DCIT, Central Circle-1(1), Ahmedabad V. M/s. Kaizen Stock Trade Pvt. Ltd.(Now amalgamated with M/s. Kunvarji Fincorp Pvt. Ltd), Ahmedabad

ITA 1444/AHD/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 1755 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 01-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R R MAKWANA
• Assessee Lawyers: BIREN SHAH
• Keywords: Corroborative evidences
• Section: 143(3); 13; 148

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, D BENCH, AHMEDABAD (CONDUCTED THROUGH VIRTUAL COURT AT AHMEDABAD) BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ ITA NO. 1444/AHD/2018 WITH C.O.NO.99/AHD/2019 / ASSTT. YEAR: 2010-2011 D.C.I.T., CENTRAL CIRCLE-1(1), AHMEDABAD. VS. M/S KAIZEN STOCK TRADE PVT. LTD., (NOW AMALGAMATED WITH M/S.KUNVARJI FINCORP PVT. LTD.) 1 ST FLOOR, B WING, SIDDHIVINAYAK TOWERS, NEXT TO KATARIA HOUSE, NR. D.A.V. SCHOOL, OFF. S.G. HIGHWAY, MAKARBA, AHMEDABAD-380051. PAN: AADCK0048A (APPLICANT) (RESPONDENT) REVENUE BY : SHRI R.R. MAKWANA, SR. D.R ASSESSEE BY : SHRI BIREN SHAH, A.R /DATE OF HEARING : 12/04/2021 /DATE OF PRONOUNCEMENT: 03/06/2021 /O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL IS FILED BY THE REVENUE AND THE CO IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 11, AHMEDABAD, DATED 16/03/2018 (IN SHORT LD. CIT(A)) ARISING IN THE MATTER OF ASSESSMENT ORDER PASSED UNDER S. 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 ITA NO.1444/AHD/2018 WITH C.O. NO.99/AHD/2019 A.Y. 2010-2011 2 (HERE-IN-AFTER REFERRED TO AS 'THE ACT'). THE ASSESSEE HAS FILED THE CROSS OBJECTION IN THE REVENUES APPEALS BEARING ITA NO. 1444/AHD/2018 FOR THE ASSESSMENT YEAR 2010-2011. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF LOSS OF RS.1,86,47,974/- MADE IN HNADS OF ASSESSE WITHOUT APPRECIATING THAT ASSESSMENT ORDER HAD BROUGHT OUT THE ANALYSIS OF F & O DATA FROM STOCK EXCHANGE TO PROVE THAT CLIENT CODE CCM WAS TO CREATE BOGUS LOSSES TO TRANSFER PROFITS TO OTHER ENTITIES (INCLUDING FAMILY MEMBERS OF ASSESSE). 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW LD.CIT(A) ERRED IN THE ADDITION MADE IN HANDS OF ASSESSE ON LOSSES CREATED THROUGH CCM WITHOUT DISTINGUISHING THE FACRTS OF THE CITED CASE LAWS WHEN THESE CASE LAWS HAD BEEN DISTINGUISHED IN ASSESSMENT ORDER. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 4. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD.CIT(A) BE SET-ASIDE AND THAT THE ASSESSING OFFICER BE RESTORED TO THE ABOVE EXTENT. 3. THE ONLY ISSUE RAISED BY THE REVENUE IS THAT THE LEARNED CIT (A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR 1,86,47,974/- ON ACCOUNT OF THE PROFIT SHIFTED OUT AND THE LOSS SHIFTED IN BY WAY OF CLIENT CODE MODIFICATION. 4. THE ASSESSEE IN THE PRESENT CASE IS A PRIVATE LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF DEALING/BROKING OF SHARES. THE AO ON THE BASIS OF THE DATA RECEIVED FROM THE NATIONAL STOCK EXCHANGE FOUND THAT THERE WAS THE CHANGE IN THE CODE OF THE ASSESSEE MAINTAINED WITH THE BROKER WITH RESPECT TO CERTAIN TRANSACTIONS CARRIED OUT IN F AND O SEGMENT. AS A RESULT OF CHANGE IN THE CODE, THE ASSESSEE WAS ABLE TO SHIFT OUT ITS PROFIT OF 1,02,84,346/- AND SHIFT IN LOSS OF 83,63,627/- ONLY. THE DETAILS OF CLIENT CODE MODIFICATION MOTHS WISE ARE TABULATED AT PAGE 11 OF THE ASSESSMENT ORDER. AS PER THE AO, THE ASSESSEE BY WAY OF CLIENT CODE MODIFICATION, ESPECIALLY IN THE FUTURE AND OPTION SEGMENT WAS TRYING TO EVADE THE TAXES BY BOOKING THE ARTIFICIAL PROFITS AND LOSSES. THE RELEVANT OBSERVATION OF THE AO READS AS UNDER: ITA NO.1444/AHD/2018 WITH C.O. NO.99/AHD/2019 A.Y. 2010-2011 3 IN THE CASE OF THE ASSESSE THE NUMBER OF CHARACTERS OF THE ORIGINAL CLIENT CODE AND THE CHARACTER IN MODIFIED CODE, VIS--VIS, THEIR POSITION IN THE KEYBOARD IS EXAMINED. IT IS NOTICED THAT CHANGE OF THE CLIENT CODES INVOLVES MORE THAN ONE DIGIT(S), THERE IS NO SIMILARLY OF ORIGINAL CLIENT CODE AND MODIFIED CLIENT CODE, WHICH CAN BE CAUSE OF GENUINE TYPING MISTAKE OR COMMUNICATION ERROR. IT IS A DELIBERATE AND CONSISTENT EFFORT OF SHIFTING OF LOSSES FROM ONE CLIENT TO ANOTHER ETC. THE CLIENT CODE OF ASS IS 14004. DURING THE YEAR UNDER CONSIDERATION IN ALL TRADES WHERE CCM HAS HAPPENED, THE ORIGINAL CLIENT CODE IN THE TRADE OF SOME OTHER PERSON WAS SUBSEQUENTLY CHANGE TO THE ASSESSEES CODE AT THE END OF THE DAY. THEREBY THE LOSSES THAT HAD OCCURRED DURING THE DAY TO DIFFERENT PERSON HAS BEEN SHIFTED TO THE ASSESSEES CLIENT CODE. THE DETAILS OF THE ORIGINAL CLIENT CODE AND THE MODIFIED CLIENT CODE IS AS BELOW: SR.NO. ORIGNAL CLIENT CODE (OCC)* MODIFIED CLIENT CODE (MCC) MODIFIED CLIENT NAME CHARACTER EDIT DISTANCE BETWEEN OCC & MCC (LEVENSHTEIN DISTANCE) 1. CKJ27 CA099 ANIL KUMAR BANSAL 4 2. CKJ27 CKJ28 NILESH KANTILAL SHAH 1 3. CKJ27 CM013 DEVINDER KUMAR JAIN 4 4. CKJ27 CNM8 RAKESH KUMAR 4 5. CKJ27 CNS1 AMIT KUMAR JAIN (HUF) 4 6. CKJ27 CS053 SATISH KUMAR AGARWAL 4 SR.NO. ORIGNAL CLIENT CODE (OCC)* ORIGINAL CLIENT NAME MODIFIED CLIENT CODE (MCC)* CHARACTER EDIT DISTANCE BETWEEN OCC & MCC (LEVENSHTEIN DISTANCE) 1. 00110 JAYANTKUMAR & CO 10000 3 2. CBY373 CHARU MULTITRADE PRIVATE LIMITED CKJ27 4 3. UP104 G F L FINANCIALS INDIA DM046 4 4.1 THE AO IN VIEW OF THE ABOVE HELD THAT THE ASSESSEE HAS SHIFTED IN LOSS OF 8,63,627/- AND SHIFTED OUT PROFIT OF 1,02,84,346/- BY RESORTING TO THE TECHNIQUE OF CLIENT CODE MODIFICATION WHICH HAS RESULTED REDUCTION OF THE TAXABLE INCOME TO THE EXTENT OF 1,86,47,974/- ONLY. THUS THE AO ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED CIT (A). 5.1 THE ASSESSEE BEFORE THE LEARNED CIT-A SUBMITTED THAT THERE CANNOT BE ANY ADDITION MERELY ON THE BASIS OF THE INFORMATION RECEIVED FROM THE NATIONAL STOCK ITA NO.1444/AHD/2018 WITH C.O. NO.99/AHD/2019 A.Y. 2010-2011 4 EXCHANGE ABOUT THE MODIFICATION OF THE CLIENT CODE DONE BY THE BROKER. AS SUCH THERE WAS NO ALLEGATION EITHER FROM THE SEBI OR STOCK EXCHANGE THAT THE ASSESSEE OR ITS BROKERS WERE RESORTING TO ANY SUCH TAX EVASION USING THE MODEL OF CLIENT CODE MODIFICATION. THUS, MERELY THERE WERE CHANGES THE CODE OF THE ASSESSEE MAINTAINED WITH THE BROKER DOES NOT AUTHORIZE THE AO TO HOLD THAT THE TAXABLE INCOME OF THE ASSESSEE HAS REDUCED. ALL THE TRANSACTIONS OF SALE & PURCHASE OF THE FUTURE AND OPTIONS WERE DULY RECORDED IN THE BOOKS OF ACCOUNTS WHICH WERE ALSO ACCEPTED BY THE AO. 5.2 THE ASSESSEE FURTHER SUBMITTED THAT THE AO HAS MADE THE REFERENCE IN HIS ORDER OF THE STATEMENTS OF SOME SHARE BROKERS RECORDED UNDER SECTION 131(1A) OF THE ACT WHO ADMITTED TO HAVE MISUSED THE FACILITY OF CLIENT CODE MODIFICATIONS BY DIVERTING THE PROFIT AND LOSSES AMONG THE PARTIES ACCORDING TO THEIR NEEDS AND CONVENIENCE. BUT THE AO CANNOT ASSUME THE ALL THE PARTIES RESORTING TO SUCH PRACTICE WHEREVER THERE WERE CLIENT CODE MODIFICATIONS UNTIL AND UNLESS THERE WERE CORROBORATIVE EVIDENCES AVAILABLE ON RECORD. IN THE CASE ON HAND THERE WAS NO SUCH ALLEGATION EITHER AGAINST THE BROKER OR THE ASSESSEE SUGGESTING THAT THE ASSESSEE OR BROKER WAS INDULGED IN SUCH KIND OF TRADE PRACTICE. ACCORDINGLY THE AO CANNOT DRAW ANY INFERENCE AGAINST THE ASSESSEE ON THE BASIS OF THE STATEMENT OF THE BROKERS WHO WERE INDULGED IN SUCH PRACTICE OF CLIENT CODE MODIFICATION AS THE ASSESSEE IS NOT CONNECTED TO ANY OF THEM. 5.3 THERE WAS NO EVIDENCE BROUGHT ON RECORD BY THE AO SUGGESTING THAT THE ASSESSEE HAS SETTLED THE TRANSACTIONS BY WAY OF CASH WHERE CLIENT CODE WERE MODIFIED. ALL THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE WERE DULY SUPPORTED BASED ON THE DOCUMENTARY EVIDENCE WHICH WERE CARRIED OUT THROUGH THE BANKING CHANNEL. FURTHERMORE THE STOCK EXCHANGE PERMIT TO MAKE THE CHANGES IN CLIENT CODE IN THE ORDINARY COURSE WHERE PUNCHING MISTAKES HAVE BEEN COMMITTED BY THE BROKER OR ITS STAFF. THUS WHATEVER CHANGES WERE MADE BY THE BROKER IN ITS CODE WERE WITHOUT THE KNOWLEDGE OF THE ASSESSEE. IT WAS ALSO SUBMITTED THAT CLIENT CODE OF THE ASSESSEE ITA NO.1444/AHD/2018 WITH C.O. NO.99/AHD/2019 A.Y. 2010-2011 5 CAN BE MODIFIED BY THE BROKER ON THE APPLICATION MADE BY IT IN THE PRESCRIBED FORM AND DULY SIGNED. BUT THE AO HAS NOT BROUGHT ANYTHING ON RECORD SUGGESTING THAT THE ASSESSEE HAS MADE A REQUEST FOR THE CHANGE IN THE CLIENT CODE. THUS IT CAN BE INFERRED THAT WHATEVER CHANGES IN THE CASE OF THE ASSESSEE WERE MADE, IT WAS ON THE BEHEST OF THE BROKER ON ACCOUNT OF PUNCHING ERRORS. THUS THE ASSESSEE FOR SUCH CHANGES IN THE CLIENT CODE CANNOT BE BLAMED AND HELD GUILTY FOR DIVERTING THE PROFIT/LOSS AS THE CASE MAY BE. 5.4 THE BASIS ADOPTED BY THE AO I.E. IF THERE IS A CHANGE IN THE CLIENT CODE ON ACCOUNT OF CHANGE IN ONE DIGIT, THEN IT CAN BE A GENUINE PUNCHING ERROR OTHERWISE NOT IS WITHOUT ANY BASE. LIKEWISE IF THERE ARE CHANGES IN THE DIGITS ON ACCOUNT OF CLIENT CODE MODIFICATION RANGING BETWEEN 4 OR 5 THEN IT CANNOT BE SAID A GENUINE MISTAKE. THIS CONCLUSION OF THE AO IS BASED ON HIS SURMISE AND CONJECTURE WHICH HAS NO LEG TO STAND. THE ASSESSEE IN SUPPORT OF ITS CONTENTION RELIED ON THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF M/S GEETATAX VS DCIT IN SCA NO. 20977 OF 2016 DATED 20 DECEMBER 2016. 5.5 THE ASSESSEE ALSO SUBMITTED THAT THE TRANSACTIONS IN RESPECT OF WHICH CLIENT CODE WERE MODIFIED, WERE CARRIED OUT IN THE MONTH OF JUNE TO OCTOBER 2009 DURING THE MID-OF THE YEAR UNDER CONSIDERATION AND DURING THAT TIME IT WAS NOT POSSIBLE FOR THE ASSESSEE TO ASSESS ITS INCOME OR THE LOSS. THEREFORE, FOR THIS REASON AS WELL, IT CANNOT BE ALLEGED THAT THE ASSESSEE HAS DIVERTED ITS TAXABLE INCOME. 5.6 THE ASSESSEE FURTHER SUBMITTED THAT IT HAS CARRIED OUT THE TRANSACTION FOR THE PURCHASE AND SALE OF THE SECURITIES WHICH ARE RUNNING IN THOUSANDS WHEREAS THE TRANSACTIONS IN RESPECT OF WHICH CLIENT CODES WERE MODIFIED ARE JUST IN FEW NUMBERS. AS SUCH THE CHANGES IN THE CODE WERE MADE IN LESS THAN 1% OF THE TOTAL TRANSACTIONS THEREFORE NO DOUBT CAN BE RAISED ON THE INTEGRITY OF THE ASSESSEE. ITA NO.1444/AHD/2018 WITH C.O. NO.99/AHD/2019 A.Y. 2010-2011 6 6. THE LEARNED CIT (A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE HAS DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: DECISION: 5.3 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER AND SUBMISSION FILED BY APPELLANT. THE ASSESSING OFFICER HAS OBSERVED THAT APPELLANT HAS SHIFTED PROFIT FROM ITS TRANSACTIONS IN FUTURE AND OPTIONS SEGMENT FOR RS.1,02,84,346 AND SHIFTED IN LOSS OF RS.83,63,627 BY ADOPTING CLIENT CODE MODIFICATION (COM) TECHNIQUE. HE HAS MADE ADDITION OF RS.1,86,47,974 ON THE GROUND THAT APPELLANT HAS REDUCED ITS TAXABLE INCOME BY SUCH AMOUNT. THE AO HAS OBSERVED THAT ON THE BASIS OF INVESTIGATION CARRIED OUT BY THE DEPARTMENT IT WAS FOUND THAT CCM WAS USED AS A TOOL SO AS TO SYSTEMATICALLY PROFIT AND LOSSES IN LARGE NUMBER OF CASES. THE ASSESSING OFFICER HAS REFERRED TO SEBI'S ORDER DATED 10 TH APRIL, 2012 PASSED IN THE MATTER OF MODIFICATION OF CLIENT CODES OF TRADE AGAINST NATIONAL STOCK EXCHANGE WHEREIN IT WAS FOUND THAT CCM WAS CARRIED OUT WITH MALA FIDE INTENTIONS AND TO EVADE TAXATION. THE IMPORTANCE OF LEVENSHTEIN DISTANCE OR EDIT DISTANCE IS THAT IT GIVES A CLEAR INDICATION AS TO WHETHER THE CODE IS WRONGLY TYPED OR IS COMPLETELY REPLACED. IF THE NUMBER OF DIGITS CHANGED FROM ORIGINAL CODE TO MODIFICED CODE IS 1, THEN IT CAN BE REASONABLY ARGUED THAT THE OCC (ORIGINAL CLIENT CODE) MAY HAVE BEEN TYPED WRONGLY BY MISTAKE. BUT IF THE NUMBER OF DIGITS CHANGED IS MORE, SAY 4 OR 5, SURELY IT CANNOT BE A GENUINE TYPING MISTAKE BUT A DELIBERATE CHANGE. TO THIS EXTENT, LEVENSHTEIN DISTANCE ANALYSIS OR ACTS AS A CLEAR INDICATOR FOR GENUINENESS IN CLIENT CODE MODIFICATION. THE LONGER THE DISTANCE {I.E. NUMBER OF DIGITS CHANGED), THE LESSER THE CHANCES OF GENUINENESS. THE ANALYSIS OF LEVENSHTEIN DISTANCE OR DIGIT EDIT ANALYSIS, ESTABLISHES THE NON-GENUINENESS AND CONTRIVED NATURE OF THE CODE CHANGE. HERE, THERE ARE EDITS RANGING FROM THREE TO FIVE IN THE CLIENT CODE. IN THIS CASE, IT IS SEEN THAT THE CODE IS NOT MODIFIED BUT ACTUALLY REPLACED. THIS IS ONE OF THE INDICATORS OF NON-GENUINENESS OF CCM TRANSACTION. ON THIS BASIS, AO HAS MADE ADDITION. THE ASSESSING OFFICER HAS ALSO STATED THAT IN PRESENT CASE WHEN PROFIT IS SHIFTED OUT, NUMBER OF TRANSACTIONS OF APPELLANT IN ORIGINAL CLIENT CODE IS 51 OUT OF WHICH TRANSACTIONS OF 50 IS SHIFTED OUT WHICH MEANS THAT CCM IS FOR 98% TRANSACTIONS. SIMILARLY, WHEN THERE IS LOSS WHICH IS SHIFTED IN APPELLANT COMPANY, NUMBER OF TRANSACTIONS MODIFIED IS 12 WHICH IS EQUIVALENT TO LOSS SHIFTED IN WHICH REPRESENT 100% TRANSACTION. ON THIS GROUND AO HAS STATED THAT DECISION OF KUNVERJI FINANCE LIMITED IS NOT APPLICABLE. CONSIDERING THESE FACTS AO HAS MADE ADDITION OF RS.1,86,47,974. ITA NO.1444/AHD/2018 WITH C.O. NO.99/AHD/2019 A.Y. 2010-2011 7 ON THE OTHER HAND, APPELLANT HAS SUBMITTED THAT IT HAS RECORDED ALL THE TRANSACTIONS IN THE BOOKS OF ACCOUNT AS PER CONTRACT NOTES RECEIVED FROM BROKER AND ALL THE TRANSACTIONS ARE SETTLED THROUGH ACCOUNT PAYEE CHEQUES. THE ASSESSING OFFICER HAS NOT MADE ANY ENQUIRIES WITH THE BROKERS WHICH CAN PROVE THAT APPELLANT HAS CARRIED OUT CCM AT ITS OWN INSTANCE AND TRANSACTIONS ARE SETTLED THROUGH CASH. THE ARS OF THE APPELLANT HAVE ALSO ARGUED THAT NEITHER APPELLANT NOR BROKER IS ALLEGED BY SEB1/NSE FOR RESORTING ANY SUCH TAX EVASION PRACTICES THROUGH CCM METHOD. SIMPLE DATA OF NSE/SEBI STATING THAT CCM IS CARRIED OUT DOES NOT MEAN THAT SUCH MODIFICATION IS FOR EVADING TAX MORE PARTICULARLY WHEN AO HIMSELF IS ACCEPTING THE STAND THAT CCM WAS NEVER BEEN ILLEGAL. THE APPELLANT HAS ALSO ARGUED THAT AO HAS RELIED UPON SEB1 ORDER DATED 10 TH APRIL, 2012 AND GENERAL PREVAILING PRACTICE OF CCM BUT HAS NOT BROUGHT ANYTHING ON RECORD TO SUGGEST THAT TRANSACTIONS ARE SETTLED IN CASH AGAINST ALLEGED CCM OR CCM WAS CARRIED OUT AT THE INSTANCE OF APPELLANT. THE APPELLANT HAS ALSO ARGUED THAT AS PER DATA RELIED UPON BY AO BASED UPON INFORMATION FROM NSE/SEBI CCM ARE CARRIED OUT IN THE LAST QUARTER WHEREAS IN THE CASE OF APPELLANT NO SUCH TRANSACTIONS WAS CARRIED OUT IN THE LAST QUARTER. SO FAR AS ARGUMENT OF AO THAT CCM WAS CARRIED OUT IN 98 % OR 100% TRANSACTIONS, APPELLANT HAS CONTENDED THAT AO HAS COMPARED NUMBER OF TRANSACTIONS WHERE PROFIT IS SHIFTED OUT/LOSS IS SHIFTED IN WITH REFERENCE TO TRANSACTIONS WHERE ORIGINAL CLIENT CODE IS MODIFIED BUT HAS COMPLETED IGNORED TOTAL NUMBER OF TRADES CARRIED OUT BY APPELLANT. THE ARS OF THE APPELLANT HAVE GIVEN TOTAL NUMBER OF TRADES ON THE DATE ON WHICH AO HAS CONTENDED THAT CCM WAS CARRIED OUT WHICH PROVES THAT ON ONE SINGLE DAY TRADE NUMBERS ARE RANGING BETWEEN 2800 TO 9500 AND IF CCM IS COMPUTED CONSIDERING TOTAL TRADES CARRIED OUT BY APPELLANT THROUGHOUT THE YEAR SUCH RATIO WOULD BE LESS THAN 1%. THE APPELLANT HAS RELIED UPON VARIOUS DECISIONS IN SUPPORT OF ITS CLAIM WHICH MAINLY INCLUDES DECISION OF KUNVARJI FINANCE PVT. LTD. & GROUP 27 CASES IT(SS)A NO. 615/AHD/2010 DATED 19 TH MARCH, 2015, KOLKATA BENCH IN CASE OF AMRATBHAIINVESTRA PVT. LTD., IN ITA NO. 758/KOL/2014, DATED 3 RD MAY, 2017, MUMBAI BENCH IN CASE OF ITO V/S PAT COMMODITY SERVICES P. LTD., IN ITA NO. 3498 AND 2499/MUM/2-12, DATED 7 TH AUGUST, 2015, AHMEDABAD BENCH IN CASE OF M/S. SIDDHI BEVERAGES IN IT(SS)A NO. 409/AR,D/2013, DATED 31 ST AUGUST, 2016, AHMEDABAD ITAT IN CASE OF AMAR MUKESH SHAH REPORTED IN 81 TAXMANN.COM 450. THE ARS OF THE APPELLANT HAS ALSO STATED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT HAS SUBMITTED NUMBER OF CCM TRANSACTIONS V/S TOTAL TRANSACTIONS WHICH WERE WITHIN PRESCRIBED LIMIT FOR WHICH RELIANCE WAS PLACED ON DECISION OF AHMEDABAD ITAT IN THE CASE OF KUNVARII FINANCE (REFERRED SUPRA). THE APPELLANT HAS ALSO STATED THAT NUMBER OF EDITS CANNOT BE A FACTOR IN DECIDING GENUINENESS OF THE TRANSACTION AS OBSERVED BY HON'BLE GUJARAT HIGH COURT IN THE CASE OF GEETATAX V/S DCIT IN SCA NO. 20977 OF 2016 DATED 20 TH DECEMBER, 2016. THE APPELLANT HAS THUS ARGUED THAT ENTIRE ADDITION HAS BEEN MADE ON PRESUMPTION AND SURMISED HENCE SAME SHOULD BE DELETED. ITA NO.1444/AHD/2018 WITH C.O. NO.99/AHD/2019 A.Y. 2010-2011 8 5.4 ON CAREFUL CONSIDERATION OF ENTIRE FACTS IT IS OBSERVED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, APPELLANT HAS SUBMITTED DETAILS OF TRANSACTIONS CARRIED OUT BY IT WHICH ARE SUPPORTED BY CONTRACT NOTES ISSUED BY BROKER AND LEDGER ACCOUNT OF BROKERS, THE AO HAS PROCEEDED TO MAKE ENTIRE ADDITION ON THE BASIS OF DATA RECEIVED FROM NSE WHEREIN ORIGINAL CODE OF APPELLANT WAS MODIFIED WITH CODE OF OTHER PARTY AND ACCORDING TO SUCH DATA, AO WORKED OUT THAT APPELLANT HAS REDUCED ITS TAXABLE INCOME BY SHIFTING PROFIT TO OTHER PARTY OR LOSS WAS SHIFTED TO ACCOUNT OF APPELLANT. HOWEVER, SUCH OBSERVATION OF AO WAS NOT SUPPORTED BY ANY OTHER COGENT EVIDENCES WHICH CAN PROVE THAT APPELLANT HAS OBTAINED SUCH ACCOMMODATIVE ENTRIES FOR WHICH' SETTLEMENT IS DONE IN CASH. THE AO HAS REFERRED TO VARIOUS ENQUIRIES CARRIED OUT BY INVESTIGATION WING REGARDING CCM USED AS A TECHNIQUE TO REDUCE TAXABLE INCOME BY VARIOUS ASSESSEES HUT NO SUCH ENQUIRY HAS BEEN CARRIED OUT IN THE CASE OF APPELLANT'S BROKER NOR HAS AO PROVED THAT SEBI/NSE HAS MADE ANY ENQUIRY IN THE CASE_ OF APPELLANT OR HIS BROKER. THE ENQUIRIES IN THE CASES OF OTHER BROKERS WHICH HAVE NO RELATION WITH APPELLANT'S TRANSACTIONS DO NOT MEAN THAT APPELLANT HAS CARRIED OUT SUCH TRANSACTION AT HIS OWN INSTANCE TO EVADE TAX. THE APPELLANT HAS SUBMITTED THE LEDGER ACCOUNT OF BROKERS THROUGH WHOM IT HAS CARRIED OUT TRANSACTIONS AND SUCH TRANSACTIONS ARE SETTLED THROUGH ACCOUNT PAYEE CHEQUES. THE AO HAS NOT BROUGHT ANY EVIDENCES WHICH CAN PROVE THAT BROKER, APPELLANT AND OTHER PARTIES HAVE ARRANGED THESE TRANSACTIONS TO EVADE TAXES AND THERE IS CASH MOVEMENT FROM ONE HAND TO OTHER HAND. HON'BLE SUPREME COURT DECISION IN OMAR SALAY MOHAMED SAIT V/S CIT (37 ITR 151) AND UNION OF INDIA AND OTHERS V/S PLAYWORLD ELECTRONICS PVT. LTD., AND ANOTHER 184 ITR 308 HAS HELD THAT ASSESSMENT HAS TO BE BASED ON EVIDENCE AND NOT ON 'A GREAT DEAL OF SUSPICION 5.5 WHILE PASSING THE ASSESSMENT ORDER, AO HAS DISCUSSED GENERAL MODUS OPERAND! OF CCM BUT HAS NOT BROUGHT ANY MATERIAL FACTS RELATING TO APPELLANT TO PROVE THAT SUCH TRANSACTIONS ARE BOGUS OR UNACCOUNTED TRANSACTIONS ENTERED BY APPELLANT NOR NOTHING HAS BEEN BROUGHT ON RECORD THAT NSE HAS MADE ENQUIRY IN THE HANDS OF BROKERS OF APPELLANT. THE AO HAS OBSERVED THAT NUMBER OF TRANSACTIONS WHERE PROFIT IS SHIFTED OUT IS 50 OUT OF TRANSACTIONS WHERE ORIGINAL CLIENT CODE MODIFIED IS 51 AND NUMBER OF TRANSACTIONS WHERE A ASCERTAINED LOSS SHIFTED IN IS 12 OUT OF CLIENT CODE MODIFIED IN 12 TRANSACTIONS WHICH MEANS THAT 98% TO 100% TRANSACTIONS ARE THROUGH CCM. THE APPELLANT HAS SUBMITTED TOTAL NUMBER OF TRADES CARRIED OUT WITH TRANSACTIONS WITH ONE BROKER FOR THE PERIOD DURING WHICH AO HAS OBSERVED THAT CCM WAS CARRIED OUT BY APPELLANT, WHICH SHOWS THAT TOTAL TRADES CARRIED OUT BY APPELLANT ON A SINGLE DATE IS MORE THAN 2500 AND EVEN ON VARIOUS DATES IT IS RANGING BETWEEN 5000 AND 9000. THE APPELLANT IS ACTIVELY ENGAGED IN DEALING IN SHARES WHICH INCLUDES TRANSACTIONS OF SHARES AND COMMODITIES. THE TOTAL SALE OF COMMODITIES IS FOR ITA NO.1444/AHD/2018 WITH C.O. NO.99/AHD/2019 A.Y. 2010-2011 9 RS.13.57 CRORES AND SALE OF SHARES IS FOR RS.1096.21 CRORE, WHICH CLEARLY PROVES THAT TOTAL NUMBER OF TRADES THROUGHOUT THE YEAR ARE HUGE AND IF CCM IS COMPARED WITH TOTAL TRADES CARRIED OUT BY APPELLANT, IT IS LESS THAN 1%. THUS, AO'S OBSERVATION THAT APPELLANT HAS CARRIED OUT CCM FOR 98% TO 100% TRANSACTIONS IS INCORRECT. HON'BLE ITAT. AHMEDABAD. IN THE CASE OF KUNVARJI FINANCE PYT. LTD. & GROUP 27 _CASES IT(SS)A NO. 615/AHD/2010, DATED 19 TH MARCH, 2015 HAS HELD AS UNDER: '11. THE LEARNED COMMISSIONER (APPEALS) 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 MAINTAINED BY THE CONCERNED PARTIES. SUCH PROFITS/LOSS HAS BEEN DULY ACCOUNTED WHENEVER THE TRANSACTIONS HAVE BEEN CLOSED. THUS, WHATEVER PROFITS HAVE BEEN GENERATED OR ACCOUNTING OF ACTUAL TRADE, HAVE BEEN OFFERED AND BROUGHT TO THE CHARGE OF TAX IN THE CASES OF CONCERNED ASSESSES. THESE FINDINGS OF FACT RECORDED BY THE LEARNED COMMISSIONER (APPEALS) HAS NOT BEEN CONTROVERTED BY THE REVENUE AT THE TIME OF HEARING BEFORE US. WHEN THE TRANSACTION HAS BEEN DULY ACCOUNTED FOR AND THE PROFIT/LOSS HAS ACCRUED TO THE CONCERNED PARTIES IN WHOSE NAMES TRANSACTIONS HAVE BEEN CLOSED, THERE CANNOT BE ANY BASIS OR JUSTIFICATION FOR CONSIDERING THOSE PROFIT/LOSS IN THE CASE OF THE ASSESSEE ON THE BASIS OF MERE PRESUMPTION OR SUSPICION. IT IS NET THE CASE 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 COMMISSIONER (APPEALS) IN THIS REGARD AND THE SAME IS SUSTAINED; AND GROUND NOS. 1 AND 3 OF THE REVENUE'S APPEAL ARE REJECTED.' IN ABOVE REFERRED CASE HON'BLE ITAT HAS FURTHER HELD AS UNDER: 'AS PER COMMODITY EXCHANGE, IF CLIENT CODE MODIFICATION IS UPTO 1% OF THE TOTAL ORDERS, THERE IS NO PENALTY AND IF IT IS GREATER THAN 1% BUT LESS THAN 5%, THE PENALTY IS RS.500. IF IT IS GREATER THAN 5% BUT LESS THAN 10%, PENALTY IS RS.1000 AND IF IT IS GREATER THAN 10% THEN PENALTY IS RS.10,000. FROM THE ABOVE, THE ONLY INFERENCE THAT CAN BE DRAWN IS THAT AS PER MCX, THE CLIENT CODE MODIFICATION UPTO 1% IS ABSOLUTELY NORMAL AND THEREFORE, THE BROKER IS PERMITTED TO MODIFY THE CLIENT CODE UPTO 1% WITHOUT PAYING ANY PENALTY. EVEN CLIENT CODE MODIFICATION UPTO 5% IS NOT CONSIDERED UNUSUALLY HIGH BECAUSE THAT IS ALSO PERMITTED WITH THE TOKEN PENALTY OF RS.500. IN THE CONTEXT OF THE CIRCULAR ISSUED BY COMMODITY EXCHANGE, LET US EXAMINE WHETHER THE CLIENT CODE MODIFICATION DONE BY THE BROKER I.E. KCBPL IS UNUSUALLY HIGH. AT PAGE NO,16 ON PARAGRAPH NO.4.3, 'THE COMMISSIONER (APPEALS) HAS GIVEN THE NUMBER OF TRANSACTIONS ENTERED INTO BY THE ASSESSEE FOR THE PERIOD 2004-05 TO 2007-08 AND THE NUMBER OF CLIENT CODE MODIFICATION AND PERCENTAGE THEREOF. WE HAVE ALSO REPRODUCED THE SAME AT PARAGRAPH NO.6 OF OUR ORDER. FROM THE SAID DETAILS, IT IS EVIDENT THAT THE CLIENT CODE MODIFICATION WAS DONE IN FOUR YEARS 36,161 TIMES. AS AN ABSOLUTE FIGURE, TBE 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 ITA NO.1444/AHD/2018 WITH C.O. NO.99/AHD/2019 A.Y. 2010-2011 10 IS ONLY 36,161. THEREFORE, THE CLIENT CODE MODIFICATION 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 OFFICER HAS NOT GIVEN ANY REASON ON WHAT BASIS HE PRESUMED THE CLIENT CODE MODIFICATIONS TO BE UNUSUALLY HIGH. IN THE LIGHT OF THE MCX CIRCULAR, WE ARE OF THE OPINION THAT THE CLIENT CODE MODIFICATION WAS QUITE NOMINAL AND NOT UNUSUALLY HIGH AS ALLEGED BY THE ASSESSING OFFICER.' IT IS ALSO OBSERVED IN THE CASE OF ACIT V/S AMAR MUKESH SHAH 81 TAXMANN.COM 450 WHEREIN THE ASSESSEE WAS AN INDIVIDUAL STATED TO BE CARRYOUT OUT THE BUSINESS OF TRADING IN SHARES AND INVESTMENTS AND ON IDENTICAL FACTS, THE HON'BLE AHMEDABAD ITAT HAS HELD AS UNDER: 'WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT ID. CIT(A) WHILE DELETING THE ADDITION HAS NOTED THAT THE A.O HAD CALCULATED NOTIONAL PROFITS ON THE ASSUMPTION AS IF CLIENT CODE MODIFICATIONS WERE NOT CARRIED OUT AND THE TRANSACTIONS WERE CLOSED ON THE EXPIRY DATE. LD. CIT(A) HAS FURTHER NOTED THAT WHILE DECIDING THE APPEAL IN THE CASE OF KUNWARJI FINANCE (P.) LTD. FOR A.Y. 2005-06 TO 2008-09 HE HAS HELD THAT THE ADDITION ON THE BASIS OF CLIENT CODE MODIFICATIONS WAS ON THE BASIS OF ASSUMPTION AND SURMISES AND WAS NOT ON THE BASIS OF CONCEPT OF REAL INCOME. WE FURTHER FIND THAT IN THE CASE OF KUNWARJI FINANCE (P.) LTD. (SUPRA) AGAINST THE ORDER OF ID. CIT(A), REVENUE HAD PREFERRED APPEAL BEFORE THE CO-ORDINATE BENCH OF TRIBUNAL WHICH WAS DISMISSED BY THE CO-ORDINATE BENCH BY ORDER DATED 19.03.2015 AND THE RELEVANT FINDING OF THE CO-ORDINATE BENCH READS AS UNDER:- WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THE ASSESSING OFFICER BELIEVED THE CLIENT CODE MODIFICATION TO BE MALAFIDE BECAUSE IN HIS OPINION THE CLIENT CODE MODIFICATION WAS FOR UNUSUALLY HIGH NUMBER OF CASES. THEREFORE, FIRST THING TO BE DECIDED IS WHETHER THERE WAS THE CLIENT CODE MODIFICATION FOR UNUSUALLY HIGH NUMBER OF CASES. 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/03 2/2007 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-LL (VOL III) DATED DECEMBER 20, 2006 AND JANUARY 5, 2007 HAS DIRECTED AS UNDER. A. THE FACILITY OF CLIENT CODE MODIFICATIONS INTRA-DAY ARE ALLOWED. ITA NO.1444/AHD/2018 WITH C.O. NO.99/AHD/2019 A.Y. 2010-2011 11 B. THE MEMBERS ARE ALSO ALLOWED TO CHANGE THEIR CLIENT 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 FRIDAYS 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 ONLY UPTO 12:00 P.M. D. AT ALL TIMES. PROPRIETARY TRADES SHALL NOT BE ALLOWED TO BE MODIFIED AS CLIENT TRADES AND CLIENT TRADES SHALL NOT BE ALLOWED TO BE MODIFIED AS PROPRIETARY TRADES. E. IN ORDER TO ENSURE THAT CLIENT CODES ARE ENTERED WITH ALERTNESS AND CARE, A PENALTY ON THE CLIENT CODE CHANGES MADE ON A DAILY BASIS SHALL BE IMPOSED AS UNDER F. IT IS CLARIFIED THAT THE FACILITY OF CLIENT CODE 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. MEMBERS MAY PLEASE NOTE THAT THE CLIENT CODE MODIFICATIONS WILL BE ALLOWED 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 DIRECTIVES AND ENSURE STRICT COMPLIANCE.' FROM THE ABOVE, IT IS EVIDENT THAT CLIENT CODE MODIFICATION IS PERMITTED INTRA-DAY, I.E. ON THE SAME DAY. AS PER COMMODITY EXCHANGE, IF CLIENT CODE MODIFICATION IS UPTO 1% OF THE TOTAL ORDERS, THERE IS NO PENALTY AND IF IT IS GREATER THAN 1% BUT LESS THAN 5%, THE PENALTY IS RS.500/-. IF IT IS GREATER THAN 5% BUT LESS THAN 10%, PENALTY IS RS.1000/- AND IF IT IS GREATER THAN 10%, THEN PENALTY IS RS.10,000/-. FROM THE ABOVE, THE ONLY INFERENCE THAT CAN BE DRAWN IS THAT AS PER MCX, THE CLIENT CODE MODIFICATION UPTO 1% IS ABSOLUTELY NORMAL AND THEREFORE, THE BROKER IS PERMITTED TO MODIFY THE CLIENT CODE UPTO 