ACIT-6(1)(1),MUMBAI, MUMBAI vs. ANCHOR CONSUMER PRODUCTS PRIVATE LIMITED FORMERLY KNOWN AS ANCHOR HEALTH AND BEAUTY CARE PVT.LTD, MUMBAI

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ITA 6682/MUM/2025Status: DisposedITAT Mumbai24 September 2026AY 2011-128 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the CIT(A) was justified in deleting the addition of Rs.1,59,57,507 on account of alleged client code modification loss and the consequential addition of Rs.1,59,575 towards commission. The Tribunal found that while the AO extensively discussed the general mechanism of CCM misuse, the assessment order lacked assessee-specific material. It did not identify the original client, the counterparty, any broker's statement implicating the assessee, or any instruction for modification or cash trail. The Tribunal noted that the AO placed the burden on the assessee to prove a negative without the Revenue discharging its initial burden with cogent material. Following the decision in DCIT v. Modern India Ltd., which held that general investigation findings are insufficient to sustain additions without transaction-specific material and an evidentiary link to the assessee, the Tribunal dismissed the Revenue's grounds. The consequential commission addition was also deleted as the foundational allegation was not established. The assessee's cross-objection on jurisdictional grounds was dismissed as infructuous.

What were the facts?

The assessee, Anchor Consumer Products Private Limited, filed a return for Assessment Year 2011-12 declaring nil income and a loss of Rs.13,79,33,162. The Assessing Officer (AO) reopened the assessment under section 147 based on information regarding client code modification (CCM) misuse. During reassessment, the AO disallowed a loss of Rs.1,59,57,507 and added Rs.1,59,575 as unexplained commission, totaling Rs.1,61,17,082. The AO's additions were based on investigation reports and market practices suggesting artificial losses through CCM. The Commissioner of Income-tax (Appeals) deleted these additions, holding that the reports did not establish assessee-specific wrongdoing. The Revenue appealed this deletion to the Income Tax Appellate Tribunal (ITAT). The assessee filed a cross-objection challenging the validity of reassessment proceedings.

What were the issues?

1. Whether the CIT(A) was correct in deleting the addition on account of Client Code Modification (CCM) loss, considering the Investigation Wing and SFIO reports indicating misuse of CCM by brokers and beneficiaries, including the assessee? (Question of law) 2. Whether the CIT(A) was justified in ignoring the AO's valid 'reason to believe' that income had escaped assessment due to CCM-related transactions? (Question of law) 3. Whether the CIT(A) was correct in holding that the AO’s findings were based only on assumptions, when additions were made on the basis of investigation findings and established market practices showing artificial CCM losses? (Question of law) Assessee's Contention: The assessment order lacked assessee-specific material, such as statements, cash trails, or inquiries, linking the assessee to loss-purchasing arrangements. The assessee denied instructing any CCM. Reliance was placed on DCIT v. Modern India Ltd. and Coronation Agro Industries Ltd. v. DCIT. Revenue's Contention: The Investigation Wing and SFIO reports revealed widespread CCM misuse, and the assessee benefited from an artificial loss. Surrounding circumstances and trading patterns justified the AO's inference. The CIT(A) was not justified in deleting the disallowance and consequential commission addition.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 147,Section 148,Section 151,Section 250,Section 143(1),Section 143(2)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH, MUMBAI

Before: SMT BEENA PILLAI & SHRI JAGADISH

For Appellant: Shri M. Subramaniam, Advocate
For Respondent: Shri Surendra Mohan (SR. DR)
Hearing: 29.06.2026Pronounced: 24.09.2026

Per: SHRI JAGADISH, A.M.:

1.

This appeal by the Revenue and the cross-objection by the assessee are directed against the order dated 24.07.2025 passed by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi [“Ld. CIT(A)”], under section 250 of the Income-tax Act, 1961 [“the Act”], arising out of the assessment order dated 30.12.2016 passed by the Assessing Officer under section 143(3) read with section 147 of the Act for the assessment year 2011-12.

2.

The Revenue has raised the following grounds of appeal:

“1. Whether the CIT(A) was right in dele�ng the addi�on on account of Client Code Modifica�on (CCM) loss, even though the Inves�ga�on Wing and SFIO reports had clearly shown large-scale misuse of CCM by brokers and beneficiaries, including the assessee?

2.

Whether the CIT(A) was jus�fied in ignoring the fact that the Assessing Officer had valid ‘reason to believe’ based on credible material that income had escaped assessment due to CCM-related transac�ons?

