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2019 (1) TMI 854 - AT - Income TaxReopening of assessment - client code modification - eligibility of reasons to believe - Held that - It was not at all a reason to believe envisaged u/s 147 of the Act, at best the same can be considered as reason to suspect only. In the recording the Assessing Officer has admitted that client code modification is legally permissible in case of mistake. Further the recording states the assessee M/s. Prashant Agencies Pvt. Ltd. has suffered a loss of ₹ 2,07,040/- in a transaction in which client code modification was involved. Similarly in the case of M/s. PPN Properties Private Limited recording states that the assessee has suffered a loss of ₹ 2,47,312/- in a transaction in which client code modification was involved. However, there is no material on record to show that prima-facie the said client code modification was because of some malafide reason and the assessee has received cash in lieu of payment made for loss of ₹ 2,07,040/- in the case of M/s. Prashant Agencies Pvt. Ltd. and ₹ 2,47,312/- in the case of M/s. PPN Properties Private Limited. Thus, the above recording does not satisfy requirement of law which is mandatory for assuming jurisdiction to reopen the assessment. My above view is supported by decision of Coronation Agro Industries Limited Vs. DCIT 2017 (1) TMI 904 - BOMBAY HIGH COURT . Therefore, the reassessment orders passed pursuant to the above recording are hereby quashed and ground of appeals of the assessee is allowed.
Issues Involved:
1. Validity of reassessment proceedings under section 147 of the Income Tax Act. 2. Sustaining the addition of income based on client code modification (CCM) transactions. Detailed Analysis: 1. Validity of Reassessment Proceedings under Section 147 of the Income Tax Act: The primary issue raised by the assessee was the validity of the reassessment proceedings initiated under section 147 of the Income Tax Act. The assessee argued that the initiation was based on insufficient and non-tangible material, merely constituting a reason to suspect rather than a reason to believe that income had escaped assessment. The assessee also contended that the Assessing Officer (AO) did not conduct independent inquiries or provide the opportunity for cross-examination of the person whose statement was used to reopen the assessment. The Tribunal noted that the reassessment was initiated based on information from the Investigation Wing, Ahmedabad, regarding client code modifications (CCM) allegedly used for tax evasion. However, the AO's reasons for reopening did not reference any specific material or evidence, nor did they establish a prima facie case of tax evasion. The Tribunal relied on several judicial precedents, including the Delhi High Court's decisions in Signature Hotels Pvt. Ltd. Vs. ITO and Principal Commissioner of Income Tax Vs. Meenakshi Overseas Pvt. Ltd., which emphasized that mere information from another wing without independent application of mind by the AO does not satisfy the requirements of section 147. The Tribunal also cited the case of CIT Vs. Pradeep Gupta, which highlighted the necessity of providing cross-examination opportunities when third-party statements are used as the basis for reassessment. The Tribunal concluded that the reassessment proceedings were invalid as the AO failed to demonstrate the necessary link between the information received and the belief that income had escaped assessment. The reassessment was thus quashed. 2. Sustaining the Addition of Income Based on Client Code Modification (CCM) Transactions: The second issue involved the addition of income based on alleged CCM transactions. The assessee contended that the AO and the Commissioner of Income Tax (Appeals) [CIT(A)] erred in sustaining the addition without proper evidence and based on mere suspicion. The assessee argued that the documentary evidence provided, and the stockbroker's acceptance of the genuineness of the losses, were arbitrarily disregarded. The Tribunal observed that the AO's reasons for reopening included a general statement about CCM being used for tax evasion but lacked specific evidence linking the assessee's transactions to such malpractices. The Tribunal noted that the AO admitted CCM is legally permissible for rectifying errors and found no material indicating that the assessee had received cash in lieu of the losses incurred. The Tribunal referred to the Bombay High Court's decision in Coronation Agro Industries Limited Vs. DCIT, which supported the view that reassessment based on mere suspicion without tangible evidence is not permissible. Consequently, the Tribunal held that the addition of income based on CCM transactions was not justified and allowed the assessee's appeal on this ground. Conclusion: The Tribunal quashed the reassessment orders for both the assessees, holding that the initiation of reassessment proceedings under section 147 was invalid due to the lack of tangible material and failure to meet the statutory requirements. Additionally, the Tribunal found that the addition of income based on CCM transactions was not substantiated by evidence and was based on mere suspicion. Therefore, the appeals of the assessees were allowed, and the reassessment orders were annulled. Order Pronounced: The order was pronounced in the open court on 16.01.2019.
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