Mumbai ITAT: Reassessment Must Tax Real Income, Not Duplicate Salary Entries; CCM Addition Deleted for Want of Evidence

ACIT Vs Deepak Natvarlal Dadia (ITAT Mumbai)

Mumbai ITAT: Reassessment Must Tax Real Income, Not Duplicate Salary Entries; CCM Addition Deleted for Want of Evidence

The Mumbai ITAT dismissed the Revenue’s appeal and upheld the relief granted to the assessee, holding that reassessment proceedings are meant to determine the correct taxable income and cannot be used to tax income that never accrued merely because it was mistakenly reported in Form 26AS. The Tribunal also deleted additions arising from alleged Client Code Modification (CCM) transactions, finding that the transactions were duly recorded and the source of funds stood explained.

The assessee had originally filed his return by adopting salary figures appearing in Form 26AS. Subsequently, it was discovered that the employer had erroneously reported duplicate salary entries along with excess TDS, resulting in inflation of taxable income. While filing the return in response to notice under Section 148, the assessee corrected the salary income and simultaneously surrendered the corresponding excess TDS credit. The Assessing Officer rejected the claim, relying on Sun Engineering Works (SC) and holding that reassessment proceedings could not be used to reduce income declared in the original return.

The Tribunal rejected the Revenue’s stand and held that the assessee was not seeking any fresh deduction, exemption or relief but was merely correcting an apparent duplication of income. Relying on Shelly Products (SC), Godhra Electricity (SC), Poona Electric Supply (SC) and Pruthvi Brokers (Bom HC), the ITAT observed that the Revenue can retain only tax legitimately due under law and that only real income can be subjected to tax. The Tribunal emphasized that the law does not require taxation of a fictitious or duplicated income merely because it was mistakenly disclosed earlier.

On the CCM issue, the Assessing Officer had treated ₹3.49 lakh as unexplained investment under Section 69 and ₹4,757 as undisclosed income, relying on information linked to the NSEL scam and SFIO findings. However, the Tribunal found that the impugned transaction was fully reflected in the broker’s ledger, formed part of the assessee’s regular trading activity, and the assessee maintained a running credit balance of about ₹3.58 lakh with the broker, adequately explaining the source of funds.

The ITAT further observed that the Revenue had failed to bring any material on record to establish that the assessee had instructed the broker to carry out CCM or that any profits or losses were shifted with a tax evasion motive. The Tribunal reiterated that mere existence of CCM does not automatically lead to an inference of tax evasion and relied upon Coronation Agro Industries Ltd. (Bombay HC) to hold that CCM-related allegations must be supported by tangible evidence.

Accordingly, the Tribunal upheld the deletion of the addition of ₹3.49 lakh under Section 69 and the consequential addition of ₹4,757, while also affirming that the Assessing Officer must assess real income and not duplicated income arising from reporting errors. The Revenue’s appeal was dismissed in full.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

This appeal is filed by the Revenue against the order of Ld. NFAC, New Delhi vide DIN: ITBA/NFAC/S/250/2025-26/1084981576(1) dated 20-Jan-2026 for the Assessment Year 2013-14.

2. The Revenue has raised the following grounds of appeal:

1) Ground1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to adopt the income as per the return filed in response to the notice under section 148, thereby permitting a reduction of income originally declared in the return filed under section 139, without appreciating that the assessee had failed to revise the original return within the statutory time limit prescribed under section 139(5). 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that reassessment proceedings initiated under sections 147/148 cannot be used as a mechanism by the assessee to seek reduction of income already declared in the original return, as held by the Honorable Supreme Court in the case of CIT v. Sun Engineering Works (P) Ltd. (198 ITR 297).

2) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 3,49,463 made under section 69 by ignoring the specific investigative findings of the SFIO regarding the NSEL scam, which established that Client Code Modifications were part of an organized fraudulent mechanism. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) failed to appreciate that since the assessment was reopened based on a report from the Serious Fraud Investigation Office (SFIO), the case falls under the exception category as per Para 3.1(c) of CBDT Circular No. 5/2024, making it eligible for appeal despite the tax effect being below the general monetary limits.

3) The Appellant craves leave to add, amend, alter, modify, and/OR delete any of the above grounds of appeal before OR at the time of the final disposal of the appeal.

3. The brief facts of the case are that the assessee had filed his return of income for A.Y. 2013 -14 declaring total income of ₹4,13,88,480. Subsequently, the Assessing Officer received information from the Investigation Wing relating to alleged Client Code Modification (CCM) transactions undertaken through Ventura Commodities Pvt. Ltd. As per the information made available to the Assessing Officer, transactions amounting to ₹7,02,880 had been modified from another client’s code to the assessee’s code. Based o n this information, the Assessing Officer reopened the assessment under section 147 of the Act.

4. During the reassessment proceedings, the Assessing Officer asked the assessee to furnish complete details relating to these transactions viz. contract note s, DEMAT account, bank statements and supporting evidence. While the assessee furnished ledger accounts and certain contract notes, according to the Assessing Officer, critical supporting documents were not furnished by the assessee and the transactions in the CCM information did not reconcile with the ledger accounts produced by the assessee. The Assessing Officer, therefore held that the assessee had derived benefit from the CCM transactions and that the true nature of the transactions had not been disclo

5. The first issue examined by the Assessing Officer related to the income declared by the assessee in the return filed in response to notice under section issued notice u/s 148 of the Act. The assessee had filed a fresh return of income, declaring income of ₹2,80,44,331 as against ₹4,15,13,480 declared in the original return. The assessee submitted that the employer had erroneously reported salary income of ₹1,36,04,773 along with corresponding TDS in Form 26AS and the same was subsequently rectified by the employer. According to the assessee, while filing the original return he had merely adopted the figures appearing in Form 26AS and therefore excess salary income was erroneously offered to tax. However, when the assessee received notice u/s 148 of the Act he reduced the salary income to reflect the correct figure and simultaneously gave up the corresponding TDS credit. The Assessing Officer rejected this claim on the ground that the assessee had never filed a revised return within the prescribed period and a return filed pursuant to section 148 notice could not be utilised for seeking reduction of income. The Assessing Officer relied upon the decision of the Hon’ble Supreme Court in Sun Engineering Works198 ITR 297 (SC) and held that reassessment proceedings cannot be converted into proceedings for reviewing completed issues. Accordingly, the Assessing Officer treated the reduction of ₹1.34 crore in income, claimed by the assessee as impermissible. The second issue related to the Cli ent Code Modification transactions. According to the Assessing Officer, NSEL transactions were widely used for creating artificial gains and losses through client code modifications and in many of the transactions actual delivery of commodities did not take place. The Assessing Officer observed that the assessee’s name appeared in the CCM database and transactions amounting to ₹7,02,880 had been shifted from another client’s code to the assessee’s code. Since the assessee did not furnish complete documentary evidence viz DEMAT statements and other supporting records despite specific requisitions, the Assessing Officer held that the assessee had failed to discharge the burden of proving the genuineness of the failed that the transactions. The Assessing Officer further observe transactions appearing in the CCM information did not correspond with the transactions reflected in the broker’s ledger and therefore the real such transactions could not be nature of the income generated from verified. Accordingly, the Assessing Officer held that the assessee was a beneficiary of the CCM arrangement and these transactions were the undisclosed investments of the assessee. The Assessing Officer held that the purchase transaction amounting to ₹3,49,463 was the unexplained investment which was liable to be taxed under section 69 of the Act. Further, the profit element of ₹4,757 arising on sale was also held to be liable to tax as undisclosed income of the assessee. Accordingly, the Assessing Officer made addition of investment component of ₹3,49,463 and profit of ₹4,757.

6. Before the CIT(A), the assessee challenged both categories of additions. The CIT(A), observed that the original Form 26AS contained duplicate salary entries and excess TDS and such entries were subsequently corrected by the employer. The CIT (Appeals) observed that the reduction of income was accompanied by surrender of the excess TDS credit and therefore there was no one-sided benefit claimed by the assessee. The CIT(A) further observed that reassessment proceedings are intended to determine the correct taxable income and a return filed pursuant to section 148 notice substitutes the original return for the purposes of reassessment. The CIT(A) noted that the Act does not mandate that income declared in a return of income filed under section 148 must necessarily be higher than the income declared in the original return and that what is barred under section 239 of the Act is grant of a time-barred refund and not determination of real income. On the CCM issue, the assessee reiterated that profit from NSEL transactions amounting to ₹1,35,624 had already been offered to tax and there was no material to show that the impugned transaction was unexplained investment made by the assessee. The assessee submitted that no adverse finding had been made by SEBI / Stock Exchange against the assessee and the transaction in question had actually generated a profit rather than a loss. The CIT (Appeals) found merit in the assessee’s explanation. The CIT(Appeals) observed that the reopening was based solely on information received from the SFIO report contending CCM through the broker, whereas the assessee had demonstrated that he had no control over any client code modifications. The CIT(Appeals) further observed that out of the tot al NSEL transactions of approximately ₹1.24 crore undertaken by the assessee, the alleged CCM pertained only to a single transaction of about ₹3.49 lakh and such transaction had not resulted in any artificial loss but in fact had yielded a profit of ₹4,757. The CIT(Appeals) also noted that the assessee had already offered the entire profit from NSEL transactions amounting to ₹1,35,624 to tax in the return filed in response to notice under section 148 of the Act and, therefore, the profit arising from the impugned transaction already stood embedded in the income disclosed by the assessee. The CIT(Appeals) found that no material had been brought on record by the Assessing Officer to establish that the CCM was carried out with a mala fide intention to evade tax or to shift profits or losses, nor was there any adverse action by SEBI or the stock exchange against the assessee. Accordingly, the CIT(Appeals) held that the Assessing Officer was not justified in treating the purchase value of ₹3,49,463 as unexplained investment or in separately taxing ₹4,757 as undisclosed income, particularly when the entire profit from NSEL transactions had already been subjected to tax. Accordingly, the additions made on account of CCM transactions were directed to be deleted and relief was granted to the assessee.

7. The Department is in appeal before us against the order passed by CIT(Appeals) allowing the appeal of the assessee.

8. We have heard the rival contentions and perused the material available on record. The Revenue has challenged the order of the Ld. CIT(Appeals) on the grounds that the assessee was not entitled to reduce the income declared in the original return of income filed under section 139(1) of the Act while filing the return in response to notice issued under section 148 of the Act and further the Ld. CIT(Appeals) erred in deleting the additions made on account of alleged Client Code Modification (CCM) transactions.

9. Ground Nos. 1 and 2 relate to the action of the Ld. CIT(Appeals) in directing the Assessing Officer to adopt the income as declared in the return filed in response to notice under section 148 of the Act. The Revenue has primarily relied upon the decision of the Hon’ble Supreme Court in CIT vs. Sun Engineering Works (P.) Ltd. (1992) 198 ITR 297 (SC) to contend that reassessment proceedings cannot be utilized by an assessee to reduce income already declared in the original return.

10. After considering the facts of the case, we find no merit in the aforesaid contention. The undisputed factual position emerging from the record is that the assessee had filed the originally return of income by taking the figures reflected in Form 26AS. Subsequently, assessee found that the employer had erroneously reported duplicate salary entries and corresponding excess TDS in its TDS statements, resulting in duplication of salary income in the hands of the assessee. This fact has not been disputed by the Department. While filing the return in response to notice under section issued notice u/s 148 of the Act, the assessee merely corrected the duplicated salary income and simultaneously relinquished the corresponding excess TDS credit. Therefore, the assessee neither claimed any fresh deduction nor sought any new exemption, allowance or relief which was not otherwise available under law. What was corrected was only an apparent duplication of income which admittedly never accrued to the assessee.

11. In our considered opinion, the reliance placed by the Revenue on the decision in Sun Engineering Works (supra) is distinguishable on The Hon’ble Supreme Court in the said decision was concerned with a situation where the assessee sought to reagitate concluded matters and claim fresh reliefs unrelated to the escaped income forming the subject matter of reassessment. The ratio of the judgment cannot be extended to a case where the assessee merely seeks assessment of the correct income and points out an apparent error resulting in taxation of income which never accrued. The principle laid down by the Hon’ble Supreme Court in Sun Engineering Works (supra) cannot be read as requiring the Department to assess a fictitious or duplicated income merely because such income was mistakenly disclosed in an earlier return.

12. The Hon’ble Supreme Court in CIT vs. Shelly Products & Another (2003) 261 ITR 367 (SC) has held that the Revenue can retain only such tax as is legitimately due under the provisions of the Act and cannot retain tax collected without authority of law. Similarly, the doctrine of real income has consistently been recognized by the Hon’ble Supreme Court in Godhra Electricity Co. Ltd. vs. CIT (1997) 225 ITR 746 (SC) and Poona Electric Supply Co. Ltd. vs. CIT (1965) 57 ITR 521 (SC), wherein it has been held that only real income and not hypothetical income can be subj ected to tax. Once it is established that the duplication of salary income occurred due to an error in TDS reporting by the employer and the assessee simultaneously surrendered the corresponding excess TDS credit, there remained no justification for taxing an income which never accrued to the assessee.

13. We also find support from the judgment of the Hon’ble Bombay High Court in CIT vs. Pruthvi Brokers & Shareholders Pvt. Ltd. (2012) 349 ITR 336 (Bom), wherein it was held that an assessee is entitled to raise a lawful claim before appellate authorities even if such claim was not made in the original return of income. The powers of appellate authorities are wide enough to determine the correct tax liability in accordance with law. Therefore, we are of the considered view that the Ld. CIT(Appeals) was justified in directing the Assessing Officer to assess the correct income as disclosed in the return filed pursuant to notice under section issued notice u/s 148 of the Act. of the Act.

14. Accordingly, we find no infirmity in the findings recorded by the Ld. CIT(Appeals). Ground Nos. 1 and 2 raised by the Revenue are dismissed.

15. Ground No. 3 relates to deletion of addition of Rs.3,49,463/-made under section 69 of the Act and deletion of Rs.4,757/- treated as undisclosed income on account of alleged Client Code Modification transactions.

16. The Assessing Officer proceeded on the basis of information received from the SFIO concerning the NSEL scam and held that the assessee had benefited from CCM transactions. However, on a careful examination of the material placed before us, we find ourselves in agreement with the conclusions arrived at by the Ld. CIT(Appeals).

17. During the course of hearing, the learned Authorised Representative drew our attention to page 38 of the Paper Book containing the broker’s ledger account. The said ledger demonstrates that both the purchase transaction and the corresponding sale transaction were duly recorded in the books and broker records maintained in the name of the assessee. The transaction appearing at Item No.14 of the statement of transactions was specifically shown to belong to the assessee and forms part of the regular trading transactions undertaken by him. Therefore, the factual premise adopted by the Assessing Officer that the impugned transaction was not reflected in the records of the assessee is found to be contrary to the material available on record.

18. We further notice from page 38 of the Paper Book that the assessee was maintaining a running account with the broker and had a credit balance of approximately Rs.3.58 lakhs available therein. The existence of such balance adequately explains the source of funds utilized for undertaking the impugned transaction. Once the source of investment stands duly explained and the transaction itself is reflected in the broker’s ledger, the essential conditions necessary for invoking section 69 of the Act ceases to exist. It is settled law that section 69 of the Act can be invoked only where the investment is found to be unexplained and not recorded in the books of account. Neither of these conditions is satisfied in the present case.

19. The Revenue has heavily upon observations contained in the SFIO report concerning irregularities on the NSEL platform. However, no specific material has been brought on record to demonstrate that the assessee had instructed the broker to carry out CCM or that any profit or loss was shifted with a view to evade tax. The settled legal position is that mere existence of CCM cannot automatically lead to an inference of tax evasion.

20. In Coronation Agro Industries Ltd. vs. DCIT (2017) 390 ITR 464 (Bom), the Hon’ble Bombay High Court held that reassessment based merely on CCM information without tangible material demonstrating escapement of income cannot be sustained.

21. In the present case, the impugned transaction is reflected in the broker’s ledger, the source of funds stands fully explained through t running account maintained with the broker and the said profit already forms part of the income voluntarily offered by the assessee. No evidence has been brought on record to establish any undisclosed investment or undisclosed income. In these circumstances, we find no reason to interfere with the findings of the Ld. CIT(Appeals) deleting the addition of Rs.3,49,463/ – under section 69 of the Act and the consequential addition of Rs.4,757/-.

22. Ground No. 4 merely seeks to invoke the exception contained in CBDT Circular No. 5 of 2024 relating to appeals based upon information received from law enforcement agencies. Since the appeal has been entertained and adjudicated on merits, the said ground becomes academic and does not require any separate adjudica

23. In the result, all the grounds raised by the Revenue are dismissed and the appeal of the Revenue is dismissed.

Order pronounced in the open court on 10.06.2026