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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI KULDIP SINGH & SHRI GAGAN GOYAL
PER GAGAN GOYAL, A.M: This appeal by assessee is directed against the order of National Faceless Appeal Centre (for short “NFAC”) dated 24.03.2023 u/s. 250 of the Income Tax
The order dated 24/3 / 2023 passed by the Hon'ble CIT[A], N.F.A.C., Delhi is arbitrary, unlawful, unjustified and against the provisions of Income Tax Act, 1961 and therefore liable to be quashed.
2. On facts and in the circumstances of the case, the Hon'ble C.I.T.(Appeals) has erred in confirming the disallowance of Rs.3,01,518/- under section 37[1] of Income Tax Act, 1961 on account of alleged fictitious loss due to client code modification, without appreciating the facts of the case.
3. The appellant craves to alter, add, delete, substitute, or modify and other grounds of appeal.
The brief facts of the case are that assessee filed her original return of income on 29.09.2010, declaring total income at Rs. 17,98, 31,989/-. As per the information received from the ADIT(INV), AHD vide, letter No. ADIT(INV)3(3)/AHD/CCM/Dessemination/e-mail/2015-16 dated 11/3/2016 brokers were misusing the CCM (Client Code Modification) facility in the Derivatives segment on NSE and has created non-genuine profits and losses. These losses and profits were given to different clients / beneficiaries according to their requirement. The clients had taken fictitious losses to set off against their profits with a view to reduce their tax liability. On the basis of the information provided vide the above mentioned letter dated 11/3/2016 the assessee is one of the beneficiary. The assessee being a beneficiary of the CCM in the Derivatives segment has artificially/fictitiously received loss of Rs. 3,01,518/- thereby reducing taxable Income to that 3 Mrs. Nisha Jignesh Mehta extent. In view of the above, the AO had reason to believe that Income to the extent of Rs. 3, 01,518/- had escaped assessment and notices u/s. 148 was issued on 28/3/2016 to reopen the case.
In response to the notice u/s 148, assessee filed a copy of the return acknowledgment on 23.04.2016 and also requested for a copy of the reasons for reopening. Assessee filed her response against reasons supplied by the AO, but the AO was not convinced with the reply of the assessee and added back the same to the income of the assessee amounting to Rs. 3,01,518/-.
Assessee being aggrieved with this order of AO preferred an appeal before the Ld. CIT (A), who in turn confirmed the order of AO.
We have gone through the order of AO, order of Ld. CIT (A) and submissions of the assessee alongwith grounds of appeal raised. It is observed that assessee is an individual doing business of trading in shares and securities. Assessee was able to reconcile the details of the AIR vis-a-vis income declared in her ITR. A notice u/s. 133(6) vide dated 06.05.2016 was issued to the National Stock Exchange and was requested to furnish details of the client code modification (CCM) transactions in the derivative segment pertaining to the assessee. In response to the notice, NSE confirmed that CCM modifications had taken place in the case of assessee
6. Summary of the total transactions vis-a-vis CCM transaction’s entered into by the appellant during the year under consideration is as under:
Particulars Audited Books CCM % of Accounts
7. From the above, it is observed that, the appellant had shown profit of Rs. 18,63,28,138/- from the business and therefore the allegation that, she had taken a loss of Rs. 3 ,01,518/- to evade the taxes is not looking substantive and without any base or logic. Even looking at the number of transactions entered by the appellant, the assumption made by the Assessing Officer does not look to be substantive considering the figure of income declared by the assessee vis-à-vis amount of loss claimed through CCM transactions.
8. The AO has held the client code modification to be mala fide with the intention to claim of the loss by modifying the client code so as to avoid the payment of tax. The client code was modified fewer number of times and this fact was very much in the knowledge of the stock exchange. It is because that the information for the modification of the client code was gathered by the AO from the NSE proves beyond doubt that the appellant has not modified any client code without informing the NSE. Had there been mismatch in the code between the report submitted by the broker of the appellant and that of the NSE, the question/doubt on the genuineness of the transaction arise. When the client code was modified on the stock exchange without informing the same day then it can be inferred there is some mala fide intention. Had client code modification done after the transactions period when the price of the commodity has already changed then perhaps there could have been some basis to presume that client code modification is 5 Mrs. Nisha Jignesh Mehta intentional. However, when the client code modification is done online on the stock exchange, there was no basis or justification to hold the transaction to be bogus. The AO has not conducted any independent inquiry while making the addition, but has solely relied upon on the reports of the ADIT (Inv.). We do not find any independent inquiry carried out by the AO to substantiate the addition. The point to be noted in this case is that assessee is a high net worth individual (HNI) and already declared a substantial amount of income amounting to Rs. 17, 98, 31,989/-. In such a case it can be very remotely presumed that an assessee who is declaring such a huge income on which there is no allegation of any fictitious loss claim will involve into an exercise to claim a fictitious loss of Rs. 3,01,518/-. We have gone through the balance sheet of the assessee and found that there is no unsecured loans as such in the books of the assessee and assessee’s own capital and bank balances are quite substantial which is sufficient to prove the assessee a man of worth and for such a small amount of loss, it cannot be accepted that assessee will involve into such type of malpractices.
In view of the, we are not in agreement with the findings of AO which are further confirmed by the Ld. CIT (A), hence grounds of appeal raised by the assessee are allowed.