No reassessment for Client code modification on failure to prove malafide purpose of shifting profit  

Vayoo Nandan Finance Company Pvt. Ltd Vs ITO (ITAT Delhi)

Conclusion: Reassessment proceedings on the ground that assessee was one of the beneficiary of Client Code Modification (CCM) by some broker was quashed as there was no material to infer that such client code modification had been done with the malafide purpose of shifting  the profit or evasion of the tax.

Held: Assessee had derived income from business of financing activities and trading in shares and securities. The assessment of  assessee was sought to be reopened by AO on the ground that assessee was one of the beneficiary of Client Code Modification (CCM) by some broker. It was held that following the decision in the case of Coronation Agro Industries Ltd vs DCIT reported in 390 ITR 464 (Bom) wherein it was held that the reasons in support of the impugned notice accept the fact that as a matter of regular business practice, a broker in the stock exchange made modifications in the client code on sale and / or purchase of any securities, after the trading is over so as to rectify any error which might have occurred while punching the orders. The reasons did not indicate the basis for AO to come to reasonable belief that there had been any escapement of income on the ground that the modifications done in the client code was not on account of a genuine error, originally occurred while punching the trade. The material available was that there was a client code modification done by the Assessee’s broker but there was no link from there to conclude that it was done to escape assessment of a part of its income. Prima facie, this appeared to be a case of reason to suspect and not reason to believe that income chargeable to tax has escaped assessment. Prima facie, the impugned notice was without jurisdiction as it lacked reason to believe that income chargeable to tax had escaped assessment. There was no material to infer that such client code modification had been done with the malafide purpose of shifting of the profit or evasion of the tax.

FULL TEXT OF THE ORDER OF ITAT DELHI

1. The appeal in ITA No.3097/Del/2019 arises out of the order of CIT(A-16, Nw Delhi [hereinafter referred to as ^„ CIT(A)^‟, in short] in Appeal No. 10185/2018-19 dated 28.02.2019 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 dated 30.12.2016 (hereinafter referred to as ^„the Act^‟) by ITO, Ward-26(2), New Delhi (hereinafter referred to as ^„ld. AO^‟).

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