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2015 (11) TMI 415 - AT - Income TaxAddition on account of suppression of profit by the assessee by way of client code modifications by the borkers in a large number of commodity transactions - CIT(A) deleted the addition - Assessment was framed u/s. 153A (1)(b) r.w.s. 143(3) - Held that - CIT(A) while deleting the addition has noted that the A.O had calculated notional profits on the assumption as if Client Code Modifications were not carried out and the transactions were closed on the expiry date. Ld. CIT(A) has further noted that addition on the basis of Client Code Modifications was on the basis of assumption and surmises and was not on the basis of concept of real income. - Decided in favour of assessee.
Issues Involved:
1. Deletion of addition on account of suppression of profit due to client code modifications in commodity transactions. Issue-wise Detailed Analysis: 1. Deletion of Addition on Account of Suppression of Profit Due to Client Code Modifications: The Revenue filed two appeals against the order of CIT(A)-I, Ahmedabad, dated 22.11.2010, for the assessment years 2005-06 and 2007-08. Both parties agreed that the facts and circumstances for both years were similar, and thus, the appeals were heard together. The Assessee, engaged in trading shares and investments, was subjected to search and seizure on 25.03.2008. Documents and computer data seized led to proceedings under Section 153C r.w.s. 153A of the Income Tax Act. The Assessee filed returns declaring a total income of Rs. 77,99,300/-, which was later assessed at Rs. 99,25,850/- by the A.O. The A.O. noted that the Assessee's broker, Kunwarji Commodity Brokers Pvt. Ltd., had conducted an unusually high number of client code modifications during FY 2004-05 to 2006-07. These modifications were deemed malafide, aimed at transferring profits/losses between clients. Consequently, the A.O. treated Rs. 20,73,543/- as suppressed profit. The CIT(A) deleted the addition, referencing his detailed analysis in the case of Kunwarji Finance Pvt. Ltd., where he found that the client code modifications were done to rectify genuine punching errors and were duly accounted for in the books of concerned parties. The CIT(A) emphasized that the A.O.'s additions were based on assumptions and notional profits, which are not permissible under the law. The Revenue appealed against this deletion, but the Tribunal upheld the CIT(A)'s decision. The Tribunal noted that client code modifications were permitted intra-day by the Commodity Exchange (MCX) and were within the permissible limit of 1%. The Tribunal found no evidence of malafide intentions, as the modifications were done on the same day, making it illogical to assume profit transfers to avoid tax. Moreover, the Tribunal highlighted that the A.O.'s calculations were based on hypothetical scenarios, and the actual transactions were duly accounted for in the books of the concerned parties. The Tribunal also referenced its earlier decision in the case of Kunwarji Finance Pvt. Ltd., where it dismissed the Revenue's appeal on similar grounds. The Tribunal found no distinguishing features in the present case and thus dismissed the Revenue's appeal for both assessment years. Conclusion: The appeals by the Revenue were dismissed, and the deletion of the addition by CIT(A) on account of suppression of profit due to client code modifications was upheld. The Tribunal found that the client code modifications were genuine, within permissible limits, and duly accounted for, with no evidence of malafide intentions.
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