Chintan J Shah, Ahmedabad V. CIT-5, , Ahmedabad

ITA 908/AHD/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 7801 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 30-03-2020
• Assessment Year: 2009-2010
• Appeal Filed On: 11-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S S SHUKLA
• Keywords: Transactions in derivatives; Reassessment proceedings; Borrowed satisfaction; Set aside
• Section: 13

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL , SM C BENCH, AHMEDABAD (CONDUCTED THROUGH VIRTUAL COURT AT AHMEDABAD) BEFORE SHRI WASEEM AHMED , ACCOUNTANT MEMBER AND MS MADHUMITA ROY , JUDICIAL MEMBER ./ ITA NO. 908/AHD/2018 / ASSTT. YEAR: 2009 - 2010 SHRI CHINTAN JASWANTBHAI SHAH , 14 , PRAPTI APARTMENT, B/H. DOCTORS HOUSE , NR. PARIMAL RLY. CROSSING , AHMEDABAD . PAN : ALLPS0773Q VS. I.T.O , WARD - 5(3)(1 ) , AHMEDABAD. (APPLICANT) ( RESPON D ENT ) ASSESSEE BY : SHRI PRITESH SHAH , A.R REVENUE BY : SHRI S.S. SHUKLA, SR. D R / DATE OF HEARING : 23 / 02 / 2021 / DATE OF PRONOUNCEMENT: 23 / 03 /2021 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE A GAINST THE ORDER OF THE LEARNED COMM ISSIONER OF INCOME TAX (APPEALS) , AHMEDABAD - 5 , DATED 05/02/2018 ARISING IN THE MATTER OF ASSESSM ENT ORDER PASSED UNDER S.143(3) R.W.S 147 THE INCOME TAX ACT, 1961 ( HERE - IN - AFTER REFERRED TO AS 'THE ACT') RELEVANT TO THE ASSESSMENT YEAR 2009 - 20 10 . ITA NO. 908/AHD/2018 ASSTT. YEAR 2009 - 10 2 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL: 1. THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS OF THE CASE IN INITIATING REASSESSMENT PROCEEDINGS U/S 147 OF THE ACT. 2. THE LEARNED ASSESSING OFFICER HAS ERRED IN MAKING AN ADDITION OF RS.12,67,380/ - AS INCOME EARNED BY THE ASSESSEE ON ACCOUNT OF CLIENT CODE MODIFICATION. 3. THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON THE FACTS IN DISREGARDING THE CONTENTIONS RAISED BY THE APPELLANT IN ITS LETTER DATED 14/12/2016. 4. THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AND ON FACTS WHILE BLANKLY RELYING ON THE INFORMATION RECEIVED FROM THE DIT (INVESTIGATION), AHMEDABAD AND ALLEGING ON THE APPELLANT AND SHOW CAUSE TO MAKE CERTAIN ADDITION ON ACCOUNT OF CLIENT CODE MODIFICATION DONE BY THE BROKER. 5. THE. ASSESSING OFFIC ER SOLELY ON THE BASIS OF INFORMATION RECEIVED BY THE INVESTIGATION WING; INITIATED IMPUGNED ASSESSMENT PROCEEDINGS. THEREFORE, THE IMPUGNED ASSESSMENT PROCEEDINGS CAN BE SAID TO BE ON BORROWED SATISFACTION OF THE INVESTIGATION WING, WHICH IS IMPROPER. 6. THE LEARNED A.O. HAS ERRED IN LAW AND ON FACTS WHILE NOT ALLOWING THE CROSS EXAMINATION OF PARTY I.E M/S MAHIPAT RAICHAND SHARE BROKING PVT. LTD ON WHOSE STATEMENT THE LEARNED A.O. HAS PLACED RELIANCE. 7. THE ASSESSING OFFICER ERRED IN ASSUMING THAT PRO FITS WERE ALLEGEDLY SUPPRESSED BY THE APPELLANT ON ACCOUNT OF CLIENT CODE MODIFICATIONS BY THE BROKERS MAHIPAT RAICHAND SHARE BROKING PVT. LTD. IN A LARGE NUMBER OF COMMODITY TRANSACTIONS. 8. THE ASSESSING OFFICER ERRED IN LAW AND ON THE FACT THAT EVEN T HE 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 FACTS 9. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AND AMEND ANY GROUND OF APPEAL. 3 . THE ASSESSEE IN THE 1 ST ISSUE HAS CHALLENGED THE VALIDITY OF THE ASSESSMENT ORDER FRAMED UNDER SECTION 147 OF THE ACT. 4 . THE LEARNED AR BEFORE US SUBMITTED THAT THE REOPENING CANNOT BE MADE UNDER SECTION 147 OF THE ACT IN THE CASE OF THE ASSESSEE ON THE BASIS OF CLIENT CODE MODIFICATION. THE LEARNED AR IN SUPPORT OF HIS CONTENTION RELIED ON VARIOUS ORDERS WHICH ARE AVAILABLE IN THE PAPER BOOK. 5 . ON THE CONTRARY, THE LEARNED DR CONTENDED THAT THE REOPENING WAS MADE UNDER SECTION 1 47 OF THE ACT ON THE BASIS OF THE INFORMATION RECEIVED FROM THE ITA NO. 908/AHD/2018 ASSTT. YEAR 2009 - 10 3 INVESTIGATION WING WHEREIN IT WAS POINTED OUT THAT THE ASSESSEE HAS DIVERTED THE PROFIT BY MODIFYING ITS CODE MAINTAINED WITH THE SHARE BROKER. THE LEARNED DR IN SUPPORT OF HIS CONTENTION HAS FILED THE WRITTEN SUBMISSION WHICH ARE AVAILABLE ON RECORD. 6 . WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET WE NOTE THAT THE HON BLE PUNJAB AND HARYANA HIGH COURT HAS DECIDED THE ISSUE IN FAVOUR OF THE REVENUE IN THE CASE OF SHRI RAKESH GUPTA VS CIT REPORTED IN 93 TAXMANN.COM 271 WHICH WAS REOPENED UNDER SECTION 147 OF THE ACT BASED ON THE SAME INVESTIGATION REPORT INCOME TAX DEPARTMENT . THE RELEVANT HEAD NOTE IS REPRODUCED AS UNDER: IT : WHERE ASSESSING OFFICER RECEIVED INFORMATION FROM PRINCIPLE DIRECTOR OF INCOME TAX (INVESTIGATION) THAT ASSESSEE HAD RECEIVED BOGUS LOSS FROM HIS BROKER BY CLIENT CODE MODIFICATION, REASSESSMENT ON BA SIS OF SAID INFORMATION WAS JUSTIFIED . 6 .1 IN VIEW OF THE ABOVE, WE DO NOT FIND ANY MERIT IN THE CASE OF THE ASSESSEE. ACCORDINGLY WE UPHOLD THE REOPENING MADE BY THE AO UNDER SECTION 147 OF THE ACT. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED . 7 . T HE 2 ND ISSUE RAISED BY THE ASSESSEE IS THAT THE LEARNED CIT (A) ERRED IN CONFIRMING THE ORDER OF THE AO BY SUSTAINING THE ADDITION OF RS. 12,67,380/ - ON ACCOUNT OF CLIENT CODE MODIFICATION DONE BY THE BROKER TO SHIFT THE PROFIT. 8 . THE FACTS IN B RIEF ARE THAT THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUAL AND ENGAGED IN THE BUSINESS OF SHARE TRADING. THE AO IN THE PRESENT CASE RECEIVED THE INFORMATION FROM INVESTIGATION WING AHMADABAD I.E. ADIT(INV), UNIT - 3 WHEREIN IT WAS FOUND THAT THE BROKER MAHIPAT RAICHAND SHARE BROKER PVT. LTD., WAS ENGAGED IN CLIENT CODE MODIFICATIONS ACTIVITY IN VARIOUS SEGMENTS SUCH AS EQUITY, DERIVATIVES ETC. ON ANALYZING THE INFORMATION/DATA RECEIVED FROM THE INVESTIGATION WING, IT WAS REVEALED THAT THE BROKER HAS SHIF TED THE PROFIT BELONGING TO THE ASSESSEE WITH RESPECT ITA NO. 908/AHD/2018 ASSTT. YEAR 2009 - 10 4 TO F & O TO ANOTHER CLIENT CODE AMOUNTING TO 12,67,380/ - . ACCORDINGLY THE AO MADE THE ADDITION TO THE TOTAL INCOME OF THE ASSESSEE. 9 . AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED CIT (A). 10 . THE ASSESSEE BEFORE THE LEARNED CIT (A) CONTENDED THAT THE AO HAS NOT FURNISHED THE REPORT RECEIVED FROM THE INVESTIGATION WHICH WAS USED FOR THE PURPOSE OF THE ADDITION OF 12,67,380/ - ON ACCOUNT OF CLIENT CODE MODIFICATION. 10 .1 IT WAS ALSO SUBMIT TED THAT THE AO HAS NOT BROUGHT ANYTHING ON RECORD ABOUT THE TRANSACTION WHICH WAS MODIFIED AND ENTERED INTO THE CODE OF THE OTHER PARTY. AS SUCH, THE AO WAS TO BRING ON RECORD ABOUT THE ORIGINAL TRANSACTION WHICH WAS ENTERED BY THE BROKER AND SUBSEQUENTLY MODIFIED. 10 .2 THERE IS NO PROHIBITION FOR THE CLIENT CODE MODIFICATIONS BY THE SEBI/STOCK EXCHANGE IF IT IS CARRIED OUT WITHIN THE ALLOTTED TIME FOR GENUINE MISTAKES COMMITTED BY THE BROKER. ACCORDINGLY, THERE CANNOT BE ANY ADDITION MERELY ON THE BASIS OF CLIENT CODE MO DIFICATIONS DONE BY THE BROKER. 10 .3 WHATEVER TRANSACTION THE ASSESSEE HAS CARRIED OUT IN THE YEAR UNDER CONSIDERATION THROUGH THE BROKER ARE SUPPORTED WITH THE CONTRACT NOTES WHICH WERE ISSUED BY THE STOCK EXCHANGE UNDER THE GUIDELINES OF THE SEBI. 11 . HOWEVER, THE LEARNED CIT (A) DISREGARDED THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER: THE AO HAS ALSO ANALYZE THE DATA RECEIVED FROM NSE AND FOUND THAT THE OCCURRENCE OF CLIENT CODE MODIFICATION WAS NOT GENUINE. CONSIDERING ALL THESE THE AO HAS HELD THAT THE CLIENT CODE MODIFICATION WAS NOT AN INADVERTENT ERROR BUT HAS BEEN USED AS A SYSTEMATIC TOOL SO AS TO EVADE TAXES. ON THE OTHER HAND THE MAIN ARGUMENT OF THE APPELLANT IS BASED ON THAT THESE TRANSACTIONS ARE MISTAKENLY BOOKED DUE TO HUMAN ERROR AND NUMBER OF CLIENT CODE MODIFICATIONS ARE VERY FEW. THE APPELLANT'S RELIANCE ON THE DECISION IN THE CASE OF KUNVARJI FINANCE LTD. IS NOT VERY HELPFUL AS THE DECISION OF THE AO IS BASED ON THE SPECIFIC FACTS OF THIS PARTICULAR CASE WHICH ARE NOT THERE IN THE CASE OF THE KUNVARJI FINANCE LTD. THE AO HAS ANALYZE THE PATTERN OF CLIENT CODE MODIFICATION AND AFTER THAT SHE ARRIVED ON THE DECISION ITA NO. 908/AHD/2018 ASSTT. YEAR 2009 - 10 5 THAT THESE CLIENT CODE MODIFICATIONS A RE NOT AN INADVERTENT MISTAKE BUT THESE WERE DONE IN A SYSTEMATIC MANNER TO AVOID TAXES. THE APPELLANT HAS WITHIN THE SHORT SPAN AND AFTER WORKING HOURS HAS MANIPULATED THE LOSS ARISING TO SOME OTHER CLIENT TO THE ACCOUNT OF THE ASSESSEE. THESE CIRCUMSTANC ES RAISES DOUBTS REGARDING THE GENUINENESS OF THE TRANSACTIONS. CONSIDERING THE PECULIAR FACTS OF THE CASE THE DECISION OF THE AO IS JUSTIFIED AND THE ADDITION MADE BY THE AO IS CONFIRMED. 12 . BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A), THE ASSES SEE IS IN APPEAL BEFORE US. 13 . THE LEARNED AR BEFORE US FILED A PAPER BOOK RUNNING FROM PAGES 1 TO 196 AND SUBMITTED THAT THE ASSESSEE HAS NOT SHIFTED ANY PROFIT BY CHANGING HIS CODE MAINTAINED WITH THE BROKER. 14 . ON THE OTHER HAND THE LEARNED DR BEF ORE US VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 15 . WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE PRECEDING DISCUSSION, WE NOTE THAT THE ASSESSEE WAS ALLEGED TO HAVE DIVERTED HIS PROFIT AMOUNTING TO RS. 12,67,380/ - ON ACCOUNT OF F & O THROUGH THE INVOLVEMENT OF THE BROKER. ACCORDINGLY THE AO MADE THE ADDITION OF RS. 12,67,380/ - TO THE TOTAL INCOME OF THE ASSESSEE. THE VIEW TAKEN BY THE AO WAS SUBSEQUENTLY CONFIRMED BY THE LEARNED CIT (A). 15 .1 CLIENT CODE MODIFICATION MEANS MODIFICATION / CH ANGE OF THE CLIENT CODES AFTER EXECUTION OF TRADES. STOCK EXCHANGES PROVIDE A FACILITY TO MODIFY ANY CLIENT CODE AFTER THE TRADE HAS BEEN EXECUTED TO RECTIFY ANY ERROR OR WRONG DATA ENTRY DONE BY THE BROKERS AT THE TIME OF PUNCHING ORDERS. HOWEVER, SUCH CL IENT CODE MODIFICATION IS SUBJECT TO CERTAIN GUIDELINES AS TO THE TIME LIMIT WITHIN WHICH THE CLIENT CODE MODIFICATION IS TO BE CARRIED OUT, TERMINAL / SYSTEM ON WHICH SUCH MODIFICATIONS CAN BE DONE ETC. THE FACILITY IS MAINLY TO PROVIDE A SYSTEM FOR MODIF ICATION OF CLIENT CODES IN CASE GENUINE ERRORS IN PUNCHING / PLACING THE ORDERS. IT IS TO BE USED AS AN ITA NO. 908/AHD/2018 ASSTT. YEAR 2009 - 10 6 EXCEPTION AND NOT A ROUTINE. TO PREVENT MISUSE OF THE FACILITY STOCK EXCHANGES LEVY PENALTY / FINE FOR ALL NON - INSTITUTIONAL CLIENT CODE MODIFICATIONS. 15 .2 COMING TO THE FACTS OF THE PRESENT CASE, ADMITTEDLY CLIENT CODES WERE MODIFIED OF THE ASSESSEE AS PER THE INFORMATION RECEIVED FROM THE INVESTIGATION WING. HOWEVER, THE FIRST QUESTION THAT ARISES WHETHER SUCH CLIENT CODES WERE MODIFIED AT THE INSTANC E OF THE ASSESSEE OR THERE WAS SOME PUNCHING ERROR AT THE END OF THE SHARE BROKER. IT IS BECAUSE THE STOCK EXCHANGE PERMITS THE SHARE BROKER TO RECTIFY THE MISTAKES OCCURRED WHILE PUNCHING THE DATA. IF THAT BE SO, THEN THERE CANNOT BE ANY FAULT WHICH CAN B E ATTRIBUTED TO THE ASSESSEE FOR THE MISTAKES COMMITTED BY THE SHARE BROKER. 15 .3 FURTHERMORE, THE CLIENT CODE MODIFICATIONS GIVE RISE TO THE DOUBT/ SUSPICION WHICH REQUIRES DETAILED INVESTIGATIONS FROM THE PARTIES CONCERNED TO REVEAL THE TRUTH. MERELY, T HERE WERE CLIENT CODES MODIFICATIONS CARRIED OUT BY THE BROKER CANNOT THE BASIS TO DRAW AN INFERENCE AGAINST THE ASSESSEE. IN FACT, IN THE CASE OF CLIENT CODE MODIFICATION THE CODE OF THE OTHER PARTY IS ENTERED AT THE PLACE OF THE ASSESSEE. THUS THE OTHER PARTY ALSO REQUIRED TO BE INVESTIGATED WHETHER THE OTHER PARTY WAS INVOLVED IN SUCH TRANSACTION. BESIDES THIS OTHER CORROBORATIVE EVIDENCE HAS TO BE BROUGHT ON RECORD SUGGESTING THAT THERE WAS THE EXCHANGE OF CASH AMONG THE PARTIES INVOLVED IN SUCH CLIENT CODE MODIFICATION TRANSACTION . BUT WE NOTE THAT NO SUCH EXERCISE HAS BEEN CARRIED OUT BY THE AUTHORITIES BELOW. AS SUCH THERE IS NO WHISPER IN THE ORDER OF THE AUTHORITIES BELOW THAT THERE WAS THE CASH TRANSFER BETWEEN THE PARTIES FOR TRANSFERRING THE INCO ME OF THE ASSESSEE TO THE OTHER PARTY. THUS IN THE ABSENCE OF SUCH VERIFICATION/EXAMINATION CARRIED OUT BY THE AUTHORITIES BELOW, WE ARE NOT INCLINED TO UPHOLD THEIR FINDINGS. 15 . 4 IN VIEW OF THE ABOVE AND AFTER CONSIDERING THE FACTS IN TOTALITY, WE ARE NOT INCLINED TO UPHOLD THE FINDINGS OF THE AUTHORITIES BELOW. ACCORDINGLY WE SET ASIDE ITA NO. 908/AHD/2018 ASSTT. YEAR 2009 - 10 7 THE FINDING OF THE LEARNED CIT (A) AND DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 16 . IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. O RDER PRONOUNCED IN THE COURT ON 23 /03 / 2021 AT AHMEDABAD. SD/ - SD/ - (MADHUMITA ROY ) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (TRUE COPY) A HMEDABAD; DATED 23 / 03 /2021 M ANISH