INCOME TAX OFFICER, PIRAMAL CHAMBER vs. ANIL KUMAR VIJAYKUMAR SINGHVI(HUF), KANDIVALI EAST MUMBAI

आदेश / ORDER PER SMT. BEENA PILLAI, JUDICIAL MEMBER:

Present appeal filed by the assessee arises out of the order dated 26/06/2024 passed by the NFAC, Delhi [hereinafter referred to as “Ld.CIT(A)”] for AY 2014-15 on the following grounds of appeal:- “1) Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs.96,42,854/- without appreciating the fact that the assessee has failed to establish genuineness of transactions and assessee in connivance with the broker has misused client code modification facility to reduce taxable income. 2) Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs.96,42,854/- as the addition was made on the basis of information received from the Investigation Wing, Mumbai and there was sufficient evidence regarding modification done by the assessee to suppress the profit. 3) The appellant craves leave to amend or alter or add a new ground which may be necessary.” 2. Brief facts of the case are as under:

The assessee is a Hindu Undivided Family (HUF). For the year under consideration, the return of income was filed declaring total income of Rs.3,82,210/-. Subsequently, based on High Risk Transaction (CRIU/VRU) information available on the department's insight portal alleging that the assessee had derived fictitious profits by way of client code modification in commodity transactions undertaken through M/s. Anand Rathi Commodities Pvt. Ltd. on the NSEL platform, the assessment was reopened by issuing notice u/s 148 of the Act.

2.1. During the reassessment proceedings, the assessee furnished replies in response to the notices issued u/s 142(1), 143(2) and the show cause notice, contending, inter alia, that the client code modifications represented genuine corrections of punching errors carried out by the broker, the transactions were duly supported by contract notes, broker's ledger, bank statements and transaction details, and that the income arising therefrom had already been offered to tax. However, the Ld.AO was not satisfied with the explanation. Relying upon the Investigation Wing report, CRIU information, SFIO material and the pattern of end-of-day client code modifications, the Ld.AO held that the assessee had derived fictitious profits through manipulated client code modifications without assuming any genuine market risk. Accordingly, an amount of Rs.96,42,854/- was treated as unexplained cash credit u/s 68 of the Act and added to the total income while completing the assessment u/s.147 r.w.s.144B of the Act vide order dated 15/05/2023. Penalty proceedings u/s 271(1)(c) were also initiated.

Aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A).

Aggrieved by the relief granted by the Ld.CIT(A) the Revenue is in appeal before us.

Accordingly, we admit the assessee's application under Rule 27 and proceed to adjudicate the legal issue raised therein before considering the revenue's appeal on merits.

We have heard the rival submissions and perused the material available on record.

As the assessee invoked Rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963, challenging validity of the reassessment proceedings, we deem it appropriate to adjudicate the jurisdictional issue at the threshold, as its determination would have a direct bearing on the maintainability of the reassessment itself.

5.1. The Ld. AR further submitted that in response to the show cause notice, the appellant had furnished a detailed explanation on 28.04.2023 clarifying that the client code modifications were minimal in number, were carried out only to rectify genuine punching or clerical errors, and were permissible under the applicable regulatory framework. However, the Ld. AR neither examined these submissions nor conducted any verification thereof. No defect was pointed out in the evidences furnished, and none of the explanations offered by the appellant was specifically rebutted.

5.2. It was further argued that the allegation of the Ld. AO that the assessee derived fictitious profits is factually incorrect. On the contrary, the transactions resulted in genuine profits which were duly recorded in the books of account and offered to tax in the return of income. The Ld. AO failed to demonstrate, with any supporting material, that the profits arising from the impugned transactions had escaped assessment or had not been subjected to tax. No evidence was brought on record to establish any collusion between the appellant and the broker or to show that the client code modifications were intended to evade taxes.

5.3. The Ld. AR contended that the entire addition rests merely on suspicion arising from the fact that the transactions were routed through M/s. Anand Rathi Commodities Pvt. Ltd. Such suspicion, howsoever strong, cannot substitute legal evidence. The Ld. AO neither could establish any fraud in the transactions nor could demonstrate any tax evasion attributable to the assessee. It was therefore submitted that, once the assessee discharged the burden of furnishing the requisite details and explanations, the addition could not be sustained in the absence of any tangible material disproving the assessee's claim or establishing that the impugned profits represented unexplained income.

5.4. The Ld.DR relied upon the assessment order and submitted that the reassessment was initiated on the basis of specific information received through the CRIU/Insight Portal, based on the findings of the Investigation Wing and the SFIO report, which identified the assessee as a beneficiary of client code modifications carried out by M/s. Anand Rathi Commodities Pvt. Ltd. on the NSEL platform.

5.5. It was submitted by the Ld.DR that the investigation had revealed that the alleged commodity transactions were not backed by actual delivery of goods and that the warehouses purportedly storing the commodities were found to be empty. The client code modifications formed part of a larger manipulation involving trades valued at approximately ₹3,073.48 crores, and therefore the assessee's contention that the modified trades constituted less than 1% of its total turnover was of no consequence.

5.6. The Ld. DR further submitted that the contract notes furnished by the assessee corroborated the investigation material. On verification, it was found that the purchases executed on 07.05.2013 and 07.06.2013 corresponded to trades where the original client codes of Borosil Glass Works Ltd. and Tezas Trading Co. Ltd. were subsequently modified in favour of the assessee. According to the Revenue, this established that the purchases were initially executed in the names of other clients and were later transferred to the assessee through client code modification, enabling the assessee to derive fictitious profits without making the corresponding purchases in its own name.

5.7. It was therefore contended that the Ld.AO had rightly concluded that the assessee had earned fictitious profits of ₹96,42,854/- through client code modifications and, since the explanation offered by the assessee was not found satisfactory, the addition under section 68 of the Act was liable to be sustained.

We have heard the submissions advanced by both sides in the light of records placed before us.

6.1. It is also noted that the assessee had explained during the course of assessment proceedings that the client code modifications were carried out to rectify punching errors, that such modifications constituted a negligible percentage of the overall trading volume, and that the profits arising from the impugned transactions had been duly accounted for and offered to tax. The assessee also furnished contract notes and transaction details in support of its claim. Significantly, the Ld.AO neither examined the correctness of these documents nor recorded any finding demonstrating that they were false or fabricated. The assessment order merely rejects the explanation as "not genuine" without assigning cogent reasons or confronting the assessee with any material establishing collusion between the assessee and the broker.

6.2. We further find that although the Ld.AO referred to the findings of the SFIO and the Investigation Wing regarding alleged irregularities on the NSEL platform, no material has been brought on record to demonstrate how such general findings translate into undisclosed income in the hands of the present assessee. We also note that there is no evidence to show that the profits credited in the assessee's books did not arise from the recorded transactions or that the amounts represented unexplained cash credits. Mere reliance on investigation reports or generalized allegations, without establishing a live nexus with the assessee's own transactions, cannot justify an addition under section 68 of the Act.

6.3. The Ld.CIT(A), after examining the assessment records, rightly observed that the Ld.AO failed to rebut the assessee's explanations, failed to point out any defect in the evidences produced, and failed to establish either tax evasion or the existence of any unexplained income. The first appellate authority has also correctly noted that the income arising from the impugned transactions had already been offered to tax and that no material was brought on record to show otherwise. These factual findings recorded by the Ld.CIT(A) remain uncontroverted before us. We therefore do not find any infirmity in the view adopted by the Ld.CIT(A) and the same is upheld.

6.4. It is a settled principle that however strong the suspicion may be, it cannot take the place of legal proof. An addition under section 68 cannot be sustained merely on the basis of suspicion or third- party information unless supported by cogent evidence demonstrating that the amount credited represents unexplained income of the assessee. In the present case, the Revenue has failed to discharge this burden.

6.5. In view of the foregoing discussion, we find no infirmity in the well-reasoned order of the learned CIT(A) deleting the addition of ₹96,42,854/-. Accordingly, the order of the CIT(A) is affirmed and the grounds raised by the Revenue are dismissed.

In the result, appeal filed by revenue stands dismissed.

Order pronounced in the open court on 05/08/2026.

Sd/- Sd/- JAGADISH BEENA PILLAI ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai Dated: 05/08/2026 SC, Sr. P.S.

Copy to:

INCOME TAX OFFICER, ROOM NO 121, FIRST FLOOR, PIRAMAL 1 CHAMBER, LOWER PAREL, -400012, MAHARASHTRA ANIL KUMAR VIJAYKUMAR SINGHVI(HUF), 303/3B SHRADDHA APT, THAKUR 2 COMPLEX KANDIVALI EAST MUMBAI 400101, MAHARASHTRA INDIA, -400101, MAHARASHTRA 3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE