ITAT Mumbai Deletes ₹53.88 Lakh CCM Loss Disallowance in JAP Overseas Case

The Mumbai “F” Bench of the Income Tax Appellate Tribunal has allowed the appeal filed by JAP Overseas Private Limited for Assessment Year 2010–11, deleting an addition of ₹53.88 lakh made on account of alleged bogus loss arising from client code modification (CCM) in derivative transactions.

Disallowance Based Solely on Investigation Wing Report

The assessee, engaged in trading in futures and options, had originally filed its return declaring income of ₹12.49 lakh. The assessment was reopened under Section 147 based on information from the Investigation Wing alleging that the CCM facility on the NSE had been misused to generate fictitious losses, with the assessee named as a beneficiary. Relying on this information, the Assessing Officer disallowed loss of ₹53.88 lakh allegedly generated through CCM transactions carried out via a broker and further made an addition of 2% of the said amount as unexplained expenditure under Section 69C. The additions were sustained by the CIT(A), who also upheld the validity of reopening.

Tribunal Follows Coordinate Bench in Comet Investment

Allowing the assessee’s appeal on merits, the Tribunal relied heavily on the coordinate bench decision in DCIT v. Comet Investment Pvt. Ltd., where similar CCM-based additions were deleted. The Bench noted that only registered brokers have the authority to modify client codes and that the assessee itself could not have carried out CCM. The Tribunal observed that the Assessing Officer had not brought any evidence on record to show that the assessee had instructed the broker to carry out CCM, that the transactions were denied by the exchange or counterparties, or that any regulatory action had been taken by SEBI or the stock exchange. There was also no material to show receipt of cash or commission by the assessee in connection with the alleged fictitious loss. Mere reliance on a general investigation report, without examining the assessee’s actual transactions and bank trail, was held to be insufficient to sustain the addition.

Having deleted the disallowance on merits, the Tribunal held that the grounds challenging the reopening of assessment under Section 147 had become academic and did not require adjudication.

Accordingly, the appeal filed by JAP Overseas Private Limited was allowed in full.