Rekhi Holdings Pvt. Ltd., New Delhi V. ACIT, Central Circle- 14, New Delhi

ITA 4675/DEL/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4691 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 25-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S L ANURAGI
• Keywords: Search and seizure; Question of law; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 142(1); 153A; 14A; 115JB; 143(1); 147; 148; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : SMC : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.4675/DEL/2018 ASSESSMENT YEAR: 2010-11 REKHI HOLDINGS PVT. LTD., 36, SANT NAGAR, EAST OF KAILASH, NEW DELHI. PAN: AAACR6025K VS. ACIT, CENTRAL CIRCLE-14, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VED JAIN, ADVOCATE & SHRI RISHABH JAIN, CA REVENUE BY : SHRI S.L. ANURAGI, SR. DR DATE OF HEARING : 20.02.2019 DATE OF PRONOUNCEMENT : 16.05.2019 ORDER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 11 TH JUNE, 2018 PASSED BY THE CIT(A)-26, NEW DELHI, RELATING TO ASS ESSMENT YEAR 2010-11. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A PRIVATE LIMITED COMPANY AND FILED ITS RETURN OF INCOME ON 28 TH SEPTEMBER, 2010 DECLARING A LOSS OF RS.17,71,540/- WHICH WAS PROCESSED U/S 143(1) OF THE ACT ON 25 TH JANUARY, 2011. SUBSEQUENTLY, A SEARCH AND SEIZURE OPERATION U/S 132 OF THE IT ACT WAS CONDUCTED IN THE ASSESSEE COMPANY AND ITS GROUP CONCERNS. IN RESPONSE TO NOT ICE U/S 153A, THE ASSESSEE FILED ITS RETURN OF INCOME ON 9 TH SEPTEMBER, 2013 AND ASSESSMENT U/S 153A/143(3) OF THE ACT ITA NO.4675/DEL/2018 2 WAS COMPLETED DETERMINING THE TOTAL LOSS AT RS17,12 ,515/- WHEREIN DISALLOWANCE U/S 14A OF RS.59,025/- WAS MADE IN THE HANDS OF THE ASS ESSEE COMPANY. SUBSEQUENTLY, THE ASSESSING OFFICER REOPENED THE CASE OF THE ASSE SSEE AFTER RECORDING THE FOLLOWING REASONS:- THE ASSESSEE COMPANY HAD E-FILED ITS RETURN ON 28.09.2010 WITH DECLARING INCOME OF RS. NIL. THIS OFFICE HAS RECEIVED INFORMA TION FROM PR. CIT(OSD) IN CHARGE OF DIRECTOR OF INCOME TAX (I & CI), MUMBAI V IDE LETTER NO. DIT/(I&CI)/CCM/2014-15 DATED 27.02.2015 THAT SOME B ROKERS WERE ALLEGED TO BE INDULGING IN TRANSFERRING FICTITIOUS LOSSES TO D IFFERENT CLIENTS TO REDUCE THEIR TAX LIABILITY AND ALSO FICTITIOUS PROFIT TO OTHER CLIEN TS. ONE OF THE CLIENTS IN THIS LIST WAS M/S P. REKHI HOLDINGS PVT. LTD., 36, SANT NAGAR . EAST OF KALIASH, NEW DELHI-110065. WHEN CONFRONTED WITH THE CLIENT MODIF ICATION DATA AND THE STATEMENTS OF BROKERS, THESE CLIENTS ADMITTED HAVIN G TAKEN FICTITIOUS LOSS FROM THE BROKERS. ON THE BASIS OF THE INFORMATION, THAT FICTITIOUS LO SSES TO THE TUNE RS.40,25,433/- WERE BOOKED BY M/S REKHI HOLDINGS PVT. LTD., 36 SAN T NAGAR, EAST OF KALIASH, NEW DELHI-110065 AND THE SAME MUST BE ADJUSTED FROM THE INCOME/ PROFIT EARNED DURING THE YEAR LOSSES BROUGHT FORWARDED IN NEXT YE AR ACCORDINGLY. IN VIEW OF THE ABOVE, I HAVE REASON TO BELIEVE THAT DUE TO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL F ACTS NECESSARY FOR ITS INCOME FOR THIS ASSESSMENT YEAR I.E. A.Y. 2010-11 INCOME TO TH E EXTENT OF RS.40,25,433/- HAS ESCAPED INCOME. 3. ACCORDINGLY, NOTICE U/S 148 OF THE ACT WAS ISSUE D ON 20 TH MARCH, 2015. THE ASSESSEE, IN RESPONSE TO THE SAME FILED A LETTER CH ALLENGING THE VALIDITY OF NOTICE ISSUED U/S 148 AND JURISDICTION OF THE DCIT, CIRCLE 21(1). THE ASSESSEE ALSO FILED ITS RETURN UNDER PROTEST REQUESTING THE ASSESSING OFFICER TO T REAT THE ORIGINAL RETURN FILED U/S 139(1) ON 28 TH SEPTEMBER, 2010 AS THE RETURN FILED IN RESPONSE TO THE NOTICE U/S 148 AND REQUESTED TO PROVIDE THE REASONS RECORDED FOR R EOPENING. AFTER OBTAINING THE REASONS SO RECORDED, THE ASSESSEE FILED ITS OBJECTI ONS WHICH WERE DISPOSED OF BY THE ITA NO.4675/DEL/2018 3 ASSESSING OFFICER WHO REJECTED THE SAME. SUBSEQUEN TLY, THE ASSESSING OFFICER ISSUED STATUTORY NOTICES ASKING THE ASSESSEE TO EXPLAIN AS TO WHY THE AMOUNT OF RS.40,25,433/- SHOULD NOT BE DISALLOWED AND TAXED I N THE HANDS OF THE ASSESSEE. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASS ESSEE AND OBSERVING THAT THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE ITS CONTENTIO NS WITH ANY SUPPORTING DOCUMENTS AND OBSERVING THAT SPECIFIC INFORMATION WAS RECEIVE D FROM NSE THAT THE ASSESSEE COMPANY HAS TAKEN FICTITIOUS LOSS ENTRY OF RS.40,25 ,433/-, THE ASSESSING OFFICER DISALLOWED THE AMOUNT OF RS.40,25,433/- AND ADDED T HE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 4. BEFORE THE CIT(A), THE ASSESSEE, APART FROM CHAL LENGING THE ADDITION ON MERIT, CHALLENGED THE VALIDITY OF THE REASSESSMENT PROCEED INGS ON THE GROUND THAT THE ASSESSING OFFICER WHO HAD ISSUED THE NOTICE U/S 148 DID NOT HAVE THE JURISDICTION. THE ASSESSING OFFICER WHO HAS PASSED THE REASSESSME NT ORDER NEVER ISSUED ANY NOTICE U/S 148. FURTHER, THE ASSESSING OFFICER, WITHOUT A PPLICATION OF MIND AND ON VAGUE REASONS HAS REOPENED THE ASSESSMENT WHICH IS NOT JU STIFIED. IT WAS FURTHER ARGUED THAT THE REASONS SUPPLIED DO NOT PROVIDE COMPLETE DETAIL S ON THE TRANSACTIONS MODIFIED AND THE NOTICE WAS NOT ISSUED AS PER THE MANDATE OF LAW . RELYING IN VARIOUS DECISIONS, IT WAS ARGUED THAT IT WAS A MERE CHANGE OF OPINION AND , THEREFORE, THE REASSESSMENT PROCEEDINGS INITIATED BY THE ASSESSING OFFICER ARE BAD IN LAW. 4.1 HOWEVER, THE LD.CIT(A) WAS NOT SATISFIED WITH T HE ARGUMENTS ADVANCED BY THE ASSESSEE. AFTER CALLING FOR A REMAND REPORT FROM T HE ASSESSING OFFICER AND AFTER ITA NO.4675/DEL/2018 4 CONSIDERING THE REJOINDER OF THE ASSESSEE TO THE RE MAND REPORT, THE LD.CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER IN REOPENING OF THE ASSESSMENT AND ALSO SUSTAINED THE ADDITION ON MERIT. 5. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASS ESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER PASSED BY THE COMMISSIONER OF INCOME [CIT(A)] IS BAD BOTH IN THE EYE OF LAW AND ON FACTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN REJECTING THE CONTENTIO N OF THE ASSESSEE THAT THE ORDER PASSED BY THE AO IS WITHOUT JURISDICTION. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN REJECTING THE CONTENTIO N OF THE ASSESSEE THAT THE INITIATION OF THE REASSESSMENT PROCEEDINGS AND THE REASSESSMENT ORDER ARE BAD BOTH ON FACTS AND IN LAW AND LIABLE TO BE QUASHED A S THE STATUTORY CONDITIONS AND PROCEDURE PRESCRIBED UNDER THE STATUTE HAVE NOT BEE N COMPLIED WITH. 4. (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LE ARNED [CIT(A)] HAS ERRED IN REJECTING THE CONTENTION OF THE ASSESSEE T HAT THE REASSESSMENT PROCEEDINGS INITIATED BY THE A.O. ARE BAD IN THE EYE OF LAW AS THE REASONS RECORDED FOR THE ISSUE OF NOTICE UNDER SECTION 148 ARE BAD IN THE EY E OF LAW AND ARE CONTRARY TO THE FACTS. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE ADDITION MADE BY THE AO DESPITE THE FACT THAT THE REASON GIVEN ARE VAGUE AND SUCH ADDIT ION IS MADE AFTER INDULGING INTO SURMISES AND CONJECTURES. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD . CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE ADDITION MADE BY THE LEARNED AO DESPITE THE MADE WITHOUT APPLICATION OF HIS OWN MIN D. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LE ARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE ADDITION DESPITE THE FACT THAT THE ASSESSMENT U/S147, CANNOT BE MADE ON ACCOUNT OF CHA NGE OF OPINION. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE ADDITION DESPITE THE FACT THAT THE ITA NO.4675/DEL/2018 5 LEARNED A.O. HAS DRAWN THE ADVERSE INFERENCE ON THE BASIS OF MATERIAL COLLECTED AT THE BACK OF THE ASSESSEE WITHOUT GIVING IT AN OPPOR TUNITY TO REBUT THE SAME. BOOK PROFIT COMPUTED U/S 115JB 8. (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE AD DITION OF AN AMOUNT OF RS.40,25,433/- ACCOUNT OF CLIENT CODE MODIFICATION THROUGH BROKER. (II)THAT THE ABOVE ADDITION HAS BEEN CONFIRMED REJE CTING THE DETAILED EXPLANATION AND EVIDENCES BROUGHT ON RECORD BY THE ASSESSEE. THAT THE ABOVE ADDITION HAS BEEN MADE REJECTING THE CONTENTION OF THE ASSESSEE THAT THE CLIENT CODE MODIFICATION CAN ONLY BE DONE AT THE STOCK BROKER OR CO BROKER LEVEL AND ASSESSEE NEITHER BEING A STO CK BROKER NOR COMMODITY BROKER CLIENT CODE MODIFICATION CANNOT BE DONE BY I T. NORMAL PROVISIONS OF THE ACT 9. (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT(A) HAS ERRED BOTH FACTS AND IN LAW IN CONFIRMING THE ADDIT ION OF AN AMOUNT OF RS.40,25,433/- ON ACCOUNT OF CLIENT CODE MODIFICATI ON THROUGH BROKER. THAT THE ABOVE ADDITION HAS BEEN CONFIRMED REJECTI NG THE DETAILED EXPLANATION AND EVIDENCES BROUGHT ON RECORD BY THE ASSESSEE. THAT THE ABOVE ADDITION HAS BEEN CONFIRMED REJECTI NG THE CONTENTION OF THE ASSESSEE THAT THE CLIENT CODE MODIFICATION CAN ONLY BE DONE AT THE STOCK BROKER OR COMMODITY BROKER LEVEL AND ASSESSEE NEITH ER BEING A STOCK BROKER NOR COMMODITY BROKER, CLIENT CODE MODIFICATION CANNOT B E DONE BY IT. 10. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT (A) HAS ERRED, BOTH ON FACTS AND IN LAW CONFIRMING THE ACTION OF THE AO IN CHARGING INTEREST UNDER SECTIONS 234A, 234B, 234C AND 234D OF THE ACT. 11 .THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALT ER ANY OF THE GROUNDS OF APPEAL. 6. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALLE NGED THE ORDER OF THE CIT(A). HE SUBMITTED THAT AFTER THE SEARCH U/S 132 OF THE A CT WAS CONDUCTED ON 28 TH JULY, 2011, THE CASE OF THE ASSESSEE WAS CENTRALIZED IN C ENTRAL CIRCLE NO.15, VIDE ORDER DATED 20 TH /23 RD JULY, 2012 PASSED U/S 127 OF THE IT ACT. HE SUBMI TTED THAT THE DCIT, CENTRAL CIRCLE-15, ISSUED NOTICE U/S 153A ASKING TH E ASSESSEE TO FILE RETURN OF INCOME. ITA NO.4675/DEL/2018 6 REFERRING TO PAGE 15 TO 17 OF THE PAPER BOOK, HE SU BMITTED THAT THE ORDER U/S 153A/143(3) OF THE ACT WAS PASSED ON 24 TH MARCH, 2014 BY THE DCIT, CENTRAL CIRCLE- 15, NEW DELHI. REFERRING TO PAGE 18 OF THE PAPER B OOK, HE SUBMITTED THAT THE NOTICE U/S 148 OF THE IT ACT WAS ISSUED BY THE DCIT, CIRCL E 21(1), NEW DELHI ON 20.03.2015. REFERRING TO PAGE 42 OF THE PAPER BOOK , HE SUBMITTED THAT THE ORDER OF DECENTRALIZATION OF THE CASE WAS PASSED ON 3 RD AUGUST, 2017 BY THE CIT, CENTRAL CIRCLE-2, NEW DELHI. THUS, FROM 20 TH JULY, 2012 TO 3 RD AUGUST, 2017, THE JURISDICTION OF THE ASSESSEE WAS LYING WITH CENTRAL CIRCLE-15, N EW DELHI, WHEREAS THE NOTICE U/S 148 WAS ISSUED BY THE DCIT, CIRCLE 21(1), NEW DELHI ON 20 TH MARCH, 2015. THEREFORE, THE DCIT, CIRCLE 21(1), NEW DELHI WHO HA D ISSUED NOTICE U/S 148 WAS NOT HAVING JURISDICTION OVER THE ASSESSEE TO ISSUE SUCH NOTICE. REFERRING TO THE FOLLOWING DECISIONS, HE SUBMITTED THAT ONLY AN AUTHORITY WHO HAD JURISDICTION OVER THE ASSESSEES CASE IS COMPETENT TO ISSUE A NOTICE IN TERMS OF SEC TION 148 OF THE ACT AND ANY AUTHORITY WHO IS NOT HAVING JURISDICTION OVER THE A SSESSEE, IF ISSUES NOTICE U/S 148 OF THE ACT, THEN, SUCH NOTICE SO ISSUED WILL BE WITHOU T JURISDICTION AND CONSEQUENTLY THE ASSESSMENT MADE HAS TO BE HELD AS BAD IN LAW AND DE SERVES TO BE QUASHED:- (I) CIT VS. SMT. ANJALI DUA 2008 (7) TMI 958 (DELHI HI GH COURT); (II) RANJEET SINGH VS. ACIT 2008 (6) TMI 236 (ITAT, DEL HI); (III) DR. (MRS.) K.B. KUMAR V. ITO 2010 (1) TMI 669 (ITAT DELHI); AND (IV) CIT V. ANIL KHOSLA 2008 (9) TMI 931 (DELHI HIGH COU RT). 7. HE SUBMITTED THAT THE ASSESSING OFFICER HAS BLIN DLY RELIED UPON THE REPORT OF THE INVESTIGATION WING WHICH ITSELF IS NOT BASED ON ANY MATERIAL AGAINST THE ASSESSEE. ITA NO.4675/DEL/2018 7 THE MERE RECORDING OF REASONS ON THE BASIS OF REPRO DUCTION OF INFORMATION FROM INVESTIGATION WING AND ISSUING NOTICE FOR INITIATIO N OF REASSESSMENT PROCEEDINGS DOES NOT CONSTITUTE APPLICATION OF MIND MUCH LESS INDEPE NDENT APPLICATION OF MIND. THEREFORE, THE PROCEEDING IS WITHOUT JURISDICTION. FOR THE ABOVE PROPOSITION, HE RELIED ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF M/S CORONATION INDUSTRIES LTD. VS. DCIT, VIDE WRIT PETITION NO.262 7 OF 2016, ORDER DATED 23.11.2016, WHERE IT IS HELD THAT MERE CLIENT CODE MODIFICATION BY BROKER DOES NOT MEAN THAT ANY INCOME HAS ESCAPED ASSESSMENT. REFERRING TO THE DE CISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF PCIT VS. PAT COMMODITY SERVICES PVT. LTD., VIDE ITA NO. 1257 OF 2016, ORDER DATED 15 TH JANUARY, 2019 , HE SUBMITTED THAT THE HON'BLE HIGH COURT IN THE SAID DECISION HAS HELD THAT MERE CLIEN T CODE MODIFICATION BY BROKER DOES NOT MEAN THAT ANY INCOME HAS ESCAPED ASSESSMENT. H E ACCORDINGLY SUBMITTED THAT MERE CLIENT CODE MODIFICATION BY BROKER DOES NOT ME AN THAT ANY INCOME HAS ESCAPED ASSESSMENT AND CONSEQUENTLY, THE REASSESSMENT PROCE EDINGS SHOULD BE HELD AS VOID AND THE SUBSEQUENT ADDITION ON THE BASIS OF SUCH RE ASSESSMENT HAS TO BE QUASHED. 8. THE LD. COUNSEL FOR THE ASSESSEE, REFERRING TO P AGES 31 TO 36 OF THE PAPER BOOK, SUBMITTED THAT THE ASSESSEE HAS RAISED OBJECTION TO INITIATION OF REASSESSMENT PROCEEDINGS U/S 147 OF THE ACT, VIDE LETTER DATED 1 ST MARCH, 2016 AND THE AFORESAID OBJECTIONS WERE DISPOSED OF BY THE ASSESSING OFFICE R VIDE ORDER DATED 1 ST MARCH, 2016, COPY OF WHICH IS PLACED AT PAGE 37 OF THE PAP ER BOOK. THE DISPOSAL OF THE OBJECTIONS ON THE VERY SAME DAY SHOWS THAT THE ASSE SSING OFFICER DID NOT APPLY HIS ITA NO.4675/DEL/2018 8 MIND BEFORE REJECTING THE OBJECTIONS. HE SUBMITTED THAT IN THE INSTANT CASE, THE ACTION HAS BEEN TAKEN U/S 147 OF THE ACT AFTER COMPLETION OF THE ASSESSMENT U/S 153A/143(3) ON THE BASIS OF THE REPORT OF THE INVESTIGATION WIN G AND THE ASSESSING OFFICER HAS NOT CONDUCTED ANY INQUIRY ON THE SAME. THEREFORE, THE REASSESSMENT PROCEEDINGS INITIATED IN THE INSTANT CASE ARE NOT IN ACCORDANCE WITH LAW. FOR THE ABOVE PROPOSITION, THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE DECISIONS OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF MOHAN AGGARWAL VS. ACIT, VIDE ITA NO.2497/DEL/2018, ORDER DATED 31.01.2009 , M/S PRASHANT AGENCIES PVT. LTD. & PPN PROPERTIES PV T. LTD. VS. ITO, VIDE ITA NO.3059/DEL/2018, ORDER DATED 16 TH JANUARY, 2019, ITO VS. M/S ABHISHEK FINCAP SERVICES PVT. LTD., ITA NO.2750/DEL/2017, OR DER DATED 13 TH SEPTEMBER, 2017 AND THE DECISION OF THE JAIPUR BENCH OF THE TRIBUNA L IN DCIT VS. GYANDEEP KHEMKA, VIDE ITA NO.695/JP/2018, ORDER DATED 23 RD OCTOBER, 2018 . 9. SO FAR AS THE MERIT OF THE CASE IS CONCERNED, HE SUBMITTED THAT THE ORDERS OF THE AUTHORITIES BELOW CANNOT BE ACCEPTED SINCE THE ASSE SSING OFFICER HAS NOT POINTED OUT ANY BASIS OR MATERIAL OR EVIDENCE TO SUPPORT HIS FI NDINGS THAT THE ASSESSEE HAS RECEIVED ENTRY OF FICTITIOUS LOSSES. THE ASSESSING OFFICER HAS NOT SPELT OUT IN THE REASONS RECORDED AS WELL AS THE ASSESSMENT ORDER AS TO ON W HICH SCRIPS THE ASSESSEE HAS TAKEN LOSS ENTRIES. FURTHER, IN THE REASONS RECORDED AS WELL AS THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS NOT MENTIONED ANYWHERE OF ANY STATEMENT OF BROKER OF THE ASSESSEE REGARDING THE ADMISSION OF ANY FICTITIOUS CLIENT CODE MODIFICATION. HE SUBMITTED THAT THE ADDITION HAS BEEN MADE BY THE AS SESSING OFFICER DESPITE ASSERTIONS BY THE ASSESSEE THAT IT IS NOT INTO BROKING SERVICE S AND ACCORDINGLY HAS NOT DONE ANY ITA NO.4675/DEL/2018 9 CLIENT CODE MODIFICATION. HE SUBMITTED THAT WHEN T HE ASSESSMENT ORDER IS BASED ON THE REPORT OF THE INVESTIGATION WING WITHOUT ANY FR ESH AND INDEPENDENT INQUIRY CONDUCTED BY THE ASSESSING OFFICER AND WHEN NO BROK ER HAS GIVEN ANY STATEMENT AGAINST THE ASSESSEE, THEREFORE, IN THE LIGHT OF TH E JUDICIAL PRECEDENTS CITED ABOVE THE ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINE D BY THE CIT(A) SHOULD BE DELETED BOTH UNDER REGULAR PROVISIONS AND MAT PROVI SIONS WHILE COMPUTING THE BOOK PROFIT. 10. THE LD. DR, ON THE OTHER HAND, HEAVILY RELIED ON TH E ORDER OF THE CIT(A). SO FAR AS THE JURISDICTION OF THE ASSESSEE IS CONCERNE D, HE SUBMITTED THAT THE LD.CIT(A) HAS ALREADY DECIDED THE ISSUE AGAINST THE ASSESSEE WHICH IS SELF-EXPLANATORY AND, THEREFORE, THE GROUND RAISED BY THE ASSESSEE ON THI S ISSUE SHOULD BE DISMISSED. SO FAR AS THE MERIT OF THE CASE IS CONCERNED, HE SUBMITTED THAT HERE ALSO THE LD.CIT(A) HAS GIVEN A CLEAR-CUT FINDING THAT THE ASSESSEE HAS MIS USED THE FACILITY OF CLIENT CODE MODIFICATION FOR CREATING ARTIFICIAL LOSS/PROFITS W HICH CAME TO LIGHT ON THE BASIS OF THE SURVEY CONDUCTED BY THE INVESTIGATION WING. THEREF ORE, ON ALL COUNTS, THE ORDER PASSED BY THE CIT(A) HAS TO BE UPHELD AND THE GROUN DS RAISED BY THE ASSESSEE SHOULD BE DISMISSED. 11. I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. I FIND THE ASSESS EE IN THE INSTANT CASE, FILED THE ORIGINAL RETURN OF INCOME ON 28 TH SEPTEMBER, 2010. SUBSEQUENTLY, AFTER THE SEARCH CONDUCTED U/S 132 OF THE ACT ON 28 TH JULY, 2011, THE CASE OF THE ASSESSEE WAS ITA NO.4675/DEL/2018 10 CENTRALIZED IN CENTRAL CIRCLE-15, VIDE ORDER DATED 20 TH /23 RD JULY, 2012 PASSED U/S 127 OF THE IT ACT. THE ASSESSEE, IN RESPONSE TO THE NO TICE U/S 153A, FILED ITS RETURN OF INCOME BEFORE THE DCIT, CENTRAL CIRCLE-15, NEW DELH I. THE ASSESSMENT U/S 153A READ WITH SECTION 143(3) WAS COMPLETED ON 24 TH MARCH, 2014 BY THE DCIT, CENTRAL CIRCLE-15, NEW DELHI. I FIND THE ORDER FOR DECENTRA LIZATION OF THE CASE OF THE ASSESSEE WAS PASSED ON 3 RD AUGUST, 2017 BY THE CIT, CENTRAL-2, NEW DELHI, A C OPY OF WHICH IS PLACED AT PAGE 42 OF THE PAPER BOOK. THUS, FROM 20 TH JULY, 2012 TO 3 RD AUGUST, 2017 THE JURISDICTION OF THE ASSESSEE WAS LYING WITH