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 additions cannot be made solely on DDIT report without independent verification by AO. The assessee maintained proper books of account and furnished all documents for F&O segment transactions through the broker. Since AO accepted F&O transaction losses but doubted only transactions through one registered broker based solely on DDIT report, and CIT(A) relied on SEBI's DDIT report without independent findings, the tribunal directed deletion of the addition.

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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.

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