TaxTMI 
TaxTMI 
2019 (8) TMI 604
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....ffered losses in Derivatives Trading of Rs. 5,11,94,575/- which is shown as Business Loss in the Return of Income. 3. Aggrieved by the order of Assessing Officer, assessee preferred appeal before the learned CIT(A). Learned CIT(A) after considering the case of both the parties had partly allowed the appeal filed by the assessee and deleted the additions made by the Assessing Officer. 4. Aggrieved by the order of learned CIT(A), the Revenue has filed the present appeal before us on the ground mentioned above. Ground No. 1 & 2 5. These grounds raised by the Revenue are inter connected and inter related and relates to challenging the orders of Ld. CIT(A) in deleting the additions made on account of suppression of profit and obtaining fictitious loss by the assessee company by way of Client Code Modification (CCM) and on account of commission paid to brokers to obtain fictitious loss through CCM, therefore we thought it fit to dispose of the same by this common order. 6. We have heard the counsels of both the parties and also perused the material placed on record, judgment cited by the parties and the orders passed by the Revenue authorities. Before we decide the merits of th....
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....n that said loss is duly recorded in the books of accounts of the appellant. The Assessing Officer has not found any defect in the books of accounts. The books of accounts are not rejected by the Assessing Officer. Further, nothing has been brought on record by the A.O. to show that instructions for CCM was given by the Appellant. A.O.has not established that assessee had control over the brokers. 6.3.5. Further, it is seen that CCM carried out by broker BP Equities Pvt. Ltd pertain to the relatives and/or friends of the Directors of the Appellant who had introduced them to the broker and the client codes begin from 43.. .Hence, it cannot be said that the CCM was not genuine. It is further seen that broker transactions in which there was CCM was not done at the end of the year to generate artificial profits and losses but such transactions had taken place through-out the year. Hence, the argument of the Assessing Officer that Appellant has indulged in creating fictitious loss falls flat. 6.3.6. Another important factor which is not rebutted by the Assessing Officer is that the % of CCM turnover to total turnover is in the range of 0.35% to 0.55 % in case of another broker. He....
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....would have imposed penalty on the appellant or its brokers or both but the AO has not brought any such thing on record in the assessment order. 6.3.10. Further, the movement of prices of shares cannot be predicted by anyone with accuracy and hence it is inconceivable or unlikely that the assessee could have made profits / Losses consistently, even if it is assumed for a moment that the assessee had actually carried out the transactions for its own benefit. Since the timing of entering the transactions is crucial in the online trading, the staffs of the Broker found it convenient to punch one code because if the broker has to punch every ^ transactions/ every set of shares in all the names of the client, it will take lot of time and by the time the punching of a particular share scrip for all the clients, are finally finished, by that time there would be lot of changes in the price and in the process there would be many clients with different amounts of share price of same scrip within that given time and the broker will have to bear the brunt of various clients and their allegations that why the price of that particular client was higher or lower compared to his price. This may ....
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....e mechanism to siphon off the Profit of the appellant. 6.3.14. While the AO has taken cognizance of the general information provided by I&CI and thereafter reopened the file. However, the AO has not brought any material on record to prove that that the parties to whom the alleged profits or loss is supposed to have been diverted to reduce the taxable income of the appellant. No correlation between the appellant, on the one hand and the other parties, on the other hand, has been brought on record to correlate that these parties were in collusion with each other and were known to each other so that one party diverted its profit or loss to the other parties. There is nothing on record to suggest that the said losses were purchased and the other parties were given cash or cheque payment in view of such favours. Hence, the correlation of such transactions also, is not established in the assessment order. 6.3.15. During the course of appellate proceedings the Ld.AR has drawn my attention towards various judicial pronouncements with regard to similar issue where the additions/disallowances were made by the AO on account of CCM and the Hon'ble IT AT of various benches including t....
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....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 question that arises is - Whether the client code modification has resulted into shifting of profits, otherwise earned by the assessee. It is a fact that the assessee company has started its operations only in July, 2005 by converting individual membership into corporate membership. Further, the commodity exchange was about 3-4 years o....
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....being significantly higher than the total credit value of the appellant; number of modified trade being significant to total number of trades of the appellant; profit/loss arising on account of such modifications by the appellant being significant in comparison to the profit/loss in the trades were no modification were carried out by the appellant; profit/loss arising due to CCM being in significant ratio; buying and selling leg off different trades to have been modified to same clients by the appellant; the same set of clients being involved in making profits/loss due to CCM; total number of trade modifications being increased before closing of the Financial Year so as to reduce the genuine taxable income of the appellant etc. and unless the same is brought on record in the assessment order and the correlation of transfer/receipt of profit/loss is established to be illegal or having quid pro quo type of transaction where one party receives profit/loss by making certain payment to the other party out of their undisclosed income and in the process the taxable income has escaped or artificial or illegal loss have been purchased through Off the floor transactions being in contraventio....
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....exchange or SEBI. In the order of assessment, the AO has stated the complete details of the Modus Operandi of creation of fictitious profit and / or losses with a malafide intention of escaping taxes. However, the AO has neither proved nor lead any evidence in case of any single transaction, which he has added to the income of the assessee, being of the type whose Modus Operandi is similar to the nature where he alleges to be added to the income of the assessee. 8. It is common knowledge that any transaction either relating to shares or derivatives to be considered as completed and taxable/deductible in the hands of any assessee should compulsorily have the following ingredients i.e. :- i) A valid transaction must have been executed on the Stock Exchange. ii) The customer of the registered share broker should confirm & agree that the transaction entered into by the broker belongs to him. iii) The payment lbr purchases and/or receipt of sale proceeds should have happened between the Bank Accounts of the broker & his customer. iv) The above transaction must have been accounted for in the hooks of account of the registered broker as well as his customer. v) The eventu....