Sanjay Sureshchandra Shah, Pune V. Income-tax Officer, Ward - 14(3), Pune

ITA 6/PUN/2019

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 1758 (ITAT-PUNE)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 03-01-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJESH GAWLI
• Keywords: Transactions in derivatives; Tangible material; Accommodation entries; Reason to believe; Reassessment proceedings; Set aside
• Section: 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT . / ITA NO.06/PUN/2019 / ASSESSMENT YEAR : 2010-11 SHRI SANJAY SURESHCHANDRA SHAH, 10, RADHIKA VAIBHAV, S.NO.77, JAGTAP NAGAR, WANWADI, PUNE PAN : AIAPS4805R VS. ITO, WARD-14(3), PUNE (APPELLANT) (RESPONDENT) / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A)-7, PUNE ON 05-11-2018 IN RELATION TO THE ASSESSMENT YEAR 2010-11. 2. THE FIRST GROUND IS AGAINST THE ALLEGED WRONG INITIATION OF RE-ASSESSMENT. BRIEFLY STATED, THE FACTS OF THE CASE ARE TH AT THE AO RECEIVED INFORMATION FROM THE DIT (INVESTIGATION), AHMEDABAD REFERRING TO THE MISUSE OF CLIENT CODE MODIFICATIO N FACILITY BY SOME BROKERS RESULTING INTO CREATION OF FICTITIOUS APPELLANT BY SHRI RAJIV THAKKAR RESPONDENT BY SHRI RAJESH GAWLI DATE OF HEARING 20-03-2019 DATE OF PRONOUNCEMENT 20-03-2019 ITA NO.06/PUN/2019 SHRI SANJAY SURESHCHANDRA SHAH 2 PROFITS AND LOSSES. SURVEY ACTION U/S.133A OF THE ACT WAS CARRIED OUT AT THE PREMISES OF 12 SUCH BROKERS AND FEW O F THEIR CLIENTS ACROSS INDIA ON 23-03-2015. THE NAME OF THE ASS ESSEE WAS FOUND IN THE LIST OF SUCH BENEFICIARIES FOR HAVING RECE IVED FICTITIOUS LOSSES OF RS.3,59,567.50. THE ASSESSING OFFICER INITIATED RE-ASSESSMENT PROCEEDINGS AND FINALISED THE ASSESSMENT BY MAKING ADDITION OF THIS SUM. THE LD. CIT(A ) SUSTAINED THE ADDITION. THE ASSESSEE IS AGGRIEVED BY THE INITIATION OF RE-ASSESSMENT AS WELL AS THE CONFIRMATION OF ADDITION ON MERITS. 3. I HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELEV ANT MATERIAL ON RECORD. A COPY OF REASONS, WHICH LED TO THE ISSUANCE OF NOTICE U/S.148 DATED 27-02-2017, HAS BEEN PLA CED AT PAGE 1 OF THE PAPER BOOK, WHICH READS AS UNDER : IN THIS CASE, A LETTER WAS RECEIVED FROM ITO WARD 2(2), PUNE BEARING NO. PN/ITO WD 2(2)/SSS/2015-16/804 DT.23/03/2016 ENCLOSING THEREWITH THE LETTERS OF PR.CIT-2, PUNE AND PR. DIT(INV.) AHMEDABAD BEARING NOS. PN/PR.CIT-2/CCM/SHARING OF INFO/2015-16/3614 DT.22/03/2016 AND PDIT(INV.) /AHD/CCM/ DISSEMINATION / 15-16 DT.08.03.2016 RESPECTIVELY. VIDE THE ABOVE LETTER THE PR.DIT(INV.) AHMEBADAD HAS PROVIDED INFORMATION ON MODIFICATION OF CLIENT CODES BY BROKERS AND THE BENEFICIARY CLIENTS HAVE TAKEN LOSSES AND SHIFTED OUT PROFITS DURING THE F.Y. 2008-09 TO 2011-12. MODIFICATION OF CLIENT CODES IS A PRACTICE UNDER WHICH ITA NO.06/PUN/2019 SHRI SANJAY SURESHCHANDRA SHAH 3 BROKERS CHANGE THE CLIENT CODES IN SALE AND PURCHASE ORDERS OF SECURITIES AFTER THE TRADES ARE CONDUCTED. SEBI CONDUCTED A PROBE INTO MODIFICATION OF CLIENT CODES BY BROKERS PURSUANT TO OBSERVATIONS BY THE FINANCE MINISTRY ABOUT MANY SUCH MODIFICATIONS TAKING PLACE IN DERIVATIVES TRANSACTIONS AT THE NATIONAL EXCHANGE DURING MARCH, 2010. AS PER THE ABOVE INFORMATION THE ASSESSEE HAS TAKEN LOSSES AND SHIFTED OUT PROFITS OF RS.3,59,568/- IN THE F.Y . 