TaxTMI 
TaxTMI 
2022 (9) TMI 1364
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....e in below: "1. Whether on the facts and in the circumstances of the case and in law, the CIT(A)-4, Jaipur, is justified in deleting the addition 1,94,83,135/- on account of fictitious loss obtained by the assessee by misuse of CCM facility made by the AO. 2. Whether on the facts and in the circumstances of the case and in law, the CIT(A)-4, Jaipur is justified." 3. In CO No. 17/JP/2020, the assessee has taken the following ground in the cross objections filed; "1. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in upholding the addition of Rs. 8,10,898/- made by alleging the same as interest payment out of undisclosed sources of income, on the basis of excel sheets in a pen drive which was found and seized from the possession of Shri Kailash Chand Khandelwal, who is one of the employee of the Maverick Group, without appreciating the true nature of entries, thus the addition so upheld deserve to be deleted. 1.1 That the Ld. CIT(A) has further erred in confirming the addition by ignoring the facts that assessee has not made any interest payment appearing column No. 2 of Excel Sheets in pen drive, thus conseque....
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.... of client code modification and interest paid from undisclosed sources of income. The ld. AO observed that department received fictitious profit and losses were provided by some brokers by misusing the client code modification facility in F&O segment on NSE. Therefore, investigation was done by the Directorate I&CI, Mumbai and by Directorate of Investigation Ahmedabad on all India basis. The ld. AO explained the modus operandi of the client code modification in his order at para 9 of his order. In other words, he recorded that modification of client codes is a practice under which brokers change the client details in sale and purchase orders of securities after the trades are conducted. Changing client code within 30 minutes after the market closed was a normal practice followed by brokers for rectifying 'genuine errors and mistakes' which may have occurred during the trading hours. Client code modification is permitted by both SEBI and Stock exchanges so as to take care of the human error that occurs during the entry of client codes both by the broker or the client. The AO alleged that non genuine CCM were carried out to book contrived losses. In some case, this facility was used....
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....dition of Rs. 1,94,83,135/- made by the assessing officer and sustained the addition Rs. 8,10,898/-. Thus, the revenue is aggrieved from the deletion of the addition by the ld. CIT(A) on account of client code modification and the assessee has filed the cross objection against the addition sustained by the ld. CIT(A). The relevant findings of the ld. CIT(A) on both the issue are haul out and reiterated here in below: Observation of CIT(A) for addition of on account of Client code modification "9. Since the issue of routine additions NOT based on incriminating material found during the course of search is settled by the decision of Hon'ble Supreme Court, I find no hesitation to conclude that addition Rs. 1,94,83,135/- on account of Client Code Modification cannot be sustained. I may point out that the opening para 9.1 of the Ld. AO order reds as under "....Complaint were received..." noticeably the entire discussion in the L.d. AO order on CCM disallowance nothing specific has been mentioned. Even otherwise the external complaint so received by the Ld. AO cannot construe as incriminating material as is held by various court including many decision by the Hon....
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..../R in the written submissions. 13.2 Considering the above and on the facts and in the circumstances of the case, I am of the view that addition of Rs. 8,10,898/- is sustainable. The same is confirmed." 8. The ld. AR of the assessee against the grounds raised by the revenue and grounds raised by them, filed a copy of the written submission and the same is reiterated here in below: "Brief facts of the case are that the assessee is a private limited company engaged in the business of dealing in shares and derivative. The return of income for the year under appeal was filed on on 12.10.2010 u/s 139(1) declaring total income of Rs. 9,45,990/- (APB 1-4). Pursuant to search operation in the case of Maverick group on 22.07.2015, of which the assessee is one of the member, notice u/s 153A of the Act was issued, and return of income declaring the same income as was declared in original return was filed on 25.11.2015 and the assessment u/s 143(3) r.w.s. 153A was completed at total income of Rs. 2,12,40,020/- by making certain additions. Appeal was filed before ld. CIT(A) against additions made via assessment order, which was decided vide order dated 16.10.2019 in ITA No. ....
