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Facts
The assessee, engaged in share broking, allegedly manipulated client codes to shift profits and losses, resulting in an artificial loss of ₹15,11,253. The Assessing Officer added this amount to the assessee's income. The CIT(A) dismissed the assessee's appeal without a speaking order or providing a hearing.
Held
The Tribunal held that the CIT(A) passed a non-speaking order without considering the assessee's submissions or providing an opportunity for hearing, violating principles of natural justice. Therefore, the appeal was allowed for statistical purposes, and the matter was restored to the CIT(A) for de-novo consideration.
Key Issues
Whether the CIT(A) erred by passing a non-speaking and ex-parte order without providing an opportunity for hearing and considering the assessee's submissions?
Sections Cited
143(3), 147
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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: SMT. ANNAPURNA GUPTA & SHRI SIDDHARTHA NAUTIYAL
PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:
This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre, (in short “NFAC”), Delhi vide order dated 25.10.2024 passed for A.Y. 2009-10. The assessee has raised the following grounds of appeal: 2. “ The CIT(A) faceless has grossly erred in disposing off the appeal. Without giving opportunity of being heard as called for and without considering the detailed submissions of the assessee. The order ought to be set aside. It ought to be held that The addition made under client code modification having been made without considering the statement of broker filled as additional evidence and also without considering the fact modifications are made on the same day and within short time after closure of trading window are due to genuine errors. The addition on account of client code modification be deleted.” Asst.Year –2009-10 - 2–
The brief facts of the case are that assessee is engaged in the share broking business and dealing in various segments of the National Stock Exchange (NSE). During the course of assessment proceedings, the Assessing Officer found that the assessee had resorted to client code modifications (CCM) in multiple segments, specifically in the F&O (Futures and Options) segment. Upon investigation, the Assessing Officer observed that the data from the NSE showed that the assessee modified client codes systematically with the intention of avoiding taxes. This was done by shifting profits and losses between clients with a view to avoid payment of taxes. A detailed analysis by the Assessing Officer showed that the majority of client code modifications were done by the assessee between December 2008 and March 2009, particularly in the last quarter of the financial year. The Assessing Officer noted that CCMs were done deliberately by the assessee more particularly in the months of February and March with a view to manipulate profits and losses. This pattern was also consistent with the findings from the Securities and Exchange Board of India (SEBI) in its own investigation. The Assessing Officer noted that the CCMs were not due to errors but were carefully planned by the assessee, to shift profits from one client to another and to shift losses to the assessee’s account. The Assessing Officer noted that a significant loss of ₹15,11,253/- was transferred by the assessee from his clients accounts, through these CCM manipulations to his own account. These manipulations were carried out with a view to allow the assessee to reduce his taxable income artificially. Therefore, the Assessing Officer held that these modifications were not done to correct any errors but were used as a tool to evade taxes. The Assessing Officer also observed that the assessee also failed to provide evidence that the income reported was its true income, and the adjustments were likely made after netting off the artificial losses. Accordingly, the sum of ₹15,11,253/-, being the loss booked by the assessee, was treated as income of the assessee by the Assessing Asst.Year –2009-10 - 3– Officer, and the total income was revised to ₹19,30,810/- after adding the artificial losses back to the income of the assessee.
In appeal, Ld. CIT(Appeals) dismissed the appeal of the assessee, with the following observations:
“The appeal is filed by the assessee against the order of the ITO, Ward-3(3)(6), Ahmedabad u/s 143(3) r w s 147 dtd. 19.12.2016 of the I T Act, 1961. 1. The grounds of appeal object to addition of Rs.1511253 being artificial loss generated through client Code modifications. If losses would not have been transferred from other clients to the assessee’s code during the year the total income would have been higher by Rs. 15,11,253/-. Hence, these CCM were not made to rectify any genuine punching errors, but were done with predetermined malafied intention of selectively transfer losses of Rs.-15,11,253/- from other client to the assessee's client code. Therefore, the artificial loss of Rs. 15,11,253/- booked by the assessee has been treated as profit of Rs. 15,11,253/- evaded against the higher income of Rs. 15,11,253/- earned by the assessee.
The net effect of the said transactions is that out of the total loss of Rs. 15,11,253/- on account of F&O transactions has been found to be colourable, untrue, manipulated and inflated to the extent of Rs. 15,11,253/- In view of the above, the loss booked by the assessee through alleged CCM of Rs. 15,11,253/- is disallowed and added back to the income of the assessee. The addition of Rs. 15,11,253/- is being artificial loss created through client code modification is confirmed.
The appeal filed by the assessee is dismissed.”
Before us, the counsel for the assessee submitted that Ld. CIT(Appeals) while passing the appellate order has dismissed the appeal of the assessee on ex-parte basis by passing a non-speaking order, without taking into consideration the detailed statement of facts and the grounds of appeal raised by the assessee. The counsel for the assessee submitted that Ld. CIT(Appeals) has dismissed the appeal of the assessee, without considering the merits of the assessee’s arguments and without giving any opportunity for a hearing to the assessee. Accordingly, it was requested that the matter may be restored to the file of Ld. CIT(Appeals) to pass appropriate orders, after giving due opportunity of hearing to the assessee. Asst.Year –2009-10 - 4–
On going to the facts of the case and the contents of the order passed by Ld. CIT(Appeals), we observe that he has passed a non-speaking order, without either discussing the detailed submissions relating to the facts of the assessee’s case (as given by the assessee the statement of facts) and neither did Ld. CIT(Appeals) discuss the grounds of appeal raised by the assessee. We also observe that the assessee had filed written submissions before Ld. CIT(Appeals) which were not considered by him while passing the appellate order, summarily dismissing the appeal of the assessee, without discussing the individual grounds of appeal as well. Further, the counsel for the assessee also submitted that the assessee had placed a request for videoconferencing, but the same was not granted to the assessee, which in our view, is clearly against the principles of natural justice since the assessee was denied an opportunity of hearing, to present it’s case on merits. Accordingly, in our considered view, it is a fit case where the matter may be restored to the file of Ld. CIT(Appeals) for de-novo consideration, with the direction to take into consideration the various grounds of appeal raised by the assessee before him and to pass appropriate orders, after giving due opportunity of hearing to the assessee to present its case on merits and to place supporting documents/evidences before him.
In the result, the appeal of the assessee is allowed for statistical purposes. This Order pronounced in Open Court on 27/02/2025 (ANNAPURNA GUPTA) JUDICIAL MEMBER Ahmedabad; Dated 27/02/2025 TANMAY, Sr. PSITA No. 2008/Ahd/2024 Asst.Year –2009-10 - 5–
आदेश की "ितिलिप अ"ेिषत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant
""थ" / The Respondent. 3. संबंिधत आयकर आयु" / Concerned CIT 4. आयकर आयु"(अपील) / The CIT(A)- 5. िवभागीय "ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड" फाईल / Guard file. आदेशानुसार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt.