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TMI Blog2022 (9) TMI 1364X X X X Extracts X X X X X X X X Extracts X X X X ..... s to its sister concerns as alleged by the I CI Mumbai. The ld.CIT(A) deleted the addition on the ground that additions NOT based on incriminating material found during the search is settled based on that technical ground deleted the addition. The requirement that the incriminating material to have the co-relation to the particular addition sought to be made is a logic that will hold good as it is held in number of cases decided by this coordinate bench and the jurisdictional High Court. Consequently, in our considered view we do not find any error having been committed by the ld. CIT(A) in accepting the plea of the Assessee that there is no incriminating document which was seized in the course of search relating to the addition sought to be made on account of the CCM reflected in the return of income filed by the assessee. Therefore, the jurisdictional requirement of Section 153 A of the Act was not satisfied. Even on merits assessee submitted various decisions that without any finding merely on the third party information no addition can be made. We find, identical issue come up in the case of PCIT Central -3 Vs. Jaypee Financial Services Ltd. [ 2021 (2) TMI 1186 - DELHI HIGH COU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e name the interest as alleged addition income is not added and the ld. AR of the assessee categorically proved that there is no incriminating other document found recording the payment of the additional interest paid by the assessee and thus the addition made on account unexplained expenditure is required to be deleted. Appeal of assessee allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... uables, stock in trade, documents, books of account and / or loose papers found and or seized from the premises of the Maverick Group Jaipur of which one such member happens to be the assessee. In this case original return of income was filed on 12.10.2010 declaring total income at Rs. 9,45,990/-. On account of search jurisdiction over the cases was assigned to Central Circle -4, Jaipur vide order u/s. 127 of the Act. In compliance to the notice u/s. 153A of the Act, return of income e-filed on 25.11.2015 declaring total income at Rs. 9,45,990/-. After filling return u/s. 153A, the notices u/s. 143(2) along with the questionnaire were issued. The ld. AO called for the details and the assessee filed the details before the ld. AO. The assessee engaged in the business of stocks and share broking and derivatives, custodial services, depository services, registrars to the issue of securities, share transfer agents and earned income from business or profession and other sources during the year under consideration. 5. In the assessment order the ld. AO observed in the year under consideration the issue involved is misuse of client code modification and interest paid from undisclosed sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse of search operation in the Marvick Group, Jaipur a PEN Drive was found and seized from the possession of Shri Kailash Chand Khandelwal, who is one of the employees of the Marvick Group. The pen drive so seized contained some files in excel software. The excel sheets contents adjustment entries in the last column with remark 2.4 %. The adjustment entries pertaining to the assessee, work out for Rs. 8,10,898/- for the year under consideration. In reference to this issue the assessee has show caused vide letter dated 30.11.2017 for the said adjustment entries of Rs. 8,10,898/- should not be added to total income treating it as interest paid from undisclosed sources of income for the year under consideration. The ld. AO did not find favour with the reply of the assessee dated 05.12.2017 and has added a sum of Rs. 8,10,898/- treating it as interest paid from undisclosed source of income for the year under consideration. Aggrieved from the said two addition made by the ld. AO the assessee has referred an appeal before the ld. CIT(A). 7. The ld. CIT(A) based on the submission made by the assessee deleted the addition of Rs. 1,94,83,135/- made by the assessing officer and sustained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied reasonably in the changing economic environment of data storage. 12.2 Such a pen drive was seized during the course of search on the same day from the premises of key employee who was entrusted in feeding and storage of data. Also this drive has visible and hidden files. This data sheet is a part of hidden file, entries of which are clearly in the name of appellant. The legal ground has no merit, in my view, is dismissed. 13. On merits, I am not in agreement with the Ld. A/R that the content of pen drive found from the premises of one of the employee, Shri Kailash Chand Khandelwal does not relates to the appellant in particular or the person of this group for the following reasons: That the name of the appellant specifically figure in column 2 of spread sheet, the scanned print of the sheet pertinent to the appellant can be seen on page 15 of the Ld. AO order. 1. That the transaction specifically mentions the name of appellant. 2. That the factum of interest payment after deduction of TDS is evident even acknowledged by the learned A/R in the written submissions. 13.2 Considering the above and on the facts and in the circumstances of the case, I am of the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts has accepted the contention of the assessee and held that no addition could be made as no incriminating material was found with respect to the CCM by alleging the same as manipulated. The relevant observations of the ld. CIT(A) in para 9 at page 18 of the order are reproduced for sake of convenience: 9. Since the issue of routine additions NOT based on incriminating material found during the course of search is settled by the decision of Hon'ble Supreme Court, I find no hesitation to conclude that the addition Rs. 1,94,83,135/- on account of Client Code Modification cannot be sustained. I may point out that the opening para 9.1 of the Ld. AO order reads as under ".... Complaint were received..." noticeably the entire discussion in the Ld. AO order on CCM disallowance nothing specific has been mentioned. Even otherwise the external complaint so received by the Ld. AO cannot construe as incriminating material as is held by various court including many decision by the Hon'ble ITAT Jaipur. Thereafter the ld. CIT(A) went on to decide the issue on the merits also wherein the findings given on AY 2009-10 in the case of appellant itself has been followed and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f of such client. The facility of Client Code Modification is used in such circumstances to rectify the order originally punched. In this regard it was submitted before ld.CIT(A) that, the information received by ld. AO was related to 'some brokers' and not of the assessee. Further, admittedly there is no nexus between the Assessee and the 'some brokers' against whom the fact of fictitious entries on the basis of misuse of Client Code Modification has been highlighted on the basis of verification undertaken under Section 131(1A) of the Act. It was further submitted that the rectifications made through client code modification facility in the name of the Assessee have been duly owned by the Assessee and the same are also being reflected in the accounts as well as the return of the Assessee and also duly reported to the compliance agency. Moreover, these transactions were neither disputed by any person and nor the transactions where client code modification was carried out were claimed by any other persons. In other words had the client code modification facility been misused in favor of the Assessee, the same would have resulted in some kind of dispute by the person in whose acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them. 7. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as mainta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee and was done at the office of the broker. It is also a matter of fact that assessee has no control over the affairs of the broker and thus could not be made answerable for any mistake / corrections done in any of the transaction of the assessee. It is submitted that all the transactions entered by assessee in F&O segment of NSE are owned by the assessee which were actually made on the direction and request of the assessee during the business hours and were transacted and executed by the broker on real time online system provided to it by the exchange i.e. NSE. It was requested by assessee before ld.AO also that if any transaction involving CCM has allegedly benefitted the assessee, details of the same be provided so that the necessary clarification may be given by assessee after verification of the same however, instead of providing such details, ld.AO on the contrary has stated that assessee could not prove that instances of CCM were for rectification of genuine errors. It is reiterated that assessee did not know as to in which transaction of it, the client code modification was done by broker, as the assessee company received documents from the broker which were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ITAT by upholding the order of CIT(A), who had allowed the appeal of assessee on following grounds: (i) No material was brought on record by AO to show that client code modification made by the assessee was not genuine one. (ii) None of the clients examined by the tax authorities had disowned the transactions carried on by the assessee. (iii) Under the penalty mechanism, no penalty shall be leviable is the modification was less than 1% of total transactions, meaning thereby, the MCX is also accepting the fact that such kind of client code modification is inevitable. (iv) None of the clients was shown as related to the assessee. (v) If the assessee had really shifted the profits to an outsider, then the human probabilities would suggest that the assessee would have received back corresponding amount from the recipient of profit. However, AO had not brought on record any material to show that the assessee had received back corresponding amount equivalent to the amount of profit claimed to have been shifted to the clients. (vi) AO had mainly relied upon the report given by the MCX and has shown adverse conclusions without bringing any material to support his view. (vii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e could have been some basis to presume that client code modification was intentional." It is submitted that similar addition was made for A.Y. 2009-10 also, where ld. CIT(A),after considering detailed submission and judicial pronouncement relied upon by assessee, allowed the appeal of assessee. On the basis of such order passed by ld. CIT(A), relief was allowed in impugned Assessment year also. Assessee further places reliance on following decisions including the judgments of hon'ble Jaipur bench: - Sandeep Sharma vs ACIT, ITA No. 1275/JP/19 orders dt. 24.08.2020 (ITAT, Jaipur) - ITO vs Sh. Gyandeep Khemka ITA No. 695/JP/18 order dt. 23.10.2018(ITAT, Jaipur) - ITO vs Sh. Gyandeep Khemka ITA No. 1274/JP/19 order dt. 5.3.2019(ITAT, Jaipur) - DCIT vs Futurz Next Services Ltd. ITA No. 3556/Del/2016 order dt. 04.01.2022 (Hon'ble Delhi bench of ITAT) In the circumstances it is humbly prayed that order of ld.CIT(A) deleting the addition to the tune of Rs. 1,94,83,135/-made by ld.AO by alleging the same as the fictitious loss taken by misusing the facility of client code modification deserves to be upheld. Assessee's Grounds of Cross Objection No. 1 & 1.1 In these grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not recorded in the books of accounts as over and above the interest amount mentioned in other column and paid through cheque. The explanation given in this regard before the ld.AO is summarized as under: (i) That the sheets contained information about amounts borrowed by various individuals and entities of the Maverick Group along with many other individuals and entities, which were unrelated and unknown to the assessee as also the entire Maverick group; (ii) That excel sheets contained details of loan taken, interest paid, Tax deducted, amount repaid, along with dates thereof which are made through cheques; (iii) That there were repetition of details in the various files found in the pendrive, which were duly demonstrated to ld. AO and also appreciated and accepted by him; (iv) That the details appearing in all the columns other than those appearing under the adjustment column were duly recorded in books of respective individuals and entities, as far as it pertained to the Maverick group and were got verified by ld. AO; (v) That the excel sheet was mailed to Shri Kailash Khandelwal who is in accounts department by the finance broker through whom the amounts were borrowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he entries in the pen-drive found in possession of an employee of the assessee, so far as it pertained to the assessee. Ld. AO, except the so called entries, has failed to bring on record any evidence / material whatsoever by making independent enquiries to support the allegation that the said amount was paid by assessee over and above the amount of interest paid and recorded in the books of accounts. The additions have been made on presumptions and assumptions for which there is no scope in the scheme of assessment of search case as envisaged in chapter XIV of the Income Tax Act, 1961. In the circumstances, it is humbly prayed that the addition of Rs.8,10,898/- so made merely on suspicion without any corroborative evidence on record deserves to be deleted and the assessee prays accordingly." 9. The ld. AR in addition to the above written submission implored that the issue which the revenue has taken up in this appeal is settled by the decision of various benches of the tribunal and High Court on technical aspect as well as on merits of the case also. As the assessment year under consideration is not pending as on the date of search and thus was completed assessment. As per in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t @ 2.4% in addition to what has been recorded in the books. The additional interest which the assessee or its group concern never paid and there is no evidence of any such further sums paid and found as paid in the course of search. Since the issue is revolving about the PEN Drive found, the bench directed both the parties whether any finding of any person recorded and/or the statement of the person under whose possession this PEN drive found is recorded or not? In response it has been confirmed that there is no corresponding income addition is made and the statement of the person from whom the PEN drive found is not recorded. Therefore, working recorded in this PEN drive is merely an information recorded by that person and whatever financial transaction related to that information is recorded in the books and are already explained before the lower authorities and there is no dispute on this aspect. The revenue has made this addition in the hands of the assessee as unexplained interest payment based on working made in this PEN drive. Therefore, the bench has directed revenue to call the factual information from the AO during the hearing of these appeals. The ld. AO categorically c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the A.Y. 2012-13 and Rs. 37,32,344 in the A.Y. 2013-14 were added to the total income of the assessee on protective basis. However, nothing on assessment record has been found which provide the details of the persons in which the substantive addition were made. iii. During the course of appellate proceedings, the assessee has contended that the pen drive found from the premises of one of the employee, Sh. Kailash Chand Khandelwal does not relates to the appellant in particular or the persons of the assessee group. However, the Ld. CIT(A) rejected the contention of the assessee and stated that the pen drive found from the premises of Sh. Kailash Chand Khandelwal belongs to the assessee group and some of the appellant specifically mentioned in column No. 2 of spread sheet. The seized material is lying with the office of ACIT, Central Circle-4, Jaipur. If any further clarification is needed on this issue, the same may be obtained from that office. Case records for A.Ys. 2010-11, 2011-12, 201-13 and 2013-14 (One volume each) are enclosed herewith." 10. Based on the stated facts, the ld. AR of the assessee vehemently argued when in the report addition for receipt of the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sments on protective basis. In cases where it appears to the income-tax authorities that certain income has been received during the relevant assessment year but it is not clear as to who has received that income, and, prima facie, it appears that the income may have been received either by A or by B or both together, it would be open to the appropriate authority to determine the said question by taking appropriate proceedings both against A and B. Reference may be made to the ratio of decision in the case of Lalji Haridas v. ITO [1961] 43 ITR 387 (SC). I may state at this stage that there is no specific provision in the Indian Income-tax Act, 1922 regarding making the assessments on protective basis. Such concept has been borrowed from law and practice as prevalent in England. The leading case on the subject is Attorney-General v. Aramayo [1925] 1 KB 86 (CA). Similar matter came before the Calcutta High Court in the case of B.V.Bagchi v. Ladhuram Taparia [Appeal from the original order No. 71 of 1951, dated 17.1.1952]. In the said decision, his Lordships Harries, CJ., while deciding the controversy observed as under: The income-tax authorities also made an alternative assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal to blow hot and cold. Again it might be open to the ITO to make the protective assessments, but it is certainly not open to the AAC and the Tribunal to make a protective order. When the assessments are completed on protective basis and the appeals are pending before the Tribunal, in such situation the Tribunal ought to have decided both the appeals together and finally determined as to whether the said sum was, if at all, the income of the assessees or somebody else." 12. Thus, without making known to whom the substantive income flaws how the related unexplained expenditure survives. Even though no payment is alleged to have been made and not relevant loose paper recording these averments is found and in light of that submission he has prayed to delete the additions. 13. Per contra, the ld. DR relied upon the order of the ld. AO and supported the arguments recorded in the order for both the issues on hand. As regards the statement not recorded for the evidence of PEN drive he relied on the report of the AO. He further submitted that for these additions a detailed discussion is made in the order of the assessing officer and therefore, he supported the reasoning given by the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts abated and the assessments which were not pending on the date of search had attained the finality. Therefore, the addition over and above the assessed income cannot be made de hors the incriminating material found at the time of search while completing the assessment under section 153A of the Act. If there is no incriminating material then the original assessment made can be reiterated and no further addition is called for and an addition can only be made on the basis of undisclosed income derived from material/documents seized as a result of search. The completed assessment can be interfered or disturbed by the AO while making the assessment under section 153A only on the basis of some incriminating material unearthed during the course of search and requisition of income disclosing undisclosed income not already disclosed or made known in the course of original assessment. Therefore, in the absence of any incriminating material found or seized during the course of search and seizure proceedings, the additions made by the AO during the course of reassessment under section 153A of the Act are without jurisdiction and liable to be deleted and it is nothing but a review by the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material to have the co-relation to the particular addition sought to be made is a logic that will hold good as it is held in number of cases decided by this coordinate bench and the jurisdictional High Court. Consequently, in our considered view we do not find any error having been committed by the ld. CIT(A) in accepting the plea of the Assessee that there is no incriminating document which was seized in the course of search relating to the addition sought to be made on account of the CCM reflected in the return of income filed by the assessee. Therefore, the jurisdictional requirement of Section 153 A of the Act was not satisfied. 14.3 Even on merits the ld. AR of the assessee submitted various decisions that without any finding merely on the third party information no addition can be made. We find, identical issue come up before the Delhi High Court in the case of PCIT Central -3 Vs. Jaypee Financial Services Ltd. reported at 127 Taxmann.com 490 where in the court has held that : 2. Briefly stated, the assessee is a company engaged in trading of equity shares, securities and commodities through recognized exchanges. It filed its return of income on 30-9-2008 declaring total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue, further submits that findings of the ITAT are perverse in as much as the incriminating material was infact found during the course of search and therefore additions were justified. In support of his submissions, he refers to para 2 of the assessment order which records that "during the course of search incriminating documents and evidences have been found and seized. The data is the computer was also cloned and seized alongwith physical documents". Mr. Sharma further submits that at the stage of passing of the assessment order, the decision of Kabul Chawla case (supra) was not available and therefore, assessing officer did not consider it necessary to give a complete description of the incriminating material by recording the details of the panchnama. 5. We have perused the record. Both the CIT(A) as well as the ITAT have held in the instant case that the addition is not based on any incriminating material found during the course of search and the assessment was not pending on the date of search. The observations of the assessing officer relied upon by Mr. Sharma do not give us any insight or clue about the 'incriminating material' which is claimed to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rting contentions, enquiry or confirmation of the party we have received the additional interest or not. The AO is supposed to point out the name of the assessee who may be the owner of such income. It is common ground that in the present case, till this date, the authorities below did not bring on record any material to show that the unexplained expenditure in question really belongs to some other assessee as income or not. The ld. DR honestly conceded that till this date no proceedings in respect of the disputed income have been made against any other assessee and the same is also confirmed by the AO in the report presented before us. 15.1 The ld. AR of the assessee explicitly proved that whatever interest that they have paid in the group cases is duly recorded in the books of accounts and wherever applicable TDS is also deducted. As an additional interest as allegedly demanded by the parties is not paid by the assessee, even those parties are not questioned on that 2.4% found recorded in the Excel-Sheet and same were also not taxed on substantive basis. There cannot be any unexplained expenditure without making the unexplained income and Revenue did not controvert the argument ..... X X X X Extracts X X X X X X X X Extracts X X X X
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