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Tax Publishers Stratagem Portfolio (P) Ltd. v. Dy. CIT [ITA No. 7878/Del/2019, dt. 15-9-2020] : 2020 TaxPub(DT) 3789 (Del-Trib) Alleged alteration of client code modification (CCM) to corner profits -- Reopening thereof *Facts:* Assessee's case was reopened under section 147 due to client code modifications carried out 44 times in the futures and options trading window and additions were saddled on assessee under section 68 and 69C. This was upheld by the Commissioner (Appeals). Aggrieved assessee went in higher appeal where in they pleaded that the client code modification was not within their know and they did not indulge in the same. Held in favour of the assessee by quashing the reopening that the reopening and additions were done only on allegations; with the brokerage entities being the main culprit behind the client code modification window. *Editorial Note:* The decision points to an interesting piece on a mathematical property called Levenshtein Distance or edit distance which enables if a data manipulation was done voluntarily or erroneously. The algorithm of this Levenshtein distance is applied widely in forensic accounting like Benford's theorem. It is based on the key strokes on a standard QWERTY keyboard drawn to find out if the typographical error resulted in the error or was it a conscious effort to alter the code otherwise. Levenshtein Distance or edit distance is that it gives a clear indication as to whether the code is wrongly typed or is completely replaced. If the number of digits changed from original code to modified code is 1. then it can be reasonably argued that the OCC (Original Client Cade) may have been typed wrongly by mistake But if the number of digits changed is more surely it cannot be a genuine typing mistake but a deliberate change. To this extent Levenshtein Distance Analysis or digit edit analysis acts as a clear indicator for genuineness in client code modification. The longer the distance (i.e., number of digits changed), the lesser the chances at genuineness. The analysis of Levenshtein Distance or digit edit analysis, when clubbed with the parameters mentioned in this report establishes the non-genuineness and contrived nature at the code change. Levenshtein Distance Analysis or digit edit analysis in case of the assessee shows that in all transactions the value was 2 or more. Beneficiaries who shift out their profits and at the same time, they have also taken losses from others. These tactics are generally resorted to by the persons who already have taxable income in their books and they want to set it off against contrived losses through CCM. An important finding of the survey is trend analysis The trend analysis show that the profits are shifted out when the person is original client and losses are shifted in when the client is modified client. This trend show that the CCM has been carried out for non-genuine purposes in the case of assessees. The other important finding of the survey is that most of the brokers admitted that CCMs have been done for a purpose other than genuine punching errors.

Tax Publishers

Stratagem Portfolio (P) Ltd. v. Dy. CIT [ITA No. 7878/Del/2019, dt. 15-9-2020] : 2020 TaxPub(DT) 3789 (Del-Trib)

Alleged alteration of client code modification (CCM) to corner profits -- Reopening thereof

Facts:

Assessee's case was reopened under section 147 due to client code modifications carried out 44 times in the futures and options trading window and additions were saddled on assessee under section 68 and 69C. This was upheld by the Commissioner (Appeals). Aggrieved assessee went in higher appeal where in they pleaded that the client code modification was not within their know and they did not indulge in the same.

Held in favour of the assessee by quashing the reopening that the reopening and additions were done only on allegations; with the brokerage entities being the main culprit behind the client code modification window.

Editorial Note: The decision points to an interesting piece on a mathematical property called Levenshtein Distance or edit distance which enables if a data manipulation was done voluntarily or erroneously. The algorithm of this Levenshtein distance is applied widely in forensic accounting like Benford's theorem. It is based on the key strokes on a standard QWERTY keyboard drawn to find out if the typographical error resulted in the error or was it a conscious effort to alter the code otherwise.

Levenshtein Distance or edit distance is that it gives a clear indication as to whether the code is wrongly typed or is completely replaced. If the number of digits changed from original code to modified code is 1. then it can be reasonably argued that the OCC (Original Client Cade) may have been typed wrongly by mistake But if the number of digits changed is more surely it cannot be a genuine typing mistake but a deliberate change. To this extent Levenshtein Distance Analysis or digit edit analysis acts as a clear indicator for genuineness in client code modification. The longer the distance (i.e., number of digits changed), the lesser the chances at genuineness. The analysis of Levenshtein Distance or digit edit analysis, when clubbed with the parameters mentioned in this report establishes the non-genuineness and contrived nature at the code change. Levenshtein Distance Analysis or digit edit analysis in case of the assessee shows that in all transactions the value was 2 or more.

Beneficiaries who shift out their profits and at the same time, they have also taken losses from others. These tactics are generally resorted to by the persons who already have taxable income in their books and they want to set it off against contrived losses through CCM.

An important finding of the survey is trend analysis The trend analysis show that the profits are shifted out when the person is original client and losses are shifted in when the client is modified client. This trend show that the CCM has been carried out for non-genuine purposes in the case of assessees. The other important finding of the survey is that most of the brokers admitted that CCMs have been done for a purpose other than genuine punching errors.