Mukesh Chand Garg, New Delhi V. ITO, Ward-49(3), New Delhi

ITA 794/DEL/2019

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 8460 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 04-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S L ANURAGI
• Assessee Lawyers: VED JAIN MS SURBHI GOYAL
• Keywords: Question of law; Competent authority; Reassessment proceedings; Borrowed satisfaction
• Section: 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC, NEW DELHI BEFORE SH. R. K. PANDA, ACCOUNTANT MEMBER ITA NO.794/DEL/2019 ASSESSMENT YEAR: 2009-10 MUKESH CHAND GARG B-1/305, GROUND FLOOR, JANAK PURI, NEW DELHI-110058 PAN NO.AEYPG7826A VS ITO WARD- 49 (3) NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY SH. VED JAIN, ADVOCATE MS. SURBHI GOYAL, CA RESPONDENT BY SH. S. L. ANURAGI, SR. DR DATE OF HEARING: 08/08/2019 DATE OF PRONOUNCEMENT: 07/10/2019 ORDER PER R.K. PANDA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 24.12.2018 OF THE CIT(A) -17, NEW DELHI RELAT ING TO A.Y.2009-10. 2. THE ASSESSEE IN ITS VARIOUS GROUNDS OF APPEAL HA S CHALLENGED THE ORDER OF THE LD. CIT(A) IN CONFIRMING THE ADDITION OF RS.4,25,810/- AND HAS ALSO CHALLENGED THE VALIDITY OF PROCEEDINGS U/S . 147. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSE E IS AN INDIVIDUAL AND FILED HIS RETURN OF INCOME ON 24.08.2009 DECLAR ING TOTAL INCOME OF RS.5,49,980/-. SUBSEQUENTLY ON THE BASIS OF INFORMA TION RECEIVED FROM PCIT OF THE INCOME TAX (INVESTIGATION), AHEMDABAD T HAT THE ASSESSEE HAD AVAILED CONTRIVED LOSS OF RS.4,39,342/- THROUGH BROKER BY PAGE | 2 CHANGING THE CLIENT CODES IN SALE AND PURCHASE ORDE RS OF SECURITIES, THE CASE OF THE ASSESSEE WAS REOPENED U/S. 147 AFTER RE CORDING REASONS. IN RESPONSE TO NOTICE U/S. 148 THE ASSESSEE SUBMITTED THAT THE ORIGINAL RETURN FILED MAY BE TREATED AS RETURN FILED IN RESP ONSE TO NOTICE U/S. 148. THE ASSESSING OFFICER, DURING THE COURSE OF AS SESSMENT PROCEEDINGS, CONCLUDED THAT THE ASSESSEE HAS PURCHA SED EXEMPT LONG TERM CAPITAL GAIN THROUGH BROKERS BY CHANGING CLIEN T CODES IN SALE AND PURCHASE ORDERS OF SECURITIES AND HAD CLAIMED THE S AME AS EXEMPT. SINCE THE ASSESSEE HAS EARNED CAPITAL GAIN OF RS.4, 39,342/- AND CLAIMED THE SAME AS LONG TERM CAPITAL GAIN EXEMPT F ROM TAX, THE ASSESSING OFFICER HELD THE SAME TO BE NON GENUINE A ND ACCORDINGLY MADE ADDITION OF RS.4,39,342/-. 4. IN APPEAL THE CIT(A), RELYING ON VARIOUS DECISIO NS, UPHELD THE ACTION OF THE ASSESSING OFFICER. AGGRIEVED WITH SUC H ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO PA GE-12 OF THE PAPER BOOK DREW THE ATTENTION OF THE BENCH TO COLUM N NO.12 WHERE THE PCIT HAD SIMPLY MENTIONED SATISFIED. REFERRING TO CLAUSE NO.11 OF THE FORM HE SUBMITTED THAT THE ADDITIONAL CIT HAS S IMPLY MENTIONED YES, IT IS FIT CASE TO ISSUE NOTICE U/S. 148 OF TH E IT ACT. REFERRING TO THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF PCIT VS. M/S. N. C. CABLES LIMITED REPORTED IN 391 ITR 11 AN D THE DECISION OF THE HONBLE M. P. HIGH COURT IN THE CASE OF CIT VS. S. GOENKA LIME AND CHEMICALS LIMITED REPORTED IN (2015) 56 TAXMAN. COM 390 AND VARIOUS OTHER DECISIONS FILED IN THE PAPER BOOK, HE SUBMITTED THAT THE COURTS HAVE HELD THAT THE REOPENING IS NOT SUSTAINA BLE WHERE APPROVAL / SANCTION GIVEN BY THE AUTHORITY IS WITHOUT RECORD ING SATISFACTION. REFERRING TO VARIOUS OTHER DECISION HE SUBMITTED TH AT THE ASSESSING OFFICER, NOT HAVING JURISDICTION OVER THE ASSESSEE, CANNOT ISSUE NOTICE PAGE | 3 U/S. 148 OF THE IT ACT. THE ASSESSING OFFICER IN T HE INSTANT CASE HAS NOT APPLIED HIS MIND AND INITIATED ACTION U/S. 147 ON THE BASIS OF REPORT OF THE INVESTIGATION WING THEREFORE, THE REA SSESSMENT PROCEEDINGS INITIATED BY THE ASSESSING OFFICER IS N OT SUSTAINABLE. 6. SO FAR AS THE MERIT OF THE CASE IS CONCERNED, TH E LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE DECISION OF HONBLE B OMBAY HIGH COURT IN THE CASE OF PCIT VS. PAT COMMODITY SERVICES PRIVATE LIMITED REPORTED IN (2019) 2 TMI 720 SUBMITTED THAT THE HONBLE HIGH COURT HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND THE APPEAL FILED BY THE REVENUE HAS BEEN DISMISSED. HE ACCORDINGLY SUBMITTED THAT BOTH LEGALLY AND FACTUALLY THE ORDER OF THE CIT(A) IS NOT SUSTAINABL E. 7. THE LD. DR ON THE OTHER HAND HEAVILY RELIED ON T HE ORDER OF THE AO AND CIT(A). 8. I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BO TH THE SIDES AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. I HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE ME. I FIND THE ASSESSING OFFICER, ON THE BASIS OF REPORT OF THE INVESTIGATIO N WING OF THE DEPARTMENT, REOPENED THE ASSESSMENT AND MADE ADDITI ON OF RS.4,39,342/- ON ACCOUNT OF CLIENT CODE MODIFICATI ON THROUGH BROKER WHICH HAS BEEN UPHELD BY THE CIT(A). IT IS THE SUB MISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE REOPENING WAS MAD E IN A MECHANICAL MANNER WITHOUT APPLICATION OF MIND BY THE ASSESSING OFFICER AND ON BORROWED SATISFACTION. FURTHER THE APPROVING AUTHORI TIES HAVE ALSO GIVEN THE APPROVAL IN A MECHANICAL MANNER AND THE A SSESSEE WAS NEVER GIVEN ANY OPPORTUNITY OF CROSS-EXAMINATION. I T IS ALSO HIS SUBMISSION THAT IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF PCIT VS. PAT COMMODITY SERVICES PRIV ATE LIMITED (SUPRA) THE ADDITION ON ACCOUNT OF CLIENT CODE MODIFICATION IS NOT SUSTAINABLE. PAGE | 4 9. A PERUSAL OF THE PROFORMA FOR APPROVAL TO ISSUE OF NOTICE U/S. 148, COPY OF WHICH IS PLACED AT PAGE 12 OF THE PAPE R BOOK SHOWS THAT AS PER CLAUSE 12 OF THE PROFORMA, THE PCIT WHILE GI VING APPROVAL HAS SIMPLY MENTIONED SATISFIED. SIMILARLY AS PER CLA USE 11, THE ADDL. CIT HAS SIMPLY MENTIONED YES, IT IS A FIT CASE TO ISS UE NOTICE U/S. 148 OF THE IT ACT, 1961. 9.1 THE HONBLE DELHI HIGH COURT IN THE CASE OF PCI T VS. N. C. CABLES LTD. (SUPRA) HAS HELD AS UNDER :- 11. SECTION 151 OF THE ACT CLEARLY STIPULATES THAT THE CIT(A), WHO IS THE COMPETENT AUTHORITY TO AUTHORIZE THE REASSESSME NT NOTICE, HAS TO APPLY HIS MIND AND FORM AN OPINION. THE MERE APPEND ING OF THE EXPRESSION 'APPROVED' SAYS NOTHING. IT IS NOT AS IF THE CIT (A) HAS TO RECORD ELABORATE REASONS FOR AGREEING WITH THE NOTI NG PUT UP. AT THE SAME TIME, SATISFACTION HAS TO BE RECORDED OF THE G IVEN CASE WHICH CAN BE REFLECTED IN THE BRIEFEST POSSIBLE MANNER. IN TH E PRESENT CASE, THE EXERCISE APPEARS TO HAVE BEEN RITUALISTIC AND FORMA L RATHER THAN MEANINGFUL, WHICH IS THE RATIONALE FOR THE SAFEGUAR D OF AN APPROVAL BY A HIGHER RANKING OFFICER. FOR THESE REASONS, THE CO URT IS SATISFIED THAT THE FINDINGS BY THE ITAT CANNOT BE DISTURBED. 9.2 THE HONBLE M. P. HIGH COURT IN THE CASE OF CIT VS. S. GOYANKA LIME & CHEMICALS LTD. (SUPRA) HAS HELD AS UNDER :- 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND WE FIND THAT WHILE ACCORDING SANCTION, THE JOINT COMMISSIONER, I NCOME TAX HAS ONLY RECORDED SO YES, I AM SATISFIED. IN THE CASE OF ARJUN SINGH (SUPRA), THE SAME QUESTION HAS BEEN CONSIDERED BY A COORDINATE BENCH OF THIS COURT AND THE FOLLOWING PRINCIPLES AR E LAID DOWN:- THE COMMISSIONER ACTED, OF COURSE, MECHANICALLY IN ORDER TO DISCHARGE HIS STATUTORY OBLIGATION PROPERLY IN THE MATTER OF RECORDING SANCTION AS HE MERELY WROTE ON THE FORMAT YES, I AM SATISFIED WHICH INDICATES AS IF HE WAS TO SIGN ONL Y ON THE DOTTED PAGE | 5 LINE. EVEN OTHERWISE ALSO, THE EXERCISE IS SHOWN TO HAVE BEEN PERFORMED IN LESS THAN 24 HOURS OF TIME WHICH ALSO GOES TO INDICATE THAT THE COMMISSIONER DID NOT APPLY HIS MIND AT ALL WHILE GRANTING SANCTION. THE SATISFACTION HAS TO BE WITH OBJECTIVI TY ON OBJECTIVE MATERIAL. 8. IF THE CASE IN HAND IS ANALYSED ON THE BASIS OF THE AFORESAID PRINCIPLE, THE MECHANICAL WAY OF RECORDING SATISFAC TION BY THE JOINT COMMISSIONER, WHICH ACCORDS SANCTION FOR ISSUING NO TICE UNDER SECTION 148, IS CLEARLY UNSUSTAINABLE AND WE FIND T HAT ON SUCH CONSIDERATION BOTH THE APPELLATE AUTHORITIES HAVE I NTERFERED INTO THE MATTER. IN DOING SO, NO ERROR HAS BEEN COMMITTED WA RRANTING RECONSIDERATION. 9- AS FAR AS EXPLANATION TO SECTION 151, BROUGHT INTO FORCE BY FINANCE ACT, 2008 IS CONCERNED, THE SAME ONLY PERTA INS TO ISSUANCE OF NOTICE AND NOT WITH REGARD TO THE MANNE R OF RECORDING SATISFACTION. THAT BEING SO, THE SAID AMENDED PROVI SION DOES NOT HELP THE REVENUE. 10- IN VIEW OF THE CONCURRENT FINDINGS RECORDED BY THE LEARNED APPELLATE AUTHORITIES AND THE LAW LAID DOWN IN THE CASE OF ARJUN SINGH (SUPRA), WE SEE NO QUESTION OF LAW INVOLVED I N THE MATTER, WARRANTING RECONSIDERATION. 11- THE APPEALS ARE, THEREFORE, DISMISSED. 9.3 SINCE IN THE INSTANT CASE ALSO BOTH THE APPROVI NG AUTHORITIES HAVE GIVEN THE APPROVAL IN A MECHANICAL MANNER, THE REFORE, IN THE LIGHT OF THE RATIO LAID DOWN BY THE DECISIONS CITED (SUPR A) AND THE OTHER DECISIONS FILED IN THE CASE LAW COMPILATION, THE RE ASSESSMENT PROCEEDINGS IN MY OPINION ARE NOT IN ACCORDANCE WIT H LAW. THEREFORE, THE SAME IS LIABLE TO BE QUASHED. I, THEREFORE, QUA SH THE REASSESSMENT PROCEEDINGS. PAGE | 6 10. EVEN OTHERWISE ON MERIT ALSO, SO FAR AS THE ADD ITION ON ACCOUNT OF CLIENT CODE MODIFICATION IS CONCERNED I FIND THE HO NBLE BOMBAY HIGH COURT IN THE CASE OF PAT COMMODITY SERVICES (SUPRA) HAS OBSERVED AS