1% WITHOUT PAYING ANY PENALTY. EVEN CLIENT CODE MODIFICATION UPTO 5% IS NOT CONSIDERED UNUSUALLY HIGH BECAUSE THAT IS ALSO PERMITTED WITH THE TOKEN PENALTY OF RS.500/-. IN THE CONTEXT OF THE CIRCULAR ISSUED BY COMMODITY EXCHANGE, LET US EXAMINE WHETHER THE CLIENT CODE MODIFICATION DONE BY THE BROKER I.E. KCBPL IS UNUSUALLY 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 PERIOD 2004-05 TO 2007-08 AND SR. NO. PERCENTAGE OF CLIENT CODE CHANGED TO TOTAL ORDERS (MATCHED) ON A DAILY BASIS PENALTY (RS.) LESS THAN OR EQUAL TO 1% NIL GREATER THAN 1 % BUT LESS THAN OR EQUAL TO 5% 500 GREATER THAN 5% BUT LESS THAN OR EQUAL TO 10% 1000 GREATER THAN 10% 10000 ITA NO.1444/AHD/2018 WITH C.O. NO.99/AHD/2019 A.Y. 2010-2011 12 THE NUMBER OF CLIENT CODE MODIFICATION AND PERCENTAGE THEREOF. WE HAVE ALSO REPRODUCED THE SAME AT PARAGRAPH NO.6 OF OUR ORDER. FROM THE SAID DETAILS, IT IS EVIDENT THAT THE CLIENT CODE MODIFICATION WAS DONE IN FOUR YEARS 36,161 TIMES. AS 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 MODIFICATION 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 OFFICER HAS NOT GIVEN ANY REASON ON WHAT BASIS HE PRESUMED THE CLIENT CODE MODIFICATIONS TO BE UNUSUALLY HIGH, IN THE LIGHT OF THE MCX CIRCULAR, WE ARE OF THE OPINION THAT THE CLIENT CODE MODIFICATION WAS QUITE NOMINAL AND NOT UNUSUALLY HIGH AS ALLEGED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER HELD THE CLIENT CODE MODIFICATIONS TO BE MALAFIDE WITH THE INTENTION TO TRANSFER THE PROFIT TO OTHER PERSON BY MODIFYING THE CLIENT CODE SO AS TO AVOID THE PAYMENT OF TAX. FROM THE CIRCULAR OF THE COMMODITY EXCHANGE, IT IS EVIDENT THAT CLIENT CODE MODIFICATION IS PERMITTED ON THE SAME DAY. THEREFORE, WE ARE UNABLE TO FIND OUT ANY JUSTIFICATION FOR THE ALLEGATION OF THE ASSESSING OFFICER THAT THE CLIENT CODE MODIFICATION WAS WITH THE MALAFIDE INTENTION. WHEN THE CLIENT CODE WAS MODIFIED ON THE SAME DAY, THERE CANNOT BE ANY MALAFIDE INTENTION. HAD CLIENT MODIFICATION DONE AFTER THE TRANSACTIONS PERIOD WHEN THE PRICE OF THE COMMODITY HAS ALREADY CHANGED, THEN PERHAPS THERE COULD HAVE BEEN SOME BASIS TO PRESUME THAT CLIENT CODE MODIFICATION IS INTENTIONAL. HOWEVER, WHEN THE CLIENT CODE MODIFICATION IS DONE ON THE SAME DAY, IN OUR OPINION, THERE WAS NO BASIS OR JUSTIFICATION TO HOLD THE SAME TO BE MALAFIDE. MOREOVER, THE ID. ASSESSING OFFICER HAS COMPUTED THE NOTIONAL PROFIT/LOSS TILL THE TRANSACTIONS PERIOD AND NOT TIL! THE PERIOD BY WHICH THE CLIENT CODE MODIFICATION TOOK PLACE. EVEN IF THE VIEW OF THE REVENUE IS ACCEPTED THAT THE CLIENT CODE MODIFICATION WAS WITH MALAFIDE INTENTION, THEN THE PROFIT OR LOSS ACCRUED TILL THE CLIENT CODE MODIFICATION CAN BE CONSIDERED IN THE CASE OF THE ASSESSEE BUT BY NO STRETCH OF IMAGINATION THE PROFIT/LOSS ARISING AFTER THE CLIENT CODE MODIFICATION CAN BE CONSIDERED IN THE HANDS OF THE ASSESSEE. THE ID. 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 MAINTAINED BY THE CONCERNED PARTIES. SUCH PROFITS/LOSS HAS BEEN DULY ACCOUNTED WHENEVER THE TRANSACTIONS HAVE BEEN CLOSED. THUS, WHATEVER PROFITS HAVE BEEN GENERATED OR ACCOUNTING OF ACTUAL TRADE, HAVE BEEN OFFERED AND BROUGHT TO THE CHARGE OF TAX IN THE CASES OF CONCERNED ASSESSEES.' THESE FINDINGS OF FACT RECORDED BY THE ID. CIT(A) HAS NOT BEEN CONTROVERTED BY THE REVENUE AT THE TIME OF HEARING BEFORE US. WHEN THE TRANSACTION HAS BEEN DULY ACCOUNTED FOR AND THE PROFIT/LOSS HAS ACCRUED TO THE CONCERNED PARTIES IN WHOSE NAMES TRANSACTIONS HAVE BEEN CLOSED, THERE CANNOT BE ANY BASIS OR JUSTIFICATION FOR CONSIDERING THOSE PROFIT/LOSS ITA NO.1444/AHD/2018 WITH C.O. NO.99/AHD/2019 A.Y. 2010-2011 13 IN THE CASE OF THE ASSESSEE ON THE BASIS OF MERE PRESUMPTION OR SUSPICION. IT IS NOT THE CASE 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 REGARD AND THE SAME IS SUSTAINED; AND GROUND NOS. 1 AND 3 OF THE REVENUE'S APPEAL ARE REJECTED. 11. IN THE PRESENT CASE, ID. CIT(A) WHILE DELETING THE ADDITION HAD RELIED ON THIS DECISION IN THE CASE OF KUNWARJI FINANCE PVT. LTD. AND THE ORDER OF ID. C1T(A) IN THAT CASE WAS UPHELD BY THE CO-ORDINATE BENCH OF 1TAT AS CITED HEREINABOVE. BEFORE US, REVENUE HAS NOT BROUGHT ANY DISTINGUISHING FEATURE IN THE CASE OF ASSESSEE OR THAT OF KUNWARJI FINANCE PVT. LTD. IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF ID. CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED.' THE APPELLANT HAS ALSO RELIED UPON DECISIONS LIKE SIDDHI BEVERAGES IN IT (S3) A NO. 409/AHD/2013 DATED 31 ST AUGUST, 2016, MUMBAI BENCH IN THE CASE OF ITO V/S PAT COMMODITY SERVICES PVT. LTD., IN ITA NO. 3498 AND 3499/MUM/2012 DATED 7 TH AUGUST, 2015, SAMBHAVNATH INVESTMENT V/S THE ACIT, CENTRAL CIRCLE -46, MUMBAI ITA NO.3109/MUM/2011 DATED 31 ST DECEMBER, 2013 WHICH ALSO SUPPORT THE VIEW OF APPELLANT. 5.6 IT IS ALSO OBSERVED THAT WHILE PASSING THE ASSESSMENT ORDER, AO HAS STATED THAT SEBI IN JULY 2011 HAS MADE MORE STRINGENT RULES OF CCM AS THERE WAS LARGE NUMBER OF CCM IN THE MONTH OF MARCH 2010 AND EVEN BROKER HAS CARRIED OUT LARGE NUMBER OF CCM IN LAST MONTH OF FINANCIAL YEARS. HOWEVER, AS PER TABULAR CHART REPRODUCED IN APPELLANT'S CASE HEREIN ABOVE, IT IS OBSERVED THAT CCM HAS NOT BEEN CARRIED OUT IN JANUARY TO MARCH 2010. EVEN, IN CASE OF APPELLANT, TOTAL CCM AS REPORTED BY AO WAS 62 AND SUCH TRANSACTIONS ARE IN SECOND AND THIRD QUARTER. IT IS OBSERVED THAT ANY ASSESSEE CAN KNOW HIS PROFIT ONLY AT THE FAG END OF THE YEAR AND IF THERE IS PROFIT, IT MAY RESORT TO METHOD FOR REDUCING TAXABLE INCOME WHEREAS IN PRESENT CASE, NO SIGNIFICANT CCM HAS BEEN CARRIED OUT IN LAST QUARTER. THUS, PRESUMPTION OF AO THAT CCM WAS CARRIED OUT TO REDUCE TAXABLE INCOME DOES NOT SURVIVE IN PRESENT CASE. 5.7 WHILE PASSING THE ASSESSMENT ORDER AO HAS RELIED ON THE ANALYSIS OF LEVENSHTEIN DISTANCE OF DIGIT EDIT ANALYSIS AND STATED THAT SINCE THERE ARE EDITS RANGING FROM THREE TO FIVE IN THE CLIENT CODE IT IS OBVIOUS THAT THE CODE IS NOT MODIFIED BUT ACTUALLY REPLACED. HOWEVER, THIS IS ONLY PRESUMPTION AND DOES NOT PROVE THAT CCM WAS MADE TO REDUCE TAXABLE INCOME. IT IS ALSO OBSERVED THAT SUCH ISSUE WAS DEALT BY HON'BLE GUJARAT HIGH COURT IN THE CASE OF GEETATAX V/S DCIT IN SCA NO./ 20977 OF 2016, DATED 20 TH DECEMBER, 2016 (THOUGH ITA NO.1444/AHD/2018 WITH C.O. NO.99/AHD/2019 A.Y. 2010-2011 14 IN SAID CASE, NOTICE UNDER SECTION 148 WAS CHALLENGED BUT FINDING IS RELEVANT FOR ADJUDICATING THE OBSERVATION MADE BY AO} AS UNDER : '.......... EVEN THE REASONS GIVEN BY THE ASSESSING OFFICER THAT IF THE NUMBER OF DIGITS ARE CHANGED FROM ORIGINAL CODE TO MODIFIED CODE IS 1, THEN IT CAN BE REASONABLY ARGUED THAT THE ORIGINAL CLIENT CODE MAY HAVE BEEN TYPED WRONGLY BY MISTAKE. SIMILARLY, IF THE NUMBER OF DIGITS CHANGED IS MORE SAY 4 OR 5, IT CANNOT BE A GENUINE MISTAKE, BUT A DELIBERATE CHANGE. THERE CANNOT BE ANY PRESUMPTION THAT IF THE NUMBER OF DIGITS CHANGED FROM ORIGINAL CODE TO MODIFIED CODE IS 2, THEN AND THEN ONLY IT CAN BE SAID THAT THE SAME HAVE BEEN TYPED WRONGLY BY6 MISTAKE AND IF THE NUMBER OF DIGITS CHANGED IS FOR MORE THAN ONE, THAT IS TO SAY 4 OR 5, THEN IT CANNOT BE SAID TO BE A GENUINE MISTAKE, BUT A DELIBERATE CHANGE. UNDER THE CIRCUMSTANCES, EVEN THE REASONS RECORDED BY THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT, WHICH IS BEYOND THE PERIOD OF FOUR YEARS, CANNOT BE SUSTAINED.' 5.8 CONSIDERING THE FACTS DISCUSSED HEREIN ABOVE AND RELYING UPON DECISIONS REFERRED SUPRA, IT IS HELD THAT AO HAS MADE ENTIRE ADDITION ON THE BASIS OF PRESUMPTION AND HAS NOT PROVED THAT APPELLANT HAS EVADED TAXES HENCE ADDITION MADE BY AO FOR RS.1,86,47,974 FOR CCM IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 7. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A), THE REVENUE IS IN APPEAL BEFORE US. 8. THE LEARNED DR BEFORE US SUBMITTED THAT THERE WAS NO PUNCHING ERROR WITH RESPECT TO THE CODES MODIFIED. ACCORDINGLY, THE LEARNED DR CONTENDED THAT THE ASSESSEE HAS SHIFTED OUT ITS PROFIT AND SHIFTED IN THE LOSS IN ORDER TO AVOID THE TAX LIABILITY. 9. ON THE CONTRARY THE LEARNED AR BEFORE US FILED A PAPER BOOK RUNNING FROM PAGES 1 TO 190 AND CONTENDED THAT THERE WAS NO MODIFICATION IN THE CODE OF THE ASSESSEE IN THE MANNER AS ALLEGED BY THE AO. 10. BOTH THE LEARNED DR AND THE AR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW AS FAVOURABLE TO THEM. ITA NO.1444/AHD/2018 WITH C.O. NO.99/AHD/2019 A.Y. 2010-2011 15 11. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE PRECEDING DISCUSSION, WE NOTE THAT THE ASSESSEE WAS ALLEGED TO HAVE SHIFTED OUT ITS PROFIT AND SHIFTED IN LOSS OF 1,02,84,346/- AND 83,63,627/- RESPECTIVELY ON ACCOUNT OF THE TRANSACTIONS IN F & O SEGMENT THROUGH THE INVOLVEMENT OF THE BROKER. ACCORDINGLY THE AO MADE THE ADDITION OF RS. 1,86,47,974/-/- TO THE TOTAL INCOME OF THE ASSESSEE. THE VIEW TAKEN BY THE AO WAS SUBSEQUENTLY REVERSED BY THE LEARNED CIT (A) FOR THE REASONS AS DISCUSSED ABOVE. 11.1 CLIENT CODE MODIFICATION MEANS MODIFICATION / CHANGE OF THE CLIENT CODES AFTER EXECUTION OF TRADES. STOCK EXCHANGES PROVIDE A FACILITY TO MODIFY ANY CLIENT CODE AFTER THE TRADE HAS BEEN EXECUTED TO RECTIFY ANY ERROR OR WRONG DATA ENTRY DONE BY THE DEALERS AT THE TIME OF PUNCHING ORDERS. HOWEVER, SUCH CLIENT CODE MODIFICATION IS SUBJECT TO CERTAIN GUIDELINES AS TO THE TIME LIMIT WITHIN WHICH THE CLIENT CODE MODIFICATION IS TO BE CARRIED OUT, TERMINAL / SYSTEM ON WHICH SUCH MODIFICATIONS CAN BE DONE ETC. THE FACILITY IS MAINLY TO PROVIDE A SYSTEM FOR MODIFICATION OF CLIENT CODES IN CASE GENUINE ERRORS IN PUNCHING / PLACING THE ORDERS. IT IS TO BE USED AS AN EXCEPTION AND NOT A ROUTINE. TO PREVENT MISUSE OF THE FACILITY STOCK EXCHANGES LEVY PENALTY / FINE FOR ALL NON-INSTITUTIONAL CLIENT CODE MODIFICATIONS. 11.2 COMING TO THE FACTS OF THE PRESENT CASE, ADMITTEDLY CLIENT CODES WERE MODIFIED OF THE ASSESSEE AS PER THE INFORMATION RECEIVED FROM THE STOCK EXCHANGE. HOWEVER, THE FIRST QUESTION THAT ARISES WHETHER SUCH CLIENT CODES WERE MODIFIED AT THE INSTANCE OF THE ASSESSEE OR THERE WAS SOME PUNCHING ERROR AT THE END OF THE SHARE BROKER. IT IS BECAUSE THE STOCK EXCHANGE PERMITS THE SHARE BROKER TO RECTIFY THE MISTAKES OCCURRED WHILE PUNCHING THE DATA. IF THAT BE SO, THEN THERE CANNOT BE ANY FAULT WHICH CAN BE ATTRIBUTED TO THE ASSESSEE FOR THE MISTAKES COMMITTED BY THE SHARE BROKER. ITA NO.1444/AHD/2018 WITH C.O. NO.99/AHD/2019 A.Y. 2010-2011 16 11.3 FURTHERMORE, THE CLIENT CODE MODIFICATIONS MAY GIVE RISE TO THE DOUBT/ SUSPICION WHICH REQUIRES DETAILED INVESTIGATIONS FROM THE PARTIES CONCERNED TO REVEAL THE TRUTH. MERELY, THERE WERE CLIENT CODES MODIFICATIONS CARRIED OUT BY THE BROKER CANNOT BE THE BASIS TO DRAW AN INFERENCE AGAINST THE ASSESSEE. IN FACT, IN CASE OF CLIENT CODE MODIFICATION THE CODE OF THE OTHER PARTY IS ENTERED AT THE PLACE OF THE ASSESSEE. THUS THE OTHER PARTY IS ALSO REQUIRED TO BE INVESTIGATED WHETHER THE OTHER PARTY WAS INVOLVED IN SUCH TRANSACTION. BESIDES THIS THERE HAS TO BE BROUGHT OTHER CORROBORATIVE EVIDENCES SUGGESTING THAT THERE WAS THE EXCHANGE OF CASH AMONG THE PARTIES INVOLVED IN SUCH CLIENT CODE MODIFICATION. BUT WE NOTE THAT NO SUCH EXERCISE HAS BEEN CARRIED OUT BY THE AUTHORITIES BELOW. AS SUCH THERE IS NO WHISPER IN THE ORDER OF THE AUTHORITIES BELOW THAT THERE WAS THE CASH TRANSFER BETWEEN THE PARTIES FOR TRANSFERRING THE INCOME OF THE ASSESSEE TO THE OTHER PARTY AND VICE VERSA. THUS IN THE ABSENCE OF SUCH VERIFICATION/EXAMINATION CARRIED OUT BY THE AUTHORITIES BELOW, WE ARE NOT INCLINED TO UPHOLD THE FINDINGS OF THE AO. 11.4 IT IS ALSO SIGNIFICANT TO NOTE THAT THE NUMBER OF TRANSACTIONS IN RESPECT OF WHICH THE CLIENT CODES WERE MODIFIED ARE LESS THAN 1% OF THE TOTAL TRANSACTIONS CARRIED OUT BY THE ASSESSEE. THEREFORE, SUCH CHANGES IN THE CLIENT CODE CANNOT BE SAID AS A COLOURABLE DEVICE ADOPTED FOR SHIFTING OUT AND SHIFTING IN THE PROFIT/LOSS. 11.5 LIKEWISE, THE CHANGES IN THE CODES WERE NOT MADE AT THE FAG END OF THE YEAR UNDER CONSIDERATION I.E. MARCH 2010. IN OTHER WORDS IT WAS NOT POSSIBLE FOR THE ASSESSEE TO ASCERTAIN ITS PROFIT OR THE LOSS DURING THE TIME WHEN CODE WERE MODIFIED AS THE CHANGES WERE MADE IN THE MID-OF THE YEAR. THUS IT CANNOT BE SAID THAT THE ASSESSEE TO REDUCE ITS TAXABLE INCOME HAS RESORTED TO CLIENT CODE MODIFICATION METHOD. 11.6 SIMILARLY THERE IS NO BASIS ON THE PART OF THE AO ALLEGING THAT CHANGES IN THE CODE LIMITED TO ONE DIGIT REPRESENT GENUINE PUNCHING ERRORS WHEREAS CHANGES IN THE CODES RANGING BETWEEN 4 TO 5 DIGITS DO NOT REPRESENT THE GENUINE PUNCHING ERRORS. ITA NO.1444/AHD/2018 WITH C.O. NO.99/AHD/2019 A.Y. 2010-2011 17 IN OTHER WORDS THE CHANGES IN THE NUMBER OF DIGITS IN THE CODE CANNOT BE A CRITERIA TO DRAW AN INFERENCE AGAINST THE ASSESSEE. 11.7 IN VIEW OF THE ABOVE AND AFTER CONSIDERING THE FACTS IN TOTALITY, WE ARE NOT INCLINED TO DISTURB THE FINDINGS OF THE LD. CIT-A. ACCORDINGLY WE UPHOLD THE SAME AND DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM. HENCE THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 11.8 IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED. COMING TO THE CO NO. 99/AHD/2019 RAISED BY THE ASSESSEE: 12. THE ASSESSEE HAS RAISED THE FOLLOWING CROSS OBJECTION: 1. IN LAW IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT, THE IMPUGNED RE- ASSESSMENT NOTICE AS WELL AS REASSESSMENT ORDER PASSED U/S.143(3) R.W.S. 147 IS VOID AND DESERVES TO BE CANCELLED. 2. IN LAW IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT, IT IS NOT IN DISPUTE THAT ORIGINAL ASSESSE KAIZEN STOCK TRADE PVT. WAS AMALGAMATED WITH JUNVARJIFINCORP PVT. AND IT IS A WELL-ESTABLISHED FACTS THAT THE NOTICE U/S.147 WHICH HAS BEEN ISSUED AGAINST NON-EXISTENT COMPANY ALONG CANNOT BE SUSTAINED AND SAME DESERVES TO BE QUASHED BASED ON DECISION OF HONBLE GUJARAT HIGH COURT IN CASE OF ADANI PROPERTIES PVT. LTD. VS DCIT IN DCA NO.20724 OF 2016 DATED 20/12/2016 AND IN THE CASE OF KHURANA ENGINEERING LTD. VS DCIT (2014) 364 ITR 600. 3. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT, THE IMPUGNED RE- ASSESSMENT NOTICE PASSED UNDER SECTION 147 IS BAD IN LAW AS THE ENTIRE REASSESSMENT NOTICE HAS BEEN MADE ON THE BASIS OF INFORMATION RECEIVED FROM INVESTIGATION WING, AHMEDABAD AND THERE IS NO INDEPENDENT APPLICATION OF MIND THAT INCOME HAS ESCAPED ASSESSMENT AS HELD BY HONBLE GUJARAT HIGH COURT IN CASE OF GEETATAX VS DCIT IN SCA NO.20977 OF 2016 DATED 20/12/2016. 4. THE RESPONDENT CRAVES LEAVE TO ADD, ALTER, AMEND AND/OR WITHDRAW ANY GROUND OR GROUNDS OF CROSS OBJECTION EITHER BEFORE OR DURING THE COURSE OF HEARING OF THE SAME. 13. THE ASSESSEE IN THE CO HAS CHALLENGED THE VALIDITY OF THE ASSESSMENT FRAMED UNDER SECTION 143(3) READ WITH SECTION 147 OF THE ACT ON THE REASONING THAT IT WAS MADE ON THE NON-EXISTENT COMPANY. HOWEVER, WE HAVE ALREADY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE ON MERIT IN THE APPEAL PREFERRED BY THE REVENUE IN ITA NO. 1444/AHD/2018 VIDE PARAGRAPH NO. 11 OF THIS ORDER. THUS, WE REFRAIN OURSELVES ITA NO.1444/AHD/2018 WITH C.O. NO.99/AHD/2019 A.Y. 2010-2011 18 FROM DECIDING THE ISSUE RAISED BY THE ASSESSEE IN ITS CO ON THE VALIDITY OF THE ASSESSMENT. HENCE THE GROUNDS RAISED BY THE ASSESSEE IN ITS CO ARE DISMISSED. 14. IN THE RESULT, THE CO FILED BY THE ASSESSEE IS DISMISSED. 15. IN THE COMBINED RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE CO FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 03/06/2021 AT AHMEDABAD. SD/- SD/- (RAJPAL YADAV) (WASEEM AHMED) VICE PRESIDENT ACCOUNTANT MEMBER (TRUE COPY) AHMEDABAD; DATED 03/06/2021 MANISH