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Facts
The assessee filed an original return for AY 2009-10. The case was reopened based on information regarding accommodation entries received through client code modification (CCM). The Assessing Officer (AO) made an addition of Rs. 22,62,475/- alleging bogus losses.
Held
The Tribunal held that the AO was not justified in making the addition as it was based on the report of the DGIT Investigation Wing without sufficient computation, verification, and further enquiries from the brokers. The reassessment was initiated without cogent reasons to believe income had escaped assessment.
Key Issues
Legality of reassessment initiation and validity of addition made on account of alleged bogus accommodation entries through client code modification without proper verification.
Sections Cited
143(1), 148, 151, 133(6)
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Before: SHRI SANDEEP GOSAIN & SMT. RENU JAUHRI
सुिवधई की िधरीख / Date of Hearing 24.03.2025 घोर्णध की िधरीख/Date of Pronouncement 30.05.2025 आदेश / O R D E R PER RENU JAUHRI [A.M.] :- This appeal is filed by the assessee against the order of the Learned Commissioner of Income-tax (Appeals), Mumbai/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] dated 15.01.2024 passed u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for Assessment Year [A.Y.] 2009-10.
The assessee has raised the following grounds of appeal:
A.Y. 2009-10 Niraj Jayantilal Vora I. OBJECTION AGAINST THE REASSESSMENT MADE IN VIOLATION OF THE PRINCIPLES OF LAW (a) On the facts and in the circumstances of the case, the Commissioner of Income-tax (Appeals) - NFAC, hereinafter referred to as the CIT (A), has erred in confirming the validity of the reassessment made by the assessing officer in violation of the principles of law. (b) The appellant respectfully submits that the reassessment made in his case is invalid considering the facts that (i) the same is made only on borrowed satisfaction, (ii) the same is made on incorrect reasons, (iii) the reassessment is in violation of guidelines laid down by the Supreme Court and (iv) the initiation of reassessment is not in accordance with section 151 of the Act. (c) The CIT (A) has erred in recording a finding that the assessing officer has formed a proper belief about escapement of income. The appellant respectfully submits that the above finding of the CIT (A) is not only incorrect but the same is perverse. (d) The appellant, therefore, prays that the impugned reassessment shall please be quashed. II. OBJECTION AGAINST ADDITION OF Rs. 22,62,475/- ON ACCOUNT OF ALLEGED FICTITIOUS TRANSACTIONS ON ACCOUNT OF CLIENT CODE MODIFICATION (a) Without any prejudice to Ground I above, the CIT (A) has erred in confirming the order of the assessing officer, wherein the assessing officer has made an addition of Rs. 22,62,475/- on account of alleged fictitious transactions on account of client code modification. (b) Your appellant respectfully submits that the impugned addition is based merely on conjectures, surmises and suspicions and that the assessing officer has not brought any material on record to support the impugned addition. (c) Your appellant further submits that both the assessing officer and the CIT (A) has erred in not appreciating various factual aspects of the matter and have passed their order on the basis of irrelevant and incorrect factors. (d) In view of the above, the appellant submits that the impugned addition is not justified. The appellant, therefore, prays that the same shall please be deleted”
Brief facts of the case are that the assessee filed its original return for AY 2009-10, declaring income of Rs. 3,30,431/- on 30.09.2010, which was processed u/s 143(1) of the Act. Subsequently, on the basis of information received from the DGIT Investigation Wing, Ahmedabad, regarding the accommodation entries received by the assessee through client code modification (CCM), the case was reopened and a notice u/s 148 was issued on A.Y. 2009-10 Niraj Jayantilal Vora 22.03.2016. In the reasons recorded by the Ld. AO, it was mentioned that the assessee has taken bogus loss of Rs. 22,62,475/- through the broker M/s. Sushil Financial Services Pvt. Ltd. After considering the assessee’s reply that he had done most of the trading through the broker Amit Jasani, Ld. AO on the basis of the trade data received from the Investigation wing, Ahmedabad, concluded that the CCM facility was widely misused for providing accommodation entries for various parties in the form of bogus capital gain/loss. A part of the data was reproduced in the assessment order, wherein some of the transactions made by the assessee through brokers viz. Sushil Financial Services Pvt. Ltd. and Amit Jasani also figured. After a detailed discussion regarding the modus operandi as communicated by the DGIT Investigation Wing, Ahmedabad, Ld. AO came to the conclusion that the assessee had obtained accommodation entries to the extent of Rs. 22,62,475/- through the two brokers viz. M/s. Sushil Financials Services Pvt. Ltd. and Amit Jasani by misusing the CCM facilities, and therefore added this amount to the assessee’s income. The assessment was finalised at an income of Rs. 25,92,906/- vide order dated 28.12.2016.
Aggrieved with the order of Ld. AO, the assessee preferred an appeal before Ld. CIT(A), challenging the reasons for reopening as well as the addition of merits. Vide order dated 15.01.2024, Ld. CIT(A) upheld the validity of reopening u/s 148 and also confirmed the disallowance made by the Ld. AO A.Y. 2009-10 Niraj Jayantilal Vora after holding that the CCM were sham transactions made by the assessee through his brokers, which were entered into for the purpose of evading tax.
Aggrieved with the order of Ld. CIT(A), the assessee has preferred an appeal before the ITAT. The first ground of appeal
challenges the legality of the reopening of assessment, while the second ground of appeal relates to the addition of Rs. 22,62,475/- on merits.
6. We have heard the rival submissions and considered the material placed before us. With regard to the reopening, it is seen that Ld. AO was in receipt of specific information regarding transactions, wherein CCM facility was initiated to shift profits and losses by the brokers. Since the name of the assessee and his broker appeared in the information received by the AO from the DGIT, Investigation Wing, Ahmedabad, there was a reasonable basis on which notice u/s 148 was issued. Subsequently, the assessee pointed out that he had not done all the trading through M/s. Sushil Financial Services Pvt. Ltd., as mentioned by the Ld. AO, rather most of his transactions were done through another broker Amit Jasani. As such, the information with the AO was correct though incomplete, but the same was sufficient to initiate the reopening of assessment; we are, therefore, of the view that Ld. AO had cogent reasons to believe, in view of the specific information available with him that income had escaped assessment in the case of the assessee.
A.Y. 2009-10 Niraj Jayantilal Vora 7. As regards the merits, it is seen that Ld. AO has simply reproduced the trade data received from the DGIT, Investigation Wing, Ahmedabad, that too only partial and has not listed all the transactions reflecting losses received by the assessee due to CCM done through his brokers. The assessee specifically asked Ld. AO to provide the basis on which the figure of Rs. 22,62,475/- was worked out. However, Ld. AO failed to provide the same and even the assessment order does not contain the requisite details in this regard.
On his part, the assessee had submitted the following data, regarding the profit/loss incurred on transactions carried out through two brokers:
Particulars Total Pertaining to Amit Pertaining to Jasani Sushil Finance Loss on F & O Rs. 69,14,047.27 Rs. 58,01,152.27 Rs. 11,12,895 Share Trading Profit Rs. 5,71,203.18 Rs. 3,67,978.21 Rs. 2,03,224.97 Long Term Capital Gain Rs. 14,44,252.28 Rs. 14,44,252.28 - It is further seen that though a notice u/s 133(6) was also issued to the Bombay Stock Exchange by Ld. AO, no reply was received. Thereafter,, Ld. AO proceeded to hold that the assessee had obtained accommodation entries through brokers, M/s. Sushil Financial Services Pvt. Ltd. and Amit Jasani by misusing the CCM facility to the extent of Rs. 22,62,475/-. However, working of this amount has not been mentioned in the assessment order. Moreover, even if the CCM facility was misused by the brokers, Ld. AO ought to have made further enquiries from these brokers, which was not done. Ld. AO has simply reproduced the report of the DGIT Investigation Wing, Ahmadabad, which A.Y. 2009-10 Niraj Jayantilal Vora contains the modus operandi of the misuse of the CCM facility. He has not listed the specific transactions entered into by the assessee with respect to which CCM was stated to have been modified in connivance with the brokers. In any case, the volume of the said transactions appears to be very small when considered in the light of the huge volume of the transactions undertaken by the assessee, as shown in the chart above. Ld. AR has also relied on several decisions of the coordinate benches, wherein the issue has been decided in favour of the assessee time and again in different cases involving CCM. Specifically, in the case of DCIT CC-Ahmadabad v/s Kaizen Stock Trading Pvt. Ltd. (2021) 130 taxmann.com 236 (Ahmedabad Tribunal), it has been held as under: “Merely there were CCMs carried out by assessee could not be a basis to draw an inference against assessee - Other corroborative evidences had to be brought suggesting that there was exchange of cash among parties involved in CCM - But it was noted that no such exercise was carried out by revenue - Further, number of transactions in respect of which client codes were modified were less than 1 per cent of total transactions carried out by assessee; therefore, such changes in client code could not be called a colourable device adopted for shifting out and shifting in profit/loss - Whether, on facts, impugned addition made by Assessing Officer was unjustified and same was to be deleted - Held, yes”
In view of the above facts and circumstances, we are of the view that the Ld. AO was not justified in making the addition in the hands of the assessee for bogus accommodation entries taken through the CCM to declare bogus loss of Rs. 22,62,475/- without specifying how this figure has been arrived at and without making requisite further enquiries from the brokers etc. We, therefore, hold that the addition has been made mechanically relying on the report of the A.Y. 2009-10 Niraj Jayantilal Vora DGIT Investigation Wing, Ahmedabad, without requisite computation and further verification, and hence, the same deserves to be deleted.
In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 30.05.2025.