R.S. Shares & Securities Ltd., New Delhi V. ITO, ward- 20(4), New Delhi

ITA 8031/DEL/2018

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 6446 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 18-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAKASH DUBEY
• Keywords: Reopening of assessment; Transactions in derivatives; Tangible material; Tax effect; Reason to believe; Reassessment proceedings; Futures and options; Set aside
• Section: 69C; 143(3); 133A; 143(1); 13; 22; 147; 131; 68; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES SMC-1: DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA.NO.8031/DEL./2018 ASSESSMENT YEAR 2010-11 R.S. SHARES & SECURITIES LTD., 22, PARKASH DEEP BUILDING, ANSARI ROAD, DARYA GANJ, NEW DELHI. PAN NO. AAACR1214J VS. ITO WARD 20(4) NEW DELHI. (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI KAPIL GOEL, ADVOCATE FOR REVENUE : SHRI PRAKASH DUBEY, SR. DR DATE OF HEARING : 0 6 .01.2021 DATE OF PRONOUNCEMENT : 02 .0 2 . 2021 ORDER THIS APPEAL BY ASSESSEE HAS BEEN DIRECTED AGAINST T HE ORDER OF LD. CIT(APPEALS)-7, NEW DELHI DATED 09.10. 2018, CHALLENGING THE REOPENING OF THE ASSESSMENT U/S 147 OF THE ACT AND ADDITION ON ACCOUNT OF SHIFTING ASCERTAINED LOSSES OF RS. 4,94,027/-. 2. I HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. 2 ITA.NO.8031/DEL./2018 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE E- FILED ITS RETURN OF INCOME ON 29.09.2010 FOR ASSESSMENT YEAR UNDER APPEAL DECLARING LOSS OF RS. 13,03,365/-. SUBSEQUE NTLY, INFORMATION WAS RECEIVED FROM THE INVESTIGATION WIN G, AHMEDABAD THAT CLIENT CODES IS A PRACTICE UNDER WHI CH BROKER CHANGED THE CLIENT CODES IN SALE AND PURCHAS E ORDERS OF SECURITIES AFTER THE TRADES ARE CONDUCTED. THE CAS E WAS REOPENED U/S 147 AND NOTICE U/S 148 WAS ISSUED ON 30.03.2017 TO THE ASSESSEE. THE AO PASSED THE REAS SESSMENT ORDER U/S 143(3)/147 ON 12.12.2017, ASSESSING THE I NCOME AT NIL (AFTER REDUCING THE LOSS OF RS. 7,99,460/-) AFT ER DISALLOWING THE ASCERTAINED LOSS OF RS. 4,94,027/- DUE TO CHANG E OF CLIENT CODE AND DISALLOWANCE OF RS.9,881/- ON ACCOUNT OF COMMISSION OF 2% FOR THE ENTRY. 4. THE ASSESSEE CHALLENGED THE REOPENING OF THE ASS ESSMENT AS WELL AS ADDITION BEFORE LD. CIT(A). IT WAS CONT ENDED THAT AO HAS RECORDED INCORRECT AND WRONG REASONS AND APP ROVAL IS GRANTED IN MOST MECHANICAL MANNER. SINCE AO RECORD ED NON- EXISTING AND FACTUALLY INCORRECT REASONS AND DID NO T APPLY INDEPENDENT MIND ON THE INFORMATION SO RECEIVED, TH EREFORE, REOPENING OF THE ASSESSMENT IS INVALID AND BAD IN L AW. THE ADDITION IS MADE WITHOUT ANY BASIS. THE LD. CIT(A) , HOWEVER, DISMISS THE APPEAL OF THE ASSESSEE. 5. LD. COUNSEL FOR ASSESSEE REFERRED TO PB 2 TO 4 W HICH ARE REASONS RECORDED FOR REOPENING OF THE ASSESSMENT. HE HAS 3 ITA.NO.8031/DEL./2018 SUBMITTED THAT AO IN THE FORM FOR THE REASONS IN PA RA 7 MENTIONED THAT REOPENING DONE UNDER THE PROVISIONS OF SECTION 147(B) OF THE ACT WHICH FACT IS INCORRECT B ECAUSE SUCH SECTION DOES NOT EXIST IN THE STATUTE. HE HAS FURT HER SUBMITTED THAT AO HAS MENTIONED NAME OF THE BROKER AS M/S SMC GLOBAL SECURITIES LIMITED WHICH FACT IS ALSO INCORR ECT. THE LD. PR. CIT WITHOUT GIVING ANY REASONS GAVE APPROVAL BY MERELY MENTIONING YES, I AM SATISFIED. LD. COUNSEL FOR ASSESSEE REFERRED TO OBJECTIONS FILED BEFORE AO CHALLENGING THE REOPENING OF THE ASSESSMENT, PB 11 TO 16 IN WHICH THE ASSESSE E HAS CONTENDED THAT ASSESSEE HAS NEVER DEALT WITH THE BR OKER SMC GLOBAL SECURITIES LIMITED AS MENTIONED IN THE REASO NS. THE ASSESSEE HAS CARRIED OUT TRANSACTION WITH M/S MANSU KH SECURITIES FINANCE LIMITED. HE HAS REFERRED TO PB 5 TO 10 WHICH IS THE REJECTION ORDER OF THE AO DECIDING OBJ ECTION OF THE ASSESSEE AGAINST REOPENING OF ASSESSMENT DATED 27.1 1.2017 IN WHICH AO HAS MENTIONED THAT ASSESSEE HAS SHIFTED LO SS THROUGH BROKER MANSUKH SECURITIES AND FINANCE LIMIT ED. HE HAS, THEREFORE, SUBMITTED THAT AO HAS RECORDED INCO RRECT AND NON EXISTING FACT IN THE REASONS AND APPROVAL IS AL SO GRANTED IN MECHANICAL MANNER. HE HAS SUBMITTED THAT ON IDE NTICAL FACTS ITAT DELHI DIVISION BENCH IN THE CASE OF M/S STRATAGEM PORTFOLIO PVT. LIMITED VS. DCIT IN ITA NO. 7878/201 9 AY 2010- 11 QUASHED THE REOPENING OF THE ASSESSMENT VIDE ORD ER DATED 15.09.2020. THE ORDER IS REPRODUCED AS UNDER: 4 ITA.NO.8031/DEL./2018 THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGA INST THE ORDER DATED 30/07/2019, PASSED BY THE LEARNED CIT(APPEALS)-XXV, NEW DELHI [IN SHORT THE LD. CIT( A)] FOR ASSESSMENT YEAR 2010-11 RAISING FOLLOWING GROUNDS: GROUND NO. GROUNDS OF APPEAL TAX EFFECT 1 THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS GROSSLY ERRED BOTH IN LAW AND ON FACT S IN UPHOLDING THE INITIATION OF PROCEEDINGS UNDER SECTI ON 147 OF THE ACT AND, COMPLETION OF ASSESSMENT UNDER SECTION 147/144 OF THE ACT WITHOUT APPRECIATING THA T THE SAME WERE WITHOUT JURISDICTION AND HENCE DESERV ED 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 N O SPECIFIC RELEVANT, RELIABLE AND TANGIBLE MATERIAL O N RECORD TO FORM A REASON TO BELIEVE THAT INCOME OF THE APPELLANT HAD ESCAPED ASSESSMENT AND IN VIEW THEREO F THE PROCEEDINGS INITIATED ARE ILLEGAL, UNTENABLE AN D THEREFORE UNSUSTAINABLE. 1.2 THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO APPRECIATE THAT EVEN OTHERW ISE THERE WAS NO FAILURE ON THE PART OF ASSESSEE TO DIS CLOSE 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 D O NOT CONSTITUTE VALID REASONS TO BELIEVE FOR ASSUMPT ION OF JURISDICTION U/S 147 OF THE ACT 1.4 THAT IN ABSENCE OF ANY VALID APPROVAL OBTAINED UNDE R 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 SU CH. 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ALSO ERRED BOTH IN LAW AND ON FACTS I N SUSTAINING AN AGGREGATE ADDITION OF RS. 6,47,201/- REPRESENTING LOSS CLAIMED AND INCURRED BY ALLEGEDLY MISUSING THE CLIENT CODE MODIFICATION MECHANISM BY 5 ITA.NO.8031/DEL./2018 THE BROKER OF THE APPELLANT 2.1 THAT FURTHER MORE THE LEARNED COMMISSIONER OF INCOM E TAX (APPEALS) HAS PROCEEDED TO SUSTAIN THE ADDITION ON MERE SPECULATION, GENERALIZED STATEMENTS, THEORETIC AL ASSUMPTIONS AND ALLEGATIONS AND ASSERTIONS, MECHANICALLY BORROWED AND, LIFTED FROM REPORT OF INVESTIGATION WING WITHOUT ANY INQUIRY OF HIS OWN A ND, THEN ADDITION MADE WITHOUT THERE BEING ANY SUPPORTI NG DIRECT OR INDIRECT OR CIRCUMSTANTIAL EVIDENCE IS NO T IN ACCORDANCE WITH LAW. 2.2 THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED BOTH IN LAW AND ON FACTS IN FAI LING TO APPRECIATE THE WRITTEN SUBMISSIONS FURNISHED BY THE APPELLANT AND OVERLOOKING THE JUDICIAL PRONOUNCEMEN TS RELIED UPON BY THE APPELLANT. 2.3 THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO APPRECIATE THAT ALL TRANSAC TION OF APPELLANT WERE SUPPORTED BY DOCUMENTARY EVIDENCE IN THE SHAPE OF CONTRACT NOTES, ACCOUNT PAYEE TRANSACTIONS AND THEREFORE ADDITION MADE ON SURMISE S, CONJECTURES AND SUSPICION AND WITHOUT BRINGING ON RECORD ANY SPECIFIC EVIDENCE ESTABLISHING THAT CLAI M MADE IS NOT GENUINE OR INCORRECT IS HIGHLY ARBITRAR Y, 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 A ND ON FACTS IN UPHOLDING AN ADDITION OF RS. 12,944/- REPRESENTING ALLEGED INCOME FROM COMMISSION ON SALE OF SHARES FOR THE INSTANT ASSESSMENT YEAR. 6 ITA.NO.8031/DEL./2018 PRAYER IT IS THEREFORE, PRAYED THAT, IT BE HELD THAT ASSES SMENT 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-TAX ACT, 1961 (IN SHORT THE ACT). SUBSEQUENTLY, ON 29 /03/2017 THE ASSESSING OFFICER ISSUED NOTICE UNDER SECTION 148 T HE ACT AFTER RECORDING REASONS THAT INCOME HAD ESCAPED TAX. THE ASSESSMENT IN TERMS OF SECTION 147 OF THE ACT WAS COMPLETED 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 LEARNED CIT(A) CHA LLENGING FINDING OF THE ASSESSING OFFICER ON LEGAL GROUND AS WELL AS ON THE MERIT, HOWEVER, ASSESSEE COULD NOT SUCCEED BEFORE THE LEAR NED CIT(A). AGGRIEVED WITH THE FINDING OF THE LEARNED CIT(A), T HE 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 WRITTE N 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 MATERIAL . 