TaxTMI 
TaxTMI 
2020 (1) TMI 286
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....nd of appeal filed by the revenue reads as under : On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made towards set off of fictitious losses through Client Code Modification. 3. Briefly stated the facts of the case are that the assessee-company filed its return of income for the A.Y. 2010-11 on 28.09.2010 declaring of total income of Rs. 42,43,345/-. The assessee invests in shares and securities. The return was processed u/s.143(1) of the Act. Thereafter, on receipt of information from the Director of Income Tax (I&CI) [in short 'DIT'] that the assessee had taken loss adjustment entries worth of Rs. 1,55,31,999/- in F&O and Cash Segment by way of Client Code Modification (CCM)....
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....of various brokers and clients, wherein they have admitted to have misused the CCM facility, (ii) generally the losses are shifted to the clients, the losses so transferred are used to claim set off against the profits and to neutralize the tax liability, likewise the profit is shifted to those parties which have suffered losses, thereby facing the problem of capital erosion, (iii) one beneficiary is the broker who does modification for the clients and second is the client in whose account modification is done, (iv) the broker charges certain percentage of commission in cash which ranges from 0.5% to 6% of the transaction value, the commission so earned in cash is not offered to tax, (v) second beneficiary is the ultimate beneficiary in who....
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....herein client codes are modified, (iv) the modification of client code is permissible by SEBI and is in the hands of the broker, the assessee as a client cannot do any modification in the client code, (v) at a time, it may happen that an order is punched in the code in which the previous was done, in order to rectify the error on the part of the broker, the same should have been corrected, the act of rectifying the error cannot be termed as CCM, (vi) the act of CCM is very much legal and had to be resorted to by the brokers to rectify the punching errors, both NSE and BSE closely monitor the transaction undertaken by the brokers and penalise them, if there is substantial alteration in the client code. Observing as above, the ld. CIT(A) no....
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....ad in law. The ld.counsel further submits that the assessee is not a registered broker on the Stock Exchange; only registered brokers can modify client code of their own clients and hence the allegation that the assessee having done or resorted to CCM is incorrect. It is stated that nothing has been brought on record by the AO to show that instruction for CCM was given by the assessee. It is further stated that there is no incriminating statement from brokers of the assessee i.e. Mansi Share & Stock Advisors Pvt. Ltd, Bonanza Portfolio Ltd and KM Jain Share Brokers Pvt. Ltd. The ld. counsel for the assessee submits that no evidence has been brought on record by the AO of any action by SEBI on the assessee or its brokers for CCM; the dat....
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....on by an order dated 05.02.2016. The Hon'ble Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd. (2007) 291 ITR 500 (SC) analyzed the distinction between the acceptance of a return u/s 143(1) and an assessment which is framed u/s 143(3) of the Act. In the former case, the AO would have much wider latitude to reopen the assessment. In the case of Avirat Star Homes Venture P. Ltd. v. ITO (2019) 411 ITR 321 (Bom), the Hon'ble Bombay High Court referring to the above decision has held : "that the return had been accepted without scrutiny. The income-tax investigation had subsequently provided information about certain companies having bank accounts with a bank in Kolkata and who were involved in giving accommodation e....