ITAT Upholds Addition Due to Non-Genuine Client Code Modifications

The Income Tax Appellate Tribunal (ITAT), Ahmedabad, has ruled in favour of Revenue, upholding an addition of Rs 96,702 made towards an undisclosed commission income.

The assessee company, Javerilal Oswal Commodities Pvt. Ltd, is a registered broker with MCX and NSEL. It filed its return in 2014, showing a loss of Rs 3,86,088. The case was later reopened based on the information from the Investigation Wing, which said that the company was involved in “client code modification” during trading. The client code facility is for correcting genuine errors in the client code. However, the AO claimed that this was not a genuine correction in the assessee’s case. As a result, an addition of Rs 96,702 (2% of the benefits availed by the assessee) as undisclosed commission income was made to the assessee’s income.

The company challenged this before the CIT(A), but the appeal was dismissed. Therefore, the company approached the ITAT.

The company said that in the earlier assessment year, a similar addition was deleted by the CIT(A), and the same should be done for the present assessment year.

The tribunal carefully examined the facts and noted that the modifications in the client codes were not genuine minor mistakes. It was observed that profits from one client were shifted to another by changing the codes. This suggested that there was no punching mistake but a deliberate attempt on the part of the assessee.

The tribunal also noted that these key observations made by the assessing officer were not challenged by the company. Therefore, the tribunal held that the client code modifications were not genuine and were done to benefit its clients.

As a result, the ITAT dismissed the appeal of the assessee and confirmed the addition of Rs 96,702.