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Evergain Securities (P) Ltd., C/o Raj Kumar&Associates,Ca L-7a(Lgf), South Extension Part-Ii, New Delhi Vs. Ito, Ward 8(4), New Delhi
October, 17th 2019

Referred Sections:
Section 151 of the I.T. Act, 1961
Section 143(3)
Sction 147
Section 148 of Income Tax Act,1961
Section 124(3)(b)

Referred Cases / Judgments:
United Electrical Company (P) Ltd. Vs. CIT & Ors. 258 ITR 317 (Del.)
CIT vs. S. Goyanka Lime & Chemical Ltd. (2015) 64 taxmann.com 313 (SC)
Yogendra kumar Gupta Vs ITO (51 taxmann.com 383) (SC)/f20141 227 Taxman 374 (SC)
ACIT Vs Rajesh Jhaveri Stock Brokers (P.) Ltd (2007) 161 Taxman 316 (SC)/r20071 291 ITR 500 (SC)/[2007] 210 CTR 30 (SC)
Devi Electronics Pvt Ltd Vs ITO Bombay High Court 2017-TIQL-92-HC-MUM- II
Pranawa Leafin (P.) Ltd. Vs DCIT Bombay High Court T20131 33 taxmann.com 454 (Bombay)/r20131 215 Taxman 109 (Bombay)(MAG.)
Acorus Unitech Wireless (P.) Ltd. Vs ACIT Delhi High Court T20141 43 taxmann.com 62 (Delhi)/r20141 223 Taxman 181 (Delhi)(MAG)/r20141 362 ITR 417 (Delhi)
PCIT, Vs Paramount Communication (P.) Ltd. Delhi High Court [20171 79 taxmann.com 409 (Delhi)/r20171 392 ITR 444 (Delhi)
Paramount Communication (P.) Ltd. Vs PCIT Supreme Court 2017-TIQL-253- SC-IT
Amit Polyprints (P.) Ltd. Vs PCIT Gujarat High Court T2018l 94 taxmann.com 393 (Gujarat)
Aaspas Multimedia Ltd. Vs PCIT Gujarat High Court T20171 83 taxmann.com 82 (Gujarat)
Murlibhai Fatandas Sawlani Vs ITO Gujarat High Court 2016-TIQL-370-HC- AHM-IT
Home Finders Housing Ltd. Vs. ITO (2018) 94 taxmann.com 84 (SC)
Baldevbahi Bhikhabhai Patel vs. DCIT (Gujarat High Court) (2018) 94 Taxmann.co, 428(Gujarat)
United Electrical Company (P) Ltd. Vs. CIT & Ors. 258 ITR 317 (Del.) In this case, approval by the Addl. CIT u/s. 151

                  IN THE INCOME TAX APPELLATE TRIBUNAL
                      DELHI BENCHE :SMC : NEW DELHI

                BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER



                            ITA No. 1830/Del/2019
                          Assessment Year : 2010-11



EVERGAIN SECURITIES (P) LTD.,           Vs.     ITO, WARD 8(4),
C/O RAJ KUMAR&ASSOCIATES,CA                     NEW DELHI
L-7A(LGF), SOUTH EXTENSION
PART-II, NEW DELHI
(PAN: AAACM8113H)

 (Appellant)                                     (Respondent)



               Assessee by         :     Sh. Raj Kumar, CA
               Department by       :     Ms. Ekta Vishnoi, Sr. DR.


                                       ORDER



     This appeal filed by the assessee is directed against the order passed

by the Ld. CIT(A)-3, New Delhi on 15.02.2019 in relation to the assessment

year 2010-11 on the following grounds:-


           1. That under the facts and circumstances of the case the

                initiation of proceedings u/s. 147 is without jurisdiction,

                without   application    of   mind,   mechanical,    on   borrowed

                satisfaction and unwarranted in law as well as on merits.
2. That under the facts and circumstances, the approval u/s.

     151 of Pr. CIT is mechanical, non speaking and without

     application of mind, which approval cannot provide a valid

     jurisdiction to proceed u/s. 147/148.

3. That under the facts and circumstances, both the lower

     authorities erred in law and on merits in disallowing the F&O

     business loss of Rs. 20,04,174/- on sale purchase of shares

     on the ground of alleged manipulative change in Client Code

     (CCM) by the assessee.


