The Income Tax Appellate Tribunal (ITAT), Mumbai bench directed readjudication with respect to contracts and bills of client code modification (CCM)carried out by brokers and assessee.
The assessee, Rajani S Iyer filed her return of income on dated 24/09/2009 which was processed under section 143(1) of the Act. Subsequently, on the information received from the office of the Pr. Director of Income-tax (Inv.) it was informed that Assessee is one of the beneficiaries on account of Client Code Modification at Rs.1,73,75,445/- for F.Y. 2008-09, the case of the Assessee was reopened u/s 147 after recording reasons for reopening and notice under section 148 was issued.
During the assessment the AO observed that Many brokers misused this facility of CCM for creating artificial losses/profits and providing such fictitious profits/losses to various clients by charging some commission.Therefore after getting expert opinion from the NSE the AO added the amount of Rs.35,65,470/- to the total income / loss returned by the Assessee by observing that the DIT(I&CI) has carried out the enquiries with the brokers where they have admitted to giving of such fictitious loss / profit to the beneficiaries.
Aggrieved, the assessee filed further appeal before the CIT(A) who dismissed the appeal.. Thereafter the assessee filed a second appeal before the tribunal.
During the proceedings Haridas Bhat,Counsel for assesee argued that Assessee has executed all the transactions through broker and it is not the duty of the client to see what changes are done by broker in the system of Stock Exchange as the Assessee has no access to system.
Further counsel for assessee argued that the entries in the client code were made as per the contracts and bills of the brokers and the Assessee has no knowledge of the changes made and also had neither made payment nor received any payments for the trade from the broker.
Smitha V Nair, Counsel for Revenue, supported the order of the lower authorities.
The tribunal observed that the notice under section 133(6) of the Act was issued to the broker, however, the same was returned un-served by the postal authority. Therefore, the Assessing Officer should have given an opportunity to the Assessee to produce such broker and / or to file the relevant documents in order to verify the claim made by the Assessee to the effect that that all the entries in the client code were made as per the contracts and bills of client / brokers and also to the effect as to whether the Assessee has made any payment or received any payment for the trades from the broker.
After reviewing the facts and records, the single -member bench Of Narender Kumar Choudhry,(Judicial Member)remand the file to the Assessing Officer for determination of entries in the client code were made as per the contracts and bills of brokers and Assessee has no knowledge of changes made and neither made any payment nor receive any payment for the trade form the broker
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