TMI Blog2015 (8) TMI 973X X X X Extracts X X X X X X X X Extracts X X X X ..... of client code modification is inevitable. None of the clients was shown as related to the assessee herein. Normally the question of shifting of profit would arise between the related parties only. If the assessee had really shifted the profits to an outsider, then the human probabilities would suggest that the assessee would have received back corresponding amount from the recipient of profit. However, in the instant case, the AO has not brought any material on record to show that the assessee had received back corresponding amount equivalent to the amount of profit claimed to have been shifted to the clients. The AO has mainly relied upon the report given by the MCX and has drawn adverse conclusions without bringing any material to support his view. CIT(A) has also pointed out that modifications carried out by the assessee works out to around 3% of the total transactions only and in our view, the said volume, in fact, vindicates the explanation of the assessee. Further none of the clients has been found to be bogus and all of them have complied with KYC norms, meaning thereby the identity of all the clients stand proved. None of them has disowned the transactions and all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons at its discretion for many of their clients, i.e., the assessee company has undertaken trading operations on behalf of their clients without receiving any specific orders from them and also without receiving margin money from the clients. It was further noticed that MCX has imposed penalties upon the assessee for carrying out client code modification. The Revenue sought details relating to client code modification carried out by the assessee from MCX and the same was provided by MCX, vide letter dated 22.12.2008. On examination of the details furnished by the MCX, it was observed that in many cases the trading was done initially on assessee s own code and subsequently they were shifted to various clients code. In some of the cases, the trading was done in the code belonging to one client, but subsequently transferred to the code of another client. 4. The AO, during the course of assessment proceedings, sought explanations from the assessee on the details relating to the client code modification obtained from MCX. The assessee submitted that it was easy to punch the orders in its own code, since the timing is very important in online trading. Hence, the assessee has booked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions, which had resulted in loss also to its clients, but the AO ignored the same. 7. The assessee preferred appeals challenging the assessment orders passed for AY 2006-07 and 2007-08. The ld CIT(A) passed a detailed order in AY 2007-08 and followed the same in assessment year 2006-07. Before the Ld CIT(A), the assessee furnished certain additional evidences in the form of confirmations obtained from some of the clients. Hence the Ld CIT(A) called for a remand report from the assessing officer. However, the AO, without conducting fresh examination, reported that the conclusions arrived at by him during the course of assessment proceedings with regard to some other confirmation letters would apply to these additional evidences also. The assessee also raised various types of objections before the Ld CIT(A) and the first appellate authority, after examining all of them, held that the impugned additions are not sustainable. 8. The ld. CIT(A) has given his decision in respect of the issue under consideration in para 6.3 to 7.2 of his order for the assessment year 2007-08. The gist of the reasoning given by the ld.CIT(A) to delete the impugned additions are summarized below : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) With regard to the observation of the AO that the clients were not aware about the modification, the ld. CIT(A) has observed that none of the client has disowned the transaction. On the contrary, they have confirmed that the profit earned by them have been disclosed in their respective return of income. f) With regard to the observation of the AO that the transactions were carried out at the discretion of the assessee, the ld.CIT(A) observed that the same would depend upon the understanding reached between the clients and the Brokers. The Ld CIT(A) also referred to the Portfolio Management Scheme (PMS), which is gaining popularity in the recent days, and observed that the investment advisors also carry out purchase and sale of shares at their discretion without consulting the customers. Accordingly, the ld.CIT(A) has observed that no adverse inference can be drawn at this matter unless clients disown the transactions. g) With regard to the observation that the clients have adjusted the profit against the brought forward loss and accordingly did not pay any tax, the ld. CIT(A) observed that the AO has examined only five clients to make this observation. The Ld CIT(A) has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ything of money s worth. Since there is no such finding, there cannot be a case that the income, which has already been taxed in the hands of clients, could be taxed in the hands of the assessee. m) In the case of Laxmipratap Singhania V/s CIT (72 ITR 291), the Hon ble Court held that it is the fundamental rule of law of taxation that unless otherwise expressly provided, income cannot be taxed twice . Similar view has been expressed in the case of Jyotiprasad Agarwal V/s ITO (37 ITR 107) and in the case of ITO V/s Bichulal Kapoor (60 ITR 74). n) The addition of ₹ 18.60 crores made by the AO in the assessment year 2007-08 includes 3.31 crores pertaining to certain cases, where there was no client s code modification. Further, in some cases, the clients code modification has taken place between one client and another client and the profit pertaining to such kind of modification was ₹ 6.16 crores. The ld. CIT(A) observed that aggregate profit of both these items amounting to ₹ 9.48 crores does not warrant any addition, since they cannot be considered as shifting of profit of the assessee. However, the action of the AO in assessing the profit of ₹ 9.48 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntire addition made of ₹ 18,60,33,553/- is deleted. Thus, grounds No.2 to 6 are allowed 10. Aggrieved by the orders passed by Ld CIT(A), the revenue has filed these appeals before us. 11. We have heard rival contentions and perused the record. A careful perusal of the order passed by the Ld CIT(A) would show that the Ld CIT(A) has met each and every point raised by the assessing officer. The Ld CIT(A) has pointed out that the AO has not brought on record any material to show that the client code modification made by the assessee was not genuine one. It was further noticed that none of the clients examined by the tax authorities has disowned the transactions carried on by the assessee. As noticed by the Ld CIT(A), the MCX, the stock exchange, is very much aware about client code modifications and hence in order to discourage frequency of modifications, it has brought in penalty mechanism. Even under the penalty mechanism also, no penalty shall be leviable if the modification was less than 1% of the total transactions, meaning thereby, the MCX is also accepting the fact that such kind of client code modification is inevitable. 12. Under these set of facts, the next qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, in our view, go to show that the assessee has carried out the transactions on behalf of its clients only, even though the transactions were executed in the code of the assessee initially. 13. Further, the Ld CIT(A) has pointed out that there was no modification of client code to the tune of ₹ 3.31 crores and further there was change of code from one client to another client to the tune of ₹ 6.16 crores. In both these cases, the question of shifting of profit earned by the assessee does not arise at all. The action of the AO in assessing the above said profits in the hands of the assessee only show that there was no proper application of mind on the part of the assessing officer. 14. Another important point that is relevant here is that none of the clients was shown as related to the assessee herein. Normally the question of shifting of profit would arise between the related parties only. If the assessee had really shifted the profits to an outsider, then the human probabilities would suggest that the assessee would have received back corresponding amount from the recipient of profit. However, in the instant case, the AO has not brought any material on record to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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