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Facts
The assessee, a commodity trading company, had its assessment reopened under Section 147 based on information that the NMCE platform was misused for providing entry for profit or loss. The Assessing Officer (AO) made an addition of Rs. 1,08,340/- representing 14% of the total transaction value, treating it as undisclosed commission income from client code modifications.
Held
The Tribunal held that the AO was not justified in making additions without verifying the genuineness of client code modifications or the nature of transactions. The AO solely relied on information from the Investigation Wing without independent investigation. The Tribunal found no basis for assuming commission income. Therefore, the grounds of appeal were allowed.
Key Issues
Whether the Assessing Officer was justified in making additions based on information from the Investigation Wing without independent verification and assuming commission income from client code modifications.
Sections Cited
143(1), 147, 148, 254(1)
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PER PAWAN SINGH, JUDICIAL MEMBER;
These two appeals by assessee are directed against the separate orders of ld. CIT(A)/ADDL/JCIT(A)-1, Visakhapatnam both dated 17.07.2025 for A.Y. 2013-14 and 2014-15. In both the appeals, the assessee has raised certain common grounds of appeal, thus with the consent of parties, both the appeals were clubbed, heard together and are decided by common order to avoid the conflicting decision. For appreciation of fact, facts in A.Y. 2013-14 is treated as lead case. The assessee has raised following grounds of appeal:
“1. On the Facts and Circumstances of the case and in Law, ld. AO has erred in reopening the assessment on the basis of the information, which was not relevant for Appellants’ case.
2. On the Facts and Circumstances of the case and in Law, ld. AO has erred in making assumption that appellants had indulged into fraudulent Clint Code Modifications for the purpose of providing accommodation profits to their clients.
3. On the Facts and Circumstances of the case and in Law, ld. AO has erred in making the assessment of Rs.1,08,336/- as Appellants’ Undisclosed Commission Income.
4. On the Facts and Circumstances of the case and in Law, ld. AO has erred in treating the entire Turnover of the Client Code Modification as Appellants’ own Turnover.
5. On the Facts and Circumstances of the case and in Law, ld. AO has erred in further erred in making arbitrary assuming that appellants had earned average Brokerage / Commission @14 % on the Client Code Modification Cases.
6. Appellants crave leave to add, alter, modify, cancel, withdraw the aforesaid grounds of appeal.”
Brief facts of the case are that assessee-company engaged in the business of trading of various commodities on National Multi Commodity Exchange (NMCE) platform. The assessee was incorporated on 02.01.2012. The assessee filed its return of income for A.Y. 2013-14 on 23.09.2013 declaring Nil income. The return of income was processed under section 143(1).
Thereafter, case of assessee was reopened under section 147. Notice under section 148 dated 30.03.2019 was served upon the assessee. Case of assessee was reopened on the basis of information from DDIT(Inv.), Unit – 6(3), Mumbai dated 22.03.2019 about tax evasion by members of National Multi Commodity Exchange (NMCE) in different financial year. In the said information, it was stated that NMCE platform was misused by various paper/bogus/shell entities for providing entry through various brokers about profit or loss. The assessee has also made transaction of Rs. 7,73,830/- during relevant financial year. It was found the assessee have made 13 client code modification for a total volume of Rs. 14,99,830/- in AY 2013-14. The assessee made transaction of sale and purchase for various clients. On the basis of such information, the assessing officer has a reason to believe that taxable income in case of assessee has escaped assessment. In response to notice under section 148 filed its return of income on 15.04.2019 declaring Nil income. The assessing officer after serving reasons recorded proceeded for reassessment. The assessing officer issued show cause notice on the basis of information available with him on show cause as to why transaction amount should not be treated as escaped income. In response to show cause notice, the assessee filed reply dated 04.10.2019. The assessee in its reply submitted that their member of NSEL platform and made purchase transaction of Rs. 7,11,395/- and sale transaction of Rs. 62,435/- for their 11 clients. The total volume of purchase and shares were of Rs. 7,73,830/-.
Cline code modification was permitted by exchange in their software without penalty. Entire purchase and sale cannot result a profit of total turnover. The submission of assessee was not accepted by assessing officer. The assessing officer recorded certain points of report of Investigation Wing on page no. 6 to 13 of his order. The assessing officer was of the view that the assessee used penny stock scrips for providing accommodation entry to various clients and has earned income ranging from 12% to 14%. The assessing officer assumed 14% profit on such transaction and added as undisclosed commission income of assessee of Rs. 1,08,340/-.Aggrieved by the action of assessing officer, the assessee filed appeal before ld. CIT(A). Before ld. CIT(A), the assessee filed detail statement of fact. The assessee also filed detail written submissions. The submissions of assessee are extracted on page no. 4 to 11 of order of ld. CIT(A). The assessee besides other contention submitted that assessing officer blindly relied upon information received from Investigation Wing as true. All the clients of assessee have complied KYC requirement and none of the clients are fake. The assessing officer has not made any enquiry from the clients of assessee. Merely acted on suspicion is not justified. No independent investigation of fact was carried out by assessing officer.
The ld. CIT(A) on considering the submission of assessee upheld the action of assessing officer by taking view that assessing officer have information that platform of NMCE was misused by various before entities who entered in bogus transaction. The assessee is one of the brokers who have modified transaction of various clients. The assessee has not disclosed this transaction nor declared commission on such client code modification and hence addition made by assessing officer was upheld. Further, aggrieved, the assessee has filed present appeal before Tribunal.
I have heard the submissions of learned Authorised Representative (ld. AR) of the assessee and the learned Senior Departmental Representative (ld. Sr.
DR) for the revenue. The ld. AR of the assessee submits that assessing officer made addition of 14% of total transaction i.e. on sale as well as purchase made through NMCL platform for various clients. The assessee furnished complete details of all client code modification as per details available on page no. 58 and 59 of paper book. There were 11 transactions of such client code modification. Such code was modified due to error in their original purchase or sale. The assessee furnished complete list of such transaction. The assessee earned very minimum margin that is to say .1% of transaction. The brokerage income is also shown on the details provided at page no.
All such client code was made within permissible norm due to error. The assessing officer made addition of 14% of commission income without any basis. The assessee furnished the name and PAN Number of their clients, no investigation of fact was carried out by assessing officer. The action of assessing officer is solely based on assumption and presumption about unaccounted commission @ 14%. No comparable instances were relied by assessing officer. The action of assessing officer is totally unjustified. The ld. CIT(A) has not given any independent finding except confirming the action of assessing officer. The ld. AR prayed to delete the entire addition. To support his submission, the ld. DR for the revenue relied on the decision of Mumbai Tribunal in Haresh Rajnikant Jhawry vs DCIT & 4958/Mum/2014).
On the other hand, the ld. Sr. DR for the revenue supported the order of assessing officer.
I have considered the rival submissions of both the parties and perused the orders of lower authorities carefully. I find that case of assessee was reopened on the basis of information from investigation wing about client code modification. I find that during assessment, the assessee furnished detail of transaction entered into NSEL on behalf of its client. The assessee also furnished the detail and explanatory statement. The assessing officer instead of making any verification of fact from various client of assessee, straightway added 14% commission income on the entire transaction carried out by assessee. The ld. CIT(A) confirmed the action of assessing officer.
I find that once the assessee has given complete details of their transaction involving modification of client code, the assessing officer was not justified without making any verification of fact whether it was a genuine client code modification or code was modified to give undue benefit, gain or loss to various clients. Further, there is no basis of making such commission income without bringing any material on record. The assessing officer solely acted on the basis of information of Investigation Wing. Thus, I do not find any justification of making such addition. In the result, grounds of appeal of assessee are allowed.
As recorded above, the assessee has raised similar grounds of appeal as raised in A.Y. 2013-14, fact of appeal for A.Y. 2013-14 are also similar. I have already allowed appeal for AY 2013-14. Considering the fact that addition in the year under consideration is based on same set of fact. Therefore, following the principle of consistency appeal for A.Y. 2014-15 is also allowed with similar direction.
In the result, both the appeals of assessee are allowed.