Stratagem Portfolio (P) Ltd, Rohtak V. DCIT Circle- 24(2), New Delhi

ITA 7878/DEL/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6673 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-09-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 27-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AGAINST DATED PASSED
• Keywords: Reopening of assessment; Unexplained investment; Transactions in derivatives; Tangible material; Tax effect; Reason to believe; Futures and options; Set aside
• Section: 69C; 143(3); 133A; 143(1); 48; 13; 147; 131; 68; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: SMC-2, NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO. 7878/DEL./2019 ASSESSMENT YEAR: 2010-11 M/S. STRATAGEM PORTFOLIO (P.) LTD., 122/8, SHIVAJI COLONY, ROHTAK VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE-24(2), NEW DELHI PAN :AAMCS6222R (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAI NST THE ORDER DATED 30/07/2019, PASSED BY THE LEARNED CIT(A PPEALS)- XXV, NEW DELHI [IN SHORT THE LD. CIT(A)] FOR ASSES SMENT YEAR 2010-11 RAISING FOLLOWING GROUNDS: APPELLANT BY SHRI GAUTAM JAIN, ADV. RESPONDENT BY SHRI JAGDISH SINGH, SR.DR DATE OF HEARING 10.09.2020 DATE OF PRONOUNCEMENT 15.09.2020 2 ITA NOS.7878/DEL./2019 GROUND NO. GROUNDS OF APPEAL TAX EFFECT 1 THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS GROSSLY ERRED BOTH IN LAW AND ON FACTS IN UPHOLDING THE INITIATION OF PROCEEDINGS UNDER SECTION 147 OF THE ACT AND, COMPLETION OF ASSESSMENT UNDER SECTION 147/144 OF THE ACT WITHOUT APPRECIATING THAT THE SAME WERE WITHOUT JURISDICTION AND HENCE DESERVED TO BE QUASHED AS SUCH. JURISDICTIONAL GROUND THEREFORE NOT CONSIDERED SEPARATELY 1.1 THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO APPRECIATE THAT THERE WAS NO SPECIFIC RELEVANT, RELIABLE AND TANGIBLE MATERIA L ON RECORD TO FORM A REASON TO BELIEVE THAT INCOME OF THE APPELLANT HAD ESCAPED ASSESSMENT AND IN VIEW THEREOF THE PROCEEDINGS INITIATED ARE ILLEGAL, UNTENABLE AND THEREFORE UNSUSTAINABLE. 1.2 THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO APPRECIATE THAT EVEN OTHERWISE THERE WAS NO FAILURE ON THE PART OF ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT AND AS SUCH ACTION U/S 147 WAS IN EXCESS OF JURISDICTION; 1.3 THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO APPRECIATE THAT REASONS RECORDED MECHANICALLY WITHOUT APPLICATION OF MIND DO NOT CONSTITUTE VALID REASONS TO BELIEVE FOR ASSUMPTION OF JURISDICTION U/S 147 OF THE ACT 1.4 THAT IN ABSENCE OF ANY VALID APPROVAL OBTAINED UNDER SECTION 151 OF THE ACT, INITIATION OF PROCEEDINGS U/S 147 OF THE ACT AND ASSESSMENT FRAMED U/S 147/143(3) OF THE ACT ARE INVALID AND DESERVE TO BE QUASHED AS SUCH. 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ALSO ERRED BOTH IN LAW AND ON FACTS IN SUSTAINING AN AGGREGATE ADDITION OF RS. 6,47,201/- REPRESENTING LOSS CLAIMED AND INCURRED BY ALLEGEDLY MISUSING THE CLIENT CODE MODIFICATION MECHANISM BY THE BROKER OF THE APPELLANT 2.1 THAT FURTHER MORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS PROCEEDED TO SUSTAIN THE ADDITION ON MERE SPECULATION, GENERALIZED STATEMENTS, THEORETICAL ASSUMPTIONS AND ALLEGATIONS AND ASSERTIONS, MECHANICALLY BORROWED AND, LIFTED FROM REPORT OF INVESTIGATION WING WITHOUT ANY INQUIRY OF HIS OWN AND, THEN ADDITION MADE WITHOUT THERE BEING ANY SUPPORTING DIRECT OR INDIRECT OR CIRCUMSTANTIAL EVIDENCE IS NO T 3 ITA NOS.7878/DEL./2019 IN ACCORDANCE WITH LAW. 2.2 THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED BOTH IN LAW AND ON FACTS IN FAILING TO APPRECIATE THE WRITTEN SUBMISSIONS FURNISHED BY THE APPELLANT AND OVERLOOKING THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE APPELLANT. 2.3 THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO APPRECIATE THAT ALL TRANSACTION OF APPELLANT WERE SUPPORTED BY DOCUMENTARY EVIDENCE IN THE SHAPE OF CONTRACT NOTES, ACCOUNT PAYEE TRANSACTIONS AND THEREFORE ADDITION MADE ON SURMISES, CONJECTURES AND SUSPICION AND WITHOUT BRINGING ON RECORD ANY SPECIFIC EVIDENCE ESTABLISHING THAT CLAIM MADE IS NOT GENUINE OR INCORRECT IS HIGHLY ARBITRARY, UNJUSTIFIED AND UNTENABLE. 2.4 THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED BOTH IN LAW AND ON FACTS IN RECORDING VARIOUS ADVERSE INFERENCES WHICH ARE CONTRARY TO THE FACTS ON RECORD, MATERIAL PLACED ON RECORD AND, ARE OTHERWISE UNSUSTAINABLE IN LAW AND THEREFORE, ADDITION SO CONFIRMED IS ABSOLUTELY UNWARRANTED. 3. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED BOTH IN LAW ERRED BOTH IN LAW AND ON FACTS IN UPHOLDING AN ADDITION OF RS. 12,944/- REPRESENTING ALLEGED INCOME FROM COMMISSION ON SALE OF SHARES FOR THE INSTANT ASSESSMENT YEAR. PRAYER IT IS THEREFORE, PRAYED THAT, IT BE HELD THAT ASSESSMENT MADE BY THE LEARNED ASSESSING OFFICER AND SUSTAINED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DESERVES TO BE QUASHED AS SUCH. IT BE FURTHER HELD THAT ADDITIONS MADE AND SUSTAINED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) BE DELETED AND APPEAL OF THE APPELLANT COMPANY BE ALLOWED. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY FILED ITS RETUR N OF INCOME ON 27/09/2010 DECLARING TOTAL INCOME OF 5,06,450/-. THE RETURN OF INCOME FILED WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME- 4 ITA NOS.7878/DEL./2019 TAX ACT, 1961 (IN SHORT THE ACT). SUBSEQUENTLY, O N 29/03/2017 THE ASSESSING OFFICER ISSUED NOTICE UNDER SECTION 1 48 THE ACT AFTER RECORDING REASONS THAT INCOME HAD ESCAPED TAX . THE ASSESSMENT IN TERMS OF SECTION 147 OF THE ACT WAS C OMPLETED ON 30/12/2017 AFTER MAKING ADDITION OF 6,47,201/- UNDER SECTION 68 OF THE ACT AND 12,944/- UNDER SECTION 69C OF THE ACT. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LEA RNED CIT(A) CHALLENGING FINDING OF THE ASSESSING OFFICER ON LEG AL GROUND AS WELL AS ON THE MERIT, HOWEVER, ASSESSEE COULD NOT S UCCEED BEFORE THE LEARNED CIT(A). AGGRIEVED WITH THE FINDING OF T HE LEARNED CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE INCOME -TAX APPELLATE TRIBUNAL (IN SHORT THE TRIBUNAL) RAISING GROUNDS AS REPRODUCED ABOVE. 3. BEFORE US, THE PARTIES APPEARED THROUGH VIDEOCONFE RENCING FACILITY. THE LEARNED COUNSEL OF THE ASSESSEE FILED A PAPER-BOOK CONTAINING PAGES 1 TO 68 AND OTHER DOCUMENTS ELECTR ONICALLY ALONG WITH SYNOPSIS. THE LEARNED DR HAS ALSO FILED WRITTEN SUBMISSION ELECTRONICALLY. 4. THE GROUND NO. 1 TO 1.4 OF THE APPEAL RELATES TO VA LIDITY OF THE REASSESSMENT PROCEEDING. IN THE GROUND NO. 1.1, THE ASSESSEE HAS CHALLENGED REASON TO BELIEVE ON THE GROUND TH AT SAME ARE NOT SPECIFIC AND LACKING RELIABLE AND TANGIBLE MATE RIAL. 5. IN SUPPORT OF THE GROUND, THE LEARNED COUNSEL OF T HE ASSESSEE REFERRED TO THE REASONS RECORDED, WHICH HA S BEEN REPRODUCED BY THE ASSESSING OFFICER IN THE IMPUGNED ASSESSMENT ORDER. HE SUBMITTED THAT IN THE REASONS RECORDED, T HE ASSESSING OFFICER HAS RECORDED ABOUT PROCESS OF CLIENT CODE M ODIFICATION (CCM) BY THE BROKERS UNDER THE FACILITY PROVIDED BY THE STOCK 5 ITA NOS.7878/DEL./2019 EXCHANGES FOR RECTIFICATION OF ERROR IN PUNCHING OF THE CLIENT CODE WHILE CARRYING OUT TRANSACTION OF PURCHASE AND SALE OF THE SHARES. HE FURTHER REFERRED TO PARA-12 OF THE SAID REASONS AND SUBMITTED THAT THE ASSESSING OFFICER HAS REPRODUCED NUMBER OF EVENTS, WHERE ASSESSEES CODE WAS MODIFIED BY THE BROKER. T HE LEARNED COUNSEL SUBMITTED THAT THE ASSESSING OFFICER ON THE BASIS OF MODIFICATION IN THE CLIENT CODE OF THE ASSESSEE, HA S JUMPED TO BELIEVE THAT IT HAD BEEN DONE FOR SHIFTING OF PROFI T OF 6,42,781/- AND SHIFTING OF LOSS OF 4,420/-. ACCORDING TO LEARNED COUNSEL, THIS BELIEF OF THE ASSESSING OFFICER IS WITHOUT ANY TANGIBLE MATERIAL TO SUPPORT THAT SUCH CLIENT CODE MODIFICATION HAS B EEN DONE FOR EVASION OF THE TAX. FURTHER, HE SUBMITTED THAT THE LEARNED ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING THE BE LIEF THAT PROFIT OR LOSS SHIFTED TO OTHER PERSONS BY WAY OF CLIENT CODE MODIFICATION BY THE BROKER HAS RESULTED INTO ANY INCOME TO THE ASSE SSEE, WHICH COULD BE ASSESSED UNDER SECTION 68 AS CASH CREDIT. 5.1 HE SUBMITTED THAT LEARNED ASSESSING OFFICER ACTED ONLY ON THE BASIS OF SUSPICION AND IT COULD NOT BE SAID THA T IT WAS BASED ON BELIEF THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT. HE REFERRED TO PAGE 5 OF REASONS RECORDED WHERE THE LEARNED ASSESSING OFFICER NOTED THAT: THE ASSESSEE S CODE WAS MODIFIED 44 TIMES IN OCC TO SHIFT OUT PROFITS RS. 6,42,781 AND ONE TIME IN MCC T O SHIFT IN LOSS OF RS.4,420/-. THE DATA CLEARLY SHOWS THAT THE MODIFICATION WAS NOT NO GROUNDS OF FEEDING IN ERRON EOUS DATA. 6 ITA NOS.7878/DEL./2019 HE FURTHER SUBMITTED THAT FINALLY WHILE MAKING THE ADDITION LEARNED ASSESSING OFFICER AT PAGE 16 OF OR DER OF ASSESSMENT, HOWEVER, CONCLUDED THAT : IN VIEW OF ABOVE, THE PROFIT OF RS. 6,47,201/- CLA IMED BY THE ASSESSEE IN THE ABOVE MENTIONED TRANSACTIONS IS TREATED AS A CONTRIVED PROFIT ARTIFICIALLY GENERATE D THROUGH THE MISUSE OF THE CCM. THE PROFIT IS, THEREFORE, LI ABLE TO BE TAXED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE AS UNEXPLAINED INVESTMENT U/S 68 R.W.S. 115BBE OF THE INCOME-TAX ACT, 1961. 5.2 THE LD. COUNSEL ACCORDINGLY, SUBMITTED THAT REASON S RECORDED ARE THUS FACTUALLY INCORRECT TOO, OR THE L EARNED ASSESSING OFFICER WAS NOT SURE ABOUT THAT, THE APPELLANT CLAI MED LOSS OR PROFIT BY MISUSE OF THE CCM. 5.3 HE ALSO SUBMITTED THAT THERE IS NO LIVE LINK OR DI RECT NEXUS BETWEEN ALLEGED MATERIAL AND, INFERENCE DRAWN BY TH E ASSESSING OFFICER. THE LEARNED COUNSEL RELIED ON DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF M /S. CORONATION AGRO INDUSTRIES LTD. VS. DCIT REPORTED IN 390 ITR 464 AND FOLLOWING DECISIONS OF THE TRIBUNAL TO SUPPORT HIS CONTENTION S: 1. ITA NO. 6809/D/2018 DATED 22.10.2019 SIMMI SETHI VS. ITO (PAGES 53-56 OF JPB) 2. ITA NO. 4542/D/2018 DATED 29.11.2018 RADIANCE STOCK TRADERS (P) LTD. VS. ITO (PAGES 1-25 OF JPB) 3. ITA NO. 6628/D/2018 DATED 12.4.2019 KAMAL KISHOREE AGGARWAL VS. ACIT (PAGES 92-111 OF JPB) 7 ITA NOS.7878/DEL./2019 4. ITA NO. 4395/D/2019 DATED 27.2.2020 AKG SECURITIES & CONSULTING LTD. VS. ITO (PAGES 112-127 OF JPB) 5.ITA NO. 825/D/2019 DATED 25.7.2019 SANJAY KUMAR JA IN VS. ITO (PAGES 57-91 OF JPB) 5.4 THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THAT THE REASONS HAVE BEEN RECORDED ON THE INFORMATION RECEI VED FROM THE DIRECTOR OF INCOME TAX (INVESTIGATION), AHMADABAD, WHICH IS A CREDIBLE SOURCE OF THE INFORMATION. HE FURTHER RELI ED ON THE ORDER OF THE LOWER AUTHORITIES TO SUPPORT THAT REASONS HA VE BEEN RECORDED VALIDLY. 5.5 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON T HE ISSUE IN DISPUTE AND PERUSED THE RELEVANT MATERIAL ON REC ORD. IN THE INSTANT CASE, THE DISPUTE IS WHETHER THERE IS ANY T ANGIBLE MATERIAL TO INFER THAT BY WAY OF THE CLIENT CODE MODIFICATIO N, THE ASSESSEE HAS ESCAPED THE INCOME AND EVADED THE INCOME-TAX. T HE LEARNED COUNSEL OF THE ASSESSEE HAS REFERRED TO THE VARIOUS DECISIONS MENTIONED ABOVE, WHEREIN CASES WERE REOPENED ON THE BASIS OF THE INFORMATION OF CLIENT CODE MODIFICATION. IN THE CASE OF M/S. CORONATION AGRO INDUSTRIES LTD. VS. DCIT (SUPRA), TH E HONBLE BOMBAY HIGH COURT QUASHED REOPENING OF ASSESSMENT ON IDENTICAL ISSUE. IT HAS BEEN HELD IN THE SAID JUDGM ENT AS UNDER: 4. WE NOTE THAT THE REASONS IN SUPPORT OF THE IMPU GNED NOTICE ACCEPT THE FACT THAT AS A MATTER OF REGULAR BUSINES S PRACTICE, A BROKER IN THE STOCK EXCHANGE MAKES MODIFICATIONS IN THE CLIENT CODE ON SALE AND/OR PURCHASE OF ANY SECURITIES, AFTER TH E TRADING IS OVER SO AS TO RECTIFY ANY ERROR WHICH MAY HAVE OCCURRED WHILE PUNCHING THE ORDERS. THE REASONS DO NOT INDICATE THE BASIS F OR THE ASSESSING OFFICER TO COME TO REASONABLE BELIEF THAT THERE HAS BEEN ANY ESCAPEMENT OF INCOME ON THE GROUND THAT THE MODIFIC ATIONS DONE IN 8 ITA NOS.7878/DEL./2019 THE CLIENT CODE WAS NOT ON ACCOUNT OF A GENUINE ERR OR, ORIGINALLY OCCURRED WHILE PUNCHING THE TRADE. THE MATERIAL AVA ILABLE IS THAT THERE IS A CLIENT CODE MODIFICATION DONE BY THE ASS ESSEE S 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, TH IS APPEARS TO BE A CASE OF REASON TO SUSPECT AND NOT REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. 5.5.1 FURTHER, THE TRIBUNAL IN RADIANCE STOCK TRADERS (P) LTD. VS. ITO (SUPRA), HAS HELD AS UNDER: 6.1 AFTER PERUSING THE AFORESAID REASONS RECORDED, I FIND THAT INFORMATION WAS RECEIVED ON 21.3.2016 FROM ASSTT. DIRECTOR OF INCOME TAX (INVESTIGATION) UNIT- 1(3), AHMEDABAD WITHOUT CONDUCTING ANY ENQUIRY ON THE SAME BY ASSESSING OFF ICER AND WITHOUT CONSIDERING THE FACT OF THE CASE OF ASSESSE E IN LIGHT OF THE ISSUE IS NOT A TANGIBLE AND RELEVANT MATERIAL TO FO RM OPINION THAT INCOME HAS ESCAPED ASSESSMENT. IT IS NOTED THAT THE PROCEEDINGS U/S. 147 OF THE ACT CAN BE INITIATED ONLY ON THE BA SIS OF THE TANGIBLE MATERIAL AND NOT ON THE BASIS OF ASSUMPTIONS AND PR ESUMPTIONS. THE RECONDITION U/S. 147 OF THE ACT IS REASON TO B ELIEVE AND, THE EXPRESSION IS STRONGER THAN THE WORD SATISFIED. T HE BELIEF ENTERTAINED BY THE AO MUST NOT BE ARBITRARY OR IRRA TIONAL, HOWEVER, IT MUST BE REASONABLE IN OTHER WORDS, IT MUST BE BASED ON REASONS WHICH ARE RELEVANT AND MATERIAL. THE EXISTENCE OF T ANGIBLE AND RELEVANT MATERIAL IS A PRECONDITION FOR ASSUMING JU RISDICTION, AS HAS BEEN HELD IN THE CASE OF CIT VS. KELVINATOR OF INDI A LTD. REPORTED IN 320 ITR 561 (SC) AND ACIT VS. RAJESH JHAVERI STOCK BROKERS (P) LTD. REPORTED IN 291 ITR 500 (SC). HENCE, IN THIS CASE T HE PROCEEDINGS HAVE BEEN INITIATED ON THE BASIS OF NO MATERIAL MUC H LESS ANY TANGIBLE AND, RELEVANT MATERIAL AND AS SUCH REASONS RECORD DO NOT CONSTITUTE VALID REASON TO BELIEVE FOR INITIATING P ROCEEDINGS U/S 147 OF THE ACT. IT IS A CASE OF REASON TO SUSPECT' AND NOT REASON TO BELIEVE. 6.2 I FURTHER NOTE THAT THE ACTION OF THE AO HAS BE EN TAKEN MECHANICALLY ON THE BASIS OF ALLEGED REPORT OF INVE STIGATION WING. THE MERE RECORDING/ FORMULATION OF REASONS ON THE B ASIS OF REPRODUCTION OF INFORMATION FROM INVESTIGATION WING AND, ISSUING NOTICE FOR INITIATION OF RE-ASSESSMENT PROCEEDINGS DOES NOT CONSTITUTE APPLICATION OF MIND MUCH LESS INDEPENDENT APPLICATI ON OF MIND. HENCE, THE PROCEEDINGS ARE WITHOUT JURISDICTION. IT IS SETTLED LAW THAT AO CANNOT ACT MECHANICALLY ON THE BASIS OF REPORT O F INVESTIGATION WING AND TO SHOW THAT THE AO HAS APPLIED HIS MIND, HE MUST DISTINCT ALL THOSE MATERIALS AND HE MUST ALSO SHOW THAT WHAT WAS MATERIAL ON RECORD. HENCE, INITIATION OF PROCEEDING S IS ALSO BASED ON 9 ITA NOS.7878/DEL./2019 NON-APPLICATION OF MIND MUCH LESS INDEPENDENT APPLI CATION OF MIND. 6.3 I FURTHER NOTE THAT IN THE REASONS RECORDED ASS ESSEE HAS RELIED UPON THE INFORMATION BY THE INVESTIGATION WING, AHM EDABAD, THE AO HAS STATED THAT HAVING PERUSED AND CONSIDERED THE I NFORMATION RECEIVED FROM INVESTIGATION WING HE HAS REASON TO B ELIEVE THAT INCOME OF THE ASSESSEE HAS ESCAPED WHICH HAS NOT BE EN CONFORMED TO THE ASSESSSEE COMPANY, IN THE COURSE OF ASSESSME NT PROCEEDINGS, THOUGH IN VIEW OF THE JUDGMENT OF HON BLE DELHI HIGH COURT IN THE CASE OF SABH INFRASTRUCTURE LTD. VS. ACIT REPORTED IN 398 ITR 198 THE SAME WAS TO BE CONFRONTED ALONGWITH REASONS WHE REIN IT HAS BEEN HELD AS UNDER: (III) WHERE THE REASONS MAKE A REFERENCE TO ANOTHER DOCUMENT, WHETHER AS A LETTER OR REPORT, SU CH DOCUMENT AND / OR RELEVANT PORTIONS OF SUCH REPORT SHOULD BE ENC LOSED ALONGWITH THE REASONS. 6.3.1 HENCE IN THE ABSENCE OF SUCH MA TERIAL, THE ALLEGATION AND ASSUMPTIONS ARE NOTHING BUT FIGMENT OF IMAGINATION AS THEY ARE BASED ON ASSUMPTION AND PRESUMPTION, AP ART FROM BEING WITHOUT BASIS. 4.8 IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND RESPECTFULLY FOLLOWING THE PRECEDENTS, AS AFORESAID , I AM OF THE CONSIDERED VIEW THAT PROCEEDINGS INITIATED BY INVOK ING THE PROVISIONS OF SECTION 147 OF THE ACT BY THE AO AND UPHELD BY THE LD. CIT(A) ARE NONEST IN LAW AND WITHOUT JURISDICTION, HENCE, THE RE- ASSESSMENT IS QUASHED. 5.5.2 SIMILARLY, IN THE CASE OF KAMAL KISHOREE AGGARWAL VS. ACIT (SUPRA), THE TRIBUNAL HAS OBSERVED AS UNDER: 7. I FIND THAT THE REASONS RECORDED FOR ISSUANCE O F NOTICE U/S 148 WAS AS UNDER: REASONS FOR BELIEF THAT THE INCOME HAS ESCAPEDASSESSMENT IN THE CASE OF SHRI GOPAL GUPTA FORTHE ASSESSMENT YEAR 2009-10 AS SURVEY REPORT IN R/O CLIENT CODE MODIFICATION (C CM) HAS BEEN RECEIVED FROM ADIT (INV.) U-1(3) AHMADABAD DISSEMIN ATING OF BENEFICIARY CLIENTS WHO HAVE TAKEN CONTRIVED LOSSES AND SHIFTED OUT PROFITS DURING THE F.Y.2008-09 TO 2011-12. 8. WE FIND THAT IN THE CASE OF M/S. PRASHANT AGENCI ES PVT. LTD. AND PPN PROPERTIES PVT. LTD. VS ITO IN ITA NOS. 3059 & 3060/DEL/2018,ORDER DATED 16.01.2019, THE TRIBUNAL DEALT WITH THE SIMILAR ISSUANCE OF NOTICE U/S 148 OF THE ACT BY FO LLOWING THE 10 ITA NOS.7878/DEL./2019 DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CORONATION AGRO INDUSTRIES LTD. VS. DCIT 390 ITR 464 (BOM.). IN THAT CASE, THE REASONS RECORDED WERE ASUNDER: . 10. A PERUSAL OF THE ABOVE, SHOWS THAT CLIENT CODE MODIFICATION IS LEGALLY PERMISSIBLE IN CASE OF MISTA KE. IN THE INSTANT CASE, THE OBSERVATION OF THE ASSESSING OFFI CER IS TO THE EFFECT THAT DUE TO CLIENT CODE MODIFICATION IN TWO TRANSAC TIONS, THE ASSESSE E S INCOME WAS REDUCED BY RS.5,96,176/-. 11. WE FIND THAT THERE IS NO MATERIAL WHICH HAS BEEN BR OUGHT OUT IN THE RECORDED REASONS TO SHOW THAT CLIENT COD E MODIFICATION IN THE INSTANT CASE WAS MALAFIDE OR TH E ASSESSEE RECEIVED RS.5,96,176/- IN CASH IN LIEU OF THE SAID CLIENT CODE MODIFICATION. THUS, THE ABOVE RECORDING AT BEST IS A REASON TO SUSPECT ONLY. 12. IT IS AN ESTABLISHED POSITION OF LAW THAT THE V ALIDITY OF REOPENING IS TO BE DECIDED ON THE BASIS OF RECORDING MADE U/S 148(2) OF THE ACT ALONE AND NOTHING CAN BE ADDED THERETO. THE RECORDI NG SHOULD BE SELF-CONTAINED TO WITHSTAND THE VALIDITY OF THE REO PENING MADE. 13. IN THE CIRCUMSTANCES, RESPECTFULLY FOLLOWING TH E DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CORONATION AGRO INDUSTRIES LTD. VS DCIT (SUPRA) AND THE ABOVE QUOTE D DECISION OF THE TRIBUNAL, IN OUR CONSIDERED OPINION, THE REASONS RE CORDED IN THE INSTANT CASE DOES NOT SATISFY THE REQUIREMENT OF LA W AND THE SAME DOES NOT CONSTITUTE THE REASON TO BELIEVE FOR ESCAP EMENT OF ANY INCOME FROM TAX. THEREFORE, THE REASON IS NOT VALID . THE CONSEQUENTIAL ORDER OF REASSESSMENT PASSED IN PURSU ANCE THERETO CANNOT BE SUSTAINED. WE, THEREFORE, SET ASIDE THE I MPUGNED ORDER OF REASSESSMENT PASSED U/S 147 OF THE ACT AND ALLOW TH IS GROUND OF APPEAL OF THE ASSESSEE. 5.3 IN THE INSTANT CASE, THOUGH THE ASSESSING OFFICER HAS REPRODUCED THE REASONS RECORDED, FOR READY REFERENC E SAME ARE REPRODUCED HERE AS UNDER: '1. THE ASSESSEE IS A COMPANY FILED ITS RETURN OF I NCOME ON 27.09.2010 DECLARING RS.5,06,454/- INCOME. THE DETA ILS OF THE DIRECTORS OF THE ASSESSEE COMPANY OBTAINED FROM REC ANTS ARE HEREUNDER:- (A) ALUL SETHI (B) GAUTAM JAGGA 11 ITA NOS.7878/DEL./2019 THE RETURN HAS BEEN VERIFIED A DIGITALLY SIGNED BY SHRI ATUL SETHI. 2. THEREAFTER, THE RETURN WAS PROCESSED UNDER 143(1 ) OF THE IT ACT. HOWEVER, THE CASE WAS NOT SELECTED FOR SCRUTINY/OR SCRUTINIZED US 143(3) OF THE ACT. SUBSEQUENTLY, INFORMATION THROUG H EMAIL WAS RECEIVED ON 11/03/2016 FROM ASSTT. DIRECTOR OF INC OME TAX (INVESTIGATION), UNIT 1(3), AHMEDABAD BY WHICH A SU RVEY REPORT WAS DISSEMINATED IN CASES OF BENEFICIARY CLIENTS WHO HA VE TAKEN CONTRIVED LOSSES & SHIFTED OLD PROFITS USING CLIENT CODE MODIFICATION. 3. IT IS A DETAILED REPORT OF 593 PAGES. I HAVE GON E THROUGH THE REPORT AND GATHERED THAT HOW CLIENT CODE MODIFICATION HAS BEEN DONE IN CASE OF THE ASSESSEE TO EVADE TAX. CLIENT CODE IS U NIQUE CODE WHICH IS ASSIGNED BY A BROKER TO ITS CLIENTS. A BROKER CA N ISSUE JUST ONE CODE TO A CLIENT. CLIENT CODE MODIFICATION MEANS MODIFICATION/CHANGE OF THE CLIENT CODES AFTER EXECU TION OF TRADES. VIDE CIRCULAR NO. SMD/POLICY/CIR-/03, DATED FEBRUAR Y 6, 2003 SEBI MANDATED THAT THE SLACK EXCHANGES SHALL NOT NO RMALLY PERMIT CHANGES IN THE CLIENT CODE EXCEPT TO CORRECT FOR GE NUINE MISTAKES. THE CLIENT CODE MODIFICATIONS PERMIT BROKERS TO RECTIFY HUMAN ERRORS WHEN A CLIENT INADVERTENTLY PROVIDES A WRONG CODE OR WHEN OR A WRONG CODE IS PUNCHED IN BY THE BROKER WHILST EXECU TING THE TRADE. THE BROKER IS ALLOWED TO CHANGE IT BETWEEN 3.30 PM AND 4 PM TO RECTIFY A GENUINE ERROR THAT MAY HAVE OCCURRED WHIL E ENTERING THE CODE, THE FACILITY ENSURES SMOOTH FUNCTIONING OF TH E SYSTEM AND IS TO BE USED AS AN EXCEPTION RATHER THAN ROUTINE. CLIENT CODE MODIFICATION MEANS MODIFICATION OF CLIENT CODE AFTER THE EXECUTI ON OF TRADE. 3.1 OVER A PERIOD OF TIME, SOME PERSONS, IN CONNIV ANCE WITH BROKERS STARTED USING CLIENT CODE MODIFICATION FOR PURPOSES OTHER THAN GENUINE ERRORS. CONTRARY TO ITS MOTIVE, CCM FACILIT Y WAS BEING MISUSED AND BROKERS TRANSFERRED GAINS OR LOSSES FRO M ONE PERSON TO ANOTHER BY CHANGING THE CODE, IN THE GARB OF CORREC TING AN ERROR. THESE GAIN OR LOSS-BOOK ENTRIES WERE THEN USED TO E VADE TAXES. 4. NON GENUINE CCM WERE CARRIED OUT TO BOOK CONTRIV ED LOSSES. IN SOME CASES, THIS FACILITY WAS USED BY BROKERS TO TR ANSFER GAINS OR LOSSES FROM ONE PARTY TO ANOTHER BY MODIFYING CLIE NT CODES IN THE GUISE OF RECTIFYING AN ERROR. IT BECAME A PRACTICE TO BOOK ARTIFICIAL PROFITS OR LOSSES IN MARCH TO IMPACT LAX LIABILITIE S. IT IS GENERALLY DONE BY BUYING OR SELLING STOCKS INTRA-DAY SO AS TO SAY CONSCIOUSLY INCUR A LOSS AND USE THAT AS A TAX OFFSET. 4.1 CLIENT CODE MODIFICATION (CCM) ESPECIALLY IN TH E FUTURES AND OPTIONS SEGMENT (F&O) WAS BEING USED A DEVICE TO EV ADE TAXES WHEREIN THE CLIENT CODES WERE MODIFIED FOR BOOKING ARTIFICIAL PROFITS OR LOSSES AT THE FAG END (JAN TO MARCH OF THE FINAN CIAL YEAR WHEN THE BOOK PROFITS/LOSSES OF VARIOUS CLIENTS HAVE CRYSTAL LIZED. THIS IS DONE 12 ITA NOS.7878/DEL./2019 WITH AN INTENTION TO IMPACT THE TAX LIABILITIES OF THE PAIR OF CLIENTS WHOSE CODES ARE MODIFIED. 5. ENQUIRIES WERE CONDUCTED BY DIT (I&CI) MUMBAI: O N THE SPOT VERIFICATION U/S 131 (IA) OF THE ACT WAS CONDUCTED IN THE CASES OF FEW BROKERS. THE BROKERS ADMITTED MISUSE OF CLIENT CODE MODIFICATION & RECEIPT OF COMMISSION OF 0.5 TO 2%. IN ADDITION, FO LLOWING PATTERNS WERE OBSERVED IN THE I&CI REPORT: I. NUMBER AND PERCENTAGE OF MODIFIED TRADES TRADED VALUE IS SIGNIFICANTLY HIGHER IN THE TOTAL NUMBER OF TRADES/ TRADED VALUE OF PARTICULAR CLIENT INDULGING INTO CCM. II. PROFIT/LOSS ARISING ON ACCOUNT OF ALL MODIFICAT IONS BY CLIENT IS SIGNIFICANT IN COMPARISON TO THE PROFIT/LOSS IN THE TRADES WHERE NO MODIFICATIONS HAVE BEEN CARRIED OUT. III. TRADES HAVE BEEN MODIFIED TO UNRELATED PARTIES INDICATING THAT THEY ARE NON-GENUINE IV. BOTH BUY AND SELL LOG OF DIFFERENT TRADES HAVE BEEN MODIFIED TO MOST OF THE CLIENT. V. NUMBER OF TRADE CLIENT CODE MODIFICATIONS SUBSTA NTIALLY INCREASED DURING THE CLOSING MONTHS OF THE FINANCIA L YEAR. VI. IN SOME CASES, THE CLIENTS IN WHOSE ACCOUNTS TR ADES WERE TRANSFERRED AFTER MODIFICATION DID NOT HAVE ENOUGH MARGIN MONEY TO TRADE IN THE F & O SEGMENT. VII THE CLIENT CODE MODIFICATION WAS CONSISTENTLY U SED TO ALWAYS TRANSFER LOSSES IN ACCOUNTS OF SOME CLIENTS AND PR OFITS IN THE ACCOUNTS OF OTHERS. VIII. MANY BROKERS ACCEPTED THAT THEY CHARGED COMMI SSION AT THE RATES VARYING FROM 0.5% TO 2% ON THE AMOUNTS OF ACC OMMODATION ENTRIES PROVIDED BY THEM TO DIFFERENT BENEFICIARIES . IX. THESE BROKERS REVISED THEIR COMPUTATION FOR A.Y 2010-11 AND PAID TAXES ACCORDINGLY. X. SOME BENEFICIARIES AGAINST WHOM ENQUIRIES WERE C ONDUCTED HAVE ACCEPTED AND WITHDRAWN THEIR CLAIM OF NUN-GENUINE L OSSES IN F&O SEGMENT IN A.Y-2010-11. THEY HAVE REVISED THEIR COM PUTATION FOR A.Y.-2010-11 AND PAID TAXES ACCORDINGLY. THE REPORT OF I&CI CLEARLY ESTABLISHED THAT THE RAC KET OF BROKERS AND BENEFICIARIES FOUL PLAYED AND MISUSED CCM FOR TAX-E VASION. 13 ITA NOS.7878/DEL./2019 6. AN ACTION WAS ALSO UNDERTAKEN BY AHMEDABAD DIREC TORATE OF INVESTIGATION WING. THE WING HAD CALLED FOR REPORTS FROM DIFFERENT EXCHANGES AND THE DATA WAS DUTY ANALYSED. AFTER ANA LYSIS, 12 BROKERS AND THEIR RELATED ENTITIES/MAIN CLIENTS WER E IDENTIFIED FOR SURVEY WHERE THE PRE-SURVEY ANALYSIS INDICATED MORE QUANTUM OF TAX-EVASION. BASED UPON DATA ANALYSIS COORDINATED S URVEYS U/S 133A OF THE INCOME TAX ACT, 1961 WERE CARRIED OUT A T-THE PREMISES OF 12 BROKERS ACROSS INDIA ON 23.03.2015. 7. INCOME-TAX (FIRST AMENDMENT) RULES. 2011 WERE AM ENDED VIDE NOTIFICATION NO. 14/2011 [F. NO. 142/25/2008-S O(TPL)], DATED 9-3-2011. THE AMENDMENT CAME INTO FORCE ON THE 1ST DAY OF APRIL, 2011. THE AMENDMENT REQUIRED THE STOCK EXCHANGES TO ENSURE THAT THE TRANSACTIONS (IN RESPECT OF CASH AND DERIVATIVE MARKET) ONCE REGISTERED IN THE SYSTEM ARE MODIFIED ONLY IN CASES OF GENUINE ERROR AND MAINTAIN DATA REGARDING ALL TRANSACTIONS TIN RE SPECT OF CASH AND DERIVATIVE MARKET) REGISTERED IN THE SYSTEM WHICH H AVE BEEN MODIFIED AND SUBMIT A MONTHLY STATEMENT IN FORM NO. 3BB TO THE DIRECTOR GENERAL OF INCOME-TAX (INTELLIGENCE), NEW DELHI WITHIN FIFTEEN DAYS FROM THE LAST DAY OF EACH MONTH TO WHICH SUCH STATEMENT RELATES. 8. SEBI CONDUCTED A PROBE INTO 'MODIFICATION OF CLI ENT ENDED BY BROKERS, PURSUANT TO OBSERVATIONS BY THE FINANCE MI NISTRY ABOUT MANY SUCH MODIFICATIONS TAKING PLACE IN DERIVATIVES TRANSACTIONS AT THE NSE DURING MARCH 2011). WITH REGARD TO THE CLIE NT CODE MODIFICATIONS, THE TRADING ACTIVITIES UNDER SCANNER OF SEBI MOSTLY TOOK PLACE BETWEEN 2009 AND 2011 AFTER WHICH SEBI T IGHTENED ITS NORMS TO PUT A FULL-STOP TO SUCH MANIPULATIONS. BEF ORE TIGHTENING OF THE NORMS, THE INDIAN MARKETS WERE SEEING DIEM CODE MODIFICATIONS TO THE TUNE OF RS.50,000 RS. 60,000 CRORE A MONTH , WHICH CAME DOWN TO JUST ABOUT RS.100 CRORE SOON AFTER SEBI ACT ION. QUANTUM OF SUCH MODIFICATIONS WAS MUCH HIGHER DURING MARCH, CO MPARED TO THE OTHER MONTHS, WHICH HINTED TOWARDS THE TAX EVASION ANGLE DUE TO IT BEING THE LAST MONTH OF THE FISCAL. THIS SHOWED THA T A LARGE-SCALE MANIPULATION WAS TAKING PLACE WHERE BROKERS WERE MA KING CHANGES IN THE CLIENT DETAILS AFTER EXECUTION OF TRADES CIT ING GENUINE ERRORS IN APRIL 2012, SEB1 PASSED AN ORDER AGAINST NSE FOR BE ING 'NEGLIGENT IN DISCHARGE OF ITS DUTIES IN A CASE OF MODIFICAT ION OF CLIENT CODES. 9. THE REPORT OF AHMEDABAD INVESTIGATION WING HAS B EEN COMPILED AFTER TAKING INTO ACCOUNT THE FINDINGS OF SEBI, DG I&CI. DATA AVAILABLE WITH DEPARTMENT IN FORM OF FORM NO. 3BB A ND THE INFORMATION COLLECTED BY WAY OF SURVEYS. THE REPORT POINTS OUT THAT THE ESSENCE OF LAX EVASI ON THROUGH CCM IS THAT IF THE BROKER HAS PUNCHED IN BOTH BUY AND SELL ORDERS FOR A 14 ITA NOS.7878/DEL./2019 GIVEN QUANTITY OF A GIVEN SECURITY THEN AT THE END ID THE TRADING SESSION HE HAS WITH HIM AN ASCERTAINED LOSS/GAIN ON THIS BUY SELL PAIR THAT HE CAN SHIFT DURING THE CCM WINDOW. THE A NALYSIS OF THE INVESTIGATION WING FOCUSED ON NARROWING DOWN ON SYS TEMIC TRANSFER OF MATCHED QUANTITIES OF BUY AND SELL ORDERS FRONT A GIVEN ORIGINAL CLIENT CODE (OCC) OR TO A GIVEN MODIFIED CLIENT COD E (MCC) FOR A GIVEN BROKER 10. THE FOLLOWING STEPS WERE FOLLOWED FOR ANALYSIS AND COMPUTING THE QUANTUM OF LOSSES PROFITS SHIFTED DUE TO THE CC M: FOR COMPUTATION OF THE PROFITS AND LOSSES SHIFTED ON ACCOUNT OF CLIENT CODE MODIFICATIONS THE MATCHED COMBINATIONS OF THE BUY AND SELL ORDERS, IN A GIVEN SCRIP WITH SAME EXPIRY ON A GIVE N DATE, SHIFTED IN (IN CASE OF MCC) SHIFTED OUT (IN CASE OF OCC) WERE TAKEN IN A PAIR OF CLIENTS. FOR ILLUSTRATION IN CASE FROM CLIENT X(OCC ) TRANSACTIONS OF 500 BUY ORDERS AND 500 SELL ORDERS OF NIFTY WITH EXPIRY 28.03.2020 MODIFIED ON 06.03.2010 TO CLIENT Y(MCC), THEN IN SU CH CASE THE DIFFERENCE IN BUY AND SELL TRADES IS TAKEN TO BE PR OFIT/LOSS SHIFTED FROM X TO Y. ALL OTHER TRANSACTIONS SAY WHERE 500 B UY AND 200 SELL TRADES ARE SHIFTED FRONT X TO Y HAVE BEEN IGNORED. THE TRANSACTIONS WHERE EXACT BUY AND SELL TRANSACTI ON WERE TRANSFERRED FROM ONE CLIENT TO ANOTHER NO PRICE RIS K EVER WAS BORNE BY THE CLIENT WHO RECEIVED THE TRANSACTIO NS THROUGH CCM. THUS SUCH ASCERTAINED LOSSES SHIFTED THROUGH C CM FOR WHICH NO PRICE RISK EVER WAS BORNE BY A CLIENT ARE NON- GENUINE LOSSES SHIFTED WITH THE MOTIVE OF TAX EVASI ON BY SETTING OF SUCH SELECTIVELY SHIFTED LOSSES AGAINST OTHER INCOME. WORKING ON THE SAID LOGIC HAS BEEN MADE IN BOTH SCE NARIOS, I.E., WHEN A GIVEN CLIENT WAS ORIGINAL CLIENT (OCC) AND WHEN THE CLIENT WAS MODIFIED CLIENT(MCC). IT HAS BEEN SEEN WITH REGARD TO ALL THE CLIENTS, SO IDENTIFIED TO HAVE OBTAINED LOSSES/PROFITS CONSEQUENT TO SUCH WOR KING ON THE NSE DATA, THAT WHEN A CLIENT HAS RECEIVED LOSSE S AS MCC. IT HAS SHIFTED OUT PROFITS WHEN IT WAS OCC AND ITS CODE WAS MODIFIED. THUS, THE TOTAL LOSSES OBTAINED BY THE CL IENT THROUGH CCM WOULD BE THE SUM OF THE LOSSES RECEIVED AS MCC AND PROFITS SHIFTED OUT TO OTHER CLIENTS AS OCC. AS PER THE SAID WORKING, YEAR-WISE AND CLIENT-WISE LASSES COMPUTED FOR ALL THE DIEMS OF DIFFERENT BROKERS IS ENCLOSED AL ANNEXTURE B, TO THIS REPORT. THE FINAL FIGURES OF THE PROFITS AND LOSSES SHIFTED DUE TO CCM ARE AT ANNEXURE B TO THIS REPORT, 15 ITA NOS.7878/DEL./2019 11. THE SUBMISSIONS WERE REQUESTED FROM THE BROKERS BY THE INVESTIGATION WING AND WERE DUTY CONSIDERED. IN CAS E THE SUBMISSION HAD MERITS, THESE WERE DULY HONOURED. TH E FINAL SET OF BENEFICIARIES AS COMPILED CONTAINED ONLY SUCH BENEF ICIARIES FOR WHOM NO TENABLE CONTENTION REMAINS STANDING. TO COU NTER THE CONTENTION OF THE BROKERS THAT THE DEPARTMENT HAS N OT TAKEN INTO ACCOUNT THE OPEN POSITIONS SHIFTED FROM ONE CLIENT TO ANOTHER AS A RESULT OF CCM AS THE SHIFTING OF ONE LEG OF TRADE ( I.E. BUY OR SELL OPEN POSITION) FROM ONE CLIENT TO ANOTHER ONLY CCM WHERE IN EQUAL NUMBER OF BUY AND SELL TRADES BETWEEN TWO CLIENTS HAVE BEE N SHIFTED HAVE BEEN TAKEN FOR COMPUTATION OF THE LOSSES PROFITS SH IFTED DUE TO CCM. TO BE MORE SPECIFIC AND IN SIMPLE TERMS, MODIFICATI ONS WHICH APPEAR TO BE GENUINE OR RESEMBLE AT BEING GERMANE WERE IGN ORED AND NOT CONSIDERED IN THIS REPORT. SUCH BENEFIT HAS ALREADY BEEN GIVEN BY THE DEPARTMENT. 12. I HAVE GONE THROUGH THE REPORT AS WELL AS THE B ASIC DATA OF TRANSACTION IN RESPECT OF MY ASSESSEE WHICH WAS SUP PLIED WITH THE REPORT. MY FINDINGS ON THE ISSUE ARC AS UNDER: A) THE RETURN OF THE ASSESSEE SHOWS THAT IT IS INVO LVED IN SALE PURCHASE IN STOCK EXCHANGES AND ITS GROSS TURNOVER COULD HAVE INCLUDED THE TRANSACTIONS CONTR IVED BY WAY OF CCM. B) THE TRANSACTIONS WHICH INVOLVED CCM IN CASE OF A SSESSEE ARE AS UNDER I) THE ASSESSEES CODE WAS MODIFIED 44 TIMES IN OC C TO SHIFT OUT PROFITS RS.6,42,781 AND ONE TIME IN MCC TO SHIFT I N LOSS OF RS 4.420/ - THE DATA CLEARLY SHOWS THAT THE MODIFICATI ON WAS NOT ON GROUNDS OF FEEDING IN ERRONEOUS DATA. THE MODIFICAT IONS ARE AS UNDER: TO SHIFT OUT PROFITS. THE ASSESSEES OCC OF FSTP HAVE BEEN MODIFIED TO NEW CODES IN MCC AS UNDER. REPLACED CODE NUMBER OF TIMES I 13 FAMK S FBHA 3 FDDI 8 FJRD 9 FKA1 3 TOTAL 44 16 ITA NOS.7878/DEL./2019 (II) NOW LET US EXAMINE THE SITUATION IN MCC I.E. W HEN SOME OTHER'S OCC WAS MODIFIED TO THE ASSESSEE'S CODE. TH E ASSESSES DID ONE TRANSACTION IN WHICH HE GOT OCC OF SOMEONE ELSE MODIFIED TO ITS CODE TO GATHER LOSSES. THE ORIGINAL CODES OF 99 WER E REPLACED BY ASSESSESS CODES OF FSTP. THIS RESULTED IN SHIFTING IN OF LOSSES OF RS.4,420/- C) LEVENSHTEIN DISTANCE OR EDIT DISTANCE IS THAT IT GIVES A CLEAR INDICATION AS TO WHETHER THE CODE IS WRONGLY TYPED OR IS COMPLETELY REPLACED. IF THE NUMBER OF DIGITS CHANGED FROM ORIG INAL CODE TO MODIFIED CODE IS I. THEN IT CAN BE REASONABLY ARGUE D THAT THE OCC (ORIGINAL CLIENT CADE) MAY HAVE BEEN TYPED WRONGLY BY MISTAKE BUT IF THE NUMBER OF DIGITS CHANGED IS MORE SURELY IT C ANNOT BE A GENUINE TYPING MISTAKE BUT A DELIBERATE CHANGE. TO THIS EXT ENT LEVENSHTEIN DISTANCE ANALYSIS OR DIGIT EDIT ANALYSIS ACTS AS A CLEAR INDICATOR FOR GENUINENESS IN CLIENT CODE MODIFICATION. THE LONGER THE DISTANCE (I.E. NUMBER OF DIGITS CHANGED), THE LESSER THE CHANCES A T GENUINENESS. THE ANALYSIS OF LEVENSHTEIN DISTANCE OR DIGIT EDIT ANALYSIS, WHEN CLUBBED WITH THE PARAMETERS MENTIONED IN THIS REPOR T ESTABLISHES THE NON-GENUINENESS AND CONTRIVED NATURE AT THE CODE CH ANGE. LEVENSHTEIN DISTANCE ANALYSIS OR DIGIT EDIT ANALYSI S IN CASE OF THE ASSESSEE SHOWS THAT IN ALL TRANSACTIONS THE VALUE W AS 2 OR MORE. (D) BENEFICIARIES WHO SHIFT OUT THEIR PROFITS AND A T THE SAME TIME, THEY HAVE ALSO TAKEN LOSSES FROM OTHERS. THESE TACT ICS ARE GENERALLY RESORTED TO BY THE PERSONS WHO ALREADY HAVE TAXABLE INCOME IN THEIR BOOKS AND THEY WANT TO SET IT OFF AGAINST CONTRIVED LOSSES THROUGH CCM. AN IMPORTANT FINDING OF THE SURVEY IS TREND ANALYSI S THE TREND ANALYSIS SHOW THAT THE PROFITS ARE SHIFTED OUT WHEN THE PERSON IS ORIGINAL CLIENT AND LOSSES ARE SHIFTED IN WHEN THE CLIENT IS MODIFIED CLIENT. THIS TREND SHOW THAT THE CCM HAS BEEN CARRI ED OUT FOR NON- GENUINE PURPOSES IN THE CASE OF ASSESSEES. THE OTHE R IMPORTANT FINDING OF THE SURVEY IS THAT MOST OF THE BROKERS A DMITTED THAT CCMS HAVE BEEN DONE FOR A PURPOSE OTHER THAN GENUINE PUN CHING ERRORS. 13 IT SHOULD ALSO BE KEPT IN MIND THAT RULES OF EVI DENCE DO NOT GOVERN INCOME TAX PROCEEDINGS AND THE AO IS NOT FET TERED OR BOUND BY TECHNICAL RULES CONTAINED IN THE INDIAN EVIDENCE ACT AND IS ENTITLED TO ACT ON MATERIAL WHICH MAY NOT HE ACCEPT ED AS EVIDENCE IN A COURT OF LAW. IN CLANDESTINE TRANSACTIONS, LIKE T HAT OF CCM, IT IS IMPOSSIBLE TO HAVE DIRECT EVIDENCE OR DEMONSTRATIVE PROOF OF EVERY MOVE, THE AO HAS NO CHOICE BUT TO TAKE RECOURSE TO PREPONDERANCE OF EVIDENCE AVAILABLE. 17 ITA NOS.7878/DEL./2019 14. A CAREFUL SCRUTINY OF INFORMATION RECEIVED FROM THE INVESTIGATION WING AND SUBSEQUENT ANALYSIS OF REPOR T OF INVESTIGATION WING, DATA OF TRANSACTIONS AND VERIFI CATION AT ITR LEAD TO AN IRRESISTIBLE CONCLUSION THAT CLIENT CODE MODI FICATION HAD BEEN CARRIED OUT IN THE CASE OF ASSESSEE TO SHIFT IN ASC ERTAINED LOSSES & SHIFT OUT PROFITS OF RS.6,47,201/- INCOME CHARGEABLE TO TAX ESCAPING ASSESSMENT 15. CONSIDERING THE ABOVE REFERRED CREDIBLE INFORMA TION, AND ENQUIRIES AND ANALYSTS SUBSEQUENT TO THE INFORMATIO N, I HAVE REASON TO BELIEVE THAT AN AMOUNT AT LEAST OF RS.6,47,201/- & COMMISSION @ 2%, AMOUNTING TO RS.12,944/- (@ 2%) HAS ESCAPED ASS ESSMENT IN CASE THE OF M/S STRATAGEM PORTFOLIO P LTD FOR THE A .Y. 2010-11 WITHIN THE MEANING OF SECTION 147/148 OF INCOME-TAX ACT, 1 961. 5.4 ON PERUSAL OF THE ABOVE REASONS, IT IS EVIDENT THA T THE MATERIAL SUGGESTS THAT CLIENT CODE MODIFICATION HAS BEEN CARRIED OUT BY THE BROKER IN THE CASE OF THE ASSESSEE. ACCO RDING TO THE INFORMATION AVAILABLE IN THE REASONS RECORDED, CLIE NT CODE MODIFICATION IS ALLOWED TO THE BROKERS BY THE STOCK EXCHANGE, WITHIN A LIMITED WINDOW OF TIME AFTER BUSINESS HOUR S, FOR RECTIFICATION OF ANY MISTAKES IN PUNCHING OF THE CL IENT CODE WHILE CARRYING OUT TRANSACTION OF PURCHASE AND SALE ON BE HALF OF THE CUSTOMERS. THE LEARNED ASSESSING OFFICER, HOWEVER H AS ALLEGED IN THE REASONS RECORDED THAT CLIENT CODE MODIFICATION HAS BEEN DONE FOR SHIFTING OF THE PROFIT OR LOSS BY THE ASSESSEE. BUT THERE IS NO MATERIAL TO INFER THAT SUCH CLIENT CODE MODIFICATIO N HAS BEEN DONE WITH MALAFIDE PURPOSE OF SHIFTING OF THE PROFIT OR EVASION OF THE TAX. THERE IS NO MATERIAL BEFORE THE ASSESSING OFFI CER TO FORM SUCH A BELIEF THAT INCOME HAD ESCAPED DUE TO SUCH CLIENT CODE MODIFICATION AND THUS THERE IS NO LIVE LINK BETWEEN THE MATERIAL BEFORE THE ASSESSING OFFICER AND INFERENCE MADE. TH E HONBLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK B ROKERS (P) LTD. REPORTED IN 291 ITR 500 HAS HELD THAT FOR VALI DITY OF REASON 18 ITA NOS.7878/DEL./2019 RECORDED IT IS ESSENTIAL THAT THERE SHOULD BE A REL EVANT MATERIAL ON WHICH A REASONABLE PERSON COULD MAKE REQUISITE BELI EF. IN THE CIRCUMSTANCES, IN VIEW OF THE ABOVE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S. CORONATION AG RO INDUSTRIES LTD. (SUPRA) AND DECISIONS OF THE TRIBUN AL (SUPRA), WE ARE OF THE OPINION THAT THE ASSESSMENT CANNOT BE RE OPENED VALIDLY ON THE BASIS OF THE ABOVE REASONS RECORDED IN ABSEN CE OF ANY TANGIBLE MATERIAL TO INFER THAT INCOME ESCAPED IN T HE CASE OF THE ASSESSEE. WE, ACCORDINGLY, QUASH THE REASSESSMENT P ROCEEDINGS AND SET ASIDE THE ORDER OF THE LEARNED CIT(A) ON TH E ISSUE IN DISPUTE. THE GROUND NO. 1.1 OF THE APPEAL IS ACCORD INGLY ALLOWED. 5.5 SINCE WE HAVE ALREADY QUASHED THE REASSESSMENT PROCEEDING, WE ARE NOT ADJUDICATING OTHER GROUND OF THE APPEAL CHALLENGING VALIDITY OF THE REASSESSMENT AS WELL AS ON THE MERIT OF THE ADDITIONS. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH SEPTEMBER, 2020. SD/- SD/- (BHAVNESH SAINI) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 15 TH SEPTEMBER, 2020. RK/- (D.T.D.S.) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI