ITO Vs Pradipbhai Nathalal Shah (ITAT Mumbai)
Summary: Mumbai ITAT dismissed the Revenue’s appeal and upheld the CIT(A)’s finding that reassessment of Pradipbhai Nathalal Shah for AY 2010-11 was invalid. The reassessment concerned an alleged loss of Rs. 13,48,032 arising from misuse of the Client Code Modification (CCM) facility. Since the notice under section 148 dated 29.03.2016 was issued more than four years after the end of the relevant assessment year and an assessment under section 143(3) had already been completed, the first proviso to section 147 applied. The Tribunal found that the recorded reasons contained no allegation that the assessee had failed to disclose fully and truly all material facts necessary for assessment.
The Tribunal further noted that details relating to the assessee’s trading in shares and securities had already been furnished during the earlier proceedings. The Assessing Officer had specifically called for information concerning share trading through broker Ashwin M. Shah, and the assessee had furnished various details concerning share trading income, F&O transactions, closing stock and broker statements. The Tribunal therefore found that detailed enquiries into the share-trading activities had already been undertaken and the relevant material was available before the Assessing Officer.
Accordingly, the Tribunal held that no fresh tangible material had been brought on record beyond material already considered in the earlier assessment. Reopening on the same material amounted to an impermissible change of opinion. Relying upon the judicial principles referred to in the order, the Tribunal found no infirmity in the CIT(A)’s decision on the jurisdictional issue and dismissed the Revenue’s grounds. Since reassessment itself failed, the grounds concerning the merits of the CCM additions were rendered academic and were not adjudicated. The Revenue’s appeal was consequently dismissed.
Cases Discussed
- Aroni Commercials Ltd. v. DCIT, 362 ITR 403 (Bombay High Court) — relied upon by the assessee for the proposition that once an issue has been examined by the Assessing Officer, reopening on the same issue amounts to an impermissible change of opinion. The judgment is expressly cited in the source order.
- Monarch & Qureshi Builders, 133 taxmann.com 322 (Bombay High Court) — cited by the assessee as taking an identical view on reopening/change of opinion.
- CIT v. Kelvinator of India Ltd., 320 ITR 561 (Supreme Court) — relied upon for the principle that the Assessing Officer has no power to review an earlier assessment and that reopening requires tangible material indicating escapement of income.
- PCIT v. Seaside Projects (P) Ltd. [2025] 175 taxmann.com 891 (Calcutta High Court) — relied upon by the Revenue in support of CCM-based reopening; the Tribunal expressly distinguished it because the assessee in the present case had furnished documentary evidence.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal filed by the revenue is against the order of ld. Addl./JCIT(A) vide DIN: ITBA/APL/S/250/2025-26/1083928346(1) dated 20.12.2025 passed against the assessment order by the ld. Income-tax Officer – 20(2)(5), Mumbai u/s 143(3) r.w.s. 147 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 20.12.2016 for the Assessment Year 2010-11.
2. Revenue has raised the following grounds of appeal:
1) Whether on the facts and in the circumstances of the case the Ld CIT Appeal has erred in holding that the reopening the assessment is invalid and bad in law without appreciating the fact that the assessee had himself accepted that the profit has been earned using Client Code Modification Para 8 of assessment order
2) Whether on the facts and in the circumstances of the case, the Ld.CIT Appeal has erred in holding that the reopening the assessment is invalid and bad in law without appreciating the fact that the assessee had never denied that he had not made Client Code Modification which is available in the information
3) Whether on the facts and in the circumstances of the case the Ld.CIT Appeal was justified in deleting the addition of Rs 1348032 made on account of profit shifted through Client Code Modification CCM by holding that the Assessing Officer had not conducted independent enquiry, despite specific and tangible material received from the Investigation Wing based on surveys and NSE data analysis
4) Whether the Ld.CIT Appeal erred in law in disregarding the evidentiary value of findings of the Investigation Wing and in treating the CCM transactions without properly appreciating the modus operandi involved in this transaction
5) Whether the Ld.CIT Appeal was correct in law in holding that absence of independent enquiry by the AO vitiates the addition despite the existence of tangible material gathered through surveys under section 133A and admissions of brokers regarding misuse of CCM for generating fictitious profits and losses
6) Whether the Ld.CIT Appeal failed to appreciate that the assessee had acted upon the modified client code entries, disclosed profits and losses accordingly in the return of income, and thereby derived benefit from CCM transactions which constituted a colourable device for tax evasion
7) The assessee craves leave to amend OR to alter any ground OR add a new ground, which may be necessary.
2.1. At the outset, Registry has noted that there is a brief delay of two days in filing of the present appeal by the Revenue which is condoned, as explained by the ld. Sr. DR in the course of hearing so to take up the matter for its adjudication.
3. Revenue is in appeal contesting both on legal aspect as well as merits of the case for the relief granted by the ld. CIT(A). In respect of legal issue, ld. CIT(A) held that since the notice issued u/s. 148 is beyond the period of four years from the end of the relevant assessment year, ld. Assessing Officer has failed to establish failure on the part of the assessee to truly and fully disclose all the material facts relevant for the assessment, in the reasons recorded by him. Thus, referring to proviso to section 147, he held that the re-opening is invalid.
3.1. On the merits of the case, ld. CIT(A) gave his finding that ld. Assessing Officer’s own data indicates that assessee shifted out losses reporting higher income than if the CCM had not occurred. According to him, there is no evidence of cash trade or benefit received by the assessee and thus, deleted the addition of Rs.13,48,032/-. He also deleted the consequential addition in respect of presumptive commission of Rs.26,961/-.
4. In this regard, at the outset we take note of the reasons to believe recorded by the ld. Assessing Officer, copy of which is placed on record in the paper book at page no.1 as supplied by the ld. Assessing Officer to the assessee vide letter dated 06.10.2016. On perusal of its content, we note that there is no whisper or mention about the requirement of first proviso to section 147 as to failure on the part of the assessee to truly and fully disclose all the material facts relevant for the assessment. Contents of this are extracted below for ready reference:
“Sub: Notice u/s148 for A.Y. 2010-11 reasons thereof-reg.
Please refer to your letter dated 29/03/2016 wherein you have requested to inform the reason recorded for issue of notice u/s 148 the same is reproduce below.
The Dit(I&CI). Mumbai, vide letter dated 27/02/2015 has communicated he details of fictitious transferring profit or losses to different clients to reduce their tax liability and transaction. The name of the persons found in the list are beneficiary from such factious losses and profit. The account wise net effect on profit/loss due to client code modification on trade involving said client during 01/04/2009 to 31/03/2010 is also enclosed.
Since the abovementioned assessee has done modification on trade through his broker, therefore profit or loss to that extent ie Rs. (-1348032)/- has been inflated by the assessee. Thus there is inflation or profit or loss which ultimately results in under assessment of income. Therefore, I have reason to believe that loss chargeable to tax has escaped assessment for AY 2010-11 within the meaning of section 147 of the IT Act, 1961. A notice u/s 148 is therefore being issued to re-assess such income and also any other income chargeable to tax which has escaped assessment, which comes to my notice subsequently in the course of proceeding for re-assessment for AY 2010-11.
The letter given to you on the above subject on 23/08/2016 may be treated as cancelled.
Sd/-
(SHAIKH M.J.A.Μ)
Income Tax officer 20(2)(5)
Mumbai.”
5. Before we delve on the legal aspect of the appeal, brief facts of the case are that for the year under consideration, assessee filed his return of income u/s. 139 on 31.03.2013, reporting total income at Rs. 18,53,960/-. Later, reassessment proceedings were carried out and order u/s 143(3) r.w.s. 147 was passed on 24.03.2014, re-assessing total income at Rs. 24,37,580/-. Thereafter, certain information was received from Pr. DIT(Inv), Ahmedabad vide letter dated 08.03.2016 pursuant to which another reassessment proceedings were initiated against the assessee. During the course of 2nd reassessment proceedings, various notices were issued and submissions were filed. Thereafter, the second reassessment proceedings were concluded by way of order u/s. 143(3) r.w.s. 147 of the Act dated 26.12.2016 making total addition of Rs. 13,74,993/- and assessing the total income at Rs. 32,12,573/-.
6. Assessing Officer has reopened the assessment on the basis of information received from the DGIT(Inv.), Ahmedabad and observed that the assessee has claimed loss of Rs. 13,48,032/- by misusing client code modification (CCM) facility.
7. We note that all the information relating to trading transactions in shares and securities during the year was reflected in the return of income, computation of income as well as details furnished at the time of original assessment proceedings. After considering the same, the original re-assessment order was passed u/s 143(3) r.w.s. 147, dated 24.03.2014.
7.1. Assessing Officer can assess or re-assess income chargeable to tax for any assessment year if, he has reason to believe that the said assessment year has escaped assessment. However, the proviso to the aforesaid section, curtails the power of the Assessing Officer to initiate the re-assessment proceedings beyond the period of 4 years from the end of relevant assessment year, where the assessment has been completed u/s. 143 (3) unless the income has escaped assessment by reason of failure of the assesses to disclose fully and truly all material facts necessary for assessment.
7.2. In the present case, assessee has received the notice for re-opening of assessment u/s 148 dated 29.03.2016 and hence, more than 4 years had elapsed from the end of relevant assessment year. Further, original assessment was concluded u/s. 143(3) on 24.03.2014. From the above-mentioned facts, it can clearly be concluded that, ld. A.O. has violated the provision of s. 147 while issuing the said notice u/s. 148.
7.3. It was submitted that during the course of original assessment proceedings, details of share and securities trading activities were available on record. Ld. AO had asked various queries relating to share trading activity. In reply, assessee had filed details vide various letters giving details of his share trading activity. Hence, details of the impugned transactions were available before the ld. Assessing Officer.
In this regard, reference is drawn to notice dated 24.12.2013 issued at the time of original assessment proceedings wherein at point no. 31, ld. AO has referred to share trading activity through the broker Ashwin M Shah and called for details of the same. This shows that the details of share trading activity through the broker, Mr. Ashwin Shah was in the knowledge of the ld. AO who had after verification of the profits and trading income earned, asked for further details from the assessee.
Thereafter, reference is drawn to letter dated 29.01.2014 filed in response to notice dated 01.01.2014 wherein from point no. 22 onwards, assessee had referred to various details asked by the ld. AO and provided part details thereof. Subsequently, reference is made to letter dated 12.02.2014 wherein from point no. 26 onwards, assessee had filed details of share trading income in cash, Form 10DB verified by brokers and working of disallowance u/s 14A, explaining that the assessee is engaged in share trading activity and that the exact working of disallowance is not ascertainable.
Thereafter, another letter dated 18.02.2014 was filed giving working of disallowance as required u/s 94(7) and 94(8) relating to transactions in F&O and share trading activity. Further, vide letter dated 18.02.2014, assessee filed details of scrip-wise closing stock of shares along with evidences from public domain giving last traded price for determining the value of closing stock. Further, vide letter dated 20.02.2014, details of cash share trading income was filed. Vide letter dated 12.03.2014, group summary of share brokers including Ashwin M. Shah NSE Case was filed. Vide letter dated 21.03.2014, the holding statements with brokers was filed. Copy of the aforesaid notices and replies filed during original reassessment proceedings are placed in the paper book before us, for ready reference.
7.4. On the strength of the above, it was strongly contented that aforesaid submissions filed during the course of original assessment proceedings establishes the fact that detailed inquiries w.r.t. share trading activities was carried out and submissions were filed at various occasions relating to share trading activity by the assessee. Hence, as the details were available with the Ld. AO, now making disallowance of the loss claimed out of same share trading activity amounts to change of opinion and review of the original assessment order.
7.5. Reliance in this regard was placed on the decision in the case of Aroni Commercials Ltd. V. DCIT 362 ITR 403 (Bom.) wherein an identical situation was raised before the Hon’ble jurisdictional High Court of Bombay who held that once the issue has been examined by the ld. AO, the same cannot be raised by way of reopening of the assessment. Identical view was rendered by the same court in the case of Monarch & Qureshi Builders 133 taxmann.com 322 (Bom).
7.6. It was further submitted that the information relied upon by the Assessing Officer to conclude that the assessee has claimed losses by using CCM is general and without looking into the facts and circumstances of the case. According to the assessee, ld. Assessing Officer was not in possession of any evidence to substantiate the allegation made by him. Thus, in the absence of any tangible evidence with the ld. Assessing Officer to come to a belief that income has escaped assessment, the reopening of the assessment is invalid.
7.7. In this regard, reliance was placed on the decision of Hon’ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. 320 ITR 561 (SC), wherein the Hon’ble Court has succinctly stated that the Assessing Officer has no power to review the earlier assessment. The Hon’ble Supreme Court also observed that after 01.04.1989, the Assessing Officer has power to reopen provided there is tangible material to come to a conclusion that there is escapement of income from assessment.
8. Ld. Sr. DR relied upon the order of ld. Assessing Officer. He also referred to the decision of Hon’ble High Court of Calcutta in the case of PCIT vs. Seaside Projects (P) Ltd. [2025] 175 taxmann.com 891 (Cal) wherein it was held that despite assessee being granted opportunity did not produce any evidence to show that it was not beneficiary of client code application, re-opening was justified.
9. We find on going through this decision that it is distinguishable from the present facts of the case as assessee had furnished the required documentary evidence for the addition made in his hand. The submissions made by the assessee included documentary evidence which forms part of the paper and listed in the index of the same. These are listed below for ready reference:
1. Details of client code modification transactions carried out by the assessee through broker Ashvin M. Shah as provided by the ld. Assessing Officer
2. Working of the assessee based on the details of client code modification transactions provided by the ld. Assessing Officer
3. Details of trades carried out in NSE F&O by the assessee through broker Ashvin M. Shah
4. Summary of F&O transactions carried out by the assessee through broker Ashvin Shah
5. Ledger account of Ashvin Shah in the books of account of the assessee for A.Y. 2010-11
6. Ledger account of the assessee in the books of account of Ashvin Shah for A.Y. 2010-11 for NSE Cash segment
7. Ledger account of the assessee in the books of account of Ashvin Shah for A.Y. 2010-11 for NSE F&O segment
9.1. We, thus find that the impugned re-assessment proceedings primarily fail on non-compliance of the requirement of proviso to section 147 where ld. Assessing Officer has not mentioned anything about failure on the part of assessee to truly and fully disclose all material facts relevant for the assessment. This becomes even more significant when ld. Assessing Officer had made enquiry in detail as already discussed above on the reason for which the impugned re-assessment proceedings were taken up. There is no fresh tangible material brought on record other than that has already been considered at the time of originally assessment tentamounting to change of opinion which is certainly not permissible under the Act for invoking re-assessment proceedings.
9.2. Drawing our force from the judicial precedents referred above, we do not find any infirmity in the finding arrived at by ld. CIT(A) on the legal issue raised by the assessee. Grounds raised by the Revenue in this regard are dismissed.
10. Since the legal aspect of the case is held in favor of the assessee in terms of our above observations and findings, grounds relating to merits of the case are rendered academic and therefore, not adjudicated upon.
13. In the result, appeal filed by the Revenue is dismissed.
Order is pronounced in the open court on 03 August, 2026.
The complete supplied sequence and wording have otherwise been retained.
