KARAN SHANTI COLD STORAGE PVT. LTD., Jaipur V. ACIT, BHARATPUR

ITA 223/JPR/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 9815 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 14-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHOK KHANNA JCIT DHK
• Keywords: Business income; Principle of natural justice; Transactions in derivatives; Avoidance of tax; Capital receipt
• Section: 143(1); 147; 131; 27; 148

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH JES'K LH- 'KEKZ] YS[KK LNL; ,O A H JH FOT; IKY JKWO] U;KF;D LNL; DS LE{K BEFORE: SHRI RAMESH C. SHARMA, AM & SHRI VIJAY PAL RAO, JM VK;DJ VIHY LA-@ ITA NO. 223/JP/2019 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2010-11. SHRI SANDEEP SHARMA, 49, VIVEK VIHAR, BAJAJ NAGAR, JAIPUR. CUKE VS. THE INCOME TAX OFFICER, WARD-6(3), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. ADUPS 5851 J VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI P.C. PARWAL (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI ASHOK KHANNA (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 16.05.2019. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 21/05/2019. VKNS'K@ ORDER PER VIJAY PAL RAO, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 8 TH JANUARY, 2019 OF LD. CIT (A), AJMER FOR THE ASSESSMENT YEAR 2010-11. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS :- 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, 196 1. 2. THE LD. CIT (A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS. 3,12,790/- MADE BY AO ALLEGING THAT ASSESSEE WAS INDULGED IN TRANSFERRING FICTITIOUS PROFITS/LOS S TO THE OTHER CLIENTS/BENEFICIARIES BY MISUSING THE CLIENT CODE M ODIFICATION FACILITY IN THE F&O SEGMENT AND THEREBY CREATING A LOSS OF RS. 3,12,790/- AND SUPPRESSING THE INCOME TO THAT EXTEN T. 3. THE LD. CIT (A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS. 6,056/- ON ACCOUNT OF ALLEGED COMMI SSION PAID TO BROKERS FOR PROVIDING ALLEGED ENTRIES THROUGH CCM. 4. THE APPELLANT CRAVES TO ALTER, AMEND AND MODIFY ANY GROUND OF APPEAL. 2 ITA NO. 223/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. 5. NECESSARY COST BE AWARDED TO THE ASSESSEE. FIRST, WE TAKE UP GROUND NOS. 2 & 3 REGARDING ADDIT ION MADE BY THE AO ON ACCOUNT OF TRANSFERRING OF FICTITIOUS PROFITS /LOSS TO OTHER CLIENTS IN THE GARB OF CLIENT CODE MODIFICATION. 2. 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 20 TH SEPTEMBER, 2009 DECLARING TOTAL INCOME OF RS. 3,51,16,730/-. THE RETURN WAS PROCESSED UNDER SECT ION 143(1) ON 05.05.2011. SUBSEQUENTLY, THE AO REOPENED THE ASSESSMENT BY ISS UING NOTICE UNDER SECTION 148 ON 27 TH MARCH, 2017 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. 1,04,985/- ON ACCOUNT OF SHIFTING OUT PROFITS IN TH E GARB OF CLIENT CODE MODIFICATION. THE AO COMPLETED THE ASSESSMENT UNDER SECTION 143(3 ) READ WITH SECTION 147 WHEREBY AN ADDITION OF RS. 3,12,790/- WAS MADE ON A CCOUNT OF SHIFTING OF PROFITS AND F&O TRADING IN THE GARB OF CLIENT CODE MODIFICA TION AS WELL AS 2% COMMISSION ON THE SAID AMOUNT WHICH COMES TO RS. 6,056/-. THE AS SESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT (A) BUT COULD NOT SUCCEED . 3. BEFORE US, THE LD. A/R OF THE ASSESSEE HAS SUBMI TTED THAT THE ASSESSEE HAS DECLARED THE TOTAL INCOME OF RS. 3,51,16,730/- WHIC H INCLUDES BUSINESS INCOME FROM TRADING IN SHARES AT RS. 3,06,60,317/-, ON SUCH A H UGE INCOME FROM TRADING OF SHARES WHY THE ASSESSEE WOULD INDULGE IN CLAIMING SOME BOG US LOSS ON ACCOUNT OF CLIENT 3 ITA NO. 223/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. CODE MODIFICATION FOR A MEAGER AMOUNT OF RS. 3,12,7 90/-. 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 ER ROR HAPPENED DURING THE COURSE OF TRADING ON THE PART OF THE BROKER ON VARIOUS CLI ENTS, THEN THE STOCK EXCHANGE PROVIDES THE FACILITY TO RECTIFY THE SAME BY USING THE CLIENT CODE MODIFICATION FACILITY SO THAT THE TRANSACTIONS CAN BE ACCOUNTED IN THE RI GHT CLIENTS NAME WHICH WERE WRONGLY PUNCHED IN THE NAME OF SOME OTHER CLIENT. FURTHER, THE STOCK EXCHANGE HAS ALSO DRAWN A LIST OF COMMON VIOLATIONS COMMITTED AN D THE APPLICABLE PENALTIES WHERE IT IS STATED THAT IF THE TRANSFER OF TRADES/ERROR S AT THE TIME OF ORDER ENTRIES ARE IN EXCESS OF 2% OF THE NUMBER OF ORDERS EXECUTED, FINE OF 0.1% OF VALUE OF TRADES TRANSFERRED IS APPLICABLE. THUS THE LD. A/R HAS SU BMITTED THAT THE ERROR IN THE CASE OF THE ASSESSEE IS ABOUT ONLY 1% WHICH IS LESS THAN EVEN 2% OF THE TOTAL TRADING TURNOVER AND, THEREFORE, IT IS EVEN LESS THAN THE L IMIT OF 2% FOR WHICH EVEN THE STOCK EXCHANGE IS NOT PENALIZED THE STOCK BROKER. EVEN O THERWISE, A REASONABLE TOLERANCE RANGE OF PUNCHING ERROR IS CONSIDERED AS 5% OF THE TOTAL TRADES EXECUTED. THE LD. A/R HAS RELIED UPON THE DECISION OF AHMEDABAD BENCH OF THE TRIBUNAL IN CASE OF ACIT VS. KUNVARJI FINANCE PVT. LTD., 119 DTR 1 (AHD . TRIB.) AND SUBMITTED THAT THE TRIBUNAL HAS HELD THAT LOSS ON ACCOUNT OF CLIENT CO DE MODIFICATION LESS THAN 1% OF THE TOTAL TRANSACTION CANNOT BE SAID TO BE UNUSUALL Y HIGH OR MALAFIDE WHEN THE MODIFICATION WAS MADE ON THE SAME DAY. HE HAS ALSO RELIED UPON THE DECISION OF DELHI BENCHES OF THE TRIBUNAL IN CASE OF ITO VS. M/ S. ABHISHEK FINCAP SERVICES PVT. LTD. IN ITA NO. 2750/DEL.2017 (DEL. TRIB.) DATED 13 .09.2017 AS WELL AS DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF NOBLE SECURITIES VS. ITO IN ITA NO. 911/JP/2016 DATED 23.03.2017. THE LD. A/R HAS ALSO RELIED UPON THE DECISION OF 4 ITA NO. 223/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. HONBLE BOMBAY HIGH COURT IN CASE OF CORONATION AGR O INDUSTRIES LTD. VS. DCIT, 97 CCH 372 (BOM.). 4. ON THE OTHER HAND, THE LD. D/R HAS RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE AO HAS RECEIVED THE IN FORMATION FROM INVESTIGATION WING WHEREBY IT WAS FOUND THAT CERTAIN BROKERS WERE INDULGED IN SHIFTING THE FICTITIOUS PROFITS/LOSSES IN THE GARB OF CLIENT COD E MODIFICATION IN THE STOCK EXCHANGE. THE ASSESSEE HAS ALSO CLAIMED LOSS ON ACCOUNT OF CL IENT CODE MODIFICATION, THEREFORE BASED ON THE MATERIAL AS GATHERED DURING THE INVEST IGATION, THE DISALLOWANCE MADE BY THE AO IS JUSTIFIED. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL 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 S O AS TO RECTIFY THE ERROR, IF ANY OCCURRED DURING THE COURSE OF TRADING AND WHILE PUN CHING THE ORDERS. THE STOCK EXCHANGE PERMITS MODIFICATION OF CLIENT CODE ONLY F OR A LIMITED PERIOD ON DAILY BASIS AFTER TRADING HOURS AND, THEREFORE, THE TASK OF MOD IFICATION IS DONE BY THE BROKERS ON DAILY BASIS ONLY WITHIN THE PERMITTED PERIOD BY THE STOCK EXCHANGE. IT CANNOT BE AN AFTER-THOUGHT PLANNED ACTIVITY FOR SHIFTING THE PRO FIT UNTIL AND UNLESS ALL THE CLIENTS OF A BROKER HAVE A COMMON MEETING OF MIND OF SHIFTING THE 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 CLI ENT CODE MODIFICATION IS BOGUS, THE AO HAS TO PROVE AND ESTABLISH THAT THERE WAS A COMM ON 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 BR OKER INVOLVED IN MANIPULATING THE 5 ITA NO. 223/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. FACILITY FOR SHIFTING THE PROFIT FROM ONE ACCOUNT T O ANOTHER ACCOUNT CANNOT BE CONSIDERED AS A GENERAL PRACTICE 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 ACC OUNT IN THE GARB OF CLIENT CODE MODIFICATION FACILITY PROVIDED BY THE STOCK EXCHANG E. IN THE CASE IN HAND, THE GROSS PROFIT DECLARED BY THE ASSESSEE ON ACCOUNT OF SHARE TRADING IS MORE THAN RS. 3.41 CRORES AND, THEREFORE, THE LOSS ON ACCOUNT OF CLIEN T CODE MODIFICATION OF RS. 3,12,790/- IS NEGLIGIBLE IN COMPARISON TO THE VOLUM E OF THE TRADES EXECUTED BY THE ASSESSEE. WE FURTHER NOTED THAT THE TRIBUNAL IN A SERIES OF DECISIONS HAS CONSIDERED THIS ISSUE AND FIND THAT A NORMAL AMOUNT OF ERROR I N PUNCHING 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 E RROR, A FINE OF 0.1% OF VALUE OF TRADES TRANSFERRED IS APPLICABLE. HENCE UPTO TH E LIMIT AS ALLOWED BY THE STOCK EXCHANGE WITHOUT ANY LEVY OF FINE IS CONSIDERED AS REASONABLE AND NORMAL ERROR HAPPENED DURING THE COURSE OF LARGE VOLUME OF TRADE S EXECUTED BY THE BROKER ON BEHALF OF VARIOUS CLIENTS. THEREFORE, THIS IS A NOR MAL BUSINESS PRACTICE ON DAILY BASIS AS PER THE GUIDELINES OF THE NSE. THE COORDINATE B ENCH OF THIS TRIBUNAL IN CASE OF DCIT VS. GYANDEEP KHEMKA IN ITA NO. 695/JP/2018 AND C.O. NO. 15/JP/2018 DATED 23.10.2018 HAS CONSIDERED AN IDENTICAL ISSUE IN PAR A 11 AND 11.1 AS UNDER :- 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WE LL AS RELEVANT MATERIAL ON RECORD. WE NOTE THAT THE ASSESSING OFFI CER HAS REOPENED THE ASSESSMENT ON THE BASIS OF THE INFORMATION IN T HE SHAPE OF THE 6 ITA NO. 223/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. REPORT OF THE INVESTIGATION WING OF MUMBAI AND AHMA DABAD. THERE IS NO DISPUTE THAT THE ASSESSEE HAS DONE TRADE AT STOC K EXCHANGE THROUGH THE STOCK BROKER M/S C.M. GOYENKA STOCK BRO KERS PVT. LTD. AND DURING THE YEAR UNDER CONSIDERATION, THERE WERE VAR IOUS INSTANCES OF CLIENT CODE MODIFICATION WHEREBY CERTAIN TRANSACTIO NS WERE EXECUTED IN THE NAME OF THE ASSESSEE, WERE SUBSEQUENTLY MODIFIE D AS TO THE OTHER CLIENTS OF THE SAID BROKER. THIS MODIFICATION WAS D ONE AS PER THE NORMS OF THE STOCK EXCHANGE WHICH ALLOWS THE BROKERS TO C ARRY OUT NECESSARY CLIENT CODE MODIFICATION AFTER EXECUTION OF THE TRA DE BUT IN A LIMITED PERIOD OF HOUR. THIS FACILITY IS NO DOUBT PROVIDE D TO THE BROKERS TO RECTIFY THE GENUINE MISTAKES COMMITTED IN TYPING TH E WRONG CODES OR THE MISTAKES IN PUNCHING THE CLIENT CODES AT THE TI ME OF TRADE TRANSACTIONS ON THE STOCK EXCHANGE. THUS, IN SIMPLE WORDS, THE CLIENT CODE MODIFICATION FACILITY ALLOWS THE BROKER TO COR RECT THE MISTAKES WHICH ARE COMMITTED DURING THE COURSE OF DOING THE TRADE ON BEHALF OF THE VARIOUS CLIENTS. THERE MAY BE SOME INSTANCES OF MISUSING THIS FACILITY BY THE BROKERS BUT IT CANNOT BE DONE BY TH E BROKER ON REGULAR BASIS AS THE BROKER IS BOUND TO CARRY OUT TRADING T RANSACTIONS AS PER THE INSTRUCTIONS OF THE CLIENT AND THEREFORE, UNTIL AND UNLESS ALL THREE PARTIES ARE HAND IN GLOVES OR IN CONNIVANCE, SUCH M ISUSE OF CLIENT CODE MODIFICATION FACILITY CANNOT BE DONE BY A BROKER. T HEREFORE, ALL THREE PARTIES ARE REQUIRED TO HAVE COMMON INTENTION AND D ESIGN WHICH IN NORMAL COURSE IS NOT POSSIBLE WHEN THEY ARE NOT REL ATED PARTIES AS THE TIME LIMIT TO MODIFY THE CLIENT CODE IS VERY LIMITE D AFTER EXECUTION OF TRADE/TRANSACTION AT THE STOCK EXCHANGE. THE MEETIN G OF THREE MINDS IS ESSENTIAL FOR MISUSING THIS FACILITY AND DOING THIS MISCHIEVOUS TRANSFER OF PROFITS FROM ONE HAND TO ANOTHER HAND. UNTIL AND UNLESS TWO CLIENTS AND BROKER ARE ON THE SAME PAGE AND INVOLVED IN DOI NG THIS MISCHIEVOUS ACT BY MISUSING THE FACILITY OF CLIENT CODE MODIFICATION SUCH TRANSACTIONS ARE NOT POSSIBLE WHEN THE PARTIES ARE NOT RELATED TO EACH OTHER PARTY AND ARE INDEPENDENT CLIENTS OF A P ARTICULAR BROKER. IT 7 ITA NO. 223/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. IS POSSIBLE ONLY WHEN TWO CLIENTS TO A BROKER ARE C LOSELY RELATED PARTIES AND CONTROLLED BY A SINGLE PERSON OR SET OF PERSONS THEN WITH THE CONNIVANCE WITH THE BROKER THIS KIND OF BOGUS TRANS ACTIONS CAN BE DONE IN THE GARB OF CLIENT CODE MODIFICATION. ONCE THE P ARTIES ARE INDEPENDENT AND HAVE NO RELATION THEN DOING SUCH TR ANSACTION WITHIN SUCH LIMITED WINDOW PERIOD OF HOUR AFTER TRADING HOURS IS NOT POSSIBLE. THUS, THE MISUSE OF SUCH FACILITY IS POSS IBLE ONLY WHEN ALL THREE PARTIES I.E. TWO CLIENTS AND ONE BROKER HAVE THE COMMON INTEREST AND ARE CLOSELY RELATED PARTY. THESE TRANSACTIONS A RE 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 KNOWN TO THE PARTIES, THE SAME CAN BE SHIFTED FROM ONE CLIENT TO ANOTHER CLIE NT TO SERVE THE INTEREST OF PARTIES. PRIOR TO THE EXECUTION OF THE TRANSACTION, IT IS NOT POSSIBLE TO CONCEIVE OR PRECONCEIVE THE TRANSFER OF THE TRANSACTION FROM ONE ACCOUNT TO ANOTHER ACCOUNT. WE NOTE THAT THE AS SESSING OFFICER HAS NOT CONDUCTED ANY ENQUIRY IN THIS MATTER BUT HA S PASSED THE ASSESSMENT ORDER BASED ON THE REPORT OF THE INVESTI GATION