2020 (3) TMI 609 - HC - Income Tax

Assessment u/s 153A - Addition made on account of disclosure of undisclosed income made u/s 132(4) - client code modifications for an unusually high number of times - profit/loss has been worked out with reference to the old clients instead of new clients - diversion of profit - HELD THAT - It is apparent that the AO had made addition in the hands of the assessee on the basis of disclosure made by Shri Nayan Thakkar by bifurcating the amount of 12 crore into three parts 8 crore in the hands of Kunvarji Finance Private Limited 2 crore in the hands of Shri Nayan Thakkar and 2 crore in the hands of the assessee as amount received for providing client code modification. Assessing Officer has held that 2 crore was received by the assessee for providing the client code modification and he has attributed this amount year-wise in the ratio of client code modifications such addition is not based on any material other than the disclosure made by Shri Nayan Thakkar. The Assessing Officer has merely held that an amount of 2 crore out of the amount disclosed by Shri Nayan Thakkar has been received by the assessee from the clients by aiding them by suppressing their profits by way of diversion of profits through the methodology of client code modifications. Contention of the revenue that the addition with regard to client code modifications was subsumed in the addition made on account of non-disclosure made under section 132(4) of the Act does not merit acceptance - Decided in favour of assessee.

Summary

Issues:
1. Recall of order in Tax Appeal No. 607 of 2015
2. Admission of appeal on proposed substantial questions of law

Issue 1: Recall of Order in Tax Appeal No. 607 of 2015

The applicant sought the recall of the order dated 02.11.2015 passed by the Court in Tax Appeal No. 607 of 2015. The applicant contended that the addition made on account of client code modification was subsumed in the addition based on the disclosure under section 132(4) of the Income Tax Act, 1961. The applicant argued that the issue of client code modification was covered by the proposed substantial question of law (question A) and should be admitted. However, the respondent opposed the application, stating that client code modification did not apply to the assessee as it was a broker, not a client. The respondent also emphasized the limited scope of review proceedings under Order 47 Rule 1 CPC, citing relevant case law. The Court found that the addition based on client code modifications was not subsumed in the addition made under section 132(4) of the Act, and the proposed questions were adequately addressed in a previous judgment. Therefore, the Court rejected the application for recall of the order.

Issue 2: Admission of Appeal on Proposed Substantial Questions of Law

The applicant had proposed two substantial questions of law related to the deletion of addition, including the addition made on account of client code modification, and the retraction of disclosure of undisclosed income under section 132(4) of the Act. The applicant argued that the addition made based on client code modification was distinct from the disclosure under section 132(4) and should be considered separately. The Court analyzed the facts of the case, where the Assessing Officer attributed an amount to the assessee for providing client code modification based solely on the disclosure made by another individual. The Court concluded that the addition on client code modifications was not subsumed in the addition under section 132(4) and that the proposed questions were adequately covered in a previous judgment. Therefore, the Court rejected the application for admission of the appeal on the proposed substantial questions of law.

In conclusion, the Court dismissed the application seeking the recall of the order in Tax Appeal No. 607 of 2015 and the admission of the appeal on proposed substantial questions of law. The Court held that the addition based on client code modifications was distinct from the addition under section 132(4) of the Act and that the proposed questions had been adequately addressed in a previous judgment.