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TMI Blog2018 (12) TMI 571X X X X Extracts X X X X X X X X Extracts X X X X ..... re, unsustainable. 1.2 That the learned Commissioner of Income Tax (Appeals) has further failed to appreciate that reasons recorded mechanically without application of mind do not constitute valid reasons to believe for assumption of jurisdiction u/s 147 of the Act. 1.3 That approval granted is a mechanical approval and hence initiation of proceedings u/s 147 of the Act on this ground also is invalid. 2 That the learned Commissioner of Income Tax (Appeals) has further erred both in law and on facts in upholding an addition of Rs. 6,05,037/- representing alleged unexplained credit entries u/s. 68 of the Act. 2.1 That addition of Rs. 27,235/- being alleged profit shift6ed out by the appellant and Rs. 5,75,100/-, being alleged loss shifted by appellant aggregating to Rs. 6,02,335/- by adopting client code modification facility in connivance with broker is entirely unsubstantiated and, thus untenable. 2.2 That further more the learned Commissioner of Income Tax (Appeals) has proceeded to sustain the additions on mere speculation, generalized statements, theoretical assumptions and allegations and assertions, mechanically borrowed and, lifted from report of investigation wing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a practice under which brokers change the client codes in sale and purchase orders of securities after the trades are conducted. The case was accordingly reopened u/s. 147 of the Income Tax Act, 1961 (in short "Act") and Notice u/s. 148 of the Act was issued on 29.3.2017 to the assessee. Thereafter, order u/s. 143(3)/147 of the Act was passed on 08.12.2017, assessing the income at Rs. 5,95,410/- after disallowing loss of Rs. 6,02,335/- due to change of client code and disallowance of Rs. 3,702/- on account of commission of 2% for the entry. 3. Aggrieved with the aforesaid assessment order dated 08.12.2017, assessee appealed before the Ld. CIT(A), who vide his impugned order dated 01.6.2018 has affirmed the action of the AO and dismissed the appeal of the assessee. 4. During the hearing, Ld. Counsel of the assessee stated that learned Commissioner of Income Tax (Appeals) has grossly erred both in law and on facts in upholding the initiation of proceedings under section 147 of the Act and, completion of assessment u/s 147/143(3) of the Act without appreciating that the same were without jurisdiction and hence deserve to be quashed as such. He further submitted that learned Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Unique Metal Industries vs. ITO 19. ITA No. 512/D/2015 dated 2.12.2015 Punjab Metal Store vs. ITO 20. ITA No. 5128/D/2015 dated 22.4.2016 Banke Bihari Properties (P) Ltd. v. ITO ITA No. 6558/D/2014 dated 31.8.2016 R.K. Garg Developers (P) Ltd. v. ITO 21. 299 ITR 383 (Del) CIT vs Atul Jain dated 23.5.2007 22. ITR 285 (Del) CIT vs SFIL Stock Broking Ltd. dated 27.4.2010 23. 329 ITR 110 (Del) Sarthak Securities Co. (P) Ltd. vs ITO dated 18 October 2010 24. 338 ITR 51 (Del) Signature Hotels (P) Ltd. vs. ITO dated 21.7.2011 25. ITA No. 1395/2008 (Del) Smt. Meera Kapoor vs. CIT dated 31.8.2012 26. 357 ITR 24 (Del) CIT vs. Suren International (P) Ltd. dated 7.5.2013 27. 357 ITR 330 (Del) CIT vs. Insecticides (India) Ltd. dated 20.5.2013 28. 303 ITR 155 (Del.) CIT vs. Indian Sugar and Gen. Ind. Ex dated 30.07.2007 29. 319 ITR 221 (Del) Shipra Srivastava v CIT 30. 35 taxmann.com 215 (Del) CIT vs. Supreme Polypropolene (P.) Ltd. dated 26.04.2013 (introduction of share capital) 31. 393 ITR 157 (Del) Amsa India (P) Ltd. v. CIT 32. 375 ITR 460 (Del) Krown Agro Foods (P) Ltd. v. ACIT. 33. 378 ITR 421 (Del) Oriental Insurance Co. v. CIT 34. 382 ITR 443 (Del) Rustagi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reasons as under:- 1 Name and address of the assessee M/s Radiance Stock Traders Pvt. Ltd. C-159, 1st floor, PhaseI, Ashok Vihar, New Delhi - 52 2 Permanent Account No. AACCR8298Q) 3 Status Company 4 District/circle/Range Ward 20(4), New Delhi 5 Assessment year in respect of which it is proposed to be issued notice u/s. 148 of the Income Tax Act. 2010-11 6. The quantum of income which has escaped assessment Rs. 6,02,335/- 7. Whether the clauses (a), (b) or (c) of the explanation 2 to the second proviso of section 147 are applicable. Yes, provisions of section 147(b) applicable. 8 Whether the assessment is proposed to be made for the first time? If reply is in affirmative, please state: Yes (a) whether any voluntary return had already been filed. No (b) if so, the date of filing the said return. NA 9. If the answer to item 8 is in negative, please state (a) The income originally assessed NA (b) Whether it is a case of under assessment, assessment at too low a rate which has been made the subject of excessive relied or allowing excessive loss or depreciation NA 10 Whether the provisions of section 150(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen used to evade taxes. 4. Non genuine CCM were carried out to book contrived losses. In some cases, this facility was used by brokers to transfer gains or losses from one party to another by modifying client codes in the guise of rectifying an error. It became a practice to book artificial profits or losses in March to impact tax liabilities. It is generally done by buying or selling stocks intraday so as to say consciously incurs a loss and use that as a tax offset. Client Code Modification (CCM) especially in the Futures and Options Segment (F&O) was being used a devise to evade taxes wherein the client codes were modified for booking artificial profits or losses at fag end (Jan to March) of the Financial year when the book profits / losses of various clients have crystalised. This is done with an intention to impact the tax liabilities of the pair of clients whose codes are modified. On the basis of information received, the assessee company in respect of FY 2009-10 relevant to AY 2010-11 and the following facts are noted that : a) During the year it has undertaken transactions in sale / purchase of shares, securities in cash segment as well as Future and Options Segment a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. 12. Whether the Addl. CIT is satisfied on the reasons recorded by the AO that it is a fit case for issue of notice u/s. 148 of the I.T. Act, 1961 Addl. CIT, Range-20, New Delhi 13. Whether the Pr. Commissioner of Income Tax is satisfied on the reasons recorded by the DCIT, that it is a fit case for the issue of notice u/s. 148. Yes. I am satisfied. Sd/- Pr. Commissioner of Income Tax, Delhi -7, New Delhi" 6.1 After perusing the aforesaid reasons recorded, I find that 'information' was received on 21.3.2016 from Asstt. Director of Income Tax (Investigation) Unit- 1(3), Ahmedabad without conducting any enquiry on the same by Assessing officer and without considering the fact of the case of assessee in light of the issue is not a tangible and relevant material to form opinion that income has escaped assessment. It is noted that the proceedings u/s. 147 of the Act can be initiated only on the basis of the tangible material and not on the basis of assumptions and presumptions. The precondition u/s. 147 of the Act is "reason to believe" and, the expression is stronger than the word "satisfied". The belief entertained by the AO must not be arbitrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our entities which were termed as accommodation entries, which information was given to him by the Directorate of Investigation, the AO stated: "I have also perused various materials and report from Investigation Wing and on that basis it is evident that the assessee company has introduced its own unaccounted money in its bank account by way of above accommodation entries." The above conclusion is unhelpful in understanding whether the AO applied his mind to the materials that he talks about particularly since he did not describe what those materials were. Once the date on which the so called accommodation entries were provided is known, it would not have been difficult for the AO, if he had in fact undertaken the exercise, to make a reference to the manner in which those very entries were provided in the accounts of the Assessee, which must have been tendered along with the return, which was filed on 14th November 2004 and was processed under Section 143(3) of the Act. Without forming a prima facie opinion, on the basis of such material, it was not possible for the AO to have simply concluded: "it is evident that the assessee company has introduced its own unaccounted money in its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 151 of the Act clearly stipulates that the CIT(a), who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The mere appending of the expression 'approved' says nothing. It is not as if the CIT(A) has to record elaborate reasons for agreeing with the noting put up. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner. In the present case, the exercise appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking officer, For these reasons, the Court is satisfied that the findings by the ITAT cannot be disturbed." (B). Hon'ble High Court of Madhya Pradesh in the case of CIT vs. S. Goyanka Lime & Chemicals Ltd. reported in (2015) 56 taxmann.com 390 (MP) has held as under:- "7. We have considered the rival contentions and we find that while according sanction, the Joint Commissioner, Income Tax has only recorded so "Yes, I am Satisfied". In the case of ARjun Singh vs. Asstt. DIT (2000) 246 ITR 363 (MP), the same question has been considered by a Coordinate Bench of this Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid objections were disposed of by the AO vide order dated 27.11.2017, which shows that the AO did not accept the objections so filed, he shall not proceed further in the matter with in a very short period of service of order disposing off objection, however, he has made the order of assessment u/s. 147/143(3) of the Act on 8.12.2017, which is not in accordance with law and not permissible. This view is fortified by the following decisions:- i) ITA NO. 5780/D/2014 DATED 6.4.2018 Meta Plast Engineering (P) Ltd. v. ITO "9. Further, in view of the decision of the Hon'ble Bombay High Court in the case of Bharat Jayant Patel (supra), learned AO held should have allowed four weeks' time to the assessee to seek their legal remedies after rejection of the objections of the assessee. In view of the fact that the AO has disposed of the objections of the assessee on 22.11.11 and passed the assessment order on 19.12.2011, it is clear that no such time was granted to the assessee. Further, the reasons recorded at the time of assumption of jurisdiction by the AO that the assessee has received an accommodation entry of Rs. 15 lacs whereas at the time of framing of assessment, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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