HASMUKH KHETSHI SHAH,MUMBAI V. ITO CIRCLE 23(1), MUMBAI

ITA 5932/MUM/2024

AI Insights

The case revolves around the reopening of the assessment for the Assessment Year 2010-11 under section 147 of the Income Tax Act, 1961, based on information that the Assessee had benefited from fictitious profits through the misuse of the CCM facility by his broker, M/s. Pashupati Capital Services Pvt. Ltd. The Assessing Officer (AO) added Rs.48,93,183 to the Assessee's income, treating it as unaccounted income. The Assessee contested this addition, arguing that he had no control over the broker's actions post-order placement and that all transactions were legitimate. The Tribunal, after considering the submissions and the lack of direct evidence linking the Assessee to the misuse, decided in favor of the Assessee, leading to the deletion of the addition.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126300 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Other Referred Cases: Dy. CIT-32(1) Vs. Viresh Pravin Shah, ITO vs. PAT Commodity Services Pvt. Ltd., Pr. CIT vs. PAT Commodity Services Pvt. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HEMANSHU JOSHI; LD.
• Assessee Lawyers: AJAY R. SINGH; LD
• Keywords: Business income; Income from undisclosed sources; Bonafide mistake; Transactions in derivatives; Bogus
• Section: 147; 148; 143(3); 250; 143(1); 131; 22; 133(6); 13; 72; 23(1)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “E”, MUMBAI BEFORE SHRI NARENDER KUMAR CHOUDHRY, JUDICIAL MEMBER AND SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER ITA No.5932/M/2024 Assessment Year: 2010-11 Mr. Hasmukh Khetshi Shah Deluxe House, 138/150, Dadi Sheth Agiyari Lane, Mumbai-400002. PAN: AAPPS1090K Vs. ITO Circle 23(1) Piramal Chamber, SS Road, Parel-400012. (Appellant) (Respondent) Present for: Assessee by : Shri Ajay R. Singh, Ld. A.R. Revenue by : Shri Hemanshu Joshi, Ld. D.R. Date of Hearing : 11 . 03 .2025 Date of Pronouncement : 23 . 04 .2025 O R D E R Per : Narender Kumar Choudhry, Judicial Member: This appeal has been preferred by the Assessee against the order dated 06.09.2024, impugned herein, passed by the National Faceless Appeal Centre (NFAC)/Ld. Commissioner of Income Tax (Appeals) (in short “Ld. Commissioner”) under section 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2010-11. 2. In this case, the Assessee had declared his total income of Rs.31,07,070/- by filing his return of income on dated 01.10.2010 which was processed u/s 143(1) of the Act. Subsequently, the case of the Assessee was selected for scrutiny and resulted into passing the assessment order dated 30.08.2012 u/s 143(3) of the Act , whereby the income of the Assessee was assessed at Rs.36,07,890/-. Subsequently, certain information was received ITA No.5932/MUM/2024 Mr. Hasmukh Khetshi Shah 2 from DIT(I&CI), Mumbai and on the basis of same, the following reasons for reopening the case u/s 147 of the Act were recorded. \".....Information was received by this office from DIT (I&CI), Mumbai that fictitious profits and losses were created by some broker by misusing the Client Code Modification facility (CCM) in F&O segment on NSE. The brokers were indulging in transferring the fictitious losses to different clients to reduce their tax liability and also fictitious profit to other clients. Some of the clients also took fictitious profit to cover up their undisclosed income to set off these profits against huge losses. From the details received, it is found that Assessee is also one of the beneficiary of profit of Rs.48,93,183/- by misusing CCM facility during the previous year2009-10. Further on the spot verification of few cases of broker by DDIT (I&C), Unit-1(1), Mumbai u/s 131(1A) this fact was revealed and they have confirmed having misused the facility of client code modification in order to create fictitious losses/ profits. They admitted having received commission at the rate varying from 0.5 up to 2% on the amount of loses /profits for transferring such losses /profits to their client. Even these broker had revised their computation of income and paid taxes on such commission income. From the above It is evident that the broker had misused the CCM facility only for commission and Assessee is one of the beneficiaries of such bogus profit to the tune of Rs. (48,93,183/-). Thus, the profit obtained by the Assessee to adjust taxable income and to cover up his unaccounted income. From the modus operandi it is further evident that the Assessee has maneuvered unaccounted funds/cash for getting the accommodation entry of profit to cover up their undisclosed income or to set off these profits against huge losses. The Assessee has taken profits from different parties through broker Pashupati Capital Services Pvt. Ltd. The details of which is annexed as Exhibit A.” 3. Consequent to the aforesaid reasons recorded, the case of the Assessee was reopened by issuing notice dated 23.03.2015 u/s 148 of the Act, in response to which the Assessee vide letter dated 06.04.2015 requested the Assessing Officer (AO) to treat the return filed on 01.10.2010 as return filed in response to the said notice u/s 148 of the Act and also requested to provide the reasons for ITA No.5932/MUM/2024 Mr. Hasmukh Khetshi Shah 3 reopening. The reasons for reopening were provided to the Assessee vide letters dated 17.04.2015 & 16.07.2015, against which the Assessee raised various objections, which were rejected by the AO vide order dated 31.12.2015. 4. Thereafter, various statutory notices were issued, in response to which the Assessee from time to time submitted the details called for. 5. On perusing the details filed by the Assessee, it was observed by the AO that the Assessee is engaged in the business of trading in F & O and manufacturing of coated cotton fabrics and during the assessment year under consideration, has carried out various transactions, wherein the client code has been modified. Thus the AO in order to ascertain the details of the transactions, issued a notice dated 133(6) of the Act and called for certain information from National Stock Exchange (NSE), who filed its reply, which was received by the AO on 09.02.2016. From the reply, it was revealed that the Assessee had executed trading transactions through broker M/s. Pashupati Capital Services Pvt. Ltd. and in respect of F&O transactions executed by the Assessee, the Assessee has earned the fictitious profit of Rs.48,93,183/- by modifying the client code. 6. Thus the AO show caused the Assessee “as to why the transactions which have incurred the said profit of Rs.48,93,183/- should not be disallowed on account of modified transactions, resulting into ‘loss’”. 7. The Assessee denied to have made such client code modification and submitted that he has already submitted all the required details, statements, broker’s ledger accounts, copies of invoices issued by broker, payment details, global position report ITA No.5932/MUM/2024 Mr. Hasmukh Khetshi Shah 4 etc. Further, all the transactions have been done by M/s. Pashupati Capital Services Pvt. Ltd. and the Assessee has no control over the acts of the broker, after placing the order and the change at the broker’s end due to any reason, does not affect the genuineness of the Assessee’s claim. Further, the total F&O loss for the year is Rs.1,19,21,048/- against which profit of Rs.62,17,804/- from M/s. Pashupati Capital Services Pvt. Ltd. was set off and net result loss of Rs.57,02,244/- was adjusted against other business income. Thus, total profit earned by the Assessee from M/s. Pashupati Capital Services Pvt. Ltd. was of Rs.62,17,804/- and the allegation of bogus profit as alleged is of Rs.48,93,183/- showing clearly that the change in entry client code was an error and no malafide can be associated with the Assessee. Securities and Exchange Board of India (in short “SEBI”) has also allowed the said changes. The commission charged by the broker, is also included in the amount in question; hence there is no question of separate addition or disallowance. The Assessee further claimed that Assessee is running Rexine industry and there is sufficient income year to year. If Assessee had made huge F&O loss, which is allowed by the Department, to carry forward year to year, there is no need to adjust the same by taking fictitious profit. The Assessee can set off these losses in coming year. So, the allegation that the Assessee has booked fictitious profits from F&O trading as the losses can be set off against Assessee’s next year income, is incorrect. 8. The AO though considered the above said claim of the Assessee, however, not accepted the same on the following reasons: “4.4 The Assessee submission cannot be accepted on following points:- ITA No.5932/MUM/2024 Mr. Hasmukh Khetshi Shah 5 i. The Assessee was given complete background information and copy of reason recorded to give his reply. ii. Instead Assessee choose to give general reply without counter proving the facts given to him through reason recorded and background information of all trades carried by him through broker. iii. The client code modification facility as approved by SEBI and provided by the Exchanges to brokers is meant to rectify genuine mistakes of punching of orders of a particular trade given by a particular client in its particular account maintained with broker. The NSE distinguished the genuine and non-genuine CCM as under: Genuine CCM:- a) Error due to communication and/or punching or typing such that the original client code/name and the modified client code name are similar to each other. b) Modification within relatives. c) Any similar genuine error. other than above genuine error amounts to non-genuine client code modification. iv. Based on above criteria if we analysed, modified data by broker, following pattern emerges a) The client code modified party is always Assessee. b) The original party is associated/sister/related party of broker i.e. Pashupati Investments, Pashupati shares & Finance Ltd., Chaudhary Investment, Sarvagya Commodities, Nishadevi Chaudhary, Sritadevi Chaudhary. They are non-related party to broker. c) The original client and Assessee are not relative. d) The client code of Assessee is 4709 and that of original client is not at all nearby to Assessee’s client code digits which can amount to human error while punching order. Hence as per NSE criteria the client code modification is not genuine. v. The date wise modified volume of transaction is as under: Market Date No. of No. of % of trades ITA No.5932/MUM/2024 Mr. Hasmukh Khetshi Shah 6 Segment Trades Trades modified modified F&O 24.09.2009 33 5 15.15 25.09.2009 78 78 100 29.09.2009 52 52 100 30.09.2009 38 38 100 01.10.2009 129 129 100 05.10.2009 118 118 100 06.10.2009 214 206 96.26 12.11.2009 79 79 100 16.11.2009 31 31 100 18.11.2009 31 31 100 19.11.2009 72 72 100 20.11.2009 123 123 100 23.11.2009 21 21 100 24.11.2009 32 32 100 25.11.2009 23 23 100 01.12.2009 77 77 100 02.12.2009 38 38 100 04.12.2009 21 21 100 08.12.2009 22 22 100 09.12.2009 63 63 100 11.12.2009 99 99 100 14.12.2009 89 89 100 18.03.2010 4 4 100 From above day wise client code modified data to total transaction done by Assessee through broker, Pashupati Capital Services Pvt. Ltd. is almost 100%. As explained in above para, the human error of punching can happen in few isolated cases. But in instant case, the entire F&O transactions are modified by broker to give benefit to Assessee. The important fact is that the original client whose client code is modified are sister/associated/relative of said broker. The client code digits are nowhere matching to certain digits to that of Assessee client code of 4709. The total 1451 trades were modified and total 54,69,130/- shares modified amounting Rs. 57,96,27,059/- it shows complete nexus between Assessee and broker. vi. The Assessee has only produced confirmation of transaction from said broker, contract notes of transactions. There is nothing new Assessee brought on record which is already in public domain. The Assessee justified that his transactions are genuine but in support of it, he has not produced any material which can contradict findings of I & CI and NSE database. The Assessee has not commented anything on client code modification data ITA No.5932/MUM/2024 Mr. Hasmukh Khetshi Shah 7 submitted to him. He has simply put onus on broker that he has done all transaction. vii. The notice u/s 133(6) was issued to broker calling for information, but he has not produced client code modification related information and have not brought anything on record that shall contradict finding of Investigation Wing and NSE information. viii. To verify broker u/s 131 of Income Tax Act 1961, the summon was issued. But the Director of broking firm chose not to appear before me. The Assessee submitted that he has informed to broker but he is out of town hence could not attend is a clear evasive argument. The fact is that the broker knew this fact very well, hence he chose not to come forward and reveal truth and Assessee also cleverly not produced the broker for verification and put entire onus on broker pleading himself innocent and not part of client code modification. The broker did not appear only to avoid escape admission of said fact as done in other cases by I & CI wing of Income Tax Department. The Assessee also failed to discharge his onus by not producing broker for verification. ix. The Assessee has incurred loss from F&O business with Zodiac Broking Pvt. Ltd. of Rs.1,19,21,048/-. The Assessee buy profit from Pashupati Capital Services Ltd. Broker only to set off loss and to cover up unaccounted income. x. The Assessee has also not produced global client report and relevant details related to client code modification. He has also not produced evidences that he has given instruction to broker to place orders Assessee even not commented on NSE information given to Assessee. xi. The Assessee has done transactions only on few days in a year. It shows Assessee has clear intention of booking fictitious profit in a year. xii. Assessee has not given bank statement and margin money statement from broker in support of his claim. The Assessee has not even explained why almost 100% transactions are modified one on mentioned dates. xiii. Though broker could not be verified due to failure of Assessee to produce for verification and non- compliance of broker for summon issued u/s 131 of I.T. Act 1961, clearly shows defiant behavior of Assessee and broker for compliance. The other broker verified by DIT (I&CI), Mumbai, they have admitted that the broker has given fictitious losses to the different beneficiaries. The Assessee case is not different from it. ITA No.5932/MUM/2024 Mr. Hasmukh Khetshi Shah 8 xiv. No record was maintained by the broker with regard to the original and modified client code. Hence, broker could not produce the any details and proof regarding the genuineness of the error occurred during the trading. No detail was provided by the broker as to whether the rectification was conducted with margin money or without margin money. With respect to the order received from the modified client by the broker no evidences were produced. Moreover, neither the broker nor the Assessee could substantiate whether the order was placed by the modified client prior to entering trade in the name of original client or not. Thus, it is clear that broker was involved in non-genuine rectification of transaction as and when needed and according to the need of the clients. xv. Further, it is stated that SEBI has defined penalty structure for client code modification and directed the stock exchanges vide its circular no. CIR/DNPD/6/2011 dated July 5, 2011. Consequently, NSE vide circular nos. NSE/INVG/2011/18281 dated July 5, 2011, NSE/INVG/2011/18284 dated July 29 and NSE/INVG/2011/18716 dated 26, 2011 has directed that modifications of client codes of non-institutional trades are done only to rectify a genuine error in entry of client code at the time of placing/modifying the related order. As per the above mentioned circulars, the stock exchanges shall levy penalty to the trading members for client code modifications as per the calculation given below and transfer the amount to its investor protection fund. ‘a’ as % of ‘b’ Penalty as % of ‘a’ <5 or =5 1 >5 2 xvi. Where, xvii. a = Value (turnover) of non-institutional trades where client codes have been modified by a trading member in a segment during a month. xviii. B= Value (turnover) of non-institutional trades of trading member in a segment during a month. xix. Thus, both SEBI and NSE has set strict guidelines to ensure that only the genuine error in entry of client code at the time of placing/modifying the related order are rectified through client code modification mechanism. It is also important to mention that percentage of client code modifications done by broker is more than the limit prescribed by the SEBI. It is important that the penalty of Rs. 2,20,000 was levied by the NSE to broker Pashupati Capital Services Pvt. Ltd. for indulging into client code modification for F.Y. 2009-10. ITA No.5932/MUM/2024 Mr. Hasmukh Khetshi Shah 9 xx. The Assessee claimed that he could have set off losses of F&O from future year business income and he has no necessity to indulge in booking fictitious profit. Assessee contention is based on false ground. Here important to know that the Assessee is engaged in manufacturing industry where profits are fluctuating and cannot be ascertained well in advance by a businessman. The Assessee receives opportunity from broker Pashupati Capital Services P. Ltd. for buying fictitious profit to cover up his unaccounted income without paying taxes. It is equally important that Assessee has continuous loss from Zodiac Broker and continuous profit from Pashupati Broker during the year. The Assessee has not offered explanation on it. xxi. By booking fictitious profit and set off with losses Assessee has unaccounted income reducing taxable profit Assessee has evaded taxes.” 9. The AO, on the aforesaid reasons, ultimately found that profit booked by the Assessee in F & O trading amounting to Rs.48,93,183/- through client code modification transaction, as non-genuine and therefore treated the same, as unaccounted income and added back to the income of the Assessee. 10. The Assessee, being aggrieved, challenged the said addition before the Ld. Commissioner and reiterated his claim/submissions made before the AO. 11. The Ld. Commissioner considering the claim/submissions of the Assessee, though affirmed the addition of Rs.48,93,183/-, however allowed the set off of the same and further directed the AO to make the addition of Rs.48,93,183/- under the head “income from other sources” as unaccounted income, by observing and holding as under: “7. Decision: All the information available on record along with the impugned assessment order, the grounds of appeal and the submission made by appellant on various dates as well as points raised during video conference and submissions made after video ITA No.5932/MUM/2024 Mr. Hasmukh Khetshi Shah 10 conferencing case has been considered. Ground wise issues are discussed as under: 7.1 Ground no 2: Vide ground no 2, the appellant has challenged the reopening the assessment u/s 147 without adequate jurisdiction. It is noticed from the record that the notice u/s 148 of the Act was issued by the AO on 23.03.2015 after recording the reasons and taking administrative approval from the higher authorities. Further, the objection raised by the appellant for reopening the assessment proceedings was rejected vide reasoned order dated 31.12.2015. Therefore, no infirmity is found in the action of AO in issuing the notice u/s 148 of the Act to the appellant. Accordingly, the claim of the appellant regarding reopening the assessment proceedings u/s 147 of the Act is not found acceptable. Therefore, the ground no 2 of this appeal is dismissed. 7.2 Ground no 1, 3 and 4: Vide ground no.s 1,3 and 4, the appellant has challenged the addition of Rs. 48,93,183/- made in re assessment determining total income of Rs. 85,01,070/- as against total income of Rs. 36,07,890/- determined u/s 143(3) of the Act on the basis of information which was not provided to him despite specific request made in this regard. In this case it is noticed that the AO has information that the appellant had received bogus profit by misusing the client code modification facility in F&O segment on NSE. Accordingly, the case was reopened u/s 147 of the Act. During the course of assessment proceedings, the AO received the details of modified transactions of appellant in response to notice u/s 133(6) of the Act from the National Stock Exchange on 09.02.2016. A perusal of the details reveals that the all the transactions were modified on behalf of the appellant from 25.09.2009 onward on several dates. The appellant’s claim of bonafide mistakes in these modifications is not found acceptable in view of the repetitive modifications of transactions without raising any objections with broker in this regard. The appellant has neither submitted any single evidence to support his claim of bonafide modifications nor was he able to explain satisfactorily the reason for modification of the transaction on several dates. Even the appellant has not filed any evidence to lodge his protest regarding repetitive modification in the transaction with the broker. Further, the appellant has claimed that the report on CCM received from DIT (I&CI), Mumbai was not shared with him during the assessment proceedings despite his specific request in this regard. It is noticed from the record that the report on CCM received from DIT (I&CI), Mumbai was comprehensive and it ITA No.5932/MUM/2024 Mr. Hasmukh Khetshi Shah 11 included information pertaining to other cases also. Sharing the report with the appellant would tantamount to the disclosure of information of other person to him. However, the information of client code modification pertaining to appellant received from National Stock Exchange was provided to him during the assessment proceedings. Therefore, no infirmity is found in the action of AO in not sharing the full information received from DIT (I&CI), Mumbai. Considering the above, it is held that the profit generated in consequence of the client code modification is not natural. Therefore, the claims made by the appellant against the addition made by the AO on account of unaccounted income in the form of fictitious profit of Rs. 48,93,183/- for AY 2010-11 are not acceptable. Accordingly, the addition of Rs. 48,93,183/- on account of unaccounted income in the form of fictitious profit for AY 2010-11 is confirmed. The ground nos 1, 3 and 4 are dismissed. 7.3 Ground no 5: Vide ground no5, the appellant has challenged the action of AO in making double addition of same amount and taxing income twice to the extent of Rs. 48,93,183/- and not allowing set off of income from other sources against business income. The appellant has submitted that the total F&O loss for the AY 2010-11 was Rs. 1,19,21,048/- against which Profit from Pashupati Capital Services Pvt. Ltd. of Rs. 62,17,804/- was set off. Further, the total profit from Pashupati Capital Services Pvt. Ltd. was Rs. 62,17,804/- and it includes the alleged amount of Rs. 48,93,183/- . Thus, the appellant has claimed that the AO has made double addition of Rs. 48,93,183/-. Since, the amount of Rs. 48,93,183/- has already been treated as fictitious profit resulting from the client code modification and added to the total income as unaccounted money of the appellant, the AO is directed to reduce the F&O profit of Rs. 62,17,804/- shown from Pashupati Capital Services Pvt. Ltd by Rs. 48,93,183/- and to carry forward balances losses if any to the next AY and make addition of Rs. 48,93,183/ under the head income from other source as unaccounted income. Accordingly, the ground no 5 of this appeal is partly allowed. 7.4 Grounds of appeal number 6: Vide Ground No 6 of the appeal, the appellant has requested to add to, alter, amend, modify, substitute, delete and/or rescind all or any of the ground of appeal on or before the final hearing. Since, the appellant has not submitted any request to amend the appeal; therefore, this ground of appeal is not entertained.” ITA No.5932/MUM/2024 Mr. Hasmukh Khetshi Shah 12 12. The Assessee, being aggrieved, challenged the impugned order and reopening of the case u/s 147 of the Act and making the addition of Rs.48,93,183/- and the action of the AO in using the material collected behind the Assessee’s back, without providing the same to the Assessee, in spite of specific request made by the Assessee for providing any such material used against the Assessee. 13. The Ld. Sr. Counsel Mr. Ajay Singh, at the outset, has submitted that in the instant case, a general information was received without any specific allegation against the Assessee and the AO, without making any inquiry and establishing any corroborative evidence, has reopened the case by issuing notice u/s 148 of the Act and therefore the reopening of the case is bad in law. Even otherwise, as per information received from the DIT (I & CI), Mumbai, it is clear as alleged that fictitious profit & loss were created by some brokers by misusing the client code modification (CCM) facility in F & O segment on NSE. The NSE has duly prosecuted the broker namely M/s. Pashupati Capital Services Pvt. Ltd. for indulging into client code modification for the assessment year under consideration and has also levied penalty to the tune of Rs.2,20,000/- and therefore the liability on the Assessee cannot be fastened and admittedly the Assessee has provided every detail of the transactions. 14. The Ld. Counsel also relied on various judgments qua issue under consideration, such as Dy. CIT-32(1) Vs. Viresh Pravin Shah in ITA No.1606/M/2023 decided on 21.12.2023 (Mumbai-Trib.); ITO vs. PAT Commodity Services Pvt. Ltd. in ITA No.3498 & 3499/M/2012 dated 07.08.2015 (Mumbai – Trib.) which ITA No.5932/MUM/2024 Mr. Hasmukh Khetshi Shah 13 subsequently got affirmed by the Hon’ble Jurisdictional High Court in the case of Pr. CIT vs. PAT Commodity Services Pvt. Ltd. in ITA No.1257 of 2016 & 1383 of 2016 dated 15.01.2019 (Bom.-HC). 15. On the contrary, the Ld. D.R. refuted the claim of the Assessee and supported the orders passed by the authorities below. 16. We have heard the parties and perused the material available on record. The information was received from DIT (I & CI), Mumbai to the effects “that fictitious profit & losses, were created by some brokers by misusing the client code modification in F&O segment on NSE and the broker had misused the CCM facility only for commission and Assessee is one of the beneficiaries of such bogus profit to the tune of Rs.48,93,183/-“ and therefore the case of the Assessee was reopened u/s 147 of the Act. 17. The Assessee contradicted the allegations by submitting the relevant documents, such as statements, broker’s ledger accounts, and copy of invoices issued by broker, payment details, global position and day to day contract notes along with Assessee’s confirmation. The Assessee also claimed that after placing the order he has no control over the acts of the broke. Even otherwise change of the client code at the broker’s end due to any reason, does not affect the genuineness of the Assessee’s claim. Admittedly, the broker in the instant case, has confirmed the transaction and therefore there is no evidence against the Assessee beside the imagination, surmises and conjecture of the Department. 18. The AO not being satisfied with the reply of the Assessee and “considering the modus operandi adopted by broker for client code modification and date-wise modified volume of the transaction and in ITA No.5932/MUM/2024 Mr. Hasmukh Khetshi Shah 14 spite of issuing notice u/s 133(6) of the Act to the broker calling for information, he has not produced client code modification related information to contradict the finding of the investigation wing and NSE information, director of the broking firm choose not to appear, in spite of sending notice u/s 131 of the Act and the fact that the NSE has levied a penalty of Rs.2,20,000/- on the broker M/s. Pashupati Capital Services Pvt. Ltd. for indulging into client code modification in the assessment year under consideration”, treated the amount of Rs.48,93,183/- on account of F & O trade as non genuine and unaccounted income and added the same to the income of the Assessee. 19. We by perusing the orders passed by authorities below and the submission made by the Ld. D.R. observe that the role of the Assessee in client code modification has not been established clearly. Whereas, admittedly the Assessee has provided every detail of the transactions carried out through broker namely M/s. Pashupati Capital Services Pvt. Ltd., who may be modified the client code modification, for his own benefit but not for the Assessee. And therefore the NSE has duly prosecuted the broker namely M/s. Pashupati Capital Services Pvt. Ltd. for indulging into client code modification for the assessment year under consideration and has also levied penalty to the tune of Rs.2,20,000/-. Even otherwise NSE or SEBI, has not initiated any proceedings qua client code modification against the Assessee herein. The Department also failed to establish any direct linkage/nexus between the broker and the Assessee, qua client code modification and therefore we are in concurrence with the submission of the Ld. Counsel that on the basis of conjecture and surmises, the liability on the Assessee cannot be fastened and thus the addition in hand is un-sustainable. ITA No.5932/MUM/2024 Mr. Hasmukh Khetshi Shah 15 20. We observe that Hon’ble Jurisdictional High Court in the case of Pr. CIT vs. PAT Commodity Services Pvt. Ltd. (supra) also dealt with the identical issue qua client code modification and affirmed the deletion of identical addition, by observing and holding as under: “2. Following questions are raised for our consideration: - (i) Whether in law and on the facts and circumstances of the case, was the Tribunal justified in upholding the deletion of the addition being the profits of the Company on account of the large scale client code modifications; the said be undertaken to transfer the profits of the company to other clients for the purposes of adjustment of their incomes to evade payment of tax? (ii) Whether in law and on the facts of the instant case, was the Tribunal in error in upholding the deletion when the AO had established that the motive of the client code modification was to indulge in circular trading to enable the generation of either profits or losses as required by clients at the end of the financial year? 3. The respondent Assessee is a private limited company engaged in the business of providing commodity services to its clients. In the return of income filed by the Assessee for the Assessment Year 2006-07, the Assessing Officer noticed that there were instances of client code modifications. The Assessing Officer believed that the same was done to indulge in circular trading to pass on profits or losses to the clients of the Assessee company as per requirements. After hearing the Assessee, the Assessing Officer made additions in the income of the Assessee on such basis. The issue eventually reached to the Tribunal. The Tribunal did accept the Revenue's theory of misuse of client’s ITA No.5932/MUM/2024 Mr. Hasmukh Khetshi Shah 16 code modification facility. However, the Tribunal accepted the Assessee's explanation and discarded the Revenue's theory that profit of the Assessee's company were passed on to the clients. It was also noticed that the Revenue has not contended that the client code modification facility is often misused by the Assessee to pass on losses to the investors, who may have sizable profit arising out of commodity trading against which such losses can be set off. The Revenue normally points out number of such instances of client code modifications as well as nature of errors in filling of the client code. At any rate, what can be taxed in the hands of the present Assessee is the income escaping assessment. Even if the Revenue's theory of the Assessee having enabled the clients to claim contrived losses, the Revenue had to bring on record some evidence of the income earned by the Assessee in the process, be it in the nature of commission or otherwise. In the present case, the Assessing Officer has added the entire amount of doubtful transactions by way of Assessee's additional income, which is wholly impermissible. We do not know the fate of the individual investors in whose cases, the Revenue could have questioned the artificial losses. Be that as it may, we do not think entertaining these appeals would serve any useful purpose.” 21. We further observe that the Tribunal in the case of Dy. CIT- 32(1) vs. Viresh Pravin Shah (supra) has also dealt with the identical issue, wherein the client code modification was made by the broker and therefore penalty proceedings were initiated against the broker, which resulted into levy of penalty by the NSE and thus the then Ld. CIT(A) deleted the identical addition and the Tribunal, ultimately affirmed the deletion of identical addition, by observing and holding as under: ITA No.5932/MUM/2024 Mr. Hasmukh Khetshi Shah 17 “5. Heard the parties and perused the material available on record. The Appellant mainly focused that the Ld. Commissioner erred in deleting the addition made by the AO without appreciating the involvement of the Assessee in the misuse of Client Code Modification Facility to obtain fictitious losses. As I have already observed that the AO himself has specifically noted in the order that the involvement of the Assessee in Client Code Modification is not confirmed, hence, this ground of appeal has no essence. Secondly, the Appellant also claimed that the Ld. Commissioner is not justified in deleting the addition without appreciating that the NSE has levied penalty on the broker from whom the Assessee has made transactions of shares and F & O. I observe that the Ld. Commissioner in its order categorically held that on perusal of reasons recorded by the AO notes that the Assessee had taken profit/loss to the tune of Rs.67,00,488/- in the F & O segment. Whereas in the assessment order, the AO states that the Assessee has obtained loss in lieu of profit to the extent of Rs. 54,29,959/- and had shown a loss of Rs. 55,60,770/- from the F & O segment, however, there is no details co-relating the said amounts with the transaction in the books of account of the Assessee. The Ld. Commissioner also observed that the AO failed to call for any information from M/s Pranav Securities Pvt. Ltd. to verify, if the said profit & loss have been duly incurred in the accounts of the Assessee. The Ld. Commissioner also considered the aspect qua claim of the Assessee that during the year under consideration, the Assessee has not carried out of any transaction with M/s Pranav Securities Pvt. Ltd. in the trade segment and presumption to the effect that the Assessee had reduced the profit of Rs. 54,29,959/- to a loss and accordingly making the addition of Rs. 1,08,59,918/- (being twice the amount of Rs. 54,29,959/-) is not substantiated by any evidence. The Assessee also claimed that he has not carried out ITA No.5932/MUM/2024 Mr. Hasmukh Khetshi Shah 18 any transaction in the F & O segment with M/s Pranav Securities Pvt. Ltd. during the month of March 2010. On overall consideration, I observe that the Ld. Commissioner rightly concluded that there are no linkages between the reasons recorded and the conclusion drawn and/or addition made by the AO. It is also a fact that though as per information supplied by NSE vide letter dated 25.02.2016, the penalty of Rs. 6,16,000/- was levied against M/s Pranav Securities Pvt. Ltd. (broker of the Assessee for Client Code Modification), however, the involvement of the Assessee in Client Code Modification is not confirmed as observed by the AO himself. Even otherwise I also do not find any perversity, impropriatory and illegality in the impugned order, hence on the aforesaid analyzations, am inclined not to interfere in the conclusion drawn by the Ld. Commissioner in deleting the addition under consideration.” 22. Considering the aforesaid peculiar facts and circumstances in totality and the decisions rendered by the Co-ordinate Benches of the Tribunal, as well as by the Hon’ble Jurisdictional High Court in the identical issue, as involved in the instant appeal, we are inclined to delete the addition under consideration, hence, the same is deleted. 23. As we have deleted the addition on merit, hence we deem it appropriate not to delve into the legal aspects of the case, as adjudication of the same, would prove futile exercise, which we are inclined not to do. ITA No.5932/MUM/2024 Mr. Hasmukh Khetshi Shah 19 24. In the result, the appeal filed by the Assessee stands allowed. Order pronounced in the open court on 23.04.2025. Sd/- Sd/- (PRABHASH SHANKAR) (NARENDER KUMAR CHOUDHRY) ACCOUNTANT MEMBER JUDICIAL MEMBER * Kishore, Sr. P.S. Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The DR Concerned Bench //True Copy// By Order Dy/Asstt. Registrar, ITAT, Mumbai. "