M/S CREDENCE DEVELOPERS,NAVI MUMBAI vs. ITO 28(1)(3), MUMBAI

This appeal by the assessee is directed against the order of Commissioner of Income Tax(Appeals)-26, Mumbai [ in short ‘ the CIT(A)’] dated 18/11/2019 for the Assessment Year 2010-11.

Shri Rajiv Khandelwal appearing on behalf of the assessee submitted that the CIT(A) in an ex-parte proceedings has dismissed the appeal of assessee by confirming the assessment order. The ld. Authorized Representative for the assessee submitted that the solitary addition made in reassessment proceedings is on account of alleged misuse of “Client Code Modification” (in short “CCM”) facility. Narrating the facts, the ld. Authorized Representative for the assessee submitted that the assessee is engaged in the business of buying, selling, constructing, developing property and trading in derivatives, stocks, etc. The assessee filed its return of income for assessment year 2010-11 on 17/09/2010 declaring loss of Rs.18,96,495/-. The return of the assessee was processed u/s. 143(1) of the Income Tax Act, 1961 ( in short ‘ the Act’) and intimation was received. Thereafter, on the basis of information received from Investigation Wing, Ahmadabad, assessment for assessment year 2010-11 was reopened. As per the information received from Investigation Wing, the assessee was allegedly one of the beneficiary of CCM and had received artificial loss of Rs.18,77,785/- in Future and Option segment. During the course of assessment proceedings, the Assessing Officer merely on the basis of information received from Investigation Wing made addition of Rs.19,59,694/- on account of alleged shifting of profits in shares and derivatives by misuse and manipulation of CCM facility. The ld. Authorized Representative for the assessee submitted that it is only the brokers who are allowed to make CCMs in specified cases /situation. The assessee is not a broker. In the case of assessee CCM was made by the broker i.e. M/s. Labdhi Finance Corporation, in respect of investments made by the assessee in Future and Options. The transactions in Future and Options were carried at National Stock Exchange of India (NSE), wherein the assessee had suffered losses. The transaction are genuine and bonafide. The ld. Authorized Representative referred to the confirmation and settlement bills at pages 1 to 44 of the Paper Book. The ld. Authorized Representative submitted that the CCM were genuinely carried out by the broker of the assessee and this is evident from the fact that there has been no order against the broker of the assessee by SEBI. No penalty has been levied on the broker of the assessee for carrying out any fraudulent transaction of CCM. The Assessing Officer has made addition merely on the basis of information received from Investigation Wing without making his own enquiry and examining the documents furnished by the assessee during the course of re-assessment proceedings. The ld. Authorized Representative in support of his submissions placed reliance on the following decisions:

On the other hand, Shri R.A. Dhyani representing the Department vehemently defended the assessment order. The ld. Departmental Representative submitted that this appeal can be restored back to the CIT(A) for fresh adjudication on merits.

Submissions made by rival sides heard. Orders of authorities below examined. The assessee in appeal has raised three grounds. The ground No.1 is general in nature and, hence, requires no adjudication. In ground No.2 of appeal the assessee has assailed reopening of assessment. The ld. Authorized Representative stated at Bar that he is not pressing ground No.2. Hence, ground No.2 of the appeal is dismissed as not pressed.

The solitary ground for adjudication by the Tribunal is in respect of addition of Rs.19,59,694/- on account of factious/unaccounted income adjustment through CCM. A perusal of the assessment order shows that the Assessing Officer after recording the submissions/objections of the assessee against addition based on CCM in para 6.1 and 6.2 of the order has written a monologue-explaining what is CCM, misuse of CCM facility, price risk/distinction between genuine and non-genuine losses, the prudence of transaction and finally while concluding has referred to certain decisions. The entire discussions by the Assessing Officer in the assessment order on CCM is generic and not specific to the case of assessee. The Assessing Officer after concluding his monologue on CCM, holds that the transaction of CCM carried out by the assessee through broker M/s. Labdhi Finance Corporation is not genuine and is a result of misuse and manipulation of CCM facility.

In the result, appeal by assessee is partly allowed.