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3. The Principal Director of Income Tax (Investigation), 1 of 43 Ahmedabad, conducted a survey under Section 133-A of the Act at the premises of twelve brokers. During investigation, it was found that Client Code Modification (CCM) was being used as a tool for tax evasion. The losses were being shifted out of the profit of the clients. A detailed investigation report was sent to respondent No.2 in a Compact Disc. In the investigation report, the details of Client Code Modification (CCM) used by the broker of the petitioner were also there.

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                    The      information     pertains   to   modus
             operandi     adopted         Share   Brokers    during

Modification of Client Code to manipulate income/loss of their clients. The investigation team has conducted surveys u/s 133A of Income Tax Act, 1961 at the premise of twelve brokers and few of their clients across India on 23.05.2015 and a detailed investigation report has been sent to the undersigned in CD, which is part of record. It has been revealed that Client Code Modification (CCM) has been used as a tool for tax evasion by the brokers and they have booked losses and shifted out profits of their clients.

13. In this regard, a letter dated 08.03.2016 from the Principal Director of Income-Tax (Investigation) Ahmedabad, is of vital importance. The letter was addressed to the Chief Commissioner of Income-tax, Panchkula. The subject of the letter referred to a survey report in respect of Client Code Modification (CCM) being forwarded regarding the dissemination of beneficiary clients who have taken losses and shifted out profits during the financial years 2008-09 to 2011-12. The letter explains that modification of the client code is a practice under which brokers change the client code in sale and purchase orders of securities after the trades are conducted. It further rightly explains that while it is permissible to rectify inadvertent errors, there were concerns that modifications could be made to manipulate the activities in the market. Thus, for instance, if a particular transaction is undertaken in the name of a client, it cannot be shifted to the name or account of another client unless it was on account of an inadvertent error. The letter stated that SEBI had conducted a probe into the matter pursuant to the observations by the Finance Ministry about many such modifications having taken place in derivative transactions in the National Stock Exchange during March, 2010. Accordingly, the Ahmedabad Investigation Directorate, carried out coordinated limited purpose surveys under Section 133A of the Act at the premises of twelve brokers and a few 10 of 43 of their clients across India on 23.03.2015. The ADIT prepared a report, which on the basis of the above information concluded that CCM had been used as a tool for tax evasion. In the result, for four years, 4890 assessees had availed contrived losses of over ` 1206 crores. The letter enclosed a pen drive, the contents whereof are tabulated in the letter. The report was in two parts. Part 1 pertained to the survey report containing 593 pages. Part 2 contained Annexures B, C, D, T and Utilities. Annexure B contained a list of the assessees who had taken losses of ` 1,00,000 and above and assessees who had shifted out profits of ` 1,00,000 and above. The rationale of setting ` 1,00,000 as the limit was a threshold monetary limit of ` 1,00,000 for re-opening the cases beyond four years. Annexure C contained details of cases proposed for centralization where contrived losses and shifting of profits were to the tune of ` 1 crore or more. Annexure D contained the original data received from the Bombay Stock Exchange and the National Stock Exchange; analysis of CCM data done at CFL, Ahmedabad, and details of trades and shifting of contrived profits in respect of each transaction for the particular day. Annexure S contained submissions, survey folders and annexures. Annexure T contained the PAN details of each beneficiary and an analysis of the utilisation of the modified client data. Paragraphs 7 and 8 of the letter read as under :-

19. It is evident that the AO before issuing the notice had applied his mind independently to the information received from the Investigation Wing. Although the information was derived from the Investigation Wing, the satisfaction to the effect that Client Code Modification (CCM) has been used for shifting losses and to manipulate the income by the petitioner is his. It is not a case where merely on receipt of information a notice had been issued. Thus although the information may be borrowed the satisfaction was not. The respondents with their reply have annexed the material chart on the basis of which the AO recorded his reasons. The merely receipt of information from another source would not be a ground to challenge the initiation of proceedings. The only requirement would be the satisfaction of the AO regarding and based on the said information. The issue of borrowed satisfaction and issuance of notice on the direction of a higher authority is not there. The data qua the petitioner was analysed by the AO and thereafter, notice was issued. The reliance on the concluding lines of the information received from Ahmedabad to contend that it contained a direction to initiate proceedings is ill founded. It was only a suggestion to the concerned AO.