WING. THE ASSESSEE HAS SPECIFICALLY RAISED OBJECTION AND DEMA NDED CROSS EXAMINATION WHICH WAS DENIED BY THE ASSESSING OFFIC ER 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 REQU ESTED FOR PROVIDING RELIED UPON DOCUMENTS VIZ. STATEMENTS ETC. THE RELI ED UPON DETAILS WERE PROVIDED FROM TIME TO TIME TO THE LD. A/R DURI NG THE COURSE OF HEARING AND THE MODUS OPERANDI WAS DISCUSSED IN DET AIL. THE LD. A/R WAS ALSO MADE AWARE OF THE HON'BLE SUPREME COURT JU DGMENT IN THE CASE C VASANTLAL & CO. V/S CIT 45 ITR 206(SC) (3 JU DGE BENCH) WHEREIN THE APEX COURT HAD OBSERVED THAT '...THE ITO IS NOT BOUND BY ANY 8 ITA NO. 223/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. TECHNICAL RULES OF THE LAW OF EVIDENCE. IT IS OPEN TO HIM TO COLLECT MATERIAL TO FACILITATE ASSESSMENT EVEN BY PRIVATE E NQUIRY. BUT, IF HE DESIRES TO USE THE MATERIAL SO COLLECTED, THE ASSES SEE MUST BE INFORMED ABOUT THE MATERIAL AND GIVEN ADEQUATE OPPORTUNITY T O EXPLAIN IT...' THE STATEMENTS WERE MATERIAL ON WHICH THE I.T. AUTH ORITIES COULD ACT PROVIDED THE MATERIAL WAS DISCLOSED AND THE ASSESSE E HAD AN OPPORTUNITY TO RENDER THEIR EXPLANATION IN THAT REG ARD. FURTHER, THE LD. A/R WAS MADE AWARE OF HON'BLE SUPR EME COURT DECISION IN THE CASE OF DHAKESHWARI COTTON MILL LTD . VS. CIT REPORTED AT 26 ITR 775 WHEREIN HON'BLE SUPREME COURT HELD THAT RIGHT TO CROSS EXAMINE IS NOT ABSOLUTE AND THAT THE REQUIREMENT OF LAW FOR VALID ASSESSMENT WOULD BE MET IF ALL THE EVIDENCE COLLECT ED WHICH IS TO BE USED AGAINST THE ASSESSEE WHILE FRAMING THE ASSESSM ENT ORDER IS PLACED BEFORE TIE ASSESSEE AND GIVEN OPPORTUNITY TO REBUT THE EVIDENCE. HERE, IT IS ALSO WORTH TO STATE THAT THE SHARE BROKERS U/S 131(1A) IN MUMBAI IS NOT SOLE BASIS FOR REOPENING T HE CASE, THERE IS MATERIAL AND CIRCUMSTANTIAL EVIDENCES WHICH PROVE T HAT ASSESSEE WAS INDULGED IN MISUSE OF CCM FACILITY. ALL THE MATERIA L INCLUDING TRADE DATA HAS BEEN PROVIDED TO THE LD. A/R ON 30/11/2016 ITSELF. THUS, WHEN THE ASSESSMENT ORDER IS BASED ON THE REP ORT OF THE INVESTIGATION WING WITHOUT ANY FRESH AND INDEPENDEN T ENQUIRY CONDUCTED BY THE ASSESSING OFFICER AND THE REPORT O F THE INVESTIGATION WING IN TURN IS BASED ON THE STATEMENT OF THE BROK ERS THEN WITHOUT GIVING THE OPPORTUNITY TO THE ASSESSEE TO CROSS EXA MINE THE BROKERS WHOSE STATEMENTS WERE RECORDED BY THE INVESTIGATION WING IT WOULD AMOUNT TO VIOLATION OF PRINCIPLES OF NATURAL JUSTIC E. THOUGH, THE CROSS EXAMINATION MAY NOT BE AN ABSOLUTE RIGHT BUT ONCE S TATEMENT IS RECORDED IN THE BACK OF THE ASSESSEE AND IS BEING U SED AGAINST THE ASSESSEE THEN THE ORDER PASSED BY THE ASSESSING OFF ICER BASED ON SUCH STATEMENT IS NOT SUSTAINABLE IN ABSENCE OF CROSS EX AMINATION. THE 9 ITA NO. 223/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. HON'BLE SUPREME COURT IN THE CASE OF AMDAMAN TIMBER INDUSTRIES VS CCE 127 DTR 241, WHILE DEALING WITH THE ISSUE OF N ON-GRANT OF OPPORTUNITY TO CROSS EXAMINE THE WITNESS HAS HELD A S UNDER: 5. WE HAVE HEARD MR. KAVIN GULATI, LEARNED SENIOR COUNSEL APPEARING FOR THE ASSESSEE, AND MR. K. RADHAKRISHNAN, LEARNED SEN IOR COUNSEL WHO APPEARED FOR THE REVENUE. 6. ACCORDING TO US, NOT ALLOWING THE ASSESSEE TO C ROSS-EXAMINE THE WITNESSES BY THE ADJUDICATING AUTHORITY THOUGH THE STATEMENTS OF THOSE WITNESSES WERE MADE THE BASIS OF THE IMPUGNED ORDER IS A SERIOUS FLAW WHICH MAKES THE ORDER NULLITY INASMUCH AS IT AMOUNTED TO VIOLATION OF PRINCIPLES OF NATURAL JUSTICE BECAUSE OF WHICH THE ASSESSEE WAS ADVERSELY AFFECTED. IT IS TO BE BORNE IN MIND T HAT THE ORDER OF THE COMMISSIONER WAS BASED UPON THE STATEMENTS GIVEN BY THE AFORESAID TWO WITNESSES. EVEN WHEN THE ASSESSEE DISPUTED THE CORRECTNESS OF THE STATEMENTS AND WANTED TO CROSS-EXAMINE, THE ADJUDIC ATING AUTHORITY DID NOT GRANT THIS OPPORTUNITY TO THE ASSESSEE. IT WOULD BE PERTINENT TO NOTE THAT IN THE IMPUGNED ORDER PASSED BY THE ADJUD ICATING AUTHORITY HE HAS SPECIFICALLY MENTIONED THAT SUCH AN OPPORTUN ITY WAS SOUGHT BY THE ASSESSEE. HOWEVER, NO SUCH OPPORTUNITY WAS GRAN TED AND THE AFORESAID PLEA IS NOT EVEN DEALT WITH BY THE ADJUDI CATING AUTHORITY. AS FAR AS THE TRIBUNAL IS CONCERNED, WE FIND THAT REJE CTION OF THIS PLEA IS TOTALLY UNTENABLE. THE TRIBUNAL HAS SIMPLY STATED T HAT CROSS- EXAMINATION OF THE SAID DEALERS COULD NOT HAVE BROU GHT OUT ANY MATERIAL WHICH WOULD NOT BE IN POSSESSION OF THE AP PELLANT THEMSELVES TO EXPLAIN AS TO WHY THEIR EX-FACTORY PRICES REMAIN STATIC. IT WAS NOT FOR THE TRIBUNAL TO HAVE GUESS WORK AS TO FOR WHAT PURP OSES THE APPELLANT WANTED TO CROSS-EXAMINE THOSE DEALERS AND WHAT EXTR ACTION THE APPELLANT WANTED FROM THEM. 7. AS MENTIONED ABOVE, THE APPELLANT HAD CONTESTED THE TRUTHFULNESS OF THE STATEMENTS OF THESE TWO WITNESSES AND WANTED TO DISCREDIT THEIR TESTIMONY FOR WHICH PURPOSE IT WANTED TO AVAIL THE OPPORTUNITY OF CROSS-EXAMINATION. THAT APART, THE ADJUDICATING AUT HORITY SIMPLY RELIED UPON THE PRICE LIST AS MAINTAINED AT THE DEP OT TO DETERMINE THE PRICE FOR THE PURPOSE OF LEVY OF EXCISE DUTY. WHETH ER THE GOODS WERE, IN FACT, SOLD TO THE SAID DEALERS/WITNESSES AT THE PRICE WHICH IS MENTIONED IN THE PRICE LIST ITSELF COULD BE THE SUB JECT MATTER OF CROSS- EXAMINATION. THEREFORE, IT WAS NOT FOR THE ADJUDICA TING AUTHORITY TO 10 ITA NO. 223/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. PRESUPPOSE AS TO WHAT COULD BE THE SUBJECT MATTER O F THE CROSS- EXAMINATION AND MAKE THE REMARKS AS MENTIONED ABOVE . WE MAY ALSO POINT OUT THAT ON AN EARLIER OCCASION WHEN THE MATT ER CAME BEFORE THIS COURT IN CIVIL APPEAL NO. 2216 OF 2000, ORDER DATED 17.03.2005 WAS PASSED REMITTING THE CASE BACK TO THE TRIBUNAL WITH THE DIRECTIONS TO DECIDE THE APPEAL ON MERITS GIVING ITS REASONS F OR ACCEPTING OR REJECTING 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 WITH THE DEPARTMENT ON THE BASIS OF WHICH IT COULD JUSTIFY I TS ACTION, AS THE STATEMENT OF THE AFORESAID TWO WITNESSES WAS THE ON LY BASIS OF ISSUING THE SHOW CAUSE NOTICE. ACCORDINGLY, THE ORDER OF THE ASSESSING OFFICER IS NOT SUSTAINABLE WHEN THE ASSESSEE WAS NOT GRANTED AN OPPORTUNITY TO CROS S EXAMINE THE BROKERS. IN THE CASE IN HAND, THE ASSESSING OFFICER HAS NOT GIVEN ANY FINDING THAT THE ASSESSEE AND THE OTHER PARTIES IN WHOSE ACCOUNT, THE TRANSACTIONS ARE TREATED AS TRANSFER OF PROFIT ARE IN COLLUSION ALONGWITH THE BROKER. THERE IS NOTHING ON RECORD OR ANY FACT OR FINDING BY THE ASSESSING OFFICER TO SUGGEST THAT THE ASSESSEE AND THE OTHER PARTIES AS WELL AS THE BROKERS ARE IN COLLUSION TO CARRY OUT T HESE TRANSACTIONS OF TRANSFER OF PROFIT FROM THE ACCOUNT OF THE ASSESSEE IN THE ACCOUNTS OF OTHER PARTIES BY MISUSING THE CLIENT CODE MODIFICAT ION FACILITY. THEREFORE, EVEN IF THE BROKER MIGHT HAVE INVOLVED I N SUCH MISCHIEVOUS PRACTICE BUT TO MAKE SUCH ADDITION IN THE HANDS OF THE ASSESSEE IT IS NECESSARY TO ESTABLISH THAT THE ASSESSEE AND THE OT HER PARTIES ALONGWITH BROKERS ARE IN COLLUSION. FURTHER THERE S HOULD ALSO BE EXCHANGE OF MONEY BETWEEN THE PARTIES AS A CONSIDER ATION FOR SUCH A TRANSFER OF PROFIT. EVEN OTHERWISE WHEN IT IS NOT F OUND THAT ORIGINALLY THESE TRADES WERE CARRIED OUT BY THE BROKER AS PER THE INSTRUCTIONS OF THE ASSESSEE AND SUBSEQUENTLY THESE WERE TRANSFERRE D IN THE ACCOUNT OF THE OTHER PERSONS TO SHIFT THE PROFIT. 11 ITA NO. 223/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. 11.1. WE NOTE THAT THIS ISSUE OF RECTIFICATION OF THE ERROR BY USING THE CLIENT CODE MODIFICATION FACILITY HAS BEE N CONSIDERED AND DECIDED BY THIS TRIBUNAL IN THE SERIES OF DECISIONS AS RELIED BY THE ASSESSEE. THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF NOBEL SECURITIES VS ITO (SUPRA) HAS ALSO CONSIDERED AN ID ENTICAL ISSUE IN PARA 3.1 TO 3.4 AS UNDER: 3.1 APROPOS GROUND NO. 2 AND 2.1 OF THE ASSESSEE, THE FACTS AS EMERGES FROM THE ORDER OF THE LD. CIT(A) IS AS UNDER:- 5.3.1. I HAVE GONE THROUGH THE ASSESSMENT ORDER A S WELL AS SUBMISSIONS MADE BY THE APPELLANT. FOLLOWING FACTS HAVE EMERGED. 1. THAT THE APPELLANT IS A PARTNERSHIP FIRM ENGAGE D IN THE BUSINESS OF TRADING IN SHARE. 2. THAT THE FIRM IS DOING TRADING ON ITS OWN BEHAL F AND ON BEHALF OF ITS CLIENTS. 3. THAT ON THE BASIS OF AN INFORMATION RECEIVED FR OM DIRECTORATE OF INCOME TAX (INTELLIGENCE & CRIMINAL INVESTIGATION) THAT THE APPELLANT HAD BOOKED A LOSS OF RS. 27,63,104/- DUE TO MODIFICATIO N MADE BY THE ASSESSEE IN F& O SEGMENT TO THE THIRD PARTIES THROUGH THE CLIEN T CODE MODIFICATION FACILITY. 4. THAT THE AO HAD REOPENED THE CASE U/S 148 OF TH E ACT BY DULY RECORDING THE REASONS 5. THAT THE DETAIL OF REOPENING WAS PROVIDED TO TH E ASSESSEE ON 17-04- 2015. 6. THAT THE ASSESSEE FIRM HAD RAISED OBJECTIONS TO THE REOPENING PROCEEDINGS. THE OBJECTIONS WERE DULY CONSIDERED BY THE AO AND A WRITTEN ORDER DISPOSING THE PETITION OF THE ASSESSEE WAS PA SSED AND SERVED TO THE ASSESSEE. 7. THAT IT WAS FOUND BY THE AUTHORITIES THAT THE F IRM WAS FOUND USING CLIENT CODE MODIFICATION FACILITY IN F&O SEGMENT ON NSE DURING THE YEAR UNDER CONSIDERATION. BY DOING THIS, IT IS ALLEGED T HAT FICTITIOUS LOSSES AND PROFITS WERE TRANSFERRED TO ITS CLIENTS. 8. THAT THE APPELLANT HAS CLAIMED THAT IT WAS A GE NUINE MISTAKE ON THE PART OF ITS STAFFS TO HAVE PUNCHED FIRMS CODE INST EAD OF ITS CLIENTS CODE. AND THAT LATER ON WHEN SUCH A MISTAKE WAS NOTICED THE S AME WAS DELETED BY DELETING THE TRADING FROM THE FIRMS CODE AND CREDI TED TO THE CLIENTS CODE. 12 ITA NO. 223/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. 9. THAT THE APPELLANT HAS FURTHER SUBMITTED THAT T HE MISTAKE WAS DONE AT THE BROKERS LEVEL AND THE FIRM SHOULD NOT BE HE LD RESPONSIBLE FOR MISTAKE COMMITTED BY THE BROKERS. 10. THAT THE APPELLANT HAS FURTHER SUBMITTED THAT CLIENT CODE MODIFICATIONS ARE A VERY LEGITIMATE TRANSACTIONS WH ERE IF ANY MISTAKE IS COMMITTED THEN IT HAS TO BE RECTIFIED WITHIN 15 MIN UTES OF THE CLOSE OF TRADING SESSION. 5.3.2. I HAVE CONSIDERED THE ABOVE MENTIONED FACTS . I HAVE PARTICULARLY TAKEN INTO ACCOUNT THE FUNCTIONING OF THE STOCK EXCHANGE WHERE A TRADING IS DONE ON THE BASIS OF PURCHASE TRANSACTION ENTERED BY THE BROKER S. THE BROKER DOES IT ON THE ADVICE OF THE SUB-BROKERS/ CLIENTS. HERE IN THI S CASE THE BROKER I.E. M/S. ARTISTIC FINANCE (P) LTD. HAD BOOKED PURCHASE/ SALE OF SCRIP ON THE ADVICE OF THE APPELLANT I.E. M/S. NOBLE SECURITIES USING THE CLIENT CODE OF M/S. NOBLE SECURITIES. LATER, M/S. NOBLE SECURITIES ADVISED TH E BROKER M/S. ARTISTIC FINANCE (P) LTD. TO MODIFY THE CLIENT CODE AND BOOK IT IN THE NAME OF THE OTHER CLIENTS OF M/S. NOBLE SECURITIES. THUS, THE T RANSACTIONS WHICH WERE EARLIER MADE IN THE NAME OF THE APPELLANT WERE TRAN SFERRED TO THIRD PARTIES. THE APPELLANT HAS CLAIMED THAT THE PURCHASES WERE W RONGLY DONE IN THE NAME OF M/S. NOBLE SECURITIES INADVERTENTLY PUNCHING ITS CLIENT CODE AND THAT SUBSEQUENTLY IT WAS RECTIFIED BY THE BROKERS 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 WR ONG 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 ASSESSMENT ORDER THAT SUCH MODIFICATIONS ARE DONE 2 380 TIMES INVOLVING 55 CLIENTS OVER A PERIOD OF 197 DAYS DURING THE YEAR U NDER CONSIDERATION. MISTAKE CANNOT BE REPEATED SO BRAZENLY OVER SUCH A NUMBER OF 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 IN COME/LOSS CAN BE DIVERTED. IN THIS REGARD, I HAVE ALSO TAKEN INTO AC COUNT THE APEX COURT JUDGEMENT IN THE CASE OF MCDOWELL & CO. LTD. IT IS WORTHWHILE TO QUOTE FROM THE LANDMARK JUDGEMENT AS UNDER:- MISRA,J. WHO DELIVERED JUDGEMENT ON BEHALF OF H IMSELF AND THREE OTHER JUDGES (OTHER THAN REDDY. J.) EXTRACTED THE FOLLOWI NG OBSERVATION FROM THE JUDGEMENT OF GUJARAT HIGH COURT (ITR PP 200- 01) IN THE CASE OF CIT VS. SAKARLAL BALABHAI (AFFIRMED BY THE SUPREME COURT IN CIT VS. VADILAL LALLUBHAI): (SCC 253-54, PARA 43) TAX AVOIDANCE POSTULATES THAT THE ASSESSEE IS IN RECEIPT OF AMOUNT WHICH IS REALLY AND IN TRUTH HIS INCOME LIABLE TO TAX BUT ON WHICH HE AVOID PAYMENT OF TAX BY SOME ARTIFICE OR DEVICE. SUCH ARTIFICE OR DE VICE MAY APPARENTLY SHOW THE INCOME AS ACCRUING TO ANOTHER PERSON, AT THE SA ME 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 INCO ME BY DISGUISING IT AS A CAPITAL RECEIPT AS IN A CASE FALLING WITHIN SECTION 44-E OR ASSUME DIVERSE OTHER FORMS BUT THERE MUST BE SOME ARTIFICE OR DEVICE EN ABLING THE ASSESSEE TO AVOID PAYMENT OF TAX ON WHAT IS REALLY AND IN TRUTH HIS INCOME. IF THE ASSESSEE PARTS WITH HIS INCOME-PRODUCING ASSET, SO THAT THE RIGHT TO RECEIVE INCOME 13 ITA NO. 223/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. ARISING FROM THE ASSET WHICH THERETOFORE BELONGED T O THE ASSESSEE IS TRANSFERRED TO AND VESTED IN SOME OTHER PERSON, THE RE IS NO AVOIDANCE OF TAX LIABILITY: NO PART OF THE INCOME FROM THE ASSET GOE S 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 WORK OF LAW. COLOURABLE DEVICE CANNOT BE PART OF TAX PLANNING AND IT IS WRONG TO E NCOURAGE OR ENTERTAIN THE BELIEF THAT IT IS HONOURABLE TO AVOID THE PAYMENT O F TAX BY RESORTING TO DUBIOUS METHODS. IT IS THE OBLIGATION OF EVERY CITI ZEN TO PAY THE TAXES HONESTLY WITHOUT RESORTING 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 DIVERTING A PART OF TRANSACTION TO ITS CLIENTS. THIS TYPE OF TRANSACTIONS PARTICULARLY GIV ES UNDUE ADVANTAGE IN F& O SEGMENT WHERE LOSS AND EVEN INCOME CAN BE BOOKED IN CLIENTS FAVOUR TO GIVE ADVANTAGE TO THEM AND ALSO BOOK LOSSES AGAINST THEI R OWN INCOME. AT THE END OF THE SESSION WHEN THE RELATIVE ADVANTAGE OF A TRA NSACTION CAN BE EASILY EVALUATED 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 REGULARITY W ITH WHICH SUCH TRANSACTIONS HAVE BEEN EFFECTED, THE AO IS JUSTIFIE D IN REJECTING THE CLAIM OF THE APPELLANT AND ADDED SUCH TRANSACTION IN THE HAN D OF THE APPELLANTS INCOME. ACCORDINGLY, THE ADDITION OF RS. 27,63,104/ - IS SUSTAINED. APPELLANTS GROUND OF APPEAL ON THE ISSUE 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 WRITTEN SUBMISS ION. 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 FOR I T CLIENTS. THE ASSESSEE, ITSELF, IS A CLIENT OF M/S ARTISTIC FINANCE PVT. LT D WHICH CARRIED OUT TRANSACTIONS ON BEHALF OF THE ASSESSEE AND THE CLIE NTS OF THE ASSESSEE. EVERY CLIENT IS ASSIGNED A UNIQUE CLIENT CODE WHICH IS PU NCHED IN AT THE TIME OF TRANSACTIONS. THE AO ISSUED NOTICE U/S 131 TO M/S A RTISTIC FINANCE PVT. LTD. WHO VIDE LETTER DATED 05.03.2016 (PB 37-38) EXPLAIN ED THAT THE ASSESSEE IS ITS MAJOR CLIENT AND PROVIDES THEM WITH A HUGE VOLU ME OF TRANSACTIONS. THE OPERATING STAFF WHO ARE NOT WELL QUALIFIED, TO SAVE TIME HAD PREFIXED THE CLIENT CODE OF THE ASSESSEE IN THE SYSTEM AS DEFAUL T WHICH LED TO ERROR IN PUNCHING OF CLIENT CODES AT THE TIME OF TRANSACTION S. TO RECTIFY 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 T HE TRADE DAY ITSELF. THIS CAN BE DONE ON ONLY WRITTEN REQUEST 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 PROVIDED BY THE NATIONAL STOCK EXCHANGE TO RECTIFY THE ERRORS / MISTAKES MADE AT THE TIME O F PUNCHING TRADES. THE 14 ITA NO. 223/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. NATIONAL STOCK EXCHANGE OF INDIA LIMITED HAS PROVID ED 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 NATIONAL SECURITIES CLEARING CORPORATION LIMITE D FOR ITS FUTURES & OPTIONS SEGMENT (PB 25-26). THE STOCK EXCHANGE HAS ALSO DRAWN A LIST OF THE COMMON VIOLATIONS COMMITTED AND THE APPLICABLE PENA LTIES (PB 21-24) WHERE IT IS STATED THAT IF THE TRANSFER OF TRADES / ERRORS AT THE TIME OF O RDER ENTRIES ARE IN EXCESS OF 2% OF THE NUMBER OF ORDERS EXECUTED, FINE OF 0.1% OF VALUE OF TRADES TRANSFERRED 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 OPERATIVE ONL Y 260 DAYS IN A YEAR. THUS, IN A YEAR APPROXIMATELY 13 LAKHS TRADES ARE C ARRIED OUT BY THE BROKER. THEREFORE, THE FACT THAT DURING THE YEAR, THE BROKE R HAD CARRIED OUT 2380 MODIFICATIONS BY USING CCM FACILITY IS IRRELEVANT A S IT IS ONLY 0.18% OF THE TOTAL TRADES CARRIED OUT BY THE BROKER DURING THE Y EAR. ALSO, THE FACT THE ASSESSEES CLIENT CODE WAS SET AS DEFAULT IN THE SY STEM 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 T HE CLIENT CODE. 4. A STATEMENT SHOWING THE DETAILS OF MODIFIED CLI ENT NAMES AND THE PROFIT/LOSS TO THE MODIFIED CLIENT DUE TO CCM IS AT PB 27-32. A LSO BY REPLY DATED 15.02.2016 (PB 33-34), THE ASSESSEE HAD SUBMITTED T HE CONFIRMATIONS OF ITS PARTIES IN WHOSE CASE MODIFICATIONS HAVE BEEN CARRI ED 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 ASSESSE E AND WHEN POINTED OUT, IT WAS TRANSFERRED TO THE RESPECTIVE CLIENT ACCOUNT WHO HAVE SHOWN THE SAME IN THEIR RETURN OF INCOME. THUS, ASSESSEE HAS NOTHING TO DO WITH THIS LOSS AND THEREFORE, THERE DOES NOT ARISE ANY QUESTI ON TO DISALLOW 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 MCDOWELL & CO. LTD. IS THU S 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 HEL D THAT AS PER CIRCULAR NO. MCX/T&S/032/2007 DT. 22.01.2007 ISSUED BY THE COMMO DITY EXCHANGE, CLIENT CODE MODIFICATION IS PERMITTED INTRA-DAY 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 MODIFICATI ONS MADE BY THE ASSESSEE BEING ONLY 0.94 PER CENT I.E. LESS THAT 1 PER CENT OF THE TOTAL TRADING TRANSACTIONS, CANNOT BE SAID TO BE UNUSUALLY HIGH O R MALA FIDE WHEN THE MODIFICATION WAS MADE ON THE SAME DAY. HAD THE CLIE NT MODIFICATION BEEN DONE AFTER THE TRANSACTION PERIOD WHEN THE PRICE OF THE COMMODITY HAD CHANGED, THEN PERHAPS THERE COULD HAVE BEEN SOME BA SIS TO PRESUME THAT CLIENT CODE MODIFICATION WAS INTENTIONAL. EVEN IF T HE VIEW OF THE REVENUE IS ACCEPTED THAT CLIENT CODE MODIFICATION WAS DONE WIT H MALA FIDE INTENTION, THEN THE PROFIT OR LOSS ACCRUING TILL THE CLIENT CO DE MODIFICATION CAN BE 15 ITA NO. 223/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. CONSIDERED IN THE CASE OF THE ASSESSEE BUT THE PROF IT/LOSS ARISING AFTER SUCH MODIFICATION CAN BY NO STRETCH OF IMAGINATION BE CO NSIDERED IN THE HANDS OF THE ASSESSEE. MOREOVER, CIT(A) HAVING FOUND THAT AL L TRANSACTIONS AT THE COMMODITIES EXCHANGE HAVE BEEN DULY ACCOUNTED IN TH E BOOKS OF ACCOUNT MAINTAINED BY THE CONCERNED PARTIES, THERE CANNOT B E ANY JUSTIFICATION FOR CONSIDERING THAT PROFIT/LOSS IN THE CASE OF THE ASS ESSEE ON THE BASIS OF MERE PRESUMPTION OR SUSPICION. 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 PARTNERS HIP FIRM ENGAGED IN THE BUSINESS OF TRADING OF TRADING IN SHARES. IT IS NOT ED THAT THE ASSESSEE ITSELF IS A CLIENT OF M/S. ARTISTIC FINANCE (P) LTD. WHICH CARRIED OUT BUSINESS ON BEHALF OF THE ASSESSEE AND THE CLIENTS OF THE ASSES SEE. IT IS NOTED THAT EVERY CLIENT IS PROVIDED A UNIQUE CODE WHICH IS PUN CHED WHILE MAKING THE TRANSACTIONS. IT IS NOTED THAT SOMETIME THE OPERATI NG STAFF IS NOT WELL VERSED WITH THE SYSTEM WHO AT THE TIME OF MAKING TR ANSACTIONS IN SHARES 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 WHICH CAN BE DON E ONLY ON WRITTEN REQUEST BY THE CLIENT. IT IS ALSO MENTIONED IN CIRC ULAR NO. 974 DATED 10.09.2009 OF THE NATIONAL SECURITIES CLEARING CORP ORATION LIMITED FOR ITS FUTURES & OPTIONS SEGMENT (PB 25-26). THE STOCK EXC HANGE HAS ALSO DRAWN A LIST OF THE COMMON VIOLATIONS COMMITTED AND THE APPLICABLE PENALTIES (PB 21-24) WHERE IT IS STATED THAT IF TH E TRANSFER OF TRADES / ERRORS AT THE TIME OF ORDER ENTRIES ARE IN EXCESS O F 2% OF THE NUMBER OF ORDERS EXECUTED, FINE OF 0.1% OF VALUE OF TRADES TR ANSFERRED IS APPLICABLE. IT IS ALSO NOTED FROM THE RECORDS THAT THE DURING T HE YEAR THE BROKER HAD CARRIED OUT THE BROKER HAD CARRIED OUT 2380 MODIFIC ATIONS BY USING CCM 16 ITA NO. 223/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. FACILITY WHICH IS ONLY 0.18% OF THE TOTAL TRADES CA RRIED OUT BY THE BROKER DURING THE YEAR. IT IS NOTED THAT THE ASSESSEES CL IENT 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 T O THE NOTICE OF THE BROKER ANY MISTAKE/ ERROR IN THE CLIENT CODE. IT MA Y 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 MODIFICATION IS PERMITTED INTRA DAY I.E. ON THE SAME DAY. THE RELEVANT PORTION OF T HE DECISION IS AS UNDER:- AS PER CIRCULAR NO. MCX/T&S/032/2007 DT. 22.01.2 007 ISSUED BY THE COMMODITY EXCHANGE, CLIENT CODE MODIFICATION IS PER MITTED INTRADAY I.E. ON THE SAME DAY. THERE IS NO PENALTY IF THE CLIENT COD E MODIFICATION IS UPTO 1 PER CENT OF THE TOTAL ORDERS. IN THE PRESENT CASE, CLIENT CODE MODIFICATIONS MADE BY THE ASSESSEE BEING ONLY 0.94 PER CENT I.E. LESS THAT 1 PER CENT OF THE TOTAL TRADING TRANSACTIONS, CANNOT BE SAID TO B E UNUSUALLY HIGH OR 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 COULD HAV E BEEN SOME BASIS TO PRESUME THAT CLIENT CODE MODIFICATION WAS INTENT IONAL. EVEN IF THE VIEW OF THE REVENUE IS ACCEPTED THAT CLIENT CODE MODIFIC ATION WAS DONE WITH MALA FIDE INTENTION, THEN THE PROFIT OR LOSS ACCRUI NG TILL THE CLIENT CODE MODIFICATION CAN BE CONSIDERED IN THE CASE OF THE A SSESSEE BUT THE PROFIT/LOSS ARISING AFTER SUCH MODIFICATION CAN BY NO STRETCH OF IMAGINATION BE CONSIDERED IN THE HANDS OF THE ASSESSEE. MOREOVE R, CIT(A) HAVING FOUND THAT ALL TRANSACTIONS AT THE COMMODITIES EXCHANGE H AVE BEEN DULY ACCOUNTED IN THE BOOKS OF ACCOUNT MAINTAINED BY THE CONCERNED PARTIES, THERE CANNOT BE ANY JUSTIFICATION FOR CONSIDERING T HAT 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 IS ALLOWED. THUS, IT IS CLEAR THAT THE STOCK EXCHANGE HAS ACCEP TED THE REASONABLE ERROR MARGIN UP TO 5% AND UNDISPUTEDLY IN THE CASE OF THE ASSESSEE, THE ERROR AND RECTIFICATION OF THE SAME BY USING TH E CLIENT CODE MODIFICATION CONSTITUTE ONLY 0.47%, THEREFORE, THE PERCENTAGE OF TRADE WHICH ARE RECTIFIED ARE NOT ONLY WITHIN THE RANGE B UT IT IS ON LOWER SIDE OF THE RANGE OF ERROR MARGIN ACCEPTABLE IN SUCH TRA NSACTIONS. THE MUMBAI BENCHES OF THE TRIBUNAL IN THE CASE OF ITO V S. M/S PAT 17 ITA NO. 223/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. COMMODITY SERVICES P. LTD. HAS CONSIDERED THIS ISSU E IN PARA 11 TO 16 AS UNDER: 11. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED TH E RECORD. A CAREFUL PERUSAL OF THE ORDER PASSED BY THE LD CIT(A) WOULD SHOW THAT THE LD CIT(A) HAS MET EACH AND EVERY POINT RAISED BY THE A SSESSING OFFICER. THE LD CIT(A) HAS POINTED OUT THAT THE AO HAS NOT B ROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE CLIENT CODE MODIFICAT ION MADE BY THE ASSESSEE WAS NOT GENUINE ONE. IT WAS FURTHER NOTICE D THAT NONE OF THE CLIENTS EXAMINED BY THE TAX AUTHORITIES HAS DISOWNE D THE TRANSACTIONS CARRIED ON BY THE ASSESSEE. AS NOTICED BY THE LD CI T(A), THE MCX, THE STOCK EXCHANGE, IS VERY MUCH AWARE ABOUT CLIENT COD E MODIFICATIONS AND HENCE IN ORDER TO DISCOURAGE FREQUENCY OF MODIF ICATIONS, IT HAS BROUGHT IN PENALTY MECHANISM. EVEN UNDER THE PENALT Y MECHANISM ALSO, NO PENALTY SHALL BE LEVIABLE IF THE MODIFICAT ION WAS LESS THAN 1% OF THE TOTAL TRANSACTIONS, MEANING THEREBY, THE MCX IS ALSO ACCEPTING THE FACT THAT SUCH KIND OF CLIENT CODE MODIFICATION IS INEVITABLE. 12. UNDER THESE SET OF FACTS, THE NEXT QUESTION THA T ARISES IS - WHETHER THE CLIENT CODE MODIFICATION HAS RESULTED INTO SHIFTING OF PROFITS, OTHERWISE EARNED BY THE ASSESSEE. IT IS A FACT THAT THE ASSES SEE COMPANY HAS STARTED ITS OPERATIONS ONLY IN JULY, 2005 BY CONVER TING INDIVIDUAL MEMBERSHIP INTO CORPORATE MEMBERSHIP. FURTHER, THE COMMODITY EXCHANGE WAS ABOUT 3-4 YEARS OLD ONLY AT THE RELEVA NT POINT OF TIME. HENCE, THE ASSESSEE CANNOT BE CONSIDERED TO BE AN E STABLISHED PLAYER IN THE YEARS UNDER CONSIDERATION. FURTHER, THE MOVE MENT OF PRICES OF COMMODITIES CANNOT BE PREDICTED BY ANYONE WITH ACCU RACY AND HENCE IT IS INCONCEIVABLE OR UNLIKELY THAT THE ASSESSEE C OULD HAVE MADE PROFITS CONSISTENTLY, EVEN IF IT IS ASSUMED FOR A M OMENT THAT THE ASSESSEE HAD ACTUALLY CARRIED OUT THE TRANSACTIONS FOR ITS OWN BENEFIT. WE NOTICE THAT THE ASSESSEE HAS OFFERED EXPLANATION S AS TO WHY IT CARRIED OUT THE TRANSACTIONS IN ITS OWN CODE, I.E. SINCE THE TIMING OF 18 ITA NO. 223/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. ENTERING THE TRANSACTIONS IS CRUCIAL IN THE ONLINE TRADING, THE STAFFS OF THE ASSESSEE COMPANY FOUND IT CONVENIENT TO PUNCH I TS OWN CODE. FURTHER, WE NOTICE THAT THE FACT THAT THE ASSESSEE HAS CHANGED THE CODE TO THE CONCERNED CLIENT'S ACCOUNT AT THE END O F THE DAY HAS NOT BEEN DISPROVED. IF AT ALL ANY PERSON COMES WITH A R EQUEST SEEKING PROFITS, THERE WILL NORMALLY BE TIME LAG AND HENCE THE FACT THAT THE ASSESSEE HAS CHANGED THE CODES AT THE END OF THE DA Y ONLY SHOWS THAT THE ASSESSEE HAS CARRIED OUT THE TRANSACTIONS ON BE HALF OF ITS CLIENTS ONLY. SUCH KIND OF TRANSACTIONS SHALL USUALLY BE SP ORADIC TRANSACTIONS, WHERE AS IN THE INSTANT * CASE, THE CLIENTS HAVE CA RRIED OUT THE TRANSACTIONS CONTINUOUSLY. FURTHER, IT IS PERTINENT TO NOTE THAT NONE OF THE CLIENTS, WITH WHOM THE ASSESSING OFFICER HAS CA RRIED OUT THE EXAMINATION, HAS DISOWNED THE TRANSACTIONS. FURTHER , ALL THE CLIENTS HAVE DULY DISCLOSED THE PROFITS ARISING FROM THE TR ANSACTIONS AS THEIR RESPECTIVE INCOME. THOUGH THE AO HAS ALLEGED THAT T HE SAID PROFITS HAVE BEEN USED TO SET OFF THE PAST BROUGHT FORWARD LOSSES, YET THE LD CIT(A) HAS MADE A DETAILED ANALYSIS OF THIS MATTER AND HAS GIVEN A CLEAR FINDING THAT THE SAME WAS NOT TRUE IN ALL THE CASES. THE LD CIT(A) HAS POINTED OUT THAT MAJORITY OF THE CLIENTS HAVE P AID TAX ON THE PROFITS. IT WAS FURTHER NOTICED THAT THE SOME OF TH E TRANSACTIONS HAVE RESULTED IN LOSS ALSO AND THE SAID LOSS HAS ALSO BE EN ACCEPTED BY THE CONCERNED CLIENTS. ALI THESE FACTORS, IN OUR VIEW, GO TO SHOW THAT THE ASSESSEE HAS CARRIED OUT THE TRANSACTIONS ON BEHALF OF ITS CLIENTS ONLY, EVEN THOUGH THE TRANSACTIONS WERE EXECUTED IN THE C ODE OF THE ASSESSEE INITIALLY. 13. FURTHER, THE LD CIT(A) HAS POINTED OUT THAT THE RE WAS NO MODIFICATION OF CLIENT CODE TO THE TUNE OF RS.3.31 CRORES AND FU RTHER THERE WAS CHANGE OF CODE FROM ONE CLIENT TO ANOTHER CLIENT TO THE TUNE OF RS.6.16 CRORES. IN BOTH THESE CASES, THE QUESTION OF SHIFTI NG OF PROFIT EARNED BY THE ASSESSEE DOES NOT ARISE AT ALL. THE ACTION OF T HE AO IN ASSESSING THE 19 ITA NO. 223/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. ABOVE SAID PROFITS IN THE HANDS OF THE ASSESSEE ONL Y SHOW THAT THERE WAS NO PROPER APPLICATION OF MIND ON THE PART OF TH E ASSESSING OFFICER. 14. ANOTHER IMPORTANT POINT THAT IS RELEVANT HERE IS THAT NONE OF THE CLIENTS WAS SHOWN AS RELATED TO THE ASSESSEE HEREIN . NORMALLY THE QUESTION OF SHIFTING OF PROFIT WOULD ARISE BETWEEN THE RELATED PARTIES ONLY. IF THE ASSESSEE HAD REALLY SHIFTED THE PROFIT S TO AN OUTSIDER, THEN THE HUMAN PROBABILITIES WOULD SUGGEST THAT THE ASSE SSEE WOULD HAVE RECEIVED BACK CORRESPONDING AMOUNT FROM THE RECIPIE NT OF PROFIT. HOWEVER, IN THE INSTANT CASE, THE AO HAS NOT BROUGH T ANY MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE HAD RECEIVED BACK CORRESPONDING AMOUNT EQUIVALENT TO THE AMOUNT OF PROFIT CLAIMED T O HAVE BEEN SHIFTED TO THE CLIENTS. THE AO HAS MAINLY RELIED UP ON THE REPORT GIVEN BY THE MCX AND HAS DRAWN ADVERSE CONCLUSIONS WITHOU T BRINGING ANY MATERIAL TO SUPPORT HIS VIEW. 15. THE LD CIT(A) HAS ALSO POINTED OUT THAT MODIFIC ATIONS CARRIED OUT BY THE ASSESSEE WORKS OUT TO AROUND 3% OF THE TOTAL TR ANSACTIONS ONLY AND IN OUR VIEW, THE SAID VOLUME, IN FACT, VINDICAT ES 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, MEANI NG THEREBY THE IDENTITY OF ALL THE CLIENTS STAND PROVED. NONE OF T HEM HAS DISOWNED THE TRANSACTIONS AND ALL OF THEM HAVE ALSO DECLARED THE INCOME IN THEIR RESPECTIVE RETURNS OF INCOME. ALL THESE FACTORS, IN OUR VIEW, SUPPORT THE CONTENTIONS OF THE ASSESSEE. 16. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN DELETING THE ADDITIO NS MADE IN BOTH THE YEARS UNDER CONSIDERATION. IN OUR VIEW ALS O, THE ASSESSING OFFICER HAS DRAWN ADVERSE CONCLUSIONS AGA INST THE ASSESSEE WITHOUT PROPERLY BRINGING ANY MATERIALS TO SUPPORT THE VIEW, I.E., THE ADDITIONS HAVE BEEN MADE ON SUS PICION AND 20 ITA NO. 223/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. 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 WAS FOUND B Y THE TRIBUNAL AS WITHIN THE PERMISSIBLE LIMIT OF ERROR MARGIN. THE A HMADABAD BENCHES OF THE TRIBUNAL IN THE CASE OF ACIT VS. M/S KUNVARJ IT FINANCE PVT. LTD. (SUPRA) AND OTHERS IN BUNCH OF APPEALS HAS ANALYSED THE ISSUE IN PARA 8 TO 11 AS UNDER: 8. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF B OTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THE ASSESSIN G OFFICER BELIEVED THE CLIENT CODE MODIFICATION TO BE MALAFIDE BECAUSE IN HIS OPINION THE CLIENT CODE MODIFICATION WAS FOR UNUSUALLY HIGH NUM BER OF CASES. THEREFORE, FIRST THING TO BE DECIDED IS WHETHER THE RE WAS THE CLIENT CODE MODIFICATION FOR UNUSUALLY HIGH NUMBER OF CASE S. THE COMMODITY EXCHANGE I.E. MCX VIDE CIRCULAR NO.MCX/T& S/032/2007 DATED 22.01.2007, ISSUED GUIDELINES WITH REGARD TO THE CLIENT CODE MODIFICATION, WHICH READS AS UNDER:- CIRCULAR NO. MCX/T&S/032/2007 JANUARY 22, 2007 CLIENT CODE MODIFICATIONS IN TERMS OF PROVISIONS OF THE RULES, BYE-LAWS AND BUSINESS RULES OF THE EXCHANGE, THE MEMBERS OF THE EXCHANGE ARE NOTIFIED AS UNDER: FORWARD MARKETS COMMISSION (FMC) VIDE ITS LETTER NO . 6/3/2006/MKT-II (VOL III) DATED DECEMBER 20, 2006 AND JANUARY 5, 2007 HAS DIR ECTED 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 5:0 0 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 S HALL 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. 21 ITA NO. 223/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. D. AT ALL TIMES, PROPRIETARY TRADES SHALL NOT BE A LLOWED 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 ENTERE D WITH ALERTNESS AND CARE, A PENALTY ON THE CLIENT CODE CHANGES MADE ON A DAILY 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 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 DAT E THE SAID FACILITY WILL BE COMPLETELY STOPPED. WITH REFERENCE TO POINT C. AS REFERRED ABOVE, MEM BERS MAY PLEASE NOTE THAT THE CLIENT CODE MODIFICATIONS WILL BE ALLOWED ONLY UPTO 11:55 P.M. IN INTERNATIONAL REFERENCEABLE COMMODITIES (I.E. COMMO DITIES 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 COMMODITY EXCHANG E, 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 I T IS GREATER THAN 10%, THEN PENALTY IS RS.10,000/-. FROM THE ABOVE, THE ONLY IN FERENCE THAT CAN BE DRAWN IS THAT AS PER MCX, THE CLIENT CODE MODIFICATION UP TO 1% IS ABSOLUTELY NORMAL AND THEREFORE, THE BROKER IS PERMITTED TO MODIFY TH E CLIENT CODE UPTO 1% WITHOUT PAYING ANY PENALTY. EVEN CLIENT CODE MODIFI CATION UPTO 5% IS NOT CONSIDERED UNUSUALLY HIGH BECAUSE THAT IS ALSO PERM ITTED WITH THE TOKEN PENALTY OF RS.500/-. IN THE CONTEXT OF THE CIRCULAR ISSUED BY COMMODITY EXCHANGE, LET US EXAMINE WHETHER THE CLIENT CODE MO DIFICATION DONE BY THE 22 ITA NO. 223/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. 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 THE NUMBER OF CLI ENT CODE MODIFICATION AND PERCENTAGE THEREOF. WE HAVE ALSO REPRODUCED THE SAME AT PARAGRAPH NO.6 OF OUR ORDER. FROM THE SAID DETAILS, IT IS EVI DENT THAT THE 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 NUM BER 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 TOT AL TRADING TRANSACTIONS. AS PER CIRCULAR OF COMMODITY EXCHANGE, CLIENT CODE MOD IFICATION UPTO 1% IS QUITE NORMAL AND IS PERMITTED WITHOUT ANY PENALTY. THAT THE ASSESSING OFFICER HAS NOT GIVEN ANY REASON ON WHAT BASIS HE P RESUMED 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 Q UITE NOMINAL AND NOT UNUSUALLY HIGH AS ALLEGED BY THE ASSESSING OFFICER. 9. THE ASSESSING OFFICER HELD THE CLIENT CODE MOD IFICATIONS TO BE MALAFIDE WITH THE INTENTION TO TRANSFER THE PROFIT TO OTHER PERSO N BY MODIFYING THE CLIENT CODE SO AS TO AVOID THE PAYMENT OF TAX. FROM THE CI RCULAR OF THE COMMODITY EXCHANGE, IT IS EVIDENT THAT CLIENT CODE MODIFICATI ON 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 MO DIFIED ON THE SAME DAY, THERE CANNOT BE ANY MALAFIDE INTENTION. HAD CLIENT MODIFICATION DONE AFTER THE TRANSACTIONS PERIOD WHEN THE PRICE OF THE COMMO DITY HAS ALREADY CHANGED, THEN PERHAPS THERE COULD HAVE BEEN SOME BA SIS TO PRESUME THAT CLIENT CODE MODIFICATION IS INTENTIONAL. HOWEVER, W HEN THE CLIENT CODE MODIFICATION IS DONE ON THE SAME DAY, IN OUR OPINIO N, THERE WAS NO BASIS OR JUSTIFICATION TO HOLD THE SAME TO BE MALAFIDE. 23 ITA NO. 223/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. 10. MOREOVER, THE LD. ASSESSING OFFICER HAS COMPUT ED THE NOTIONAL PROFIT/LOSS TILL THE TRANSACTIONS PERIOD AND NOT TILL THE PERIOD BY WHICH THE CLIENT CODE MODIFICATION TOOK PLACE. EVEN IF THE VIEW OF THE RE VENUE IS ACCEPTED THAT THE CLIENT CODE MODIFICATION WAS WITH MALAFIDE INTENTIO N, THEN THE PROFIT OR LOSS ACCRUED TILL THE CLIENT CODE MODIFICATION CAN BE CO NSIDERED IN THE CASE OF THE ASSESSEE BUT BY NO STRETCH OF IMAGINATION THE PROFI T/LOSS ARISING AFTER THE CLIENT CODE MODIFICATION CAN BE CONSIDERED IN THE H ANDS OF THE ASSESSEE. 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 MAINTAINED BY THE CONCERNED PARTIES. SUCH PROFITS/LOSS HAS BEEN DULY ACCOUNTED WHENEVER THE TRANSACTIONS HAVE BEEN CLOSED. THUS, WHATEVER PROFITS HAVE BEEN GENER ATED 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 LD. CIT(A) HAS NOT BEEN CONTROVERTED BY THE REVENUE AT THE TIME OF HEARING BEFORE US. WHEN THE TRANSACTION HAS BEEN DULY ACCOUNTED FOR AN D THE PROFIT/LOSS HAS ACCRUED TO THE CONCERNED PARTIES IN WHOSE NAMES TRA NSACTIONS HAVE BEEN CLOSED, THERE CANNOT BE ANY BASIS OR JUSTIFICATION FOR CONSIDERING THOSE PROFIT/LOSS IN THE CASE OF THE ASSESSEE ON THE BASI S OF MERE PRESUMPTION OR SUSPICION. IT IS NOT THE CASE OF THE REVENUE THAT S UCH 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 INTERFER E WITH THE ORDER OF THE CIT(A) IN THIS REGARD AND THE SAME IS SUSTAINED; AN D 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 PERMISSIBLE WITHOUT AN Y PENALTY. THE CASE IN HAND, IT WAS ONLY 0.47%, THEREFORE, THERE IS NO REA SON TO DOUBT THE GENUINENESS OF THE CLIENT CODE MODIFICATION DONE BY THE BROKER IN THE TRANSACTIONS WHERE AFTER THE EXECUTION OF THE TRADE , THE BROKER HAS CARRIED OUT THE CORRECTION OF MISTAKES. A SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL 24 ITA NO. 223/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. IN THE SERIES OF DECISIONS AS REFERRED ABOVE. IN VI EW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AND FOLLOWING THE DECISIO NS OF THE COORDINATE BENCHES OF THE TRIBUNALS, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMPUGNED ORDER OF THE LD. CIT(A) QUA THIS ISSUE. HE NCE, BOTH THESE GROUNDS OF REVENUES APPEAL ARE DISMISSED. 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, A HMEDABAD WITHOUT CONDUCTING ANY INDEPENDENT ENQUIRY OR TO BRING ANYTHING ON REC ORD TO SHOW THAT A PARTICULAR TRANSACTION OF CLIENT CODE MODIFICATION IS BOGUS. FURTHER, WHEN THE ENTIRE EXERCISE IS DONE BY THE BROKER AND ASSESSEE IS HAVING NO CONTRO L OVER IT, THEN IN THE ABSENCE OF ANY MATERIAL OR FACT TO SHOW THE INVOLVEMENT OF THE ASSESSEE FOR SHIFTING THE ALLEGED BOGUS LOSS/PROFIT, THE DISALLOWANCE MADE BY THE AO IS NOT SUSTAINABLE IN LAW. THE AO HAS JUST REPRODUCED THE REPORT OF THE INVESTIGATION WING WHEREIN GENERAL OBSERVATIONS WERE MADE BASED ON THE INVESTIGATION T HAT SOME OF THE BROKERS ARE INDULGED IN TRANSFERRING FICTITIOUS PROFIT/LOSS FRO M ONE CLIENT TO ANOTHER CLIENT IN THE GARB OF CLIENT CODE MODIFICATION. THE AO HAS DISCU SSED 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 R ESPECT OF THE CLAIM OF LOSS OF RS. 3,12,790/- WHEREAS THE ASSESSEE HAS DECLARED A GROSS PROFIT OF MORE THE RS. 3.41 CRORES ON ACCOUNT OF SHARE TRADING. ACCORDING LY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL IN THE CASE OF DCIT VS. GYANDEEP KHEMKA (SUPRA), THE DISALLOWANCE MADE BY T HE AO IS DELETED. 25 ITA NO. 223/JP/2019 SHRI SANDEEP SHARMA, JAIPUR. 6. 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. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 21/05/20 19. SD/- SD/- ( JES'K LH- 'KEKZ ) ( FOT; IKY JKWO (RAMESH C. SHARMA ) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 21/05/2019. DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- SHRI SANDEEP SHARMA, JAIPUR. 2. THE RESPONDENT THE DCIT, CIRCLE-6, JAIPUR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 223/JP/2019) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR