Dynamic Credit & Finance Pvt. Ltd., , Kolkata V. ITO, Ward - 2(2), , Kolkata

ITA 2059/KOL/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2262 (ITAT-KOLKATA)
• Duration Of Justice: 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 13-06-2019
• Assessment Year: 2009-2010
• Appeal Filed On: 01-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROBIN CHOUDHURY CIT SR DR R
• Assessee Lawyers: P K JAIN
• Keywords: Search and seizure; Transactions in derivatives; Question of law; Reason to believe
• Section: 271(1)(c); 250; 68; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA SMC BENCH, KOLKATA [BEFORE SRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER] I.T.A. NO. 2059/KOL/2018 ASSESSMENT YEAR: 2009-10 DYNAMIC CREDIT & FINANCE PVT. LTD...........APPELLANT 14 TH FLR, TECHNOPOLIS PLOT NO. BP4 SECTOR V SALT LAKE KOLKATA 700 091 [PAN : AACCA 7919 H] INCOME TAX OFFICER, WARD 2(2), KOLKATA............................................................RESPONDENT APPEARANCES BY: SHRI P.K. JAIN, FCA, APPEARED ON BEHALF OF THE ASSESSEE. SHRI ROBIN CHOUDHURY, ADDL. CIT SR. D/R, APPEARING ON BEHALF OF THE REVENUE. DATE OF CONCLUDING THE HEARING : JUNE 13 TH , 2019 DATE OF PRONOUNCING THE ORDER : JUNE 21 ST , 2019 O R D E R PER J. SUDHAKAR REDDY :- THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 1, KOLKATA, (HEREINAFTER THE LD. CIT (A)), PASSED U/S 250 OF THE INCOME TAX ACT, 1961 (THE ACT), DT. 28/06/2018, FOR THE ASSESSMENT YEAR 2009-10. 2. AT THE OUTSET WE FIND THAT THERE IS A DELAY OF 22 DAYS IN FILING OF THIS APPEAL. AFTER PERUSING THE PETITION FOR CONDONATION, WE ARE CONVINCED THAT THE ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE FROM FILING THE APPEAL ON TIME. HENCE THE DELAY IS CONDONED AND THE APPEAL IS ADMITTED. 3. THE ASSESSEE IS A NON-BANKING FINANCIAL COMPANY (NBFC), ENGAGED IN ADVANCING LOANS AND MAKING INVESTMENTS. THE GROUNDS OF THE APPEAL RAISED BY THE ASSESSEE IN THIS APPEAL, ARE AS FOLLOWS:- 1) THAT THE LD. CIT[A] HAS ERRED IN DISMISSING THE APPEAL UNDER A WRONG NOTION THAT THE APPELLANT DOES NOT WANT TO PURSUE THE APPEAL. IN 2 I.T.A. NO. 2059/KOL/2018 ASSESSMENT YEAR: 2009-10 DYNAMIC CREDIT & FINANCE PVT. LTD FACT THE LD.CIT[A] DID NOT PROVIDE PROPER OPPORTUNITY TO THE APPELLANT TO REPRESENT THE APPEAL. 2) THAT THE LD.CIT[A] HAS NOT APPRECIATED THAT CLIENT CODE MODIFICATION IS LEGALLY ALLOWED IN NATIONAL STOCK EXCHANGE WITHIN A CERTAIN TIME FRAME WHEN THERE IS A PUNCHING ERROR BY THE STOCK BROKER, AND HAS ALSO NOT APPRECIATED THAT THE AO DID NOT FURNISH ANY EVIDENCE OR PROVED THAT THE TRANSACTION OF THE APPELLANT IN LOSS IN DERIVATIVE TRANSACTIONS OF RS. 631736 IS ON ACCOUNT OF CODE MODIFICATION, AND ALSO THAT PROPER CONTRACT NOTES AND SUPPORTING FOR TRANSACTIONS ARE THERE. 4. THE REASONS RECORDED BY THE ASSESSING OFFICER FOR REOPENING OF THE ASSESSEE READS AS FOLLOWS:- 3 I.T.A. NO. 2059/KOL/2018 ASSESSMENT YEAR: 2009-10 DYNAMIC CREDIT & FINANCE PVT. LTD 4.1. A PERUSAL OF THESE REASONS RECORDED SHOWS THAT THE ASSESSING OFFICER HAS NOT VERIFIED THE INFORMATION. THERE IS NO MATERIAL WITH THE ASSESSING OFFICER TO DEMONSTRATE THAT THE ASSESSEE COMPANY WAS INVOLVED IN CLIENT CODE MODIFICATION (CCM). EVEN IF, THE ASSESSEES BROKER HAS CARRIED OUT SOME CCM, THERE IS NO MATERIAL TO CONCLUDE THAT THE CCM HAS BEEN DONE AT THE INSTANCE OF THE ASSESSEE WITH A MALAFIDE INTENTION. CLIENT CODE MODIFICATION IS LEGALLY ALLOWED BY NSE. THE ASSESSEE IN THIS CASE HAS INCURRED LOSS IN DERIVATIVES TRANSACTIONS OF RS.32,21,200/-. THIS INCLUDES LOSS INCURRED THROUGH BROKER C.M. GOENKA STOCK BROKERS PVT. LTD. THE ASSESSEE HAD FURNISHED CONTRACT NOTES, DETAILS AND BANK STATEMENTS ETC. BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS NOT CARRIED OUT ANY INVESTIGATION. AFTER EXTRACTING THE REPLY OF THE ASSESSEE, HE SIMPLY REJECTED THE CLAIM BY HOLDING AS FOLLOWS:- HENCE THE UNDERSIGNED HAS THE CONSIDERED OPINION THAT THE ASSESSEE TOOK THE BENEFIT FROM THE CLIENT CODE MODIFICATION IN NEXUS WITH THE BROKER AND BOOKED DERIVATIVE LOSS OF RS.6,31,736/- TO REDUCE ITS TOTAL INCOME. IN VIEW OF THE ABOVE DISCUSSION RS.6,31,736/- IS ADDED BACK TO ITS TOTAL INCOME. PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT FOR FURNISHING INACCURATE PARTICULAR IS INITIATED SEPARATELY. 5. ON THE ISSUE OF REOPENING, I FIND THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CORONATION AGRO INDUSTRIES VS. DCIT IN W.P. NO. 2627 OF 2016, PRONOUNCE ON 23 RD NOVEMBER 2016, HELD AS FOLLOWS:- 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. 5.1. THE HONBLE SUPREME COURT IN THE CASE OF SHEO NATH SINGH VS. APPELLATE ASSISTANT COMMISSIONER OF INCOME TAX REPORTED IN [1971] 82 ITR 147 (SC) , WHEREIN THE REASON RECORDED WERE IT APPEARS THAT THESE PERSONS ARE NAME LENDERS AND TRANSACTIONS ARE BOGUS, IT WAS HELD THAT THIS IS NOT ENOUGH FOR THE PURPOSE OF 4 I.T.A. NO. 2059/KOL/2018 ASSESSMENT YEAR: 2009-10 DYNAMIC CREDIT & FINANCE PVT. LTD INITIATING PROCEEDINGS U/S 147 WHICH CAN BE CALLED AS A VAGUE FEELINGS OF THE ASSESSING OFFICER. 5.2. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. INSECTICIDES (INDIA) LTD. REPORTED IN [2013] 357 ITR 330 (DELHI) HELD AS FOLLOWS:- SECTION 68 OF THE INCOME-TAX ACT, 1961 - CASH CREDITS [SHARE APPLICATION MONEY] - ASSESSMENT YEARS 2002-03 TO 2003-04 - ASSESSING OFFICER REOPENED ASSESSMENT OF ASSESSEE ON GROUND THAT ASSESSEE WAS INVOLVED IN BOGUS ENTRIES AND ALLEGED SHARE APPLICATION MONEY REPRESENTED INCOME OF ASSESSEE FROM UNDISCLOSED SOURCE - TRIBUNAL FOUND THAT IN REASONS RECORDED BY ASSESSING OFFICER IT WAS NOWHERE MENTIONED AS TO WHO HAD GIVEN BOGUS ENTRIES/TRANSACTIONS TO ASSESSEE OR TO WHOM ASSESSEE HAD GIVEN BOGUS ENTRIES OR TRANSACTIONS - ACCORDINGLY, TRIBUNAL HELD THAT REASSESSMENT UNDER SECTION 147 WAS NOT SUSTAINABLE IN LAW AS REASON RECORDED BY ASSESSING OFFICER WERE TOTALLY SILENT WITH REGARD TO AMOUNT, NATURE OF BOGUS ENTRIES AND TRANSACTION AND PERSON WITH WHOM TRANSACTION HAD TAKEN PLACE - WHETHER ON FACTS, THERE WAS NO REASON TO DIFFER WITH VIEW EXPRESSED BY TRIBUNAL - HELD, YES [PARA 9] [IN FAVOUR OF ASSESSEE] 5.3. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SFIL STOCK BROKING LTD. REPORTED IN [2010] 325 ITR 285 (DELHI) HELD AS FOLLOWS:- 9. IN THE PRESENT CASE, WE FIND THAT THE FIRST SENTENCE OF THE SO-CALLED REASONS RECORDED BY THE ASSESSING OFFICER IS MERE INFORMATION RECEIVED FROM THE DEPUTY DIRECTOR OF INCOME-TAX (INVESTIGATION). THE SECOND SENTENCE IS A DIRECTION GIVEN BY THE VERY SAME DEPUTY DIRECTOR OF INCOME-TAX (INVESTIGATION) TO ISSUE A NOTICE UNDER SECTION 148 AND THE THIRD SENTENCE AGAIN COMPRISES OF A DIRECTION GIVEN BY THE ADDITIONAL COMMISSIONER OF INCOME-TAX TO INITIATE PROCEEDINGS UNDER SECTION 148 IN RESPECT OF CASES PERTAINING TO THE RELEVANT WARD. THESE THREE SENTENCES ARE FOLLOWED BY THE FOLLOWING SENTENCE, WHICH IS THE CONCLUDING PORTION OF THE SO-CALLED REASONS : 'THUS, I HAVE SUFFICIENT INFORMATION IN MY POSSESSION TO ISSUE NOTICE UNDER SECTION 148 IN THE CASE OF M/S. SFIL STOCK BROKING LTD. ON THE BASIS OF REASONS RECORDED AS ABOVE.' 10. FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSING OFFICER REFERRED TO THE INFORMATION AND THE TWO DIRECTIONS AS 'REASONS' ON THE BASIS OF WHICH HE WAS PROCEEDING TO ISSUE NOTICE UNDER SECTION 148. WE ARE AFRAID THAT THESE CANNOT BE THE REASONS FOR PROCEEDING UNDER SECTION 147/148 OF THE SAID ACT. THE FIRST PART IS ONLY AN INFORMATION AND THE SECOND AND THE THIRD PARTS OF THE BEGINNING PARAGRAPH OF THE SO-CALLED REASONS ARE MERE DIRECTIONS. FROM THE SO- CALLED REASONS, IT IS NOT AT ALL DISCERNIBLE AS TO WHETHER THE ASSESSING OFFICER HAD APPLIED HIS MIND TO THE INFORMATION AND INDEPENDENTLY ARRIVED AT A BELIEF THAT, ON THE BASIS OF THE MATERIAL WHICH HE HAD BEFORE HIM, INCOME HAD ESCAPED ASSESSMENT. CONSEQUENTLY, WE FIND THAT THE TRIBUNAL HAS ARRIVED AT THE CORRECT CONCLUSION ON THE FACTS. THE LAW IS WELL SETTLED. THERE IS NO SUBSTANTIAL QUESTION OF LAW WHICH ARISES FOR OUR CONSIDERATION. 6. APPLYING THE PROPOSITIONS OF LAW LAID DOWN IN THESE CASE LAW TO THE FACTS OF THIS CASE, I HOLD THAT THE REOPENING IS BAD IN LAW. 7. ON THE ISSUE OF THE ADDITION/DISALLOWANCE, ON MERIT, I FIND THAT THIS ISSUE OF CCM HAS COME UP BEFORE DIFFERENT BENCHES OF THE ITAT KOLKATA. THE ITAT C BENCH OF 5 I.T.A. NO. 2059/KOL/2018 ASSESSMENT YEAR: 2009-10 DYNAMIC CREDIT & FINANCE PVT. LTD THE TRIBUNAL IN THE CASE OF DCIT VS. PRB SECURITIES (P.) LTD. [2019] 105 TAXMANN.COM 129 (KOLKATA - TRIB.), HAS HELD AS FOLLOWS:- SECTION 28(I) , READ WITH SECTION 68 , OF THE INCOME-TAX ACT, 1961 - BUSINESS LOSS/DEDUCTION - ALLOWABLE AS (SHARE TRANSACTIONS) - ASSESSMENT YEAR 2013-14 - ASSESSEE, A REGISTERED SHARE BROKER, FILED HIS RETURN CLAIMING LOSS OF CERTAIN AMOUNT ON SALE OF EQUITY SHARES - ASSESSING OFFICER ALLEGED THAT HE HAD RECEIVED AN INFORMATION FROM INVESTIGATION WING THAT ASSESSEE HAD RECEIVED ACCOMMODATION ENTRY OF BOGUS/FICTICIOUS LOSS BY WAY OF SHARE TRADING - ON BASIS OF SAME, HE HELD IMPUGNED LOSS CLAIMED BY ASSESSEE TO BE BOGUS AND DISALLOWED SAME - IT WAS NOTED THAT ASSESSEE HAD FURNISHED ALL DETAILS OF PURCHASE AND SALE OF SHARES AS CALLED FOR IN REQUISITE FORMAT BY ASSESSING OFFICER - ASSESSEE ALSO FURNISHED OBLIGATION FILES OF STOCK EXCHANGE AND TRADE FILES RECEIVED FROM STOCK EXCHANGE IN WHICH ALL DETAILS WERE GIVEN SHOWING TRANSACTIONS ENTERED INTO BY ASSESSEE - DEMAT TRANSACTION AND HOLDING STATEMENTS SHOWING DELIVERY OF SHARES FOR PURCHASE AND SALE OF SHARES WERE ALSO FURNISHED - ASSESSEE ALSO PROVIDED COPY OF BANK STATEMENTS MARKING PAYMENTS MADE TO/RECEIVED FROM STOCK EXCHANGE IN RESPECT OF PURCHASE AND SALE OF SHARES - IT ALSO FURNISHED COPIES OF CONTRACT NOTES ISSUED BY REGISTERED SHARE BROKER FOR PURCHASE AND SALE OF SHARES - IT WAS NOT CASE OF REVENUE THAT ASSESSEE HAD RESORTED TO ANY CLIENT CODE MODIFICATION - ALL TRANSACTIONS WERE ROUTED THROUGH RECOGNIZED STOCK EXCHANGE WITH REGISTERED SHARE BROKER AT PREVAILING MARKET PRICES AFTER DULY SUFFERING STT - WHETHER, ON FACTS, ASSESSING OFFICER WAS UNJUSTIFIED IN DISALLOWING LOSS IN RESPECT OF PURCHASE AND SALE OF SHARES BY ASSESSEE TREATING SAME TO BE BOGUS - HELD, YES [PARAS 4.1, 4.2 AND 4.5][IN FAVOUR OF ASSESSEE] 8. RESPECTFULLY APPLYING THE PROPOSITION OF LAW LAID DOWN IN THESE CASE LAW TO THE FACTS OF THIS CASE, I DELETE THE ADDITION IN QUESTION AND ALLOW THE APPEAL OF THE ASSESSEE. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. KOLKATA, THE 21 ST DAY OF JUNE, 2019. SD/- [ J. SUDHAKAR REDDY] ACCOUNTANT MEMBER DATED : 21.06.2019 {SC SPS} 6 I.T.A. NO. 2059/KOL/2018 ASSESSMENT YEAR: 2009-10 DYNAMIC CREDIT & FINANCE PVT. LTD COPY OF THE ORDER FORWARDED TO: 1. DYNAMIC CREDIT & FINANCE PVT. LTD 14 TH FLR, TECHNOPOLIS PLOT NO. BP4 SECTOR V SALT LAKE KOLKATA 700 091 2. INCOME TAX OFFICER, WARD 2(2), KOLKATA 3. CIT(A)- 4. CIT- , 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, KOLKATA BENCHES