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Facts
The revenue filed an appeal challenging an order that restricted additions to 1% of total transactions. The original assessment reopened based on information about misuse of client code modification to evade tax, leading to additions of Rs. 29,49,330/-.
Held
The Tribunal held that the assessee acted solely as a broker and did not own the client codes that were modified. The additions were made on incorrect premises, and the CIT(A)'s restriction of additions to 1% was upheld.
Key Issues
Whether the assessee was a beneficiary of client code modification or merely a broker, and whether the additions made by the AO were justified.
Sections Cited
250
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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI SANDEEP GOSAIN
Date of Hearing 25.08.2025 Date of Pronouncement 02.09.2025 ORDER Per: SHRI. SANDEEP GOSAIN, J.M.:
The present appeal has been filed by the revenue challenging the impugned order dt. 02.01.2025 passed under section 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre (NFAC) / CIT(A) for the assessment year 2012-13.
Both the grounds raised by the revenue are 2. interrelated and interconnected and relates to challenging the order of Ld. CIT(A) in restricting the additions up to 1% of the total transactions by treating the assessee only a broker and not treating the assessee as a beneficiary of client code modification. Therefore, I have decided to
I have heard the counsels for both the parties, perused the material placed on record, judgments cited before me and also the orders passed by the revenue authorities. From the records, I noticed that the assessment of the assessee was reopened on the basis of information received from DDIT(Mumbai) in respect of misuse of ‘client code modification’ as a devise to evade tax by way of converting income into losses. In this regard Assessing Officer found that assessee had modified its original UCC (S0760) to modified UCC (K0142) client code modification, which was reflected in the commodities trading done through NSEL exchange and ultimately made additions of Rs. 29,49,330/-.
Aggrieved by the said decision the assessee preferred appeal which was partly allowed by restring the additions up to 1% of the total transaction amount.
After having gone through the entire facts and circumstances of the present case, I noticed that AO had made the additions on the wrong premises that assessee had modified its original client code modification to convert profit into losses. Whereas altogether different as the said code never belong to the assessee but belong to the ultimate clients as the said code S0760 belongs to Ms. Shalini and code K0142 belongs to Kishori Suresh Chandra Lalkar commodities Pvt Ltd, Mumbai. Jhaveri. As per the records the assessee had not entered into sale and purchase of shares in its proprietary capacity but as a broker. The transactions were entered into by the client for which due to errors, the client code modification was done. The assessee had neither earned any profit on sale of shares etc., against which there was any requirement of loss to evade any tax. The assessee was only a broker and not even a beneficiary of such client code modification and the assessee had shown the income from its business and profession as a brokerage firm and had not carried transactions in its own code at all. In my view it is observed from the records that the revenue authorities had made generalized observation, whereas the assessee had neither changed its own client code nor had any capital gain against which capital loss would be required by the assessee to evade tax. It is important to mention here that AO himself had accepted that in such instances, the earning if any is in the form of commission ranging from 0.5% to 2% which could only be charged by the broker.
Even otherwise AO has not made any independent enquiry against the assessee, except referring the report of the SFIO and the information received from the investigation wing. There is absolutely no evidence of any commission received by the assessee regarding brokerage of the sale and purchase on behalf of the clients. Nothing has been brought on record by the AO to prove that any Lalkar commodities Pvt Ltd, Mumbai. enquiry was made from the clients, whose client codes were modified though the name and PAN of those persons were available with the department. In our view Ld. CIT(A) had rightly appreciated the facts and circumstances of the present case and rightly restricted the additions up to 1%.
No new facts, circumstances or documents have been placed before me during the course of proceedings in orders to controvert or rebut the lawful findings so recorded by Ld. CIT(A). Therefore I find no reasons to interfere into or to deviate from the well reasoned finding recorded by Ld.CIT(A). Thus I dismiss the grounds raised by the revenue with no order as to cost.
In the result appeal filed by the revenue stands dismissed.
Order pronounced in the open court on 02/09/2025