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2017 (7) TMI 428 - ITAT MUMBAI

2017 (7) TMI 428 - ITAT MUMBAI - Tmi - Disallowance u/s 14A read with Rule 8D - securities held as stock in trade - Held that:- We have observed from the perusal of audited financial statements which are placed in paper book filed with the tribunal by the assessee that the assessee has made investments in shares to the tune of ₹ 3,78,000/- (Previous Year ₹ 3,78,000/- as on 31- 03-2009) which were held as ‘Investments’ in its books of accounts as on 31- 03-2010, while investments in s .....

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u/s.14A r.w.r 8D of the Rules, can be made for the securities held as stock in trade. The reason behind it is not difficult to understand. Income arising from the business of an assessee is taxed under the head business and profession. So, all the expenses have to be considered while computing the business income. On the other hand, if the securities are held as investment and an assessee earns exempt income, same can be subjected to disallowance as envisaged by the provisions of section 14A. .....

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his approach of learned CIT(A) disregarding the material on record and coming to certain conclusions without any material on record is completely flawed to the extent that it has made the order of learned CIT(A) enter the arena of perversity and this order of learned CIT(A) cannot be sustained in the eyes of law and is liable to be set aside. The powers of the learned CIT(A) is co-terminus with the powers of the AO including powers to enhance assessment, after following due procedures as contemp .....

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T.A. No.6570/Mum/2014 - Dated:- 15-5-2017 - SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Revenue : Shri Suman Kumar, D.R. For The Revenue : Shri Bhupendra Shah ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the Revenue, being ITA No. 6570/Mum/2014, is directed against the appellate order dated 5th August, 2014 passed by learned Commissioner of Income Tax (Appeals)- 20, Mumbai (hereinafter called the CIT(A) ), for the assessment year 2010 .....

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e Ld. CIT(A) was justified in deleting of ₹ 8,63,137/- u/s. 14A made on account of expenditure incurred towards earning exempt income in the form of dividend ?". 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of loss of ₹ 3,67,85,146/- on account of client code modifications made by the assessee in the month of March 2010 when the entire gamut of facts clearly point towards these being sham transacti .....

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ent code modifications. During assessment proceedings u/s 143(3) r.w.s. 143(2), the A.O. observed that the assessee had earned exempt income and further the assessee had shown dividend income amounting to ₹ 15,97,859/- and had claimed the said amount as exempt. The assessee was asked to show cause as to why the disallowance u/s 14A of the Act should not be made in the case of the assessee. In reply, the assessee submitted as under:- Justification for disallowance for expenses incurred for .....

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rom the share trading/future and option business. The company has never intended to gain any income by way of the dividend. Though the dividends are received during the year, as an incidental income. The company has never incurred any expenses with the intention to earn dividend income, hence no disallowance can be made. The A.O. considered the submissions of the assessee which were rejected by the A.O. whereby the AO observed that the assessee except for claiming that no expenses have been incu .....

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rom income-tax. The A.O. observed that section 14A of the Act is clearly applicable and all the expenses which has been incurred in relation to earning of exempt income shall be disallowed. The A.O. observed that the assessee has not proved that the interest which was paid is directly attributable to FDRs made and the nexus could not be established in the absence of any evidence. In the absence of any evidence to prove one to one nexus of funds received and utilized, the AO held that it could on .....

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l income under the Act was rejected by the AO. The mechanism as provided u/s 14A(3) was invoked and method as prescribed under Rule 8D of the 1962 Rules was applied. The A.O. accordingly applied Rule 8D and worked out the disallowance u/s 14A of the Act as under:- Particulars Amount (Rs) Amount (Rs) i) Director expenditure relating to exempt income being STT & D-Mat charges paid - ii) Amount computed as per Rule 8D(2)(ii) [AXB/C] 8,63,137 A = Interest expenses 876268 B = Average Investment i .....

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curred through client code modifications w.r.t. trade in shares and securities on NSE through its broker. The A.O. observed that during the year the assessee had entered into certain trades in shares and securities on NSE through its brokers and the P&L account showed a loss of ₹ 3,67,83,145/- claimed on account of share trading loss. The assessee was asked to furnish the details by the AO vide letter dated 18-03-2013 which are reproduced as under:- It is seen that in the month of the .....

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&O transactions entered by you from 01.04.2009 to 31.03.2010 has resulted in net profit of ₹ 1,51,17,420/- (i.e. ₹ 2,04,97,205/- ₹ 53,79,785/-). You are requested to show cause as to why the loss of ₹ 1,55,89,067/- in respect of modified transactions shall not be disallowed. The assessee did not submit any reply before the AO but instead sought directions from Addl. CIT, Range - 9(2) for issuance of directions u/s 144A of the Act to the AO for not making any disallowa .....

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44A of the I.T. Act vide letter dated 20.3.2013, which was received in the office on 20.3.2013. During the course of scrutiny assessment, a question in relation to understatement or overstatement of profit or loss was raised. In relation to the said question, the assessee has sought the guidance of the undersigned and made the said application. Accordingly, a report in the regard as called for from the concerned A.O. i.e. ITO 9(2), Mumbai. The A.O. has submitted a report vide letter dated 20.3.2 .....

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vt Ltd, M/s Labdhi Finance Corporation and M/s Wellworth Share & Stock Braking Ltd. and shown as modified in the assessee company s name. (c) It was also reported by the Assessing Officer that the assessee has entered and settled the transactions on the same day and it has resulted in loss of ₹ 1,55,89,067/- (i.e. 28,19,798 - ₹ 1,83,98,865/-). It was further reported that the assessee s F&O transactions entered during the F.Y. 2009-10 has resulted in net profit of ₹ 1,5 .....

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erstatement or overstatement of profit or loss by the assessee. Further, the brokers have confirmed having done the modifications during the market hours and as per the exchange norms. It has been further stated that the change of client code can be executed only at the office of the main broker and not by the assessee company under any circumstances. The assessee has therefore requested in his application to look into the matter and issue necessary directions to the Assessing Officer. After goi .....

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n by the brokers. Also, though it is not denied that the changes in client code have been made by the brokers, however, the same may have been done on the instructions. In their allocation made u/s 144A dtd. 20.03.2013, the assessee has also contended that the brokers have confirmed having done the modifications during the market hours and as per exchange norms. The A.O. is therefore, directed to correctly verify the factual position as per the submissions made by the assesee and to ascertain th .....

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that from the report of various financial newspapers indicated that the NSE had allowed its member brokers to make clients modifications to the tune of ₹ 55,000 crores in March, 2010 against which investigation had been started by DIT (I&CI), Mumbai after obtaining approval from CBDT and the results and findings of the said inquiries with reference to the assessee s transactions had been forwarded to the A.O. Notices were issued to the NSE calling for relevant data includes the followi .....

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replies from the NSE is as under:- The number and value of modifications in the client code have gone up dramatically in the month of March, 2010 compared to earlier and succeeding months. This is illustrated in the following table and pertains to Non-institutional clients only in the equity derivatives segment (there is no change in the number of modifications in Institutional accounts consisting mainly of Mutual Funds and FIIs). Month No. of modifications Value of modifications in crore of ru .....

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crores while the comparative figures for January, 2010 was 863 modifications for a total value of ₹ 461crores. (iv) The above facts would indicate that the modifications made were part of an organized tax evasion racket which should be dealt with firmly. (v) the important point to note is that client codes of deals carried out were changed by the brokers after the close of normal trading hours. The income tax act u/s 43(5) normally considers any transaction in which a contract for purchase .....

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action is one which is carried out. electronically on screen based systems and supported by a time stamped contract indicating the unique client identity number and PAN {Expln (i) to S. 43(5)(d)}; The manual change in client code is therefore against the spirit of the Act as laid out above. (vi) Code changed can legitimately occur in some circumstances. For example, the broker may wrongly feed the client code of the husband when the shares are actually held by the wife. Similarly, there may be c .....

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de change cannot take place from a static position it is always done to set off a trade which has already taken place. (ix) There has always been practice on Dalal Street of booking artificial profits or losses in March to Impact tax liabilities. This requires buying or selling stocks intra-day so as to consciously incur a loss and use that as a tax offset. (Or conversely to create a profit where carried forward or current year losses are available). This is normally done during normal trading h .....

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ket, moves up and closes at a price of ₹ 110 if the position is squared at the end of the day. A would end up with a ₹ 10 profit instead of a Rs.l0 loss and B is left holding a loss instead of the anticipated profit. (xii) What the helpful broker does then is to swap the 2 client codes after the close to trading hours, thus gifting A a loss and B a profit. Since on the exchange the trades have been squared, there are no delivery obligations and everybody is satisfied. (xiii) Market i .....

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cate that he had made a mistake and there was no fault of the two parties concerned as was done in this case. {xvi) As stated earlier a client code change implies that an earlier transaction has happened in the Stock Exchange it has sought to be set off by the present code change. The A.O. after analyzing the facts and modus operandi of the above illustrations, observed as under: (a) it is seen that in the month of the March, 2010 the assessee has shown modified transaction in F&O segment. ( .....

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sactions entered during the F.Y. 2009-1O has resulted in net profit of ₹ 1,51,17,420/- (i.e. ₹ 2,04,97,205- ₹ 53.,79,785). (e) It is observed from the details that the assessee has adjusted the loss on sale of shares of other companies against the profit of the assessee company and resulted into low profit offered for taxation. (f) There are total of 1113 transaction on sale side involving transaction value of ₹ 40,51,75,893/- and 1353 transaction on buy side involving tr .....

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and the client. (h) A list of transactions as reported in the NSE with regard to the above stated client code modifications are enclosed and forming part of this order as annexure -A to this order. (i) It could be seen from the above Annexure -A, the modifications are done in the trading hours which is against the normal trading trends and practices. Normally the genuine errors could be traced only at the end or towards the end of the trading session and corrected or modified under intimation t .....

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ts made previously made or to be made in future with a view to avoid and evade taxes. The AO observed that the onus lies on the assessee to prove that these transactions are genuine. The A.O. finally concluded that the assessee s transactions have no commercial purpose apart from the avoidance of tax liability and are sham transaction. The A.O. also cited several case laws in support of his conclusion are illustrated vide his order page No. 20 to 24. The A.O. accordingly disallowed the loss clai .....

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sed by learned CIT(A), by holding as under:- I have considered the issue under appeal, carefully. I find that appellant is engaged in the business of trading in shares, securities and F&O transaction with surplus fund, there is share trading investment of ₹ 12,50,94,940/-. Since there is a common activities related to share trading and also involvement in investment capable of dividend, the part of expenditure debited in profit and loss account is definitely attributable to the investm .....

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&O transaction, therefore, the interest expenditure of ₹ 8,76,268/- is not directly or indirectly related to earning of dividend, is convincing one. Further, it is pertinent to mention that Assessing Officer has not clarified as to how such interest expenditure debited in profit and loss account is related to earning of dividend. Obviously, the explanation of the appellant and evidences on records support the contention that interest expenditure is not related to earning of dividend. B .....

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ding of the Assessing Officer that for earning of' dividend there is no element of expenditure. Apparently, investment activities requires support of office, employees, directors. Similarly, the part of the administrative expenses and office expenses can always be attributable for such investment activities. There cannot be any denial of such fact. Appellant has not been able to establish that no expenditure is require for investment activities which is done after thorough analysis of the in .....

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med. Accordingly, disallowance of expenditure of ₹ 5,32,143/- is sustained and balance expenditure of ₹ 8,63,137/- is deleted. In the result, Ground No.1 is partly allowed. With respect to the second disallowance concerning the loss on account of client code modifications, the assessee filed detail submission and the ld. CIT(A) after considering the same deleted the disallowance made by the A.O. by giving his observation in his appellate order at page 9 to 12., vide appellate orders .....

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rge number in the month of March 2010, had the effect of reducing the tax payable by the assessee and to see whether the same was adopted as an device for tax avoidance. It was observed by learned CIT(A) that the AO has not made any further investigation or enquiry nor caused any verification from the brokers namely Anugrah Stock and Broking Private Limited, Labdhi Finance Corporation and M/s Wellworth Share and Stock Broking Ltd or from Vice President Investigation, NSE or from General Manager, .....

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ssee on the grounds that the AO did not conducted enquiry as per directions of the learned Addl. CIT and the AO disallowed the said loss merely on presumption that these transactions were sham transactions to evade and avoid taxes. The learned CIT(A) observed that these client code modifications necessitated by punching errors in the office of the broker were done during normal trading hours and were as per exchange norms and SEBI circulars. It was observed that there are in few cases similarity .....

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nd NSE against the assessee. Thus the disallowance of loss of ₹ 3,67,83,146/- as was made by the AO was deleted by learned CIT(A) vide appellate order dated 05-08- 2014. 6. Aggrieved by the appellate order dated 05-08-2014 passed by the ld. CIT(A), the Revenue is in appeal before the Tribunal. 7. The ld. D.R. submitted that the ld. CIT(A) was not justified in deleting an amount of ₹ 8,63,137/- u/s 14A of the Act r.w.r.8D(2)(ii) of Income-tax Rules, 1962 on account of interest expendi .....

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on account of client code modifications made by the assessee. The ld. D.R. drew our attention to the orders of the A.O. and drew our attention to assessment order of the AO wherein it was stated that there were large scale client code modifications undertaken by brokers of NSE wherein clients modification to the tune of ₹ 55,000 crores were undertaken and NSE had itself stated that there is tax evasion It was submitted that investigation in the matter had been started by the DIT(I&CI) .....

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securities held as stock-in-trade. The ld. counsel for the assessee drew our attention to the page 9 of the paper book filed with the tribunal whereby the copy of P&L account for the year ended March, 2010 is placed and submitted that the assessee s income mainly consists of brokerage and share trading income and the shares were held as stock-in-trade. He submitted that the assessee s own capital consisting of share capital and reserves was ₹ 7,98,75,873/- and investments as on 31-03- .....

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anted as profit from trading are chargeable to tax as business income and shares were held not for earning dividend income but for earning profits from business. The learned counsel also submitted that owned funds of ₹ 7.98 crores representing by share capital and reserves are much higher than investment of ₹ 3,78,000/- held by the assessee in sharesWith respect to client code modifications, it was submitted that confirmations were filed from brokers which are placed in paper book/pa .....

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) rightly allowed the loss of ₹ 3,67,83,146/- sustained on securities which were covered by client code modifications. 9. We have carefully considered rival contentions and also perused the material available on record including case laws relied upon We have observed that the assessee company is engaged in the business of trading in shares, securities and F&O transactions. We have observed that the assessee has not come in appeal before the tribunal w.r.t. the additions of ₹ 5,32 .....

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ave observed that Revenue is aggrieved in this case by deletion of addition of Rs..8,63,137/- by learned CIT(A) which addition was made by the AO by applying Rule 8D(2)(ii) r.w.s. 14A w.r.t. interest expenditure incurred by the assessee The assessee did earn dividend income of ₹ 15,97,859/- which was claimed as exempt under the 1961 Act. We have observed from the perusal of audited financial statements which are placed in paper book filed with the tribunal by the assessee that the assessee .....

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f share capital + reserves-miscellaneous expenditure(debit)). We have observed that the Mumbai-tribunal has decided this issue in the assessee s own case in ITA no. 4847/Mum/2016 for assessment year 2012-13 vide orders dated 07-03-2017, wherein the tribunal held as under: 4.During the course of hearing before us, the Authorised Representative (AR) relied upon the cases of HDFC Bank Ltd (383 ITR 529), India Advantages Securities Ltd (380 ITR 471), Max India Ltd (290 CTR 76). The Departmental Repr .....

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ult to understand. Income arising from the business of an assessee is taxed under the head business and profession. So, all the expenses have to be considered while computing the business income. On the other hand, if the securities are held as investment and an assessee earns exempt income, same can be subjected to disallowance as envisaged by the provisions of section 14A.In the case under consideration the assessee is dealing in shares and F &O segments and offering its income under the h .....

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ue by applying the ratio of law laid down by the tribunal in aforesaid decision, with which we concur as the facts in the instant appeal before us are similar. We order accordingly. With respect to the second issue raised vide Ground No. 2 concerning disallowance of loss of ₹ 3,67,83,145/- claimed by the assessee as F & O trading loss which had arisen due to client code modifications undertaken in the month of March 2010 by the brokers of NSE wherein said F & O transactions were mo .....

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ted by the assessee to evade taxes. The AO observed that there were reports in various financial newspapers that the NSE had allowed its members brokers to make client modifications to the tune of ₹ 55,000 crores in March 2010. Investigations in the matter was carried by DIT(I&CI), Mumbai after obtaining the approval of the CBDT. The notices were issued to NSE calling for relevant details as under : (i) Details of all such modifications in the format prescribed under Rule 6DDA(v) of th .....

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ient code have gone up dramatically in the month of March, 2010 compared to earlier and succeeding months. This is illustrated in the following table and pertains to Non-institutional clients only in the equity derivatives segment (there is no change in the number of modifications in Institutional accounts consisting mainly of Mutual Funds and FIIs). Month No. of modifications Value of modifications in crore of rupees December, 2009 2.75 lakhs 21,896 January, 2010 3.36 lakhs 28,860 February, 201 .....

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total value of ₹ 461crores. (iv) The above facts would indicate that the modifications made were part of an organized tax evasion racket which should be dealt with firmly. (v) the important point to note is that client codes of deals carried out were changed by the brokers after the close of normal trading hours. The income tax act u/s 43(5) normally considers any transaction in which a contract for purchase or sale of any commodity including shares is settled other than by actual delivery .....

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orted by a time stamped contract indicating the unique client identity number and PAN {Expln (i) to S. 43(5)(d)}; The manual change in client code is therefore against the spirit of the Act as laid out above. (vi) Code changed can legitimately occur in some circumstances. For example, the broker may wrongly feed the client code of the husband when the shares are actually held by the wife. Similarly, there may be confusion between a HUF and individual having the same name. It is also observed tha .....

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rade which has already taken place. (ix) There has always been practice on Dalal Street of booking artificial profits or losses in March to Impact tax liabilities. This requires buying or selling stocks intra-day so as to consciously incur a loss and use that as a tax offset. (Or conversely to create a profit where carried forward or current year losses are available). This is normally done during normal trading hours using synchronized trades (called 123 trades: where orders are placed at the s .....

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e end of the day. A would end up with a ₹ 10 profit instead of a Rs.l0 loss and B is left holding a loss instead of the anticipated profit. (xii) What the helpful broker does then is to swap the 2 client codes after the close to trading hours, thus gifting A a loss and B a profit. Since on the exchange the trades have been squared, there are no delivery obligations and everybody is satisfied. (xiii) Market insiders say this subterfuge took a new, sophisticated proportions since 2004 with t .....

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as was done in this case. {xvi) As stated earlier a client code change implies that an earlier transaction has happened in the Stock Exchange it has sought to be set off by the present code change. The A.O. after analyzing the facts and modus operandi of the above illustrations, observed as under: (a) it is seen that in the month of the March, 2010 the assessee has shown modified transaction in F&O segment. (b) These transactions are entered by broker M/s Anugrah Stock & Broking Pvt. Lt .....

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,17,420/- (i.e. ₹ 2,04,97,205- ₹ 53.,79,785). (e) It is observed from the details that the assessee has adjusted the loss on sale of shares of other companies against the profit of the assessee company and resulted into low profit offered for taxation. (f) There are total of 1113 transaction on sale side involving transaction value of ₹ 40,51,75,893/- and 1353 transaction on buy side involving transactions value of ₹ 40,79,95,691/-. These transactions are recorded between .....

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the above stated client code modifications are enclosed and forming part of this order as annexure -A to this order. (i) It could be seen from the above Annexure -A, the modifications are done in the trading hours which is against the normal trading trends and practices. Normally the genuine errors could be traced only at the end or towards the end of the trading session and corrected or modified under intimation to the exchange. The assessee in response to notice dated 18-03-2013 issued by the .....

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hours. The learned Addl. CIT after considering the petition of the assessee directed the AO to verify the contentions and claims of the assessee and to ascertain the facts on the basis of information gathered from various sources. The AO was also directed by the learned Addl. CIT u/s 144A to determine whether the client code changes, which had appeared in large numbers in the month of March 2010 had the effect of reducing the tax payable by the assessee and in-fact was used as a device for tax .....

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were getting time barred on 31-03-2013 as provided u/s 153 of the 1961 Act. The AO passed assessment order on 28-03-2013 u/s 143(3) of the 1961 Act. Thus, the A.O. doubted the genuineness of the transaction of losses of ₹ 3,67,83,145/- as in the opinion of the AO these transactions are structured pre-planned to generate a loss arising as business loss and these transaction were entered to avoid taxes and is a fiscal nullity being colorable device to evade taxes, as held by the AO. The AO .....

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ty and are sham transaction. The A.O. also cited several case laws in support of his conclusion are illustrated vide his order page No. 20 to 24 to come to conclusion that these are not genuine transactions but sham and colorable transactions with objective of evading taxes. The A.O. accordingly disallowed the loss claimed of ₹ 3,67,83,146/- and added the same to total income of the assessee, vide assessment order dated 28-03-2013 passed u/s 143(3) of the 1961 Act. The learned CIT(A) while .....

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rge number in the month of March 2010 , had the effect of reducing the tax payable by the assessee and to see whether the same was adopted as an device for tax avoidance. It was observed by learned CIT(A) that the AO has not made any further investigation or enquiry nor caused any verification from the brokers namely Anugrah Stock and Broking Private Limited, Labdhi Finance Corporation and M/s Wellworth Share and Stock Broking Ltd or from Vice President Investigation, NSE or from General Manager .....

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essee on the grounds that the AO did not conducted enquiry as per directions of the learned Addl. CIT and the AO disallowed the said loss merely on presumption that these transactions were sham transactions to evade and avoid taxes. The learned CIT(A) observed that these client code modifications necessitated by punching errors in the office of the broker were done during normal trading hours and were as per exchange norms and SEBI circulars. It was observed that there are in few cases similarit .....

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isallow the loss by treating it as sham transaction more-so when no action has been taken by SEBI and NSE against the assessee. Thus the disallowance of loss of ₹ 3,67,83,146/- as was made by the AO was deleted by learned CIT(A) vide appellate order dated 05-08-2014. We are afraid that this approach of learned CIT(A) disregarding the material on record and coming to certain conclusions without any material on record is completely flawed to the extent that it has made the order of learned C .....

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als)] shall have the following powers- (a) in an appeal against an order of assessment, he may confirm, reduce, enhance or 7annul the assessment [(aa) ****** (b) ****** (c) ****** (2) The [Commissioner (Appeals)] shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction. Explanation.-In disposing of an appeal, the [Commissioner (Appeals)] may consider and decide any matt .....

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cise of the power by learned CIT(A) in an arbitrary manner or in disregard of the facts on records or coming to conclusions without any material on record will make the order of the learned CIT(A) perverse and unsustainable in the eyes of law.There was material on record that there was a large scale transactions of approx ₹ 55000 crores entered by brokers through NSE in the month of March 2010 wherein there were modifications in client codes in F & O transactions undertaken by NSE Brok .....

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e tune of ₹ 11882 crores in April 2010. Similarly there was a sudden spurt in the client code modifications in currency derivatives. The NSE has itself stated that it is directed towards large scale tax evasion. The NSE itself stated that these transactions were modified beyond normal trading hours and reflect violation of proviso (d) to Section 43(5) of the 1961 Act. The relevant extract of NSE replies are as under: The number and value of modifications in the client code have gone up dra .....

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2010 6.18 lakhs 48,794 April, 2010 1.62 lakhs 11,882 (ii) The increase in the client code modifications in the equity derivative segment in March, 2010, is in spite of the fact that trading volume and turnover actually fell during this months. (iii) The number of client code modifications in the currency derivative segment in March, 2010 was 19395 and the value thereof was ₹ 13282 crores while the comparative figures for January, 2010 was 863 modifications for a total value of ₹ 461 .....

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ive transaction. One of the exceptions to this position is contained in proviso (d) to S. 43(5) which states that an eligible transaction in respect of trading in derivative referred to in clause (act) of section 2 of the Securities Contracts Regulation Act, 1956 (42 of 1956) carried out in a recognized stock exchange) shall not be deemed to be a speculative transaction. An eligible transaction is one which is carried out. electronically on screen based systems and supported by a time stamped co .....

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ganized tax evasion racket, needed further probe. All the transactions in the case of the assessee happened in the month of March 2010 in just 9 trading sessions with three brokers namely Anugrah Stock & Broking Private Limited, Wellworth Share & Stock Broking Limited and Labdhi Finance Corporation wherein large number of sale and purchase transactions were entered in the name of the assessee through modified client codes in just 9 trading session. The relevant extract of the AO findings .....

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ithin a span of just 9 trading sessions in a particular pattern and timing involving such huge money and stakes in crores of rupees without the connivance of the broker and the client. The finding of learned CIT(A) that SEBI and NSE has not taken any action against the assessee is also not supported by any material on record as no such enquiry was conducted by AO and/or CIT(A). It was only in response to initial enquiry conducted by DIT(I&CI) based on newspaper reports from NSE that NSE conf .....

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including power of assessment. When the powers are granted by statute, the same need to be exercised in a manner to achieve the mandate of the 1961 Act to compute correct taxes in the hands of tax-payer. The powers cannot be used in an arbitrary manner otherwise the orders passed in pursuance of such arbitrary use of powers will enter the arena of perversity. The learned CIT(A) was fully aware that the AO could not comply with directions of learned Addl. CIT issued u/w 144A to conduct relevant .....

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of judicial precedents held the transactions to be collusive and sham with an intent to evade taxes. The learned CIT(A) whose powers being co-terminus with the powers of the AO entered into blame game by blaming the AO for not following the directions of the learned Addl. CIT in complete disregard of the fact that the directions of the learned Addl. CIT u/s 144A were issued only on 22-03-2013 while the assessment was getting time barred on 31-03-2013 as provided u/s 153 of the 1961 Act. The lea .....

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powers are not used by learned CIT(A) to achieve the mandate of the 1961 Act to compute correct tax liability of the tax-payer, then the power of learned CIT(A) being co-terminus with the powers of AO will be reduced to dead words, which is not the intention of the legislature in granting such powers as there has to be effective use of powers by authorities who are vested with said powers directed to achieve the mandate of the 1961 ACT. In our considered view, the appellate order of learned CIT .....

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urrounding the case clearly and strongly suggests and points to a collusive action on the part of the assessee and brokers who were acting in concert to avoid and evade taxes, which needed further probe to come to definitive conclusions as was rightly directed by learned Addl CIT vide directions dated 22-03-2013 u/s 144A of the 1961 Act. The huge magnitude of client code modifications in the last month of the previous year as well in the case of the assessee all the client code modifications bei .....

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ired under Indian Evidence Act, 1872 may not be pressed to fasten the tax-liability. No-doubt the assessee has placed on record broker confirmations but perusal of these conformations to suggest that such a large magnitude of client code modifications were carried out in the last month of the previous year i.e. March 2010 and that too in 9 trading sessions and all being ascribed to punching errors do not inspire confidence rather it clearly suggest a collusive, manipulative rigged action by pers .....

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by Wellworth Share and Stock Brokers Limited on 15-03-2013 (pb/page 39) , client code changed from 61495 to 7744 by Wellworth Share and Stock Brokers Limited on 08-03-2010(pb/page 49) , client code changed from 61495 to 10057 by Wellworth Share and Stock Brokers Limited on 08-03-2010(pb/page 50), client code changed from 61495 to 8428 by Wellworth Share and Stock Brokers Limited on 10-03- 2010(pb/51), client code changed from 61495 to 7744 by Wellworth Share and Stock Brokers Limited on 10-03-20 .....

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ve list but few instances quoted above to reflect that there is vast difference between the wrong codes from where the transactions were shifted to a correct code and possibility of punching error with such differential codes and that too in only 9 trading sessions which happened to be the month of March 2010(last month of previous year) in large magnitude of transactions was not mere coincidence and is a strong pointer to manipulation and collusive action of certain person acting in concert to .....

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ns, we have gone through the relevant circulars which are placed in paper book/page 68-72, we have observed that the said circulars clearly allows only genuine client code modifications of transactions in the stock exchange. If the transaction is held to be non-genuine , we are afraid circulars of NSE/SEBI relied upon will not be applicable. Reference is drawn to circular no 663 dated 29-07-2010( Ref. No.: NSE/INVG/2011/184840 issued by NSE wherein it is clearly stipulated as under(relevant port .....

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original client code and modified client code belong to a family. ( Family for this purpose means spouse, dependent parents, dependent children and HUF). The assessee case does not fall under the above category of genuine client code modifications allowed by NSE as we have seen that in large number of client code modifications, there are no similarity between wrong code and correct code and secondly there are repetitive client code modifications. Thus, client code modifications which are tainted .....

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f the same securities at same time to neutralize the collective profit/loss to zero but at the same time distribute profits/loss separately arising from each of the squared transactions. These requires coordinated enquiries by various agencies to reach to the bottom of the truth. To term all such inconsistencies as are pointed out as mere suspicion shall not be correct as collectively they are pointing towards a collusive and manipulative action on part of certain persons acting in concert to av .....

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and there were small fraction of transactions effected by client code modification while in the instant case we have seen that large number of transactions with large magnitude were affected by client code modifications in the month of March 2010 which was itself categorized by NSE were effected towards tax evasion. Similarly , the assessee has placed reliance on decision of Hon ble Bombay High Court in the case of Coronation Agro Industries Limited v. DCT in ITA no. 2627 of 2016 vide judgment d .....

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