Tribunal upholds CIT(A)'s decision to delete disallowed losses, citing lack of evidence

DCIT CC-8 (1) And 4 (1) (1) Mumbai Versus M/s Comet Investment Pvt. Ltd.

DCIT CC-8 (1) And 4 (1) (1) Mumbai Versus M/s Comet Investment Pvt. Ltd. - TMI Issues Involved:
1. Deletion of additions made on account of suppression of profit and obtaining fictitious loss by the assessee company through Client Code Modification (CCM).
2. Commission paid to brokers to obtain fictitious loss through CCM.

Issue-wise Detailed Analysis:

1. Deletion of Additions on Account of Suppression of Profit and Obtaining Fictitious Loss through CCM:

The assessee, a company engaged in trading shares, derivatives, and commodities, filed its return of income for AY 2010-11 declaring a total income of Rs. Nil. The Assessing Officer (AO) alleged that the assessee claimed fictitious losses through CCM to the tune of Rs. 8,88,25,335/-. However, the learned CIT(A) found that the AO's allegation was factually incorrect, noting transactions resulting in a profit of Rs. 6,93,60,345/- on account of CCM by the broker, with no loss to the appellant from those CCM. The CIT(A) highlighted that the AO did not verify the transactions despite having the PAN details of the entities involved.

The CIT(A) also noted that the loss of Rs. 1,94,64,990/- was duly recorded in the appellant's books, which the AO did not find defective. The AO failed to prove that the appellant instructed the CCM or had control over the brokers. The CIT(A) observed that the CCM transactions were genuine as they involved relatives and friends of the appellant's directors and occurred throughout the year, not just at the end of the year to generate artificial profits and losses.

The CIT(A) further emphasized that the percentage of CCM turnover to total turnover was minuscule, between 0.35% to 0.55%, indicating the genuineness of the transactions. The AO did not provide any material evidence to prove that the CCM was not genuine, and none of the clients disowned the transactions. The CIT(A) concluded that the AO's allegations were based on assumptions and surmises without any concrete evidence.

The CIT(A) referred to several judicial precedents, including the decisions in M/S Sambhavanath Investment V ACIT, ACIT v Kunvarji Finance (P) Ltd, and ITO vs. Pat Commodity Services P. Ltd., which supported the view that CCM within 1% is normal and not indicative of shifting profits or losses. The CIT(A) directed the deletion of the disallowance of Rs. 8,32,28,416/- as fictitious loss by the AO, with the AO free to take remedial measures if higher courts reversed or modified the decision.

2. Commission Paid to Brokers to Obtain Fictitious Loss through CCM:

The AO alleged that the assessee paid commissions to brokers to obtain fictitious losses through CCM. However, the CIT(A) found no evidence to support this allegation. The CIT(A) noted that the AO did not bring on record any material to prove that the parties to whom profits or losses were transferred were in collusion with the appellant. There was no evidence of any payment made by the appellant to the brokers or other parties in exchange for the alleged fictitious losses.

The CIT(A) emphasized that the AO's addition was based on general information and assumptions without concrete evidence. The AO did not establish any correlation between the appellant and the other parties involved in the transactions. The CIT(A) concluded that the AO's disallowance was not sustainable as it was based on mere presumption and suspicion without any factual basis.

Conclusion:

The Tribunal upheld the CIT(A)'s findings, noting that the AO did not provide any evidence to support the allegations of fictitious losses through CCM or commission payments to brokers. The Tribunal emphasized that the assessee, not being a registered broker, could not have modified client codes, and the AO failed to prove any malafide intention or collusion. The Tribunal dismissed the revenue's appeal and upheld the deletion of the addition on merits. Consequently, the assessee's appeal challenging the reopening of the assessment became academic and was also dismissed. The Tribunal concluded that the CIT(A)'s findings were judicious and well-reasoned, and there was no reason to interfere with them.