DCIT 8(2), MUMBAI V. PAT COMMODITY SERVICES P.LTD, MUMBAI

ITA 3499/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100564 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 24-03-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 17-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transactions in derivatives; Additional evidence
• Section: 133A; 131; 6

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND AMIT SHUKLA, (JM) . . , , ./ I .T.A. NO S . 3498 AND 3499 / MUM/20 1 2 ( / ASSESSMENT YEAR S : 200 6 - 07 AND 2007 - 08 ) INCOME TAX OFFICER 9(2)(4), ROOM NO. 216B, A A YAKAR BHAVAN, M.K.ROAD, MUMBAI - 400020 / VS. M/S P AT COMMODITY SERVICES P. LTD, 425, DHEERAJ HERITAGE, S V ROAD, SANTACRUZ(W), MUMBAI - 400054 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AADCP5292M / APPELLANT BY S/ SHRI DEEP KANT PRASAD AND PREMANAND J / RSPONDENT BY SHRI V G GINDE / DATE OF HEARING : 6. 7 . 201 5 / DATE OF PRONOUNCEMENT : 7. 8 .2015 / O R D E R PER B.R. BASKARAN (AM) BOTH THE APPEALS HAVE BEEN FILED BY THE REVENUE AND T HEY ARE DIRECTED AGAINST THE TWO SEPARATE ORDERS PASSED BY LD.CIT(A) - 20, MUMBAI AND THEY RELATE TO ASSESSMENT YEARS 2006 - 07 AND 2007 - 8. SINCE IDENTICAL ISSUES ARE AGITATED IN THESE APPEALS, THESE APPEALS WERE HEARD TOGETHER AND THEY ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. THE R EVENUE IS AGGRIEVED BY THE DECISION OF LD.CIT(A) IN DELETING THE ADDITION RELATING TO S H I FTING OF PROFITS MADE BY THE AO IN BOTH THE YEARS. ITA NO. 3498 AND 3499/ MUM/20 1 2 2 3. FACTS RELATING TO THE ABOVE SAID ISSUE ARE STAT ED IN BRIEF. THE ASSESSEE IS A MEMBER OF MULTI COMMODITY EXCHANGE OF INDIA LTD (MCX) AND NATIONAL COMMODITY AND DERIVATIVES EXCHANGE OF INDIA. THE ASSESSEE HAS STARTED ITS OPERATION IN THE MONTH OF JU LY , 2005 . THE ASSESSEE WAS CARRYING ON TRADING ACTIVITI ES BOTH ON DERIVATIVES AND DELIVERY BASED TRANSACTIONS ON ITS OWN ACCOUNT AS WELL AS ON BEHALF OF THE VARIOUS CLIENTS . THE MCX RELEASED THEIR COMMODITY TRANSACTION DATA WHEREIN IT WAS REPORTED THAT THE ASSESSEE HAD INDULGED IN MODIFYING THE CLIENT CODES , I.E., TRANSACTION CARRIED OUT IN ONE CODE WAS LATER SHIFTED TO ANOTHER CODE. ON THE BASIS OF ABOVE I NFORMATION, REVENUE CARRIED OUT SURVEY OPERATIONS UNDER SECTION 133A OF THE INCOME TAX ACT, 1961 (THE ACT) ON 25.3.2008 AT THE BUSINESS PREMISES OF THE A SSESSEE. THE SURVEY TEAM IMPOUNDED MANY INCRIMINATING DOCUMENTS WHICH INDICATED THAT THE ASSESSEE WAS INDULGING IN CLIENT CODE MODIFICATION O N A LARGE - SCALE. THE INVESTIGATION WING RECORDED THE STATEMENT FROM VARIOUS CLIENTS OF THE ASSESSEE COMPANY , WHEREI N THEY CONFIRMED THAT THE TRADE ON THEIR BEHALF WERE DONE EITHER BY SHRI PRASHANT J PATEL , PRINCIPAL OFFICE R OF THE COMPANY O R BY SHRI ASHISH THAKKAR , AN EMPLOY EE OF THE COMPANY . SHRI PRASHANT J PATEL ALSO ADMITTED IN THE STATEMENT RECORDED FROM HI M U/S 131 OF THE ACT THAT THE ASSESSEE COMPANY HAS CARRIED OUT TRAD ING TRANSACTIONS AT I T S DISCRETION FOR MANY OF THEIR C LIENTS , I.E ., T HE ASSESSEE COMPANY HAS UNDERTAKEN TRADING OPERATIONS ON BEHALF OF THEIR CLIENTS WITHOUT RECEIVING ANY SPECIF IC ORDERS FROM THEM AND ALSO WITHOUT RECEIVING MARGIN MONEY FROM THE CLIENTS. IT WAS FURTHER NOTICED THAT MCX HAS IMPOSED PENALTIES UPO N THE ASSESSEE FOR CARRYING OUT CLIENT CODE MODIFICATION. THE REVENUE SOU GH T DETAILS RELATING TO CLIENT CODE MODIFICATION CARRIED OUT BY THE ASSESSEE FROM MCX AND THE SAME WAS PROVIDED BY MCX , VIDE LETTER DATED 22.12.2008. ON EXAMINATION OF THE DETAILS FURNISHED BY THE MCX , IT WAS OBSERVED THAT IN MANY CASES ITA NO. 3498 AND 3499/ MUM/20 1 2 3 THE TRADING WAS DONE INITIALLY ON ASSESSEES OWN CODE AND SUBSEQUENTLY THE Y WERE SHIFT ED TO VARIOUS CLIENTS CODE. IN SOME OF THE CASES, THE TRADING WAS DONE IN THE CODE BELONGING TO ONE CLIENT , BUT SUBSEQUENTLY TRANSFERRED TO THE CODE OF ANOTHER CLIENT. 4. THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS , SOUGHT EXPLANA TION S FROM THE ASSESSEE ON THE DETAILS RELATING TO THE CLIENT CODE MODIFICATION OBTAINED FROM MCX . THE ASSESSEE SUBMITTED THAT IT W AS EASY TO PUNCH THE ORDERS IN ITS OWN CODE , SINCE THE TIMING IS VERY IMPORTANT IN ONLINE TRADING. HENCE, THE ASSESSEE HA S BOOKED THE ORDERS INITIALLY IN ITS OWN CODE ON BEHALF OF ITS CLIENTS IN ORDER TO ENSURE QUICK EXECUTION OF THE SAME. ONCE THE ORDERS GOT EXECUTED, THEY WERE TRANSFERRED TO THE CONCERNED CLIENT CODE BY THE END OF THE DAY . IT WAS ALSO SUBMITTED THAT SOME TIMES ERRORS OCCURRED DUE TO P UNCHING OF WRONG CLIENT CO D E AND ON NOTICING OF THE SAME, IT W AS RECTIFIED LATTER. IT W AS ALSO SUBMITTED THAT SUCH KIND OF MODIFICATION OF CODES IS QUITE NORMAL IN THIS TRADE . IN THIS CONNECTION, THE ASSESSEE RELIED UPON A C IRCU LAR DATED 9TH NOVEM BER, 2006 ISSUED BY MCX AND SUBMITTED THAT THE MCX WAS AWARE OF THE FACT THAT THESE KIND OF MODIFICATION OF CODES IS INEVITABLE . IT WAS ALSO SUBMITTED THAT THE SAID CIRCULAR ALSO SUPPORTS THE CASE OF THE ASSESSEE THAT THERE WAS NO R ESTRICTION ON CLIENT CODE MODIFICATION PRIOR TO THAT DATE. IT WAS FURTHER SUBMITTED THAT THE MCX DOES NOT LEVY PENALTY IN THE CASES WHERE SUCH MODIFICATION IS LESS THAN OR EQUAL TO 1 PER CENT OF THE TOTAL NUMBER OF ORDERS. WITH REGARD TO NON - COLLECTION OF MARGIN MONEY, THE ASSESSEE SUBMITTED THAT THE MARGIN MONEY IS REQUIRED TO BE COLLECTED AT THE END OF THE DAY ONLY IF THERE IS AN OPEN POSITION IN RESPECT OF ANY OF THE CLIENT. 5. THE AO WAS NOT CONVINCED WITH THE EXPLANATION S OF THE ASSESSEE AND HE NCE HE TOOK THE VIEW THAT THE ASSESSEE HAS TRANSFERRED ITS PROFITS TO ITA NO. 3498 AND 3499/ MUM/20 1 2 4 VARIOUS CLIENTS. ACCORDINGLY , THE AO TOOK THE VIEW THAT THE PROFIT ARISING OUT OF THE TRANSACTIONS, WHOSE CLIENT CODE WAS MODIFI ED LATER , SHOULD BE CONSIDERED AS THE PROFIT OF THE ASSES SEE AND HENCE THE SAME SHOULD BE ASSESSED IN ITS HANDS . DURING THE COURSE OF ASSESSMENT PROCEEDINGS RELATING TO AY 2007 - 08, THE