DCIT-16(2), MUMBAI vs. ANISH VASANT DALAL, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH; MUMBAI BEFORE SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER AND SMT. DEBJANI MITRANEOGY, JUDICIAL MEMBER ITA No. 3648/Mum/2026 (Assessment Year: 2013-14)

Deputy Commissioner of Anish Vasant Dalal Income Tax -16(2) 61 B Amar Niwas, Bhulabhai 481, 4th Floor, Aayakar vs. Desai Road, Breach Candy, Bhavan, M. K. Road, Cumballa Hill S.O Mumbai Churchgate, Mumbai, 400026. Maharashtra, 400020. PAN: AABPD3790R (Appellant) (Respondent) For Assessee : Shri J.P. Bairagra a/w Ms Rupa Nanda For Revenue : Shri Surendra Mohan, Sr.DR Date of Hearing : 04.08.2026 Date of Pronouncement : 20.08.2026 O R D E R PER VIKRAM SINGH YADAV, A.M :

This is an appeal filed by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [‘Ld.CIT(A)’], dated 05.02.2026, pertaining to Assessment Year (AY) 2013-14, wherein the Revenue has taken the following grounds of appeal:

“1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in deleting the addition of Rs.67,32,850/- made by the Assessing Officer under section 68 read with section 115BBE of the Income-tax Act, 1961, ignoring the specific investigation information indicating misuse of Client Code Modification (CCM) facility on the NSEL platform through M/s Anand Rathi Commodities Ltd.?

ITA No. 3648/Mum/2026; A.Y. 2013-14 Anish Vasant Dalal 2. Whether the Ld. CIT(A) erred in law in deleting the addition without appreciating the material gathered during investigation proceedings and statements recorded in the case of the broker indicating that the Client Code Modification facility was misused to artificially shift profits and losses among clients to evade tax? 3. Whether the Ld. CIT(A) erred in law in holding the transactions as genuine despite the assessee failing to substantiate the genuineness of the commodity transactions amounting to Rs.67,32,850/- with credible supporting evidence during assessment proceedings? 4. Whether the Ld. CIT(A) erred in law in holding that the provisions of section 68 of the Income-tax Act, 1961 were not applicable in the absence of specific credit entries in the books of accounts, ignoring the fact that the unexplained transactions represented accommodation entries routed through the broker resulting in undisclosed income of the assessee? 5. Whether the Ld. CIT(A) erred in law in holding that the Assessing Officer could not treat the entire amount of Rs.67,32,850/- as unexplained income without appreciating that the transactions were found to be accommodation entries designed to conceal the real income of the assessee? 6. Whether the Ld. CIT(A) erred in law in disregarding the evidentiary value of statements recorded from the broker and other persons during investigation proceedings, which indicated that no actual commodity trading took place and that Client Code Modification was misused to shift profits and losses among clients? 7. Whether the Ld. CIT(A) erred in law in failing to appreciate that the case falls within the category of organized tax evasion through accommodation entries using Client Code Modification and thereby erred in deleting the addition made by the Assessing Officer?”

ITA No. 3648/Mum/2026; A.Y. 2013-14 Anish Vasant Dalal 3. During the course of hearing, the ld. DR drawn our reference to the order and the findings of the Assessing Officer and we deem it appropriate to reproduce the same as under:

“As per the information, the assessee has misused the facility of Client Code Modification through broker AnandRathi Commodities Ltd. and escaped income of Rs 67,32,850/-. During the course of assessment proceedings, assesse was specifically asked to provide the details and documentary evidence to prove the genuineness of transaction w.r.t Anand Rathi Commodities Ltd. and escaped income of Rs 67,32,850/-. The assesse has in its reply has accepted that it has entered into transaction in commodities on NSEL platform through AnandRathi Commodities Ltd and earned profit of Rs. 1,91,608/-. However, assesse has refused for misuse of Client Code Modification. Here, it is to be mentioned that Key person of broker Anand Rathi Commodities Ltd were Summoned u/s 131 of the IT Act and statements of key person was recorded under oath, in which they stated that no physical delivery of goods took place whatsoever in all trades executed on NSEL and they misused the facility of client code modifications to the tune of Rs.3073.48Cr. For sake of natural justice, a final Show cause notice dated 19.04.2023 was issued to the assesse and show-caused as to why in absence of any supporting documents addition should not be made for the amounting to Rs. 67,32,850/- transaction in stock markets through broker Anand Rathi Commodities Ltd and added back to your total income. In response to the show cause notice, the assesse has submitted the repeated replies and again couldn't submitted the documentary evidences in support of genuineness of transaction w.r.t. transaction in the commodities through AnandRathi Commodities Ltd. amounting to Rs 67,32,850/-. The assesse requested for Video Conference (VC). The VC was scheduled on dated 10.05.2023. However, the assessee has repeated the same issues in VC, which shows that assessee has nothing more to say in support of his claim. At the outset, it is pertinent to mention here that Client Code Modification means modification is being used a device to evade taxes wherein the client codes were modified for booking artificial profits or losses at the fag- end (January to March) of the Financial year when the book profits/losses of various clients have crystallized. This is done with an intention to impact the tax liabilities of the pair of clients whose codes are modified. The modus operandi is as under:

ITA No. 3648/Mum/2026; A.Y. 2013-14 Anish Vasant Dalal

(i) Say Mr.X is high net worth individual and he wants a certain amount of loss in Company-I which already has crystallized profits in its books. By taking in artificial losses he avoids paying tax on already crystallized profits as these get set off against the artificially bought loss. (ii) As against this say Mr. Y is another client who without paying any taxes wants to launder his cash and introduce it in his books as accounted for funds. (iii) Brokers indulging in tax evasion through client code modification would enter a large number of buy / sell orders in the name of a client and would close them within the days' trading itself. Some of these transactions would result in loss and some would result in gain and the loss and gain transactions would more or less balance out. (iv) Thereafter during the time span allowed for changing the client code the broker would segregate the gain and loss transactions by changing the client codes of the loss and gain transactions. (υ) In the scenario mentioned above the party would change the client code of loss transactions to that of the Company-I. The pay put made by the company would be returned back by the broker to Mr X in cash after deducting a commission for arranging the loss. (vi) Similarly the transactions which resulted in gain the broker would change the client code of transactions to that of Mr Y. For this he would get equivalent amount and his commission back from from Mr. Y in cash. (vii) After such manipulated code changing if the contract notes are called for the transactions would appear to be genuine and it would seem as if real trade was done by the substituted party as their client code and not the original client code is printed on the contract notes. This kind of substitution of client code, which is allowed by stock exchange for rectifying genuine punching errors, has been abused by the unscrupulous brokers and their clients. In view of the above, I am therefore, satisfied that the assesse has failed to offer any explanation and failed to prove genuineness of transaction in the commodities through Anand Rathi Commodities Ltd. amounting to Rs 67,32,850/-.and the same remained unexplained. Therefore, the amount of Rs. 67,32,850/- is added back to the total income of the assessee u/s 68r.w.s. 115BBE of the Income Tax Act, 1961. Further, penalty u/s 271(1)(c) of the Income Tax Act is also initiated for concealment of its income.”

ITA No. 3648/Mum/2026; A.Y. 2013-14 Anish Vasant Dalal 4. Per contra, the ld. AR submitted that the Assessing Officer made the impugned addition merely on the basis of information received regarding alleged Client Code Modification (CCM) transactions on the NSEL platform through M/s. Anand Rathi Commodities Ltd. It was submitted that no independent enquiry was conducted by the Assessing Officer to establish that the respondent had done the transaction and earned any undisclosed income. It was further submitted that during the assessment proceedings, the assessee furnished complete details of all commodity transactions including contract notes, ledger account, bank statements and computation of profit. The assessee had carried out genuine commodity transactions resulting in a net profit of Rs.1,91,608/-, which was duly offered to tax in the original return of income. It was submitted that the Assessing Officer neither supplied the basis nor the working explaining how the figure of Rs.67,32,850/- was arrived at. Even in the assessment order, there is no finding whether the said amount represents purchases, sales, turnover, profit or any unexplained credit. The provisions of section 68 are not attracted since there is no unexplained credit found in the books of account of the assessee. The addition has been made without identifying any specific cash credit as required under section 68. The entire addition is based on assumptions and generalized investigation reports without bringing any material on record to establish that the assessee was a beneficiary of accommodation entries or that the transactions disclosed by the assessee were fictitious. It was further submitted that the Ld. CIT(A), after appreciating the documentary evidences and the settled legal position, rightly deleted the addition. Further, our reference was drawn to the findings of the ld. CIT(A) which read as under: “5.4 The principal issue for consideration is the addition of Rs. 67,32,850/- made by the Assessing Officer under section 68 read with section 115BBE of the Act on account of alleged unexplained commodity transactions carried out on the NSEL platform.

ITA No. 3648/Mum/2026; A.Y. 2013-14 Anish Vasant Dalal 5.5 On perusal of the assessment order, it is noticed that the addition has been made by treating the alleged value of transactions as unexplained income, primarily based on general information regarding misuse of Client Code Modification by certain brokers and statements recorded in the case of the broker. However, the Assessing Officer has not brought on record any material to show that the appellant had received any unexplained money, asset or credit corresponding to the said amount. 5.6 Section 68 of the Act can be invoked only when a sum is found credited in the books of account of the appellant for the relevant previous year, and the appellant fails to satisfactorily explain the nature and source thereof. In the present case, the Assessing Officer has neither identified any credit entry in the books of account nor demonstrated that the alleged amount represents income of the appellant. The impugned amount represents the gross value of transactions and not income or unexplained credit. 5.7 The appellant has furnished complete details of transactions carried out through M/s Anand Rathi Commodities Ltd., including contract notes, ledger accounts, bank statements reflecting payments made and received through banking channels, and computation of profit. From the material on record, it is evident that the appellant earned a net profit of Rs. 1,91,608/- , which has been duly disclosed and offered to tax. There is no material on record to suggest that any income in excess of the disclosed profit has accrued to the appellant. 5.8 It is further observed that the Assessing Officer has not disputed the authenticity of the contract notes or bank statements submitted by the appellant. No discrepancy has been pointed out in the quantitative details, dates of transactions, or settlement of trades. In the absence of any defect in the primary evidence furnished, the explanation of the appellant cannot be brushed aside based on conjectures and general allegations. 5.9 The addition has been made by placing reliance on statements recorded in the case of the broker, wherein it was alleged that physical delivery of commodities did not take place and that the Client Code Modification facility was misused in several cases. However, there is no finding that the appellant had instructed the broker to carry out any such modification or that the appellant had derived any benefit other than the disclosed profit. Moreover, no opportunity of cross examination of the persons whose statements have been relied upon was afforded to the appellant, which vitiates the addition. 5.10 It is a settled position of law that suspicion, however strong, cannot take the place of evidence. Additions cannot be sustained merely based on probabilities or general modus operandi unless the same is corroborated by specific evidence linking the appellant to the alleged arrangement. In the present case, such a nexus is conspicuously absent. 5.11 It is also well recognised that even where transactions are alleged to be non genuine, only the real income arising therefrom can be brought to tax. The Assessing Officer has sought to tax the entire transaction value

ITA No. 3648/Mum/2026; A.Y. 2013-14 Anish Vasant Dalal as unexplained income, without demonstrating how the same represents income in the hands of the appellant. Such an approach is contrary to the fundamental principles of income-tax law. 5.12 Further, the Assessing Officer has invoked section 115BBE consequentially. Since the addition under section 68 itself is found to be unsustainable, the application of section 115BBE automatically fails. 5.13 In view of the above factual matrix and settled legal principles, it is held that the Assessing Officer was not justified in making the addition of Rs. 67,32,850/- under section 68 read with section 115BBE of the Act. The addition is based on assumptions, third-party allegations, and general information, without establishing any unexplained credit or income in the hands of the appellant. 5.14 Accordingly, the addition of Rs. 67,32,850/- is hereby deleted.” 5. We have heard the rival contentions and perused the material available on record. The ld CIT(A) has returned a finding that the assessee has undertaken certain commodity trading transactions through Anand Rathi Commodities Ltd and has reported a net profit of Rs 1,91,608/- in his return of income and there is no information available on record which suggest that any income in excess of the disclosed profit has accrued to/received by the assessee. Further, the ld CIT(A) has returned a finding that there are no credit entries in the books of accounts of the assessee nor there is any material that the assessee has received any unexplained money, asset or credit to the tune of Rs 67,32,850/-. It has been further held that the assessee on his part has furnished complete details of transactions carried out through M/s Anand Rathi Commodities Ltd., including contract notes, ledger accounts, bank statements reflecting payments made and received through banking channels, and computation of profit and no discrepancy has been pointed out in the quantitative details, dates of transactions, or settlement of trades and in the absence of any defect in the primary evidence furnished, the explanation of the assessee cannot be brushed aside based on conjectures and general allegations. Nothing has been brought on record to rebut the said findings of the ld CIT(A). In view of the same, we donot find any justifiable basis to interfere with the findings of the ld CIT(A) who

ITA No. 3648/Mum/2026; A.Y. 2013-14 Anish Vasant Dalal has rightly appreciated the factual matrix and has deleted the additions which has no legal basis to stand. The said findings are hereby confirmed and the grounds of appeal taken by the Revenue are dismissed.

Order pronounced on 20.08.2026

Sd/- Sd/- DEBJANI MITRANEOGY VIKRAM SINGH YADAV (JUDICIAL MEMBER) (ACCOUNTANT MEMBER)

Mumbai, Dated: 20.08.2026 Karishma J. Pawar, SR. PS

Copy to : 1) The Appellant 2) The Respondent 3) The CIT concerned 4) The D.R, ITAT, Mumbai 5) Guard file

By Order

Dy./Asst. Registrar I.T.A.T, Mumbai