2019 (7) TMI 295 - AT - Income Tax

Reopening of assessment u/s 148 - no failure on the part of the assessee to disclose material facts during original assessment proceedings - notice u/s 143(2) has been issued prior to disposing off the objections - suppression of profit and obtaining fictitious loss by way of Client Code Modification (CCM) by the brokers in large number of commodity transaction - HELD THAT - Subsequent to completion of assessment u/s 143(3), Ld. AO was clinched with tangible information from investigation wing which suggested possible escapement of income in the hands of the assessee. Nothing more was required and Ld. AO was not required to carry out detailed investigation so as to reach a conclusive finding that the income, in fact, escaped in the hands of the assessee. Therefore, we are not convinced with these submissions. Further. we find that there was no bar under law for issue of notice u/s 143(2) prior to disposal of assessee s objections and the disposal-off of the objections was not pre-requisite for the issue of notice u/s 143(2). Fictitious loss by way of Client Code Modification (CCM) - unexplained expenditure - CCM is a facility granted by stock exchanges / SEBI to brokers so as to take care of the punching errors which take place during trading hours - HELD THAT - The transactions of the assessee s were duly supported by bills / contract notes. The assessee placed on record confirmation of few parties whose name appear in the data provided to the assessee wherein they have confirmed the transactions as belonging to them only. No evidence has been brought on record to establish that any of the party disown the transactions. The assessee maintained that the data did not pertain to the assessee which has not been rebutted by AO. No nexus of the said data has been established with the losses suffered by the assessee. Nothing on record establishes any collusion / connivance of the assessee with the share broker. It is trite law that additions could not be made merely on the basis of presumption, conjectures or surmises without bringing on record any concrete material to dislodge the assessee s claim. Therefore, the allegations as levelled byAO, in our opinion, are without any cogent or supporting evidences and therefore, the same could not be sustained in the eyes of law. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of disallowance on account of suppression of profit and obtaining fictitious loss through Client Code Modification (CCM).
2. Deletion of addition on account of commission paid to brokers for obtaining fictitious loss through CCM.
3. Legality of reassessment proceedings.

Issue-Wise Detailed Analysis:

1. Deletion of Disallowance on Account of Suppression of Profit and Obtaining Fictitious Loss through Client Code Modification (CCM):
The revenue contested the deletion of ?2,31,82,203/- made on account of suppression of profit and obtaining fictitious loss by the assessee through CCM by brokers in numerous commodity transactions. The assessee argued that the modifications were done by brokers as permitted by law and not at the assessee's behest. The CIT(A) observed that the CCM was carried out by brokers on a daily basis throughout the year and not at the year-end, thus negating the assumption of misuse to shift profits and losses. The CIT(A) also noted the lack of evidence showing the broker was under the control of the assessee or that the assessee instructed the CCM. The transactions were supported by bills/contracts, and no defects were found in the books of accounts. The CIT(A) concluded that the AO's addition was based on assumptions without concrete evidence, and thus, the disallowance was directed to be deleted.

2. Deletion of Addition on Account of Commission Paid to Brokers for Obtaining Fictitious Loss through CCM:
The AO estimated a commission of ?6.95 Lacs paid by the assessee to brokers for obtaining fictitious loss through CCM, which was added as unexplained expenditure under Section 69C. The CIT(A) deleted this addition, reasoning that the AO had not brought any material evidence to substantiate the claim that the assessee paid such commissions. The CIT(A) emphasized that the AO's conclusions were based on assumptions and lacked concrete evidence.

3. Legality of Reassessment Proceedings:
The assessee contested the legality of reassessment proceedings, arguing that the AO did not have sufficient reason to believe that income had escaped assessment and that the reopening was based on a mere change of opinion. The reassessment was triggered by information from the Directorate of Income Tax (Intelligence and Criminal Investigation) indicating misuse of CCM. The Tribunal found that the AO had tangible information suggesting possible escapement of income, which justified the reopening of the case. The Tribunal also dismissed the argument that the issuance of notice under Section 143(2) prior to disposing of the objections was invalid, stating that there was no legal bar against such issuance.

Conclusion:
The Tribunal upheld the CIT(A)'s order deleting the disallowance of ?2,31,82,203/- and the addition of ?6.95 Lacs, finding no concrete evidence to support the AO's claims. The reassessment proceedings were deemed valid as the AO had tangible information indicating possible income escapement. The revenue's appeal was dismissed, and the assessee's cross-objection was partly allowed.