INCOME TAX ACT, 1961

Section 28(i)

Business income - Trading activity - Addition being profits of company on account of large scale client code modifications -

Assessee was engaged in business of providing commodity services to its clients. AO noticed that there were instances of client code modifications. He believed that the same was done to indulge in circular trading to pass on profits or losses to the clients of assessee company as per requirements. AO made additions in the income of assessee on such basis. Tribunal did accept the Revenue's theory of misuse of clients code modification facility. However, he accepted assessee's explanation and discarded the Revenue's theory that profit of assessee's company were passed on to the clients Held: Revenue had not contended that client code modification facility was often misused by assessee to pass on losses to investors, who might have sizable profit arising out of commodity trading against which such losses can be set off. Even if the Revenue's theory of assessee having enabled the clients to claim contrived losses, Revenue had to bring on record some evidence of the income earned by the assessee in the process, be it in the nature of commission or otherwise. AO had added the entire amount of doubtful transactions by way of assessee's additional income, which was wholly impermissible.

REFERRED :

FAVOUR : In assessee's favour

A.Y. :

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