Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCH “SMC” MUMBAI
Before: SHRI VIKAS AWASTHY & SHRI N.K. PRADHAN
ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the assessee. The relevant assessment year is 2009-10. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-21, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) r.w.s 147 of the Income Tax Act 1961, (the ‘Act’).
The issue here is whether an addition of Rs.4,75,322/- can be made by the AO on account of alleged artificial loss created by means of client code modification.
The assessee filed its return of income for the assessment year (AY) 2009-10 on 30.09.2009 declaring total income of Rs.9,24,610/-. The Jap Infracon Pvt. Ltd.ari Assessing Officer (AO) received information from the Deputy Director of Income Tax (Inv), Unit-1(3), Ahmedabad that the assessee was a beneficiary of losses in F&O segment, which the broker of the assessee provided to him by means of client code modification. On the basis of the above information, the AO re-opened the assessment and asked the assessee to explain as to why losses of Rs.4,75,322/- should not be disallowed as non-genuine having been created in its account by its broker RK Global Shares and Securities Ltd. by means of shifting of trades by client code modification. The assessee filed a reply vide letter dated 07.12.2016 and 22.12.2016 enclosing copies of certain broker’s note issued by RK Global Shares & Securities Ltd. However, the AO was not convinced with the above explanation of the assessee and made a disallowance of Rs.4,75,322/- on the reason that (i) originally losses of Rs.4,75,322/- on business in F&O segment accrued to various persons/clients of RK Global Shares & Securities Ltd. ; however, RK Global Shares & Securities Ltd. shifted these losses aggregating to Rs.4,75,322/- to the account of the assessee; (ii) all instances of client code modification carried out by RK Global Shares & Securities Ltd. are similar to that of the assessee; (iii) only completely matched squared off intra-day positions which have been modified have been taken so as to complete losses thereby reducing taxable income.
With the above reasons, the AO made a disallowance of Rs.4,75,322/-.
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). We find that vide order dated 31.10.2018, the Ld. CIT(A) agreed with the findings of the AO and dismissed the appeal filed by the assessee.
Jap Infracon Pvt. Ltd.ari
Before us, the Ld. counsel for the assessee submits that the AO has not made any inquiries from the broker and the counter parties to establish the facts of appellant having taken the alleged non-genuine/fictitious losses. It is explained that the AO has simply relied upon the information received from the Investigation Wing, Ahmadabad. It is further argued that no independent inquiry has been made by the AO and the addition is solely based on suspicion without appreciating that the same, howsoever strong, cannot partake the character of evidence.
On the other hand, the Ld. Departmental Representative (DR) submits that in the instant case changing of the client code shows that the assessee has used the facility as a routine process and not as an exception to rectify the genuine punching/placing errors. Further, it is stated that the assessee has failed to provide any credible evidence in support of genuine punching error and it has not produced sufficient evidence to prove that it is a mere human error. Relying on the order of the Ld. CIT(A), the Ld. DR submits that merely rebutting the case without any substantial documentary evidence will not support the case of the assessee and incriminating material has been found.
We have heard the rival submissions and perused the relevant materials on record. In the instant case, the AO has solely relied on the information received from Deputy Director of Income Tax (Inv), Unit-1(3), Ahmadabad that the assessee was a beneficiary of losses in F&O segment, which the broker of the assessee provided to him by means of client code modifications. The AO has not found any fault in the transactions entered into by the assessee and recorded in its books of account. There is merit in the contentions of the Ld. counsel that the modification, if any, was carried out by the broker only to correct any punching error that may have Jap Infracon Pvt. Ltd.ari Stock Exchange and the assessee cannot be called upon to explain the same. A perusal of the assessment order dated 31.12.2016 passed by the AO clearly indicates that the inference drawn therein is not based on any evidence. Considering the facts of the instant case, we set aside the order of the Ld. CIT(A) and delete the disallowance of Rs.4,75,322/-.
In the result, the appeal filed by the assessee is allowed.