IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHE : A : NEW DELHI
BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER
AND
SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
ITA No. 4395/Del/2019
Assessment Year : 2010-11
AKG SECURITIES & CONSULTING Vs. ITO, WARD-1(1),
LTD., NEW DELHI
3776/309, NIRMAL MARKET, ROOM NO. 380-A,
NETAJI SUBHASH MARG, C.R. BUILDING, IP ESTATE,
DARYAGANJ, NEW DELHI 110 001
NEW DELHI 110 002
(PAN: AAACA7549K)
(Appellant) (Respondent)
Assessee by : Mr. Rohit Tiwari, Adv. & Sh. Vinjay
Verma, Adv.
Department by : Sh. S.N. Pandey, Sr. DR.
ORDER
PER H.S. SIDHU, JM
This appeal filed by the assessee is directed against the order passed
by the Ld. CIT(A)-I, New Delhi on 26.03.2019 in relation to the assessment
year 2010-11 on the following grounds:-
1. The order passed by the Ld. CIT(A) under section 250 of the
Act is bad in law and on the facts and circumstances of the
case.
2. The Ld. CIT(A) has erred in law and on the facts and
circumstances of the case in upholding the order passed by
the AO, thereby sustaining additions of Rs. 2,18,73,416/- on
account of fictitious profit or loss entries received from
various clients by misusing Client Code Modification facility
without having sufficient material on record.
3. The Ld. CIT(A) has erred in law and on the facts and
circumstances of the case in sustaining the non-jurisdictional
order passed by the AO u/s. 147 read with Section 143(3) of
the Act.
4. The above grounds of appeals are independent and without
prejudice to one another.
5. The appellant may be allowed to add / withdraw or amend
any ground of appeal at the time of hearing.
2. The brief facts of the case are that assessee company is engaged in
the business of sale and purchase of shares. The assessee filed its return of
income on 30.9.2010 at NIL income. In this case, information was
received from ADIT(Inv.), Unit-1(3), Ahmedabad through CD wherein it was
informed that assessee company has claimed fictitious losses and profits by
misusing the CCM facility in F&O segment amounting to Rs. 2,18,73,416/-.
The assessment in this case was completed at an income of
Rs. 2,18,73,416/- u/s. 147/143(3) of the Income Tax Act, 1961 (in short
"Act") vide order dated 10.1.2017. Against the assessment order, assessee
appealed before the Ld. CIT(A), who vide his impugned order dated
26.3.2019 has dismissed the appeal of the assessee. Aggrieved with the
appellate order dated 26.3.2019, assessee is in appeal before the Tribunal.
3. Ld. Counsel for the assessee stated that assessee has challenged the
reopening u/s. 147 of the Income Tax Act, 1961 on various grounds which
have already been adjudicated and decided in favour of the assessee by the
various decisions of the ITAT and the Hon'ble High Courts. He argued that
the impugned order passed by the Ld. CIT(A) is without jurisdiction,
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erroneous and wrongly been passed, because the reassessment passed by
the AO u/s. 143(3)/147 of the I.T. Act, 1961 is invalid on the basis of the
notice u/s. 148 of the Act which is invalid and has been issued without
applying his mind only on the basis of the information received from the
ADIT(Inv.), Unit-1(3), Ahmedabad through CD wherein, it was informed that
assessee company has claimed fictitious losses and profits by misusing the
CCM facility in F&O segment amounting to Rs. 2,18,73,416/-. He submitted
that AO has blindly relied upon the Investigation Wing which itself is not
based on any material against the assessee. The mere recording of reasons
on the basis of information from Investigation Wing and issuing notice for
initiation of reassessment proceedings does not constitute application of
mind much less independent application of mind. Therefore, the proceeding
is without jurisdiction. In this regard, he relied upon the decision of the
Hon'ble Bombay High Court in the case of M/s Coronation Industries Ltd. vs.
DCIT (2017) 82 taxmann.com 75 (Bombay) wherein it has been held that
mere client code modification by broker does not mean that any income has
escaped assessment. Ld. Counsel for the assessee stated that the AO has
not investigated the matter himself and has not made any enquiry to
corroborate the information of the Investigation Wing on which basis the
case of the assessee has been reopened, meaning thereby the AO has not
applied his mind and only issued notice u/s. 148 of the Act on the basis of
the information received from the ADIT(Inv.), Unit1(3), Ahmedabad. To
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support the aforesaid contention, he draw our attention towards the order
of the Hon'ble Supreme Court of India in the case of ACIT vs. Dhariya
Construction Co. (2011) 197 Taxman 202 (SC); Hon'ble Delhi High Court
decisions in the case of Pr. CIT vs. RMG Polyvinyls (I) Ltd. (2017) 83
taxmann.com 348 (Delhi); Pr. CIT vs. Meenakshi Overseas P Ltd. vs. ITO
395 ITR 677 (Del.) and Pr. CIT vs. G&G Pharma India Ltd. 384 ITR 147
(Del.).
3.1 Ld. Counsel for the assessee placed the copy of reasons recorded by
the AO and approval granted by the Pr. CIT, Delhi-1, New Delhi wherein, he
has granted the approval by only mentioning that "I am satisfied", which
shows that Ld. Pr. CIT, Delhi-1, New Delhi has not recorded proper
satisfaction and without application of mind gave the approval in a
mechanical manner. He further stated that this issue is squarely covered by
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.). Therefore, he
requested that the same ratio may be followed in the present case and
appeal of the assessee may be allowed accordingly by quashing the
reassessment proceedings.
3.2 Thirdly, on the merits of the case, Ld. Counsel for the assessee
stated that the orders of the authorities below cannot be accepted since the
AO has not pointed out any basis or material or evidence to support his
findings that the assessee has received entry of fictitious losses. The AO has
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not spelt out in the reasons recorded as well as the assessment order as to
on which scrips the assessee has taken loss entries. He submitted that the
addition has been made by the AO despite assertions by the assessee that
the asseseee has no knowledge and have no role in modification in code as
the assessee is doing business through share broker and has no right/
authority in execution of trade. In view of above, he requested to delete the
addition in dispute.
4. Ld. DR on the other hand, heavily relied upon the order of the Ld.
CIT(A). As regards jurisdiction of the assessee is concerned, he submitted
that the Ld. CIT(A) has already decided the issue against the assessee which
is self-explanatory and, therefore, the ground raised by the assessee on this
issue should be dismissed. So far as the merit of the case is concerned, he
submitted that here also the Ld. CIT(A) has given a clear cut finding that
assessee has misused the facility of client code modification for creating
artificial loss which came to light on the basis report of the Investigation
Wing. Therefore, he requested to upheld the order of the Ld. CIT(A) on
jurisdiction as well as on merits.
5. We have heard both the parties and carefully considered the rival
submissions and perused the orders of the authorities below alongwith Paper
Book filed by the assessee of the case laws relied upon. We note that in
this case the AO while recording the reasons for the belief that income has
escaped assessment has recorded the reasons as under:-
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6
7
8
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5.1 After perusing the aforesaid reasons recorded, we find that it is a case
where action for reopening is taken mechanically on the information from
the Asstt. Director of Income Tax (Investigation), (Unit)1(3), Ahmedabad
through CD wherein it was informed that some companies have indulged in
tax evasion practices by claiming fictitious profit / losses by using Client
Code Modification (CCM) facility in F&O segment on NSE. On the basis of this
information, the reassessment proceedings were initiated u/s. 147 of the
Act after taking approval of the Pr. CIT, Delhi-1, New Delhi and notice u/s.
148 of the Act was issued upon the assessee on 28.3.2017. In response to
the same, the AR of the Assessee filed a letter dated 15.6.2017 stating
therein that the return filed vide acknowledgement no. 164874331300910
dated 30.9.2010 should be considered as original in response to notice u/s.
148 of the Income Tax Act, 1961 also requested to provide copy of reasons
recorded for issuing the notice u/s. 148 of the Act, which was provided by
the AO to him. AO has blindly relied upon the Investigation Wing which itself
is not based on any material against the assessee. The mere recording of
reasons on the basis of information from Investigation Wing and issuing
notice for initiation of reassessment proceedings does not constitute
application of mind much less independent application of mind. Therefore,
the proceeding is without jurisdiction. It is noted that AO has not
investigated the matter himself and has not made any enquiry to
corroborate the Information of the Investigation Wing on which basis the
case of the assessee has been reopened, meaning thereby the AO has not
applied his mind and only issued notice u/s. 148 of the Act. Thus, the AO
has acted mechanically and without any independent application of mind. It
is further noted that initiation of proceedings is based on non application of
mind much less independent application of mind but is a case of borrowed
satisfaction. Nothing is independently examined or considered by the AO
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which can demonstrate application of mind by him. To support our aforesaid
view, we draw support from the following decisions:-
i)ACIT vs. Dhariya Construction Co.
(2011) 198 taxman 202 (SC) wherein the
Hon'ble Court has held that :
"Section 147 of the Income Tax Act, 1961
Income escaping assessment Non-disclosure
of primary facts Whether opinion of District
Valuation Officer (DVO) per se is not an
information for purposes of reopening of an
assessment under section 147; Assessing
Officer has to apply his mind to information, if
any, collected and must form a belief thereon
Held, yes."
ii) Pr CIT v. RMG Plyvinyl (I) Ltd. (2017)
83 taxmann.com 348 (Hon'ble Delhi High
Court has observed as under:-
11. There can be no manner of doubt that in
the instant there was a failure of application of
mind by the AO to the facts. In fact he
proceeded on two wrong premises - one
regarding alleged non-filing of the return and
the other regarding the extent of the so-called
accommodation entries.
12. Recently, in its decision dated 26th May,
2017 in ITA NO.692/20l6 (Principal
Commissioner of Income Tax-6 v. Meenakshi
Overseas Pvt. Ltd.), this Court discussed the
legal position regarding reopening of
assessments where the return filed at the
initial stage was processed under Section
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143(1) of the Act not under Section 143(3) of
the Act. The reasons for the reopening of the
assessment in that case were more or less
similar to the reasons in the present case, viz.,
information was received from the
Investigation Wing regarding accommodation
entries provided by a 'known' accommodation
entry provider. There, on facts, the Court came
to the conclusion that the reasons were, in
fact, in the form of conclusions "one after the
other" and that the satisfaction arrived at by
the AO was a "borrowed satisfaction" and at
best "a reproduction of the conclusion in the
investigation report."
13. As in the above case, even in the present
case, the Court is unable to discern the link
between the tangible material and the
formation of the reasons to believe that income
had escaped assessment. In the present case
too, the information received from the
Investigation Wing cannot be said to be
tangible material per se without a further
inquiry being undertaken by the AO. In the
present case the AO deprived himself of that
opportunity by proceeding on the erroneous
premise that Assessee had not filed a return
when in fact it had.
14. To compound matters further the in the
assessment order the AO has, instead of
adding a sum of 78 lakh, even going by the
reasons for reopening of the assessment,
added a sum of Rs.1.13 crore. On what basis
such an addition was made has not been
explained.
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15. For the aforementioned reasons, the Court
is satisfied that no error was committed by the
ITAT in holding that reopening of the
assessment under Section 147 of the Act was
bad in law."
iii) 395 ITR 677 (Del) Pr. CIT v. Meenakshi
Overseas (P) Ltd.
"36. In the present case, as already noticed,
the reasons to believe contain not the reasons
but the conclusions of the AO one after the
other. There is no independent application of
mind by the AO to the tangible material which
forms the basis of the reasons to believe that
income has escaped assessment. The
conclusions of the AO are at best a
reproduction of the conclusion in the
investigation report. Indeed it is a `borrowed
satisfaction'. The reasons fail to demonstrate
the link between the tangible material and the
formation of the reason to believe that income
has escaped assessment.
37. For the aforementioned reasons, the Court
is satisfied that in the facts and circumstances
of the case, no error has been committed by
the ITAT in the impugned order in concluding
that the initiation of the proceedings under
Section 147/148 of the Act to reopen the
assessments for the AYs in question does not
satisfy the requirement of law.
38. The question framed is answered in the
negative, i.e., in favour of the Assessee and
against the Revenue. The appeal is,
accordingly, dismissed but with no orders as to
costs.
5.1.1 We further find that the Hon'ble Bombay High Court in the case of
Coronation Agro Industries Ltd. (Supra) has held that mere client code
modification by broker does not mean that any income has escaped
assessment.
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5.2 We have heard rival contentions and perused the orders of the
revenue authorities, case laws relied by the ld. Counsel for the assessee,
we are of the considered view that the jurisdictional issue has already been
adjudicated and decided in favour of the Assessee by the various decisions
of the Hon'ble Supreme Court and the Hon'ble High Courts, in the cases
discussed above, which have been respectfully followed by the Tribunal.
Therefore, we have no other alternative except to respectfully follow the
same case laws, because no contrary decision has been brought to my
knowledge by the Ld. DR under the similar facts and circumstances of the
case.
5.3 Keeping in view of the facts and circumstances of the case as
explained above and respectfully following the precedents, as aforesaid, the
proceedings initiated by invoking the provisions of section 147 of the Act by
the AO and upheld by the Ld. CIT(A) are nonest in law and without
jurisdiction and needs to be quashed.
5.4 Further, after perusing the aforesaid reasons recorded and its
approval, as reproduced above, wherein the ITO has recorded the reasons
undated and Ld. Pr. CIT, Delhi-1 has granted the approval by mentioning
that "I am satisfied", which shows that Ld. Pr. CIT-1, New Delhi has not
recorded proper satisfaction and without application of mind gave the
approval in a mechanical manner. Keeping in view of the facts and
circumstances of the present case and the case laws applicable in the
case of the assessee, we are of the considered 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. Our aforesaid view is fortified by following
decisions having similar facts and circumstances of the case.
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:-
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"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
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)."
5.5 In the background of the aforesaid discussions and respectfully
following the precedents, as aforesaid, we are of the considered view that
the proceedings initiated by invoking the provisions of section 147 of the Act
by the AO and upheld by the Ld. CIT(A) are nonest in law and without
jurisdiction and also the approval granted by the Pr. CIT, Delhi-1, 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,
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thus, the notice issued u/s. 148 of the Act is invalid and accordingly the
reopening in this case is bad in law and therefore, the same is hereby
quashed. Accordingly, the legal ground on both counts, raised by the
assessee's counsel, as aforesaid, is allowed. Since we have quashed the
reassessment, hence, other grounds have become academic and therefore,
are not being adjudicated.
6. In the result, the Appeal filed by the Assessee stands allowed.
Order pronounced on 27-02-2020.
Sd/- Sd/-
[N.K. BILLAIYA] [H.S. SIDHU]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 27-02-2020
SRB
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT
AR, ITAT, NEW DELHI.
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