CEN TRAL CIRCLE-15, NEW DELHI, WHEREAS THE NOTICE U/S 148 WAS ISSUED BY THE DCIT, CENTRAL CIRCLE-21(1) ON 20 TH MARCH, 2015. THEREFORE, THE ASSESSING OFFICER, WHO HAD ISSUED TH E NOTICE U/S 148 HAD NO JURISDICTION OVER THE ASSESSEE AT THAT PARTICULAR P OINT OF TIME. ALTHOUGH THIS FACT WAS BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER, VID E LETTER DATED 15 TH APRIL, 2015, A COPY OF WHICH IS PLACED AT PAGE 19 OF THE PAPER BOO K, HOWEVER, IFIND THE SAME WAS NOT CONSIDERED. THE RELEVANT OBJECTION OF THE ASSE SSEE IN THE SAID LETTER READS AS UNDER:- IN THIS REGARD IT IS SUBMITTED THAT FIRSTLY THE PR OCEEDINGS INITIATED FOR REASSESSMENT, AND NOTICE ISSUED U/S 148 BY YOUR HON OUR IS WITHOUT JURISDICTION AND BARRED BY LIMITATION. 12. I FIND, THE HON'BLE DELHI HIGH COURT IN THE CASE OF SMT. ANJALI DUA (SUPRA) HAS OBSERVED AS UNDER:- IT IS IN THIS BACKGROUND THAT THE TRIBUNAL NOTED T HAT THE REQUEST OF THE ASSESSEE TO TRANSFER THE JURISDICTION WAS NOTED IN THE LETTER D ATED 25-3-1998 WHEREBY THE NO OBJECTION OF COMMISSIONER OF INCOME-TAX, NEW DELHI WAS CONVEYED TO THE COMMISSIONER OF INCOME-TAX, LUDHIANA. IT IS ALSO NO TED THAT THEREAFTER THE ASSESSEE SUBMITTED RETURNS FOR THE ASSESSMENT YEARS 1997-98 ONWARDS AT NEW DELHI. IT IS IN THESE FACTS AND CIRCUMSTANCES THAT THE TRIBUNAL CAME TO THE ITA NO.4675/DEL/2018 11 CONCLUSION THAT INSOFAR AS, THE ASSESSEE WAS CONCER NED, AFTER THE SAID TRANSFER, IT IS ONLY THE REVENUE AUTHORITIES AT NEW DELHI WHO HAD J URISDICTION OVER THE ASSESSEES CASES AND WHO WERE COMPETENT TO ISSUE A NOTICE IN TERMS OF SECTION 148 OF THE SAID ACT. IT MAY ALSO BE POINTED THAT, PURSUANT TO THE ISSUANCE OF IMPUGNED NOTICE UNDER SECTION 148 OF THE SAID ACT O N 28.3.2003, WHEN THE NOTICE UNDER SECTION 142(1) WAS ISSUED TO THE ASSESSEE IN DECEMBER 2003, THE ASSESSEE BY HER REPLY DATED 21-1-2004 INDICATED THAT HER ASS ESSING OFFICER WAS NOT LOCATED IN LUDHIANA, BUT AS THE INCOME-TAX OFFICER AT NEW DELHI 12.1 I FIND, THE COORDINATE BENCH IN THE CASE OF DR . MRS. K.B. KUMAR (SUPRA) HAS OBSERVED AS UNDER:- 7. IN THIS VIEW OF THE MATTER AND RESPECTFULLY FOL LOWING THE DECISIONS (SUPRA), IT IS HELD THAT NOTICE UNDER SECTION 148 I SSUED BY ITO, GHAZIABAD WAS WITHOUT JURISDICTION AND CONSEQUENT UPON THE SAME R EASSESSMENT FRAMED BY THE ASSESSING OFFICER, DELHI IS INVALID AND THE SAME IS ACCORDINGLY QUASHED. CONSEQUENTLY, THE ORDER OF THE LEARNED CIT(A) IS SE T ASIDE ON THE LEGAL ISSUE RAISED BY THE ASSESSEE IN HER APPEAL. GROUND NO. RA ISING THE LEGAL ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 12.2 I FIND, THE HON'BLE DELHI HIGH COURT IN THE CA SE OF CIT VS ANIL KHOSLA (SUPRA) HAS OBSERVED AS UNDER:- 1. THIS IS AN APPEAL IN RESPECT OF THE ASSESSMENT YEAR 1994-1995 DIRECTED AGAINST THE ORDER PASSED BY THE INCOME TAX APPELLA TE TRIBUNAL ON 21-9-2007. THE ISSUE SOUGHT TO BE RAISED IN THE PRESENT APPEAL PERTAINS TO THE JURISDICTION OF THE ASSESSING OFFICER IN ISSUING THE NOTICE UNDER S ECTION 148. THE TRIBUNAL ON CONSIDERATION OF THE FACTS THAT JURISDICTIONAL ITO DID NOT ISSUE ANY NOTICE UNDER SECTION 148 TO ASSESSEE IN SPITE OF OBJECTION TAKEN BY ASSESSEE BEFORE ASSISTANT COMMISSIONER OF INCOME TAX. THE TRIBUNAL, THEREFORE , CONCLUDED THAT THERE WAS A JURISDICTIONAL DEFECT IN NOTICE ISSUED UNDER SECT ION 148 ON BASIS OF WHICH THE ASSESSING OFFICER ASSUMED JURISDICTION AND MADE ASS ESSMENT. IN FACT, THIS WAS THE VERY VIEW TAKEN BY THE COMMISSIONER OF INCOME TAX (APPEALS) ALSO WHICH HAS BEEN CONFIRMED BY THE TRIBUNAL. 