CROSSLINK FINLEASE PVT. LTD.,NEW DELHI vs. ITO WARD - 6(4), NEW DELHI

This is an appeal by the assessee against order dated

29.03.2019 of learned Commissioner of Income Tax (Appeals)-2,

New Delhi for the assessment year 2009-10.

perused the submissions of parties and reasons for delay, I am of

the view that there is reasonable cause for delay in filing the

appeal. Accordingly, I admit the appeal for adjudication on merits

after condoning the delay.

validity of reopening of assessment under section 147 of the

ITA No.6267/Del/2019 AY: 2009-10

Income-tax Act, 1961 (in short ‘the Act’). Whereas, in ground nos.

3, 5 and 6, the assessee has challenged the merits of the

additions made.

ground nos. 1 and 2.

4.1 Briefly the facts are, the assessee is a resident corporate

entity. For the assessment year under dispute, the assessee filed

its return of income on 29.09.2009 declaring income of

Rs.7,71,690/-. The return of income filed by the assessee was

processed under section 143(1) of the Act. Subsequently, the

Assessing Officer received information from Investigation Wing

indicating that the assessee is one of the companies which has

created fictitious profit and loss by misusing the client code

modification facility in Future and Option (F & O) segment of

National Stock Exchange (NSE). Based on such information, the

Assessing Officer formed a belief that income chargeable to tax for

the assessment year under dispute has escaped assessment.

Accordingly, he reopened the assessment under section 147 of the

Act.

4.2 In course of assessment proceeding, the Assessing Officer

called for the details relating to share transaction of the assessee. 2 | P a g e

ITA No.6267/Del/2019 AY: 2009-10

After perusing the details and other information available on

record, the Assessing Officer was of the view that by availing the

facility of client code modification to its benefit, the assessee had

reduced its income by creating fictitious loss to the tune of Rs.

1,20,732/-. Whereas, he shifted out profit to the tune of

Rs.5,89,142/-. Further, he observed that for availing the facility

of client code modification, the assessee must have paid

commission to the broker. Accordingly, he added back an amount

of Rs.14,197/- being commission paid to broker.

4.3 Besides these additions, the Assessing Officer made

disallowance of Rs.28,58,113/- under section 94(7) of the Act on

the reasoning that the long term capital loss, to the extent of

dividend earned, cannot be allowed. Thus, the Assessing Officer

completed the assessment by determining total income at

Rs.46,63,990/-. Against the assessment order so passed, the

assessee preferred an appeal before learned Commissioner

(Appeals). However, learned Commissioner (Appeals), more or

less, upheld the assessment order, except granting partial relief in

respect of certain suo motu disallowance made under section 14A

of the Act.

3 | P a g e

ITA No.6267/Del/2019 AY: 2009-10

4.4 Be that as it may, before me, learned counsel appearing for

the assessee submitted that the reopening of assessment is

merely on the basis of report received from the Investigation Wing

without independent application of mind. He submitted, the

reasons recorded do not reveal any finding of the Assessing

Officer that the client code modification was not on account of

any genuine error. He submitted, merely suspecting that by client

code modification income has escaped assessment, the Assessing

Officer has reopened assessment. Thus, he submitted, the

reopening of assessment is invalid. In support of such contention,

he relied upon the decision of the Hon’ble Bombay High Court in

case of M/s. Coronation Agro Industries Ltd. Vs. DCIT, 394 ITR

464 and various other decisions.

4.5 Without prejudice to the aforesaid submission, learned

counsel for the assessee submitted, there are various factual

inaccuracies in the reasons recorded and the Assessing Officer

was not sure whether the assessee has claimed loss or profit by

misusing client code modification. Thus, he submitted, the

reopening of assessment under section 147 of the Act is invalid.

4.6 Learned Departmental Representative, on the other hand,

submitted that the Assessing Officer has received concrete 4 | P a g e

ITA No.6267/Del/2019 AY: 2009-10

information indicating that the assessee suppressed its income by

availing the facility of client code modification through some

unscrupulous broker.

4.7 I have considered rival submissions and perused the

materials on record. Undisputedly, in case of the present

assessee, the return of income filed was processed under section

143(1) of the Act and there was no scrutiny assessment.

Therefore, the Assessing Officer had no occasion to verify various

claims made by the assessee in the return of income, including

the profit/loss shown from share transaction. Subsequently, the

Assessing Officer received specific information from the

Investigation Wing indicating that through client code

modification, the assessee had artificially reduced its profit by

converting it to loss. On a careful reading of the assessment

order, it is observed that Investigation Wing of the department

has carried out thorough investigation and found that through

some unscrupulous brokers, various entities are fictitiously

increasing or reducing their profit or loss from share transaction

by availing client code modification. The investigation report

clearly reveals that the assessee is one of the beneficiary of client

code modification. Since, the details relating to assessee’s share 5 | P a g e

ITA No.6267/Del/2019 AY: 2009-10

transaction was not examined due to processing of return under

section 143(1) of the Act, the report of the Investigation Wing,

which was subsequently received by the Assessing Officer, clearly

constitutes a tangible material based on which the Assessing

Officer certainly can form a belief of escapement of income. In my

view the decision of the Hon’ble Bombay High Court in case of

M/s. Coronation Agro Industries Ltd. (supra) would not apply to

the facts of the assessee’s case, as, in that case there was already

assessment made under section 143(3) of the Act. In view of the

aforesaid, I do not find any merit in these grounds. Accordingly,

ground nos. 1 and 2 are dismissed.

account of client code modification. As discussed earlier, while

completing the assessment, the Assessing Officer held that the

profit/loss from share transaction shown by the assessee through

client code modification is non-genuine.

5.1 Before me, learned counsel appearing for the assessee

reiterated the stand taken before the Departmental Authorities.

He submitted, a confirmation of the broker was also available

before the Assessing Officer wherein the broker had stated that

client code modification was necessary due to punching error. 6 | P a g e

ITA No.6267/Del/2019 AY: 2009-10

Without prejudice, he submitted, if at all, the assessee could have

been benefited by using the facility of client code modification for

an amount of Rs. 4,68,410/-. Therefore, the addition should be

restricted to that amount. Insofar as addition of commission paid

of Rs.14,197/-, he submitted, there was no material before the

Assessing Officer to make such addition.

5.2 Learned Departmental Representative strongly relied upon

the observations of the Assessing Officer and learned

Commissioner (Appeals).

5.3 I have considered rival submissions and perused the

materials on record. There is no dispute that the assessee has

availed the facility of client code modification through a broker.

Both the Assessing Officer and learned Commissioner (Appeals),

after thoroughly examining the facts have given a concurrent

finding that by availing the facility of fictitious client code

modification the assessee has shifted out profit from share

transaction and converted it to loss. Except the confirmation

obtained from the broker, the assessee has been unable to

furnish any other conclusive evidence, either before the

departmental authorities or before me to dispel the adverse

materials brought on record. In the aforesaid view of the matter, I 7 | P a g e

ITA No.6267/Del/2019 AY: 2009-10

do not find any reason to interfere with the decision of learned

Commissioner (Appeals) on the issue. Therefore, the additions

made on account of client code modification including the

commission paid are upheld. Ground nos. 3, 4 and 6 are

dismissed.

made under section 94(7) of the Act.

6.1 The grievance of the assessee is, due to paucity of time the

assessee could not furnish details relating to long term capital

loss and the dividend income earned in respect of which the

Assessing Officer has sought information. He submitted, though,

before the first appellate authority the assessee did furnish some

evidence, however, learned Commissioner (Appeals) completely

ignored them. He submitted, the entire dividend income earned of

Rs.28,58,113/- cannot be considered for disallowance under

section 94(7) of the Act.

6.2 Learned Departmental Representative strongly relied upon

the observations of the Assessing Officer and learned

Commissioner (Appeals).

6.3 I have considered rival submissions and perused the

materials on record. On perusal of the assessment order, it is 8 | P a g e

ITA No.6267/Del/2019 AY: 2009-10

observed that though the Assessing Officer made certain queries

regarding the claim of long term capital loss and the dividend

income earned during the year, which is claimed as exempt,

however, it is the allegation of the Assessing Officer that requisite

documents/informations were not furnished despite repeated

reminders. Therefore, the Assessing Officer proceeded to make

disallowance under section 94(7) of the Act to the extent of

dividend income earned by the assessee. While deciding the issue

in appeal, learned Commissioner (Appeals) has also recorded a

categorical finding that the assessee did not furnish any detail

whatsoever. Though, in the written submission filed before me,

the assessee stated that details are enclosed, however, no such

details are found on record.

6.4 Be that as it may, on a reading of section 94(7) of the Act, it

is quite clear that long term capital loss on purchase and sale of

shares, securities etc. not exceeding the amount of dividend or

income received or receivable of securities units etc. shall be

ignored. However, the conditions enumerated in clause (a), (b) and

(c) have to be fulfilled. Since, due to lack of proper compliance by

the assessee, the factors enumerated in clause (a) and (b) could

not be examined, I deem it appropriate to grant one more 9 | P a g e

ITA No.6267/Del/2019 AY: 2009-10

opportunity to the assessee to establish through proper

documents its claim that disallowance made under section 94(7)

of the Act is either unjustified or excessive. Accordingly, the issue

is restored back to the Assessing Officer for fresh adjudication

after due opportunity of being heard to the assessee. This ground

is allowed for statistical purposes.

purposes.

Order pronounced in the open court on 27th October, 2022

Sd/- (SAKTIJIT DEY) JUDICIAL MEMBER

Dated: 27th October, 2022. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi

10 | P a g e