2023 (12) TMI 1035 - AT - Income Tax

ITAT deletes addition based on alleged income shifting as AO failed independent verification beyond DDIT report

ITAT Kolkata allowed the assessee's appeal against addition made based on alleged income shifting through client code modification. The tribunal held that ... Shifting of income by client code modification - HELD THAT:- Addition cannot be made on the basis of DDIT report into the shifting of income through client code modification alone where the AO has not carried out any further independent verification into the matter. In the present case also the assessee has maintained all the books of account and also furnished all the documents qua the F & O segment done through the said broker. We also note that the AO has not doubted the F & O transactions loss incurred to the tune of Rs. 18,16,26,178.83/- and has doubted only the transactions through M/s Indianivesh Securities Pvt. Ltd. registered broker that too on DDIT Report. Under these facts, we are not in a position to sustain the order of Ld. CIT(A) which has also discussed DDIT report by SEBI without giving any independent finding on the issue. Accordingly we set aside the order of authorities below and direct the AO to delete the addition.Appeal of the assessee is allowed. Issues involved: Appeal against addition of income due to client code modification.Summary:The appeal was filed by the assessee against the addition of Rs. 56,67,177/- by the Ld. CIT(A) as made by the AO on account of shifting of income by client code modification. The assessee's contention was that the transactions were genuine as carried out by the registered broker. However, the AO, based on the Investigation Wing Report, treated the transactions as non-genuine and disallowed the loss by adding it to the income of the assessee.Facts and Decision:The assessee, engaged in the purchase and sale of shares and securities, had a significant amount of transactions during the year. The AO alleged that the assessee shifted income through client code modification with the help of a specific broker. The AO relied solely on the report of the Investigation Wing without conducting further independent verification. The assessee provided documents related to the transactions, but the AO did not investigate the issue thoroughly. The ITAT found that the AO's reliance on the report without further verification was not justified. Citing various decisions, the ITAT concluded that the addition could not be made solely based on the report without independent verification. As the AO did not doubt the transactions' genuineness in the F & O segment, except those through the specific broker, the ITAT directed the AO to delete the addition.Conclusion:The ITAT allowed the appeal of the assessee, setting aside the order of the authorities below and directing the AO to delete the addition.