Aruna Garg, Ghaziabad V. ACIT Circle-1, Ghaziabad

ITA 1622/DEL/2020

AI Insights

The case involves Aruna Garg, the appellant, contesting the reassessment order issued by the Assessing Officer (AO) for the assessment year 2009-10. The AO had reopened the assessment under Section 147 of the Income Tax Act, 1961, based on a notice under Section 148, alleging that income had escaped assessment due to client code modifications leading to fictitious losses. The Tribunal examined the legality of the AO's actions, focusing on whether the conditions for reopening the assessment were met and if the reasons recorded were adequate to justify such action. The Tribunal concluded that the AO's reasons were vague and non-descript, lacking any concrete material to support the belief that income had escaped assessment, leading to the quashing of the reassessment notice and order.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 121460 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-09-2023
• Assessment Year: 2009-2010
• Appeal Filed On: 27-09-2020
• Other Referred Cases: Lakhmani Mewal Das vs. State of West Bengal
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 147; 148; 28; 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “A” DELHI BEFORE SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER I.T.A. No.1622/DEL/2020 Assessment Year 2009-10 Aruna Garg, C/O LM Agarwal & Co. (CA) KA- 32 Kavi Nagar, Ghaziabad. Vs. ACIT, Circle-I Ghaziabad. TAN/PAN: AFSPG3532N (Appellant) (Respondent) Appellant by: Shri Deepanshu Agarwal, CA Shri LM Agarwal, CA Respondent by: Shri Kanv Bali, Sr.DR Date of hearing: 19 09 2023 Date of pronouncement: 06 10 2023 O R D E R PER PRADIP KUMAR KEDIA, A.M.: The ca pt ioned appeal has been fi l ed b y t he assessee agai nst t he order of t he ld. Commi ssioner of I nco me Tax (Appeal s) , G hazi aba d ( ‘CI T( A) ’ i n short ) dated 03. 08. 2020 ar isi ng f r o m the assess me nt or der dated 28. 10.20 16 passed b y the Assessi ng Of f icer (AO) under Sect i on 143( 3) r. w. Secti on 147 of t he I nco me Tax Act , 1961 (t he Act ) concer ning AY 2009- 10. 2. As per t he gr ounds of appeal , the a ssessee has chall enged the assu mpti on of j uri sdict ion under Sect ion 1 47 of t he Act as wel l as a ddi ti ons of Rs. 8, 95, 285/ - on acc ount of cli ent code modi fi cati on. I.T.A. No.1622/Del/2020 2 3. We have hear d t he part i es in l engt h and per used t he f ir st app el late or der and t he r e- assess me nt or der. The mat eri al refer red to and r eli ed upon in the course of heari ng has al so bee n taken i nt o consi derat i on. 4. Si nce the assessee has raised t he l egal quest io n of wr ongf ul usur pt ion of j uri sdict ion b y t he Assessi ng Of fi cer t o reopen t he assessment concl ude d under Sect i on 143( 1) of the Act , it w oul d t hus be pert inent t o deal wi t h t he aforesai d quest i on at the out set as i t goes to t he r oot of the mat t er. 5. The l d. c ounsel f or t he assessee sub mi t s at t he outset t hat Assessi ng Offi cer has wrongl y assu me d jurisdi cti on b y issui ng not ice unde r Secti on 148 of t he A ct dat ed 30. 03. 2016 r el eva nt t o Assess ment Year 2009- 10 in questi on, wit hout a ut hori t y of law. The ld. co unsel f urt her su b mit s that t he i ngr edi ents of Secti on 147/ 148 of the Ac t ar e cl earl y not f ul fi ll ed i n the i nst ant case t o ena bl e the Assessi ng Off icer to exer ci se j ur isdi ct ion a nd t o pr ocee d wi th t he r e-assess ment pr ocee di ngs. The l d. counsel conte nds that f ulf il l ment of t he i ndi s pensa bl e re qui rement of for mat ion of ‘rea son to beli eve’ t hat char gea bl e inco me has escape d assess me nt , are clear l y not me t. 6. Advert ing t o t he r easons r ecor ded by t he Assessing O ffi cer under Sect i on 14 8(2) of the Act, the ld. counsel sub mi t s t hat the con cl uded assessment under Sect i on 143(1) i n t he inst ant case has bee n r eope ned on gr ossl y va gue and non descr i pt reasons and th us t he c onseq uent beli ef f or med t here on i s merel y a prete nce and an empt y f or mal i t y. I.T.A. No.1622/Del/2020 3 7. The reas ons rec or ded in t er ms of Secti on 148( 2) of t he Act for conf er ment of jur isdi ct i on to reassess the concluded assess ment is reproduced her eunder f or read y refe renc e. “ In f o r m at i o n h ad be e n r e c e i v e d t h at c e r t a in br ok e rs ha v e i n d u l g e d in c r e at i n g no n - g e nu i ne l os e s a n d p r of i t s fo r t he cl i e n t s w h o h av e ta k e n f i c t i t i ou s l o s s e s t o s e t o f f a g ai n s t t h e i r p ro f i t s w i t h a v i e w t o r e du c e t he i r t a x l i a b i l i t y . A s p e r t he i n v e s t i ga t i on c ar r i e d o u t by t h e i nv e s t ig at i o n w i n g, i t w a s f o un d t ha t t h e as s e s s e e is a ls o a b e n e fi c i a r y and h a s g ot ge n e r a te d l o s s o f R s . 8 , 95 , 2 8 5 / - . A s p e r th e IT f i l ed b y t he a s s e s s e e (S m t . A r u na G a r g ) t he y h av e s h o w n b u s i n e s s l o s s of R s . 4 9 , 12 , 0 85 / - du r i n g t h e A . Y . 2 00 9 - 1 0 . B as e d o n t h e ab o v e f ac t s , I h av e r e as o n t o b e li e v e t h a t i nc o m e of at l e a s t R s . 8 , 9 5 , 2 8 5 / - i n A . Y. 2 0 0 9 - 1 0 , h as e s c ap e d a s s e s s m e nt w i t h i n th e m e an i ng o f t h e s e c t i o n 14 7 o f t h e I T A c t, 19 6 1 . H e nc e , th e r e i s n e e d t o i s s u e no t i c e u /s . 1 4 8 f or a s s e s s m en t y e ar 2 0 0 9- 1 0 in t h e c a s e s of t h e as s e s s e e . ” 8. A bare per usal of the reasons rec or ded as quot ed above suggest s t hat Assessing Offi ce r has propel led hi msel f to reopen a co ncl uded asse ss ment on the gr ounds of al leged fict i ti ous losses clai med i n the t ransacti ons car ri ed on t he pl at f or m of t he Stock Exc hange. At the fi rst gl an ce of t he reas ons recor ded (supr a), i t can be seen t hat t he Assessing Of fi cer has mer el y ma de a ver ments t owards s o me i nf or mati on recei ved f or tr ansfer of pr ofi t and l oss of one const i tue nt to another b y mo di fi cati on of t he cl ient code but however, t her e i s no refe rence to an y relevant materi al whi ch can give n r i se t o prima f aci e beli ef of an escape me nt. There is no i ot a of r eference t o t he nature of infor mat i on recei ved, the sour ce of suppl y of such inf or mati on, the conte nts of i nf or mat ion a nd s pec if ic transacti on wi se det ai ls, where t he cl ient code has been subj ect ed t o an y modi fi cati ons causing wr ongf ul tr ansfer of profi t s fro m assessee t o an y other I.T.A. No.1622/Del/2020 4 par t y/ co nsti tuent . The na me of the broker faci l it ating su ch al leged cli ent code modi ficat i on also cannot be deciphere d f r o m the r eas ons recor ded. It i s a cl as si c case of assumpti on of jurisdi cti on under Sect i on 147 b y r ecor di ng ‘bel ief’ based on ext re mel y va gue and non-descri pt r easons. No ref er ence to a n y ma teri al provi di n g foundati on for hol ding so cal l ed beli ef is avai lable. 8. Nee dl ess t o sa y, the all egat ion t owa rds escape ment of inco me must be backe d b y expr ession ‘ reasons to be lieve’ and such beli ef r equi r es to be based on so me cre dible or rele vant ma teri al . A c oncl uded assess ment c annot be di stur bed based on some fa nci f ul or whi msi cal gr ound or on the basis of ‘reas on t o suspect ’ t owards al l eged esca pe ment wi th out gi vi ng r eference t o an y rel evant mate ri al whic h ma y gi ve ri se t o a bona f i de bel ief towar ds escape me nt to a r easonabl e per son i nstruct ed i n l aw. I t is an ostensi ble case of reopeni ng an assessment without refer ence t o a n y obj ecti ve mat er i al provi di ng hi nt t owar ds al leged escape me nt. As stated, t her e i s no cl arit y on the natur e of inf or mati on purport edl y r eceive d b y t he Assessi ng Offi cer. The Assessing O ff i cer is expect ed t o exer ci se j uri sdi ct ion under Secti on 147 of t he Act wi t h scr upul ous care and based on ma teri al w hich a re clear and be yond r easonabl e doubt . The reasons r ecorde d i n t he i nstant cas e are i n co mpl ete di sarr a y. Mere rei t erat ion of st at utor y l ang uage e mpl o yed i n S ect ion 147 of t he Act t hat t he Assessi ng O ff i cer has ‘r easo n to beli eve ’ towar ds escape ment of i nco me i s n ot, b y it sel f, adequate. The inst ances of t ransact i ons resul t ing i n l oss/ pr ofi t to t he assessee on account of cli ent code modi fic at i on do not f eat ure i n t he I.T.A. No.1622/Del/2020 5 reasons at all . The reasons recorded cl earl y a ppear t o be a token exercise for assu mpt ion of jur isdi ct i on and wi th out co mpl i ance of jur isdi ct i onal para met ers. The Assessi ng Offi cer in t he inst ant case has procee ded on a h ypot hesi s f lowi ng fro m so me di st ant and generi c inf or mati on claimed t o have been recei ved. Such act of t he Assessi ng Off icer r end ers t he w hole exer ci se t o be arbi tr ar y and unsustai nabl e i n law. 9. The beli ef t owar ds escape ment in t he i nst ant case i s onl y prete nse and a me r e d oubt and suspicion towar ds pr oba bl e escape ment t hough w or ded as ‘reason t o bel i eve ’. The Hon’bl e Supre me C ourt in Lakh mani Mewal Das ( 1976) 103 ITR 437 (SC) has underscor ed t hat t he wor d of t he statut e ‘reason t o bel i eve ’ are not ‘ reason t o sus pect’. The vague feel in g or suspicio n of the Assessing O ffi cer t owar ds possibl e escape ment wo uld not per mit t o reopen a co mpl eted assessment in de fi ance of statut or y re qui r ement of subst ant i al nature. The not i ce i ssued under Sect ion 148( 1) i s t hus ult ra vi res t he pr ovi sion of Secti on 147 of t he Act . Theref or e, we see c onsi dera ble f orce i n the plea of the assessee f or non mai nt ai nabi l it y of r e-assessme nt orde r passed i n purs uance of a noti ce un der Secti on 148 of the Act whic h is vi ti at ed in l aw. 10. Hen ce, t he r e- assess ment n oti ce under Secti on 148 gi vi ng ri se t o t he jur isdi ct i on under Sect ion 147 of t he Act i s quashed and consequentl y t he re- assess me nt or der appeal agai nst i s also si mil ar l y quashed and set aside. 11. The o bject i on on assumpt ion of j uri sdict ion under Secti on 147 of t he Act thus succeeds. Ha vin g hel d that t he re- assessment I.T.A. No.1622/Del/2020 6 or der is bad i n la w, we do not see an y w ar rant t o loo k i nt o ot her gr ounds of t he appeal . 12. I n t he resul t, t he appeal of t he assessee is all owed. Order pronounced in the open Court on 06/10/2023 Sd/- Sd/- [CHALLA NAGENDRA PRASAD] [PRADIP KUMAR KEDIA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: /10/2023 Prabhat