2021 (1) TMI 997 - AT - Income Tax

Suppression of profit made by way client code modification - stock broker who carried out the client code modification was a group concern of the assessee and therefore the contention that there occurred a punching error in large scale entering the trade is remote - CIT-A deleted the addition - HELD THAT - As decided in M/S PAT COMMODITY SERVICES P. LTD 2015 (8) TMI 973 - ITAT MUMBAI AO has mainly relied upon the report given by the MCX and has drawn adverse conclusions without bringing any material to support his view. CIT(A) has also pointed out that modifications carried out by the assessee works out to around 3% of the total transactions only and in our view, the said volume, in fact, vindicates the explanation of the assessee. Further none of the clients has been found to be bogus and all of them have complied with KYC norms, meaning thereby the identity of all the clients stand proved. None of them has disowned the transactions and all of them have also declared the income in their respective returns of income. All these factors, in our view, support the contentions of the assessee. We are of the view that the Ld CIT(A) was justified in deleting the additions - Decided in favour of assessee.

Summary

Issues involved:
Appeal against deletion of addition due to suppression of profit and client code modification in assessment year 2010-11 under Income Tax Act 1961.

Analysis:
1. The appeal by the Revenue challenged the deletion of an addition of ?1,60,53,332 made on account of suppression of profit through client code modification. The Assessing Officer (AO) reopened the assessment based on information about fictitious profits and losses created by brokers misusing the client code modification facility. The AO was not convinced by the assessee's explanations and added the amount as bogus loss.

2. The assessee appealed to the Commissioner of Income Tax (Appeals) who, following precedents, deleted the addition. The Revenue argued that the AO's decision was correct based on the information received. The assessee contended that all transactions were legitimate, margins were paid as required, and the Department failed to provide evidence against them, violating natural justice principles.

3. The Tribunal referred to a similar case where it was held that the AO failed to prove the client code modifications were not genuine. It was noted that the stock exchange was aware of such modifications and penalties were in place for excessive changes. The Tribunal found no evidence of profit shifting by the assessee and that clients disclosed their profits, paying taxes accordingly.

4. The Tribunal emphasized that the AO did not conduct a proper inquiry and made adverse conclusions without substantial evidence. The Tribunal upheld the CIT(A)'s decision to delete the addition, citing lack of material supporting the AO's view. The Tribunal found the additions were made based on suspicion and upheld the CIT(A)'s order.

5. Ultimately, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision. The Tribunal held that in the absence of concrete evidence against the assessee, the addition was not justified. The decision was based on principles of natural justice and lack of substantiated claims by the Revenue.

This detailed analysis of the judgment highlights the key arguments, precedents, and reasoning leading to the dismissal of the Revenue's appeal regarding the deletion of the addition made on account of suppression of profit through client code modification.