ACIT, CC-4, JAIPUR vs. M/S. MAHALAXMI BROKERAGE INDIA PVT. LTD. , JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” 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, AM vk;dj vihy la-@ITA No. 25/JPR/2020 fu/kZkj.k o"kZ@Assessment Year : 2010-11 cuke The Assistant Commissioner of M/s Mahalaxmi Brokerage Income-tax, Vs. India Pvt. Ltd., Central Circle-04, 211, Laxmi Complex, M. I. Road, Jaipur Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAECM 1381 K vihykFkhZ@Appellant izR;FkhZ@Respondent izR;k{ksi.k@C.O. No. 17/JPR/2020 (Arising out of vk;dj vihy la-@ITA No. 25/JP/2020) fu/kZkj.k o"kZ@Assessment Year 2010-11 cuke M/s Mahalaxmi Brokerage India The Assistant Commissioner of Pvt. Ltd., Vs. Income-tax, 211, Laxmi Complex, M. I. Central Circle-04, Road, Jaipur Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAECM 1381 K vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@Assessee by : Sh. Manish Agarwal, CA jktLo dh vksj ls@Revenue by: Sh. P. R. Meena, PCIT lquokbZ dh rkjh[k@Date of Hearing : 24/08/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 26/09/2022 vkns'k@ORDER PER BENCH:

This appeal is filed by the revenue aggrieved from the order of the Commissioner of Income Tax (Appeal)- 4, Jaipur [ Here in after referred as

2 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. Ld. CIT(A) ] passed on 16.10.2019 for the assessment years 2010-11

which in turn arises from the order passed by the DCIT, Central Cricle - 04,

Jaipur passed under Section 143(3) r.w.s 153A of the Income tax Act, 1961

(in short 'the Act') dated 27.12.2017. The assessee has also preferred a

cross objection against the revenue’s appeal his cross objection is

numbered as CO No. 17/JP/2020.

following grounds of appeal, which is reproduced here in below:

“1. Whether on the facts and in the circumstances of the case and in law, the CIT(A)-4, Jaipur, is justified in deleting the addition 1,94,83,135/- on account of fictitious loss obtained by the assessee by misuse of CCM facility made by the AO. 2. Whether on the facts and in the circumstances of the case and in law, the CIT(A)-4, Jaipur is justified.”

in the cross objections filed;

“1. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in upholding the addition of Rs. 8,10,898/- made by alleging the same as interest payment out of undisclosed sources of income, on the basis of excel sheets in a pen drive which was found and seized from the possession of Shri Kailash Chand Khandelwal, who is one of the employee of the Maverick Group, without appreciating the true nature of entries, thus the addition so upheld deserve to be deleted. 1.1 That the Ld. CIT(A) has further erred in confirming the addition by ignoring the facts that assessee has not made any interest payment appearing column No. 2 of Excel Sheets in pen drive, thus consequent addition confirmed by Ld. CIT(A) deserves to be deleted.

3 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. 1.2 That the Ld. CIT(A) has further erred in confirming the addition by wrongly observing that the factum of such additional interest being paid and TDS deducted on such payments have been accepted by the assessee, whereas the assessee had admitted the TDS being deducted on the payment of interest which is duly recorded in the books of accounts of assesse and not on the excess amount as alleged by Ld.AO and further confirmed by Ld.CIT(A). Appellant prays that such observation being incorrectly made deserves to ignored and excluded and the consequent addition so confirmed by Ld. CIT(A) by relying such observation, deserves to be deleted. 2. That the appellant craves the right to add, delete, amend or abandon any of the grounds of this appeal at the time or before the actual hearing of the case.”

search and seizure actions u/s. 132 of the Act and/or survey action u/s.

133A of the Act was carried out by the Income Tax Department on the

members of the Marverick Group, Jaipur on 22.07.2015 of which the

assessee is one of the members. During the course of the above referred

actions, cash jewellery, valuables, stock in trade, documents, books of

account and / or loose papers found and or seized from the premises of the

Maverick Group Jaipur of which one such member happens to be the

assessee. In this case original return of income was filed on 12.10.2010

declaring total income at Rs. 9,45,990/-. On account of search jurisdiction

over the cases was assigned to Central Circle -4, Jaipur vide order u/s. 127

of the Act. In compliance to the notice u/s. 153A of the Act, return of

income e-filed on 25.11.2015 declaring total income at Rs. 9,45,990/-. After

filling return u/s. 153A, the notices u/s. 143(2) along with the questionnaire

4 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. were issued. The ld. AO called for the details and the assessee filed the

details before the ld. AO. The assessee engaged in the business of stocks

and share broking and derivatives, custodial services, depository services,

registrars to the issue of securities, share transfer agents and earned

income from business or profession and other sources during the year

under consideration.

consideration the issue involved is misuse of client code modification and

interest paid from undisclosed sources of income. The ld. AO observed that

department received fictitious profit and losses were provided by some

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 on all India basis. The ld.

AO explained the modus operandi of the client code modification in his

order at para 9 of his order. In other words, he recorded that modification of

client codes is a practice under which brokers change the client details in

sale and purchase orders of securities after the trades are conducted.

Changing client code within 30 minutes after the market closed was a

normal practice followed by brokers for rectifying ‘genuine errors and

mistakes’ which may have occurred during the trading hours. Client code

5 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. modification is permitted by both SEBI and Stock exchanges so as to take

care of the human error that occurs during the entry of client codes both by

the broker or the client. The AO alleged that non genuine CCM were

carried out to book contrived losses. In some case, this facility was used by

brokers to transfer gains or losses from one Individual to another by

modifying client codes in the guise of rectifying an error. It became a

practice to book artificial profit & loss in March to impact tax liabilities. He

alleged that the loss or profit is just on paper. Then he reiterated the non-

genuine errors mentioned by NSE.

modification received from Directorate of I&CI, Mumbai a show cause letter

dated 08.11.2017 issued to the assessee for taking the entries of fictitious

profit/loss of Rs. 1,94,83,135/- and commission paid @ 2 % in lieu of

misuse of this facility. The ld. AO did not find any favour from the reply of

the assessee and hold that the assessee has taken benefit of misuse of

CCM. As it was done with the help of broking firm where the directors of the

assessee company and brokering company are common and thus a sum of

Rs. 1,94,83,135/- was added. As regards the proposed addition on account

of commission paid for obtaining fictitious loss it is seen that directors of the

assessee company and directors of the Broker company M/s. Marvick

6 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. Share Broker Private Limited are common, thus, no adverse inference is

drawn on this issue. The ld. AO observed that during the course of search

operation in the Marvick Group, Jaipur a PEN Drive was found and seized

from the possession of Shri Kailash Chand Khandelwal, who is one of the

employees of the Marvick Group. The pen drive so seized contained some

files in excel software. The excel sheets contents adjustment entries in the

last column with remark 2.4 %. The adjustment entries pertaining to the

assessee, work out for Rs. 8,10,898/- for the year under consideration. In

reference to this issue the assessee has show caused vide letter dated

30.11.2017 for the said adjustment entries of Rs. 8,10,898/- should not be

added to total income treating it as interest paid from undisclosed sources

of income for the year under consideration. The ld. AO did not find favour

with the reply of the assessee dated 05.12.2017 and has added a sum of

Rs. 8,10,898/- treating it as interest paid from undisclosed source of

income for the year under consideration. Aggrieved from the said two

addition made by the ld. AO the assessee has referred an appeal before

the ld. CIT(A).

deleted the addition of Rs. 1,94,83,135/- made by the assessing officer and

sustained the addition Rs. 8,10,898/-. Thus, the revenue is aggrieved from

7 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. the deletion of the addition by the ld. CIT(A) on account of client code

modification and the assessee has filed the cross objection against the

addition sustained by the ld. CIT(A). The relevant findings of the ld. CIT(A)

on both the issue are haul out and reiterated here in below:

Observation of CIT(A) for addition of on account of Client code modification

“9. Since the issue of routine additions NOT based on incriminating material found during the course of search is settled by the decision of Hon'ble Supreme Court, I find no hesitation to conclude that addition Rs. 1,94,83,135/- on account of Client Code Modification cannot be sustained. I may point out that the opening para 9.1 of the Ld. AO order reds as under "....Complaint were received..." noticeably the entire discussion in the L.d. AO order on CCM disallowance nothing specific has been mentioned. Even otherwise the external complaint so received by the Ld. AO cannot construe as incriminating material as is held by various court including many decision by the Hon'ble ITAT Jaipur. 9.2 Even otherwise the issue of CCM is elaborately dealt with in the appeal order for the A. Yr. 2009-10 of appellant himself. In this case the assessment was finalize u/s 143(3) r.w.s. 147 of the Act. The facts and circumstance being same the order on CCM for the A.Ys 2009-10 may please be referred too. Thus the appellant succeeds both on legal and on merits too on this ground. The addition of Rs. 1,94,83,135/- is directed to be deleted.” For addition of on account of interest paid from undisclosed source “12. With respect to the legal ground I am of the view that since a pen drive was found and seized during the course of simultaneous search on same day at the premises of

8 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. one of the key employee. The legal ground taken by the appellant is not sustainable as

incriminating seized material not necessarily is to be in the form of paper, diary, loose

bunches etc. it can well be data stored in different media like CD, Pen drive, cloud

storage etc. The argument that presumption u/s 132(4) of the Act is not invokable is not

valid on documents seized in electronic media like pen drive, data on cloud, or cloud

drive as data in electronic media nothing but the data in paper form but digitized. The

presumption u/s 132(4) of the Act has to be applied reasonably in the changing

economic environment of data storage.

12.2 Such a pen drive was seized during the course of search on the same day from

the premises of key employee who was entrusted in feeding and storage of data. Also

this drive has visible and hidden files. This data sheet is a part of hidden file, entries of

which are clearly in the name of appellant. The legal ground has no merit, in my view, is

dismissed.

found from the premises of one of the employee, Shri Kailash Chand Khandelwal does

not relates to the appellant in particular or the person of this group for the following

reasons:

That the name of the appellant specifically figure in column 2 of spread sheet, the

scanned print of the sheet pertinent to the appellant can be seen on page 15 of the Ld.

AO order.

acknowledged by the learned A/R in the written submissions.

9 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. 13.2 Considering the above and on the facts and in the circumstances of the case, I am of the view that addition of Rs. 8,10,898/- is sustainable. The same is confirmed.”

revenue and grounds raised by them, filed a copy of the written submission

and the same is reiterated here in below:

“Brief facts of the case are that the assessee is a private limited company engaged in the business of dealing in shares and derivative. The return of income for the year under appeal was filed on on 12.10.2010 u/s 139(1) declaring total income of Rs. 9,45,990/- (APB 1-4). Pursuant to search operation in the case of Maverick group on 22.07.2015, of which the assessee is one of the member, notice u/s 153A of the Act was issued, and return of income declaring the same income as was declared in original return was filed on 25.11.2015 and the assessment u/s 143(3) r.w.s. 153A was completed at total income of Rs. 2,12,40,020/- by making certain additions. Appeal was filed before ld. CIT(A) against additions made via assessment order, which was decided vide order dated 16.10.2019 in ITA No. 417/2017-18, decision of which is summarized as under: Nature of Addition Amount Relief Sustained allowed Loss alleged as Fictitious 1,94,83,135/- 1,94,83,135/- NIL (created through Client Code Modification) Alleged payment of interest 8,10,898/- NIL 8,10,898/- out of undisclosed sources 2,02,94,033/- 1,94,83,135/- 8,10,898/-

Department has filed appeal against relief allowed by ld. CIT(A), whereas assessee has filed Cross Objections in respect of addition sustained on account of alleged payment of interest out of unexplained sources. With this background, detailed submission is made as under: Departmental Ground of Appeal No. 1: The only ground of appeal raised by the department pertains to relief allowed by ld.CIT(A) of deleting the addition of Rs.1,94,83,135/- made by ld.AO u/s 68 on the allegation that assessee has claimed fictitious losses by using Client Code Modification (CCM). Before we begin with submission merits, it is submitted that assessment of the captioned assessment year was completed u/s 153A as a result of search and therefore scope of additions to be made in assessment is restricted to incriminating documents only which are found/seized during the course of

10 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. search. A detailed submission in this regard was made before the ld. CIT(A) (APB 239-243) and who after appreciating the facts has accepted the contention of the assessee and held that no addition could be made as no incriminating material was found with respect to the CCM by alleging the same as manipulated. The relevant observations of the ld. CIT(A) in para 9 at page 18 of the order are reproduced for sake of convenience: 9. Since the issue of routine additions NOT based on incriminating material found during the course of search is settled by the decision of Hon’ble Supreme Court, I find no hesitation to conclude that the addition Rs. 1,94,83,135/- on account of Client Code Modification cannot be sustained. I may point out that the opening para 9.1 of the Ld. AO order reads as under ".... Complaint were received..." noticeably the entire discussion in the Ld. AO order on CCM disallowance nothing specific has been mentioned. Even otherwise the external complaint so received by the Ld. AO cannot construe as incriminating material as is held by various court including many decision by the Hon'ble ITAT Jaipur. Thereafter the ld. CIT(A) went on to decide the issue on the merits also wherein the findings given on AY 2009-10 in the case of appellant itself has been followed and the addition was deleted on merits also. From the perusal of the ground of appeal taken by the department, it appears that the department has not challenged the findings of ld. CIT(A) given on the legal issue raised by the assessee that if no incriminating material was found as a result of search, no addition could be made more particularly when no proceedings were pending as on the date of search. It is thus submitted that on legal aspect department has accepted the order of ld. CIT(A) and accordingly undisputedly when no incriminating material was found suggesting any manipulation in obtaining losses through CCM by the assessee for the year under appeal, no addition could be made in this account in the order passed u/s 153A of the Act. So far as merits of the case are concerned, it is submitted that addition was made by ld.AO on the basis of certain complaints received by the department regarding misuse of Client Code modification facility, pursuant to which investigation was carried out by the Directorate I & CI, Mumbai and by Directorate of Investigation, Ahmedabad. In this regard, it is submitted that the facility of 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, being human error, 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 National Exchange for Automated Trading (NEAT) system. It is submitted that stock market remains 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 such type of situations there occur certain genuine mistakes/errors which are

11 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. 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. In this regard it was submitted before ld.CIT(A) that, the information received by ld. AO was related to ‘some brokers’ and not of the assessee. Further, 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. It was further submitted that the rectifications made through client code modification facility 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 the Assessee and also duly reported to the compliance agency. Moreover, these transactions were neither disputed by any person and nor the transactions where client code modification was carried out were claimed by any other persons. In other words had the client code modification facility been misused in favor of the Assessee, the same would have resulted in some kind of dispute by the person in whose account/client code such 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 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. It is submitted that assessment proceedings were concluded by ld. AO on the basis of drawing adverse inferences against the assessee without confronting the statements of such persons/clients during the course of assessment proceedings and without providing opportunity to cross examine, which is contrary to the principles of natural justice. Ld.AO neither provided copies of such statements nor afforded assessee with opportunity to cross examine such parties despite specific request made by assessee so as to verify the veracity / truthfulness of the statements made by him. However, in spite of the dire necessity of cross-examination in the circumstances of the case, the assessee’s request for cross-examination was turned down in an arbitrary manner, without specifying any justifiable reason. The Ld. AO merely stated that right to cross examination is not absolute and therefore he was not under any obligation to provide cross-examination of the person whose statements are being relied upon by him. The aforesaid observation of AO denying opportunity of cross-examination is totally unjust and contrary to the Hon’ble Apex Court decision in the case of CCE Vs. Andaman Timber Industries,(324) ELT 641wherein Hon’ble Apex Court has held as under:

12 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. “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 inasmuch 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. 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.

13 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. - Hon’ble Ahmedabad bench of ITAT also in the case of Smt. Sunita Jain vs. ITO ITA No. 501 & 502/AHd/2016 (Case law PB I pages 106-110) It is further submitted that it is not known as to who these parties are and whether statements so relied upon have been retracted by these persons and whether any proceedings were initiated against them by the Income Tax Department. Nevertheless, since the aforementioned statements are allegedly being used against the Assessee and huge additions have been made in the hands of Assessee on the basis of these statements therefore, in accordance with the settled position of law the Assessee has a legal right to cross-examine the persons concerned. The Assessee had requested for an opportunity of cross examination vide letter dated 16.11.2017. 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, it 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 and thus could not be made answerable for any mistake / corrections done in any of the transaction of the assessee. It is submitted that all the transactions entered by assessee 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. It was requested by assessee before ld.AO also that if any transaction involving CCM has allegedly benefitted the assessee, details of the same be provided so that the necessary clarification may be given by assessee after verification of the same however, instead of providing such details, ld.AO on the contrary has stated that assessee could not prove that instances of CCM were for rectification of genuine errors. It is reiterated that assessee did not know as to in which transaction of it, the client code modification was done by broker, as the assessee company received documents from the broker which were matching with and were in tune with whatever orders were placed by assessee to the broker. In support of the fact that all the transaction recorded in the account of assessee are owned by assessee, all the relevant information including the bills of daily trading (APB 62-238) and ledger account of the assessee (APB 33-61) as appearing in the books of accounts of the broker alongwith the summary of all the transactions with trade time and trade number were submitted before ld.AO wherein not a single discrepancy has been pointed out. Thus, assessee has discharged its onus by furnishing all the details sought. On the other hand, ld.AO without rebutting the plethora of evidences as furnished by assessee, merely relied upon a very general information, which did not even specify the names of brokers whose statements were relied upon nor did it mention as to how such enquiries lead to presumption/ conclusion that assessee has mis-utilised the CCM facility and has made additions on mere presumptions and surmises. 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

