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
