2020 (10) TMI 1041 - AT - Income Tax

Reopening of assessment u/s 147 - loss in F O transaction investigation wing has carried on survey operation under section 133A in the premises of brokers and certain clients - brokers have indulged in misusing the client code modification procedure - HELD THAT - Addition was made by AO merely on the basis of suspicion, presumptions, surmises and conjectures. The modification in the client code is in the hands of the broker and the assessee cannot be made responsible for the act of others and he also observed that the payments for the losses were made by the assessee to the broker through banking channel and the assessing officer has not disputed the above fact and has also not brought out any evidence of cash coming back to the assessee - all the modifications were made on the same day of the transaction which further substantiates that the same cannot be made with malafied intention. The client code modification can be made on the request of the client or suo moto by the broker before the close of the day. When the broker makes the modification on the behest of the client, as per the BSE procedure, he has to take the request in writing. With regard to suo moto modification it need not. Since the transaction was made through banking channel and settlement was already made for this transaction, that means the transaction must be completed subsequent to the completion of this transaction. So the broker cannot make modification after closure of the trading for the particular day. No factual submission coming from revenue and the addition was made by the assessing officer based on presumptions without any cogent material against the assessee - Decided in favour of assessee.

Summary

Issues Involved:
1. Reopening of assessment under section 148 of the Income Tax Act.
2. Addition of ?1,51,93,791/- based on client code modification (CCM).

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 148:
The revenue reopened the assessment for AY 2009-10 based on information from the ADIT (Investigation) regarding tax evasion through client code modification (CCM). The assessing officer (AO) issued a notice under section 148, which the assessee contested, arguing that the return filed on 29.08.2009 should be considered in response to the notice. The AO provided the reasons for reopening, which the assessee objected to, but the AO addressed these objections and proceeded with the assessment. The AO relied on investigations indicating misuse of CCM by brokers to transfer fictitious losses and profits. However, the AO did not present specific evidence against the assessee, leading to an addition based on suspicion.

2. Addition of ?1,51,93,791/- Based on Client Code Modification (CCM):
The AO added ?1,51,93,791/- to the assessee's income, alleging fictitious losses through CCM. The assessee appealed to the CIT(A), who deleted the addition, stating that the AO's conclusions were based solely on investigations without concrete evidence linking the assessee to the misuse of CCM. The CIT(A) noted that CCM is a legal practice used by brokers to rectify errors and that the AO failed to prove any malafide intention by the assessee. The CIT(A) emphasized that suspicion cannot replace evidence and referenced judicial precedents supporting this view.

Revenue's Appeal:
The revenue appealed against the CIT(A)'s order, arguing that brokers modify client codes at the behest of clients, implying possible collusion between the assessee and the broker. The revenue contended that the CIT(A) erred in deleting the addition without considering this potential collusion.

Tribunal's Decision:
The Tribunal upheld the CIT(A)'s decision, noting that the AO's addition was based on presumptions without concrete evidence. The Tribunal agreed that CCM is within the broker's control and that the assessee cannot be held responsible for the broker's actions. The Tribunal also highlighted that all modifications were made on the same day, negating any malafide intention. Consequently, the Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s order to delete the addition of ?1,51,93,791/-.

Conclusion:
The Tribunal concluded that the addition was based on mere suspicion and lacked substantive evidence. The reopening of the assessment and the subsequent addition were not justified, leading to the dismissal of the revenue's appeal. The Tribunal's decision reinforces the principle that assessments must be based on concrete evidence rather than presumptions.