Income Tax Appellate Tribunal - Delhi
Captive Commerce Pvt. Ltd., New Delhi vs Acit, Central Circle-26, New Delhi on 9 August, 2023
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "B" DELHI
BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER
&
SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER
I.T.A. No.2698/DEL/2018
Assessment Year 2010-11
Captive Commerce Pvt. Ltd., ACIT
4735/11, 22 Ansari Road, Darya Vs. Central Circle-26
Ganj, New Delhi.
New Delhi.
TAN/PAN: AABCC0820A
(Appellant) (Respondent)
Appellant by: Shri Ashu Goel, CA
Respondent by: Shri Vivek Kumar Upadhyay, Sr.DR
Date of hearing: 31 07 2023
Date of pronouncement: 09 08 2023
ORDER
PER PRADIP KUMAR KEDIA, A.M.:
The captioned appeal has been filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-XXVI, New Delhi ('CIT(A)' in short) dated 26.02.2018 arising from the assessment order dated 09.12.2016 passed by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2010-11.
2. As per the grounds of appeal, the assessee has challenged the assumption of jurisdiction under Section 147 of the Act as well as confirming notional income of Rs.41,48,008/- on account of client code modification.
3. We have heard the parties in length and perused the first I.T.A. No.2698/Del/2018 2 appeal order and re-assessment order. The material referred and relied upon in the course of hearing has also been taken into consideration.
4. Since the assessee has raised the legal question of usurption of jurisdiction by the Assessing Officer to reopen the completed assessment under Section 143(3) of the Act in the instant case, it would be pertinent to deal with the aforesaid question at the outset as it goes to the root of the matter. The ld. counsel for the assessee submits at the outset that Assessing Officer has wrongly assumed jurisdiction by issuing notice under Section 148 of the Act without authority of law. The ld. counsel further submits that the ingredients of Section 147/148 of the Act are not fulfilled in the instant case to enable the Assessing Officer to exercise jurisdiction and to proceed with the re-assessment proceedings. The ld. counsel thereafter submits that the assessment in the instant case was completed under Section 143(3) of the Act but the case was however reopened albeit within four years from the end of the relevant Assessment Year 2010-11 by issuing notice dated 30.12.2015. This notwithstanding without fulfillment of the indispensable requirement of formation of 'reason to believe' that chargeable income has escaped assessment, the issuance of notice under Section 148 r.w. Section 147 is not permissible in law.
5. Adverting to the reasons recorded by the Assessing Officer under Section 148(2) of the Act, the ld. counsel submits that the completed assessment in the instant case has been reopened on vague and non descript reasons which is not permissible in law.
I.T.A. No.2698/Del/2018 36. The reasons recorded for conferment of jurisdiction to reassess the completed assessment in terms of Section 148(2) of the Act is reproduced hereunder for ready reference.
"Rea son s for issu e o f notice u s 14 8 in th e ca se o f M/s. C ap tive Commerce Pvt. Ltd ., PAN AABCC08 20 A for the a ssessment yea r 2010- 11 Retu rn o f income in this ca se was filed on 24 .09 .20 10 d eclarin g in co me o f Rs.2 ,89 ,349 /-. The ca se wa s selected fo r scru tin y and assessed u/s. 14 3 (3) a t retu rn ed in co me o f Rs. 2 ,8 9 ,34 9/-.
2 . Su bsequ en tly, in fo rmation wa s gath ered by th e Department wh ich revea led th at some share b ro kers a re ind u lg ed in th e a ctivity o f crea tin g fictitio u s pro fits a nd loss b y misusin g the clien t cod e mod ifica tio n fa cility in F & O seg men t on Na tio n al S to ck Excha nge (NS E) du ring Ma rch 201 0 . On in vestiga tio n and a na lysis o f clien t code mod ifica tio n (CCM) da te a nd tran saction s p erta in ing to F.Y . 2009 -1 0 ob ta in ed fro m th e NSE b y th e Depa rtmen t, it h as b een establish ed th a t certa in b rokers had misu sed client co d e mod ifica tio n fa cility a n d were in du lg ed in tran sferrin g fictitio u s no n-g enuin e lo sses and p ro fits to va rious clients/b en eficia ries to red u ce their tax lia b ility wh erea s fictitiou s pro fits were pro vid ed with a view to co ver u p und isclo sed in co me o r to set o ff h ug e lo sses.
3 . Fu rth er on spo t verification W/s 131 (1) was ca rried ou t by th e Depa rtmen t in ca se o f so me o f th ese b rokers a lleg ed ly tra n sferring fictitiou s lo sses/p ro fits and th ese b ro kers con firmed ha ving misu sed CM fa cility to crea te bogu s lo sses/pro fits fo r th eir clien ts a nd in retu rn received commissio n a t th e ra te va rying fro m 0 .5 % to .2 % o n the a moun t o f lo sses/pro fits fro m su ch clients . Th ese b ro kers th ereafter submitted revised compu ta tio n o f their in co me fo r F.Y. 2009 -10 releva n t to A.Y. 2010-11 d eclarin g th e commissio n inco me earn ed b y them and a lso pa id ta xes th ereof. Th erea fter, en qu iries were a lso condu cted in ca ses o f few b en eficia ries/clien ts and th ese clien ts a lso a dmitted to ha ve ob ta in ed fictitio us lo sses/p rofits fro m th ese b rokers and a cco rding ly revised their co mpu ta tio n o f i ncome and p aid ta xes fo r A. Y .2010-11 .
4 . On p eru sal o f th e in fo rma tio n con ta ining names / p articu la rs o f b rokers and clien ts/b en eficia ries in d u lg ed in th e a ctivity of carrying ou t no n-genu in e CM modification du ring th e F.Y. 2009 -10 it is found tha t th e a ssessee, Ms Ca ptive Co mmerce Pvt. L td . du ring th e sa id finan cia l year releva n t to A.Y . 20 10 -11 ha s also ob ta in ed fictitiou s non -genu in e lo sses to th e tu n e o f Rs.4 7 ,38,115 /- fo r reducin g its tax lia bility.
5 . In view of these fa cts a nd ma terial availab le on reco rd , I ha ve rea son to b elieve th at in th is ca se in come o f Rs. 4 7 ,38,115 /- wh ich wa s cha rg eab le to ta x has escap ed a ssessmen t yea r 2 010 -11 with in th e mean ing o f p ro vision s o f sec tio n 1 47 o f th e IT Act, 1 96 1 and th erefore th e income o f th e a ssessee co mp any fo r th e A.Y . 2 01 0-11 n eed s to be I.T.A. No.2698/Del/2018 4 a ssessed / reassessed a s p er th e p ro vision s of sectio n 147 o f th e IT Act, 19 61 .
Acco rding ly, no tice u /s. 1 48 o f th e Income Ta x Act, 1 96 1 is b eing issu ed in th is ca se for AY 2010-11 ."
7. A bare perusal of the reasons recorded suggests that the Assessing Officer has propelled himself to reopen the completed assessment on the grounds of doubts on the correctness of losses claimed in the transactions carried on the platform of the National Stock Exchange. At the first glance of the reasons recorded (supra), it can be seen that the Assessing Officer has merely made averments towards the modus operandi used by the different brokers for transfer of profit and loss of one constituent to another by modification of the client code but however, there is no reference to any relevant material which can given rise to prima facie believe of an escapement resulted to the Revenue. There is no iota of reference to any transaction wise detail where the client code of the assessee is undergone any modifications causing transfer of profits from assessee to any other party/constituent. The name of the broker facilitating such alleged client code modification is also not mentioned in the reasons recorded. It is a classic case of assumption of jurisdiction under Section 147 by recording 'believe' based extremely vague and non-descript reasons. No reference to any material providing foundation for holding belief is available.
8. Needless to say, the allegation towards escapement of income must be backed by expression 'reasons to believe' and such believe requires to be based on some credible or relevant material. A completed assessment cannot be disturbed based on I.T.A. No.2698/Del/2018 5 fancy or whimsical grounds or on the basis of 'reason to suspect' towards alleged escapement without giving reference to any relevant material which ma y give rise to a bona fide believe towards escapement to a reasonable person instructed in law. It is a case where one cannot decipher the reasons based on any objective material or relevant which may give rise to believe towards escapement. There is no clarity on the nature of information received by the Assessing Officer. The Assessing Officer is expected to exercise jurisdiction under Section 147 of the Act with scrupulous care and based on material which are clear and beyond reasonable doubt. The reasons recorded in the instant case are in complete disarray. Mere reiteration of statutory language employed in Section 147 of the Act that the Assessing Officer has 'reason to believe' towards escapement of income is not, by itself, adequate. The instances of transactions resulting in loss/profit to the assessee on account of client code modification do not feature in the reasons at all. The reasons recorded appears to be a token exercise for assumption of jurisdiction and without compliance of jurisdictional parameters. The Assessing Officer in the instant case has proceeded on a hypothesis flowing from a generic information rendering the whole exercise to be arbitrary and unsustainable in law.
9. The believe towards escapement in the instant case is only pretense and a mere doubt and suspicion towards probable escapement though worded as 'reasonable to believe'. The Hon'ble Supreme Court in Lakhmani Mewal Das (1976) 103 ITR 437 (SC) has underscored that the word of the statute 'reason to I.T.A. No.2698/Del/2018 6 believe' are not 'reason to suspect'. The vague feeling or suspicion of the Assessing Officer towards possible escapement would not permit to reopen a completed assessment in defiance of statutory requirement of substantial nature. The notice issued under Section 148(1) is thus ultra vires the provision of Section 147 of the Act. Therefore, we see considerable force in the plea of the assessee for non maintainability of re-assessment order passed in pursuance of a notice under Section 148 of the Act which is vitiated in law.
10. Hence, the re-assessment notice under Section 148 giving rise to the jurisdiction under Section 147 of the Act is quashed and consequently the re-assessment order appeal against is also similarly quashed and set aside.
11. The objection on assumption of jurisdiction under Section 147 of the Act thus succeeds. Having held that the re-assessment order is bad in law, we do not see any warrant to look into other grounds of the appeal.
8. In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 09/08/2023 Sd/- Sd/-
[CHANDRA MOHAN GARG] [PRADIP KUMAR KEDIA]
JUDICIAL MEMBER ACCOUNTANT MEMBER
DATED: /08/2023
Prabhat