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 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 7 ITA.NO.8031/DEL./2018 ASSESSEES CODE WAS MODIFIED BY THE BROKER. THE LEA RNED COUNSEL SUBMITTED THAT THE ASSESSING OFFICER ON THE BASIS O F MODIFICATION IN THE CLIENT CODE OF THE ASSESSEE, HAS JUMPED TO BELI EVE THAT IT HAD BEEN DONE FOR SHIFTING OF PROFIT 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 BEEN DONE FOR EVA SION OF THE TAX. FURTHER, HE SUBMITTED THAT THE LEARNED ASSESSING OF FICER IS NOT JUSTIFIED IN MAKING THE BELIEF THAT PROFIT OR LOSS SHIFTED TO OTHER PERSONS BY WAY OF CLIENT CODE MODIFICATION BY THE B ROKER HAS RESULTED INTO ANY INCOME TO THE ASSESSEE, WHICH COU LD 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 AS SESSMENT. HE REFERRED TO PAGE 5 OF REASONS RECORDED WHERE THE LE ARNED ASSESSING OFFICER NOTED THAT: THE ASSESSEE S CODE WAS MODIFIED 44 TIMES IN OCC TO SHIFT OUT PR OFITS RS. 6,42,781 AND ONE TIME IN MCC TO SHIFT IN LOSS O F RS.4,420/-. THE DATA CLEARLY SHOWS THAT THE MODIFICATION WAS NOT NO GROUNDS OF FEEDING IN ERRONEOUS DATA. HE FURTHER SUBMITTED THAT FINALLY WHILE MAKING THE ADDITION LEARNED ASSESSING OFFICER AT PAGE 16 OF ORDER OF AS SESSMENT, 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 TRE ATED AS A CONTRIVED PROFIT ARTIFICIALLY GENERATED THROUGH THE MISUSE OF THE CCM. THE PROFIT IS, THEREFORE, LIABLE TO BE TAXED A ND ADDED TO THE TOTAL INCOME OF THE ASSESSEE AS UNEXPLAINED INVESTM ENT 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 LEARNED AS SESSING OFFICER WAS NOT SURE ABOUT THAT, THE APPELLANT CLAIMED 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 CONTENTIONS: 8 ITA.NO.8031/DEL./2018 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) 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 25.07.2019 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 RELIED ON THE ORDER OF THE LOWER AUTHORITIES TO SUPPORT THAT REASONS HAVE BEEN RECOR DED VALIDLY. 5.5 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON T HE ISSUE IN DISPUTE AND PERUSED THE RELEVANT MATERIAL ON RECORD . IN THE INSTANT CASE, THE DISPUTE IS WHETHER THERE IS ANY TANGIBLE MATERIAL TO INFER THAT BY WAY OF THE CLIENT CODE MODIFICATION, THE ASSESSE E HAS ESCAPED THE INCOME AND EVADED THE INCOME-TAX. THE LEARNED COUNS EL OF THE ASSESSEE HAS REFERRED TO THE VARIOUS DECISIONS MENT IONED ABOVE, WHEREIN CASES WERE REOPENED ON THE BASIS OF THE INF ORMATION OF CLIENT CODE MODIFICATION. IN THE CASE OF M/S. CORONATION AGRO INDUSTRIES LTD. VS. DCIT (SUPRA), THE HONBLE BOMBAY HIGH COUR T QUASHED REOPENING OF ASSESSMENT ON IDENTICAL ISSUE. IT HAS BEEN HELD IN THE SAID JUDGMENT AS UNDER: 4. WE NOTE THAT THE REASONS IN SUPPORT OF THE IMPU GNED NOTICE ACCEPT THE FACT THAT AS A MATTER OF REGULAR BUSINESS PRACT ICE, A BROKER IN THE STOCK EXCHANGE MAKES MODIFICATIONS IN THE CLIENT CO DE ON SALE AND/OR PURCHASE OF ANY SECURITIES, AFTER THE TRADING IS OV ER SO AS TO RECTIFY ANY ERROR WHICH MAY HAVE OCCURRED WHILE PUNCHING THE OR DERS. THE REASONS DO NOT INDICATE THE BASIS FOR THE ASSESSING OFFICER TO COME TO REASONABLE BELIEF THAT THERE HAS BEEN ANY ESCAPEMEN T OF INCOME ON THE GROUND THAT THE MODIFICATIONS DONE IN THE CLIEN T CODE WAS NOT ON ACCOUNT OF A GENUINE ERROR, ORIGINALLY OCCURRED WHI LE PUNCHING THE TRADE. THE MATERIAL AVAILABLE IS THAT THERE IS A CL IENT CODE MODIFICATION DONE BY THE ASSESSEE 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, THIS APPEARS TO BE A CASE OF R EASON 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: 9 ITA.NO.8031/DEL./2018 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 ASSESSEE IN LIG HT OF THE ISSUE IS NOT A TANGIBLE AND RELEVANT MATERIAL TO FORM OPINION THAT INCOME HAS ESCAPED ASSESSMENT. IT IS NOTED THAT THE PROCEEDING S U/S. 147 OF THE ACT CAN BE INITIATED ONLY ON THE BASIS OF THE TANGI BLE MATERIAL AND NOT ON THE BASIS OF ASSUMPTIONS AND PRESUMPTIONS. THE R ECONDITION U/S. 147 OF THE ACT IS REASON TO BELIEVE AND, THE EXPR ESSION IS STRONGER THAN THE WORD SATISFIED. THE BELIEF ENTERTAINED B Y THE AO MUST NOT BE ARBITRARY OR IRRATIONAL, HOWEVER, IT MUST BE REA SONABLE IN OTHER WORDS, IT MUST BE BASED ON REASONS WHICH ARE RELEVA NT AND MATERIAL. THE EXISTENCE OF TANGIBLE AND RELEVANT MATERIAL IS A PRECONDITION FOR ASSUMING JURISDICTION, AS HAS BEEN HELD IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD. REPORTED IN 320 ITR 561 (S C) AND ACIT VS. RAJESH JHAVERI STOCK BROKERS (P) LTD. REPORTED IN 2 91 ITR 500 (SC). HENCE, IN THIS CASE THE PROCEEDINGS HAVE BEEN INITI ATED ON THE BASIS OF NO MATERIAL MUCH LESS ANY TANGIBLE AND, RELEVANT MA TERIAL AND AS SUCH REASONS RECORD DO NOT CONSTITUTE VALID REASON TO BE LIEVE FOR INITIATING PROCEEDINGS U/S 147 OF THE ACT. IT IS A CASE OF REA SON 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 BASIS OF REPRODUCTION OF INFORMATION FROM INVESTIGATION WING AND, ISSUING NO TICE FOR INITIATION OF RE-ASSESSMENT PROCEEDINGS DOES NOT CONSTITUTE APPLI CATION OF MIND MUCH LESS INDEPENDENT APPLICATION OF MIND. HENCE, T HE PROCEEDINGS ARE WITHOUT JURISDICTION. IT IS SETTLED LAW THAT AO CANNOT ACT MECHANICALLY ON THE BASIS OF REPORT OF INVESTIGATIO N 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 REC ORD. HENCE, INITIATION OF PROCEEDINGS IS ALSO BASED ON NON-APPL ICATION OF MIND MUCH LESS INDEPENDENT APPLICATION 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 BEEN CONF ORMED TO THE ASSESSSEE COMPANY, IN THE COURSE OF ASSESSMENT PROC EEDINGS, THOUGH IN VIEW OF THE JUDGMENT OF HON BLE DELHI HIGH COURT IN THE CASE OF SABH INFRASTRUCTURE LTD. VS. ACIT REPORTED IN 398 I TR 198 THE SAME WAS TO BE CONFRONTED ALONGWITH REASONS WHEREIN IT H AS BEEN HELD AS UNDER: (III) WHERE THE REASONS MAKE A REFERENCE TO ANOTHER DOCUMENT, WHETHER AS A LETTER OR REPORT, SUCH DOCUMENT AND / OR RELEVANT PORTIONS 10 ITA.NO.8031/DEL./2018 OF SUCH REPORT SHOULD BE ENCLOSED ALONGWITH THE REA SONS. 6.3.1 HENCE IN THE ABSENCE OF SUCH MATERIAL, THE ALLEGATION AND ASSUMPTIONS ARE NOTHING BUT FIGMENT OF IMAGINATION AS THEY ARE BASE D ON ASSUMPTION AND PRESUMPTION, APART FROM BEING WITHOUT BASIS. 5.8 IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND RESPECTFULLY FOLLOWING THE PRECEDENTS, AS AFORESAID, I AM OF THE CONSIDERED VIEW THAT PROCEEDINGS INITIATED BY INVOKING THE PROVISIO NS 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 Q UASHED. 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 DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF COR ONATION AGRO INDUSTRIES LTD. VS. DCIT 390 ITR 464 (BOM.). IN THA T CASE, THE REASONS RECORDED WERE ASUNDER: . 10. A PERUSAL OF THE ABOVE, SHOWS THAT CLIENT CODE MODI FICATION IS LEGALLY PERMISSIBLE IN CASE OF MISTAKE. IN THE INSTANT CASE, THE OBSERVATION OF THE ASSESSING OFFICER IS TO THE EFFE CT THAT DUE TO CLIENT CODE MODIFICATION IN TWO TRANSACTIONS, 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. 11 ITA.NO.8031/DEL./2018 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 14 8(2) OF THE ACT ALONE AND NOTHING CAN BE ADDED THERETO. THE RECORDI NG SHOULD BE SELF- CONTAINED TO WITHSTAND THE VALIDITY OF THE REOPENIN G 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 QUOTED DECISION OF THE TRIBUNAL, IN OUR CONSIDERED OPINION, THE REASONS RECORDED IN THE INSTANT CASE DOES NOT SATISFY THE REQUIREMENT OF LAW AND THE SAME DOE S NOT CONSTITUTE THE REASON TO BELIEVE FOR ESCAPEMENT OF ANY INCOME FROM TAX. THEREFORE, THE REASON IS NOT VALID. THE CONSEQUENTI AL ORDER OF REASSESSMENT PASSED IN PURSUANCE THERETO CANNOT BE SUSTAINED. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER OF REASSESS MENT PASSED U/S 147 OF THE ACT AND ALLOW THIS GROUND OF APPEAL OF T HE 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 DETAILS OF THE DIRECTORS OF THE ASSESSEE COMPANY OBTAINED FROM RECANTS ARE HEREUNDE R:- (A) ALUL SETHI (B) GAUTAM JAGGA 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 MODI FICATION. 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 UNIQUE CODE WHICH IS ASSIGNED BY A BROKER TO ITS CLIENTS. A BROKER CAN I SSUE JUST ONE CODE TO A CLIENT. CLIENT CODE MODIFICATION MEANS MODIFICATI ON/CHANGE OF THE CLIENT CODES AFTER EXECUTION OF TRADES. VIDE CIRCUL AR NO. SMD/POLICY/CIR-/03, DATED FEBRUARY 6, 2003 SEBI MAN DATED THAT THE SLACK EXCHANGES SHALL NOT NORMALLY PERMIT CHANG ES IN THE CLIENT CODE EXCEPT TO CORRECT FOR GENUINE MISTAKES. THE CL IENT CODE MODIFICATIONS PERMIT BROKERS TO RECTIFY HUMAN ERROR S WHEN A CLIENT INADVERTENTLY PROVIDES A WRONG CODE OR WHEN OR A WR ONG CODE IS PUNCHED IN BY THE BROKER WHILST EXECUTING THE TRADE . THE BROKER IS 12 ITA.NO.8031/DEL./2018 ALLOWED TO CHANGE IT BETWEEN 3.30 PM AND 4 PM TO RE CTIFY A GENUINE ERROR THAT MAY HAVE OCCURRED WHILE ENTERING THE COD E, THE FACILITY ENSURES SMOOTH FUNCTIONING OF THE SYSTEM AND IS TO BE USED AS AN EXCEPTION RATHER THAN ROUTINE. CLIENT CODE MODIFICA TION MEANS MODIFICATION OF CLIENT CODE AFTER THE EXECUTION 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 FACILITY WAS BE ING MISUSED AND BROKERS TRANSFERRED GAINS OR LOSSES FROM ONE PERSON TO ANOTHER BY CHANGING THE CODE, IN THE GARB OF CORRECTING AN ERR OR. THESE GAIN OR LOSS-BOOK ENTRIES WERE THEN USED TO EVADE TAXES. 4. NON GENUINE CCM WERE CARRIED OUT TO BOOK CONTRIV ED LOSSES. IN SOME CASES, THIS FACILITY WAS USED BY BROKERS TO TRANSFE R GAINS OR LOSSES FROM ONE PARTY TO ANOTHER BY MODIFYING CLIENT CODE S IN THE GUISE OF RECTIFYING AN ERROR. IT BECAME A PRACTICE TO BOOK A RTIFICIAL PROFITS OR LOSSES IN MARCH TO IMPACT LAX LIABILITIES. IT IS GE NERALLY DONE BY BUYING OR SELLING STOCKS INTRA-DAY SO AS TO SAY CONSCIOUSL Y 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 FINANCIA L YEAR WHEN THE BOOK PROFITS/LOSSES OF VARIOUS CLIENTS HAVE CRYSTAL LIZED. THIS IS DONE 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 13 ITA.NO.8031/DEL./2018 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 ACCOMMODA TION 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. 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 SURVE YS U/S 133A OF THE INCOME TAX ACT, 1961 WERE CARRIED OUT AT-THE PR EMISES 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-SO(TPL )], DATED 9-3- 2011. THE AMENDMENT CAME INTO FORCE ON THE 1ST DAY OF APRIL, 2011. THE AMENDMENT REQUIRED THE STOCK EXCHANGES TO ENSUR E THAT THE TRANSACTIONS (IN RESPECT OF CASH AND DERIVATIVE MAR KET) ONCE REGISTERED IN THE SYSTEM ARE MODIFIED ONLY IN CASES OF GENUINE ERROR AND MAINTAIN DATA REGARDING ALL TRANSACTIONS TIN RESPECT OF CASH AND DERIVATIVE MARKET) REGISTERED IN THE SYSTEM WHICH HAVE BEEN MO DIFIED AND SUBMIT A MONTHLY STATEMENT IN FORM NO. 3BB TO THE D IRECTOR GENERAL OF 14 ITA.NO.8031/DEL./2018 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 TRAN SACTIONS AT THE NSE DURING MARCH 2011). WITH REGARD TO THE CLIENT CODE MODIFICATIONS, THE TRADING ACTIVITIES UNDER SCANNER OF SEBI MOSTLY TOO K PLACE BETWEEN 2009 AND 2011 AFTER WHICH SEBI TIGHTENED ITS NORMS TO PUT A FULL-STOP TO SUCH MANIPULATIONS. BEFORE TIGHTENING OF THE NOR MS, 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 ACTION. QUANTUM OF SUCH MODIF ICATIONS WAS MUCH HIGHER DURING MARCH, COMPARED TO THE OTHER MONTHS, WHICH HINTED TOWARDS THE TAX EVASION ANGLE DUE TO IT BEING THE L AST MONTH OF THE FISCAL. THIS SHOWED THAT A LARGE-SCALE MANIPULATION WAS TAKING PLACE WHERE BROKERS WERE MAKING CHANGES IN THE CLIENT DET AILS AFTER EXECUTION OF TRADES CITING GENUINE ERRORS IN APRI L 2012, SEB1 PASSED AN ORDER AGAINST NSE FOR BEING 'NEGLIGENT IN DISCHA RGE OF ITS DUTIES IN A CASE OF MODIFICATION 