Amigo Finstock Pvt. Ltd., Ahmedabad V. The ITO, Ward-1(1)(1), Ahmedabad

ITA 1037/AHD/2018

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 9511 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 12-09-2022
• Assessment Year: 2009-2010
• Appeal Filed On: 24-04-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Transactions in derivatives; Accommodation entries; Borrowed satisfaction
• Section: 148; 133A; 133(6); 139(1); 64

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER I. T .A . N o .1 03 7 / Ah d/2 0 1 8 ( A s s e s s me nt Y ea r : 20 0 9- 10 ) A m ig o Fi ns toc k Pv t . L td . P- 2, C i t y C e n tr e, N e ar S w a s t ik C h ar R a st a , C . G . R o ad , Ah me da bad - 3 80 00 9 V s . I T O War d - 1 ( 1) ( 1 ) , A h me da ba d [P AN N o.A A BC A 9 9 7 8R] (Appellant) .. (Respondent) Appellant by : Shri Bhavik Nagori, A.R. Respondent by: Shri Rakesh Jha, Sr. DR D a t e of H ea r i ng 13.09.2022 D a t e of P r o no u n ce me nt 31.10.2022 O R D E R This appeal is filed by the assessee against the order dated 27.02.2018 passed by the Ld. CIT(Appeals)-1, Ahmedabad for A.Y. 2009-10. 2. The grounds of appeal raised by the assessee read as under: “1. The Ld. CIT(A) has erred in law, on the facts and circumstances of the case, in assessing the income of the appellant at Rs 21,82,230/- instead of Rs 36,701/- returned. As such aggregate additions of Rs. 21,46,230/- may please be deleted. 2. The Ld. CIT(A) has erred by confirming the order of AO merely based on Pr. DIT (investigation), Ahmedabad report stating that client code modification are done in the case of assessee & based on human probability he has completed the adjudication without bringing any tangible material on record or bringing any statements on record & has completed the assessment based on conjectures and surmises. 3. The Assessing Officer erred in law and on the fact that even the reasons of reopening are inadequate as much as it does not reveal any income escaped much less due to any failure on the part of the petitioner truly and fully disclosure of all material fact & the same is based on borrowed satisfaction of Investigation wing. 4. The appellant humbly craves leave to add, delete or modify all or any ground of appeal.” 3. The assessee company has filed its return of income for A.Y. 2009-10 on 29.09.2009 declaring total income of Rs. 36,701/- after claiming deduction under Chapter VI-A of Rs. 1,932/-. In this case information was received from ITA No.1037/Ahd/2018 Amigo Finstock Pvt. Ltd. vs. ITO Asst.Year –2009-10 - 2 - the Officer of Principal Director of Income Tax (Investigation), Ahmedabad that assessee company is practicing in modification of client code in purchase and sale of securities. The assessee company was mis-using client code modification (CCM) for tax evasion purposes and during the year under consideration the assessee company has contrived loss of Rs. 21,46,230/- by way of this practice which was not its actual loss incurred. The Assessing Officer observed that information received from Investigation Wing of the Income Tax Department that co-ordinate survey under Section 133A of the Act was carried out on 23.03.2015 at the premises of 12 different brokers. These surveys were conducted to carry out focused inquiries on the issue of Client Code Modification (CCM) and other related issues so as to substantiate the tax evasion done through Client Code Modification. Client Code Modification is permitted by both SEBI & the Stock Exchanges so as to take care of human error that occurs during the entry of client codes while placing the order. The brokers were allowed to change the Client Code within 30 minutes after the market closes for rectifying “Genuine” errors and mistakes which may have occurred during the trading hours. The Assessing Officer initiated assessment proceeding under Section 148 of the Income Tax Act after recording the reasons and obtaining necessary approval. The Ld. Authorized Representative of the assessee submitted the return of income filed under Section 139(1) of the Act and requested to provide the reasons for the case being selected for re- assessment under Section 148 of the Act. The assessee filed application under Section 144A of the Act which was disposed of on 23.12.2016. The Assessing Officer observed that as per the reasons recorded and information available with the Income Tax Office, there was escapement of income in A.Y. 2009-10 on account Client Code Modification carried out by assessee company through its broker M/s. ANS Pvt. Ltd. which worked out at Rs. 21,46,230/-. The ITA No.1037/Ahd/2018 Amigo Finstock Pvt. Ltd. vs. ITO Asst.Year –2009-10 - 3 - Assessing Officer made addition on account of deduction of income in respect of accommodation entries amounting to Rs. 21,46,230/-. 4. Being aggrieved by the assessment order the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee. 5. The Ld. A.R. submitted that the Assessing Officer re-opened the case without obtaining permission from appropriate authority on the basis of information passed by the Investigation Wing and another Assessing Officer without making any further investigation specifically making any findings in the case of the assessee. The Ld. A.R. further submitted that it is a regular practice for the broker to make modifications in the Client Code after the purchase and sale of securities. The mere fact that there is Client Code Modification prima facie does not mean that any income has escaped assessment. The Ld. A.R. further submitted that the assessee was never informed by broker about any change in the Client Code and never given instructions to make any change in Client Code. Hence any changes in Client Code is conducted by broker for genuine reasons which is allowed by SEBI and Stock Exchange within 30 minutes after the market close for rectifying the “genuine” errors and mistake which may have occurred during the trading hours. The assessee categorically denied regarding any involvement in any activity of change in Client Code with an object to evade the tax. The information provided by ADIT (Investigation) is vague and incomplete. No conclusion can be drawn based on this information. The Ld. A.R. pointed out the mismatches for which the details are as follows: a) Quantity Mismatch a) Particulars Quantity ITA No.1037/Ahd/2018 Amigo Finstock Pvt. Ltd. vs. ITO Asst.Year –2009-10 - 4 - b) Quantity reported by ADIT (Investigation) in case of “Reliance Infra” 20,010 c) Actual Quantity as per Contact note/ Invoice/ Books of Accounts 27,120 b) Number of Transactions c) Particulars Number d) Transactions reported by ADIT (Investigation) 16 e) Transactions as per Actual Quantity as per Contact note/Invoice/Books of Accounts 507 The Ld. A.R. further submitted that the punching is done based on the order/trade number and accordingly, Client Code Modification should be given on that basis while ADIT (Investigation) did on day basis. The Ld. A.R. gave an example that if the assessee has order/trade 10 times for 100 shares each time. If the Client Code Modification on one order/trade as per the ADIT (Investigation), whole transaction of 1000 shares fall and shown under Client Code Modification instead of one order/trade of 100 shares. As per contract/invoice all transactions recorded in terminal normal timing i.e. 9 AM to 3.30 PM not a single transaction by ADIT (Investigation) during grace period of 30 minutes after closure of business hours 9 AM to 3.30 PM. All transactions were conducted through normal course of business for online terminal timing as shown in assessee’s contract. No change after the closure of online terminal timing (Grace Period) which proves that even if any punching error occurred, the same was rectified immediately. If any punching after business hours i.e. Grace Period may be doubtful that code was changed intentionally. The assessee submitted the screenshot of a contract to prove the same. As per the information sheet submitted by ADIT (Investigation) given ITA No.1037/Ahd/2018 Amigo Finstock Pvt. Ltd. vs. ITO Asst.Year –2009-10 - 5 - to the Assessing Officer and given to the assessee, the Ld. A.R. pointed out from that, that corrected name of assessee company start from English alpha “A” (Amigo) & ORG CL name was also from “A” (Amar), both name start from similar alpha, which may be name of wrong punching. The alphabetic mistake is allowed under SEBI regulation and it was initial phase of online Technology and platform and also brokers and their staff was under process to adopt the electronic online system. The Ld. A.R. pointed out the evidences related to all contract notes and invoices which were placed before the Ld. CIT(A). The Ld. A.R. further submitted that if any small mistake is committed it may result in huge loss and accountability is a broker. No broker has the courage to trade in forward market on self-account for mere brokerage of 0.01- 0.02%. The high value scrips as follows Nifty, Infosys, Reliance Capital, Reliance Infra, Reliance, SBI having total trade 507 with quantity 98770 shares and value of Rs. 1012.52 lakhs. The assessee is in regular business of investing in the F & O market since last 3-4 years and has also incurred losses in earlier. The details are as follows: AY Amount (In Rs.) 2008-09 16,857/- 2009-10 24,27,415/- 2010-11 20,06,527/- The Ld. A.R. further submitted that SEBI/SE had not objected/penalize for those transactions to anybody. The Assessing Officer never inquired under Section 133(6) or summoned anybody that a broker or counterpart as required to have independent opinion, but instead made addition on vague information without applying his own mind. The Ld. A.R. submitted that the Assessing Officer neither consider nor rejected all documents produced by the assessee ITA No.1037/Ahd/2018 Amigo Finstock Pvt. Ltd. vs. ITO Asst.Year –2009-10 - 6 - during the assessment proceedings such as contract note, invoices, cross ledger account, bank statement in spite the assessee had requested to the CIT and got direction from Additional Commissioner of Income Tax on 13.12.2016. Thus, the Ld. A.R. prayed that the addition made by the Assessing Officer which was confirmed by the CIT(A) be deleted. 6. The Ld. D.R. submitted that the cross examination was not necessary in assessee’s case. The Ld. D.R. further submitted that the CIT(A) has rightly observed that the Client Code Modification carried out by ACFSL was not inadvertent error, but was systematically operated as tool to evade taxes. Generally Client Code Modification especially in the Future and Options Segment (F&O) was being used as a device to evade taxes wherein the client codes were modified for booking artificial profits or losses at the fag end January to March of the Financial Year when the book profit/losses of various clients have crystallized. In case of assessee such code is modified in the month of March 2009 through its broker ANS Pvt. Ltd., hence it is not a bona fide error and the disallowance of loss of Rs. 21,46,230/- was rightly made by the Assessing Officer. The Ld. D.R. relied upon the assessment order and the order of the CIT(A). 7. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that in the assessment order the Assessing Officer has not given the details as to how the assessee’s Client Code was not genuinely rectified/modified. To demonstrate that the Assessing Officer relied upon the report of ADIT (Investigation) wherein it is observed that the form of punching Client Code was similar phonic sound. The Assessing Officer has observed that evidences collected by Investigation Wing clearly indicate that the Client Code Modification was made in his account by ITA No.1037/Ahd/2018 Amigo Finstock Pvt. Ltd. vs. ITO Asst.Year –2009-10 - 7 - broker. From the perusal of the Investigation Report is can be seen that the annexure enclosed has clearly set out that original Client Code was A2402 and A1240 which are totally different from the assessee’s Client Code i.e. AB227. Hence, modification in this case was not found genuine by the Assessing Officer as well as CIT(A). The Client Code modification was not a punching/typographical error but in fact is a proper mechanism developed by the broker and the assessee by arranging such modification for assessee’s benefit. Information was received from the office of the ADIT (Investigation), in respect of Client Code Modification and the dissemination of beneficiary client who have taken losses and shifted out profits during the F.Y. 2008-09. This list was specifically including name of the assessee who is one of the beneficiaries of this scheme. Thus, despite not being specific in the assessment order, yet the reliance of the Assessing Officer on the report of ADIT (Investigation) was justified as the issue related to Client Code Modification is a highly technical and required expert investigation which has been conducted by the ADIT (Investigation). Thus, the contention of the Ld. A.R. that no notice under Section 133(6) or summons were issued are not necessitated in this case as the ADIT (Investigation) has detailed out the particulars of the modus operandi of this specific assessee company and its broker. Therefore, the decision submitted by the assessee that of ACIT vs. Kunvarji Finance Pvt. Ltd. (2015) 40 ITR(T) 64 (Ahmedabad-Trib.) as well as the decision in case of Kundan Investment Ltd. (2003) 263 ITR 0626, Amar Mukesh Shah (2017) 81 taxmann.com 450 (Ahmedabad-Trib.), Chintan Jaswantbhai Shah (2021) 125 taxmann.com 439 (Ahmedabad-Trib.) and Vipul D. Shah (2019) TAxPub (DT) 5086 (Mum-Trib.) are not applicable in assessee’s case. The assessee has relied plethora of other decision as well which will not be helpful in assessee’s case as the facts and circumstances in the present assessee’s case are ITA No.1037/Ahd/2018 Amigo Finstock Pvt. Ltd. vs. ITO Asst.Year –2009-10 - 8 - distinguishable more specifically the investigation report has clearly set out the Client Code Modification in assessee’s case and the modus operandi of the same. Therefore, the Assessing Officer and the CIT(A) has rightly made disallowance of loss. The appeal of the assessee is dismissed. 8. In result the appeal of the assessee is dismissed. This Order pronounced in Open Court on 31/10/2022 Sd/- (SUCHITRA KAMBLE) JUDICIAL MEMBER Ahmedabad; Dated 31/10/2022 TANMAY, Sr. PS TRUE COPY आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 28.10.2022 2. Date on which the typed draft is placed before the Dictating Member 28.10.2022 3. Other Member..................... 4. Date on which the approved draft comes to the Sr.P.S./P.S 28 .10.2022 5. Date on which the fair order is placed before the Dictating Member for pronouncement .10.2022 6. Date on which the fair order comes back to the Sr.P.S./P.S 31 .10.2022 7. Date on which the file goes to the Bench Clerk 31.10.2022 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 Despatch of the Order..........................................