SHRI GYANDEEP KHEMKA, JAIPUR V. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-4, JAIPUR

CO 40/JPR/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3753 (ITAT-JAIPUR)
• Appeal Type: Income Tax (International Taxation) Appeal
• Pronouncement Date: 29-04-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 22-11-2018
• Court: TRIBUNAL

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S,A JAIPUR JH JESK LH0 KEKZ] YS[KK LNL; ,OA JH FOT; IKY JKO] U;KF;D LNL; DS LE{K BEFORE: SHRI RAMESH C. SHARMA, AM & SHRI VIJAY PAL RAO, JM VK;DJ VIHY LA- @ ITA NO. 1274/JP/2018 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2010-11 THE ACIT, CENTRAL CIRCLE-4, JAIPUR. CUKE VS. SHRI GYANDEEP KHEMKA 30, KHEMKA HOUSE, KISAN NAGAR, SHYAN NAGAR, EXTEN., JANPATH, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AGBPK 0640 F VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT CO NO. 40/JP/2018 (ARISING OUT OF ITA NO. 1274/JP/2018) FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2010-11 SHRI GYANDEEP KHEMKA 30, KHEMKA HOUSE, KISAN NAGAR, SHYAN NAGAR, EXTEN., JANPATH, JAIPUR. CUKE VS. THE ACIT, CENTRAL CIRCLE-4, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AGBPK 0640 F VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS @ REVENUE BY : SHRI RAJENDRA SINGH (JCIT) FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI BHUPENDRA SHAH (C.A.) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 18/02/2019 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 05/03/2019 VKNS'K@ ORDER ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 2 PER: VIJAY PAL RAO, J.M. THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY T HE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 05.09.2018 OF LD. CIT(A), JAIPUR FOR THE ASSESSMENT YEAR 2010-11. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A)-4, JAIPUR, IS JUSTIFIED IN D ELETING THE ADDITION ON ACCOUNT OF TRANSFER OUT OF ASCERTAINED PROFIT/LOSS OF RS. 62,32,362/- MADE BY THE AO. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A)-4, JAIPUR, IS JUSTIFIED IN DELET ING THE ADDITION ON ACCOUNT OF COMMISSION PAD FOR ACQUIRING SUCH ACCOMM ODATION ENTRY OF RS. 1,25,016/- MADE BY THE AO. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A)-4, JAIPUR, IS JUSTIFIED IN DELET ING THE ADDITION ON ACCOUNT OF U/S 14A OF RS. 2,57,264/- TOTALING FOR R S. 65,04,443/- DESPITE THE AMENDMENT MADE TO THE RULE 8D W.E.F. 02 .06.2016 MADE BY THE AO. 2. GROUND NO. 1 IS REGARDING THE ADDITION MADE BY T HE AO ON ACCOUNT OF CLIENT CODE PUNCHING ERROR WAS DELETED B Y THE LD. CIT(A). THE LD. DR HAS SUBMITTED THAT AS PER THE INVESTIGAT ION CARRIED BY DIRECTORATE I & CI MUMBAI AND BY DIRECTORATE OF INV ESTIGATION AHMEDABAD IT WAS FOUND THAT FICTITIOUS PROFITS AND LOSSES WERE CREATED BY SOME BROKERS BY MISUSING THE CLIENT CODE MODIFIC ATION FACILITY IN F&O ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 3 SEGMENT ON NATIONAL STOCK EXCHANGE (NSE). THE LD. D R HAS REFERRED TO THE ASSESSMENT ORDER AND SUBMITTED THAT THE INVESTI GATION HAS REVEALED THE MODUS APPRENDI AS TO HOW THE CLIENT CODE MODIFI CATION IS DONE BY THE BROKERS AT STOCK EXCHANGE. HE HAS FURTHER CONTE NDED THAT SOME OF THE BROKERS ARE MISUSING THE FACILITY PROVIDED BY T HE STOCK EXCHANGE FOR CORRECTING THE GENUINE MISTAKE IN CLIENT CODE MODIF ICATION AFTER TRADE HOURS. THEREFORE, ONCE THE CASE OF THE ASSESSEE WAS FOUND TO BE MISUSED OF THE FACILITY PROVIDED BY THE EXCHANGE FO R CLIENT CODE MODIFICATION THEN THE AO HAS RIGHTLY MADE THE ADDIT ION OF THE PROFIT SHIFTED FROM THE ACCOUNT OF THE ASSESSEE IN THE GAR B OF CLIENT CODE MODIFICATION. HE HAS RELIED UPON THE ORDERS OF THE ASSESSING OFFICER. 3. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE HA S SUBMITTED THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THIS TRIB UNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10 VIDE ORDER DATED 23.10.2018 IN CASE OF DCIT VS. GYANDEEPT KHEMKA IN ITA NO. 695 /JP/2018 AND CO NO. 15/JP/2018. HE HAS ALSO POINTED OUT THAT FOR TH E ASSESSMENT YEAR 2009-10 THERE WERE TOTAL 499 CASES OF CLIENT CODE M ODIFICATION WHICH AMOUNT TO 0.47% WHEREAS FOR THE YEAR UNDER CONSIDER ATION THE ERROR IS ONLY 0.11%. THEREFORE, THE ERROR IN THE CLIENT CODE AND MODIFICATION OF THE SAME IS VERY NEGLIGIBLE IN COMPARISON TO THE NO RMAL ERROR PERMITTED ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 4 AS PER SEBI CIRCULAR DATED 05.07.2011 WHICH ALLOWED 5% ERROR MARGIN FOR MODIFICATION OF CLIENT CODE OF NON INSTITUTIONA L TRADES. HE HAS ALSO RELIED UPON THE VARIOUS DECISIONS WHICH HAS BEEN FO LLOWED BY THE LD. CIT(A) WHILE PASSING THE IMPUGNED ORDERS. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT AN I DENTICAL ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10 IN PARA 11 AND 11.1 AS UNDE R:- 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WE LL AS RELEVANT MATERIAL ON RECORD. WE NOTE THAT THE ASSE SSING OFFICER HAS REOPENED THE ASSESSMENT ON THE BASIS OF THE INF ORMATION IN THE SHAPE OF THE REPORT OF THE INVESTIGATION WING O F MUMBAI AND AHMADABAD. THERE IS NO DISPUTE THAT THE ASSESSEE HA S DONE TRADE AT STOCK EXCHANGE THROUGH THE STOCK BROKER M/S C.M. GOYENKA STOCK BROKERS PVT. LTD. AND DURING THE YEAR UNDER C ONSIDERATION, THERE WERE VARIOUS INSTANCES OF CLIENT CODE MODIFIC ATION WHEREBY CERTAIN TRANSACTIONS WERE EXECUTED IN THE NAME OF T HE ASSESSEE, WERE SUBSEQUENTLY MODIFIED AS TO THE OTHER CLIENTS OF THE SAID BROKER. THIS MODIFICATION WAS DONE AS PER THE NORMS OF THE STOCK EXCHANGE WHICH ALLOWS THE BROKERS TO CARRY OUT NECE SSARY CLIENT CODE MODIFICATION AFTER EXECUTION OF THE TRADE BUT IN A LIMITED PERIOD OF HOUR. THIS FACILITY IS NO DOUBT PROVIDE D TO THE BROKERS TO RECTIFY THE GENUINE MISTAKES COMMITTED IN TYPING THE WRONG CODES OR THE MISTAKES IN PUNCHING THE CLIENT CODES AT THE TIME OF TRADE TRANSACTIONS ON THE STOCK EXCHANGE. THUS, IN SIMPLE WORDS, THE CLIENT CODE MODIFICATION FACILITY ALLOWS THE BR OKER TO CORRECT THE MISTAKES WHICH ARE COMMITTED DURING THE COURSE OF DOING THE TRADE ON BEHALF OF THE VARIOUS CLIENTS. THERE MAY B E SOME ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 5 INSTANCES OF MISUSING THIS FACILITY BY THE BROKERS BUT IT CANNOT BE DONE BY THE BROKER ON REGULAR BASIS AS THE BROKER I S BOUND TO CARRY OUT TRADING TRANSACTIONS AS PER THE INSTRUCTI ONS OF THE CLIENT AND THEREFORE, UNTIL AND UNLESS ALL THREE PARTIES A RE HAND IN GLOVES OR IN CONNIVANCE, SUCH MISUSE OF CLIENT CODE MODIFI CATION FACILITY CANNOT BE DONE BY A BROKER. THEREFORE, ALL THREE PA RTIES ARE REQUIRED TO HAVE COMMON INTENTION AND DESIGN WHICH IN NORMAL COURSE IS NOT POSSIBLE WHEN THEY ARE NOT RELATED PA RTIES AS THE TIME LIMIT TO MODIFY THE CLIENT CODE IS VERY LIMITE D AFTER EXECUTION OF TRADE/TRANSACTION AT THE STOCK EXCHANGE. THE MEE TING OF THREE MINDS IS ESSENTIAL FOR MISUSING THIS FACILITY AND D OING THIS MISCHIEVOUS TRANSFER OF PROFITS FROM ONE HAND TO AN OTHER HAND. UNTIL AND UNLESS TWO CLIENTS AND BROKER ARE ON THE SAME PAGE AND INVOLVED IN DOING THIS MISCHIEVOUS ACT BY MISUSING THE FACILITY OF CLIENT CODE MODIFICATION SUCH TRANSACTIONS ARE NOT POSSIBLE WHEN THE PARTIES ARE NOT RELATED TO EACH OTHER PARTY AND ARE INDEPENDENT CLIENTS OF A PARTICULAR BROKER. IT IS P OSSIBLE ONLY WHEN TWO CLIENTS TO A BROKER ARE CLOSELY RELATED PARTIES AND CONTROLLED BY A SINGLE PERSON OR SET OF PERSONS THEN WITH THE CON NIVANCE WITH THE BROKER THIS KIND OF BOGUS TRANSACTIONS CAN BE D ONE IN THE GARB OF CLIENT CODE MODIFICATION. ONCE THE PARTIES ARE I NDEPENDENT AND HAVE NO RELATION THEN DOING SUCH TRANSACTION WITHIN SUCH LIMITED WINDOW PERIOD OF HOUR AFTER TRADING HOURS IS NOT POSSIBLE. THUS, THE MISUSE OF SUCH FACILITY IS POSSIBLE ONLY WHEN A LL THREE PARTIES I.E. TWO CLIENTS AND ONE BROKER HAVE THE COMMON INT EREST AND ARE CLOSELY RELATED PARTY. THESE TRANSACTIONS ARE EVEN OTHERWISE CANNOT BE PREDESIGNED OR PLANNED AS IT CAN BE DONE ONLY AFTER TRANSACTION IS EXECUTED ON THE STOCK EXCHANGE AND S UBSEQUENTLY ONCE THE RESULT AND OUTCOME OF THE TRANSACTION IS K NOWN TO THE PARTIES, THE SAME CAN BE SHIFTED FROM ONE CLIENT TO ANOTHER CLIENT TO SERVE THE INTEREST OF PARTIES. PRIOR TO THE EXEC UTION OF THE TRANSACTION, IT IS NOT POSSIBLE TO CONCEIVE OR PREC ONCEIVE THE TRANSFER OF THE TRANSACTION FROM ONE ACCOUNT TO ANO THER ACCOUNT. WE NOTE THAT THE ASSESSING OFFICER HAS NOT CONDUCTE D ANY ENQUIRY IN THIS MATTER BUT HAS PASSED THE ASSESSMENT ORDER BASED ON THE ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 6 REPORT OF THE INVESTIGATION WING. THE ASSESSEE HAS SPECIFICALLY RAISED OBJECTION AND DEMANDED CROSS EXAMINATION WHI CH WAS DENIED BY THE ASSESSING OFFICER IN PARA 4.8 OF THE ASSESSMENT ORDER AS UNDER: 4.8 THE LD. A/R ALSO CONTENDED FOR JCCROSS EXAMINATION OF BROKERS U/S 131 BY PLACING RELIANCE UPON CERTAIN CASE LAWS AND REQU ESTED FOR PROVIDING RELIED UPON DOCUMENTS VIZ. STATEMENTS ETC . THE RELIED UPON DETAILS WERE PROVIDED FROM TIME TO TIME TO THE LD. A/R DURING THE COURSE OF HEARING AND THE MODUS OPERANDI WAS DISCUS SED IN DETAIL. THE LD. A/R WAS ALSO MADE AWARE OF THE HON'BLE SUPR EME COURT JUDGMENT IN THE CASE C VASANTLAL & CO. V/S CIT 45 I TR 206(SC) (3 JUDGE BENCH) WHEREIN THE APEX COURT HAD OBSERVED TH AT '...THE ITO IS NOT BOUND BY ANY TECHNICAL RULES OF THE LAW OF EVID ENCE. IT IS OPEN TO HIM TO COLLECT MATERIAL TO FACILITATE ASSESSMENT EV EN BY PRIVATE ENQUIRY. BUT, IF HE DESIRES TO USE THE MATERIAL SO COLLECTED, THE ASSESSEE MUST BE INFORMED ABOUT THE MATERIAL AND GI VEN ADEQUATE OPPORTUNITY TO EXPLAIN IT...' THE STATEMENTS WERE MA TERIAL ON WHICH THE I.T. AUTHORITIES COULD ACT PROVIDED THE MATERIA L WAS DISCLOSED AND THE ASSESSEE HAD AN OPPORTUNITY TO RENDER THEIR EXP LANATION IN THAT REGARD. FURTHER, THE LD. A/R WAS MADE AWARE OF HON'BLE SUP REME COURT DECISION IN THE CASE OF DHAKESHWARI COTTON MILL LTD . VS. CIT REPORTED AT 26 ITR 775 WHEREIN HON'BLE SUPREME COURT HELD TH AT RIGHT TO CROSS EXAMINE IS NOT ABSOLUTE AND THAT THE REQUIREMENT OF LAW FOR VALID ASSESSMENT WOULD BE MET IF ALL THE EVIDENCE COLLECT ED WHICH IS TO BE USED AGAINST THE ASSESSEE WHILE FRAMING THE ASSESSM ENT ORDER IS PLACED BEFORE TIE ASSESSEE AND GIVEN OPPORTUNITY TO REBUT THE EVIDENCE. HERE, IT IS ALSO WORTH TO STATE THAT THE SHARE BROKERS U/S 131(1A) IN MUMBAI IS NOT SOLE BASIS FOR REOPENING T HE CASE, THERE IS MATERIAL AND CIRCUMSTANTIAL EVIDENCES WHICH PROVE T HAT ASSESSEE WAS INDULGED IN MISUSE OF CCM FACILITY. ALL THE MATERIA L INCLUDING TRADE DATA HAS BEEN PROVIDED TO THE LD. A/R ON 30/11/2016 ITSELF. THUS, WHEN THE ASSESSMENT ORDER IS BASED ON THE REP ORT OF THE INVESTIGATION WING WITHOUT ANY FRESH AND INDEPENDEN T ENQUIRY CONDUCTED BY THE ASSESSING OFFICER AND THE REPORT O F THE INVESTIGATION ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 7 WING IN TURN IS BASED ON THE STATEMENT OF THE BROK ERS THEN WITHOUT GIVING THE OPPORTUNITY TO THE ASSESSEE TO CROSS EXA MINE THE BROKERS WHOSE STATEMENTS WERE RECORDED BY THE INVESTIGATION WING IT WOULD AMOUNT TO VIOLATION OF PRINCIPLES OF NATURAL JUSTIC E. THOUGH, THE CROSS EXAMINATION MAY NOT BE AN ABSOLUTE RIGHT BUT ONCE S TATEMENT IS RECORDED IN THE BACK OF THE ASSESSEE AND IS BEING U SED AGAINST THE ASSESSEE THEN THE ORDER PASSED BY THE ASSESSING OFF ICER BASED ON SUCH STATEMENT IS NOT SUSTAINABLE IN ABSENCE OF CROSS EX AMINATION. THE HON'BLE SUPREME COURT IN THE CASE OF AMDAMAN TIMBER INDUSTRIES VS CCE 127 DTR 241, WHILE DEALING WITH THE ISSUE OF N ON-GRANT OF OPPORTUNITY TO CROSS EXAMINE THE WITNESS HAS HELD A S UNDER: 5. WE HAVE HEARD MR. KAVIN GULATI, LEARNED SENIOR COUNSEL APPEARING FOR THE ASSESSEE, AND MR. K. RADHAKRISHNAN, LEARNED SEN IOR COUNSEL WHO APPEARED FOR THE REVENUE. 6. ACCORDING TO US, NOT ALLOWING THE ASSESSEE TO C ROSS-EXAMINE THE WITNESSES BY THE ADJUDICATING AUTHORITY THOUGH THE STATEMENTS OF THOSE WITNESSES WERE MADE THE BASIS OF THE IMPUGNED ORDER IS A SERIOUS FLAW WHICH MAKES THE ORDER NULLITY INASMUCH AS IT AMOUNT ED TO VIOLATION OF PRINCIPLES OF NATURAL JUSTICE BECAUSE OF WHICH THE ASSESSEE WAS ADVERSELY AFFECTED. IT IS TO BE BORNE IN MIND THAT THE ORDER OF THE COMMISSIONER WAS BASED UPON THE STATEMENTS GIVEN BY THE AFORESAID TWO WITNESSES. EVEN WHEN THE ASSESSEE DISPUTED THE CORRECTNESS OF THE STATEMENTS AND WANTED TO CROSS-EXAMINE, THE ADJUDIC ATING AUTHORITY DID NOT GRANT THIS OPPORTUNITY TO THE ASSESSEE. IT WOULD BE PERTINENT TO NOTE THAT IN THE IMPUGNED ORDER PASSED BY THE ADJUD ICATING AUTHORITY HE HAS SPECIFICALLY MENTIONED THAT SUCH AN OPPORTUN ITY WAS SOUGHT BY THE ASSESSEE. HOWEVER, NO SUCH OPPORTUNITY WAS GRAN TED AND THE AFORESAID PLEA IS NOT EVEN DEALT WITH BY THE ADJUDI CATING AUTHORITY. AS FAR AS THE TRIBUNAL IS CONCERNED, WE FIND THAT REJE CTION OF THIS PLEA IS TOTALLY UNTENABLE. THE TRIBUNAL HAS SIMPLY STATED T HAT CROSS- EXAMINATION OF THE SAID DEALERS COULD NOT HAVE BROU GHT OUT ANY MATERIAL WHICH WOULD NOT BE IN POSSESSION OF THE AP PELLANT THEMSELVES TO EXPLAIN AS TO WHY THEIR EX-FACTORY PRICES REMAIN STATIC. IT WAS NOT FOR THE TRIBUNAL TO HAVE GUESS WORK AS TO FOR WHAT PURP OSES THE APPELLANT ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 8 WANTED TO CROSS-EXAMINE THOSE DEALERS AND WHAT EXTR ACTION THE APPELLANT WANTED FROM THEM. 7. AS MENTIONED ABOVE, THE APPELLANT HAD CONTESTED THE TRUTHFULNESS OF THE STATEMENTS OF THESE TWO WITNESSES AND WANTED TO DISCREDIT THEIR TESTIMONY FOR WHICH PURPOSE IT WANTED TO AVAIL THE OPPORTUNITY OF CROSS- EXAMINATION. THAT APART, THE ADJUDICATING AUTHORITY SIMPLY RELIED UPON THE PRICE LIST AS MAINTAINED AT THE DEPOT TO DETERM INE THE PRICE FOR THE PURPOSE OF LEVY OF EXCISE DUTY. WHETHER THE GOODS W ERE, IN FACT, SOLD TO THE SAID DEALERS/WITNESSES AT THE PRICE WHICH IS ME NTIONED IN THE PRICE LIST ITSELF COULD BE THE SUBJECT MATTER OF CROSS-EX AMINATION. THEREFORE, IT WAS NOT FOR THE ADJUDICATING AUTHORITY TO PRESUPPOS E AS TO WHAT COULD BE THE SUBJECT MATTER OF THE CROSS-EXAMINATION AND MAKE THE REMARKS AS MENTIONED ABOVE. WE MAY ALSO POINT OUT THAT ON A N EARLIER OCCASION WHEN THE MATTER CAME BEFORE THIS COURT IN CIVIL APP EAL NO. 2216 OF 2000, ORDER DATED 17.03.2005 WAS PASSED REMITTING T HE CASE BACK TO THE TRIBUNAL WITH THE DIRECTIONS TO DECIDE THE APPE AL ON MERITS GIVING ITS REASONS FOR ACCEPTING OR REJECTING THE SUBMISSI ONS. 8. IN VIEW THE ABOVE, WE ARE OF THE OPINION THAT I F THE TESTIMONY OF THESE TWO WITNESSES IS DISCREDITED, THERE WAS NO MATERIAL WITH THE DEPARTMENT ON THE BASIS OF WHICH IT COULD JUSTIFY I TS ACTION, AS THE STATEMENT OF THE AFORESAID TWO WITNESSES WAS THE ON LY BASIS OF ISSUING THE SHOW CAUSE NOTICE. ACCORDINGLY, THE ORDER OF THE ASSESSING OFFICER IS NOT SUSTAINABLE WHEN THE ASSESSEE WAS NOT GRANTED AN OPPORTUNITY TO CROS S EXAMINE THE BROKERS. IN THE CASE IN HAND, THE ASSESSING OFFICER HAS NOT GIVEN ANY FINDING THAT THE ASSESSEE AND THE OTHER PARTIES IN WHOSE ACCOUNT, THE TRANSACTIONS ARE TREATED AS TRANSFER OF PROFIT ARE IN COLLUSION ALONGWITH THE BROKER. THERE IS NOTHING ON RECORD OR ANY FACT OR FINDING BY THE ASSESSING OFFICER TO SUGGEST THAT THE ASSESSEE AND THE OTHER PARTIES AS WELL AS THE BROKERS ARE IN COLLUSION TO CARRY OUT T HESE TRANSACTIONS OF TRANSFER OF PROFIT FROM THE ACCOUNT OF THE ASSESSEE IN THE ACCOUNTS OF OTHER PARTIES BY MISUSING THE CLIENT CODE MODIFICAT ION FACILITY. THEREFORE, EVEN IF THE BROKER MIGHT HAVE INVOLVED IN SUCH MISC HIEVOUS PRACTICE BUT TO MAKE SUCH ADDITION IN THE HANDS OF THE ASSESSEE IT IS NECESSARY TO ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 9 ESTABLISH THAT THE ASSESSEE AND THE OTHER PARTIES A LONGWITH BROKERS ARE IN COLLUSION. FURTHER THERE SHOULD ALSO BE EXCHANGE OF MONEY BETWEEN THE PARTIES AS A CONSIDERATION FOR SUCH A TRANSFER OF PROFIT. EVEN OTHERWISE WHEN IT IS NOT FOUND THAT ORIGINALLY THES E TRADES WERE CARRIED OUT BY THE BROKER AS PER THE INSTRUCTIONS OF THE AS SESSEE AND SUBSEQUENTLY THESE WERE TRANSFERRED IN THE ACCOUNT OF THE OTHER PERSONS TO SHIFT THE PROFIT. 11.1 WE NOTE THAT THIS ISSUE OF RECTIFICATION OF T HE ERROR BY USING THE CLIENT CODE MODIFICATION FACILITY HAS BEEN CONS IDERED AND DECIDED BY THIS TRIBUNAL IN THE SERIES OF DECISIONS AS RELIED BY THE ASSESSEE. THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF NO BEL SECURITIES VS ITO (SUPRA) HAS ALSO CONSIDERED AN IDENTICAL ISSUE IN P ARA 3.1 TO 3.4 AS UNDER: 3.1 APROPOS GROUND NO. 2 AND 2.1 OF THE ASSESSEE, THE FACTS AS EMERGES FROM THE ORDER OF THE LD. CIT(A) IS AS UNDER:- 5.3.1. I HAVE GONE THROUGH THE ASSESSMENT ORDER AS WELL AS SUBMISSIONS MADE BY THE APPELLANT. FOLLOWING FACTS HAVE EMERGED . 1. THAT THE APPELLANT IS A PARTNERSHIP FIRM ENGAGE D IN THE BUSINESS OF TRADING IN SHARE. 2. THAT THE FIRM IS DOING TRADING ON ITS OWN BEHAL F AND ON BEHALF OF ITS CLIENTS. 3. THAT ON THE BASIS OF AN INFORMATION RECEIVED FR OM DIRECTORATE OF INCOME TAX (INTELLIGENCE & CRIMINAL INVESTIGATION) THAT THE APPELLANT HAD BOOKED A LOSS OF RS. 27,63,104/- DUE TO MODIFIC ATION MADE BY THE ASSESSEE IN F& O SEGMENT TO THE THIRD PARTIES THROU GH THE CLIENT CODE MODIFICATION FACILITY. 4. THAT THE AO HAD REOPENED THE CASE U/S 148 OF TH E ACT BY DULY RECORDING THE REASONS 5. THAT THE DETAIL OF REOPENING WAS PROVIDED TO TH E ASSESSEE ON 17-04- 2015. 6. THAT THE ASSESSEE FIRM HAD RAISED OBJECTIONS TO THE REOPENING PROCEEDINGS. THE OBJECTIONS WERE DULY CONSIDERED BY THE AO AND A ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 10 WRITTEN ORDER DISPOSING THE PETITION OF THE ASSESSE E WAS PASSED AND SERVED TO THE ASSESSEE. 7. THAT IT WAS FOUND BY THE AUTHORITIES THAT THE F IRM WAS FOUND USING CLIENT CODE MODIFICATION FACILITY IN F&O SEGMENT ON NSE DURING THE YEAR UNDER CONSIDERATION. BY DOING THIS, IT IS ALLE GED THAT FICTITIOUS LOSSES AND PROFITS WERE TRANSFERRED TO ITS CLIENTS. 8. THAT THE APPELLANT HAS CLAIMED THAT IT WAS A GE NUINE MISTAKE ON THE PART OF ITS STAFFS TO HAVE PUNCHED FIRMS CODE INST EAD OF ITS CLIENTS CODE. AND THAT LATER ON WHEN SUCH A MISTAKE WAS NOT ICED THE SAME WAS DELETED BY DELETING THE TRADING FROM THE FIRMS CODE AND CREDITED TO THE CLIENTS CODE. 9. THAT THE APPELLANT HAS FURTHER SUBMITTED THAT T HE MISTAKE WAS DONE AT THE BROKERS LEVEL AND THE FIRM SHOULD NOT BE HE LD RESPONSIBLE FOR MISTAKE COMMITTED BY THE BROKERS. 10. THAT THE APPELLANT HAS FURTHER SUBMITTED THAT CLIENT CODE MODIFICATIONS ARE A VERY LEGITIMATE TRANSACTIONS WH ERE IF ANY MISTAKE IS COMMITTED THEN IT HAS TO BE RECTIFIED WITHIN 15 MINUTES OF THE CLOSE OF TRADING SESSION. 5.3.2 I HAVE CONSIDERED THE ABOVE MENTIONED FACTS. I HAVE PARTICULARLY TAKEN INTO ACCOUNT THE FUNCTIONING OF THE STOCK EXCHANGE WHERE A TRADING IS DONE ON THE BASIS OF PURCHASE TRANSACTION ENTERED B Y THE BROKERS. THE BROKER DOES IT ON THE ADVICE OF THE SUB-BROKERS/ CL IENTS. HERE IN THIS CASE THE BROKER I.E. M/S. ARTISTIC FINANCE (P) LTD. HAD BOOKED PURCHASE/ SALE OF SCRIP ON THE ADVICE OF THE APPELL ANT I.E. M/S. NOBLE SECURITIES USING THE CLIENT CODE OF M/S. NOBLE SECU RITIES. LATER, M/S. NOBLE SECURITIES ADVISED THE BROKER M/S. ARTISTIC F INANCE (P) LTD. TO MODIFY THE CLIENT CODE AND BOOK IT IN THE NAME OF T HE OTHER CLIENTS OF M/S. NOBLE SECURITIES. THUS, THE TRANSACTIONS WHICH WERE EARLIER MADE IN THE NAME OF THE APPELLANT WERE TRANSFERRED TO TH IRD PARTIES. THE APPELLANT HAS CLAIMED THAT THE PURCHASES WERE WRONG LY DONE IN THE NAME OF M/S. NOBLE SECURITIES INADVERTENTLY PUNCHIN G ITS CLIENT CODE AND THAT SUBSEQUENTLY IT WAS RECTIFIED BY THE BROKE RS WITHIN TIME ALLOWED BY THE EXCHANGE. SO THE WHOLE SUBMISSION OF THE APPELLANT IS HINGED UPON THE INADVERTENT MISTAKE OF THE STAFF IN PUNCHING THE WRONG CLIENT CODE I.E. CLIENT CODE OF THE APPELLANT INSTEAD OF CLIENT CODE OF ITS CLIENTS. HOWEVER, THE APPELLANTS CLAIM , TO MY MIND, IS HOLLOW AS CLEARLY MADE OUT BY THE AO IN THE ASSESSM ENT ORDER THAT ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 11 SUCH MODIFICATIONS ARE DONE 2380 TIMES INVOLVING 55 CLIENTS OVER A PERIOD OF 197 DAYS DURING THE YEAR UNDER CONSIDERAT ION. MISTAKE CANNOT BE REPEATED SO BRAZENLY OVER SUCH A NUMBER O F TIMES. EVEN IF THE END OF THE SESSION, STILL THE FACILITY CANNOT B E ALLOWED TO BE MANIPULATED FOR UNDUE GAINS AND CREATE A SITUATION WHERE THE INCOME/LOSS CAN BE DIVERTED. IN THIS REGARD, I HAVE ALSO TAKEN INTO ACCOUNT THE APEX COURT JUDGEMENT IN THE CASE OF MCD OWELL & CO. LTD. IT IS WORTHWHILE TO QUOTE FROM THE LANDMARK JUDGEME NT AS UNDER:- MISRA,J. WHO DELIVERED JUDGEMENT ON BEHALF OF H IMSELF AND THREE OTHER JUDGES (OTHER THAN REDDY. J.) EXTRACTED THE F OLLOWING OBSERVATION FROM THE JUDGEMENT OF GUJARAT HIGH COUR T (ITR PP 200- 01) IN THE CASE OF CIT VS. SAKARLAL BALABHAI (AFFIR MED BY THE SUPREME COURT IN CIT VS. VADILAL LALLUBHAI): (SCC 253-54, P ARA 43) TAX AVOIDANCE POSTULATES THAT THE ASSESSEE IS IN RECEIPT OF AMOUNT WHICH IS REALLY AND IN TRUTH HIS INCOME LIABLE TO T AX BUT ON WHICH HE AVOID PAYMENT OF TAX BY SOME ARTIFICE OR DEVICE. SU CH ARTIFICE OR DEVICE MAY APPARENTLY SHOW THE INCOME AS ACCRUING T O ANOTHER PERSON, AT THE SAME TIME MAKING IT AVAILABLE FORUSE AND ENJOYMENT TO THE ASSESSEE'S AS IN A CASE FALLING WITHIN SECTION 44-D OR MASK THE TRUE CHARACTER OF THE INCOME BY DISGUISING IT AS A CAPIT AL RECEIPT AS IN A CASE FALLING WITHIN SECTION 44-E OR ASSUME DIVERSE OTHER FORMS BUT THERE MUST BE SOME ARTIFICE OR DEVICE ENABLING THE ASSESSEE TO AVOID PAYMENT OF TAX ON WHAT IS REALLY AND IN TRUTH HIS I NCOME. IF THE ASSESSEE PARTS WITH HIS INCOME-PRODUCING ASSET, SO THAT THE RIGHT TO RECEIVE INCOME ARISING FROM THE ASSET WHICH THERETO FORE BELONGED TO THE ASSESSEE IS TRANSFERRED TO AND VESTED IN SOME O THER PERSON, THERE IS NO AVOIDANCE OF TAX LIABILITY: NO PART OF THE IN COME FROM THE ASSET GOES INTO THE HANDS OF THE ASSESSEE IN THE SHAPE OF INCOME OR UNDER ANY GUISE. THEN, MISRA. J. RESPONDED: (SCC PP. 254-55, PARA 4 5)45. TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITHIN THE FRAME W ORK OF LAW. COLOURABLE DEVICE CANNOT BE PART OF TAX PLANNING AN D IT IS WRONG TO ENCOURAGE OR ENTERTAIN THE BELIEF THAT IT IS HONOUR ABLE TO AVOID THE PAYMENT OF TAX BY RESORTING TO DUBIOUS METHODS. IT IS THE OBLIGATION OF EVERY CITIZEN TO PAY THE TAXES HONESTLY WITHOUT RES ORTING TO SUBTERFUGES. IN THIS PARTICULAR CASE, THE APPELLANT IS FOUND TO BE INDULGED IN LARGE USE OF FACILITY TO BOOK A LOSS IN THE BOOK BY DIVER TING A PART OF ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 12 TRANSACTION TO ITS CLIENTS. THIS TYPE OF TRANSACTIO NS PARTICULARLY GIVES UNDUE ADVANTAGE IN F& O SEGMENT WHERE LOSS AND EVEN INCOME CAN BE BOOKED IN CLIENTS FAVOUR TO GIVE ADVANTAGE TO TH EM AND ALSO BOOK LOSSES AGAINST THEIR OWN INCOME. AT THE END OF THE SESSION WHEN THE RELATIVE ADVANTAGE OF A TRANSACTION CAN BE EASILY E VALUATED AND THEN TAKING ADVANTAGE OF CLIENT CODE MODIFICATION, SUCH TRANSACTION CAN BE TRANSFERRED TO CLIENTS ACCOUNT DEPENDING UPON THE CLIENTS REQUIREMENT AND THUS REAL INCOME FROM SUCH TRANSACT IONS CAN BE SUITABLY COMPROMISED. THEREFORE, IN VIEW OF THE REG ULARITY WITH WHICH SUCH TRANSACTIONS HAVE BEEN EFFECTED, THE AO IS JUS TIFIED IN REJECTING THE CLAIM OF THE APPELLANT AND ADDED SUCH TRANSACTI ON IN THE HAND OF THE APPELLANTS INCOME. ACCORDINGLY, THE ADDITION O F RS. 27,63,104/- IS SUSTAINED. APPELLANTS GROUND OF APPEAL ON THE ISSU E IS DISMISSED. 3.2 DURING THE COURSE OF HEARING, THE LD. AR OF T HE ASSESSEE PRAYED FOR DELETION OF ADDITION BY FILING THE FOLLOWING WRITTE N SUBMISSION. 1. IT IS SUBMITTED THAT THE ASSESSEE IS A TRADIN G IN SHARE BUSINESS NOT IN THE CAPACITY OF BROKER BUT ON ITS OWN ACCOUNT AND F OR IT CLIENTS. THE ASSESSEE, ITSELF, IS A CLIENT OF M/S ARTISTIC FINAN CE PVT. LTD WHICH CARRIED OUT TRANSACTIONS ON BEHALF OF THE ASSESSEE AND THE CLIENTS OF THE ASSESSEE. EVERY CLIENT IS ASSIGNED A UNIQUE CLI ENT CODE WHICH IS PUNCHED IN AT THE TIME OF TRANSACTIONS. THE AO ISSU ED NOTICE U/S 131 TO M/S ARTISTIC FINANCE PVT. LTD. WHO VIDE LETTER D ATED 05.03.2016 (PB 37-38) EXPLAINED THAT THE ASSESSEE IS ITS MAJOR CLI ENT AND PROVIDES THEM WITH A HUGE VOLUME OF TRANSACTIONS. THE OPERAT ING STAFF WHO ARE NOT WELL QUALIFIED, TO SAVE TIME HAD PREFIXED T HE CLIENT CODE OF THE ASSESSEE IN THE SYSTEM AS DEFAULT WHICH LED TO ERROR IN PUNCHING OF CLIENT CODES AT THE TIME OF TRANSACTIONS. TO REC TIFY THE ERROR IN PUNCHING OF CLIENT CODE, A FACILITY KNOWN AS CLIEN T CODE MODIFICATION (CCM) IS PROVIDED BY THE STOCK EXCHANGE TILL 4:15 PM OF THE TRADE DAY ITSELF. THIS CAN BE DONE ON ONLY WRITTEN REQUES T OF THE CLIENTS (COPIES OF LETTERS ENCLOSED AT PB 39- 46). 2. IT IS SUBMITTED THAT IN ANY GIVEN DAY, THOUSANDS OF TRANSACTIONS ARE CARRIED OUT BY BROKERS. THE CCM FACILITY IS PROVIDE D BY THE NATIONAL STOCK EXCHANGE TO RECTIFY THE ERRORS / MISTAKES MAD E AT THE TIME OF PUNCHING TRADES. THE NATIONAL STOCK EXCHANGE OF IND IA LIMITED HAS PROVIDED CERTAIN GUIDELINES AND PENALTIES RELATING TO THE CCM FACILITY (PB 20-26). AS PER THE STOCK EXCHANGE, CCM FACILITY CAN BE USED TO MODIFY THE CLIENT CODE ON THE TRADE DAY ITSELF TILL 4:15 PM (PB 20). ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 13 THIS IS ALSO STATED IN CIRCULAR NO. 974 DATED 10.09 .2009 OF THE NATIONAL SECURITIES CLEARING CORPORATION LIMITED FO R ITS FUTURES & OPTIONS SEGMENT (PB 25-26). THE STOCK EXCHANGE HAS ALSO DRAWN A LIST OF THE COMMON VIOLATIONS COMMITTED AND THE APP LICABLE PENALTIES (PB 21-24) WHERE IT IS STATED THAT IF THE TRANSFER OF TRADES / ERRORS AT THE TIME OF ORDER ENTRIES ARE IN EXCESS OF 2% OF TH E NUMBER OF ORDERS EXECUTED, FINE OF 0.1% OF VALUE OF TRADES TRANSFERR ED IS APPLICABLE. 3. THE BROKER ON AN AVERAGE EXECUTES MORE THAN 500 0 TRADES IN A DAY. AS IS CALCULATED BY THE AO, THE EXCHANGE IS OPERATI VE ONLY 260 DAYS IN A YEAR. THUS, IN A YEAR APPROXIMATELY 13 LAKHS TRAD ES ARE CARRIED OUT BY THE BROKER. THEREFORE, THE FACT THAT DURING THE YEAR, THE BROKER HAD CARRIED OUT 2380 MODIFICATIONS BY USING CCM FAC ILITY IS IRRELEVANT AS IT IS ONLY 0.18% OF THE TOTAL TRADES CARRIED OUT BY THE BROKER DURING THE YEAR. ALSO, THE FACT THE ASSESSEES CLIENT CODE WAS SET AS DEFAULT IN THE SYSTEM IS FOR THE CONVENIENCE OF THE BROKER. THE ASSESSEE HAS NO CONTROL OVER THE SYSTEM. THE CLIENT BRINGS TO TH E NOTICE OF THE BROKER ANY MISTAKE/ ERROR IN THE CLIENT CODE. 4. A STATEMENT SHOWING THE DETAILS OF MODIFIED CLI ENT NAMES AND THE PROFIT/LOSS TO THE MODIFIED CLIENT DUE TO CCM IS AT PB 27-32. ALSO BY REPLY DATED 15.02.2016 (PB 33-34), THE ASSESSEE HAD SUBMITTED THE CONFIRMATIONS OF ITS PARTIES IN WHOSE CASE MODIFICA TIONS HAVE BEEN CARRIED OUT. THIS SHOWS THAT THE PROFIT/LOSS ARE OF THE CLIENTS OF M/S ARTISTIC FINANCE PVT. LTD. WHICH IS WRONGLY PUNCHED BY IT TO THE ACCOUNT OF THE ASSESSEE AND WHEN POINTED OUT, IT WA S TRANSFERRED TO THE RESPECTIVE CLIENT ACCOUNT WHO HAVE SHOWN THE SA ME IN THEIR RETURN OF INCOME. THUS, ASSESSEE HAS NOTHING TO DO WITH THIS LOSS AND THEREFORE, THERE DOES NOT ARISE ANY QUESTION TO DIS ALLOW THE SAME. 5. THE LD. CIT(A) ONLY ON SURMISES AND CONJECTURES OBSERVED THAT THESE TRANSACTIONS ARE OF THE ASSESSEE IGNORING THAT M/S ARTISTIC FINANCE PVT. LTD. HAS ADMITTED THAT THESE TRANSACTIONS ARE NOT OF THE ASSESSEE. THE RELIANCE PLACED BY HIM IN CASE OF MCD OWELL & CO. LTD. IS THUS MISPLACED AND NOT APPLICABLE. 6. RELIANCE IN THIS CONNECTION IS PLACED IN THE CA SE OF ACIT VS. KUNVARJI FINANCE PVT. LTD. 119 DTR 1 (AHD.) (TRIB.) WHERE IT WAS HELD THAT AS PER CIRCULAR NO. MCX/T&S/032/2007 DT. 22.01.2007 IS SUED BY THE COMMODITY EXCHANGE, CLIENT CODE MODIFICATION IS PER MITTED INTRA-DAY I.E. ON THE SAME DAY. THERE IS NO PENALTY IF THE CL IENT CODE MODIFICATION IS UPTO 1 PER CENT OF THE TOTAL ORDERS . IN THE PRESENT ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 14 CASE, CLIENT CODE MODIFICATIONS MADE BY THE ASSESSE E BEING ONLY 0.94 PER CENT I.E. LESS THAT 1 PER CENT OF THE TOTAL TRA DING TRANSACTIONS, CANNOT BE SAID TO BE UNUSUALLY HIGH OR MALA FIDE WH EN THE MODIFICATION WAS MADE ON THE SAME DAY. HAD THE CLIE NT MODIFICATION BEEN DONE AFTER THE TRANSACTION PERIOD WHEN THE PRI CE OF THE COMMODITY HAD CHANGED, THEN PERHAPS THERE COULD HAV E BEEN SOME BASIS TO PRESUME THAT CLIENT CODE MODIFICATION WAS INTENTIONAL. EVEN IF THE VIEW OF THE REVENUE IS ACCEPTED THAT CLIENT CODE MODIFICATION WAS DONE WITH MALA FIDE INTENTION, THEN THE PROFIT OR LOSS ACCRUING TILL THE CLIENT CODE MODIFICATION CAN BE CONSIDERED IN T HE CASE OF THE ASSESSEE BUT THE PROFIT/LOSS ARISING AFTER SUCH MOD IFICATION CAN BY NO STRETCH OF IMAGINATION BE CONSIDERED IN THE HANDS O F THE ASSESSEE. MOREOVER, CIT(A) HAVING FOUND THAT ALL TRANSACTIONS AT THE COMMODITIES EXCHANGE HAVE BEEN DULY ACCOUNTED IN TH E BOOKS OF ACCOUNT MAINTAINED BY THE CONCERNED PARTIES, THERE CANNOT BE ANY JUSTIFICATION FOR CONSIDERING THAT PROFIT/LOSS IN T HE CASE OF THE ASSESSEE ON THE BASIS OF MERE PRESUMPTION OR SUSPIC ION. IN VIEW OF THE ABOVE, THE LD. CIT(A) IS NOT JUSTIF IED IN CONFIRMING THE ADDITION MADE BY THE AO AND THE SAME BE DELETED. 3.3 DURING THE COURSE OF HEARING, THE LD. DR RELIE D ON THE ORDERS OF THE AUTHORITIES BELOW. 3.4 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS NOTED THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF TRADING OF TRADING IN SHARES. IT IS NOTED THAT THE ASSESSEE ITSELF IS A CLIENT OF M/S. ARTISTIC FINANCE (P) LTD. WHICH CARRIED OUT BUSINESS ON BEHALF OF THE AS SESSEE AND THE CLIENTS OF THE ASSESSEE. IT IS NOTED THAT EVERY CLI ENT IS PROVIDED A UNIQUE CODE WHICH IS PUNCHED WHILE MAKING THE TRANS ACTIONS. IT IS NOTED THAT SOMETIME THE OPERATING STAFF IS NOT WELL VERSED WITH THE SYSTEM WHO AT THE TIME OF MAKING TRANSACTIONS IN SH ARES AND IN ORDER TO SAVE TIME, PREFIXED THE CLIENT CODE OF THE ASSESSEE IN THE SYSTEM AS DEFAULT WHICH SOMETIME LED TO ERROR IN PU NCHING OF CLIENT CODES. IN ORDER TO RECTIFY THE PUNCHING OF CLIENT C ODE, A FACILITY I.E. CLIENT CODE MODIFICATION (IN SHORT CCM) IS PROVIDED BY THE STOCK EXCHANGE TILL 4:15 PM OF THE TRADE DAY BY ITSELF WH ICH CAN BE DONE ONLY ON WRITTEN REQUEST BY THE CLIENT. IT IS ALSO M ENTIONED IN CIRCULAR NO. 974 DATED 10.09.2009 OF THE NATIONAL S ECURITIES ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 15 CLEARING CORPORATION LIMITED FOR ITS FUTURES & OPTI ONS SEGMENT (PB 25-26). THE STOCK EXCHANGE HAS ALSO DRAWN A LIST OF THE COMMON VIOLATIONS COMMITTED AND THE APPLICABLE PENALTIES ( PB 21-24) WHERE IT IS STATED THAT IF THE TRANSFER OF TRADES / ERRORS AT THE TIME OF ORDER ENTRIES ARE IN EXCESS OF 2% OF THE NUMBER OF ORDERS EXECUTED, FINE OF 0.1% OF VALUE OF TRADES TRANSFERR ED IS APPLICABLE. IT IS ALSO NOTED FROM THE RECORDS THAT THE DURING T HE YEAR THE BROKER HAD CARRIED OUT THE BROKER HAD CARRIED OUT 2 380 MODIFICATIONS BY USING CCM FACILITY WHICH IS ONLY 0 .18% OF THE TOTAL TRADES CARRIED OUT BY THE BROKER DURING THE YEAR. I T IS NOTED THAT THE ASSESSEES CLIENT CODE WAS SET AS DEFAULT IN TH E SYSTEM IS FOR THE CONVENIENCE OF THE BROKER. THE ASSESSEE HAS NO CONT ROL OVER THE SYSTEM. THE CLIENT BRINGS TO THE NOTICE OF THE BROK ER ANY MISTAKE/ ERROR IN THE CLIENT CODE. IT MAY BE NOTED THAT ITAT AHEMDABAD BENCH IN THE CASE OF ACIT VS. KUNVARJI FINANCE (P) LTD. 119 LD. DR 1 HAD OBSERVED THAT THE CLIENT CODE MODIFICATION IS P ERMITTED INTRA DAY I.E. ON THE SAME DAY. THE RELEVANT PORTION OF T HE DECISION IS AS UNDER:- AS PER CIRCULAR NO. MCX/T&S/032/2007 DT. 22.01.2 007 ISSUED BY THE COMMODITY EXCHANGE, CLIENT CODE MODIFICATION IS PERMITTED INTRADAY I.E. ON THE SAME DAY. THERE IS NO PENALTY IF THE CLIENT CODE MODIFICATION IS UPTO 1 PER CENT OF THE TOTAL ORDERS . IN THE PRESENT CASE, CLIENT CODE MODIFICATIONS MADE BY THE ASSESSE E BEING ONLY 0.94 PER CENT I.E. LESS THAT 1 PER CENT OF THE TOTA L TRADING TRANSACTIONS, CANNOT BE SAID TO BE UNUSUALLY HIGH O R MALA FIDE WHEN THE MODIFICATION WAS MADE ON THE SAME DAY. HAD THE CLIENT MODIFICATION BEEN DONE AFTER THE TRANSACTION PERIOD WHEN THE PRICE OF THE COMMODITY HAD CHANGED, THEN PERHAPS THERE CO ULD HAVE BEEN SOME BASIS TO PRESUME THAT CLIENT CODE MODIFIC ATION WAS INTENTIONAL. EVEN IF THE VIEW OF THE REVENUE IS ACC EPTED THAT CLIENT CODE MODIFICATION WAS DONE WITH MALA FIDE INTENTION , THEN THE PROFIT OR LOSS ACCRUING TILL THE CLIENT CODE MODIFI CATION CAN BE CONSIDERED IN THE CASE OF THE ASSESSEE BUT THE PROF IT/LOSS ARISING AFTER SUCH MODIFICATION CAN BY NO STRETCH OF IMAGIN ATION BE CONSIDERED IN THE HANDS OF THE ASSESSEE. MOREOVER, CIT(A) HAVING FOUND THAT ALL TRANSACTIONS AT THE COMMODITIES EXCH ANGE HAVE BEEN DULY ACCOUNTED IN THE BOOKS OF ACCOUNT MAINTAINED B Y THE CONCERNED PARTIES, THERE CANNOT BE ANY JUSTIFICATIO N FOR CONSIDERING ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 16 THAT PROFIT/LOSS IN THE CASE OF THE ASSESSEE ON THE BASIS OF MERE PRESUMPTION OR SUSPICION. RESPECTFULLY FOLLOWING THE DECISION OF ITAT AHEMDAB AD BENCH (SUPRA), THE GROUND NO. 2 AND 2.1 OF THE ASSESSEE I S ALLOWED. THUS, IT IS CLEAR THAT THE STOCK EXCHANGE HAS ACCEP TED THE REASONABLE ERROR MARGIN UP TO 5% AND UNDISPUTEDLY IN THE CASE OF THE ASSESSEE, THE ERROR AND RECTIFICATION OF THE SAME BY USING TH E CLIENT CODE MODIFICATION CONSTITUTE ONLY 0.47%, THEREFORE, THE PERCENTAGE OF TRADE WHICH ARE RECTIFIED ARE NOT ONLY WITHIN THE RANGE B UT IT IS ON LOWER SIDE OF THE RANGE OF ERROR MARGIN ACCEPTABLE IN SUCH TRA NSACTIONS. THE MUMBAI BENCHES OF THE TRIBUNAL IN THE CASE OF ITO V S. M/S PAT COMMODITY SERVICES P. LTD. HAS CONSIDERED THIS ISSU E IN PARA 11 TO 16 AS UNDER: 11. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED TH E 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 A SSESSING OFFICER. THE LD CIT(A) HAS POINTED OUT THAT THE AO HAS NOT B ROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE CLIENT CODE MODIFICAT ION MADE BY THE ASSESSEE WAS NOT GENUINE ONE. IT WAS FURTHER NOTICE D THAT NONE OF THE CLIENTS EXAMINED BY THE TAX AUTHORITIES HAS DISOWNE D THE TRANSACTIONS CARRIED ON BY THE ASSESSEE. AS NOTICED BY THE LD CI T(A), THE MCX, THE STOCK EXCHANGE, IS VERY MUCH AWARE ABOUT CLIENT COD E MODIFICATIONS AND HENCE IN ORDER TO DISCOURAGE FREQUENCY OF MODIF ICATIONS, IT HAS BROUGHT IN PENALTY MECHANISM. EVEN UNDER THE PENALT Y MECHANISM ALSO, NO PENALTY SHALL BE LEVIABLE IF THE MODIFICAT ION 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 THA T ARISES IS - WHETHER THE CLIENT CODE MODIFICATION HAS RESULTED INTO SHIFTING OF PROFITS, OTHERWISE EARNED BY THE ASSESSEE. IT IS A FACT THAT THE ASSES SEE COMPANY HAS STARTED ITS OPERATIONS ONLY IN JULY, 2005 BY CONVER TING INDIVIDUAL MEMBERSHIP INTO CORPORATE MEMBERSHIP. FURTHER, THE COMMODITY EXCHANGE WAS ABOUT 3-4 YEARS OLD ONLY AT THE RELEVA NT POINT OF TIME. HENCE, THE ASSESSEE CANNOT BE CONSIDERED TO BE AN E STABLISHED PLAYER ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 17 IN THE YEARS UNDER CONSIDERATION. FURTHER, THE MOVE MENT OF PRICES OF COMMODITIES CANNOT BE PREDICTED BY ANYONE WITH ACCU RACY AND HENCE IT IS INCONCEIVABLE OR UNLIKELY THAT THE ASSESSEE C OULD HAVE MADE PROFITS CONSISTENTLY, EVEN IF IT IS ASSUMED FOR A M OMENT THAT THE ASSESSEE HAD ACTUALLY CARRIED OUT THE TRANSACTIONS FOR ITS OWN BENEFIT. WE NOTICE THAT THE ASSESSEE HAS OFFERED EXPLANATION S AS TO WHY IT CARRIED OUT THE TRANSACTIONS IN ITS OWN CODE, I.E. SINCE THE TIMING OF ENTERING THE TRANSACTIONS IS CRUCIAL IN THE ONLINE TRADING, THE STAFFS OF THE ASSESSEE COMPANY FOUND IT CONVENIENT TO PUNCH I TS OWN CODE. FURTHER, WE NOTICE THAT THE FACT THAT THE ASSESSEE HAS CHANGED THE CODE TO THE CONCERNED CLIENT'S ACCOUNT AT THE END O F THE DAY HAS NOT BEEN DISPROVED. IF AT ALL ANY PERSON COMES WITH A R EQUEST SEEKING PROFITS, THERE WILL NORMALLY BE TIME LAG AND HENCE THE FACT THAT THE ASSESSEE HAS CHANGED THE CODES AT THE END OF THE DA Y ONLY SHOWS THAT THE ASSESSEE HAS CARRIED OUT THE TRANSACTIONS ON BE HALF OF ITS CLIENTS ONLY. SUCH KIND OF TRANSACTIONS SHALL USUALLY BE SP ORADIC TRANSACTIONS, WHERE AS IN THE INSTANT * CASE, THE CLIENTS HAVE CA RRIED OUT THE TRANSACTIONS CONTINUOUSLY. FURTHER, IT IS PERTINENT TO NOTE THAT NONE OF THE CLIENTS, WITH WHOM THE ASSESSING OFFICER HAS CA RRIED OUT THE EXAMINATION, HAS DISOWNED THE TRANSACTIONS. FURTHER , ALL THE CLIENTS HAVE DULY DISCLOSED THE PROFITS ARISING FROM THE TR ANSACTIONS AS THEIR RESPECTIVE INCOME. THOUGH THE AO HAS ALLEGED THAT T HE SAID PROFITS HAVE BEEN USED TO SET OFF THE PAST BROUGHT FORWARD LOSSES, YET THE LD CIT(A) HAS MADE A DETAILED ANALYSIS OF THIS MATTER AND HAS GIVEN A CLEAR FINDING THAT THE SAME WAS NOT TRUE IN ALL THE CASES. THE LD CIT(A) HAS POINTED OUT THAT MAJORITY OF THE CLIENTS HAVE P AID TAX ON THE PROFITS. IT WAS FURTHER NOTICED THAT THE SOME OF TH E TRANSACTIONS HAVE RESULTED IN LOSS ALSO AND THE SAID LOSS HAS ALSO BE EN ACCEPTED BY THE CONCERNED CLIENTS. ALI 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 C ODE OF THE ASSESSEE INITIALLY. 13. FURTHER, THE LD CIT(A) HAS POINTED OUT THAT THE RE WAS NO MODIFICATION OF CLIENT CODE TO THE TUNE OF RS.3.31 CRORES AND FU RTHER THERE WAS CHANGE OF CODE FROM ONE CLIENT TO ANOTHER CLIENT TO THE TUNE OF RS.6.16 CRORES. IN BOTH THESE CASES, THE QUESTION OF SHIFTI NG OF PROFIT EARNED BY THE ASSESSEE DOES NOT ARISE AT ALL. THE ACTION OF T HE AO IN ASSESSING THE ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 18 ABOVE SAID PROFITS IN THE HANDS OF THE ASSESSEE ONL Y SHOW THAT THERE WAS NO PROPER APPLICATION OF MIND ON THE PART OF TH E 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 PROFIT S TO AN OUTSIDER, THEN THE HUMAN PROBABILITIES WOULD SUGGEST THAT THE ASSE SSEE WOULD HAVE RECEIVED BACK CORRESPONDING AMOUNT FROM THE RECIPIE NT OF PROFIT. HOWEVER, IN THE INSTANT CASE, THE AO HAS NOT BROUGH T ANY MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE HAD RECEIVED BACK CORRESPONDING AMOUNT EQUIVALENT TO THE AMOUNT OF PROFIT CLAIMED T O HAVE BEEN SHIFTED TO THE CLIENTS. THE AO HAS MAINLY RELIED UP ON THE REPORT GIVEN BY THE MCX AND HAS DRAWN ADVERSE CONCLUSIONS WITHOU T BRINGING ANY MATERIAL TO SUPPORT HIS VIEW. 15. THE LD CIT(A) HAS ALSO POINTED OUT THAT MODIFIC ATIONS CARRIED OUT BY THE ASSESSEE WORKS OUT TO AROUND 3% OF THE TOTAL TR ANSACTIONS ONLY AND IN OUR VIEW, THE SAID VOLUME, IN FACT, VINDICATES T HE EXPLANATION OF THE ASSESSEE. FURTHER NONE OF THE CLIENTS HAS BEEN FOUN D TO BE BOGUS AND ALL OF THEM HAVE COMPLIED WITH KYC NORMS, MEANING T HEREBY THE IDENTITY OF ALL THE CLIENTS STAND PROVED. NONE OF T HEM HAS DISOWNED THE TRANSACTIONS AND ALL OF THEM HAVE ALSO DECLARED THE INCOME IN THEIR RESPECTIVE RETURNS OF INCOME. ALL THESE FACTORS, IN OUR VIEW, SUPPORT THE CONTENTIONS OF THE ASSESSEE. 16. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN DELETING THE ADDITIONS MADE IN BOTH THE YEARS UNDER CONSIDERATION. IN OUR VIEW ALSO, THE ASSESSIN G OFFICER HAS DRAWN ADVERSE CONCLUSIONS AGAINST THE ASSESSEE WITHOUT PR OPERLY BRINGING ANY MATERIALS TO SUPPORT THE VIEW, I.E., THE ADDITI ONS HAVE BEEN MADE ON SUSPICION AND SURMISES ONLY. ACCORDINGLY, WE UPH OLD THE ORDER OF LD CIT(A) IN BOTH THE YEARS UNDER CONSIDERATION. THUS, IN THE SAID CASE, THE MODIFICATION CARRIED OU T BY THE ASSESSEE WERE 3% OF THE TOTAL TRANSACTION, WHICH WAS FOUND B Y THE TRIBUNAL AS WITHIN THE PERMISSIBLE LIMIT OF ERROR MARGIN. THE A HMADABAD BENCHES OF THE TRIBUNAL IN THE CASE OF ACIT VS. M/S KUNVARJIT FINANCE PVT. LTD. ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 19 (SUPRA) AND OTHERS IN BUNCH OF APPEALS HAS ANALYSED THE ISSUE IN PARA 8 TO 11 AS UNDER: 8. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF B OTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THE ASSESSIN G OFFICER BELIEVED THE CLIENT CODE MODIFICATION TO BE MALAFIDE BECAUSE IN HIS OPINION THE CLIENT CODE MODIFICATION WAS FOR UNUSUALLY HIGH NUM BER OF CASES. THEREFORE, FIRST THING TO BE DECIDED IS WHETHER THE RE WAS THE CLIENT CODE MODIFICATION FOR UNUSUALLY HIGH NUMBER OF CASE S. THE COMMODITY EXCHANGE I.E. MCX VIDE CIRCULAR NO.MCX/T& S/032/2007 DATED 22.01.2007, ISSUED GUIDELINES WITH REGARD TO THE CLIENT CODE MODIFICATION, WHICH READS AS UNDER:- CIRCULAR NO. MCX/T&S/032/2007 JANUARY 22, 2007 CLIENT CODE MODIFICATIONS IN TERMS OF PROVISIONS OF THE RULES, BYE-LAWS AND BUSINESS RULES OF THE EXCHANGE, THE MEMBERS OF THE EXCHANGE ARE NOTIFIED AS UNDER: FORWARD MARKETS COMMISSION (FMC) VIDE ITS LETTER NO . 6/3/2006/MKT-II (VOL III) DATED DECEMBER 20, 2006 AND JANUARY 5, 20 07 HAS DIRECTED AS UNDER. A. THE FACILITY OF CLIENT CODE MODIFICATIONS INTRA- DAY ARE ALLOWED. B. THE MEMBERS ARE ALSO ALLOWED TO CHANGE THEIR CLI ENT CODES BETWEEN 5:00 P.M. TO 5:15 P.M., IN CASE OF THE CONTRACTS TRADED TILL 5:00 P.M. AND BETWEEN 11:30 P.M. TO 11:45 P.M. FOR THE CONTRACTS TRADED TILL 11:30 P.M. ON ALL THE TRADING DAYS FROM MONDAYS TO FRIDAY S AND ON SATURDAYS THE SAME SHALL BE ALLOWED BETWEEN 2:00 P.M. TO 2:15 P.M. C. HOWEVER, ON THE DAYS WHEN TRADING IN COMMODITIES TAKES PLACE TILL 11:55 P.M. THE CLIENT CODE MODIFICATION WILL BE ALLOWED O NLY UPTO 12:00 P.M. D. AT ALL TIMES, PROPRIETARY TRADES SHALL NOT BE A LLOWED TO BE MODIFIED AS CLIENT TRADES AND CLIENT TRADES SHALL NOT BE ALLOWE D TO BE MODIFIED AS PROPRIETARY TRADES. E. IN ORDER TO ENSURE THAT CLIENT CODES ARE ENTERE D WITH ALERTNESS AND CARE, A PENALTY ON THE CLIENT CODE CHANGES MADE ON A DAIL Y BASIS SHALL BE IMPOSED AS UNDER: ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 20 S. NO PERCENTAGE OF CLIENT CODE CHANGED TO TOTAL ORDERS (MATCHED) ON A DAILY BASIS PENALTY (RS.) 1 LESS THAN OR EQUAL TO 1% NIL NIL 2 GREATER THAN 1% BUT LESS THAN OR EQUAL TO 5% 500 3 GREATE R THAN 5% BUT LESS THAN OR EQUAL TO 10% 1000 4 GREATER THAN 10% 10000 F. IT IS CLARIFIED THAT THE FACILITY OF CLIENT COD E MODIFICATION IS ALLOWED AS AN INTERIM MEASURE ONLY UPTO MARCH 31, 2007 AND AFTER THIS DATE THE SAID FACILITY WILL BE COMPLETELY STOPPED. WITH REFERENCE TO POINT C. AS REFERRED ABOVE, MEM BERS MAY PLEASE NOTE THAT THE CLIENT CODE MODIFICATIONS WILL BE ALLOWED ONLY UPTO 11:55 P.M. IN INTERNATIONAL REFERENCEABLE COMMODITIES (I.E. CO MMODITIES TRADED UPTO 11:55 P.M.) MEMBERS ARE REQUESTED TO TAKE NOTE OF THE FMC DIRE CTIVES AND ENSURE STRICT COMPLIANCE. FROM THE ABOVE, IT IS EVIDENT THAT CLIENT CODE MODI FICATION IS PERMITTED INTRA-DAY, I.E. ON THE SAME DAY. AS PER C OMMODITY EXCHANGE, IF CLIENT CODE MODIFICATION IS UPTO 1% OF THE TOTAL ORDERS, THERE IS NO PENALTY AND IF IT IS GREATER THAN 1% BU T LESS THAN 5%, THE PENALTY IS RS.500/-. IF IT IS GREATER THAN 5% BUT L ESS THAN 10%, PENALTY IS RS.1000/- AND IF IT IS GREATER THAN 10%, THEN PE NALTY IS RS.10,000/-. FROM THE ABOVE, THE ONLY INFERENCE THAT CAN BE DRAW N IS THAT AS PER MCX, THE CLIENT CODE MODIFICATION UPTO 1% IS ABSOLU TELY NORMAL AND THEREFORE, THE BROKER IS PERMITTED TO MODIFY THE CL IENT CODE UPTO 1% WITHOUT PAYING ANY PENALTY. EVEN CLIENT CODE MODIFI CATION UPTO 5% IS NOT CONSIDERED UNUSUALLY HIGH BECAUSE THAT IS ALSO PERMITTED WITH THE TOKEN PENALTY OF RS.500/-. IN THE CONTEXT OF THE CI RCULAR ISSUED BY COMMODITY EXCHANGE, LET US EXAMINE WHETHER THE CLIE NT CODE MODIFICATION DONE BY THE BROKER I.E. KCBPL IS UNUSU ALLY HIGH. AT PAGE NO.16 ON PARAGRAPH NO.4.3, THE CIT(A) HAS GIVEN THE NUMBER OF TRANSACTIONS ENTERED INTO BY THE ASSESSEE FOR THE P ERIOD 2004-05 TO 2007-08 AND THE NUMBER OF CLIENT CODE MODIFICATION AND PERCENTAGE ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 21 THEREOF. WE HAVE ALSO REPRODUCED THE SAME AT PARAGR APH NO.6 OF OUR ORDER. FROM THE SAID DETAILS, IT IS EVIDENT THAT TH E CLIENT CODE MODIFICATION WAS DONE IN FOUR YEARS 36,161 TIMES. A S AN ABSOLUTE FIGURE, THE CLIENT CODE MODIFICATION MAY LOOK VERY HIGH, BUT IF WE LOOK IT AT IN TERMS OF TOTAL TRANSACTIONS, IT IS ONLY 0. 94%. THE TOTAL NUMBER OF TRADE TRANSACTIONS IS 38.58 LACS AND THE CLIENT CODE MODIFICATION IS ONLY 36,161. THEREFORE, THE CLIENT CODE MODIFICATIO N IS LESS THAN 1% OF THE TOTAL TRADING TRANSACTIONS. AS PER CIRCULAR OF COMMODITY EXCHANGE, CLIENT CODE MODIFICATION UPTO 1% IS QUITE NORMAL AND IS PERMITTED WITHOUT ANY PENALTY. THAT THE ASSESSING O FFICER HAS NOT GIVEN ANY REASON ON WHAT BASIS HE PRESUMED THE CLIE NT CODE MODIFICATIONS TO BE UNUSUALLY HIGH. IN THE LIGHT OF THE MCX CIRCULAR, WE ARE OF THE OPINION THAT THE CLIENT CODE MODIFICA TION WAS QUITE NOMINAL AND NOT UNUSUALLY HIGH AS ALLEGED BY THE AS SESSING OFFICER. 9. THE ASSESSING OFFICER HELD THE CLIENT CODE MOD IFICATIONS TO BE MALAFIDE WITH THE INTENTION TO TRANSFER THE PROFIT TO OTHER PERSON BY MODIFYING THE CLIENT CODE SO AS TO AVOID THE PAYMEN T OF TAX. FROM THE CIRCULAR OF THE COMMODITY EXCHANGE, IT IS EVIDENT T HAT CLIENT CODE MODIFICATION IS PERMITTED ON THE SAME DAY. THEREFOR E, WE ARE UNABLE TO FIND OUT ANY JUSTIFICATION FOR THE ALLEGATION OF THE ASSESSING OFFICER THAT THE CLIENT CODE MODIFICATION WAS WITH THE MALA FIDE INTENTION. WHEN THE CLIENT CODE WAS MODIFIED ON THE SAME DAY, THERE CANNOT BE ANY MALAFIDE INTENTION. HAD CLIENT MODIFICATION DON E AFTER THE TRANSACTIONS PERIOD WHEN THE PRICE OF THE COMMODITY HAS ALREADY CHANGED, THEN PERHAPS THERE COULD HAVE BEEN SOME BA SIS TO PRESUME THAT CLIENT CODE MODIFICATION IS INTENTIONAL. HOWEV ER, WHEN THE CLIENT CODE MODIFICATION IS DONE ON THE SAME DAY, IN OUR O PINION, THERE WAS NO BASIS OR JUSTIFICATION TO HOLD THE SAME TO BE MA LAFIDE. 10. MOREOVER, THE LD. ASSESSING OFFICER HAS COMPUT ED THE NOTIONAL PROFIT/LOSS TILL THE TRANSACTIONS PERIOD AND NOT TI LL THE PERIOD BY WHICH THE CLIENT CODE MODIFICATION TOOK PLACE. EVEN IF TH E VIEW OF THE REVENUE IS ACCEPTED THAT THE CLIENT CODE MODIFICATI ON WAS WITH MALAFIDE INTENTION, THEN THE PROFIT OR LOSS ACCRUED TILL THE CLIENT CODE MODIFICATION CAN BE CONSIDERED IN THE CASE OF THE A SSESSEE BUT BY NO STRETCH OF IMAGINATION THE PROFIT/LOSS ARISING AFTE R THE CLIENT CODE MODIFICATION CAN BE CONSIDERED IN THE HANDS OF THE ASSESSEE. ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 22 11. THE LD. CIT(A) IN PARAGRAPH 4.13 OF HIS ORDER HAS ALSO RECORDED THE FINDINGS THAT ALL TRANSACTIONS AT THE COMMODITIES EXCHANGES HAVE BEEN DULY ACCOUNTED IN THE BOOKS OF ACCOUNT MAINTAI NED BY THE CONCERNED PARTIES. SUCH PROFITS/LOSS HAS BEEN DULY ACCOUNTED WHENEVER THE TRANSACTIONS HAVE BEEN CLOSED. THUS, W HATEVER PROFITS HAVE BEEN GENERATED OR ACCOUNTING OF ACTUAL TRADE, HAVE BEEN OFFERED AND BROUGHT TO THE CHARGE OF TAX IN THE CAS ES OF CONCERNED ASSESSEES. THESE FINDINGS OF FACT RECORDED BY THE LD. CIT(A) HAS NOT BEEN CONTROVERTED BY THE REVENUE AT THE TIME OF HEA RING BEFORE US. WHEN THE TRANSACTION HAS BEEN DULY ACCOUNTED FOR AN D THE PROFIT/LOSS HAS ACCRUED TO THE CONCERNED PARTIES IN WHOSE NAMES TRANSACTIONS HAVE BEEN CLOSED, THERE CANNOT BE ANY BASIS OR JUST IFICATION FOR CONSIDERING THOSE PROFIT/LOSS IN THE CASE OF THE AS SESSEE ON THE BASIS OF MERE PRESUMPTION OR SUSPICION. IT IS NOT THE CAS E OF THE REVENUE THAT SUCH ALLEGED PROFIT HAS ACTUALLY BEEN RECEIVED BY THE ASSESSEE. IN VIEW OF THE TOTALITY OF THE ABOVE FACTS, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE CIT(A) IN THIS R EGARD AND THE SAME IS SUSTAINED; AND GROUND NOS. 1 AND 3 OF THE REVENUES APPEAL ARE REJECTED. THUS IN THE SAID CASE, IT WAS FOUND AND HELD THAT T HE CLIENT CODE MODIFICATION UP TO 1% IS QUITE NORMAL AND PERMISSIB LE WITHOUT ANY PENALTY. THE CASE IN HAND, IT WAS ONLY 0.47%, T HEREFORE, THERE IS NO REASON TO DOUBT THE GENUINENESS OF THE CLIENT CODE MODIFICATION DONE BY THE BROKER IN THE TRANSACTIONS WHERE AFTER THE EXECUTION OF THE TRADE, THE BROKER HAS CARRIED OUT THE CORRECTION OF MISTAKES. A SIMILAR VIEW HAS BEEN TAK EN BY THE TRIBUNAL IN THE SERIES OF DECISIONS AS REFERRED ABO VE. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AND F OLLOWING THE DECISIONS OF THE COORDINATE BENCHES OF THE TRIBUNAL S, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMPUGNED ORDER OF THE LD. CIT(A) QUA THIS ISSUE. HENCE, BOTH THESE GROUNDS OF REVENU ES APPEAL ARE DISMISSED. THE FACTS FOR THE YEAR CONSIDERATION ARE AN IDENTIC AL TO THE FACT FOR A.Y. 2009-10 AND THE AO HAS SELECTED ONLY THOSE TRANSACT IONS WHICH WOULD ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 23 RESULT SHIFTING THE PROFIT FROM THE ACCOUNT OF THE ASSESSEE AND IGNORED THE OTHER INSTANCES OF MISTAKES OF CLIENT CODE WHER E THE LOSS IS SHIFTED FROM THE ACCOUNT OF THE ASSESSEE. FOLLOWING THE EAR LIER ORDER OF THIS TRIBUNAL AND HAVING REGARD TO THE FACTS THAT THE ER ROR IN THE CLIENT CODE MODIFICATION IS ONLY 0.11% FOR THIS YEAR IN COMPARI SON TO PERMISSIBLE ERROR OF 5% WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMPUGNED ORDER OF THE LD. CIT(A) QUA THIS ISSUE. 5. GROUND NO. 2 IS REGARDING THE ADDITION MADE BY T HE AO ON ACCOUNT OF COMMISSION PAID FOR ACCOMMODATION ENTRY OF SHIFTING OF PROFIT UNDER CLIENT CODE MODIFICATION. THIS ISSUE I S CONSEQUENTIAL TO THE ISSUE INVOLVED IN GROUND NO. 1 AND THEREFORE, IN VI EW OF OUR FINDING ON GROUND NO. 1. THIS ISSUE IS DECIDED AGAINST THE REV ENUE IN FAVOUR OF THE ASSESSEE. 6. GROUND NO. 3 IS REGARDING DISALLOWANCE MADE BY T HE AO U/S 14A OF THE ACT WAS RESTRICTED BY THE LD. CIT(A) TO @ 0. 5% OF THE AVERAGE INVESTMENT. 7. WE HAVE HEARD LD. DR AS WELL AS LD. AR AND CONSI DERED THE RELEVANT MATERIAL ON RECORD. THE ONLY DISPUTE FOR T HE YEAR UNDER CONSIDERATION IS REGARDING DISALLOWANCE MADE BY THE AO UNDER RULE ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 24 8D(2)(III) AT 1% OF THE AVERAGE INVESTMENT WHICH WA S RESTRICTED TO 0.5% BY THE LD. CIT(A). THE RELEVANT FINDING OF THE LD. CIT(A) IN PARA 9.3 IS AS UNDER:- 9.3 I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND FIND THAT THE ASSESSING OFFICER HAS APPLIED RULE 8D(III) R.W.S. 14A ON AVERAGE INVESTMENT WORKED OUT BY HIM. IN THIS REGAR D, I FIND THAT THE DISALLOWANCE MADE BY THE AO IS AS PER THE PROVI SIONS OF RULE 8D(III). HOWEVER, I ALSO FIND THAT RULE 8D(III) REQ UIRES DISALLOWANCE TO BE MADE @ 0.5% AND NOT 1% AS WRONGLY MADE BY THE AO. ACCORDINGLY, I DIRECT THE AO TO RECALCULATE DISALLO WANCE AND RESTRICT THE SAME TO RS. 1,28,632/- BEING MISTAKE A PPARENT FROM RECORD. THIS GROUND IS TREATED AS PARTLY ALLOWED. THUS, IT IS A CLEAR THAT THE LD. CIT(A) HAS APPLIE D CORRECT RATE AS APPLICABLE FOR THE YEAR UNDER CONSIDERATION WHEREAS THE AO HAS APPLIED AMENDED RULE WHICH WAS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION. ACCORDINGLY, IN VIEW OF THE FACTS TH AT AS PER THE FORMULA GIVEN IN RULE 8DTHE DISALLOWANCE @ 0.5% OF THE AVER AGE INVESTMENT WAS TO BE CALCULATED ON ACCOUNT OF ADMINISTRATIVE E XPENDITURE. HENCE, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMPUG NED ORDER OF THE LD. CIT(A) QUA THIS ISSUE. 8. IN CROSS OBJECTION OF THE ASSESSEE HAS RAISED FO LLOWING GROUNDS:- 1) IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER ERRED IN PASSING ORDE R U/S 143(3) R.W.S. 147 EVEN THOUGH SUCH REOPENING ON THE BASIS OF ALLEGED ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 25 CLIENT CODE MODIFICATION IS STRUCK DOWN BY THE BOMB AY HIGH COURT IN THE CASE OF CORONATION AGRO INDUSTRIES LTD. [WRI T PETITION NO. 2627 OF 2016] AND WITHOUT DISPOSING OBJECTIONS DATE D 09/08/2017. 2) IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) ERRED I N CONFIRMING RS. 1,28,632/- U/S 14A WITHOUT APPRECIATING THEFACT THAT NO EXPENSES WERE INCURRED WHILE EARNING EXEMPT INCOME AND THEREFORE PROVISIONS OF SECTION 14A DOES NOT APPLY SINCE THERE IS NO NEXUS BETWEEN THE INCOME EARNED AND THE EXPENSES INCURRED AND SECTION 14A DOES NOT APPLY TO F&O PROFITS WHICH IS TAXABLE. 3) THE AO WRONGLY CHARGED INTEREST U/S 234 AND INIT IATED PENALTY U/S 271(1)(C). 9. GROUND NO. 1 IS REGARDING THE VALIDITY OF REOPE NING ON THE BASIS OF ALLEGED CLIENT CODE MODIFICATION. 10. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. AR OF THE ASSE SSEE HAS SUBMITTED THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL FOR THE ASSESSMENT YEAR 2009-10. 11. ON THE OTHER HAND, LD. DR HAS RELIED UPON THE O RDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT WHEN THERE WAS NO ASSESSMENT U/S 143(3) OF THE ACT THEN, THE DECISION OF THIS TR IBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10 IS NOT APP LICABLE. ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 26 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT FOR THE YEAR UNDER CONSIDERATION THE ORIGINAL RETURN OF INCOME FILED B Y THE ASSESSEE WAS NOT SUBJECTED TO SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT BUT IT WAS PROVIDED U/S 143(1). THEREFORE, THE ORDER OF THIS T RIBUNAL FOR THE ASSESSMENT YEARS 2009-10 IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION. FURTHER, WE FIND THAT THE REPORT OF THE INVESTIGATION RECEIVED BY THE AO IN RESPECT OF THE ALLEGED MISUSE OF CLIENT CODE MODIFICATION FACILITY FOR SHIFTING OF PROFIT ALONG WITH THE ORDER PASSED U/S 143(3) R.W.S. 147 FOR THE ASSESSMENT YEAR 2009-10 C ONSTITUTE A TANGIBLE MATERIAL FOR FORMING THE BELIEF THAT INCOME ASSESSA BLE TO TAX HAS ESCAPED ASSESSMENT. WE FURTHER NOTE THAT THE ASSESS ING OFFICER HAD ALREADY PASSED THE ORDER U/S 143(3) R.W.S. 147 OF T HE ACT FOR THE ASSESSMENT YEAR 2009-10 AND CONCLUDED THAT THE ASSE SSEE HAS SHIFTED PROFIT IN THE GARB OF CLIENT CODE MODIFICATION FACI LITY. THUS, THE REASSESSMENT ORDER PASSED FOR THE A.Y. 2009-10 CONS TITUTES A TANGIBLE MATERIAL FOR THE AO TO FORM THE BELIEF THAT THE INC OME ASSESSABLE TO TAX HAS ESCAPED ASSESSMENT FOR THE YEAR UNDER CONSIDERA TION AND ACCORDINGLY, THE AO ISSUED A NOTICE U/S 148 OF THE ACT ON 15.03.2017. HENCE, IN VIEW OF THE FACTS THAT REOPENING IN THE C ASE OF THE ASSESSEE IS ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 27 AFTER THE REASSESSMENT ORDER PASSED BY THE AO FOR T HE A.Y. 2009-10 THE REOPENING CANNOT BE HELD TO BE BASED ON CHANGE OF O PINION OR BORROWED SATISFACTION. FURTHER, THE PROVISO TO SECT ION 147 OF THE ACT CANNOT BE INVOKED FOR THE YEAR UNDER CONSIDERATION WHEN THERE IS NO ORIGINAL ASSESSMENT U/S 143(3) OF THE ACT. ACCORDIN GLY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMPUGNED ORDER OF TH E LD. CIT(A) QUA THIS ISSUE. 13. GROUND NO. 2 IS REGARDING DISALLOWANCE MADE U/S 14A OF THE ACT SUSTAINED BY THE LD. CIT(A). 14. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS SUBMI TTED THAT THE PROVISIONS OF SECTION 14A OF THE ACT DO NOT APPLY W HEN THE AO HAS NOT GIVEN A FINDING THAT THERE ARE DIRECT NEXUS BETWEEN THE INCOME EARNED AND EXPENDITURE INCURRED BY THE ASSESSEE. 15. ON THE OTHER HAND, LD. DR HAS RELIED UPON THE O RDERS OF THE AUTHORITIES BELOW. 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. THE AO NOTED THAT THE ASSESSEE HAS MADE HUGE INVESTMENT AND EARNED EXEMPT INCOME. IT IS NOT A CA SE OF ISOLATED ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 28 INSTANCE OF INVESTMENT MADE BY THE ASSESSEE BUT THE ASSESSEE IS INVOLVED IN REGULAR ACTIVITY OF INVESTMENT AND THER EFORE, INDIRECT ADMINISTRATIVE EXPENDITURE FOR EARNING THE EXEMPT I NCOME HAS TO BE COMPUTED AS PER RULE 8D OF THE INCOME TAX RULES. TH E ASSESSEE IS OTHERWISE ENGAGED IN THE REGULAR ACTIVITY OF TRADIN G IN THE NSE AND THEREFORE, THE INVESTMENT MADE BY THE ASSESSEE NECE SSARILY INVOLVED ITS MANAGERIAL ESTABLISHMENT, CLERICAL STAFF ETC. ACCOR DINGLY, WE DO NOT FIND ANY MERITS OR SUBSTANCE IN THE ADDITION OF THE ASSE SSEE WHEN THE AO HAS SPECIFICALLY POINTED OUT THAT THE HUGE EXPENDIT URE INCURRED BY THE ASSESSEE IN RESPECT OF HIS OFFICE STAFF. ACCORDINGL Y, THE ADDITION SUSTAINED BY THE LD. CIT(A) IS UPHELD. IN THE RESULT, THE REVENUES APPEAL AND CROSS OBJEC TION OF ASSESSEES APPEAL ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05/03/2019 SD/- SD/- JESK LH0 KEKZ FOT; IKY JKO (RAMESH. C. SHARMA) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 05/03/2019. * SANTOSH. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: ITA NO. 1274/JP/2018 &CO NO. 40/JP/2018 ACIT VS. SHRI GYANDEEP KHEMKA 29 1. VIHYKFKHZ@ THE APPELLANT- ACIT, CENTRAL CIRCLE-4, JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- SHRI GYANDEEP KHEMKA, JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 1274/JP/2018 & CO NO. 40/JP/2018} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR