ISL Consulting Ltd., Ahmedabad V. The DCIT, Circle-2(1)(1), Ahmedabad

ITA 232/AHD/2022

AI Insights

ISL Consulting Ltd appealed against the order of the Commissioner of Income Tax (Appeals), which confirmed the addition of Rs. 15,61,447 to the assessee's income for the assessment year 2009-10. The addition was based on allegations of client code modification (CCM) to evade tax. The Tribunal admitted an additional ground challenging the validity of the assessment under section 147 of the Income Tax Act, arguing that the AO's actions were not based on any material or information in his possession, but rather on borrowed satisfaction. The Tribunal agreed with the assessee, noting that the reasons provided by the AO did not meet the legal requirements for a valid reassessment.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133650 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 15-08-2023
• Assessment Year: 2009-2010
• Appeal Filed On: 06-06-2022
• Other Referred Cases: Jute Corporation of India Vs. CIT, 187 ITR 688, National Thermal Power Co. Ltd. Vs. CIT, 229 ITR 383, GKN Driveshafts (India) Ltd. Vs. DCIT, 259 ITR 19 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIPUL CHAVDA
• Keywords: Reason to believe; Borrowed satisfaction
• Section: 147; 148

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘SMC’ अहमदाबाद। अहमदाबाद।अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD ] ] BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA No.232/Ahd/2022 Asstt.Year : 2009-10 ISL Consulting Ltd 501, 5 th Floor, Abhijeet-II Mithakhali Six Roads Ahmedabad 380 009 Gujarat, India PAN : AABCI 1994 F Vs DCIT, Cir.2(1)(1) Ahmedabad. (Applicant) (Responent) Assessee by : Shri S.N. Divatia, AR Revenue by : Shri Vipul Chavda, Sr.DR स ु नवाई क तार ख/D a t e o f H e a r i n g : 1 7 / 0 8 / 2 0 2 3 घोषणा क तार ख /D a t e o f P r o n o u n c e m e n t : 2 9 / 0 8 / 2 0 2 3 आदेश/O R D E R The present appeal has been filed by the assessee against order passed by the Commissioner of Income Tax(Appeals), National Faceless Appeal Centre (NFAC), Delhi (in short referred to as ld.CIT(A) under section 250(6) of the Income Tax Act, 1961 ("the Act" for short), dated 24.3.2022 pertaining to Asst.Year2009-10. 2. Before taking up the matter, it is noted that the appeal filed by the assessee before the Tribunal is late by 14 days. For which the assessee has filed delay condonation application. After going through the application, and hearing both the sides, I find that in the interest of substantial justice, a small delay of 14 days caused in the filing of the appeal before the Tribunal deserves to be condoned, and I hold so. ITA No.232/Ahd/2022 2 I shall now proceed to adjudicate the appeal of the assessee. 3. In the appeal, the assessee has raised the following grounds: “1. The Ld. CIT (A) NFAC, Delhi was grievously erred in confirming the addition of Rs. 15,61,447/- on account of stating that the data received from NSE, the appellant has evaded the tax which is patently wrong and not justifiable. The appellant submits that the Ld. A. O. could not prove that the appellant has evaded the tax and no concrete proof is given in the notice issued as well as in assessment order passed by him The appellant further submits that THE Ld. A. O. has not proved any bogus transactions with documentary evidence and also for which contract note modified, is not established. Also the Ld. CIT(A) fails to accept the order of other CIT(A) which was given in the submission but not considered by the Ld. CIT(A) which are in favour of the appellant. 2. The appellant therefore requests your Honour to kindly delete the addition made by the Ld. A. O. looking to the merits of the case.” 4. A perusal of the above grounds indicate that the solitary grievance of the assessee against the order passed by the ld.CIT(A) is the confirmation of the addition made to the income of the assessee of Rs.15,61,447/- on the basis that the assessee had indulged in client code modification (“CCM”) and shifted its profit earned thereon in shares to this extent so as to evade tax on the same. 5. During the hearing before us, the ld.counsel for the assessee raised an additional ground challenging validity of the assessment framed under section 147 of the Act. The said ground reads as under: “1.1 That both the lower authorities have grievously erred in law in not appreciating that the-proceedings initiated u/s.147 of the Act by AO were not valid and lawful. ITA No.232/Ahd/2022 3 1.2 That in the facts and circumstances of the case, as well as in law, the Ld. CIT(A) ought to have confirmed that notice u/s. 148 was invalid and without jurisdiction. 1.3 The Ld. CIT(A) has failed to appreciate that the conditions precedent for valid reopening of the concluded assessment were not satisfied , more particularly the "reason to believe". Ld.Counsel for the assessee pleaded that being a legal ground the adjudication of which requires no fresh facts to be gone into, the same should be admitted for adjudication. He placed reliance on the following decisions of the Hon’ble Apex Court: i) Jute Corporation of India Vs. CIT, 187 ITR 688 ii) National Thermal Power Co. Ltd. Vs. CIT, 229 ITR 383. However, the ld.DR objected to admission of the additional ground. 6. Heard both the parties; I am of the view that, as per the settled proposition of law on this issue, as propounded by the Hon’ble Supreme Court in the above cases, the additional ground raised by the assessee is purely legal ground and does not require fresh fact w to be investigated. Therefore, I admit the additional ground for adjudication 7. I shall first deal with the additional ground raised, since it challenges validity of the assessment framed in the present case under section 147 of the Act. 8. Primary contention of the ld.counsel for the assessee in this regard was that the reasons recorded did not reveal any material or information in the possession of the AO on the basis of which he formed belief of escapement of income. He also contended that the reasons exhibited total non-application of mind by the AO while recording satisfaction for escapement of income. In this regard, he ITA No.232/Ahd/2022 4 drew our attention to the copies of reasons supplied to him during the assessment proceedings, placed before us at PB Page No.56. The said document is the letter of the AO addressed to the assessee disclosing reasons on the basis of which the case was reopened and the same reads as under: 8. Referring to the above, the ld.counsel for the assessee contended that the reasons only reveal some information received by ITA No.232/Ahd/2022 5 the AO which revealed that the assessee had contrived reduction in its income by modification of client code by Gold Mine Stocks P.Ltd. shifting net loss to the tune of Rs.15,61,447/-. The ld.counsel for the assessee contended that the reasons did not reveal source of the information; the scrip, on the trading of which client modification code was resorted to, and also role and status of the said Gold Mine Stocks P.Ltd. in the same. He, therefore, contended that it was not clear from the reasons as to what was the specific information or material which formed the basis for the AO to be satisfied that income of the assessee had escaped the assessment. Further, he contended that since the reasons did not reveal the exact scrip in whose trading CCM was resorted to, the AO could not have possibly verified this information from the records; that he could not have and did not even attempt to verify, whether the information in his possession matched with the records available before him. That therefore the AO had merely relied on the some information received by him to form a satisfaction of escapement of income, which clearly denoted that it was a borrowed satisfaction and not satisfaction of the AO. For these reasons, he contended that jurisdiction assumed by the AO to reopen the case of the assessee, not being based on any material or information in the possession of the AO, and the satisfaction of the AO being a borrowed satisfaction, and not his own satisfaction, the jurisdiction assumed by the AO to frame assessment u/s 147 of the Act was not in accordance with law and the order passed therefore as a consequence needed to be quashed. 9. The ld.DR, on the other hand, pointed out that the AO had recorded reasons specifically regarding client code modification resorted to by the assessee, and he had adequately applied his mind to the same before recording a satisfaction. He produced before us the copy of the reasons recorded by the AO which was in accordance ITA No.232/Ahd/2022 6 to the application filed by the AO to the PCIT/CCIT seeking his approval for reopening of the case of the assessee under section 147 of the Act. The said reasons read as under: ITA No.232/Ahd/2022 7 10. The ld.DR, however, admitted that these reasons were never supplied to the assessee, and it was only the reasons giving cryptic information, as pointed out by the ld.counselfor the assessee, which was supplied to the assessee. 11. I have heard both the parties. It is an admitted fact that the reasons supplied to the assessee did not disclose either material or information in the possession of the AO, which revealed to him that the assessee had resorted to CCM to shift profits/loss in trading of shares so as to evade payment of tax. Also, the reasons as noted by me, show no application of mind by the AO, relying merely on the information available with him. This information, I have noted, neither reveals the material nor the source from where it came, nor it specifies scrip on which CCM was resorted to by the assessee to earn loss. In the absence of the specific information available with the AO, there was no scope for the AO to apply his mind on it independently, and check the information available with him so as to arrive at his own satisfaction of the income of the assessee being escaped the assessment. Therefore, I am in complete agreement with the ld.counsel for the assessee that the jurisdiction assumed by the AO to reopen the case of the assessee is de hors the satisfaction of the AO of any income of the assessee having escaped the assessment and was clearly in violation of the condition prescribed under section 147 of the Act for assuming valid jurisdiction to frame assessment. 12. The assessment order passed, as a consequence is, liable to quashed. The contention of the ld.DR that there was a separate reasons recorded by the AO which revealedthe source of information or the material with the AO leading to his belief of escapement of ITA No.232/Ahd/2022 8 income, is of no assistance to the validity of the re-assessment proceedings, since admittedly, this reason was never confronted to the assessee. 13. The Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs. DCIT, 259 ITR 19 (SC) has categorically laid down the procedure to be adopted during reassessment proceedings, taking note of the principle of natural justice embedded in any proceedings, that the AO is required to supply copy of the reasons to the assessee, entertain his objection on the same, deal with the objections, and thereafter proceed with the reassessment proceedings. This procedure outlined by the Hon’ble Apex Court for framing of assessment under section 147 of the Act has now found Legislatures approval by insertion of all these conditions in newly inserted provisions of section 148/148A of the Act by the Finance Act, 2021. Therefore, the requirement of the assessee for being supplied with copy of the reasons before proceeding to frame assessment is a mandatory requirement and a brief or cryptic reason supplied to the assessee, with the original being held back by the AO, will not suffice to fulfill this mandatory requirement of law. For this reason, I reject the arguments of the ld.DR. In view of the above, the additional ground raised by the assessee is allowed. Since the assessment order passed in the present has been quashed by us the ground raised on merits requires no adjudication being a mere academic exercise. However I shall still adjudicate the ground raised on merits also challenging the addition made on account of alleged shifting out of profits by resorting to CCM. ITA No.232/Ahd/2022 9 14. I find that throughout the re-assessment proceedings, and even in the appellate proceedings, the assessee was never confronted with the information with the AO regarding CCM indulged in by the assessee nor the details of the specific scrip in which the assessee had purportedly done CCM. This is evident from the finding of the ld.AO at para 3.1 of his order and that of the ld.CIT(A) at para 6.2 of the order, where they only refer to the information received by the AO from NSE and during survey of some stock brokers, and their clients that the assessee had reduced its income through CCM. There is no reference anywhere in the order both of the AO and the CIT(A) of the specific scrip in which the CCM was resorted to. In the absence of the assessee being confronted with the specific details of the adverse information in the possession of the Revenue department, on the basis of which the addition was made to his income, there is no case at all for upholding the order of the ld.CIT(A). 15. In view of the above, the grounds raised by the assessee are allowed. 16. In the result, the appeal of the assessee is allowed. Order pronounced in the Court on 29 th August, 2023 at Ahmedabad. Sd/- (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad,dated 29/8/2023 vk*