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....sion by the Hon'ble ITAT Jaipur. Thereafter the ld. CIT(A) went on to decide the issue on the merits also wherein the findings given on AY 2009-10 in the case of appellant itself has been followed and the addition was deleted on merits also. From the perusal of the ground of appeal taken by the department, it appears that the department has not challenged the findings of ld. CIT(A) given on the legal issue raised by the assessee that if no incriminating material was found as a result of search, no addition could be made more particularly when no proceedings were pending as on the date of search. It is thus submitted that on legal aspect department has accepted the order of ld. CIT(A) and accordingly undisputedly when no incriminating material was found suggesting any manipulation in obtaining losses through CCM by the assessee for the year under appeal, no addition could be made in this account in the order passed u/s 153A of the Act. So far as merits of the case are concerned, it is submitted that addition was made by ld.AO on the basis of certain complaints received by the department regarding misuse of Client Code modification facility, pu....
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....actions where client code modification was carried out were claimed by any other persons. In other words had the client code modification facility been misused in favor of the Assessee, the same would have resulted in some kind of dispute by the person in whose account/client code such transactions were originally punched / transferred subsequently. It is thus submitted that no such dispute has arisen solely for the reason that all the orders have been correctly included in the appropriate client code which vouch for the factum of genuine transactions which suffered from certain genuine human errors. It is further submitted that no material / documents were brought on record to show that any other income in the form of cash which has not been accounted for in the books of the Assessee has been received by the Assessee. It is submitted that assessment proceedings were concluded by ld. AO on the basis of drawing adverse inferences against the assessee without confronting the statements of such persons/clients during the course of assessment proceedings and without providing opportunity to cross examine, which is contrary to the principles of natural justice. Ld.AO neither pr....
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....ed above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above." Hon'ble Supreme Court in the case of CIT vs Sunita Dhadda also after considering all the judgements including of Andman Timber has again affirmed the importance of cross examination and held that if the AO wants to rely upon documents found with third parties, the presumption u/s 292C against the assessee is not available. As per the principles of natural justice, the AO has to provide the evidence to the assessee & grant opportunity of cross-examination. Secondary....
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....h details, ld.AO on the contrary has stated that assessee could not prove that instances of CCM were for rectification of genuine errors. It is reiterated that assessee did not know as to in which transaction of it, the client code modification was done by broker, as the assessee company received documents from the broker which were matching with and were in tune with whatever orders were placed by assessee to the broker. In support of the fact that all the transaction recorded in the account of assessee are owned by assessee, all the relevant information including the bills of daily trading (APB 62-238) and ledger account of the assessee (APB 33-61) as appearing in the books of accounts of the broker alongwith the summary of all the transactions with trade time and trade number were submitted before ld.AO wherein not a single discrepancy has been pointed out. Thus, assessee has discharged its onus by furnishing all the details sought. On the other hand, ld.AO without rebutting the plethora of evidences as furnished by assessee, merely relied upon a very general information, which did not even specify the names of brokers whose statements were relied upon nor did it mention as to h....
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....mount from the recipient of profit. However, AO had not brought on record any material to show that the assessee had received back corresponding amount equivalent to the amount of profit claimed to have been shifted to the clients. (vi) AO had mainly relied upon the report given by the MCX and has shown adverse conclusions without bringing any material to support his view. (vii) None of the client is found to be bogus and all of them had complied with KYC norms, meaning thereby the identity of all the clients stand proved. Hon'ble Ahmedabad Bench of ITAT, in the case of ACIT vs Kunvarji Finance Pvt. Ltd.& Group reported in 119 DTR 1 (170 TTJ 345) has allowed the appeal of assessee by observing that: Computation of undisclosed income vis-à-vis suppression of profit by client code modifications-Client code modifications made by the assessee being only 0.94 per cent i.e., less than 1 per cent of the total trading transactions, cannot be said to be unusually high or mala fide when the modification was made on the same day- That apart, CIT (A) having found that all transactions at the commodities exchanges have been duly accounted in the books ....
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....rder dt. 5.3.2019(ITAT, Jaipur) - DCIT vs Futurz Next Services Ltd. ITA No. 3556/Del/2016 order dt. 04.01.2022 (Hon'ble Delhi bench of ITAT) In the circumstances it is humbly prayed that order of ld.CIT(A) deleting the addition to the tune of Rs. 1,94,83,135/-made by ld.AO by alleging the same as the fictitious loss taken by misusing the facility of client code modification deserves to be upheld. Assessee's Grounds of Cross Objection No. 1 & 1.1 In these grounds of Cross Objections, assessee has challenged the action of ld. CIT(A) in upholding the addition of Rs.8,10,898/- made by ld.AO by alleging the same as interest payment out of undisclosed sources of income, on the basis of excel sheets in a pen drive which was found and seized from the possession of Shri Kailash Chand Khandelwal, one of the employee of Maverick Group. Brief facts of the case are that during the search operation carried out in the case of Maverick group, to which the assessee belongs, a pen drive was found and seized from possession of Shri Kailash Chand Khandelwal, one of the employees of Maverick Share Broker P. Ltd. (but not employee of assessee company) contain....
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....ails in the various files found in the pendrive, which were duly demonstrated to ld. AO and also appreciated and accepted by him; (iv) That the details appearing in all the columns other than those appearing under the adjustment column were duly recorded in books of respective individuals and entities, as far as it pertained to the Maverick group and were got verified by ld. AO; (v) That the excel sheet was mailed to Shri Kailash Khandelwal who is in accounts department by the finance broker through whom the amounts were borrowed, asking for further payment of interest @2.4% in addition to the interest already paid and thus this amount is separately mentioned in the last column, but the said payment was never made by assessee or other group members of the group. However, the ld. AO alleged the same to be additional interest paid by assessee not recorded in books, and treated the same to have been paid out of undisclosed sources of the assessee without bringing any adverse material on record. It is humbly submitted that the assessee had elaborately demonstrated the fact that the said pen-drive was not prepared by the assessee or even by Shri Kaila....
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....it is humbly prayed that the addition of Rs.8,10,898/- so made merely on suspicion without any corroborative evidence on record deserves to be deleted and the assessee prays accordingly." 9. The ld. AR in addition to the above written submission implored that the issue which the revenue has taken up in this appeal is settled by the decision of various benches of the tribunal and High Court on technical aspect as well as on merits of the case also. As the assessment year under consideration is not pending as on the date of search and thus was completed assessment. As per interpretation done by various courts that in such cases the scope of additions to be made is restricted to incriminating documents only which are found / seized during the course of search. The ld. AR has filed a detailed submission on the issue (APB 239-243). Based on the detailed submission the ld. CIT(A) has allowed the appeal of the assessee. The ld. AR further objected since there is no merits on the legal ground and the same is accepted by the revenue, now they cannot challenge the order of the ld. CIT(A) on merits. As regards the addition sustained by the CIT(A) he submitted that the person from whom the ....
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.... is not recorded. Therefore, working recorded in this PEN drive is merely an information recorded by that person and whatever financial transaction related to that information is recorded in the books and are already explained before the lower authorities and there is no dispute on this aspect. The revenue has made this addition in the hands of the assessee as unexplained interest payment based on working made in this PEN drive. Therefore, the bench has directed revenue to call the factual information from the AO during the hearing of these appeals. The ld. AO categorically confirmed that the against that addition no substantive addition is made who has received the interest. The relevant report of AO vide letter No. ITO/Wd-1(2)/JPR/2022-23/92 dated 02.05.2022, submitted his report and same is extracted here in below : "Respected Sir, Sub: Supplying of documents/information in the case of M/s Maverick Group Cases-reg. ***** Kindly refer to your letter No 50 dated 27.04.2922 on the abovementioned subject. In this connection, the requisite information is reads as under: i. No further appeals before Hon'ble ITAT were recommended in a....
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....ention of the assessee and stated that the pen drive found from the premises of Sh. Kailash Chand Khandelwal belongs to the assessee group and some of the appellant specifically mentioned in column No. 2 of spread sheet. The seized material is lying with the office of ACIT, Central Circle-4, Jaipur. If any further clarification is needed on this issue, the same may be obtained from that office. Case records for A.Ys. 2010-11, 2011-12, 201-13 and 2013-14 (One volume each) are enclosed herewith." 10. Based on the stated facts, the ld. AR of the assessee vehemently argued when in the report addition for receipt of the interest is not questioned or made based on the findings of the ld. Assessing Officer how the addition can survive in the case when the assessee alleged to have been not paid this additional amount and has not been taxed in the hands of the person who received it. Therefore, he has submitted that the addition made in these cases are required to be deleted. To drive home to this contention the ld. AR of the assessee he has relied upon the findings of the SC in the case of Lalji Haridas Vs. ITO 43 ITR 387 where in the apex court observed that We would,....
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.... 43 ITR 387 (SC). I may state at this stage that there is no specific provision in the Indian Income-tax Act, 1922 regarding making the assessments on protective basis. Such concept has been borrowed from law and practice as prevalent in England. The leading case on the subject is Attorney-General v. Aramayo [1925] 1 KB 86 (CA). Similar matter came before the Calcutta High Court in the case of B.V.Bagchi v. Ladhuram Taparia [Appeal from the original order No. 71 of 1951, dated 17.1.1952]. In the said decision, his Lordships Harries, CJ., while deciding the controversy observed as under: The income-tax authorities also made an alternative assessment, assessing each of the firms separately and this was what is referred to as a protective assessment and is permissible in order to prevent assessment being barred by limitation. Reference may be made to the ratio of decision in the case of Jagannath Hanumanbux. TTO [1957] 31 ITR 603 (Cal). The Hon'ble Calcutta High Court, while deciding the said case made observations as under: ...It is also true that there cannot be any assessment excepting of an assessee and there can be no doubt that the income-tax autho....
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.... whom the substantive income flaws how the related unexplained expenditure survives. Even though no payment is alleged to have been made and not relevant loose paper recording these averments is found and in light of that submission he has prayed to delete the additions. 13. Per contra, the ld. DR relied upon the order of the ld. AO and supported the arguments recorded in the order for both the issues on hand. As regards the statement not recorded for the evidence of PEN drive he relied on the report of the AO. He further submitted that for these additions a detailed discussion is made in the order of the assessing officer and therefore, he supported the reasoning given by the ld. AO while making the additions. 14. We have considered the rival contentions, perused the material available on record and also gone through the findings of the lower authorities recorded in their respective orders. We have also gone through the various judicial ruling placed before us by both the parties to drive home to their contentions. 14.1 Undisputedly, the assessment for assessment year 2010-11 was not pending on the date of search on 22.07.2015. Thus, the assessment for the assessment year....
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....from material/documents seized as a result of search. The completed assessment can be interfered or disturbed by the AO while making the assessment under section 153A only on the basis of some incriminating material unearthed during the course of search and requisition of income disclosing undisclosed income not already disclosed or made known in the course of original assessment. Therefore, in the absence of any incriminating material found or seized during the course of search and seizure proceedings, the additions made by the AO during the course of reassessment under section 153A of the Act are without jurisdiction and liable to be deleted and it is nothing but a review by the same rank of officer and the same is not permitted under the law. The ld. CIT(A) has accepted the contentions of the assessee and held that no addition could be made as no incriminating material was found with respect to the CCM loss claimed by the assessee by alleging the same as non- genuine. We have gone through the grounds of appeal raised by the revenue and it appears that the revenue has not challenged the findings of the ld. CIT(A) on the very legal ground decided by ld. CIT(A) against the revenue.....
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....d in the return of income filed by the assessee. Therefore, the jurisdictional requirement of Section 153 A of the Act was not satisfied. 14.3 Even on merits the ld. AR of the assessee submitted various decisions that without any finding merely on the third party information no addition can be made. We find, identical issue come up before the Delhi High Court in the case of PCIT Central -3 Vs. Jaypee Financial Services Ltd. reported at 127 Taxmann.com 490 where in the court has held that : 2. Briefly stated, the assessee is a company engaged in trading of equity shares, securities and commodities through recognized exchanges. It filed its return of income on 30-9-2008 declaring total income of Rs. 89,60,410/-. The return was processed on 6-3-2010. Subsequently, on 30-3-2012, a search and seizure operation under section 132 was initiated in the case of the assessee, as part of Jaypee Group. During search, data of the computers found at the premises was cloned and seized along with certain documents. Thereafter, on 5-8-2013, a notice under section 153A of the Act was issued. Pursuant thereto, the assessee filed its return of income reiterating the return of income filed b....
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....submits that at the stage of passing of the assessment order, the decision of Kabul Chawla case (supra) was not available and therefore, assessing officer did not consider it necessary to give a complete description of the incriminating material by recording the details of the panchnama. 5. We have perused the record. Both the CIT(A) as well as the ITAT have held in the instant case that the addition is not based on any incriminating material found during the course of search and the assessment was not pending on the date of search. The observations of the assessing officer relied upon by Mr. Sharma do not give us any insight or clue about the 'incriminating material' which is claimed to be in existence. In the proceedings before the CIT(A) as well as the ITAT, the revenue has not made any attempt as to disclose the incriminating material. Even in the present appeal, the revenue is unable to explain or give us any indication about the same. 6. The findings of facts returned by CIT(A) and ITAT are not be interfered with lightly. The view taken by the tax authorities based on the decision of Kabul Chawla (supra) cannot be held to be perverse. The questions o....