NALANDA SECURITIES PVT. LTD., MUMBAI V. DCIT- 13(1)(1), MUMBAI

ITA 2770/MUM/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 7828 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 03-05-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K MADHUSUDAN LD
• Assessee Lawyers: RAHUL HAKANI LD
• Keywords: Reopening of assessment; Tangible material; Corroborative evidences; Reassessment proceedings
• Section: 143(3); 142(1); 143(2); 148

Judgement Text

1 ITA NO.2770/MUM/2018 NALANDA SECURITIES P.LTD. ASSESSMENT YEAR-2010-11 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.2770/MUM/2018 ( / ASSESSMENT YEAR:2010-11) NALANDA SECURITIES P RIVATE LIMITED 9, 2 ND FLOOR, ROSELAND BUILDING 108 WATER FIELD ROAD, BANDRA (W) MUMBAI-400 050 / VS. D CIT - 1 3 ( 1 )( 1 ) INCOME TAX OFFICE, 2 ND FLOOR AAYKAR BHAVAN, CHURCHGATE MUMBAI. ./ ./PAN/GIR NO. AABCN 1045 Q ( '# /APPELLANT ) : ( $%'# / RESPONDENT ) '#& / APPELLANT BY : SHRI RAHUL HAKANI - LD. AR $%'#& / RESPONDENT BY : SHRI K. MADHUSUD AN LD . CIT - DR / DATE OF HEARING : 03/10/2019 / DATE OF PRONOUNCEMENT : 14/10/2019 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER):- 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [IN SHORT REFERRED TO AS AY] 2010-11 CONTEST THE ORDER OF LD. COMMIS SIONER OF INCOME-TAX (APPEALS)-21, MUMBAI, [IN SHORT REFERRED TO AS CIT (A)], APPEAL NO. CIT(A)- 2 ITA NO.2770/MUM/2018 NALANDA SECURITIES P.LTD. ASSESSMENT YEAR-2010-11 21/DCIT-13(1)(1)/IT-419/2016-17 DATED 31/01/2018 ON FOLLOWING GROUNDS OF APPEAL: - 1. THE LEARNED CIT(A) ERRED IN UPHOLDING THE ISSU E OF NOTICE U/S 148 AND REOPENING YOUR APPELLANT'S ASSESSMENT U/S 147/148 OF THE INCO ME TAX ACT,1961. YOUR APPELLANT SUBMITS THAT LOOKING AT THE FACTS AND CIR CUMSTANCES OF YOUR APPELLANTS CASE AND IN LAW THE NOTICE ISSUED UNDER SECTION 148 IS ILLEGAL AND THE REASSESSMENT PROCEEDINGS AND THE REASSESSMENT ORDER PASSED UNDER SECTION 143(3) R.W.S 147 OUGHT TO BE QUASHED AND ORIGINAL A SSESSMENT ORDER BE RESTORED. 2. THE LEARNED CIT(A) IS ERRED IN UPHOLDING FOLLO WING OBSERVATION (A). THE NAME OF THE BROKER IS M/S PASUPATI CAPITAL SERVICES P. LTD. (B). IN THIS CASE, ASSESSEE HAS EXECUTED THE TRANSA CTION DURING FY 2009-10. AS PER THE INFORMATION RECEIVED, ASSESSEE COMPANY IS O NE OF THE BENEFICIARIES AND CREATE FICTITIOUS PROFIT/LOSS AMOUNTS TO RS. 2,97,7 30/- YOUR APPELLANT SUBMITS THAT THE ABOVE OBSERVATIONS ARE INCORRECT AND WITHOUT ANY BASIS. THE LEARNED CLT(A)'S FAILED TO APPRECIATE TH AT THE BROKER MENTIONED IS M/S PASUPATI CAPITAL SERVICES P. LTD AND NOT YOUR APPEL LANT AND HAS NEVER HAD ANY BUSINESS RELATIONSHIP OR CONNECTION WHATSOE VER WITH SAID M/S PASUPATI CAPITAL SERVICES P. LTD. YOUR APPELLANT THEREFORE SUBMITS THAT THE REOPENING OF ASSESSMENT U/S 147/148 IS BAD IN LAW AND OUGHT TO BE QUASHED. 3. THE LEARNED COMMISSIONER (APPEALS) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE ADDITION MADE BY THE ASSESSING OFFICER. EVEN THOUGH, THE LEARNED DY. COMMISSIONER OF INCOME TAX HAS NOT PROVIDED THE DETAILS OF THE FICTITIOUS PROFIT / LOSS CREATED FRO M MISUSE OF CLIENT CODE MODIFICATIONS AMOUNTING RS. 2,97,730/-, THE LEARNED COMMISSIONER (APPEALS) HAS ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO GIVE THE INFORMATION ABOUT TRANSACTIONS RESULTING IN FICTITIOUS PROFIT / LOSS. THE LEARNED COMMISSIONER (APPEALS) FAILED TO APPREC IATE THE FACT THAT NO PROPER DETAILS OF THE ALLEGED PROFIT / LOSS AMOUNTING TO R S. 2,97,730/- AND THE PATTERN OF CLIENT CODE MODIFICATION HAS BEEN GIVEN BY THE LEAR NED DY. CIT TO YOUR APPELLANT IN SPITE OF REPEATED REQUESTS BY THE APPELLANT. YOUR APPELLANTS THEREFORE SUBMITS THAT LOOKING TO T HE FACTS & IN THE CIRCUMSTANCES OF YOUR APPELLANT'S CASE AND IN LAW, NO ADDITION IS CALLED FOR AND THE LEARNED DY. CIT BE DIRECTED TO DELETE THE SAME. 4. ALTERNATIVELY, YOUR APPELLANT THEREFORE SUBMITS THAT LOOKING TO THE FACTS & IN THE CIRCUMSTANCES OF YOUR APPELLANTS CASE AND IN LAW, THE LEARNED DY.CIT BE DIRECTED TO GIVE THE DETAILS OF THE FICTITIOUS PROF IT/LOSS CREATED FROM MISUSE OF CLIENT CODE MODIFICATIONS AMOUNTING TO RS.2,97,730/- AND R EASSESS THE INCOME. 3 ITA NO.2770/MUM/2018 NALANDA SECURITIES P.LTD. ASSESSMENT YEAR-2010-11 AS EVIDENT FROM GROUNDS OF APPEAL, THE ASSESSEE IS AGGRIEVED BY CONFIRMATION OF ADDITION OF RS.2.97 LACS. THE ASSES SEE HAS ALSO CHALLENGED THE VALIDITY OF REASSESSMENT PROCEEDINGS. 2.1 WE HAVE HEARD AND CONSIDERED RIVAL SUBMISSIONS, PERUSED RELEVANT MATERIAL ON RECORD AND DELIBERATED ON JUDICIAL PRON OUNCEMENTS AS CITED BEFORE US. 2.2 FACTS ON RECORD WOULD REVEAL THAT THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE STATED TO BE ENGAGED IN PROVIDIN G FINANCIAL SERVICES WAS ASSESSED U/S 143(3) R.W.S. 147 ON 16/12/2016 WH EREIN IT WAS SADDLED WITH IMPUGNED ADDITION OF RS.2.97 LACS ON ACCOUNT O F ALLEGED FICTITIOUS LOSS. THE ORIGINAL ASSESSMENT WAS FRAMED U/S 143(3) VIDE ORDER DATED 15/03/2013. 2.3 THE REASSESSMENT PROCEEDINGS WERE TRIGGERED PUR SUANT TO RECEIPT OF CERTAIN INFORMATION FROM DDIT (INVESTIGATION), AHME DABAD THAT THE ASSESSEE OBTAINED FICTITIOUS LOSSES BY MISUSE OF CL IENT CODE MODIFICATION FACILITY WITH A VIEW TO REDUCE TAX LIABILITY. IT WA S ALLEGED THAT THE ASSESSEE CREATED ARTIFICIAL LOSS OF RS.2.97 LACS IN THE BOOK S THEREBY DELIBERATELY REDUCING THE TAXABLE PROFITS. ACCORDINGLY, NOTICE U /S 148 WAS ISSUED ON 30/03/2016 WHICH WAS FOLLOWED BY STATUTORY NOTICES U/S 142(1) & 143(2) CALLING FOR REQUISITE DETAILS FROM THE ASSESSEE. TH E REASONS LEADING TO REOPENING OF ASSESSMENT WERE DULY COMMUNICATED. IT WAS ALLEGED THAT THE ASSESSEE WAS BENEFICIARY OF FICTIOUS LOSS OF RS.2.9 7 LACS CREATED BY MISUSING CLIENT CODE MODIFICATION (CCM) FACILITY. 4 ITA NO.2770/MUM/2018 NALANDA SECURITIES P.LTD. ASSESSMENT YEAR-2010-11 2.4 THE ASSESSEE, VIDE SUBMISSIONS DATED 15/09/2016 , EXPLAINED THAT ERRORS WERE DUE TO WRONG PUNCHING OR TYPING BY DEAL ERS WHO HAD TO EXECUTE TRADES AT A FAST SPEED DUE TO CONSTANT ORDERS WHICH THEY GET FROM VARIOUS CLIENTS. THE ATTENTION WAS DRAWN TO THE FACT THAT G ENUINE MODIFICATIONS WERE ALLOWED BY SEBI / STOCK EXCHANGES TO RECTIFY THE UN FORESEEN ERRORS. IN THE ABOVE BACKGROUND, IT WAS CONTENDED THAT CODE MODIFI CATION TRANSACTIONS WERE GENUINE. 2.5 HOWEVER, RELYING UPON THE FINDINGS OF INVESTIGA TION ARM OF THE DEPARTMENT HAVING CONDUCTED SPOT VERIFICATIONS BY W AY OF SURVEYS AND INQUIRIES, IT WAS NOTICED THAT SOME OF THE BROKERS AND THEIR CLIENTS HAVE INDULGED IN THE PRACTICE OF MISUSE OF CLIENT-CODE M ODIFICATION THEREBY ARTIFICIALLY SHIFTING PROFITS AND LOSSES FROM ORIGI NAL CLIENT CODE TO MODIFIED CLIENT CODE WITH AN INTENTION TO REDUCE THE LEGITIM ATE TAX LIABILITY WHICH WOULD HAVE BEEN ARISEN HAD THE ORIGINAL TRADES NOT BEEN M ODIFIED. 2.6 PROCEEDING FURTHER, IT WAS ALSO NOTED THAT THE CLIENT-CODE MODIFICATION FACILITY WAS APPROVED BY SEBI AND PROVIDED BY THE E XCHANGES TO BROKERS SO AS TO ENABLE RECTIFICATION OF GENUINE MISTAKES OF P UNCHING OF ORDERS OF A PARTICULAR TRADE GIVEN BY A PARTICULAR CLIENT IN IT S PARTICULAR ACCOUNT MAINTAINED WITH THE BROKER. IN THIS FACILITY, THE B ROKER COULD CHANGE THE CLIENT-CODE OF A PARTICULAR TRADE AND TRANSFER THE TRADE FROM ONE ACCOUNT TO ANOTHER ACCOUNT DURING THE TRADING HOURS & WITHIN T IME LIMIT PERMITTED BY THE STOCK EXCHANGE AFTER THE CLOSE OF TRADING HOURS. AF TER THE MODIFICATION IN CLIENT-CODE IS MADE, IT WAS SUBMITTED TO THE STOCK EXCHANGE FOR INFORMATION AND NECESSARY MODIFICATION / UP-DATION IN THE DATA. HOWEVER, MANY BROKERS 5 ITA NO.2770/MUM/2018 NALANDA SECURITIES P.LTD. ASSESSMENT YEAR-2010-11 MISUSED THIS FACILITY FOR CREATING ARTIFICIAL LOSSE S / PROFITS AND PROVIDED SUCH FICTITIOUS PROFITS / LOSSES TO VARIOUS CLIENTS BY C HARGING SOME COMMISSION. 2.7 IN THE ABOVE BACKGROUND, LD. AO FORMED AN OPINI ON THAT THE ASSESSEE COMPANY WAS A BENEFICIARY OF SUCH PRACTICE AND HAS REDUCED ITS OVERALL PROFIT BY TAKING FICTITIOUS LOSSES TO THE EXTENT OF RS.2.97 LACS STATED TO BE OBTAINED FROM A BROKER M/S PASUPATI CAPITAL SERVICES PVT. LTD . AND THEREFORE, THE SAID LOSS OF RS.2.97 LACS WAS TO BE DISALLOWED. 3.1 BEFORE LD. FIRST APPELLATE AUTHORITY THE ASSESS EE CHALLENGED THE QUANTUM ADDITIONS ON LEGAL GROUNDS AS WELL AS ON ME RITS. HOWEVER, THE LEGAL SUBMISSIONS COULD NOT FIND FAVOR WITH LD. CIT (A) WHO UPHELD THE ACTION OF LD. AO IN TRIGGERING REASSESSMENT PROCEEDINGS AG AINST THE ASSESSEE. 3.2 ON MERITS, IT WAS NOTED BY LD. CIT(A) THAT STOC K EXCHANGES PROVIDED FOR SPECIAL FACILITY FOR MODIFICATION OF CLIENT COD ES OF EXECUTED TRADES WITH A VIEW TO RECTIFY THE HUMAN ERRORS. HOWEVER, SINCE TH E ASSESSEE COULD NOT PRODUCE ANY SUBSTANTIAL EVIDENCE TO SUPPORT ITS CLA IM, THE ADDITION WAS TO BE UPHELD. AGGRIEVED, THE ASSESSEE IS UNDER APPEAL BEFORE US. 4. AFTER CAREFUL CONSIDERATION OF FACTUAL MATRIX AS ENUMERATED BY US IN PRECEDING PARAGRAPHS, WE FIND OURSELVES IN AGREEMEN T WITH THE DECISION OF LD. FIRST APPELLATE AUTHORITY THAT THE REASSESSMENT PROCEEDINGS WERE VALIDLY INITIATED AGAINST THE ASSESSEE SINCE LD. AO WAS CLI NCHED WITH TANGIBLE MATERIAL IN THE SHAPE OF INFORMATION FROM INVESTIGA TION WING WHICH SUGGESTED POSSIBLE ESCAPEMENT OF INCOME IN THE HAND S OF THE ASSESSEE. THE LD. AO, AFTER APPRECIATING THE DATA SUPPLIED BY INVESTIGATION WING, REOPENED THE CASE AS PER DUE PROCESS OF LAW. THIS I NFORMATION WAS MORE 6 ITA NO.2770/MUM/2018 NALANDA SECURITIES P.LTD. ASSESSMENT YEAR-2010-11 THAN ENOUGH TO FORM AN OPINION THAT CERTAIN INCOME ESCAPED ASSESSMENT. NOTHING MORE WAS REQUIRED AT THIS STAGE AND LD. AO HAD AMPLE REASONS TO BELIEVE THAT INCOME ESCAPED ASSESSMENT AND HE WAS W ELL WITHIN HIS JURISDICTION TO OPEN THE CASE. FINDING NO MERITS IN LEGAL GROUNDS, WE DISMISS THE SAME. 5. SO FAR AS THE MERITS OF THE QUANTUM ADDITIONS AR E CONCERNED, WE FIND THAT THERE IS NOTHING MORE THAN A GENERAL ALLEGATIO N THAT THE ASSESSEE OBTAINED FICTITIOUS LOSS FROM THE SAID BROKER. IN F ACT, IT IS THE SUBMISSIONS OF THE ASSESSEE THAT NO DETAILS OF THE ALLEGED FICTITI OUS TRANSACTIONS WERE EVER PROVIDED TO THE ASSESSEE DESPITE BEING SPECIFICALLY DEMANDED BY THE ASSESSEE VIDE LETTER DATED 07/11/2016, A COPY OF WH ICH HAS BEEN PLACED ON RECORD. NOTHING ON RECORD WOULD SUGGEST THAT THE AS SESSEE WAS IN COLLUSION WITH THE SAID BROKER. IT IS TRITE LAW THAT NO ADDIT ION COULD BE MADE MERELY ON THE BASIS OF SUSPICION, CONJECTURES OR SURMISES. IN OUR CONSIDERED OPINION, THE PRIMARY ONUS WAS ON REVENUE TO CONFRONT THE DET AILS OF THE ALLEGED FICTITIOUS TRANSACTIONS TO THE ASSESSEE AND THEREAF TER, ESTABLISH THAT THE ASSESSEE COLLIDED WITH THE SAID BROKER TO OBTAIN FA CTITIOUS LOSSES. THE FACILITY OF CLIENT CODE MODIFICATION WAS PROVIDED B Y THE STOCK EXCHANGES / SEBI WITH A VIEW TO RECTIFY THE HUMAN ERROR. NO NEX US OF THE DATA OBTAINED FROM INVESTIGATION WING COULD BE ESTABLISHED WITH T HE TRANSACTIONS, IF ANY, CARRIED OUT BY THE ASSESSEE, WITH THE SAID BROKER. THEREFORE, THE ALLEGATIONS OF LD. AO, IN OUR OPINION, ARE WITHOUT ANY COGENT O R SUPPORTING EVIDENCES AND THEREFORE, THE ADDITION MADE, IN THIS MANNER, C OULD NOT BE SUSTAINED IN 7 ITA NO.2770/MUM/2018 NALANDA SECURITIES P.LTD. ASSESSMENT YEAR-2010-11 THE EYES OF LAW. HENCE, BY DELETING THE SAME, WE AL LOW GROUNDS OF APPEAL, ON MERITS. 6. RESULTANTLY, THE APPEAL STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH OCTOBER, 2019. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 14/10/2019 SR.PS:-JAISY VARGHESE => ?> / COPY OF THE ORDER FORWARDED TO : 1. '# / THE APPELLANT 2. $%'# / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. K L$ M , M , / DR, ITAT, MUMBAI 6. L NOP / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.