R.S. Shares & Securities Ltd. Vs ITO (ITAT Delhi)
It is well settled law that validity of the reassessment proceedings is to be determined on the basis of the reasons recorded for reopening of the assessment. Copy of the same is filed at pages 2 to 4 of the Paper Book. The AO in the same has mentioned that provisions of section 147(b) are applicable in this case for reopening of the assessment, however, this section does not exist in the statute for assessment year under appeal. Further, the entire reopening is based on information received from ADIT(Inv.) Ahmedabad for shifting out profits using client code modification. It is alleged in the reasons that on the basis of information received from ADIT(Inv.) M/s SMC Global Securities Limited broker has shifted out the profits using client code modification for the assessee to claim losses. The Ld. Pr. CIT while approving the reasons merely mentioned “yes I am satisfied” The assessee filed objections to the reopening of the assessment and explained before AO that M/s SMC Global Securities Ltd. broker has not done anything for assessee and assessee did not deal with such broker, therefore, there is no question of loss claimed through this broker. The assessee further explained that assessee had carried out transactions through M/s Mansukh Securities Finance Limited. Thus, the AO recorded incorrect and wrong facts in the reasons for reopening of the assessment. Though the AO rejected the objections of the assessee but in the rejection order confirmed that assessee carried out the transactions through Mansukh Securities Finance Limited, therefore, there is no question of assessee arranging any loss through transaction involving CCM through SMC Global Securities Broker. The reasons do not indicate the basis for the Assessing Officer to come to reasonable belief that there has been any escapement of income on the ground that the modifications done in the client code was not on account of genuine error, originally occurred while punching the trade. The material available is that there is a client code modification done by assessees broker which fact is also incorrect and there is no link from there to conclude that it was done to escape assessment of a part of its income. ITAT Delhi Division Bench in the case of M/s Stratagem Portfolio Pvt. Ltd. (supra) considering the identical issue in the light of Judgment of Bombay High Court and other decisions of the Tribunal came to the conclusion that assessment cannot be opened validly on the basis of the above reasons recorded in absence of any tangible material to infer income escaped in the case of the assessee and quashed the reopening of the assessment. The issue is, therefore, covered by the aforesaid decision of the Tribunal in favour of the assessee. Further as noted above AO has also recorded incorrect and wrong facts in reopening of the assessment, therefore, AO did not apply his mind to the report of investigation wing and, as such, there were no justification to reopen the assessment. In such circumstances, the reopening of the assessment is bad in law and approval granted is also in most mechanical manner. Thus, the reopening of the assessment cannot be justified.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by assessee has been directed against the order of Ld. CIT(Appeals)-7, New Delhi dated 09.10.2018, challenging the reopening of the assessment u/s 147 of the Act and addition on account of shifting ascertained losses of Rs. 4,94,027/-.
2. I have heard Ld. Representatives of both the parties and perused the material available on record.
3. Brief facts of the case are that the assessee e-filed its return of income on 29.09.2010 for assessment year under appeal declaring loss of Rs. 13,03,365/-. Subsequently, information was received from the Investigation Wing, Ahmedabad that Client Codes is a practice under which broker changed the client codes in sale and purchase orders of securities after the trades are conducted. The case was reopened u/s 147 and notice u/s 148 was issued on 30.03.2017 to the assessee. The AO passed the reassessment order u/s 143(3)/147 on 12.12.2017, assessing the income at Nil (after reducing the loss of Rs. 7,99,460/-) after disallowing the ascertained loss of Rs. 4,94,027/- due to change of client code and disallowance of Rs.9,881/- on account of commission of 2% for the entry.
4. The assessee challenged the reopening of the assessment as well as addition before Ld. CIT(A). It was contended that AO has recorded incorrect and wrong reasons and approval is granted in most mechanical manner. Since AO recorded nonexisting and factually incorrect reasons and did not apply independent mind on the information so received, therefore, reopening of the assessment is invalid and bad in law. The addition is made without any basis. The Ld. CIT(A), however, dismiss the appeal of the assessee.
5. Ld. Counsel for assessee referred to PB 2 to 4 which are reasons recorded for reopening of the assessment. He has submitted that AO in the form for the reasons in para 7 mentioned that reopening done under the provisions of Section 147(b) of the Act which fact is incorrect because such section does not exist in the statute. He has further submitted that AO has mentioned name of the broker as M/s SMC Global Securities Limited which fact is also incorrect. The Ld. Pr. CIT without giving any reasons gave approval by merely mentioning “yes, I am satisfied”. Ld. Counsel for assessee referred to objections filed before AO challenging the reopening of the assessment, PB 11 to 16 in which the assessee has contended that assessee has never dealt with the broker SMC Global Securities Limited as mentioned in the reasons. The assessee has carried out transaction with M/s Mansukh Securities Finance Limited. He has referred to PB 5 to 10 which is the rejection order of the AO deciding objection of the assessee against reopening of assessment dated 27.11.2017 in which AO has mentioned that assessee has shifted loss through broker Mansukh Securities and Finance Limited. He has, therefore, submitted that AO has recorded incorrect and non existing fact in the reasons and approval is also granted in mechanical manner. He has submitted that on identical facts ITAT Delhi Division Bench in the case of M/s Stratagem Portfolio Pvt. Limited Vs. DCIT in ITA No. 7878/2019 AY 201011 quashed the reopening of the assessment vide order dated 15.09.2020. The order is reproduced as under:
“This appeal has been preferred by the assessee against the order dated 30/07/2019, passed by the Learned CIT(Appeals)-XXV, New Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2010-11 raising following grounds:
