SHRI MANOJ KANHAIYALAL AGARWAL, MUMBAI V. ACIT CIRCLE-17(2), MUMBAI

ITA 5993/MUM/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 1226 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 18-10-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Tangible material; Reason to believe; Borrowed satisfaction; Set aside
• Section: 142(1); 143(1); 201; 143(2); 153; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI RAJESH KUMAR , AM AND SHRI AMARJIT SINGH, JM / I .T.A. NO. 5993 /MUM/20 1 8 ( / ASSESSMENT YEAR: 201 0 - 11 ) MANOJ KANHAIYALAL AGARWAL 100 - 104, D. G. CHAMBERS, 2 ND FLOO R, NANIK MOTWANI MARG, FORT, MUMBAI - 400023 . / VS. ACIT, CIRCLE - 17(2) ROOM NO.123A, AAYAKAR BHAVAN, MUMBAI - 400020. ./ ./ PAN/GIR NO. : AABPA3100A ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING : 07 / 0 1 / 20 2 1 / DATE OF PRONOUNCEMENT : 01 / 03 / 2021 / O R D E R PER AMARJIT SINGH, J M: THE ASSESSEE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 18 .0 7 .201 8 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 28 , MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 2010 - 11 . 2 . THE ASSESSEE HAS RAI SED THE FOLLOWING GROUNDS: - 1. REOPENING IS BAD IN LAW 1. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE NOTICE U/S.148 DTD.31/03/2016 WAS ISSUED ON THE BASIS OF INFORMATION RECEIVED FROM INVESTIGATION WING, AHMEDABAD, THUS THERE WAS NO INDEPENDENT APPLICATION OF MIND BY THE A.O. IT IS SIMPLY BASED ON BORROWED SATISFACTION OF SOME ASSESSEE BY : SHRI K. SHIVARAM (AR) REVENUE BY: SHRI BHARAT ANDHALE (DR) ITA. NO .5993 / M UM /201 8 A.Y. 201 0 - 11 2 OTHER AUTHORITY; HENCE THE REOPENING IS BAD IN LAW AND IS LIABLE TO BE QUASHED. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO WITHOUT APPRECIATING THA T THE ASSESSING OFFICER NEITHER DISPOSED OF THE OBJECTION RAISED BY THE APPELLANT ON LEGAL ISSUE NOR DEALT WITH MERITS. HENCE THE REASSESSMENT IS BAD IN LAW. II. ADDITION OF RS.21,65,635/ - AS REDUCTION IN INCOME BY USING CCM (CLIENT CODE MODIFICATION) 3. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.21,65,635/ - ON THE BASIS OF INFORMATION RECEIVED FROM THE INVESTIGATION WING STATING THAT THE ASSESSEE BY USING CCM FACILITY INDULGED WITH ENTRIES TO CREATE FICTITIOUS PROFIT AND LOSSES, AN D SAME WAS TRANSFER TO OTHERS, WITHOUT APPRECIATING THE FACT THAT CCM FACILITY USED FOR TO RECTIFY THE MISTAKE WHICH WERE OCCURRED AT THE TIME OF TRADING AND NOT FOR THE CREATING A FICTITIOUS PROFIT. THUS, ADDITION OF RS.21,65,635/ - AS REDUCTION IN INC OME MAY BE DELETED. 4. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT, THE APPELLANT HAS NEITHER RECEIVED ANY BENEFITS NOR GAIN DUE TO CLIENT CODE MODIFICATION BY BROKER, HENCE, ADDITION CANNOT BE MADE ON NOTIONAL BASIS IN THE HANDS OF APPELLANT. 5. WIT HOUT PREJUDICE TO ABOVE, THE BENEFIT DUE TO CLIENT CODE MODIFICATION DERIVED BY THE RESPECTIVE PARTIES, OFFICERED IN THEIR RESPECTIVE RETURN OF INCOME, HENCE ADDITION CANNOT BE MADE IN THE HANDS OF APPELLANT, WHICH WILL LEAD TO DOUBLE TAXATION. 6. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 14 .0 9 .20 1 0 DECLARING TOTAL INCO ME TO THE TUNE OF RS. 41,06,510 / - FOR THE A.Y.2010 - 11 . THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT . THE CASE WAS SELECTED FOR SCRUTINY U/S 147 OF THE ACT AFTER RECORDING THE REASONS FOR RE - OPENING. NOTICE U/S 148 OF THE ACT WAS ISSUED AND SERVED UPON THE ITA. NO .5993 / M UM /201 8 A.Y. 201 0 - 11 3 ASSESSEE. THEREAFTER , THE NOTICE U/S 148 OF THE ACT WAS ISSUED AND SERVED UPON THE ASSESSEE. THE NOTICES U/S 143(2) & 142(1) OF THE ACT WERE ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING IN SHARES & SECURITIES (INCLUDING DERIVATIVES). THE CASE OF THE ASSESSEE W AS REOPENED UPON THE INFORMATION RECEIVED FROM THE INVESTIGATION WING, AHMADABAD IN WHICH IT WAS CONVEYED THAT THE ASSESSEE ALONG - WITH OTHERS HAS BEEN IDENTIFIED AS ONE OF THE BENEFICIARY/PROVIDER BY MISUSE OF CLIENT CODE MODIFICATION. THE INVESTIGATION W ING OF THE DEPARTMENT HAVING CONDUCTED SPOT VERIFICATIONS BY WAY OF SURVEYS AND INQUIRIES AND HAVE NOTICED THAT SOME OF THE BROKERS AND THEIR CLIENTS HAVE INDULGED IN THE PRACTICE OF MISUSE OF CLIENT CODE MODIFICATION AND THEREBY ARTIFICIALLY SHIFTING OF P ROFITS AND LOSSES FROM ORIGINAL CLIENT CODE TO MODIFIED CLIENT CODE WITH AN INTENTION TO REDUCE THE LEGITIMATE TAX LIABILITY WHICH WOULD HAVE BEEN ARISEN HAD THE ORIGINAL TRADES NOT BEEN MODIFIED. THE ASSESSEE COMPANY WAS A BENEFICIARY AND HAS OBTAINED ENT RY OF RS.21,65,635/ - . THEREAFTER, BY GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, T HE ASSESSMENT WAS COMPLETED BY ADDING THE INCOME IN SUM OF RS. 21,65,635/ - . THE TOTAL INCOME WAS ASSESSED TO THE TUNE OF RS.62,72,144/ - . FEELING AGGRIEVED, THE ASSES SEE FILED AN APPEAL BEFORE THE CIT(A) WHO DISMISSED THE APPEAL OF THE ASSESSEE BY CONFIRMING THE ORDER OF THE AO , THEREFORE, THE ASSESSEE HAS FILED THE PRESENT APPEAL. ISSUE NOS. 1 & 2 5 . UNDER THESE ISSUES THE ASSESSEE HAS CHALLENGED THE REOPENING OF THE ASSESSMENT IN VIEW OF THE PROVISIONS U/S 147/148 OF THE ACT. BONE CONTENTION OF THE ASSESSEE IS THAT AFTER THE RECEIPT OF INFORMATION RECEIVED ITA. NO .5993 / M UM /201 8 A.Y. 201 0 - 11 4 FROM INVESTIGATION WING, AHMADABAD NO INDEPENDENT VERIFICATION/INQUIRY WAS CONDUCTED TO SHOW THE SATISFACTION OF THE AO FOR THE ESCAPEMENT INCOME OF THE ASSESSEE, THEREFORE, THE NECESSARY COMPLIANCE OF U/S 147/148 OF THE ACT HAS NOT BEEN COMPLIED WITH, HENCE, THE REOPENING IS BAD IN LAW IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF NU POWER RENE WABLES (P.) LTD. VS. DCIT (2018) 94 TAXMANN.COM 29 (BOM) & PR. CIT VS. SHODIMAN INVESTMENTS PVT. LTD. (2018) 93 TAXMANN.COM 153 (BOM). IT IS ALSO ARGUED THAT THE OBJECTION RAISED BY ASSESSEE WAS NOT DISPOSED O F BY AO, THEREFORE, THE REOPENING IS NOT JUSTIF IABLE IN VIEW OF THE DECISION IN THE CASE OF RABO INDIA FINANCE LTD. VS. DCIT (2012) 346 ITR 81 (BOM), BAYER MATERIALS SCIENCE PVT. LTD. VS. DCIT 382 ITR 333 (BOM) & KSS PETRON PVT. LTD. VS. ACIT, ITA. NO.224 OF 2014 DATED 03.10.2016 . HOWEVER, ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE DEPARTMENT HAS REFUTED THE SAID CONTENTION. THE COPY OF ASSESSMENT ORDER DATED 23.12.2016 SPEAKS ABOUT THE REOPENING OF THE CASE OF THE ASSESSEE U/S 147/148 OF THE ACT ON RECEIPT OF THE INFORMATION RECEIVED FROM THE INV ESTIGATION WING, AHM ADABAD. AFTER RECEIPT OF THE INFORMATION, THERE IS NO VERIFICATION ON RECORD TO WHICH IT CAN BE ASSUMED THAT THERE IS ESCAPEMENT OF INCOME. MERELY SUPPLY OF INFORMATION RECEIVED FROM EXTERNAL SOURCES I.E. THE INVESTIGATION WING, AHMADAB AD AND BY NOT CONDUCTING THE ENQUIRY TO ARRIVE AT THIS CONCLUSION THAT THE INCOME HAS ESCAPED, THEREFORE, THE AO HAS REASONED TO BELIEVE TO REOPEN THE CASE U/S 147/148 OF THE ACT BECAUSE NECESSARY INGREDIENT IS MISSING I.E. REASON TO BELIEVE THE ESCAPEMENT OF INCOME. IN THIS REGARD, WE ALSO FIND SUPPORT OF THE DECISION IN THE CASE OF NU POWER RENEWABLES (P.) LTD. VS. DCIT (2018) 94 TAXMANN.COM 29 (BOM) IN WHICH THE HONBLE HIGH COURT HAS ITA. NO .5993 / M UM /201 8 A.Y. 201 0 - 11 5 HELD THAT I T IS ALSO CONTENDED BY THE PETITIONER THAT THE REASONS RE CORDED IN SUPPORT OF THE IMPUGNED NOTICE, DO NOT INDICATE ANY INDEPENDENT APPLICATION OF MIND BY THE ASSESSING OFFICER TO COME TO A REASONABLE BELIEF THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR THE PURPOSE OF ASSUMING JURISDICTION TO ISSUE THE IMPUGNED NOTICE. THE REASONS IN SUPPORT RELY UPON MATERIAL/INFORMATION RECEIVED FROM DDIT (INV.) UNDER LETTER DATED 22ND MARCH, 2017. DURING THE COURSE OF HEARING, MR. SURESH KUMAR, LEARNED COUNSEL FOR THE REVENUE HANDED OVER TO US THE INFORMATION WHICH W AS RECEIVED UNDER LETTER DATED 22ND MARCH, 2017 FROM DDIT (INV.). IT IS THE ABOVE COMMUNICATION WHICH FORMS THE TANGIBLE MATERIAL FOR ISSUING THE IMPUGNED NOTICE. THE AFORESAID LETTER DATED 22ND MARCH, 2017 READS AS UNDER: 'INFORMATION HAS BEEN RECEIVED T HAT NUPOWER RENEWABLES PVT. LTD., HAS ISSUED ZERO COUPON RATE DEBENTURES OF RS.64 CRORES TO SUPREME ENERGY PVT. LTD., IN F. Y. 2009 - 10. SUPREME ENERGY PVT. LTD., HAS RECEIVED UNSECURED LOAN/DEBENTURE OF RS.64 CRORES FROM AN UNDISCLOSD PARTY WHICH HAS BEEN USED TO INVEST IN THE DEBENTURE OF NUPOWER RENEWABLES PVT. LTD., AS PER BALANCE SHEET AS ON 31.03.2010 OF SUPREME ENERGY PVT. LTD., IT IS SHOWN AS UNSECURED LOAN OF RS.64,05,03,000/ - . HOWEVER, AS PER BALANCE SHEET AS ON 31.03.2011 AND THEREAFTER, IT IS SHO WN AS OPTIONALLY CONVERTIBLE DEBENTURES (ZEOR COUPON) OF RS.64,00,00,000/ - . THE BALANCE SHEET OF SUPREME ENERGY PVT. LTD., OBTAINED FROM THE WEBSITE OF MINISTRY OF CORPORATE AFFAIRS (MCA) ARE ENCLOSED. FROM THE FINANCIALS, SUPREME ENERGY PVT.LTD., IS PRIMA FACIE A SHELL ENTITY. 3. FURTHER, AS PER THE ANNUAL RETURNS FILED BY SUPREME ENERGY PVT. LTD. AT MCA, THE DETAILS OF DEBENTURE HOLDER/UNSECURED LOAN LENDER OF RS.64 CRORE ARE NOT DISCLOSED. THE ANNUAL RETURNS FILED ARE ENCLOSED. 4. THUS, THE CREDITWORTHIN ESS OF THE LENDER AND GENUINENESS AS WELL AS NATURE OF THE TRANSACTION IS NOT EXPLAINED AS A SUPPOSEDLY SHELL COMPANY SUPREME ENERGY PVT. LTD. HAS BORROWED RS.64 CRORES TO INVEST IN DEBENTURE OF ITA. NO .5993 / M UM /201 8 A.Y. 201 0 - 11 6 NUPOWER RENEWABLES LTD. AND IT HAS DONE NO OTHER BUSINESS APA RT FROM THIS.' 6. THE ABOVE FACTS ARE THE VERY REASONS RECORDED BY THE ASSESSING OFFICER FOR ISSUING OF THE IMPUGNED NOTICE. THE ONLY WORDS ADDED TO THE ABOVE LETTER IN THE RECORDED REASONS ARE 'IN THIS CASE INFORMATION RECEIVED FROM THE OFFICE OF THE DIT (INVESTIGATION) UNIT - 4, MUMBAI ON 23RD MARCH, 2017 VIDE LETTER DATED 22ND MARCH, 2017'. THIS, OF COURSE, BESIDES THE INTRODUCTORY PARA AND THE CONCLUDING PARA WHERE HE RECORDS THAT HE HAS REASONS TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSM ENT. THUS, PRIMA FACIE, THERE HAS BEEN NO INDEPENDENT APPLICATION OF MIND ON THE PART OF THE ASSESSING OFFICER TO THE TANGIBLE MATERIAL RECEIVED FROM THE DEPUTY DIRECTOR OF INVESTIGATION. THE INFORMATION RECEIVED HAS TO BE EXAMINED IN THE CONTEXT OF THE FA CTS ON RECORD BEFORE COMING TO A VIEW THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT ON ACCOUNT OF FAILURE TO DISCLOSE FULLY AND TRULY ALL RELEVANT FACTS. IN THE ABSENCE OF THE ABOVE, IT AMOUNTS TO OUT SOURCING OF REASONS TO BELIEVE. 7. THEREFORE, IT PRIMA FACIE, IT APPEARS THAT THE ASSESSING OFFICER HAS ISSUED THE IMPUGNED NOTICE WITHOUT HIMSELF COMING TO A REASONABLE BELIEF THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THUS, PRIMA FACIE , THE IMPUGNED NOTICE IS WITHOUT JURISDICTION. 6. THE H ONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SHODIMAN INVESTMENTS PVT. LTD. (2018) 93 TAXMANN.COM 153 (BOM) HAS HELD THAT RE - OPENING ON THE BASIS OF INFORMATION RECEIVED FROM WITHOUT CONDUCTING ANY ENQUIRY/OWN SATISFACTION IS NOT JUSTIFIABLE. 7. SO CONS IDERING THE FACTS OF THE CASE MENTIONED ABOVE WHICH IS QUITE APPLICABLE TO THE FACTS OF THE CASE , W E ARE OF THE VIEW THAT THE REOPENING IS NOT JUSTIFIABLE AND IN ACCORDANCE WITH LAW. MOREOVER, WE NOTICE D THAT THE AFTER THE RECEIPT OF NOTICE U/S 148 OF THE ACT, THE ASSESSEE FILED THE OBJECTION BY VIRTUE OF ORDER DATED 20.09.2016 ST ATING THAT THERE WAS NO ESCAPEMENT OF INCOME BUT THE SAID OBJECTION WERE NOT DISPOSED OF BY AO, HENCE, THE REOPENING NOWHERE SEEMS JUSTIFIABLE IN VIEW OF THE DECISION IN THE CASE O F RABO INDIA FINANCE LTD. VS. DCIT (2012) 346 ITR 81 (BOM), BAYER ITA. NO .5993 / M UM /201 8 A.Y. 201 0 - 11 7 MATERIALS SCIENCE PVT. LTD. VS. DCIT 382 ITR 333 (BOM) & KSS PETRON PVT. LTD. VS. ACIT, ITA. NO.224 OF 2014 DATED 03.10.2016. TAKING INTO ACCOUNTS ALL THE FACTS AND CIRCUMSTANCES MENTIONED A BOVE, WE ARE OF THE VIEW THAT THE REOPENING IS NOT JUSTIFIABLE, HENCE, WE SET ASIDE THE FINDING OF THE CIT(A) ON THIS ISSUE AND HOLD THAT THE REOPENING IS BAD IN LAW. ACCORDINGLY, THE REASSESSMENT IS HEREBY TO BE SET ASIDE. ISSUE NO.3 8. ISSUE NO. 3 I S ACA DEMIC IN NATURE WHICH NO WHERE REQUIRE ADJUDICATION. 9 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS HEREBY PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 01 / 03 / 2021 SD/ - SD / - / ( RAJESH KUMAR ) (AMARJIT SINGH / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; DATED : 01 / 03 / 20 2 1 V IJAY PAL SINGH/SR. PS ITA. NO .5993 / M UM /201 8 A.Y. 201 0 - 11 8 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / /(DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI