Case Law Details
Rajani S Iyer Vs ITO (ITAT Mumbai)
Introduction: In a recent development, the Income Tax Appellate Tribunal (ITAT) has directed re-adjudication on a significant case involving client code modification. The case, Rajani S Iyer Vs ITO (ITAT Mumbai), pertains to the assessment year 2009-10 and has raised crucial questions about the authenticity of transactions involving client code modification.
Background: The appellant, Rajani S Iyer, an individual, initially declared a loss of Rs.7,46,724/- in her income tax return filed on September 24, 2009. However, the case took a turn when information from the office of the Principal Director of Income-tax (Inv.) Ahmedabad revealed that the appellant was a beneficiary of Client Code Modification (CCM) at Rs.1,73,75,445/- for the financial year 2008-09. Subsequently, the Assessing Officer (AO) reopened the case under section 147 of the Income-tax Act, 1961, leading to a notice under section 148 being issued.
The appellant explained that details of the transactions involving code modification were only available with the broker/BSE and that the client had no access to the system. The appellant asserted that all entries in the client code were made as per contracts and bills of the brokers, denying any knowledge of changes made or payments received for the trades.
Observations by the Assessing Officer: To verify the transactions, the AO issued a notice under section 133(6) of the Act to the broker, M/s 21st Century Shares & Securities Ltd. However, the notice was returned unserved. The AO delved into the modus operandi of brokers engaging in CCM, emphasizing that genuine errors could be rectified through this mechanism. However, non-genuine modifications were made to create artificial losses/profits.
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