ANUSHA FINVEST PVT LTD ,JAIPUR vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1, JAIPUR

3. That on the facts and in the circumstances of the case the Id. CIT(A) grossly erred in confirming the disallowing a loss of Rs. 5,67,147/- made by the Id. assessing officer on account of alleged benefit from client code modification taken by the assessee appellant in share trading business and in adding the same in income from other sources.

4. That on the law and in the facts and in the circumstances of the case, the Id. CIT(A) grossly erred in addition of Rs. 17,014/- made by the Ld. assessing officer on account of commission paid for acquiring so called client code modification benefit by the assessee appellant and adding the same in income of the assessee appellant company.

5. The appellant craves leave to add, alter, modify or amend any ground on or before the date of hearing.”

3. Succinctly, the fact as culled out from the records is that the assessee company filed the return of income for A.Y. 2010-11 on 24.09.2010 declaring total income of Rs.(NII)., which was processed u/s 143(1) on 25.05.2011. On the receipt of the Specific information from the office of Principal Director of Income Tax (Investigation), Ahmedabad income by declaring a loss of Rs. 5,67,147/- for AY 2010-11 by misusing the client code modification facility. Based on that information the case of the assessee was reopened by issuing notice u/s. 147/148 of the Act on 24.04.2017 after recording the reasons and obtaining necessary approval.

In response the assessee filed return on 24.04.2017 declaring loss.

Statutory notice u/s. 142(1) of the Act along with the questionnaire was issued on 11.08.2017. In the meanwhile, the assessee vide letter dated 23.10.2017 filed objections for re-opening of the case, which was duly disposed off by a speaking order vide letter No. 1504 dated 15.12.2017 by the ld. AO. Notice U/s 143(2) was issued on 15.12.2017 and served to A/R of the assessee. On 20.12.2017 the A/R of the assessee attended the hearing and gave a copy of Profit & Loss Account and Balance Sheet for the A.Y. 2010-11, which was carefully perused by the ld.

AO. He asked the assessee as to show cause vide note sheet dated 20.12.2017 why loss of Rs. 5,67,147/- which was claimed by the assessee, as a loss fabricated and manipulated by misusing Client Code Modification (CCM) should not be disallowed. This transaction was made with the help of a broker M/s Gimson Financial Service Ltd. Hence, the transaction and the resulted loss of Rs. 5,67,147/ was proposed to be of the assessee attended the hearing and gave reply to the show cause issued vide note sheet date 20.12.2017. The ld. AO discussed the issue of client code modification in detail and finally held that the presence of the contract notes does not prove the genuineness of the transaction, it was found in many cases during survey action by Ahmedabad Investigation team that fake contract notes were created to cover up the shame transaction and thereby he added the loss as other income of the assessee and also added commission @ 3 % on the value of loss as commission paid.

4. Aggrieved by the order of Assessing Officer, assessee preferred an appeal before the ld. CIT(A). Ld. CIT(A) dismissed the appeal of the assessee by observing as under:

4.5 I have perused the contentions of the appellant regarding the validity of reopening u/s 147 of the Act. The applicant itself has admitted that, the reasons were recorded on 14.03.2017 prior to the issue of notice u/s 148 on 25.03.2017, It is also gathered from the record that, the appellant had filed objections to the reopening by letter dated 23.10.2017 and that, these objections were disposed off by a speaking order dated 15.12.2017. The original return was processed u/s 143(1) on 25.05.2011. The Hon'ble High Court of Karnataka in the case of Stumpp Schedule & Somappa (P) Ltd. V Asstt. CIT [2023] 152 taxmann.com 447 (Kar) held that, one specific assertion that material facts are detected in scrutiny and survey proceedings would satisfy requirement of an allegation of failure to truly and fully disclosed material facts as contemplated under first proviso to section 147 where assessment is to be reopened after four years. After due consideration of the facts and circumstances leading to the reopening of the assessment, I am satisfied that, the AO followed due procedure in reopening of 4.6 Ground no. 2 & 3

As per information received from the office of Pr. DIT (Inv) Ahmedabad, the appellant has reduced its taxable income by declaring a loss of Rs. 5,67,147/- for A.Y. 2010-11 by misusing the client code modification facility. This transaction was made with the help of broker M/s Gimson Financial Service Ltd. Client Code Modification is a practice under which brokers change the client details in sale and purchase orders of securities after the trades are conducted after the 30 minutes of market closed to rectify the genuine errors and mistakes occurred during the trading hours. The errors in the client code entry could either be on account of the broker's mistake or on account of the client's mistake. Over a period of time, it has become practice in connivance with brokers started using Client Code Modification (CCM) for purposes other than genuine errors and CCM facility was being misused. Non genuine CCM were carried out to book contrived losses. The AO has stated that, the search was conducted in the case of Amrapali Group of Cases Ahmedabad and it was found that, the profits were artificially reduced by booking contrived losses through CCM. The AO has mentioned that, the Amrapali group had admitted before Settlement Commission to have obtained losses through CCM and have offered the same for taxation. On the basis of the findings during search in the case of Amrapali Group and enquiry conducted by SEBI, CCM was used for purpose "other than for rectifying the genuine errors" was nothing but a euphemism for Tax Evasion. The trading activities under scanner of SEBI mostly took place between 2009 and 2011 after which SEBI tightened its norms to put a full-stop to such manipulations. Before tightening the norms, the Indian markets were seeing CCM to the tune of Rs. 50,000/- to 60,000/- сгогеe a month which came down to just about Rs. 100 crores soon after SEBI's action. The CCM was much higher during March compared to the other months which hinted towards a tax evasion angle due to it being the last month of the fiscal. As per information from different stock exchanges/ Commodity Exchanges it is seen from the data obtained from NSE in form 3BB that, the largest volume of CCM had occurred in NSE, F&O segment. The same was also corroborated from information available in the public domain.

4.7 On the basis of the information received by NSC, 12 brokers and their main client were identified and surveys were conducted to substantiate the tax evasion done through CCM. It was ascertained from the details collected and statements recorded during survey u/s 133A, and concluded that, the CCM done in March 2010 was not done for genuine purposes.

4.8 The appellant has obtained losses of Rs. 5,40,117/- by using the facility of CCM. The trend of code modification is as under:

The AO has stated that, it is clear from the above table that, as a modified client, the appellant made 64 transactions through which losses of approximately Rs. -

5,67,147.5 were shifted in, which is in stark contrast to the trend visible as an original client in which no such losses were shifted in.

4.9 In reply to the show cause notice, the appellant had stated the transaction was genuine and the appellant was already in loss and also it is a regular business practice, that a broker in stock exchange makes modifications in the client code on sale or purchase of any securities after trading is over, so as to rectify any error which may have occurred while punching of the orders.

4.10 The AO has stated reason for not accepting the transaction which is as under:

"On analysis of the data obtained from NSE as discussed above in detail it is seen there is a systematic pattern in shifting of profits and losses from one client of the (controlled group entity) to another. Losses have been systematically shifted from one client to another and profits vice-verca majority of the CCMs effected in their cases if the contentions raised by the assessees were to be true then there cannot be a pattern in shifting of profits and losses Le. in such case both profits and losses should have been transferred whiting of profits and lost on analysis it has been found that there is unilateral flow of profits and losses consequent to CCMS.

In the case of the assessee the trend of client code modification is clearly visible. The assessing the modified client has shifted in losses in order to set off the profits that were determined during the year detailed discussion is as follows:

"The shifting as discussed above has been found to be systemic wherein losses are shifted in when client was MCC and profits are shifted out when the client was OCC. The entity from which the profits have been shifted out and losses have been shifted in had taxable business income which was reduced due to shifting in of losses.

The entity from whom the losses have been shifted out and profits have been shifted in has not paid taxes on the aggregate amount of the profits shifted in and losses shifted out. Thus, the CCM has not increased the taxable income of such related entities, but, has reduced the taxable income of the counter parties to the CCM transactions.

Further, this is a subjective contention raised by the Brokers and none of the Brokers have furnished working or evidence of using CCM for margin management. This contention has been raised by M/s. Crossseas, M/s. MangalKeshav, M/s. Dharamshi and other brokers whose related parties were also found to be involved in shifting of ascertained losses through CCM. It is pertinent to discuss here the pattern of shifting of losses and profits from one client to another wherein losses have been shifted in when the client was MCC and profits have been shifted out when the client was OCC. This cannot be the fact when CCM has been used as a tool for margin management".

4.11 The AO has observed two patterns 1. When the client is original client, mostly profits are shifted out to other persons.

4.12 The issue for adjudication is whether the client code modifications carried out on behalf of the Appellant were done with a view of shifting of profits and losses and the AO was correct in holding the loss of the appellant from client code modification is treated as income from other sources. The AO in of the assessment order observed that the pattern of client code modifications at the fag end of the year (March in the case of the Appellant) is similar to the pattern observed by the SEBI in its order. In this connection, it is relevant to examine the ratio of landmark decision of the Hon'ble Supreme Court in the case of McDowell & Co. Ltd. v. CTO 154 ITR 148 (SC), which emphasized the concept of substance over form. The modus operandi adopted by the assessee by acquiring Losses or acquiring Profits with tacit connivance with the Brokers through Client Code Modifications without paying any taxes or avoid declaring true Profits is nothing but a colourable device as cited by Hon'ble SC Judgment.

"The taxing authority is entitled and is indeed bound to determine the true legal relation resulting from a transaction.

If the parties have chosen to conceal by a device the legal relation, it is open to the taxing authorities to unravel the device and to determine the true character of the relationship. Hon'ble High Court of Delhi in the decision dated 19.11.2015 reported in ITA 130/2001 CIT v. M/s Abhinandan Investment Ltd., followed the Supreme Court Judgment while upholding the action of the Assessing Officer in unraveling colourable device.

It was held that the "taxing authorities are required to put on the blinkers while looking at the documents produced before them. They are also entitled to look into the surrounding circumstances to find out the reality. (CIT v Durga Prasad More (1971) 82 ITR 540 (SC) and Sumati Dayal v. CIT 214 ITR 801 (SC))

4.13 It was held by the Hon'ble Mumbai ITAT in the case of [ITO v. Ninja Securities (P) Ltd. Date of Judgement: 15.05.2017 (ITAT Mumbai) that no Anusha Finvest Pvt. Ltd. vs. ACIT protection was available if client code modifications are tainted with collusive action & manipulations In the case of Time Media & Entertainment LLP v. ITO Date of Judgement: 18.06.2019-(ITAT Mumbai), addition of bogus F&O losses being inflicted by mis-use of Client Code Modifications [CCM] was upheld. The Assessing Officer received information from the office of DIT (I&CI) Mumbai, vide letter no. DIT(I&CI)/CCM/2014-15, dated 27.02.2015 through learned PCIT that some brokers were misusing the Client Code Modification facility in the F&O segments on NSE and had created non-genuine profit and loss. It was observed by the Assessing Officer that these Losses and Profits were given by these brokers to their different clients/beneficiaries according to their requirements. The Assessing Officer observed that clients had taken fictitious losses to set off against their profits with a view to reduce their tax liability. As per information received by the Assessing Officer, the assessee was one of the beneficiaries of the Client Code Modification as the name of the assessee also appeared in the beneficiaries list who had taken fictitious F&O Losses through the broker Inventure Growth & Securities Ltd. (hereinafter called "Inventure"), during the financial year 2009-10 relevant to Assessment year 2010-11, to the tune of Rs. 31,98,597.50, which income as per Assessing Officer had escaped taxation. Further additions as undisclosed income of the assessee to the tune of Rs. 1,59,930/- being @5% of alleged bogus F&O losses to the tune of Rs. 31,98,597.50 were made by the Assessing Officer towards commissions allegedly paid to the broker Inventure by assessee from undisclosed sources for obtaining these bogus F&O losses were made by the Assessing Officer as the assessee had failed to prove the genuineness of these F&O losses and further the brokers had confirmed in an enquiry made by Revenue under section 131(1A) having received brokerages on these bogus F&O Losses, vide reassessment order dated 30.03.2016 passed by the Assessing Officer under section 143(3) r.w.s. 147 of the Act. In this case there was an unusual and sudden spurt in client code modifications in the month of March 2010 undertaken by Brokers in Stock Exchanges. The assessee had also suffered F&O Loss of Rs.31,98,597.50 through Broker Inventure for transactions undertaken through NSE in the month of March 2010 which were inflicted by client code modifications undertaken by Brokers with Stock Exchanges and which were held to be fictitious losses by authorities below. The assessee transactions in F&O segment also happened in the month of March 2010 The transactions inflicted through client code modification incurred through Broker Inventure in the month of March 2010 itself were as high as 92.2% of total transactions executed by assessee with broker Inveriture on quantum of loss ratio basis in large number of client code modifications, there is no similarity between wrong code and correct code and secondly there are repetitive client code modifications. Thus, client code Anusha Finvest Pvt. Ltd. vs. ACIT modifications are tainted with collusive action and manipulations and shall go out of the protection granted by the circulars of NSE/SEBI The ITAT dismissed the appeal of the assessee and upheld the additions made by the AO. The facts of the case of the present appeal are also similar to the case discussed above.

4.14 In the case of Chandresh Luniya v. ITO-Date of Judgement: 31.05.2022 (ITAT Ahmedabad) the ITAT has observed that CIT (A) held that Client Code Modifications have been made in as many as 63 transactions, it is difficult to understand how genuine punching errors can occur in such large numbers. One can understand if an error is made on one or two occasions. However, the error in punching on 63 separate occasions in respect of the same broker and client is highly unlikely and suspicious. All the derivative transactions took place with same broker but on different dates. It is very unlikely that the same mistake will be committed by same person on various dates. Especially since the error in entry of client code has to be corrected on the same date. It is unlikely that the same broker will keep on making error and correcting it again and again within a short span of time. Addition made by the Assessing Officer cannot be taken to be based merely on suspicions, conjectures and surmises, as he has collected information from the National Stock Exchange as well as the appellant's broker before arriving at his decision.

5. In the present appeal, facts gathered and narrated by the AO in the assessment order indicates the complicity of the Appellant in the client modification entered in the month of March on its behalf by the broker. During the course of assessment proceedings, the Appellant could not explain the transactions along with documentary evidences and therefore the claim of losses of Rs.5,67,147/- was rejected and assessed as income from other sources. The Appellant has not discharged the onus of establishing the genuineness of these transactions with relevant documentary evidences. Several fake contract notes were detected by the Investigation team and the AO rightly observed that, presence of contract notes does not prove the genuineness of the transaction. The Appellant has not been able to controvert the findings of the AO nor has given a satisfactory explanation to the client code modification made on its behalf at the fag end of the year. On appreciation of the facts and circumstances of the case as well as the ratio of various judicial pronouncements cited above, I am of the considered view that the AO has rightly disallowed the losses claimed of Rs. 5,67,147/- arising from client code modifications and assessed the same as income from other sources for AY 2010-11. Also I uphold the action of the AO in disallowing the commission @ 3% on these transactions and assessing the same as income. Hence, grounds 2 and 3 are dismissed.

6. Ground no. 4

Ground no. 4 is general in nature and the appellant had not filed any new amended ground of appeal during the appellate proceedings. Therefore, this ground of appeal is infructuous.

5. Since the ld. CIT(A) has dismissed, the appeal of the assessee, the assessee has preferred the present appeal on the grounds as stated hereinabove. Apropos to the grounds so raised, ld. AR of the assessee has relied upon the written submission made before the ld. CIT(A) and the same is reproduced herein below:-

“May it please Your Honour that: The assessee-appellant has preferred an appeal in the present matter, and Form 35 was duly filed via e-filing on 25.01.2018. The ground-wise written submission in support of the grounds of appeal taken in Form 35, is being provided below.

Brief facts of the case

It is most respectfully submitted that:

1. The assessee-appellant is a Pvt Ltd Company engaged in carrying out business transactions in the stock market and earning interest income.

2. Information pertinent to all the transactions entered into by the assessee- appellant are duly recorded in its books of account which are subject to annual audits.

3. The assessee-appellant filed its return of income on 24/09/2010 for AY 2010-11, declaring nil income, which was processed under S.143(1) of the Act on 25.05.2011. Audit report for AY 2010-11 was also filed along with the return of income.

4. Subsequently, specific information was received from the office of PDIT(Inv), Ahmedabad vide letter dated 08.03.2016, which alleged that the assessee-appellant had reduced its taxable income by misusing Client Code Modification (hereinafter referred to as ‘CCM’) and declaring a loss of Rs 5,67,147/-.

5. Consequently, the case was reopened for assessment u/S.147 of the Act after recording reasons and obtaining the necessary approvals.

6. A timeline of the events that ensued is being provided below in a tabular format for your Honour’s convenience

S.No. Date Particular

2. 24.04.2017 Return filed by assessee-appellant in response to S.148 notice, declaring loss of Rs. 5,67,147/-

3. 11.08.2017 Issue of notice u/S.142(1)

4. 23.10.2017 Objections filed by A/R of assessee-appellant against reopening of assessment

5. 15.12.2017 a. Disposal of objections through a speaking order

b. Issue of notice u/S.143(2)

6. 20.12.2017 a. Copy of P&L A/c and Balance sheet of assessee-appellant submitted by A/R at the time of personal hearing

b. Issue of note-sheet

7. 21.12.2017 a. A/R of assessee-appellant responded to note-sheet at the time of personal hearing

b. Order passed u/S.147 r.w. S.143(3) of the Act

7. The Ld. AO has made the following impugned additions: a. Addition of Rs. 5,67,147/- as income from other sources on account of alleged benefit from CCM. b. Addition of Rs. 17,014/- on account of commission paid by the assessee-appellant to the broker for acquiring the alleged CCM.

8. After making the aforementioned impugned additions, the total income of the assessee-appellant was assessed at Rs. 5,84,160/- and the impugned assessment order was passed on 21.12.2017. The aggrieved assessee-appellant is in appeal before Your Honour 9. against the legally unsustainable reopening of assessment proceedings, the impugned addition made, and the perverse and arbitrary order passed by the Ld. AO. 10. Consequently, the case was reopened for assessment u/S.147 of the Act after recording reasons and obtaining the necessary approvals. Ground-wise Written Submission That on the facts and in the circumstances of the case, the Ld AO grossly erred in issuing notice u/s. 148 of the Act, which is issued without any reason to believe and the entire proceedings of reassessment deserves to be quashed.

That on the facts and in the circumstances of the case, the ld. AO grossly erred in reopening the assessment proceeding only on the basis of information received from the office of PDIT (Investigation), Ahmedabad and without applying his own mind independently which is illegal and bad in law and thus deserves to be quashed. 1.1. Recording of reasons to believe is a sine qua non when it comes to reopening an assessment in a case like the present one of the assessee- appellant wherein the return of income for AY 2010-11 was accepted and processed u/S.143(1). 1.2. In accordance with Sections 147 and 148 of the law, the assessing officer is granted the power to reopen previously concluded assessments up to ten years back. While this may pose certain difficulties for the taxpayer, there are safeguards in place to ensure that the process is fair. One such safeguard is the "reasons to believe" provision, which serves as the foundation for proceedings under Sections 147 and 148. 1.3. It is important to note that the reasons to believe must be based on materials that are readily available to the assessing officer. These materials Anusha Finvest Pvt. Ltd. vs. ACIT must be sufficient to support the officer's belief that income has escaped assessment. It is imperative to distinguish this belief from mere suspicion, as the assessing officer must have reasonable grounds for their belief. The sufficiency of the reasons cannot be judged by the court, but if the assessing officer has reasonable grounds to believe that income has escaped assessment, then it is deemed sufficient. It is crucial that the assessing officer's belief is fair and not based on extraneous or fallacious reasoning. 1.4. Before issuing a notice under Section 148, the assessing officer must apply their reasoning skills to draw conclusions from new or existing information. The term "reason to believe" refers to the belief that prompts the assessing officer to apply Section 147 to a particular case. The belief must be that of an honest and reasonable person based on reasonable grounds. The assessing officer must act on direct and circumstantial evidence and not on mere suspicion. 1.5. It is essential to note that the power of the assessing officer to reopen assessments is not absolute, as the statute uses the term "reason to believe" and not "reason to suspect." Reopening assessments after many years is a serious matter, and the law requires that certain requirements be satisfied before taking such action. There must be a live link or close nexus between the material before the assessing officer and their belief that income has escaped assessment, based on relevant materials and documents brought onto the record. It is the duty of the assessing officer to record their reasons for making an assessment or reassessment before proceeding, and these recorded reasons constitute the "reason to believe." 1.6. Over the years, various courts and appellate authorities have passed judgments on reasons to believe for income escaping assessment. These judgments have helped to establish the parameters for what constitutes reasonable grounds for belief and have provided guidance for assessing officers. Ultimately, the goal of the "reasons to believe" provision is to ensure that the process of reopening assessments is fair, transparent, and based on sound reasoning. 1.7. The following judicial precedents have been relied upon to substantiate the aforementioned contentions: a) Hon’ble Supreme Court in GKN Driveshafts (India) Ltd. v. ITO and Ors [2002 (11) TMI 7- Supreme Court] had held that:- “when a notice under Section 148 of the Income Tax Act is issued, the proper course of action for the notice is to file return and if he so desires, to seek reasons for issuing notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the notice is entitled to file Anusha Finvest Pvt. Ltd. vs. ACIT objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order.” b) Allahabad High Court, while addressing this issue in the case of Mithilesh Kumar Tripathi vs CIT [2005 (11) TMI 28 - ALLAHABAD High Court] held that : Normally one expects 'Reasons' to be communicated along with notice so that assessee is informed of the 'ground' for initiating reassessment in order to ensure that action is not 'arbitrary'. It shall enable an 'assessee' to take care of the 'escaped assessment' (which is the basis/foundation of the notice) as well as to take care, while filing fresh return, to disclose/ explain any other income, if any, which may have otherwise escaped assessment Notice Under Section 148(2) of the Act requiring an assessee to file 'Revised-Return' for re-assessment without disclosing ground/'reasons' is no notice of the case to be met or opportunity to explain. Such a notice for sure lacks basic information and thus for certain fails to apprise the party even the basic ground/circumstance on the basis of which he is compelled by Assessing Officer to file revised return. It is complete denial of opportunity to defend and answer the Notice. Assessee is left in dark and compelled to make a 'roving and fishing search' to detect/locate alleged "escaped income". In case reason/ground is disclosed along with the notice (without disclosing 'source of information' or 'other material') it will definitely facilitate expeditious filing of revised return and also enable the 'Assessee' to declare, apart from the 'escaped income' pointed out in the notice, other 'escaped income' or 'undisclosed income'.

In our considered opinion, if reasons are supplied along with notice under Section 148(2) of the Act, it shall obviate unnecessary, harassment to the assessee as well to the Revenue by avoiding unnecessary litigation which will save Courts also from being involved in unproductive litigations. Above all it shall be in consonance with the principles of natural justice, as discussed above.

C. HIGH COURT OF BOMBAY- Rajkumar S. Singh vs Assistant Commissioner Of Income Tax, Central Circle- 4(1) and Ors on 27 April, 2022 [WRIT PETITION NO. 1882 OF 2022] “This is a case where the proposed re-opening is after expiry of four years from the end of the relevant assessment year. Admittedly, assessment under Section 143(3) has been completed and an assessment order dated 8th December, 2016 has also been passed. Therefore, the proviso to Section 147 of the Act would apply which provides that re-opening of assessment after four years from the expiry of the end of the relevant assessment year is barred unless escapement of income has happened due to failure on the part of assessee to truly and fully disclose material fact for the relevant assessment year. The onus is on Anusha Finvest Pvt. Ltd. vs. ACIT Respondents to show that there was such a failure on the part of Petitioner to truly and fully disclose. The entire basis of Respondents' case is that in 2020 Respondent No.1 got information that Finalysis was a paper company or a penny stock company based on certain investigations. Mr. 1 [2014] 44 taxmann.com 304 (Bombay) Kanchan P Dhuri 4 / 6926-WP-1882-2022.odt Suresh Kumar submitted that it came to light during the investigation that Petitioner also had traded in the scrip of Finalysis during A.Y. 2013-2014 and therefore, Respondent was entitled to re-open. Mr. Suresh Kumar submitted that revenue has to go to the root of the matter and take action against those involved in this price rigging and assess people claiming non genuine transactions in its books. We have to note that there is no allegation at all in the reasons recorded for re-opening or in the Affidavit in Reply that investigations have revealed that Petitioner was the master mind or actively involved in rigging of share price of Finalysis in the stock market. Whether trading in Finalysis shares would result in escapement of income is a separate question which we are not dealing with in this matter because, that is not the subject of consideration. Even in the statement of Mr. Bipin Divecha on which reliance has been placed, it does not show anywhere Petitioner was involved.” d. HIGH COURT OF GUJARAT- Surani Steel Tubes Ltd. v. Income-tax Officer [2022] 136 taxmann.com 139 (Gujarat)[03-01-2022] “Where AO issued reassessment notices on basis of information received from Invet. Wing that petitioner availed accommodation entries by way of bogus sales/purchases/fictitious loan, since no specific details related to particulars of nature of transaction were provided by AO in impugned reassessment notices, same were issued by mechanically relying on information provided by Investigation Wing and without proper application of mind. e. SUPREME COURT OF INDIA- Gemini Leather Stores v. Income-tax Officer [1975] 100 ITR 1 (SC)[01-05-1975] “That the assessee did not disclose the transactions evidenced by the drafts which the ITO discovered. After this discovery the ITO had in his possession all the primary facts, and it was for him to make necessary enquiries and draw proper inference as to whether the amounts invested in the purchase of the drafts could be treated as part of the total income of the assessee during the relevant year. That the ITO did not do. It was plainly a case of oversight, and it could not be said that the income chargeable to tax for the relevant assessment year had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts. The ITO had all the material facts before him when he made the original

1.8. The Ld. AO has blindly made the assessment solely based on information received from the investigation wing, without any independent application of mind and therefore, the entire reassessment proceedings deserve to be quashed and the impugned assessment order deserves to be set-aside.The following judicial precedents have been relied upon to substantiate the aforementioned contention:

1.9. The following judicial precedents have been relied upon in order to substantiate the aforementioned contention: a Luxe Trading And Holding (India) Pvt. Ltd. Vs ITO (ITAT Delhi) (ITA No. 6677/Del/2018) From a perusal of the reasons, it is seen that the notice u/s. 148 of the Act has been issued mechanically without application of mind and the satisfaction by the Assessing Officer is only the borrowed satisfaction of the Investigation Wing. The Assessing Officer, without applying his mind, has simply on the basis of information of the Investigation Wing jumped to the conclusion that there is escapement of income. From the perusal of the aforesaid reasons, I do not find any application of mind by the AO for reaching to the conclusion that there was escapement of income except the information from the Investigation Wing. Therefore, I find considerable cogency in the contention of the Ld. Counsel for the assessee that AO has completed the assessment in dispute u/s. 147/143(3) of the Act without appreciating the facts and circumstances of the case and wrongly assumed the jurisdiction u/s. 148 of the Act, 1961, which is in violation of mandatory jurisdictional conditions as stipulated under the Act. He further stated that Ld. First Appellate Authority has wrongly upheld the order of the AO and dismissed the appeal of the assessee without passing any reasonable and elaborate finding as well as legal without properly adjudicating the legal ground as per the written submissions filed by the assessee, which is against the law and facts on the file. Ld. Counsel for the assessee further stated that the AO has completed the assessment and Ld. CIT(A) has wrongly upheld the order of the Ld. CIT(A) without appreciating that the reasons in this case are based on borrowed satisfaction and without independent application of mind. Lastly, he submitted that exactly similar issue has already been adjudicated and decided in favour of the assessee by the ITAT, Delhi ‘G’ Bench, New Delhi in the case of M/s SBS Realtors (P) Ltd. Vs. ITO decided in (AY 2009- 10) vide order dated 01.04.2019. He has also filed the copy of this order in the Anusha Finvest Pvt. Ltd. vs. ACIT shape of Paper Book and especially draw my attention towards the page no. 100- 112. He requested that in this case the Bench has elaborately discussed the various case laws rendered by the Jurisdictional High Court and declared the invalid assessment. He further requested that in view of the order dated 01.04.2019 passed in the case of M/s SBS Realtors (P) Ltd. Vs. ITO (Supra) the legal ground involved in this appeal may be decided in favour of the assessee and notice u/s. 148 of the Act may be quashed and accordingly assessment in pursuance of the notice may also be quashed by accepting the appeal of the assessee. Respectfully following the precedents, ITAT quashed the notice issued under section 148 of the Act and consequently, the assessment completed in pursuance thereto. Since the notice issued u/s. 148 of the Act is quashed, the assessment order passed in pursuance to such notice is also quashed. Once the assessment order itself has been quashed, the other grounds raised by the assessee in its appeal do not require any adjudication on merits. b Unique Metal Industries v ITO (ITAT Delhi) (i) The above observation of the Assessing Officer also shows that it was letter dated 20.12.2013 received by him from the ACIT on the basis of which the Assessing Officer could make a view that the purchase bills provided by these persons or their family members is nothing but bogus purchase bills. At the time of recording of the reasons the Assessing Officer apparently was not having any idea about the nature of the transactions entered into by the assessee. In the reasons recorded there is no mention about the nature of the transactions. As per provision of section 147 an assessment can be reopened if the Assessing Officer has reasons to believe that any income chargeable to tax has escaped assessment. The reasons to believe has to be that of the Assessing Officer and further there have to be application of mind by the Assessing Officer. The Assessing Officer was also not aware of the nature of the accommodation entries. In the reasons recorded he has simply mentioned the names of the party and the amount and nowhere has stated the nature of such entry. This also shows that the Assessing Officer has made no effort to look into the return of the assessee which was available with him. This fact gets further supported from the sheet appended to the reasons and quoted on page 4 of the assessment order whereby against Item no. 7, whether the assessment is proposed to be made for the first time, the Assessing Officer has stated ‘Yes’, and in Colunm no. 7(a), whether any voluntary return had already been filed and in Colunm no.

8. (b), date of filing the said return ‘NA’ has been stated. Thus this is a clear case of non- application of mind by the Assessing Officer. It may also be relevant that on page 2 of the assessment order, the Assessing Officer himself has stated that in this case the return of income for the year under consideration was filed with this Anusha Finvest Pvt. Ltd. vs. ACIT ward on 27.09.2006. These facts clearly demonstrate that the return was with the same ward and at the time of recording of the reasons for reopening the assessment, the Assessing Officer has not looked at the return and in a mechanical way, on receipt of the letter from the CIT, the assessment has been reopened. It is a settled position of law that there must be material for formation of a belief that income has escaped assessment. Further reasons referred to must disclose process of reasoning by which the Assessing Officer holds reason to believe. There must be nexus between such material and belief. Further and most importantly the reasons referred to must show application of mind by the Assessing Officer. It is also a settled law that the validity of the initiation of the reassessment proceeding is to be judged with reference to the material available with the Assessing Officer at the point of time of the issue of notice under section 147. (ii) In the present case, as is evident from the assessment order, the Assessing Officer was having nothing except the list provided by the CIT, Central-2, New Delhi about the list of accommodation entries. Beyond that he was not having the copies of the statement of any of these persons, He was not having copy of the assessment orders and other details or document which would have enabled the Assessing Officer to apply his mind and form a belief that income has escaped assessment. In fact this information was not with the Assessing Officer till fag end of the reassessment proceedings, a fact admitted by the Assessing Officer himself in the assessment order. Consequently, the reopening is not valid (Sarthak Securities Pvt. Ltd vs. ITO 329 ITR 110 (Del), Signature Hotels Pvt. Ltd 338 ITR

51. (Del) & CIT vs. SFIL Stockbroking Co 325 ITR 285 (Del) followed) c. 2022 (8) TMI 576 - ITAT CHANDIGARH Rajnish Garg Versus The Asst. Cit Tax Circle-6, Ludhiana Reopening of assessment u/s 147 - investment in trade market through broker and manipulated his income by shifting in losses / shifting in profit - HELD THAT:- As the reopening was done on the basis of information received from the Investigation Wing as has been accepted by the AO and the CIT(A) in their respective orders, therefore, in the absence of independent application of mind by the AO, the reopening in the instant case under section 147 r.w.s 148 of the Act was not justified. Investigation Wing supplied the information to the AO that there was a client code modification to manipulate the profit as was the case in the aforesaid referred to case of Shri Tulsi Dass, Laxmi Nagar, Delhi [2019 (1) TMI 1985 - ITAT DELHI] - Therefore for the same reasoning the reassessment order in the case of the assessee also deserves to be quashed.

Anusha Finvest Pvt. Ltd. vs. ACIT AO acted only on the basis of suspicion and acted on the basis of information received from the Investigation Wing therefore the reassessment proceedings was not valid. Moreover in the reasons recorded, copy of which is placed of the assessee’s paper book. AO categorically stated that the AO had reason to believe on the basis of observation of the Directorate of Investigation that the assessee had probably shows bogus profit to adjust unaccounted money generated from business or elsewhere and he had reason to believe on that basis that the amount had escaped assessment within the meaning of Section 147. From the aforesaid notings of the AO in the reasons recorded it is clear that the AO was not sure as to whether income escaped the assessment. Since the word probably has been used, and there was no application of his own mind by the AO who depended only on the information received from the Investigation Wing. We therefore by considering the totality of the facts as discussed herein above are of the view that the reopening in the instant case on the basis of borrowed information by the AO from the Investigation Wing without applying his independent mind was not justified. Accordingly the subsequent reassessment proceedings framed by the AO is quashed. - Assessee appeal allowed.

• Sarthak Securities Co. P. Ltd. Vs. ITO – [2010] 329 ITR 110 (Delhi). • Signature Hotels P. Ltd. Vs. ITO – [2011] 338 ITR 51 (Delhi). • PCIT Vs. G And G Pharma India Ltd. – [2016] 384 ITR 147 (Delhi). • PCIT Vs. RMG Polyvinyl (I) Ltd. – [2017] 396 ITR 5 (Delhi). • PCIT Vs. Meenakshi Overseas Pvt. Ltd. – [2017] 395 ITR 677 (Delhi).

1.20 Therefore, within the purview of the undisputed facts discussed above and the settled law of the land, it has been proven beyond in law being against the principle of natural justice, time-barred, without jurisdiction, application of mind, based upon the wrong assumption of facts and merely on borrowed satisfaction, and thus, this order deserves to be quashed.

Anusha Finvest Pvt. Ltd. vs. ACIT 2. Grounds of appeal no.2 & 3 are being dealt with together since they both deal with the alleged benefit from CCM. Ground No.2 That on the facts and circumstances of the case, The Ld. AO grossly erred in disallowing a loss of Rs. 5,67,147/- on account of alleged benefit from CCM taken by the assesse-appellant in share trading business and in adding the same in the income of assesse-appellant company. Ground No.3 That on the law and in the facts and circumstances of the case, the Ld AO grossly erred in adding Rs. 17,014/- on account of commission paid for acquiring so called CCM benefit by the assesse-appellant and adding the same in income of assesse-appellant company. 2.1. During the relevant year, the assessee-appellant reported a significant loss amounting to Rs. 27,63,3541, coupled with unabsorbed depreciation of Rs. 2,35,053 in their original return filed on 16.09.2010. Upon reviewing their income return for AY 2017-18, it is evident that the loss is still being carried forward, with no apparent benefit to the assessee-appellant who was already struggling with losses. It is worth noting that the assessee did not have significant profits that could justify their decision to incur a book loss, and this situation persists to date. 2.2. The reasons provided for the book loss of Rs. 5,67,747 by the assessee- appellant do not appear to make sense, given their existing losses. There does not seem to be any benefit gained from this decision, and their brought forward business loss was already at a staggering amount of Rs. 1,39,74,664, without considering the current year's losses. Therefore, the allegations against the assessee-appellant lack a logical basis. 2.3. It is worth noting that there are only two situations in which CCM is acceptable. The first is when the broker identifies a genuine mistake in the client's code and corrects it proactively. The second situation is when the client requests a correction in writing, and the broker carries it out at the end of the day. In the first instance, brokers must maintain proper documentation of the correction. In the present case, it is worth noting that the assessee-appellant did not request any such correction from their broker. The AO was informed of this, and despite the assessee's request, the broker was not cross-examined, which goes against the principles of natural justice. 2.4. CBDT Cicrular No.40/2016 clearly states that "Recent initiatives of the Government to curb the black economy in the country has encouraged people to shift towards digital mode of payment while making financial transactions. By adopting digital mode of no financial transactions would remain undisclosed and consequently an enhanced turnover of business might get reflected in the books of accounts. Under the circumstances, an apprehension has been raised that increased turnover in the current year may lead to reopening of earlier years' cases involving lower turnover u/s 147 of the Income-tax Act, 1961 ('Act') by the Assessing Officer causing undue harassment to tax payers.

2. It is hereby clarified that reopening of cases u/s 147 of the Act is feasible only when the Assessing Officer "has reason to believe that any income chargeable to tax has escaped assessment for any assessment year" and not merely on the basis of any reason to suspect. Mere increase in turnover, because of use of digital means of payment or otherwise, in a particular year cannot be a sole reason to believe that income has escaped assessment in earlier years. Hence, Assessing Officers are advised not to reopen past assessments in cases merely on the ground that the current year's turnover has increased.

3. The above may be brought to the notice of all for necessary and strict compliance."

2.5. In the event that client codes are altered, it can result in suspicion and prompt the need for further investigation to uncover the truth. However, simply altering client codes cannot be utilized as evidence against the assessee. This is because when client codes are modified, the code of the other party is entered in place of the assessee's code. As a result, it is imperative that the other party involved in the transaction is also investigated to determine if they had any involvement in the modification of the client code. Moreover, it is essential that there is additional evidence to support the claim that cash was exchanged between the parties involved in the client code modification. It is important to note that the authorities below did not carry out such an investigation, and there is no indication that income was transferred between parties. Therefore, it is necessary to conduct a thorough investigation to ensure that all parties involved are held accountable for their actions. No such due diligence was carried out by the Ld. AO in the present case. 2.6. Furthermore, The Ld. AO erred in making addition to the extent of Rs. 17,014/- as commission paid to the broker for carrying out CCM / obtaining loss without appreciating the fact that the appellant transaction giving rise to loss of Rs. 5,67,747/- is genuine transaction and genuine loss and not fictitious and thus, the question of making payment of commission to the broker does not arise.

2.7. The Ld. AO further failed to appreciate that there was no evidence whatsoever that the appellant has made any such payment to the broker and neither there is any such claim made in the profit and loss account and hence, the addition made to the extent of Rs. 17,014/- is without any justification and liable to be deleted. a. Coronation Agro Industries Ltd vs. DCIT (Bombay High Court) The reasons in support of the impugned notice relies upon the information received from the Principal Director of Income Tax that the petitioner has benefited from a client code modification by which a profit of Rs.22.50 lakhs was shifted out by the petitioner’s broker, resulting in reduction of the petitioner’s taxable income. The only basis for forming the belief is the report from the Principal Director of Income Tax and the application of mind to the report of the Assessing Officer along with the record available with him. This information and application of mind has led the Assessing Officer to form a reasonable belief that there is not only an escapement of income but there has been failure to truly and fully disclose all material facts and information as the modus operandi of shifting profits was not known to the Revenue as not disclosed by the petitioner when the Assessing Officer passed the order in regular assessment proceedings. (ii) 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 the trade. 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. b. 2019 (2) TMI 720 - BOMBAY HIGH COURT Pr. Commissioner Of Income Tax-13 Versus Pat Commodity Services Pvt. Ltd. Addition being the profits of the Company on account of the large scale client code modifications - transfer the profits of the company to other clients for the purposes of adjustment of their incomes to evade payment of tax - motive of the client code modification was to indulge in circular trading to enable the generation of either profits or losses as required by clients at the end of the financial year - Held that:-

Anusha Finvest Pvt. Ltd. vs. ACIT Tribunal accepted the assessee's explanation and discarded the Revenue's theory that profit of the assessee's company were passed on to the clients. It was also noticed that the Revenue has not Contended that the client code modification facility is often misused by the assessee to pass on losses to the investors, who may have sizable profit arising out of commodity trading against which such losses can be set off. The Revenue normally points out number of such instances of client code modifications as well as nature of errors in filling of the client code. At any rate, what can be taxed in the hands of the present assessee is the income escaping assessment. Even if the Revenue's theory of the assessee having enabled the clients to claim contrived losses, the Revenue had to bring on record some evidence of the income earned by the assessee in the process, be it in the nature of commission or otherwise. In the present case, the Assessing Officer has added the entire amount of doubtful transactions by way of assessee's additional income, which is wholly impermissible. - Decided against revenue. c. 2021 (7) TMI 184 - ITAT AHMEDABAD D.C.I.T., Central Circle-1 (1), Ahmedabad. v M/S Kaizen Stock Trade Pvt. Ltd., (Now amalgamated with M/s. Kunvarji Fincorp Pvt. Ltd.) Addition of profit shifted out and the loss shifted in by way ofClient code modification - Profit or the lossduring the time when code were modified - transactions in F & O segment through the involvement of thebroker - AO on the basis of the data received from the National stock exchange found that there was the change in the code of the assessee maintained with the broker with respect to certain transactions carried out in F and O segment - HELD THAT:- Admittedly client codes were modified of the assessee as per the information received from the Stock Exchange. Client code modifications may give rise to the doubt/ suspicion which requires detailed investigations from the parties concerned to reveal the truth. Merely, there were client codes modifications carried out by the broker cannot be the basis to draw an inference against the assessee. In fact, in case of client code modification the code of the other party is entered at the place Anusha Finvest Pvt. Ltd. vs. ACIT of the assessee. Thus the other party is also required to be investigated whether the other party was involved in such transaction. Besides this there has to be brought other corroborative evidences suggesting that there was the exchange of cash among the parties involved in such client code modification – no such exercise has been carried out by the authorities below. As such there is no whisper in the order of the authorities below that there was the cash transfer between the parties for transferring the income of the assessee to the other party and vice versa.

Thus in the absence of such verification/examination carried out by the authorities below, we are not inclined to uphold the findings of the AO. The number of transactions in respect of which the client codes were modified are less than 1% of the total transactions carried out by the assessee. Therefore, such changes in the client code cannot be said as a colourable device adopted for shifting out and shifting in the profit/loss. The changes in the codes were not made at the fag end of the year under consideration i.e. March 2010. In other words it was not possible for the assessee to ascertain its profit or the loss during the time when code were modified as the changes were made in the mid-of the year. Thus it cannot be said that the assessee to reduce its taxable income has resorted to client code modification method. There is no basis on the part of the AO alleging that changes in the code limited to one digit represent genuine punching errors whereas changes in the codes ranging between 4 to 5 digits do not represent the genuine punching errors. The changes in the number of digits in the code cannot be a criteria to draw an inference against the assessee. We are not inclined to disturb the findings of the ld. CIT-A. Accordingly we uphold the same and direct the AO to delete the addition made by him. Hence the ground of appeal of the Revenue is dismissed. d. 2019 (12) TMI 820 - ITAT DELHI Acit Central Circle-

29. New Delhi Versus M/S. Jaypee Financial Services Limited Anusha Finvest Pvt. Ltd. vs. ACIT Assessment u/s 153A - suppression of income - Addition made on account of Client Code Modification(CCM) - HELD THAT:- Client code modification is permitted intraday, i.e. on the same day. As per Commodity Exchange, if client code modification is upto 1% of the total orders, there is no penalty and if it is greater than 1% but less than 5%, the penalty is � 500/-. If it is greater than 5% but less than 10%, penalty is � 1000/- and if it is greater than 10%, then penalty is � 10,000/-. From the above, the only inference that can be drawn is that as per MCX, the client code modification upto 1% is absolutely normal and therefore, the broker is permitted to modify the client code upto 1% without paying any penalty. Even client code modification upto 5% is not considered unusually high because that is also permitted with the token penalty of � 500/-. CIT(A) has given the number of transactions entered into by the assessee for the period 2004-05 to 2007- 08 and the number of client code modification and percentage thereof. We have also reproduced the same at paragraph No.6 of our order. From the said details, it is evident that the client code modification was done in four years 36,161 times. As an absolute figure, the client code modification may look very high, but if we look it at in terms of total transactions, it is only 0.94%. The total number of trade transactions is 38.58 lacs and the client code modification is only 36,161. Therefore, the client code modification is less than 1% of the total trading transactions. As per circular of Commodity Exchange, client code modification upto 1% is quite normal and is permitted without any penalty. AO has not given any reason on what basis he presumed the client code modifications to be unusually high. In the light of the MCX circular, we are of the opinion that the client code modification was quite nominal and not unusually high as alleged by the AO. Since in the instant case it is an admitted fact that the assessee is not a member of any exchange and cannot execute CCM and the transactions on account of CCM done by the group concerns are not found to be false or untrue and since SEBI or the stock exchange has not taken any action treating the transactions to be non genuine and volume of CCM occurred are within the permissible limit allowed by the SEBI, therefore we are of the considered opinion that there is no perversity in the order of the CIT(A) deleting the addition. - Decided against revenue. e. ITAT Delhi- Sanjay Kumar Jain, New Delhi vs Ito Ward - 63(2), New Delhi ITA No.825/Del/2019

Keeping in view of the facts and circumstances of the present case and case laws relied upon by both the parties. The judicial decisions relied upon by the Ld. DR have been duly considered. In my considered view, I do not find any parity in the facts of the decisions relied upon by him with the peculiar facts of the case in hand. However, the case law cited by the Ld. Counsel for the assessee are Anusha Finvest Pvt. Ltd. vs. ACIT exactly on similar facts and circumstances of the present case, hence, respectfully following the precedent in the case of Mohan Aggarwal, ACIT, CC- 15, New Delhi in (AY 2009-10), 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 jurisdiction and without applying his mind. Hence, the reassessment is quashed and accordingly, I allow the legal grounds raised by the assessee. No other ground has been adjudicated as the same has not been argued by the Ld. Counsel for the assessee.

In the result, the appeal of the assessee is allowed. f. 2020 (8) TMI 809 - ITAT JAIPUR Sh. Sandeep Sharma Versus Acit Circle-06, Jaipur Suppression of income - shifting of profit - Client code modification - fictitious profits/loss Addition made on account of transferring of fictitious profits/loss to other clients in the garb of client code modification - addition on basis the information received from ADIT Investigation and held that the assessee was involved in shifting out ascertained profits - HELD THAT:- AO has referred to the report of the Investigation Wing and general modus operandi - there is nothing on record in terms of any independent examination by the AO of the transactions undertaken by the assessee during the year wherein it has reported gross profits, summoning and examining the broker i.e, M/s C.M. Goenka Stock brokers Pvt Ltd and determining any involvement of assessee in such transactions. M/s C.M. Goenka Stock brokers Pvt Ltd has also confirmed that there are certain inadvertent genuine punching errors which were modified as per guidelines laid down by SEBI vide Circular dated 6.02.2003, therefore, the puching errors happened at the broker end and not at the end of the assessee and there is nothing on record which suggest any involvement of assessee or the fact that such punching errors were done at the behest of the assessee. Accordingly, in the facts and circumstances of the case and following Anusha Finvest Pvt. Ltd. vs. ACIT the decision of the Coordinate Bench in assessee’s own case [2019 (5) TMI 1794 - ITAT JAIPUR] the addition made by the AO is hereby deleted. - Decided in favour of assessee. g. IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH ‘B', HYDERABAD [ITA No. 2321/Hyd/2018] Canara Securities Ltd.,Hyderabad. vs. Dy. Commissioner of Income-tax, Central Circle – 2(1), Hyderabad.

9. Considered the rival submissions and perused the material on record. We notice from the grounds of appeal, assessee has raised ground nos. 2 to 5 on reopening of assessment and confirming the addition on client code modification. 9.1 With regard to the above grounds, we observe that the assessment was reopened on the basis of specific information received by the AO from the DIT(Inv.) that the broker with whom assessee was dealing has involved in CCM. It is a fact that the broker has made CCM in the case of assessee, in which, about 13 transactions were involved. It came to light only in the reopening of assessment. When a specific information is received by the AO from the authentic sources, it is natural on the part of the AO to believe that there is a reason to believe that the income of the assessee has escaped assessment. We notice that this issue was aptly addressed by the CIT(A) in the order, therefore, we are in agreement with the findings of CIT(A) that there is a reason to believe that in the case of the assessee, income has escaped assessment and reopening of the assessment is proper. 9.2 On merits, we notice that the broker i.e. CIL Securities Ltd. has made CCM in the case of the assessee involving 13 transactions, the details of which is reproduced by CIT(A) in his order at page 11. 9.3 Client Code Modification means, modification/change of the client codes after execution of trades. Vide Circular no. SMD/POLICY/Cir-/03 dated February 6, 2003 SEBI mandated that the stock Exchanges shall not normally permit changes in the client code except to Correct for genuine mistakes. Every client is given a code which is registered with the stock Exchanges. The client code Modifications permit brokers to rectify human errors when a client inadvertently provides a wrong code or when or a wrong code is punched in by the broker whilst executing the trade. The broker is allowed to change it between 3.30 pm and 4 pm to rectify a genuine error that may have occurred while entering the code. The facility ensures smooth functioning of the system and is to be Used as an exception rather than routine. 9.4 From the above, it is clear that the brokers are permitted to make rectifications after execution of the trade by applying the facility under CCM Anusha Finvest Pvt. Ltd. vs. ACIT permitted by the SEBI. The brokers can make modification when they notice certain errors at the time of punching orders. When such genuine errors are noticed by the brokers themselves, then, they can modify such genuine errors suo-moto. When some genuine mistakes were brought to the notice of broker by the client, it may be done only in writing and with the specific request for such changes in the clients code. It is the duty of the broker to maintain records of such modifications. In the given case, assessee has brought to our notice by submitting copy of the letter from CIL Securities Ltd, who is the broker that assessee has not made any specific request on any of the CCM. Therefore, CCM made by the broker are made by broker itself. We notice from the record that SEBI and other Investigation Agencies observe that there is malpractices by using CCM facility. These are of the malpractices made by the brokers, but, any suspicious transaction made by the broker, it has to be investigated at the broker level. In the given case, we notice that no such investigation was carried on the broker i.e. CIL Securities Ltd. AO can proceed with the addition when he has specific information that the assessee itself involved in such malpractices. In the given case, AO has not brought on record any specific instruction given by the assessee to the broker for such client code modification. It is only based on the information that there involves CCM, in which, assessee has suffered loss to the extent of Rs. 13,48,175/-. It does not mean that assessee has directly involved, may be, assesse must have benefitted out of it, but, still it is the duty of the AO to bring on record the fact that assessee has directly involved in such activities. From the record, we notice that assesse has incurred heavy losses in this year, we do not understand how shifting of profit will benefit the assessee. Therefore, in our considered view, in the absence of any findings that assessee has given specific instruction to the broker to make such CCM, assessee cannot be held responsible in such modification. Therefore, it is only a presumption of the AO that assessee might have involved in such transactions. Accordingly, the loss disallowed by the AO is hereby deleted. 9.5 With regard to ground No. 6, enhancement of assessment, we notice that assessee is an investment banker and during the year, assessee has incurred losses in such investment banking business and the details are given below: Cash market transactions Rs. 1,32,813 Cash market long term transactions Rs. 20,15,661 Futures & option transactions Rs. (-) 35,46,403 Net Loss Rs. 13,97,928 ============= During the year, assessee has earned income from cash Anusha Finvest Pvt. Ltd. vs. ACIT market long term transactions to the extent of Rs. 20,15,661/-, which was claimed by the assessee as exempt u/s 10(38) by shifting the above transaction to capital gains from business income. We notice that before the CIT(A), assessee submitted that entries made in the books of account alone are not conclusive in determining the nature of income. It is submitted where the object of investment in shares of company to derive income by way of dividend, capital appreciation etc., the profits accruing from sale of such shares will yield capital gains and not revenue receipt. 9.6 it is fact that assessee is engaged in the business of investment banking and it consists of cash market transactions both short term and long term, futures & option transactions etc. The nature and object of investment depends upon the transaction itself and how the assessee trades in its books of account. In the given case, assessee has made investment in cash market short term as well as long term transactions and treated the same in the books of account as stock-in-trade. Further, assessee also made certain investments to the extent of Rs. 68,34,390 in other companies as unquoted equity shares. Therefore, the assessee has made specific classification as far as its investments is concerned, i.e. investment made for long term with the intention to derive income from dividend and capital appreciation. Whereas, cash market transactions are made for the purpose of trading business, which is properly classified as stock-in-trade. In our view, assessee itself is investment banker and makes investments in stock in order to make profit. The investment made for the business transactions, which can be classified only under business income in particular, the transactions involving stock-in-trade. Assessee cannot treat the above transaction as capital gains just because its long term as well as it has paid security transaction tax on the above investment. Assessee relied on Circular No. 6/2016, in which, the CBDT clarified that surplus generated from sale of shares/securities would be divided as capital gains or business income, where, a) assessee itself opts to trade them as stock-in-trade income arising from transfer of such sales would be treated as income from its business, b) in respect of shares/securities held for a period of more than 12 months, immediately preceding a date of its transfer, if the assesse desires to trade income arising from the transfer as capital gains, the same should not be disputed by the AO and c) in all other cases, nature of transaction was continued to be decided based on the Circular No. 4/2017. In our view, the above Circular may not be applicable in the case of the assessee, since the assessee’s main business itself is investment banker and the transactions were specifically transacted in the normal course of business. Therefore, we are in agreement with the findings of ld. CIT(A) and we are not inclined to disturb the findings of CIT(A). Accordingly, ground raised by the assessee on this issue is dismissed.

h. Captive Commerce Pvt. Ltd. Vs ACIT (ITAT Delhi) Appeal Number : I.T.A. No. 2698/DEL/2018

7. A bare perusal of the reasons recorded suggests that the Assessing Officer has propelled himself to reopen the completed assessment on the grounds of doubts on the correctness of losses claimed in the transactions carried on the platform of the National Stock Exchange. At the first glance of the reasons recorded (supra), it can be seen that the Assessing Officer has merely made averments towards the modus operandi used by the different brokers for transfer of profit and loss of one constituent to another by modification of the client code but however, there is no reference to any relevant material which can given rise to prima facie believe of an escapement resulted to the Revenue. There is no iota of reference to any transaction wise detail where the client code of the assessee is undergone any modifications causing transfer of profits from assessee to any other party/constituent. The name of the broker facilitating such alleged client code modification is also not mentioned in the reasons recorded. It is a classic case of assumption of jurisdiction under Section 147 by recording ‘believe’ based extremely vague and non-descript reasons. No reference to any material providing foundation for holding belief is available.

8. Needless to say, the allegation towards escapement of income must be backed by expression ‘reasons to believe’ and such believe requires to be based on some credible or relevant A completed assessment cannot be disturbed based on fancy or whimsical grounds or on the basis of ‘reason to suspect’ towards alleged escapement without giving reference to any relevant material which may give rise to a bona fide believe towards escapement to a reasonable person instructed in law. It is a case where one cannot decipher the reasons based on any objective material or relevant which may give rise to believe towards escapement. There is no clarity on the nature of information received by the Assessing Officer. The Assessing Officer is expected to exercise jurisdiction under Section 147 of the Act with scrupulous care and based on material which are clear and beyond reasonable doubt. The reasons recorded in the instant case are in complete disarray. Mere reiteration of statutory language employed in Section 147 of the Act that the Assessing Officer has ‘reason to believe’ towards escapement of income is not, by itself, adequate. The instances of transactions resulting in loss/profit to the assessee on account of client code modification do not feature in the reasons at all. The reasons recorded appears to be a token exercise for assumption of jurisdiction and without compliance of jurisdictional parameters. The Assessing Officer in the instant case has proceeded on a hypothesis flowing Anusha Finvest Pvt. Ltd. vs. ACIT from a generic information rendering the whole exercise to be arbitrary and unsustainable in law.

9. The believe towards escapement in the instant case is only pretense and a mere doubt and suspicion towards probable escapement though worded as ‘reasonable to believe’. The Hon’ble Supreme Court in Lakhmani Mewal Das (1976) 103 ITR 437 (SC) has underscored that the word of the statute ‘reason to believe’ are not ‘reason to suspect’. The vague feeling or suspicion of the Assessing Officer towards possible escapement would not permit to reopen a completed assessment in defiance of statutory requirement of substantial nature. The notice issued under Section 148(1) is thus ultra vires the provision of Section 147 of the Act. Therefore, we see considerable force in the plea of the assessee for non maintainability of re-assessment order passed in pursuance of a notice under Section 148 of the Act which is vitiated in law.

10. Hence, the re-assessment notice under Section 148 giving rise to the jurisdiction under Section 147 of the Act is quashed and consequently the re-assessment order appeal against is also similarly quashed and set aside.

i. Stratagem Portfolio (P.) Ltd. Vs DCIT (ITAT Delhi) Appeal Number : ITA No. 7878/Del./2019 AO had completed assessment in terms of section 147 after making addition under section 68 and 69C on the reason that client code modification was allowed to the brokers by the stock exchange, within a limited window of time after business hours, for rectification of any mistakes in punching of the client code while carrying out transaction of purchase and sale on behalf of the customers however in case of assessee client code modification had been done for shifting of the profit or loss. It was held that there was no material to infer that such client code modification had been done with malafide purpose of shifting of the profit or evasion of the tax. There was no material before AO to form such a belief that income had escaped due to such client code modification and thus there was no live link between the material before AO and inference made. The Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P) Ltd. reported in 291 ITR 500 had held that for validity of reason recorded it is essential that there should be a relevant material on which a reasonable person could make requisite belief. Thus, assessment could not be reopened validly on the basis of the above reasons recorded in absence of any tangible material to infer that income escaped in the case of assessee.

Anusha Finvest Pvt. Ltd. vs. ACIT j. Dinesh Mulji Patel Vs ITO (ITAT Pune) Appeal Number : & 400/PUN/2023 I heard the rival submissions and perused the material on record. The Assessing Officer reopened the assessment merely on the ground that the appellant had benefited from the Client Code Modification by which profits of certain amount were shifted out by the assessee resulting in deduction of assesse’s taxable income. Even before me, the Department could not prove from the material received from Pr.DIT (Investigation), Ahmedabad that the assessee is the beneficiary of such Client Code Modification. Thus, there is no live link between the information received by the Assessing Officer from the Pr.DIT (Investigation), Ahmedabad and the belief found by the Assessing Officer that income had escaped assessment. The Jurisdictional High Court in the case of Coronation Agro Industries Ltd. (supra) held that Client Code Modification done by the assessee’s broker could not be lead to believe that there had been an escapement of assessment and, accordingly, quashed the reassessment proceedings. The ratio of the Jurisdictional High Court in the case of Coronation Agro Industries Ltd. (supra) is squarely applicable to the facts of the present case. Accordingly, I am of the considered opinion that the re-assessment proceedings initiated u/s 147 is bad in law. Therefore, the assessment made by the Assessing Officer becomes nullity in law. Thus, the grounds of appeal filed by the assessee stand allowed.

10. In the result, the appeal filed by the assessee in for A.Y. 2009-10 stands allowed.

Globus Power Generation Ltd Vs. ACIT, Circle-6(2), New Delhi

5.4 On perusal of the above reasons, it is evident that the material suggests that client code modification has been carried out by the broker in the case of the assessee. According to the information available in the reasons recorded, client code modification is allowed to the brokers by the stock exchange, within a limited window of time after business hours, for rectification of any mistakes in punching of the client code while carrying out transaction of purchase and sale on behalf of the customers. The Learned Assessing Officer, however has alleged in the reasons recorded that client code modification has been done for shifting of the profit or loss by the assessee. But there is no material to infer that such client code modification has been done with malafide purpose of shifting of the profit or evasion of the tax. There is no material before the Assessing Officer to form such a belief that income had escaped due to such client code modification and thus there is no live link between the material before the Assessing Officer and inference made. The Hon�ble Supreme Court in the case of Rajesh Jhaveri Anusha Finvest Pvt. Ltd. vs. ACIT Stock Brokers (P) Ltd. reported in 291 ITR 500 has held that for validity of reason recorded it is essential that there should be a relevant material on which a reasonable person could make requisite belief. In the circumstances, in view of the above decision of the Hon�ble Bombay High Court in the case of M/s. Coronation Agro Industries Ltd. (supra) and decisions of the Tribunal (supra), we are of the opinion that the assessment cannot be reopened validly on the basis of the above reasons recorded in absence of any tangible material to infer that income escaped in the case of the assessee. We, accordingly, quash the reassessment proceedings and set aside the order of the Learned CIT(A) on the issue in dispute. The ground No. 1.1 of the appeal is accordingly allowed. 5.5 Since we have already quashed the reassessment proceeding, we are not adjudicating other ground of the appeal challenging Page | 17 Globus Power Generation Ltd validity of the reassessment as well as on the merit of the additions."

9. In view of the aforesaid observations and respectfully following the judicial precedent relied upon by the assessee hereinabove, we have no hesitation in quashing the reassessment proceedings as they are not sustainable in the eyes of law. Since, reopening is quashed on technical ground there is no need to adjudicate the grounds raised

by the assessee on merits and they are left open. The grounds raised by the assessee are allowed.

11. In the result, appeal of the assessee is allowed.

3. In keeping with the facts and circumstances of the case and the written submission presented before Your Honour, the Counsel for the Assessee- appellant humbly requests that the impugned additions of Rs. 5,67,147/- on account of alleged bogus losses and Rs. 17,014/- on account of alleged commission paid to broker for obtaining said bogus losses, be deleted, the impugned assessment order be quashed and justice be rendered. The Assessee-appellant will be grateful for any other relief that Your Honour deems necessary to be granted in the interest of justice. If any further details or explanation is required by Your Honour for the speedy and efficient dispensation of justice, the Appellant would be obliged to provide the same. The appellant craves leave to add, amend or alter, any or all of the grounds of appeal before or at the time of hearing.

Paper Book- Index-II

Page Nos S.No Particulars From To 1. Copy of Written Submission filed before ld. CIT(A). 01 61 2. Copy of notice dated 25.03.2017 issued u/s 148 of the Act. 62 62 3. Copy of response to notice the notice dated 25.03.2017 issued u/s 148 of the Act. 63 63

4. Copy of ITR along with the computation filed in compliance to notice issued u/s 64 66 148 of the Act.

Paper Book- Index-II

Page Nos S.No Particulars From To 9. Copy of Income-tax Return along with the Computation and Audit Report. 119 135

Ram Niranjan Tibra v. ITO 140 149 11. 2020 (4) TMI 283 12. M/s Mukesh Jain HUF v. DCIT 150 184 ITA No. 620/JP/2025

7. The ld. AR of the assessee in addition to the above written submission so filed vehemently argued that the satisfaction recorded being mechanical the assessment made is illegal as held in the case of PCIT Vs. Pioneer Town Planner Private Limited (supra). Even on merits, he relied upon the decision in M/s. Mukesh Jain HUF Vs. DCIT in (supra). He vehemently argued that though the brokers were involved, there is no finding as to the involvement of the having the day, date and time of having done the transaction online which cannot be disputed without brining any material against the assessee and further that the wrongdoing if any done by the broker cannot hold the genuine transaction of the assessee as wrong.

8. The ld. DR is heard who relies on the findings of the lower authorities and more particularly advanced the similar contentions as stated in the order of the ld. CIT(A). As regards the reasons recorded, he submitted that the ld. AO and as well as approving authority both have applied mind and therefore, the notice issued for reopening of the case is proper and further that the addition made in the case is based on the action taken in Amrapali group and thereby he stands by the order of the lower authorities.

9. We have heard the rival contentions and perused the material placed on record. Vide ground no. 3 the assessee challenges the confirmation of disallowance of loss of Rs. 5,67,147/- made by the Id. assessing officer on account of alleged benefit from client code modification taken by the assessee appellant in share trading business and in adding the same in income from other sources. Whereas ground no. 4 deals with the addition of Rs. Rs. 17,014/- made by the Ld. assessing officer on account of commission paid for acquiring so called client code modification benefit by appellant company. Since both these grounds deals with the one issue we deal that ground jointly.

9.1 The brief facts related to the dispute are that the assessee company filed the return of income for A.Y. 2010-11 on 24.09.2010 declaring total income of Rs. NII. The said return was accepted u/s. 143(1) of the Act on 25.05.2011. Revenue was in possession the receipt of the Specific information from the office of Principal Director of Income Tax (Investigation), Ahmedabad vide letter dated 08.03.2016 that the assessee has reduced its taxable income by declaring a loss of Rs. 5,67,147/- for AY 2010-11 by misusing the client code modification facility. Based on that information the case of the assessee was reopened by issuing notice u/s. 147/148 of the Act on 24.04.2017 after recording the reasons and obtaining necessary approval. In the assessment proceeding the assessee was to show cause vide note sheet dated 20.12.2017 that "why loss of Rs. 5,67,147/- which was claimed by the assessee, as a loss fabricated and manipulated by misusing Client Code Modification (CCM) should not be disallowed.

The ld. AO noted that impugned transaction was made with the help of a broker M/s Gimson Financial Service Ltd. Hence, the transaction and back to the returned income as other income of the assesse. On 21.12.2017, the A/R of the assessee attended the hearing and gave reply to the show cause issued vide note sheet date 20.12.2017. The ld. AO discussed the issue of client code modification in detail and finally held that the presence of the contract notes does not prove the genuineness of the transaction, it was found in many cases during survey action by Ahmedabad Investigation team noted that fake contract notes were created to cover up the shame transaction and thereby he added the loss as other income of the assessee and also added commission @ 3 % on the value of loss as commission paid. As we note, the assessee has provided the details of the transactions in shares/Securities and derivatives. Wherein the assessee contended that the assessee cannot instruct the broker it is the broker who correct their own mistake. The transactions that have been done by the assessee are duly recorded in the books of account and the same are duly supported by bill and the payment has been done by an account payee cheque.

As is evident that all these transactions are related to the F&O segment of NSE which were carried out through the broker and the correction is also done by the broker. Since that error may be of broker and within his knowledge also not on part of the assessee but on account of the broker, looking to the smallness of the it cannot be in any way said that they were carried out with malafide intention or with ulterior motive.

On the merits of the dispute ld. AR of the assessee relied upon the decision of the co-ordinate bench of Jaipur in the case of M/s. Mukesh Jain HUF Vs. DCIT (supra) in wherein the issue is decided as under :

by the assessee for reopening of the case of the assessee. In this case a notice u/s 148 was issued in the name of assessee on 30.03.2017. In response to such notice, assessee furnished return of income on 02.05.2017 declaring total income at Rs.49,28,630/-. Thereafter upon filling of the ITR the assessee sought the reasons recorded u/s 148, which were provided to them. As is evident from the reasons that [ page 33-34 of the paper book ] the bench noted that the case of the assessee was reopened on the basis of information received by ld.AO. According to that information available with the ld. AO the assessee was benefited with the action of the broker wherein they were misusing the Client Code Modification facility in derivative transactions on NSE and transferring fictitious Income/losses to client to manage their tax liability. On the basis of that information ld.AO formed a belief that assessee is benefited and thereby with that client code modification there was net reduction in income. Record reveals that vide show cause notice dated 13.11.2017 it was conveyed to the assessee that fictitious profit/loss to the tune of Rs.12,73,535/- has been under taken by assessee during the F.Y. 2009-10 by misusing Client Code Modification( for short CCM). Assessee challenged the reopening of assessment vide letter dated 20.11.2017 on the ground that neither specific name of scrip /date / time of transactions with such fictious loss were mentioned in the reasons recorded nor was it transpired as to how the assessee was benefitted by misusing of Client Code modification done by broker. The assessee provided Anusha Finvest Pvt. Ltd. vs. ACIT complete details of transactions in shares/Securities and derivatives was provided by assessee. Wherein the assessee contended that only 4 instances of CCM have been alleged by AO through which the assessee is stated to have benefitted with loss of Rs. 12,73,535/-. It is pertinent to state here that all these transactions are related to the F&O segment of NSE where total 351 transactions were carried out by the assessee through M/s Maverick Share Brokers Pvt. Ltd out of total 34,05,727 F&O transactions carried by such brokers and only in 4 transactions where CCM was observed which is hardly 1.14% of the total transactions carried out by assessee and 0.00012% if compared with the total F&O transactions carried out by the broker M/s Maverick Share Brokers Pvt. Ltd. Since that error is also not on part of the assessee but on account of the broker M/s. Maverick Share Brokers Private Limited. The assessee also submitted that looking to the smallness of the total number of trade carried out by the assessee vis-à-vis trade alleged as made through CCM, it cannot be in any way said that they were carried out with malafide intention or with ulterior motive so as to re-open the case of the assessee. In support of that contention ld. AR of the assessee supported various cases laws of High Court and that of the various benches of ITAT. The bench noted that vide case law paper book filed by the assessee page 1 he relied upon the decision of the Bombay High Court in the case of Coronation Agro Indusrties Ltd. Vs. Deputy Commissioner of Income Tax, Circle-6(2)(1) [ 82 taxmann.com 75 (Bombay) ] wherein the Hon’ble court held that ;

1. Heard. Rule.

2. This petition challenges notice dated 31st March, 2016 issued under Section 148 of the Income Tax Act, 1961. The impugned notice seeks to reopen the assessment for Assessment Year 2009-10. The regular assessment proceedings were completed on 28th December, 2011 under Section 143(3) of the Act.

5. In the above view, prima facie, we are of the view that the impugned notice is without jurisdiction as it lacks reason to believe that income chargeable to tax has escaped assessment.

6. Accordingly, there shall be interim relief in terms of prayer clause (b).

Even the similar view was taken by the Hon’ble Gujarat High Court in the case of Harikrishan Sunderlal Virmani Vs. Deputy Commissioner of Income Tax, Circle-2(1) [ 394 ITR 146 ] therein the observation of the Hon’ble Gujarat High Court is as under : 5.4 At this stage it is required to be noted that even in the reasons recorded, there is no allegation that there was any failure on the part of the assessee in not disclosing truly and fully material facts necessary for assessment. Under the circumstances, the assumption of the jurisdiction to reopen the assessment beyond the period of four years in exercise of powers under section 147 of the Act is bad in law and contrary to the provisions of section 147 of the Act. Under the circumstances, on the aforesaid ground alone, the impugned reassessment proceedings deserve to be quashed and set aside. 5.5 In view of the above and for the reasons stated above, present petition succeeds. The impugned notice issued under section 148 of the Income Tax Act, 1961 and reopening of the proceedings for A.Y. 2009-2010 cannot sustain and the same deserves to be quashed and set aside and are hereby quashed and set aside. Rule is made absolute accordingly. In the facts and circumstances of the case, there shall be no order as to costs.

Respectfully following the view as advanced by both the High Court we are of the considered view that the notice issued in the case of the assessee wherein the assumption of jurisdiction to reopen the assessment period of 4 years [ in the case at the very fag end of six years and that too without proving any fault of the assessee and merely on the brokers mistake the charge was framed ] in exercise of powers u/s 148 of the Act and thereby the consequential assessment order is quashed. Since we have considered the technical ground raised by the assessee the other ground on merits of the disputes become academic at this stage and therefore, the same are not required to be adjudicated.

On being consistent we hold that in the absence of proof of having involvement of the assessee in the transaction as alleged merely based on the statement of the broker the transaction undertaken by the assessee which is duly recorded and reflected in the books of account duly supported by the online platform bills the same cannot be held to be nongenuine and thereby the ground no. 3 & 4 raised by the assessee are allowed. Since we have considered the issue on the merits of the dispute the technical ground no. 1 & 2 raised by the assessee are considered as academic at this stage and therefore, the same are not required to be adjudicated. Ground no. 5, being general does not require our finding.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 10/09/2025. Sd/- Sd/- ¼ujsUnz dqekj½ ¼jkBkSM+ deys'k t;UrHkkbZ½ (NARINDER KUMAR) (RATHOD KAMLESH JAYANTBHAI) U;kf;d lnL;@Judicial Member ys[kk lnL; @Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 10/09/2025 *Ganesh Kumar, Sr. PS आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Anusha Finvest Pvt. Ltd., Jaipur izR;FkhZ@ The Respondent- ACIT, Circle-01, Jaipur 2. vk;dj vk;qDr@ The ld CIT 3.