Canara Securities Ltd. Vs DCIT (ITAT Hyderabad)
ITAT Hyderabad held that no records brought suggesting that assessee has contrived losses by using Client Code Modification. Thus, disallowance of losses only on presumption is not justifiable. Accordingly, disallowance deleted.
Facts- The assessee, engaged in the business of investment banking i.e. purchase and sale of securities in equity segment and futures & option segment. AO received specific information that the assessee had contrived losses by using Client Code Modification (CCM) facility and based on the information, AO reopened the assessment u/s 147 of the Act.
AO held that the losses / profits were not incurred on account of any genuine risk taking in market but were in a way bought after they were ascertained and are hence contrived. Hence, in view of the above it is evidently cleared that, by resorting to CCM, assessee has reduced its taxable income to the tune of Rs.1 3,48,175/-.
CIT(A) rejected the submissions of the assessee and dismissed the grounds raised by the assessee. Being aggrieved, the present appeal is filed.
Conclusion- Held that that no such investigation was carried on the broker i.e. CIL Securities Ltd. AO can proceed with the addition when he has specific information that the assessee itself involved in such malpractices. In the given case, AO has not brought on record any specific instruction given by the assessee to the broker for such client code modification. It is only based on the information that there involves CCM, in which, assessee has suffered loss to the extent of Rs. 13,48,175/-. It does not mean that assessee has directly involved, may be, assessee must have benefitted out of it, but, still it is the duty of the AO to bring on record the fact that assessee has directly involved in such activities. From the record, we notice that assessee has incurred heavy losses in this year, we do not understand how shifting of profit will benefit the assessee. Therefore, in our considered view, in the absence of any findings that assessee has given specific instruction to the broker to make such CCM, assessee cannot be held responsible in such modification. Therefore, it is only a presumption of the AO that assessee might have involved in such transactions. Accordingly, the loss disallowed by the AO is hereby deleted.
