2020 (6) TMI 210 - AT - Income Tax

Reopening of assessment u/s 147 - ingenuine loss - client code modification and assessee being beneficiary client has taken contrived losses and shifted out profits during the financial year 2008 09 to 2010 11 - HELD THAT - The basis of the above reason was a report of survey and the details of the transaction carried out by the assessee. The report shows that it is not a genuine error because of the reason that it is not wrong punching of one or two keys but code has been replaced. Therefore it cannot be considered as a genuine loss. There is no assessment of income of the assessee u/s 143 (3) prior to issue of notice u/s 148 of the act. He perused the above information with the return of income filed by the assessee. He noted that assessee company has directors namely Mrs. Minakshi Gupta and Mr. Satinder pal Gupta. He found that there are no sales shown by the assessee. Only interest income is earned. Same is adjusted against expenses. Derivative loss is claimed in profit and loss account. On this basis he reopened the assessment. According to us he has tangible information in the form of various reports of investigation which is also backed by SEBI report there was no assessment on the assessee on the return filed and he found that there is a derivative loss booked by the assessee. Such loss is not genuine as per those reports. Thus we do not find any reason to interfere with the order of the ld AO and CIT (A) in upholding reopening of assessment - no infirmity in the reasons recorded by the learned assessing officer and in the reopening of the assessment under section 147. AO had tangible material clear-cut information about the change of client code of assessee by TCG stock broking Ltd exact nature of the changes are also available it was also known to him that it is not miss punching or but complete change of all the keys. Ingenuine loss - when the assessing officer has categorically shown that there is a genuine allegation that the transaction entered into by the assessee of booking the loss is not genuine the duty is cast upon the assessee to show that they are genuine. AO has categorically shown whole transactions with evidence to the assessee but assessee merely relied on the paperwork of client code modification. None of the evidences placed by the assessing officer were rebutted by the assessee. AO has not relied upon the statement of the broker of the assessee because he did not confirm anything. Therefore there is no requirement of giving is cross-examination because the addition has not been made on the basis of his statement. The assessee also did not show by producing the director and the broker that client code modification has been done for some genuine reasons. We do not find any infirmity in the orders of the lower authorities in making the addition on account of client code modification as alleged bogus contrived loss of trained by the assessee. Accordingly we dismiss ground number three and four of the appeal.

Summary

Issues Involved:
1. Validity of the reopening of assessment under section 147 of the Income Tax Act.
2. Addition of ?1,37,455 on account of disallowance of loss from futures and options transactions.
3. Levy of interest under sections 234A, 234B, and 234D of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of the Reopening of Assessment under Section 147:
The assessee challenged the reopening of the assessment under section 147, arguing that the initiation was based on mere suspicion without tangible material. The Tribunal noted that the reopening was based on information from the Principal Director of Income Tax (Investigation), Ahmedabad, regarding client code modifications by certain brokers, including the assessee, to contrive losses and shift profits. The Tribunal found that the Assessing Officer (AO) had tangible information supported by SEBI's investigation, which concluded that client code modification was used as a tool for tax evasion. The Tribunal held that the AO had a reasonable belief based on concrete information, not merely suspicion, and thus upheld the reopening of the assessment.

2. Addition of ?1,37,455 on Account of Disallowance of Loss from Futures and Options Transactions:
The assessee contended that the loss from futures and options transactions was genuine and supported by documentary evidence, including contract notes. The AO, however, found that the client code modifications were not due to genuine errors but were deliberate changes to contrive losses. The Tribunal observed that the assessee failed to provide evidence of placing orders with the broker, margin deposits, or any genuine reason for the client code modifications. The Tribunal concluded that the transactions were not genuine and upheld the addition of ?1,37,455 as bogus losses.

3. Levy of Interest under Sections 234A, 234B, and 234D:
The Tribunal noted that the levy of interest under sections 234A, 234B, and 234D is consequential in nature. Since the primary issues regarding the reopening of the assessment and the addition of disallowed losses were upheld, the Tribunal dismissed the ground challenging the levy of interest.

Conclusion:
The Tribunal upheld the reopening of the assessment under section 147, finding that the AO had tangible material and a reasonable belief that income had escaped assessment. The addition of ?1,37,455 on account of disallowance of loss from futures and options transactions was also upheld, as the assessee failed to prove the genuineness of the transactions. The levy of interest under sections 234A, 234B, and 234D was deemed consequential and thus upheld. The appeal of the assessee was dismissed in its entirety.