Case Law Details
DCIT Vs Comet Investment Pvt. Ltd (ITAT Mumbai)
No addition on account of fictitious loss in stocks on mechanical basis without showing losses were purchased by other parties
Conclusion: Addition made by AO on account of suppression of profit and obtaining fictitious loss by assessee company by way of Client Code Modification (CCM) and on account of commission paid to brokers to obtain fictitious loss through CCM was to be deleted as AO had mechanically added amounts as income of assessee without verifying & furnishing evidences on record and nothing had been brought on record to suggest that the said losses were purchased and the other parties were given cheque or cash payment in view of such favours.
Held: Assessee was a company engaged in the business of trading in shares, derivatives and commodities. During the year under reference, assessee had earned income from trading in shares which was offered as Speculation Income, it had suffered losses in the Commodity market and offered the same as Loss from Speculation. Further, assessee had suffered losses in Derivatives Trading which was shown as Business Loss in the Return of Income. AO made additions made on account of suppression of profit and obtaining fictitious loss by assessee company by way of Client Code Modification (CCM) and on account of commission paid to brokers to obtain fictitious loss through CCM. It was held assessee was not a registered broker on the Stock Exchange. Only the registered brokers can modify Client code (CCM) of their own clients. AO had not brought on record that even the instructions for CCM was ever given by the assessee. AO except for the fact of receiving information from the DIT (I & CI), had not considered the other aspects of the transaction to be considered as the transactions of the assessee. The other relevant aspect i.e. receipt and /or payments of monies, the time gap between the actual transactions on the stock exchange and the modification of the client code numbers of such transactions by the office of the registered share and stock broker, non-prohibition of client code modification by either the stock exchange or SEBI. AO had mechanically added amounts as income of assessee without verifying & furnishing evidences on record that all the above steps had actually happened in the case of all the transactions which he had added as income. Can AO consider a transaction on the Stock Exchange as income of a person other than the one who has either actually received monies in his bank account (in case of profit) and/or paid any monies from his bank account (in case of losses). No co-relation between the assessee and the other parties had been brought on record to co-relate that the parties to whom the alleged profits or loss was supposed to have been diverted to reduce the taxable income of assessee, had been brought on record to show that there was any collusion with each other and were known to each, so that one party diverted its profit or loss to the other parties. Even nothing had been brought on record to suggest that the said losses were purchased and the party were given cheque or cash payment in view of such favours. Thus, addition made by AO was to be deleted.
FULL TEXT OF THE ITAT JUDGEMENT
Please become a Premium member. If you are already a Premium member, login here to access the full content.
