TaxTMI 
TaxTMI 
TaxTMI 
2021 (7) TMI 184
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.... 1,86,47,974/- made in hnads of assesse without appreciating that assessment order had brought out the analysis of F & O data from stock exchange to prove that Client Code CCM was to create bogus losses to transfer profits to other entities (including family members of assesse). 2. Whether on the facts and in the circumstances of the case and in law ld.CIT(A) erred in the addition made in hands of assesse on losses created through CCm without distinguishing the facrts of the cited case laws when these case laws had been distinguished in assessment order. 3. On the facts and circumstances of the case and in law, the Ld.CIT(A) ought to have upheld the order of the Assessing Officer. 4. It is, therefore, prayed that the order of the Ld.CIT(A) be set-aside and that the Assessing Officer be restored to the above extent. 3. The only issue raised by the Revenue is that the learned CIT (A) erred in deleting the addition made by the AO for Rs. 1,86,47,974/- on account of the profit shifted out and the loss shifted in by way of client code modification. 4. The assessee in the present case is a private limited company and engaged in the business of dealing/broking of shares. The AO on....
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....ew of the above held that the assessee has shifted in loss of Rs. 8,63,627/- and shifted out profit of Rs. 1,02,84,346/- by resorting to the technique of client code modification which has resulted reduction of the taxable income to the extent of Rs. 1,86,47,974/- only. Thus the AO added the same to the total income of the assessee. 5. Aggrieved assessee preferred an appeal to the learned CIT (A). 5.1 The assessee before the learned CIT-A submitted that there cannot be any addition merely on the basis of the information received from the National stock exchange about the modification of the client code done by the broker. As such there was no allegation either from the SEBI or stock exchange that the assessee or its brokers were resorting to any such tax evasion using the model of client code modification. Thus, merely there were changes the code of the assessee maintained with the broker does not authorize the AO to hold that the taxable income of the assessee has reduced. All the transactions of sale & purchase of the future and options were duly recorded in the books of accounts which were also accepted by the AO. 5.2 The assessee further submitted that the AO has made the re....
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....se and conjecture which has no leg to stand. The assessee in support of its contention relied on the judgment of Hon'ble Gujarat High Court in the case of M/s Geetatax VS DCIT in SCA No. 20977 of 2016 dated 20 December 2016. 5.5 The assessee also submitted that the transactions in respect of which client code were modified, were carried out in the month of June to October 2009 during the mid-of the year under consideration and during that time it was not possible for the assessee to assess its income or the loss. Therefore, for this reason as well, it cannot be alleged that the assessee has diverted its taxable income. 5.6 The assessee further submitted that it has carried out the transaction for the purchase and sale of the securities which are running in thousands whereas the transactions in respect of which client codes were modified are just in few numbers. As such the changes in the code were made in less than 1% of the total transactions therefore no doubt can be raised on the integrity of the assessee. 6. The learned CIT (A) after considering the submission of the assessee has deleted the addition made by the AO by observing as under: DECISION: 5.3 I have carefully c....
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....has stated that decision of Kunverji Finance Limited is not applicable. Considering these facts AO has made addition of Rs. 1,86,47,974. On the other hand, Appellant has submitted that it has recorded all the transactions in the books of account as per contract notes received from broker and all the transactions are settled through account payee cheques. The Assessing Officer has not made any enquiries with the brokers which can prove that Appellant has carried out CCM at its own instance and transactions are settled through cash. The ARs of the Appellant have also argued that neither Appellant nor broker is alleged by SEB1/NSE for resorting any such tax evasion practices through CCM method. Simple data of NSE/SEBI stating that CCM is carried out does not mean that such modification is for evading tax more particularly when AO himself is accepting the stand that CCM was never been illegal. The Appellant has also argued that AO has relied upon SEB1 order dated 10th April, 2012 and general prevailing practice of CCM but has not brought anything on record to suggest that transactions are settled in cash against alleged CCM or CCM was carried out at the instance of Appellant. The A....
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....roker and ledger account of brokers, The AO has proceeded to make entire addition on the basis of data received from NSE wherein original code of Appellant was modified with code of other party and according to such data, AO worked out that Appellant has reduced its taxable income by shifting profit to other party or loss was shifted to account of Appellant. However, such observation of AO was not supported by any other cogent evidences which can prove that Appellant has obtained such accommodative entries for which' settlement is done in cash. The AO has referred to various enquiries carried out by Investigation Wing regarding CCM used as a technique to reduce taxable income by various Assessees hut no such enquiry has been carried out in the case of Appellant's broker nor has AO proved that SEBI/NSE has made any enquiry in the case_ of Appellant or his broker. The enquiries in the cases of other brokers which have no relation with Appellant's transactions do not mean that Appellant has carried out such transaction at his own instance to evade tax. The Appellant has submitted the ledger account of brokers through whom it has carried out transactions and such transactio....
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....its/loss has been duly accounted whenever the transactions have been closed. Thus, whatever profits have been generated or accounting of actual trade, have been offered and brought to the charge of tax in the cases of concerned assesses. These findings of fact recorded by the learned Commissioner (Appeals) has not been controverted by the Revenue at the time of hearing before us. When the transaction has been duly accounted for and the profit/loss has accrued to the concerned parties in whose names transactions have been closed, there cannot be any basis or justification for considering those profit/loss in the case of the assessee on the basis of mere presumption or suspicion. It is net the case of the Revenue that such alleged profit has actually been received by the assessee. in view of the totality of the above facts, we do not find any justification to interfere with the order of the Commissioner (Appeals) in this regard and the same is sustained; and Ground Nos. 1 and 3 of the Revenue's appeal are rejected." In above referred case Hon'ble ITAT has further held as under: "As per Commodity Exchange, if client code modification is upto 1% of the total orders, there i....
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....ifications were not carried out and the transactions were closed on the expiry date. Ld. CIT(A) has further noted that while deciding the appeal in the case of Kunwarji Finance (P.) Ltd. for A.Y. 2005-06 to 2008-09 he has held that the addition on the basis of Client Code Modifications was on the basis of assumption and surmises and was not on the basis of concept of real income. We further find that in the case of Kunwarji Finance (P.) Ltd. (supra) against the order of Id. CIT(A), Revenue had preferred appeal before the Co-ordinate Bench of Tribunal which was dismissed by the Co-ordinate Bench by order dated 19.03.2015 and the relevant finding of the Co-ordinate Bench reads as under:- We have carefully considered the arguments of both the sides and perused the material placed before us. The Assessing Officer believed the client code modification to be malafide because in his opinion the client code modification was for unusually high number of cases. Therefore, first thing to be decided is whether there was the client code modification for unusually high number of cases. The Commodity Exchange i.e. MCX vide circular NO.MCX/T&S/032/2007 dated 22.01.2007, Issued guidelines with ....
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.... is Rs. 500/-. If it is greater than 5% but less than 10%, penalty is Rs. 1000/- and if it is greater than 10%, then penalty is Rs. 10,000/-. From the above, the only inference that can be drawn is that as per MCX, the client code modification upto 1% is absolutely normal and therefore, the broker is permitted to modify the client code upto 1% without paying any penalty. Even client code modification upto 5% is not considered unusually high because that is also permitted with the token penalty of Rs. 500/-. In the context of the circular issued by Commodity Exchange, let us examine whether the client code modification done by the broker i.e. KCBPL is unusually high. At page no.16 on paragraph No.4.3, the CIT{A) has given the number of transactions entered into by the assessee for the period 2004-05 to 2007-08 and the number of client code modification and percentage thereof. We have also reproduced the same at paragraph No.6 of our order. From the said details, it is evident that the client code modification was done in four years 36,161 times. As an absolute figure, the client code modification may look very high, but if we look it at in terms of total transactions, it is only 0.9....
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..... Thus, whatever profits have been generated or accounting of actual trade, have been offered and brought to the charge of tax in the cases of concerned assessees." These findings of fact recorded by the Id. CiT(A) has not been controverted by the Revenue at the time of hearing before us. When the transaction has been duly accounted for and the profit/loss has accrued to the concerned parties in whose names transactions have been closed, there cannot be any basis or justification for considering those profit/loss in the case of the assessee on the basis of mere presumption or suspicion. It is not the case of the Revenue that such alleged profit has actually been received by the assessee. In view of the totality of the above facts, we do not find any justification to interfere with the order of the CIT(A) in this regard and the same is sustained; and Ground Nos. 1 and 3 of the Revenue's appeal are rejected. 11. In the present case, Id. CIT(A) while deleting the addition had relied on this decision in the case of Kunwarji Finance Pvt. Ltd. and the order of Id. C1T(A) in that case was upheld by the Co-ordinate Bench of 1TAT as cited hereinabove. Before us, Revenue has not brough....
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....at the original client code may have been typed wrongly by mistake. Similarly, if the number of digits changed is more say 4 or 5, it cannot be a genuine mistake, but a deliberate change. There cannot be any presumption that if the number of digits changed from original code to modified code is 2, then and then only it can be said that the same have been typed wrongly by6 mistake and if the number of digits changed is for more than one, that is to say 4 or 5, then it cannot be said to be a genuine mistake, but a deliberate change. Under the circumstances, even the reasons recorded by the Assessing Officer to reopen the assessment, which is beyond the period of four years, cannot be sustained." 5.8 Considering the facts discussed herein above and relying upon decisions referred supra, it is held that AO has made entire addition on the basis of presumption and has not proved that Appellant has evaded taxes hence addition made by AO for Rs. 1,86,47,974 for CCM is deleted. This ground of appeal is allowed. 7. Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us. 8. The learned DR before us submitted that there was no punching error with respect ....
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....ibuted to the assessee for the mistakes committed by the share broker. 11.3 Furthermore, the client code modifications may give rise to the doubt/ suspicion which requires detailed investigations from the parties concerned to reveal the truth. Merely, there were client codes modifications carried out by the broker cannot be the basis to draw an inference against the assessee. In fact, in case of client code modification the code of the other party is entered at the place of the assessee. Thus the other party is also required to be investigated whether the other party was involved in such transaction. Besides this there has to be brought other corroborative evidences suggesting that there was the exchange of cash among the parties involved in such client code modification. But we note that no such exercise has been carried out by the authorities below. As such there is no whisper in the order of the authorities below that there was the cash transfer between the parties for transferring the income of the assessee to the other party and vice versa. Thus in the absence of such verification/examination carried out by the authorities below, we are not inclined to uphold the findings of ....