TMI Blog2023 (2) TMI 1219X X X X Extracts X X X X X X X X Extracts X X X X ..... e. As we have noted above that it is not a case of the AO that no transactions were undertaken and assessee booked bogus losses but the allegation of the AO is that the losses were incurred by the assessee were only contrived losses and these losses were managed with the help of brokers who always there in group of clusters so as to same can be set off against the profits earned from activities of trading other then NMCE platform. On being asked by the Bench, the CIT(DR), except reading and supporting assessment order could not bring or substantiate any factual position or allegation against the assessee by way of cogent findings and supportive documentary evidence or positive adverse material against the assessee to prove that the alleged losses were not actually accrued to the assessee and the assessee claimed bogus losses CIT(A) noted a very important factual position which is self speaking that the assessee incurred losses on similar commodity in the other stock exchanges on high value and also earned profit in NMCE and incurred losses on MCX in the forward trading of copper. Allegation of the A.O. that assessee has undertaken high volume transaction in 60 second we no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation of grievance of revenue the appeal of revenue for A.Y. 2011-12 may kindly be taken as lead case for adjudication of grievance of revenue. 3. The grounds of appeal raised by the revenue read as under: For A.Y. 2011-12 1. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in deleting the disallowance of contrived losses on NMCE (Rs. 8,40,05,637/-) by overlooking the glaring evidences/ findings of synchronized trades executed by the assessee with a cluster of brokers/counter parties on MCE exchange which had resulted in excessive losses which were then set-off against profits from other exchanges and without appreciating that the selective quoting of certain loss transactions on other exchanges does not absolve the assessee from providing substantive explanation on excessive losses on NMCE. 2. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in not appreciating the fact that the execution of trades on a recognized exchange (MCE) as per rules, on screen based platform through banking channels and entries in books had no relevance in deciding the genuineness of losses which were inherently managed/ cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties other than trading on NMCE and thus these losses need to be disallowed. The Ld. CIT(DR) further submitted that the AO also observed that such trading was predominantly done during the last quarters of the year and there was striking feature that this phenomenon was only seen while trading in on NMCE and while trading on other exchanges like NCDEX/MCX etc. were consistent during the year which show the assessee quantifies the profits made on other exchanges and then accordingly decided to set-off the same to the maximum extent by booking artificial losses on NMCE. The Ld. CIT(DR) also submitted that information regarding all the transaction of trade executed by the assessee was called from NMCE u/s. 133(6) which has been provided vide letter dated 01.11.2018. The Ld. CIT(DR) vehemently pointed out that on analysis of said data provided by NMCE it was clearly gathered that during the F.Y. 2010-11, pertaining to A.Y. 2011-12 the assessee had made 4823 transactions on NMCE and has made loss of Rs. 8,40,05,637/- which was artificially booked to reduce the tax labiality of assessee. Therefore the Assessing Officer was right making disallowance in this regard and the Ld. CIT(A) has g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at point of time. The A.O. failed to appreciate that on the commodity exchange algorithmic trading are allowed to all members of National Commodities and derivative exchanges. He further explained that the algorithmic trading is nothing only high frequency trading wherein SEBI has permitted 15 transactions in one second. In support of this fact the assessee submitted copy of the circular issued by National Commodity Derivative Exchanges Ltd dated 18.03.2018 clause 7 where it has been allowed that the number of order per second from a particular CTCL ID/ATS ser-id shall not exceed 15 orders per second. The Ld. AR also submitted that said circular was subsequently revised by SEBI circular vide dated 27.09.2016 wherein number of transactions per second were increased from 15 to 20 as per clause 9 of said circular. The Ld. AR also submitted that the AO was not correct and justified in alleging that all the trade have been executed within 60 seconds when order is placed and all the date are squared up on the very same date, from the circular of NCDEX and SEBI it is clear that till 26 the September 2016, fifteen transactions were allowed and thereafter twenty transactions per second is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MCE platform by appellant company. Statement of the Director of appellant company was recorded. The director while replying to question No.8 stated as under:- Q.8. In reply of the Q no. 7 you have provided the month-wise details of the profit/loss incurred by the M/s. Essence Commodities Private Limited have also been provided by the department to company. Ongoing through the same it has been found that on nearly all the transactions in every commodity losses have been booked by the company and it can also be observed that the company have started business of NMCE platform from February 2010 and since then the company has incurred only losses in almost every month. From above observations it clearly emerges that only losses have been made on NMCE consistently. Please explain the reasons Why the Ms. Essence Commodities Pvt. Ltd (ECPL) has consistently made losses on NMCE platform. Ans. Sit, these are genuine business transactions and done in the routine course of the business. 4.2.2. During the course of assessment proceedings to support above answer the Director of the assessee company filed an affidavit which was discarded by the A.O without bringing any evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eraction with the commodity exchanges. Most of the regulatory powers of the Central Government have been delegated to the FMC. For example, FMC has powers to approve the Memorandum and Articles of Associations as well as Byelaws of the Exchange. It has also powers to conduct inspection of accounts of the exchanges/their members, inquire into the affairs of the exchange. In an emergency, it can even suspend trading. All contracts for futures trade have be approved by the FMC before they can be launched on the exchange. As a self- regulatory organization, NMCE also plays an important role by ensuring that the provisions in the Articles of Association, and Byelaws etc. are followed in letter and spirit. The regulation by the Exchange is rule-based and incorporated in the software itself. Regulation involving human intervention and of discretionary nature is implemented through various committees of professional and experts. Special care is taken while constituting these committees to ensure that there is no conflict of interest. Legal Hierarchy is as under-: 4.2.6 The A.O. made the addition without making any enquiry from the third party. All the transactions were carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Reliance is placed on the following case laws:- (i) Bharti Syntex Limited vs CIT 137 TTJ 82 ( Jaipur Bench) (i) CIT vs Value Capital Services (P) Ltd 307 ITR 334 Delhi) 1. The commodities in which the appellant traded were highly liquid commodities and mainly belong to top traded commodities in NMCE. 2. NMCE is a nationalised electronic exchange and having membership and clientele all over India. 3. The trading on NMCE happens in electronic platform and all the orders are visible to each and every person in front of electronic screen of NMCE, thus anybody from all India can strike the trade at any point of time, so clustering between members and synchronised trades are not possible. 4. The clustering and synchronization of such fast trades as specified by you between such brokers who are so distant from each other is never possible. 4.2.9 The A.O has made the addition on imaginary basis by presuming that the transaction entered by the appellant company is a synchronized trade with the clustering of few brokers losses is booked in every month of last quarter in every commodity at NMCE platform without appreciating and by ignoring th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon ble Kolkata High Court in the case of Pr. CIT V/s M/s BIB Cables and Conductors ITAT No. 78 of 2017 GA No. 747 of 2017 order dated 19 June,2018 held as under:- Para M onwards :- M) The non submission of information and avoiding verification by writing that it had already filed written submissions with enclosures at the time of first hearing and thereafter and that no further papers or clarification need be filed by it. Further, asking to decide the appeal on the basis of submissions already filed by submitting a letter in dak In the appeal filed by the assessee, the Tribunal, however, held that there is no bar in undertaking off market transactions in commodities under the law. On the aspect of proving such transactions, the Tribunal opined that the Assessing Officer was duty bound to accept the profit shown in the Profit Loss Account of the Assessee relying on the following authorities:- (i) Apollo Tyres Ltd. V. CIT 255 ITR 273 (SC); (ii) Malayala Manorama Co. Ltd. V. CIT 300 ITR 251 (SC); (iii) DCIT- Circle- 10(1) V. Dune Leasing Finance Ltd. 126 ITD 255 (Del.) On factual analysis of the assessee's case, the Tribunal observed an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal on fact. No material has been shown to us which would negate the Tribunal's finding that off market transactions are not prohibited. As regards veracity of the transactions, the Tribunal has come to its conclusion on analysis of relevant materials. That being the position, Tribunal having analysed the set of facts in coming to its finding, we do not think there is any scope of interference with the order of the Tribunal in exercise of our jurisdiction under Section 2604 of the Income Tax Act, 1961. No substantial question of low is involved in this appeal. The appeal and the stay petition, accordingly, shall stand dismissed. 4.2.12 From the above it is clear that even loss arises on off market transactions is not bogus if the transaction are recorded in the books of both the parties and offered for taxation and finally the transaction were settled through banking channel. The FMC appointed the Chartered Accountant for auditing of the appellants accounts. The performance audit report submitted by the auditor is as under:- S. No. Para No. Ch. No. Chapter of manual Violat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r vis-a-vis Total Turnover is such contracts on Exchange Platform in the year 2009-10, 2010-11 2011-12 respectively. In the case of appellant the transaction is carried through the recognized stock exchange which is confirmed by the stock exchange NMCE Commodity Exchange, that all the payments are received / paid through banking channel that through routed through NMCE Commodity Exchange. Therefore, the A.O was not justified in disallowing loss of Rs. 8,40,05,637/- without any basis. Therefore, the addition made by A0 amounting to Rs. 8,40,05,637/- is Deleted. Therefore, the appeal on this ground is Allowed. 11. On careful consideration of assessment order dated 07.12.2018 passed u/s. 143(3) r.w.s 147 of the Income Tax Act 1961, findings recorded by the Ld. CIT(A) in the impugned order, while allowing the losses to the assessee and rival contentions of both the sides. First of all we note that neither the AO nor the Ld. CIT(DR) before this bench have controverted the fact which we have clearly noted that all the transactions have been carried out through recognized stock exchange which were also confirmed by the stock exchange NMCE commodity exchange and it was also co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and the assessee claimed bogus losses. The Ld. CIT(A) noted a very important factual position which is self speaking that the assessee incurred losses on similar commodity in the other stock exchanges on high value and also earned profit in NMCE and incurred losses on MCX in the forward trading of copper. 14. So far as allegation of the A.O. that assessee has undertaken high volume transaction in 60 second we note that the SEBI has permitted 15 to 20 transactions per minute as per revised Circular No. 97 dated 27.09.2016 and merely because the assessee has incurred losses on a particular platform does not Ipso facto established that the losses are contrived or artificial and the sole intention is to set off the profits earned from other stock exchanges and to reduce and evade the tax liability on the profits earned from other stock exchanges. 15. In view of above, we are unable to see any ambiguity perversity or any other valid reason to interfere with findings arrived by the Ld. CIT(A). Our conclusion also gets support from Hon ble Kolkata High Court in the case of PCIT vs. BIB Cables and Conductors (supra). Accordingly grounds nos. 1 to 5 of revenue for A.Y. 2011-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of situation between A.Y. 2011-12 and AYs 2012-13 2013-14. Therefore, our conclusion recorded for ground nos. 1 to 5 of revenue for A.Y. 2011-12 would apply mutatis mutandis to ground nos. 1 to 5 of revenue for A.Y. 2012-13 2013-14. Accordingly, grounds of revenue no. 1 to 5 for A.Y. 2012-13 2013-14 are also dismissed. 20. In the result all the appeals of revenue for A.Ys. 2011- 12 to 2013-14 are dismissed. Cross objections of assessee for A.Y. 2011-12 to 2013-14 21. The Ld. AR submitted that the cross objections of the assessee have been filed only to support the first appellate order. No substantial arguments have been advanced in support of cross objections of the assessee. Since by the earlier part of this we have dismissed appeals of revenue for A.Ys. 2011-12, 2012-13 2013-14 therefore the cross objections of the assessee are not being adjudicated upon as have become academic and infractuous. 22. In the result, cross-objections filed by the assessee for the A.Ys. 2011-12, 2012-13 2013-14 are dismissed. 23. To sum-up, appeals of the Revenue and Cross Objections of the Assessee are dismissed. Order pronounced in the open court on 10.02.2023 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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