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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: SMT.ANNAPURNA GUPTA
(Applicant) (Responent) : None Assessee by Revenue by : Shri R.R. Makwana, Sr.DR सुनवाई क� तार�ख/Date of Hearing : 22/11/2022 घोषणा क� तार�ख /Date of Pronouncement: 29/11/2022 आदेश/O R D E R The present appeal has been filed by the assessee against order passed by the Commissioner of Income Tax(Appeals)-6, Ahmedabad,( in short referred to as ld.CIT(A)) under section 250(6) of the Income Tax Act, 1961 ("the Act" for short), dated 27.9.2018 pertaining to Asst.Year 2009-10.
At the time of hearing none appeared on behalf of the assessee. Notice of hearing was sent at the address mentioned in Form No.36 through RPAD post, however, the same was returned by the postal authority with the remark “left”. Registry has not been intimated about any change of address of the assessee. A perusal of the order sheet would reveal that the appeal of the assessee was presented before the Tribunal on 2.5.2019. Thereafter, the appeal was listed
2 for hearing on 24.1.2022. On that date none appeared on behalf of the assessee before the Tribunal, the matter was accordingly adjourned to 25.1.2022. Thereafter, the matter got adjourned to 16.3.2022, 10.6.2022, 15.9.2022, 11.10.2022 and lastly on 22.11.2022. But on none of the occasions, the assessee or his representative attended the hearing before the Tribunal. Therefore, we proceed to dispose of the appeal ex parte after hearing the ld.DR and considering the material available on record.
3. In the appeal, the assessee has raised the following effective grounds: 1. In law and in the circumstances of the case the Ld. AO has erred in making an addition of Rs. 4,00,252 on the ground that the appellant had modified Client codes with a malafide intention.
2. In law and in the circumstances of the case the Ld AO has erred in making an addition of Rs.4,00,252 on the ground of client code modification by calculating the profit/loss on notional basis.
In law and in the circumstances of the case the Ld. AO has erred in disallowing the speculation loss of Rs. 7,74,799.
Briefly stated facts are that the assessee is an individual deriving income from business, speculation and other source and having share trading account with Amrapali Capital & Fiancial Services Ltd. (AC&FSL) (Broker). During search action carried out on AC& FSL under section 132 of the Act and subsequent assessment proceedings, it was noticed that the broker was indulging in manipulation of client code with malafide intention to enable its clients to avoid payment of taxes on F & O transaction and the assessee was one of the beneficiaries. The AO had information that using Client Code Modification(CCM) the assessee had shifted out profits of Rs.46,587/- and shifted losses of Rs.3,53,665/- resulting in net reduction of its income due to CCM of Rs.4,00,425/-. In reassessment proceedings initiated u/s147 of the Act on the basis of this information, the assessee was asked to explain the reasons for the reduction in income with supporting evidences, and why the same should not be treated as profit and added to the income of the assessee. Reply of the assessee was not found to be satisfactory by the AO, who accordingly, after examining the issue in detail, particularly noting the modus operandi involved in client modification code which was misused to reduce the taxable income, held that the losses shown through client modification code was contrived one, which was shifted to evade taxes. He accordingly made an addition of Rs.4,00,252/- to the income of the assessee. Before the ld.CIT(A), the assessee reiterated his submissions as were made during the assessment proceedings. In the absence of satisfactory explanation from the assessee on the issue, the ld.CIT(A) confirmed the order of the AO on this issue.
Before me, the ld.DR supported the orders of the Revenue authorities, and drew my attention to para-6.3 of the order of the Ld.CIT(A) as under:
“6.3 After considering finding of the AO and submissions of the appellant, the above ground of appeal is adjudicated as under. During search action u/s 132 of the Act carried out in the case of Amrapali Capital and Financial Services Ltd. (ACFSL) and subsequent assessment proceedings, it was noticed that ACFSL had indulged in manipulation of client code with malafide intention to enable its clients to evade taxes on F & 0 transaction. The AO had information that the appellant was one of the beneficiaries of Client Code Modification (CCM) by ACFSL. The AO had information that using CCM, the appellant had shifted out profit of Rs, 46,587/- and shifted in loss of Rs.3,53,665/- resulting in net reduction in income due to CCM of Rs. 4,00,2,52/-. The AO in the assessment order has given details of the transactions by which shifting of above profit and loss has been contrived. When asked by the AO to explain, the appellant could not explain the above satisfactorily. Therefore, the AO added the amount of Rs. 4,00,252/- to the income of the appellant. The present appeal is filed against the above order of the AO. During the appellate proceedings, the appellant has reiterated what it submitted before the AO. The main thrust of the argument of the appellant is as follows:
(i) The modifications were carried out by the broker to rectify genuine punching errors and no malafide could be attached to the same
(ii) The AO has calculated amount of escaped profit/loss on the basis of assumption and no working has been provided regarding price adopted.
(iv) The modified transactions are carried out on recognised stock exchange and the persons who are the modified clients must have accounted for the said transactions in their respective books of accounts. In support his contentions, the appellant relied on the judgment of Hon. Jurisdictional ITAT bench of Ahmedabad in the case of M/s. Kunvarji Finance Private Limited [IT(SS)A Nos. 615 to 618, 677 to 680, 813-817 of 2010 IT(SS)A 301 & 302/2011 && C0250 to 253 of 2010 CO 313 to 315, 342 to 346 of 2010].
A perusal of submissions of the appellant shows that the submissions are very general in nature. The appellant has not been able to refute the allegations of the AO which are specific. The AO has given specific transactions where profit has been shifted by CCM. The appellant has failed to adduce any evidence to show that he has not benefited by these transactions. The appellant has not given any evidence to establish that once he came to know about the CCM, he objected to the broker about the same. The AO has mentioned that Director in Amrapali Aadya Trading & Investment Pvt. Ltd. had stated that CCM was mis-used by his clients.
SEBI permits Client Code Modifications to rectify genuine errors in entry of Client Code at the time of placing/modifying the related order. The modification is permitted up-to 3 certain percentage. This facility has been . misused by brokers and their clients for diverting profits/losses across clients in order to evade tax on stock exchange .transactions. The appellant is one of several of such beneficiaries who in connivance with his broker has benefitted from CCMs. The appellant submitted a letter from the broker Amrapalli Capital & Finance Services Ltd. as additional evidence in support of his contention that he has not indulged in CCM. This letter merely says that the appellant has carried out trading in equities ( both in F &O and cash segment) through them and further that CCM in the code of the appellant has no relevance with the settlement application filed by the Amrapalli Group before the hon'ble Settlement Commission, Mumbai. Nothing turns on this letter as it is nowhere mentioned in the letter that the appellant has not indulged in CCM.
Ratio of decision in Kunvarji Finance (supra) relied on by the appellant is not applicable to the present case as the facts are different. This is the case of a broker which is not the case in the present appeal.
In view of discussion above, it is held that the AO was justified in making addition of Rs.4,00,252/-. Accordingly, addition of Rs.4,00,252/- is upheld. This ground of appeal is rejected.
I have considered submissions of the ld.DR and gone through the orders of the Revenue and material available on record. The case of the assessee was that the client code modification carried out
5 by the broker was to rectify genuine punching errors and there was no mala fide attached to the same to show alleged contrived loss/profit to evade tax. While the case of the Revenue was that it had information from search conducted on the broker of the assessee, ACFSL, that the assessee had benefited by indulging in client code manipulation through his broker, and had shifted out of profit of Rs.46,587/- and shifted in loss of Rs.3,53,665/- resulting in net reduction in income due to CCM of Rs.4,00,252/-. When the assessee was asked to submit information and details about the genuineness of the transaction, he was unable to do so before both the authorities, and accordingly the addition of the net benefit accruing to the assessee on account of CCM of Rs.4,00,252/- was added to his income which addition in turn was upheld by the Ld. CIT(A).
Before me also, nobody appeared on behalf of the assessee to rebut the finding of the Revenue with some material evidence. After going through the orders of both the authorities, we find no infirmity in the order of the ld.CIT(A) so as to warrant interference. We find that the Ld.CIT(A) noted the fact that the AO had given specific transactions where profit had been shifted by CCM and the assessee had adduced no evidence to show that he had not benefited from the same. He also noted that on becoming aware of CCM by broker, the assessee did not take any corrective action by objecting to the Broker. The Ld.CIT(A) also noted that the director of the Broker Company ACFSL had stated that CCM was misused by his clients. Moreover, I agree with the Ld.CIT(A) that the assessee sought to justify the genuineness of the transactions by giving only general reply that CCM was carried out by broker to correct genuine punching errors. No evidence has been filed by the assessee either before the Revenue authorities or even before me to substantiate this 6 contention that CCM was done to rectify punching errors. In view of the same, I agree with the Ld.CIT(A) that the assessee was unable to establish the genuineness of its transactions in the light of adversarial material available with the Revenue showing that the losses returned were manipulated by CCM.
It is settled principle of law that concurrent findings of the authorities cannot be interfered with without sufficient and just reason or any material irregularities in the finding being pointed out by other side. There is nothing more before me to depart from the view taken by the Revenue authorities on this issue, more so, in the absence of any assistance rendered by the assessee in regard to the issue involved in the ground raised.
Grounds of appeal No.1 & 2 of the assessee are dismissed.
10. Coming to the next ground regarding speculation loss of Rs.7,74,799/- raised vide Ground No.3, the ld.AO noted that the assessee had shown speculation loss of Rs.7,74,799/- on sale of shares and against which share speculation gain of Rs.7,26,931/- was set off, thus claiming balance speculation loss of Rs.47,868/- as carried forward speculation loss. In this regard, the ld.AO sought explanation of the assessee with details and ledger accounts for verification. However, the assessee could not do so. He accordingly rejected the claim of the assessee to speculation loss and added the same to the total income of the assessee amounting to Rs.7,74,799/-.
11. Before the ld.CIT(A) also the submissions of the assessee were also on similar line and further submitted that Revenue authorities ought to have considered amount shown in both credit and debit side of the ledger account. It was submitted that as per the ledger account, total credit entries came to Rs.7,26,930/- whereas the total of the debit side came to Rs.7,74,798/-, and therefore there was net loss of Rs.47,868/- which should be allowed. In the absence of supporting materials, the ld.CIT(A) was not convinced with the assessee, and accordingly, confirmed the findings of the AO.
12. Before me, the ld.DR relied on the orders of the Revenue authorities, and drew my attention to para 8.3 of the CIT(A)’s order to support his case.
“8.3 After considering findings of the AO and submissions of the appellant his ground is adjudicated as under:
It is seen that the AO noted that the appellant had claimed speculation loss of Rs. 7,74,799/-. When the AO asked the appellant to file the details for the same, the appellant filed only bills related to F & 0 transactions only. No other details were filed to enable the AO to verify the genuineness of claim of speculation loss. Accordingly, the AO disallowed speculation loss of Rs.7,74,799/ and added the same to the income of the appellant. During the appeal proceedings the main contention of the appellant was that the AO accepted the credit side of the speculative transactions while disallowed the debit side. The appellant submitted that during the year under consideration the appellant as per the normal accounting practice had recorded the intraday transactions in single ledger. The appellant submitted that credit entries came to Rs.7,26,930/- while total debit side came to Rs.7,74,798/-. Thus the appellant submitted that it had incurred loss of Rs.47,868/-. The appellant further submitted that he could not submit the copy of the ledger of the broker and the AO could have directly enquired from the broker and reconcile the ledger already furnished by the appellant from his books of accounts. This contention of the appellant cannot be accepted. As mentioned above during the assessment proceedings the appellant did not file any details to verify the genuineness of speculation loss. Further, even during appeal proceedings the appellant did not file any details. Only copy of the Intraday ledger was filed. On the contrary the appellant tried to put the onus on the AO, that the AO should have verified the details from the broker. This proposition is not tenable. As said above, the appellant himself has submitted that "he could not submit the copy of the ledger of the broker". In view of above discussion, it is held that the AO was justified in disallowing speculation loss of Rs. 7,74,799/-. Accordingly, addition of Rs. 7,74,799/- is upheld. This ground of appeal is rejected.”
I have considered submissions of the ld.DR and also perused the orders of the Revenue authorities and material available on record. I find, the reason for addition is non-furnishing of supporting details and evidences to demonstrate speculation loss. While upholding the order of the AO, the ld.CIT(A) has recorded a finding that during the assessment proceedings and during the appellate proceedings, the assessee did not file any details to support his claim despite giving opportunities. The argument of the assessee that the AO should get details from the broker and accordingly verify the claim of the assessee was untenable, and therefore, the AO was justified in disallowing the impugned speculation loss. Before me, there is no contest on behalf of the assessee against the impugned orders of the Revenue authorities. Therefore, in the absence of any explanation or material evidence to support the case of the assessee, I am not inclined to disturb the concurrent finding of the Revenue authorities on this issue also. Even otherwise also, after going through orders of both the authorities, we find no infirmity in the order of the ld.CIT(A) so as to demand interference. Ground of appeal No.3 of the assessee is dismissed.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the Court on 29th November, 2022 at Ahmedabad.