No additions if client code modifications done by Stock Exchange member were within permissible SEBI limit: ITAT

Case Details: DCIT v. Futurz Next Services Ltd. - [2022] 139 taxmann.com 199 (Delhi-Trib.)

Judiciary and Counsel Details

• • R.K. Panda, Accountant Member & Kuldip Singh, Judicial Member
  • Ved Jain, Adv. & Aasish Goel, CA for the Appellant.
  • Satpal Gulati, CIT DR for the Respondent.

Facts of the Case

Assessee was a member of recognized stock exchanges and provided trading services in commodity markets through those exchanges. During the search, evidence of client code modifications done by assessee and its sister concerns in their own account as well as in accounts of clients was found.

It was also found that through client code modifications, profit belonging to assessee was shifted to other persons and the assessee had earned commission for facilitating this.
Assessing Officer was of the view that shifting of client code was not due to genuine reasons but for providing accommodation entries to some persons in lieu of consideration and accordingly, he added a sum of Rs. 8.74 lakhs to the total income of assessee.

Commissioner (Appeals) deleted the addition. Aggrieved revenue filed the instant appeal before the Tribunal

ITAT Held

The Delhi Tribunal held that transactions on account of client code modifications done by group concerns were not found to be false or untrue and SEBI or the stock exchange had not taken any action treating transactions to be non-genuine. Moreover, the volume of client code modifications that occurred was within the permissible limit allowed by SEBI.
Therefore, there was no perversity in order of the Commissioner (Appeals) in deleting the addition.

List of Cases Reviewed

• • Cheminvest Ltd. v. CIT [2015] 61 taxmann.com 118/234 Taxman 761/378 ITR 33 (Delhi) (para 27) followed.

List of Cases Referred to

• • Pr. CIT v. Pat Commodity Services (P.) Ltd. [IT Appeal No. 1257 of 2016, dated 15-1-2019] (para 15)
  • Asstt. CIT v. Kunvarji Finance (P.) Ltd. [2015] 61 taxmann.com 52 (Ahd. – Trib.) (para 15)
  • Sambhavnath Investment v. ACIT [IT Appeal No. 3109 (Mum.) of 2011, dated 3-12-2013] (para 15)
  • ACIT v. Jaypee Financial Services Ltd. [IT Appeal No. 4266 (Delhi) of 2016, dated 3-12-2019] (para 15)
  • Jaypee Capital Services Ltd. v. Dy. CIT [IT Appeal No. 1384 (Delhi) of 2017, dated 17-1-2020] (para 17)
  • S.A. Builders Ltd. v. CIT [2007] 158 Taxman 74/288 ITR 1 (SC) (para 20.1)
  • Hero Cycles (P.) Ltd. v. CIT [2016] 236 Taxman 447/[2015] 63 taxmann.com 308/379 ITR 347 (SC) (para 20.1)
  • Dy. CIT v. Gaurav Arora [IT Appeal Nos. 2034, 2035 (Delhi) of 2016, dated 17-12-2018] (para 20.1)
  • CIT v. Reliance Industries Ltd. [2019] 102 taxmann.com 52/261 Taxman 165/410 ITR 466 (SC) (para 20.2)
  • Cheminvest Ltd. v. CIT [2015] 61 taxmann.com 118/234 Taxman 761/378 ITR 33 (Delhi) (para 27)
  • Pr. CIT v. McDonald’s India (P.) Ltd. [2019] 101 taxmann.com 86 (Delhi) (para 27)
  • Pr. CIT v. Oil Industry Development Board [2019] 103 taxmann.com 326/262 Taxman 102 (SC) (para 27)
  • CIT v. Raj Kumar [2009] 181 Taxman 155/318 ITR 462 (Delhi) (para 28.2)
  • CIT v. Sunil Sethi [IT Appeal No. 569 of 2009, dated 3-2-2010] (para 28.2)
  • CIT v. Creative Dyeing & Printing (P.) Ltd. [2009] 184 Taxman 483/318 ITR 476 (Delhi) (para 28.2)
  • CIT v. Arvind Kumar Jain [2012] 18 taxmann.com 132/205 Taxman 44 (Mag.) (Delhi) (para 28.2)
  • Krishan Murari Lal Agarwal v. Dy. CIT [2013] 36 taxmann.com 507/59 SOT 136 (Agra – Trib.) (para 28.2).