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Facts
The appellant, a share broker, was assessed with a disallowance of loss amounting to Rs. 38,10,049/- and an addition of brokerage income of Rs. 76,200/-. The disallowance was based on alleged client code modification manipulations.
Held
The Tribunal observed that the Assessing Officer (AO) did not provide a clear basis for disallowing the regular loss or for adding the commission income. The AO's order lacked specific evidence linking the appellant to the alleged manipulations.
Key Issues
Whether the disallowance of loss and addition of commission income were justified without specific evidence of manipulations by the assessee and if Section 153C addition can be made without incriminating material.
Sections Cited
153C, 147, 148
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Income Tax Appellate Tribunal, Mumbai “B” Bench, Mumbai.
Before: Smt. Beena Pillai(JM) & Shri Omkareshwar Chidara(AM)
The main grievance of the appellant, who is a share broker, is that the Ld. AO made disallowance of loss Rs. 38,10,049/- on the ground that certain client code modification related manipulations were done by him. Apart from this, the Ld. AO presumed that for doing this manipulation, appellant would have got brokerage income of Rs. 76,200/- and hence added.
During the hearing before the ITAT, it is observed that the appellant raised three grounds :- a) As there is no incriminating material, addition under section 153C cannot be made. b) Addition of unaccounted brokerage income Rs. 89,303/- is not warranted because there is no evidence. c) Disallowance of fictitious loss on account of client code modification of Rs. 38,10,049/- and consequent unexplained commission received of Rs. 76,200/-.
2 Bakul Ramniklal Parekh 2. The Ld. AR of the appellant, during the hearing proceedings has submitted that the above grounds of (a) and (b) are not pressed and hence no adjudication is made on the same. The only ground remains to be adjudicated is whether the loss disallowed by Ld. AO of Rs. 38,10,049/- and consequent commission income, is correct as per the provisions of I.T. Act. The main argument of Ld. AR of appellant is that the Ld. AO has not given any basis for disallowing the regular loss as per his books of account by quoting extensively the modus operandi adopted by various brokers to book fictitious losses. Hence, the disallowance of loss as well as consequential commission expenses received have no basis and such additions/disallowances made by the Ld. AO should be deleted.
The Ld. DR relied on the Orders of the Ld. AO and Ld. CIT(A).
After hearing both sides, it is observed from the orders of Ld. AO as well as the appeal order of Ld. CIT(A), that there is no basis i.e., how and why the regular loss claimed by the appellant was disallowed. The Ld. AO went on recording various types of manipulations and client code modifications done by brokers in general, what is the action taken by National Stock Exchange or SEBI etc., in the assessment order. The Ld. AO has also mentioned there was a search in the case of R.K. Kedia Group of cases, and this appellant has participated in all manipulations. But, the Ld. AO has not mentioned anything in the assessment order about the evidences found during the search of R.K. Kedia Group nor what client code modifications done by appellant led to claim of disallowance loss of Rs. 38,10,049/-. Similarly, no basis to add the commission income was found from the assessment order. The Ld. AR of appellant fairly admitted that the case may be remitted back to the Ld. AO, so that he would explain the basis of regular loss as per his books of account. Accordingly, the issues of loss and consequent commission income are remitted to the file of Ld. AO for verification and correct computation. The Ld. AO is directed to give an opportunity to the appellant to explain and give
3 Bakul Ramniklal Parekh documentary evidences for the loss claimed in his Return of Income and pass the order afresh.
The appeal of appellant is allowed for statistical purposes.
Order pronounced in the open Court on 22/05/2025.