2022 (12) TMI 1006 - AT - Income Tax

Reopening of assessment u/s 147 - addition in respect of shifting of profit - HELD THAT - As client code has been changed with a few clients which pertain to groups which are apparently related to each other and in one case related to the appellant also cannot be a mere coincidence. Such transactions cannot be held to be genuine as they fail the test of human probabilities. The above finding of the learned CIT(Appeals) is not rebutted by the assessee by placing any contrary material on record. Therefore, see no reason to interfere in the order of the learned CIT(Appeals) and the same is affirmed. - Decided against assessee.

Issues Involved:

1. Initiation of proceedings under section 147 and issuance of notice under section 148 based on information from DIT Ahmedabad.
2. Addition of Rs. 24,19,643/- by the Assessing Officer treating it as profit shifted to clients.
3. Treatment of transactions through client code modification as deliberate and planned shifting of profits.
4. CIT(A)'s rejection of explanations provided by the appellant and the broker company regarding the transactions.

Detailed Analysis:

Issue 1: Initiation of proceedings under section 147 and issuance of notice under section 148 based on information from DIT Ahmedabad

The appellant challenged the initiation of proceedings under section 147 and the issuance of notice under section 148 based on information from DIT Ahmedabad, arguing that the Assessing Officer (AO) had not made an effort to determine the extent of transactions entered into between the appellant and the broker. The CIT(A) noted that the AO had categorically recorded the reasons for issuing the notice after analyzing the details of the information received. The CIT(A) referenced the case of Indu Lata Rangwala vs DCIT, which held that when the initial return is processed under section 143(1), the AO does not need fresh tangible material to form 'reasons to believe' that income has escaped assessment. The CIT(A) also cited the case of Raymond Woollen Mills Ltd vs. ITO, where the Supreme Court held that for reassessment proceedings to commence, there only needs to be prima facie material. Based on these precedents, the CIT(A) found no infirmity in the initiation of reassessment proceedings and dismissed this ground of appeal.

Issue 2, 3, and 4: Addition of Rs. 24,19,643/- and treatment of transactions through client code modification

The appellant contested the addition of Rs. 24,19,643/- made by the AO, who treated it as profit shifted through client code modification. The appellant argued that the client code modifications were due to inadvertent punching errors by the broker and that no addition should be made without evidence showing the appellant's responsibility for the entry.

The CIT(A) observed that many transactions involving client code modification were with parties related to the appellant, indicating that these transactions were well thought out and not genuine. The CIT(A) applied the test of human probabilities as enunciated by the Supreme Court in Sumati Dayal vs. CIT, finding that the transactions failed this test.

The CIT(A) also analyzed the client code modifications, noting that in most cases, the entire code had been changed, which could not be merely explained as punching errors. The CIT(A) used the Levenshtein Distance Analysis to show that more than one digit had been changed in most transactions, indicating deliberate changes rather than errors.

Based on these findings, the CIT(A) upheld the addition made by the AO, dismissing the appellant's grounds of appeal related to the addition and the treatment of transactions through client code modification.

Conclusion:

The appeal of the assessee was dismissed as the appellant failed to rebut the findings of the CIT(A) with any contrary material. The CIT(A)'s order was affirmed, and the addition of Rs. 24,19,643/- to the appellant's income was upheld. The judgment was pronounced in open court on 13th December 2022.

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