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TMI Blog2019 (7) TMI 295X X X X Extracts X X X X X X X X Extracts X X X X ..... d the disposal-off of the objections was not pre-requisite for the issue of notice u/s 143(2). Fictitious loss by way of Client Code Modification (CCM) - unexplained expenditure - CCM is a facility granted by stock exchanges / SEBI to brokers so as to take care of the punching errors which take place during trading hours - HELD THAT:- The transactions of the assessee s were duly supported by bills / contract notes. The assessee placed on record confirmation of few parties whose name appear in the data provided to the assessee wherein they have confirmed the transactions as belonging to them only. No evidence has been brought on record to establish that any of the party disown the transactions. The assessee maintained that the data did not pertain to the assessee which has not been rebutted by AO. No nexus of the said data has been established with the losses suffered by the assessee. Nothing on record establishes any collusion / connivance of the assessee with the share broker. It is trite law that additions could not be made merely on the basis of presumption, conjectures or surmises without bringing on record any concrete material to dislodge the assessee s claim. Therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Brief facts are that the assessee being resident individual stated to be engaged in share trading activities was assessed for impugned AY u/s 143(3) r.w.s. 147 of the Act on 22/03/2016 wherein the income of the assessee was determined at ₹ 622.61 Lacs after certain additions / disallowances as against assessed income of ₹ 383.83 Lacs determined u/s 143(3) r.w.s 154 on 23/01/2013. The addition of ₹ 231.82 Lacs representing fictitious loss & another addition of ₹ 6.95 Lacs on account of unexplained expenditure is the subject matter of present appeal before us. The assessee, by way of cross-objections, has contested the legality of reassessment proceedings. 2.2 The reassessment proceedings got triggered pursuant to receipt of certain information from The Directorate of Income Tax (Intelligence and Criminal Investigation) [DIT (I&CI)], that the assessee stood beneficiary of misuse of client-code modification [CCM]. Accordingly, the case was reopened by issuance of notice u/s 148 on 17/03/2015. The assessee, vide response dated 05/04/2015, requested to treat the original return filed on 19/09/2010 as return in compliance to notice u/s 148 and asked Ld. AO to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... modification and the assessee was directed to prove that the said losses were genuine. The assessee defended the same by submitting that the modification was done by the broker as permitted by law and the assessee was not aware about the same. The assessee gave confirmations from few parties in whose name the trades were ultimately booked stating that CCM was done at their directions. It was further submitted that mainly transactions were modified in the name of some other client from its name and therefore, there was no impact on assessee's profits from such CCM. However, the same could not find favor with Ld.AO, who treating the loss as fictious / non-genuine loss, added the same to the income of the assessee. Consequently, Ld.AO formed an opinion that the assessee paid certain commission to obtain such transactions. The same was estimated @3% which resulted into another addition of ₹ 6.95 Lacs as unexplained expenditure u/s 69C in the hands of the assessee. 3.1 Aggrieved, the assessee contested the validity of reassessment proceedings before Ld. CIT(A) vide impugned order dated 23/06/2017 which was dismissed in view of the fact that Ld. AO was in receipt of certain inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired to make verification from all the concerned parties and come to a logical conclusion after rebutting the submissions of the appellant made during the assessment proceedings. However, the Ld. AR has pointed out that the AO has not rebutted the detailed submissions of Assessee, which go to the root of the matter, made vide letter dated 7/3/2016, particularly the following: (i) Data provided does-not pertain to assessee. (ii) CCM is not done by broker at the instance of assessee. (iii) Reasons for invoking CCM by brokers such as executing large no of trades in time bound manner resulting in punching errors etc. (iv) Example given by assessee from the data given by AO to highlight the fact that CCM executed by the broker was genuine. (v) Confirmation of persons/beneficiaries whose name appear in the data confirming that the CCM transactions belong to them. 6.3.5 Further the Assessing Officer has not brought on record any information regarding any action against the broker or the Assessee by the SEBI or the Stock Exchange. Thus, the conclusion drawn by the AO is not inconformity with the policy of the SEBI to allow CCM. 6.3.6. Hence, without rebutting the replies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or its brokers or both but the AO has not brought any such thing on record in the assessment order. 6.3.10. Further, the movement of prices of shares cannot be predicted by anyone with accuracy and hence it is inconceivable or unlikely that the assessee could have made profits / Losses consistently, even if it is assumed for a moment that the assessee had actually carried out the transactions for its own benefit. Since the timing of entering the transactions is crucial in the online trading, the staffs of the Broker found it convenient to punch one code because if the broker has to punch every transactions/ every set of shares in all the names of the client, it will take lot of time and by the time the punching of a particular share scrip for all the clients, are finally finished, by that time there would be lot of changes in the price and in the process there would be many clients with different amounts of share price of same scrip within that given time and the broker will have to bear the brunt of various clients and their allegations that why the price of that particular client was higher or lower compared to his price. This may lead to erosion of confidence of clients with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er does not bring out the following facts, namely, percentage of modified trade value being significantly higher than the total credit value of the appellant; number of modified trade being significant to total number of trades of the appellant; profit/loss arising on account of such modifications by the appellant being significant in comparison to the profit/loss in the trades were no modification were carried out by the appellant; profit/loss arising due to CCM being in significant ratio; buying and selling leg off different trades to have been modified to same clients by the appellant; the same set of clients being involved in making profits/loss due to CCM; total number of trade modifications being increased before closing of the Financial Year so as to reduce the genuine taxable income of the appellant etc. and unless the same is brought on record in the assessment order and the correlation of transfer/receipt of profit/loss is established to be illegal or having quid pro quo type of transaction where one party receives profit/loss by making certain payment to the other party out of their undisclosed income and in the process the taxable income has escaped or artificial or ill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee was not registered broker and could not do modification in the client code. Nothing has been brought on record by Ld. AO to establish that the modifications were done at assessee's behest and therefore, the assessee could not be held responsible for CCM done at broker's end. The attention was also drawn to the fact that persons whose names appear in the information have filed confirmations that transactions were done through the brokers at their instance. It has also been submitted that CCM was not done at year-end to generate artificial profits / losses but transactions have taken place throughout the year which would controvert the stand of Ld. AO that the assessee indulged in creating fictitious loss so as to set-off the gains earned during the year. It has been submitted that Ld. AO has mechanically made impugned additions. Reliance has been placed, inter-alia, on the decision of this Tribunal rendered in ITO V/s. Pat Commodities Services P.Ltd. [ITA Nos. 3498/Mum/2012 07/08/2015] & M/s Sambhavnath Investment V/s ACIT [ITA No.3109/Mum/2011 19/12/2013]. 4.3 On legal grounds, it has been submitted that there was no failure on the part of the assessee to disclose material f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The assessee maintained that the data did not pertain to the assessee which has not been rebutted by Ld. AO. No nexus of the said data has been established with the losses suffered by the assessee. Nothing on record establishes any collusion / connivance of the assessee with the share broker. It is trite law that additions could not be made merely on the basis of presumption, conjectures or surmises without bringing on record any concrete material to dislodge the assessee's claim. Therefore, the allegations as levelled by Ld. AO, in our opinion, are without any cogent or supporting evidences and therefore, the same could not be sustained in the eyes of law. 5.3 We find support from the decision of this Tribunal in M/s Sambhavnath Investment V/s ACIT [supra] wherein it has been held as under: - 7. We have carefully considered the rival submissions and perused the orders of the lower authorities and the relevant material evidences brought on record before us. The AO has annexed the transactions of RSBL with the assessee as part of the assessment. The entire allegation of the Revenue authorities revolves around the modification in client code by the assessee so that it could bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med for a moment that the assessee had actually carried out the transactions for its own benefit. We notice that the assessee has offered explanations as to why it carried out the transactions in its own code, i.e. since the timing of entering the transactions is crucial in the online trading, the staffs of the assessee company found it convenient to punch its own code. Further, we notice that the fact that the assessee has changed the code to the concerned client's account at the end of the day has not been disproved. If at all any person comes with a request seeking profits, there will normally be time lag and hence the fact that the assessee has changed the codes at the end of the day only shows that the assessee has carried out the transactions on behalf of its clients only. Such kind of transactions shall usually be sporadic transactions, where as in the instant case, the clients have carried out the transactions continuously. Further, it is pertinent to note that none of the clients, with whom the assessing officer has carried out the examination, has disowned the transactions. Further, all the clients have duly disclosed the profits arising from the transactions as their res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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. 16. In view of the foregoing discussions, we are of the view that the Ld CIT(A) was justified in deleting the additions made in both the years under consideration. In our view also, the assessing officer has drawn adverse conclusions against the assessee without properly bringing any materials to support the view, i.e., the additions have been made on suspicion and surmises only. Accordingly, we uphold the order of Ld CIT(A) in both the years under consideration. 5.4 So far as the case laws being relied upon by the revenue is concerned, we find that the decision of Hon'ble High Court of Calcutta rendered in Pr.CIT V/s India Finance Ltd. [81 Taxmann.com 135] deals with validity of jurisdiction u/s 263 and therefore, has no application. The decision of Hon'ble Delhi High Court rendered in CIT V/s Vashishth Chay Vyapar Ltd. [66 Taxmann.com 371] deals with a situation wherein the assessee booked fictitious losses through related entities and the transactions were found to be bogus transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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