MUKESH JAIN HUF,JAIPUR vs. DCIT, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, vk;dj vihy la-@ITA No. 620/JP/2025 fu/kZkj.k o"kZ@Assessment Year : 2010-11 cuke M/s Mukesh Jain HUF DCIT, 1-12A, 1st Avenue, Lal Bahadur Vs. Circle-06, Nagar, JLN Marg, Jaipur Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AADHM6397P vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Tarun Mittal, CA jktLo dh vksj ls@ Revenue by : MS. Alka Gautam, CIT-DR lquokbZ dh rkjh[k@ Date of Hearing : 23/07/2025 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 06/08/2025 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM

The present appeal is because the assessee dissatisfied with the order of the Addl./Jt. Commissioner of Income Tax (Appeals)-2, Ahmedabad dated 20/03/2025 [here in after ld. CIT(A) ] for assessment year 2010-11. The said order of the ld. CIT(A) arise as against the order dated 27.11.2017 passed under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 [ for short Act ] by the DCIT, Circle-06, Jaipur [ for short AO].

1.1 That, the Ld. CIT(A) has erred in confirming the action of ld. AO in passing the impugned reassessment order u/s 147 of the Act, without recording any subjective belief as to escapement of income and has merely acted upon suspicion by completely ignoring the prerequisite condition for reopening of assessment which can be done only on the basis of a subjective belief of escapement of income on the basis of reasons to be recorded in writing and that suspicion cannot take place of belief. Thus, the impugned reassessment order deserves to be held bad in law.

1.2 That, Ld. CIT(A) has further erred in confirming the action of ld. AO in reopening the assessment whereas, in the reasons recorded for reopening, there is no allegation whatsoever of not truly and fully disclosing the material necessary for assessment, more particularly when all the details were filed alongwith return of income. Thus, the reassessment proceedings are bad in law and void ab initio.

1.3 That, the Ld. CIT(A) has further erred in confirming the action of ld. AO in justifying the reopening of assessment without establishing a nexus between the material in his possession and the belief, and therefore, the impugned reassessment order deserves to be quashed.

Without prejudice to the legal grounds at Sl. No. 1 to 1.3 above, on merits:

2. On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in confirming the action of ld. AO in disallowing the loss claimed by assessee (holding them as fictitious losses) and further erred in making an addition of Rs. 12,73,535/- u/s 68 on account of such disallowance by alleging misuse of Client Code Modification (CCM) facility by assessee, which allegation is completely baseless and not supported by any evidence on record. Thus, the Mukesh Jain HUF vs. DCIT allegation of Ld. AO being based merely on assumptions / presumptions, deserves to be ignored and the addition of Rs. 12,73,535/- deserves to be deleted.

2.1 That, Ld. CIT(A) has erred in confirming the action of ld. AO in making the impugned addition without bringing on record any material evidence to show that any other income in the form of cash (out of such misuse of CCM facility) had accrued to assessee, and therefore, the impugned addition has been made merely on the basis of conjectures and surmises and thus, deserves to be deleted.

2.2 That, the Ld. CIT(A) has further erred in confirming the action of ld. AO in relying upon the statement of brokers and other persons without permitting the assessee to cross-examine those persons, particularly when their statements are being made the sole basis for making addition, thus the action of Ld. AO being in violation of principles of natural justice deserves to be held bad in law and the impugned addition which has been made on the basis of such uncorroborated statements, deserves to be deleted.

2.3 That, the Ld. CIT (A) has erred in confirming the action of ld. AO in making addition of Rs. 12,73,535/- despite the fact, he himself deleted the addition of commission on such CCM Transaction by stating that ld. AO does not have any direct evidence. Appellant prays that action of ld. CIT(A) is in violation of principle of consistency as on hand in absence of direct evidence ld. CIT(A) deleted the alleged commission addition made by ld. AO and on the very other hand ld. CIT confirm the disallowance of loss by presuming it as fictitious loss without bringing any corroborative evidence.

3. That, the assessee craves for the leave to add, amend and alter the grounds of appeal.

3. Succinctly, the fact as culled out from the records is that the assessee filed return of income declaring total income at Rs. 49,28,630/- on 26.09.2010. Case was completed u/s 143(3) of the Act on 12.11.2012 at total income of Rs. 49,50,690/-. Later, on based on the information Ward 6(1), Jaipur after recording reasons to believe that income has escaped assessment. Notice was issued after taking necessary approval from Pr CIT u/s 151 of the Act. In response thereof, assessee filed his return of income on 02.05.2017 at total income of 49,28,630/- vide e-filling acknowledgement Number 767438901020517. Statutory notice as required u/s 143(2) & 142(1) was issued on 07.11.2017 which were duly served upon the assessee. In compliance to the notices so issued assessee complied it from time to time and filed required details / information which was kept on record by the ld. AO.

Based on the details available on record ld. AO noted that the assessee engaged in the business of dealing in shares and securities. Ld.

AO noted that as there was an information received from the Investigation Directorate, Ahmedabad that the assessee Mukesh Jain HUF has been benefitted in terms of shifting in of loss by misuse of the CCM facility. As there were complaints to the revenue that tax evasion were done by shifting out profits and shifting in losses by some persons in consonance with the share brokers by misusing the client code modification facility in F&O segment on NSE. Therefore, investigation was done by the Directorate I&CI, Mumbai and by Directorate of Investigation, Ahmedabad a series of searches and surveys, identified the persons involved in this practice and the persons who got benefitted in this process. These directorates then prepared a detailed report sent it to all the field units of the Income Tax department. The ld. AO discussed the modus operendi in the regard in the order and thereby hold that the assessee has undertaken transaction for an amount of Rs. 12,73,535/- added back to the total income of the assessee. Ld. AO also added a sum of Rs. 25,470/- as unexplained expenditure for taking that accommodation entry.

4. Aggrieved from the order of the ld. AO assessee preferred an appeal before the ld. CIT(A). Apropos to the grounds so raised the relevant finding of the ld. CIT(A) is reiterated here in below:

7. Decision:- 7.1 In this case, the appellant e-filed its original return of income on 26.09.2010 declaring total income of Rs.49,28,630/-. Assessment u/s 143(3) of the I.T. Act, 1961 was completed on 12.11.2012 and assessed income at Rs.49,50,690/-. As per the information available with the department, the case of the appellant was reopened u/s. 147 after obtaining approval from the higher authority. Notice u/s. 148 of the IT Act was issued to the appellant. The AO has finalized the case u/s. 143(3) r.w.s. 147of the IT Act on 27.11.2017 and assessed total income of Rs.62,49,695/- after making addition of Rs.12,99,005/- During the appellate proceedings various notices were issued to the appellant for furnishing written submission. In response to the same, the appellant has furnished his written submission from time to time. 7.2 I have gone through the facts of the case, the grounds of appeal and the submissions made by the appellant in this case. Accordingly, the appellant has Mukesh Jain HUF vs. DCIT raised 09 grounds of appeal. It is seen that Ground no. 09 is general in nature and does not require any separate adjudication and hence the same is dismissed. Vide theground no. 1 to 8, the appellant has challenged the addition made in this case. Since, these grounds are specific in nature, the same is taken for adjudication as below.

7.3 Vide Ground no-1 to 4, the appellant has challenged the validity of re- opening in this case. The A.O while framing the assessment, has observed as under:-

"The case was reopened based on information received from the Directorate of Income Tax

(I&CI), Mumbai, and Directorate of Investigation, Ahmedabad, indicating that multiple brokers were involved in facilitating non-genuine transactions through Client Code Modification (CCM) in the F&O segment on NSE. Investigation reports confirmed that certain beneficiaries misused the CCM facility to shift profits and losses artificially. The appellant was identified as one such beneficiary, having received fictitious losses through CCM to evade taxes."

The appellant in the course of the appeal proceeding has given detailed submission. The gist of the appellant submission is the AO has merely relied upon information from external sources without conducting an independent inquiry. The reopening is based on borrowed satisfaction, which is against the principles laid down in CIT v. S. Goyanka Lime & Chemicals Ltd. (2015) 56 taxmann.com 390 (SC), where the Supreme Court held that reopening based on mere information without application of mind is invalid."

7.5 I have gone through the fact of the case, assessment framed and submission made by the appellant. The AO has reopened the assessment based on specific information received from the DIT (I&CI), Mumbai, regarding client code modification transactions, which have been identified as a mechanism for tax evasion. It is well settled that the AO can rely on credible third-party information if it provides a rational basis for forming a belief that income has escaped assessment. In Raymond Woollen Mills Ltd. v. ITO (1999) 236 ITR 34 (SC), the Hon'ble Supreme Court held that at the stage of reopening, the AO only needs prima facie material to believe that income has escaped assessment, and a detailed inquiry is required only during the reassessment proceedings. Further, in ACIT v. Rajesh Jhaveri Stock Brokers (2007) 291 ITR 500 (SC), the Hon'ble Supreme Court ruled that the sufficiency of reasons cannot be questioned as long as there is tangible material indicating escapement of income. Given that the AO had concrete information regarding CCM transactions and it has been shared after due and detailed examination of modus-operandi adopted in this case, the Mukesh Jain HUF vs. DCIT reopening of assessment under Section 147 is justified. Hence, the re-opening of the case is held to be valid. This ground of appeal of the appellant is dismissed.

8. Vide Ground No-5,6 and 7, the appellant has submitted that AO has erred in making an addition of Rs. 12,73,535/- under Section 68, alleging that the loss claimed is fictitious and arising from misuse of CCM. The A.O while framing the assessment has held that "The appellant was found to have engaged in client code modifications where losses were artificially booked by shifting transactions to different client codes. Despite multiple opportunities, the appellant failed to substantiate the actual nature of these transactions with relevant documents. The Investigation Directorate's report explicitly identifies the appellant as a participant in these dubious transactions. Therefore, the claimed loss is treated as fictitious, and the addition under Section 68 is made."

The appellant in the course of the appeal proceeding has made detailed submission. The gist of the appellant submission is the appellant carried out all transactions through recognized stock exchanges, and all payments were made via banking channels. No evidence has been provided by the AO to suggest that these transactions were pre-arranged. In PCIT v. Capital International (2022) 138 taxmann.com 163 (Del HC), the High Court held that additions cannot be made based on suspicion alone and such addition is not sustainable.

8.1 I have gone through the assessment framed and submission made by the appellant. It is seen from the fact of the case that the case was re-opened as there was substantial finding related to the appellant that it has entered into practice of client code modification and created fictitious transaction of loss. It is well established that tax authorities are not bound to accept documents at face value. They can consider the human probability and the preponderance of evidence to determine the true nature of transactions especially when there is detailed investigation and finding related to large scale client code manipulation. The appellant has failed to establish the genuineness of the CCM transactions. The AO's reliance on departmental investigations and brokers' statements is justified. In CIT v. Sumati Dayal (1995) 214 ITR 801 (SC), the Hon'ble Supreme Court held that the tax authorities are entitled to draw an adverse inference if the assessee fails to substantiate transactions. Based on the detailed discussion as above, the disallowance of Rs.12,73,535/-is upheld. This ground of appeal is dismissed.

9.0 Vide ground No-8, the appellant has submitted thatAddition of Rs. 1,25,470/- under Section 69C on account of commission paid to brokers for facilitating CCM transactions. The A.O while framing the assessment has held as under-

"Brokers involved in CCM transactions have admitted to charging commissions ranging from 0.5% to 2% for facilitating such modifications. Since the appellant has availed the benefits of CCM transactions, the estimated commission paid (1% Mukesh Jain HUF vs. DCIT of Rs. 12,73,535/-) is considered unexplained expenditure under Section 69C and is added back to the income." The appellant in the course of appeal proceeding has made detailed submission. The main contention of the appellant is that the AO has mechanically disallowed 3% of the total CCM transactions without verifying the actual payment. In CIT v. Precision Finance Pvt. Ltd. (1994) 208 ITR 465 (Cal HC), it has been held that an addition cannot be made merely on presumptions basis and without any evidence. 9.1 I have considered the fact of the case, the assessment framed and submission made by the appellant. The A.O in this case has made a general observation that "Brokers involved in CCM transactions have admitted to charging commissions ranging from 0.5% to 2% for facilitating these modifications". However, the A.O has failed to substantiate this statement in the case of the appellant that commission has been charged on such transaction. Since, no direct evidence has been provided to show that the appellant actually paid such commissions, the addition so made by the A.O is not justified and hence the same is deleted. Hence, this ground of appeal is allowed.

10. In the end, the appeal of the appellant is partly allowed.

5. Feeling dissatisfied with the above order of the ld. CIT(A), the assessee has preferred the present appeal before this Tribunal on the ground as reproduced hereinabove. To support the various grounds so raised by the assessee, ld. AR of the assessee, has filed the written submissions which is reproduced herein below:

“Brief facts of the case are that assessee is a Hindu Undivided Family and derives income from house property and is also engaged in dealing in shares/ securities in cash and derivative segment. Return of income for the year under appeal was filed on 26.09.2010 declaring total income at Rs.49,28,630/- (APB 01-04). Subsequently, 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/- (APB 05) and reasons recorded u/s 148 were sought, which were provided by Ld. AO. From perusal of such reasons (APB 33-34) it was observed that case was reopened on the basis of some information received by ld.AO, according to which some brokers were misusing the Client Mukesh Jain HUF vs. DCIT Code Modification facility in derivative transactions on NSE and transferring fictitious losses to client to reduce their tax liability. On the basis of information received from Investigation Wing, wherein it was stated that some of the brokers /clients had confirmed to have misused the facility of Client Code Modification, ld.AO formed a belief that assessee has also generatedalso is not genuine and is generated by misusing the facility of client code modification resulting in net reduction in income of Rs.14,21,622/- . Ld.AO also presumed that assessee would have paid commission @ 2% thereon, which has escaped assessment.

Subsequently, vide show cause notice dated 13.11.2017 it was conveyed that fictitious profit/loss to the tune of Rs.12,73,535/- has been taken by assessee during the F.Y. 2009-10 by misusing Client Code Modification. 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 misuse of Client Code modification done by broker. Also, without prejudice to such objections, complete details of transactions in shares/Securities and derivatives was provided by assessee. However, ld.AO without disposing off the objection raised by assessee and without rebutting the submission of the assessee, completed the assessment vide order dated 27.11.2017 after making addition of Rs.12,73,535/- on the allegation of fictitious loss obtained by assessee by using CCM facility and addition of Rs.25,470/- u/s 69C by alleging that assessee has paid commission at the rate of 2% for such accommodation entry..

Aggrieved of the additions made by Ld.AO, assessee preferred an appeal before ld. CIT(A). Ld. CIT(A) vide order dated 20.03.2025 partly allowed the appeal by deleting the addition of Rs. 25,470/- made u/s 69C of the Act. Present appeal has been preferred by assessee against order so passed by ld. CIT(A). With this background, ground-wise submission is made as under:

Ground of Appeal No.1 to 1.3: In all these grounds of appeal, assessee has challenged the action of ld. CIT(A) in confirming the validity of re-opening of assessment u/s 147 of the Income Tax Act.

In this regard, at the outset, reasons recorded for reopening are reproduced for ready reference: On the basis of information brought on record, it is gathered that fictitious profits and losses were created by some brokers by misusing the Client code Modification facility in derivatives transactions on NSE during the F.Y. 2009-10 relevant to A.Y. 2010-11. The brokers were alleged to be indulging in transferring the fictitious losses to different clients to reduce their tax liability and also fictitious profit to other clients. In some cases of brokers as well as clients, survey u/s 133A was carried out and they confirmed having misused the facility of client code modification to create fictitious losses/ profits. They admitted having received commission at the rate varying from 0.5% to 2%.

The assessee has filed its return of Income on 26.09.2010 declaring total income of Rs. 49, 28,630/-. From the enquiry, it is gathered that during the year under consideration the assessee has taken entries of fictitious profit/loss by misusing of facility of client code modification resulting in net reduction in income of Rs. 14,21,622/-. Thus, the assessee did not disclose fully & truly all material facts necessary for its assessment. Therefore, I have reasons to believe that income of Rs. 14,21,622/- and commission paid thereon @2% has escaped assessment within the meaning of Section 147 of the Income-tax act 1961.

From perusal of reasons recorded, it is evident that the case was reopened solely on the basis of some generalised information received by ld.AO, that too in the case of some other brokers (and not the broker through whom assessee was carrying share transactions activity), who were engaged in providing fictitious losses/ gains. Ld.AO has neither provided the source of information nor has stated names of such brokers nor has it been established as to how such brokers were connected to the assessee. Also, no specific details of transactions alleged to have been entered into through such brokers has been furnished in the reasons recorded. Thus, the reasons were recorded without independent application of mind and further without arriving at the objective conclusion drawn after examining the so-called information / evidences gathered.

It is submitted that the Ld. AO ought to have considered the issue objectively and not on the so called information received from some other official, therefore, the action of the ld. AO in reopening the completed assessment without independent application of mind deserves to be held bad in law.

Nevertheless, the reasons recorded contain general observations and therefore the said information in no manner even creates any suspicion against the Assessee let alone giving rise to any ‘reasons to believe’ that the Assessee has misused the Client Code Modification Facility. This mere suspicion cannot be the basis/foundation for holding any escapement of income for invoking section 147/148 of the Act.

Similarly in the case of Coronation Agro Industries Ltd. vs DCIT before the Hon’ble Mumbai High court in Writ Petition No.2627 of 2016 (APB 01-03) where the reopening was based on information received by AO from the Principal Director of Income Tax that the petitioner has benefitted from a client code modification by which a profit of Rs.22.50 lakhs was shifted out by the petitioner’s taxable income. The only basis for forming the belief was the report from the principal Director of Income Tax and the application of mind to the report of the Assessing Officer alongwith the record available with him. The Hon’ble High Court has held as under: “4. We note that the reasons in support of the impugned notice accept the fact that as a matter of regular business practice, a broker in the stock exchange makes modifications in the client code on sale and / or purchase of any securities, after Mukesh Jain HUF vs. DCIT 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.

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.”

It is thus submitted that action of Ld.AO in reopening assessment is solely on the basis of general information obtained in the case of third parties and admittedly there is no nexus between the Assessee and the ‘some brokers’ against whom the fact of fictitious entries on the basis of misuse of Client Code Modification has been highlighted, on the basis of verification undertaken under Section 131(1A) of the Act. In view of above factual and legal position, action of Ld.AO deserves to be hold bad in law.

Further by placing reliance on the Judgement of Hon’ble Mumbai High Court in the case of Coronation Agro Industries Ltd. vs DCIT (supra), Hon’ble ITAT, Pune Bench in the case of Dinesh Mulji Patel vs ITO, Ward- 2(2), Nashik in & 400/PUN/2023 dated 04.07.2023 (APB 04-09) held as under—

“9. 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 Mukesh Jain HUF vs. DCIT 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.”

Deputy Commissioner of Income-tax vs. Modern India Ltd. [2025] 170 taxmann.com 750 (Mumbai - Trib.)/[2025] 211 ITD 270 (Mumbai - Trib.)[21-01- 2025] Section 69A, read with sections 68 and 147, of the Income-tax Act, 1961 - Unexplained Moneys (Bogus commodity trading) - Assessment years 2012-13 and 2014-15 - Assessee filed return for relevant assessment years and assessments were completed under section 143(3) - Later, Assessing Officer received information from Investigating Wing indicating that assessee had indulged in bogus transactions through commodity trading via client code modification - Based on such information, Assessing Officer reopened assessments under section 147 and made additions under section 69A - Commissioner (Appeals) observed that all transactions had taken place on NSEL platform and income derived from such transactions had been offered to tax - He, thus, held that additions made on allegation that transactions were non-genuine/bogus on account of client code modifications were unsustainable - It was noted that based on very same report of Investigation wing and investigation carried out by SFIO assessment for assessment year 2013-14 was reopened alleging escapement of income due to client code modification - However, Assessing Officer himself held that there was no specific allegation against assessee in report of SFIO or Investigation wing report and assessee was able to establish that its own funds were utilized to conduct transactions on NSEL platform - Whether, thus, there was no valid reason to interfere with decision of Commissioner (Appeals) qua deletion of additions made on account of client code modification - Held, yes [Para 10] [In favour of assessee] Hon’ble ITAT, Mumbai Bench in the case of M/s Excellent Shares & Finance Service Pvt. Ltd vs The Income Tax Officer -13(1)(3) in & 7004/MUM/2018 dated 18.01.2021 (APB 10-16)held as under—

by the assessee is covered by the ratio laid down by the Hon'ble High Court discussed above. As per the law laid down by the Hon'ble Court, the material available with the AO was not sufficient to form a belief that income chargeable to tax has escaped assessment Hence, respectfully following the ratio laid down by the Hon'ble Court, we hold that the notice issued by the AO is bad in law. Since we have held the notice issued by the AO as without jurisdiction, the appellate proceedings has also become bad in law. Hence, we allow this ground of appeal of the assessee and set aside the impugned order passed by the Ld. CIT(A)."

8. Perusal of the reasons recorded for reopening of assessment reproduced in the order passed by the Tribunal makes it very much clear that the reasons recorded are identical to the reasons recorded by the Assessing Officer in case of the Mukesh Jain HUF vs. DCIT present assessees. Only factual difference is, in Assessment Year 2010-11 the Assessing Officer had referred to information received from DIT (Intell)., Mumbai vide letter dated 27.02.2015, whereas, in the present case he has referred to letter dated 11.03.2016 received from DDIT (Inv.), Ahmedabad. Except, the aforesaid factual difference there is no other difference in the reasons recorded. Therefore, respectfully following the decision of the Division Bench of the Tribunal, which is binding, I hold that the reopening of assessments in all these cases under appeal are invalid. Accordingly, the assessment orders are quashed. Consequently, the impugned orders of learned Commissioner (Appeals) are set aside. In view of my decision on the legal issue, the grounds raised on merits have become infructuous, hence, are not required to be adjudicated. In the result, appeals filed by the assessees are allowed as indicated above.”

Hon’ble ITAT, Delhi Bench in the case of M/s. Stratagem Portfolio (P.) Ltd.,vs Dy. Commissioner of Income Tax Circle-24(2) in dated 15.09.2020 (APB 17-34), by placing reliance on the Judgement of Hon’ble Mumbai High Court in the case of Coronation Agro Industries Ltd. vs DCIT (supra), held as under— “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 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.”

Vayoo Nandan Finance Company (P.) Ltd vs. Income-tax Officer [2024] 159 taxmann.com 1636 (Delhi - Trib.)[23-01-2024] Mukesh Jain HUF vs. DCIT Section 68, read with section 147, of the Income-Tax Act, 1961 - Cash credit (Reassessment) - Assessment year 2009-10 - Assessee filed its return of income - Return was processed under section 143(1) - Subsequently, an information was received from Asstt. Director (Investigation) that assessee was a beneficiary client who had taken contrived losses & shifted out profits using Client Code Modification (CCM) - On basis of same, Assessing Officer issued notice under section 148 which was beyond period of 4 years from end of relevant assessment year - He further completed reassessment proceedings under section 143(3)/147 after adding a sum of certain amount on account of shifting of profits due to CCM - It was noted that there was no information provided in reasons as to in whose hands, a survey under section 133A was conducted by Investigation wing - Reason only spoke that some survey conducted revealed that some broker was involved in misusing CCM facility of NSE and engaged in providing non-genuine losses and profits - Reason did not specify whether broker through whom assessee had carried out transaction of trading of shares and securities was involved in such malpractices - Infact during course of reassessment proceedings, Assessing Officer even sought to examine broker of assessee under section 133(6) and that said broker had duly replied directly to Assessing Officer confirming fact of CCM being carried out by them for their clients due to punching errors committed by their staff but had never confirmed that their actions had enabled assessee to shift losses or profits - Whether, on facts, impugned reopening notice and further reassessment order passed were to be quashed - Held, yes [Paras 6 and 9] [In favour of assessee]

Further the Hon’ble Gujrat High Court in the case of Seth Brothers Vs. CIT reported in 169 CTR 519 has laid down following principles for the re-opening of the assessment u/s 148 of the Income Tax Act, 1961: (Reproduced in 28 TW 57,79) “11 (a) There must be material for belief (b) Circumstances must exist and cannot be deemed to exist for arriving at an opinion. (c) Reason to believe must be honest and not based on suspicion, gossip, rumour or conjuncture. (d) Reasons referred must disclose the process of reasoning by which he holds ‘reasons to believe’ and change of opinion does not confer jurisdiction to reassess. (e) There must be nexus between material and belief. (f) The reasons referred must show application of mind by the assessing officer.

The validity of initiation of reassessment proceedings has to be judged with regard to the material available with the officer at the point of time of issue of notice u/s 148 and cannot be sought to be substantiated by reference to material that may have come to light subsequently in the course of reassessment proceedings.

Mukesh Jain HUF vs. DCIT In the light of what is stated above, we hold that there was no material with the AO for having reasons to believe that the income as chargeable to tax, has escaped assessment. We are unable to hold that the jurisdiction assumed u/s 147/148 was legal and valid.” It is further submitted that the validity of initiation of reassessment proceedings has to be judged with regard to the material available with the assessing officer and that too by framing the opinion strictly based on the documents and information in possession, that certain income has escaped assessment and not in a mechanical manner as has been done in the case in hand. The re-opening of the case based on the borrowed satisfaction on the information provided by some other official without in any manner recording his own independent satisfaction deserves to be held illegal. In this regard reliance is placed on the decision of hon’ble Delhi High court in case of Sarthak Securities Co. Pvt. Ltd. Vs. ITO reported in 329 ITR 110 wherein it has been held as under: Reassessment – Notice – Condition precedent – Formation of belief that income escaped assessment – Assessing Officer treating share application money as bogus accommodation entries – Payments through banking channel and companies investing money genuine – No independent application of mind by Assessing Officer but acting under information from investigation wing – Notice to be quashed – Income Tax Act, 1961, ss. 147, 148.

It is also a matter of fact that no search has been conducted in the case of assessee and the documents under reference are not found and seized from the possession of the assessee thus the presumption available u/s 132(4) cannot be applied against the assessee, as has been done blindly by the Ld. AO.

In this regard, reliance is further placed on the following decisions:

In case of PCIT vs. RMG Polyvinyl (I) Ltd [2017] 83 taxmann.com 348 (Delhi) it was held by the Hon’ble Delhi High court that where information was received from investigation wing that assessee was beneficiary of accommodation entries but no further inquiry was undertaken by Assessing Officer, said information could not be said to be tangible material per se and, thus, reassessment on said basis was not justified In case of PCIT vs. Meenakshi Overseas (P.) Ltd. [2017] 82 taxmann.com 300 (Delhi) it was held by the Hon‘ble Delhi High court that where reassessment was resorted to on basis of information from DIT(Investigation) that assessee had received accommodation entry but and there was no independent application of mind by Assessing Officer to tangible material and reasons failed to demonstrate link between tangible material and formation of reason to believe that income had escaped assessment, reassessment was not justified } In case of Haryana Acrylic Manufacturing Co. v. CIT [2008] 175 Taxman 262 (Delhi) it was held by the Hon‘ble Delhi High Court that notice under section 148, giving reason that it had come to his notice that assessee had taken accommodation entries from 'H' during relevant year when assessee, in course of original assessment proceedings, had Mukesh Jain HUF vs. DCIT supplied all relevant details; in assessment order which were verified and moreover, in reasons supplied to assessee there was no allegation that it had failed to disclose fully and truly all material facts necessary for assessment and because of its failure there had been an escapement of income chargeable to tax, reopening of assessment after expiry of four years from end of relevant assessment year was without jurisdiction. Ld. CIT(A) dismissed the appeal of the assessee by relying on certain judicial pronouncements whose facts are distinguishable from that of assessee:— So far as reliance placed on decision of Raymond Woollen Mills Ltd. vs Income Tax Officer 236 ITR 34 (SC) is concerned, in that case, assessment was reopened on belief that ‘Assessee-company was charging to its profit and loss account, fiscal duties paid during the year as well as labour charges, power, fuel, wages, chemicals, etc. However, while valuing its closing stock, the elements of fiscal duty and the other direct manufacturing costs were not included.’ Thus, ld.AO had specific information for forming belief regarding escapement. While in the case in hands, ld. AO does not have any specific information pertaining to assessee. Case of Assessee was reopened solely on the basis of borrowed satisfaction wherein it is stated that fictitious profits and losses were created by some brokers by misusing the Client code Modification Facility, whereas neither the name of assessee’s broker nor the name of assessee is referred anywhere in the reasons recorded for reopening. Similarly, in the case of ACIT vs Rajesh Jhaveri Stock Brokers (P) Ltd. 291 ITR 500 (SC), ld. AO reopened the case of assesse on the basis of revenue audit raised objection related to debit of bad debts without complying to conditions as stimulated u/s 36(1)(vii), r.w.s. 36(2) of the Act. Whereas in the case in hands, ld. AO does not have any specific information pertaining to assessee. Case of Assessee was reopened solely on the basis of borrowed satisfaction wherein it is states that ficitious profits and losses were created by some brokers by misusing the Client code Modification Facility. It is relevant to state that as per information available with the ld. AO neither the name of assessee broker nor the name of assessee is referred anywhere.

In the circumstances it is submitted that ld. CIT(A) arbitrarily confirmed the action of ld. AO in issuing notice u/s 148 without application of independent mind and simply proceeded on borrowed satisfaction reached by some other officials on the basis of statements recorded in the case of third party, the same has no evidentiary value, therefore, the entire proceedings initiated u/s 148 deserves to be hold bad in law.

Ground of Appeals No.2 to 2.3: In these grounds of appeal, assessee has challenged the action of ld. CIT(A) in confirming the addition of Rs.12,73,535/- made by ld. AO on the allegation that assessee has claimed fictitious losses to that extent by using CCM.

Mukesh Jain HUF vs. DCIT In this regard, at the outset, a stated above, it is reiterated that ld.AO, solely on the basis of some information, according to which certain brokers have admitted to have been engaged in the activity of providing fictitious losses, reopened the assessment and made additions in the hands of assessee by alleging that assessee availed fictitious loss to the tune of Rs.12,73,535/- by misusing client code modification facility. As is discussed by ld.AO also in the assessment order, Client Code Modification is a facility where Stock Exchange allows the trading Members post close of market for 30 minutes to facilitate the rectification of genuine mistake(s) /error(s) in punching the client code at the time of punching the order in online system of trading, which is likely to occur during the normal course of trading as the trading members are required to enter the Client Code at the time of order entry in the Exchange for Automated Trading (NEAT) system.

In the aforesaid context, the Assessee further submits that the stock market is volatile wherein the prices of shares and securities fluctuate with every passing fraction of minute and time is the essence of trading therefore, during the course of trading certain genuine and human error(s) of punching of wrong client code happen inadvertently and it is in situations like these that there occur certain genuine mistakes/errors which are attributable to the urgency of executing the order of the client at the instructed price and human involvement in as much as several times there remains communication gap between the person who notes/receives the order on phone from the client (actual buyer/seller) and the person who actually punches/executes the order on the e-portal on behalf of such client. The facility of Client Code Modification is used in such circumstances to rectify the order originally punched.

The facility of client Code Modification has been provided by exchange because the experts and policy framers at exchange are well aware of the above situations and the results of such small errors like that of punching the wrong client code are likely to result in some major difficulties in the absence of such a facility qua which rectifications of genuine mistakes/errors can be made.

Coming to the facts of the present case, at the outset it is submitted that Ld.AO has held the losses to the tune of Rs. 12,73,535/- as fictitious by making following allegations:

(i) It was alleged that the transaction of shares of NIFTY was in F & O segment was originally occurred to M/s Sandeep Stock private limited whose client code in S109, which was later shifted to assessee having client code M275. Ld.AO has alleged that loss was shifted by misusing Client Code Modification facility by the broker in connivance with assessee: In this regard, it is submitted that no action whatsoever has been taken in the case broker of assessee, i.e. M/s Maverick Share Brokers (P) Ltd. Ld.AO has further alleged that since both the client codes are altogether different, modification is not genuine. Your honours would appreciate that neither in reasons recorded nor in assessment order, ld.AO has established any connection of assessee with M/s Sandeep Stock Private Mukesh Jain HUF vs. DCIT Limited, nor the name of broker of assessee is mentioned anywhere. In fact, ld.AO himself in show cause notice has mentioned that information was received from Investigation Wing Mumbai and Ahmedabad on the basis of actions taken in the case of ‘some brokers’, and broker of assessee is definitely not covered under any such action. This adverse inference drawn on merely assumptions and presumptions deserves to be deleted.

(ii) Spot Verification u/s 131(A) conducted by I & CI Mumbai: In this regard, it is submitted that brokers in respect of whom verifications/enquiries were conducted are not related to the assessee in any manner and assessee has not entered into any transactions during the previous year relevant to assessment year under appeal through such broker. Further, nowhere in the verification process these brokers had stated the name of assessee to whom they had provided fictitious losses through CCM facility. Ld.AO has also alleged that such brokers have accepted the fact of receiving commission on such entries and have paid taxes thereon by revising their returns, but no such documents have brought on record in respect of broker of assessee. It has also not been proved by Ld.AO as to how all these factors led to the conclusion that assessee has been benefitted from these brokers through such practice. Thus, on the basis of vague, general and incomplete information and investigation, ld.AO has put allegations on the assessee, which deserves to be struck down.

(iii) On the basis of investigation made by Investigation Directorate, Ahemdabad: In this regard, it is submitted that Ld.AO has alleged that during investigations and surveys conducted by Ahmedabad Directorate of Income Tax in the case of various brokers, most of them admitted that they have used CCMs for the purpose other than genuine punching errors. Ld.AO has referred that Sh. Sanjiv Kumar Sinha, Director of M/s Amrapali Aadya Trading & Investment P Ltd. and Sh. Rajesh Baheti of Cross Seas Capital Services P Ltd., Excel Fincom, Essar Trading Company, CNB Fintrade, Mumbai in their statements recorded have also admitted that in many cases CCM facility was used for providing accommodating/ fictitious entries, however again Ld.AO has failed to prove any connection between such brokers and assessee nor any such statement or enquiry was ever confronted to the assessee.

(iv) Admission of misusing CCM in Amrapali Group of Cases of Ahmedabad: In this regard, it has been further stated by ld. AO that Amrapali Group has filed petition before Settlement Commission wherein they have admitted to have obtained losses through CCM and offered the same for taxation. In this regard, it is submitted that no such fact of surrender made is within the knowledge of assessee nor the assessee is in anyway related to Amrapali Group in any manner, thus admission by officials of this group cannot be made basis of drawing adverse conclusion in the case of assessee.

(v) SEBI order no. WTM/PS/09DNPD/APRIL/2012 dated 10.04.2012: On perusal of findings of Ld.AO regarding captioned SEBI order, it is submitted that Mukesh Jain HUF vs. DCIT first of all Ld.AO has not specified as to in which case such order was passed, nor was the copy of such order provided to the assessee. Further, ld. AO has basically drawn adverse inference on the premise that thousands of errors were being committed on monthly basis, which doesn’t seem to be normal feature and raises doubt regarding genuineness of errors, however again the same is very generalised observations and not w.r.t. broker of assessee.

Thereafter, ld.AO has stated that since there is remote possibility of error considering QWERTY keyboard, i.e. in view of the position of keys on keyboard there can be no mistake while typing “S109” and “M275”. Ld.AO has referred some digit edit analysis also. Basically, ld.AO has relied upon generalised assumptions and analysis to prove his contention.

At this juncture, kind attention of your goodself is invited to the fact that in the case of assessee 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 modification was done 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. Looking to the meagreness of total number of trade carried out by the assessee vis-à-vis trade alleged as made through CCM, it cannot be in any manner said that they were carried out with malafide intention or with ulterior motive. ` It is further submitted that in the show cause notice dated 13.11.2017 (APB 35-36) it is simply stated that assessee due to CCM has reduced income to the extent of Rs. 12,73,535/-, however no details related to trades were provided. In fact, assessee vide reply dated 20.11.2017 requested before ld.AO to provide the specific details of transactions alleged to have been modified to obtain fictitious losses, still the same were not provided. It is for the first time in assessment order that ld. AO has mentioned the list of total 4 trades which according to him pertained to CCM. In the said chart, the name of M/s Sandeep Stock (P) Ltd, is mentioned, which according to the ld. AO is the real person who had made the transaction and suffered losses originally, however, no information is provided whether any action has been taken in their cases or not. Thus, if the allegation of ld.AO is presumed to be correct, such alleged shifting of losses as a result of client codes has to be for some consideration, whereas ld.AO has not been able to bring on record any material showing flow of consideration. Further, the fact of such modifications being carried out in the name of assessee came to his knowledge only after being intimated by the department, i.e. as much as 6 years after the date of transaction. Moreover, final transactions (which now has been communicated to assessee to be after CCM) was “True and Correct” transaction and was recorded in books of accounts.

It is also pertinent to state here that the rectifications made through client code modification in the name of the Assessee have been duly owned by the Assessee and the same are also being reflected in the accounts as well as the return of income filed by assessee in regular course as per the provisions of section 139(1). It is further submitted that these transactions have neither been disputed by any person and nor the said transactions involved in client code modification have been claimed by any other persons. In other words, had the client code modification facility been misused in favour of the Assessee without consideration (as there are no evidences in support of passage of consideration), the same would have resulted in some kind of dispute by the original person in whose account/client code, the said transactions were originally punched/transferred subsequently. It is thus submitted that no such dispute has arisen solely for the reason that all the orders have been correctly included in the appropriate client code which vouch for the factum of genuine transactions which suffered from certain genuine human errors.

It is also important to note that Stock exchange has finally accounted for the final transaction same as recorded in the books of assessee i.e after making rectification of the errors in the trading session and not the transaction before CCM. The conclusion drawn by ld. AO is thus completely contrary to the transactions recorded on the stock exchange. The transactions entered by various member brokers in online system of stock exchange are very minutely monitored by stock exchange management. On the top of it, these are further regulated by SEBI and other authorities. Therefore, the view taken by the ld. AO is contrary to the transactions recorded in the stock exchange, so governed by its own management and also regulated by SEBI is totally unjust and deserves to be quashed.

Hon’ble Mumbai bench of ITAT in the case of Pat Commodity Services P. Ltd. vs ACIT in and 3499/Mum/2012 (APB 35-42)has allowed the appeal of assessee by upholding the order of CIT(A), who had allowed the appeal of assessee on following grounds: (i) No material was brought on record by AO to show that client code modification made by the assessee was not genuine one.

(ii) None of the clients examined by the tax authorities had disowned the transactions carried on by the assessee.

(iii) Under the penalty mechanism, no penalty shall be leviable is the modification was less than 1% of total transactions, meaning thereby, the MCX is also accepting the fact that such kind of client code modification is inevitable.

(iv) None of the clients was shown as related to the assessee.

Mukesh Jain HUF vs. DCIT (v) If the assessee had really shifted the profits to an outsider, then the human probabilities would suggest that the assessee would have received back corresponding amount from the recipient of profit. However, AO had not brought on record any material to show that the assessee had received back corresponding amount equivalent to the amount of profit claimed to have been shifted to the clients. (vi) AO had mainly relied upon the report given by the MCX and has shown adverse conclusions without bringing any material to support his view.

(vii) None of the client is found to be bogus and all of them had complied with KYC norms, meaning thereby the identity of all the clients stand proved.

It is further submitted that department has preferred an appeal before the Hon’ble Bombay High Court against the above order of Hon’ble ITAT, which was decided by Hon’ble high court in Income Tax Appeal No. 1257 of 2016 vide order dated 15.1.2019 (APB 43-45), whereby the appeal of revenue was dismissed by observing as under— 3. The respondent assessee is a private limited company engaged in the business of providing commodity services to its clients. In the return of income filed by the assessee for the Assessment Year 200607, the Assessing Officer noticed that there were instances of client code modifications. The Assessing Officer believed that the same was done to indulge in circular trading to pass on profits or losses to the clients of the assessee company as per requirements. After hearing the assessee, the Assessing Officer made additions in the income of the assessee on such basis. The issue eventually reached to the Tribunal. The Tribunal did accept the Revenue’s theory of misuse of clients code modification facility. However, the 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. We do not know the fate of the individual investors in whose cases, the Revenue could have questioned the artificial losses. Be that as it may, we do not think entertaining these appeals would serve any useful purpose.

Mukesh Jain HUF vs. DCIT Hon’ble Ahmedabad Bench of ITAT, in the case of ACIT vs Kunvarji Finance Pvt. Ltd. & Group (APB 46-76)has allowed the appeal of assessee by observing that:

(i) client codes upto 1% of total orders are permitted and there is no penalty upto that limit, thus the same cannot be treated as unusually high and no adverse inference can be drawn on the same.

(ii) when the client codes were modified on the same day, there cannot be any malafide intention. Had client modification done after the transactions period when the price of the commodity has already changed, then perhaps there could have been some basis to presume that client code modification is intentional.

(iii) CIT(A) had noted that “All the transactions at the Commodities Exchanges have been duly accounted in the books of account maintained by the concerned parties and such profits/ loss have been duly accounted whenever the transactions have been closed. Thus, whatever profits have been generated or accounting of actual trade, have been offered and brought to the charge of tax in the cases of concerned assessees” and such findings of facts were not controverted by Revenue at any point of time.

Further by placing reliance on the Judgement of Hon’ble Ahmedabad Bench of ITAT, in the case of ACIT vs Kunvarji Finance Pvt. Ltd. & Group (supra), Hon’ble ITAT, Jaipur Bench in the case of M/s. Noble Securities vs ITO, Ward- 1(4), Alwar in (APB 77-86)held as under— “3.4 I have heard the rival contentions and perused the materials available on record. It is noted that the assessee is a partnership firm engaged in the business of trading of trading in shares. It is noted that the assessee itself is a client of M/s. Artistic Finance (P) Ltd. which carried out business on behalf of the assessee and the clients of the assessee. It is noted that every client is provided a unique code which is punched while making the transactions. It is noted that sometime the operating staff is not well versed with the system who at the time of making transactions in shares and in order to save time, prefixed the client code of the assessee in the system as default which sometime led to error in punching of client codes. In order to rectify the punching of client code, a facility i.e. Client Code Modification (in short CCM) is provided by the Stock Exchange till 4:15 PM of the trade day by itself which can be done only on written request by the client. It is also mentioned in Circular No. 974 dated 10.09.2009 of the National Securities Clearing Corporation Limited for its Futures & Options Segment. The stock exchange has also drawn a list of the common violations committed and the applicable penalties where it is stated that “if the transfer of trades / errors at the time of order entries are in excess of 2% of the number of orders executed, fine of 0.1% of value of trades transferred is applicable”. It is also noted from the records that the during the year the broker had carried out the broker had carried out 2380 modifications by using CCM facility which is only 0.18% of the total trades carried out by the broker during the year. It is noted that the assessee’s client code was set as default in the system is for the convenience of the broker. The assessee Mukesh Jain HUF vs. DCIT has no control over the system. The client brings to the notice of the broker any mistake/ error in the client code. It may be noted that ITAT Ahemdabad Bench in the case of ACIT vs. Kunvarji Finance (P) Ltd. 119 ld. DR 1 had observed that the client code modification is permitted intra day i.e. on the same day. The relevant portion of the decision is as under:- ‘’As per Circular No. MCX/T&S/032/2007 dt. 22.01.2007 issued by the Commodity Exchange, client code modification is permitted intra- day i.e. on the same day. There is no penalty if the client code modification is upto 1 per cent of the total orders. In the present case, client code modifications made by the assessee being only 0.94 per cent i.e. less that 1 per cent of the total trading transactions, cannot be said to be unusually high or mala fide when the modification was made on the same day. Had the client modification been done after the transaction period when the price of the commodity had changed, then perhaps there could have been some basis to presume that client code modification was intentional. Even if the view of the Revenue is accepted that client code modification was done with mala fide intention, then the profit or loss accruing till the client code modification can be considered in the case of the assessee but the profit/loss arising after such modification can by no stretch of imagination be considered in the hands of the assessee. Moreover, CIT(A) having found that all transactions at the commodities exchange have been duly accounted in the books of account maintained by the concerned parties, there cannot be any justification for considering that profit/loss in the case of the assessee on the basis of mere presumption or suspicion.’’

Respectfully following the decision of ITAT Ahemdabad Bench (supra), the Ground No. 2 and 2.1 of the assessee is allowed.”

It is further submitted that no material/documents were brought on record to show that any other income in the form of cash which has not been accounted for in the books of the Assessee has been received by the Assessee nor any material/documents has been brought on record to show that any dispute has ever arisen on account of any transactions relating to use of client code modification facility or any claim of wrong crediting or non-crediting of transactions in the client code of the Assessee have been raised by any of the client against the assessee. In fact, Ld. AO has not made any enquiries from any persons who have confirmed/ owned the transactions which were transferred to/transferred from their client code. It is submitted that assessment proceedings have been concluded by drawing adverse inferences against the assessee without recording the statements of such persons/clients, which is contrary to the principles of natural justice. In fact, it was requested before Ld.AO that proper examination/enquiry of the facts may please be made before arriving any adverse inference, which was not made. Thus action of Ld.AO amounts to infringement of the fundamental right of equality of the Petitioner guaranteed under Article 14 of the Constitution of India.

It is therefore submitted that proceedings initiated by Ld.AO against the Assessee are merely based upon conjectures and surmises and therefore no addition can be Mukesh Jain HUF vs. DCIT made on the said basis in the hands of the Assessee and the Assessee places reliance upon the following judicial decisions: CIT v. Daulat Ram Rawat Mull (1973) 87 ITR 349 “…onus of proving what is apparent is not real is on the party who claims it to be so. There should be direct nexus between the conclusions of fact arrived at, or inferred, and the primary facts upon which the conclusion is based. When irrelevant consideration and extraneous materials form the substratum of an order, or the authority has proceeded in a wrong presumption which is erroneous in law, as in the present case, question of law arises and when the said contention is found to be correct, then the order is perverse. A factual decision is perverse when it is without any evidence or when the factual decision, in view of the fact on record, cannot be reasonably entertained. Finding based upon surmises, conjectures or suspicion or when they are not rationally possible have to be struck down.”

Dhirajlal Girdharilal v. CIT(1954) 26 ITR 736 (SC) "....if the court of fact, whose decision on a question of fact is final, arrives at this decision by considering material which is irrelevant to the enquiry, or by considering material which is partly relevant and partly irrelevant, or bases its decision partly on conjectures, surmises and suspicions, and partly on evidence, then in such a situation clearly an issue of law arise.........It is well established that when a court of fact acts on material, partly relevant and partly irrelevant, it is impossible to say to what extent the mind of the court was affected by the irrelevant material used by it in arriving at its finding. Such a finding is vitiated because of the use of inadmissible material and thereby an issue of law arises."

Municipal Committee, Hoshiarpur v. Punjab SEB (2010) 13 SCC 216 “If a finding of fact is arrived at by ignoring or excluding relevant material or by taking into consideration irrelevant material or if the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse, then the finding is rendered infirm in the eye of the law. If the findings of the Court are based on no evidence or evidence which is thoroughly unreliable or evidence that suffers from the vice of procedural irregularity or the findings are such that no reasonable person would have arrived at those findings, then the findings may be said to be perverse. Further if the findings are either ipse dixit of the Court or based on conjecture and surmises, the judgment suffers from the additional infirmity of non-application of mind and thus, stands vitiated.”

Omar Salay Mohamed Sait vs Commissioner Of Income-Tax AIR 1959 SC 1238 “On no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures or surmises and if it does anything of the sort, its findings, even though on questions of fact, will be liable to be set aside by this court.”

The CIT, Bihar and Orissa, PatnaVs.S.P. Jain (1973)3 SCC 824 Mukesh Jain HUF vs. DCIT “In our view, the High Court and this Court have always the jurisdiction to intervene if it appears that either the Tribunal has misunderstood the statutory language, because the proper construction of the statutory language is a matter of law, or it has arrived at a finding based on no evidence or where the finding is inconsistent with the evidence or contradictory of it, or it has acted on material partly relevant and partly irrelevant or where the Tribunal draws upon its own imagination imports facts and circumstances not apparent from the record or bases its conclusions on mere conjectures or surmises or where no person judicially acting and properly instructed as to the relevant law could have come to the determination reached. In all such cases the findings arrived at are vitiated.”

With regard to the alleged statements of the parties relied upon by ld. AO for reaching at the conclusion that assessee has benefitted with fictitious loss through CCM, though ld.AO has stated in assessment order that the statements were provided to assessee, however the same were not provided to assessee. Further, statements relied upon were recorded in case of survey conducted in the case of a third party and thus AO was duty bound to record statements of such persons during the course of assessment proceedings, which has not been done by Ld.AO.

Without prejudice to the above, it was submitted that it is not known as to whether these statements have been retracted by these persons and whether any proceedings were initiated against them by the Income Tax Department. Nevertheless, since the aforementioned statements was being used against the Assessee and reassessment proceedings were initiated against the Assessee on the basis of these statements therefore, in accordance with the settled position of law the Assessee had a legal right to cross-examine the persons concerned. Thus, without providing the copies of relevant material which is used against the assessee and further not allowing the benefit of cross-examination of the person whose statements are relied upon for making addition is violation of principle of natural justice and any conclusion drawn in violation of such principle deserves to be held bad in law. At this juncture, reliance is placed on decision of Hon’ble Apex court in the case of CCE Vs. Andaman Timber Industries (324) ELT 641 , wherein it has been held as under: “6.According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity in as much as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority.

Mukesh Jain HUF vs. DCIT As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them.

7. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above.” Hon’ble Apex Court in the case of CIT vs Odeon Builders Pvt. Ltd. in Civil Appeal No. 9604-9605 of 2018 has held as under: S. 68/69 Bogus Purchases: Disallowance cannot be made solely on third party information without subjecting it to further scrutiny. The assessee has prima facie discharged the initial burden of substantiating the purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques, & VAT Registration of the sellers & their Income Tax Return. The AO has also not provided a copy of the statements to the assessee, thus denying it opportunity of cross examination. Thus, in light of the above, it is submitted that the impugned assessment order is clearly bad in law and deserves to be set aside. It is also a matter of fact that there was penalty imposed by SEBI and stock exchange on such rectification of client code if total modification exceeds 1% of the transactions.

In the last to sum up, it is submitted that the assessee has no knowledge about any client code modification in any of the transactions appearing in the transaction ledger with the broker and the transaction if any, had taken place with client code modification, is not in the knowledge of the assessee and was done at the office of the broker. It is also a matter of fact that assessee has no control over the affairs of the broker who is an independent entity and thus could not be made answerable for any mistake / corrections done in any of the transaction of the assessee. As stated above all the transactions in F&O segment of NSE are owned by the assessee which were actually made on the direction and request of the assessee during the business hours and were transacted and executed by the broker on real time online system provided to it by the exchange i.e. NSE. In support of the Mukesh Jain HUF vs. DCIT contention raised all the relevant information, which includes ledger account of the assessee as appearing in the books of accounts of the broker (APB 39-49) along with the summary of Profit /Loss of all the transactions undertaken by assessee were submitted before ld.AO (APB 50) wherein not a single discrepancy has been pointed out nor any further enquiry has been made. It is also a matter of fact that the prices of the stocks including F&O are governed by the market sentiments and assessee has no control over the same and sometimes the transactions entered into have resulted into gains and sometimes into losses which is a common and regular feature. Therefore it cannot be arbitrarily alleged that the transaction pertaining to losses have been made with the ulterior motives of reduction in the profits earned therein.

In view of above, allegations of ld.AO that CCM was not on account of genuine mistakes, rather it is a systematic and organised activity done as an apparatus for diverting losses to set off the income earned from genuine transactions are totally uncalled for and totally irrelevant and contrary to the facts on record. Since, in the instance case, client codes have been modified wherever there were genuine mistakes, non-modification thereof would have resulted into incorrect position of profit/ loss as whatever profit/ losses was incurred on such transactions, the same belonged to assessee.

Ld. CIT(A) without refuting any of the evidences furnished by the assesse in the form of Assessee Ledger in the books of broker (APB 39-49) i.e. M/s Maverick Shares Brokers Ltd. & profit & loss statement of assessee (APB 50) and without bringing any corroborative evidence on record by simply relying on the judgement of Hon’ble Supreme Court in the case of CIT v. Sumati Dayal (1995) 214 ITR 801 (SC) alleged that assessee fails to substantiate the transactions. In fact, ld.CIT(A) has confirmed the addition primarily on the basis of observations of ld.AO and has not commented upon documentary evidences furnished by assessee.

It is further submitted that ld. CIT(A) himself has deleted the addition of Rs. 25,470/- made by ld.AO u/s 69C of the Act by holding that ‘the A.O has failed to substantiate this statement in the case of the appellant that commission has been charged on such transaction. Since, no direct evidence has been provided to show that the appellant actually paid such commissions, the addition so made by the A.O is not justified and hence the same is deleted. Hence, this ground of appeal is allowed.’

In this regard it is submitted that by deleting such addition u/s 69, which is made by ld.AO on allegation of payment of commission for taking accommodation entries ld. CIT(A) has actually agreed that ld.AO could not conclusively prove that transactions of appellant are not genuine. Once, it is affirmed by ld.CIT(A) that there is no direct evidence that assessee has paid commission, there is no reason to sustain the addition of Rs. 12,73,535/- as there is no single evidence which proves involvement of broker of assessee in misusing CCM facility for commission. In the circumstances, it is humbly prayed that the addition to the tune of Rs.

12,73,535/- confirmed by ld. CIT(A) is self contradictory and being solely based on conjectures and surmises without having any precise and linking details deserves to be deleted, more particularly when all the transactions were made by the assessee through online system of exchange provided to the broker.

S. PAGE PARTICULARS No. NO.

Copy of Acknowledgement of Return of Income and Computation filed u/s 01-04 1. 139(1) of the Act.

Copy of Acknowledgement of Return of Income filed u/s 148 of the Act. 05 2. Copy of Audited Financial Statements along with Tax Audit Report in Form 06-32 3. 3CB-3CD

Copy of notice providing reasons for reopening the proceeding u/s 148 of 33-34 4. the Income Tax Act

Copy of show cause notice dated 13.11.2017. 35-36 5. Copy of Reply dated 20.11.2017 in response to the show cause notice 37-38 6. dated 13.11.2017.

Copy of assessee ledger (all segment as well as F&O segment) in the 39-49 7. books of broker “ M/s Maverick Share Brokers Ltd” . Copy of profit and loss statement of assessee as provided by the broker 50 8. Copy of form 10DB provided by the broker 51-52 9. 10. Copy of Written Submission filed before ld.CIT(A) dated 29.03.2024. 53-71

S. PAGE PARTICULARS No. NO.

Copy of Judgement of Hon’ble Mumbai High Court in the case of 01-03 1. Coronation Agro Industries Ltd. vs DCIT in Writ Petition No.2627 of 2016.

S. PAGE PARTICULARS No. NO.

Copy of decision of Hon’ble ITAT, Pune Bench in the case of Dinesh Mulji 04-09 2. Patel vs ITO. In & 400/PUN/2023.

Copy of decision of Hon’ble ITAT, Mumbai Bench in the case of M/s Excellent Shares & Finance Service Pvt. Ltd vs The Income Tax Officer in 10-16 3. & 7004/MUM/2018

Copy of decision of Hon’ble ITAT, Delhi Bench in the case of M/s. Stratagem Portfolio (P.) Ltd.,vs Dy. Commissioner of Income Tax in ITA 17-34 4. Nos. 7878/Del/2019 dated 15.09.2020.

Copy of decision of Hon’ble ITAT, Mumbai bench in the case of Pat Commodity Services P. Ltd. vs ACIT in and 35-42 5. 3499/Mum/2012.

Copy of judgement of Hon’ble Bombay High Court in case of Pr. Commissioner of Income Tax - 13 vs Pat Commodity Services P. Ltd, in 43-45 6. Income Tax Appeal No. 1257 of 2016, wherein appeal of revenue against the order of Hon’blr ITAT Mumbai Bench was dismissed.

Copy decision of Hon’ble ITAT, Ahmedabad Bench, in the case of ACIT vs 46-76 7. Kunvarji Finance Pvt. Ltd. & Group

Copy of decision of Hon’ble ITAT, Jaipur Bench in the case of M/s. Noble 77-86 8. Securities vs ITO in ITA Nos. 911/JP/2016.

8. The ld DR is heard who relied on the findings of the lower authorities and more particularly advanced the similar contentions as stated in the order of the ld. CIT(A). She also submitted that in this case 148 of the Act was issued based on the information received from the investigation wing which was after extensive investigation done by the department and thereby, she supported the proceeding done u/s. 148 of the Act and that of the merits of the dispute.

First we deal with the technical ground raised 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 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 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 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.

4. We note that the reasons in support of the impugned notice accept the fact that as a matter of regular business practice, a broker in the stock exchange makes modifications in the client code on sale and / or purchase of any securities, after the trading is over so as to rectify any error which may have occurred while punching the orders. The reasons do not indicate the basis for the Assessing Officer to come to reasonable belief that there has been any escapement of income on the ground that the modifications done in the client code was not on account of a genuine error, originally occurred while punching the trade. The Mukesh Jain HUF vs. DCIT 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.

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 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.

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

Order pronounced in the open court on 06/08/2025.

Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 06/08/2025 *Ganesh Kumar, Sr. PS आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Mukesh Jain HUF, Jaipur 2. izR;FkhZ@ The Respondent- DCIT, Circle-06, Jaipur 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 620/JP/2025) 6. vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत