NSE client code modification scheme exposed as tax avoidance tool with 1.25% commission penalty upheld

ITAT Delhi dismissed the appeal in a case involving client code modification (CCM) in NSE's futures and options segment. The assessee had 54 trades modified over three specific days, converting profits to losses. Investigation by DIT(I CI) revealed brokers misused CCM facility to create fictitious losses/profits, receiving 0.5-2% commission. The AO correctly added 1.25% commission on claimed losses. The tribunal found the transactions suspicious and not bonafide, upholding the CIT(A)'s decision as the assessee failed to provide supporting arguments.

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Issues:
Appeal against order of Ld. Commissioner of Income Tax (Appeals) for Assessment Year 2010-11 - Alleged misuse of client code modification facility on NSE - Addition made by AO on account of client code modification and commission paid - Dismissal of Appeal by CIT(A) - Assessee's failure to appear before Tribunal - Department's submission for dismissal of Appeal.

Analysis:
The appeal was filed against the Ld. Commissioner of Income Tax (Appeals) order for Assessment Year 2010-11 concerning the alleged misuse of the client code modification facility on the NSE. The Assessing Officer (AO) had added an amount to the taxable income of the assessee due to client code modification and commission paid, following reassessment proceedings initiated under section 147 of the Income Tax Act, 1961. The AO's decision was based on information received regarding fictitious losses and profits created by misusing the client code modification facility. The CIT(A) dismissed the appeal filed by the assessee, leading to the current appeal. Despite multiple notices issued, the assessee failed to appear before the Tribunal, resulting in the proceedings being conducted in the absence of the assessee.

The Departmental Representative strongly argued that the grounds of appeal lacked merit and urged for the dismissal of the assessee's appeal based on the Lower Authorities' orders. The Tribunal reviewed the material on record and the submissions made. The AO had added a specific amount to the income of the assessee based on the client code modifications and commission paid. The appellant, being a Director of a company involved, was deemed to have control over the employees responsible for data entry related to trades. The AO's decision was supported by the fact that modifications resulting in losses were made only on specific dates and not on others within the relevant period. The Tribunal considered the appellant's submissions during the appellate proceedings but found them insufficient to counter the AO's findings. The Tribunal upheld the AO's decision to add the specified amount to the taxable income of the appellant.

Although the assessee raised similar grounds of appeal, no arguments were presented to support them during the proceedings. Given the detailed consideration by the CIT(A) and the lack of contrary evidence on record, the Tribunal found no merit in the assessee's grounds of appeal. Consequently, the Tribunal dismissed the grounds of appeal and the appeal itself. The order was pronounced in an open court on 3rd July 2024.

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