proceedings; Unexplained investment; Competent authority; Reason to believe
• Section: 147; 148; 144; 142(1); 139(1); 68; 139

Judgement Text

"| आयकर अपीलीय अिधकरण \fा यपीठ, मुंबई | IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, HON’BLE VICE PRESIDENT & SHRI NARENDRA KUMAR BILLAIYA, HON’BLE ACCOUNTANT MEMBER I.T.A. No. 5545/Mum/2024 Assessment Year: 2013-14 Gautam Surendra Jaggi A2005, Palm Beach Residency Sector-4, Wadhwa Building Nerul(W), Navi Mumbai Thane Maharashtra - 400706 [PAN: AEJPJ5072N] Vs ACIT 27(1) - Vashi अपीला थ\u0016/ (Appellant) \u0017\u0018 यथ\u0016/ (Respondent) Assessee by : Shri Shailesh Shah, A/R Revenue by : Shri Pushkaraj Bhangepatil, Sr. D/R सुनवाई की तारीख/Date of Hearing : 05/02/2025 घोषणा की तारीख /Date of Pronouncement: 07/02/2025 आदेश/O R D E R PER NARENDRA KUMAR BILLAIYA, AM: This appeal by the assessee is preferred against the order dated 03/09/2024 by NFAC, Delhi [hereinafter ‘the ld. CIT(A)’], pertaining to AY 2013-14. 2. Grievance of the assessee reads as under:- “1.0. That on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) [here-in-after referred to as Ld. CIT (Appeals)] erred in upholding the initiation of reassessment proceedings and passing of the impugned order u/s 147 w.r.s. 144 dated 30.03.2022. 1.1. That on the facts and in the circumstances of the case, the impugned proceedings u/s 148 has been initiated in utter disregard of the express provision of the Act and thus the order passed u/s 147 w.r.s. 144 is without jurisdiction and therefore bad in law. 148 is time barred, void ab initio, as the same. 2.0. That on the facts and in the circumstances of the case, Ld. CIT(Appeals) gross erred in upholding the order of the Ld. AO where addition is made u/s 68 on client I.T.A. No. 5545/Mum/2024 2 code modification (CCM) by NSEL broker Anand Rathi Commodities Limited, which is not applicable in present case. 2.1. That on the facts and in the circumstances of the case, Ld. CIT(Appeals) gross erred in confirming the addition made u/s 68 on client code modification (CCM) made by NSEL broker Anand Rathi Commodities Limited and the Appellant has no role to play nor had given any instruction. 2.2. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) upheld the order of Ld. A.O wherein additions is made merely on the information received from investigation wing and without any cross-examination or providing any seized material. That the appellant craves leave to add, to amend, modify, rescind, supplement or alter any of the Grounds stated here-in-above, either before or at the time of hearing of this appeal.” 3. Vide Ground No. 1.0. & 1.1., the assessee has challenged the initiation of re-assessment proceedings and passing of the impugned order being without jurisdiction and, therefore, bad in law. 4. Briefly stated, the facts of the case are that as per the information received from the office of the DDIT (Inv.), Unit 6(3), Mumbai, it has been informed that SFIO has carried out investigation on NSEL and during the investigation, some of the brokers were identified who were involved in client code modification (CCM) and the assessee is found to be one of the beneficiaries of CCM and has traded in NSEL to the tune of Rs. 35,11,590/- and the assessee has brought this unaccounted money in the books through CCM and hence Rs. 35,11,590/- has escaped assessment. Accordingly, notice u/s 148 of the Act was issued and reassessment proceedings were triggered. 4.1. A noticed dated 31/03/2021, was issued to the assesse asking the assessee to file return to which the assessee replied on 13/04/2021 stating that he has electronically filed his return on 19/07/2013 and the same I.T.A. No. 5545/Mum/2024 3 return should be treated as electronically filed in response to the notice u/s 148 of the Act. Copy of the acknowledgement of the ITR was furnished. 4.2. On 14/12/2021, a notice u/s. 142(1) of the Act was issued by NFAC, Delhi asking the assessee to furnish the accounts and documents specified in the annexure to the notice. Vide letter dated 28/12/2021, the assessee electronically filed the necessary documents reiterating that he has electronically filed his return of income on 19/07/2013 and the same should be treated as filed in pursuance to the notice u/s 148 r.w.s. 142(1) of the Act. 4.3. On 10/02/2022, once again NFAC, Delhi, issued a notice u/s 142(1) of the Act asking the assessee to furnish all the details asked vide notice dated 14/12/2021 (supra). On 16/02/2022 once again, the assessee furnished reply to the notice along with all the necessary documents once again hitting that the return filed electronically on 19/07/2013 should be accepted as the return filed pursuant to the notice u/s 148 of the Act. 5. Surprisingly, on 16/03/2022, NFAC, Delhi issued showcause notice for proposed variation. The same reads as under: - Page 23 of the paper book. 5.1. The assessee filed detailed reply on 19/03/2022, which reads as under: - “Respected Sir/Madam, In Response to your Show Cause Notice issued u/s 147 dated 16-03-2022 having DIN: ITBA/AST/ F/147 (SCN)/202122/1040902379(1) ; 1, Gautam Jaggi, provide the following reply: 1)In response to notice issued u/s 148 dated 31-03-2021 having DIN & Notice No. ITBA/AST/ S/148/2020-21/1032039309(1), I had emailed a letter on 13-04-2021 (due to non-availability of e-proceeding services on old IT Portal) to the income tax officer stating that I.T return for A. Y. 2013-14 e-filed on 19-07-2013 u/s 139(1) be considered as final return e-filed in response to the notice I.T.A. No. 5545/Mum/2024 4 u/s.148 and to provide us the reasons for issuance of notice. Even after this reply, In response to notice dated 11-03-2022 having DIN: ITBA/ AST/F/17/2021- 22/1040583679(1) which gave us 3 days time to submit the IT Return u/s 148 and hence the IT Return for A. Y. 2013-14 u/s.148 was filed by me on 12-03-2022 i.e. the very next day itself. I have provided all the details as and when demanded by you for all the notices issued in timely manner. Thus it is clear that I had replied to your notice u/s.148 within the time limit of 30 days. However till today i.e. 17-03-2022, I have not received the reasons for issuance of notice u/s.148. Also, I had attached the I.T.R. Acknowledgement & Computation for A.Y.2013-14 for assessing officer's ease in further replies of the notices issued. The IT Return filed u/s 148 dated 12-03-2022 is the same IT Return as 139(1) and there are no changes in both the IT Returns filed and hence it is not filed at the fag end of the year as I had already communicated to you on 13-04-2021 to consider the IT Return u/s 139 as final return u/s 148. Hence you cannot declare the return filed in response to notice u/s 148 as invalid due to the above reasons. 2)I have not received any draft assessment order or the reasons for issuance of notice due to which I am unable to verify the proposed variation done by the Assessing officer. So l request you to please provide reasons for issuance of notice u/ s.148. 3)According to the show cause notice issued, the assessing officer writes as hereby reproducing In view of the above an addition on account of unexplained investment made through Client Code modification is hereby proposed' But in my case there is no Client Code modification and no such unexplained investments made. For further explanation I have attached my broker's Total contract notes for the whole assessment year 2013-14 and calculation of income from commodity trades. Profit on such trades have already been considered in IT Return for A.Y. 2013-14. 4) From the above it is pertinent to note that I have submitted all the required details & documents for the assessment to be carried on by you. I would certainly oblige to further requirements, if any. Therefore the order may please be passed on the basis of detailed facts & figures provided to you. For your reference the following attachments are made: 1. E-mail Reply dated 13-4-2021 2.Broker's Contract Notes 3. Calculation of income from commodity trades.” 5.2. Finally on 26/03/2022, the AO gave reasons for the issue of notice u/s 148 of the Act and the same read as under: - “1. Brief details of the Assessee: - Assessee filed return of income for A.Y.2013-14 on 19/07/2013 declaring total income at Rs. 38,38,67014 1. Reason for reopening: - The DDIT (Inv), Unit 6(3), Mumbai vide letter dated 30.05.2019 has informed that SFIO has carried out investigation on NSEL. During the investigation some of brokers were identified who were involved in Client code modification. The assessee is found to be one of beneficiary of client code modification and has traded in NSEL amounting to Rs. 35,11,590/-, Thus, the assessee has brought its I.T.A. No. 5545/Mum/2024 5 unaccounted money in the books of account through client code modification. Hence, the amount of Rs. 35,11,590/- has escaped assessment for A.Y.2013-14, due to failure on the part of the assessee to disclose true and correct income. Thus income chargeable to tax amounting to Rs. 35,11,590/-has escaped assessment for F.Y. 2012-13 relevant to A.Y. 2013-14 by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, for A.Y. 2013-14. I have reason to believe that an amount of Rs. 35,11,590/- has escaped assessment for A.Y. 2013-14, within the meaning of provisions of section 147 of the Income Tax Act, 1961, due to failure on the part of the assessee to disclose true and correct income. 1. Applicability of the provisions of section 147/151 to the facts of the case: - Assessee filed return of income for A.Y.2013-14 on 19/07/2013 declaring total income at Rs. 38,38,670/-. Since four years from end of relevant assessment year has expired in this case, the requirements to initiate proceeding u/s 147 of the Act are reason to believe that income for the F.Y. 2012-13 relevant to A.Y. 2013-14has escaped assessment because of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for A. Y. 2013-14. It is pertinent to mention here that reasons to believe that income of Rs. 35,11,590/- has escaped assessment for A.Y. 2013-14 have been recorded above. In this case more than four years have lapsed from the end of the assessment year under consideration. Hence necessary sanction to issue the notice u/s.148 is required to be obtained separately from Principal Commissioner of Income Tax-27as per the provisions of section 151 of the Income Tax Act, 1961.” 5.2.1. The reasons were digitally signed on 31/03/2021 at 01:54 P.M.. Approval was given by the competent authority on 31/03/2021 and yet the AO chose to provide reasons on 26/03/2022 i.e., just five days prior to framing of the assessment order. This shows that the AO did not give the assessee, reasonable and adequate opportunity to defend his case. 6. Having heard rival representatives, we have carefully perused the records qua the sequence of events mentioned hereinabove. The undisputed fact is that more than four years have elapsed from the end of the assessment year under consideration. Therefore, in our considered opinion, first proviso to Section 147 of the Act, squarely applies and it becomes mandatory for the AO to mention that on the failure of the assessee, to disclosed fully and truly, all material facts necessary for the I.T.A. No. 5545/Mum/2024 6 assessment, reassessment proceedings were initiated. There is not even a whisper of such failure neither in the reasons given to the assessee nor in the assessment order. Even the reference to the information from SFIO in respect of the CCM, is very general and vague and not specific to the assessee. 7. The Hon’ble Bombay High Court in the case of M/s. Coronation Agro Industries Ltd. vs. DCIT in W.P. No. 2627 of 2016, had the occasion to consider the following:- “3. The reasons in support of the impugned notice relies upon the information received from the Principal Director of Income Tax that the petitioner has benefited from a client code modification by which a profit of Rs.22.50 lakhs was shifted out by the petitioner's broker, resulting in reduction of the petitioner's taxable income. The only basis for forming the belief is the report from the Principal Director of Income Tax and the application of mind to the report of the Assessing Officer along with the record available with him. This information and application of mind has led the Assessing Officer to form a reasonable belief that there is not only an escapement of income but there has been failure to truly and fully disclose all material facts and information as the modus operandi of shifting profits was not known to the Revenue as not disclosed by the petitioner when the Assessing Officer passed the order in regular assessment proceedings.” 7.1. And held as under:- 4. We note that the reasons in support of the impugned notice accept the fact that as a matter of regular business practice, a broker in the stock exchange makes modifications in the client code on sale and / or purchase of any securities, after the trading is over so as to rectify any error which may have occurred while punching the orders. The reasons do not indicate the basis for the Assessing Officer to come to reasonable belief that there has been any escapement of income on the ground that the modifications done in the client code was not on account of a genuine error, originally occurred while punching the trade. The material available is that there is a client code modification done by the Assessee's broker but there is no link from there to conclude that it was done to escape assessment of a 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. 5. In the above view, 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.” I.T.A. No. 5545/Mum/2024 7 8. Considering the facts of the case in totality, in light of the decision of the Hon’ble Jurisdictional High Court (supra), we set aside the notice issued u/s 148 of the Act thereby quashing the impugned assessment order. Since we have quashed the assessment order, we do not find it necessary to dwell into the merits of the case. 9. In the result, appeal of the assessee is allowed. Order pronounced in the Court on 7th February, 2025 at Mumbai. Sd/- Sd/- (SAKTIJIT DEY) (NARENDRA KUMAR BILLAIYA) VICE-PRESIDENT ACCOUNTANT MEMBER Mumbai, Dated 07/02/2025 *SC SrPs *SC SrPs *SC SrPs *SC SrPs आदेश की \u0015ितिलिप अ\u001aेिषत /Copy of the Order forwarded to : 1. अपीलाथ\u001c / The Appellant 2. \u0015\u001dथ\u001c / The Respondent 3. संबंिधत आयकर आयु\" / Concerned Pr. CIT 4. आयकर आयु\" ) अपील ( / The CIT(A)- 5. िवभागीय \u0015ितिनिध ,आयकर अपीलीय अिधकरण, मुंबई /DR,ITAT, Mumbai, 6. गाड& फाई/ Guard file. आदेशानुसार/ BY ORDER, TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Mumbai "