The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) has directed the Assessing Officer ( AO ) to delete the addition of Rs. 4.38 lakhs, as no violation was found by the Securities and Exchange Board of India ( SEBI ) on the broker or the taxpayer concerning the alleged Client Code Modification ( CCM ) transactions.
The assessee, M/s. Anavya Investments Pvt. Ltd, was an individual engaged in the business of Trading of shares and securities. The return of income for assessment year 2010–11 was filed by the assessee under Section 139(1) of the Income Tax Act, 1961 on 29.09.2010 declaring taxable income of ₹ 29,56,101/- under normal provisions of the Act and book profit of ₹84,48,854 under Section 115JB of the Income Tax Act.
The AO observed that information has been received from Assistant Director of Income Tax, Investigation Wing-13, Ahmedabad vide office letter dated 11/03/2016, wherein, it was informed that some companies have involved in tax evasion practice by claiming fictitious profits/ loss by using Client Code Modification (CCM) facilities in Future & Options (F & O) segment of National Stock Exchange (NSE)
The AO completed the reassessment proceedings by observing that the assessee took fictitious profits on account of CCM transactions to the tune of ₹26,33,328 and further added 2% commission amounting to ₹52,667/- thereon and made total addition of ₹26,85,995 in that assessment. This action of the AO was upheld by the CIT(A).
The bench considered opinion that neither the name of the assessee’s broker nor the name of the assessee were mentioned as a person who has been involved in fraudulent CCM transactions. The AO had given details to the assessee stating on 28 on occasions, CCM was done in assessee’s case. It was pertinent to note that the total transactions carried out by the assessee during the year in trading of shares and securities was 1647. The assessee reiterated its submission before the CIT (A) and a remand report was sought from the AO by the CIT (A), but no remand the report was submitted by the AO before the CIT (A).
Further held that in the decision of Punjab and Haryana High Courtrelied upon by the CIT (A) in the case of Rakesh Gupta vs. CIT there was tangible material available with the AO, which enabled him to reopen the assessment. Whereas in the instant case before us, there is absolutely no tangible material available with the AO which constitutes a live link or nexus with formation of belief that income of the assessee had escaped assessment. No enquiry whatsoever was even resorted to be made with the broker of the assessee through whom transactions were carried out by the assessee.
It was pertinent to note that the CCM is done by the broker and not by the assessee and it was a permitted transaction to rectify typo or punching errors carried out by the broker or its staff while entering the trading transaction on behalf of the client within the prescribed time after the trading in a day was over. No violation was found by SEBI on the broker or on the assessee with regard to alleged CCM transactions
The two member bench of the tribunal comprising C.N Prasad (Judicial member) and Balaganesh ( Accountant member) concluded that there was no hesitation to quash the reassessment proceedings and accordingly directed the AO to delete the addition made in the reassessment. Grounds raised by the assessee were allowed. Accordingly, the appeal of the assessee was allowed.
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