2009-10. THE ASSESSEE HAS FILED HIS RETURN OF INCOME ON 13.10.2010 DECLARING A GROSS TOTAL INCOME OF RS.7,97,046/- AND AFTER CLAIMING A DEDUCTION OF RS.1,10,344/- HAS SHOWN A TOTAL INCOME OF RS.6,86,700/- . TAKING INTO CONSIDERATION THE AMOUNT INVOLVED AND UNVERIFIABLE FINANCIAL TRANSACTIONS IT IS CLEAR THAT THE INCOME LIABLE TO BE TAXED HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 FOR THE A.Y. 2010-11. I AM THEREFORE SATISFIED THAT IT IS A CASE FOR ISSUE OF NOTIC E U/S.148 OF THE IT ACT, 1961. 4. IT IS EVIDENT FROM THE ABOVE REASONS THAT THE TANGIBLE MATERIAL IN THE FORM OF LETTER WAS RECEIVED FROM THE ITO, WAR D- 2(2), PUNE ACCOMPANIED BY LETTER OF PR. DIT (INVESTIGATION), AHMEDABAD PROVIDING INFORMATION OF MODIFICATION OF CLIENT CODES BY BROKERS AND THE BENEFICIARY CLIENTS. AS PER THE ABOVE INFORMATION, THE ASSESSEE HAD RECEIVED LOSSES AMOUNTING TO RS.3,59,568 IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSM ENT YEAR UNDER CONSIDERATION. THE CONTENTION OF THE ASSESSEE THAT ITA NO.06/PUN/2019 SHRI SANJAY SURESHCHANDRA SHAH 4 REASSESSMENT ON SUCH BASIS IS WRONG, IN MY CONSIDERED OP INION, IS COMPLETELY UNFOUNDED. 5. THE HONBLE SUPREME COURT IN RAYMOND WOOLEN MILLS VS. ITO (1999) 236 ITR 34 (SC) HAS HELD THAT THERE SHOULD BE REASON TO BELIEVE ABOUT THE ESCAPEMENT OF INCOME AT THE STAG E OF INITIATION OF REASSESSMENT PROCEEDINGS. SUFFICIENCY OR CORRECTNESS OF SUCH MATERIAL CANNOT BE CONSIDERED AT THAT S TAGE. THE HONBLE APEX COURT HAS HELD IN ACIT VS. RAJESH JHAVERI STOCK BROKER (P) LTD. (2007) 291 ITR 500 (SC) THAT : `THE WORD 'REASON' IN THE PHRASE 'REASON TO BELIEVE' WOULD MEA N CAUSE OR JUSTIFICATION. IF THE AO HAS CAUSE OR JUSTIFICATION TO KNOW OR SUPPOSE THAT INCOME HAD ESCAPED ASSESSMENT, IT C AN BE SAID TO HAVE REASON TO BELIEVE THAT AN INCOME HAD ESCAPED ASSESSMENT. THE EXPRESSION CANNOT BE READ TO MEAN THAT THE AO SHOULD HAVE FINALLY ASCERTAINED THE FACT BY LEGAL EVIDENCE OR CONCLUSION. EXPLAINING THE POSITION FURTHER, IT LAID DOWN THAT : `AT THE INITIATION STAGE, WHAT IS REQUIRED IS 'REASON TO BELIEVE' , BUT NOT THE ESTABLISHED FACT OF ESCAPEMENT OF INCOME. AT THE STAGE OF ISSUE OF NOTICE, THE ONLY QUESTION IS WHETHER THERE WAS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COULD HAVE FORMED A REQUISITE BELIEF. WHETHER THE MATERIALS WOULD ITA NO.06/PUN/2019 SHRI SANJAY SURESHCHANDRA SHAH 5 CONCLUSIVELY PROVE THE ESCAPEMENT IS NOT THE CONCERN AT THAT STAGE. THIS IS SO BECAUSE THE FORMATION OF BELIEF BY THE AO IS WITHIN THE REALM OF SUBJECTIVE SATISFACTION. 