TaxTMI 
TaxTMI 
2025 (4) TMI 1721
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....7,890/-. Subsequently, certain information was received from DIT(I&CI), Mumbai and on the basis of same, the following reasons for reopening the case u/s 147 of the Act were recorded. ".....Information was received by this office from DIT (I&CI), Mumbai that fictitious profits and losses were created by some broker by misusing the Client Code Modification facility (CCM) in F&O segment on NSE. The brokers were indulging in transferring the fictitious losses to different clients to reduce their tax liability and also fictitious profit to other clients. Some of the clients also took fictitious profit to cover up their undisclosed income to set off these profits against huge losses. From the details received, it is found that Assessee is also one of the beneficiary of profit of Rs. 48,93,183/- by misusing CCM facility during the previous year2009-10. Further on the spot verification of few cases of broker by DDIT (I&C), Unit-1(1), Mumbai u/s 131(1A) this fact was revealed and they have confirmed having misused the facility of client code modification in order to create fictitious losses/ profits. They admitted having received commission at the rate varying from 0.5 up....
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....xecuted by the Assessee, the Assessee has earned the fictitious profit of Rs. 48,93,183/- by modifying the client code. 6. Thus the AO show caused the Assessee "as to why the transactions which have incurred the said profit of Rs. 48,93,183/- should not be disallowed on account of modified transactions, resulting into 'loss'". 7. The Assessee denied to have made such client code modification and submitted that he has already submitted all the required details, statements, broker's ledger accounts, copies of invoices issued by broker, payment details, global position report etc. Further, all the transactions have been done by M/s. Pashupati Capital Services Pvt. Ltd. and the Assessee has no control over the acts of the broker, after placing the order and the change at the broker's end due to any reason, does not affect the genuineness of the Assessee's claim. Further, the total F&O loss for the year is Rs. 1,19,21,048/- against which profit of Rs.62,17,804/- from M/s. Pashupati Capital Services Pvt. Ltd. was set off and net result loss of Rs. 57,02,244/- was adjusted against other business income. Thus, total profit earned by the Assessee from M/s. Pashupati Capital Services P....
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....ted party of broker i.e. Pashupati Investments, Pashupati shares & Finance Ltd., Chaudhary Investment, Sarvagya Commodities, Nishadevi Chaudhary, Sritadevi Chaudhary. They are non-related party to broker. c) The original client and Assessee are not relative. d) The client code of Assessee is 4709 and that of original client is not at all nearby to Assessee's client code digits which can amount to human error while punching order. Hence as per NSE criteria the client code modification is not genuine. v. The date wise modified volume of transaction is as under: Market Segment Date No. of Trades No. of Trades modified % of trades modified F&O 24.09.2009 33 5 15.15 25.09.2009 78 78 100 29.09.2009 52 52 100 30.09.2009 38 38 100 01.10.2009 129 129 100 05.10.2009 118 118 100 06.10.2009 214 206 96.26 12.11.2009 79 79 100 16.11.2009 31 31 100 18.11.2009 31 31 100 19.11.2009 72 72 100 20.11.2009 123 1....
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....nd Assessee also cleverly not produced the broker for verification and put entire onus on broker pleading himself innocent and not part of client code modification. The broker did not appear only to avoid escape admission of said fact as done in other cases by I & CI wing of Income Tax Department. The Assessee also failed to discharge his onus by not producing broker for verification. ix. The Assessee has incurred loss from F&O business with Zodiac Broking Pvt. Ltd. of Rs. 1,19,21,048/-. The Assessee buy profit from Pashupati Capital Services Ltd. Broker only to set off loss and to cover up unaccounted income. x. The Assessee has also not produced global client report and relevant details related to client code modification. He has also not produced evidences that he has given instruction to broker to place orders Assessee even not commented on NSE information given to Assessee. xi. The Assessee has done transactions only on few days in a year. It shows Assessee has clear intention of booking fictitious profit in a year. xii. Assessee has not given bank statement and margin money statement from broker in support of his claim. The Assessee has not....
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....egment during a month. xix. Thus, both SEBI and NSE has set strict guidelines to ensure that only the genuine error in entry of client code at the time of placing/modifying the related order are rectified through client code modification mechanism. It is also important to mention that percentage of client code modifications done by broker is more than the limit prescribed by the SEBI. It is important that the penalty of Rs. 2,20,000 was levied by the NSE to broker Pashupati Capital Services Pvt. Ltd. for indulging into client code modification for F.Y. 2009-10. xx. The Assessee claimed that he could have set off losses of F&O from future year business income and he has no necessity to indulge in booking fictitious profit. Assessee contention is based on false ground. Here important to know that the Assessee is engaged in manufacturing industry where profits are fluctuating and cannot be ascertained well in advance by a businessman. The Assessee receives opportunity from broker Pashupati Capital Services P. Ltd. for buying fictitious profit to cover up his unaccounted income without paying taxes. It is equally important that Assessee has continuous loss from Zodiac....
