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This appeal filed by the assessee is directed against the order of CIT(A) – 6, Hyderabad, dated, 03/09/2018 for AY 2010-11.
2. Brief facts of the case are, the assessee, engaged in the business of investment banking i.e. purchase and sale of securities in equity segment and futures & option segment, filed its return of income for the AY 2010-11 on 13/09/2010 admitting a loss of Rs. 36,59,561/-, consisting of business loss of Rs. 36,52,900/- and unabsorbed depreciation allowance of Rs. 6,660/-. The return of income was processed u/s 143(1) of the Income-tax Act, 1961 (in short ‘the Act’) and there is no 143(3) assessment in this case.
2.1 Subsequently, the AO received specific information that the assessee had contrived losses by using Client Code Modification (CCM) facility and based on the information, AO reopened the assessment u/s 147 of the Act. Accordingly, notice u/s 148 of the Act, dated 06/12/2016 was issued calling for return of income. In response, the assessee filed its return of income on 23/01/2017 admitting loss of Rs. 36,59,561/-, which is similar to the return of income filed on 30/09/2010. Subsequently, assessee asked the reasons for reopening of the assessment. In response, the AO provided the reasons for reopening of assessment. In response, the assessee filed a letter dated 25/03/2017 informing that assessee did not indulge any CCM since the company was not active on stockexchange during that period. However, AO proceeded with the reassessment of the case.
2.2 During the reassessment proceedings, the AO observed that the assessee is involved in transaction involving in CCM to absorb contrived losses from the other parties and AO came to the conclusion with the following observations in his order, which is reproduced below:
"5.2 In this regard the details of the client code modification in assessee's account during FY 2009-10 were called u/a 133(6) of the IT Act for from the broker CIL Securities Ltd However, Mis. CIL Securities vide their letter dt. 13.11.2017 stated that as the matter in not of recent years. they do not have orders for F.Y.2009-10 and therefore did not furnish the specific information called for and this was brought to the notice of the assessee vide this office show cause letter dated JJ .12.20 17 calling for the assessee's explanation as to why on the basis of the information available with the department . the profit of Rs.13,19,201/- shifted out from its account should not be assessed as its income for the A Y. 2010-11.
6. The submissions argument made by the representative of the assessee and have been carefully considered However, the same is not found to be tenable.
6.1 The assessee was provided with the copy of the letter from their broker M/s. Canara Securities Ltd on 18.12.2017. The assessee request for crossexamining its own broker Mis. Canara Securities. is nothing but resorting to dilatory tactics. The assessee is in Hyderabad, so also its broker with whom the assessee is perhaps having a trading account even today and access to the broker. Nothing prevented the assessee from furnishing any evidence from his broker. Notwithstanding the above, the fact remains that it is the assessee's profits that have been shifted out and other's loss shifted in, reducing the assessee's income.
6.2 The client Code modification means change of client code after the trade is executed It was allowed by exchanges and the SEBI for correcting punching errors and was never intended to be allowed to be used as an accommodative tool in the hands of brokers so as to remunerate the traders by shifting out the profits from the clients account through CCM or booking of contrived losses. The circular no. SMD/Policy/Cir/O3 dated February 06, 2003 of SEBI mandated that the stock exchanges shall not normally permit changes in the client code except to correc the genuine mistakes like punching or communication errors. This facility was misused by brokers to transfer gains or losses from one individual to another by modifying client codes in the guise of rectifying the error. The ascertained gains/losses are shifted out/ in for the purpose of evading taxes
6.3 It is clearly evident that the change of the client codes involves more than one digits in all Instances and thus, the same cannot be merely on account of punching errors, but, has been systematically done so as to facilitate booking of contrived losses to clients as per their requirements.
6.4 Even considering the placement of the alphabets and numbers of the MCC on the keyboard, it cannot be seen as genuine punching errors. Thus these CCM are non-genuine changes even as per parameters laid out in order of SEBI Thus, from the above analysis of the assessee's account, it can satisfactorily be concluded that the real motive behind this array of CCM was to facilitate the clients to avail the losses/profits as per their requirement.