Shri Sandeep Sharma, AA5, Anita Colony, Bajaj Nagar, Jaipur V. ACIT, Circle-6, Jaipur

ITA 1275/JPR/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8072 (ITAT-JAIPUR)
• Duration Of Justice: 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 11-11-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K C GUPTA
• Keywords: Principle of natural justice; Transactions in derivatives; Avoidance of tax
• Section: 143(3); 13; 119; 22; 147; 131; 148

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENC HES A JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRA M SINGH YADAV, AM VK;DJ VIHY LA- @ ITA NO. 1275/JP/2019 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2009-10 SH. SANDEEP SHARMA AA5, ANITA COLONY, BAJAJ NAGAR, JAIPUR CUKE VS. ACIT CIRCLE-06, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: ADUPS5851J VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SH. P. C. PARWAL (CA) JKTLO DH VKSJ LS @ REVENUE BY : SH. K. C. GUPTA (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 28/07/2020 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 24/08/2020 VKNS'K@ ORDER PER VIKRAM SINGH YADAV, AM: THE PRESENT APPEAL BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER DATED 15.10.2019 OF LD. CIT (A), AJMER FOR THE ASSESSMENT YEAR 2009-10 WHEREIN THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. THE LD. CIT (A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE VALIDITY OF THE ORDER PASSED U/S 147 OF IT ACT, 1961. 2. THE LD. CIT (A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS. 10,29,830/- MADE BY AO ALLEGING THAT ASSESSE E WAS INDULGED IN TRANSFERRING FICTITIOUS PROFITS/LOSS TO THE OTHER C LIENTS/BENEFICIARIES BY MISUSING THE CLIENT CODE MODIFICATION FACILITY IN T HE F&O SEGMENT AND THEREBY CREATING A LOSS OF RS. 10,29,830/- AND SUPP RESSING THE INCOME TO THAT EXTENT. 3. THE LD. CIT (A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS. 20,596/- ON ACCOUNT OF ALLEGED COMMISSION PA ID TO BROKERS FOR PROVIDING ALLEGED ENTRIES THROUGH CCM. 2 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. 2. IN GROUND NO. 2, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LD CIT(A) IN CONFIRMING THE ADDITION MADE BY THE AO ON ACCOUNT O F TRANSFERRING OF FICTITIOUS PROFITS/LOSS TO OTHER CLIENTS IN THE GARB OF CLIENT CODE MODIFICATION. 3. THE ASSESSEE IS AN INDIVIDUAL AND ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND SECURITIES AS WELL AS DOING TRADING IN DERIVATI VE SEGMENT. THE ASSESSEE FILED HIS RETURN OF INCOME ON 30 TH SEPTEMBER, 2009 DECLARING TOTAL INCOME OF RS. 1,96,24,560/- WHICH WAS ASSESSED UNDER SECTION 143(3) ON 21.11.2011. SUBSEQUENTLY, THE AO REOPENED THE ASSESSMENT BY ISS UING NOTICE UNDER SECTION 148 ON 29 TH MARCH, 2016 BY RECORDING THE REASONS THAT INFORMAT ION HAS BEEN RECEIVED FROM THE ADIT (INVESTIGATION) UNIT-1(3), AHMEDABAD REGARDING FICTITIOUS PROFITS AND LOSSES WERE CREATED BY SOME BROKERS BY MISUSING CLI ENT CODE MODIFICATION FACILITY IN F&O SEGMENT ON NSE. THE AO ACCORDINGLY PROPOSED TO ASSESS AN AMOUNT OF RS. 13,07,110/- ON ACCOUNT OF SHIFTING OUT PROFITS IN THE GARB OF CLIENT CODE MODIFICATION. THE AO COMPLETED THE ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 147 WHEREBY AN ADDITION OF RS. 10,29,830/- WAS MADE ON ACCOUNT OF SHIFTING OF PROFITS AND F&O TRADING IN THE GARB OF CLIENT CO DE MODIFICATION AS WELL AS 2% COMMISSION ON THE SAID AMOUNT WHICH COMES TO RS. 20 ,596/-. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT (A) BUT COULD NOT SUCCEED AND NOW, THE ASSESSEE IS IN APPEAL BEFORE US. 4. DURING THE COURSE OF HEARING, THE LD. A/R OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS DECLARED THE TOTAL INCOME OF RS. 1 ,96,24,560/- WHICH INCLUDES GROSS PROFIT ON DERIVATIVE DEALINGS AT RS. 1,66,00,661/-, ON SUCH A HUGE INCOME FROM 3 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. TRADING OF SHARES WHY THE ASSESSEE WOULD INDULGE IN CLIENT CODE MODIFICATION FOR A MEAGER AMOUNT OF RS. 10,29,830/-. THE LD. A/R HAS FURTHER SUBMITTED THAT THE CLIENT CODE MODIFICATION IS DONE BY THE BROKER AND IS NOT CARRIED OUT BY THE ASSESSEE. THEREFORE, IF SOME PUNCHING ERROR HAPPENED DURING T HE COURSE OF TRADING ON THE PART OF THE BROKER ON VARIOUS CLIENTS, THEN THE STOCK EX CHANGE PROVIDES THE FACILITY TO RECTIFY THE SAME BY USING THE CLIENT CODE MODIFICAT ION FACILITY SO THAT THE TRANSACTIONS CAN BE ACCOUNTED IN THE RIGHT CLIENTS NAME WHICH WE RE WRONGLY PUNCHED IN THE NAME OF SOME OTHER CLIENT. FURTHER, THE STOCK EXCHANGE HAS ALSO DRAWN A LIST OF COMMON VIOLATIONS COMMITTED AND THE APPLICABLE PENALTIES W HERE IT IS STATED THAT IF THE TRANSFER OF TRADES/ERRORS AT THE TIME OF ORDER ENTR IES ARE IN EXCESS OF 2% OF THE NUMBER OF ORDERS EXECUTED, FINE OF 0.1% OF VALUE OF TRADES TRANSFERRED IS APPLICABLE. IT WAS SUBMITTED THAT M/S C.M. GOENKA STOCK BROKERS PVT LTD HAS CONFIRMED THAT THERE ARE CERTAIN INADVERTENT GENUIN E PUNCHING ERRORS WHICH WERE MODIFIED AS PER GUIDELINES LAID DOWN BY SEBI VIDE C IRCULAR DATED 6.02.2003. THUS THE LD. A/R HAS SUBMITTED THAT THE ERROR IN THE CAS E OF THE ASSESSEE IS IN RESPECT OF FEW TRANSACTIONS ONLY WHEREAS THE ASSESSEE HAS TRAD ED IN DERIVATIVES DURING THE WHOLE YEAR AS CAN BE SEEN FROM THE LEDGER ACCOUNT O F M/S C.M. GOENKA STOCK BROKERS PVT LTD. THE LD. A/R HAS RELIED UPON THE D ECISION OF AHMEDABAD BENCH OF THE TRIBUNAL IN CASE OF ACIT VS. KUNVARJI FINANCE P VT. LTD., 119 DTR 1 (AHD. TRIB.) AND SUBMITTED THAT THE TRIBUNAL HAS HELD THAT LOSS ON ACCOUNT OF CLIENT CODE MODIFICATION LESS THAN 1% OF THE TOTAL TRANSACTION CANNOT BE SAID TO BE UNUSUALLY HIGH OR MALAFIDE WHEN THE MODIFICATION WAS MADE ON THE SAME DAY. HE HAS ALSO RELIED UPON THE DECISION OF DELHI BENCH OF THE TRIB UNAL IN CASE OF ITO VS. M/S. ABHISHEK FINCAP SERVICES PVT. LTD. IN ITA NO. 2750/ DEL.2017 DATED 13.09.2017. THE 4 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. LD. A/R HAS ALSO RELIED UPON THE DECISION OF THE CO ORDINATE BENCH IN ASSESSEES OWN CASE FOR A.Y 2010-11 WHEREIN ON SIMILAR FACTS AND C IRCUMSTANCES OF THE CASE, THE APPEAL OF THE ASSESSEE WAS ALLOWED. 5. PER CONTRA, THE LD. D/R HAS RELIED UPON THE ORDE RS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE AO HAS RECEIVED THE INFORMATION FROM INVESTIGATION WING WHEREBY IT WAS FOUND THAT CERTAIN BROKERS WERE INDU LGED IN SHIFTING THE FICTITIOUS PROFITS/LOSSES IN THE GARB OF CLIENT CODE MODIFICAT ION IN THE STOCK EXCHANGE. THE ASSESSEE HAS ALSO CLAIMED LOSS ON ACCOUNT OF CLIENT CODE MODIFICATION, THEREFORE BASED ON THE MATERIAL AS GATHERED DURING THE INVEST IGATION, THE DISALLOWANCE MADE BY THE AO IS JUSTIFIED. FURTHER, HE RELIED ON THE F INDINGS OF THE LOWER AUTHORITIES. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE COORDINATE BENCH IN ASSES SEES OWN CASE FOR A.Y 2010-11 (SUPRA) HAS DEALT WITH THE IDENTICAL MATTER AND ITS FINDINGS READ AS UNDER: 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT IT IS A MATTER OF REGULAR BUSINESS PRACTICE THAT A BROKER IN THE STOCK EXCHANGE MAKES MODIFICATION IN THE CLIENT CODE ON SALES AND PURCHASES OF SECURITIES AFTER THE TRADING IS OVER SO AS TO RECTIFY THE ERROR, IF ANY OCCURRED DURING THE COURS E OF TRADING AND WHILE PUNCHING THE ORDERS. THE STOCK EXCHANGE PERMITS MOD IFICATION OF CLIENT CODE ONLY FOR A LIMITED PERIOD ON DAILY BASIS AFTER TRAD ING HOURS AND, THEREFORE, THE TASK OF MODIFICATION IS DONE BY THE BROKERS ON DAIL Y BASIS ONLY WITHIN THE PERMITTED PERIOD BY THE STOCK EXCHANGE. IT CANNOT BE AN AFTER-THOUGHT 5 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. PLANNED ACTIVITY FOR SHIFTING THE PROFIT UNTIL AND UNLESS ALL THE CLIENTS OF A BROKER HAVE A COMMON MEETING OF MIND OF SHIFTING TH E PROFIT OR LOSS FROM ONE ACCOUNT TO ANOTHER ACCOUNT WITH THE INVOLVEMENT OF THE BROKER. THEREFORE, IN ORDER TO HOLDING THAT A PARTICULAR LOSS ON ACCOUNT OF CLIENT CODE MODIFICATION IS BOGUS, THE AO HAS TO PROVE AND ESTABLISH THAT THERE WAS A COMMON INTENTION OF ALL THE PARTIES WHICH ARE THE NUMBER OF CLIENTS OF A SINGLE BROKER TO SHIFT THE PROFIT OR LOSS TO ONE ACCOUNT TO ANOTHER ACCOUNT. A STRAY INCIDENT OF BROKER INVOLVED IN MANIPULATING THE FACILITY FOR SHIFTING THE PROFIT FROM ONE ACCOUNT TO ANOTHER ACCOUNT CANNOT BE CONSIDERED AS A GENERAL P RACTICE WHEN NOTHING IS ON RECORD TO SHOW THAT THE ASSESSEE AS WELL AS THE OTHER CLIENTS ARE ACTIVELY INVOLVED IN THE PRACTICE OF SHIFTING THE FICTITIOUS PROFIT OR LOSS FROM EACH OTHERS ACCOUNT IN THE GARB OF CLIENT CODE MODIFICATION FAC ILITY PROVIDED BY THE STOCK EXCHANGE. IN THE CASE IN HAND, THE GROSS PROFIT DE CLARED BY THE ASSESSEE ON ACCOUNT OF SHARE TRADING IS MORE THAN RS. 3.41 CROR ES AND, THEREFORE, THE LOSS ON ACCOUNT OF CLIENT CODE MODIFICATION OF RS. 3,12, 790/- IS NEGLIGIBLE IN COMPARISON TO THE VOLUME OF THE TRADES EXECUTED BY THE ASSESSEE. WE FURTHER NOTED THAT THE TRIBUNAL IN A SERIES OF DECI SIONS HAS CONSIDERED THIS ISSUE AND FIND THAT A NORMAL AMOUNT OF ERROR IN PUN CHING THE TRADING ORDERS DURING THE COURSE OF TRADE HOUR IS A REGULAR FEATUR E AND, THEREFORE, THE STOCK EXCHANGE ALSO PERMITS A MODIFICATION OF THE CLIENT CODE ON DAILY BASIS UPTO 2% OF THE NUMBER OF ORDER EXECUTED AND BEYOND THE 2 % OF ERROR, A FINE OF 0.1% OF VALUE OF TRADES TRANSFERRED IS APPLICABLE. HENCE UPTO THE LIMIT AS ALLOWED BY THE STOCK EXCHANGE WITHOUT ANY LEVY OF F INE IS CONSIDERED AS REASONABLE AND NORMAL ERROR HAPPENED DURING THE COU RSE OF LARGE VOLUME OF 6 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. TRADES EXECUTED BY THE BROKER ON BEHALF OF VARIOUS CLIENTS. THEREFORE, THIS IS A NORMAL BUSINESS PRACTICE ON DAILY BASIS AS PER THE GUIDELINES OF THE NSE. THE COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF DCIT V S. GYANDEEP KHEMKA IN ITA NO. 695/JP/2018 AND C.O. NO. 15/JP/2018 DATED 2 3.10.2018 HAS CONSIDERED AN IDENTICAL ISSUE IN PARA 11 AND 11.1 A S UNDER :- 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WE LL AS RELEVANT MATERIAL ON RECORD. WE NOTE THAT THE ASSES SING 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 ASSESSE E HAS DONE TRADE AT STOCK EXCHANGE THROUGH THE STOCK BROKER M/ S C.M. GOYENKA STOCK BROKERS PVT. LTD. AND DURING THE YEAR UNDER CONSIDERATION, THERE WERE VARIOUS INSTANCES OF CLIE NT CODE MODIFICATION WHEREBY CERTAIN TRANSACTIONS WERE EXEC UTED IN THE NAME OF THE 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 TH E BROKERS TO CARRY OUT NECESSARY CLIENT CODE MODIFICATION AFT ER EXECUTION OF THE TRADE BUT IN A LIMITED PERIOD OF HOUR. THI S FACILITY IS NO DOUBT PROVIDED TO THE BROKERS TO RECTIFY THE GENUIN E MISTAKES COMMITTED IN TYPING THE WRONG CODES OR THE MISTAKES IN PUNCHING THE CLIENT CODES AT THE TIME OF TRADE TRAN SACTIONS ON THE STOCK EXCHANGE. THUS, IN SIMPLE WORDS, THE CLIE NT CODE MODIFICATION FACILITY ALLOWS THE BROKER TO CORRECT THE MISTAKES WHICH ARE COMMITTED DURING THE COURSE OF DOING THE TRADE ON BEHALF OF THE VARIOUS CLIENTS. THERE MAY BE SOME IN STANCES OF MISUSING THIS FACILITY BY THE BROKERS BUT IT CANNOT BE DONE BY THE BROKER ON REGULAR BASIS AS THE BROKER IS BOUND TO C ARRY OUT TRADING TRANSACTIONS AS PER THE INSTRUCTIONS OF THE CLIENT AND 7 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. THEREFORE, UNTIL AND UNLESS ALL THREE PARTIES ARE H AND IN GLOVES OR IN CONNIVANCE, SUCH MISUSE OF CLIENT CODE MODIFICAT ION 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 EXCHANG E. THE MEETING OF THREE MINDS IS ESSENTIAL FOR MISUSING TH IS FACILITY AND DOING THIS MISCHIEVOUS TRANSFER OF PROFITS FROM ONE HAND TO ANOTHER HAND. UNTIL AND UNLESS TWO CLIENTS AND BROK ER ARE ON THE SAME PAGE AND INVOLVED IN DOING THIS MISCHIEVOUS AC T BY MISUSING THE FACILITY OF CLIENT CODE MODIFICATION S UCH TRANSACTIONS ARE NOT POSSIBLE WHEN THE PARTIES ARE NOT RELATED TO EACH OTHER PARTY AND ARE INDEPENDENT CLIENTS OF A P ARTICULAR BROKER. IT IS POSSIBLE ONLY WHEN TWO CLIENTS TO A B ROKER ARE CLOSELY RELATED PARTIES AND CONTROLLED BY A SINGLE PERSON OR SET OF PERSONS THEN WITH THE CONNIVANCE WITH THE BROKER TH IS KIND OF BOGUS TRANSACTIONS CAN BE DONE IN THE GARB OF CLIEN T CODE MODIFICATION. ONCE THE PARTIES ARE INDEPENDENT AND HAVE NO RELATION THEN DOING SUCH TRANSACTION WITHIN SUCH LI MITED WINDOW PERIOD OF HOUR AFTER TRADING HOURS IS NOT POSSIBL E. THUS, THE MISUSE OF SUCH FACILITY IS POSSIBLE ONLY WHEN ALL T HREE PARTIES I.E. TWO CLIENTS AND ONE BROKER HAVE THE COMMON INTEREST 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 T HE EXECUTION OF THE TRANSACTION, IT IS NOT POSSIBLE TO CONCEIVE OR PRECONCEIVE THE TRANSFER OF THE TRANSACTION FROM ONE ACCOUNT TO ANO THER ACCOUNT. 8 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. WE NOTE THAT THE ASSESSING OFFICER HAS NOT CONDUCTE D ANY ENQUIRY IN THIS MATTER BUT HAS PASSED THE ASSESSMEN T ORDER BASED ON THE REPORT OF THE INVESTIGATION WING. THE ASSESSEE HAS SPECIFICALLY RAISED OBJECTION AND DEMANDED CROSS EX AMINATION WHICH 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 JC CROSS EXAMINATION OF BROKERS U/S 131 BY PLACING RELIANCE UPON CERTAIN CASE LAWS AND REQUESTED FOR PROVIDING RELIED UPON DOCUMENTS VIZ. STATEMENTS ETC. THE RELIED UPON DETAILS WERE PROVIDED FROM TIM E TO TIME TO THE LD. A/R DURING THE COURSE OF HEARING AND THE MO DUS OPERANDI WAS DISCUSSED IN DETAIL. THE LD. A/R WAS A LSO MADE AWARE OF THE HON'BLE SUPREME COURT JUDGMENT IN THE CASE C VASANTLAL & CO. V/S CIT 45 ITR 206(SC) (3 JUDGE BEN CH) WHEREIN THE APEX COURT HAD OBSERVED THAT '...THE ITO IS NOT BOUND BY ANY TECHNICAL RULES OF THE LAW OF EVIDENCE. IT IS O PEN TO HIM TO COLLECT MATERIAL TO FACILITATE ASSESSMENT EVEN BY P RIVATE 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 STATEMEN TS WERE MATERIAL ON WHICH THE I.T. AUTHORITIES COULD ACT PR OVIDED THE MATERIAL WAS DISCLOSED AND THE ASSESSEE HAD AN OPPO RTUNITY TO RENDER THEIR EXPLANATION IN THAT REGARD. FURTHER, THE LD. A/R WAS MADE AWARE OF HON'BLE SUPR EME COURT DECISION IN THE CASE OF DHAKESHWARI COTTON MI LL LTD. VS. CIT REPORTED AT 26 ITR 775 WHEREIN HON'BLE SUPREME COURT HELD THAT RIGHT TO CROSS EXAMINE IS NOT ABSOLUTE AND THA T THE REQUIREMENT OF LAW FOR VALID ASSESSMENT WOULD BE ME T IF ALL THE EVIDENCE COLLECTED WHICH IS TO BE USED AGAINST THE ASSESSEE 9 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. WHILE FRAMING THE ASSESSMENT ORDER IS PLACED BEFORE TIE ASSESSEE AND GIVEN OPPORTUNITY TO REBUT THE EVIDENC E. HERE, IT IS ALSO WORTH TO STATE THAT THE SHARE BROKERS U/S 1 31(1A) IN MUMBAI IS NOT SOLE BASIS FOR REOPENING THE CASE, TH ERE IS MATERIAL AND CIRCUMSTANTIAL EVIDENCES WHICH PROVE T HAT ASSESSEE WAS INDULGED IN MISUSE OF CCM FACILITY. AL L THE MATERIAL 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 WING IN TURN IS BASED ON THE STATEME NT OF THE BROKERS THEN WITHOUT GIVING THE OPPORTUNITY TO THE ASSESSEE TO CROSS EXAMINE THE BROKERS WHOSE STATEMENTS WERE REC ORDED BY THE INVESTIGATION WING IT WOULD AMOUNT TO VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. THOUGH, THE CROSS EXAMINATION M AY NOT BE AN ABSOLUTE RIGHT BUT ONCE STATEMENT IS RECORDED IN TH E BACK OF THE ASSESSEE AND IS BEING USED AGAINST THE ASSESSEE THE N THE ORDER PASSED BY THE ASSESSING OFFICER BASED ON SUCH STATE MENT IS NOT SUSTAINABLE IN ABSENCE OF CROSS EXAMINATION. THE HO N'BLE SUPREME COURT IN THE CASE OF AMDAMAN TIMBER INDUSTR IES 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. RADHAKRISHNA N, LEARNED SENIOR 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 O F THE IMPUGNED ORDER IS A SERIOUS FLAW WHICH MAKES THE OR DER NULLITY INASMUCH AS IT AMOUNTED TO VIOLATION OF PRINCIPLES OF NATURAL 10 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. JUSTICE BECAUSE OF WHICH THE ASSESSEE WAS ADVERSELY AFFECTED. IT IS TO BE BORNE IN MIND THAT THE ORDER OF THE COM MISSIONER WAS BASED UPON THE STATEMENTS GIVEN BY THE AFORESAI D TWO WITNESSES. EVEN WHEN THE ASSESSEE DISPUTED THE CORR ECTNESS OF THE STATEMENTS AND WANTED TO CROSS-EXAMINE, THE ADJ UDICATING AUTHORITY DID NOT GRANT THIS OPPORTUNITY TO THE ASS ESSEE. IT WOULD BE PERTINENT TO NOTE THAT IN THE IMPUGNED ORD ER PASSED BY THE ADJUDICATING AUTHORITY HE HAS SPECIFICALLY M ENTIONED THAT SUCH AN OPPORTUNITY WAS SOUGHT BY THE ASSESSEE . HOWEVER, NO SUCH OPPORTUNITY WAS GRANTED AND THE AF ORESAID PLEA IS NOT EVEN DEALT WITH BY THE ADJUDICATING AUT HORITY. AS FAR AS THE TRIBUNAL IS CONCERNED, WE FIND THAT REJECTIO N OF THIS PLEA IS TOTALLY UNTENABLE. THE TRIBUNAL HAS SIMPLY STATE D THAT CROSS- EXAMINATION OF THE SAID DEALERS COULD NOT HAVE BROU GHT OUT ANY MATERIAL WHICH WOULD NOT BE IN POSSESSION OF TH E APPELLANT THEMSELVES TO EXPLAIN AS TO WHY THEIR EX-FACTORY PR ICES REMAIN STATIC. IT WAS NOT FOR THE TRIBUNAL TO HAVE GUESS W ORK AS TO FOR WHAT PURPOSES THE APPELLANT WANTED TO CROSS-EXAMINE THOSE DEALERS AND WHAT EXTRACTION THE APPELLANT WANTED FR OM THEM. 7. AS MENTIONED ABOVE, THE APPELLANT HAD CONTESTED THE TRUTHFULNESS OF THE STATEMENTS OF THESE TWO WITNESS ES AND WANTED TO DISCREDIT THEIR TESTIMONY FOR WHICH PURPO SE IT WANTED TO AVAIL THE OPPORTUNITY OF CROSS-EXAMINATIO N. THAT APART, THE ADJUDICATING AUTHORITY SIMPLY RELIED UPO N THE PRICE LIST AS MAINTAINED AT THE DEPOT TO DETERMINE THE PR ICE FOR THE PURPOSE OF LEVY OF EXCISE DUTY. WHETHER THE GOODS W ERE, IN FACT, SOLD TO THE SAID DEALERS/WITNESSES AT THE PRI CE WHICH IS MENTIONED IN THE PRICE LIST ITSELF COULD BE THE SUB JECT MATTER OF CROSS-EXAMINATION. THEREFORE, IT WAS NOT FOR THE AD JUDICATING AUTHORITY TO PRESUPPOSE AS TO WHAT COULD BE THE SUB JECT MATTER OF THE CROSS-EXAMINATION AND MAKE THE REMARKS AS ME NTIONED ABOVE. WE MAY ALSO POINT OUT THAT ON AN EARLIER OCC ASION WHEN THE MATTER CAME BEFORE THIS COURT IN CIVIL APPEAL N O. 2216 OF 2000, ORDER DATED 17.03.2005 WAS PASSED REMITTING T HE CASE BACK TO THE TRIBUNAL WITH THE DIRECTIONS TO DECIDE THE APPEAL ON MERITS GIVING ITS REASONS FOR ACCEPTING OR REJECTIN G THE SUBMISSIONS. 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 11 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. WITH THE DEPARTMENT ON THE BASIS OF WHICH IT COULD JUSTIFY ITS ACTION, AS THE STATEMENT OF THE AFORESAID TWO WITNE SSES WAS THE ONLY 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 CROSS EXAMINE THE BROKERS. IN THE CASE IN HAND, THE ASSES SING OFFICER HAS NOT GIVEN ANY FINDING THAT THE ASSESSEE AND THE OTHER PARTIES IN WHOSE ACCOUNT, THE TRANSACTIONS ARE TREA TED AS TRANSFER OF PROFIT ARE IN COLLUSION ALONGWITH THE B ROKER. THERE IS NOTHING ON RECORD OR ANY FACT OR FINDING BY THE ASS ESSING OFFICER TO SUGGEST THAT THE ASSESSEE AND THE OTHER PARTIES AS WELL AS THE BROKERS ARE IN COLLUSION TO CARRY OUT THESE TRANSAC TIONS OF TRANSFER OF PROFIT FROM THE ACCOUNT OF THE ASSESSEE IN THE ACCOUNTS OF OTHER PARTIES BY MISUSING THE CLIENT CO DE MODIFICATION FACILITY. THEREFORE, EVEN IF THE BROKE R MIGHT HAVE INVOLVED IN SUCH MISCHIEVOUS PRACTICE BUT TO MAKE S UCH ADDITION IN THE HANDS OF THE ASSESSEE IT IS NECESSARY TO EST ABLISH THAT THE ASSESSEE AND THE OTHER PARTIES ALONGWITH BROKERS AR E IN COLLUSION. FURTHER THERE SHOULD ALSO BE EXCHANGE OF MONEY BETWEEN THE PARTIES AS A CONSIDERATION FOR SUCH A T RANSFER OF PROFIT. EVEN OTHERWISE WHEN IT IS NOT FOUND THAT OR IGINALLY THESE TRADES WERE CARRIED OUT BY THE BROKER AS PER THE IN STRUCTIONS OF THE ASSESSEE AND SUBSEQUENTLY THESE WERE TRANSFERRE D IN THE ACCOUNT OF THE OTHER PERSONS TO SHIFT THE PROFIT. 11.1. WE NOTE THAT THIS ISSUE OF RECTIFICATION OF THE ERROR BY USING THE CLIENT CODE MODIFICATION FACILITY HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN THE SERI ES OF DECISIONS AS RELIED BY THE ASSESSEE. THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF NOBEL SECURITIES VS IT O (SUPRA) HAS ALSO CONSIDERED AN IDENTICAL ISSUE IN PARA 3.1 TO 3 .4 AS UNDER: 12 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. 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 UNDE R:- 5.3.1. I HAVE GONE THROUGH THE ASSESSMENT ORDER A S WELL AS SUBMISSIONS MADE BY THE APPELLANT. FOLLOWING FACTS HAVE EMERG ED. 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 MODIFICATION MADE BY THE ASSESSEE IN F& O SEGMENT T O THE THIRD PARTIES THROUGH THE CLIENT CODE MODIFICATION FACILI TY. 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 CON SIDERED BY THE AO AND A WRITTEN ORDER DISPOSING THE PETITION OF TH E ASSESSEE 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 SEGM ENT ON NSE DURING THE YEAR UNDER CONSIDERATION. BY DOING THIS, IT IS ALLEGED 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 F IRMS CODE INSTEAD OF ITS CLIENTS CODE. AND THAT LATER ON WHEN SUCH A MISTAKE WAS NOTICED THE SAME WAS DELETED BY DELETING THE TRADING FROM T HE 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 HELD 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 13 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. 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 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. 14 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. 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 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). THIS IS ALSO STATED IN CIRCULAR NO. 974 DATED 10.09 .2009 OF THE 15 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. 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 T RADES ARE CARRIED OUT BY THE BROKER. THEREFORE, THE FACT THAT DURING THE YEAR, THE BROKER HAD CARRIED OUT 2380 MODIFICATIONS BY USING CCM FACILITY IS IRRELEVANT AS IT IS ONLY 0.18% OF THE TOTAL TRADES CARRIED OUT BY THE BROKER DURING THE YEAR. ALSO, THE FACT THE ASSESSEE S 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 THE NOTICE OF THE BROKER ANY MISTAKE/ ERROR IN THE CLIE NT 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 TH E 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 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 16 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. 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 CLEARING CORPORATION LIMITED FOR ITS FUTURES & OPTI ONS SEGMENT (PB 25-26). THE STOCK EXCHANGE HAS ALSO DRAWN A LIS T OF THE COMMON VIOLATIONS COMMITTED AND THE APPLICABLE PENA LTIES (PB 21- 24) WHERE IT IS STATED THAT IF THE TRANSFER OF TRA DES / ERRORS AT THE TIME OF ORDER ENTRIES ARE IN EXCESS OF 2% OF THE NU MBER OF ORDERS EXECUTED, FINE OF 0.1% OF VALUE OF TRADES TRANSFERR ED IS APPLICABLE. 17 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. 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 CONTROL OVER THE SYSTEM. THE CLIENT BRINGS TO THE NOTICE OF THE BROKER ANY MISTAKE/ ERROR IN THE CLIENT CODE. IT MAY BE NOTED THAT ITAT AHEMDABAD BENCH IN THE CASE OF ACIT VS. KUNVARJI FI NANCE (P) LTD. 119 LD. DR 1 HAD OBSERVED THAT THE CLIENT CODE MODI FICATION IS PERMITTED INTRA DAY I.E. ON THE SAME DAY. THE RELEV ANT PORTION OF THE 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 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 I N THE CASE 18 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. OF THE ASSESSEE, THE ERROR AND RECTIFICATION OF THE SAME BY USING THE CLIENT CODE MODIFICATION CONSTITUTE ONLY 0.47%, THEREFORE, THE PERCENTAGE OF TRADE WHICH ARE RECTIFIED ARE NOT ONLY WITHIN THE RANGE BUT IT IS ON LOWER SIDE OF THE RANGE OF E RROR MARGIN ACCEPTABLE IN SUCH TRANSACTIONS. THE MUMBAI BENCHES OF THE TRIBUNAL IN THE CASE OF ITO VS. M/S PAT COMMODITY S ERVICES P. LTD. HAS CONSIDERED THIS ISSUE 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 POIN T RAISED BY THE ASSESSING OFFICER. THE LD CIT(A) HAS POINTED OU T THAT THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE CLIENT CODE MODIFICATION MADE BY THE ASSESSEE WAS NOT GENU INE ONE. IT WAS FURTHER NOTICED THAT NONE OF THE CLIENTS EXA MINED BY THE TAX AUTHORITIES HAS DISOWNED THE TRANSACTIONS CARRI ED ON BY THE ASSESSEE. AS NOTICED BY THE LD CIT(A), THE MCX, THE STOCK EXCHANGE, IS VERY MUCH AWARE ABOUT CLIENT CODE MODI FICATIONS AND HENCE IN ORDER TO DISCOURAGE FREQUENCY OF MODIF ICATIONS, IT HAS BROUGHT IN PENALTY MECHANISM. EVEN UNDER THE PE NALTY 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 O F 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 I NTO 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 ABO UT 3-4 YEARS OLD ONLY AT THE RELEVANT POINT OF TIME. HENCE , THE 19 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. ASSESSEE CANNOT BE CONSIDERED TO BE AN ESTABLISHED PLAYER IN THE YEARS UNDER CONSIDERATION. FURTHER, THE MOVEMEN T OF PRICES OF COMMODITIES CANNOT BE PREDICTED BY ANYONE WITH A CCURACY AND HENCE IT IS INCONCEIVABLE OR UNLIKELY THAT THE ASSESSEE COULD HAVE MADE PROFITS CONSISTENTLY, EVEN IF IT IS ASSUM ED FOR A MOMENT THAT THE ASSESSEE HAD ACTUALLY CARRIED OUT T HE TRANSACTIONS FOR ITS OWN BENEFIT. WE NOTICE THAT TH E ASSESSEE HAS OFFERED EXPLANATIONS AS TO WHY IT CARRIED OUT T HE 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 ITS O WN CODE. FURTHER, WE NOTICE THAT THE FACT THAT THE ASSESSEE HAS CHANGED THE CODE TO THE CONCERNED CLIENT'S ACCOUNT AT THE E ND OF THE DAY HAS NOT BEEN DISPROVED. IF AT ALL ANY PERSON CO MES WITH A REQUEST SEEKING PROFITS, THERE WILL NORMALLY BE TIM E LAG AND HENCE THE FACT THAT THE ASSESSEE HAS CHANGED THE CO DES AT THE END OF THE DAY ONLY SHOWS THAT THE ASSESSEE HAS CAR RIED OUT THE TRANSACTIONS ON BEHALF OF ITS CLIENTS ONLY. SUCH KI ND OF TRANSACTIONS SHALL USUALLY BE SPORADIC TRANSACTIONS , WHERE AS IN THE INSTANT * CASE, THE CLIENTS HAVE CARRIED OUT TH E TRANSACTIONS CONTINUOUSLY. FURTHER, IT IS PERTINENT TO NOTE THAT NONE OF THE CLIENTS, WITH WHOM THE ASSESSING OFFICER HAS CARRIE D OUT THE EXAMINATION, HAS DISOWNED THE TRANSACTIONS. FURTHER , ALL THE CLIENTS HAVE DULY DISCLOSED THE PROFITS ARISING FRO M THE TRANSACTIONS AS THEIR RESPECTIVE INCOME. THOUGH THE AO HAS ALLEGED THAT THE 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 FINDI NG THAT THE SAME WAS NOT TRUE IN ALL THE CASES. THE LD CIT(A) H AS POINTED OUT THAT MAJORITY OF THE CLIENTS HAVE PAID TAX ON T HE PROFITS. IT WAS FURTHER NOTICED THAT THE SOME OF THE TRANSACTIO NS HAVE 20 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. 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 TRANSACT IONS ON BEHALF OF ITS CLIENTS ONLY, EVEN THOUGH THE TRANSAC TIONS WERE EXECUTED IN THE CODE 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 FURTHER 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 SHIFTING OF PROFIT EARNED BY THE ASSESS EE 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 AS SESSING OFFICER. 14. ANOTHER IMPORTANT POINT THAT IS RELEVANT HERE IS THAT NONE OF THE CLIENTS WAS SHOWN AS RELATED TO THE ASSESSEE HE REIN. NORMALLY THE QUESTION OF SHIFTING OF PROFIT WOULD A RISE BETWEEN THE RELATED PARTIES ONLY. IF THE ASSESSEE HAD REALL Y SHIFTED THE PROFITS TO AN OUTSIDER, THEN THE HUMAN PROBABILITIE S WOULD SUGGEST THAT THE ASSESSEE WOULD HAVE RECEIVED BACK CORRESPONDING AMOUNT FROM THE RECIPIENT OF PROFIT. HOWEVER, IN THE INSTANT CASE, THE AO HAS NOT BROUGHT ANY MATERI AL ON RECORD TO SHOW THAT THE ASSESSEE HAD RECEIVED BACK CORRESPONDING AMOUNT EQUIVALENT TO THE AMOUNT OF PR OFIT CLAIMED TO HAVE BEEN SHIFTED TO THE CLIENTS. THE AO HAS MAINLY RELIED UPON THE REPORT GIVEN BY THE MCX AND HAS DRA WN ADVERSE CONCLUSIONS WITHOUT BRINGING ANY MATERIAL T O SUPPORT HIS VIEW. 21 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. 15. THE LD CIT(A) HAS ALSO POINTED OUT THAT MODIFIC ATIONS CARRIED OUT BY THE ASSESSEE WORKS OUT TO AROUND 3% OF THE T OTAL TRANSACTIONS ONLY AND IN OUR VIEW, THE SAID VOLUME, IN FACT, VINDICATES THE EXPLANATION OF THE ASSESSEE. FURTHER NONE OF THE CLIENTS HAS BEEN FOUND TO BE BOGUS AND ALL OF THEM HAVE COMPLIED WITH KYC NORMS, MEANING THEREBY THE IDENTI TY OF ALL THE CLIENTS STAND PROVED. NONE OF THEM HAS DISOWNED THE TRANSACTIONS AND ALL OF THEM HAVE ALSO DECLARED THE INCOME IN THEIR RESPECTIVE RETURNS OF INCOME. ALL THESE FACTO RS, 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 AD DITIONS MADE IN BOTH THE YEARS UNDER CONSIDERATION. IN OUR VIEW ALSO, THE ASSESSING OFFICER HAS DRAWN ADVERSE CONCLUSIONS AGAINST THE ASSESSEE WITHOUT PROPERLY BRINGING ANY MATERIALS TO SUPPORT THE VIEW, I.E., T HE ADDITIONS HAVE BEEN MADE ON SUSPICION AND SURMISES ONLY. ACCORDINGLY, WE UPHOLD 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 WA S FOUND BY THE TRIBUNAL AS WITHIN THE PERMISSIBLE LIMIT OF ERR OR MARGIN. THE AHMADABAD BENCHES OF THE TRIBUNAL IN THE CASE OF AC IT VS. M/S KUNVARJIT FINANCE PVT. LTD. (SUPRA) AND OTHERS IN B UNCH OF APPEALS HAS ANALYSED THE ISSUE IN PARA 8 TO 11 AS U NDER: 8. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF B OTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THE ASSE SSING OFFICER BELIEVED THE CLIENT CODE MODIFICATION TO BE MALAFIDE BECAUSE IN HIS OPINION THE CLIENT CODE MODIFICATION WAS FOR 22 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. UNUSUALLY HIGH NUMBER OF CASES. THEREFORE, FIRST TH ING TO BE DECIDED IS WHETHER THERE WAS THE CLIENT CODE MODIFI CATION FOR UNUSUALLY HIGH NUMBER OF CASES. THE COMMODITY EXCHA NGE I.E. MCX VIDE CIRCULAR NO.MCX/T&S/032/2007 DATED 22.01.2 007, ISSUED GUIDELINES WITH REGARD TO THE CLIENT CODE MO DIFICATION, 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: 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 GREATER THAN 5% BUT LESS THAN OR EQUAL TO 10% 1000 4 GREATER THAN 10% 10000 23 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. 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 ALL OWED ONLY UPTO 11:55 P.M. IN INTERNATIONAL REFERENCEABLE COMMODITIES (I. E. COMMODITIES 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 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 24 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. 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. 25 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. 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%, THERE FORE, THERE IS NO REASON TO DOUBT THE GENUINENESS OF THE CLIENT CODE MODIFICATION DONE BY THE BROKER IN THE TRANSACTIONS WHERE AFTER THE E XECUTION OF THE TRADE, THE BROKER HAS CARRIED OUT THE CORRECTION OF MISTAKES. A SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN THE SERIES O F DECISIONS AS REFERRED ABOVE. IN VIEW OF THE ABOVE FACTS AND CIRC UMSTANCES OF THE CASE AND FOLLOWING THE DECISIONS OF THE COORDINATE BENCHES OF THE TRIBUNALS, WE DO NOT FIND ANY ERROR OR ILLEGALITY I N THE IMPUGNED ORDER OF THE LD. CIT(A) QUA THIS ISSUE. HENCE, BOTH THESE GROUNDS OF REVENUES APPEAL ARE DISMISSED. 26 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. IN THE CASE IN HAND, THE AO HAS DISALLOWED THE CLAI M OF LOSS ON THE BASIS OF THE INFORMATION RECEIVED FROM THE ADIT (INV.) UNIT- 3, AHMEDABAD WITHOUT CONDUCTING ANY INDEPENDENT ENQUIRY OR TO BRING ANYT HING ON RECORD TO SHOW THAT A PARTICULAR TRANSACTION OF CLIENT CODE MODIFI CATION IS BOGUS. FURTHER, WHEN THE ENTIRE EXERCISE IS DONE BY THE BROKER AND ASSESSEE IS HAVING NO CONTROL OVER IT, THEN IN THE ABSENCE OF ANY MATERIA L OR FACT TO SHOW THE INVOLVEMENT OF THE ASSESSEE FOR SHIFTING THE ALLEGE D BOGUS LOSS/PROFIT, THE DISALLOWANCE MADE BY THE AO IS NOT SUSTAINABLE IN L AW. THE AO HAS JUST REPRODUCED THE REPORT OF THE INVESTIGATION WING WHE REIN GENERAL OBSERVATIONS WERE MADE BASED ON THE INVESTIGATION THAT SOME OF T HE BROKERS ARE INDULGED IN TRANSFERRING FICTITIOUS PROFIT/LOSS FROM ONE CLI ENT TO ANOTHER CLIENT IN THE GARB OF CLIENT CODE MODIFICATION. THE AO HAS DISCUSSED THE MODUS OPERANDI OF THE BROKER FOR DOING THESE ACTIVITIES. HOWEVER, NOTHIN G HAS BEEN BROUGHT ON RECORD TO SHOW THAT THE ASSESSEE HAS DONE ANYTHING WRONG IN RESPECT OF THE CLAIM OF LOSS OF RS. 3,12,790/- WHEREAS THE ASSESSE E HAS DECLARED A GROSS PROFIT OF MORE THE RS. 3.41 CRORES ON ACCOUNT OF SH ARE TRADING. ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND FOLL OWING THE EARLIER ORDER OF THIS TRIBUNAL IN THE CASE OF DCIT VS. GYANDEEP KHEM KA (SUPRA), THE DISALLOWANCE MADE BY THE AO IS DELETED. 7. UNDISPUTEDLY, THERE ARE NO CHANGES IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE AO HAS MADE THE ADDITION BASIS THE INFOR MATION RECEIVED FROM ADIT INVESTIGATION AND HELD THAT THE ASSESSEE WAS INVOLV ED IN SHIFTING OUT ASCERTAINED 27 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. PROFITS TO THE TUNE OF RS 11,68,470/- AND SHIFTING- IN ASCERTAINED LOSSES TO THE TUNE OF RS 1,38,640/- BY WAY OF CLIENT CODE MODIFICATION. THE AO HAS REFERRED TO THE REPORT OF THE INVESTIGATION WING AND GENERAL MODUS OPERAND I. HOWEVER, THERE IS NOTHING ON RECORD IN TERMS OF ANY INDEPENDENT EXAMINATION B Y THE AO OF THE TRANSACTIONS UNDERTAKEN BY THE ASSESSEE DURING THE YEAR WHEREIN IT HAS REPORTED GROSS PROFITS OF RS 1,66,00,661/- , SUMMONING AND EXAMINING THE BROK ER I.E, M/S C.M. GOENKA STOCK BROKERS PVT LTD AND DETERMINING ANY INVOLVEMENT OF ASSESSEE IN SUCH TRANSACTIONS. M/S C.M. GOENKA STOCK BROKERS PVT LTD HAS ALSO CONF IRMED THAT THERE ARE CERTAIN INADVERTENT GENUINE PUNCHING ERRORS WHICH WERE MODI FIED AS PER GUIDELINES LAID DOWN BY SEBI VIDE CIRCULAR DATED 6.02.2003, THEREFO RE, THE PUCHING ERRORS HAPPENED AT THE BROKER END AND NOT AT THE END OF THE ASSESSE E AND THERE IS NOTHING ON RECORD WHICH SUGGEST ANY INVOLVEMENT OF ASSESSEE OR THE FA CT THAT SUCH PUNCHING ERRORS WERE DONE AT THE BEHEST OF THE ASSESSEE. ACCORDING LY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND FOLLOWING THE DECISIO N OF THE COORDINATE BENCH IN ASSESSEES OWN CASE REFERRED SUPRA, THE ADDITION MA DE BY THE AO IS HEREBY DELETED. THE GROUND NO. 2 AND GROUND NO. 3, BEING CONSEQUENT IAL IN NATURE ARE THUS ALLOWED. 8. GROUND NO. 1 IS REGARDING VALIDITY OF ORDER PASS ED U/S 147 OF THE ACT HAS BECOME ACADEMIC IN NATURE IN VIEW OF OUR FINDING ON MERITS IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, WE DO NOT PROPOSE TO ADJUDI CATE GROUND NO. 1 OF THE ASSESSEE AND THE SAME IS DISMISSED AS INFRUCTIOUS. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISPOSED O FF IN LIGHT OF AFORESAID DIRECTIONS. 28 ITA NO. 1275/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. ORDER IS PRONOUNCED IN THE OPEN COURT ON 24/08/2020 . SD/- SD/- FOT; IKY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 24/08/2020 * GANESH KR. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SH. SANDEEP SHARMA, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- ACIT, CIRCLE-06, 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. 1275/JP/2019} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR