TMI Blog2013 (9) TMI 1060X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee being the beneficiary of the impugned loss and the claimer of the deduction by way of set off against the other income, or the Broker, who is party to such generation of loss, needs to demonstrate on what basis the client Codes No.SJ17 and M032 are similar to that of the assessee. Are the names are similar? Are these three clients are part of the assessee's family? How the SJ17 or MO32 are akin to MO 31? These are the logical questions which are required to be answered by the claimer of the deduction or generator of the impugned losses. Therefore, basis facts relating to peculiar issues enlisted above, are essentially required for meaningful adjudication of the ground raised before us. Thus, in the interest of the justice, we set aside the order of the CIT(A) and restore the issue to the files of the AO for fresh adjudication after completing the enquiries initiated in the regular assessment proceedings. AO shall grant reasonable opportunity of being heard to the assessee. Accordingly, the solitary ground raised by the assessee is set aside. - ITA No. 4172/Mum/2012 - - - Dated:- 6-9-2013 - D. Manmohan (Vice President) And D. Karunakara Rao (Accountant Member) F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Nifty Futures 39,800 in numbers. Assessee claimed to have purchased and sold them with the brokering of a Delhi-based broker named Aadya Trading Investment (P.) Ltd., New Delhi. The assessee's Client Code No. with the said broker is CM031 and assessee paid a sum of ₹ 100/- being account opening charges (page 52/PB). Otherwise, Edelweiss Securities Ltd is the Broker, who normally renders services to the assessee in matters of business of shares and derivatives. On finding that the assessee claimed set off of business losses with other income, AO initiated enquiries with regard to the genuineness of the said losses. 4. As part of the verification, the AO issued notice u/s 133(6) of the Act to the National Stock Exchange (NSE) on the following issues. 1. To provide the details for Client Code Modification for SJ 17 M 032. 2. Names addresses, PAN, ledger account for the period 1.4.2007 to 31.3.2008 for all exchanges for both the above clients. 3. Master summary of the above clients for FY 2007-2008. 4. Copies of KYC forms of the Client. 5. Details as to who executed the transactions. 6. Whether there is any trade of these two clients h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith an intention to verify from the broker, the details relating to the client details SJ17 and M032 and their KYC particulars. However, there is no response to the said notice. Subsequently, AO made another attempt from the assessee for want of the said details and intimated the assessee about the non-cooperation of the broker. Finally, as per the discussion given in para 6.4 of assessment order, AO came to the conclusion that the transactions in question are a colorable device designed by the assessee -broker combine in order to create a business loss thereby to evade the payment of tax to the extent of income set off with the impugned business loss. In this regard, Assessing Officer relied on the Apex Court judgment in the case of McDowell Co. Ltd. v. CTO [1985] 154 ITR 148. Accordingly, AO held that the loss on derivative transactions is a non-genuine and fictitious one and the contents of para 6.6 of the assessment order are relevant, which is as under: 6.6. In view of all the above, it is held that the loss on derivative trading is a non-genuine and fictitious one which has been acquired by the assessee in gross misuse of error entry modification allowed by the Stock E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firmed the action of the AO in disallowing the loss. Para 1.9 of the impugned order is relevant in this regard and the same is reproduced here under: 1.9. Having regard to facts of the case, the conduct of the appellant and his non-rebuttal as well as other material on the record an interference could reasonably be drawn that the transactions in question are definitely a colourable device as held by the AO. In view of the above, the action of the Assessing Officer in disallowing the loss is sustained. The ground of appeal is dismissed. 8. Aggrieved with the said order of the CIT (A), assessee filed the present appeal before the Tribunal by raising the grounds extracted above. BEFORE THE TRIBUNAL 9. During the proceedings before us, Shri S.C. Tiwari Natasha Mangat, Ld Counsels for the assessee narrated the above mentioned facts and reiterated the arguments made before the lower authorities of the Department. Bringing our attention to the pages 53 to 62 of the paper book, Ld Counsel mentioned that the assessee duly opened an account with M/s. Aadya Trading Investment Pvt. Ltd vide Client No. CM031 and mentioned that the facts relating to purchases and trading of 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee's replies are very general in nature. On the issue of assessee's selection of M/s. Aadya Trading Investment Pvt. Ltd, as a broker for these controversial 263 transactions, Ld DR mentioned that assessee has no explanation except saying that the assessee is free to select any broker. The question relating to why said broker was picked up for a day ie 28.3.2008 and why the transactions were not routed through the regular broker ie Edelweiss Securities Ltd and how the broker obliged to affect 263 transactions out of which 135 purchase transactions entered from 12.07.30 hrs to 15.55.42 hrs, whose value is determined at ₹ 56,53,019/- with merely ₹ 100/- kept by the assessee, are not answered satisfactorily either to the Revenue or to the Tribunal. On the issues relating to discharging of the onus, Ld DR mentioned categorically stating that the assessee, when claimed the deduction of business loss of ₹ 56,85,855/- and subsequent set off against the other income, the onus is on the assessee to demonstrate completely by not only by filing relevant documents ie the contract notes and ledger extracts but also by producing the related broker along with their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... security or margin money received from the assessee, M/s. Aadya Trading and Investment Pvt. Ltd made purchases worth ₹ 19,82,16,280/- for the assessee and executed 263 transactions on 28.3.2008; Should these claim of loss constitutes the year-end adjustments for tax evasion? (iii) ₹ 56,53,019/- of loss was paid to the broker by the assessee in subsequent year; (iv) All these 263 transactions were executed involving the Client Code SJ17 and M032, which do not belong to the assessee and the impugned transactions are modified to the assessee account under intimation to the NSE; normally such modifications are permitted by NSE to take care of the 'human errors if any'; (v) Aadya Trading Investment (P.) Ltd., New Delhi has not responded to the enquiries initiated by the AO and not come forward to explain the controversial human errors and the details of the questionable clients' particulars; (vi) assessee has not taken any initiative to produce Aadya Trading and Investment Pvt. Ltd or the details of two clients bearing the Client Code SJ17 and M032; (vi) AO has not pursued the investigation with the said Delhi based broker and concluded the assessment abruptly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the clients holding Client Code No.SJ17 and M032 and the AO may explore in times of non cooperation of the broker. Eventually, it is needed that the AO has to establish the genuineness of these clients and also of the transactions. For some reason or the other, the said details were not made available to the AO and in our opinion, he needs to invoke various provisions available in the statute to garner relevant evidences to make the investigation complete. In case, when the Client Code No.SJ17 and M032 are genuine accounts and the impugned loss is claimed by them in their books of account, for whatever the reasons, the mala fide intentions of the assessee as well as the broker are exposed as it becomes claim of losses in the hands of many persons. It is the matter of investigation, which AO should have done before concluding the assessment. In case of reverse situation, considering the fact that the assessee made the payments i.e., the difference between the purchase and sale to the broker, the claim of the assessee cannot be rejected outright. It is not the case of the AO that the said sum of ₹ 56,85,855/- has reached the pockets of the assessee eventually and in such case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the onus shifts depending on the quality of information supplied by the assessee and it shifts from time to time. In this instant case, it is known if the address is wrong, the notice have reached the Aadya Trading and Investment Pvt Ltd etc. Further, in our opinion, the assessee is required to furnish basic information relating to the transactions (i) why the assessee changed the regular broker for the derivatives' transactions for the single day on 28.3.08; (ii) how the said broker entertained him for effecting huge transactions in a singular day on 28.3.2008 with mere ₹ 100/- margin money as advance; (ii) in what circumstance, the said broker accommodated the assessee's purchases to the tune of ₹ 19.82 cr without any security. AO needs to investigate into the circumstances that led to the transfer of 263 transactions involving the purchases of 39800 Nifty Futures amounting to ₹ 19,82,16,280/- at the end of the day, to the account of the assessee and how it constitutes the 'human error'. In this regard, the onus is on the assessee. We cannot understand as to what prevented the AO to send commission to his counter parts at Delhi or Investigati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's proceedings. It is not known why the Department lying low to take on this broker and concluded the assessment by abruptly ending the investigation against Aadya Trading and Investment Pvt. Ltd. It is also possible the loss in question is bogus loss and it is not related to the assessee. Further, from the revenue point of view, it is also possible Aadya Trading and Investment Pvt. Ltd might have favored the assessee in purchase of the impugned loss for ultimate reduction of the tax liability. However, there is no evidence with the AO in this regard. It is the AO's presumption that bogus business loss was generated with the collusion of the broker thereby reducing the capital gain taxes to the extent of the business loss set off u/s 71 of the Act. In such a case, AO is under obligation to dig out as to the final destination of the payment of ₹ 56,85,855/- reportedly made by to M/s. Aadya Trading Investment Pvt. Ltd on various dates in the month of April, 2008. So long as the AO does not have any incriminating information on this aspect against the assessee, AO is under obligation to accept the claim or explanation of the assessee. Therefore, the Revenue Authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X
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