The Pune bench of the Income Tax Appellate Tribunal (ITAT) held that Mere ground of being benefitted from fraudulent transaction doesn’t prove being a beneficiary to such fraud.
The appellant, an individual engaged in the business of dealing in land and trading in derivatives. The Return of Income for the assessment year 2009-10 was filed on 31.12.2009 disclosing total income of Rs.4,54,080/-. Against the said return of income, there was no scrutiny assessment.
Subsequently, based on the information received from the office of the DIT that the appellant is a beneficiary of fraudulent transactions known as “Client Code Modification”, the modus operandi of the said scheme was set out by the Assessing Officer vide para 3.1 of the assessment order. Based on this information, a notice under section 148 of the Income Tax Act, 1961 was issued on 30.03.2016.
In response to the said notice under Section 148, the appellant filed the return of income on 20.06.2016 declaring same income as declared in the original return of income. Against the said return of income, the assessment was completed by the Income Tax Officer, vide order dated 26.12.2016 passed under section 143(3) of the Income Tax Act bringing tax of Rs.2,74,015/- as unexplained income.
Being aggrieved, an appeal was preferred before the NFAC contending that the very initiation of proceedings under section 147/148 of the Income Tax Act are bad in law. However, the NFAC taking note of the fact that the brokering firm, was levied penalty for indulging in the Client Code Modification, confirmed the addition. Thus, the assessee appealed before the tribunal.
It was submitted that there was no reason to believe that the income chargeable to tax had escaped assessment in the absence of any link between the information obtained from the DIT and escapement of its income to assessment.
It was further submitted that the Assessing Officer had not confronted the information received from the DIT. Also, there was no information that the assessee is engaged in the business of indulging in Client Code Modification and there was also no transaction which are resulted in gain or loss of Rs.2,74,015/-.
A statement of transactions was filed s, as undertaken by the assessee with said brokering firm in order to show that none of the transactions resulted in loss or profit of Rs.2,74,015/-.
The tribunal came to the conclusion that the Assessing Officer has reopened the assessment merely on the ground that the appellant had benefited from the Client Code Modification by which profits of certain amount were shifted out by the assessee resulting in deduction of assesse’s taxable income. Thus, there was no live link between the information received by the Assessing Officer from DIT and the belief found by the Assessing Officer that income had escaped assessment.
The bench consisting of Inturi Rama Rao, Accountant Member said that he was of the considered opinion that the re-assessment proceedings initiated under Section 147 of Income Tax Act is bad in law. Therefore, the assessment made by the Assessing Officer becomes nullity in law. Thus, the grounds of the appeal filed by the assessee stand allowed.
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