2019 (12) TMI 491 - AT - Income Tax

Bogus loss on account of CCM Client Code Modification - information was received from the office of the Pr. Director of Income Tax (Inv.), Ahmedabad that some brokers were diverting profits/losses through adopting Client Code Modification facility - HELD THAT - The corrections as effected in the CCMs were of a most nominal amount of ₹ 2 Lakhs plus which could not lie in the realm of manipulation. The broker of the assessee on enquiry had confirmed that the modifications were all genuine. AO had not found any evidence of any under-hand commission having been paid to the broker for manipulations. Whatever was paid to the broker was all through regular channels and was at the rates as prescribed by the stock exchange. AO failed to also note these punching errors occurred in seriatim only in the month of January of that year whereas the assessee's trading in share transactions was spread over the entire year. The fact that the error which occurred could be the product of a novice's mistake at the broker's end has been completely lost sight of by the AO. Commissioner (Appeals) while deciding the issue was overtaken by the decision of the Apex Court in SEBI vs. Rakhi Trading Pvt. Ltd. 2018 (2) TMI 580 - SUPREME COURT . CIT(A) in his enthusiasm to apply the ratio of the case appears to have overlooked the indispensible conditions spelt in the decision itself. In the circumstances it is noted that since the nominal loss as incurred by the Assessee and claimed as such is due to genuine errors in CCM as explained to the Assessing Officer in details and there is nothing irregular about it, hence, the same is directed to be allowed and addition made on this account is hereby cancelled by allowing the appeal of the assessee. - Appeal filed by the assessee is allowed.

Summary

Issues:
1. Addition of ?2,31,804 as bogus loss on account of CCM.
2. Validity of the assessment order and appeal process.

Analysis:
1. The case involved the assessee challenging the addition of ?2,31,804 as a bogus loss on account of Client Code Modification (CCM). The Assessing Officer (AO) relied on information from the Investigation Wing without considering the activities of the company. The AO listed patterns of misuse of CCM, but the broker clarified that they lacked data on original codes. The AO's reasoning for the addition was based on the misuse of CCM, which the assessee denied, stating it must have been used to rectify errors. The AO's failure to consider the facts led to the addition being made. The CIT(A) upheld the AO's decision, citing a different case's judgment. However, the Tribunal found that the nominal loss incurred by the assessee was due to genuine errors in CCM, leading to the cancellation of the addition.

2. The validity of the assessment order and appeal process was also scrutinized. The AO's reliance on a report without proper investigation and overlooking key facts was criticized. The CIT(A) was found to have overlooked essential conditions in applying a previous judgment. The Tribunal emphasized that not all CCM transactions are manipulated and that errors can be genuine. The Tribunal ruled in favor of the assessee, canceling the addition made by the AO. The judgment highlighted the importance of considering the specific facts of each case rather than relying solely on external reports or general patterns of misuse.

In conclusion, the Tribunal allowed the appeal filed by the assessee, emphasizing the need for a thorough examination of the facts and circumstances of each case before making additions based on external information or general trends of misuse.