2020 (5) TMI 384 - AT - Income Tax

Reopening of assessment - client code modification - ingenuine transaction - diversion of income - HELD THAT - Investigation Directorate, Ahmedabad carried out survey u/s 133(A) to examine the misuse of Client Code Modification for tax evasion. In this case, the client code of the assessee was SS 493 as per the AO the error by the operator could be in the form of punching Client Code as FS-493, HS-493, SS-439 or similar phonic sounds but certainly Code was S-1. Hence, the modification in this case, was not found genuine by the Assessing Officer as well as CIT (A). Before the AO, the assessee has not at all proved as to why the error has incurred. In the written submissions as well, the assessee submitted that the details of trading and how the loss come across, but the same was not fully satisfied before the AO as well as before the CIT(A) by the assessee. AO has rightly made addition and the same was properly confirmed by the CIT (A). There is no need to interfere with the said finding of the CIT (A). The appeal of the assessee is dismissed.

Issues:
1. Jurisdiction of Assessing Officer under sections 147/151 of the IT Act, 1961 for reopening assessment.
2. Validity of approval by Principal Commissioner of Income Tax under section 151.
3. Adequacy of opportunity given to the appellant for cross-examination.
4. Addition of income based on alleged diversion without tangible evidence.

Jurisdiction of Assessing Officer under sections 147/151 of the IT Act, 1961 for reopening assessment:
The appeal challenged the jurisdiction of the Assessing Officer (AO) under sections 147/151 of the IT Act, 1961, arguing that the reopening was based on "borrowed satisfaction" without independent application of mind. The appellant contended that there was no tangible material to invoke section 147, as the recorded reasons were hearsay information related to a broker/third party, lacking a direct nexus to the alleged loss. The appellant further criticized the AO for not making efforts to confront the third party/broker before recording the reasons, as required by legal precedents. The appellant also questioned the validity of the approval by the Principal Commissioner of Income Tax, alleging it was based on vague feelings without tangible material, citing relevant case law. However, the tribunal upheld the jurisdiction of the AO, emphasizing the inadequacy of the appellant's explanations regarding the alleged errors in the client code modification, leading to the addition of income.

Validity of approval by Principal Commissioner of Income Tax under section 151:
The appellant contested the validity of the approval by the Principal Commissioner of Income Tax, arguing that it was based on vague feelings and lacked tangible material to infer income diversion. The appellant criticized the mechanical exercise of power without proper application of mind, citing legal precedents to support the argument. Despite the appellant's objections, the tribunal upheld the validity of the approval, emphasizing the importance of providing substantial evidence to challenge such decisions.

Adequacy of opportunity given to the appellant for cross-examination:
The appellant raised concerns about the lack of reasonable opportunity given by the AO for cross-examination of the broker or the person allegedly involved in the diversion of income. The appellant argued that no supporting documents were provided during the reassessment proceedings, hindering the defense against the allegations. However, the tribunal did not find merit in this argument, as the appellant failed to satisfactorily explain the errors in the client code modification or provide substantial evidence to refute the allegations of income diversion.

Addition of income based on alleged diversion without tangible evidence:
The core issue revolved around the addition of income amounting to ?20,24,792 based on alleged diversion without tangible evidence. The appellant contended that the addition was solely based on hearsay information and lacked any concrete proof of income diversion. The appellant emphasized the necessity of substantial evidence to assess income rather than mere suspicion. However, the tribunal upheld the addition of income, stating that the appellant failed to provide adequate explanations for the errors in the client code modification, leading to the confirmation of the addition by the CIT(A) and dismissal of the appeal.

In conclusion, the tribunal dismissed the appeal, affirming the assessment order and the decision of the CIT(A) regarding the addition of income based on the alleged diversion without tangible evidence. The judgment highlighted the importance of providing substantial evidence and adequate explanations to challenge reassessment proceedings effectively.

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