TMI Blog2019 (8) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... plicable rules or any punitive action was taken by the stock exchanges against the assessee s broker for violation of the said facility. It is also evident that the percentage of modified trades in terms of value as well as volume was miniscule in comparison to total trades carried out by the assessee with the broker. The onus was on revenue to dislodge the assessee s claim. Except for general observation of investigation wing, there was no minimum adverse material on record against the assessee which would prima-facie prove that loss was fictious and the assessee was in connivance with brokers which warrant the first appellate authority to investigate the matter further. All the transactions were duly reflected in the books, the transactions were through banking channels and the ledger confirmations were placed on record. - Decided against revenue. - I.T.A. No. 7346/Mum/2017 - - - Dated:- 30-7-2019 - Shri Sandeep Gosain, JM And Shri Manoj Kumar Aggarwal, AM For the Assessee : Shri Neelkanth Khandelwal-Ld. AR For the Revenue : Chaudhury Arun Kumar Singh-Ld. DR ORDER MANOJ KUMAR AGGARWAL (AC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, Ld. AO, at para 4.7 elaborated the whole process of creating artificial profits by client-code modification and opined that one beneficiary is the broker who indulges in client-code modification against certain cash commission ranging between 0.5% to 6% and other beneficiary is the person in whose accounts profits / losses are shifted with an intention to reduce the overall tax liability. 2.5 Although Ld. AO agreed with the view that client-code modification was permissible within the time limits as prescribed by SEBI / stock exchanges so as to rectify the genuine mistakes of punching errors in the system, however, the said facility, as per the investigation arm, was being misused by brokers to shifts profits / losses from one client to another as per the requirements. Upon mapping / analysis of assessee s data, it was concluded that the assessee stood beneficiary of amount of ₹ 166.28 Lacs. The Ld. AO fortified the conclusion by observing that all the four digits of the original code were modified which clearly show that it was not a case of mere punching errors. At paras 4.11 to 4.15 of the quantum assessment order, after appreciating the actions take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26 is added back to the total income of the assessee. 3. Aggrieved, the assessee preferred further appeal before Ld.CIT(A) and while contesting the validity of reassessment proceedings, assailed the quantum additions by way of elaborate written submissions, which have already been extracted in the impugned order. The assessee reiterated that the modifications were done at broker s end due to punching errors committed by the staff under various circumstances like volume and frequency of the transactions, fluctuation of rates, wrong understanding on taking telephone orders about the quantity, name of scrip as well as client code. The attention was drawn to the fact that the modification was done as per the rules and regulations and within the window provided by the stock exchanges. However, the stated transactions were totally genuine and duly supported by the bills / contract notes. In support, ledger account of the broker, balance confirmation of the broker, bank statement highlighting the payment transactions were adduced. It was submitted that all the transactions were duly accounted for by the assessee in the books of accounts. In the said circumstances, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s profits to the other party. There was nothing to show that the profits / losses were purchased and the other parties gave cash or cheque payment for such favor and as such no correlation of such transactions could be established by Ld. AO. 4.3 In the above background, Ld. first appellate authority formed an opinion that additions were made on the basis of assumption and surmises only since all the transactions were duly accounted for by the assessee in the books of accounts and there was no justification to consider the stated losses as fictitious loss. 4.4 Reliance was placed, inter-alia, on the decision of this Tribunal rendered in ITO V/s. Pat Commodities Services P.Ltd. [ITA Nos. 3498/Mum/2012 07/08/2015] M/s Sambhavnath Investment V/s ACIT [ITA No.3109/Mum/2011 19/12/2013] to arrive at a conclusion that the additions were made merely on the basis of suspicion, presumptions, surmises and conjecture without there being any specific evidence on record to establish that modifications were done with the knowledge of assessee or at his behest. The modification was done by the broker and the assessee could not be made responsible for the acts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ode modification so as to rectify the punching errors within certain time after closing of the trade. Nothing would suggest that the modifications were done in breach of the applicable rules or any punitive action was taken by the stock exchanges against the assessee s broker for violation of the said facility. It is also evident that the percentage of modified trades in terms of value as well as volume was miniscule in comparison to total trades carried out by the assessee with the broker. 8. In fact, the decision of co-ordinate bench of this Tribunal in DCIT V/s Vipul D.Shah [supra] (which has been authored by one of us), squarely applies to the fact of the present case. This decision has been rendered after considering the earlier decision of Tribunal rendered in ITO V/s. Pat Commodities Services P.Ltd. [supra] M/s Sambhavnath Investment V/s ACIT [supra] and hold the additions could not be sustained in the eyes of law. The operative portion of the decision, for ease of convenience, could be extracted in the following manner: - 5.2 Coming to the merits of the case, we find that client-code modification is a facility granted by stock exchang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the client code does not have any basis. On the contrary, the transactions of the assessee with RSBL who in turn has transacted with MCX are supported by various contract notes. Also, in ITO V/s. Pat Commodities Services P.Ltd. [supra], it has been held as under: - 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e some of the transactions have resulted in loss also and the said loss has also been accepted by the concerned clients. All these factors, 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Ld. DR has relied upon the decision of Hon ble Delhi High Court in Jansampark Advertising Marketing Pvt. Ltd. [supra] to submit that the requisite inquiries could have been conducted by Ld. first appellate authority. However, in the present case, as observed by us in in para 6, the onus was on revenue to dislodge the assessee s claim. Except for general observation of investigation wing, there was no minimum adverse material on record against the assessee which would prima-facie prove that loss was fictious and the assessee was in connivance with brokers which warrant the first appellate authority to investigate the matter further. All the transactions were duly reflected in the books, the transactions were through banking channels and the ledger confirmations were placed on record. Therefore, the said decision, in our respectful submissions, would not apply and come to the rescue of the revenue. 10. Therefore, keeping in view the entirety of facts and circumstances and in view of the binding judicial precedents in the shape of decisions of coordinate benches of the Tribunal as cited above, we do not find any infirmity in the impugned ord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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