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03-07-2019, Vipul D. Shah, Section 147, 148, Tribunal Mumbai

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3 months 2 weeks ago #9975 by amit
Section - 147, 148, 69C, 263
Order Date - 03-07-2019
Favouring - Assessee Partly
Court - Tribunal Mumbai
Appellant - DCIT
Respondent - Vipul D. Shah
Citation - 719Taxpundit64
Appeal No. - I .T.A. No.5688/Mum/2017
Asstt. Year - 2010-11


PER : Manoj Kumar Aggarwal

1. Aforesaid appeal by revenue for Assessment Year [in short referred to as ‘AY’] 2010-11 contest the order of Ld. Commissioner of Income-Tax (Appeals)-9, Mumbai, [in short referred to as ‘CIT(A)’], Appeal No. CIT(A)— 9/Cir.4/131/2016-17 dated 23/06/2017. The assessee has filed crossobjection against the same.

The grounds raised by the revenue read as under: -

1. The Ld. CIT(A) erred in law and on facts in deleting the disallowance of Rs. 2,31,82,203/- made on account of suppression of profit and obtaining fictitious loss by the assessee by way of Client Code Modification (CCM) by the brokers in large number of commodity transaction

2. The Ld. CIT(A) erred in law and on facts in deleting the addition of Rs. 6,95,466/- made on account of commission paid to brokers to obtain fictitious loss through Client Code Modification without considering the fact that a significant percentage of transaction is charged from clients by the brokers to obtain such
fictitious loss.

The grounds raised in cross objections reads as under: -

1. The learned CIT(A) failed to appreciate that reopening of assessment is bad in law as A.O. did not have reason to believe that income has escaped assessment and he merely relied on information received from Investigation wing and further reopening is nothing but change o opinion and hence reopening is bad in law.

2. The learned CIT(A) failed to appreciate that A.O for justifying reopening relied on information not contained in recorded reasons and hence, reopening is bad in law.

3. The learned CIT(A) failed to appreciate that reopening of assessment is bad in law as notice u/s 143(2) was issued before disposing objections to reopening thereby violating the mandatory procedure laid down in GKN Drive-shafts (India) Ltd v ITO (2003) 259 ITR 19(SC) and hence reopening is bad in law.

4. The order of the learned CIT(A) deleting addition of Rs. 2,31,82,003/- is in accordance with law and justified.

2.1 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 Rs.622.61 Lacs after certain additions / disallowances as against assessed income of Rs.383.83 Lacs determined u/s 143(3) r.w.s 154 on 23/01/2013. The addition of Rs.231.82 Lacs representing fictitious loss & another addition of Rs.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 on19/09/2010 as return in compliance to notice u/s 148 and asked Ld. AO to supply reasons for reopening of assessment, which were duly supplied to the assessee. Subsequently notice u/s 143(2) was stated to be issued to the assessee on 14/07/2015. The assessee raised objections against the reopening which were disposed-off by way of a speaking order on 10/08/2015.

2.3 Pursuant to receipt of aforesaid information, it transpired that the assessee was identified as a beneficiary of misuse of client-code modification. The investigation arm of the department having conducted spot verifications by way of surveys and inquiries noticed that some of the brokers and their clients have indulged in the practice of misuse of clientcode modification thereby artificially shifting profits and losses from original client code to modified client code with an intention to reduce the legitimate tax liability which would have been arisen had the original trades not been modified.

2.4 Proceeding further, it was also noted that the client-code modification facility was approved by SEBI and provided by the exchanges to brokers so as to enable rectification of genuine mistakes of punching of orders of a particular trade given by a particular client in its particular account maintained with the broker. In this facility, the broker could change the client-code of a particular trade and transfer the trade from one account to another account during the trading hours & within time limit permitted by the stock exchange after the close of trading hours. After the modification in client-code is made, it wassubmitted to the stock exchange for information and necessary modification / up-dation in the data. However, many brokers misused this facility for creating artificial losses / profits and provided such fictitious profits / losses to various clients by charging some commission. An expert opinion was obtained from NSE to indicate the existence of genuine and non-genuine client-code modification.

2.5 In the above background, Ld. AO formed an opinion that the assessee company was a beneficiary of such practice and has reduced its overall profit by taking fictitious losses to the extent of Rs.231.82 Lacs from the concerned brokers. The assessee was asked to provide complete details of client-code modification done by the broker in his account. The assessee was also confronted with details of fictious loss alleged to taken by the assessee by way of client-code 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

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