2. WE SEE NO REASON TO INTERFERE WITH THESE FINDINGS O N FACT. NO SUBSTANTIAL QUESTION OF LAW ARISES FOR OUR CONSIDERATION. THE A PPEAL IS DISMISSED. ITA NO.4675/DEL/2018 12 13. THE VARIOUS OTHER DECISIONS RELIED ON BY THE LD. CO UNSEL FOR THE ASSESSEE TO THE PROPOSITION THAT NOTICE ISSUED U/S 148 BY THE ASSES SING OFFICER NOT HAVING JURISDICTION OVER THE ASSESSEE IS INVALID ALSO SUPPORTS HIS CASE . SINCE, IN THE INSTANT CASE, THE ASSESSING OFFICER WHO HAS ISSUED NOTICE U/S 148 ON 20 TH JANUARY, 2015, WAS NOT HAVING JURISDICTION OVER THE ASSESSEE, THEREFORE, S UCH NOTICE ISSUED U/S 148 OF THE IT ACT AND THE ASSESSMENT ORDER PASSED CONSEQUENT TO I SSUE OF SUCH NOTICE U/S 148 HAS TO BE QUASHED. THEREFORE, THE FIRST LEGAL GROUND RAIS ED BY THE ASSESSEE REGARDING THE VALIDITY OF REASSESSMENT ON THE GROUND THAT THE NOT ICE WAS ISSUED BY THE ASSESSING OFFICER NOT HAVING JURISDICTION OVER THE ASSESSEE I S ALLOWED. 14. EVEN OTHERWISE ALSO, I FIND THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF M/S CORONATION AGRO INDUSTRIES LTD. (SUPRA) HAS HELD THAT MERE CLIENT CODE MODIFICATION BY BROKER DOES NOT MEAN THAT ANY INCOME HAS ESCAPED ASSESSMENT. THE RELEVANT OBSERVATIONS OF THE HON'BLE HIGH COURT READS AS UND ER:- 2. THIS PETITION CHALLENGES NOTICE DATED 31ST MARC H, 2016 ISSUED UNDER SECTION 148 OF THE INCOME TAX ACT, 1961. THE IMPU GNED NOTICE SEEKS TO REOPEN THE ASSESSMENT FOR ASSESSMENT YEAR 200910. THE R EGULAR ASSESSMENT PROCEEDINGS WERE COMPLETED ON 28TH DECEMBER , 2011 UNDER SECTION 143(3) OF THE ACT. 3. THE REASONS IN SUPPORT OF THE IMPUGNED NOTICE RE LIES UPON THE INFORMATION RECEIVED FROM THE PRINCIPAL DIRECTOR OF INCOME TAX THAT THE PETITIONER HAS BENEFITED FROM A CLIENT CODE MODIFICATION BY WHICH A PROFIT OF RS.22.50 LAKHS WAS SHIFTED OUT BY THE PETITIONER'S BRO KER, RESULTING IN REDUCTION OF THE PETITIONER'S TAXABLE INCOME. THE ONLY BASIS FOR FO RMING THE BELIEF IS THE REPORT FROM THE PRINCIPAL DIRECTOR OF INCOME TAX AND THE A PPLICATION OF MIND TO THE REPORT OF THE ASSESSING OFFICER ALONG WITH THE RECO RD AVAILABLE WITH HIM. THIS INFORMATION AND APPLICATION OF MIND HAS LED THE ASS ESSING OFFICER TO FORM A REASONABLE BELIEF THAT THERE IS NOT ONLY AN ESCAPEM ENT OF INCOME BUT THERE HAS BEEN FAILURE TO TRULY AND FULLY DISCLOSE ALL MATERI AL FACTS AND INFORMATION AS THE MODUS OPERANDI OF SHIFTING PROFITS WAS NOT KNOWN TO THE REVENUE AS NOT ITA NO.4675/DEL/2018 13 DISCLOSED BY THE PETITIONER WHEN THE ASSESSING OFFI CER PASSED THE ORDER IN REGULAR ASSESSMENT PROCEEDINGS. 4. WE NOTE THAT THE REASONS IN SUPPORT OF THE IMP UGNED NOTICE ACCEPT THE FACT THAT AS A MATTER OF REGULAR BUSINESS PRACTICE, A BR OKER 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 ERRO R 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 D ONE IN THE CLIENT CODE WAS NOT ON ACCOUNT OF A GENUINE ERROR, ORIGINALL Y OCCURRED WHILE PUNCHING THE TRADE. THE MATERIAL AVAILABLE IS THAT THERE IS A C LIENT 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 I NCOME. 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. IN THE ABOVE VIEW, PRIMA FACIE, WE ARE OF THE VIEW THAT THE IMPUGNED NOTICE IS WITHOUT JURISDICTION AS IT LACKS REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. 15. I FIND THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF PCIT VS. PAT COMMODITY SERVICES PVT. LTD. (SUPRA) HAS DISMISSED THE APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE TRIBUNAL IN DELETING THE A DDITION BEING THE PROFITS OF THE COMPANY ON ACCOUNT OF LARGE-SCALE CLIENT CODE MODIF ICATION. THE RELEVANT OBSERVATIONS OF THE HON'BLE HIGH COURT VIDE PARA 3 OF THE ORDER READS AS UNDER:- 3. THE RESPONDENT ASSESSEE IS A PRIVATE LIMITED CO MPANY ENGAGED IN THE BUSINESS OF PROVIDING COMMODITY SERVICES TO ITS CLIENTS. IN THE RETURN OF INCOME FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2006-07, THE A SSESSING OFFICER NOTICED THAT THERE WERE INSTANCES OF CLIENT CODE MODIFICATIONS. THE ASSESSING OFFICER BELIEVED THAT THE SAME WAS DONE TO INDULGE IN CIRCULAR TRADI NG TO PASS ON PROFITS OR LOSSES TO THE CLIENTS OF THE ASSESSEE COMPANY AS PER REQUI REMENTS. AFTER HEARING THE ASSESSEE, THE ASSESSING OFFICER MADE ADDITIONS IN T HE INCOME OF THE ASSESSEE ON SUCH BASIS. THE ISSUE EVENTUALLY REACHED TO THE TRI BUNAL. THE TRIBUNAL DID ACCEPT THE REVENUE'S THEORY OF MISUSE OF CLIENTS CODE MODI FICATION FACILITY. HOWEVER, THE TRIBUNAL ACCEPTED THE ASSESSEE'S EXPLANATION AN D DISCARDED THE REVENUE'S THEORY THAT PROFIT OF THE ASSESSEE'S COMPANY WERE P ASSED ON TO THE CLIENTS. IT WAS ALSO NOTICED THAT THE REVENUE HAS NOT CONTENDED THA T THE CLIENT CODE MODIFICATION FACILITY IS OFTEN MISUSED BY THE ASSESSEE TO PASS O N LOSSES TO THE INVESTORS, WHO ITA NO.4675/DEL/2018 14 MAY HAVE SIZABLE PROFIT ARISING OUT OF COMMODITY TR ADING AGAINST WHICH SUCH LOSSES CAN BE SET OFF. THE REVENUE NORMALLY POINTS OUT NUMBER OF SUCH INSTANCES OF CLIENT CODE MODIFICATIONS AS WELL AS NATURE OF E RRORS IN FILLING OF THE CLIENT CODE. AT ANY RATE, WHAT CAN BE TAXED IN THE HANDS O F THE PRESENT ASSESSEE IS THE INCOME ESCAPING ASSESSMENT. EVEN IF THE REVENUE'S T HEORY OF THE ASSESSEE HAVING ENABLED THE CLIENTS TO CLAIM CONTRIVED LOSSES, THE REVENUE HAD TO BRING ON RECORD SOME EVIDENCE OF THE INCOME EARNED BY THE ASSESSEE IN THE PROCESS, BE IT IN THE NATURE OF COMMISSION OR OTHERWISE. IN THE PRESENT C ASE, THE ASSESSING OFFICER HAS ADDED THE ENTIRE AMOUNT OF DOUBTFUL TRANSACTIONS BY WAY OF ASSESSEE'S ADDITIONAL INCOME, WHICH IS WHOLLY IMPERMISSIBLE. WE DO NOT KN OW THE FATE OF THE INDIVIDUAL INVESTORS IN WHOSE CASES, THE REVENUE CO ULD HAVE QUESTIONED THE ARTIFICIAL LOSSES. BE THAT AS IT MAY, WE DO NOT THI NK ENTERTAINING THESE APPEALS WOULD SERVE ANY USEFUL PURPOSE. 16. THE VARIOUS OTHER DECISIONS RELIED ON BY THE LD . COUNSEL FOR THE ASSESSEE ALSO SUPPORT THE CASE OF THE ASSESSEE. SINCE, IN THE IN STANT CASE, THE ASSESSING OFFICER HAS NOT POINTED OUT ANY BASIS OR MATERIAL OR EVIDENCE T O SUPPORT HIS FINDING THAT THE ASSESSEE HAS RECEIVED ENTRY OF FICTITIOUS LOSSES AN D HAS NOT SPELT OUT IN THE REASONS RECORDED AS WELL AS THE ASSESSMENT ORDER AS TO ON W HICH SCRIPS THE ASSESSEE HAS TAKEN LOSS ENTRIES AND IN THE ORDER NOWHERE IT HAS BEEN M ENTIONED OF ANY STATEMENT OF BROKER OF THE ASSESSEE REGARDING THE ADMISSION OF ANY FICT ITIOUS CLIENT CODE MODIFICATION, THEREFORE, I AM OF THE CONSIDERED OPINION THAT THE ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE CIT(A) IS NOT JUSTIFIE D. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE ON MERIT IS ALSO ALLOWED. 17. IN THE RESULT, THE APPEAL FILED BY THE AS SESSEE IS ALLOWED. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 1 6.05.2019. SD/- (R.K. PANDA) ACCOUNTANT MEMBER DATED: 16 TH MAY, 2019 ITA NO.4675/DEL/2018 15 DK COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR, ITAT, NEW DELHI