Case Law Details
Shukra Bullions Ltd. Vs ITO (ITAT Mumbai)
Mumbai ITAT deleted an addition of ₹2,02,100 made on account of alleged Client Code Modification (CCM) transactions, holding that mere reliance on investigation wing information is insufficient without corroborative evidence.
The Tribunal observed:
- Reopening and addition were based solely on ADIT (Investigation) report alleging fictitious CCM transactions
- No direct evidence, broker statement, or material linking the assessee to such transactions was produced
- The assessee had categorically denied involvement and furnished complete financial records, tax audit report, and books of account
- The AO failed to rebut the documentary evidence or establish actual benefit derived by the assessee
Importantly, the ITAT noted that:
- The assessee had neither shown any profit nor claimed any loss from such alleged transactions
- Addition based on general suspicion and third-party information cannot be sustained
Accordingly, the Tribunal held the addition unsustainable in law and on facts, directed deletion, and allowed the appeal in full.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The instant appeal of the assessee filed against the order of the NFAC, Delhi [for brevity the “Ld. CIT(A)”], order passed under section 250 of the Income Tax Act 1961 (for brevity ‘the Act’) for Assessment Year 2009-10, date of order 30.07.2025. The impugned order emanated from the order of the Ld. Income Tax Officer Circle 5(3)(2), Mumbai (for brevity the ‘Ld. AO’) order passed under section 143(3) r.w.s. 147 of the Act date of order 23.12.2016.
2. The brief facts of the case are that the assessee filed the return by declaring total income nil. The return was processed u/sec. 143(1) of the Act. The assessee’s case was reopened u/sec. 148 of the Act after receiving the information from ADIT(Inv.)(3) Ahmedabad related to transaction of fictitious profit and loss credit by some brokers by misusing Client Code Modification (in short, ‘CCM’) facility in F & O segment in NSE during F.Y. 2008-09. The brokers were alleged to indulging transferring the fictitious loses to different clients to reduce from tax liability and also fictitious profit to their clients. On basis of this client code modification the Ld. AO had received the information that the assessee is beneficiary for obtaining fictitious transaction to reduce the income to extent of Rs.2,02,100 by shifting out ascertain profit to the tune of Rs.2,02,100/-from the said brokers during the impugned assessment year. Accordingly, the Ld. AO considered the transaction as non genuine and the amount of Rs.2,02,100/-was received by the assessee through CCM was added back with the total income of the assessee. The aggrieved assessee filed an appeal before the Ld. CIT(A) and denied the alleged entire transactions of the assessee. The Ld. CIT(A) rejected the appeal of the assessee. Being aggrieved assessee filed an appeal before us.
3. The Ld. AR argued and filed a paper book comprising pages 1 to 236, which has been placed on record. It was contended that the assessee is a company listed on the BSE and is engaged in the business of manufacturing jewellery. The assessee furnished complete financial statements, including the Tax Audit Report in Form Nos. 3CA and 3CB, along with the Balance Sheet for F.Y. 2008–09. The Ld.
AR further submitted that the assessee had raised objections to the reopening of the assessment and denied the alleged transactions amounting to Rs. 2,02,100/-in respect of CCM. The assessee had also requested the Ld. AO to provide the material/information in his possession on the basis of which reliance was placed; however, no such documents were furnished to substantiate the allegation that the assessee had undertaken such transactions in connivance with the broker through CCM. Accordingly, the Ld. AR prayed for deletion of the addition made by the Ld. AO.
4. The Ld. DR, on the other hand, relied upon the orders of the revenue authorities. The Ld. DR invited our attention to Ground No. 4 and para 6.4 of the impugned appellate order, wherein the Ld. CIT(A) has recorded his observations. For the sake of clarity, the relevant extract of para 6.4 is reproduced hereunder:
“6.4 Ground No.4 pertains to the addition of Rs. 2,02,100/- made by AO on account of client code modification. The appellant has contended that AO has made addition without any evidence and only on suspicion and surmises.
6.4.1 The contention of the appellant is not acceptable. The AO was in possession of specific information received from ADIT(Inv.)-1(3), A’bad which is as under:
The ADIT(Inv.)-1(3), Abad vide email detail dated 11.03.2016 has forwarded information regarding fictitious profits and losses created by some broker misusing the client code modification facility in F&O segment on NSE during F.Y.2008-09. The brokers were alleged to be indulging in transferring the fictitious losses to different clients to reduce their tax liability and also fictitious profits to other clients The client code modification transactions were taken by for investigation by the ADIT(Inv.) Unit-1(3), A’bad on the basis of data received from NSE during and after coordinated limited purpose survey under section 1334 of the Act at the premise of brokers and a few of the clients across India on 23.03.2015 The losses and profits were given to different clients/ beneficiaries according to their requirement The clients had taken fictitious losses to set off the against their profits with a view to reduce their tax liability. Some of the clients also took fictitious profits to cover up their undisclosed income or to set off these profits against huge losses.
On perusal of the information, it is seen that M/s Shukra Bullions Ltd is one of the beneficiary company who has obtained fictitious transactions to reduce income to the extent of Rs.2,02, 100/- from the said ascertained profit to the tune of Rs. 2,02,100/-from the said brokers during the previous year relevant to A.Y. 2009-10.”
On the basis of enquiry made by ADIT(In.) -1(3), Ahmadabad, it was noticed that profit accruing to the appellant company in the F&O segment was shifted to other persons by way of bogus client code modification. Similarly, losses accruing to other clients have been shown in appellant’s account by way of client code modification.
Further, during assessment, the appellant company denied to have entered into any such transactions by way of client code modification but failed to furnish any evidence in support of its contention. The appellant’s contention that broker did not confirm the transaction as no response was filed to notice u/s 133(6) of the Act is not acceptable as non-compliance from broker did not means that no transaction had taken place. Rather, non compliance by the broker confirms indirectly the result of enquiry conducted by the investigation wing. Further, on analysis of submission filed by the appellant and enquiry conducted by Wing, it was noticed as under.
1. The modifications of the client code made were part of an organized tax evasion racket.
2. Appellant company has benefited from modified transactions in the F&O segment.
3. It is seen from the details provided by the officer of DIT(I&CI) that the broker executed trade/CCM for appellant resulting into a loss/profit.
4. The appellant as an original client has only profits which have been shifted to modified client i.e. to others. These transactions have benefited the appellant as much as the losses have been taken by the appellant for reduction in income or profit which is to the extent of Rs. 2,02,100/-
6.4.2 Considering the above facts, I am of the view that appellant failed to justify and prove the genuineness of these transactions. It only helped him for reduction in income or profit of Rs. 2.02.100/- which otherwise, would have been a profit Accordingly, addition made by AO is confirmed. Ground No.4 of appeal is dismissed.”
5. We have heard the rival submissions and perused the material available on record. It is observed that the reopening of assessment under section 148 of the Act was initiated solely on the basis of information received from the ADIT (Inv.), Ahmedabad regarding alleged fictitious transactions through CCM. However, during the course of assessment proceedings, no specific or cogent material was brought on record by the Ld. AO to establish that the assessee was a beneficiary of such alleged CCM transactions. There is no reference to any statement of the broker or any other evidentiary material directly implicating the assessee.
On the contrary, the assessee has consistently denied having entered into any such transactions and has furnished complete financial records, including the tax audit report, balance sheet, and other supporting documents before both the revenue authorities. The Ld. AO has failed to rebut the evidences placed on record by the assessee. Further, on perusal of the computation of income, it is evident that the assessee has neither declared any profit nor claimed any loss in respect of the alleged transaction amounting to Rs. 2,02,100/-. In the absence of any direct evidence and in view of the uncontroverted documentary evidences furnished by the assessee, the addition made merely on the basis of general information and suspicion cannot be sustained. Accordingly, we set aside the impugned appellate order passed by the Ld. CIT(A) and direct the deletion of the addition of Rs. 2,02,100/- made by the Ld. AO. Since the appeal has been allowed on merits, the legal grounds raised by the assessee are rendered academic and are kept open.
6. In the result, the appeal of the assessee bearing ITA No.5866/Mum/2025 is allowed.
Order pronounced in the open court on 21st day of April 2026.
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