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.... total income of Rs. 36,07,890/- determined u/s 143(3) of the Act on the basis of information which was not provided to him despite specific request made in this regard. In this case it is noticed that the AO has information that the appellant had received bogus profit by misusing the client code modification facility in F&O segment on NSE. Accordingly, the case was reopened u/s 147 of the Act. During the course of assessment proceedings, the AO received the details of modified transactions of appellant in response to notice u/s 133(6) of the Act from the National Stock Exchange on 09.02.2016. A perusal of the details reveals that the all the transactions were modified on behalf of the appellant from 25.09.2009 onward on several dates. The appellant's claim of bonafide mistakes in these modifications is not found acceptable in view of the repetitive modifications of transactions without raising any objections with broker in this regard. The appellant has neither submitted any single evidence to support his claim of bonafide modifications nor was he able to explain satisfactorily the reason for modification of the transaction on several dates. Even the appellant has not filed any ev....
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....3/- and to carry forward balances losses if any to the next AY and make addition of Rs. 48,93,183/ under the head income from other source as unaccounted income. Accordingly, the ground no 5 of this appeal is partly allowed. 7.4 Grounds of appeal number 6: Vide Ground No 6 of the appeal, the appellant has requested to add to, alter, amend, modify, substitute, delete and/or rescind all or any of the ground of appeal on or before the final hearing. Since, the appellant has not submitted any request to amend the appeal; therefore, this ground of appeal is not entertained." 12. The Assessee, being aggrieved, challenged the impugned order and reopening of the case u/s 147 of the Act and making the addition of Rs. 48,93,183/- and the action of the AO in using the material collected behind the Assessee's back, without providing the same to the Assessee, in spite of specific request made by the Assessee for providing any such material used against the Assessee. 13. The Ld. Sr. Counsel Mr. Ajay Singh, at the outset, has submitted that in the instant case, a general information was received without any specific allegation against the Assessee and the AO, without makin....
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.... the Assessee's claim. Admittedly, the broker in the instant case, has confirmed the transaction and therefore there is no evidence against the Assessee beside the imagination, surmises and conjecture of the Department. 18. The AO not being satisfied with the reply of the Assessee and "considering the modus operandi adopted by broker for client code modification and date-wise modified volume of the transaction and in spite of issuing notice u/s 133(6) of the Act to the broker calling for information, he has not produced client code modification related information to contradict the finding of the investigation wing and NSE information, director of the broking firm choose not to appear, in spite of sending notice u/s 131 of the Act and the fact that the NSE has levied a penalty of Rs. 2,20,000/- on the broker M/s. Pashupati Capital Services Pvt. Ltd. for indulging into client code modification in the assessment year under consideration", treated the amount of Rs. 48,93,183/- on account of F & O trade as non genuine and unaccounted income and added the same to the income of the Assessee. 19. We by perusing the orders passed by authorities below and the submission made by the Ld....
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....here were instances of client code modifications. The Assessing Officer believed that the same was done to indulge in circular trading to pass on profits or losses to the clients of the Assessee company as per requirements. After hearing the Assessee, the Assessing Officer made additions in the income of the Assessee on such basis. The issue eventually reached to the Tribunal. The Tribunal did accept the Revenue's theory of misuse of client's code modification facility. However, the Tribunal accepted the Assessee's explanation and discarded the Revenue's theory that profit of the Assessee's company were passed on to the clients. It was also noticed that the Revenue has not contended that the client code modification facility is often misused by the Assessee to pass on losses to the investors, who may have sizable profit arising out of commodity trading against which such losses can be set off. The Revenue normally points out number of such instances of client code modifications as well as nature of errors in filling of the client code. At any rate, what can be taxed in the hands of the present Assessee is the income escaping assessment. Even if the Revenue's the....
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....d. Commissioner also observed that the AO failed to call for any information from M/s Pranav Securities Pvt. Ltd. to verify, if the said profit & loss have been duly incurred in the accounts of the Assessee. The Ld. Commissioner also considered the aspect qua claim of the Assessee that during the year under consideration, the Assessee has not carried out of any transaction with M/s Pranav Securities Pvt. Ltd. in the trade segment and presumption to the effect that the Assessee had reduced the profit of Rs. 54,29,959/- to a loss and accordingly making the addition of Rs. 1,08,59,918/- (being twice the amount of Rs. 54,29,959/-) is not substantiated by any evidence. The Assessee also claimed that he has not carried out any transaction in the F & O segment with M/s Pranav Securities Pvt. Ltd. during the month of March 2010. On overall consideration, I observe that the Ld. Commissioner rightly concluded that there are no linkages between the reasons recorded and the conclusion drawn and/or addition made by the AO. It is also a fact that though as per information supplied by NSE vide letter dated 25.02.2016, the penalty of Rs. 6,16,000/- was levied against M/s Pranav Securities Pvt. Ltd....