2015 (4) TMI 328 - AT - Income Tax

Undisclosed income on the basis of client code modification - CIT(A) deleted the addition - Held that - The total number of trade transactions is 38.58 lacs and the client code modification is only 36,161. Therefore, the client code modification is less than 1% of the total trading transactions. As per circular of Commodity Exchange, client code modification upto 1% is quite normal and is permitted without any penalty. That the Assessing Officer has not given any reason on what basis he presumed the client code modifications to be unusually high. In the light of the MCX circular, we are of the opinion that the client code modification was quite nominal and not unusually high as alleged by the Assessing Officer. All transactions at the Commodities Exchanges have been duly accounted in the books of account maintained by the concerned parties. 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 - Decided against revenue. Disclosure made by the appellant cannot be assumed to be voluntary and based on seized documents as held by CIT(A) - Held that No defects or discrepancies in any of the seized documents have been pointed out by the Assessing Officer in the assessment order or by the ld. DR at the time of hearing before us. During the course of search also the officer recording the statement of Shri Nayan Thakkar has not specified any discrepancy or defect in any of the seized documents but made a general statement that there were defects and discrepancies in the various documents seized from the assessee s premises. Such assertion by the authorize officer is found to be factually incorrect. In the affidavit of Shri Nayan Thakkar furnished before the Assessing Officer these facts have been clarified. He stated that after getting the photocopy of the seized documents and their verification with reference to the books of accounts, since no discrepancy was noticed, no undisclosed income was offered in the Return of Income. If there was any discrepancy or defect in the assessee s books of accounts or the seized documents indicating any undisclosed income, the Assessing Officer ought to have mentioned the same in the assessment order. In the case of Kailashben Manharlal Chokshi (2008 (9) TMI 525 - GUJARAT HIGH COURT), the Hon ble Jurisdictional High Court has noticed that when during the course of assessment proceedings the assessee has given the proper explanation for investment in various properties, the addition cannot be made on the basis of statement made at odd hours. Thus we find that the officer recording the statement of Shri Nayan Thakkar has mentioned that various defects and discrepancies have been observed from the papers and documents seized from the assessee s premises. However, any defects or discrepancies were not specified. In view of the above, we are of the opinion that on the facts of the assessee s case uphold the order of the CIT(A) - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition based on undisclosed income due to client code modification.
2. Assumption of voluntary disclosure by the appellant and its basis on seized documents.
3. Addition on account of suppressed profit due to client code modification.

Detailed Analysis:

1. Deletion of Addition Based on Undisclosed Income Due to Client Code Modification:
The Revenue appealed against the deletion of additions made on account of undisclosed income based on client code modifications for the assessment years 2005-06, 2006-07, 2007-08, and 2008-09. The Assessing Officer (AO) inferred that the modifications were made with malafide intentions to transfer profit/loss among clients. However, the CIT(A) deleted these additions, stating that the AO's calculations were based on notional profits and assumptions, which is not permissible under the law. The Tribunal upheld the CIT(A)'s decision, emphasizing that client code modifications up to 1% are considered normal as per the Commodity Exchange guidelines, and there was no evidence of malafide intentions. The Tribunal concluded that the AO's inference was based on mere suspicion and not on concrete evidence.

2. Assumption of Voluntary Disclosure by the Appellant and Its Basis on Seized Documents:
The AO assumed that the disclosure of Rs. 12 crores made by the appellant was voluntary and based on seized documents. However, the CIT(A) found that the disclosure was made under duress and without any specific incriminating documents being confronted to the appellant during the search. The Tribunal agreed with the CIT(A), noting that the disclosure was obtained based on incorrect facts conveyed by the authorized officer and that no specific addition was made on the basis of the seized material. The Tribunal also highlighted that the statement was recorded at odd hours, which undermines its credibility, and there was no evidence of undisclosed assets or expenditure corresponding to the alleged undisclosed income.

3. Addition on Account of Suppressed Profit Due to Client Code Modification:
For the assessment years 2006-07 and 2007-08, the AO made additions of Rs. 2,03,270 each based on suppressed profit due to client code modification specific to the case of the assessee. The CIT(A) deleted these additions, observing that the modifications were negligible and done to rectify punching errors. The Tribunal upheld the CIT(A)'s decision, reiterating that the issue was covered in favor of the assessee by a previous consolidated order of the Tribunal, which found no basis for making additions on account of client code modifications.

Conclusion:
The Tribunal dismissed the Revenue's appeals and upheld the CIT(A)'s decisions, which were based on thorough analysis and concrete findings. The Tribunal emphasized that additions based on client code modifications were not justified as they were based on assumptions and notional profits, and the alleged voluntary disclosure was obtained under duress without any specific incriminating evidence. The Tribunal's decision was consistent with previous rulings and guidelines from the Commodity Exchange, ensuring that the additions were not made on mere suspicion or incorrect facts.