2021 (7) TMI 132 - AT - Income Tax

Addition of loss of client code modification - CIT-A deleted the addition - HELD THAT - A perusal of assessment order reveals that the Assessing Officer has disallowed assessee's claim of loss arising out of client code modification purely on surmises and conjectures. In assessment order, the AO has comprehensively given modus operandi of brokers in generating non-genuine losses by misusing code modification facility. AO has failed to establish link between the loss claimed by the assessee on account of client code modification and non-genuine client code modification practices adopted by the brokers. AO has not given any cogent reason to reject explanation offered by the assessee on loss resulting from client code modification. AO in entire assessment order has not named the broker who was instrumental in providing bogus client code modification entry to the assessee. Not emanating from the assessment order whether any search/survey or any other investigative enquiry was made on the broker from whom it is alleged that the assessee has obtained fictitious entry of loss arising from client code modification. The observations made by AO are generic and not specific to the assessee. CIT(A) has deleted addition inter alia for the reasons the Assessing Officer has made addition in the absence of cogent evidence against the assessee and no adverse finding with regard to fictitious losses incurred and claimed by the assessee. - Decided against revenue.

Summary

Issues:
- Appeal against order of CIT(A) for assessment years 2009-10 and 2010-11 regarding deletion of addition on account of client code modification.

Analysis:
1. ITA No. 5627/Mum/2019- A.Y. 2009-10:
- The Revenue challenged the CIT(A)'s decision to allow the assessee's claim of loss of ?2,00,195 arising from client code modification, alleging misuse of the facility by the broker. The Revenue contended that the assessee failed to prove the genuineness of the transaction and used the modification to reduce taxable income with fictitious losses.
- The assessee, represented by Shefali, argued that they were engaged in trading/investment activities and declared income accordingly. The assessee denied involvement in the alleged misuse of client code modification, stating that the broker was responsible for such actions. The assessee's representative cited a legal precedent to support the claim that genuine errors in code modification should not lead to income escapement allegations.
- Upon review, it was found that the Assessing Officer disallowed the loss claim based on assumptions without establishing a direct link between the assessee's claim and the brokers' non-genuine practices. The CIT(A) deleted the addition due to lack of concrete evidence against the assessee and absence of adverse findings on the claimed losses.
- The judgment concurred with the CIT(A)'s decision, upholding the deletion of the addition and dismissing the Revenue's appeal.

2. ITA No. 5628/Mum/2019-A.Y. 2010-11:
- Both parties acknowledged that the issues in this appeal mirrored those of the previous year. Given the identical nature of the grounds and facts, the decision made for the 2009-10 assessment year was deemed applicable to the current appeal. Consequently, the Revenue's appeal for the 2010-11 assessment year was dismissed for consistency with the earlier judgment.

3. Final Decision:
- The order pronounced on June 15, 2021, upheld the CIT(A)'s decision to delete the addition on account of client code modification for both assessment years 2009-10 and 2010-11. The appeals of the Revenue were consequently dismissed for lack of merit.