3.1 That without prejudice, the disallowance of Rs. 20,04,714/-

made without fully confronting the alleged adverse material and

without providing for the cross examination of required persons,

is unwarranted.


4.     That there is no legality, no justification and no basis for

addition of Rs. 60,125/- by estimating and assuming alleged

unexplained expenditure for obtaining alleged bogus F&O loss, at

the rate of 3 percent of Rs. 20,04,174/-.


5.     That the AO exceeded his jurisdiction in examining the

issue of disallowance u/s. 14A/Rule8-D as the issue is outside

the scope of these 147 proceedings and also not a part of reason

and also since no such material available on record on the basis


                            2
            of which it can be said that it is an escaped income which has

            come to the notice of AO subsequently in the course of

            proceedings u/s. 147.


            6.    That there is absolutely no legality and justification for

            disallowing Rs. 3,981/- u/s. 14A r/w 8D, further more without

            recording any satisfaction for not accepting the claim of

            appellant of not incurring any such expenditure.


2. The facts in brief are that the assessee filed its return of income at

Rs. NIL on 16.09.2010. The AO had reopened the case u/s. 147 of the

Income Tax Act, 1961 (in short "Act") on the basis of information received

by him from ADIT (I&CI), Mumbai on the basis of an enquiry conducted in

the case of M/s Integrated Master Securities Pvt. Ltd. The assessee had

received loss of Rs. 20,04,174/- on sale of shares/ securities by misusing the

facility of Client Code Modification. During the assessment proceedings, the

assessee was asked as to why this amount should not be treated as its

income which has been shifted out due to Client Code Modification (CCM)

done by the broker in this case. It was submitted by the assessee that the

CCM was done to rectify the actual errors which happened       due to wrong

punching of codes by the broker at the time of transaction. The AO was not

satisfied by the reply filed by the assessee and held that the assessee has

not been able to prove that the assessee has not abused the facility of CCM

to evade taxes. Accordingly, the AO has treated a sum of Rs. 20,04,174/- as
                                      3
income of the assessee by holding that the assessee has reduced its income

by shifting in a loss by way of Client Code Modification, which was not

genuine. The AO further added the commission of Rs. 60,125/- paid for

obtaining accommodation entry and assessed the income of the assessee at

Rs.17,92,860/- u/s. 143(3)/147 of the Act vide order dated 08.12.2017.

Against the assessment order dated 08.12.2017, assessee appealed before

the Ld. CIT(A), who vide his impugned order dated 15.2.2019 has dismissed

the appeal of the assessee. Aggrieved with the appellate order, assessee is

in appeal before the Tribunal.







3.    Ld. Counsel for the assessee only argued the ground no. 2 which is

legal in nature and has filed the Paper Book   containing pages 1 to 72 in

which he has attached the copy of reasons; assessee's objection letter dated

11.5.2017; assessee's objection letter dated 15.5.2017; AO's       objection

disposal order dated 6.11.2017; copy of approval u/s. 151; contract notes

issued by NSE broker Integrated Master Securities (P) Ltd.; ledger a/c for

F&O share transaction ­ AY 2010-11; reconciliation of Rs. 20,04,174 vis a

vis Rs. 20,34,437/-; HDFC bank statement reflecting cheque issued to

broker; reply to AO u/s. 133(6) dated 30.12.2015; NSE reply letter dated

16.11.17 to AO; letter to AO dated 23.11.2017; Sub. To CIT(A) dated

05.2.2019 and notice u/s. 148 dated 24.3.2017 especially the page no. 15-

16 which is a copy of performa for recording the reasons for initiating

proceedings u/s. 148 and for obtaining approval of Pr. CIT, Delhi-3, New

                                     4
Delhi in which Pr. CIT, Delhi-3, New Delhi has granted the approval in a

mechanical manner, for issuing of notice u/s. 148 of the Income Tax Act,

1961, hence, he stated that the approval for issue of notice us. 148 of the

Act is not within the meaning of section 151 of the I.T. Act, 1961 and

therefore, the   reassessment needs to be quashed. In view          of above, he

requested to quash the reassessment. To            support his contention, Ld.

Counsel of the assessee has relied upon the decision of the Hon'ble Delhi

High Court in the case of United Electrical Company (P) Ltd. Vs. CIT & Ors.

258 ITR 317 (Del.) and the judgment of the Hon'ble Supreme Court of India

in the case of CIT vs. S. Goyanka Lime & Chemical Ltd. (2015) 64

taxmann.com 313 (SC) by which the           ground no. 2 raised by the assessee

in the present appeal is squarely covered.


4.    On the contrary, Ld. DR relied upon the orders of the authorities below

and stated that the reasons recorded and satisfaction/approval accorded is

within the meaning of section 151 of the Act and need not to be quashed.

She stated that apart from relying on the decision of the Ld. CIT(A), the

following case laws may kindly be considered with regard to reopening of

cases u/s 147 of I.T. Act :


                  1.     Yogendra kumar Gupta Vs ITO (51 taxmann.com 383)
                  (SC)/f20141 227 Taxman 374 (SC) (Copy enclosed) where
                  Hon'ble Supreme Court held that where subsequent to
                  completion of original assessment, Assessing Officer, on basis of
                  search carried out in case of another person, came to know that
                  loan transactions of assessee with a finance company were


                                        5
bogus as said company was engaged in providing
accommodation entries, it being a fresh information, he was
justified in initiating reassessment proceeding in case of
assessee.

2.     Raymond Woollen Mills Ltd. v. ITO And Others [236 ITR
341 (Copy Enclosed) where Hon'ble Supreme Court held that in
determining     whether     commencement        of   reassessment
proceedings was valid it has only to be seen whether there was
prima facie some material on the basis of which the department
could reopen the case. The sufficiency or correctness of the
material is not a thing to be considered at this stage.

3.     Yuvraj v. Union of India Bombay High Court [20091 315
ITR 84 (Bombay)/r20091 225 CTR 283 (Bombay) Points not
decided while passing assessment order under section 143(3)
not a case of change of opinion. Assessment reopened validly.

4.    ACIT Vs Rajesh Jhaveri Stock Brokers (P.) Ltd (2007)
161 Taxman 316 (SC)/r20071 291 ITR 500 (SC)/[2007] 210
CTR 30 (SC)

So long as the conditions of section 147 are fulfilled, the
Assessing Officer is free to initiate proceedings under section
147 and failure to take steps under section 143(3) will not
render the Assessing Officer powerless to initiate reassessment
proceedings, even when intimation under section 143(1) has
been issued ADANI EXPORTS v. DCIT[1999] 240 ITR 224 (Guj)
distinguished.

5.    Devi Electronics Pvt Ltd Vs ITO Bombay High Court 2017-
TIQL-92-HC-MUM- II

      The likelihood of a different view when materials exist of
forming a reasonable belief of escaped income, will not debar
the AO from exercising his jurisdiction to assess the assessee on
reopening notice.

6.    Pranawa Leafin (P.) Ltd. Vs DCIT Bombay High Court
T20131 33 taxmann.com 454 (Bombay)/r20131 215 Taxman
109 (Bombay)(MAG.)

      Where there was failure on part of assessee to make true
      and complete disclosure in respect of share transactions
      entered into by it, in view of proviso to section 147,

                      6
     Assessing Officer was justified in initiating reassessment
     proceedings even after expiry of four years from end of
     relevant assessment year.

7.     Acorus Unitech Wireless (P.) Ltd. Vs ACIT Delhi High
Court T20141 43 taxmann.com 62 (Delhi)/r20141 223 Taxman
181 (Delhi)(MAG)/r20141 362 ITR 417 (Delhi)

           In terms of section 148, law only requires that
           information or material on which Assessing Officer
           records his or her satisfaction has to be
           communicated to assessee, without mandating
           disclosure of any specific document.

     8. PCIT, Vs Paramount Communication (P.) Ltd. Delhi
     High Court [20171 79 taxmann.com 409 (Delhi)/r20171
     392 ITR 444 (Delhi)

     Information regarding bogus purchase by assessee
     received by DRI from CCE which was passed on to
     revenue authorities was 'tangible material outside record'
     to initiate valid reassessment proceedings.

     9.    Paramount Communication (P.)         Ltd.   Vs   PCIT
     Supreme Court 2017-TIQL-253- SC-IT

     SLP of assessee dismissed. Information regarding bogus
     purchase by assessee received by DRI from CCE which
     was passed on to revenue authorities was 'tangible
     material outside record' to initiate valid reassessment
     proceedings.

     10.    Amit Polyprints (P.) Ltd. Vs PCIT Gujarat High
     Court T2018l 94 taxmann.com 393 (Gujarat)

            Where reassessment proceedings were initiated on
     basis of information received from Investigation wing that
     assessee had received certain amount from shell
     companies working as an accommodation entry provider,
     reassessment could not be held unjustified.

     11.   Aaspas Multimedia Ltd. Vs PCIT Gujarat High Court
     T20171 83 taxmann.com 82 (Gujarat)




                    7
      Where reassessment was made on basis of
information received from Principal DIT (Investigation)
that assessee was beneficiary of accommodation entries
by way of share application provided by a third party,
same was justified.

12.    Murlibhai Fatandas Sawlani Vs ITO Gujarat High
Court 2016-TIQL-370-HC- AHM-IT

       It is not open to the assessee to object to the
reopening by asking the AO to produce the source from
where the AO has gathered the information for forming a
belief that income chargeable to tax has escaped
assessment.

      13.    Ankit Aqrochem (P.) Ltd. Vs JCIT Rajasthan
High Court T20181 89 taxmann.com 45 (Rajasthan)

      Where DIT informed that assessee-company had
received share application money from several entities
which were only engaged in business of providing bogus
accommodation    entries     to   beneficiary   concerns,
reassessment on basis of said information was justified.

14.  Rakesh Gupta Vs CIT P&H High Court f20181 93
taxmann.com 271 (Punjab & Haryana)

Where Assessing Officer received information from
Principle Director of Income Tax (Investigation) that
assessee had received bogus loss from his broker by
client code modification, reassessment on basis of said
information was justified.

15.    Abhishek Jain Vs ITO Delhi High Court (2018) 94
taxmann.com 355 (Delhi), 2018-TIQL-1059-HC-DEL-IT
Date of Order 01.06.20181

       In terms of section 124(3)(b) jurisdiction of an
Assessing Officer cannot be called in question by an
assessee after expiry of one month from date on which he
was served with a notice for reopening assessment under
section 148."

16.  Home Finders Housing Ltd. Vs. ITO (2018) 94
taxmann.com 84 (SC)

               8
                               SLP dismissed against High Court's order that non-
                        compliance of direction of Supreme Court in GKN
                        Driveshafts (India) Ltd. Vs. ITO (2002) 125 Taxman 963
                        that on receipt of objection given by assessee to notice
                        under section 148, Assessing Officer is bound to dispose
                        objections by passing a speaking order, would not make
                        reassessment order void ab initio.

                        17. Baldevbahi Bhikhabhai Patel vs. DCIT (Gujarat High
                        Court) (2018) 94 Taxmann.co, 428(Gujarat)

                       Where revenue produced bunch of documents to suggest
                 that entire proposal of reopening of assessment alongwith
                 reasons recorded by the Assessing Officer for same were placed
                 before Additional Commissioner who, upon perusal of same,
                 recorded his satisfaction that it was a fit case for issuance of
                 notice for reopening assessment, reassessment notice issued
                 against assessee was justified.




5.   I have heard both the parties and carefully considered the case laws

and the relevant documents available on record especially the assessment

order, impugned order, reasons/satisfaction/approval recorded for issue of

notice u/s. 148 of the Act as well as the Paper Book filed by the Assessee

containing pages 1 to 72 in which he has attached the copy of reasons;

assessee's objection letter dated 11.5.2017; assessee's objection letter

dated 15.5.2017; AO's    objection disposal order dated 6.11.2017; copy of

approval u/s. 151; contract notes issued by NSE broker Integrated Master

Securities (P) Ltd.; ledger a/c for F&O share transaction ­ AY 2010-11;

reconciliation of Rs. 20,04,174 vis a vis Rs. 20,34,437/-; HDFC bank

statement reflecting cheque issued to broker; reply to AO u/s. 133(6) of the



                                       9
Act dated 30.12.2015; NSE reply letter dated 16.11.17 to AO; letter to AO

dated 23.11.2017; Sub. To CIT(A) dated 05.2.2019 and notice u/s. 148 of

the Act dated 24.3.2017 especially the page no. 15-16 which is a copy of

performa for recording the reasons for initiating proceedings u/s. 148 of the

Act and for obtaining approval of Pr. CIT, Delhi-3, New Delhi in which Pr.

CIT, Delhi-3, New Delhi has granted the approval in a mechanical manner,

for issuing notice u/s. 148 of the Income Tax Act, 1961. It is noted that

that   reopening was done after 04 years, therefore, approval u/s. 151 of

the Act was required from the Pr. CIT, who gave the approval in Column No.

12 by mentioning as under:-







                          "I am satisfied that it is a fit case for issue of notice

                          u/s. 148 of the Act."


5.1    After perusing the aforesaid remarks of the Pr. CIT-3, Delhi, New

Delhi, I   find that   the approval granted by the Ld. Pr. CIT-3, Delhi, New

Delhi is a mechanical and without application of mind, which is not valid for

initiating the    reassessment proceedings, because from the aforesaid

remarks, it is not coming out as to which material; information; documents

and which other aspects have been gone through and examined by the Pr.

CIT-3, Delhi for       reaching to the        satisfaction for granting approval.

Thereafter, the AO has mechanically issued notice u/s. 148 of the Act.

Keeping in view of the facts and circumstances of the present case and

the case laws applicable in the case of the assessee, I am of the considered
                                         10
view that the reopening in the case of the assessee for the asstt. Year in

dispute is bad in law and deserves to be quashed. My            aforesaid view is

fortified by the following decisions:-




                  A)    United Electrical Company (P) Ltd. Vs. CIT & Ors. 258

                  ITR 317 (Del.) In this case, approval by the Addl. CIT u/s.

                  151 was given in the following terms:-


                                      "Yes, I am satisfied that it is a fit case for

                                      issue of notice u/s. 148 of the Income

                                      Tax Act."


                         Analyzing,      the above satisfaction/approval, it has

                         been held that the CIT is required to apply his mind

                         to the proposal put up to him for        approval in the

                         light to eh material relied upon by the AO. The said

                         power cannot be exercised casually and in a routine

                         manner. We are constrained to observe that in the

                         present case, there has been no application of mind

                         by the Addl. CIT before granting the approval. (Para

                         19).


                  (B)   Hon'ble Supreme Court of India in the case of CIT vs.
                  S. Goyanka Lime & Chemical Ltd. reported in (2015) 64

                                          11
                  taxmann.com 313 (SC) arising out of order of Hon'ble High
                  Court of Madhya Pradesh in CIT vs. S.       Goyanka Lime &
                  Chemicals Ltd. (2015) 56 taxmann.com 390 (MP).

                  "Section 151, read with section 148 of Income Tax Act,

                  1961 ­ Income escaping assessment ­ Sanction for issue

                  of notice (Recording of satisfaction) ­ High Court by

                  impugned order held that where Joint Commissioner

                  recorded satisfaction in mechanical manner and without

                  application of mind to accord sanction for issuing notice

                  under section 148, reopening of assessment was invalid ­

                  Whether Special Leave Petition filed against impugned

                  order was to be dismissed ­ Held, Yes (in favour of the

                  Assessee)."

5.2   In the background of the aforesaid discussions and respectfully

following the precedents, as aforesaid, I am of the considered view that

approval granted by the Ld. Pr. CIT-3, Delhi, New Delhi is a mechanical and

without application of mind, which         is not valid for     initiating the

reassessment proceedings issue of notice u/s. 148 of the I.T. Act, 1961 and

is not in accordance with section 151 of the I.T. Act, 1961, thus, the notice

issued u/s. 148 of the Act is invalid and accordingly the reopening in this is

bad in law and therefore, the same is hereby quashed.         Accordingly, the

ground no. 2 raised by the assessee is allowed. Since the other grounds


                                      12
were not raised by the Assessee, the same are dismissed as such.

Accordingly, the assessee's appeal is partly allowed.


6.        In the result, the Appeal filed by the Assessee stands partly allowed


          Order pronounced on 16-10-2019.                             Sd/-

                                                           [H.S. SIDHU]
                                                         JUDICIAL MEMBER


Dated: 16-10-2019

SRB

Copy forwarded to:

     1.   Appellant
     2.   Respondent
     3.   CIT
     4.   CIT (A)
     5.   DR, ITAT
                                                           AR, ITAT, NEW DELHI.




                                          13


 

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