Time Media & Entertainment LLP Vs ITO (ITAT Mumbai)
In this case there was an unusual and sudden spurt in client code modifications in the month of March 2010 undertaken by Brokers in Stock Exchanges. The assessee had also suffered F&O Loss of Rs.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.
In large number of client code modifications, there are no similarity between wrong code and correct code and secondly there are repetitive client code modifications. Thus, client code modifications are tainted with collusive action and manipulations & shall go out of the protection granted by the circulars of NSE/SEBI.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal, filed by assessee, being ITA No. 6534/ Mum/ 2 0 1 7, is directed against appellate order dated 31.07.2017, passed by learned Commissioner of Income Tax (Appeals)-4, Mumbai (hereinafter called “the CIT(A)”) in Appeal No. CIT(A)-4/IT-89/ITO-16(1)(5)/2016-17, for assessment year 2010-11, the appellate proceedings had arisen before learned CIT(A) from the assessment order dated 30.03.2016 passed by learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) r.w.s. 147 of the Income-tax Act, 1961 (hereinafter called “the Act”) for AY 2010-11.
2. The grounds of appeal raised by assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:-
“A) Re-opening is bad in law and reassessment order passed is liable to be quashed
1. The Ld. CIT(A) erred in confirming the reopening of the assessment without appreciating that the reopening of the assessment is bad in law, invalid and liable to be quashed in as much as-
a) reasons recorded for reopening of the assessment are reason to suspect and not reason to believe.
b) reopening is upon direction of third party and therefore borrowed reasons;
c) without any tangible material available; and
d) without any proper application of mind and even the amount referred in the reasons recorded is incorrect.
Without prejudice to the above, on merits:
B) Disallowance of part of F & O Loss – 31,98,597/-
2. The learned CIT(A) erred in confirming the disallowance of F & O loss of Rs,31,98,597/- only on the reason that there was Client Code Modification (CCM) done by the broker in respect of the transactions where loss of Rs.31,98,597/ is incurred and hence, only on assumption and presumption the disallowance of loss of Rs.31,98,597/- is without any justification and liable to be deleted.
3. The learned CIT(A) failed to appreciate that the broker through whom the transactions were carried out gave response to the summons issued by the AO and confirmed the transaction as genuine and that CCM was genuine mistake and hence, the disallowance of loss of Rs.31,98.597/- is unjustified and liable to be deleted.
4. The Ld. CIT(A) further failed to appreciate that if the AO was not satisfied with the reply of the broker, the AO could have issued notice once again, however, the appellant could not be made to suffer due to fault / mistake on the part of the broker for punching error committed and hence, the disallowance of loss merely on the basis of allegations and without any material to prove otherwise is unjustified and liable to be deleted.
C) Addition of Rs. 31,986/- as unexplained expenditure
5. The Ld. CIT(A) erred in confirming addition to the extent of Rs. 31,986/- as commission paid to the broker for carrying out CCM / obtaining loss without appreciating the fact that the appellant transaction giving rise to loss of Rs.31,98,597/- is genuine transaction and genuine loss and not fictitious and thus, the question of making payment of commission to the broker does not arise.
6. The Ld. CIT(A) further failed to appreciate that there was no evidence whatsoever that the appellant has made any such payment to the broker and neither there is any such claim made in the profit and loss account and hence, the addition confirmed to the extent of Rs. 31,986/-is without any justification and liable to be deleted.
7. The appellant craves leave to add, amend, alter or delete all or any of the aforesaid grounds of appeal.‖
3. The brief facts of the case are that the assessee is engaged in the business of TV serials telecast, advertising, film distribution etc. and had income from sale of pre-recorded CD/DVD , royalty, commission and income from investment in shares. The assessee filed its return of income with Revenue for the impugned assessment year on 07.09.2010, which was processed by Revenue u/s. 143(1) of the Act. Thus, no scrutiny assessment as is contemplated u/s. 143(3) read with Section 143(2) of the 1961 Act was originally framed by Revenue against the assessee.
3.2 The AO received information from the office of DIT(I&CI) Mumbai, vide letter no. DIT(I&CI)/CCM/2014-15 dated 27.02.2015 through learned PCIT that some brokers were misusing the Client Code Modification facility in the F&O segments on NSE and had created non-genuine profit and loss. It was observed by the AO that these Loses and Profits were given by these brokers to their different clients/beneficiaries according to their requirements. The AO observed that clients had taken fictitious loses to set off against their profits with a view to reduce their tax liability. As per information received by the AO, the assessee was one of the beneficiary of the Client Code Modification as the name of the assessee also appeared in the beneficiaries list who had taken fictitious F&O Loses through the broker Inventure Growth & Securities Ltd. (hereinafter called “Inventure”) , during the financial year 2009-10 relevant to AY 2010-11, to the tune of Rs. 31,98,597.50, which income as per AO had escaped taxation , the details of which are as hereunder:-