AO ALSO TOOK NOTE OF THE FACT THAT THE PROFIT SHIFTED TO SOME OF THE CLIENTS HAVE BEEN USED BY THEM TO SET OFF THE BROUGHT FORW ARD LOSS ES AVAILABLE WITH THEM. HENCE THE AO INFERRED THAT THE OBJECT OF SHIFTING OF PROFIT WAS TO REDUCE THE TAX BURDEN OF ITS CLIENTS . HENCE THE AO CAME TO THE CONCLUSION THAT IT WAS A COLOURABLE DEVICE ADOPTED BY THE ASSESSEE TO REDUCE THE TAX BURDEN, WHICH IS NOT PERMISSIBLE AS PER THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MC DOWELL AND CO. LTD (1985)(154 ITR 148). 6. A CCORDINGLY, HE ASSESSED THE SUM OF RS.44 , 80 ,376/ - IN THE ASSESSMENT YEAR 2006 - 07 AND RS.18,60,33,553/ - IN ASSESSMENT Y EAR 2007 - 08 AS INCOME OF THE ASSESSEE . IT IS PERTINENT TO NOTE THAT THE ASSESSEE HAD ALSO SHIFTED CERTAIN TRANSACTIONS, WHICH HAD RESULTED IN LOSS ALSO TO ITS CLIENTS , BUT THE AO IGNORED THE SAME. 7. THE ASSESSEE PREFERRED APPEALS CHALLENGING THE A SSESSMENT ORDERS PASSED FOR AY 2006 - 07 AND 2007 - 08. THE LD CIT(A) PASSED A DETAILED ORDER IN AY 2007 - 08 AND FOLLOWED THE SAME IN ASSESSMENT YEAR 2006 - 07. BEFORE THE LD CIT(A), THE ASSESSEE FURNISHED CERTAIN ADDITIONAL EVIDENCES IN THE FORM OF CONFIRMATIO NS OBTAINED FROM SOME OF THE CLIENTS. HENCE THE LD CIT(A) CALLED FOR A REMAND REPORT FROM THE ASSESSING OFFICER. HOWEVER, THE AO, WITHOUT CONDUCTING FRESH EXAMINATION, REPORTED THAT THE CONCLUSIONS ARRIVED AT BY HIM DURING THE COURSE OF ASSESSMENT PROCEE DINGS WITH REGARD TO SOME OTHER CONFIRMATION LETTERS WOULD APPLY TO THESE ADDITIONAL EVIDENCES ALSO. THE ASSESSEE ALSO RAISED VARIOUS TYPES OF ITA NO. 3498 AND 3499/ MUM/20 1 2 5 OBJECTIONS BEFORE THE LD CIT(A) AND THE FIRST APPELLATE AUTHORITY, AFTER EXAMINING ALL OF THEM, HELD THAT THE IM PUGNED ADDITIONS ARE NOT SUSTAINABLE. 8. THE LD. CIT(A) HAS GIVEN HIS DECISION IN RESPECT OF THE ISSUE UNDER CONSIDERATION IN PARA 6.3 TO 7 .2 OF HIS ORDER FOR THE ASSESSMENT YEAR 2007 - 08. THE GIST OF THE REASONING GIVEN BY THE LD.CIT(A) TO DELETE TH E IMPUGNED ADDITIONS ARE SUMMARIZED BELOW : A) THE ASSESSEE HAD OBJECTED TO THE ACTION OF THE AO IN MAKING APPRAISAL REPORT GIVEN BY THE INVESTIGATION WING AS PART OF THE ASSESSMENT ORDER. THE LD. CIT(A) HELD THAT THE FINDING GIVEN IN THE APPRAI SAL REP ORT CANNOT BE THE BASIS F OR MAKING THE ADDITIONS AND T HE AO HAS TO APPLY HIS MIND INDEPENDENTLY TO THE ISSUES AS PER THE DECISION OF THE HONBLE SUPREME COURT IN THE CA S E OF CIT V/S GREENFIELD CORPORATION (2009) 314 ITR 81 . ACCORDINGLY, THE LD. CIT(A) HELD THAT THE ACTION OF THE AO IN ATTACHING THE APPRAISAL REPORT A S FORMING PART OF THE ASSESSMENT ORDER HAS WEAKEN ED THE CASE OF THE AO . B) CLIENT CODE MODIFICATION CARRIED OUT BY THE ASSESSEE CANNOT SAID TO BE ILLEGAL. IN THIS REGARD T HE LD. CIT(A) R EFERRED TO THE PENALTY LEVIED BY MCX FOR CARRYING OUT THE CLIENT CODE MODIFICATION WHICH IS GIVEN BELOW : S.NO. PERCENTAGE OF CLIENT CODE CHANGED TO TOTAL ORDERS (MATCHES) ON A DAILY BASIS PENALTY 1 LESS THAN OR EQUAL TO 1 % 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 ITA NO. 3498 AND 3499/ MUM/20 1 2 6 THE LD. CIT(A) NOTICED THAT THE CLIENT CODE MODIFICATION CARRIED OUT BY THE ASSESSEE WA S APPROXIMATELY 3% OF TOTAL ORDERS ONLY. FURTHER, REFER RING TO THE SLAB OF PENALTIES GIVEN BY MCX, WHICH IS EXTRACTED ABOVE, THE LD. CIT(A) OBSERVED THAT THE STATUTE HAS EVEN VISUALIZED A SITUATION, WHERE SUCH MODIFICATION WOULD BE MORE THAN 10%. HOWEVER, IN THE ASSESSEES CASE, SUCH MODIFICATION WAS ONLY ARO UND 3 % ONLY . C) THE EXPLANATION OF THE ASSESSEE THAT THERE EXISTED A NEED FOR MODIFICATION OF CLIENT CODE WAS NOT FOUND TO BE FALSE BY THE AO . ON THE CONTRARY, THE AO HAS SIMPLY PLACED RELIANCE ON THE APPRAISAL REPORT AND DRAWN CONCLUSION AGAINST THE ASS ESSEE. THE AO WAS NOT RIGHT IN DRAWING INFERENCE THA T THE CLIENT CODE MODIFICATION HAS RESULTED IN THE PROFIT TO CLIENT WITHOUT HAVING ANY OTHER CORROBORATIVE EVIDE NCE. D) ALL THE CLIENTS HAVE COMPLIED WITH KYC NORMS , DISCLOSED THEIR PAN NUMBERS AND THEY ARE ASSESSED TO TAX. ALL THE C LIENTS HAVE DULY DISCLOSED THE INCOME FROM COMMODITY TRADING IN THEIR RESPECTIVE RETURN OF INCOME . E) WITH REGARD TO THE OBSERVATION OF THE AO THAT THE CLIENTS WERE NOT AWARE ABOUT THE MODIFICATION, THE LD. CIT(A) HAS OBSERVE D THAT NONE OF THE CLIENT HAS DISOWNED THE TRANSACTION. ON THE CONTRARY, THEY HAVE CONFIRMED THAT THE PROFIT EARNED BY THEM HAVE BEEN DISCLOSED IN THEIR RESPECTIVE RETURN OF INCOME. F) WITH REGARD TO THE OBSERVATION OF THE AO THAT THE TRANSACTIONS WERE CARRIED OUT AT THE DISCRETION OF THE ASSESSEE, THE LD.CIT(A) ITA NO. 3498 AND 3499/ MUM/20 1 2 7 OBSERVED THAT THE SAME WOULD DEPEND UPON THE UNDERSTANDING REACHED BETWEEN THE CLIENTS AND THE BROKERS. THE LD CIT(A) ALSO REFERRED TO THE P ORTFOLIO M ANAGEMENT SCHEME (PMS) , WHICH IS GAINING POPU LARITY IN THE RECENT DAYS , AND OBSERVED THAT THE INVESTMENT ADVISORS ALSO CARR Y OUT PURCHASE AND SALE OF SHARES AT THE IR DISCRETION WITHOUT CONSULTING THE CUSTOMERS . ACCORDINGLY, THE LD.CIT(A) HAS OBSERVED THAT NO ADVERSE INFERENCE CAN BE DRAWN AT THIS MAT TER UNLESS CLIENT S DISOWN THE TRANSACTIONS. G) WITH REGARD TO THE OBSERVA TION THAT THE CLIENTS HAVE ADJUSTED THE PROFIT AGAINST THE BROUGHT FORWARD LOSS AND ACCORDINGLY DID NOT PAY ANY TAX, THE LD. CIT(A) OBSERVED THAT THE AO HAS EXAMINED ONLY FIVE CLIE NTS TO MAKE THIS OBSERVATION. THE LD CIT(A) HAS NOTED THAT THE MODIFICATION HAS TAKEN PLACE IN RESPECT OF 110 CLIENTS AND T HE ASSESSEE HAS FILED CONFIRMATION LETTERS OBTAINED FROM 84 CLIENTS AND MOST OF THE CLIENTS HAVE PAID TAX ON THE PROFIT EARNED BY TH EM. THE LD.CIT(A) HAS LISTED OUT THE DETAILS RELATING TO 52 MAJOR CLIENTS IN PARA 6.6.6 OF HIS ORDER , WHERE THEY HAVE PAID INCOME TAX ON THE PROFITS GENERATED FROM COMMODITY TRADING . H) WITH REGARD TO THE OBSERVATIONS REGARDING NON - COLLECTION OF MARGIN, THE LD. CIT(A) OBSERVED THAT THE SAME WOULD AGAIN DEPEND UPON THE UNDERSTANDING BETWEEN THE CLIENTS AND THE ASSESSEE. FURTHER , THE DEFAULT, IF ANY, IN THIS REGARD IS REQUIRED TO BE TAKEN NOTE OF BY THE CONCERNED REGULATORY BODY. I) IN THE ASSESSMENT OR DER, THE AO HAS OBSERVED THAT THE PROFIT RATIO ON OWN TURNOVER VIS - - VI S CLIENT TURNOVER W AS NOT PROPORTIONATE, THE LD. CIT(A) OBSERVED THAT SUCH KIND OF COMPARISON ITA NO. 3498 AND 3499/ MUM/20 1 2 8 IS NOT WARRANTED AND THE SAME CANNOT BE THE BASIS FOR MAKING ADDITION. J) THE LD. CIT(A) FURTHER HELD THAT THE DECISION RENDERED BY THE HONBLE SUPREME COURT IN THE CASE OF MCDOWELL AND CO LTD. (1985) 154 ITR (SC) IS NOT APPLICABLE TO THE FAC T S OF THE PRESENT C A SE AS THE ASSESSEE HAS NOT CARRIED OUT TRANSACTION WITH ANY OF ITS SISTER CONCERN AND FURTHER THE AO HAS NOT MADE OUT A NY CASE OF SHIFTING OF PROFIT AGAINST THE RECEIPT EQUIVALENT MONEY IN CASH OR MONEYS WORTH. THE AO HAD A LSO PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ASSOCIATED RUBBER INDUSTRIES LTD (1986) 157 ITR 77(SC) AND CIT V/S DURGA PRASAD MORE REPORTED IN 82 ITR 540 (S C ). THE LD. CIT(A) HELD THAT BOTH THE DECISIONS ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE, SINCE THE DOCUMENTS PRODUCED BY THE ASSESSEE AND SURROUNDING CIRCUMSTANCES D ID NOT INDICATE ANY TAX EVASION. K) THE AO HAS ADDED THE PROFIT EARNED BY ALL THE CLIENTS NUMBERING ABOUT 110 IN THE HANDS OF THE ASSESSEE. HOWEVER, DURING THE COURSE OF SURVEY PROCEEDINGS ONLY SIX CLIENTS HAVE BEEN EXAMINED IN PERSON . A LL OF THEM HAVE NOT DISOWNED TRANSACTION S CARRIED ON BY THE ASSESSEE AND THE PROFIT EARNED THEREON HAS BEEN DULY OFFERED TO TAX IN THEIR RESPECTIVE RETURN OF INCOME. L) NEITHER THE AO NOR THE SURVEY TEAM HAS PROVIDE D ANY REASON OR DOCUMENT OR STATEMENT WHICH COULD ESTAB LISH THAT THE CLIENT CODE MODIFICATION HAS RESULTED IN THE ALLEGED SHIFTING OF PROFIT AND THE ASSESSEE HAS RECEIVED BACK EQUIVALENT AMOUNT OF CASH OR ANYTHING OF MONEYS WORTH . SINCE THERE IS NO SUCH FINDING , THERE CANNOT BE A ITA NO. 3498 AND 3499/ MUM/20 1 2 9 CASE THAT THE INCOME , WHICH HAS ALREADY BEEN TAXED IN THE HANDS OF CLIENTS , COULD BE TAXED IN THE HANDS OF THE ASSESSEE. M) IN THE CASE OF LAX M IPRATAP SINGHANIA V/S CIT (72 ITR 291), THE HONBLE COURT HELD THAT IT IS THE FUNDAMENTAL RULE OF LAW OF TAXATION THAT UNLESS OTHERWISE E XPRESSLY PROVIDED, INCOME CANNOT BE TAXED TWICE . SIMILAR VIEW HAS BEEN EXPRESSED IN THE CASE OF JYOTIPRASAD AGARWAL V/S ITO (37 ITR 107) AND IN THE CA S E OF ITO V/S BICHULAL KAPOOR (60 ITR 74) . N) THE ADDITION OF RS.18.60 CRORES MADE BY THE AO IN THE ASSESSMENT YEAR 2007 - 08 INCLUDES 3.31 CRORES PERTAINING TO CERTAIN CASES , WHERE THERE WAS NO CLIENTS CODE MODIFICATION. FURTHE R, IN SOME CASES, THE CLIENTS CODE MODIFICATION H AS TAKEN PLACE BETWEEN ONE CLIENT AND ANOTHER CLIENT AND THE PROFIT PERTAINING TO SUCH KIND OF MODIFICATION WAS RS.6.16 CRORES . THE LD. CIT(A) OBSERVED THAT AGGREGATE PROFIT OF BOTH THESE ITEMS AMOUNT ING TO RS.9.48 CRO R ES DOES NOT WARRANT ANY ADDITION , S INCE THEY CANNOT BE CONSIDERED AS SHIFTING OF PROFIT OF THE ASSESSEE . HOWEVER, THE ACTION OF THE AO IN ASSESSING THE PROFIT OF RS.9.48 CRORES MENTIONED ABOVE ONLY SHOW S TH AT THE AO HAS FAILED TO APPLY HIS MIND AND H E WAS SIMPLY FOLLOWING APPRAISAL REPORT , WHICH LED HIM TO ARRIVE AT AN ERRONEOUS CONCLUSION. 9. THE LD. CIT(A) FIN A LLY CONCLUDED THE MATTER ARE AS UNDER : 7. TO CONCLUDE, THE APPELLANT PROVED THE RATIONALE, NEED AND JUSTIFICATION FOR CLIENT CODE MODIFICATIONS. IT HAS ALSO PROVED THAT SUCH CLIENT CODE MODIFICATION IS NOT ILLEGAL AND VERY WELL WITHIN THE ACCEPTABLE LEV EL. IT HAS PROVED THAT ALL OF ITS 110 CLIENTS ARE KYC COMPLAINT, HAVING PAN, REGULARLY ASSESSED TO INCOME TAX, CONFIRMED THE TRANSACTION AND INCOME IN QUESTION HAS ALREADY BEEN OFFERED FOR TAX IN THEIR HANDS AND ASSESSED. I ALSO HOLD THAT THERE IS NOTHING ILLEGAL DISCRETIONARY TRADE CARRIED OUT BY THE ASSESSEE ON BEHALF OF ITS CLIENT. THE CLIENTS NEED NOT BE ITA NO. 3498 AND 3499/ MUM/20 1 2 10 AWARE OF SUCH CLIENT CODE MODIFICATION. THE REQUIREMENT OF COLLECTION MARGIN IS EITHER NOT APPLICABLE AND/OR IF APPLICABLE, AND NOT COLLECTED, THE SAME IS THE BUSINESS UNDERSTANDING WITH THE CLIENT AND CANNOT BE A BASIS FOR ADDITION. THE ASSESSEE HAS ADEQUATELY EXPLAINED THE TRANSACTION AND PROVED THAT INCOME HAS ALREADY BEEN TAXED IN THE HANDS OF CLIENTS, SUCH INCOME BELONGS TO THE CLIENTS AND HENCE ONC E AGAIN CANNOT BE TAXED IN THE HANDS OF THE ASSESSEE. THE ASSESSES ALSO PROVED THAT IN THE CASE OF PROFIT OF RS.3,31,75,424/ - WHERE THERE IS NO INSTANCE OF CLIENT CODE MODIFICATION AND OF RS.6,16,75,825/ - WHERE THERE IS MODIFICATION IN CLIENT CODE FROM ONE CLIENT TO ANOTHER CANNOT BE TAXED IN THE HANDS OF ASSESSEE EVEN IF PREPOSITION RELIED UPON BY THE ASSESSING. 7.1 IT IS A FACT THAT THE ASSESSING OFFICER HAS NOT APPLIED HIS MIND INDEPENDENTLY IN COMING TO THE CONCLUSION IN THE ASSESSMENT ORDER. THE ASS ESSING OFFICER COULD NOT BRING ANYTHING ON RECORD WHICH CAN PROVE THAT BECAUSE OF SUCH SHIFTING OF PROFIT FROM ASSESSEE TO CLIENT, THE ASSESSEE HAS RECEIVED BACK THE MONEY EITHER IN CASH OR IN OTHER FORM AS MONEY'S WORTH. FURTHER THE ASSESSING OFFICER COUL D NOT POINT OUT THAT THE CLIENT TO WHOM PROFITS WERE TRANSFERRED HAS NOT ACCOUNTED FOR SUCH PROFITS AS THEIR INCOME. IT WAS ALSO REMAINED AN UNDISPUTED FACT THAT ALL THE CLIENTS ARE HAVING PAN AND REGULARLY FILING THEIR TAX RETURNS AND SUCH PROFIT HAS ALRE ADY BEEN TAXED IN THEIR HANDS, THEREFORE, THE SAME PROFIT ONCE AGAIN CANNOT BE TAXED IN THE HANDS OF THE ASSESSEE 7.2 ACCORDINGLY, THE ENTIRE ADDITION MADE OF RS. 18,60,33,553/ - IS DELETED. THUS, GROUNDS NO.2 TO 6 ARE ALLOWED 10. AGGRIEVED BY THE ORDE RS PASSED BY LD CIT(A), THE REVENUE HAS FILED THESE APPEALS BEFORE US. 11. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE 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 RAISE D BY THE ASSESSING OFFICER . THE LD CIT(A) HAS POINTED OUT THAT THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE CLIENT CODE MODIFICATION MADE BY THE ASSESSEE WAS NOT GENUINE ONE. IT WAS FURTHER NOTICED THAT N ONE OF THE CLIENTS EXAMINED BY T HE TAX AUTHORITIES HAS DISOWNED THE TRANSACTIONS CARRIED ON ITA NO. 3498 AND 3499/ MUM/20 1 2 11 BY THE ASSESSEE. AS NOTICED BY THE LD CIT(A), THE MCX, THE STOCK EXCHANGE, IS VERY MUCH AWARE ABOUT CLIENT CODE MODIFICATIONS AND HENCE IN ORDER TO DISCOURAGE FREQUENCY OF MODIFICATIONS, IT HAS B ROUGHT IN PENALTY MECHANISM. EVEN UNDER THE PENALTY MECHANISM ALSO, NO PENALTY SHALL BE LEVIABLE IF THE MODIFICATION WAS LESS THAN 1% OF THE TOTAL TRANSACTIONS, MEANING THEREBY, THE MCX IS ALSO ACCEPTING THE FACT THAT SUCH KIND OF CLIENT CODE MODIFICATION IS INEVITABLE. 12. UNDER THESE SET OF FACTS, THE NEXT QUESTION THAT ARISES IS WHETHER THE CLIENT CODE MODIFICATION HAS RESULTED INTO SHIFTING OF PROFITS, OTHERWISE EARNED BY THE ASSESSEE. IT IS A FACT THAT THE ASSESSEE COMPANY HAS STARTED ITS OPER ATIONS ONLY IN JULY, 2005 BY CONVERTING INDIVIDUAL MEMBERSHIP INTO CORPORATE MEMBERSHIP. FURTHER , THE COMMODITY EXCHANGE WAS ABOUT 3 - 4 YEARS OLD ONLY AT THE RELEVANT POINT OF TIME. HENCE, THE ASSESSEE CANNOT BE CONSIDERED TO BE AN ESTABLISHED PLAYER IN TH E YEARS UNDER CONSIDERATION. FURTHER, THE MOVEMENT OF PRICES OF COMMODITIES CANNOT BE PREDICTED BY ANYONE WITH ACCURACY AND HENCE IT IS INCONCEIVABLE OR UNLIKELY THAT THE ASSESSEE COULD HAVE MADE PROFIT S CONSISTENTLY, EVEN IF IT IS ASSUMED FOR A MOMENT TH AT THE ASSESSEE HAD ACTUALLY CARRIED OUT THE TRANSACTIONS FOR ITS OWN BENEFIT. WE NOTICE THAT THE ASSESSEE HAS OFFERED EXPLANATIONS AS TO WHY IT CARRIED OUT THE TRANSACTIONS IN ITS OWN CODE, I.E. SINCE THE TIMING OF ENTERING THE TRANSACTIONS IS CRUCIAL I N THE ONLINE TRADING, THE STAFFS OF THE ASSESSEE COMPANY FOUND IT CONVENIENT TO PUNCH ITS OWN CODE. FURTHER , WE NOTICE THAT THE FACT THAT THE ASSESSEE HAS CHANGED THE CODE TO THE CONCERNED CLIENTS ACCOUNT AT THE END OF THE DAY HAS NOT BEEN DISPROV ED. IF AT ALL ANY PERSON COMES WITH A REQUEST SEEKING PROFITS, THERE WILL NORMALLY BE TIME LAG AND HENCE THE FACT THAT THE ASSESSEE HAS CHANGED THE CODES AT THE END OF THE DAY ONLY SHOWS THAT THE ASSESSEE HAS CARRIED OUT THE TRANSACTIONS ON BEHALF OF ITS CLIENTS ONLY. SUCH KIND OF ITA NO. 3498 AND 3499/ MUM/20 1 2 12 TRANSACTIONS SHALL USUALLY BE SPORADIC TRANSACTIONS, WHERE AS IN THE INSTANT CASE, THE CLIENTS HAVE CARRIED OUT THE TRANSACTIONS CONTINUOUSLY. FURTHER, IT IS PERTINENT TO NOTE THAT NONE OF THE CLIENTS, WITH WHOM THE ASSESSING OFFICER HAS CARRIED OUT THE EXAMINATION, HAS DISOWNED THE TRANSACTIONS. FURTHER, ALL THE CLIENTS HAVE DULY DISCLOSED THE PROFITS ARISING FROM THE TRANSACTIONS AS THEIR RESPECTIVE INCOME. THOUGH THE AO HAS ALLEGED THAT THE SAID PROFITS HAVE BEEN USED TO SET OFF T HE 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 PAID TAX ON THE PROFIT S. IT WAS FURTHER NOTICED THAT THE SOME OF THE TRANSACTIONS HAVE RESULTED IN LOSS ALSO AND THE SAID LOSS HAS ALSO BEEN ACCEPTED BY THE CONCERNED CLIENTS. ALL THESE FACTORS, IN OUR VIEW, GO TO SHOW THAT THE ASSESSEE HAS CARRIED OUT THE TRANSACTIONS ON BEH ALF OF ITS CLIENTS ONLY, EVEN THOUGH THE TRANSACTIONS WERE EXECUTED IN THE CODE OF THE ASSESSEE INITIALLY. 13. FURTHER, THE LD CIT(A) HAS POINTED OUT THAT THERE WAS NO MODIFICATION OF CLIENT CODE TO THE TUNE OF RS.3. 3 1 CRORES AND FURTHER THERE WAS CH ANGE OF CODE FROM ONE CLIENT TO ANOTHER CLIENT TO THE TUNE OF RS. 6.16 CRORES. IN BOTH THESE CASES, THE QUESTION OF SHIFTING OF PROFIT EARNED BY THE ASSESSEE DOES NOT ARISE AT ALL. THE ACTION OF THE AO IN ASSESSING THE ABOVE SAID PROFITS IN THE HANDS OF T HE ASSESSEE ONLY SHOW THAT THERE WAS NO PROPER APPLICATION OF MIND ON THE PART OF THE 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 O F SHIFTING OF PROFIT WOULD ARISE BETWEEN THE RELATED PARTIES ONLY. ITA NO. 3498 AND 3499/ MUM/20 1 2 13 IF THE ASSESSEE HAD REALLY SHIFTED THE PROFITS TO AN OUTSIDER, THEN THE HUMAN PROBABILITIES WOULD SUGGEST THAT THE ASSESSEE WOULD HAVE RECEIVED BACK CORRESPONDING AMOUNT FROM THE RECIPIENT OF PROFIT. HOWEVER, IN THE INSTANT CASE, THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE HAD RECEIVED BACK CORRESPONDING AMOUNT EQUIVALENT TO THE AMOUNT OF PROFIT CLAIMED TO HAVE BEEN SHIFTED TO THE CLIENTS. THE AO HAS MAINLY REL IED UPON THE REPORT GIVEN BY THE MCX AND HAS DRAWN ADVERSE CONCLUSIONS WITHOUT BRINGING ANY MATERIAL TO SUPPORT HIS VIEW. 15. THE LD CIT(A) HAS ALSO POINTED OUT THAT MODIFICATIONS CARRIED OUT BY THE ASSESSEE WORKS OUT TO AROUND 3% OF THE TOTAL TRANSACT IONS ONLY AND IN OUR VIEW, THE SAID VOLUME , IN FACT , VINDICATES THE EXPLANATION OF THE ASSESSEE. FURTHER NONE OF THE CLIENTS HAS BEEN FOUND TO BE BOGUS AND ALL OF THEM HAVE COMPLIED WITH KYC NORMS, MEANING THEREBY THE IDENTITY OF ALL THE CLIENTS STAND PRO VED. NONE OF THEM HAS DISOWNED THE TRANSACTIONS AND ALL OF THEM HAVE ALSO DECLARED THE INCOME IN THEIR RESPECTIVE RETURNS OF INCOME. ALL THESE FACTORS, IN OUR VIEW, SUPPORT THE CONTENTIONS OF THE ASSESSEE. 16. IN VIEW OF THE FOREGOING DISCUSSIONS , WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN DELETING THE ADDITIONS MADE IN BOTH THE YEARS UNDER CONSIDERATION. IN OUR VIEW ALSO, THE ASSESSING OFFICER HAS DRAWN ADVERSE CONCLUSIONS AGAINST THE ASSESSEE WITHOUT PROPERLY BRINGING ANY MATERIALS TO SUPPOR THE VIEW, I.E., THE ADDITIONS HAVE BEEN MADE ON SUSPICION AND SURMISES ONLY. ACCORDINGLY, WE UPHOLD THE ORDER OF LD CIT(A) IN BOTH THE YEARS UNDER CONSIDERATION. ITA NO. 3498 AND 3499/ MUM/20 1 2 14 17 . IN THE RESULT, BOTH THE APPEAL S FILED BY THE REVENUE ARE DISMISSED. PRONOUNCED ACCORDINGLY ON 7TH AUGUST , 2015. 7TH AUGUST , 2015 S D SD ( / AMIT SHUKLA ) ( . . / B.R. BASKARAN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI: 7TH AUGUST , 2015 . . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, T RUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI