2022 (7) TMI 940 - AT - Income Tax

Disallowance on account of Client Code Modification - as per AO entire transactions of purchase and sales for booking the losses is by way of sham transaction through the broker M/s B P Equities Pvt. Ltd. - CIT- A deleted the addition - HELD THAT - We are of the considered view that when investigation has not been carried out as to what was the client code of the assessee, how he has booked the loss. When the assessee himself has come up with a specific contention that if the client code has been changed it is due to mistake committed by broker Adroit Financial Services Pvt. Ltd. and not the assessee, the issue has not been investigated in entirety, rather both AO as well as Ld. CIT(A) proceeded on the basis of assumptions and surmises. When all the transactions carried out by the assessee during the year under assessment carried through his brokers are duly detailed with NSE, the complete investigation is required to be done. Moreover in para 4.5 AO has also come up with observations that client code 43334 also belongs to the assessee, which fact also remained uninvestigated if the assessee was operating through two client code one 7550 and two 43334. We hereby set aside the order passed by the Ld. CIT(A) and remit the file back to the AO to investigate in accordance with the observation made in the preceding paras and decide afresh after providing opportunity of being heard to the assessee. Resultantly, appeal filed by the Revenue is allowed for statistical purposes.

Summary

Issues:
1. Disallowance of addition due to Client Code Modification.
2. Allegations of tax evasion through Client Code Modification.
3. Lack of investigation into client code details and transactions.

Analysis:
1. The appellant, an Income Tax Officer, sought to set aside the order deleting an addition of Rs.8,80,324 made by the Assessing Officer on grounds of Client Code Modification, alleging it was a sham transaction. The AO disallowed the claimed loss, framing the assessment under section 143(3) r.w.s 147 of the Act.

2. The CIT(A) partly allowed the appeal, finding the disallowance unwarranted. The appellant had submitted evidence showing transactions and losses incurred through the broker. The CIT(A) noted that the AO's additions lacked sufficient evidence and were based on assumptions without proper investigation. The appellant's tax payments and trading history also indicated no intention to evade taxes through Client Code Modification.

3. The Tribunal observed that crucial details regarding client codes and transactions were not adequately investigated by the AO or the CIT(A). The appellant's claim of a mistaken client code change by the broker was not verified. The Tribunal set aside the CIT(A)'s order, remitting the case back to the AO for thorough investigation and a fresh decision, emphasizing the need for a complete examination of all transactions and client code details.

This detailed analysis highlights the legal proceedings, the arguments presented by the parties, and the Tribunal's decision to remit the case for further investigation, ensuring a fair and comprehensive review of the tax assessment related to Client Code Modification.