2019 (12) TMI 669 - AT - Income Tax

Reopening of assessment u/s 147 - Validity of reasons to believe - HELD THAT - Reasons in support of the impugned notice accept the fact that as a matter of regular business practice, a broker in the stock exchange makes modifications in the client code on sale and /or purchase of any securities, after the trading is over so as to rectify any error which may have occurred while punching the orders. The reasons do not indicate the basis for the AO 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. We are of the view that the impugned notice is without jurisdiction as it lacks reason to believe that income chargeable to tax has escaped assessment. - Decided in favour of assessee.

Issues involved:
1. Reopening of assessment under section 147 of the Income Tax Act, 1961.
2. Allowance of speculation loss to be carried forward.
3. Addition of amount to total income due to shifting of profit/loss on share transactions.
4. Calculation of interest under section 234D.

Analysis:

1. Reopening of assessment under section 147:
The Assessing Officer reopened the assessment based on information received regarding Client Code Modification (CCM) leading to tax evasion. The information highlighted the misuse of CCM for manipulative activities in the market. The Survey report by SEBI and data from NSE supported the conclusion that CCM was used for tax evasion. The reassessment proceedings were initiated under section 147 due to the belief that income chargeable to tax had escaped assessment. The failure of the assessee to disclose material facts was cited as a reason for reopening. The Tribunal upheld the reopening, emphasizing that the Assessing Officer had sufficient grounds to form a belief of income escapement, as supported by authenticated information from a Government department.

2. Allowance of speculation loss:
The appellant contested the disallowance of carrying forward speculation loss for the assessment year 2010-11. The grounds of appeal highlighted the Assessing Officer's error in not permitting the carry-forward of the loss. However, the Tribunal's decision did not delve into this issue as the appellant chose not to press this argument during the proceedings.

3. Addition of amount to total income due to share transactions:
The Assessing Officer made an addition to the appellant company's total income based on the alleged shifting of profit/loss on share transactions through CCM. The appellant disputed this addition, citing errors in the calculation and contrary reasons provided by the Assessing Officer. The Tribunal did not address this issue explicitly in the judgment, as the focus was primarily on the reopening of assessment under section 147.

4. Calculation of interest under section 234D:
The Assessing Officer calculated interest under section 234D amounting to a specific sum. However, the Tribunal's judgment did not provide detailed analysis or resolution regarding this issue, as the primary focus was on the validity of the reassessment proceedings.

In conclusion, the Tribunal partially allowed the appeal, setting aside the order of the learned CIT(A) regarding the reopening of assessment under section 147. The judgment emphasized the importance of having a valid reason to believe that income has escaped assessment before initiating reassessment proceedings.

← Previous Next →