6. AT THIS STAGE, IT IS RELEVANT TO TAKE NOTE OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN PHOOLCHAND BAJRANG LAL AND ANR VS. ITO AND ANR (1993) 203 ITR 456 (SC), IN WHICH AOS JURISDICTION TO INITIATE REASSESSMENT WAS CHALLENGED. REPELLING THE ASSESSEES ARGUMENTS, THE HONBLE SUPREME COURT HELD TH AT AN ITO ACQUIRES JURISDICTION TO REOPEN ASSESSMENT UNDER S. 147(A) R/W S. 148 ONLY IF ON THE BASIS OF SPECIFIC, RELIABLE AND RELEVANT INFORMATION COMING TO HIS POSSESSION SUBSEQUENTLY, H E HAS REASONS WHICH HE MUST RECORD, TO BELIEVE THAT BY REAS ON OF OMISSION OF FAILURE ON THE PART OF THE ASSESSEE TO MAKE A TRUE AND FULL DISCLOSURE OF ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT DURING THE CONCLUDED ASSESSMENT PROCEEDINGS, A NY PART OF HIS INCOME, PROFIT OR GAINS CHARGEABLE TO INCOME-TAX HAS ESCAPED ASSESSMENT. HE MAY START REASSESSMENT PROCEEDIN GS EITHER BECAUSE SOME FRESH FACTS COME TO LIGHT WHICH WERE NO T PREVIOUSLY DISCLOSED OR SOME INFORMATION WITH REGARD TO THE FACTS PREVIOUSLY DISCLOSED COMES INTO HIS POSSESSION WHICH TENDS TO EXPOSE THE UNTRUTHFULNESS OF THOSE FACTS. IN THAT CA SE, ITA NO.06/PUN/2019 SHRI SANJAY SURESHCHANDRA SHAH 6 THE ITO WAS HELD TO HAVE RIGHTLY INITIATED THE REASSESSMENT PROCEEDINGS ON THE BASIS OF SUBSEQUENT INFORMATION, WHICH W AS SPECIFIC, RELEVANT AND RELIABLE. 7. THE LD. AR HAS DRAWN MY ATTENTION TOWARDS CERTAIN DECISIONS IN WHICH INITIATION OF REASSESSMENT ON THE BASIS OF REPORT OF THE INVESTIGATION WING HAS BEEN HELD TO BE INVALID. IN THE LIKE MANNER, THE LD. DR HAS ALSO REFERRED TO CERTAIN DEC ISIONS IN WHICH VIEW HAS BEEN TAKEN IN FAVOUR OF THE REVENUE, S UCH AS, RAJAT EXPORT IMPORT PVT. LTD. VS. ITO (2012) 341 ITR 135 (DEL); AGR INVESTMENT LTD. VS. ADDL.CIT AND ANR (2011) 333 ITR 146 (DEL); CIT VS. NOVA PROMOTERS AND FINLEASE (P) LTD . (2012) 342 ITR 169 (DEL); AND AG HOLDINGS PVT. LTD. VS. ITO (2013) 352 ITR 364 (DEL). ON GOING THROUGH SUCH DECISIONS, IT IS OBSERVED THAT THE PREDOMINANT VIEW IS IN FAVOUR OF UPHOLD ING THE INITIATION OF REASSESSMENT PROCEEDINGS ON THE BASIS OF THE REPORT OF THE INVESTIGATION WING INDICATING THE RECEIPT OF ACCOMMODATION ENTRIES BY THE ASSESSEE, WHICH IS FORTIFIED BY THE ABOVE-REFERRED JUDGMENTS OF THE HONBLE SUPREME COURT. 8. IN BRIGHT STAR SYNTEX PVT. LTD. VS. ITO (2016) 387 ITR 231 (BOM) , THE AO INITIATED THE REASSESSMENT ON THE BASIS OF SOME ITA NO.06/PUN/2019 SHRI SANJAY SURESHCHANDRA SHAH 7 INFORMATION INDICATING THE ASSESSEE AS A BENEFICIARY TO ACCOMMODATION ENTRY. THE ASSESSEE CHALLENGED THE INITIATION OF REASSESSMENT BY WAY OF A WRIT. DISMISSING THE PETITION, THE HONBLE JURISDICTIONAL HIGH COURT HELD THAT AT THE STAGE OF INITIATION OF REASSESSMENT, THE AO IS NOT REQUIRED TO HAVE CONCLUSIVE EVIDENCE THAT INCOME CHARGEABLE TO TAX HAS ESCAPE D ASSESSMENT. AS THE REASONS RECORDED FOR REOPENING ESTAB LISHED A LINK BETWEEN THE MATERIAL AVAILABLE AND THE CONCLUSION REACHED BY THE AO FOR REOPENING THE ASSESSMENT, THE HONBLE HIGH COURT REFUSED TO INTERFERE BY OBSERVING THAT THE EXPRESSIO N `REASON TO BELIEVE CANNOT BE READ TO MEAN THAT THE AO SHOU LD HAVE FINALLY ESTABLISHED BEYOND DOUBT THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE GUJARAT HIGH COURT IN PR. CIT VS. LAXMIRAJ DISTRIBUTORS PVT. LTD. (2019) 410 ITR 495 (GUJ) AND THE SLP FILED BY THE ASSESSEE AGAINST SUCH JUDGMENT HAS SINCE BEEN DISMISSED IN (2018) 405 ITR (ST) 27. 9. REVERTING TO THE FACTS OF THE INSTANT CASE, IT IS SEEN TH AT THE AO RECEIVED INFORMATION FROM THE INVESTIGATION WING ABOUT THE BENEFICIARIES OF ACCOMMODATION ENTRIES, WHICH INCLUDED THE NAME OF THE ASSESSEE. THERE WAS A CLOSE NEXUS BETWEEN REPORT ITA NO.06/PUN/2019 SHRI SANJAY SURESHCHANDRA SHAH 8 OF THE INVESTIGATION WING AND THE FORMATION OF BELIEF BY THE ASSESSING OFFICER ABOUT THE ESCAPEMENT OF INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. SUCH INFORMATION WAS SPECIFIC, NOT GENERAL OR VAGUE. THUS, IT IS ABUNDANTLY CLEAR THAT SUCH A MATERIAL WAS SUFFICIENT ENOUGH FOR THE ASSESSING O FFICER TO INITIATE THE REASSESSMENT. IN MY CONSIDERED OPINION, NO EXCEPTION CAN BE TAKEN TO THE VIEW CANVASSED BY THE ASSESS ING OFFICER IN INITIATING THE REASSESSMENT ON THIS SCORE. THE GROU ND TAKEN BY THE ASSESSEE IS THUS DISMISSED. 10. NOW COMING TO THE MERITS OF THE ADDITION, IT IS SEEN THAT THE AO MADE AN ADDITION OF RS.3,59,568/- ON THE BASIS OF INFORMATION RECEIVED BY HIM THAT THE ASSESSEE WAS ONE OF TH E BENEFICIARIES BY MEANS OF OBTAINING LOSS OF RS.3,59,568/- THROUGH MODIFICATION OF CLIENT CODES. IT IS SEEN FROM THE DETA ILS FURNISHED BY THE ASSESSEE AT PAGE 28 THAT NET CAPITAL GAIN O F RS.31.757.91 WAS REPORTED BY THE ASSESSEE. SUCH FIGURE OF NET CAPITAL GAIN HAS CERTAIN POSITIVE FIGURES, MEANS PROFITS AND OTHERS NEGATIVE, MEANS LOSSES. THE TOTAL SUCH NEGATIVE FIGU RES IS DEFINITELY IN EXCESS OF THE AMOUNT OF ADDITION MADE BY THE AO. IT DECIPHERS THAT ALL THE LOSS ITEMS INCLUDED IN SUCH LIST WERE NOT GENUINE. SINCE THE AO HAS NOT DIVULGED THE DETAILS OF ITA NO.06/PUN/2019 SHRI SANJAY SURESHCHANDRA SHAH 9 SUCH BOGUS LOSSES, THE ASSESSEE COULD NOT GET AN OPPORTU NITY TO SPECIFICALLY MAKE OUT HIS CASE AS TO THE GENUINENESS OF THE LOSS CLAIMED BY HIM. I FIND THAT EVEN THE IMPUGNED ORDER DO ES NOT DISCUSS ABOUT THE DETAILS OF SUCH FICTITIOUS LOSSES. IN MY CONSIDERED OPINION, THE ENDS OF JUSTICE WOULD MEET ADEQUATELY IF THE IMPUGNED ORDER IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF AO. I ORDER ACCORDINGLY AND DIRECT HIM TO PUT A CROSS THE DETAILS OF SUCH LOSSES ALLEGEDLY TAKEN BY THE ASSESSEE BY CLIENT CODE MODIFICATION AND THEN SEEK THE ASSESSEES REPLY BEFORE JUMPING TO THE CONCLUSION OF THE GENUINENESS OR OTHERWISE OF SUCH LOSSES. NEEDLESS TO SAY, THE ASSESSEE WILL BE GIVEN REASONABLE OPPORTUNITY OF HEARING. 11. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH MARCH, 2019. SD/- (R.S.SYAL) / VICE PRESIDENT PUNE; DATED : 20 TH MARCH, 2019 ITA NO.06/PUN/2019 SHRI SANJAY SURESHCHANDRA SHAH 10 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT (APPEALS)-7, PUNE 4. THE PR. CIT-6, PUNE 5. , , SMC / DR SMC, ITAT, PUNE; 6. / GUARD FILE. // TRUE COPY // / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE DATE 1. DRAFT DICTATED ON 20-03-2019 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 20-03-2019 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *