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2019 (6) TMI 990 - ITAT MUMBAIReopening of assessment u/s 147 - AO held the F&O loss as fictitious loss being inflicted by manipulative client code modification - in DIT (Inv.) report the assessee was listed as one of beneficiaries - return was originally processed u/s 143(1) - notice u/s 148 was issued within four years from the end of the assessment and hence first proviso to Section 147 is not applicable - HELD THAT:- In the instant case, the AO received information from learned DIT(I&CI), Mumbai through learned PCIT, Mumbai that the assessee is beneficiary of obtaining fictitious F&O Loss from broker which was manipulated losses by modifying client code modifications. It had come to notice that many brokers were indulging in the tax evasions through modification in client code modifications in FY 2009-10 wherein fictitious profit/losses were created which was given by these brokers to their clients/beneficiaries in consideration of brokerage income which was also not disclosed to Revenue but when enquiry was conducted u/s 131(1A), these brokers surrendered these brokerage income from undisclosed sources. Further, the AO itself conducted enquiries prior to issuance of notice u/s 148 by issuing notice u/s 133(6) to Broker Inventure and the said broker never gave specific replies but gave general and evasive replies. Thus, the AO also applied independent mind before reopening of concluded assessment u/s 147 . This sudden spurt in client code modifications undertaken by Brokers in the month of March 2010 was subject to probe by SEBI and NSE as well by Income-tax Department. As we will see later in this order, there is mention of this sudden spurt in client code modifications in the month of March 2010 in various judicial orders pronounced by Courts/tribunal. It is also pertinent to mention here about the client code modification facility allowed by Stock Exchanges which is permitted in accordance with framework of SEBI/Stock Exchanges rules/regulations and circulars which are issued from time to time The assessee had also suffered F&O Loss of ₹ 31,98,597.50 through Broker Inventure for transactions undertaken through NSE in the month of March 2010 which were inflicted by client code modifications undertaken by Brokers with Stock Exchanges and which were held to be fictitious losses by authorities below. The assessee transactions in F&O segment also happened in the month of March 2010. The transactions inflicted through client code modification incurred through Broker Inventure in the month of March 2010 itself were as high as 92.2% of total transactions executed by assessee with broker Inventure on quantum of loss ratio basis. We hold that re-opening of the concluded assessment by the AO u/s 147 Act was valid and is therefore upheld/ sustained . Further , based on our above discussions on touch stone of preponderance of probabilities we hold that additions made by the AO to the income of the assessee by holding F&O loss to the tune of ₹ 31,98,657.50 as fictitious loss being inflicted by manipulative client code modification was validly done by the AO and hence additions to the tune of ₹ 31,98,657.50 as was made by the AO which was later confirmed by learned CIT(A) by treating aforesaid F&O loss as bogus loss is upheld. Further, we upheld the additions to the tune of 1% of the said fictitious losses to the income of the assessee by way of commission paid by the assessee to the brokers for arranging these fictitious losses. - Decided against assessee.
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