2023 (2) TMI 1057 - AT - Income Tax

Reopening of assessment u/s 147 - reasons to believe - own satisfaction or borrowed satisfaction - client code modification has been done for shifting of profit and loss by the assessee - HELD THAT - Honourable Bombay High Court in case of Pr. CIT vs. Shodiman Investments (P.) Ltd. 2018 (4) TMI 1287 - BOMBAY HIGH COURT by deciding the identical issue held that reopening notice has to be issued by the AO on his own satisfaction and not on borrowed satisfaction . Here in this case it is proved on record that the AO was having no material whatsoever before him except the information sent by DIT(Inv.) by recording the fact that certain brokers one such broker is M/s. BP Equities Pvt. Ltd. were carrying out non genuine profits and losses by misusing the client code modification in F O segment. Merely on the basis of this information the AO hurriedly proceeded to reopen the assessment which is not sustainable in the eyes of law. Assessment cannot be re-opened on the basis of reasons recorded that client code modification has been done for shifting of profit and loss by the assessee particularly when there is no material on record that such client code modification was done with malafide purpose of shifting of profit to evade the tax nor any such material was there before the AO. Initiation of reopening proceedings u/s 147/148 are bad in law and the subsequent assessment order framed by the AO is not sustainable in the eyes of law hence ordered to be quashed without entering into the merits of the case and consequently impugned order passed by the CIT(A) is set aside. Decided in favour of asseessee.

Issues Involved:
1. Validity of the orders passed by the lower authorities.
2. Validity of the assessment order under section 147 of the I.T. Act, 1961.
3. Validity of the notice issued under section 148 of the I.T. Act, 1961.
4. Legality of the assessment order based on reasons recorded by one officer and notice issued by another.
5. Provision of material/documents/evidence to the assessee.
6. Opportunity to cross-examine the share broker.
7. Addition of Rs. 9,88,861/- without supporting material or evidence.
8. Legal tenability of the impugned addition of Rs. 9,88,861/-.
9. Permission to raise additional or alternative grounds.

Detailed Analysis:

1. Validity of the Orders Passed by the Lower Authorities:
The appellant contended that the orders passed by the lower authorities were "bad in law and bad in facts." The Tribunal examined the procedural and substantive aspects of the case, including the basis for reopening the assessment and the evidence relied upon by the Assessing Officer (AO).

2. Validity of the Assessment Order under Section 147 of the I.T. Act, 1961:
The Tribunal noted that the reopening proceedings were initiated based on information from the Additional Director of Income Tax (Investigation), which indicated misuse of client code modification facilities by brokers. However, the Tribunal found that the AO did not possess any tangible material to form a belief that income had escaped assessment. The Tribunal emphasized that the reasons recorded for reopening were undated and lacked substantial evidence, rendering the reopening invalid.

3. Validity of the Notice Issued under Section 148 of the I.T. Act, 1961:
The Tribunal observed discrepancies in the issuance of the notice under section 148. The reasons for reopening were recorded by one officer, while the notice was issued by another. This procedural irregularity, coupled with the lack of substantive evidence, led the Tribunal to conclude that the notice under section 148 was not issued in accordance with the prescribed manner.

4. Legality of the Assessment Order Based on Reasons Recorded by One Officer and Notice Issued by Another:
The Tribunal highlighted that the reasons for reopening were recorded by Mr. Sandeep Kumar Singh, while the notice under section 148 was issued by Mr. Nilesh Talkar. This inconsistency, along with the absence of material evidence, invalidated the assessment order.

5. Provision of Material/Documents/Evidence to the Assessee:
The Tribunal noted that the statement of M/s. BP Equities Pvt. Ltd., which was crucial to the case, was not provided to the AO or the assessee. The lack of this statement undermined the basis for reopening the assessment and violated the principles of natural justice.

6. Opportunity to Cross-Examine the Share Broker:
The assessee was not granted the opportunity to cross-examine the share broker, whose alleged testimony formed the basis for the impugned addition. This denial further violated the principles of natural justice and weakened the Revenue's case.

7. Addition of Rs. 9,88,861/- Without Supporting Material or Evidence:
The Tribunal found that the AO made the addition of Rs. 9,88,861/- without any supporting material or evidence. The AO's reliance on client code modification without tangible proof was deemed insufficient to justify the addition.

8. Legal Tenability of the Impugned Addition of Rs. 9,88,861/-:
The Tribunal concluded that the impugned addition of Rs. 9,88,861/- was untenable in law. The lack of substantive evidence and procedural irregularities rendered the addition invalid.

9. Permission to Raise Additional or Alternative Grounds:
The Tribunal allowed the appellant to raise additional or alternative grounds before the hearing of the appeal, acknowledging the procedural rights of the assessee.

Conclusion:
The Tribunal quashed the reopening proceedings under sections 147/148 of the I.T. Act, 1961, and set aside the assessment order framed by the AO. The Tribunal emphasized that the AO acted on half-baked information without substantial evidence, and the procedural lapses further invalidated the assessment. Consequently, the appeal filed by the assessee was allowed.

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