GANITA TECHNOLOGIES & SERVICES PVT. LTD. (SUCESSOR IN INTEREST TO VOCATION INVT & FIN CO. PVT. LTD.),MUMBAI vs. ACIT 2(3)(1), MUMBAI

PER OM PRAKASH KANT, AM

This appeal by the assessee is directed against order dated 06.03.2026 passed by the learned Assistant/Joint Commissioner of Income-Tax (Appeals)-1, Bengaluru, (in short ‘the learned CIT(A)’), for Assessment Year 2009-10. The assessee has challenged the validity of the reassessment proceedings as well as the addition of

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Rs.1,06,40,281/- made by the Assessing Officer on account of made by the Assessing Officer on account of made by the Assessing Officer on account of alleged shifting of profit/loss through Client Code Modification alleged shifting of profit/loss through Client Code Modification alleged shifting of profit/loss through Client Code Modification (“CCM”) undertaken by the broker. The grounds raised are (“CCM”) undertaken by the broker. The grounds raised are (“CCM”) undertaken by the broker. The grounds raised are reproduced as under: reproduced as under: “1. The Ld. ADDL/JCIT (A) erred in law and on facts in upholding the reopening of The Ld. ADDL/JCIT (A) erred in law and on facts in upholding the reopening of The Ld. ADDL/JCIT (A) erred in law and on facts in upholding the reopening of the-assessment u/s 148 of the Act as valid though notice u/s 148 was issued assessment u/s 148 of the Act as valid though notice u/s 148 was issued- assessment u/s 148 of the Act as valid though notice u/s 148 was issued without fulfilling the conditions laid down under the said section. Thus the the conditions laid down under the said section. Thus the the conditions laid down under the said section. Thus the- reopening is not valid and the assessment framed on the basis of invalid reopening is not valid and the assessment framed on the basis of invalid reopening is not valid and the assessment framed on the basis of invalid-notice should be cancelled. 2. The Ld. ADDL/JCIT (A) erred in law and on facts in confirming the addition of Rs. The Ld. ADDL/JCIT (A) erred in law and on facts in confirming the addition of Rs. The Ld. ADDL/JCIT (A) erred in law and on facts in confirming the addition of Rs. 1,06,40,281/- by alleging that the assessee has shifted profit to another entities by alleging that the assessee has shifted profit to another entities by alleging that the assessee has shifted profit to another entities through client code modification undertaken by its broker in the transactions through client code modification undertaken by its broker in the transactions through client code modification undertaken by its broker in the transactions undertaken at recognized stock exchanges ignoring the submissions and evidences undertaken at recognized stock exchanges ignoring the submissions and evidences undertaken at recognized stock exchanges ignoring the submissions and evidences placed on record. Thus, th placed on record. Thus, the addition so made should be deleted. e addition so made should be deleted. 3. The appellant craves leave to add, substitute modify, DLEETE OR amend all OR The appellant craves leave to add, substitute modify, DLEETE OR amend all OR The appellant craves leave to add, substitute modify, DLEETE OR amend all OR any ground of appeal on before OR at the time of hearing. any ground of appeal on before OR at the time of hearing.” 2. Briefly stated, the assessee filed its return of income for the Briefly stated, the assessee filed its return of income for the Briefly stated, the assessee filed its return of income for the year under consideration on 14.09.2009 declaring a total loss of consideration on 14.09.2009 declaring a total loss of consideration on 14.09.2009 declaring a total loss of Rs.56,25,983/-. The said return was processed under section . The said return was processed under section . The said return was processed under section 143(1) of the Income 143(1) of the Income-tax Act, 1961 [in short, “the Act”] on tax Act, 1961 [in short, “the Act”] on 25.01.2010. No assessment under section 143(3) of the Act was 25.01.2010. No assessment under section 143(3) of the Act was 25.01.2010. No assessment under section 143(3) of the Act was made at that stage.

2.1 Subsequently, information was received by the Assessing Subsequently, information was received by the Assessing Subsequently, information was received by the Assessing Officer from the Investigation Wing, Ahmedabad, regarding alleged Officer from the Investigation Wing, Ahmedabad, regarding alleged Officer from the Investigation Wing, Ahmedabad, regarding alleged misuse of the Client Code Modification facility by certain brokers misuse of the Client Code Modification facility by certain brokers misuse of the Client Code Modification facility by certain brokers and their clients for shifting profits and losses from one client code and their clients for shifting profits and losses from one clie and their clients for shifting profits and losses from one clie to another and the as the assessee was one of the beneficiary one of the beneficiary of the misuse of client code misuse of client code modification (CCM) for artificially shifting of for artificially shifting of

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profit and loss from original client code to the modified client code from original client code to the modified client code from original client code to the modified client code with an intention to reduce the legitimate tax liability which would with an intention to reduce the legitimate tax liability which would with an intention to reduce the legitimate tax liability which would have arisen had the original trades not been modified. have arisen had the original trades not been modified. have arisen had the original trades not been modified.

2.2 On the basis of such information, the assessment was On the basis of such information, the assessment was On the basis of such information, the assessment was reopened by issuanc reopened by issuance of notice under section 148 of the Act dated e of notice under section 148 of the Act dated 29.03.2016. In response thereto, the assessee filed its return on 29.03.2016. In response thereto, the assessee filed its return on 29.03.2016. In response thereto, the assessee filed its return on 04.04.2016, declaring the income as returned originally. 04.04.2016, declaring the income as returned originally. 04.04.2016, declaring the income as returned originally.

2.3 During the course of reassessment proceedings, the Assessing During the course of reassessment proceedings, the Assessing During the course of reassessment proceedings, the Assessing Officer referred to information regarding CCM transactions allegedly nformation regarding CCM transactions allegedly nformation regarding CCM transactions allegedly involving the assessee. According to the Assessing Officer, the involving the assessee. According to the Assessing Officer, the involving the assessee. According to the Assessing Officer, the assessee had obtained a loss entry of Rs.12,16,895/- through CCM assessee had obtained a loss entry of Rs.12,16,895/ assessee had obtained a loss entry of Rs.12,16,895/ and was further involved in other CCM transactions amounting to and was further involved in other CCM transactions amounting to and was further involved in other CCM transactions amounting to Rs.94,23,386/-. The aggregate amount was accordingly taken at The aggregate amount was accordingly taken at The aggregate amount was accordingly taken at Rs.1,06,40,281/- and was treated by the Assessing Officer as a loss and was treated by the Assessing Officer as a loss and was treated by the Assessing Officer as a loss artificially brought into the assessee's books through misuse of the artificially brought into the assessee's books through misuse of the artificially brought into the assessee's books through misuse of the CCM facility. But no reply was filed on the part of the assessee. The CCM facility. But no reply was filed on the part of the assessee. The CCM facility. But no reply was filed on the part of the assessee. The Assessing Officer referred to the theoretical method of client code sessing Officer referred to the theoretical method of client code sessing Officer referred to the theoretical method of client code modification and also referred to the inquiry carried out by SEBI for modification and also referred to the inquiry carried out by SEBI for modification and also referred to the inquiry carried out by SEBI for controlling the misuse of client code modification, and thereafter he controlling the misuse of client code modification, and thereafter he controlling the misuse of client code modification, and thereafter he held the assessee to be the beneficiary of the loss of (-) Rs. held the assessee to be the beneficiary of the los held the assessee to be the beneficiary of the los 1,06,40,281/- by way of misuse of client code modification vide his by way of misuse of client code modification vide his by way of misuse of client code modification vide his order dated 27.12.2016 passed under section 147 of the Act. order dated 27.12.2016 passed under section 147 of the Act. order dated 27.12.2016 passed under section 147 of the Act.

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Alleged change of opinion Alleged change of opinion

5.1 The learned CIT(A) noted that the assessee had filed its return The learned CIT(A) noted that the assessee had filed its return The learned CIT(A) noted that the assessee had filed its return of income for Assessment Year 2009 of income for Assessment Year 2009-10 declaring a loss of 10 declaring a loss of Rs.56,25,953/-, which was processed under section 143(1) of the , which was processed under section 143(1) of the , which was processed under section 143(1) of the

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Act. Since no scrutiny assessment under section 143(3) had been Act. Since no scrutiny assessment under section 143(3) had been Act. Since no scrutiny assessment under section 143(3) had been undertaken, the learned CIT(A) observed that no opinion had earlier aken, the learned CIT(A) observed that no opinion had earlier aken, the learned CIT(A) observed that no opinion had earlier been formed on the issue subsequently considered in reassessment. been formed on the issue subsequently considered in reassessment. been formed on the issue subsequently considered in reassessment. The learned CIT(A) further noted that notice under section 148 The learned CIT(A) further noted that notice under section 148 The learned CIT(A) further noted that notice under section 148 dated 29.03.2016 was issued after recording reasons and obtaining dated 29.03.2016 was issued after recording reasons and obtaining dated 29.03.2016 was issued after recording reasons and obtaining approval under section 151, on the basis of information received approval under section 151, on the basis of information received approval under section 151, on the basis of information received from the Investigation Wing, Ahmedabad, concerning alleged from the Investigation Wing, Ahmedabad, concerning alleged from the Investigation Wing, Ahmedabad, concerning alleged misuse of the Client Code Modification facility and alleged misuse of the Client Code Modification facility and alleged misuse of the Client Code Modification facility and alleged escapement of income of Rs.1,06,40,281/ escapement of income of Rs.1,06,40,281/-. The assessee objected to . The assessee objected to the reopening on the ground that the Assessing Officer had acted reopening on the ground that the Assessing Officer had acted reopening on the ground that the Assessing Officer had acted on borrowed satisfaction and had not independently verified the on borrowed satisfaction and had not independently verified the on borrowed satisfaction and had not independently verified the information.

5.2 On consideration of the reasons recorded, the learned CIT(A) On consideration of the reasons recorded, the learned CIT(A) On consideration of the reasons recorded, the learned CIT(A) held that the information available with the Assessing Officer was held that the information available with the Assessi held that the information available with the Assessi specific to the assessee, quantified the alleged escapement and specific to the assessee, quantified the alleged escapement and specific to the assessee, quantified the alleged escapement and referred referred to to transaction transaction-level level information information relating relating to to CCM CCM transactions. According to the learned CIT(A), the reasons, transactions. According to the learned CIT(A), the reasons, transactions. According to the learned CIT(A), the reasons, therefore, could not be regarded as vague or merely reproducing therefore, could not be regarded as vague or merely reprodu therefore, could not be regarded as vague or merely reprodu general information received from the Investigation Wing. The general information received from the Investigation Wing. general information received from the Investigation Wing. learned CIT(A) considered the judicial precedents relied upon by the learned CIT(A) considered the judicial precedents relied upon by the learned CIT(A) considered the judicial precedents relied upon by the assessee, including Pr. CIT v. G&G Pharma India Ltd. Pr. CIT v. G&G Pharma India Ltd. and CIT v. Pr. CIT v. G&G Pharma India Ltd. Smt. Laxmi Mehrotra Smt. Laxmi Mehrotra, and distinguished them on facts. He and distinguished them on facts. He further referred to PCIT v. Paramount Communication Pvt. Ltd. PCIT v. Paramount Communication Pvt. Ltd. PCIT v. Paramount Communication Pvt. Ltd. for the proposition that specific information received from the Investigation proposition that specific information received from the Investigation proposition that specific information received from the Investigation

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Wing may constitute tangible material for formation of a prima facie Wing may constitute tangible material for formation of a prima facie Wing may constitute tangible material for formation of a prima facie belief regarding escapement of income. belief regarding escapement of income. The lea The learned CIT(A) accordingly held that the Assessing Officer had applied his mind to accordingly held that the Assessing Officer had applied his mind to accordingly held that the Assessing Officer had applied his mind to the information received and had independently formed the the information received and had independently formed the the information received and had independently formed the requisite belief regarding escapement of income. He further requisite belief regarding escapement of income. He further requisite belief regarding escapement of income. He further observed that the mere fact that the information originated from the observed that the mere fact that the information originate observed that the mere fact that the information originate Investigation Wing did not, by itself, render the reopening invalid. Investigation Wing did not, by itself, render the reopening invalid. Investigation Wing did not, by itself, render the reopening invalid.

5.3 As regards the plea of change of opinion, the learned CIT(A) As regards the plea of change of opinion, the learned CIT(A) As regards the plea of change of opinion, the learned CIT(A) observed that the original return had been processed only under observed that the original return had been processed only under observed that the original return had been processed only under section 143(1) and no scrutiny assessment under section 143(3) section 143(1) and no scrutiny assessment under section 143(1) and no scrutiny assessment under had been made. Therefore, according to the learned CIT(A), there had been made. Therefore, according to the learned CIT(A), there had been made. Therefore, according to the learned CIT(A), there was no earlier opinion on the issue which could subsequently be was no earlier opinion on the issue which could subsequently be was no earlier opinion on the issue which could subsequently be said to have been changed. said to have been changed.

5.4 On the aforesaid reasoning, the learned CIT(A) concluded that On the aforesaid reasoning, the learned CIT(A) concluded that On the aforesaid reasoning, the learned CIT(A) concluded that the Assessing Officer had tangible material having a prima facie cer had tangible material having a prima facie cer had tangible material having a prima facie nexus with the alleged escapement of income and that the statutory nexus with the alleged escapement of income and that the statutory nexus with the alleged escapement of income and that the statutory conditions for assumption of jurisdiction under section 147 were conditions for assumption of jurisdiction under section 147 were conditions for assumption of jurisdiction under section 147 were satisfied. The challenge to the validity of the reassessment was satisfied. The challenge to the validity of the reassessment was satisfied. The challenge to the validity of the reassessment was accordingly rejected.

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application of mind by the Assessing Officer. According to the application of mind by the Assessing Officer. According to the application of mind by the Assessing Officer. According to the learned counsel, the Assessing Officer merely reproduced the learned counsel, the Assessing Officer merely reproduced the learned counsel, the Assessing Officer merely reproduced the general information received from the Investigation Wing regarding general information received from the Investigation Wing regarding general information received from the Investigation Wing regarding alleged misuse of Client Code Modification facility, without bringing alleged misuse of Client Code Modification facility, without brin alleged misuse of Client Code Modification facility, without brin on record any assessee on record any assessee-specific material demonstrating that the specific material demonstrating that the impugned modifications were carried out at the instance of the impugned modifications were carried out at the instance of the impugned modifications were carried out at the instance of the assessee or resulted in escapement of its income. It was contended assessee or resulted in escapement of its income. It was contended assessee or resulted in escapement of its income. It was contended that the reasons do not disclose any live nexus between the that the reasons do not disclose any live nexus between t that the reasons do not disclose any live nexus between t material relied upon and the alleged escapement, particularly when material relied upon and the alleged escapement, particularly when material relied upon and the alleged escapement, particularly when the amount stated in the reasons differs materially from the figures the amount stated in the reasons differs materially from the figures the amount stated in the reasons differs materially from the figures subsequently referred to in the proceedings. It was further subsequently referred to in the proceedings. It was further subsequently referred to in the proceedings. It was further submitted that neither the relevant investigation report nor the submitted that neither the relevant investigation report submitted that neither the relevant investigation report statements of the brokers relied upon by the Revenue were statements of the brokers relied upon by the Revenue were statements of the brokers relied upon by the Revenue were furnished to the assessee and no independent enquiry was furnished to the assessee and no independent enquiry was furnished to the assessee and no independent enquiry was conducted with the broker under sections 131 or 133(6). The conducted with the broker under sections 131 or 133(6). The conducted with the broker under sections 131 or 133(6). The learned counsel thus contended that the reopening was founded learned counsel thus contended that the reopening was founded learned counsel thus contended that the reopening was founded upon borrowed satisfaction and mere suspicion rather than the ed satisfaction and mere suspicion rather than the ed satisfaction and mere suspicion rather than the statutory ‘reason to believe’. Reliance was placed, inter alia, upon statutory ‘reason to believe’. Reliance was placed, inter alia, upon statutory ‘reason to believe’. Reliance was placed, inter alia, upon CIT v. Kelvinator of India Ltd. CIT v. Kelvinator of India Ltd., 320 ITR 561 (SC), , 320 ITR 561 (SC), ACIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. Rajesh Jhaveri Stock Brokers (P.) Ltd., 291 ITR 500 (SC), , 291 ITR 500 (SC), Coronation Agro Ind Coronation Agro Industries Ltd. v. DCIT, 390 ITR 464 (Bom.), , 390 ITR 464 (Bom.), and the decisions of the coordinate Benches relied upon in the and the decisions of the coordinate Benches relied upon in the and the decisions of the coordinate Benches relied upon in the written submissions. It was further urged that the reopening written submissions. It was further urged that the reopening written submissions. It was further urged that the reopening

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amounted to a review/change of opinion and, therefore, was amounted to a review/change of opinion and, therefore, was amounted to a review/change of opinion and, therefore, was impermissible in law. .

7.1 The contention regarding change of opinion proceeds on the The contention regarding change of opinion proceeds on the The contention regarding change of opinion proceeds on the premise that the Assessing Officer had earlier examined the issue premise that the Assessing Officer had earlier examined the issue premise that the Assessing Officer had earlier examined the issue and thereafter sought to reopen the assessment on a different view and thereafter sought to reopen the assessment on a different v and thereafter sought to reopen the assessment on a different v of the same material. The record, however, shows that the original of the same material. The record, however, shows that the original of the same material. The record, however, shows that the original return of income filed by the assessee was processed under section return of income filed by the assessee was processed under section return of income filed by the assessee was processed under section 143(1) of the Act and no scrutiny assessment under section 143(3) 143(1) of the Act and no scrutiny assessment under section 143(3) 143(1) of the Act and no scrutiny assessment under section 143(3) was undertaken. Thus, there was no earlier opinion o Thus, there was no earlier opinion o Thus, there was no earlier opinion of the Assessing Officer on the issue Assessing Officer on the issue of CCM transactions CCM transactions which could subsequently be said to have been changed. The plea of change of subsequently be said to have been changed. The plea of change of subsequently be said to have been changed. The plea of change of opinion is therefore without merit. The ratio of CIT v. Kelvinator of CIT v. Kelvinator of opinion is therefore without merit. India Ltd., (supra), therefore, does not advance the assessee's case. , therefore, does not advance the assessee's case. , therefore, does not advance the assessee's case. The position is settled by ACIT v. Rajesh Jhaveri Stock Brokers ACIT v. Rajesh Jhaveri Stock Brokers The position is settled by (P.) Ltd., (supra), that processing under section 143(1) does not that processing under section 143(1) does not that processing under section 143(1) does not constitute an assessment giving rise to a change of opinion. constitute an assessment giving rise to a change of opinion. constitute an assessment giving rise to a change of opinion.

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7.2 As regards alleged borrowed satisfaction, the reasons recorded regards alleged borrowed satisfaction, the reasons recorded regards alleged borrowed satisfaction, the reasons recorded refer to specific information concerning the assessee's CCM refer to specific information concerning the assessee's CCM refer to specific information concerning the assessee's CCM transactions and the consequent escapement of income. The transactions and the consequent escapement of income. The transactions and the consequent escapement of income. The Assessing Officer, after considering the information, recorded his Assessing Officer, after considering the information, recorded his Assessing Officer, after considering the information, recorded his own satisfaction regarding escapement of income. The mere fact ction regarding escapement of income. The mere fact ction regarding escapement of income. The mere fact that the information originated from the Investigation Wing does not that the information originated from the Investigation Wing does not that the information originated from the Investigation Wing does not render the satisfaction borrowed. At the stage of reopening, the render the satisfaction borrowed. At the stage of reopening, the render the satisfaction borrowed. At the stage of reopening, the Assessing Officer is required to have material giving rise to a Assessing Officer is required to have material giving rise to a Assessing Officer is required to have material giving rise to a reasonable belief of escapement of income; he is not required to able belief of escapement of income; he is not required to able belief of escapement of income; he is not required to conclusively establish the proposed addition. The sufficiency or conclusively establish the proposed addition. The sufficiency or conclusively establish the proposed addition. The sufficiency or adequacy of such material is a matter falling outside the scope of adequacy of such material is a matter falling outside the scope of adequacy of such material is a matter falling outside the scope of examination at this stage. examination at this stage.

7.3 The assessee's reliance on The assessee's reliance on Coronation Agro Industries Ltd. ion Agro Industries Ltd. v. DCIT, 390 ITR 464 (Bom.) 390 ITR 464 (Bom.), is distinguishable on facts. In the is distinguishable on facts. In the present case, the reasons specifically refer to the assessee's CCM present case, the reasons specifically refer to the assessee's CCM present case, the reasons specifically refer to the assessee's CCM transactions and the alleged income effect. Thus, the information transactions and the alleged income effect. Thus, the information transactions and the alleged income effect. Thus, the information cannot be characterised as merely general information concerning cannot be characterised as merely general information concerning cannot be characterised as merely general information concerning CCM transactions with CCM transactions without any nexus with the assessee. out any nexus with the assessee.

7.4 The contention regarding non The contention regarding non-furnishing of investigation furnishing of investigation material likewise does not, by itself, invalidate the assumption of material likewise does not, by itself, invalidate the assumption of material likewise does not, by itself, invalidate the assumption of jurisdiction. The assessee's right to confront and rebut such jurisdiction. The assessee's right to confront and rebut such jurisdiction. The assessee's right to confront and rebut such material is relevant while exami material is relevant while examining the sustainability of the ning the sustainability of the addition on merits.

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7.5 In view of the foregoing, we hold that the Assessing Officer had In view of the foregoing, we hold that the Assessing Officer had In view of the foregoing, we hold that the Assessing Officer had tangible material before him and had recorded an independent tangible material before him and had recorded an independent tangible material before him and had recorded an independent belief that income chargeable to tax had escaped assessment. The belief that income chargeable to tax had escaped assessment. The belief that income chargeable to tax had escaped assessment. The reopening, therefore, cannot be held invalid on the grounds urged therefore, cannot be held invalid on the grounds urged therefore, cannot be held invalid on the grounds urged by the assessee. In our opinion, the learned CIT(A) has passed a by the assessee. In our opinion, the learned CIT(A) has passed a by the assessee. In our opinion, the learned CIT(A) has passed a well-reasoned order on the issue and dispute and accordingly we reasoned order on the issue and dispute and accordingly we reasoned order on the issue and dispute and accordingly we uphold uphold uphold the same the same the same The grounds challenging assumption of The grounds challenging The grounds challenging assumption of assumption of r section 147 are accordingly dismissed dismissed. jurisdiction under section 147 are accordingly

Notice under section 148 issued in the name of a non-existent Notice under section 148 issued in the name of a non Notice under section 148 issued in the name of a non entity

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additions on merits without raising any objection regarding the additions on merits without raising any objection regarding the additions on merits without raising any objection regarding the amalgamation at that stage. n at that stage. The learned CIT(A) observed that, upon The learned CIT(A) observed that, upon amalgamation, the transferor company ceased to exist and its amalgamation, the transferor company ceased to exist and its amalgamation, the transferor company ceased to exist and its assets and liabilities vested in the transferee company. However, assets and liabilities vested in the transferee company. However, assets and liabilities vested in the transferee company. However, according to him, the question was whether, in the facts of the case, according to him, the question was whether, in the facts of the case, according to him, the question was whether, in the facts of the case, the assessment framed in the name of the amalgamating company assessment framed in the name of the amalgamating company assessment framed in the name of the amalgamating company constituted a jurisdictional defect or a procedural defect capable of constituted a jurisdictional defect or a procedural defect capable of constituted a jurisdictional defect or a procedural defect capable of being cured. Referring to sections 170 and 292B of the Act, the Referring to sections 170 and 292B of the Act, the Referring to sections 170 and 292B of the Act, the learned CIT(A) held that the tax liabilities of the amalgamating learned CIT(A) held that the tax liabilities of the amalgamatin learned CIT(A) held that the tax liabilities of the amalgamatin company devolved upon the successor and that a mistake, defect or company devolved upon the successor and that a mistake, defect or company devolved upon the successor and that a mistake, defect or omission in a proceeding would not invalidate it if the proceeding omission in a proceeding would not invalidate it if the proceeding omission in a proceeding would not invalidate it if the proceeding was, in substance and effect, in conformity with the intent and was, in substance and effect, in conformity with the intent and was, in substance and effect, in conformity with the intent and purpose of the Act.

8.1 The learned CIT(A) considered the The learned CIT(A) considered the decisions relied upon by the decisions relied upon by the assessee, particularly PCIT v. Maruti Suzuki India Ltd. PCIT v. Maruti Suzuki India Ltd. (supra), assessee, particularly and distinguished the same on the basis that the effect of and distinguished the same on the basis that the effect of and distinguished the same on the basis that the effect of amalgamation has to be considered in the light of the facts of each amalgamation has to be considered in the light of the facts of each amalgamation has to be considered in the light of the facts of each case, including the knowledge of t case, including the knowledge of the Assessing Officer and the he Assessing Officer and the conduct and participation of the successor entity. He also referred conduct and participation of the successor entity. He also referred conduct and participation of the successor entity. He also referred Sky Light Hospitality LLP v. ACIT (supra (supra) and CIT v. to Sky Light Hospitality LLP v. ACIT Mahagun Realtors Pvt. Ltd. (supra) in support of the proposition Mahagun Realtors Pvt. Ltd in support of the proposition that, in appropriate circumstances, an error in describing the that, in appropriate circumstances, an error in describing the that, in appropriate circumstances, an error in describing the assessee may constitute a curable defect where the successor is assessee may constitute a curable defect where the successor is assessee may constitute a curable defect where the successor is aware of and participates in the proceedings. aware of and participates in the proceedings.

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8.2 On the facts before him, the learned CIT(A) foun On the facts before him, the learned CIT(A) foun On the facts before him, the learned CIT(A) found that the successor company had full knowledge of the reassessment successor company had full knowledge of the reassessment successor company had full knowledge of the reassessment proceedings, participated therein and contested the additions on proceedings, participated therein and contested the additions on proceedings, participated therein and contested the additions on merits. He accordingly held that the assessment, though bearing merits. He accordingly held that the assessment, though bearing merits. He accordingly held that the assessment, though bearing the name of the amalgamating company, was in substance against the name of the amalgamating company, was in substance agai the name of the amalgamating company, was in substance agai the successor entity and that no prejudice had been demonstrated. the successor entity and that no prejudice had been demonstrated. the successor entity and that no prejudice had been demonstrated. The learned CIT(A), therefore, concluded that the defect in The learned CIT(A), therefore, concluded that the defect in The learned CIT(A), therefore, concluded that the defect in mentioning the name of the amalgamating company was procedural mentioning the name of the amalgamating company was procedural mentioning the name of the amalgamating company was procedural and curable under section 292B and did not render the and curable under section 292B and did not render the and curable under section 292B and did not render the reassessment proceedings void. The additional ground challenging ent proceedings void. The additional ground challenging ent proceedings void. The additional ground challenging the validity of the assessment on the ground that it was framed in the validity of the assessment on the ground that it was framed in the validity of the assessment on the ground that it was framed in existent entity was accordingly dismissed dismissed. the name of a non-existent entity was accordingly

8.3 The material on record shows that the assessee The material on record shows that the assessee The material on record shows that the assessee-company i.e. Vovation investment and Finance co. pvt ltd , had amalgamated investment and Finance co. pvt ltd , had amalgamated investment and Finance co. pvt ltd , had amalgamated with Ganita Technologies and Services Private Limited Ganita Technologies and Services Private Limited pursuant Ganita Technologies and Services Private Limited to a Scheme of Amalgamation sanctioned by the Hon'ble Bombay to a Scheme of Amalgamation sanctioned by the Hon'ble Bombay to a Scheme of Amalgamation sanctioned by the Hon'ble Bombay High Court on 12.09.2014, with the appointed date being High Court on 12.09.2014, with the appointed date being High Court on 12.09.2014, with the appointed date being 01.10.2013. Thus, on t 01.10.2013. Thus, on the date on which notice under section 148 he date on which notice under section 148 was issued, i.e. 29.03.2016, the amalgamating company had ceased was issued, i.e. 29.03.2016, the amalgamating company had ceased was issued, i.e. 29.03.2016, the amalgamating company had ceased to exist pursuant to the sanctioned scheme. to exist pursuant to the sanctioned scheme.

8.4 We find that the notice under section 148 dated 29.03.2016, he notice under section 148 dated 29.03.2016, he notice under section 148 dated 29.03.2016, however, was issued in the name of the er however, was issued in the name of the erstwhile amalgamating stwhile amalgamating company. The reassessment proceedings were thereafter continued company. The reassessment proceedings were thereafter continued company. The reassessment proceedings were thereafter continued

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and the assessment order dated 27.12.2016 was also passed in that and the assessment order dated 27.12.2016 was also passed in that and the assessment order dated 27.12.2016 was also passed in that name.

8.5 The question, therefore, is not merely whether there was an The question, therefore, is not merely whether there was an The question, therefore, is not merely whether there was an error in describing the assessee i error in describing the assessee in the assessment order. The more n the assessment order. The more fundamental question is whether jurisdiction under section 147 fundamental question is whether jurisdiction under section 147 fundamental question is whether jurisdiction under section 147 could at all have been assumed by issuing the could at all have been assumed by issuing the foundational notice foundational notice under section 148 against an entity which had ceased to exist under section 148 against an entity which had ceased to exist under section 148 against an entity which had ceased to exist in law.

8.6 The Hon'ble Supreme Court has authoritatively considered The Hon'ble Supreme Court has authoritatively considered The Hon'ble Supreme Court has authoritatively considered this issue in Principal Commissioner of Income Principal Commissioner of Income-tax v. Maruti Principal Commissioner of Income Suzuki India Ltd., 416 ITR 613 (SC) 416 ITR 613 (SC). The Court held that upon . The Court held that upon amalgamation, the amalgamating company ceases to exist and amalgamation, the amalgamating company ceases to exist and amalgamation, the amalgamating company ceases to exist and cannot thereafter be regarded as a person against whom be regarded as a person against whom be regarded as a person against whom assessment proceedings can be initiated. The Court further held assessment proceedings can be initiated. The Court further held assessment proceedings can be initiated. The Court further held that issuance of the jurisdictional notice in the name of the non- that issuance of the jurisdictional notice in the name of the non that issuance of the jurisdictional notice in the name of the non existent existent existent amalgamating amalgamating amalgamating company company company renders renders renders the the the subsequent subsequent subsequent assessment proceedings invalid; par assessment proceedings invalid; participation by the successor in ticipation by the successor in the proceedings does not operate as an estoppel against law. The the proceedings does not operate as an estoppel against law. the proceedings does not operate as an estoppel against law. Revenue may, however, rely upon the subsequent decision of the Revenue may, however, rely upon the subsequent decision of the Revenue may, however, rely upon the subsequent decision of the Hon'ble Supreme Court in Principal Commissioner of Income Principal Commissioner of Income-tax Hon'ble Supreme Court in v. Mahagun Realtors (P.) Ltd. v. Mahagun Realtors (P.) Ltd., 443 ITR 194 (SC) ITR 194 (SC). That decision cannot be read as laying down a proposition that every assessment cannot be read as laying down a proposition that every assessment cannot be read as laying down a proposition that every assessment framed in the name of an amalgamating company is necessarily framed in the name of an amalgamating company is necessarily framed in the name of an amalgamating company is necessarily valid merely because the successor participated in the proceedings. valid merely because the successor participated in the proceedings. valid merely because the successor participated in the proceedings.

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The decision turned upon its par The decision turned upon its particular facts, including the conduct ticular facts, including the conduct of the assessee, the absence of intimation regarding amalgamation, of the assessee, the absence of intimation regarding amalgamation, of the assessee, the absence of intimation regarding amalgamation, the manner in which the return was filed and the assessee's the manner in which the return was filed and the assessee's the manner in which the return was filed and the assessee's consistent conduct of holding itself out as the assessee. The Hon'ble consistent conduct of holding itself out as the assessee. The Hon'ble consistent conduct of holding itself out as the assessee. The Hon'ble Supreme Court expressl Supreme Court expressly observed that whether amalgamation by y observed that whether amalgamation by itself invalidates an assessment cannot be determined merely by itself invalidates an assessment cannot be determined merely by itself invalidates an assessment cannot be determined merely by applying the principle of corporate dissolution, but depends upon applying the principle of corporate dissolution, but depends upon applying the principle of corporate dissolution, but depends upon the terms of amalgamation and the facts and circumstances of the the terms of amalgamation and the facts and circumstances of the the terms of amalgamation and the facts and circumstances of the case. 8.7 In the present case, the material available before us sent case, the material available before us sent case, the material available before us establishes that the amalgamation had taken effect substantially establishes that the amalgamation had taken effect substantially establishes that the amalgamation had taken effect substantially prior to issuance of notice under section 148. The notice prior to issuance of notice under section 148. The notice prior to issuance of notice under section 148. The notice constituting the very foundation for assumption of jurisdiction constituting the very foundation for assumption of jurisdiction constituting the very foundation for assumption of jurisdiction under section 147 was iss under section 147 was issued in the name of the amalgamating ued in the name of the amalgamating company. The fact that the successor subsequently participated in company. The fact that the successor subsequently participated in company. The fact that the successor subsequently participated in the reassessment proceedings cannot, by itself, confer jurisdiction the reassessment proceedings cannot, by itself, confer jurisdiction the reassessment proceedings cannot, by itself, confer jurisdiction upon the Assessing Officer where the jurisdictional notice was upon the Assessing Officer where the jurisdictional notice was upon the Assessing Officer where the jurisdictional notice was addressed to an entity addressed to an entity which had ceased to exist. which had ceased to exist. The defect, therefore, is not one of mere description or nomenclature in a therefore, is not one of mere description or nomenclature in a therefore, is not one of mere description or nomenclature in a proceeding otherwise validly initiated against the correct assessee. proceeding otherwise validly initiated against the correct assessee. proceeding otherwise validly initiated against the correct assessee. It goes to the root of the assumption of jurisdiction. Section 292B It goes to the root of the assumption of jurisdiction. Section 292B It goes to the root of the assumption of jurisdiction. Section 292B cannot be invoked to validate a proceeding which was initiated d to validate a proceeding which was initiated d to validate a proceeding which was initiated against a non-existent person in the absence of a valid existent person in the absence of a valid existent person in the absence of a valid jurisdictional notice. jurisdictional notice.

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8.8 We accordingly hold that the notice issued under section 148 We accordingly hold that the notice issued under section 148 We accordingly hold that the notice issued under section 148 dated 29.03.2016 in the name of the non dated 29.03.2016 in the name of the non-existent amalgamating existent amalgamating company was invalid and that the reassessment proceedings mpany was invalid and that the reassessment proceedings mpany was invalid and that the reassessment proceedings founded upon such notice cannot be sustained in law. The founded upon such notice cannot be sustained in law. The founded upon such notice cannot be sustained in law. The reassessment order dated 27.12.2016 is consequently liable to be reassessment order dated 27.12.2016 is consequently liable to be reassessment order dated 27.12.2016 is consequently liable to be quashed.

10.1 The learned CIT(A) noted that, according to the Assessing The learned CIT(A) noted that, according to the Assessing The learned CIT(A) noted that, according to the Assessing Officer, the relevant trades were initially executed under one client Officer, the relevant trades were initially executed under one client Officer, the relevant trades were initially executed under one client code and subsequently modified to the assessee’s client code on the code and subsequently modified to the assessee’s client code on the code and subsequently modified to the assessee’s client code on the same day. The Assessing Officer considered the frequency, same day. The Assessing Officer considered the frequency, same day. The Assessing Officer considered the frequency,

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magnitude and timing of the modifications to be inconsistent with agnitude and timing of the modifications to be inconsistent with agnitude and timing of the modifications to be inconsistent with isolated or inadvertent clerical errors and concluded that the losses isolated or inadvertent clerical errors and concluded that the losses isolated or inadvertent clerical errors and concluded that the losses had been artificially shifted to the assessee. had been artificially shifted to the assessee. The learned CIT(A) The learned CIT(A) considered the assessee’s contention that CCM was a permissible considered the assessee’s contention that CCM was a per considered the assessee’s contention that CCM was a per facility under the applicable stock facility under the applicable stock-exchange regulations and that exchange regulations and that the modifications were made within the prescribed time. The the modifications were made within the prescribed time. The the modifications were made within the prescribed time. The assessee had also contended that there was no direct evidence of assessee had also contended that there was no direct evidence of assessee had also contended that there was no direct evidence of collusion, cash trail or payment of commission and that the collusion, cash trail or payment of commission and that collusion, cash trail or payment of commission and that statements of third parties relied upon by the Revenue had neither statements of third parties relied upon by the Revenue had neither statements of third parties relied upon by the Revenue had neither been furnished nor subjected to cross been furnished nor subjected to cross-examination. examination. The learned CIT(A), however, held that the mere permissibility of CCM did not CIT(A), however, held that the mere permissibility of CCM did not CIT(A), however, held that the mere permissibility of CCM did not preclude its misuse. According to him, the material gathered by the preclude its misuse. According to him, the material gath preclude its misuse. According to him, the material gath Investigation Wing, read with the pattern and magnitude of the Investigation Wing, read with the pattern and magnitude of the Investigation Wing, read with the pattern and magnitude of the modifications and the corresponding trading data, indicated that modifications and the corresponding trading data, indicated that modifications and the corresponding trading data, indicated that the transactions were not merely inadvertent corrections but the transactions were not merely inadvertent corrections but the transactions were not merely inadvertent corrections but represented systematic allocation of losses. represented systematic allocation of losses. Referring Referring to the principles laid down by the Hon’ble Supreme Court in McDowell & principles laid down by the Hon’ble Supreme Court in principles laid down by the Hon’ble Supreme Court in Co. Ltd. v. CTO, 154 ITR 148 (SC) 154 ITR 148 (SC), CIT v. Durga Prasad More CIT v. Durga Prasad More, 82 ITR 540 (SC) and Sumati Dayal v. CIT Sumati Dayal v. CIT, 214 ITR 801 (SC) 214 ITR 801 (SC), the learned CIT(A) considered the surrounding circumstances, timing learned CIT(A) considered the surrounding circumstances, learned CIT(A) considered the surrounding circumstances, and pattern of the transactions relevant for determining their and pattern of the transactions relevant for determining their and pattern of the transactions relevant for determining their genuineness. He observed that the assessee had not furnished genuineness. He observed that the assessee had not furnished genuineness. He observed that the assessee had not furnished satisfactory contemporaneous evidence explaining the repeated satisfactory contemporaneous evidence explaining the repeated satisfactory contemporaneous evidence explaining the repeated modifications resulting in substantial losses. modifications resulting in substantial losses.

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10.2 The learned CIT(A) further observed that the Assessing Officer CIT(A) further observed that the Assessing Officer CIT(A) further observed that the Assessing Officer had not relied solely upon third had not relied solely upon third-party statements, but had also party statements, but had also considered the assessee’s transaction data and exchange records. considered the assessee’s transaction data and exchange records. considered the assessee’s transaction data and exchange records. He, therefore, distinguished the decision in Andaman Timber Andaman Timber He, therefore, distinguished the decision in Industries v. CCE, (supra) relied upon by the assessee, on the relied upon by the assessee, on the ground that the addition in the present case was not founded ground that the addition in the present case was not founded ground that the addition in the present case was not founded exclusively upon statements of third parties. exclusively upon statements of third parties. The learned CIT(A) also The learned CIT(A) also rejected the assessee’s contention regarding absence of a cash trail rejected the assessee’s contention regarding absence of a cash trail rejected the assessee’s contention regarding absence of a cash trail or commission payment, observing that direct evidence of ssion payment, observing that direct evidence of ssion payment, observing that direct evidence of consideration may not necessarily be available in transactions consideration may not necessarily be available in transactions consideration may not necessarily be available in transactions alleged to involve accommodation arrangements. He further held alleged to involve accommodation arrangements. He further held alleged to involve accommodation arrangements. He further held that the assessee had not established that any corresponding profit that the assessee had not established that any corresponding profit that the assessee had not established that any corresponding profit had been offered to tax by the alleged counterparty so as to support red to tax by the alleged counterparty so as to support red to tax by the alleged counterparty so as to support its its contention contention regarding regarding double double taxation. taxation. On On an an overall overall consideration of the investigation material, the pattern and consideration of the investigation material, the pattern and consideration of the investigation material, the pattern and magnitude of the CCM transactions and the surrounding magnitude of the CCM transactions and the surrounding magnitude of the CCM transactions and the surrounding circumstances, the learned CI circumstances, the learned CIT(A) concluded that the losses T(A) concluded that the losses claimed by the assessee did not represent genuine trading losses claimed by the assessee did not represent genuine trading losses claimed by the assessee did not represent genuine trading losses but were the result of systematic shifting of losses through CCM. He but were the result of systematic shifting of losses through CCM. He but were the result of systematic shifting of losses through CCM. He accordingly sustained the addition of accordingly sustained the addition of Rs.1,06,40,281/ Rs.1,06,40,281/- and dismissed the assessee’s ground on merits. dismissed the assessee’s ground on merits.

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without any assessee without any assessee-specific material. He submitted that during specific material. He submitted that during the reassessment proceedings the assessee had furnished the the reassessment proceedings the assessee had furnished the the reassessment proceedings the assessee had furnished the details of income from market operations, ledger account of SMC details of income from market operations, ledger account of details of income from market operations, ledger account of Global Securities Ltd. Global Securities Ltd., futures and options gain/loss accounts, , futures and options gain/loss accounts, audited financial statements and tax audit report. ited financial statements and tax audit report.

11.1 It was contended that the assessee was not a registered stock It was contended that the assessee was not a registered stock It was contended that the assessee was not a registered stock- broker and could not itself carry out CCM; the modifications, if any, broker and could not itself carry out CCM; the modifications, if any, broker and could not itself carry out CCM; the modifications, if any, were undertaken by the broker. There was no material to establish were undertaken by the broker. There was no material to establish were undertaken by the broker. There was no material to establish that the modifications were made at the instance of the assessee or the modifications were made at the instance of the assessee or the modifications were made at the instance of the assessee or pursuant to any arrangement for shifting profits or losses. The pursuant to any arrangement for shifting profits or losses. The pursuant to any arrangement for shifting profits or losses. The learned counsel further submitted that the Revenue had not learned counsel further submitted that the Revenue had not learned counsel further submitted that the Revenue had not brought on record any evidence of exchange of money, cash trail, brought on record any evidence of exchange of money, cash trail, brought on record any evidence of exchange of money, cash trail, commission or other consideration between the assessee, the broker ission or other consideration between the assessee, the broker ission or other consideration between the assessee, the broker and the alleged beneficiaries. Nor was there any material showing and the alleged beneficiaries. Nor was there any material showing and the alleged beneficiaries. Nor was there any material showing collusion between the parties or any adverse action by SEBI or the collusion between the parties or any adverse action by SEBI or the collusion between the parties or any adverse action by SEBI or the stock exchange against the assessee or its broker. It was further stock exchange against the assessee or its broker. It was fu stock exchange against the assessee or its broker. It was fu submitted that the CCM facility was a recognised mechanism for submitted that the CCM facility was a recognised mechanism for submitted that the CCM facility was a recognised mechanism for correcting genuine errors in punching client codes, subject to the correcting genuine errors in punching client codes, subject to the correcting genuine errors in punching client codes, subject to the applicable regulatory conditions. Therefore, the mere fact that client applicable regulatory conditions. Therefore, the mere fact that client applicable regulatory conditions. Therefore, the mere fact that client codes were modified could not, by itself, establi codes were modified could not, by itself, establish that the resulting sh that the resulting loss was fictitious or arranged for tax purposes. loss was fictitious or arranged for tax purposes.

11.2 The learned counsel also submitted that the Investigation The learned counsel also submitted that the Investigation The learned counsel also submitted that the Investigation Wing's Wing's Wing's findings findings findings concerning concerning concerning certain certain certain brokers brokers brokers could could could not not not be be be

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mechanically applied to the assessee's transactions, particularly mechanically applied to the assessee's transactions, particularl mechanically applied to the assessee's transactions, particularl when the assessee's broker, SMC Global Securities Ltd. SMC Global Securities Ltd., was not when the assessee's broker, shown to have been subjected to any such investigation. No shown to have been subjected to any such investigation. No shown to have been subjected to any such investigation. No independent enquiry was made by the Assessing Officer from the independent enquiry was made by the Assessing Officer from the independent enquiry was made by the Assessing Officer from the broker under section 133(6), nor was any material brought on broker under section 133(6), nor was any material brought on broker under section 133(6), nor was any material brought on record from SEBI or the stock exchange establishing that the from SEBI or the stock exchange establishing that the from SEBI or the stock exchange establishing that the assessee's transactions were non assessee's transactions were non-genuine. It was further contended genuine. It was further contended that the assessee was not confronted with the relevant portion of that the assessee was not confronted with the relevant portion of that the assessee was not confronted with the relevant portion of the Investigation Wing's report or the statements of brokers relied the Investigation Wing's report or the statements of brokers relied the Investigation Wing's report or the statements of brokers relied upon by the Assessing Officer. Consequently, the assessee was pon by the Assessing Officer. Consequently, the assessee was pon by the Assessing Officer. Consequently, the assessee was denied an effective opportunity to rebut the material or seek cross- denied an effective opportunity to rebut the material or seek cross denied an effective opportunity to rebut the material or seek cross examination. The addition, according to the learned counsel, was examination. The addition, according to the learned counsel, was examination. The addition, according to the learned counsel, was therefore founded upon general observations regarding CCM and therefore founded upon general observations regarding CCM and therefore founded upon general observations regarding CCM and not upon cogent evidence relating to the assessee's own not upon cogent evidence relating to the assessee's own not upon cogent evidence relating to the assessee's own transactions. The learned counsel also drew attention to the transactions. The learned counsel also drew attention to the transactions. The learned counsel also drew attention to the variation in the figures appearing at different stages of the variation in the figures appearing at different stages of the variation in the figures appearing at different stages of the proceedings. According to the reasons recorded, the alleged net proceedings. According to the reasons recorded, the alleged net proceedings. According to the reasons recorded, the alleged net CCM loss was Rs.12,16,896/ Rs.12,16,896/-, whereas the notice under section , whereas the notice under section 142(1) and the subsequent show 142(1) and the subsequent show-cause notice referred to different cause notice referred to different figures, ultimately aggregating to figures, ultimately aggregating to Rs.1,06,40,281/ Rs.1,06,40,281/-. It was submitted that the Revenue had not explained the basis for such submitted that the Revenue had not explained the basis for such submitted that the Revenue had not explained the basis for such variation or established blished blished how how how the the the additional additional additional amount amount amount of of of Rs.94,23,386/- was connected with the alleged CCM transactions was connected with the alleged CCM transactions was connected with the alleged CCM transactions of the assessee.

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11.3 In conclusion, the learned counsel submitted that the In conclusion, the learned counsel submitted that the In conclusion, the learned counsel submitted that the assessee's transactions were duly recorded in its books and assessee's transactions were duly recorded in its books and assessee's transactions were duly recorded in its books and supported by contem supported by contemporaneous documents, whereas the Revenue poraneous documents, whereas the Revenue had failed to establish any specific arrangement, collusion or had failed to establish any specific arrangement, collusion or had failed to establish any specific arrangement, collusion or consideration underlying the CCM transactions. The addition of consideration underlying the CCM transactions. The addition of consideration underlying the CCM transactions. The addition of Rs.1,06,40,281/-, according to the assessee, was thus based , according to the assessee, was thus based , according to the assessee, was thus based merely on suspicion, assumpti merely on suspicion, assumption and generalisation and deserved on and generalisation and deserved to be deleted.

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12.1 The Assessing Officer has principally relied upon the The Assessing Officer has principally relied upon the The Assessing Officer has principally relied upon the information and investigation conducted by the Investigation Wing information and investigation conducted by the Investigation Wing information and investigation conducted by the Investigation Wing regarding alleged misuse of CCM by certain brokers. The learned regarding alleged misuse of CCM by certain brokers. The learned regarding alleged misuse of CCM by certain brokers. The learned CIT(A) has also drawn an adverse inference from the magnitude and CIT(A) has also drawn an adverse inference from the magnitude and CIT(A) has also drawn an adverse inference from the magnitude and pattern of the modifications and applied the principles of human pattern of the modifications and applied the principles of human pattern of the modifications and applied the principles of human probabilities. probabilities. probabilities. We We We do do do not not not dispute dispute dispute that that that the the the surrounding surrounding surrounding circumstances and the test of human probabilities are relevant circumstances and the test of human probabilities are relevant circumstances and the test of human probabilities are relevant while examining the genuineness of a transaction, as held by the amining the genuineness of a transaction, as held by the amining the genuineness of a transaction, as held by the Hon'ble Supreme Court in Hon'ble Supreme Court in CIT v. Durga Prasad More CIT v. Durga Prasad More, 82 ITR 540 (SC) and Sumati Dayal v. CIT Sumati Dayal v. CIT, 214 ITR 801 (SC) 214 ITR 801 (SC). Likewise, a transaction which is established to be a colourable device cannot be transaction which is established to be a colourable device cannot be transaction which is established to be a colourable device cannot be d merely by its legal form, as explained in McDowell & Co. McDowell & Co. protected merely by its legal form, as explained in Ltd. v. CTO, 154 ITR 148 (SC) 154 ITR 148 (SC). However, the application of these . However, the application of these principles necessarily requires the existence of circumstances and principles necessarily requires the existence of circumstances and principles necessarily requires the existence of circumstances and material connecting the assessee with the alleged device. material connecting the assessee with the alleged device. material connecting the assessee with the alleged device.

12.2 In the present case, the assessee was not itself a stock the present case, the assessee was not itself a stock the present case, the assessee was not itself a stock-broker and, therefore, could not undertake CCM independently. The and, therefore, could not undertake CCM independently. The and, therefore, could not undertake CCM independently. The modifications, if any, were carried out at the broker's end. The modifications, if any, were carried out at the broker's end. The modifications, if any, were carried out at the broker's end. The Revenue has not brought on record any material to establish that Revenue has not brought on record any material to establish that Revenue has not brought on record any material to establish that the assessee instructed the broker to modify the client codes, or ssessee instructed the broker to modify the client codes, or ssessee instructed the broker to modify the client codes, or that the broker had acted pursuant to any pre-arranged that the broker had acted pursuant to any pre that the broker had acted pursuant to any pre understanding with the assessee for shifting profits or losses. understanding with the assessee for shifting profits or losses. understanding with the assessee for shifting profits or losses.

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12.3 We also find that no material has been brought on record to We also find that no material has been brought on record to We also find that no material has been brought on record to demonstrate any any any exchange exchange exchange of of of money, money, money, cash cash cash consideration, consideration, consideration, commission or other benefit between the assessee and any person commission or other benefit between the assessee and any person commission or other benefit between the assessee and any person in connection with the alleged shifting of losses. There is also no in connection with the alleged shifting of losses. There is also no in connection with the alleged shifting of losses. There is also no finding of any specific relationship or collusion between the finding of any specific relationship or collusion between the finding of any specific relationship or collusion between the assessee and the parties to whose client codes the corresponding arties to whose client codes the corresponding arties to whose client codes the corresponding transactions allegedly belonged. The Assessing Officer has not transactions allegedly belonged. The Assessing Officer has not transactions allegedly belonged. The Assessing Officer has not examined the corresponding parties so as to establish the alleged examined the corresponding parties so as to establish the alleged examined the corresponding parties so as to establish the alleged arrangement. In this regard, the observations of the coordinate arrangement. In this regard, the observations of the coordinate arrangement. In this regard, the observations of the coordinate DCIT DCIT v. v. Comet Comet Investment Investment (P.) (P.) Ltd., Ltd. ITA Benches in No.5802/Mum/2017 No.5802/Mum/2017, order dated 13.05.2019, relied upon by the , order dated 13.05.2019, relied upon by the assessee, is relevant. The said decision is relevant. The said decision emphasise emphasises that CCM by itself itself itself cannot cannot cannot justify justify justify an an an adverse adverse adverse inference inference inference without without without further further further corroborative material connecting the corroborative material connecting the assessee with the alleged assessee with the alleged arrangement. The learned counsel further relied on the decision of The learned counsel further relied on the decision of The learned counsel further relied on the decision of the coordinate bench of the Tribunal in the case of Shri Nilesh the coordinate bench of the Tribunal in the case of the coordinate bench of the Tribunal in the case of Natwarlal Shah in ITA No. 38/RJT/2018 Natwarlal Shah in ITA No. 38/RJT/2018 for Assessment Year for Assessment Year 2009-10, wherein similar addition has be 10, wherein similar addition has been made on client code en made on client code modification has been deleted observing as under: modification has been deleted observing as under:

“11. We have heard the rival contentions of b “11. We have heard the rival contentions of both the parties and perused oth the parties and perused the materials available on record. From the preceding discussion, we note the materials available on record. From the preceding discussion, we note the materials available on record. From the preceding discussion, we note that the assessee was alleged to have diverted his profit amounting to Rs. that the assessee was alleged to have diverted his profit amounting to Rs. that the assessee was alleged to have diverted his profit amounting to Rs. 2,51,46,835/- on account of client code modification by shifting in losses on account of client code modification by shifting in losses on account of client code modification by shifting in losses and shifting out profit. Accordi and shifting out profit. Accordingly, the AO made the addition of Rs. ngly, the AO made the addition of Rs. 2,51,46,835/- to the total income of the assessee and also an addition of to the total income of the assessee and also an addition of to the total income of the assessee and also an addition of Rs. 5,02,937/- being commission expenses in consequent to client code being commission expenses in consequent to client code being commission expenses in consequent to client code modification. The view taken by the AO was subsequently reversed by the modification. The view taken by the AO was subsequently reversed by the modification. The view taken by the AO was subsequently reversed by the learned CIT (A). Client Code Modification means modification /change of arned CIT (A). Client Code Modification means modification /change of arned CIT (A). Client Code Modification means modification /change of

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the client codes after execution of trades. Stock Exchanges provide a the client codes after execution of trades. Stock Exchanges provide a the client codes after execution of trades. Stock Exchanges provide a facility to modify any client code after the trade has been executed to facility to modify any client code after the trade has been executed to facility to modify any client code after the trade has been executed to rectify any error or wrong data entry done b rectify any error or wrong data entry done by the brokers at the time of y the brokers at the time of punching orders. However, such Client Code modification is subject to punching orders. However, such Client Code modification is subject to punching orders. However, such Client Code modification is subject to certain guidelines as to the time limit within which the client code certain guidelines as to the time limit within which the client code certain guidelines as to the time limit within which the client code modification is to be carried out, terminal /system on which such modification is to be carried out, terminal /system on which such modification is to be carried out, terminal /system on which such modifications can be d modifications can be done etc. The facility is mainly to provide a system for one etc. The facility is mainly to provide a system for modification of client codes in case genuine errors in punching / placing modification of client codes in case genuine errors in punching / placing modification of client codes in case genuine errors in punching / placing the orders. It is to be used as an exception and not a routine. To prevent the orders. It is to be used as an exception and not a routine. To prevent the orders. It is to be used as an exception and not a routine. To prevent misuse of the facility Stock Exchanges levy penalty misuse of the facility Stock Exchanges levy penalty / fine for all non / fine for all non- institutional client code modifications. institutional client code modifications. 11.1 Coming to the facts of the present case, admittedly client codes were 11.1 Coming to the facts of the present case, admittedly client codes were 11.1 Coming to the facts of the present case, admittedly client codes were modified of the assessee as per the Data received from the NSE. However, modified of the assessee as per the Data received from the NSE. However, modified of the assessee as per the Data received from the NSE. However, the first question that arises whether such cli the first question that arises whether such client codes were modified at ent codes were modified at the instance of the assessee or there was some punching error at the end the instance of the assessee or there was some punching error at the end the instance of the assessee or there was some punching error at the end of the share broker. It is because the stock exchange permits the share of the share broker. It is because the stock exchange permits the share of the share broker. It is because the stock exchange permits the share broker to rectify the mistakes occurred while punching the data. If that be broker to rectify the mistakes occurred while punching the data. If that be broker to rectify the mistakes occurred while punching the data. If that be so, then there cannot be any fault which can be attributed to the assessee there cannot be any fault which can be attributed to the assessee there cannot be any fault which can be attributed to the assessee for the mistakes committed by the share broker. for the mistakes committed by the share broker. 11.2 Furthermore, the client code modifications give rise to the doubt/ 11.2 Furthermore, the client code modifications give rise to the doubt/ 11.2 Furthermore, the client code modifications give rise to the doubt/ suspicion which requires detailed investigations from the parties suspicion which requires detailed investigations from the parties suspicion which requires detailed investigations from the parties concerned to reveal the truth. Merely, there were client codes modifications cerned to reveal the truth. Merely, there were client codes modifications cerned to reveal the truth. Merely, there were client codes modifications carried out by the broker, the same cannot be the basis to draw an carried out by the broker, the same cannot be the basis to draw an carried out by the broker, the same cannot be the basis to draw an inference against the assessee. In fact, in the case of client code inference against the assessee. In fact, in the case of client code inference against the assessee. In fact, in the case of client code modification the code of the other party is ent modification the code of the other party is entered at the place of the ered at the place of the assessee. Thus the other party also required to be investigated whether assessee. Thus the other party also required to be investigated whether assessee. Thus the other party also required to be investigated whether the other party was involved in such transaction. Besides this other the other party was involved in such transaction. Besides this other the other party was involved in such transaction. Besides this other corroborative evidence has to be brought on record suggesting that there corroborative evidence has to be brought on record suggesting that there corroborative evidence has to be brought on record suggesting that there was the exchange of cash among the parties involved in such client code of cash among the parties involved in such client code of cash among the parties involved in such client code modification transaction. But we note that no such exercise has been modification transaction. But we note that no such exercise has been modification transaction. But we note that no such exercise has been carried out by the authorities below. As such there is no whisper in the carried out by the authorities below. As such there is no whisper in the carried out by the authorities below. As such there is no whisper in the order of the authorities below that there was the cash tran order of the authorities below that there was the cash transfer between the sfer between the parties for transferring the income of the assessee to the other party. parties for transferring the income of the assessee to the other party. parties for transferring the income of the assessee to the other party. Thus, in the absence of such verification/examination carried out by the Thus, in the absence of such verification/examination carried out by the Thus, in the absence of such verification/examination carried out by the authorities below, we are not inclined to uphold their findings. authorities below, we are not inclined to uphold their findings. authorities below, we are not inclined to uphold their findings. 11.3 Further, the assessee du 11.3 Further, the assessee during the year made total trade for 56,582 ring the year made total trade for 56,582 time whereas client code was modified at 51 instance only and majority of time whereas client code was modified at 51 instance only and majority of time whereas client code was modified at 51 instance only and majority of the same were done in second and third quarter only. Thus, the instances the same were done in second and third quarter only. Thus, the instances the same were done in second and third quarter only. Thus, the instances of code modification are very insignificant to hold that the same was done of code modification are very insignificant to hold that the same w of code modification are very insignificant to hold that the same w with the intention to evade tax. with the intention to evade tax. 11.4 In view of the above and after considering the facts in totality, we are 11.4 In view of the above and after considering the facts in totality, we are 11.4 In view of the above and after considering the facts in totality, we are not inclined to interfere in the findings of the learned CIT (A). Accordingly not inclined to interfere in the findings of the learned CIT (A). Accordingly not inclined to interfere in the findings of the learned CIT (A). Accordingly we hereby confirm the finding of the learned CIT (A) and di we hereby confirm the finding of the learned CIT (A) and direct the AO to rect the AO to

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delete the addition made by him. Hence, the ground of appeal raised by delete the addition made by him. Hence, the ground of appeal raised by delete the addition made by him. Hence, the ground of appeal raised by the Revenue is hereby dismissed.” the Revenue is hereby dismissed.” 12.4 In the present case, the assessee furnished its trading records, In the present case, the assessee furnished its trading records, In the present case, the assessee furnished its trading records, ledger account of SMC Global Securities Ltd., futures and options ledger account of SMC Global Securities Ltd., futures and options ledger account of SMC Global Securities Ltd., futures and options accounts, audited financial statements and other relevant material. accounts, audited financial statements and other relevant material. accounts, audited financial statements and other relevant material. The Revenue has not demonstrated that these primary records were The Revenue has not demonstrated that these primary records were The Revenue has not demonstrated that these primary records were false or fabricated. Nor is there any material on record to show that false or fabricated. Nor is there any material on record to show that false or fabricated. Nor is there any material on record to show that the assessee's broker, SMC Global Securities Ltd., was found to the assessee's broker, SMC Global Securities Ltd., wa the assessee's broker, SMC Global Securities Ltd., wa have undertaken such CCM transactions as part of an arrangement have undertaken such CCM transactions as part of an arrangement have undertaken such CCM transactions as part of an arrangement with the assessee. No adverse action by SEBI or the stock exchange with the assessee. No adverse action by SEBI or the stock exchange with the assessee. No adverse action by SEBI or the stock exchange against the assessee or its broker in respect of the transactions in against the assessee or its broker in respect of the transactions in against the assessee or its broker in respect of the transactions in question has been brought on record. question has been brought on record.

12.5 We are conscious that the learned CIT(A) has observed that are conscious that the learned CIT(A) has observed that are conscious that the learned CIT(A) has observed that the Investigation Wing had unearthed a modus operandi involving the Investigation Wing had unearthed a modus operandi involving the Investigation Wing had unearthed a modus operandi involving misuse of CCM and that the impugned transactions displayed a misuse of CCM and that the impugned transactions displayed a misuse of CCM and that the impugned transactions displayed a pattern consistent with such modus operandi. However, a general pattern consistent with such modus operandi. However, a general pattern consistent with such modus operandi. However, a general modus operandi established in the case of certain brokers or ndi established in the case of certain brokers or ndi established in the case of certain brokers or market participants cannot, without further corroboration, be market participants cannot, without further corroboration, be market participants cannot, without further corroboration, be automatically attributed to every assessee whose client code automatically attributed to every assessee whose client code automatically attributed to every assessee whose client code appears in the CCM data. The Revenue is required to establish the appears in the CCM data. The Revenue is required to establish the appears in the CCM data. The Revenue is required to establish the necessary factual link between the general investigation and the link between the general investigation and the link between the general investigation and the particular transactions of the assessee. particular transactions of the assessee.

12.6 As regards the assessee's grievance regarding non As regards the assessee's grievance regarding non As regards the assessee's grievance regarding non-furnishing of the investigation report and statements of brokers, we do not of the investigation report and statements of brokers, we do not of the investigation report and statements of brokers, we do not

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consider it necessary to adjudicate consider it necessary to adjudicate the same as an independent the same as an independent ground for deleting the addition, since our conclusion is based ground for deleting the addition, since our conclusion is based ground for deleting the addition, since our conclusion is based upon the insufficiency of assessee upon the insufficiency of assessee-specific corroborative material. specific corroborative material. The Assessing Officer has referred to the investigation material, but The Assessing Officer has referred to the investigation material, but The Assessing Officer has referred to the investigation material, but the addition cannot be sust the addition cannot be sustained merely because such general ained merely because such general investigation material exists unless the material on record investigation material exists unless the material on record investigation material exists unless the material on record establishes its application to the assessee's transactions. establishes its application to the assessee's transactions. establishes its application to the assessee's transactions.

12.7 The learned CIT(A) has placed reliance upon the principles of The learned CIT(A) has placed reliance upon the principles of The learned CIT(A) has placed reliance upon the principles of McDowell & Co. Ltd., Durga Prasad More (supra) (supra) and Sumati McDowell & Co. Ltd. Dayal (supra). Those principles undoubtedly permit the Revenue to . Those principles undoubtedly permit the Revenue to . Those principles undoubtedly permit the Revenue to examine the substance of a transaction and the surrounding examine the substance of a transaction and the surrounding examine the substance of a transaction and the surrounding circumstances. circumstances. circumstances. They They They do do do not, not, not, however, however, however, dispense dispense dispense with with with the the the requirement of establishing, on the basis of relevant material, that requirement of establishing, on the basis of relevant requirement of establishing, on the basis of relevant the particular transaction under consideration was in fact a the particular transaction under consideration was in fact a the particular transaction under consideration was in fact a colourable device. Suspicion, however strong, cannot take the place colourable device. Suspicion, however strong, cannot take the place colourable device. Suspicion, however strong, cannot take the place of evidence.

12.8 In the totality of the circumstances, we are of the considered In the totality of the circumstances, we are of the considered In the totality of the circumstances, we are of the considered view that the Revenue has not brought sufficient corroborative view that the Revenue has not brought sufficient corroborative view that the Revenue has not brought sufficient corroborative material on record to establish that the assessee deliberately material on record to establish that the assessee deliberately material on record to establish that the assessee deliberately participated in an arrangement for shifting taxable losses or that participated in an arrangement for shifting taxable losses or that participated in an arrangement for shifting taxable losses or that the loss of Rs.1,06,40,281/ Rs.1,06,40,281/- was fictitious. The addition, therefore, was fictitious. The addition, therefore, cannot be sustained merely on the basis of the general findings cannot be sustained merely on the basis of the general findings cannot be sustained merely on the basis of the general findings regarding misuse of CCM and the pattern of modifications. regarding misuse of CCM and the pattern of modifications. regarding misuse of CCM and the pattern of modifications.

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12.9 We accordingly set aside the finding of the learned CIT(A) We accordingly set aside the finding of the learned CIT(A) We accordingly set aside the finding of the learned CIT(A) on this issue and direct the Assessing Officer to delete the addition of this issue and direct the Assessing Officer to delete the addition of this issue and direct the Assessing Officer to delete the addition of Rs.1,06,40,281/-. The grounds raised by the assessee on merits . The grounds raised by the assessee on merits . The grounds raised by the assessee on merits are accordingly allowed allowed.

Order pronounced in the open Court on ounced in the open Court on 18/ /08/2026.

Sd/- Sd/- (PAWAN SINGH PAWAN SINGH) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 18/08/2026 /2026 Kunal Kr. P.S.

Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai