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TMI Blog2025 (5) TMI 959X X X X Extracts X X X X X X X X Extracts X X X X ..... going into the merits of the case? 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in deleting commission at 5 percentage of the client code modification transaction at Rs. 10,62,113/- relying on the decision in the case of Coronation Agro Industries Ltd. vs. DCIT 390 ITR 464 (Bom.)?" Additional Grounds of appeal "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the appeal relying on the interim relief granted in the case of M/s Coronation Agro Industries Ltd. v/s DCIT-6(2)(1) Mumbai without going into the merits of the case." 3. The brief facts are that the assessee company is engaged in the business of share trading and letting out immovable property. The assessee had filed its return of income and scrutiny assessment u/s. 143(3) of the Act was completed on 18.02.2015, where the learned Assessing Officer ('ld. AO' for short) determined the total income at Rs. 2,70,40,880/-. The assessee's case was then reopened based on the information from PDIT(Inv.)-2, Mumbai that the Serious Fraud Investigation Office (SFIO) had conducted detail investigation into the Nation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereby holding the reassessment be invalid and bad in law. 5. The revenue is in appeal before us, challenging the impugned order of the ld. CIT(A). 6. The learned Departmental Representative ('ld. DR' for short) for the revenue contended that the ld. CIT(A) has erred in allowing the assessee's appeal by relying on the decision of M/s. Coronation Agro Industries Ltd. (supra) which was on interim relief granted to the assessee without getting into merits of the case. The ld. DR further stated that the Hon'ble Punjab and Haryana High Court in the case of Rakesh Gupta vs. CIT [2018] 405 ITR 213 has held that if the reasons of reopening are based on tangible material and when the information is specific and not vague, the information received can be based for the reason to believe that the income has escaped assessment, thereby making a reopening valid and in accordance with law. The ld. DR stated that the said decision was passed by the Hon'ble High Court 2 years after the decision of M/s. Coronation Agro Industries Ltd. (supra) by the jurisdictional High Court which was only on interim relief. The ld. DR further stated that the ld. AO has not merely relied on the info ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Rs. 2,65,14,000/- has been noticed for which the ld. AO issued show cause notice seeking why the turnover involved in the said Client Code Modification transaction and the commission of 5% for providing accommodation entry should not be added to the total income of the assessee. The assessee vide its letter dated 23.12.2019 and 24.12.2019 submitted that the assessee was not involved in the Client Code Modification and was also unaware of the transaction between the broker and the exchange. The assessee further contended that it had recorded its transaction of purchase and sales in its books based on the bills received from M/s. Anand Rathi Commodities Limited along with the payments made and received from them. This explanation of the assessee was not to the satisfaction of the ld. AO, where it was observed that the Serious Fraud Investigation Office had information that some of the brokers have taken undue advantage of the Client Code Modification and has benefited out of the contracts offered at NSEL on the assurance of fixed return ranging from 12% to 14% to the investors. It was also observed that these entities/individuals had booked bogus speculative and non-speculative ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in its reply that it is not possible to discern with certainty any specific cause for the difference in the incidence of client code modifications across the segments and across the months of a year. NSE has also submitted that it has a rigorous and narrow time frame for the modification of the client codes, which approach is important to ensure speed, finality and accuracy for the client code entry. It understand that modification of client codes is allowed to rectify inadvertent errors in punching the orders, as directed by SEBI vide Circular dated February 06, 2003, and hence such modifications are expected to be randomly distributed over months. Therefore, the number of modified orders should have remained more or less uniform across months with some deviations either to positive or negative side, under normal circumstances. However, the significant variation in the modification of client codes in the immediate months around March, 2010 as brought out in table B above gives rise to a genuine doubt whether the modifications have been carried out for purposes other than those to rectify genuine errors. It may be noted that NISE 18 silent on the reasons for sudden increase in cli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The relevant extract of the decision of the Hon'ble Jurisdictional High Court in the case of Coronation Agro Industries Ltd. (supra) is cited herein under: "3. The reasons in support of the impugned notice relies upon the information received from the Principal Director of Income Tax that the petitioner has benefited from a client code modification by which a profit of Rs. 22.50 lakhs was shifted out by the petitioner's broker, resulting in reduction of the petitioner's taxable income. The only basis for forming the belief is the report from the Principal Director of Income Tax and the application of mind to the report of the Assessing Officer along with the record available with him. This information and application of mind has led the Assessing Officer to form a reasonable belief that there is not only an escapement of income but there has been failure to truly and fully disclose all material facts and information as the modus operandi of shifting profits was not known to the Revenue as not disclosed by the petitioner when the Assessing Officer passed the order in regular assessment proceedings. 4. We note that the reasons in support of the impugned notice accept the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ading to pass on profits or losses to the clients of the assessee company as per requirements. After hearing the assessee, the Assessing Officer made additions in the income of the assessee on such basis. The issue eventually reached to the Tribunal. The Tribunal did accept the Revenue's theory of misuse of clients code modification facility. However, the Tribunal accepted the assessee's explanation and discarded the Revenue's theory that profit of the assessee's company were passed on to the clients. It was also noticed that the Revenue has not contended that the client code 2 of 3 Uday S. Jagtap 1257-16-ITXA-19-C==.doc modification facility is often misused by the assessee to pass on losses to the investors, who may have sizable profit arising out of commodity trading against which such losses can be set off. The Revenue normally points out number of such instances of client code modifications as well as nature of errors in filling of the client code. At any rate, what can be taxed in the hands of the present assessee is the income escaping assessment. Even if the Revenue's theory of the assessee having enabled the clients to claim contrived losses, the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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