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 AND THE INF ORMATION 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 GIVEN QUANTITY OF A GIVEN SECURITY THEN AT THE END ID TH E TRADING SESSION HE HAS WITH HIM AN ASCERTAINED LOSS/GAIN ON THIS BUY SELL PAIR THAT HE CAN SHIFT DURING THE CCM WINDOW. THE ANALYSIS OF TH E INVESTIGATION WING FOCUSED ON NARROWING DOWN ON SYSTEMIC TRANSFER OF MATCHED QUANTITIES OF BUY AND SELL ORDERS FRONT A GIVEN ORI GINAL CLIENT CODE (OCC) OR TO A GIVEN MODIFIED CLIENT CODE (MCC) FOR A GIVEN BROKER 10. THE FOLLOWING STEPS WERE FOLLOWED FOR ANALYSIS AND COMPUTING THE QUANTUM OF LOSSES PROFITS SHIFTED DUE TO THE CCM: 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 TAKE N 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 15 ITA.NO.8031/DEL./2018 X TO Y. ALL OTHER TRANSACTIONS SAY WHERE 500 BUY AN D 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 PRIC E RISK EVER WAS BORNE BY THE CLIENT WHO RECEIVED THE TRANSACTIONS THROUGH CCM. THUS SUCH ASCERTAINED LOSSES SHIFTED THROUGH CCM FOR WHICH NO PRICE RISK EVER WAS BORNE BY A CLIENT ARE NON-GENUINE LOSSES SHIFTE D WITH THE MOTIVE OF TAX EVASION BY SETTING OF SUCH SELECT IVELY SHIFTED LOSSES AGAINST OTHER INCOME. WORKING ON THE SAID LOGIC HAS BEEN MADE IN BOTH SCENARIOS, I.E., WHEN A GIVEN CLIENT WAS ORIGINAL C LIENT (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 WORKING ON THE NSE DATA, THAT WHEN A CLIENT HAS REC EIVED LOSSES AS MCC. IT HAS SHIFTED OUT PROFITS WHEN IT W AS OCC AND ITS CODE WAS MODIFIED. THUS, THE TOTAL LOSSES O BTAINED BY THE CLIENT THROUGH CCM WOULD BE THE SUM OF THE L OSSES RECEIVED AS MCC AND PROFITS SHIFTED OUT TO OTHER CL IENTS 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, 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. THE FINAL SET OF BENEFICIARIES AS COMPILED CONTAINED ONLY SUCH BENEFICIARIES FOR WHOM NO TENABLE CONTENTION REMAINS STANDING. TO COUNTER THE CONTENT ION OF THE BROKERS THAT THE DEPARTMENT HAS NOT 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) F ROM ONE CLIENT TO ANOTHER ONLY CCM WHEREIN EQUAL NUMBER OF BUY AND SE LL TRADES BETWEEN TWO CLIENTS HAVE BEEN SHIFTED HAVE BEEN TAK EN FOR COMPUTATION OF THE LOSSES PROFITS SHIFTED DUE TO CC M. TO BE MORE SPECIFIC AND IN SIMPLE TERMS, MODIFICATIONS WHICH A PPEAR TO BE GENUINE OR RESEMBLE AT BEING GERMANE WERE IGNORED AND NOT C ONSIDERED IN THIS REPORT. SUCH BENEFIT HAS ALREADY BEEN GIVEN BY THE DEPARTMENT. 16 ITA.NO.8031/DEL./2018 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 CONTRIVED 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 MODIFICATION WAS NO T ON GROUNDS OF FEEDING IN ERRONEOUS DATA. THE MODIFICATIONS 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 (II) NOW LET US EXAMINE THE SITUATION IN MCC I.E. W HEN SOME OTHER'S OCC WAS MODIFIED TO THE ASSESSEE'S CODE. THE ASSESS ES DID ONE TRANSACTION IN WHICH HE GOT OCC OF SOMEONE ELSE MOD IFIED TO ITS CODE TO GATHER LOSSES. THE ORIGINAL CODES OF 99 WERE REP LACED BY ASSESSESS CODES OF FSTP. THIS RESULTED IN SHIFTING IN OF LOSS ES OF RS.4,420/- 17 ITA.NO.8031/DEL./2018 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 CANN OT 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 ANAL YSIS, WHEN CLUBBED WITH THE PARAMETERS MENTIONED IN THIS REPORT ESTABL ISHES THE NON- GENUINENESS AND CONTRIVED NATURE AT THE CODE CHANGE . 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 TACTICS A RE 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 ADMITTED THAT CCMS HAVE BEEN DONE FOR A PURPOSE OTHER THAN GENUINE PUNCHING 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 FETTERED O R BOUND BY TECHNICAL RULES CONTAINED IN THE INDIAN EVIDENCE AC T AND IS ENTITLED TO ACT ON MATERIAL WHICH MAY NOT HE ACCEPTED AS EVIDEN CE IN A COURT OF LAW. IN CLANDESTINE TRANSACTIONS, LIKE THAT OF CCM, IT IS IMPOSSIBLE TO HAVE DIRECT EVIDENCE OR DEMONSTRATIVE PROOF OF EVER Y MOVE, THE AO HAS NO CHOICE BUT TO TAKE RECOURSE TO PREPONDERANCE OF EVIDENCE AVAILABLE. 14. A CAREFUL SCRUTINY OF INFORMATION RECEIVED FROM THE INVESTIGATION WING AND SUBSEQUENT ANALYSIS OF REPORT OF INVESTIGA TION WING, DATA OF TRANSACTIONS AND VERIFICATION AT ITR LEAD TO AN IRR ESISTIBLE CONCLUSION THAT CLIENT CODE MODIFICATION HAD BEEN CARRIED OUT IN THE CASE OF ASSESSEE TO SHIFT IN ASCERTAINED LOSSES & SHIFT OUT PROFITS OF RS.6,47,201/- 18 ITA.NO.8031/DEL./2018 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 ASSESSM ENT 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, 1961. 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. ACCORDIN G 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 HOURS, FOR RECTIFICATION OF ANY MISTAKES IN PUNCHING OF THE CLIENT CODE WHILE CARRY ING OUT TRANSACTION OF PURCHASE AND SALE ON BEHALF OF THE C USTOMERS. THE LEARNED ASSESSING OFFICER, HOWEVER HAS ALLEGED IN T HE REASONS RECORDED THAT CLIENT CODE MODIFICATION HAS BEEN DON E FOR SHIFTING OF THE PROFIT OR LOSS BY THE ASSESSEE. BUT THERE IS NO MATERIAL TO INFER THAT SUCH CLIENT CODE MODIFICATION HAS BEEN DONE WI TH MALAFIDE PURPOSE OF SHIFTING OF THE PROFIT OR EVASION OF THE TAX. THERE IS NO MATERIAL BEFORE THE ASSESSING OFFICER TO FORM SUCH A BELIEF THAT INCOME HAD ESCAPED DUE TO SUCH CLIENT CODE MODIFICA TION AND THUS THERE IS NO LIVE LINK BETWEEN THE MATERIAL BEFORE T HE ASSESSING OFFICER AND INFERENCE MADE. THE HONBLE SUPREME COU RT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS (P) LTD. REPORTED I N 291 ITR 500 HAS HELD THAT FOR VALIDITY OF REASON RECORDED IT IS ESS ENTIAL THAT THERE SHOULD BE A RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COULD MAKE REQUISITE BELIEF. IN THE CIRCUMSTANCES, IN VI EW OF THE ABOVE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF M/S. CORONATION AGRO INDUSTRIES LTD. (SUPRA) AND DECISIO NS OF THE TRIBUNAL (SUPRA), WE ARE OF THE OPINION THAT THE ASSESSMENT CANNOT BE REOPENED VALIDLY ON THE BASIS OF THE ABOVE REASONS RECORDED IN ABSENCE OF ANY TANGIBLE MATERIAL TO INFER THAT INCO ME ESCAPED IN THE CASE OF THE ASSESSEE. WE, ACCORDINGLY, QUASH THE RE ASSESSMENT PROCEEDINGS AND SET ASIDE THE ORDER OF THE LEARNED CIT(A) ON THE ISSUE IN DISPUTE. THE GROUND NO. 1.1 OF THE APPEAL IS ACCORDINGLY ALLOWED. 5.5 SINCE WE HAVE ALREADY QUASHED THE REASSESSMENT PROCEEDING, WE ARE NOT ADJUDICATING OTHER GROUND OF THE APPEAL 19 ITA.NO.8031/DEL./2018 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. 6. ON THE OTHER HAND, LD. DR RELIED UPON ORDERS OF THE AUTHORITIES BELOW AND ALSO RELIED UPON THE ORDER OF SMC BENCH IN THE CASE OF VIJAY KUMAR GOEL & SONS(HUF) VS. ITO IN ITA NO. 7222/DEL/2017 DATED 30.10.2018 IN WHICH REOPENI NG HAS BEEN CONFIRMED AND APPEAL OF ASSESSEE HAS BEEN DISM ISSED. 7. I HAVE CONSIDERED THE RIVAL SUBMISSION AND PERUS ED THE MATERIAL ON RECORD. IT IS WELL SETTLED LAW THAT VA LIDITY OF THE REASSESSMENT PROCEEDINGS IS TO BE DETERMINED ON THE BASIS OF THE REASONS RECORDED FOR REOPENING OF THE ASSESSMEN T. COPY OF THE SAME IS FILED AT PAGES 2 TO 4 OF THE PAPER BOOK . THE AO IN THE SAME HAS MENTIONED THAT PROVISIONS OF SECTION 1 47(B) ARE APPLICABLE IN THIS CASE FOR REOPENING OF THE ASSESS MENT, HOWEVER, THIS SECTION DOES NOT EXIST IN THE STATUTE FOR ASSESSMENT YEAR UNDER APPEAL. FURTHER, THE ENTIRE REOPENING IS BASED ON INFORMATION RECEIVED FROM ADIT(INV.) AH MEDABAD FOR SHIFTING OUT PROFITS USING CLIENT CODE MODIFICA TION. IT IS ALLEGED IN THE REASONS THAT ON THE BASIS OF INFORMA TION RECEIVED FROM ADIT(INV.) M/S SMC GLOBAL SECURITIES LIMITED B ROKER HAS SHIFTED OUT THE PROFITS USING CLIENT CODE MODIFICAT ION FOR THE ASSESSEE TO CLAIM LOSSES. THE LD. PR. CIT WHILE AP PROVING THE REASONS MERELY MENTIONED YES I AM SATISFIED THE A SSESSEE 20 ITA.NO.8031/DEL./2018 FILED OBJECTIONS TO THE REOPENING OF THE ASSESSMENT AND EXPLAINED BEFORE AO THAT M/S SMC GLOBAL SECURITIES LTD. BROKER HAS NOT DONE ANYTHING FOR ASSESSEE AND ASSES SEE DID NOT DEAL WITH SUCH BROKER, THEREFORE, THERE IS NO Q UESTION OF LOSS CLAIMED THROUGH THIS BROKER. THE ASSESSEE FUR THER EXPLAINED THAT ASSESSEE HAD CARRIED OUT TRANSACTION S THROUGH M/S MANSUKH SECURITIES FINANCE LIMITED. THUS, THE AO RECORDED INCORRECT AND WRONG FACTS IN THE REASONS F OR REOPENING OF THE ASSESSMENT. THOUGH THE AO REJECTE D THE OBJECTIONS OF THE ASSESSEE BUT IN THE REJECTION ORD ER CONFIRMED THAT ASSESSEE CARRIED OUT THE TRANSACTIONS THROUGH MANSUKH SECURITIES FINANCE LIMITED, THEREFORE, THERE IS NO QUESTION OF ASSESSEE ARRANGING ANY LOSS THROUGH TRANSACTION INV OLVING CCM THROUGH SMC GLOBAL SECURITIES BROKER. THE REAS ONS DO NOT INDICATE THE BASIS FOR THE ASSESSING OFFICER TO COME TO REASONABLE BELIEF THAT THERE HAS BEEN ANY ESCAPEMEN T OF INCOME ON THE GROUND THAT THE MODIFICATIONS DONE IN THE CLIENT CODE WAS NOT ON ACCOUNT OF GENUINE ERROR, ORIGINALL Y OCCURRED WHILE PUNCHING THE TRADE. THE MATERIAL AVAILABLE I S THAT THERE IS A CLIENT CODE MODIFICATION DONE BY ASSESSEES BRO KER WHICH FACT IS ALSO INCORRECT AND THERE IS NO LINK FROM TH ERE TO CONCLUDE THAT IT WAS DONE TO ESCAPE ASSESSMENT OF A PART OF ITS INCOME. ITAT DELHI DIVISION BENCH IN THE CASE OF M /S STRATAGEM PORTFOLIO PVT. LTD. (SUPRA) CONSIDERING T HE IDENTICAL ISSUE IN THE LIGHT OF JUDGMENT OF BOMBAY HIGH COURT AND 21 ITA.NO.8031/DEL./2018 OTHER DECISIONS OF THE TRIBUNAL CAME TO THE CONCLUS ION THAT ASSESSMENT CANNOT BE OPENED VALIDLY ON THE BASIS OF THE ABOVE REASONS RECORDED IN ABSENCE OF ANY TANGIBLE MATERIA L TO INFER INCOME ESCAPED IN THE CASE OF THE ASSESSEE AND QUAS HED THE REOPENING OF THE ASSESSMENT. THE ISSUE IS, THEREFO RE, COVERED BY THE AFORESAID DECISION OF THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. FURTHER AS NOTED ABOVE AO HAS ALSO RECOR DED INCORRECT AND WRONG FACTS IN REOPENING OF THE ASSES SMENT, THEREFORE, AO DID NOT APPLY HIS MIND TO THE REPORT OF INVESTIGATION WING AND, AS SUCH, THERE WERE NO JUST IFICATION TO REOPEN THE ASSESSMENT. IN SUCH CIRCUMSTANCES, THE REOPENING OF THE ASSESSMENT IS BAD IN LAW AND APPROVAL GRANTE D IS ALSO IN MOST MECHANICAL MANNER. THUS, THE REOPENING OF THE ASSESSMENT CANNOT BE JUSTIFIED. IN SUPPORT OF ABOV E FINDINGS, I RELY UPON FOLLOWING DECISIONS: 1. JUDGMENT OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. ATLAS CYCLE INDUSTRIES 180 ITR 319; 2. JUDGMENT OF DELHI HIGH COURT IN THE CASE OF PR. CIT VS. SNG DEVELOPERS LTD. 404 ITR 312; 3. JUDGMENT OF DELHI HIGH COURT IN THE CASE OF SHAMSHA D KHAN VS. ACIT 395 ITR 265; 4. JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF SIEMEN S INFORMATION SYSTEM LTD. VS. ACIT 293 ITR 548. THE CRUX OF THE ABOVE JUDGMENTS HAVE BEEN THAT IN C ASE INCORRECT, WRONG AND NON EXISTING REASONS ARE RECOR DED BY THE 22 ITA.NO.8031/DEL./2018 AO FOR REOPENING OF THE ASSESSMENT AND THAT AO FAIL ED TO VERIFY THE INFORMATION RECEIVED FROM INVESTIGATION WING, T HE REOPENING OF THE ASSESSMENT WOULD BE UNJUSTIFIED AN D IS LIABLE TO BE QUASHED. 8. CONSIDERING THE ABOVE DISCUSSION, IT APPEARS TO BE A CASE OF REASON TO SUSPECT AND NOT REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, THEREFORE , REOPENING OF THE ASSESSMENT IS BAD IN LAW AND THE A O WOULD NOT GET VALID JURISDICTION TO PROCEED FOR REASSESSM ENT. THE DECISIONS CITED BY THE DR WOULD NOT BE APPLICABLE T O THE FACTS OF THE CASE. IN VIEW OF THE ABOVE DISCUSSION, I SE T ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND QUASH THE REOPE NING OF THE ASSESSMENT. RESULTANTLY ALL ADDITIONS STANDS DELET ED. 9. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 02.02.2021. SD/- (BHAVNESH SAINI) JUDICIAL MEMBER DATED: 02.02.2021 *KAVITA ARORA 23 ITA.NO.8031/DEL./2018 COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT(A) CONCERNED 4. CIT CONCERNED 5. D.R. ITAT SMC BENCH, DELHI 6. GUARD FILE. // BY ORDER // ASSISTANT REGISTRAR : ITAT DELHI BENCHES : DELHI.