NARENDRA KACHRULAL ABAD,JALNA vs. INCOME-TAX OFFICER, WARD - 1,, JALNA

आयकर अपीलीय अधिकरण ”एस एम सी” न्यायपीठ पुणेमें।
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCHES “SMC” :: PUNE

BEFORE DR.DIPAK P. RIPOTE, ACCOUNTANT MEMBER
AND SHRI VINAY BHAMORE, JUDICIAL MEMBER

आयकर अपऩल सं. / ITA No.866/PUN/2019
निर्धारण वषा / Assessment Year: 2009-10
Shri Narendra Kachrulal Abad,
Abad
House,
Nal
Galli,
Kadrabad, Jalna – 431203. Maharashtra.
V s
The Income Tax Officer,
Ward-1, Jalna.
PAN: ACSPA9531C

Appellant/ Assessee

Respondent / Revenue

Assessee by Shri Hari Krishan – AR
Revenue by Shri Arvind Renge –Addl.CIT(DR)
Date of hearing
28/07/2025
Date of pronouncement 06/10/2025

आदेश/ ORDER

PER DR. DIPAK P. RIPOTE, AM:

This is an appeal filed by Assessee against the order of ld.Commissioner of Income Tax(Appeal)-1, Aurangabadpassed under section 250 of the Income Tax Act, 1961 for the A.Y.2009-10
dated 30.03.2019, emanating from order u/s.143(3) r.w.s 147of the Income Tax Act, 1961, dated 03.11.2017. The Assessee has raised the following concise grounds of appeal :

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“The following grounds of appeal are taken independently and without prejudice to one another.

Submission of ld.AR :

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Assessing Officer has not mentioned anything about the Shares wherein, alleged client code modification has been done. Therefore, the reasons recorded are based on incorrect/incomplete information.
Ld.AR further invited our attention to page no.5 of the paper book which is the approval of Pr.CIT-Aurangabad. Ld.AR submitted that Pr.CIT has put a rubber stamp, there is no application of mind by Pr.CIT.

The re-opening of the assessment was challenged before the Assessing
Officer. In support the said challenge the assessee has relied upon the judgement of the Hon'ble Bombay High Court in the case of M/s.
Coronation Agro Industries Ltd. dated 23-11-2016 in WRIT PETITION
NO. 2627 OF 2016. 3. Reassessment was completed by making addition of Rs.9.54 lacs on account of profit and loss manipulation by Client Code Modifications
(CCM)

(a) the re-opening of the assessment.

(b) the addition of Rs.9.54 Lakh made by the Assessing Officer on account of client code modification.

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(a) upheld the re-opening of the assessment.

(b) Confirmed the addition of Rs.9.54 Lakhs made by the Assessing
Officer.

(c) further enhanced the income of the assessee by an amount of Rs.29,12,602/- on account of the alleged accommodation losses taken by the assessee from the broker M/s Sushil Financial Services Pvt. Ltd.
in the future/forward transactions.

(a) Re-opening of the assessment.

(b) Addition of Rs.9.54 lacs.

(c) enhancement made by the Commissioner of Income Tax

(Appeals).

Arguments/Submissions.

(a)

(i) Re-opening of assessment has been done by the Assessing Officer on borrowed satisfaction.

When the reasons to believe that income has escaped assessment are based, just on the information received from the Investigating Wing without any verification/examination of the facts of the assessee by the Assessing Officer, it means that the reopening is based on the borrowed satisfaction = Pioneer Town Planners Pvt. Ltd. (2024) 160
taxmann.com 652 (Delhi).

(ii) No tangible material before the Assessing Officer to arrive at the satisfaction/conclusion that income of Rs.9.54 lacs has escaped assessment.

Assessing Officer has written just a bare sentence that, information had been received from the Additional Director of Income Tax (ADIT)
(Investigation) Wing wherein the Additional Director of Income Tax has observed that Client Code Modifications (CCM) has been used as a tool for tax evasion in many cases and the assessee has taken lossess of Rs.4,13,150/-and shifted out profit of Rs.5,41,215/- which resulted in net reduction in income due to CCM of Rs.9,54,365/-, therefore I have ITA No.866/PUN/2025 [A]

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reasons to believe that the income chargeable to tax at Rs.9,54,365/- has escaped assessment.

The Assessing Officer has not mentioned in respect of which transactions of the assessee the Client Code Modifications has been done. The Assessing Officer has also not mentioned as to in what fashion/manner the said transactions have been manipulated resulting in shifting out the profit of Rs.5,41,215/-and taking of losses of Rs.4,13,150/-.

(iii) The Assessing Officer has not established any live link between the information relied by upon him and the satisfaction/conclusion the income of Rs.9,54,365/- has escaped assessment in the case of the assessee.

No linking of the information has been established with the transactions in the case of the assessee and how the reduction of income of Rs.9,54,365/- has been achieved.

(iv) The approval u/s 151 of the Income Tax Act to issue the notice u/s 148 has been granted in a mechanical manner without application of mind and without examination of the relevant facts.

(b)

(1) The Ld. Commissioner of Income Tax (Appeals) has wrongly confirmed the addition of Rs.9,54,365/- by merely observing on page 20
of the appellate order that the assessee has not challenged the quantum addition of Rs.9,54,365/-, even though in para 3 on page 2 of the appellate order, the Commissioner of Income Tax (Appeals) has himself observed that,

"the appellant is in appeal before the undersigned on the following grounds:-

이On the facts and circumstances of the case, the Assessing Officer was not justified in making an addition of Rs. 9,54,365/- while completing the assessment u/s 143(3) r.w.s 147 of the Income Tax Act, 1961. b) The appellant craves leave to add, amend, delete or alter all or any ground of appeal."

In para 4 on page 2 of his order the Commissioner of Income Tax
(Appeals) has again mentioned that "In the solitary ground of appeal the appellant has challenged the action of the Assessing Officer in making an addition of Rs.9,54,365/-."

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even tax consultant has argued this issue before the Commissioner of Income Tax (Appeals) (Page 2/4 of the assessment order).

(ii)
The Assessing
Officer has failed even to give the working/computation of the amount of Rs.9,54,365/-.

(iii) The Assessing Officer has further failed to spell out even the transactions relating to the assessee in respect of which the addition of Rs.9,54,365/- has been made.

(C)

(i) The item of income on which enhancement has been made, does not fall within the scope of the enhancement juri iction of the Commissioner of Income Tax (Appeals).

The appeal before the Commissioner of Income Tax (Appeals) was against the re-assessment order. In view of the explanation 3 to section 147 the item of income on which the Commissioner of Income Tax
(Appeals) has made the enhancement, does not fall within the scope of reassessment u/s 147 of the Act. There was no information/record etc.
before the Assessing Officer in there-assessment proceedings from which he could have noted that the item of income of Rs.29,12,602/- has also escaped assessment. Therefore the Assessing Officer himself did not have the juri iction to make the addition of Rs.29,12,602/- in respect of which enhancement is made by the Commissioner of Income
Tax (Appeals).

It is settled law that, the Powers of the Commissioner of Income Tax
(Appeals) are co-terminus with the Powers of the Assessing Officer.
What the Assessing Officer could not have done in the reassessment, the Commissioner of Income Tax (Appeals) also could not do.

(ii) The enhancement has been made by the Commissioner of Income
Tax (Appeals) on assumption of incorrect facts. Rs.29,12,602/- is the net loss computed under the head business and profession. It is not the accommodation loss in future trading of shares that has been intended to be disallowed by the Commissioner of Income Tax (Appeals).

(iii) The Ld. Commissioner of Income Tax (Appeals) has made the enhancement of Rs.29,12,602/- without application of mind and without examination of the relevant facts.

(iv) The Commissioner of Income Tax (Appeals) has further failed to spell out even the transactions relating to the assessee in respect of ITA No.866/PUN/2025 [A]

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which the accommodation loss of Rs.29,12,602/- has been taken by the assessee.

(v) The Commissioner of Income Tax (Appeals) has failed to confront the material, relied upon by him, to the assessee before making the enhancement of Rs.29,12,602/-.

(vi) The Commissioner of Income Tax (Appeals) has failed even to give the working/computation of the alleged accommodation loss of Rs.29,12,602/-.

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o Dilware Leasing & Investment Ltd. Vs. ITO in ITA No.3927/Del/2018
No.4542/Del/2018
o Shri Tulsi Dass Vs. ACIT in ITA No.6806/DEL/2017
o Monabenamitkumar Shah Vs. DCIT in ITA No.707/Ahd/2018
o M/s.Devansh Exports Vs. ACIT in ITA No.2178/Kol/2017
o Similar view has been seen on following case laws:- o PCIT Vs. Meenakshi Overseas Ltd. 395 ITR 677 (Del.) (referred to para
19 till para 37).
o DCIT Vs. Greal Wall Marketing Pvt. Ltd. ITA No.660/Kol/2011
(referred to page 10 para11) o Shri Raj Kumar Goel Vs. ITO ITA No.1028/Kol/2017 (referred to page
5-8 para11) o Classic Flour & Food Processing Pvt. Ltd. Vs. CIT ITA Nos. 764 to 766/Kol/2014 (page 7 para 12 to16) o PCIT Vs. Shodiman Investments (P) Ltd. (2018) 93 taxmann.com 153
(Bom) page 4 para 12 to 14) ( o KSS Petron Pvt. Ltd. Vs. ACIT ITA No. 224/Mum/2014 (referred to page 3 para 8-11) o PCIT Vs. Tupperware India Pvt. Ltd. (2016) 236 Taxman 494 (referred to page 3 para 6 and9) o DCIT Vs. National Bank for Agriculture Development 10-13 para12) and Rural ITA No.4964/Mum/2014
o M/s Balaji Health Care Pvt Ltd Vs. The ITO Ward -4(3) Jaipur, ITA.
No.. 566 & 567/JP/2018. o M/s.Setu Securities Pvt. Ltd. Vs. Dy.CIT in ITA No.5705/Mum/2017
o Honourable Punjab and Haryana High Court in the case of Rakesh
Gupta vs. CIT (93 taxmann.com 271) o Hon'ble CIT Vs. Kelvinator of India Ltd.
o Hon'ble Maadhya Pradesh High Court in the case of Dr. Lata Chouhan vs. ITO (189 taxman 45)

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o Hon'ble ITO Vs. Selected Dalurband Coal Co. (P) Ltd., o Honourable Rajat Export Import India Private Limited Vs. IOT (341
ITR 135) o Hon'ble Brij Mohan Agrawal Vs. ACIT (268 ITR 400)

Submission of ld.DR :

Findings & Analysis :

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The reasons recorded by the Assessing Officer are reproduced here as under :

Therefore, I have reason to believe that within the meaning of Explanation 20 of section 147 of Income tax Act, 1961 assessee's income chargeable to tax at Rs 9,54,365/- has escaped assessment. On the basis of reasons recorded above, issue notice under section 148 of the Act 1961 for A.Y.2009-2010. A proposal under section 151(1) of the income-tax Act, 1961 as amended by Finance Act, 2015 with effect from 1.6.2015 is being submitted to the Principle Commissioner of income-tax-1. Aurangabad through Additional Commissioner of Income-tax, Jalna Range, Jalna for favour of necessary sanction for issuance of notice under section 148 of the Income-tax Act, 1961 in this case as no notice under section 148 of the Income-tax Act 1981 can be issued after expiry of four years

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from the end of the assessment year without the approval of the Principle Commissioner of income x-1, Aurangabad.”

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5.1 On perusal of the approval given by Pr.CIT-Aurangabad, it is observed that it is just a mere rubber stamp.

No.ADIT(Inv)1(3)/AHD/CCM/Dissemination/e-mail-15-16
Date
18.03.2016

To The Assessing Officer
(of Beneficiaries as per Annexure-B)

Madam/Sir,

Sub: Forwarding of Survey Report in respect of Client Code
Modification(CCM) – Dissemination of beneficiary clients who have taken contrived losses and shifted out profits during the F.Ys.2008-09 to 2011-12- reg.

Kindly refer to the above.

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Modification of the client codes is a practice under which brokers change the client codes in sale and purchase orders of securities after the trades are conducted. While it is legally permitted to rectify inadvertent errors in punching the orders, there were concerns that such modifications could be misused for manipulative activities in the market. SEBI conducted a probe into 'modification of client codes' by brokers, pursuant to observations by the Finance Ministry about many such modifications taking place in derivatives transactions at the National Stock Exchange during March 2010. 3
The Ahmedabad Investigation Directorate, as an institutional response to the orchestrated misuse for client code modification for tax evasion, carried out coordinated limited purpose surveys u/s 133A of the Income Tax Act, 1961 at the premises of 12 brokers and few of their clients across India on 23.03.2015. 4. The survey report has been prepared by the ADIT(Inv) Unit-1(3),
Ahmedabad on the basis of data received from National stock exchange(NSE). After analysis of date received from NSE and after considering the contention of brokers, it is concluded by the ADIT that CCM has been used as a tool for Tax evasion. The genuine contentions of the brokers have been duly addressed in the survey Report. Only settled trades have been considered to arrive at the beneficiaries.

FY
Sum of Contrived Losses due to CCM
2008-09
580,12,39,534
2009-10
501,56,44,734
2010-11
81,56,23,279
2011-12
42,93,17,740
Total
1206,18,25,287

Survey Report along with Annexures is appended to this email.

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threshold monetary limit of Rs. 100000/- for reopening cases beyond four years. The detailed results of analysis would help you form independent opinion about tax-evasion by your assessees, by way of taking contrived losses.

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The beneficiaries pertaining to your juri iction may be segregated by using the "Sort &…er" tools of MS excel. Net reduction in income due to CCM is mentioned year-wise in Annexure-B whereas net effect in all the four years is mentioned in column AA of Annexure-
B.

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The reopening of cases for FY 2008-09 is getting barred by limitation of time on 31.03.2016. You are, therefore, requested to initiate necessary action in the case of the beneficiary clients pertaining to your juri iction noted in the Pen Drive.”

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profits of Rs.5,41,215/- which resulted in reduction in income due to client code modification. Nowhere in the reasons, the ITO has referred to the Annexure which were forwarded by Assistant
Director of Income Tax(Investigation), Unit-1(3), Ahmedabad.
Nowhere in the reasons, Assessing Officer has mentioned how he has arrived at the figure of Rs.4,13,150/-! Nowhere in the reasons, the Assessing Officer has mentioned the name of the Scrip/Share in which the so-called client code modification was done. Thus, the reasons recorded are baseless and without application of mind.

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wherein, so-called client code modification was done. Based on our findings, we have specifically stated that there is no application of mind by the Assessing Officer at the time of recording reasons. We have also noted that the Pr.CIT has merely stated that he is satisfied.
The Hon’ble Juri ictional High Court in the case Coronation Agro
Industries Ltd. Vs. DCIT(supra) has held as under :
“4. We note that the reasons in support of the impugned notice accept the fact that as a matter of regular business practice, a broker in the stock exchange makes modifications in the client code on sale and/or purchase of any securities, after the trading is over so as to rectify any error which may have occurred while punching the orders. The reasons do not indicate the basis for the Assessing Officer to come to reasonable belief that there has been any escapement of income on the ground that the modifications done in the client code was not on account of a genuine error, originally occurred while punching thetrade. The material available is that there is a client code modification done by the Assessee's broker but there is no link from there to conclude that it was done to escape assessment of a part of its income. Prima facie, this appears to be a case of reason to suspect and not reason to believe that income chargeable to tax has escaped assessment.

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9. The Hon’ble High Court of Delhi in the case of PCIT Vs. G &
G PHARMA INDIA LTD in ITA 545/2015 vide order dated
0810.2015 has held as under :
“12. In the present case, after setting out four entries, stated to have been received by the Assessee on a single date i.e. 10th February 2003, from four entities which were termed as accommodation entries, which information was given to him by the Directorate of Investigation, the AO stated: "I have also perused various materials and report from Investigation Wing and on that basis it is evident that the assessee company has introduced its ownunaccounted money in its bank account by way of above accommodation entries." The above conclusion is unhelpful in understanding whether the AO applied his mind to the materials that he talks about particularly since he did not describe what those materials were. Once the date on which the so called accommodation entries were provided is known, it would not have been difficult for the AO, if he had in fact undertaken the exercise, to make a reference to the manner in which those very entries were provided in the accounts of the Assessee, which return, which was filed on 14th
November 2004 and ee, which must have been tendered along with the Section 143(3) of the Act. Without forming a prima facie opinion, on the and was processed under basis of such material, it was not possible for the AO to have simply concluded: "it is evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries". In the considered view of the Court, in light of the law explained with sufficient clarity by the Supreme Court in the decisions discussed hereinbefore, the basic requirement that the AO must apply his mind to the materials in order to have reasons to believe that the income of the Assessee escaped assessment is missing in the present case.

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11. The ITAT Delhi Bench in the case of Dilwara Leasing &
Investment Ltd. Vs. ITO in ITA No.3927/Del/2018 for A.Y. 2009-
10 vide order dated 11.01.2019 has held as under :
“6.2 Keeping in view of the facts and circumstances of the present case and case laws relied upon by both the parties, I am of the considered view that that case laws cited by the Ld. DR are on distinguished facts andcircumstances of the case, however, the case law cited by the Ld.
Counsel for the assessee are exactly on similar facts and circumstances of the present case, hence, respectfully following the precedent in the case of Radiance Stocks Traders Pvt. Ltd. in ITA No. 4542/Del/2018
(Supra), I am of the considered view that proceedings initiated by invoking the provisions of section 147 of the Act by the AO and upheld by the Ld. CIT(A) are nonest in law, without juri iction and without applying his mind and AO issued notice without confronting the Appraisal Report of the Investigation Wing. Hence, the reassessment is quashed and accordingly I allow the legal ground no. 1 to 1.1 raised by the assessee. No other ground has been adjudicated as the same has not been argued by the Ld. Counsel for the assessee.

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company, in the course of assessment proceedings, though in view of the judgment of Hon'ble Delhi High Court in the case of Sabh
Infrastructure Ltd. Vs. ACIT reported in 398 ITR 198 the same was to be confronted alongwith reasons wherein it has been held as under:

"(ili) where the reasons make a reference to another document, whether as a letter or report, such document and/or relevant portions of such report should be enclosed alongwith the reasons."

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“8. I have heard the rival submissions and perused the orders of the lower authorities and materials available on record. In the instant case the facts of the case are that for the A. Y. 2009-10 the assessee had filed return income u/s 139 of the Act on 29.09.2009. The said return was accepted u/s 143 (1) of the Act. Thereafter the assessment for the aforesaid year was reopened by the recording the following reasons for reopening on 27.04.2016. "The department is in possession of information that some brokers had misused client code modification facility (in short
"CCM") to transfer loss and profits on account of share transactions from the client to the other.

These losses/profits were shifted to reduce the tax liability in hands of either the original client or modified client. The information received in the case of the assessee. Sh. Tulsi Dass is as under :
Sl.
N o
Pan no. &
Name of the beneficiary
Name of Beneficia ry Client
Address of Beneficia r
Name of broker
Ascertained
Ascertained
Net reduction profit losses shifted income due Shifted out CCM
1
ACJPD774
6H
TULSI
DASS
CR-204-
LALITA
PARK
LAXMI
NAGAR
DELHI-
110092
MODEX
Internati onal
Securitie s Ltd.
1420202.5
477732.5
(-)
1897935

The information received was examined with reference to the return of income filed by the asseessee. On perusal of the ITR filed by the assesee for A. Y. 2009-10, it was noticed that the assessee was engaged in the business of online trading and commission agent. As per the details of scrips in the assessee's account, the gross receipts of the assesee from the transaction is ITA No.866/PUN/2025 [A]

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Rs.12,73,10,855/- whereas the assesee has shown sales gross receipts of business and profession at Rs.1,34,73,989/-. The assessee has shown profits and grains from business other than speculative business at Rs.10,05,287/-. Also, perusal of the various schedules of the return of income reveals that the assessee has not shown the said receipts under any head of income.

In view of the above mentioned facts and evidences gathered. I have reasons to believe that the income to the tune of atleast
Rs.1897935/-chargeable to tax has escaped assessment and this income needs to be assessed/reassessed u/s 147 of the Act. I am satisfied that it is fit case for issue of notice u/s 148 of the IT Act.
1961. 9. On perusal of the above recording shows that this was not at all a reason to believe envisaged u/s 147 of the Act. At best the same can be considered as reason to suspect only. The recording states that the assessee Sh. Tulsi Dass has suffered a loss of Rs.4,77,732.50/- in a transaction in which client code modification was involved and earned profit of Rs. 10,05,287/- in a transaction in which client code modification was involved. However, there is no material on record to show that prima facie the said client code modification was because of some malafide reason and the assessee has received cash in lieu of payment made for loss of Rs.4,77,732.50/- and profit of Rs.14,20,202.5
in which client code modification was involved. Thus, the above recording does not satisfyrequirement of law mandatory for assuming juri iction to reopen the assessment. My above view is supported by the decision of the Bombay High Court in the case of Coronation Agro
Industries Ltd. Vs. DCIT reported in 390 ITR 464. Therefore, the reassessment order passed pursuant to the above recording is hereby quashed and ground of the appeal of the assessee is allowed.”

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Dr.DIPAK P. RIPOTE
JUDICIAL MEMBER

ACCOUNTANT MEMBER
पपणे / Pune; ददिधंक / Dated : 06 Oct, 2025/ SGR
आदेशकीप्रनिनलनपअग्रेनषि / Copy of the Order forwarded to :
1. अपऩलधर्थी / The Appellant.
2. प्रत्यर्थी / The Respondent.
3. The CIT(A), concerned.
4. The Pr. CIT, concerned.
5. नवभधगऩयप्रनिनिनर्, आयकर अपऩलऩय अनर्करण, “एस एम सऩ” बेंच,
पपणे / DR, ITAT, “SMC” Bench, Pune.
6. गधर्ाफ़धइल / Guard File.