2020 (2) TMI 1455 - AT - Income Tax

Reopening of assessment u/s 147 - Reason to suspect or reason to believe - transactions involving client code modification (CCM) through its broker on NSE in F O segment - HELD THAT - In the case of M/s Coronation Agro Industries Ltd. vs. DCIT 2017 (1) TMI 904 - BOMBAY HIGH COURT has decided the identical issue in favour of the assessee and held the notice issued u/s 148 of the Act lacks reason to believe that the income chargeable to tax has escaped assessment The reasons do not indicate the basis for the Assessing Officer to come to reasons do not indicate the basis for the Assessing Officer to come to reasonable belief that there has been any escapement of income on the ground that the modifications done in the client code was not on account of a genuine error, originally occurred while punching the trade. The material available is that there is a client 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 reason to suspect and not reason to believe that income chargeable to tax has escaped assessment. - Decided in favour of assessee.

Summary

Issues:
1. Reopening of assessment u/s 147 of the Income Tax Act, 1961.
2. Addition of income through client code modification (CCM) u/s 68.
3. Disallowance of loss on alleged misuse of client code modification.
4. Disallowance of interest expenses.

Reopening of Assessment:
The appeal was filed against the order by the Commissioner of Income Tax (Appeals) dismissing the appeal against the assessment order passed u/s 143 (3) r.w.s. 147 of the Income Tax Act, 1961. The assessee challenged the reopening of the case u/s 147, arguing that the reasons recorded did not establish any reasonable belief of income escapement. The material available indicated client code modification by the broker but lacked a link to conclude it was to evade tax. The assessee relied on the judgment of the Bombay High Court in similar cases, emphasizing the lack of jurisdiction in the reopening. The Departmental Representative supported the reopening based on reliable information. The Tribunal, citing the Bombay High Court's judgment, held the notice was without jurisdiction, leading to the appellate proceedings being void.

Addition of Income through CCM:
The AO made additions of income through CCM under section 68 of the Act, totaling &8377; 80,83,149, and unproved expenditure of &8377; 1,65,205, resulting in a total income of &8377; 83,92,300. The CIT (A) upheld the AO's action. The assessee challenged this addition, arguing that the AO did not have sufficient basis to link the client code modification to tax evasion. The Tribunal, following the Bombay High Court's ruling, held the notice and subsequent proceedings were without jurisdiction, leading to the allowance of the appeal.

Disallowance of Loss on Misuse of CCM:
The CIT (A) disallowed the loss of &8377; 1,61,03,943, alleging misuse of client code modification. The assessee contested this disallowance, stating it lacked merit and was not supported by sufficient evidence. The Tribunal, following the Bombay High Court's precedent, held the notice and reassessment proceedings were without jurisdiction, resulting in the setting aside of the CIT (A)'s order.

Disallowance of Interest Expenses:
The CIT (A) disallowed the claim of interest expenses amounting to &8377; 1,65,205. The assessee challenged this disallowance, arguing it was unjustified and not based on valid reasons. However, the Tribunal, having found the reopening of assessment to be without jurisdiction, did not delve into the merits of this ground, as the entire appellate proceedings were deemed void. Consequently, the appeal for the assessment year 2010-2011 was allowed by the Tribunal.