DHARMISHTHABEN SHAILESHBHAI PATEL,AHMEDABAD V. THE ITO, WARD-3(3)(6), AHMEDABAD

ITA 2008/AHD/2024

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The case involves Dharmishthaben Shaileshbhai Patel, who is engaged in the share broking business, appealing against the order of the Ld. Commissioner of Income Tax (Appeals), which confirmed the addition of an artificial loss of \\u20b915,11,253 to the assessee's income. The loss was initially booked through client code modifications (CCM) in the F&O segment, which were found to be systematic and intended to avoid taxes by shifting profits and losses between clients. The Assessing Officer and the CIT(A) both concluded that these modifications were not genuine errors but deliberate actions to manipulate taxable income. The tribunal found that the CIT(A) had dismissed the appeal without adequate consideration of the assessee's submissions or providing an opportunity for a hearing, leading to the decision to restore the matter for a fresh examination.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 473674 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J.L. BHATIA
• Assessee Lawyers: NIMESH VAYAWALA
• Keywords: Opportunity of being heard; Additional evidence; Principle of natural justice; Transactions in derivatives
• Section: 143(3)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I.T.A. No.2008/Ahd/2024 (Assessment Year: 2009-10) Dharmishthaben Shaileshbhai Patel A-24, Murlidhar Society, Odhav Road, Nr. Bus Stand, Odhav, Ahmedabad-382415 Vs. Income Tax Officer, Ward-3(3)(6), Ahmedabad [PAN No.AOMPP2464H] (Appellant) .. (Respondent) Appellant by : Shri Nimesh Vayawala, A.R. Respondent by: Shri J. L. Bhatia, Sr. DR Date of Hearing 11.02.2025 Date of Pronouncement 27.02.2025 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre, (in short “NFAC”), Delhi vide order dated 25.10.2024 passed for A.Y. 2009-10. 2. The assessee has raised the following grounds of appeal: “ The CIT(A) faceless has grossly erred in disposing off the appeal. Without giving opportunity of being heard as called for and without considering the detailed submissions of the assessee. The order ought to be set aside. It ought to be held that The addition made under client code modification having been made without considering the statement of broker filled as additional evidence and also without considering the fact modifications are made on the same day and within short time after closure of trading window are due to genuine errors. The addition on account of client code modification be deleted.” ITA No. 2008/Ahd/2024 Dharmishthaben Shaileshbhai Patel vs. CIOT Asst.Year –2009-10 - 2– 3. The brief facts of the case are that assessee is engaged in the share broking business and dealing in various segments of the National Stock Exchange (NSE). During the course of assessment proceedings, the Assessing Officer found that the assessee had resorted to client code modifications (CCM) in multiple segments, specifically in the F&O (Futures and Options) segment. Upon investigation, the Assessing Officer observed that the data from the NSE showed that the assessee modified client codes systematically with the intention of avoiding taxes. This was done by shifting profits and losses between clients with a view to avoid payment of taxes. A detailed analysis by the Assessing Officer showed that the majority of client code modifications were done by the assessee between December 2008 and March 2009, particularly in the last quarter of the financial year. The Assessing Officer noted that CCMs were done deliberately by the assessee more particularly in the months of February and March with a view to manipulate profits and losses. This pattern was also consistent with the findings from the Securities and Exchange Board of India (SEBI) in its own investigation. The Assessing Officer noted that the CCMs were not due to errors but were carefully planned by the assessee, to shift profits from one client to another and to shift losses to the assessee’s account. The Assessing Officer noted that a significant loss of ₹15,11,253/- was transferred by the assessee from his clients accounts, through these CCM manipulations to his own account. These manipulations were carried out with a view to allow the assessee to reduce his taxable income artificially. Therefore, the Assessing Officer held that these modifications were not done to correct any errors but were used as a tool to evade taxes. The Assessing Officer also observed that the assessee also failed to provide evidence that the income reported was its true income, and the adjustments were likely made after netting off the artificial losses. Accordingly, the sum of ₹15,11,253/-, being the loss booked by the assessee, was treated as income of the assessee by the Assessing ITA No. 2008/Ahd/2024 Dharmishthaben Shaileshbhai Patel vs. CIOT Asst.Year –2009-10 - 3– Officer, and the total income was revised to ₹19,30,810/- after adding the artificial losses back to the income of the assessee. 4. In appeal, Ld. CIT(Appeals) dismissed the appeal of the assessee, with the following observations: “The appeal is filed by the assessee against the order of the ITO, Ward-3(3)(6), Ahmedabad u/s 143(3) r w s 147 dtd. 19.12.2016 of the I T Act, 1961. 1. The grounds of appeal object to addition of Rs.1511253 being artificial loss generated through client Code modifications. If losses would not have been transferred from other clients to the assessee’s code during the year the total income would have been higher by Rs. 15,11,253/-. Hence, these CCM were not made to rectify any genuine punching errors, but were done with predetermined malafied intention of selectively transfer losses of Rs.-15,11,253/- from other client to the assessee's client code. Therefore, the artificial loss of Rs. 15,11,253/- booked by the assessee has been treated as profit of Rs. 15,11,253/- evaded against the higher income of Rs. 15,11,253/- earned by the assessee. 2. The net effect of the said transactions is that out of the total loss of Rs. 15,11,253/- on account of F&O transactions has been found to be colourable, untrue, manipulated and inflated to the extent of Rs. 15,11,253/- In view of the above, the loss booked by the assessee through alleged CCM of Rs. 15,11,253/- is disallowed and added back to the income of the assessee. The addition of Rs. 15,11,253/- is being artificial loss created through client code modification is confirmed. 2. The appeal filed by the assessee is dismissed.” 5. Before us, the counsel for the assessee submitted that Ld. CIT(Appeals) while passing the appellate order has dismissed the appeal of the assessee on ex-parte basis by passing a non-speaking order, without taking into consideration the detailed statement of facts and the grounds of appeal raised by the assessee. The counsel for the assessee submitted that Ld. CIT(Appeals) has dismissed the appeal of the assessee, without considering the merits of the assessee’s arguments and without giving any opportunity for a hearing to the assessee. Accordingly, it was requested that the matter may be restored to the file of Ld. CIT(Appeals) to pass appropriate orders, after giving due opportunity of hearing to the assessee. ITA No. 2008/Ahd/2024 Dharmishthaben Shaileshbhai Patel vs. CIOT Asst.Year –2009-10 - 4– 6. On going to the facts of the case and the contents of the order passed by Ld. CIT(Appeals), we observe that he has passed a non-speaking order, without either discussing the detailed submissions relating to the facts of the assessee’s case (as given by the assessee the statement of facts) and neither did Ld. CIT(Appeals) discuss the grounds of appeal raised by the assessee. We also observe that the assessee had filed written submissions before Ld. CIT(Appeals) which were not considered by him while passing the appellate order, summarily dismissing the appeal of the assessee, without discussing the individual grounds of appeal as well. Further, the counsel for the assessee also submitted that the assessee had placed a request for videoconferencing, but the same was not granted to the assessee, which in our view, is clearly against the principles of natural justice since the assessee was denied an opportunity of hearing, to present it’s case on merits. Accordingly, in our considered view, it is a fit case where the matter may be restored to the file of Ld. CIT(Appeals) for de-novo consideration, with the direction to take into consideration the various grounds of appeal raised by the assessee before him and to pass appropriate orders, after giving due opportunity of hearing to the assessee to present its case on merits and to place supporting documents/evidences before him. 7. In the result, the appeal of the assessee is allowed for statistical purposes. This Order pronounced in Open Court on 27/02/2025 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 27/02/2025 TANMAY, Sr. PS TRUE COPY ITA No. 2008/Ahd/2024 Dharmishthaben Shaileshbhai Patel vs. CIOT Asst.Year –2009-10 - 5– आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ(अपील) / The CIT(A)- 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाडŊ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 17.02.2025(Dictated over dragon software by Hon’ble Member) 2. Date on which the typed draft is placed before the Dictating Member 18.02.2025 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S 19.02.2025 5. Date on which the fair order is placed before the Dictating Member for pronouncement 27.02.2025 6. Date on which the fair order comes back to the Sr.P.S./P.S 27.02.2025 7. Date on which the file goes to the Bench Clerk 27.02.2025 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Dispatch of the Order…………………………………… "