Captive Commerce Pvt. Ltd., New Delhi V. ACIT, Central Circle-26, New Delhi

ITA 2698/DEL/2018

AI Insights

The case involves Captive Commerce Pvt. Ltd., which appealed against the reassessment order issued by the Assessing Officer under Section 143(3) of the Income Tax Act, 1961 for the assessment year 2010-11. The reassessment was initiated based on allegations that the company had engaged in client code modification to escape tax liabilities. The Tribunal examined whether the Assessing Officer had the jurisdiction to reopen the completed assessment and found that the notice under Section 148 was issued without fulfilling the necessary legal requirements, particularly the 'reasons to believe' clause under Section 147. The Tribunal highlighted that the reasons recorded were vague and did not provide a clear basis for believing that income had escaped assessment.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 121533 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 30-07-2023
• Assessment Year: 2010-2011
• Appeal Filed On: 17-04-2018
• Other Referred Cases: Lakhmani Mewal Das (1976) 103 ITR 437 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 147; 131; 148; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “B” DELHI BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER I.T.A. No.2698/DEL/2018 Assessment Year 2010-11 Captive Commerce Pvt. Ltd., 4735/11, 22 Ansari Road, Darya Ganj, New Delhi. Vs. ACIT Central Circle-26 New Delhi. TAN/PAN: AABCC0820A (Appellant) (Respondent) Appellant by: Shri Ashu Goel, CA Respondent by: Shri Vivek Kumar Upadhyay, Sr.DR Date of hearing: 31 07 2023 Date of pronouncement: 09 08 2023 O R D E R PER PRADIP KUMAR KEDIA, A.M.: The capt ioned appeal has been fi led b y t he assessee agai nst t he order of t he ld. Commi ssioner of I nco me Tax (Appeal s) - XX VI, New Del hi ( ‘C IT( A) ’ i n short ) dated 26. 02. 2018 a ri sing f r o m t he assessme nt or der dat ed 09. 12. 2016 passed b y t he As sessi ng Of fi cer ( AO) under Secti on 143( 3) of the Inc o me Tax A ct , 1961 (t he Act ) concer nin g AY 2010-11. 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 conf ir mi ng noti onal i nc ome of Rs. 41, 48, 008/- on account of cli ent code modifi cat i on. 3. We have hear d t he part i es in l engt h and per used t he f ir st I.T.A. No.2698/Del/2018 2 app eal or der a nd r e-assess ment or der . The mat eri al r eferred a nd reli ed upon in t he cour se of heari ng has als o been t aken int o consi derat i on. 4. Si nce the assessee has raised t he l egal quest io n of usur pt io n of jur is di ct i on b y the Assessing Of fi cer t o reopen t he co mplet ed assessme nt under Secti on 143( 3) of t he Act i n t he inst ant case, i t w oul d be pert ine nt to deal wi t h t he afor esai d quest i on at t he out set as i t goes t o the root of the mat t er. The ld. cou nsel f or the assessee sub mi ts a t t he out set that Assessi ng Of fi cer has w rongl y assu med j ur i sdi ct i on b y i ss uing not ice under Secti on 148 of t he Act wi t hout aut hori t y of law. The ld. cou nsel f urt he r sub mi ts t hat t he ingr edi ents of Sect i on 147/ 148 of t he Act are not f ul fi l led i n t he i nst ant case to ena ble t he Assessi ng Of fi cer t o exercise j uri sdicti on and t o pr oceed wit h the re-assess me nt pr oce edi ngs. The l d. counsel t hereafter sub mi ts t hat t he assess ment i n t he i nstant case was co mplet ed under Sect i on 143( 3) of the Act but t he case was however reopened al beit wi thi n four years f ro m t he e nd of th e relevant Assess ment Yea r 2010- 11 b y issui ng noti ce dat ed 30.12. 2015. Thi s not wi thst a nding wi t hout f ulf il l ment of t he i ndi spensa bl e requir e me nt of f or mati on of ‘reas on t o beli eve’ t hat char gea bl e inco me has escaped assess me nt , t he issuance of n otice under Secti on 148 r. w. Sect ion 147 i s not per mi ssible i n l aw. 5. 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 co mplet ed assessment i n the i nstant case has been reopene d on vag ue and n on des cript reasons w hic h is not per missi ble in l aw. I.T.A. No.2698/Del/2018 3 6. The reas ons r ec orde d for c onf er ment of jur isdi cti on t o reassess t he c o mp l et ed assessment i n ter ms of Sect ion 148(2) of the Act i s reproduced her eun der f or read y r efer ence. “ R e a s o n s f o r i s s u e o f n o t i c e u s 1 4 8 i n t h e c a s e o f M / s . C a p t i v e C o m m e r c e P v t . L t d . , P A N A A B C C 0 8 2 0 A f o r t h e a s s e s s m en t y e a r 2 0 1 0 - 1 1 R e t u r n o f i n c o m e i n t h i s c a s e w a s f i l e d o n 2 4 . 0 9 .2 01 0 d e c l a r i n g i n c o m e o f R s . 2 , 8 9 , 3 4 9 / - . T h e c a s e w a s s e l e c t e d f o r s c r u t i ny a n d a s s e s s e d u / s . 1 4 3 (3 ) a t r e t u r n e d i n c o m e o f R s . 2 , 8 9 ,3 4 9 / - . 2 . S u b s e q u e n t l y , i n f o r m a t i o n w a s g a t h e r e d b y t h e D ep a r t m e n t w h i c h r e v e a l e d t h a t s o m e s h a r e b ro k e r s a r e i n d u lg e d i n t he a c t i v i t y o f c r e a t i n g f i c t i t i o u s p r o f i t s a n d l o s s b y m i s u s i n g t he c l i e n t c o d e m o d i f i c a t i o n f a c i l i t y i n F & O s e g m e n t o n N a t i o n a l S t o c k E x c h a n g e ( N S E ) d u r i n g M a r c h 2 0 1 0 . O n i n v e s t i g a t i o n a n d a n a l ys i s o f c l i e n t c o d e m o d i f i c a t i o n (C C M ) d a t e a n d t r a n s a c t i o n s p e r t a i n i n g t o F . Y . 2 0 0 9 -1 0 o b t a i n e d f r o m t h e N S E b y t h e D e p a r t m e n t , i t h a s b e en e s t a b l i s h e d t h a t c e r t a i n b r o k e r s h a d m i s u s e d c l i e n t c o d e m o d i f i c a t i on f a c i l i t y a n d w e r e i n d u l g e d i n t r a n s f e r r i n g f i c t i t i o u s n o n - g e n u i n e l o ss e s a n d p r o f i t s t o v a r i o u s c l i e n t s / b e n e f i c i a r i e s t o r e d u c e t h e i r t a x li a b i l i t y w h e r e a s f i c t i t i o u s p r o f i t s w e r e p r o v i d e d w i t h a v i e w t o c o ve r u p u n d i s c l o s e d i n c o m e o r t o s e t o f f h u g e l o s s e s . 3 . F u r t h e r o n s p o t v e r i f i c a t i o n W / s 1 3 1 ( 1 ) w a s c a r ri e d o u t b y t h e D e p a r t m e n t i n c a s e o f s o m e o f t h e s e b r o k e r s a l l e g e dl y t r a n s f e r r i n g f i c t i t i o u s l o s s e s / p ro f i t s a n d t h e s e b ro k e r s c o n f i r me d h a v i n g m i s u s e d C M f a c i l i t y t o c r e a t e b o g u s l o s s e s / p r o f i t s f o r t h e i r cl i e n t s a n d i n r e t u rn r e c e i v e d c o m m i s s i o n a t t h e r a t e v a r y i n g f r o m 0 . 5 % to . 2 % o n th e a m o u n t o f l o s s e s / p r o f i t s f r o m s u c h c l i e n t s . T h e s e bro k e r s t h e re a f t e r s u b m i t t e d r e v i s e d c o m p u t a t i o n o f t h e i r i n c o m e f o r F. Y . 2 0 0 9 - 1 0 r e l e v a n t t o A . Y . 2 0 1 0 - 1 1 d e c l a r i n g t h e c o m m i s s i o n i n c o m e e a rn e d b y t h e m a n d a l s o p a i d t a x e s t h e r e o f . T h e r e a f t e r , e n q u i r i e s w e r e a l s o c o n d u c t e d i n c a s e s o f f e w b e n e f i c i a r i e s / c l i e n t s a n d t h e se c l i e n ts a l s o a d m i t t e d t o h a v e o b t a i n e d f i c t i t i o u s l o s s e s / p r o f i t s f r o m t h e s e b r o k e r s a n d a c c o r d i n g l y r e v i s e d t h e i r c o m p u t a t i o n o f i n c o m e a n d p a i d t a x e s f o r A . Y . 2 0 1 0 - 1 1 . 4 . O n p e ru s a l o f t h e i n f o r m a t i o n c o n t a i n i n g n a m e s / p a r t i c u l a r s o f b r o k e r s a n d c l i e n t s / b e n e f i c i a r i e s i n d u l g e d i n t h e ac t i v i t y o f c a r r y i n g o u t n o n - g e n u i n e C M m o d i f i c a t i o n d u r i n g t h e F . Y . 2 0 0 9 - 1 0 i t i s f o u n d t h a t t h e a s s e s s e e , M s C a p t i v e C o m m e r c e P v t . L t d . d u r i n g t h e s a i d f i n a n c i a l y e a r r e l e v a n t t o A . Y . 2 0 1 0 - 1 1 h a s a l s o o b t a i n e d f i ct i t i o u s n o n -g e n u i n e l o s s e s t o t h e t u n e o f R s . 4 7 ,3 8 , 1 1 5 / - f o r r e d u c i n g it s t a x l i a b i l i t y . 5 . I n v i e w o f t h e s e f a c t s a n d m a t e r i a l a v a i l a b l e o n r e c o rd , I h a v e r e a so n t o b e l i e v e t h a t i n t h i s c a s e i n c o m e o f R s . 4 7 ,3 8 , 1 15 / - w h i c h w a s c h a r g e a b l e t o t a x h a s e s c a p e d a s s e s sm e n t y e a r 2 0 1 0 -1 1 w i t h i n t h e m e a n i n g o f p ro v i s i o n s o f s e c t i o n 1 4 7 o f t h e I T A c t , 1 9 6 1 a n d t h e r e f o r e t h e i n c o m e o f t h e a s s e s s e e c o m p a n y f o r t h e A . Y . 2 0 10 - 1 1 n e e d s t o b e I.T.A. No.2698/Del/2018 4 a s s e s s e d / r e a s s e s s e d a s p e r t h e p ro v i s i o n s o f s e c ti o n 1 4 7 o f t h e I T A c t , 1 9 6 1 . A c c o r d i n g l y , n o t i c e u / s . 1 4 8 o f t h e I n c o m e T a x A c t , 1 9 6 1 i s b e in g i s s u e d i n t h i s c a s e f o r A Y 2 0 1 0 - 1 1 . ” 7. A bare per usal of the r easons recor ded suggest s t hat the Assessi ng Offi cer has pr opell e d hi mself t o r eopen the co mplet ed assess ment o n t he gr ounds of doubt s on t he cor r ectnes s of l osses cl ai me d i n the t ransact io ns carri ed on the pl at f or m of t he Nat ional St ock E xchange. At t he fi rst glance of th e reasons recor ded (supr a), i t can be see n tha t t he Assessi ng Of ficer has me r el y made aver me nts towa rds t he modus operandi used b y t he di fferent br okers for t ra nsfer o f profi t and l oss of one const i tue nt to anot her b y modif ic at ion of t he cl i ent code but however, t her e is no ref erence to an y relevant materi al whi ch can gi ven ri se t o pri ma fa ci e bel ieve of an escape me nt resul t ed to the Re venue. T her e i s no iot a of ref ere nce t o a ny t ransacti on wi se detai l where the cl ient code o f the assessee is under gone an y modi fi cat ions causing t ransf er of profi t s fr o m a ssessee t o an y ot her part y/ const it uent. The name of the br oker f acil it ati ng such all eged cl i ent code modi fi cati on i s also not menti oned i n the r eas ons recor ded. It i s a cl as si c case of assu mpti on of jurisdi cti on under Sect i on 147 b y r ecor di ng ‘ bel ie ve’ based ext re mel y va gue and non-descri pt r easons. No r ef er ence to a n y ma teri al pr ovi ding f oundati on f or hol di ng bel i ef i s avail able. 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 bel ie ve r equi res t o be based on so me cre dible or relevant ma teri al . A co mpl et ed assessment c annot be di stur bed based on I.T.A. No.2698/Del/2018 5 fanc y or whi msi cal gr ounds or on t he basis of ‘reason t o suspect ’ t owards al l eged escape ment wi th out gi vi ng r eference t o an y r eleva nt mate ri al whi ch ma y gi ve r ise t o a bona f i de beli ev e towar ds escape me nt to a r easonabl e per son i nstruct ed i n l aw. I t is a case where one cannot deci phe r the reasons based on an y obj ecti ve materi al or rele vant w hi ch ma y giv e r ise t o beli eve towar ds esca pe ment . Ther e i s no clari t y on t he natur e of infor mat i on recei ved b y t he Asses sing Of fi cer. The Assessi ng Of fi cer i s expect ed t o e xer ci se j ur isdi ct i on u nder Sect i on 147 of the Act wit h scru pul ous care and based on materi al whi ch ar e cl ear and be yond reasonable dou bt. The reasons r ecor ded i n t he inst ant case ar e in co mplet e di sarra y. Mere r ei terati on of statut or y langua ge e mpl o ye d in Se ct i on 147 of the Act that the Assessi ng Of fi cer has ‘reas on to beli eve’ t owards escape ment of inco me i s not , b y it sel f, adequat e. T he i nst ances of t r ansacti ons result ing i n l oss/pr ofi t to the assessee on accou nt of cl ient code modi fi cati on do n ot feat ure i n t he reasons at all . The reasons recor ded appears t o be a t oken exerci se f or assumption of jurisdi cti on an d wi t hout co mpli ance of jur isdi ct i onal par a met ers. The Assessing Off icer i n the i nst ant case has pr ocee ded on a h yp ot hesi s fl owin g f ro m a gener ic inf or mati on render ing t he whol e exercise to be a rbi t rar y and unsus t ai nable i n law. 9. The bel i eve t owar ds escape ment in the i nst ant case i s onl y prete nse and a me r e d oubt and suspi cion towar ds pr oba bl e escape ment t hough worde d as ‘r easona bl e to bel ieve’. The Ho n’bl e Su pre me Court i n Lakhm ani M ewal Das (1976) 103 IT R 437 (SC ) has under scor ed that t he wor d of t he statute ‘reason t o I.T.A. No.2698/Del/2018 6 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 S ect ion 148 (1) is thus ul tra vi res the provi 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 re- assess ment noti 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 or der is bad i n la w, we do not see an y w ar r ant t o lo ok i nt o ot her gr ounds of t he appeal . 8. I n t he resul t, t he appeal of t he assessee is allowed. Order pronounced in the open Court on 09/08/2023 Sd/- Sd/- [CHANDRA MOHAN GARG] [PRADIP KUMAR KEDIA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: /08/2023 Prabhat