3.

Whether the CIT(A) was correct in holding that the AO’s findings were based only on assump�ons, when the addi�ons were made on the basis of inves�ga�on findings and established market prac�ces showing that such CCM losses are ar�ficial and used to shi� profits/losses?” 2

ITA No.6682 and CO No.373/M/2025 Anchor Consumer Products Private Limited (formerly known as Anchor Health and Beauty Care Pvt. Ltd.) 3. Briefly stated, the assessee filed its return of income on 15.09.2011 declaring nil income and a loss of Rs.13,79,33,162. The return was processed under section 143(1) of the Act. Subsequently, on the basis of information stated to have been received from the Investigation Wing regarding client code modification, notice under section 148 of the Act was issued on 28.03.2016. In response, the assessee requested that the original return be treated as the return filed pursuant to the said notice. The objections raised by the assessee to the reopening were disposed of on 14.10.2016.

4.

During the reassessment proceedings, the Assessing Officer observed that client code modification in the futures and options segment had been misused by certain brokers and clients for shifting profits and losses. Referring to the general modus operandi, the SEBI order and the information received from the Investigation Wing, the Assessing Officer held that the assessee was a beneficiary of client code modification. He accordingly disallowed loss of Rs.1,59,57,507 and further added Rs.1,59,575, being one per cent of such loss, as unexplained commission expenditure. The total addition thus made was Rs.1,61,17,082 and the returned loss was assessed at Rs.12,18,16,080.

5.

On appeal, the Ld. CIT(A) deleted the addition by following the decision of the Co-ordinate Bench in DCIT v. Modern India Ltd., ITA Nos.4131 and 4132/Mum/2024 with CO Nos.213 and 214/Mum/2024, dated 21.01.2025. The Ld. CIT(A) held that the investigation reports did not establish any assessee-specific wrongdoing and that the addition could not be sustained merely on the basis of a general allegation concerning misuse of client code modification. Aggrieved, the Revenue is in appeal before us.

ITA No.6682 and CO No.373/M/2025 Anchor Consumer Products Private Limited (formerly known as Anchor Health and Beauty Care Pvt. Ltd.) 6. The learned Departmental Representative supported the assessment order. He submitted that the Investigation Wing and SFIO had unearthed widespread misuse of the client code modification facility; that the assessee had obtained the benefit of an artificial loss of Rs.1,59,57,507; and that the surrounding circumstances and trading pattern justified the inference drawn by the Assessing Officer. He therefore submitted that the Ld. CIT(A) was not justified in deleting the disallowance and the consequential commission addition.

7.

Per contra, the learned Authorised Representative supported the impugned order. He submitted that the assessment order contains only a general discussion of the alleged modus operandi and does not refer to any statement, material, cash trail or enquiry linking the assessee to an arrangement for purchasing losses. The assessee had denied having instructed its broker to carry out any client code modification. Reliance was placed on the decision of the Co-ordinate Bench in DCIT v. Modern India Ltd. (supra) and on the decision of the Hon’ble Bombay High Court in Coronation Agro Industries Ltd. v. DCIT, 82 taxmann.com 75 (Bom). The learned Authorised Representative submitted that the Revenue’s appeal deserves to be dismissed.

8.

The assessee, in its cross-objection, has challenged the validity of the reassessment proceedings, inter alia, on the ground that the notice under section 148 was issued without a valid independent satisfaction and requisite sanction under section 151 of the Act, and that the reassessment was completed without issuance of the statutory notice under section 143(2) of the Act. It was submitted that, if the Revenue’s appeal is dismissed on merits, these jurisdictional grounds may be treated as academic.

ITA No.6682 and CO No.373/M/2025 Anchor Consumer Products Private Limited (formerly known as Anchor Health and Beauty Care Pvt. Ltd.) 9. We have heard the rival submissions and perused the material available on record. The short issue in the Revenue’s appeal is whether the Ld. CIT(A) was justified in deleting the disallowance of loss of Rs.1,59,57,507 arising from alleged client code modification and the consequential addition of commission of Rs.1,59,575. A perusal of the assessment order shows that the Assessing Officer has extensively discussed the general mechanism by which the facility of client code modification was capable of misuse. However, after setting out the general background, the Assessing Officer has merely concluded that the assessee was one of the beneficiaries. The assessment order does not identify the original client to whom the impugned trades allegedly belonged, the counterparty from whom the loss was shifted, the broker’s statement implicating the assessee, any instruction issued by the assessee for modification, or any cash or money trail corresponding to the alleged accommodation entry. No independent enquiry bringing the general investigation material into a live nexus with the assessee’s transactions has been referred to before us.

10.

The fact that client code modification could be misused may furnish a reason for closer verification, but it cannot, by itself, establish that every modification represents a fictitious transaction or a purchased loss. The conclusion must rest upon transaction-specific material. The Assessing Officer rejected the assessee’s explanation mainly on the ground that the assessee did not prove that it had not indulged in shifting of loss. This effectively places upon the assessee the burden of proving a negative, without the Revenue first discharging its initial burden by confronting the assessee with cogent material showing its participation in the alleged arrangement.

ITA No.6682 and CO No.373/M/2025 Anchor Consumer Products Private Limited (formerly known as Anchor Health and Beauty Care Pvt. Ltd.) 11. We find that an identical issue was considered by the Co-ordinate Bench in DCIT v. Modern India Ltd. (supra). The relevant observations in paragraphs 7, 8 and 10 of the said order, as reproduced by the Ld. CIT(A), read as under:

“7. We have considered rival submissions and perused the materials on record. From the reasons recorded while reopening the assessments for both the years under considera�on, it is very clear that the basis of reopening is the report received from DDIT (Inv.) Wing which, in turn, is based on report of SFIO, which says that on an inves�ga�on conducted on NSEL, it was found that some brokers have made client code modifica�on by using dummy/ghost client code to book trades in commodi�es and later the client codes were modified. ... However, while deciding the issue in appeal, learned First Appellate Authority has recorded clear factual finding to demonstrate the genuineness of these transac�ons, which has been discussed by us elsewhere in the order.

8.

Per�nently, none of the factual findings recorded by learned First Appellate Authority could be controverted by the Department at the �me of hearing. ...

10.

The aforesaid observa�ons of the Assessing Officer himself make it clear that the report of the SFIO and DDIT (Inv.), which are the cornerstone of reopening of assessment ... do not in any manner establish or refer to any wrong doing or illegal ac�vity of the assessee either through client code modifica�on or in any other mode or manner. ... Thus, the aforesaid observa�ons, we do not find any valid reason to interfere with the decision of learned First Appellate Authority qua the dele�on of addi�ons made on account of Client Code Modifica�on.”

12.

The ratio of the aforesaid decision squarely applies to the present case. The Revenue has not placed before us any distinguishing assessee- specific material which was considered by the Assessing Officer but overlooked by the Ld. CIT(A). The three grounds raised by the Revenue refer to the Investigation Wing and SFIO reports and to established market practices; nevertheless, neither the grounds nor the assessment

ITA No.6682 and CO No.373/M/2025 Anchor Consumer Products Private Limited (formerly known as Anchor Health and Beauty Care Pvt. Ltd.) order disclose the evidentiary link necessary to hold that the particular loss claimed by this assessee was artificially shifted to it. In these circumstances, the general investigation findings, howsoever relevant for initiating verification, are insufficient to sustain the addition on merits.

13.

The addition of Rs.1,59,575 towards alleged commission is purely consequential and has been estimated at one per cent of the disputed loss. Once the foundational allegation that the assessee obtained an artificial loss through client code modification is not established, the estimated commission addition also cannot survive. We therefore find no infirmity in the conclusion of the Ld. CIT(A) deleting the aggregate addition of Rs.1,61,17,082. Accordingly, all the grounds raised by the Revenue are dismissed.

14.

In view of our decision dismissing the Revenue’s appeal on merits and sustaining the relief granted by the Ld. CIT(A), adjudication of the jurisdictional grounds raised by the assessee in the cross-objection would be academic. We therefore leave those grounds open and dismiss the cross-objection as infructuous.

15.

In the result, the appeal filed by the Revenue is dismissed and the cross-objection filed by the assessee is dismissed as infructuous.

Order pronounced in the open court on 24/09/2026.

Sd/- Sd/- (BEENA PILLAI) (JAGADISH) Judicial Member Accountant Member

Mumbai, Dated: 24/09/2026 Ashwani Rao Sr. Private Secretary

ITA No.6682 and CO No.373/M/2025 Anchor Consumer Products Private Limited (formerly known as Anchor Health and Beauty Care Pvt. Ltd.)

Copy of the order forwarded to: 1. Appellant 2. Respondent 3. The CIT 4. The CIT (Appeals) 5. The DR, I.T.A.T. By order

(Assistant Registrar) ITAT, Mumbai

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