INCOME TAX ACT, 1961

Section 69

Income from undisclosed sources - Addition under section 69 - Bogus loss on account of CCM facility -

AO received information from Investigation Wing that some brokers were diverting profits/losses through adopting Client Code Modification (CCM) facility. Accordingly, the AO reopened case of assessee-company and passed order under section 147 after making addition on account of accommodation entry. Assessee contended that the AO mechanically acted on the information supplied by the Investigation Wing and made the impugned addition without considering the fact that all transactions were duly reported in books of account. Held: It was found that both AO and CIT (A) were so seemingly obsessed with the report of the Investigation Wing and the case laws on the subject that they failed to note even the basic facts of the subject case. Further, they also failed to note that the corrections as effected in the CCMs were of a most nominal amount of Rs. 2 lakhs, which could not lie in the realm of manipulation. Further, the broker of the assessee on enquiry confirmed that the modifications were all genuine and the AO did not find any evidence of any under-hand commission having been paid to the broker for manipulations. Whatever was paid to the broker was all through regular channels and was at the rates as prescribed by the stock exchange. Moreover, the AO also failed to note that those punching errors occurred in seriatim only in the month of January of the relevant year whereas the assessee's trading in share transactions was spread over the entire year. Hence, the addition made in respect of bogus loss on account of CCM, was deleted.

REFERRED : Securities & Exchange Board of India v. Rakhi Trading Pvt. Ltd. [Civil Appeal Nos. 1969 & 3174-3177, 3180 of 2011, dt. 8-2-2018]: 2018 TaxPub (CL) 0139 (SC)

FAVOUR : In assessee's favour.

A.Y. : 2010-11

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