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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
आदेश/ ORDER
This appeal by the assessee is directed against the order of Commissioner of Income Tax(Appeals) -48, Mumbai [in short 'the CIT(A)’] dated 14/10/2019 for the assessment year 2009-10.
The assessee in appeal has assailed re-opening of assessment as well as addition on account of client code modifications.
Shri Ashok Mehta appearing on behalf of the assessee submitted at the outset that the assessee is not pressing ground No.2 of the appeal, challenging reopening of assessment u/s. 147 of the Income Tax act, 1961 ( in short ‘ the Act’).
The ld. Authorized Representative for the assessee narrating the facts of the case submitted that the addition of Rs.8,33,792/- on account of client code modifications has been made by the Assessing Officer merely on surmises and conjectures without appreciating the facts on record. The ld. Authorized Representative for the assessee submitted that there were eight instances of client code modifications during the relevant period. Out of eight, in seven cases client code modifications was within the family members, i.e. father, brother and brother’s wife. As per the guidelines issued by National Stock Exchange(NSE) client code modifications among the family members is permissible. Undisputedly, the assessee is not a broker but an investor. Client code modifications are carried out by the brokers. The Assessing Officer had issued notice u/s. 133(6) of the Act to the broker. In response to the notice the broker confirmed that client code modifications were carried out. The broker has not been panelized by SEBI, Stock Exchange or any other statutory body for carrying out client code modifications. Thus, the client code modifications were made in accordance with the guidelines issued by NSE. The Assessing Officer without appreciating the facts and documents on record made addition of Rs.8,33,792/- in respect of alleged undisclosed income and addition of Rs.16,675/- in respect of commission paid to the broker for carrying out client code modifications.
3.1 Aggrieved by the assessment order dated 30/1/2/2016 passed u/s. 143(3) r.w.s. 147 of the Act the assessee filed appeal before the CIT(A). In first appellate proceedings the assessee sought copy of remand report. The assessee vide application dated 22/04/2019 requested for copy of the remand report. However, the same was not furnished to the assessee. Again on 25/06/2019 the assessee made a request to furnish copy of the remand report, however, the same was not provided to the assessee. The CIT(A) passed the assessment order taking cognizance of the remand report without providing copy of the same to the assessee and dismissed the appeal. The ld. Authorized Representative for the assessee submitted that the Assessing Officer has made addition on account of client code modifications primarily on the basis of information received from DIT(C&CI). No documents has been furnished by the Revenue to show that the name of the assessee or assessee’s broker is mentioned in the list of fictitious transactions carried out to suppress losses by misusing the facility of client code modification. The ld. Authorized Representative for the assessee placed reliance on following decisions in support of his submissions:
DCIT vs. M/s. Comet Investment Pvt. Ltd. (i) for A.Y.2010-11 decided on 13/05/2019. (ii) DCIT vs. Sunil J. Anandpur, ITA No.3132/Mum/2015 for A.Y 2010-11 decided on 15/0-9/2017. (iii) Sambhavnath Investments vs. ACIT in ITA No.3109/Mum2011 for A.Y.2006-07 decided on 31/12/2013.
Per contra, Shri T. Shankar representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of assessee.
Both sides heard, orders of authorities below examined. The ground No.1 and 7 of the appeal are general in nature and hence, require no adjudication. In ground No.2 of appeal, the assessee has assailed reopening of assessment. The ld. Authorized Representative for the assessee on instructions from the assessee made a statement that he is not pressing ground No.2 of the appeal. In view of the statement made by ld. Authorized Representative for the assessee, ground No.2 of the appeal is dismissed, as not pressed.
5.1 In ground NO.3 to 5 of appeal, the assessee has assailed addition of Rs.8,33,792/- on account of client code modifications. Admittedly, the assessee had instructed his broker M/s. VFC Securities Pvt. Ltd. to carry out client code modifications. In the assessment order the Assessing Officer has reproduced the list of transactions where client code modification have been carried out in the case of assessee. Out of total eight transactions, in seven cases client code modification has been done among the family members and only one transaction of client code modification is with unrelated party. The NSE permits client code modification to rectify the errors /mistakes while punching the transactions. Genuine client code modifications are permissible. As per the guidelines issued by NSE, client code modifications within the relatives, as defined under the provisions of Companies Act, 1956 is allowed. The assessee has categorically stated that client code modifications in the instant case are among the family members. This fact has not been disputed by the Revenue. No material has been brought on record to show that any penal action has been taken by Stock Exchange or SEBI against the broker of the assessee for carrying out fictitious client code modifications for suppression of profits. The observations made by Assessing Officer in para 4 of assessment order that brokers are indulging in transferring fictitious losses to different clients to reduce the tax liability, are generic. There is no specific allegation of such fictitious client code modification supported by cogent evidence to suggest that the broker of the assessee at the instance of assessee or the assessee has indulged in such nefarious activities.
5.2 The ld. Authorized Representative for the assessee has pointed that during the First Appellate proceedings the assessee requested to provide copy of remand report. Despite repeated requests, the copy of remand report was not furnished to the assessee. It is a well settled principle of natural justice that before taking cognizance of any material the same should be furnished to the opposite side to rebut the same. In the instant case the CIT(A) has failed to provide opportunity to the assessee to furnish his comments on the observation made by Assessing Officer in the remand report. Any material on which reliance has been placed to make the addition/confirming the addition without confronting it to the assessee would make the order void.
5.3 Taking into consideration entirety of facts, I find merit in ground No.3 to 5 of the appeal by the assessee hence, the same are allowed.
In ground No.6 of the appeal the assessee has assailed commission paid to the broker for carrying out client code modifications. Since, we have accepted ground No.3 to 5 of the appeal and has deleted the addition by holding client code modifications as genuine, the addition assailed in ground No.6 is consequential hence, the same is deleted. In the result, ground No.6 of appeal is allowed.
In the result, appeal by assessee is partly allowed in the terms aforesaid.
Order pronounced in the open Court on Monday the 04th day of April, 2022.