ACIT, New Delhi V. M/s Jaypee Financial Services Ltd., New Delhi

ITA 4266/DEL/2016

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 3372 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-12-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 03-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J K MI SHRA
• Assessee Lawyers: VED JAIN SH RISHABH JAIN
• Keywords: Search and seizure; Maximum Marginal Rate; Transactions in derivatives; Penny stocks; Futures and options
• Section: 64

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D, NEW DELHI BEFORE SH. R. K. PANDA, ACCOUNTANT MEMBER AND. SH. KULDIP SINGH, JUDICIAL MEMBER ITA NO.4266/DEL/2016 ASSESSMENT YEAR: 2011-12 ACIT CENTRAL CIRCLE- 29 NEW DELHI VS. M/S. JAYPEE FINANCIAL SERVICES LIMITED FA-45, SHIVAJI ENCLAVE, NEW DELHI-110027 PAN NO.AAACJ2992B (APPELLANT) (RESPONDENT) APPELLANT BY SH. J. K. MISHRA, CIT DR RESPONDENT BY SH. VED JAIN, ADVOCATE SH. RISHABH JAIN, CA DATE OF HEARING: 1 2 /0 9 /2019 DATE OF PRONOUNCEMENT: 03 /12/2019 ORDER PER R.K PANDA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 16.05.2016 OF CIT(A)-30, NEW DELHI RELATING T O A.Y. 2011-12. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A COMPANY AND FILED ITS RETURN OF INCOME ON 29.09.2011 DECLAR ING TOTAL INCOME OF RS.3,20,240/-. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING OF SHARES, SECURITIES AND COMMODITIES THROU GH RECOGNIZED MEMBER OF EXCHANGE. A SEARCH AND SEIZURE ACTION U/ S.132 OF THE IT ACT 2 WAS INITIATED IN THE CASE OF THE ASSESSEE AS PART O F JP GROUP ON 30.03.2012. IN RESPONSE TO NOTICE U/S.153A THE ASS ESSEE FILED ITS RETURN OF INCOME ON 2.09.2013 DECLARING TAXABLE INC OME OF RS.3,20,240/-. DURING THE COURSE OF ASSESSMENT PRO CEEDINGS THE AO NOTED THAT THE ASSESSEE COMPANY IS A CLIENT OF REGI STERED BROKER M/S.JAYPEE CAPITAL SERVICES LTD. AND FUTUTZ NEXT SE RVICES LTD. THESE COMPANIES ARE REGISTERED WITH NSE, MCX AND NCDEX. THESE ARE ALSO REGISTERED WITH THE UNITED STOCK EXCHANGE. DURING T HE COURSE OF SEARCH AND POST SEARCH PROCEEDINGS, THE EVIDENCES OF CLIEN T CODE MODIFICATIONS DONE BY THESE COMPANIES IN THEIR OWN ACCOUNT AS WEL L AS IN THE ACCOUNTS OF CLIENT WERE FOUND. THE SPECIAL AUDITOR S APPOINTED U/S.142 (2A) WAS THEREFORE DIRECTED TO REPORT ON THE ASPECT OF CLIENT CODE MODIFICATION (CCM) DONE BY THE COMPANY. SUBSTANTIA L CLIENT CODE MODIFICATIONS IN THE ACCOUNTS OF ASSESSEE COMPANY M /S.JAYPEE FINANCIAL SERVICES LTD. WAS ALSO FOUND. THEREFORE, THE SPECIAL AUDITOR WAS DIRECTED TO LOOK INTO THE ASPECT OF CLIENT CODE MODIFICATIONS IN THE ACCOUNT OF ASSESSEE COMPANY ALSO. THE AO REFERRED TO THE RELEVANT CIRCULARS, NOTIFICATIONS AND OTHER RULES AND REGULA TIONS WITH REGARD TO CLIENT CODE MODIFICATIONS GIVEN BY THE CONCERNED EX CHANGES FROM TIME TO TIME AND THEREAFTER ASKED THE ASSESSEE TO EXPLAI N THE GENUINENESS OF THE CLIENT CODE MODIFICATION THE AO ALSO CONFRONTED THE REPORT OF THE SPECIAL AUDITOR. 3. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE AND OBSERVING THAT IN THE CASE OF MEMBER (BROKER) GROUP COMPANIES OF THE ASSESSEE, IT HAS BEEN HELD THAT THE CLIENT CODE MOD IFICATION IS BY AND LARGE NOT FOR THE GENUINE REASONS AND FOR EXTRANEOU S CONSIDERATION AND THAT THE ASSESSEE SUPPRESSED ITS INCOME IN ITS BOOK S OF ACCOUNTS BY 3 SHIFTING ITS PROFIT TO OTHER CLIENTS AS ALLEGED BY SPECIAL AUDITORS IN THEIR REPORT, THE AO MADE ADDITION OF RS.1,90,71,392/-. 4. IN APPEAL THE LD. CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER :- 7.3 'FINDINGS: THE FINDINGS ARE AS UNDER:- I HAVE CAREFULLY CONSIDERED ASSESSMENT ORDER, WRITT EN SUBMISSION, CASE LAWS RELIED UPON AND ORAL ARGUMENTS OF LD. AR. THE OBJECTION/ARGUMENT OF THE APPELLANT ARE DISCUSSED AS UNDER:- (I) IT HAS BEEN STATED BY THE A.O. IN THE ASSESSMENT O RDER, THAT THE CLIENT CODE MODIFICATIONS (CCM), ARE CARRIED OUT BY THE GROUP COMPANIES OF ASSESSEE, TO WHICH ASSESSEE IS ALSO A CLIENT AND CCM ARE DONE IN CLIENT CODE OF ASSESSEE. IT HAS BEEN FURTHER ANALYZED BY THE A.O. THAT WHOL E PROCESS OF CCM DONE BY THE GROUP CONCERNS OF ASSESSEE, DOES NOT SEEM TO BE GENUINE. THE A.O. HAS ALSO HELD THAT THE COPY OF FILE TRANSFER PROTOCOL (FTP), WAS NOT MADE AVAILABLE IN THE ASSESSMENT PROCEEDINGS AND THEREFORE, THERE MAY BE ENTRIES NOT AS PER THE GUIDELINES OF T HE SEBI. IN THIS WAY, A.O. CONCLUDED THAT AN AMOUNT OF RS. 1,90,71,392/-, IS THE NET EFFECT OF P ROFIT/LOSS SHIFTED FROM THE CODE OF ASSESSEE COMPANY TO THE OTHER CLIENT CODES AND VICE VERSA. (II) DURING APPELLATE PROCEEDINGS, APPELLANT HAS SUBMIT TED THAT, THIS ADDITION CANNOT BE MADE IN THE ACCOUNT OF ASSESSEE, AS ASSESSEE IS NOT A MEMBE R TO THE EXCHANGE AND CANNOT EXECUTE CLIENT CODE MODIFICATIONS. FURTHER, THE APPELLANT ALSO SUB MITTED THAT IN CASE OF GROUP CONCERNS (JAYPEE CAPITAL SERVICES LTD./ FUTURE NEXT SERVICES LTD.), THE CCM IS MODIFICATION CHANGE OF CLIENT CODES, AFTER EXECUTION OF TRADES. THIS FACIL ITY IS PROVIDED BY THE STOCK EXCHANGE/ COMMODITY EXCHANGE, IN ORDER TO RECTIFY ANY ERROR O R WRONG DATA ENTRY DONE BY THE STAFF OF BROKER COMPANY, AT THE TIME OF PUNCHING ORDERS. FUR THER, IT IS SUBMITTED THAT THESE CCM, IS SUBJECTED TO CERTAIN GUIDELINES PROVIDED BY THE SEB I, WITH REGARD TO THE EXECUTION OF ENTRIES, PUNCHED WRONG BY MISTAKE AND NOT AS A ROUTINE. THE OBSERVATIONS OF THE SPECIAL AUDITOR REGARDING HUGE NUMBER OF CCM TRANSACTIONS, ARE GROS SLY INCORRECT, BEING MISUSED TO SHIFT THE PROFIT / LOSS FROM ONE CLIENT TO ANOTHER. HOWEVER, IN APPELLATE PROCEEDINGS, IT HAS BEEN SUBMITTED CCM TRANSACTIONS, HAVE BEEN RECORDED IN C ASE OF GROUP CONCERNS LESS THAN 1%, AND NO PENAL ACTION HAS BEEN TAKEN BY THE EXCHANGE IN T HIS REGARD, MEANING THEREBY THERE IS NO VIOLATION OF RULES AND REGULATIONS PRESCRIBED IN TH IS REGARD BY THE EXCHANGE. (III) FURTHER, APPELLANT ALSO SUBMITTED THAT THESE ENTRI ES HAVE BEEN ENTERED INTO NORMAL COURSE OF BUSINESS. THESE ENTRIES ARE DULY RECORDED IN THE BO OKS OF ACCOUNTS AND ALSO FORMING PART OF THE TRANSACTIONS REPORTED TO THE EXCHANGE. NO ADVERSE I NFERENCE HAS BEEN DRAWN ABOUT THESE ENTRIES BY THE EXCHANGE OR SEBI. IN FACT, EVEN THE INFORMAT ION ABOUT THESE CCM, WAS OBTAINED BY THE A.O. FROM THE EXCHANGE. DURING ASSESSMENT PROCEEDIN GS, THE GROUP CONCERNS HAVE GIVEN DETAILED EXPLANATION IN THIS REGARD TO THE A.O. IN THE EXPLANATIONS, IT HAS BEEN CLARIFIED THAT THESE ERRORS ARE PART OF THE NORMAL COURSE BUSINESS ACTIVITIES AND PERMISSIBLE EVEN AS PER THE CIRCULAR ISSUED BY NATIONAL SECURITIES CLEARING COR PORATION LTD. IN CIRCULAR NO. 4 NSCCL/SEC/2004/0464, DATED 31.5.2004, WHERE ERROR U PTO 1% OF THE TOTAL NUMBER OF TRANSACTIONS, IS EVEN PERMISSIBLE, WITHOUT ANY FINE . THE CIRCULAR IS, REPRODUCED AS UNDER: 'NATIONAL SECURITIES CLEARING CORPORATION LIMITED D OWNLOAD REF NO. NSE/CMPT/5128 CIRCULAR NO. NSCCL/SEC/2004/0464 MAY 31, 2004 TO, ALL MEMBERS, (II) SUB:- PENALTY FOR CLIENT CODE MODIFICATION. (III) IN PURSUANCE OF THE BYE LAWS AND REGULATIONS OF NSC CL AND IN PARTIAL MODIFICATION TO CIRCULARS NO. NSE/CMPT/4041 DATED MARCH 27, 2003 AN D NSE/CMPT/4991 DTD. APRIL 16, 2004, IT IS HEREBY NOTIFIED THAT THE PENALTY STRUCTURE FOR CLIE NT CODE MODIFICATION IN THE CAPITAL MARKET (CASH SEGMENT) IS BEING REVISED. THE NEW PENALTY STRUCTUR E IS AS FOLLOWS:- THE ABOVE SHALL BE EFFECTIVE FROM TRADE DATE JUNE 0 1, 2004 YOURS FAITHFULLY, FOR NATIONAL SECURITIES CLEARING CORPORATION LTD. JAYA CHATTERJEE MANAGER THEREFORE, IT IS SUBMITTED BY THE APPELLANT THAT IN THEIR CASE, THESE ERRORS ARE LESS THAN 1% OF THE TOTAL NUMBER OF TRANSACTIONS ENTERED INTO AND T HE ENTRIES RELATING TO CCM AND HAVE BEEN PERCENTAGE (%) OF CLIENT CODES CHANGED TO TOTAL ORDERS (MATCHED) ON A DAILY BASIS FINE LESS THAN OR EQUAL TO 1% NIL GREATER THAN 1% BUT LESS THAN OR EQUAL TO 5% FINE OF RS.500/ - LUMP SUM PER DAY GREATER THAN 5% BUT LESS THAN OR EQUAL TO 10% FINE OF RS. 1,000/- LUMP SUM PER DAY GREATER THAN 10% FINE OF RS. 10,000/- LUMP SUM PER DAY 5 ACCEPTED BY BOTH THE PARTIES. THE A.O. HAS NOT BROU GHT ANY EVIDENCE TO SUPPORT THE ALLEGATION APART FROM SUSPICION ON THE BASIS OF SEBI GUIDELINE S. HENCE, IT IS SUBMITTED BY THE APPELLANT THAT THERE IS NO JUSTIFICATION FOR DRAWING ANY ADVE RSE INFERENCE ON THIS ACCOUNT, WITHOUT BRINGING ANY SPECIFIC ANOMALY WITH REGARD TO GENUIN ENESS OF THE TRANSACTIONS AND NO FINE HAS BEEN IMPOSED BY CONCERNED AUTHORITIES, IN RESPECT O F CCM . (V) IT IS FURTHER SUBMITTED BY THE APPELLANT THAT T HE ENTRIES, WHICH ARE BEING ALLEGED, WHERE PROFIT/LOSSES ARISING FROM THE ALLEGED TRANSACTIONS BY THE A.O., ARE ALL BEING ASSESSED TO TAX AND SUCH PROFIT/LOSSES, ARE INCLUDED IN TOTAL INCOME DE CLARED IN EACH OF SUCH CASE, WHICH HAS BEEN CHARGED AT THE MAXIMUM MARGINAL RATE. THEREFORE, IT IS SUBMITTED THAT, THERE CANNOT BE ANY ALLEGATION OF INTENTION TO AVOID TAXES BY SHIFTING PROFIT TO LOSS BY MANIPULATING ENTRIES. THE SAME A.O. HAS ASSESSED ALL THESE ENTITIES IN ASSESS MENT PROCEEDINGS U/S 153A/143(3) AND NO CORRESPONDING ADJUSTMENTS, HAVE BEEN MADE IN THE IN COME OF SUCH ENTITIES. FROM THE ABOVE, FOLLOWING FACTS EMERGED:- > APPELLANT IS NOT A MEMBER OF ANY EXCHANGE AND CA NNOT EXECUTE CCM. > THE TRANSACTIONS ON ACCOUNT OF CCM DONE BY GROUP C ONCERNS, ARE GENUINE, > THE VOLUME OF CCM OCCURRED, ARE WITHIN THE PERMISS IBLE LIMIT ALLOWED BY THE SEBI, AND > THE EXCHANGE / SEBI, HAS NOT FOUND ANY VIOLATION O F RULES AND REGULATIONS RELATING TO CCM, AND THE CCM TRANSACTIONS ARE FALLI NG WITHIN THE PRESCRIBED LIMIT. IN VIEW OF THE ABOVE, I AGREE WITH THE ARGUMENTS OF THE APPELLANT AND THE CCM TRANSACTIONS, ARE FOUND TO BE GENUINE. ACCORDINGLY, I HOLD THAT THE A.O. WAS NOT JUSTIFIED IN MAKING ADDITION ON THE ABOVE BASIS. TH EREFORE, THE ADDITION OF RS. 1,90,71,392/- MADE BY THE A.O., IS DELETED. ACCORDINGLY, GROUND NO. 12 AND 14, ARE HEREBY ALLOW ED. 5. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE REV ENUE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE FOLLOWING GROUND S :- (A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAD ERRED IN LAW AND ON FACTS IN DIRECTING THE AO TO DE LETE ADDITION MADE ON ACCOUNT OF CLIENT CODE MODIFICATION(CCM) (B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAD ERRED IN LAW AND ON FACTS IN HOLDING THAT THE CCM D ONE BY THE COMPANY IS WITHIN PERMISSIBLE LIMIT AND IGNORING THE FACT THAT THE CCM DONE BY THE SISTER CONCERN M/S FUTURZ NEXT SERVICES LTD. THROUGH WHICH PROFIT OF THE ASSESSEE COMPANY WAS REDUCED BY RS. 1.90 CRORE IS DONE THROU GH BACK OFFICE. (C) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAD 6 ERRED IN LAW AND ON FACTS IN HOLDING THAT THE CCM D ONE BY ASSESSEE COMPANY IS WITHIN PERMISSIBLE CRITERIA, THUS, IGNORING THE FACT THAT THE CCM WAS DONE IN THE CODE OF CERTAIN ENTITIES ONLY AND THE MODIFI ED CLIENT CODE WERE NOT SIMILAR TO THE ORIGINAL CLIENT CODE, THE VALUES OF CLIENT CODE WAS SIGNIFICANT AND OTHER CONDITIONS LAID DOWN BY STOCK EXCHANGES. (D) THAT THE ORDER OF THE CIT(A) IS PERVERSE, ERRONEOU S AND IS NOT TENABLE ON FACTS AND IN LAW. (E) THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE T O EACH OTHER. (F) THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALT ER OR FORGO ANY GROUND(S) OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 6. THE LD. DR STRONGLY OPPOSED THE ORDER OF THE CIT (A). REFERRING TO PAGE -3 OF THE AOS ORDER, THE LD. DR. DREW THE ATTENTION OF THE BENCH THE VARIOUS CIRCULARS, INSTRUCTIONS AND OTHER RULES AND REGULATIONS WITH REGARDS TO CLIENT CODE MODIFICATIO N GIVEN BY THE CONCERNED AUTHORITIES. EXPLAINING THE MEANING OF C LIENT CODE MODIFICATION THE LD. DR DREW THE ATTENTION OF THE B ENCH TO THE FOLLOWING WRITTEN SYNOPSIS :- WHAT DOES CLIENT CODE MODIFICATION MEAN? CLIENT CODE IS A UNIQUE CODE WHICH IS ASSIGNED BY A BROKER TO ITS CLIENTS. A BROKER CAN ISSUE JUST ONE CODE TO A CLIENT. SEBI VIDE ITS CIRC ULAR SMD/POLICY/CIR-39/2001 DATED JULY 18, 2001 MADE IT MANDATORY FOR ALL BROKERS TO USE U NIQUE CLIENT CODES FOR ALL CLIENTS. CLIENT CODE MODIFICATION MEANS MODIFICATION / CHANG E OF THE CLIENT CODES AFTER EXECUTION OF TRADES. VIDE CIRCULAR NO. SMD/POLICY/CIR- /03 DA TED FEBRUARY 6, 2003 SEBI MANDATED THAT THE STOCK EXCHANGES SHALL NOT NORMALL Y PERMIT CHANGES IN THE CLIENT CODE EXCEPT TO CORRECT FOR GENUINE MISTAKES. THE CLIENT CODE MODIFICATIONS PERMIT BROKERS TO RECTIFY HUMAN ERRORS WHEN A CLIENT INADVERTENTLY PR OVIDES A WRONG CODE OR WHEN A WRONG CODE IS PUNCHED IN BY THE BROKER WHILST EXECUTING T HE TRADE. THE FACILITY ENSURES SMOOTH FUNCTIONING OF THE SYSTEM AND IS TO BE USED AS AN E XCEPTION RATHER THAN ROUTINE. HOWEVER, OVER A PERIOD OF TIME, SOME PERSONS, IN CONNIVANCE WITH BROKERS STARTED USING CLIENT CODE MODIFICATIONS FOR PURPOSES OTHER THAN GENUINE ERRORS AND BROKERS TRANSFERRED GAINS OR LOSSES FROM ONE PERSON TO ANOTHER BY CHANG ING THE CODE, IN THE GARB OF CORRECTING AN ERROR. CCM ESPECIALLY IN THE FUTURES AND OPTIONS SEGMENT (F&O) WAS BEING USED A DEVICE TO EVADE TAXES WHEREIN THE CLIE NT CODES WERE MODIFIED FOR BOOKING 7 ARTIFICIAL PROFITS OR LOSSES AT THE FAG END (JAN TO MARCH) OF THE FINANCIAL YEAR WHEN THE BOOK PROFITS/LOSSES OF VARIOUS CLIENTS HAVE CRYSTAL LIZED. IT IS PERTINENT TO NOTE THAT SEBI CONDUCTED A PROBE INTO 'MODIFICATION OF CLIENT CODES BY BROKERS, PURSUANT TO OBSERVATIONS BY THE FINANCE MI NISTRY ABOUT MANY SUCH MODIFICATIONS TAKING PLACE IN DERIVATIVES TRANSACTIONS AT THE NSE DURING MARCH 2010. WITH REGARD TO THE CLIENT CODE MODIFICATIONS, THE TRADING ACTIVITIES UNDER SC ANNER OF SEBI MOSTLY TOOK PLACE BETWEEN 2009 AND 2011 AFTER WHICH SEBI TIGHTENED ITS NORMS TO PU T A FULL-STOP TO SUCH MANIPULATIONS. BEFORE TIGHTENING OF THE NORMS, THE INDIAN MARKETS WERE SE EING CLIENT CODE MODIFICATIONS TO THE TUNE OF RS 50,000 - RS 60,000 CRORE A MONTH, WHICH CAME DOW N TO JUST ABOUT RS 100 CRORE SOON AFTER SEBIS ACTION. THE PROBE ALSO SHOWED THAT THE QUANT UM OF SUCH MODIFICATIONS WAS MUCH HIGHER DURING MARCH, COMPARED TO THE OTHER MONTHS, WHICH H INTED TOWARDS THE TAX EVASION ANGLE DUE TO IT BEING THE LAST MONTH OF THE FISCAL. THIS SHOWED THAT A LARGE-SCALE MANIPULATION WAS TAKING PLACE AO HAS LISTED SUMMARY OF THE FINDINGS IN THE ASSESS MENT ORDER. IN CASE THE HONBLE BENCH CONSIDERS IT NECESSARY TO PERUSE THE SPECIFIC DETAI LS OF CCM, THE COPY OF THE SPECIAL AUDIT REPORT MAY BE PROVIDED BY THE REVENUE. THE FINDINGS OF THE SA WERE CONFRONTED TO THE ASSES SEE COMPANY. HOWEVER, THE ASSESSEE SUBMITTED AN EVASIVE REPLY TO THE EFFECT THAT CCM C AN BE DONE BY THE STOCK BROKER AND SINCE THE ASSESSEE IS NOT A STOCK BROKER. WHAT DOES CLIENT CODE MODIFICATION MEAN? CLIENT CODE IS A UNIQUE CODE WHICH IS ASSIGNED BY A BROKER TO ITS CLIENTS. A BROKER CAN ISSUE JUST ONE CODE TO A CLIENT. SEBI VIDE ITS CIRC ULAR SMD/POLICY/CIR-39/2001 DATED JULY 18, 2001 MADE IT MANDATORY FOR ALL BROKERS TO USE U NIQUE CLIENT CODES FOR ALL CLIENTS. CLIENT CODE MODIFICATION MEANS MODIFICATION / CHANG E OF THE CLIENT CODES AFTER EXECUTION OF TRADES. VIDE CIRCULAR NO. SMD/POLICY/CIR- /03 DA TED FEBRUARY 6, 2003 SEBI MANDATED THAT THE STOCK EXCHANGES SHALL NOT NORMALL Y PERMIT CHANGES IN THE CLIENT CODE EXCEPT TO CORRECT FOR GENUINE MISTAKES. THE CLIENT CODE MODIFICATIONS PERMIT BROKERS TO RECTIFY HUMAN ERRORS WHEN A CLIENT INADVERTENTLY PR OVIDES A WRONG CODE OR WHEN A WRONG CODE IS PUNCHED IN BY THE BROKER WHILST EXECUTING T HE TRADE. THE FACILITY ENSURES SMOOTH FUNCTIONING OF THE SYSTEM AND IS TO BE USED AS AN E XCEPTION RATHER THAN ROUTINE. HOWEVER, OVER A PERIOD OF TIME, SOME PERSONS, IN CONNIVANCE WITH BROKERS STARTED USING CLIENT CODE MODIFICATIONS FOR PURPOSES OTHER THAN GENUINE ERRORS AND BROKERS TRANSFERRED GAINS OR LOSSES FROM ONE PERSON TO ANOTHER BY CHANG ING THE CODE, IN THE GARB OF 8 CORRECTING AN ERROR. CCM ESPECIALLY IN THE FUTURES AND OPTIONS SEGMENT (F&O) WAS BEING USED A DEVICE TO EVADE TAXES WHEREIN THE CLIE NT CODES WERE MODIFIED FOR BOOKING ARTIFICIAL PROFITS OR LOSSES AT THE FAG END (JAN TO MARCH) OF THE FINANCIAL YEAR WHEN THE BOOK PROFITS/LOSSES OF VARIOUS CLIENTS HAVE CRYSTAL LIZED. IT IS PERTINENT TO NOTE THAT SEBI CONDUCTED A PROBE INTO 'MODIFICATION OF CLIENT CODES BY BROKERS, PURSUANT TO OBSERVATIONS BY THE FINANCE MI NISTRY ABOUT MANY SUCH MODIFICATIONS TAKING PLACE IN DERIVATIVES TRANSACTIONS AT THE NSE DURING MARCH 2010. WITH REGARD TO THE CLIENT CODE MODIFICATIONS, THE TRADING ACTIVITIES UNDER SC ANNER OF SEBI MOSTLY TOOK PLACE BETWEEN 2009 AND 2011 AFTER WHICH SEBI TIGHTENED ITS NORMS TO PU T A FULL-STOP TO SUCH MANIPULATIONS. BEFORE TIGHTENING OF THE NORMS, THE INDIAN MARKETS WERE SE EING CLIENT CODE MODIFICATIONS TO THE TUNE OF RS 50,000 - RS 60,000 CRORE A MONTH, WHICH CAME DOW N TO JUST ABOUT RS 100 CRORE SOON AFTER SEBI'S ACTION. THE PROBE ALSO SHOWED THAT THE QUANT UM OF SUCH MODIFICATIONS WAS MUCH HIGHER DURING MARCH, COMPARED TO THE OTHER MONTHS, WHICH H INTED TOWARDS THE TAX EVASION ANGLE DUE TO IT BEING THE LAST MONTH OF THE FISCAL. THIS SHOWED THAT A LARGE-SCALE MANIPULATION WAS TAKING PLACE WHERE BROKERS WERE MAKING CHANGES IN THE CLIENT DET AILS AFTER EXECUTION OF TRADES CITING GENUINE ERRORS'. IN THIS CONNECTION, IT IS NECESSARY TO BRING CERTAI N FACTS IN RESPECT OF CCM TO THE NOTICE OF THE HONBLE BENCH. IN FACT, THE CH ARACTERS OF THE CODE MODIFIED WERE ENTIRELY DIFFERENT AND THERE WAS NO SCOPE OF I NADVERTENT MISTAKE COMMITTED BY THE BROKERS AT THE TIME OF PUNCHING OF RECORDS. WHEN THE LEVENSHTEIN DISTANCE ANALYSIS OR DIGIT EDIT ANALYSIS IS CARRIED OUT IN SEARCH CASES, IT IS FOUND THAT TH ERE WAS NO SCOPE OF MODIFICATION OF SUCH CODE WHICH IS IN THE NATURE OF INADVERTENT MISTAKE BUT ACTUALLY CODE WAS MODIFIED DELIBERATELY. THE LEVENSHTEIN DISTANCE ANALYSIS IS CALCULATION OF EDIT OPERATIONS OR CHARACTER EDITS (I.E. INSERTIONS, DELETIONS OR SUBS TITUTIONS) REQUIRED TO CHANGE ONE CLIENT CODE INTO THE OTHER CLIENT CODE. THE LEV ENSHTEIN DISTANCE ANALYSIS OR DIGIT EDIT ANALYSIS HELPS US KNOW THE MINIMUM NUMBE R OF EDITS REQUIRED FOR CHANGING ONE CODE TO ANOTHER. 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 CHA NGED FROM ORIGINAL CODE TO MODIFIED CODE IS 1, THEN IT CAN BE REASONABLY ARGUE D THAT THE OCC (ORIGINAL CLIENT CODE) MAY HAVE BEEN TYPED WRONGLY BY MISTAKE. BUT I F THE NUMBER OF DIGITS CHANGED IS MORE, SAY 2 OR 3, (IN CASE OF ASSESSEE IT IS 3) SURELY IT CANNOT BE A GENUINE TYPING MISTAKE BUT A DELIBERATE CHANGE. TO THIS EXTENT, LEVENSHTEIN DISTANCE ANALYSIS OR 9 DIGIT EDIT ANALYSIS ACTS AS A CLEAR INDICATOR FOR G ENUINENESS IN CLIENT CODE MODIFICATION. THE LONGER THE DISTANCE (I.E., NUMBER OF DIGITS CHANGED), THE LESSER THE CHANCES OF GENUINENESS. 8. IN THIS CONNECTION, REFERENCE IS INVITED TO CIRC ULAR NO.653 ISSUED BY NSE (REF. NO.: SE/INVG/2011/18484 DATED JULY 29, 2011), WHEREIN RE FERENCE TO SEBI CIRCULAR IS MADE AND IT IS STATED THAT, THE EXCHANGE HAS PROVIDED THE FACILITY OF CLIENT C ODE MODIFICATION ONLY TO RECTIFY GENUINE ERRORS. FURTHER, AS PER POINT 2 (A) AND 3-(B) OF TH E SEBI CIRCULAR DATED JULY 5, 2011, THE FOLLOWING CLIENT CODE MODIFICATIONS WOULD BE CONSID ERED AS GENUINE MODIFICATIONS, PROVIDED THERE IS NO CONSISTENT PATTERN IN SUCH MODIFICATION S: WHERE ORIGINAL CLIENT CODE/NAME AND MODIFIED CLIENT CODE/NAME ARE SIMILAR TO EACH OTHER BUT SUCH MODIFICATIONS ARE NOT REPETITIVE. II. WHERE ORIGINAL CLIENT CODE AND MODIFIED CLIENT CODE BELONG TO A FAMILY. (FAMILY FOR THIS PURPOSE MEANS SPOUSE, DEPENDENT PARENTS, D EPENDENT CHILDREN AND HUF) 9. THEREAFTER, VIDE CIRCULAR NO. NSE/INVG/2011/670 DATED 26.08.2011, NSE HAS AGAIN CLARIFIED THAT IN THE JOINT MEETING HELD BETWEEN SEBI AND EXCHANG ES, IT WAS DECIDED THAT THE FOLLOWING CLARIFICATIONS BE ISSUED FOR CLIENT CODE MODIFICATI ONS: THE FOLLOWING WOULD CONSTITUTE GENUINE ERRORS WITH REGARD TO CLIENT CODE MODIFICATIONS: > ERROR DUE TO COMMUNICATION AND/OR PUNCHING OR TYP ING SUCH THAT THE ORIGINAL CLIENT CODE/NAME AND THE MODIFIED CLIENT CODE/NAME ARE SIMILAR TO EACH OTHER. > MODIFICATION WITHIN RELATIVES (RELATIVE FOR THIS PURPOSE WOULD MEAN RELATIVE AS DEFINED UNDER THE COMPANIES ACT, 1956). 7. REFERRING TO THE DECISIONS OF THE HONBLE SUPREM E COURT IN THE CASE OF DURGA PRASAD MORE REPORTED IN 82 ITR 540 AN D SUMATI DAYAL REPORTED IN 214 ITR 801, HE SUBMITTED THAT THE SURR OUNDING CIRCUMSTANCES AND HUMAN PROBABILITIES SHOULD NOT BE IGNORED BY THE TAXING AUTHORITY. REFERRING TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MC DOWELL AND COMPANY REPORTED IN 154 TIR 148, HE SUBMITTED THAT THE HONBLE SUPREME COURT IN THE SAID DECISION HAS HELD THAT NO ONE CAN GET WAY WITH A TAX AVOIDANCE 10 PROJECT WITH THE MERE STATEMENT THAT THERE IS NOTHI NG ILLEGAL ABOUT IT. IT HAS FURTHER BEEN HELD THAT COLOURABLE DEVICES CA NNOT BE PART OF TAX PLANNING AND IT IS WRONG TO ENCOURAGE OR ENTERTAIN THE BELIEF THAT IT IS HONORABLE TO AVOID THE PAYMENT OF TAX BY RESORTI NG TO DUBIOUS METHODS. HE SUBMITTED THAT THE LD. CIT(A) HAS NOT A PPRECIATED THE INTRICACIES OF CLIENT CODE MODIFICATION RESORTED TO BY THE ASSESSEE TO DIVERT THEIR PROFIT IN COLLISION WITH STOCK BROKERS . HE ALSO RELIED ON THE FOLLOWING DECISIONS :- 1. CIT VS. MAF ACADEMY 361 ITR 258 (DEL) 2. CIT VS. N. R. PORTFOLIO 263 ITR 456 (DEL) 3. CIT VS. NAVODAYA CASTLE P. LTD. 367 ITR 306 4. PCIT VS. NDR PROMOTERS 140 ITR 379 8. THE LD. COUNSEL FOR THE ASSESSE ON THE OTHER HAN D HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED THA T THE AO HAS HEAVILY RELIED UPON THE REPORT OF THE SPECIAL AUDIT OR WHICH ITSELF IS NOT BASED ON ANY MATERIAL AGAINST THE ASSESSEE. RE FERRING TO PAGE 90 OF THE PAPER BOOK HE SUBMITTED THAT THE NOTICE U /S. 142 (1) DATED 24.11.2014 WAS ISSUED TO THE ASSESSEE COMPANY BY TH E AO WHEREIN INFORMATION REGARDING CCM AS HIGHLIGHTED BY THE SPE CIAL AUDITOR WAS SPECIALLY PUTFORTH AND DETAILS WERE SOUGHT BY THE A O SOLELY RELYING ON THE SPECIAL AUDITORS REPORT. REFERRING TO THE SUMMARY OF INSTANCES OF CCM GIVEN BY THE SPECIAL AUDITORS REP ORT HE SUBMITTED THAT THERE WAS NO REFERENCE TO ANY DOCUMENT OR STAT EMENT. HE SUBMITTED THAT THE AO DID NOT APPLY HIS OWN MIND TO THE SPECIAL AUDITORS REPORT AND NOT EXAMINED THE BASIS AND BLI NDLY RELIED UPON THE REPORT OF THE SPECIAL AUDITOR WHEREIN THERE IS AN ABSENCE OF ANY EVIDENCE OF THE INCOME EARNED BY THE ASSESSEE IN TH E PROCESS OF 11 CCM. REFERRING TO THE DECISION OF HONBLE BOMBAY H IGH COURT IN THE CASE OF PCIT VS. PAT COMMODITIES SERVICES PVT. LTD. VIDE ITA NO.1257/16 ORDER DATED 15.01.2019, HE SUBMITTED THA T THE HONBLE HIGH COURT IN THE SAID DECISION HAS HELD THAT MERE CLIENT CODE MODIFICATION BY BROKER DOES NOT MEAN THAT ANY INCOM E HAS ESCAPED ASSESSMENT. REVENUE HAD TO BRING ON RECORD SOME EV IDENCE OF THE INCOME EARNED BY THE ASSESSEE IN THE PROCESS OF CCM . HE SUBMITTED THAT IN THE INSTANT CASE THE REVENUE HAS NOT CHALLE NGED THE TRANSACTIONS NOR HELD THEM TO BE FALSE. ALTHOUGH S EBI IS THE REGULATOR, HOWEVER, NO ACTION HAS BEEN TAKEN BY SEB I AND THEY HAVE NOT HELD THE TRANSACTION TO BE NON-GENUINE. HE SUBM ITTED THAT THERE IS NO ADVERSE MATERIAL IN THIS CASE ALTHOUGH A SEAR CH HAS TAKEN PLACE AND NOTHING INCRIMINATING WAS FOUND DURING TH E COURSE OF SEARCH. HE SUBMITTED THAT ASSESSEE IS NOT A PARTY T O ANY SUCH TRANSACTION OF NON GENUINE OF CCM. HE SUBMITTED TH AT THE REVENUE HAS NOT GONE TO THE BROKER TO FIND OUT AS TO WHOM T HIS AMOUNT GOT SHIFTED. HE FURTHER SUBMITTED THAT THE STOCK EXCHAN GE HAS ACCEPTED THE REASONABLE ERROR MARGIN UP TO 5% AND, THEREFORE , SINCE THE PERCENTAGE OF TRADE WHICH ARE RECTIFIED ARE NOT ONL Y WITHIN THE RANGE ON THE LOWER SIDE OF THE RANGE OF ERROR MARGIN, THE REFORE, NO ADVERSE VIEW CAN BE TAKEN. HE ALSO RELIED ON THE FOLLOWING DECISIONS :- 1. M/S. CORONATION AGRO INDUSTRIES LTD. VS. DCIT [WP N O.2627 OF 2016 ] DATED 23.11.2016 2. PRASHANT AGENCIES PVT. LTD. AND PPN PROPERTIES PVT. LTD. VS. ITO ITA NO.3059/DEL/2018 3. ITO VS. ABHISHEK FINCAP SRVICES PVT. LTD. ITA 12 NO.2750/DEL/2017 4. RADIANCE STOCK TRADERS PVT. LTD. VS. ITO ITA NO.4542/DEL/2018 5. SANJAY KUMAR JAIN VS. ITO IN ITA NO.825/DEL/2019 6. DCIT VS. GYANDEEP KEHMKA ITA NO. 695/JP./2018 7. MUMBAI ITAT IN THE CASE DCIT VS. M/S. COMET INVESTM ENT PVT. LTD. (ITA NO.5802/MUM/2017) 8. DCIT VS. M/S. S. B. SECURITIES PVT. LTD. (ITA NO.7346/MUM/2017) 9. CIT VS. KUNVARJI FINANCE (P) LTD. REPORTED IN 40 IT R (T) 64 10. M/S. REKHI HOLDINGS (P) LTD VS. ACIT VIDE TIA NO.4675/DEL/2018 ORDER DATED 16.05.2019. 9. SO FAR AS THE VARIOUS DECISIONS RELIED ON BY THE LD. DR ARE CONCERNED, HE SUBMITTED THAT ALL THOSE DECISIONS AR E DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE . HE ACCORDINGLY SUBMITTED THAT SINCE THE ORDER OF THE CIT(A) IS IN CONSONANCE WITH LAW, THEREFORE, THE SAME SHOULD BE UPHELD AND THE G ROUNDS RAISED BY THE REVENUE SHOULD BE DISMISSED. 10. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE AO IN THE INSTANT CASE MADE ADDITION OF RS.1,90,71,392/- ON ACCOUNT OF CCM ON THE GROUND THAT IN THE CASE OF MEMBER(BROKER) GROUP OF COMPANIES OF THE ASSESSEE, IT IS HELD THAT THE CCM IS BY AND LARGE N OT FOR THE GENUINE REASONS AND FOR EXTRANEOUS CONSIDERATION AND THAT T HE ASSESSEE HAS 13 SUPPRESSED ITS INCOME TO THE EXTENT OF RS.1,90,71,3 92/-. WE FIND THE LD. CIT(A) DELETED THE ADDITION MADE BY THE AO ON THE GROUND THAT THE ASSESSEE IS NOT A MEMBER OF ANY EXCHANGE A ND CANNOT EXECUTE CCM. FURTHER THE TRANSACTIONS ON ACCOUNT OF CCM DONE BY GROUP CONCERNS ARE GENUINE AND THE VOLUME OF CCM OC CURRED ARE WITHIN PERMISSIBLE LIMIT ALLOWED BY SEBI. IT IS AL SO THE OBSERVATIONS OF THE CIT(A) THAT THE EXCHANGE OR SEBI HAS NOT FOU ND ANY VIOLATION OF RULES AND REGULATIONS RELATING TO CCM AND THE CC M TRANSACTIONS ARE FALLING WITHIN THE PRESCRIBED LIMIT. IT IS THE SUBMISSION OF THE LD. DR THAT IT IS NOT A GENUINE MISTAKE AND THE TRANSAC TIONS ARE NOT GENUINE. FURTHER THE CCM WAS DONE BY THE ASSESSEE THROUGH ITS SISTER CONCERN M/S. FUTURZ NEXT SERVICES LIMITED TH ROUGH WHICH THE PROFIT OF THE ASSESSEE COMPANY WAS REDUCED BY RS.1. 90 CRORES. ACCORDING TO THE LD. DR THE CCM IS AKIN TO PENNY ST OCK. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE ARE NOT FOUND TO BE FA LSE OR UNTRUE AND ALTHOUGH SEBI IS THE REGULATOR NO ACTION HAS BEEN T AKEN BY SEBI HOLDING THAT THE TRANSACTIONS ARE NOT GENUINE. FUR THER NO ADVERSE MATERIAL HAS BEEN FOUND BY THE SEARCH PARTY DURING THE COURSE OF SEARCH AND THE REVENUE EVEN HAVE NOT GONE TO THE BR OKER WHO HAS DONE THE CCM. IT IS ALSO HIS ARGUMENT THAT IT IS NO T KNOWN AS TO WHOM THE ACCOUNT HAS SHIFTED. 11. WE FIND SOME FORCE IN THE ARGUMENT OF THE LD. C OUNSEL FOR THE ASSESSEE. WE FIND FORCE IN THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT CLIENT CODE MODIFICATION IS THE INTER NAL MATTER OF THE BROKER AND ASSESSEE HAS NO CONTROL OVER IT. THE AO IN THE INSTANT CASE HAS NOT SPELT OUT AS TO ON WHICH SCRIPS THE AS SESSEE HAS SHIFTED 14 THE PROFIT. WE FIND THE AO NOWHERE IN THE ASSESSMEN T ORDER HAS MENTIONED OF ANY STATEMENT OF BROKER OF THE ASSESSE E REGARDING THE ADMISSION OF ANY CLIENT CODE MODIFICATION. WE FIND IN THE INSTANT CASE THE ADDITION HAS BEEN MADE BY THE AO DESPITE A SSERTIONS BY THE ASSESSEE THAT IT WAS NOT A REGISTERED BROKER ON THE STOCK EXCHANGE. THERE IS ALSO NOTHING ON RECORD TO SUGGEST THAT THE CCM WAS DONE AT THE BEHEST OF THE ASSESSEE. FURTHER, THERE IS NO AD DITION OR ADVERSE VIEW TAKEN IN THE CASE OF THE OTHER PERSON WITH WHO SE ACCOUNTS PRESUMPTION IS BEING MADE THAT TRANSACTION HAS BEEN SHIFTED. ADMITTEDLY THERE IS NOTHING ON RECORD THAT THE REVE NUE HAS GONE TO THE BROKER TO FIND OUT AS TO WHO IS THE BENEFICIARY OF THE CCM. FURTHER THE TRANSACTIONS HAVE NOT BEEN HELD TO BE N ON GENUINE. SO FAR AS THE ARGUMENT OF THE LD. DR THAT THE CLIENT C ODE MODIFICATION IS AKIN TO PENNY STOCK IS CONCERNED, WE DO NOT FIND ANY MERIT IN THE SAID ARGUMENTS. IN CASE OF THE PENNY STOCKS SHARES ARE PURCHASES AT A VERY LOW PRICE AND WERE SOLD IMMEDIATELY AFTER ON E YEAR AT ASTRONOMICALLY HIGH PRICE JUST TO CLAIM THE BENEFIT OF DEDUCTION U/S. 10 (38) OR AS THE CASE MAY BE. HOWEVER, IN CASE OF CCM THERE IS NO SUCH PURCHASE AT LOW PRICE AND SALE AT HIGH PRICE A ND IT IS ON ACCOUNT OF SOME PUNCHING ERROR WHICH HAS BEEN RECTI FIED SUBSEQUENTLY. WE, THEREFORE, DO NOT FIND ANY MERIT IN THE ARGUMENT OF THE LD. DR THAT CCM IS AKIN TO PENNY STOCK. 12. WE FIND AN IDENTICAL ISSUE HAD COME UP BEFORE T HE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. DCIT VS. COMET INVESTMENT (P) LTD. VIDE ITA NO.5802/MUMBAI/2017 OR DER DATED 13.05.2019. WE FIND THE TRIBUNAL DISMISSED THE APP EAL FILED BY THE 15 REVENUE BY OBSERVING AS UNDER :- 7. AFTER HAVING HEARD THE COUNSELS FOR BOTH THE P ARTIES AT LENGTH AND AFTER HAVING GONE THROUGH THE FACTS OF THE PRESENT CASE, WE FIND FROM THE RECORDS THAT THE ASSESSEE IS NOT A REGISTERED BROKER ON THE STOCK EXCHANGE. ONLY THE REGISTERED BROKERS CAN MODIFY CLIENT CODE (CCM) OF THEIR OWN CLIENTS. THEREFORE I N SUCH CIRCUMSTANCES, THE ALLEGATIONS OF ASSESSEE HAVING DONE OR RESTORED TO CCM IS APPAR ENTLY NOT CORRECT. THE AO HAS NOT BROUGHT ON RECORD THAT EVEN THE INSTRUCTIONS FOR CC M WAS EVER GIVEN BY THE ASSESSEE. HENCE, IN THESE CIRCUMSTANCES, THE ASSESSEE CANT B E HELD RESPONSIBLE FOR CCM IF ANY DONE AT THE END OF THE BROKER. THE AO EXCEPT FOR THE FAC T OF RECEIVING INFORMATION FROM THE DIT (I & CL), HAS NOT CONSIDERED THE OTHER ASPECTS OF T HE TRANSACTION TO BE CONSIDERED AS THE TRANSACTIONS OF THE ASSESSEE. THE OTHER RELEVANT AS PECT I.E. RECEIPT AND /OR PAYMENTS OF MONIES, THE TIME GAP BETWEEN THE ACTUAL TRANSACTION S ON THE STOCK EXCHANGE AND THE MODIFICATION OF THE CLIENT CODE NUMBERS OF SUCH TRA NSACTIONS BY THE OFFICE OF THE REGISTERED SHARE AND STOCK BROKER, NON-PROHIBITION OF CLIENT C ODE MODIFICATION BY EITHER THE STOCK EXCHANGE OR SEBI. IN THE ORDER OF ASSESSMENT, THE A O HAS STATED THE COMPLETE DETAILS OF THE MODUS OPERANDI OF CREATION OF FICTITIOUS PROFIT AND / OR LOSSES W ITH A MALAFIDE INTENTION OF ESCAPING TAXES. HOWEVER, THE AO HAS NEITHER PROV ED NOR LEAD ANY EVIDENCE IN CASE OF ANY SINGLE TRANSACTION, WHICH HE HAS ADDED TO THE I NCOME OF THE ASSESSEE, BEING OF THE TYPE WHOSE MODUS OPERANDI IS SIMILAR TO THE NATURE WHERE HE ALLEGES TO BE AD DED TO THE INCOME OF THE ASSESSEE. 8. IT IS COMMON KNOWLEDGE THAT ANY TRANSACTION EITH ER RELATING TO SHARES OR DERIVATIVES TO BE CONSIDERED AS COMPLETED AND TAXABLE/DEDUCTIBLE I N THE HANDS OF ANY ASSESSEE SHOULD COMPULSORILY HAVE THE FOLLOWING INGREDIENTS I.E. I) A VALID TRANSACTION MUST HAVE BEEN EXECUTED ON THE STOCK EXCHANGE. II) THE CUSTOMER OF THE REGISTERED SHARE BROKER SHOULD CONFIRM & AGREE THAT THE TRANSACTION ENTERED INTO BY THE BROKER BELONGS TO H IM. III) THE PAYMENT IBR PURCHASES AND/OR RECEIPT OF SALE P ROCEEDS SHOULD HAVE HAPPENED BETWEEN THE BANK ACCOUNTS OF THE BROKER & HIS CUSTO MER. IV) THE ABOVE TRANSACTION MUST HAVE BEEN ACCOUNTED FOR IN THE HOOKS OF ACCOUNT OF THE REGISTERED BROKER AS WELL AS HIS CUSTOMER. 16 | PA GE V) THE EVENTUAL PROFIT/LOSS ON THE TRANSACTIONS EXECUT ED ON THE STOCK EXCHANGE & EXCHANGE OF MONIES HAVING HAPPENED AS WELL AS GETTI NG ACCOUNTED IN THE RESPECTIVE BOOKS OF ACCOUNT WOULD EVENTUALLY RESULT INTO TAXABLE PRO FIT AND/OR LOSS IN THE HANDS OF SUCH CUSTOMERS OF THE REGISTERED BROKER. 9. WHEREAS, THE AO IN THE PRESENT CASE HAS MECHANICAL LY ADDED AMOUNTS AS INCOME OF ASSESSEE WITHOUT VERIFYING & FURNISHING EVIDENCES ON RECORD THAT ALL THE ABOVE STEPS HAVE ACTUALLY HAPPENED IN THE CASE OF A LL THE TRANSACTIONS WHICH HE HAS ADDED AS ASSESSEES INCOME. IN OUR VIEW, BY NO STRE TCH OF IMAGINATION CAN ANY AO CONSIDER A TRANSACTION ON THE STOCK EXCHANGE AS INCOME OF A PERSON OTHER THAN THE ONE WHO HAS EITHER ACTUALLY RECEIVED MONIES IN HIS BANK ACCOUNT (IN CASE OF PROFIT) AND/OR PAID ANY MONIES FROM HIS BANK ACCOUNT (IN CASE OF L OSSES). 10. FOR THE ABOVE PROPOSITION, WE RELY UPON THE DECISI ON IN THE CASE OF M/S.SAMBHAVANATH INVESTMENT V. ACIT I.T.A. NO.3109/MUM/2011 AY 2006- 2007 DATED 19/12/2013 (MUM.)(TRIB.), ACIT V KUNVARJI FINANCE (P) LTD (2015) 61 TAXMANN.C OM 52(AHD.)(TRIB.) WHEREIN IT WAS HELD THAT CCM WITHIN 1 % IS ABSOLUTELY NORMAL. ACCORDING LY THE ADDITION WAS DELETED. IN THE FACTS OF THE PRESENT CASE ALSO, CCM IS WITHIN 1 %, ITO VS. PAT COMMODITY SERVICES P. LTD. ITA NOS. 349 8 AND 3499/MUM/2012 DT. 7TH AUG,2015 (MUM.)(TRIB.), DCIT V SUNIL J ANANDPARA ITA NO. 3132/MUM/2015 ASSESSMENT YEAR: 2010-11 BENCH I DATE D 15/9/2017 (MUM.)(TRIB.) AND ITO VS. M/S. M.N. SHARES & STOCK BROKERS PVT. LTD. IT NO. 5 399/M/2017, AN. 2009-10 BENCH - SMC. 11. EVEN NOTHING HAS BEEN PLACED ON RECORD BY THE AO T O DEMONSTRATE THAT ANY PROCEEDINGS WERE EVER INITIATED AGAINST THE ASSESSE E BY THE SEBI OR ANY STOCK EXCHANGE. IT WAS ALSO CLARIFIED BY THE LD. AR THAT THE BROKER, THROUGH WHOM THE ASSESSEE CARRIED ON SHARE TRANSACTIONS, WERE ALSO N OT IMPOSED ANY PENALTY. NO CO- RELATION BETWEEN THE ASSESSEE ON THE ONE HAND AND T HE OTHER PARTIES ON THE OTHER HAND HAS BEEN BROUGHT ON RECORD TO CO-RELATE THAT THE PA RTIES TO WHOM THE ALLEGED PROFITS OR LOSS IS SUPPOSED TO HAVE BEEN DIVERTED TO REDUCE TH E TAXABLE INCOME OF THE ASSESSEE, HAS BEEN BROUGHT ON RECORD TO SHOW THAT THERE WAS A NY COLLUSION WITH EACH OTHER AND WERE KNOWN TO EACH, SO THAT ONE PARTY DIVERTED ITS PROFIT OR LOSS TO THE OTHER PARTIES. EVEN NOTHING HAS BEEN BROUGHT ON RECORD TO SUGGEST THAT THE SAID LOSSES WERE PURCHASED AND THE PARTY WERE GIVEN CHEQUE OR CASH P AYMENT IN VIEW OF SUCH FAVOURS. PAGE | 17 ACCORDING TO US, SUCH CO-RELATION WAS NECESSARY TO FASTEN ANY LIABILITY UPON THE ASSESSEE. 12. NO NEW FACTS OR CONTRARY JUDGMENTS HAVE BEEN BROUG HT ON RECORD BEFORE US IN ORDER TO CONTROVERT OR REBUT THE FINDINGS SO RECORD ED BY LD CIT. THEREFORE, THERE ARE NO REASONS FOR US TO INTERFERE INTO OR DEVIATE FROM THE FINDINGS SO RECORDED BY THE LD. CIT. HENCE, WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS SO RECORDED BY THE LD. CIT ARE JUDICIOUS AND ARE WELL REASONED. RESULTANTLY, T HESE GROUNDS RAISED BY THE ASSESSEE STANDS DISMISSED. 13. WE FIND THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. KUNVARJI FINANCE (P) LTD. REPORTED IN 401 ITR (T) 64 HAS HELD AS UNDER :- 8. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BOTH 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 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 EXCHA NGE I.E. MCX VIDE CIRCULAR NO.MCX/T&S/032/2007 DATED 22.01.2007, ISSU ED 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 B USINESS 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, 20 07 HAS DIRECTED AS UNDER. THE FACILITY OF CLIENT CODE MODIFICATIONS INTRA-DAY ARE ALLOWED. PAGE | 18 THE MEMBERS ARE ALSO ALLOWED TO CHANGE THEIR CLIEN T 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 . HOWEVER, ON THE DAYS WHEN TRADING IN COMMODITIES T AKES PLACE TILL 11:55 P.M. THE CLIENT CODE MODIFICATION WILL BE ALLOWED O NLY UPTO 12:00 P.M. AT ALL TIMES, PROPRIETARY TRADES SHALL NOT BE ALLOW ED TO BE MODIFIED AS CLIENT TRADES AND CLIENT TRADES SHALL NOT BE ALLOWE D TO BE MODIFIED AS PROPRIETARY TRADES. IN ORDER TO ENSURE THAT CLIENT CODES ARE ENTERED W ITH ALERTNESS AND CARE, A PENALTY ON THE CLIENT CODE CHANGES MADE ON A DAIL Y BASIS SHALL BE IMPOSED AS UNDER: IT IS CLARIFIED THAT THE FACILITY OF CLIENT CODE MO DIFICATION 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, MEMBE RS 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.) 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 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 PAGE | 19 MEMBERS ARE REQUESTED TO TAKE NOTE OF THE FMC DIREC TIVES 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 IT IS GREATER THAN 10%, THEN PENALTY IS RS 10,000/-. FROM THE ABOVE, T HE ONLY INFERENCE THAT CAN BE DRAWN IS THAT AS PER MCX, THE CLIENT CODE MO DIFICATION UPTO 1% IS ABSOLUTELY NORMAL AND THEREFORE, THE BROKER IS PERM ITTED TO MODIFY THE CLIENT CODE UPTO 1% WITHOUT PAYING ANY PENALTY. EVEN CLIEN T 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 CI RCULAR ISSUED BY COMMODITY EXCHANGE, LET US EXAMINE WHETHER THE CLIE NT 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 O F 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, THE CLIENT CODE MODIFICATION MAY L OOK VERY HIGH, BUT IF WE LOOK IT AT IN TERMS OF TOTAL TRANSACTIONS, IT IS ON LY 0.94%. THE TOTAL NUMBER OF TRADE TRANSACTIONS IS 38.58 LACS AND THE CLIENT COD E 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 PERMITT ED WITHOUT ANY PENALTY. THAT THE ASSESSING OFFICER HAS NOT GIVEN ANY REASON ON WHAT BASIS HE PRESUMED THE CLIENT CODE MODIFICATIONS TO BE UNUSUA LLY HIGH. IN THE LIGHT OF THE MCX CIRCULAR, WE ARE OF THE OPINION THAT THE CL IENT CODE MODIFICATION WAS QUITE NOMINAL AND NOT UNUSUALLY HIGH AS ALLEGED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER HELD THE CLIENT CODE MODIFICA TIONS TO BE MALAFIDE PAGE | 20 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 O FFICER THAT THE CLIENT CODE MODIFICATION WAS WITH THE MALAFIDE INTENTION. WHEN THE CLIENT CODE WAS MODIFIED ON THE SAME DAY, THERE CANNOT BE ANY MALAF IDE INTENTION. HAD CLIENT MODIFICATION DONE AFTER THE TRANSACTIONS PER IOD WHEN THE PRICE OF THE COMMODITY HAS ALREADY CHANGED, THEN PERHAPS THERE C OULD HAVE BEEN SOME BASIS TO PRESUME THAT CLIENT CODE MODIFICATION IS I NTENTIONAL. HOWEVER, WHEN THE CLIENT CODE MODIFICATION IS DONE ON THE SA ME DAY, IN OUR OPINION, THERE WAS NO BASIS OR JUSTIFICATION TO HOLD THE SAM E TO BE MALAFIDE. MOREOVER, THE ID. ASSESSING OFFICER HAS COMPUTED T HE NOTIONAL PROFIT/LOSS TILL THE TRANSACTIONS PERIOD AND NOT TI LL THE PERIOD BY WHICH THE CLIENT CODE MODIFICATION TOOK PLACE. EVEN IF THE VI EW OF THE REVENUE IS ACCEPTED THAT THE CLIENT CODE MODIFICATION WAS WITH MALAFIDE INTENTION, THEN THE PROFIT OR LOSS ACCRUED TILL THE CLIENT COD E MODIFICATION CAN BE CONSIDERED IN THE CASE OF THE ASSESSEE BUT BY NO ST RETCH OF IMAGINATION THE PROFIT/LOSS ARISING AFTER THE CLIENT CODE MODIFICAT ION 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 B Y THE CONCERNED PARTIES. SUCH PROFITS/LOSS HAS BEEN DULY ACCOUNTED WHENEVER THE TRANSACTIONS HAVE BEEN CLOSED. THUS, WHATEVER PROFI TS HAVE BEEN GENERATED OR ACCOUNTING OF ACTUAL TRADE, HAVE BEEN OFFERED AN D 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 DU LY ACCOUNTED FOR AND THE PROFIT/LOSS HAS ACCRUED TO THE CONCERNED PARTIE S IN WHOSE NAMES TRANSACTIONS HAVE BEEN CLOSED, THERE CANNOT BE ANY BASIS OR JUSTIFICATION PAGE | 21 FOR CONSIDERING THOSE PROFIT/LOSS IN THE CASE OF TH E ASSESSEE ON THE BASIS OF MERE PRESUMPTION OR SUSPICION. IT IS NOT THE CASE O F THE REVENUE THAT SUCH ALLEGED PROFIT HAS ACTUALLY BEEN RECEIVED BY THE AS SESSEE. IN VIEW OF THE TOTALITY OF THE ABOVE FACTS, WE DO NOT FIND ANY JUS TIFICATION 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 REJ ECTED. 14. THE VARIOUS OTHER DECISIONS RELIED ON BY THE LD . COUNSEL FOR THE ASSESSEE ALSO SUPPORTS HIS CASE THAT NO ADDITION CA N BE MADE BY THE AO WHERE CCM IS DONE BY THE BROKER. 15. SINCE IN THE INSTANT CASE IT IS AN ADMITTED FAC T THAT THE ASSESSEE IS NOT A MEMBER OF ANY EXCHANGE AND CANNOT EXECUTE CCM AND THE TRANSACTIONS ON ACCOUNT OF CCM DONE BY THE GROUP CO NCERNS ARE NOT FOUND TO BE FALSE OR UNTRUE AND SINCE SEBI OR THE S TOCK EXCHANGE HAS NOT TAKEN ANY ACTION TREATING THE TRANSACTIONS TO B E NON GENUINE AND VOLUME OF CCM OCCURRED ARE WITHIN THE PERMISSIBLE L IMIT ALLOWED BY THE SEBI, THEREFORE, IN VIEW OF THE DISCUSSIONS ABO VE AND RELYING ON THE DECISIONS CITED (SUPRA) WE ARE OF THE CONSIDERE D OPINION THAT THERE IS NO PERVERSITY IN THE ORDER OF THE CIT(A) D ELETING THE ADDITION. ACCORDINGLY THE SAME IS UPHELD AND THE GROUNDS RAIS ED BY THE REVENUE ARE DISMISSED. 16. IN THE RESULT, THE APPEAL FILED BY THE REVEN UE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 03.12.2019. SD/- SD/- (KULDIP SINGH) (R.K PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER *NEHA* DATE:- 03.12.2019 PAGE | 22 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI