AmitKumar Amulakhrai Shah, HUF, Bhavnagar V. The Dy. CIT, Circle-2, Bhavnagar

ITA 708/AHD/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1023 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 05-12-2019
• Assessment Year: 2011-2012
• Appeal Filed On: 22-03-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AHD AM; DILEEP KUMAR SR D R ITA NO
• Assessee Lawyers: B R POPAT; ROHAN POPAT A RS
• Keywords: Bonafide belief; Transactions in derivatives; Tangible material
• Section: 143(3); 133A; 64; 13

Judgement Text

, B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SMT. MADHUMITA ROY, JUDICIAL MEMBER ./ I.T.A. NOS. 708 & 709/AHD/2018 ( ASSESSMENT YEAR : 2011-12) (I) AMITKUMAR AMULAKHRAI SHAH HUF & (II) AMITKUMAR AMULAKHRAI SHAH 2130/A/2, 3 RD FLOOR, VRAJRAJ, ATABHAI ROAD, BHAVNAGAR - 364001 / VS. THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-2, BHAVNAGAR ./ ./ PAN/GIR NO. : AAFHA9902A & AJBPS3135N ( APPELLANT ) .. ( / RESPONDENT ) & ./ I.T.A. NOS. 705 & 706/AHD/2018 ( ASSESSMENT YEARS : 2010-11 & 2011-12) MONABEN AMITKUMAR SHAH 1526/A, PUSHPAK, B/H. THEOSOPHICAL LODGE, RUPANI CIRCLE, BHAVNAGAR - 364001 / VS. THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-, BHAVNAGAR ./ ./ PAN/GIR NO. : APUPS4332J ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI B. R. POPAT & SHRI ROHAN POPAT, A.RS. / RESPONDENT BY : SHRI DILEEP KUMAR, SR.D.R. ITA NO.708-709 & 705-706/AHD/18 [AMITKUMAR A. SHAH HUF & ORS.] - 2 - DATE OF HEARING 05/12/2019 !'# / DATE OF PRONOUNCEMENT 18/12/2019 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEALS DIRECTED AT THE INSTANCE OF A SSESSEE ARISE FROM THE RESPECTIVE ORDERS OF THE COMMISSIONER OF I NCOME TAX (APPEALS) (CIT(A)) AGAINST DIFFERENT ASSESSMENT YEARS AS TA BULATED BELOW: ITA NOS. NAME OF ASSESSEE AY CIT(A)S ORDER DATED AOS ORDER DATED AOS ORDER UNDER SECTION 708/AHD/18 AMITKUMAR A. SHAH HUF 2011-12 22.02.18 13.11.17 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) 709/AHD/18 AMITKUMAR A. SHAH 2011-12 22.02.18 06.12.17 143(3) R.W.S. 148 OF THE ACT 705/AHD/18 MONABEN A. SHAH 2010-11 21.02.18 24.11.2017 143(3) R.W.S. 147 OF THE ACT 706/AHD/18 MONABEN A. SHAH 2011-12 22.02.18 14.11.2017 143(3) R.W.S. 147 OF THE ACT 2. AT THE BEGINNING OF THE HEARING, IT WAS STATED O N BEHALF OF THE ASSESSEE THAT ALL THE FOUR MATTERS CAPTIONED ABOVE ARE INTER-CONNECTED AND INVOLVES COMMON ISSUE. ACCORDINGLY, ALL THE FOU R MATTERS WERE HEARD TOGETHER FOR ADJUDICATION PURPOSES. 3. WE SHALL TAKE ASSESSEES APPEAL IN ITA NO. 708/A HD/2018 PERTAINING TO AMITKUMAR A. SHAH HUF CONCERNING AY 2 011-12 AS A LEAD CASE FOR ADJUDICATION. ITA NO. 708/AHD/2018 - AY- 2011-12 (IN CASE OF AMIT KUMAR A. SHAH HUF) 4. THE GROUND OF APPEAL RAISED BY ASSESSEE READS AS UN DER: ITA NO.708-709 & 705-706/AHD/18 [AMITKUMAR A. SHAH HUF & ORS.] - 3 - 1. CONFIRMING THE ACTION OF THE AO IN RE-OPENING T HE ASSESSMENT FOR THE REASONS AS RECORDED AND CONVEYED IN DUE COURSE OF TIME TO THE APPELLANT; AND 2. CONFIRMING THE ACTION OF THE AO IN MAKING DISALL OWANCE OF RS.1,16,078/- AND THEREBY MAKING ADDITION OF THE SA ID AMOUNT TO THE RETURNED INCOME, FOR THE REASONS AS STATED IN THE B ODY OF THE ORDER. 5. THE ASSESSEE FILED ITS RETURN OF THE INCOME DE CLARING TOTAL PROFIT AT RS.10,64,380/- FOR AY 2011-12. THE RETURN SO FILED INCLUDED PROFIT/LOSS RESULTING FROM TRADES CARRIED OUT ON THE PLATFORM O F STOCK EXCHANGE THROUGH REGISTERED BROKER. THE RETURN FILED BY THE ASSESSEE WAS PROCESSED UNDER S.143(1) OF THE ACT. THEREAFTER, T HE CASE WAS REOPENED UNDER S.147 OF THE ACT ON 30.03.2016 ON THE BASIS O F CERTAIN INFORMATION FROM THE INVESTIGATION WING OF THE INCOME TAX DEPAR TMENT. THE REASONS RECORDED FOR REOPENING THE CASE WAS PROVIDED TO THE ASSESSEE AND OBJECTION RAISED BY THE ASSESSEE. THE OBJECTIONS O N REOPENING WERE DISPOSED OF IN THE COURSE OF RE-ASSESSMENT PROCEEDI NGS. THE AO THEREAFTER OBSERVED THAT INVESTIGATION DIRECTORATE, AHMEDABAD HAS CONDUCTED SURVEY UNDER S.133A OF THE ACT ON THE PRE MISES OF SEVERAL BROKERS. IT WAS FOUND BY THE INVESTIGATION WING TH AT CLIENT CODE MODIFICATION (CCM) FACILITY PERMITTED TO THE BROKER S BY THE EXCHANGES/SEBI TO SET OUT BONAFIDE ERRORS IS BEING MISUSED FOR TAX EVASION BY REALLOCATION OF PROFITS FROM ONE CLIENT TO ANOTHER IN CONNIVANCE WITH THE BROKERS. LIST OF SUCH PERSONS WHO HAVE USED CCM AND TOOK BENEFIT BY SHIFTING OUT PROFIT/SHIFTING IN LOSSES TO REDUCE THEIR TAXABLE INCOME WAS ALSO SHARED BY THE INVESTIGATION WING WITH THE AO. THIS LIST INTER ALIA INCLUDED THE NAME OF THE CAPTIONED ASSESSEES. THE TRADE DATE RELATED TO ALL TRANSACTIONS ENTERED INTO BY THE ASSESSEE IN CASH OR DERIVATIVE SEGMENT OF THE STOCK EXCHANGE HAVE BE EN ANALYSED BY THE AO AND THEREAFTER A SATISFACTION WAS FORMED TOWARDS ESCAPEMENT OF INCOME AND THE CASE WAS CONSEQUENTLY REOPENED. AS STATED, ON ANALYSIS OF TRADE DATA OF THE STOCK EXCHANGE, IT WAS FOUND B Y THE AO THAT THE ASSESSEE (CLIENT) HAS MISUSED CCM FACILITY AVAILABL E TO BROKER TO OBTAIN CONTRIVED LOSSES BY MODIFICATION OF CLIENT CODE TO THE TUNE OF RS.1,16,078/- DURING THE YEAR. ITA NO.708-709 & 705-706/AHD/18 [AMITKUMAR A. SHAH HUF & ORS.] - 4 - 5.1 THE AO ISSUED A DETAILED SHOW CAUSE NOTICE UNDE R S.142 (1) OF THE ACT DATED 04.09.2017 IN THIS REGARD AS REPRODUCED I N ASSESSMENT ORDER AND CONSIDERED THE WRITTEN REPLIES OF THE ASSESSEE IN THIS REGARD. ADMITTEDLY, DATA IN SOFT FORM AS RECEIVED BY THE AO FROM THE INVESTIGATION WING WAS SUPPLIED TO THE ASSESSEE. H AVING REGARD TO EXTENT AND MAGNITUDE OF MODIFICATIONS IN CLIENT COD E RESULTING IN REDUCTION OF TAXABLE PROFITS, THE AO ULTIMATELY OBS ERVED THAT THE CCM IN THE ASSESSEES CASE WERE NOT BONAFIDE BUT DONE WITH MALAFIDE INTENTION. THE AO ACCORDINGLY DENIED THE CLAIM IN RESPECT OF A LLEGED CONTRIVES LOSSES OWING TO CODE MODIFICATION AND INCREASED THE ASSESSED INCOME TO THE TUNE OF RS.1,16,078/-. THE ASSESSED INCOME WAS ACCORDINGLY COMPUTED AT RS.11,80,460/-. 6. AGGRIEVED BY THE ACTION OF THE AO, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). THE CIT(A) HOWEVER DID NOT FIND MERIT IN THE APPEAL OF THE ASSESSEE AND OBSERVED THAT THE ASSESSEE FAIL ED TO REFUTE THE ALLEGATIONS OF THE AO WHICH WAS BASED ON CONCRETE I NFORMATION AND SCIENTIFIC ANALYSIS OF DATA OBTAINED FROM THE STOCK EXCHANGE. THE CIT(A) ACCORDINGLY REFUSED ANY INDULGENCE IN THE CO NCLUSION DRAWN BY THE AO. THE RELEVANT PARA OF THE APPELLATE ORDER OF CIT(A) DEALING WITH THE MERITS OF THE CASE IS REPRODUCED HEREUNDER: 5.3 AFTER CONSIDERING FINDINGS OF THE AO AND SUBMI SSIONS OF THE APPELLANT, THIS GROUND IS ADJUDICATED AS UNDER. IT IS SEEN THAT THE AO HAD INFORMATION THAT THE APP ELLANT IN CONNIVANCE WITH HIS BROKER MANGAL KESHAV SECURITIES HAD INDULGED IN CLIENT CODE MODIFICATION (CCM) TO SHIFT IN LOSSES A ND THE SAME WAS SET OFF AGAINST TAXABLE INCOME OF THE APPELLANT. THE AO HAD INFORMATION THAT THERE WERE 33 TRANSACTIONS OF THE APPELLANT IN WHICH CCM HAD BEEN DONE. BY DOING CCM IN THESE 33 TRANSACTIONS, THERE WAS SHIFTING OUT OF PROFIT OF AND SHIFTING IN OF LOSSES. THUS, BY RESOR TING TO CCM, IN TOTAL THE INCOME WAS REDUCED BY RS.1,16,078/- BY THE APPE LLANT. ACCORDINGLY, THE AO ADDED RS.1,16,078/- TO THE INCOME OF THE APP ELLANT. THE PRESENT APPEAL IS AGAINST THE ABOVE ACTION OF THE AO. IT IS SEEN THAT THE APPELLANT CARRIED OUT LARGE NUM BER OF TRANSACTIONS IN STOCK EXCHANGE THROUGH BROKER MANGA L KESHAV SECURITIES LIMITED, INVESTIGATION WING OF THE INCOM E TAX DEPARTMENT AT AHMEDABAD HAD CARRIED OUT SURVEYS U/S 133A OF THE A CT ON BROKERS IN AHMEDABAD AND HAD ANALYSED DATA FROM DIFFERENT STOC K EXCHANGES FROM ITA NO.708-709 & 705-706/AHD/18 [AMITKUMAR A. SHAH HUF & ORS.] - 5 - F.Y. 2009-10 TO 2010-11. ANALYSIS OF THIS DATA INDI CATED THAT THERE WAS SYSTEMIC SHIFTING OF HUGE CRYSTALLIZED LOSSES USING CCM IN THE F & O SEGMENT AT THE NATIONAL STOCK EXCHANGE. THIS ANALYS IS INDICATED THAT CCM WAS USED FOR PURPOSE OTHER THAN FOR RECTIFYING GENUINE ERRORS. NAME OF THE APPELLANT FIGURED IN THE LIST OF PERSON S WHO HAD USED CCM TO SHIFT OUT PROFIT/SHIFT IN LOSSES. IN SURVEY U/S 133A OF THE ACT ON MANGAL KESHAV SECU RITIES, BROKER OF THE APPELLANT, IT WAS FOUND THAT THE BROK ER INDULGED IN LARGE SCALE CLIENT CODE MODIFICATIONS SO AS TO FACILITATE SHIFTING OF LOSSES AND PROFITS TO ITS CLIENTS AS PER REQUIREMENTS. THE AO HAD INFORMATION THAT IN THE YEAR UNDER CONSIDERATION, THERE WERE 33 TRANSACTIONS PERTAINING TO THE APPELLANT WHERE CCM WAS USED TO S HIFT LOSSES AND PROFITS. DETAILS ARE AS FOLLOWS:- F.Y. TRANSACTIONS NO. OF TRANSACTIONS ASCERTAINED PROFIT/LOSS SHIFTED OUT/ SHIFTED IN (RS.) AS ORIGINAL CLIENT 2009-10 TRANSACTIONS WHERE ASCERTAINED LOSSES SHIFTED OUT 8 128678/- (PROFIT SHIFTED OUT) TRANSACTIONS RESULTING IN NO PROFIT NO LOSS 1 TRANSACTIONS WHERE ASCERTAINED PROFIT SHIFTED OUT 23 AS MODIFIED CLIENT 2009-10 TRANSACTIONS WHERE LOSSES SHIFTED IN 0 -12600/- (PROFIT SHIFTED IN ) TRANSACTIONS RESULTING IN NO PROFIT NO LOSS 0 TRANSACTIONS WHERE PROFIT SHIFTED IN 1 NET REDUCTION IN INCOME DUE TO CCM 33 116078/- FURTHER, THE AO HAD INFORMATION THAT CLIENT CODE MO DIFICATION IN CASE OF APPELLANT WERE CARRIED OUT AGAINST A FIX ED SET OF PANS ONLY. ALL MODIFIED TRANSACTIONS WERE CARRIED OUT BETWEEN THE APPELLANT AND A FIXED SET OF CLIENTS. BOTH WHEN THE APPELLANT WAS T HE ORIGINAL CLIENT AND THE MODIFIED CLIENT , THE COUNTERPARTIES WERE COMMO N. THIS CANNOT BE A SHEER COINCIDENCE. IF THE CLIENT CODE MODIFICATION IS DONE TO RECTIFY A GENUINE ERROR, THE CORRESPONDING CLIENT CODE COULD BE ANY. BUT HERE, THERE IS A SET OF CLIENT CODES WITH WHICH THE MODIF ICATIONS ARE DONE TO THE TRANSACTIONS OF THE APPELLANT. FURTHER, THE AO HAS CARRIED OUT THE LEVENSHTEIN DIS TANCE ANALYSIS OR DIGIT EDIT ANALYSIS WHICH HELPS TO KNOW THE MINIMUM NUMBER OF EDITS REQUIRED TO CHANGE ONE CODE TO ANOT HER. THIS ANALYSIS INDICATES WHETHER THE CODE IS WRONGLY TYPED OR IS C OMPLETELY REPLACED. IN THE CASE OF THE APPELLANT, FOR 33 CCMS ON AVERAG E 1 EDIT HAPPENED FOR EACH CCM. THIS ESTABLISHES THAT CCMS WERE NOT C ARRIED OUT TO RECTIFY ANY GENUINE ERROR RATHER TO COMPLETELY REPL ACE ONE CLIENT CODE WITH OTHER. FURTHER, BASED ON SURVEY U/S 133A OF THE ACT IN THE CASE OF THE BROKER MANGAL KESHAV SECURITIES, IT WAS FOUND THAT THE BROKER HAD INDULGED IN LARGE SCALE CCMS TO FACILITATE LOSSES A ND PROFITS AS PR REQUIREMENTS OF ITS CLIENTS. THE AO HAD INFORMATION THAT KESHAV ITA NO.708-709 & 705-706/AHD/18 [AMITKUMAR A. SHAH HUF & ORS.] - 6 - MANGAL HAD CARRIED OUT VERY HIGH NUMBER OF CCMS ON THE NSE F & 0 SEGMENT AS FOLLOWS:- F.Y. TOTAL CCM 2008-09 33501 2009-10 48358 2010-11 32021 2011-12 243 THE APPELLANT FAILED TO REFUTE THE ALLEGATIONS OF T HE AO WHICH WERE BASED ON CONCRETE INFORMATION AND SCIENTIFIC A NALYSIS OF THE SAME. DURING THE APPELLATE PROCEEDINGS THE APPELLANT REIT ERATED WHAT IT HAD SUBMITTED BEFORE THE AO. THE MAIN THRUST OF THE ARGUMENT OF THE APPELLANT IS THAT MOST OF THE CLIENT CODE MODIFICAT IONS DONE HAVE TAKEN PLACE BETWEEN THE APPELLANT AND ITS KARTA, SINCE TH E CLIENT CODES ARE SIMILAR TO EACH OTHER, CCMS COULD BE DUE TO INADVER TENT TYPING ERROR. ANY MISTAKE COMMITTED BY THE BROKER CANNOT BE CONSI DERED THE BASIS TO DOUBT GENUINENESS OF BONA FIDE TRANSACTIONS. A PERUSAL OF SUBMISSIONS OF THE APPELLANT SHOWS THA T THE SUBMISSIONS ARE VERY GENERAL IN NATURE AND LACK SUB STANCE. THE APPELLANT HAS TRIED TO EXPLAIN THE LARGE NUMBER OF CCMS DONE IN A SIMPLISTIC WAY BY SAYING THAT THIS COULD BE DUE TO INADVERTENT ERROR SINCE THE CODE OF APPELLANT AND ITS KARTA WERE ALMO ST SIMILAR. THE APPELLANT HAS NOT BEEN ABLE TO REFUTE THE ALLEGATIO NS OF THE AO WHICH ARE SPECIFIC AND WHICH ARE BASED ON SCIENTIFIC ANAL YSIS. MERELY SAYING THAT IT HAS NOT ASKED ITS BROKER TO CARRY OUT ANY M ODIFICATIONS, DOES NOT HELP THE CAUSE OF THE APPELLANT. THE AO HAS GIVEN S PECIFIC TRANSACTIONS WHERE PROFIT AND LOSS HAS BEEN SHIFTED IN BY CLIENT CODE MODIFICATION. THE APPELLANT HAS FAILED TO ADDUCE ANY EVIDENCE TO SHOW THAT IT HAS NOT BENEFITED BY THESE TRANSACTIONS. THE APPELLANT HAS NOT GIVEN ANY EVIDENCE TO ESTABLISH THAT ONCE IT CAME TO KNOW ABO UT THE CLIENT CODE MODIFICATIONS, IT OBJECTED TO THE BROKER ABOUT THE SAME. THIS BECOMES PARAMOUNT SINCE IN THE CASE OF THE APPELLANT CCMS C ARRIED OUT BY THE BROKER CAUSED HUGE LOSS TO THE APPELLANT. ALSO, IT IS SEEN THAT LARGE NUMBER OF CCMS HAVE BEEN DONE IN CASE OF APPELLANT, ITS KARTA AND WIFE OF KARTA YEAR AFTER YEAR. HOW CAN ANYONE NOT OBJECT TO AND CONTINUE WITH A BROKER WHO COMMITS SUCH HUGE NUMBER OF MISTA KES THAT TOO RESULTING IN LOSS TO THE CLIENT. THUS IT CAN BE SAF ELY ASSUMED THAT CCMS COULD NOT HAVE BEEN DONE WITHOUT CONSENT OF THE APP ELLANT. SEBI PERMITS CLIENT CODE MODIFICATION TO RECTIFY GE NUINE ERROR IN ENTRY OF CLIENT CODE AT THE TIME OF PLACING/MODI FYING THE RELATED ORDER. THIS FACILITY HAS BEEN MISUSED BY BROKERS AN D THEIR CLIENTS FOR DIVERTING PROFIT/LOSSES ACROSS CLIENTS IN ORDER TO EVADE TAX ON STOCK EXCHANGE TRANSACTIONS. THE APPELLANT IS ONE OF SEVE RAL OF SUCH BENEFICIARIES WHO IN CONNIVANCE WITH THEIR BROKERS HAVE BENEFITTED FROM CCMS. RATIO OF DECISIONS RELIED ON BY THE APPELLANT IS NOT APPLICABLE TO THE PRESENT CASE AS THESE ARE DISTINGUISHED ON FACT S. FURTHER, THE SEBI CIRCULAR RELIED ON BY THE APPELLANT IS NOT APPLICAB LE SINCE 19.08.2016 AND HERE THE PERIOD IS F.Y.10-11. IN VIEW OF DISCUSSION ABOVE, IT IS HELD THAT THE AO WAS JUSTIFIED IN MAKING ADDITION OF RS.1,16,078/- ACCORDINGLY, AD DITION OF RS.1,16,078/- IS UPHELD. THIS GROUND OF APPEAL IS R EJECTED. 7. IN THE RESULT, THE APPEAL IS DISMISSED. ITA NO.708-709 & 705-706/AHD/18 [AMITKUMAR A. SHAH HUF & ORS.] - 7 - 7. FURTHER AGGRIEVED BY THE DENIAL OF RELIEF CLAIME D BEFORE THE CIT(A), THE ASSESSEE PREFERRED APPEAL BEFORE THE TR IBUNAL. 8. BEFORE THE TRIBUNAL, THE LEARNED AR FOR THE ASSE SSEE RAISED TWO FOLD OBJECTIONS; (I) CHALLENGED THE JURISDICTION AS SUMED UNDER S.147 OF THE ACT AND (II) CLAIMED THAT THE REVENUE AUTHORITI ES HAVE MISDIRECTED THEMSELVES ON FACTS AND LAW ON THE ASPECTS OF MERIT S OF THE ADDITION. WE WOULD QUOTE THE ARGUMENTS ADVANCED ON BEHALF OF THE ASSESSEE WHILE DEALING WITH THE RESPECTIVE POINTS. 9. THE LEARNED DR FOR THE REVENUE, ON THE OTHER HAN D, RELIED UPON THE LOWER AUTHORITIES AND SUBMITTED ON MERITS THAT IT IS HIGHLY IMPROBABLE THAT SO MANY TRANSACTIONS WILL REQUIRE MODIFICATION OF CLIENT CODE ASSIGNED TO ASSESSEE WITH ALTOGETHER DIFFERENT CHAR ACTERS IN A ROUTINE MANNER AND AS A REGULAR FEATURE EXCEPT FOR PURCHASI NG SHAM LOSSES TO REDUCE TAXABLE INCOME. IT WAS THUS CONTENDED THAT THE LARGE SCALE MODIFICATION IN CLIENT CODE LEADING TO REDUCTION OF TAX LIABILITY DOES NOT PASS THE TEST OF PREPONDERANCE OF PROBABILITIES. T HE MODIFICATION IN CLIENT CODE IS MEANT ONLY TO RECTIFY A GENUINE PUNC HING ERROR IN TRADE AND IS AN EXCEPTION BY NATURE. LEARNED DR ACCORDINGLY SUBMITTED THAT NO INTERFERENCE WITH THE ORDER OF THE CIT(A) IS CALLED FOR. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE ASSESSMENT ORDER AND THE APPELLATE ORDER OF CIT (A). WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD IN KEEPING WI TH RULE 18(6) OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963. 10.1 THE FIRST AND FOREMOST ISSUE RELATES TO VALIDI TY OF ASSUMPTION OF JURISDICTION UNDER S.147 OF THE ACT. IT IS THE CAS E ON BEHALF OF THE ASSESSEE THAT THE AO COULD NOT HAVE FORMED REASON TO BELIEF CONTEMPLATED UNDER S.147 OF THE ACT BUT HAS MERELY ACTED ON THE BASIS OF SOME ABSTRACT INFORMATION RECEIVED FROM THE INVESTI GATION WING OF THE DEPARTMENT. THE DECISION OF THE HONBLE GUJARAT HI GH COURT IN THE CASE OF VARSHABEN SANATBHAI PATEL V. ITO [2015] 64 TAXMANN. COM 179 ITA NO.708-709 & 705-706/AHD/18 [AMITKUMAR A. SHAH HUF & ORS.] - 8 - (GUJARAT) WAS REFERRED TO AND RELIED IN THIS REGARD. THE DE CISION RENDERED BY THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CORONATION AGRO INDUSTRIES LTD. VS. DCIT REPORTED IN (2017) 39 0 ITR 464 (BOM.) WAS ALSO REFERRED FOR THE PROPOSITION THAT CCM DONE BY THE BROKER OF ASSESSEE COULD NOT BE GROUND TO BELIEVE THAT THERE HAD BEEN ANY ESCAPEMENT OF INCOME IN THE HANDS OF ASSESSEE. 10.2 BEFORE WE PROCEED TO EXAMINE THE JURISDICTIONA L ISSUE RAISED ON BEHALF OF THE ASSESSEE, IT WILL BE RELEVANT TO REPR ODUCE THE REASONS RECORDED BY THE AO UNDER S.148(2) OF THE ACT IN THI S REGARD: IN THIS CASE THE TRADE DATA RELATED TO ALL THE TRA NSACTIONS ENTERED BY THE ASSESSEE IN THE CASH, DERIVATIVE AND F&O SEGMEN T HAS BEEN CALLED FOR FROM THE EXCHANGES. THE DATA WAS CALLED FOR ALO NG WITH THE DETAILS OF ALL THE MODIFIED TRADE DATA BY USING CLIENT CODE MODIFICATION IE. MODIFIED TRADE IN WHICH THE ASSESSEE WAS ORIGINAL C LIENT AS WELL AS THE MODIFIED TRADE IN WHICH THE ASSESSEE WAS MODIFIED C LIENT. IN RESPECT OF THE MODIFIED TRADE TRANSACTION BY USING CLIENT CODE MODIFICATION (CCM) IT IS PERTINENT TO MENTION THAT CLIENT CODE MODIFIC ATION MEANS MODIFICATION / CHANGE OF THE CLIENT CODES, AFTER EX ECUTION OF TRADES. VIDE CIRCULAR NO. SMD/POLICY/CIR-/03 DATED FEBRUARY 6, 2003 SEBI MANDATED THAT THE STOCK EXCHANGES SHALL NOT NORMALL Y PERMIT CHANGES IN THE CLIENT CODE EXCEPT TO CORRECT FOR GENUINE MISTA KES. EVERY CLIENT IS GIVEN A CODE WHICH IS REGISTERED WITH THE STOCK EXC HANGES. THE CLIENT CODE MODIFICATIONS PERMIT BROKERS TO RECTIFY HUMAN ERRORS WHEN A CLIENT INADVERTENTLY PROVIDES A WRONG CODE OR WHEN OR A WR ONG CODE IS PUNCHED IN BY THE BROKER WHILST EXECUTING THE TRADE . THE BROKER IS ALLOWED TO CHANGE IT BETWEEN 3.30 PM AND 4 PM TO RE CTIFY A GENUINE ERROR THAT MAY HAVE OCCURRED WHILE ENTERING THE COD E. THE FACILITY ENSURES SMOOTH FUNCTIONING OF THE SYSTEM AND IS TO BE USED AS AN EXCEPTION RATHER THAN ROUTINE. OVER A PERIOD OF TIME, SOME PERSONS, IN CONNIVANCE WITH BROKERS STARTED USING CLIENT CODE MODIFICATIONS FOR PURPOSES OTHER THAN GENUINE ERRORS. CONTRARY TO ITS MOTIVE, CCM FACILITY BEING MISUSED AND BROKERS TRANSFERRED GAINS OR LOSSES FROM ONE PERSON TO ANOT HER BY CHANGING THE CODE, IN THE GARB OF CORRECTING AN ERROR. THESE GAI N OR LOSS-BOOK ENTRIES WERE THEN USED TO EVADE TAXES. SEBI CONDUCTED A PROBE INTO 'MODIFICATION OF CLIENT CODES' BY BROKERS, PURSUANT TO OBSERVATIONS BY THE FINANCE MINISTRY AB OUT MANY SUCH MODIFICATIONS TAKING PLACE IN DERIVATIVES TRANSACTI ONS AT THE NSE DURING MARCH 2010. WITH REGARD TO THE CLIENT CODE M ODIFICATIONS, THE TRADING ACTIVITIES UNDER SCANNER OF SEBI MOSTLY TOO K PLACE BETWEEN 2009 AND 2011 AFTER WHICH SEBI TIGHTENED ITS NORMS TO PUT A FULL-STOP TO SUCH MANIPULATIONS. BEFORE TIGHTENING OF THE NOR MS, THE INDIAN MARKETS WERE SEEING CLIENT CODE MODIFICATIONS TO TH E TUNE OF RS 50,000 - RS 60,000 CRORE A MONTH, WHICH CAME DOWN TO JUST AB OUT RS 100 CRORE ITA NO.708-709 & 705-706/AHD/18 [AMITKUMAR A. SHAH HUF & ORS.] - 9 - SOON AFTER SEBI'S ACTION. THE PROBE ALSO SHOWED THA T THE QUANTUM OF SUCH MODIFICATIONS WAS MUCH HIGHER DURING MARCH, CO MPARED RE-THE OTHER MONTHS, WHICH HINTED TOWARDS THE TAX EVASION ANGLE DUE TO IT BEING THE LAST MONTH OF THE FISCAL. THIS SHOWED THA T A LARGE-SCALE MANIPULATION WAS TAKING PLACE WHERE BROKERS WERE MA KING CHANGES IN THE CLIENT DETAILS AFTER EXECUTION OF TRADES CITING 'GENUINE ERRORS'. IN APRIL 2012, SEBI PASSED AN ORDER AGAINST NSE FOR BE ING 'NEGLIGENT IN DISCHARGE OF ITS DUTIES' IN CASE OF MODIFICATION OF CLIENT CODES. SEBI, IN THIS ORDER DIRECTED NSE TO BE MORE CAUTIOUS AND PER CEPTIVE IN DISCHARGE OF ITS REGULATORY DUTIES, STATING IT WAS 'CONVINCED THAT NSE HAS BEEN NEGLIGENT IN DISCHARGE OF ITS DUTIES...'. IT WAS ESTABLISHED BEYOND DOUBT THAT THE ELEMENT OF MALAFIDE INTENTION WAS PRESENT IN THE PROCESS OF CCM. SEBI HAD IN JULY 2011 IMPOSED A STRICTER PENALTY ON SUCH MODIFICATIONS TO FURTHER STRENGTHEN THE SYSTEM. SEBI INSTRUCTED B OURSES TO IMPOSE A MONETARY PENALTY OF 1% OF THE VALUE OF THE TRANSACT ION WHERE THE CLIENT CODES WERE MODIFIED. ACCORDING TO BROKERS, THE PENA LTY IS 50 TIMES THE YIELD IN THE F&O SEGMENT. THE AVERAGE YIELD IN THE DERIVATIVES SEGMENT IS 0.02%, SEBI ALSO DIRECTED THE EXCHANGES TO CONDU CT SPECIAL INSPECTION OF TRADING MEMBERS TO CHECK WHETHER SUCH MODIFICATIONS ARE BEING CARRIED ON AS PER THE CRITERIA. THEREFORE, IN ORDER TO INVESTIGATE THE GAMUT BEHIND THE CCM THE DIRECTORATE, AHMEDABAD INVESTIGATION WING HAS COLLE CTED ALL INDIA DATA OF CCM FROM DIFFERENT EXCHANGES AND ANALYZED THE DA TA, THE PRELIMINARY ANALYSIS OF THIS DATA INDICATES TOWARDS THE SYSTEMIC SHIFTING OF HUGE CRYSTALLIZED LOSSES USING CCM. THE RESULTS OF THE ANALYSIS INDICATE THAT THE FINDING OF SEBI THAT CCM WAS USED FOR PURPOSE 'OTHER THAN FOR RECTIFYING THE GENUINE ERRORS' WAS NOTHING BUT A EUPHEMISM FOR TAX EVASION. IN VIEW OF THE ABOVE, THIS OFFICE HAS ALSO ANALYZED THE TRADE DATA IN WHICH CCM WAS RESORTED. ON ANALYSIS OF THE TRADE DA TA FOR THE YEAR UNDER CONSIDERATION, IT IS SEEN THAT IN THIS CASE T HE ASSESSEE HAS SHIFTED OUT TOTAL PROFIT OF RS.128678/- AND SHIFTED IN THE LOSSES OF RS.12600/-. THUS, BY RESORTING THE CCM, THE ASSESSEE HAS REDUCE D THE TAXABLE INCOME TO THE TUNE OF RS.116078/-. FURTHER, IN ORDER TO ASCERTAIN THE TOTAL NO. OF EDI TS IN BOTH TYPE OF MODIFICATION I,E. WHEN THE ASSESSEE WAS ORIGINAL CL IENT (OCC) AND WHEN THE ASSESSEE WAS MODIFIED CLIENT (MCC), ANALYSIS OF THE MODIFIED TRANSACTION HAS ALSO BEEN DONE WITH THE HELP OF LEV ENSTINE TABLE. THE LEVENSHTEIN DISTANCE ANALYSIS OR DIGIT EDIT ANALYSI S HELPS US KNOW THE MINIMUM NUMBER OF EDITS REQUIRED FROM CHANGING ONE CODE TO ANOTHER . THE LEVENSHTEIN DISTANCE ANALYSIS ESTABLISHED THAT CLIENT CODE MODIFICATION IN THIS CASE HAS BEEN DONE TO RED UCE THE TAX LIABILITY BY SHIFTING OUT THE ASCERTAINED PROFIT AND SHIFTING IN THE CONTRIVED LOSS. FURTHER, IT IS ALSO NECESSARY TO MENTION THAT A SUR VEY U/S.133A OF ACT WAS CARRIED OUT IN THE CASE OF THE ASSESSEE'S BROKE R I.E. MANGAL KESHAV SECURITIES. DURING THE COURSE OF THE SURVEY IT IS S EEN THAT THIS BROKER WAS INDULGED IN LARGE SCALE CLIENT CODES MODIFICATI ONS SO AS TO FACILITATE LOSSES AND PROFITS TO THE CLIENTS AS PER THE REQUIREMENT. ITA NO.708-709 & 705-706/AHD/18 [AMITKUMAR A. SHAH HUF & ORS.] - 10 - HENCE, IN VIEW OF THE ABOVE IT CAN BE CONCLUDED THA T, BY RESORTING THE CCM, THE ASSESSEE HAD REDUCED THE TAXABLE INCOME TO THE TUNE OF RS. 116078/- AND FAILED TO DISCLOSE THE FULL AND TRUE A LL NECESSARY MATERIAL FACTS BEFORE THE REVENUE. THEREFORE, AFTER APPLICAT ION OF MIND I HAVE STRONG REASONS TO BELIEVE THAT INCOME CHARGEABLE TO TAX TO THE TUNE OF RS. 116078/- HAS BEEN ESCAPED ASSESSMENT WITHIN THE MEANING OF PROVISIONS OF SECTION 147 OF THE ACT, AND THIS CASE IS FIT FOR ISSUE OF NOTICE U/S. 148 OF THE INCOME-TAX ACT. 10.3 ON PERUSAL OF THE REASONS RECORDED, IT IS CLEA R THAT THE AO HAS OBTAINED OBJECTIVE DETAILS TOWARDS MODIFICATIONS OC CURRED IN CLIENT CODES IN RELATION TO THE ASSESSEE WHEREBY THE QUANTUM OF PROFIT/LOSSES ALLEGEDLY SHIFTED WAS RECORDED. THE AO HAS NOT MERELY ACTED ONLY UPON THE INFORMATION SIMPLICITOR RECEIVED FROM THE INVESTIGA TION WING AS ALLEGED BUT HAS ALSO OBTAINED CLIENT SPECIFIC DATA SHOWING SYSTEMATIC MODIFICATIONS IN CLIENT CODE RESULTING IN REDUCTION OF TAXABLE INCOME. A SOFT COPY OF SUCH DATA WERE ALSO PROVIDED TO THE AS SESSEE. IN THESE CIRCUMSTANCES, WE DO NOT SEE MERIT IN THE LEGAL OBJ ECTION TOWARDS REOPENING THE ASSESSMENT OF THE ASSESSEE. 10.4 IT IS TRITE THAT THE BELIEF OF THE AO UNDER S. 147 OF THE ACT NEED ONLY TO BE PRIMA FACIE AND NEED NOT BE INFALLIBLE AND CONCLUSIVE SO LONG AS IT IS BASED ON PERSUASIVE AND RELEVANT MATERIAL. THE AO HAS NOT ACTED UPON SOME EXTRANEOUS MATERIAL IN THE INSTANT CASE. THE AO AT THE TIME OF REOPENING AN ASSESSMENT IS NOT EXPECTED TO BUILD A FULL PROOF CASE AGAINST THE ASSESSEE AND IS NOT REQUIRED TO HOLD CO NCLUSIVELY AGAINST THE ASSESSEE. THE TEST OF JURISDICTION UNDER S.147 OF T HE ACT IS NOT THE ULTIMATE RESULT OF THE INQUIRY BUT WHETHER THE AO E NTERTAINED A BONAFIDE BELIEF UPON THE DEFINITE INFORMATION PRE SENTED BEFORE HIM. POWER UNDER THIS SECTION, OF COURSE, CANNOT BE EXER CISED ON MERE RUMORS OR SUSPICIONS. IF THERE IS TANGIBLE MATERIAL SHOWI NG ESCAPEMENT OF INCOME, THAT WOULD BE SUFFICIENT TO REOPEN THE ASSE SSMENT. IN OUR VIEW, THE AO WAS IN POSSESSION OF THE RELEVANT INFORMATIO N AND MATERIAL GERMANE TO THE ALLEGATION TO ENABLE HIM TO HOLD PRIMA FACIE BELIEF TOWARDS ESCAPEMENT OF INCOME. THE REPORT OF THE IN VESTIGATION WING WOULD CONSTITUTE RELEVANT MATERIAL UNLESS SUCH REPO RT OR INFORMATION IS ABSOLUTELY VAGUE OR BASED ON UNSPECIFIC INFORMATION . HOWEVER, WHETHER ITA NO.708-709 & 705-706/AHD/18 [AMITKUMAR A. SHAH HUF & ORS.] - 11 - MATERIAL AVAILABLE BEFORE AO WOULD CONCLUSIVELY PRO VE THE ESCAPEMENT IS NOT THE CONCERN AT THE STAGE OF REOPENING. THE INF ORMATION AVAILABLE WITH THE AO IN THE INSTANT CASE PROVIDES SPECIFIC E STIMATE OF DIVERSION OF PROFITS DUE TO MODIFICATIONS AND IS THUS RELIABLE I N CHARACTER. SUCH SPECIFIC NATURE OF INFORMATION IS CAPABLE TO GRANT CAUSE OR JUSTIFICATION OR A SUPPOSITION THAT INCOME HAS ESCAPED ASSESSMENT AND CONSEQUENTLY WOULD CONFER JURISDICTION ON THE AO TO REOPEN ASSES SMENT. 10.5 THE RELIANCE PLACED ON THE DECISION OF THE HON BLE BOMBAY HIGH COURT IN CORONATION AGRO INDUSTRIES LTD. (SUPRA) ON BEHALF OF THE ASSESSEE IS MISPLACED. IN THAT CASE, THE REASON DI D NOT INDICATE THE BASIS FOR THE AO TO COME TO A REASONABLE BELIEF TOWARDS E SCAPEMENT AND THE AO HAD NO MATERIAL TO PROVE LINK THAT MODIFICATION WAS DONE TO ESCAPE ASSESSMENT OF A PART OF ITS INCOME AND MODIFICATION WAS NOT ON ACCOUNT OF GENUINE ERROR. IN THE INSTANT CASE, A LIVE LINK BETWEEN CCM AND THE ASSESSEE AS A BENEFICIARY THEREOF IS DISCERNABLE FR OM THE RECORD BEFORE THE AO AT THE TIME OF USURPATION OF JURISDICTION UN DER S.147 OF THE ACT. THE MAGNITUDE AND REGULARITY OF MODIFICATION IN CLI ENT CODE TO THE ADVANTAGE OF ASSESSEE RENDERS THE MODIFICATION TO B E NON-GENUINE. THEREFORE, THE RATIO IN CORONATION AGRO INDUSTRIES LTD. (SUPRA) WOULD NOT APPLY. THE DECISION OF HONBLE GUJARAT HIGH CO URT IN VARSHABEN SANATBHAI PATEL (SUPRA) IN FAVOUR OF THE ASSESSEE IS ON THE FOOTING THAT MERE INFORMATION TOWARDS ESCAPEMENT WOULD NOT BE SU FFICIENT TO JUSTIFY FORMATION OF THE BELIEF IN THE ABSENCE OF SPECIFIC DETAILS AVAILABLE ON RECORD. THE FACT SITUATION IN THE PRESENT CASE IS ENTIRELY DIFFERENT. THE AO HAS ACTED UPON CREDIBLE INFORMATION COUPLED WITH UNDERLYING MATERIAL TO INITIATE THE ACTION UNDER S.147 OF THE ACT. THE REASONS RECORDED WERE BASED ON PRIMA FACIE MATERIAL WHICH, IN TURN, CLEARLY INDICATED THE RELATIONSHIP BETWEEN THE FORMATION OF BELIEF AND THE REASONS FOR SUCH BELIEF. THE BELIEF ENTERTAINED BY AO IS, IN OUR VIEW, NOT ARBITRARY OR IRRATIONAL. WE THUS SEE NO ERROR ON THE PART OF THE AO TO EXERCISE THE POWERS UNDER S.147 OF THE ACT. ITA NO.708-709 & 705-706/AHD/18 [AMITKUMAR A. SHAH HUF & ORS.] - 12 - 11. GROUND NO.1 OF ASSESSEES APPEAL CONCERNING VAL IDITY OF JURISDICTION UNDER S.147 OF THE ACT IS ACCORDINGLY DISMISSED. 12. WE SHALL NOW DEAL WITH THE MERITS OF THE ADDITI ONS MADE ON ACCOUNT OF LOSSES SHIFTED IN/ PROFIT SHIFTED OUT FR OM THE HANDS OF THE ASSESSEE OWING TO MODIFICATION CARRIED OUT BY THE B ROKER IN THE CLIENT CODE ASSIGNED TO ASSESSEE AND OTHER CORRESPONDING C LIENT. THIS ISSUE IS ESSENTIALLY FACTUAL IN NATURE. AS EXHAUSTIVELY POIN TED OUT ON BEHALF OF THE ASSESSEE, THE LOSSES RESULTING FROM CCM CAN BE CLASSIFIED IN DIFFERENT CATEGORIES AS TABULATED ON BEHALF OF THE ASSESSEE. IT WILL BE RELEVANT TO REPRODUCE THE TABULATED STATEMENT FOR A BIRD EYE VI EW OF THE CLASSIFICATION: DISTANCE- WISE BREAKDOWN OF CCM FIGURES (*) AMIT SHAH HUF MONA SHAH AMIT SHAH A.Y. 2011-12 A.Y. 2010-11 A.Y. 2011-12 A.Y. 2011-12 ITA NO.708/A/18 ITA N0.705/A/18 ITA N0.706/A/18 ITA N0.709/A/18 DOH:03/12/19 BENCH: B DISTANCE '1'. PROFIT SWITCHED OUT 153,133 2,350 - 12,900 LOSS SWITCHED IN 1,858 116,140 71,375 PROFIT SWITCHED IN 12,600 11,040 - 153,133 LOSS SWITCHED OUT 71,375 SUB-TOTAL (69,158) 6,832 (116,140) 68,858 DISTANCE '2' PROFIT SWITCHED OUT 525 731,192 42,016 1,501,772 LOSS SWITCHED IN - 1,552,986 1,195,951 169,117 PROFIT SWITCHED IN - 2,089,409 - 261,031 LOSS SWITCHED OUT - 84,859 24,517 1,391,957 SUB-TOTAL (525) (109,910) (1,213,450) (17,901) DISTANCE '3': PROFIT SWITCHED OUT 46,395 - 862,025 4,439,900 LOSS SWITCHED IN - - 20,976 PROFIT SWITCHED IN - - 280,550 LOSS SWITCHED OUT - - - 485,603 ITA NO.708-709 & 705-706/AHD/18 [AMITKUMAR A. SHAH HUF & ORS.] - 13 - SUB-TOTAL (46,395) - (862,025} (3,694,723) DISTANCE '4': PROFIT SWITCHED OUT - - - 220,169 LOSS SWITCHED IN - - - PROFIT SWITCHED IN - - - 1,584 LOSS SWITCHED OUT - - SUB-TOTAL - - - (218,585) DISTANCE '5': PROFIT SWITCHED OUT - - LOSS SWITCHED IN - - - - PROFIT SWITCHED IN - - - - LOSS SWITCHED OUT - - - SUB-TOTAL - - - TOTAL (116,078) (103,078) (2,191,615) (3,862,350) AMOUNT OF ADDITION 116,078 103,078 2,191,615 3,862,350 DIFFERENCE, IF ANY - - (*) COMPILED ON THE BASIS OF AND TO THE EXTENT OF T HE SOFT FORMAT DATA SUPPLIED BY THE AO (**) DISTANCE-WISE BREAKDOWN NOT AVAILABLE SINCE TH E AO DID NOT SUPPLY TRANSACTION-SPECIFIC DETAILS. 