UNDER :- 3.THE RESPONDENT ASSESSEE IS A PRIVATE LIMITED COMP ANY ENGAGED IN THE BUSINESS OF PROVIDING COMMODITY SERVICES TO ITS CLIENTS. IN THE RETURN OF INCOME FILED BY THE ASSESSEE FOR THE A SSESSMENT YEAR 200607, THE ASSESSING OFFICER NOTICED THAT THERE WE RE INSTANCES OF CLIENT CODE MODIFICATIONS. THE ASSESSING OFFICER BE LIEVED THAT THE SAME WAS DONE TO INDULGE IN CIRCULAR TRADING TO PASS ON PROFITS OR LOSSES TO THE CLIENTS OF THE ASSESSEE COMPANY AS PE R REQUIREMENTS. AFTER HEARING THE ASSESSEE, THE ASSESSING OFFICER M ADE ADDITIONS IN THE INCOME OF THE ASSESSEE ON SUCH BASIS. THE IS SUE EVENTUALLY REACHED TO THE TRIBUNAL. THE TRIBUNAL DID ACCEPT THE REVENUE'S THEORY OF MISUSE OF CLIENTS CODE MODIFICATION FACILI TY. HOWEVER, THE TRIBUNAL ACCEPTED THE ASSESSEE'S EXPLANATION AND DISCARDED THE REVENUE'S THEORY THAT PROFIT OF THE ASSESSEE'S COMP ANY WERE PASSED ON TO THE CLIENTS. IT WAS ALSO NOTICED THAT TH E REVENUE HAS NOT CONTENDED THAT THE CLIENT CODE MODIFICATION FACIL ITY IS OFTEN MISUSED BY THE ASSESSEE TO PASS ON LOSSES TO THE INV ESTORS, WHO MAY HAVE SIZABLE PROFIT ARISING OUT OF COMMODITY TR ADING AGAINST WHICH SUCH LOSSES CAN BE SET OFF. THE REVENUE NORMA LLY POINTS OUT NUMBER OF SUCH INSTANCES OF CLIENT CODE MODIFICATION S AS WELL AS NATURE OF ERRORS IN FILLING OF THE CLIENT CODE. AT A NY RATE, WHAT CAN BE TAXED IN THE HANDS OF THE PRESENT ASSESSEE IS TH E INCOME ESCAPING ASSESSMENT. EVEN IF THE REVENUE'S THEORY O F THE ASSESSEE HAVING ENABLED THE CLIENTS TO CLAIM CONTRIVED LOSSES, THE REVENUE HAD TO BRING ON RECORD SOME EVIDENCE OF THE INCOME EA RNED BY THE ASSESSEE IN THE PROCESS, BE IT IN THE NATURE OF COM MISSION OR PAGE | 7 OTHERWISE. IN THE PRESENT CASE, THE ASSESSING OFFIC ER HAS ADDED THE ENTIRE AMOUNT OF DOUBTFUL TRANSACTIONS BY WAY OF ASSESSEE'S ADDITIONAL INCOME, WHICH IS WHOLLY IMPERMISSIBLE. W E DO NOT KNOW THE FATE OF THE INDIVIDUAL INVESTORS IN WHOSE CASES, THE REVENUE COULD HAVE QUESTIONED THE ARTIFICIAL LOSSES. BE THAT AS IT MAY, WE DO NOT THINK ENTERTAINING THESE APPEALS WOULD SERVE A NY USEFUL PURPOSE. 4.IN THE RESULT, BOTH THE APPEALS ARE DISMISSED. 11.RESPECTFULLY FOLLOWING THE DECISION OF HONBLE B OMBAY HIGH COURT CITED (SUPRA). I HOLD THAT THE ADDITION MADE BY TH E ASSESSING OFFICER AND SUSTAINED BY THE CIT(A) ON ACCOUNT OF CLIENT CO DES MODIFICATION IS NOT JUSTIFIED. THE GROUNDS RAISED BY THE ASSESSEE A RE ACCORDINGLY ALLOWED. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 07.10.2019. SD/- (R.K PANDA) ACCOUNTANT MEMBER *NEHA* DATE:- 07.10.2019 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI PAGE | 8 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS 07.10.2019 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 07.10.2019 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/ PS 07.10.2019 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT 07.10.2019 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE HEAD CLERK. THE DATE ON WHICH FILE GOES TO THE ASSISTANT REGIST RAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER