EXCELLENT SHARES & FINANCE SERVICES PVT. LTD. (FORMERLY KNOWN AS PASHUPATI SHARES & FINANCE SERVICES PVT. LTD.), MUMBAI V. ITO 13 (1)(3), MUMBAI

ITA 7003/MUM/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 3357 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 06-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMIT PRATAP SINGH
• Keywords: Unexplained cash credit; Transactions in derivatives; Reason to believe; Set aside
• Section: 68; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E , MUMBAI BEFORE S HRI RAJESH KUMAR (AM ) AND SHRI RAM LAL NEGI (JM) ITA NO. 7003/MUM/2018 ASSESSMENT Y EAR: 2010 - 11 M/S EXCELLENT SHARES & FINANCE SERVICES PVT. LTD., (FORMERLY KNOWN AS PASHUPATI SHARE S & FINANCE SERVICES PVT. LTD.), 601, KRISHNA UTSAV, KHANDELWAL LEYOUT, EVERSHINE NAGAR, MALAD (W), MUMBAI - 400064 PAN: AADCP0465C VS. THE INCOME TAX OFFICER 13(1)(3 ), ROOM NO. 225, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RESPON DENT) ASSESSEE BY : SHRI GAURAV KABRA ( A R ) REVENUE BY : SHRI AMIT PRATAP SINGH ( D R ) DATE OF HEARING: 14 /01/2020 DATE OF PRONOUNCEMENT: 28 / 02 /2020 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 21.08.2018 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 21 (FOR SHORT THE CIT(A) , MUMBAI , PERTAINING TO THE ASSESSMENT YEAR 2010 - 11 , WHEREBY THE LD. CIT(A) HAS DISMISSED T HE APPEAL FILED BY THE ASSESSEE AGAINST THE ASSESSMENT ORDER PASSED U/S 143 (3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND F & O, FILED ITS RET URN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING THE TOTAL INCOME OF RS. 1,43,940/ - T HE RETURN WAS PROCESSED U/S 143 (1) OF THE ACT. SUBSEQUENTLY, T HE ASSESSMENT WAS REOPENED ON THE BASIS OF INFORMATION RECEIVED FROM DIT (I&C) 2 ITA NO. 7003 / MUM/2018 ASSESSMENT YEAR: 2010 - 1 1 THAT THE A SSESSEE HAD ENTERED INTO TRANSACTIONS INVOLVING CLIENT CODE MODIFICATION (CCM) THROUGH ITS BROKER ON NSE IN F & O SEGMENT. DURING ASSESSMENT PROCEEDINGS, AO CALLED INFORMATION FROM THE ASSESSEES BROKER, HOWEVER, THE BROKER DID NOT PROVIDE ANY DETAILS OF C LIENT CODE MODIFIED TRADES AND PROVIDED THE COPIES OF VOLUMINOUS BILLS AND LEDGER IN RESPECT OF THE TOTAL TRANSACTIONS CARRIED OUT ON BEHALF OF THE ASSESSEE. THE ASSESSEE ALSO FURNISHED DETAILS OF TRANSACTION IN SHARES SUCH AS NAME AND ADDRESS OF THE BROKE R, NAME AND ADDRESS OF THE STOCK EXCHANGE, SCRIPT WISE PROFITS AND LOSS ACCOUNT STATEMENT, LEDGER OF ASSESSEE IN BROKER BOOKS, COPY OF STATEMENT OF TRADING AND COPY OF FORM NO. 10 - DB. THE AO MADE ADDITION OF RS. 80,83,149/ - ON ACCOUNT OF INCOME OBTAINED TH ROUGH CCM U/S 68 OF THE ACT AND RS. 1,65,205/ - AS UNPROVED EXPENDITURE AND DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT RS. 83,92,300/ - . IN THE FIRST APPEAL, THE LD. CIT (A) DISMISSED THE APPEAL AND UPHELD THE ACTION OF THE AO. 3 . THE ASSESSEE HAS CHALL ENGED THE IMPUGNED ORDER PASSED BY THE LD. CIT (A) ON THE FOLLOWING EFFECTIVE GROUND S : - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT (A) HAS ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER IN REOPE NING THE CASE U/S 147 OF THE INCOME TAX ACT, 1961, WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT (A) HAS ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSIN G OFFICER IN MAKING ADDITION OF RS. 80,83,149/ - AS UNEXPLAINED CASH CREDIT U/S 68 OF THE INCOME TAX ACT, ON THE ALLEGED PLEA THAT THE APPELLANT HAS BOOKED THE PROFIT/LOSS BY MISUSING THE CLIENTS CODE MODIFICATION, WITHOUT CONSIDERING THE FACTS AND CIRCUMST ANCES OF THE CASE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT (A) HAS ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER IN DISALLOWING THE LOSS OF RS. 1,61,03,943/ - ON THE ALLEGED PLEA THAT THE APPELLANT HAS BOOKED THE LOSS BY MISUSING THE CLIENTS CODE MODIFICATION, WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT (A) HAS ERRED IN CONFIRMING THE 3 ITA NO. 7003 / MUM/2018 ASSESSMENT YEAR: 2010 - 1 1 ACTION OF THE LEA RNED ASSESSING OFFICER IN DISALLOWING THE CLAIM OF INTEREST EXPENSES OF RS. 1,65,205/ - , WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. 4 . THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE LD. CIT (A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO IN REOPENING OF THE CASE U/S 147 OF THE ACT WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. THE LD. COUNSEL POINTED OUT THAT THE REASONS RECORDED FOR REOPENING DO NOT INDICATE THE BASIS FOR THE AO TO COME TO REASONABLE BELIEF THAT THERE HAS BEEN ANY ESCAPEMENT OF INCOME. THE LD. COUNSEL FURTHER SUBMITTED THAT THE MATERIAL AVAILABLE WITH THE AO WAS THAT THERE WAS A CLIENT CODE MODIFICATION DONE BY THE ASSESSEES BROKER BUT THERE WAS NO LINK TO CONCLUDE THAT IT WAS DONE TO ESCAP E ASSESSMENT OF A PART OF ITS INCOME. THE LD. COUNSEL PLACING RELIANCE ON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S CORONATION AGRO INDUSTRIES LTD. VS. DCIT IN WRIT PETITION NO. 2627 OF 2016, SUBMITTED THAT THE HONBLE HIGH COURT HAS DEALT WITH THE IDENTICAL ISSUE AND HELD THAT THE REASONS RECORDED BY THE AO APPEARS TO BE A CASE OF REASON TO SUSPECT AND NOT REASON TO BELIEF THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THE LD. COUNSEL FURTHER POINTED OUT THAT EVEN ON MERIT S THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PR. CIT VS. PAT COMMODITY SERVICE PVT. LTD . ITA NO. 1257 OF 2016 WITH ITA NO. 1383 OF 2016. I N VIEW OF THE LAW LAID DOWN BY THE HONBLE BOMBAY HIGH COURT, THE LD. COUNSEL SUBMITTED THAT SINCE THE ACTION OF THE AO IN REOPENING WAS BAD IN LAW, THE LD. CIT (A) OUGHT TO HAVE SET ASIDE THE REASSESSMENT ORDER PASSED U/S143(3) R.W.S. 147 OF THE ACT. 5 . ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENT ATIVE (DR) SUPPORTING THE ORDER PASSED BY THE LD. CIT (A) SUBMITTED THAT SINCE THE AO HAD RECEIVED A RELIABLE INFORMATION FROM DIT (INTELLIGENCE AND CR INVESTIGATION), THE AO HAD RIGHTLY REOPEN THE ASSESSMENT. HENCE, THERE IS NO INFIRMITY IN THE FINDINGS O F THE LD. CIT(A). 4 ITA NO. 7003 / MUM/2018 ASSESSMENT YEAR: 2010 - 1 1 6 . WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL ON RECORD INCLUDING THE CASES RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE AND THE AUTHORITIES BELOW IN THE LIGHT OF THE RIVAL CONTENTIONS. THE REASONS REC ORDED FOR REOPENING THE ASSESSMENT READ AS UNDER: INFORMATION HAS BEEN RECEIVED FROM DIT (INTELL. & CR. INV.), MUMBAI, VIDE LETTER NO. DIT (I & CI)/CCM/2014 - 15 DATED 27.02.2015 THAT FICTITIOUS PROFITS AND LOSSES WERE CREATED BY SOME BROKERS BY MISUSING TH E CLIENT CODE MODIFICATION FACILITY IN F&O SEGMENT ON NSE DURING MARCH, 2010. THE BROKERS WERE ALLEGED TO BE INDULGING IN TRANSFERRING THE FICTITIOUS LOSSES TO DIFFERENT CLIENTS TO REDUCE THEIR TAX LIABILITY AND ALSO FICTITIOUS PROFIT TO OTHER CLIENTS. AS PER THE INFORMATION RECEIVED BY THE DIT (I&CI), MUMBAI FROM NSE, CLIENT CODE MODIFICATION (CCM) DATA FOR F.Y. 2009 - 10, AND THE CCM TRANSACTIONS RECEIVED FROM NSE WERE FURTHER ANALYSED AND THE MAPPING OF DATA WAS DONE TO ASCERTAIN THE EXACT AMOUNT OF FICTI TIOUS PROFITS/LOSSES IN EACH CASE. ON DETAILED ANALYSIS BY THE DIT (I & CI), MUMBAI, IT WAS ESTABLISHED THAT THE BROKERS HAS MISUSED CLIENT CODE MODIFICATION FACILITY AND CREATED NON - GENUINE LOSSES AND PROFITS. THESE LOSSES AND PROFITS WERE GIVEN TO DIFFER ENT CLIENTS/BENEFICIARIES ACCORDING TO THEIR REQUIREMENT. THE CLIENTS HAVE TAKEN FICTITIOUS LOSSES TO SET OFF AGAINST THEIR PROFITS WITH A VIEW TO REDUCE THEIR TAX LIABILITY. SOME OF THE CLIENT HAVE CONFIRMED THAT THEY HAVE MISUSED THE FACILITY OF CLIENT C ODE MODIFICATION IN ORDER TO CREATE FICTITIOUS LOSSES/PROFITS. THEY HAVE ADMITTED THAT THEY HAVE RECEIVED COMMISSION AT THE RATE VARYING FROM 0.5% UPTO 2% ON THE AMOUNT OF LOSSES/PROFITS FOR TRANSFERRING SUCH LOSSES/PROFITS TO THEIR CLIENT. THE NAMES OF SU CH BROKERS ARE I) TRANSGLOBAL SECURITIES LTD. II) CROSSEAS CAPITAL SERVICES PVT. LTD. III) INDIANIVESH SECURITIES PVT. LTD. AND IV ) ANUGRAH STOCK & BROKING PVT. LTD. THIS CCM DATA ARE RELATING TO THE BENEFICIARIES IN WHOSE ACCOUNT MORE THAN RS. 25 LACS L OSSES/PROFITS HAVE BEEN GENERATED THROUGH CCM. IN THIS CASE , ASSESSEE HAS EXECUTED THE TRANSACTION DURING THE F.Y. 2009 - 10. AS PER THE INFORMATION RECEIVED, ASSESSEE COMPANY IS ONE OF THE BENEFICIARIES AND CREATE FICTITIOUS PROFIT/LOSS AMOUNTS TO RS. 1,12, 08,455/ - . ASSESSEE HAS MODIFIED 2,58,47,552 QUANTITY OF SHARES AND THE VALUE OF SHARES MODIFIED AS PER THE INFORMATION WAS TO THE TUNE O F RS. 5 ITA NO. 7003 / MUM/2018 ASSESSMENT YEAR: 2010 - 1 1 2,23,01,04,598/ - RESULTING INTO LOSS OF RS. 1,12,08,485/ - DUE TO CLIENT CODE MODIFICATION. 7 . AS POINTED OUT BY THE LD. COUNSEL, I N THE CASE OF M/S CORONATION AGRO INDUSTRIES LTD. VS. DCIT (SUPRA), THE HONBLE BOMBAY HIGH COURT HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE AND HELD THE NOTICE ISSUED U/S 148 OF THE ACT LACKS REASON TO BE LIEVE THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT HOLDING AS UNDER: - 2. THIS PETITION CHALLENGES NOTICE DATED 31 ST MARCH, 2016 ISSUED UNDER SECTION 148 OF THE INCOME TAX ACT, 1961. THE IMPUGNED NOTICE SEEKS TO REOPEN THE ASSESSMENT FOR ASSESS MENT YEAR 2009 - 10. THE REGULAR ASSESSMENT PROCEEDINGS WERE COMPLETED ON 28 TH DECEMBER, 2011 UNDER SECTION 143 (3) OF THE ACT. 3. THE REASONS IN SUPPORT OF THE IMPUGNED NOTICE RELIES UPON THE INFORMATION RECEIVED FROM THE PRINCIPAL DIRECTOR OF INCOME TAX TH AT THE PETITIONER HAS BENEFITTED FROM A CLIENT CODE MODIFICATION BY WHICH A PROFIT OF RS. 22.50 LAKHS WAS SHIFTED OUT BY THE PETITIONERS BROKER RESULTING IN REDUCTION OF THE PETITIONERS TAXABLE INCOME. THE ONLY BASIS FOR FORMING THE BELIEF IS THE REPORT FROM THE PRINCIPAL DIRECTOR OF INCOME TAX AND THE APPLICATION OF MIND TO THE REPORT OF THE ASSESSING OFFICER ALONG WITH THE RECORD AVAILABLE WITH HIM. THIS INFORMATION AND APPLICATION OF MIND HAS LED THE ASSESSING OFFICER TO FORM A REASONABLE BELIEF THAT T HERE IS NOT ONLY AN ESCAPEMENT OF INCOME BUT THERE HAS BEEN FAILURE TO TRULY AND FULLY DISCLOSE ALL MATERIAL FACTS AND INFORMATION AS THE MODUS OPERANDI OF SHIFTING PROFITS WAS NOT KNOWN TO THE REVENUE AS NOT DISCLOSED BY THE PETITIONER WHEN THE ASSESSING OFFICER PASSED THE ORDER IN REGULAR ASSESSMENT PROCEEDINGS. 4. WE NOTE THAT THE REASONS IN SUPPORT OF THE IMPUGNED NOTICE ACCEPT THE FACT THAT AS A MATTER OF REGULAR BUSINESS PRACTICE, A BROKER IN THE STOCK EXCHANGE MAKES MODIFICATIONS IN THE CLIENT CODE O N SALE AND/ OR PURCHASE OF ANY SECURITIES, AFTER THE TRADING IS OVER SO AS TO RECTIFY ANY ERROR WHICH MAY HAVE OCCURRED WHILE PUNCHING THE ORDERS. THE REASONS DO NOT INDICATE THE BASIS FOR THE ASSESSING OFFICER TO COME TO 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 DONE IN THE CLIENT 6 ITA NO. 7003 / MUM/2018 ASSESSMENT YEAR: 2010 - 1 1 CODE WAS NOT ON ACCOUNT OF A GENUINE ERROR, ORIGINALLY OCCURRED WHILE PUNCHING THE TRADE. THE MATERI AL AVAILABLE IS THAT THERE IS A CLIENT CODE MODIFICATION DONE BY THE ASSESSEES BROKER BUT THERE IS NO LINK FROM THERE TO CONCLUDE THAT IT WAS DONE TO ESCAPE ASSESSMENT OF A PART OF ITS INCOME. PRIMA FACIE, THIS APPEARS TO BE A CASE OF REASON TO SUSPECT AN D 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 AS SESSMENT. 8. T HE LEGAL GROUND RAISED BY THE ASSESSEE IS COVERED BY THE RATIO LAID DOWN BY THE HONBLE HIGH COURT DISCUSSED ABOVE . AS PER THE LAW LAID DOWN BY THE HONBLE COURT, THE MATERIAL AVAILABLE WITH THE AO WAS NOT SUFFICIENT TO FORM A BELIEF THAT IN COME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. HENCE, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HONBLE COURT, WE HOLD THAT THE NOTICE ISSUED BY THE AO IS BAD IN LAW. SINCE WE HAVE HELD THE NOTICE ISSUED BY THE AO AS WITHOUT JURISDICTION , THE APPEL LATE PROCEEDINGS HAS ALSO BECOME BAD IN LAW. HENCE, WE ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE AND SET ASIDE THE IMPUGNED ORDER PASSED BY THE LD. CIT(A). 9. SINCE, WE HAVE ALLOWED THE LEGAL GROUND OF THE APPEAL OF THE ASSESSEE AND QUASHED THE REASSESS MENT PROCEEDINGS, WE DO NOT CONSIDER IT NECESSARY TO ADJUDICATE OTHER GROUNDS OF APPEAL RAISED ON MERITS. IN THE RESULT, APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2010 - 2011 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH FEBRUARY , 2 020 . SD/ - SD/ - ( RAJESH KUMAR ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 28 / 0 2 / 2020 ALINDRA, PS 7 ITA NO. 7003 / MUM/2018 ASSESSMENT YEAR: 2010 - 1 1 / 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