Failure to Prove Assessee's Share Ownership: ITAT deletes ₹2.53 Lakh Income Tax Addition u/s 68 in Client Code Modification Case
The assessee successfully contested the charge that he had engaged in unexplained share transactions through a stockbroker.
In a notable ruling reaffirming the necessity for concrete evidence in income tax assessments, the Income Tax Appellate Tribunal (ITAT) Ahmedabad has deleted an addition of ₹2.53 lakh made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, in a case involving alleged client code modification (CCM). The dispute arose from an assessment order pertaining...
In a notable ruling reaffirming the necessity for concrete evidence in income tax assessments, the Income Tax Appellate Tribunal (ITAT) Ahmedabad has deleted an addition of ₹2.53 lakh made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, in a case involving alleged client code modification (CCM).
The dispute arose from an assessment order pertaining to the financial year 2011–12, in which the AO alleged that the assessee had benefitted from CCMs executed through M/s. Affluence Share & Stock Pvt. Ltd., a stockbroking entity. According to the AO, 1,000 shares of C Mahendra Ltd., valued at ₹2,53,000, were transferred to Shah’s account via a client code alteration. In the absence of corroborative evidence, the AO treated the transaction as an unexplained credit and taxed it under Section 68 of the Act.
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Shah, represented by Ms. Palak Kshatriya, argued that he had never entered into any transactions with Affluence Share & Stock Pvt. Ltd. during the relevant year. In support, he filed an affidavit denying ownership of the C Mahendra Ltd. shares on the purported transaction date—June 14, 2011. He emphasized that since he did not own the shares, there could be no sale from his side, let alone a code modification for such a sale.
Despite the affidavit and explanations, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO’s decision. The matter subsequently reached the ITAT, where the bench consisting Dr. B.R.R. Kumar, Vice-President, and Shri Siddhartha Nautiyal, Judicial Member.
After reviewing the submissions and evidence, the ITAT found merit in the assessee’s contention. The tribunal noted that the Revenue failed to produce any concrete evidence proving that Shah held or transacted in the said shares. There was no demat account statement, broker ledger, or other documentation showing his involvement in the transaction.
Moreover, the Revenue could not demonstrate any financial relationship between the assessee and the broker in question.
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In its order, the Tribunal stated, “As the appellant did not own any shares of C Mahendra Ltd., the question of selling such shares does not arise.”
It was further observed that without documentary support, the mere occurrence of a client code modification cannot by itself justify an addition under Section 68.
The Income Tax Appellate Tribunal concluded that the addition of ₹2.53 lakh was unjustified and directed its deletion.
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