12.1 IN THE TABULATED STATEMENT NOTED ABOVE, THE A SSESSE HAS SEGREGATED THE EXTENT AND MAGNITUDE OF MODIFICATION IN CLIENT CODE AT FIVE DIFFERENT LEVELS. DISTANCE 1 LEVEL DENOTES THE INVOLVEMENT OF CLIENT CODES OF TWO PARTIES TO BE BROADLY THE SAME EXCEPT ONE DIGIT DIF FERENCE. FOR INSTANCE, THE CLIENT CODE BHA-1 AND BHA-2 HAS ONLY ONE DIFFER ENCE I.E. IN NUMERICAL NUMBER AND WILL FALL IN DISTANCE 1. LI KEWISE, BHA-1 AND BHB-1 WILL ALSO FALL IN DISTANCE 1 CATEGORY BEING ONLY ONE DIFFERENCE IN ALPHABET. DISTANCE 1IS ALSO STATED TO INCLUDE MODIFICATIONS CLIENT CODE OF RELATIVES INTER SE . AS REGARDS MODIFICATION FALLING IN DISTANCE 1 CATEGORY, IT IS THE CASE OF ASSESSEE THAT ERROR OWING TO WRONG PUNCHING OF CLIENT CODE BEARING SIMILAR CHARACTER ARE REQUIR ED TO BE IGNORED BEING BONAFIDE PUNCHING ERRORS. DISTANCE 2 DENOTES DIS TANCE WISE BREAK DOWN IN MODIFICATION TO THE EXTENT OF TWO DIGITS BE TWEEN TWO CLIENT CODES WHERE THE MODIFICATION HAS PURPORTEDLY HAPPEN ED, RESULTING IN ITA NO.708-709 & 705-706/AHD/18 [AMITKUMAR A. SHAH HUF & ORS.] - 14 - SHIFTING IN OF LOSS OR SHIFTING OUT OF PROFIT FROM ONE CLIENT ACCOUNT TO ANOTHER. DISTANCE 3 REFLECTS THREE DIGIT MODIFIC ATIONS TO RECORD THE TRADE IN PURPORTEDLY CORRECT CLIENT CODE. DISTANC E 4 TRANSACTION OCCURRED AT STOCK EXCHANGE SIMILARLY REFLECTS VAST DIFFERENCE OF FOUR DIGITS BETWEEN ONE CLIENT CODE QUA ANOTHER. 12.2 IT IS THE CASE OF THE ASSESSEE THAT INADVERTEN T ERROR IN PUNCHING THE CLIENT CODE CAN HAPPEN AT THE TIME OF RECORDING THE TRADE ORDER BY THE BROKER TO BE EXECUTED ON THE PLATFORM OF THE STOCK EXCHANGE. FOR INSTANCE, INSTEAD OF PUTTING THE TRADE ORDER UNDER THE CLIENT CODE BHA-1, IT MIGHT POSSIBLY HAVE BEEN WRONGLY PUNCHED AS BHB- 1 OR BHA-2 ON THE PART OF THE BROKER. SUCH HUMAN ERRORS ARE NORMAL I NCIDENTS OF TRADE AND ARE SUITABLY RECTIFIED BY THE END OF THE DAY AND CO NTRACTS NOTES ARE ISSUED FOR THE CORRECT CLIENT CODE AND SETTLED AS P ER THE TERMS OF THE CONTRACT. IT IS FURTHER CASE OF THE ASSESSEE THAT MOST OF THE CCMS FALLING UNDER DISTANCE 1 CATEGORY ARE AMONG THE RELATIVES BEARING SIMILAR CLIENTS CODES. IT WAS THUS SUBMITTED THAT NO ADVE RSE INFERENCE IN RESPECT OF SUCH MODIFICATIONS SHOULD BE DRAWN MORE SO IN TH E LIGHT OF EXPRESS SEBI CIRCULAR DATED 19 TH AUGUST, 2016 WHERE MODIFICATIONS OF CLIENT CODES POST EXECUTION OF TRADES ON NATIONAL EXCHANGE S WERE CLASSIFIED AS GENUINE ERRORS ON ACCOUNT OF PUNCHING OR TYPING ORI GINAL CLIENT CODE QUA THE MODIFIED CLIENT CODE BEARING CLOSELY SIMILAR CH ARACTER. MODIFICATIONS WITHIN THE RELATIVES WERE ALSO REGARD ED AS GENUINE ERRORS BY SEBI AS PER THE AFORESAID CIRCULAR. THE SHIFTIN G OF TRADE IN THE CORRECT CLIENT CODE FALLING IN THE DISTANCE 1 CAT EGORY, THUS, CANNOT BE REGARDED AS ANY KIND OF ALLEGED MISUSE OF CCM FACIL ITY. WE FIND CONSIDERABLE FORCE IN THE AFORESAID PLEA OF THE ASS ESSEE. IT IS QUITE PLAUSIBLE THAT ERROR OF SUCH TYPE BY WAY OF WRONG P UNCH OF CLIENT CODE COULD OCCUR AS NORMAL INCIDENT OF BUSINESS WHILE EN TERING THE ORDERS ON BEHALF OF THE CLIENT BY THE BROKER. SUCH ERRORS AR E TO BE RECOGNIZED AS GENUINE ERROR EVEN IN THE LIGHT OF SEBI CIRCULAR. SUCH ERROR IN PUNCHING OF TRADE DOES NOT CALL FOR ANY ADVERSE INFERENCE. CONSEQUENTLY, THE AO IS DIRECTED TO DELETE THE LOSSES SHIFTED IN OR PROF ITS SHIFTED OUT OWING TO ITA NO.708-709 & 705-706/AHD/18 [AMITKUMAR A. SHAH HUF & ORS.] - 15 - MODIFICATIONS IN CLIENT CODE FALLING IN DISTANCE 1 CATEGORY AS TABULATED ABOVE WITH REGARD TO ALL CAPTIONED ASSESSEES. 12.3 ADVERTING TO PURPORTED SHIFTING IN OF LOSSES O R SHIFTING OUT OF PROFITS FALLING IN DISTANCE 2 CATEGORY, IT IS THE CASE ON BEHALF OF THE ASSESSEE THAT SUCH MODIFICATION UP TO TWO ALPHABET OR NUMERIC IN THE CLIENT CODE ALSO REQUIRES A BENIGN CONSIDERATION, M ORE SO, WHEN SUCH MODIFICATION IN THE CLIENT CODE IS RESULTED IN BOTH SHIFTING IN OF LOSSES AS WELL AS SHIFTING OUT OF LOSSES AND SIMILARLY SHIFTI NG OUT OF PROFITS AS WELL AS SHIFTING IN PROFITS COVERING DIFFERENT MONTHS. IT IS FURTHER CASE OF THE ASSESSEE (WITH REFERENCE TO TABULATED MONTH-WISE AN ALYSIS OF THE DATA AS PROVIDED BY THE DEPARTMENT IN SOFT COPY) THAT SUCH SHIFTING IN OF LOSSES OR SHIFTING OUT OF PROFITS HAS HAPPENED EVERY MONTH IN BOTH WAYS. FOR INSTANCE, THE ASSESSEE HAS SHIFTED IN LOSS OF RS.46 ,808/- IN APRIL 2010 ITSELF WHEN HE CANNOT PREDICT THE RESULTANT PROFITS AT THE END OF THE YEAR FROM SUCH TRADE. NOTICEABLY, AS PER THE ANALYSIS OF DATA, THE ASSESSEE HAS ACTUALLY SHIFTED OUT LOSSES TO THE EXTENT OF RS .22,281/- IN JULY 2010 WHICH, ON THE CONTRARY, IS DETRIMENTAL TO THE ASSES SEE. HAVING REGARD TO THE FACTS, IN OUR UNDERSTANDING, A BENIGN VIEW IS R EQUIRED TO BE TAKEN IN CASE OF SHIFTING OF LOSSES ETC. FALLING IN DISTANC E 2 CATEGORY AS PLEADED. HAVING REGARD TO THE PECULIAR FACTS THAT LOSSES HAV E NOT BEEN PURCHASED IN LAST FEW MONTHS OF FINANCIAL YEAR (DECEMBER 2010 TO MARCH 2011) BUT THE LOSSES HAVE ARISEN IN THE VERY BEGINNING OF THE FINANCIAL YEAR, BENEFIT OF DOUBT, IF ANY, WOULD SURELY LEAN TOWARDS THE ASS ESSEE IN SUCH FACTS. THE AO IS THUS DIRECTED TO DELETE THE ADJUSTMENT IN THE ASSESSED INCOME TO THE EXTENT OF AMOUNT ATTRIBUTABLE TO TRADE TRANS ACTIONS FALLING IN DISTANCE 2 CATEGORY OF CCM. 12.4 SIMILAR IS THE EXPLANATION OF THE ASSESSEE IN RESPECT OF LOSSES ARISING DUE TO CCM FALLING IN DISTANCE 3 CATEGORY . THE ASSESSEE (AMITKUMAR A. SHAH HUF) HAS STATEDLY SWITCHED OUT P ROFIT OF RS.46,395/- FALLING IN DISTANCE 3 CATEGORY. IN T HIS REGARD, IT IS THE CASE OF THE ASSESSEE THAT THE ORIGINAL CLIENT CODE WAS B HA-2 ASSIGNED TO ASSESSEE AMITKUMAR A. SHAH HUF. THE MODIFIED CLI ENT CODE IS BHB- ITA NO.708-709 & 705-706/AHD/18 [AMITKUMAR A. SHAH HUF & ORS.] - 16 - 51 ASSIGNED TO ONE BHAUTIK R. GNADHI HUF. THE TR ANSACTION HAS HAPPENED IN THE BEGINNING OF THE FINANCIAL YEAR I.E . ON 29.04.2010. IT IS THE CASE OF THE ASSESSEE THAT WHEN SEEN FROM THE PO INT OF VIEW OF MISTAKE IN ORIGINAL CLIENT CODE, THE PUNCHING ERROR IS IN L AST TWO DIGITS I.E. A-2 IN BHA-2 AND THEREFORE THE MISTAKE IS ONLY IN TWO DIGI TS INSTEAD OF THREE DIGITS AS READ BY THE LEVENSHTEIN DISTANCE THEORY APPLIED BY THE AO. WE DO NOT HOWEVER SEE ANY SUBSTANCE IN THE PLEA OF THE ASSESSEE FOR EXCLUDING ADDITIONS TO THE EXTENT OF MODIFICATIONS FALL IN DISTANCE 3 CATEGORY. NOT ONLY THE CLIENT CODE I.E. BHA-2 AND BHB-51 ARE MATERIALLY AND SUBSTANTIALLY DIFFERENT AND BELONGS TO TWO ALTOGETHER DIFFERENT CLIENTS, SAID PUNCHING ERRORS ARE NOT PLA USIBLE. SUCH SO CALLED ERROR, IF PERMITTED IN THE OFFICE OF THE MEMBER BRO KER AS NORMAL INCIDENT, WOULD CREATE TRANSACTIONAL CHAOS. THE MARKET REGUL ATOR SEBI HAS ALSO FROWNED HARD ON SUCH MODIFICATIONS. SUCH SUBSTANTI AL MODIFICATION IN CLIENT CODE WOULD NATURALLY INVOLVE SOME INDULGENCE OF MIND WITH SET PURPOSE TO SHIFT IN LOSSES/SHIFT OUT PROFIT IN THE HANDS OF AN INTERESTED CLIENT. SUCH MODIFICATIONS IN CLIENT CODE, IN OUR V IEW, DO NOT FALL WITHIN THE LEAGUE OF BONAFIDE ERROR WHEN SEEN ON THE TOUCH STONE OF PREPONDERANCE OF PROBABILITIES. THE CONCERTED AND SYSTEMATIC MODIFICATION IN CLIENT CODE TO THE ADVANTAGE OF ASS ESSEE IS AN ORCHESTRATED AFFAIR TO SUPPRESS PROFITS GENERATED O N TRADES. WE THUS DECLINE TO INTERFERE WITH THE ACTION OF AO WITH REF ERENCE TO LOSSES FALLING IN DISTANCE 3 CATEGORY. 12.5 LOSSES RESULTING FROM CLIENT CODE MODIFICATION FALLING IN DISTANCE 4 CATEGORY WOULD AUTOMATICALLY FALL IN HIGHLY DOUB TFUL CATEGORY AS A NEAR IMPOSSIBILITY. THE CLIENT CODE OF ONE CLIENT STANDS SUBSTITUTED BY AN ALTOGETHER MODIFIED CLIENT CODE. LOSSES RESULTING I N THE HANDS OF THE ASSESSEE FROM SUCH REVAMP IN THE CLIENT CODE, IF PE RMITTED, WILL OBFUSCATE GROUND REALITY OF TAX ESCAPEMENT ARISING FROM SUCH MODIFICATIONS. SUCH FUNDAMENTAL MODIFICATION IN TH E CLIENT CODE LACKS ANY TANGIBLE PURPOSE BUT TO ACCOMMODATE A WILLING C LIENT BY THE BROKER IN WRONGFUL INDULGENCE. THUS, THE PLEA OF THE ASSE SSEE IN RESPECT OF LOSSES FROM MODIFICATION CALLING IN DISTANCE 4CAT EGORY REQUIRES TO BE ITA NO.708-709 & 705-706/AHD/18 [AMITKUMAR A. SHAH HUF & ORS.] - 17 - REJECTED OUTRIGHTLY. WE THUS DECLINE TO INTERFERE WITH THE ACTION OF REVENUE IN RESPECT OF LOSSES FALLING IN DISTANCE 4 CATEGORY. 12.6 HAVING ANALYSED THE EXTENT OF MODIFICATION DIS TANCE-WISE, THE AO IS DIRECTED TO GRANT RELIEF TO THE ASSESSEE IN ALL CAPTIONED APPEALS IN RESPECT OF LOSSES ATTRIBUTABLE TO DISTANCE 1 AND DISTANCE 2 CATEGORY. TO THIS EXTENT, THE RELIEF SOUGHT BY THE ASSESSEE I S ALLOWED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE AND A LL OTHER CAPTIONED APPEALS ARE PARTLY ALLOWED. SD/- SD/- (MADHUMITA ROY) (PRADIP KUMAR K EDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 18/12/2019 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 18/12/2019