IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: `SMC' NEW DELHI
BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER
ITA No. 7982/Del/2018
Assessment Year: 2010-11
M/S PRECISION GAUGES & Vs. ACIT, CIRCLE 20(1),
TOOLS P. LTD., NEW DELHI
283, AGCR ENCLAVE,
NEW DELHI 110 092
(PAN: AAACP6879R)
APPELLANT RESPONDENT
Assessee by Shri K. Sampath, Advocate & Sh.
Rajakumar, Advocate
Revenue by Shri Pradeep Singh Gautam, Sr. DR
ORDER
This appeal filed by the assessee against the impugned order
dated 16.10.2018 passed by the Ld. CIT(Appeals)-7, New Delhi in
relation to assessment year 2010-11 on the following grounds:
1. On the facts and circumstances of the case and in
law, the authorities below erred in holding a sum of
Rs. 2,31,804/- to be bogus loss on account of CCM.
2. The action being arbitrary, erroneous and unlawful
must be quashed with directions for appropriate
relief.
3. The assessee craves leave to add, amend or
otherwise alter the ground of appeal.
2. The brief facts of the case are that the assessee filed its e-return
of income on 28.9.2010 for the AY 2010-11declaring income of
Rs. 31,92,710/-. The return of the assessee was processed u/s. 143(1)
of the Income Tax Act, 1961 (in short "Act"). Subsequently, information
2
was received from the office of the Pr. Director of Income Tax (Inv.),
Ahmedabad that some brokers were diverting profits/losses through
adopting Client Code Modification facility. The case of the assessee was
reopened u/s. 147 of the Act and the notice u/s. 148 of the Act was
issued on 15.03.2017 to the assessee. The AO passed the order u/s.
147/143(3) of the Act on 14.12.2017, assessing the total income at
Rs. 34,24,510/- after addition of Rs. 2,31,804/- on account of
accommodation entry. Aggrieved by the aforesaid assessment order,
the assessee has filed the appeal before the Ld. CIT(A), who vide his
impugned order dated 16.10.2018 has dismissed the appeal of the
assessee. Against the impugned order dated 16.10.2018, assessee is in
appeal before the Tribunal.
3. Ld. Counsel for the assessee stated that AO has mechanically
acted on the information supplied by the Investigation Wing
(Ahemdabad) and without applying his own mind, added a sum of
Rs. 2,31,804/- to the returned income which is based on
apprehensions and surmises that the mechanism of CCM was adopted
to evade the taxes only whereas all the transactions are duly reported
in the books of account maintained by the assessee company and the
addition was made by the AO without having any adverse material
available against the assessee company. He further submitted that
similarly Ld. CIT(A) has upheld the order of the AO. Hence, he
requested that the addition in dispute may be deleted and appeal of the
assessee may be allowed.
4. Ld. DR relied upon the orders of the authorities below.
5. I have heard both the parties and perused the records, especially
the impugned order. The Assessee in this case submitted a return of
3
income for Rs. 31,92,710/- which was processed u/s 143(1) of the Act.
Later on, proceedings u/s 147/148 of the Income-tax Act, 1961 ('the
Act') were taken in this case which culminated in a reassessment in
terms of the order dated 14.12.2017 causing an enhancement of
income of Rs. 2,31,804/-. Against such action an appeal was filed
before the Ld. CIT(A), New Delhi who confirmed the addition as made
in the reassessment order. It is noted that the Assessing Officer, while
carrying out reassessment, did not even pause to consider as to what
activities were pursued by the Company. He was obsessed to give effect
to a report admittedly received by him from the DI (Investigation),
Ahmedabad in respect of Client Code Modification cases in some share
transactions. The Assessing Officer listed the modus operandi of cases
generally involved in Client Code Modification cases. Thereafter he
states that the assessee in response to a query raised by him he had no
knowledge of the Client Code Modification for he had no access to the
change/modification of codes. The Assessing Officer also issued notices
to the broker of the assessee M/s OJ Financial Services Ltd who stated
- "The broker of the assessee M/s O.J. Financial Services
Ltd. was also issued notice u/s 133(6) for furnishing
information related to the assessee as well as the broker
itself with regard to client code modification. However, the
broker, vide its reply dated 24. 11.2017 submitted that "Our
data base has data only on transaction after modification.
We do not have data on original codes. Only stock exchange
has this data on original codes and modified codes. Rather,
we requested NSE to provide us CCM (Client Code
Modification) details but they refused to provide the same."
5.1 The Assessing Officer, thereafter, proceeded to examine the facts
obtaining in the subject case and found that in the month of January
there were 22 transactions all of which resulted in a loss of Rs.
4
2,31,804/-. The Assessing Officer thereafter did an hypothetical
analysis of the report and asked the assessee to submit an answer. The
assessee submitted under:-
"that the assessee company had not entered issued any
instruction to the broker for client code modification nor has
any action taken independently by the broker been
intimated or communicated to the assessee company. As
such, we state that the client mode modification facility, if
any, must have been used by the broker to rectify the
genuine mistakes/errors as per the SEBI guidelines."
5.2 The Assessing Officer thereafter summarised his findings and
concluded the assessment by making an addition of Rs.2,31,804/-.
While doing so, the reasons stated by the Assessing Officer are as
under:-
"4.3 I have considered and examined the reply filed by the
assessee, and the same is not found to be acceptable for
following reasons:-
i. Specific information was received' from the office of
DGIT (Inv.) describing modus operandi of the brokers
misusing client code modification facility which clearly
established that the assessee has reduced its taxable
income through misuse of CCM;
ii. On the basis of analysis of data received, following
patterns/features were noticed;
a. Trades have been modified to unrelated parties
indicating that they are non-genuine;
b. Most of CCM was done during fag end of the year
i.e. in last two months;
c. The client code modification was consistently
used to always transfer losses in accounts of some
clients and profits in the accounts of others.
5
d. Many brokers accepted that they charged
commission at the rates varying from 0.5% to 2% on
the amounts of accommodation entries provided by
them to different beneficiaries during the course of
search and survey action;
e. The orders issued by SEBI and NSE clearly
indicate that the CCM facility was misused for non-
genuine motives;
f. The pattern of modification of character of the
client codes cannot be said to be punching errors as
observed above."
5.3 When the issue was contested before the Ld. CIT(A) by the
Assessee, the Ld. CIT(A) has referred to the decision of the Apex Court
in SEBI Vs. Rakhi Trading Pvt. Ltd. and concluded as under and
dismissed the appeal:-
"3.6 Though, delivered in a slightly different context,
the judgement does indeed look at the spurious
conduct of manipulating the systems so as to contrive
prices thereby impact the losses or gains from such
trading as required to fit into the scheme of things of a
taxpayer. The investigation wing has detected the
same by way of a survey. I have considered the facts
as above and also the submission of the appellant and
also perused the order. The jurisprudence referred to
by the Ld. AR is distinguishable on the facts of the
case. The material relied upon by the AO in taxing the
income sought to be shifted out using the route of
client code modification is valid and hence the addition
of Rs.2,31,804/- is sustained. The ground of appeal is
ruled against the appellant."
6
5.4 Before doing so the Ld. CIT(A) cited the following Para from the
judgement and order of the Apex Court:-
"Conclusion - 46 - Considering the reversal
transactions, quantity, price and time and sale, parties
being persistent in number of such trade transactions
with huge price variations, it will be too naive to held
that the transactions are through screen-based trading
and hence anonymous. Such conclusion would be
over-looking prior meeting of minds involving
synchronisation of buy and sell order and not
negotiated deals as per the board's circular. The
impugned transactions are manipulative/deceptive
device to create a desired loss and/or profit. Such
synchronized trading is violative of transparent norms
of trading in securities. If the findings of SAT are to be
sustained, it would have serious repercussions
undermi.ng the integrity of the market and the
impugned order of SAT is liable to be set aside. On the
above additional reasons also, I agree with the
conclusion allowing the appeal preferred by SEBI
against the traders. I also agree with the conclusion
dismissing the appeal preferred by the SEBI against
the brokers."
5.5 It is noted that Assessing Officer and the Ld. CIT(A) failed to advert
to the facts of the case in their proper perspective. While it is true that
some brokers have in the past indulged in interpolation and
manipulation through the CCM facility, yet it is equally true that all
7
CCM transactions cannot be said to be interpolated or manipulated.
Interpolation and manipulation may possibly happen in fringe cases.
Both the Assessing Officer and the Ld. CIT(A) were seemingly obsessed
with the report of the DI (Inv), Ahmedabad and the case laws on the
subject. Both of them failed to note even the basic facts of the subject
case. The Assessing Officer failed to note that there was no information
from the DI (Inv) with regard either to the assessee or his broker having
indulged in any objectionable transaction. He also failed to note that in
this case CCM had not been done in the last two months of the year as
opined by him. The corrections as effected in the CCMs were of a most
nominal amount of Rs. 2 Lakhs plus which could not lie in the realm of
manipulation. The broker of the assessee on enquiry had confirmed
that the modifications were all genuine. The Assessing officer had not
found any evidence of any under-hand commission having been paid to
the broker for manipulations. Whatever was paid to the broker was all
through regular channels and was at the rates as prescribed by the
stock exchange. The Assessing Officer failed to also note these
punching errors occurred in seriatim only in the month of January of
that year whereas the assessee's trading in share transactions was
spread over the entire year. The fact that the error which occurred
could be the product of a novice's mistake at the broker's end has been
completely lost sight of by the Assessing Officer. The Ld. Commissioner
(Appeals) while deciding the issue was overtaken by the decision of the
Apex Court in SEBI vs. Rakhi Trading Pvt. Ltd. Ld. CIT(A) in his
enthusiasm to apply the ratio of the case appears to have overlooked
the indispensible conditions spelt in the decision itself. In the
circumstances it is noted that since the nominal loss as incurred by the
Assessee and claimed as such is due to genuine errors in CCM as
8
explained to the Assessing Officer in details and there is nothing
irregular about it, hence, the same is directed to be allowed and
addition made on this account is hereby cancelled by allowing the
appeal of the assessee.
6. In the result, the appeal filed by the assessee is allowed.
Order pronounced on 03/12/2019.
Sd/-
(H.S. SIDHU)
JUDICIAL MEMBER
Dated: 03/12/2019
SRB
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
TRUE COPY
ASSISTANT REGISTRAR
ITAT NEW DELHI
|
