TMI Blog2021 (7) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... ired to be investigated whether the other party was involved in such transaction. Besides this there has to be brought other corroborative evidences suggesting that there was the exchange of cash among the parties involved in such client code modification - no such exercise has been carried out by the authorities below. As such there is no whisper in the order of the authorities below that there was the cash transfer between the parties for transferring the income of the assessee to the other party and vice versa. Thus in the absence of such verification/examination carried out by the authorities below, we are not inclined to uphold the findings of the AO. The number of transactions in respect of which the client codes were modified are less than 1% of the total transactions carried out by the assessee. Therefore, such changes in the client code cannot be said as a colourable device adopted for shifting out and shifting in the profit/loss. The changes in the codes were not made at the fag end of the year under consideration i.e. March 2010. In other words it was not possible for the assessee to ascertain its profit or the loss during the time when code were modified as the ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order of the Assessing Officer. 4. It is, therefore, prayed that the order of the Ld.CIT(A) be set-aside and that the Assessing Officer be restored to the above extent. 3. The only issue raised by the Revenue is that the learned CIT (A) erred in deleting the addition made by the AO for ₹ 1,86,47,974/- on account of the profit shifted out and the loss shifted in by way of client code modification. 4. The assessee in the present case is a private limited company and engaged in the business of dealing/broking of shares. The AO on the basis of the data received from the National stock exchange found that there was the change in the code of the assessee maintained with the broker with respect to certain transactions carried out in F and O segment. As a result of change in the code, the assessee was able to shift out its profit of ₹ 1,02,84,346/- and shift in loss of ₹ 83,63,627/- only. The details of client code modification moths wise are tabulated at page 11 of the assessment order. As per the AO, the assessee by way of client code modification, especially in the future and option segment was trying to evade the taxes by booking the artificia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. 00110 JAYANTKUMAR CO 10000 3 2. CBY373 CHARU MULTITRADE PRIVATE LIMITED CKJ27 4 3. UP104 G F L FINANCIALS INDIA DM046 4 4.1 The AO in view of the above held that the assessee has shifted in loss of ₹ 8,63,627/- and shifted out profit of ₹ 1,02,84,346/- by resorting to the technique of client code modification which has resulted reduction of the taxable income to the extent of ₹ 1,86,47,974/- only. Thus the AO added the same to the total income of the assessee. 5. Aggrieved assessee preferred an appeal to the learned CIT (A). 5.1 The assessee before the learned CIT-A submitted that there cannot be any addition merely on the basis of the information received from the National stock exchange about the modification of the client code done by the broker. As such there was no allegation either from the SEBI or stock exchange that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hanges in the client code cannot be blamed and held guilty for diverting the profit/loss as the case may be. 5.4 The basis adopted by the AO i.e. if there is a change in the client code on account of change in one digit, then it can be a genuine punching error otherwise not is without any base. Likewise if there are changes in the digits on account of client code modification ranging between 4 or 5 then it cannot be said a genuine mistake. This conclusion of the AO is based on his surmise and conjecture which has no leg to stand. The assessee in support of its contention relied on the judgment of Hon ble Gujarat High Court in the case of M/s Geetatax VS DCIT in SCA No. 20977 of 2016 dated 20 December 2016. 5.5 The assessee also submitted that the transactions in respect of which client code were modified, were carried out in the month of June to October 2009 during the mid-of the year under consideration and during that time it was not possible for the assessee to assess its income or the loss. Therefore, for this reason as well, it cannot be alleged that the assessee has diverted its taxable income. 5.6 The assessee further submitted that it has carried out the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This is one of the indicators of non-genuineness of CCM transaction. On this basis, AO has made addition. The Assessing Officer has also stated that in present case when profit is shifted out, number of transactions of Appellant in original client code is 51 out of which transactions of 50 is shifted out which means that CCM is for 98% transactions. Similarly, when there is loss which is shifted in Appellant Company, number of transactions modified is 12 which is equivalent to loss shifted in which represent 100% transaction. On this ground AO has stated that decision of Kunverji Finance Limited is not applicable. Considering these facts AO has made addition of ₹ 1,86,47,974. On the other hand, Appellant has submitted that it has recorded all the transactions in the books of account as per contract notes received from broker and all the transactions are settled through account payee cheques. The Assessing Officer has not made any enquiries with the brokers which can prove that Appellant has carried out CCM at its own instance and transactions are settled through cash. The ARs of the Appellant have also argued that neither Appellant nor broker is alleged by SEB1/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also stated that number of edits cannot be a factor in deciding genuineness of the transaction as observed by Hon'ble Gujarat High Court in the case of Geetatax V/s DCIT in SCA No. 20977 of 2016 dated 20th December, 2016. The Appellant has thus argued that entire addition has been made on presumption and surmised hence same should be deleted. 5.4 On careful consideration of entire facts it is observed that during the course of Assessment Proceedings, Appellant has submitted details of transactions carried out by it which are supported by contract notes issued by broker and ledger account of brokers, The AO has proceeded to make entire addition on the basis of data received from NSE wherein original code of Appellant was modified with code of other party and according to such data, AO worked out that Appellant has reduced its taxable income by shifting profit to other party or loss was shifted to account of Appellant. However, such observation of AO was not supported by any other cogent evidences which can prove that Appellant has obtained such accommodative entries for which' settlement is done in cash. The AO has referred to various enquiries carried out by Investig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is compared with total trades carried out by Appellant, it is less than 1%. Thus, AO's observation that Appellant has carried out CCM for 98% to 100% transactions is incorrect. Hon'ble ITAT. Ahmedabad. in the case of Kunvarji Finance Pyt. Ltd. Group 27 _cases IT(SS)A No. 615/Ahd/2010, dated 19th March, 2015 has held as under: 11. The learned Commissioner (Appeals) in paragraph 4.13 of his order has also recorded the findings that 'all transactions at the Commodities Exchanges have been duly accounted in the books of account maintained by the concerned parties. Such profits/loss has been duly accounted whenever the transactions have been closed. Thus, whatever profits have been generated or accounting of actual trade, have been offered and brought to the charge of tax in the cases of concerned assesses. These findings of fact recorded by the learned Commissioner (Appeals) has not been controverted by the Revenue at the time of hearing before us. When the transaction has been duly accounted for and the profit/loss has accrued to the concerned parties in whose names transactions have been closed, there cannot be any basis or justification for considering those p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the opinion that the client code modification was quite nominal and not unusually high as alleged by the Assessing Officer. It is also observed in the case of ACIT V/s Amar Mukesh Shah 81 taxmann.com 450 wherein the Assessee was an individual stated to be carryout out the business of trading in shares and investments and on identical facts, the Hon'ble Ahmedabad ITAT has held as under: 'We have heard the rival submissions and perused the material on record. We find that Id. CIT(A) while deleting the addition has noted that the A.O had calculated notional profits on the assumption as if Client Code Modifications were not carried out and the transactions were closed on the expiry date. Ld. CIT(A) has further noted that while deciding the appeal in the case of Kunwarji Finance (P.) Ltd. for A.Y. 2005-06 to 2008-09 he has held that the addition on the basis of Client Code Modifications was on the basis of assumption and surmises and was not on the basis of concept of real income. We further find that in the case of Kunwarji Finance (P.) Ltd. (supra) against the order of Id. CIT(A), Revenue had preferred appeal before the Co-ordinate Bench of Tribunal which wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Greater than 5% but less than or equal to 10% 1000 Greater than 10% 10000 f. It is clarified that the facility of client code modification is allowed as an interim measure only upto March 31, 2007 and after this date the said facility will be completely stopped. With reference to point C. as referred above. Members may please note that the client code modifications will be allowed only upto 11:55 p.m. In international referenceable commodities (i.e. commodities traded upto 11:55 p.m.) Members are requested to take note of the FMC directives and ensure strict compliance. From the above, it is evident that client code modification is permitted intra-day, i.e. on the same day. As per Commodity Exchange, if client code modification is upto 1% of the total orders, there is no penalty and if it is greater than 1% but less than 5%, the penalty is ₹ 500/-. If it is greater than 5% but less than 10%, penalty is ₹ 1000/- and if it is greater than 10%, then penalty is ₹ 10,000/-. From the above, the only inference that can be draw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification is intentional. However, when the client code modification is done on the same day, in our opinion, there was no basis or justification to hold the same to be malafide. Moreover, the Id. Assessing Officer has computed the notional profit/loss till the transactions period and not til! the period by which the client code modification took place. Even if the view of the Revenue is accepted that the client code modification was with malafide intention, then the profit or loss accrued till the client code modification can be considered in the case of the assessee but by no stretch of imagination the profit/loss arising after the client code modification can be considered in the hands of the assessee. The Id. CIT(A) in paragraph 4.13 of his order has also recorded the findings that all transactions at the Commodities Exchanges have been duly accounted in the books of account maintained by the concerned parties. Such profits/loss has been duly accounted whenever the transactions have been closed. Thus, whatever profits have been generated or accounting of actual trade, have been offered and brought to the charge of tax in the cases of concerned assessees. These f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereas in present case, no significant CCM has been carried out in last quarter. Thus, presumption of AO that CCM was carried out to reduce taxable income does not survive in present case. 5.7 While passing the Assessment Order AO has relied on the analysis of Levenshtein Distance of Digit Edit analysis and stated that since there are edits ranging from three to five in the client code it is obvious that the code is not modified but actually replaced. However, this is only presumption and does not prove that CCM was made to reduce taxable income. It is also observed that such issue was dealt by Hon'ble Gujarat High Court in the case of Geetatax V/s DCIT in SCA No./ 20977 of 2016, dated 20th December, 2016 (though in said case, notice under Section 148 was challenged but finding is relevant for adjudicating the observation made by AO} as under: .......... Even the reasons given by the Assessing Officer that if the number of digits are changed from original code to modified code is 1, then it can be reasonably argued that the original client code may have been typed wrongly by mistake. Similarly, if the number of digits changed is more say 4 or 5, it c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng data entry done by the dealers at the time of punching orders. However, such Client Code modification is subject to certain guidelines as to the time limit within which the client code modification is to be carried out, terminal / system on which such modifications can be done etc. The facility is mainly to provide a system for modification of client codes in case genuine errors in punching / placing the orders. It is to be used as an exception and not a routine. To prevent misuse of the facility Stock Exchanges levy penalty / fine for all non-institutional client code modifications. 11.2 Coming to the facts of the present case, admittedly client codes were modified of the assessee as per the information received from the Stock Exchange. However, the first question that arises whether such client codes were modified at the instance of the assessee or there was some punching error at the end of the share broker. It is because the stock exchange permits the share broker to rectify the mistakes occurred while punching the data. If that be so, then there cannot be any fault which can be attributed to the assessee for the mistakes committed by the share broker. 11.3 Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT-A. Accordingly we uphold the same and direct the AO to delete the addition made by him. Hence the ground of appeal of the Revenue is dismissed. 11.8 In the result the appeal filed by the Revenue is dismissed. Coming to the CO No. 99/AHD/2019 raised by the assessee: 12. The assessee has raised the following cross objection: 1. In law in the facts and circumstances of the case of the appellant, the impugned reassessment notice as well as reassessment order passed u/s.143(3) r.w.s. 147 is void and deserves to be cancelled. 2. In law in the facts and circumstances of the case of the appellant, it is not in dispute that original assesse Kaizen Stock Trade Pvt. Was amalgamated with JunvarjiFincorp Pvt. And it is a well-established facts that the notice u/s.147 which has been issued against non-existent company along cannot be sustained and same deserves to be quashed based on Decision of Hon ble Gujarat High Court in case of Adani Properties Pvt. Ltd. Vs DCIT in DCA No.20724 of 2016 dated 20/12/2016 and in the case of khurana Engineering Ltd. Vs DCIT (2014) 364 ITR 600. 3. In law and in the facts and circumstances of the case of the appellant, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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