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TMI Blog2020 (11) TMI 860X X X X Extracts X X X X X X X X Extracts X X X X ..... se notice, the incorrect interpretation of documents by the Ld. Pr. CIT all show the arbitrary manner in which this extraordinary power to revise the order of the AO has been exercised by the Ld. Pr. CIT. Issue on which Ld. PCIT has exercised her powers u/s. 263 as per the show cause notice, is too trivial, involving income of ₹ 2.54 lacs only, to justify exercise of the extraordinary power of revision u/s. 263 of the Act, which has grave and serious consequences, to the prejudice of assesses, of relooking into an already concluded assessment. Since we have found the impugned order of the Ld. Pr. CIT u/s. 263 of the Act, to have been passed in an arbitrary manner, without confronting the assessee with the error in the order of the AO, and based on incorrect appreciation of facts, we have no hesitation in setting aside the order of the Ld. PCIT passed u/s. 263 - Decided in favour of assessee. - ITA No. 878/CHD/2019 - - - Dated:- 28-10-2020 - Sanjay Garg, Member (J) And Annapurna Gupta, Member (A) For the Appellant : Ajay Kumar Jain, CA For the Respondents : C. Chandrakanta, CIT ORDER Annapurna Gupta, Member ( A ) 1. The present appeal has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... records for reduction of income to the tune of ₹ 254500 through process of client code modification without appreciating the fact that the client medication code was done on the same day in order to correct the punching error which is allowed by the SEBI the regulator of Stock exchanges also failed to appreciate the quantum of client modification in comparison to quantum of tractions carried by appellant 4. That the Ld. CIT has wrongly held that the profit of appellant was much more than the declared in ITR 5. That the Assessee craves for permission to add, amend, alter or withdraw any grounds of appeal with approval of the hon'ble bench. 4. During the course of hearing before us, the primary contention raised by the Ld. Counsel for the assessee were vis a vis ground Nos. 2 to 4 raised before us. Briefly put the Ld. counsel has challenged the order of the Ld. PCIT on the following counts:- i) That the exercise of powers by the PCIT u/s. 263 of the Act was on identical grounds as on which the Assessing Officer had exercised powers u/s. 147 of the Act, therefore how could the order of the AO be held erroneous. Our attention in this regard was drawn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der passed by AO, u/s. 263 of the Act, in an utmost arbitrary manner, without observing the principles of natural justice and without due application of mind on the facts and evidences before her. The order, therefore, deserves to be quashed. The reason for arriving at the aforestated findings is discussed hereunder. 6.1. As per the findings of the Ld. Pr. CIT, the order of the AO was erroneous since it had been passed without inquiring on the issue in consideration before him in the proceedings u/s. 147 of the Act, of the assessee having availed contrived losses by resorting to Client Code Modification(CCM). That, despite specific information in his possession regarding details of transaction where Client Code Modification (CCM) had been resorted and quantitative analysis showing that they were not punching errors alone, the AO had accepted the generic reply of the assessee and not cared to enquire as to under what circumstances such huge number of edits were required to be done in the client codes. That the AO even failed to examine the reply received in response to inquiry conducted from Mansukh Securities Finance Limited, the brokers of the assessee, which revealed much hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter varies with the one used and narrated in the actual policy adopted by the NSE on this CCM. As per the policy, the modification if any is not permitted across the board and the same is allowed with restrictions. Only the following types of modifications are permitted by NSE namely, i) similarity of names and code numbers-non repetitive ones and (ii) family codes. Modifications are not permitted as a rule but only as exception to the rule. Therefore, the assessee cannot simply distance himself from this major allegation by stating that the Client J Modification is the internal matter of the Broker and assessee has not control. The fact that loss is transferred to Client No 31 is to the benefit of the assessee, there is some amount of responsibility on his part to do in the interest of the justice. Assessee being the beneficiary of the impugned loss and the c/aimer of the deduction by way of set off against the other income, or the Broker, who is party to such generation of loss, needs to demonstrate on what basis the client Codes No. SJ17 and M032 are similar to that of the assessee. Are the names are similar? Are these three clients are part of the assessee's family? How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if client code modification is upto 1% of the total orders, there is no penalty. It is seen that even though no specific reply on the issue was filed by the assessee, in a case where the issue was not whether CCM as per extant regulations was allowed or not, but if this facility of CCM had been used for correcting genuine punching errors or had been misused for tax evasion purposes. AO has failed to make the relevant enquiries or even examine the information received in response to his 133(6) notices. The assessee is doing business of trading in shares in several capacities ie individual capacity, also as Proprietor of Radiant Investments and as proprietor of Excel Trading. Although the turnover of the Taxpayer is ₹ 2,00,53,83,473/- taxable income is only ₹ 6,37,507/- (return attached as Annexure-3) computation furnished by the taxpayers counsel with letter dated 21.12.2016 (attached as Annexure-4) and the Client Code Modifications (CCM) of transactions carried out are of an amount of ₹ 2,54,500. The AO conducted an enquiries from Mansukh Securities and Finance Limited and it will be seen that the reply of Mansukh Securities and Finance Limited (Pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d provisions of section 263, inter-alia including Explanation 2(a) make it evident that the queries raised during revision proceeding u/s. 263 of the IT. Act, 1961 remain unverified and that the order was passed by AO without making enquiries or verification which should have been made and has resulted in a claim being allowed without enquiring into it. Perusal of the above table will show that income has been accepted at returned income of 637507 by AO without even examining the P and L account underlying the declared profits for trading, books or even basic audited accounts particularly when the information collected u/s. 133(6) showed that net profits as a result of trading done by the taxpayer was much more (10046523.99-39280.23) than reflected in its Income tax Return at 6.37 lacs. 6.3. But, we find, that the assessee was never confronted with the aforesaid reason for the order of the AO being erroneous on account of having been passed without making inquiry on the issue involved. The show cause notice issued to the assessee in the impugned proceedings dated 19-03-2019, finds no mention of the same as is evident from a bare perusal of the notice, placed before us at P.B. 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nquiry, by pointing out, besides other things, that the AO had not looked into the statements of the transactions conducted by the assessee submitted by the brokers during assessment proceedings, which revealed clearly that the assessee had earned huge profits but had actually returned to tax less profits. But the assessee, we find, was never put to notice regarding this. The show cause notice finds no mention of the same. Clearly, the assessee, was not confronted by the Ld. Pr. CIT with the reason for finding the AO's order erroneous, thus denying him fair opportunity of rebuttal. The entire exercise of the Ld. Pr. CIT of revision of AO's order u/s. 263 of the Act, is, therefore, we hold, in gross violation of the principles of natural justice. 6.6. Moreover the reason mentioned in the show cause notice for finding the AO's order erroneous, we find is illogical and vague and does not justify the assumption of the extraordinary powers to initiate proceedings for revision of the AO's order u/s. 263 of the Act. The AO not making addition despite having specific information, cannot, by any stretch of logic, make the order passed by him erroneous. Information, howsoe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incorrectly taken as ₹ 11,58,692.40 instead of ₹ 1,15,86,912.40. Further the 'mtm' markings are not the profits earned by the assessee on account of trading in futures and options, but represent the daily settlement of the unsold trades at their prevailing market price. Therefore, the Ld. PCIT we find has neither picked up the correct figures from the statement of accounts submitted by the brokers, nor understood what the figures represented and accordingly arrived at an incorrect finding that the assessee had not reflected true profits, running in crores, earned on trading in futures and options. 7.1. The vague and illogical show cause notice, the incorrect interpretation of documents by the Ld. Pr. CIT all show the arbitrary manner in which this extraordinary power to revise the order of the AO has been exercised by the Ld. Pr. CIT. 7.2. Further, we find, that the issue on which Ld. PCIT has exercised her powers u/s. 263 as per the show cause notice, is too trivial, involving income of ₹ 2.54 lacs only, to justify exercise of the extraordinary power of revision u/s. 263 of the Act, which has grave and serious consequences, to the prejudice of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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