14 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. arbitrarily alleged that the transaction pertaining to losses have been made with the ulterior motives of reduction in the profits earned therein. Later on, on enquiry from the broker, it was found that during the year under consideration total transactions in F&O segment of NSE traded by the broker company M/s Maverick Share Brokers Pvt. Ltd. were to the tune of 34,05,727 (APB 21-26 ) and corresponding F&O trade done by the assessee during the previous year were 1,43,533 (APB 27-32) out of which the alleged trades pertaining to CCM are only 50 transactions which is 0.031% of the total trade done by the assessee and very negligible if compared with the total trade done by the broker. Since the alleged modified trade is quite less than 1% of the total trade and as stated in earlier paras, same has occurred due to human error. Reliance was placed on decision of Hon’ble Mumbai bench of ITAT in the case of Pat Commodity Services P. Ltd. vs ACIT, ITA No 1257 of 2016 (Case law Vol II pages 216-217), wherein the appeal of assessee has been allowed by Hon’ble ITAT 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.

(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. Hon’ble Ahmedabad Bench of ITAT, in the case of ACIT vs Kunvarji Finance Pvt. Ltd.& Group reported in 119 DTR 1 (170 TTJ 345) has allowed the appeal of assessee by observing that:

15 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. Computation of undisclosed income vis-à-vis suppression of profit by client code modifications-Client code modifications made by the assessee being only 0.94 per cent i.e., less than 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- That apart, CIT (A) having found that all transactions at the commodities exchanges 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 of suspicion. (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. Hon’ble Jaipur ITAT in the case of M/s Noble Securities vs. ITO in ITA No.911/JP/2016 in decision dated 23.03.2017 has deleted the addition on account of CCM by following decision of Hon’ble Ahmedabad ITAT in the case of M/s KunwarJi Finance (cited supra) by observing as under: “Had the 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.” It is submitted that similar addition was made for A.Y. 2009-10 also, where ld. CIT(A),after considering detailed submission and judicial pronouncement relied upon by assessee, allowed the appeal of assessee. On the basis of such order passed by ld. CIT(A), relief was allowed in impugned Assessment year also. Assessee further places reliance on following decisions including the judgments of hon’ble Jaipur bench: - Sandeep Sharma vs ACIT, ITA No. 1275/JP/19 orders dt. 24.08.2020 (ITAT, Jaipur) - ITO vs Sh. Gyandeep Khemka ITA No. 695/JP/18 order dt. 23.10.2018(ITAT, Jaipur) - ITO vs Sh. Gyandeep Khemka ITA No. 1274/JP/19 order dt. 5.3.2019(ITAT, Jaipur)

16 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. - DCIT vs Futurz Next Services Ltd. ITA No. 3556/Del/2016 order dt. 04.01.2022 (Hon’ble Delhi bench of ITAT) In the circumstances it is humbly prayed that order of ld.CIT(A) deleting the addition to the tune of Rs. 1,94,83,135/-made by ld.AO by alleging the same as the fictitious loss taken by misusing the facility of client code modification deserves to be upheld. Assessee’s Grounds of Cross Objection No. 1 & 1.1 In these grounds of Cross Objections, assessee has challenged the action of ld. CIT(A) in upholding the addition of Rs.8,10,898/- made by ld.AO by alleging the same as interest payment out of undisclosed sources of income, on the basis of excel sheets in a pen drive which was found and seized from the possession of Shri Kailash Chand Khandelwal, one of the employee of Maverick Group. Brief facts of the case are that during the search operation carried out in the case of Maverick group, to which the assessee belongs, a pen drive was found and seized from possession of Shri Kailash Chand Khandelwal, one of the employees of Maverick Share Broker P. Ltd. (but not employee of assessee company) containing some files in excel software having entries pertaining to details of loans taken and interest paid after deduction of TDS by various persons and entities of the Maverick group including assessee, along with many other individuals and entities (who are not at all related with assessee) (Print out of the same is enclosed at APB 13-14). These excel sheets contained details of amount borrowed, interest paid, Tax deducted, amount of loan returned with dates of assessee, as also contained the last column which had further sub columns which had details regarding some calculation of amount with titile “Adjustment”. Ld. AO considered this amount appearing against the name of assessee in the last column as the interest paid over and above the interest paid through payees account cheque and recorded in the books of accounts and accordingly held the same as being interest paid by the assessee from its undisclosed sources and made the impugned addition. In this regard it is humbly submitted that during the course of assessment proceedings, first the ld. AO proposed to make addition of the entire amount found noted in the said sheets against the name of assessee as his undisclosed income in the form of advances given out of undisclosed sources. In response to it, detailed reply (APB 7-12) was given explaining the nature of entries contained in all the files found in the pen-drive seized during search operation. Thereafter, ld.AO changed his stand and took the view to treat the entries as ‘Interest paid’ instead of earlier allegation as interest received and alleged that the amount appearing under the last column is the amount of interest paid by assessee out of his undisclosed sources and not recorded in the books of accounts as over and above the interest amount mentioned in other column and paid through cheque. The explanation given in this regard before the ld.AO is summarized as under: (i) That the sheets contained information about amounts borrowed by various individuals and entities of the Maverick Group along with many other individuals and entities, which were unrelated and unknown to the assessee as also the entire Maverick group;

17 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. (ii) That excel sheets contained details of loan taken, interest paid, Tax deducted, amount repaid, along with dates thereof which are made through cheques; (iii) That there were repetition of details in the various files found in the pen- drive, which were duly demonstrated to ld. AO and also appreciated and accepted by him; (iv) That the details appearing in all the columns other than those appearing under the adjustment column were duly recorded in books of respective individuals and entities, as far as it pertained to the Maverick group and were got verified by ld. AO; (v) That the excel sheet was mailed to Shri Kailash Khandelwal who is in accounts department by the finance broker through whom the amounts were borrowed, asking for further payment of interest @2.4% in addition to the interest already paid and thus this amount is separately mentioned in the last column, but the said payment was never made by assessee or other group members of the group.

However, the ld. AO alleged the same to be additional interest paid by assessee not recorded in books, and treated the same to have been paid out of undisclosed sources of the assessee without bringing any adverse material on record.

It is humbly submitted that the assessee had elaborately demonstrated the fact that the said pen-drive was not prepared by the assessee or even by Shri Kailash Khandelwal from whose possession it was found during search and ld.AO has not raised any doubt on the explanation tendered by the assessee. Thus the presumption embedded u/s 132 (4A) does not apply in this case. No statements whatsoever were recorded of Shri Kailash Khandelwal in this regard from whose possession the said Pen Drive was found during the course of search. The assessee has fully explained the entries as appearing in the books of the assessee other than the ones appearing under the last column for which it was categorically stated that those entries were not made by assessee or his employee. This is further evident from the fact that assessee has deducted due tax on the amount of interest actually paid by him and the same is appearing as such in the excel sheets. The entries appearing in the ‘adjustment’ column was the additional interest asked by the lender, which was never paid by the assessee, as is evident from the fact that no TDS was deducted thereon nor any payment was made. Further no incriminating document was found during the course of search corroborating the allegation of ld. AO nor was anything brought on record by making independent enquiry during the post search or assessment proceedings to support the allegation that assessee had paid anything more than what was recorded in the books of the assessee. It is also a matter of fact that during the course of assessment proceedings, assessee had filed copies of confirmation from the concerned parties along with the PAN and complete address, duly confirming the amount borrowed with the amount of Interest paid and Tax deducted by the assessee which stood accepted by ld.AO without raising any doubts. Thus the assessee has duly discharged the burden of

18 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. explaining the entries in the pen-drive found in possession of an employee of the assessee, so far as it pertained to the assessee. Ld. AO, except the so called entries, has failed to bring on record any evidence / material whatsoever by making independent enquiries to support the allegation that the said amount was paid by assessee over and above the amount of interest paid and recorded in the books of accounts. The additions have been made on presumptions and assumptions for which there is no scope in the scheme of assessment of search case as envisaged in chapter XIV of the Income Tax Act, 1961. In the circumstances, it is humbly prayed that the addition of Rs.8,10,898/- so made merely on suspicion without any corroborative evidence on record deserves to be deleted and the assessee prays accordingly.”

the issue which the revenue has taken up in this appeal is settled by the

decision of various benches of the tribunal and High Court on technical

aspect as well as on merits of the case also. As the assessment year under

consideration is not pending as on the date of search and thus was

completed assessment. As per interpretation done by various courts that in

such cases the scope of additions to be made is restricted to incriminating

documents only which are found / seized during the course of search. The

ld. AR has filed a detailed submission on the issue (APB 239-243). Based

on the detailed submission the ld. CIT(A) has allowed the appeal of the

assessee. The ld. AR further objected since there is no merits on the legal

ground and the same is accepted by the revenue, now they cannot

challenge the order of the ld. CIT(A) on merits. As regards the addition

sustained by the CIT(A) he submitted that the person from whom the pen

19 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. drive is found is not at all relied upon at the time of search. It is also

confirmed by both the parties at bar that the person Shri Kailash Chand

Khandelwal under whose possession the pen drive found has not made any

statement. The search party has not considered this PEN drive and that is

why his statement is also not recorded during the search proceeding or at

the time of assessment proceedings. The ld. AR of the assessee submitted

that in this PEN drive details of the loan, TDS deducted and the name of the

parties are written. There is duplication of entries which were explained and

reconciled with the books during the assessment proceedings. The ld. AR

of the assessee in his Paper book filed the print out of these excel sheets.

The ld. AR of the assessee also filed the reconciliation of these entries with

the books in his paper book and the same was filed before the lower

authorities. The excel sheet may be related to the finance broker and the

same is not disputed. The only issue is for an amount claimed as additional

interest demanded which has neither been paid nor in the seized material

found to have been paid. Thus, the addition cannot be made without

checking the veracity / reliability of the data recorded in the pen drive.

Based on that confirmation the ld. AR of the assessee demonstrated that

the assessee and its group concerned have recorded and accounted the

interest which is recorded in the Excel Sheet of the PEN Drive found. Even

the TDS is also deducted wherever applicable and the same is also

20 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. recorded in the books of account. There are no further consideration flows

in addition to what has been recorded in the books of accounts. The ld. AR

of the assessee submitted that it is respective parties who were demanding,

further interest @ 2.4% in addition to what has been recorded in the books.

The additional interest which the assessee or its group concern never paid

and there is no evidence of any such further sums paid and found as paid in

the course of search. Since the issue is revolving about the PEN Drive

found, the bench directed both the parties whether any finding of any

person recorded and/or the statement of the person under whose

possession this PEN drive found is recorded or not? In response it has

been confirmed that there is no corresponding income addition is made and

the statement of the person from whom the PEN drive found is not

recorded. Therefore, working recorded in this PEN drive is merely an

information recorded by that person and whatever financial transaction

related to that information is recorded in the books and are already

explained before the lower authorities and there is no dispute on this

aspect. The revenue has made this addition in the hands of the assessee

as unexplained interest payment based on working made in this PEN drive.

Therefore, the bench has directed revenue to call the factual information

from the AO during the hearing of these appeals. The ld. AO categorically

confirmed that the against that addition no substantive addition is made

21 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. who has received the interest. The relevant report of AO vide letter No.

ITO/Wd-1(2)/JPR/2022-23/92 dated 02.05.2022, submitted his report and

same is extracted here in below :

“Respected Sir, Sub: Supplying of documents/information in the case of M/s Maverick Group Cases-reg. ***** Kindly refer to your letter No 50 dated 27.04.2922 on the abovementioned subject. In this connection, the requisite information is reads as under: i. No further appeals before Hon'ble ITAT were recommended in all the four assessment years. ii. On perusal of the assessment records, it is noticed that the AO in assessment order has mentioned that a pen drive was found and seized from the possession of Shri Kailash Chand Khandelwal, one of trusted employee of the assessee. The pen drive so seized contained some files in excel software. The excel sheets contains adjustment entries in the last column with remarks of 2.4%. From the details, it was noted that out of the total interest after considering the duplicate/repeated entries noted in adjustment account, total of such entries comes to Rs. 75.27,847/- out of which it was claimed that an amount of Rs. 35,15,548 pertained to various individual /concerns related to Maverick group and balance Rs 40,12,299/- related to other persons. Necessary action has been taken in the case of Persons/concerns related to the Maverick group where the addition on substantive basis has already been proposed in their respective assessment. The total mount pertains to other persons is Rs. 40,12,299, out of which an amount of Rs 69,449/- pertains for A.Y. 2010-11, Rs. 85,361/- pertains to A.Y. 2011-12, Rs. 27,912/ pertains to A.Y. 2012-13 and Rs. 37,32,344/- pertains to A.Y. 2013-14. Since the pen drive was found and seized from the possession of Shri Kailash Chand Khandelwal one of trusted employee of the assessee. It was mandatory for the assessee to explain the contents of the details/account found from the pen drive which was in the possession of the assessee. During the post search enquiries and assessment proceedings, the assessee could not produce any corroborative evidences in sport of their support. Thus, adjustment entries to the other than assessee's group persons amounting to Rs. 69,499/- in the A.Y. 2010-11. Rs. 85,361/- in the A.Y. 2011-12 Re 27,912- in the A.Y. 2012-13 and Rs. 37,32,344 in the A.Y. 2013-14 were added to the total income of the assessee on protective basis. However, nothing on assessment record has been found which provide the details of the persons in which the substantive addition were made. iii. During the course of appellate proceedings, the assessee has contended that the pen drive found from the premises of one of the employee, Sh. Kailash Chand Khandelwal does not relates to the appellant in particular or the persons of the assessee group. However, the Ld. CIT(A) rejected the contention of the

22 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. assessee and stated that the pen drive found from the premises of Sh. Kailash Chand Khandelwal belongs to the assessee group and some of the appellant specifically mentioned in column No. 2 of spread sheet. The seized material is lying with the office of ACIT, Central Circle-4, Jaipur. If any further clarification is needed on this issue, the same may be obtained from that office. Case records for A.Ys. 2010-11, 2011-12, 201-13 and 2013-14 (One volume each) are enclosed herewith.”

argued when in the report addition for receipt of the interest is not

questioned or made based on the findings of the ld. Assessing Officer how

the addition can survive in the case when the assessee alleged to have

been not paid this additional amount and has not been taxed in the hands

of the person who received it. Therefore, he has submitted that the addition

made in these cases are required to be deleted. To drive home to this

contention the ld. AR of the assessee he has relied upon the findings of the

SC in the case of Lalji Haridas Vs. ITO 43 ITR 387 where in the apex court

observed that

We would, however, like to add one direction in fairness to the appellants. The proceedings taken against both the appellants should continue and should be dealt with expeditiously having regard to the fact that the matter is fairly old. In the proceedings taken against Lalji the Income-tax Officer should make an exhaustive enquiry and determine the question as to whether Lalji is liable to pay the tax on the income in question. All objections which Lalji may have to raise against his alleged liability would undoubtedly have to be considered in the said proceedings. Proceedings against Chhotalal may also be taken by the Income- tax Officer and continued and concluded, but until the proceedings against Lalji are finally determined no assessment order should be passed in the proceedings taken against Chhotalal. If in the proceedings taken against Lalji it is finally decided that it is Lalji who is responsible to pay tax for the income in question it may not become necessary to make any order against Chhotalal. If, however, in the said proceedings Lalji is not held to be liable to pay tax or it is found that Lalji is liable to pay tax along with Chhotalal it may become necessary to pass

23 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. appropriate orders against Chhotalal. When we suggested to the learned counsel that we propose to make an order on these lines they all agreed that this would be a fair and reasonable order to make in the present proceedings.

has also taken a view following that judgement of the apex court in the case

of Dilipkumar Jain Vs. ITO. The relied upon finding in that decision is

reiterated here in below:

“8. I have considered the rival submissions and perused the entire evidence on record. There could be no dispute to the proposition that the ITO had jurisdiction to complete the assessments on protective basis. In cases where it appears to the income-tax authorities that certain income has been received during the relevant assessment year but it is not clear as to who has received that income, and, prima facie, it appears that the income may have been received either by A or by B or both together, it would be open to the appropriate authority to determine the said question by taking appropriate proceedings both against A and B. Reference may be made to the ratio of decision in the case of Lalji Haridas v. ITO [1961] 43 ITR 387 (SC). I may state at this stage that there is no specific provision in the Indian Income-tax Act, 1922 regarding making the assessments on protective basis. Such concept has been borrowed from law and practice as prevalent in England. The leading case on the subject is Attorney-General v. Aramayo [1925] 1 KB 86 (CA). Similar matter came before the Calcutta High Court in the case of B.V.Bagchi v. Ladhuram Taparia [Appeal from the original order No. 71 of 1951, dated 17.1.1952]. In the said decision, his Lordships Harries, CJ., while deciding the controversy observed as under:

The income-tax authorities also made an alternative assessment, assessing each of the firms separately and this was what is referred to as a protective assessment and is permissible in order to prevent assessment being barred by limitation. Reference may be made to the ratio of decision in the case of Jagannath Hanumanbux. TTO [1957] 31 ITR 603 (Cal). The Hon'ble Calcutta High Court, while deciding the said case made observations as under: ...It is also true that there cannot be any assessment excepting of an assessee and there can be no doubt that the income-tax authorities must confine themselves within the four corners of the statute and not invent new procedures

24 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. outside the limits of the Indian Income-tax Act (p. 609) If we read those decisions carefully, it would be clear that before completing the assessments on protective basis, the ITO is supposed to point out the name of the assessee who may be the owner of such income. It is common ground that in the present cases, till this date, the authorities below did not bring on record any material to show that the declared income in question really belongs to some other assessee. The learned departmental representative frankly conceded that till this date no proceedings in respect of the disputed income have been started against any other assessee. 9. The learned counsel for the assessee contended that the income-tax authorities have no right to call the present assessments as protective because till this date they have not started any proceedings against the alleged real owner of such income. In my opinion, the contention of the assessee has substance. No doubt, the income-tax authorities has the right to make the assessments on protective but while doing so they are supposed to point out the name of the real owner of such income. At least some proceedings should be [commenced] against such assessee. Under the circumstances, in my opinion, the present assessment orders cannot be called the protective assessments. The learned AAC, without bringing on record any evidence, was of the view that the assessments were rightly made on protective basis. Even the learned AAC did not point out that who was the real owner of such income. When the matter came before the learned AAC, at least he should have come to a conclusion that really such income belonged to somebody else. Even if the ITO can blow hot and cold, it is certainly not open to the learned AAC or the Tribunal to blow hot and cold. Again it might be open to the ITO to make the protective assessments, but it is certainly not open to the AAC and the Tribunal to make a protective order. When the assessments are completed on protective basis and the appeals are pending before the Tribunal, in such situation the Tribunal ought to have decided both the appeals together and finally determined as to whether the said sum was, if at all, the income of the assessees or somebody else.”

how the related unexplained expenditure survives. Even though no

payment is alleged to have been made and not relevant loose paper

recording these averments is found and in light of that submission he has

prayed to delete the additions.

25 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. 13. Per contra, the ld. DR relied upon the order of the ld. AO and

supported the arguments recorded in the order for both the issues on hand.

As regards the statement not recorded for the evidence of PEN drive he

relied on the report of the AO. He further submitted that for these additions

a detailed discussion is made in the order of the assessing officer and

therefore, he supported the reasoning given by the ld. AO while making the

additions.

available on record and also gone through the findings of the lower

authorities recorded in their respective orders. We have also gone through

the various judicial ruling placed before us by both the parties to drive home

to their contentions.

14.1 Undisputedly, the assessment for assessment year 2010-11 was not

pending on the date of search on 22.07.2015. Thus, the assessment for the

assessment year 2010-11 cannot be considered as abated by virtue of

search conducted under section 132 on 22.07.2015. The assessing officer

would reassess the total income of the assessee as per the provisions of

section 153A in respect of assessment year 2014-15. As the assessee

objected to the proposed addition on the ground that during the search no

26 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. incriminating material indicating any undisclosed income for the year under

consideration was found, which is also apparently clear from the

assessment order itself and from the order of the ld. CIT(A). As it is clear

from the order of the ld. CIT(A) that there is no incriminating material found

in the course of search. Based on this fact non disputed fact the ld. AR of

the assessee contended that since there is no incriminating material found

during the course of search and seizure action, the ld. AO is not

empowered to make any addition in the total income of the assessee. It is a

settled position of law that there cannot be a review under the garb of

reassessment proceeding under section 153A of the Act. Therefore, the

proposed reassessment proceedings are absolutely in abuse of process of

law, illegal and bad in law. The provisions of section 153A cannot be

applied in respect of assessment which has already been completed unless

some incriminating material / information comes into the possession /

knowledge of the AO during the course of search proceedings. Since the

assessment for the assessment year 2010-11 was not pending as on the

date of search and there is no incriminating material found or seized during

the course of search, then the AO is bound to reassess the total income as

it was assessed on the original return of income. Though the AO is legally

bound to assess or reassess the total income of six years immediately

preceding to the year of search, however, the assessments which are

27 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. pending on the date of search gets abated and the assessments which

were not pending on the date of search had attained the finality. Therefore,

the addition over and above the assessed income cannot be made de hors

the incriminating material found at the time of search while completing the

assessment under section 153A of the Act. If there is no incriminating

material then the original assessment made can be reiterated and no

further addition is called for and an addition can only be made on the basis

of undisclosed income derived from material/documents seized as a result

of search. The completed assessment can be interfered or disturbed by the

AO while making the assessment under section 153A only on the basis of

some incriminating material unearthed during the course of search and

requisition of income disclosing undisclosed income not already disclosed

or made known in the course of original assessment. Therefore, in the

absence of any incriminating material found or seized during the course of

search and seizure proceedings, the additions made by the AO during the

course of reassessment under section 153A of the Act are without

jurisdiction and liable to be deleted and it is nothing but a review by the

same rank of officer and the same is not permitted under the law. The ld.

CIT(A) has accepted the contentions of the assessee and held that no

addition could be made as no incriminating material was found with respect

to the CCM loss claimed by the assessee by alleging the same as non-

28 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. genuine. We have gone through the grounds of appeal raised by the

revenue and it appears that the revenue has not challenged the findings of

the ld. CIT(A) on the very legal ground decided by ld. CIT(A) against the

revenue. Thus, it is clear that this legal aspect of the decision is not

challenged by the revenue before us. Thus, it is undisputed that when

there is no incriminating material was found no addition could be made in

the order passed u/s. 153A of the r.w.s. 143(3) of the Act.

14.2 Thus, so far as the issue on hand for an amount of Rs. 1,94,83,135/-

made on account of alleged client code modification the AO has alleged

that complaints were received by the department that fictitious profits and

losses were provided by some broker 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 on all India basis. Based on that details were received from

Directorate of I&CI Mumbai and this was the basis of the show cause notice

and thereafter the addition there is no independent findings in the order of

the assessing officer for that information with the incriminating material

found in the search. Except this there is no independent finding so as it

proves that in fact the assessee has done anything wrong. In fact, there

were search actions at the business premises of the assessee company

29 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. and at the residence of the director of the company. In this search there is

no incriminating evidence or any connected information found and seized is

also not noted and reflected. It is the only the third-party information based

upon which the AO has made the addition on account of Client Code

Modification on the ground that the assessee has shifted its profit to

other clients or shifted loss to its sister concerns as alleged by the I&CI

Mumbai. The ld.CIT(A) deleted the addition on the ground that additions

NOT based on incriminating material found during the search is settled

based on that technical ground deleted the addition. The requirement that

the incriminating material to have the co-relation to the particular addition

sought to be made is a logic that will hold good as it is held in number of

cases decided by this coordinate bench and the jurisdictional High Court.

Consequently, in our considered view we do not find any error having been

committed by the ld. CIT(A) in accepting the plea of the Assessee that there

is no incriminating document which was seized in the course of search

relating to the addition sought to be made on account of the CCM reflected

in the return of income filed by the assessee. Therefore, the jurisdictional

requirement of Section 153 A of the Act was not satisfied.

14.3 Even on merits the ld. AR of the assessee submitted various

decisions that without any finding merely on the third party information no

30 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. addition can be made. We find, identical issue come up before the Delhi

High Court in the case of PCIT Central -3 Vs. Jaypee Financial Services

Ltd. reported at 127 Taxmann.com 490 where in the court has held that :

31 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. computer was also cloned and seized alongwith physical documents". Mr. Sharma further submits that at the stage of passing of the assessment order, the decision of Kabul Chawla case (supra) was not available and therefore, assessing officer did not consider it necessary to give a complete description of the incriminating material by recording the details of the panchnama. 5. We have perused the record. Both the CIT(A) as well as the ITAT have held in the instant case that the addition is not based on any incriminating material found during the course of search and the assessment was not pending on the date of search. The observations of the assessing officer relied upon by Mr. Sharma do not give us any insight or clue about the 'incriminating material' which is claimed to be in existence. In the proceedings before the CIT(A) as well as the ITAT, the revenue has not made any attempt as to disclose the incriminating material. Even in the present appeal, the revenue is unable to explain or give us any indication about the same. 6. The findings of facts returned by CIT(A) and ITAT are not be interfered with lightly. The view taken by the tax authorities based on the decision of Kabul Chawla (supra) cannot be held to be perverse. The questions of law proposed by the Revenue are squarely covered by the aforesaid judgment. 7. In view of the above, no question of law, much less a substantial question of law, arises for our consideration. Accordingly, the present appeal, along with pending application, is dismissed. 14.3 In view of the discussions above and relying on the decisions cited

(supra) we are of the considered opinion that there is no perversity in the

order of the CIT(A) deleting the addition. Accordingly, the same is upheld

and the grounds raised by the revenue are dismissed. In the result the

appeal of revenue in ITA No. 25/JP/2020 is dismissed.

objection we note that when the PEN drive find during the search

proceeding no questions raised to the parties not only that the employee

from this PEN drive found, his statement is also not recorded. Thus, merely

from that PEN when the veracity about that evidence is not recorded no

addition either protective or substantive can be made. Not only that even on

32 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. the merits the addition cannot be made on two counts, one is that there is

no substantiative addition in those persons who claimed to have additional

interest as income as duly confirmed before us by the AO and secondly

when the income is not considered as not recorded the addition made

contending that the same would have been paid will not survive. The

amount in dispute is nothing but the amount of the additional interest

demanded and not paid by the assessee as claimed by the ld. AR of the

assessee. The ld. DR did not oppose this contention and has also not

pointed out any incriminating material or a statement on this PEN drive.

This based on these set of facts before us and based on the decision relied

upon by the ld. AR and on careful consideration of the said decision with

that of the facts in this case, we hold that the addition is without any

supporting contentions, enquiry or confirmation of the party we have

received the additional interest or not. The AO is supposed to point out the

name of the assessee who may be the owner of such income. It is common

ground that in the present case, till this date, the authorities below did not

bring on record any material to show that the unexplained expenditure in

question really belongs to some other assessee as income or not. The ld.

DR honestly conceded that till this date no proceedings in respect of the

disputed income have been made against any other assessee and the

same is also confirmed by the AO in the report presented before us.

33 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd.

15.1 The ld. AR of the assessee explicitly proved that whatever interest

that they have paid in the group cases is duly recorded in the books of

accounts and wherever applicable TDS is also deducted. As an additional

interest as allegedly demanded by the parties is not paid by the assessee,

even those parties are not questioned on that 2.4% found recorded in the

Excel-Sheet and same were also not taxed on substantive basis. There

cannot be any unexplained expenditure without making the unexplained

income and Revenue did not controvert the argument of the AR of the

assessee and has also not supported by any judicial decision so as to

confirm the order of the lower authorities. Thus, the interest which is

actually paid is duly recorded in the books of accounts and there is no other

material which is found even the person under whose possession the PAN

Drive is found his statement is not recorded. This action itself shows that

department find this evidence as dump documents and is not evidence

relied upon. The statement of the person from whom the evidence his found

is also not checked on its correctness and veracity. Therefore, based on the

finding that the revenue has not made any unexplained income addition in

the persons in whose name the interest as alleged addition income is not

added and the ld. AR of the assessee categorically proved that there is no

incriminating other document found recording the payment of the additional

34 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd. interest paid by the assessee and thus the addition made on account

unexplained expenditure is required to be deleted.

amount of Rs. 8,10,898/- in the hands of the assessee. Thus, the cross

objection no. 17/JPR/2020 filed by the assessee is allowed.

In the result the appeal of the revenue in ITA No.25/JPR/2020 is

dismissed and cross objection no Co/JPR/2020 filed by the assessee is

allowed.

Order pronounced in the open court on 26/09/2022.

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:- 26/09/2022 *Ganesh Kr. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- ACIT, Central Circle-04, Jaipur 2. izR;FkhZ@ The Respondent- M/s Mahalaxmi Brokerage India Pvt. Ltd., 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. 25/JP/2020 & CO No. 17/JP/2020) 6. vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेजज. त्महपेजतंत

35 ITA No. 25/JP/2020 & CO No. 17/JP/2020 M/s Mahalaxmi Brokerage India Pvt. Ltd.