Crosslink Finlease Pvt. Ltd., New Delhi V. ITO WARD - 6(4), New Delhi

ITA 6267/DEL/2019

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 9708 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Next Hearing Date: 31-07-2022
• Assessment Year: 2009-2010
• Appeal Filed On: 23-07-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Opportunity of being heard
• Section: 147; 143(3); 14A; 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘SMC’ NEW DELHI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA No.6267/Del/2019 Assessment Year: 2009-10 M/s. Cross Links Finlease Pvt. Ltd. , B-1, Kalindi Colony, New Delhi Vs. Income Tax Officer, Ward-6(4), New Delhi PAN :AABCC3727A (Appellant) (Respondent) ORDER This is an appeal by the assessee against order dated 29.03.2019 of learned Commissioner of Income Tax (Appeals)-2, New Delhi for the assessment year 2009-10. 2. There is a delay of 9 days in filing the appeal. Having perused the submissions of parties and reasons for delay, I am of the view that there is reasonable cause for delay in filing the appeal. Accordingly, I admit the appeal for adjudication on merits after condoning the delay. 3. In ground nos. 1 and 2, the assessee has challenged the validity of reopening of assessment under section 147 of the Appellant by Sh. Varun Gupta, CA Respondent by Sh. Om Parkash, Sr. DR Date of hearing 01.08.2022 Date of pronouncement 27.10.2022 ITA No.6267/Del/2019 AY: 2009-10 2 | P a g e Income-tax Act, 1961 (in short ‘the Act’). Whereas, in ground nos. 3, 5 and 6, the assessee has challenged the merits of the additions made. 4. At the outset, I will deal with the legal issues raised in ground nos. 1 and 2. 4.1 Briefly the facts are, the assessee is a resident corporate entity. For the assessment year under dispute, the assessee filed its return of income on 29.09.2009 declaring income of Rs.7,71,690/-. The return of income filed by the assessee was processed under section 143(1) of the Act. Subsequently, the Assessing Officer received information from Investigation Wing indicating that the assessee is one of the companies which has created fictitious profit and loss by misusing the client code modification facility in Future and Option (F & O) segment of National Stock Exchange (NSE). Based on such information, the Assessing Officer formed a belief that income chargeable to tax for the assessment year under dispute has escaped assessment. Accordingly, he reopened the assessment under section 147 of the Act. 4.2 In course of assessment proceeding, the Assessing Officer called for the details relating to share transaction of the assessee. ITA No.6267/Del/2019 AY: 2009-10 3 | P a g e After perusing the details and other information available on record, the Assessing Officer was of the view that by availing the facility of client code modification to its benefit, the assessee had reduced its income by creating fictitious loss to the tune of Rs. 1,20,732/-. Whereas, he shifted out profit to the tune of Rs.5,89,142/-. Further, he observed that for availing the facility of client code modification, the assessee must have paid commission to the broker. Accordingly, he added back an amount of Rs.14,197/- being commission paid to broker. 4.3 Besides these additions, the Assessing Officer made disallowance of Rs.28,58,113/- under section 94(7) of the Act on the reasoning that the long term capital loss, to the extent of dividend earned, cannot be allowed. Thus, the Assessing Officer completed the assessment by determining total income at Rs.46,63,990/-. Against the assessment order so passed, the assessee preferred an appeal before learned Commissioner (Appeals). However, learned Commissioner (Appeals), more or less, upheld the assessment order, except granting partial relief in respect of certain suo motu disallowance made under section 14A of the Act. ITA No.6267/Del/2019 AY: 2009-10 4 | P a g e 4.4 Be that as it may, before me, learned counsel appearing for the assessee submitted that the reopening of assessment is merely on the basis of report received from the Investigation Wing without independent application of mind. He submitted, the reasons recorded do not reveal any finding of the Assessing Officer that the client code modification was not on account of any genuine error. He submitted, merely suspecting that by client code modification income has escaped assessment, the Assessing Officer has reopened assessment. Thus, he submitted, the reopening of assessment is invalid. In support of such contention, he relied upon the decision of the Hon’ble Bombay High Court in case of M/s. Coronation Agro Industries Ltd. Vs. DCIT, 394 ITR 464 and various other decisions. 4.5 Without prejudice to the aforesaid submission, learned counsel for the assessee submitted, there are various factual inaccuracies in the reasons recorded and the Assessing Officer was not sure whether the assessee has claimed loss or profit by misusing client code modification. Thus, he submitted, the reopening of assessment under section 147 of the Act is invalid. 4.6 Learned Departmental Representative, on the other hand, submitted that the Assessing Officer has received concrete ITA No.6267/Del/2019 AY: 2009-10 5 | P a g e information indicating that the assessee suppressed its income by availing the facility of client code modification through some unscrupulous broker. 4.7 I have considered rival submissions and perused the materials on record. Undisputedly, in case of the present assessee, the return of income filed was processed under section 143(1) of the Act and there was no scrutiny assessment. Therefore, the Assessing Officer had no occasion to verify various claims made by the assessee in the return of income, including the profit/loss shown from share transaction. Subsequently, the Assessing Officer received specific information from the Investigation Wing indicating that through client code modification, the assessee had artificially reduced its profit by converting it to loss. On a careful reading of the assessment order, it is observed that Investigation Wing of the department has carried out thorough investigation and found that through some unscrupulous brokers, various entities are fictitiously increasing or reducing their profit or loss from share transaction by availing client code modification. The investigation report clearly reveals that the assessee is one of the beneficiary of client code modification. Since, the details relating to assessee’s share ITA No.6267/Del/2019 AY: 2009-10 6 | P a g e transaction was not examined due to processing of return under section 143(1) of the Act, the report of the Investigation Wing, which was subsequently received by the Assessing Officer, clearly constitutes a tangible material based on which the Assessing Officer certainly can form a belief of escapement of income. In my view the decision of the Hon’ble Bombay High Court in case of M/s. Coronation Agro Industries Ltd. (supra) would not apply to the facts of the assessee’s case, as, in that case there was already assessment made under section 143(3) of the Act. In view of the aforesaid, I do not find any merit in these grounds. Accordingly, ground nos. 1 and 2 are dismissed. 5. Ground nos. 3, 4 and 6 relate to the additions made on account of client code modification. As discussed earlier, while completing the assessment, the Assessing Officer held that the profit/loss from share transaction shown by the assessee through client code modification is non-genuine. 5.1 Before me, learned counsel appearing for the assessee reiterated the stand taken before the Departmental Authorities. He submitted, a confirmation of the broker was also available before the Assessing Officer wherein the broker had stated that client code modification was necessary due to punching error. ITA No.6267/Del/2019 AY: 2009-10 7 | P a g e Without prejudice, he submitted, if at all, the assessee could have been benefited by using the facility of client code modification for an amount of Rs. 4,68,410/-. Therefore, the addition should be restricted to that amount. Insofar as addition of commission paid of Rs.14,197/-, he submitted, there was no material before the Assessing Officer to make such addition. 5.2 Learned Departmental Representative strongly relied upon the observations of the Assessing Officer and learned Commissioner (Appeals). 5.3 I have considered rival submissions and perused the materials on record. There is no dispute that the assessee has availed the facility of client code modification through a broker. Both the Assessing Officer and learned Commissioner (Appeals), after thoroughly examining the facts have given a concurrent finding that by availing the facility of fictitious client code modification the assessee has shifted out profit from share transaction and converted it to loss. Except the confirmation obtained from the broker, the assessee has been unable to furnish any other conclusive evidence, either before the departmental authorities or before me to dispel the adverse materials brought on record. In the aforesaid view of the matter, I ITA No.6267/Del/2019 AY: 2009-10 8 | P a g e do not find any reason to interfere with the decision of learned Commissioner (Appeals) on the issue. Therefore, the additions made on account of client code modification including the commission paid are upheld. Ground nos. 3, 4 and 6 are dismissed. 6. In ground no. 5, the assessee has challenged disallowance made under section 94(7) of the Act. 6.1 The grievance of the assessee is, due to paucity of time the assessee could not furnish details relating to long term capital loss and the dividend income earned in respect of which the Assessing Officer has sought information. He submitted, though, before the first appellate authority the assessee did furnish some evidence, however, learned Commissioner (Appeals) completely ignored them. He submitted, the entire dividend income earned of Rs.28,58,113/- cannot be considered for disallowance under section 94(7) of the Act. 6.2 Learned Departmental Representative strongly relied upon the observations of the Assessing Officer and learned Commissioner (Appeals). 6.3 I have considered rival submissions and perused the materials on record. On perusal of the assessment order, it is ITA No.6267/Del/2019 AY: 2009-10 9 | P a g e observed that though the Assessing Officer made certain queries regarding the claim of long term capital loss and the dividend income earned during the year, which is claimed as exempt, however, it is the allegation of the Assessing Officer that requisite documents/informations were not furnished despite repeated reminders. Therefore, the Assessing Officer proceeded to make disallowance under section 94(7) of the Act to the extent of dividend income earned by the assessee. While deciding the issue in appeal, learned Commissioner (Appeals) has also recorded a categorical finding that the assessee did not furnish any detail whatsoever. Though, in the written submission filed before me, the assessee stated that details are enclosed, however, no such details are found on record. 6.4 Be that as it may, on a reading of section 94(7) of the Act, it is quite clear that long term capital loss on purchase and sale of shares, securities etc. not exceeding the amount of dividend or income received or receivable of securities units etc. shall be ignored. However, the conditions enumerated in clause (a), (b) and (c) have to be fulfilled. Since, due to lack of proper compliance by the assessee, the factors enumerated in clause (a) and (b) could not be examined, I deem it appropriate to grant one more ITA No.6267/Del/2019 AY: 2009-10 10 | P a g e opportunity to the assessee to establish through proper documents its claim that disallowance made under section 94(7) of the Act is either unjustified or excessive. Accordingly, the issue is restored back to the Assessing Officer for fresh adjudication after due opportunity of being heard to the assessee. This ground is allowed for statistical purposes. 7. In the result, the appeal is partly allowed for statistical purposes. Order pronounced in the open court on 27 th October, 2022 Sd/- (SAKTIJIT DEY) JUDICIAL MEMBER Dated: 27 th October, 2022. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi