Narayan Commodity Brokers Pvt. Ltd., New Delhi V. ITO, Ward- 17(4), New Delhi

ITA 290/DEL/2019

AI Insights

The case involves Narayan Commodity Brokers Pvt. Ltd., which appealed against the order of the Commissioner of Income-tax (Appeals)-6, New Delhi, pertaining to the assessment year 2009-10. The primary contention was against the initiation of reassessment proceedings under section 147 and the subsequent addition of Rs. 24,19,643 to the company's income, which was alleged to be profit shifted to clients through client code modification. The Tribunal examined the validity of the reassessment and the addition made, considering the procedural and substantive aspects of the case. The Tribunal found no infirmity in the initiation of reassessment proceedings and upheld the addition made to the income of the assessee.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 112787 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 04-12-2022
• Assessment Year: misc
• Appeal Filed On: 15-05-2022
• Other Referred Cases: Indu Lata Rangwala vs DC1T, Raymond Woollen Mills Ltd vs. ITO, AGR investments Ltd vs. AddLCIT & Anr., PCIT vs Paramount Communication (P.) Ltd., Paramount Communication (P.) Ltd. Vs PCIT, Sumati Dayal Vs. CIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Tangible material; Reassessment proceedings
• Section: 147; 148; 143(3); 143(1); 250; 13

Judgement Text

1 ITA no. 290/Del/2019 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “SMC”: NEW DELHI BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER ITA No. 290/DEL/2019____ Assessment Year: 2009-10 Narayan Commodity Brokers Pvt. Ltd., E-1/4, Third Floor, East Patel Nagar, New Delhi-110008. PAN- AABCN6733H Vs Income-tax Officer, Ward-17(4), New Delhi APPELLANT RESPONDENT Assessee represented by None Department represented by: Shri Sumesh Swani, Sr. DR Date of hearing 05.12.2022 Date of pronouncement 13.12.2022 O R D E R PER KUL BHARAT, JM: This appeal, by the assessee, is directed against the order of the learned Commissioner of Income-tax (Appeals)-6, New Delhi, dated 05.11.2018, pertaining to the assessment year 2009-10. The assessee has raised following grounds of appeal: “1. The action of the Assessing officer in initiating proceedings u/s 147 and issuing notice u/s 148 based on information of DIT Ahmedabad is unjust, illegal, arbitrary, illusory & may directed to be quashed. 2. The action of the Assessing officer in making an addition of Rs. 24,19,643/- by treating as profit of company shifted to clients is unjust, illegal, arbitrary, illusory & uncalled for. 2 ITA no. 290/Del/2019 3. That his action in treating the transactions of Rs. 24,19,643/- entered into through clients code modification as deliberate and planned shifting of profits of appellant company to other clients is unjust, illegal, arbitrary, illusory & uncalled for. 4. The action of the CIT(A) in not accepting the explanations given by the appellant company and the broker company M/s Narayan Securities Limited regarding the transactions of Rs. 24,19,643/- and adding the same to the income of the appellant company is unjust, illegal, arbitrary, illusory & uncalled for. 5. Appellant craves leave to add, alter, modify or delete any ground of appeal either before or at the time of hearing of the appeal.” 2. At the time of hearing no one attended the proceedings on behalf of the assessee. It is seen from the record that no one has been attending the proceedings on behalf of the assessee since 21.01.2021. Various notices of hearing sent to the assessee at the address provided in form no. 36 have been returned unserved with the postal remarks “not known”. The assessee has not provided any other address to the Registry. Therefore, the appeal is taken up for hearing in the absence of the assessee and is being decided on the basis of material available on record. 3. Facts of the case are that the case of the assessee was reopened for assessment u/s 147 of the income-tax Act, 1961 (in short “the Act”) and the assessment was completed vide order dated 29.12.2016. The Assessing officer while framing the assessment assessed income at Rs. 32,40,497/- by making addition of Rs. 24,19,643/- in respect of shifting of profit. Aggrieved against this, 3 ITA no. 290/Del/2019 the assessee preferred appeal before the learned CIT(Appeals), who after considering the submissions sustained the addition and dismissed the appeal of the assessee. Now the assessee is in appeal before this Tribunal. 4. At the outset learned Sr. DR, appearing on behalf of the Revenue, supported the orders of the authorities below and submitted that the assessee failed to justify its claim. 5. I have heard learned DR and gone through the material available on record. I find that the learned CIT(Appeals) has decided the issue against the assessee by observing as under: “4.1 Ground of appeal No. 1 challenges the initiation of proceedings under section 147 and issuing of notice under section 148 based on information of D1T, Ahmedabad. 4.1.1 I have considered the assessment order and the submissions of the appellant. It has been submitted that the AO was in possession of some information that some brokers had carried out transactions relating to client code modification relating to the appellant company but no effort was made to determine the extent of transactions entered into between the appellant and the broker and the percentage of the transactions entered through client code modification by the broker. It has also been submitted that notice under section 148 was issued to each and every assessee whose name appeared in the list received from Ahmedabad. The AO on the other hand has very' categorically recorded the reasons for issue of notice under section 148 after analysing the details of information received with the information is available in the return of income (pages 10 to 16 of the paper book). 4.1.2 It is an admitted fact that the return filed earlier was merely processed under section 143(1). In the case of Indu Lata Rangwala vs DC1T [(2016) 384 ITR 337 (Delhi)], the Hon'ble Delhi High Court have held that where initial return of income is processed under section 143(1), it is not 4 ITA no. 290/Del/2019 necessary’ in such a case for the AO to come across some fresh tangible material to form 'reasons to believe' that income has escaped assessment. It has also been held that whereas in a case where the initial assessment order is under section 143(3), and it is sought to be reopened within four years from the expiry of the relevant assessment year, the AO has to base his 'reasons to believe' that income has escaped assessment on some fresh tangible material that provides the nexus or link to the formation of such belief. In a case where the initial return is processed under section 143(1) of the Act and an intimation is sent to the assessee, the reopening of such assessment no doubt requires the AO to form reasons to believe that income has escaped assessment, but such reasons do not require any fresh tangible material. The Hon'ble Court have further held that w'here reopening is sought of an assessment in a .situation where the initial return is processed under section 143(1), the AO can form reasons to believe that income has escaped assessment by examining the very' return and/or the documents accompanying the return. It is not necessary’ in such a case for the AO to come across some fresh tangible material to form ’reasons to believe' that income has escaped assessment. It has also been observed that the first proviso to section 147 of the Act applies only (/) where the initial assessment is under section 143(3) of the Act and (u) where such reopening is sought to be done after the expiry of four years from the end of the relevant assessment year. Requirement in the first proviso to section 147 of there having to be a failure on the part of the assessee 'to disclose fully and truly all material facts' does not at all apply where initial return has been processed under section 143(1). 4.1.3 Further, in the case of Raymond Woollen Mills Ltd vs. ITO (236 ITR 34) the Hon'ble Supreme Court has held that in determining whether commencement of reassessment proceedings was valid it has only to be seen whether there was pritiia facie some material on the basis of which the Department could reopen the case. It was also held that the sufficiency or correctness of the material is not a thing to be considered at this stage. In the case of AGR investments Ltd vs. AddLCIT & Anr. [333 ITR 146 (Delhi)] it has been held that notice under section 148 issued on the basis of information from investigation wing was valid. It is also to be noted that in the case of PCIT vs Paramount Communication (P.) Ltd. [(2017) 392 ITR 444 (Delhi)], the Hon'ble Delhi High Court have held that information regarding bogus purchase by assessee received by DRI from CCE which was passed on to revenue authorities was 'tangible material outside record' to initiate valid reassessment proceedings. In Paramount Communication (P.) Ltd. Vs PCIT [(2017) 250 Taxman 100 (SC)],the Hon'ble Supreme Court have dismissed the SLP of assessee. 5 ITA no. 290/Del/2019 4.1.4 In view of the fact that the original return of income was merely processed under section 143(1) and reassessment proceedings were initiated based on the information received from DIT (Investigation), Ahmedabad. From the reasons recorded for issue of notice under section 148 (pages 14 to 16 of the paper book) it is seen that the said notice was issued only after analysing the details as given in thp information. In view of the discussion above, the facts of the case and the position of law, it is held that there is no infirmity in the initiation of reassessment proceedings. Ground of appeal NLo. 1 is dismissed. 4.2 Grounds of appeal Nos. 2, 3 and 4 challenge the addition of Rs. 24,19,643/- on account of transactions entered into through client code modification. Since these grounds of appeal are interlinked, these are being adjudicated together. 4.2.1 The AO after a detailed discussion on the modus operandi relating to client code modification and the facts of the case and also based on the transactions entered into by the appellant held that profit of Rs. 24,19,643/- had been shifted out by the assessee and the same was added back to the total income of the assessee. The appellant has submitted that the client code modification entries were punched and by the broker and tire assessee has no hold over the entries. It has also been submitted that lio addition can be made just because a transaction appeared through client code modification entered by the broker unless there is some other evidence that the assessee was responsible for tire entry which is resulting in the reduction of profits. 4.2.2 I have considered the assessment order and the submissions of the appellant. It is noticed that prima facie, copies of all documents have been submitted to substantiate the genuineness of transactions related to client code modification. I find that these documents were also placed before the AO. From the details submitted by the appellant which includes the details of transactions where client code modification took place, it is seen that the original client code (ORG_CL_CD) mentioned in the transaction was "NC" which pertains to the appellant. Following are the details regarding the client codes modified (MOD_CL_CD): Sl. No. Name of the party Modified client code 1. Kailash Malani HUF L85 2. Dalip Daga & Sons HUF (Karta Dalip Daga) CDD07 3. Srimad Fiscal Services (P) Ltd. (Director Dalip Daga) CSF06 4. Drake properties (P) Ltd(Director Ramesh Kumar Daga) CDP11 6 ITA no. 290/Del/2019 5. Nakul Bansal CNB31 6. Vishal Bansal CVB07 7. Indresh bansal CIB06 8. Kunjbihari Kasat HUF SU333 9. Nalini Chandrakant Kasat SU336 10. Ramakant Ramniwas Kasat SU331 11. Sohanlal Bhaverlal Bhogar HUF SU299 12. Sohanlal Bhaverlal Bhogar SU242 13. Sushilaban Sohanlal Bhogar SU225 14. Guardian Portfolio Consultants (P) Ltd. (Director Ashish Saraf) GP 15. Panchsheel Securities (P) Ltd. (Director Ashish Saraf) PA 16. Ashish Saraf HUF AAA 17. Sandeep Saraf SSS 18. Santosh Devi Poddar SU316 19. B.K. Jain BK 20. Rekha Pradeep Kumar Aggarwal JE106 21. Reecha Aggarwal SU17 22. Ankita Aggarwal SU202 23. Swati Agrawal CSA78 24. D K Arora HUF CDH04 25. Subh karan Bhura SU323 26. Akhil Bishwanath Agarwal D76 27. Rajeev Gulati & Family HUF CRG60 28. Ankit Gupta CAG23 29. Ashish Todi CAT05 30. Prakash Todi CAT01 31. Santosh Devi Todi CST05 32. Vipin Kumar Gupta HUF CVG35 33. Pooja SU220 34. Vijay Kumar Sadana SU281 35. Parbati Devi Agarwal SU28 7 ITA no. 290/Del/2019 36. Shree Sanyogita Sales (P) Ltd. CSS122 37. Mansee Peenal Kumar Popat SU346 38. Samir Hemendrakumar Popat SU334 39. Pratiksha Samir popat SU345 40. Amitkumar Shreebhagwan Mor D79 41. Prabhu Dayal Agarwal SU273 42. Rajnikant Mohanbhai Kathrotiya SU348 43. Mohanbhai Ramjibhai kathrotiya SU351 44. Sanjaybhai Jerambhai Viramgama SU60 45. Anjuben babulal Agrawal SU282 46. Shravan Kumar Basantilal Agarwal SU284 47. Rupesh Kumar Gupta SU354 48. Agarwal Anilkumar Basantilal Su283 49. Radhey Shyam Gupta SU357 50. Manju Anil Bansal SU312 4.2.3 On perusal of all the facts and details of the parties with whom the client code was modified, two important facts are noted. First is that many of the transactions out of the 451 transactions involving client code modification are with a few parties who also are parties related to the appellant and/or represent a specific group. For instance, transactions have been entered into with Guardian Portfolio Consultants (P) Ltd and.Panchsheel Securities (P) Ltd where the director is Shri Ashish Saraf who also happens to be the Director of the appellant company and also with Ashish Saraf F1UF. Sandeep Saraf also appears to be a related party'. Similarly, transactions involving cLient code modification were entered into with Dalip Daga & Sons HUF (Karta Dalip Daga) and Srirnad Fiscal Sen ices (P) Ltd (Director Dalip Daga) which form one specific group of parties. Another set of people who appear to be related parties with whom such transactions were entered into are at serial Nos. 8 to 10 and 11 to 13 of the above table. From further analysis of data, it is noted that in the month of February, 2009, out of the 106 transactions, 44 transactions pertain to Kunjbihari Kasat HUF, Nalini Chandrakant Kasat and Ramakant Ramniwas Kasat. From this it is apparent that the transactions entered into using the facility of client code modification were well thought out transactions entered into with a few specific parties. Such transactions cannot be held to be genuirte when considered by applying test of human 8 ITA no. 290/Del/2019 probabilities as enunciated by the Hon'ble Supreme Court in the case of Sumati Dayal Vs. CIT (214 ITR 801). 4.2.4 The second fact which is noteworthy in the case under consideration is regarding the contention that client code modifications were due to inadvertent punching errors. As per the data furnished by the appellant, the original rode of the appellant was "NC" which was modified to the codes mentioned in the above table. As seen from the table above in most of the cases the entire code has been changed. It is not a case where only one digit which could have been erroneously punched in has been changed. When the .characters modified are analyzed vis-a-vis their position in the keyboard, as noted above, it is seen that in all the cases letters which have been changed are far apart on the QWERTY keyboard. This becomes more apparent in view of the fact that the original code was "NC" which was modified to the codes as given in the table above. In this case, for example, letter "N" has been changed to "S" or "D" cannot be merely explained as punching errors, the keys being far apart on the keyboard. The characters modified can also be analysed vis-a-vis digit edit analysis, also known as the Levenshtein Distance Analysis. The Levenshtein distance between two words is the minimum number of single-character edits required to change one word into the other. Such an analysis shows that whether the code was wrongly typed or was completely replaced. It is seen that in most cases more than one digit has been changed and, in some cases, the entire code has been changed with numbers being added to the code. For instance, "NC" (the original code) has been changed to "BK", "CAG23", "CDP11", "SU202", "CDD07", "CDH04", etc. This is a clear indication that the code was not wrongly typed and that it has been completely replaced. Further, since more than one digit has been changed in all the transactions as noted above, it is a clear indication that it was a deliberate change. 4.2.5 From the facts as noted above it is seen that the client code has been changed with a few clients which pertain to groups which are apparently related to each other and in one case related to the appellant also cannot be a mere coincidence. Such transactions cannot be held to be genuine as they fail the test of human probabilities. 4.2.6 In view of the discussion above and the facts of the case, the addition made is upheld. Grounds of appeal Nos. 2, 3 and 4 are dismissed.” 6. The above finding of the learned CIT(Appeals) is not rebutted by the assessee by placing any contrary material on record. Therefore, I do not see any 9 ITA no. 290/Del/2019 reason to interfere in the order of the learned CIT(Appeals) and the same is affirmed. 7. The appeal of the assessee is dismissed. Order pronounced in open court on 13 th December, 2022. Sd/- (KUL BHARAT) JUDICIAL MEMBER *MP* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI