INCOME TAX ACT, 1961

Section 147

Reassessment - Addition on account of alleged undisclosed profit on Future and Option transactions in shares - Revenue failed to substantiate allegations with corroborative evidences -

Assessee-firm was engaged in trading of shares and derivatives. It was working as a sub-broker for another entity 'I'. AO received information that the assessee evaded tax through client-code modification (CCM) with a view to reduce overall tax liabilities by shifting profits. Accordingly, the case was reopened by and an assessment was framed under section 147, wherein the AO made addition on account of alleged undisclosed profit on future and option transactions in shares. Against those transactions, the commission was estimated and that was also added to the income of the assessee. However, CIT(A) provided substantial relief to the assessee but sustained addition with respect to category-3 transactions. Held: The practice of client-code modification is permissible as per the rules of stock exchanges since the possibility of punching errors could not be ruled out at the time of carrying out the transactions and human error was inevitable. The modifications to the extent of 1% could be done without any penalty and even the modification of 5% would attract meager penalty of Rs. 500. In instant case, no such norms had been violated by assessee while carrying out the modification. Further, no penalty was shown to have been imposed on the assessee since the modification done by the assessee was only to the extent of 1.15% of total trades. Further, the whole basis of making additions was information of DIT (Inv.) wherein it was alleged that the profits were shifted by CCM. To substantiate those allegations, was the onus of Revenue. Furthermore, the assessee filed confirmatory letters of all category-3 clients, wherein all the clients owned up the transactions and also confirmed that the profits so earned by them on those transactions were duly reflected in their respective returns of income. By filing the said documentary evidences, the assessee duly discharged its onus to prove genuineness of the modifications. Thus, the onus was on the Revenue to substantiate the allegations with corroborative evidences, however, that onus remained un-discharged. Hence, the addition sustained by the CIT(A) was deleted and consequently, the commission income against those transactions was also deleted.

Followed:Pr. CIT v. Pat Commodity Services (P) Ltd. (ITA Nos. 1257 & 1383 of 2016, dated 15-1-2019) : 2019 TaxPub(DT) 1379 (Bom-HC).

REFERRED :

FAVOUR : In assessee's favour

A.Y. :

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