Sumati Kumar Lunia , Kolkata V. ITO, Ward - 36(4), Kolkata , Kolkata

ITA 457/KOL/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6762 (ITAT-KOLKATA)
• Duration Of Justice: 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 27-02-2019
• Assessment Year: 2009-2010
• Appeal Filed On: 16-03-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C J SINGH JCIT LD
• Assessee Lawyers: SUBASH AGARWAL LD
• Keywords: Bonafide belief; Transactions in derivatives; Wholly owned subsidiary; Tangible material; Difference of opinion; Corroborative evidences; Accommodation entries; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 133(6); 250; 191; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH : KOLKATA [BEFORE HONBLE SHRI S.S. GODARA, JM ] I .T.A NO. 457 /KOL/201 8 ASSESSMENT YEAR : 200 9 - 10 SUMATI KUMAR LUNIA VS. I.T.O WARD 36(4), KOLKATA PAN: AAVPL 7736 M (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI SUBASH AGARWA L , ADVOCATE , LD.AR FOR THE RESPONDENT : SHRI C.J. SINGH, JCIT , LD. SR.DR DATE OF HEARING : 27 - 02 - 2019 DATE OF PRONOUNCEMENT : 28 - 02 - 2019 ORDER 1. THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 200 9 - 10 ARISES AGAINST THE CIT(A) - 1 0 , KOLKATAS ORDER DATED 28 - 12 - 2017 PASSED IN CASE NO. 448/ CIT(A) - 1 0 /W - 36(4)/2009 - 10 INVOLVING PROCEEDINGS U/S 147/ 143(3) OF THE ACT. HEARD BOTH THE PARTIES. CASE FILE PERUSED. 2. THE ASSESSEES SOLE INSTANT GROUND R AISED IN THE INSTANT APPEAL SEEKING TO CHALLENGE THE CORRECTNESS OF BOTH THE LOWER AUTHORITIES ACTIONS TREATING ITS LOSS OF RS.11,41,737/ - TO BE BOGUS SINCE ARIS EN FROM CLIENT CODE MODIFICATION (CCM AND STAGE - MANAGING . THE LD. CIT(A)S DETAILED DISCUSSI ON UNDER CHALLENGE READ AS FOLLOWS: 06. FINDINGS & DECISION: 1. I HAVE CAREFULLY EXAMINED THE ISSUE RELATING TO THE REOPENING OF THE CASE. I FIND THAT THE LD AO HAS RECORDED REASONS IN THE MATTER, AND 2 ITA NO. 457/KOL/2018 A.Y 2009 - 10 SUMATI KUMAR LUNIA 2 COMMUNICATED THE SAME TO THE APPELLANT - ASSESSEE A LSO. I HAVE CAREFULLY EXAMINED THE REASONS RECORDED BY THE LD.AO IN REOPENING THE ASSESSMENT FOR THE YEAR 2009 - 10, AS WELL AS THE SUBMISSIONS OF THE LD. A.R FOR THE APPELLANT MADE IN THE MATTER. I FIND THAT IN THIS CASE THERE HAD BEEN NO SCRUTINY PROCEEDINGS EARLIER,AND THE CASE HAD ONLY BEEN PROCESSED U/S 143(1)(A). IT IS ALSO SEEN THAT THE LD. AO HAS SUPPLIED THE REASONS FOR REOPENING TO THE APPELLANT DURING THE COURSE OF THE SCRUTINY. IT IS SEEN THAT THE LD.AO HAS DULY RECORDED T HAT AFTER VERIFICATION OF THE OFFICE RECORD, AND ON THE BASIS OF CERTAIN INFORMATION RECEIVED FROM THE INVESTIGATION WING AT MUMBAI, IT CAME TO LIGHT THAT THE ASSESSEE DURING THE FINANCIAL YEAR 2009 - 10 HAD AVAILED OF ENTRIES OF BOGUS LOSSES TO THE EXTENT OF RS. 11 ,41,737 / - BY INDULGING IN CLIENT CODE MODIFICATION ( CCM) AND STAGE - MANAGING A CONTRIVED LOSS. 2. THE LD. AO HAS ALSO RECORDED THAT THE ABOVE INFORMATION, PRIMA FACIE, INDICATED THAT THE ASSESSEE HAD ENTERED INTO ACCOMMODATION ENTRIES THROUGH THE MODUS OPERANDI OF CCM. ACCORDINGLY, NOTICE UNDER SECTION 148 WAS SERVED ON THE ASSESSEE ON 30.03.2016 BY THE LD.AO WITH THE REASON TO BELIEVE THAT ITS INCOME TO THE EXTENT OF RS.11,41,737/ - FOR THE ASSESSMENT YEAR IN QUESTION. DURING THE APPEAL PROC EEDINGS ALSO, THE APPELLANT HAS RAISED SEVERAL POINTS, INTER - ALIA CHALLENGING THE REASSESSMENT PROCEEDINGS ON GROUNDS THAT THE AO HAD NOT ACTED IN THE 'BELIEF', BUT ON MERE 'SATISFACTION', AND THAT THERE HAD BEEN NO APPLICATION OF MIND BY THE LD .AO, AN D THAT THE REASSESSMENT PROCEEDINGS WERE VOID AB INITIO, AS THE REASONS FOR REOPENING OF THE CASE HAD NOT BEEN SUPPLIED IN TIME TO THE APPELLANT. THIS HOWEVER, I FIND TO BE WITHOUT ANY SUBSTANCE, AS I FIND THAT THE LD. AO HAD OBSERVED EACH AND EVERY GU IDELINE RELATING TO THE PROCEDURE FOR REOPENING OF THE CASE AT HAND. IN THIS MATTER, THE FOLLOWING JUDICIAL PRECEDENTS ELUCIDATE THE PRINCIPLE INVOLVED. AS RE G ARDS, THE MUCH DEBATED EXPRESSION 'HAS REASON TO BELIEVE', THE SAME HAS BEEN HELD TO HAVE MUCH LA RGER AND WIDER THAN 'IS SATISFIED'. THE HON'BLE COURTS HAVE HELD THAT THESE REASONS AS RECORDED BY THE ASSESSING OFFICER MUST HAVE A 'PROXIMATE AND LIVE LINK' WITH THE FORMATION OF BELIEF. THIS I FIND TO BE TRUE IN THE CASE AT HAND. ' INFORMATION ' FOR REOP ENING HAS BEEN EXPLAINED IN DETAIL BY SEVERAL JUDICIAL PRONOUNCEMENTS. INFORMATION MAY COME FROM EXTERNAL SOURCES OR EVEN FROM MATERIALS ALREADY ON RECORD OR MAY BE DERIVED FROM THE DISCOVERY OF NEW AND IMPORTANT MATTER OR FRESH FACTS - WORD ' INFORMATIO N ' WOULD ALSO INCLUDE TRUE AND CORRECT STATE OF LAW DERIVED FROM RELEVANT JUDICIAL DECISIONS EITHER OF THE LT. 3 ITA NO. 457/KOL/2018 A.Y 2009 - 10 SUMATI KUMAR LUNIA 3 AUTHORITIES OR COURTS OF LAW - WHETHER THE GROUND ON WHICH THE ORIGINAL ASSESSMENT IS BASED IS HELD TO BE ERRONEOUS BY SUPREME COURT IN SOME OT HER CASE, THAT WILL ALSO AMOUNT TO A FRESH INFORMATION WHICH COMES INTO EXISTENCE SUBSEQUENT TO THE ORIGINAL ASSESSMENT - TAXPAYER WOULD NOT BE ALLOWED TO TAKE ADVANTAGE OF AN OVERSIGHT OR MISTAKE COMMITTED BY THE TAXING AUTHORITY [KALYANJI MAVJI& CO. VS CIT (SC) 102 ITR 287] 3. SI MILARLY , AS REGARDS THE 'EXISTENCE OF REASON' VS 'SUFFICIENCY OF REASON', THIS HAS ALSO BEEN ADJUDICATED AS FOLLOWS: SUFFICIENCY OF REASON IS NOT OPEN TO QUESTION IN A COURT OF LAW BUT THE EXISTENCE OF BELIEF CAN BE CHALLENGED. COURTS CAN EXAMINE WHETHER THE REASONS ARE RELEVANT AND HAVE A BEARING ON THE MATTERS WITH REGARD TO WHICH HE IS REQUIRED TO ENTERTAIN THE BELIEF BEFORE HE CAN ISSUE NOTICE. HERE I FIND THAT TH E REASONS RECORDED HAVE A DIRECT AND LIVE BEARING TO THE MATTERS AT HAND. 4. FAILURE TO DISCLOSE FULLY AND TRULY MATERIAL FACTS - BELIEF OF ITO THAT INCOME HAD ESCAPED ASSESSMENT - SUFFICIENCY OF REASONS FOR FORMING THE BELIEF IS NOT FOR THE COURT TO J UDGE. THIS IS THE RATION EMANATING FROM ITO VS LAKHMANI MEWAL DAS (SC) 103 ITR 437, PHOOL CHAND BAJRANGLAL AND ANOTHER VS ITO & ANR. (SC) 203 ITR 456, RAYMOND WOOLLEN MILLS VS ITO &ANR. (SC) 236 ITR 34, &DESH RAJ UDYOG VS ITO (ALL) 318 ITR 6. 5. SIMILARL Y, IT HAS BEEN DECIDED .BY HON'BLE COURTS THAT TO JUDGE THE VALIDITY OF REASSESSMENT ON THE BASIS OF FINAL OUTCOME OF REASSESSMENT PROCEEDINGS ON THAT ITEM WILL NOT BE 'INFORMATION' FOR RE - OPENING. THE MATTER HAS BEEN ELUCIDATED AND EXPLAINED IN DETAIL AS - INFORMATION PROPER - AT THE TIME OF REOPENING, ASSESSING OFFICER IS NOT REQUIRED TO ESTABLISH ESCAPEMENT OF INCOME. SRI KRISHNA (P) L TD. VS CIT (SC) 221 ITR 538&CENTRAL PROVINCES MANGANESE ORE CO. LTD. VS ITO (SC) 191 ITR 662. HON'BLE COURTS HAVE AL SO HELD THAT WHAT IS NECESSARY TO RE - OPEN AN ASSESSMENT IS NOT THE FINAL VERDICT BUT A PRIMA FACIE REASON - ONCE SUCH A REASON IS RECORDED BY THE ASSESSING AUTHORITY, HE ASSUMES JURISDICTION TO ISSUE NOTICE U/S148 - MERE FACT THAT FOR EARLIER ASSESSMENT Y EARS ISSUE IN DISPUTE HAS BEEN DECIDED BY CIT(A) IN ASSESSEE'S FAVOUR CANNOT BE A FETTER IN EXERCISING HIS JURISDICTION VIS 147. THIS RATIO EMERGES FROM THE JUDGMENTS IN ACIT VS TUBE INVESTMENTS OF INDIA LTD. (ITAT, CHENNAI - TM) 133 ITD 79 &RAJAT EXPORT IMP ORT INDIA PVT. LTD. VS ITO (DEL) 341 ITR 135. 4 ITA NO. 457/KOL/2018 A.Y 2009 - 10 SUMATI KUMAR LUNIA 4 6. I ALSO FIND THAT IN THE CASE AT HAND THE EARLIER ASSESSMENT WAS COMPLETED WITHOUT THE AO RECORDING ANY' SPECIFIC OPINION' OR FINDING ABOUT THE MATTERS WHICH LED TO THE SUBSEQUENT REOPENING, NAMELY THE ISSUE RELATING TO THE IMPUGNED DECLARATION UNDER THE VDIS SCHEME. THEREFORE, I FIND THAT IT CANNOT BE SAID THAT THERE WOULD NOT BE A DIFFERENT METHOD POSSIBLE WHICH THE AO IS PRECLUDED FROM ADAPTING FOR ARRIVING AT THE C ORRECT INCOME, IN A SITUATION WHERE HE TAKES A SECOND LOOK ON ACCOUNT OF WHAT APPEARS TO HIM A BETTER OR LEGALLY SOUND UNDERSTANDING OF THE APPLICABLE LAW. THIS METHOD, COULD ALSO BE BASED O N INFORMATION AVAILABLE TO THE AO FROM AN EXTERNAL SOURCE (RETU RN OF THE APPELLANT FOR ANOTHER ASSESSMENT YEAR) WHICH WOULD LEAD TO THE FORMATION OF ANY REASON TO REOPEN. IN THE CASE OF - YUVRAJ VS. UNION OF INDIA (BO M .) (2009) 315 ITR 84, IT HAS BEEN HELD BY THE HON'BLE HIGH COURT THAT THE POINTS NOT DECIDED WHILE P ASSING ASSESSMENT ORDER UNDER SECTION 143(3), DO NOT LEAD TO A CASE OF CHANGE OF OPINION. IN THAT CASE, IT WAS HELD THAT THE ASSESSMENT WAS REOPENED VALIDLY. MOREOVER HON'BLE COURTS HAVE HELD THAT WHAT IS NECESSARY TO RE- OPEN AN ASSESSMENT IS NOT THE FINAL VERDICT BUT A PRIMA FACIE REASON - ONCE SUCH A REASON IS RECORDED BY THE ASSESSING AUTHORITY, HE ASSUMES JURISDICTION TO ISSUE NOTICE U/S148 - MERE FACT THAT FOR EARLIER A SSESSMENT YEARS ISSUE IN DISPUTE HAS BEEN DECIDED BY CIT(A) IN ASSESSEE'S FAVOUR CANNOT BE A FETTER IN EXERCISING HIS JURISDICTION U/S 147. 7 . MOREOVER, IT IS TO BE OBSERVED THAT THE CASE OF ITO VS. PURUSHOTTAM D AS BANGUR AND AND ANOTHER, 224 ITR 362 (S E) HAS SETTLED THE LAW ON THIS ISSUE THAT AT THE TIME OF . INITIATION OF THE PROCEEDINGS U/S. 147, THE LD. AO SHOULD HAVE THE MATERIAL RELEVANT TO THE ASSESSEE. IN MY CONSIDERED VIEW OF THE MATTER, THE INFORMATION RECEIVED FROM THE INVESTIGATION WING IS ALSO MATERIAL IF IT CONTAINS THE INFORMATION REGARDING THE ASSESSEE. THE LD.AO, AT THE TIME OF RECORDING OF THE REASONS/FORMATION OF BELIEF NEITHER SUPPOSED NOR REQUIRED TO COUNTER THE EVIDENCE OR MATERIAL COLLECTED BY HIM WITH THE ASSESSEE. EVEN THE SO URCE OF THE MATERIAL CANNOT BE ASKED BY THE ASSESSEE. IF THE MATERIAL OR THE INFORMATION BELONGS TO THE' ASSESSEE, IN MY VIEW, THE LD. AO HAS A BONAFIDE BELIEF TO RECORD THE REASONS. THE HON'BLE COURTS CANNOT LOOK INTO THE SUFFICIENCY OF THE MATERIAL HEL D BY THE LD. AO FOR THE FORMATION OF THE BELIEF. ONCE THE PROCEEDINGS ARE INITIATED, THE ONUS IS ON THE LD. AO TO PROVE THAT THE INCOME HAS ESCAPED ASSESSMENT, AND FOR THAT HE HAS TO GIVE THE HEARING TO THE ASSESSEE AND GIVE ALL THE MATERIAL AND EVIDENCE 5 ITA NO. 457/KOL/2018 A.Y 2009 - 10 SUMATI KUMAR LUNIA 5 COLLECTED BY HIM SO THAT THE ASSESSEE MAY CONTRADICT THE SAME. IF THE ASSESSING OFFICER DOES NOT HAVE THE MATERIAL, THE REASONS CANNOT BE REGARDED TO BE BONA FIDE AND THE INITIATION OF THE PROCEEDINGS CAN BE QUASHED. IF THE INITIATION IS VALID AND SUBSEQU ENTLY, THE ASSESSEE PROVES THAT THERE IS NO ESCAPEMENT OF INCOME, THE ASSESSMENT SO FRAMED COULD BE QUASHED/CANCELLED. 8. IN VIEW OF THE ABOVE, I FIND THAT THE AO HAD RIGHT L Y REOPENED THE ASSESSMENT, AFTER OBSERVING ALL THE PROCEDURES AND LEGAL REQUIREME NTS, ON THE BASIS OF PRIMA FARCIE INFORMATION AVAILABLE WITH HIM. THE ACTION OF THE LD. AO IN SUCH MATTERS IS THEREFORE UPHELD, AND THE GROUND NUMBERING 1 TO 5 TAKEN BY THE APPELLANT - COMPANY IN THESE MATTERS STAND DISMISSED. 9. AS REGARDS GROUNDS NUMBE RING 6 TO 9, THEY RELATE TO THE MERIT OF THE CASE . T HE LD,AO HAS CLEARLY BROUGHT ON RECORD THAT THE ASSESSEE - INDIVIDUAL HAS INDULGED IN THE SHIFTING OF PROFIT AND LOSS OF SHARE BUSINESS THROUGH CLIENT CODE MODIFICATION, BY PLACING ON RECORD THE VARIOUS DETAILS OF THE TRANSACTIONS, WHEREIN IT IS OBSERVED THAT THE ASSESSEE HAD EARNED PROFIT FROM SALE OF SHARE THROUGH MI5 SHREE BAHUBALI INTERNATIONAL LTD, A DUBIOUS BROKER, THE L D. AO HAS RECORDED THE SPECIFICS OF THE TRANSACTIONS IN THE TABLES ALREADY RE PRODUCED, 10. THE L .D,A O HAS RECORDED THAT THEASSESSEE HAD FAILED TO SUSTAIN HIS CLAIM WITH PROPER EVIDENCE BY PRODUCING ANY BOOKS OF ACCOUNTS THAT THERE WAS NO SUCH TRANSACTION THROUGH CLIENT CODE MODULE, THE LD. AA HAS RECKONED THAT AS THE TRANSACTION HAD BEEN MADE THROUGH THE PAN OF THE ASSESSEE, HE OUGHT TO BE WELL AWARE OF THE FACT OF TRANSACTIONS BEING CARRIED OUT THROUGH CLIENT CODE MODIFICATION, AND OUGHT TO HAVE RAISED OBJECTIONS WITH THE BROKER AGAINST SU CH TRANSACTION, THE LD . A O HAS RECORDED THAT AS THE ASSESSEE HAD FAILED TO PROVIDE ANY EVIDENCE IN THE MATTER OF RAISING ANY OBJECTIONS WITH THE BROKER, AS WELL AS ANY CERTIFICATE FROM THE BROKER TO THE EFFECT THAT THERE WAS NO SUCH TRANSACTION IN THE N AME OF THE ASSESSEE TOWARDS SHIFTING OUT PROFIT AND LOSS OF SHARE BUSINESS THROUGH CLIENT CODE MODULE, THEREFORE THE LD,AO HAS RECKONED THAT AS IT IS QUITE EVIDENT ON RECORD THAT DURING THE RELEVANT ASSESSMENT YEAR THE ASSESSEE HAD SHIFTED OUT PROFIT FOR RS,1L,41,737/ - AND THEREFORE THIS AMOUNT NEEDS TO BE ADDED BACK, AND THEREFORE THE LD AA HAS DISALLOWED THE SAID AMOUNT, 6 ITA NO. 457/KOL/2018 A.Y 2009 - 10 SUMATI KUMAR LUNIA 6 L1.HAVING EXAMINED THE MATTER, I FIND THAT THE APPELLANT HAS NOT BEEN ABLE TO BRING ANYTHING ON RECORD TO PROVE THE RATIONALE, NEE D AND JUSTIFICATION FOR' CLIENT CODE MODIFICATIONS, WHILE IT MAY BE TRUE THAT SUCH CLIENT CODE MODIFICATION MAY NOT PER SE BE ILLEGAL, IT HAS TO BE BROUGHT ON RECORD BY THE APPELLANT, AS HE IS THE BENEFICIARY THAT THE MODIFICATIONS WERE ON AN ACCEPTABLE LEVEL, AND THE CLIENTS WERE KYC COMPLAINT, IN SUCH MATTER, THE RELEVANT EXTRACT OF SEBI CIRCULAR DATED FEBRUARY 06, 2003, RELATING TO THE MODIFICATION OF CLIENT CODE IS BEING REPRODUCED HEREUNDER FOR CONVENIENCE: 'THE STOCK EXCHANGES SHALL NOT NORMALLY PERMIT CHANGES IN THE CLIENT ID AND WOULD KEEP A STRICT VIGIL ON CASES OF CLIENT CODE MODIFICATION AND WOULD IMPLEMENT A MONETARY PENALTY STRUCTURE THAT WOULD ESCALATE WITH THE NUMBER OF SUCH INCIDE NCES . BESIDES, THE EXCHANGE MAY TAKE NECESSARY ACTION AG AINST MEMBERS MAKING REPEATED CHANGES, HOWEVER, GENUINE MISTAKES MAY BE ALLOWED TO BE RECTIFIED,' 12.THUS, A CAREFUL READING OF THE ABOVE EXTRACT SUGGESTS THAT THE CHANGE IN CLIENT ID IS GENERALLY NOT ALLOWED EXCEPT WHERE THERE IS SOME GENUINE MISTAKE, THE SEBI CIRCULAR ALSO MANDATES THE STOCK EXCHANGES TO KEEP STRICT VIGI L ON THE INSTANCES OF CLIENT CODE MODIFICATION AND IMPLEMENTATION OF A PENALTY STRUCTURE, IN THE LIGHT OF THE READING AND SUBMISSION OF NSE, IT IS TO BE OBSERVED THAT THE PRACTICE ADOPTED BY NSE IS 'SCRUTINY OF CLIENT CODE MODIFICATIONS ON A POST - FACTO BASIS', WITH MONETARY PENALTIES IN DIRECT PROPORTION TO THE QUANTUM OF INCIDENCE IN COMPLIANCE WITH THE SEBI CIRCULAR, REGARDING THE REQUIREMENT OF NOT ALLOWING THE CHANGE IN CLIENT CODE EXCEPT FOR GENUINE MISTAKE, IT IS ALSO TO BE OBSERVED THAT THE TERM 'GENUINE MISTAKE' HAS WIDE CONNOTATION. FROM THE SUBMISSIONS MADE OUT BY THE APPELLANT DURING BOTH ASSESSMENT AND APPE AL, IT DOES NOT EMANATE THAT THE MODIFICATIONS WERE GENUINE. FURTHER, A CAREFUL STUDY OF THE SEBI CIRCULAR WOULD REVEAL THAT A TWO TIER PENALTY STRUCTURE HAS BEEN PROVIDED FOR. A MONETARY PENALTY HAS BEEN ENVISAGED WHEN THERE IS AN ESCALATION IN THE NUMBER OF CLIENT CODE MODIFICATIONS. HOWEVER, IN THE CASE OF REPEATED OFFENCES, FURTHER NECESSARY ACTION HAS BEEN RECOMMENDED. WITH SUCH VIEW OF MATTERS, IN MY CONSIDERED VIEW OF THE MATTER, THE LD.AO WAS CORRECT IN CONCLUDING THAT FOR THE CASE IN HAND THERE WAS DELIBERATE SHIFTING OF PROFITS BY THE ASSESSEE IN CONNIVANCE WITH THE BROKER. THE ACTION OF THE LD. AO ACCORDINGLY STANDS CONFIRMED, AND THE GROUNDS TAKEN BY THE APPELLANT NUMBERING 6 TO 9 STAND DISMISSED. 7 ITA NO. 457/KOL/2018 A.Y 2009 - 10 SUMATI KUMAR LUNIA 7 3. I HAVE GIVEN MY THOUGHTFUL CONSIDERATION TO T HE RIVAL CONTENTIONS. IT TRANSPIRES THAT DURING THE COURSE OF HEARING THAT THIS CO - ORDINATE BENCHS DECISION IN THE CASE OF M/S. RATNABALI COMMODITIES PVT. LTD VS. ITO, W 12(3), KOLKATA DECIDED ON 16 - 06 - 2017 HAS DELETED THE IDENTICAL ADDITION VIDE FOLL OWING DISCUSSION : - 3. SOLE ISSUE RAISED BY ASSESSEE IN ITS GROUNDS OF APPEAL IS THAT LD. CIT(A) ERRED IN HOLDING THE LOSS OF 19,76,538/ - IN THE TRANSACTIONS OF DERIVATIVES AS BOGUS LOSS. 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A PRIVATE LIMITE D COMPANY AND ENGAGED IN THE BUSINESS OF DEALING IN COMMODITIES. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS INCURRED LOSS OF 45,23,943/ - IN DERIVATIVES TRANSACTIONS OF SHARES. THE ABOVE LOSS WAS INCURRED BY THE ASSESSEE AT THE FAG - END OF THE RELEVAN T ASSESSMENT YEAR I.E. FROM 18.03.2009 TO 26.03.2009. ALL THE TRANSACTIONS WERE CARRIED OUT THROUGH A BROKER NAMELY M/S RATNABALI CAPITAL MARKETS LTD. (RCML FOR SHORT) A MEMBER OF NATIONAL STOCK EXCHANGE (NSE FOR SHORT). THE DIRECTOR IN THE ASSESSEE - COMPAN Y AND RCML WERE COMMON AND THE NAME OF RCML WAS APPEARING IN THE LIST OF SPECIFIED PERSON AS ENVISAGED U/S. 40(A)(2)(B) OF THE ACT. THE ASSESSEE HAS ALSO PAID BROKERAGE TO RCML FOR 92,566/ - ONLY FOR THE ABOVE STATED TRANSACTIONS. THE ASSESSING OFFICER DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS TO VERIFY THE VERACITY OF THE LOSS CLAIMED BY ASSESSEE HAS CONFIRMED FROM NSE BY ISSUING A NOTICE U/S. 133(6) OF THE ACT. AS PER THE CONFIRMATION RECEIVED FROM NSE, THE AO OBSERVED THAT THE NAME OF THE CLIENT AND CO DE HAS BEEN MODIFIED DURING THE PROCESS OF SAID TRANSACTIONS. THEREFORE, THE AO HAD A DOUBT ABOUT THE GENUINENESS OF THE IMPUGNED LOSS AND THEREFORE HAS SOUGHT THE EXPLANATION FROM THE ASSESSEE. IN COMPLIANCE THERETO THE DIRECTOR OF THE ASSESSEE - COMPANY A ND RCML NAMELY, SHRI VIKASH SOMANI IN HIS STATEMENT RECORDED DATED 22.12.2010 SUBMITTED THAT THE NAME OF THE CLIENT AND CODE WAS MODIFIED DUE TO PUNCHING ERRORS BY THE CLERICAL STAFF. IT WAS ALSO SUBMITTED THAT ALL THE MODIFICATION IN THE NAME OF CLIENT AN D ITS CODE WERE CARRIED OUT WITHIN THE TIME PERMITTED BY THE STOCK EXCHANGE. THE ASSESSEE ALSO SUBMITTED THAT THE SECURITY TRANSACTION TAX (STT) WAS PAID IN RESPECT OF ALL THE TRANSACTIONS GIVING RISE TO THE IMPUGNED LOSS. HOWEVER, AO DISAGREED WITH THE CO NTENTION OF ASSESSEE ON ACCOUNT OF FOLLOWING REASONS: - (A) THE IMPUGNED LOSS WAS INCURRED BY THE ASSESSEE AT THE FAG - END OF THE YEAR AND SIMILAR LOSS WAS ALSO INCURRED IN THE IMMEDIATE PRECEDING AY 2008 - 09 AT THE FAG - END OF THE YEAR WHICH WAS ALSO DISALLO WED. 8 ITA NO. 457/KOL/2018 A.Y 2009 - 10 SUMATI KUMAR LUNIA 8 (B) THE CLIENT CODE AND NAME WERE MODIFIED BY RCML WITHOUT HAVING INSTRUCTION FROM THE ASSESSEE. (C) THE NATURE OF MODIFICATION CARRIED OUT IN THE CLIENT'S NAME AND CODE DO NOT SUGGEST THAT IT WAS A CLERICAL PUNCHING ERROR RATHER IT IS SUGGESTING THAT THE LOSS WAS TAKEN BY THE ASSESSEE IN ORDER TO REDUCE ITS PROFIT WHICH IS NOT PERMISSIBLE IN THE EYES OF LAW. IN VIEW OF THE ABOVE, AO TREATED THE IMPUGNED LOSS OF 19,76,538/ - AS BOGUS AND ACCORDINGLY ADDED TO THE TOTAL INCOME OF ASSESSEE. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT THE CL IENT'S NAME AND CODE WERE MODIFIED WITHIN THE TIME PERMITTED BY NATIONAL SECURITIES CLEARING CORPORATION LTD., (NSCCL SHORT) WHICH IS THE WHOLLY OWNED SUBSIDIARY OF NSE. THE ASSESSEE ALSO SUBMITTED THAT THERE IS ALWAYS HUGE RUSH DURING THE MARKETING HOURS AND THEREFORE THERE IS HIGH POSSIBILITY OF HUMAN ERRORS DUE TO EXTREMELY HIGH VOLUME OF ORDERS WHICH ARE PLACED ON SCREENS ON REAL TIME BASIS. THE ASSESSEE ALSO SUBMITTED THAT ALL THE TRANSACTIONS WERE CARRIED OUT THROUGH BANKING CHANNEL AND THIS WAS SUPPO RTED WITH THE CONTRACT NOTES. THE ASSESSEE ALSO PRODUCED FORM NO.10BB WHICH EVIDENCED THE PAYMENT OF STT ON THE IMPUGNED TRANSACTIONS IN RECOGNIZED STOCK EXCHANGE. HOWEVER, LD. CIT(A) DISREGARDED THE CONTENTION OF ASSESSEE AND CONFIRMED THE ORDER OF AO BY OBSERVING AS UNDER: - '... ... THE FACTS IN THIS CASE HAVE BEEN CONSIDERED AND IT IS APPREHENDED THAT THERE IS A POSSIBILITY THAT THE MODIFICATIONS MIGHT HAVE BEEN MADE TO ACCOMMODATE THE APPELLANT AS THE BROKER OF THE APPELLANT WAS A SISTER CONCERN. EVEN THOUGH APPARENTLY IT HAS NOT BEEN ESTABLISHED THAT THE SUCH MODIFICATION HAD BEEN DONE IN VIOLATION OF RULES AND REGULATIONS PRESCRIBED BY SEBI AND THE AO HAD PROCEEDED ON SUSPICION, HOWEVER AT THE SAME TIME IT ALSO CANNOT BE CONCLUDED EITHER THAT THE LOSS WOULD NOT BE ATTRIBUTABLE TO THESE 'MODIFICATIONS'. THUS, I FIND MERIT IN THE CONTENTION OF THE AO. THEREFORE, THE APPELLANT'S CONTENTION IN RESPECT OF THE CLAIM OF LOSS CANNOT BE ACCEPTABLE AS THE SAME PERTAINED TO THE MODIFIED TRANSACTIONS BEING ENTERED INTO BY THE APPELLANT'S SISTER CONCERN WHO WAS THE BROKER AND HELPED IN MANIPULATION FOR THE BENEFIT OF THE APPELLANT. I ALSO FIND THAT SIMILAR ADDITION WAS MADE BY THE AO ON THE SAME GROUND IN THE PREVIOUS AY 2008 - 09 AND THE CIT(A) - XXX, KOLKATA HAS PARTL Y CONFIRMED THE ADDITION SO MADE BY THE AO VIDE APPEAL ORDER DATED 9 ITA NO. 457/KOL/2018 A.Y 2009 - 10 SUMATI KUMAR LUNIA 9 23.11.2012. HENCE DISALLOWANCE MADE BY THE AO FOR THE LOSS OF RS.19,76,538/ - CLAIMED TO BE INCURRED BY THE APPELLANT COMPANY IS CONFIRMED AS IT WAS DONE WITH THE INTENTION OF REDUCING APPEL LANT COMPANY'S TAXABLE INCOME MANIPULATION OF TRANSACTIONS ENTERED INTO BY THE APPELLANT'S SISTER ITA NO.191/KOL/2015 A.Y. 2009 - 10 M/S RATNABALI COMMODITIES PVT. LTD. VS. ITO WARD - 12(3) PAGE 4 CONCERN WHO WAS THE BROKER AND HELPED IN MANIPULATION FOR THE B ENEFIT OF THE APPELLANT. HENCE, THIS GROUND OF APPEAL OF THE APPELLANT IS DISMISSED.' BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSEE CAME IN SECOND APPEAL BEFORE US. 6. LD. AR FOR THE ASSESSEE FILED PAPER BOOK WHICH IS RUNNING PAGES FROM 1 TO 20 AN D CITED CASE LAW. LD. AR FOR THE ASSESSEE REITERATED THE ARGUMENTS THAT WERE PLACED BEFORE LD. CIT(A). FURTHER, HE ALSO SUBMITTED THE COPIES OF CONTRACT NOTES IN SUPPORT OF THE TRANSACTIONS GIVING RISE TO THE IMPUGNED LOSS WHICH ARE PLACED ON PAGES 1 TO 5 OF THE PAPER BOOK. HE ALSO SUBMITTED THE EVIDENCE FOR THE PAYMENT OF STT ON SUCH TRANSACTIONS WHICH IS PLACED ON PAGES 6 OF THE PAPER BOOK. LD. AR ALSO SUBMITTED THE COPY OF BANK STATEMENT OF THE ASSESSEE AND RCML ALONG WITH THE LEDGER COPY OF THE BROKER A ND THE ASSESSEE IN THE RESPECTIVE BOOKS OF ACCOUNTS WHICH ARE PLACED ON PAGES 7 TO 20 OF THE PAPER BOOK. ON THE OTHER HAND, LD. DR VEHEMENTLY RELIED ON THE ORDER OF AUTHORITIES BELOW. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JUDICIAL PRONOUNCEMENTS CITED AND PLACED RELIANCE UPON. THE ISSUE BEFORE US REVOLVES FOR THE AMOUNT OF LOSS CLAIMED BY ASSESSEE FOR 19,76,538/ - WHICH WAS TREATED BY THE AUTHORITIES BELOW AS B OGUS MAINLY DUE TO THE MODIFICATION CARRIED OUT IN THE NAME AND CODE OF THE ASSESSEE BY THE BROKER. THE DIRECTOR OF THE ASSESSEE - COMPANY AND THE DIRECTOR OF THE BROKER COMPANY LISTED WITH NSE ARE SAME PERSON. THE IMPUGNED LOSS WAS TREATED AS BOGUS DUE TO S EVERAL REASONS SUCH AS IT WAS INCURRED AT THE FAG - END OF THE YEAR, TO REDUCE THE TAXABLE PROFIT EARNED BY ASSESSEE DURING THE YEAR AND SIMILAR KIND OF LOSS WAS ALSO DISALLOWED IN THE IMMEDIATE PRECEDING YEAR. 7.1 FROM THE FOREGOING DISCUSSION, WE FIND THA T INDEED THE CLIENT'S CODE AND NAME WERE MODIFIED IN RESPECT OF TRANSACTIONS CLAIMED BY ASSESSEE. HOWEVER, ON PERUSAL OF RECORD, WE FIND THAT THE IMPUGNED TRANSACTIONS 10 ITA NO. 457/KOL/2018 A.Y 2009 - 10 SUMATI KUMAR LUNIA 10 WERE CARRIED OUT THROUGH BANKING CHANNEL AND ALL THE SUPPORTING EVIDENCE SUCH AS CONTRAC T NOTE, PAYMENT OF STT WERE FILED AT THE TIME OF ASSESSMENT PROCEEDINGS. WE ALSO FIND THAT LD. CIT(A) CONFIRMED THE ORDER OF AO ON THE BASIS OF HIS GUESS - WORK AS EVIDENT FROM HIS APPELLATE ORDER WHICH IS REPRODUCED BELOW: - 'THERE IS A POSSIBILITY THAT THE MODIFICATIONS MIGHT HAVE BEEN MADE TO ACCOMMODATE THE APPELLANT AS THE BROKER OF THE APPELLANT WAS A SISTER CONCERN.' FURTHER THE LD. CIT - A HAS OBSERVED IN HIS ORDER AS UNDER: - 'EVEN THOUGH APPARENTLY IT HAS NOT BEEN ESTABLISHED THAT THE SUCH MODIFICATION HAD BEEN DONE IN VIOLATION OF RULES AND REGULATIONS PRESCRIBED BY SEBI AND THE AO HAD PROCEEDED ON SUSPICION, HOWEVER AT THE SAME TIME IT ALSO CANNOT BE CONCLUDED EITHER THAT THE LOSS WOULD NOT BE ATTRIBUTABLE TO THESE 'MODIFICATIONS' ON PER USAL OF THE ORDER, WE FIND THAT LD. CIT(A) HAS CONFIRMED THE ORDER OF AO ON HIS OWN SURMISE AND CONJECTURE WHICH IS NOT PERMISSIBLE IN THE EYES OF LAW. LD. DR HAS ALSO NOT BROUGHT ANYTHING ON RECORD CONTRARY TO THE ADVANCE ARGUMENTS PLACED BY LD. AR FOR TH E ASSESSEE AS WELL AS NO DEFECTS OF WHATSOEVER HAS BEEN POINTED OUT IN THE DOCUMENTS PRODUCED BY ASSESSEE IN SUPPORT OF ITS IMPUGNED LOSS. WE ALSO FIND WHATEVER MODIFICATIONS WERE CARRIED OUT BY THE BROKER THEY WERE CARRIED OUT WITHIN THE TIME PERMITTED BY THE NSE FOR THE PURPOSE OF MODIFICATION. THUS, WE ARE OF THE VIEW THAT THE ORDER OF AUTHORITIES BELOW IS BASED ON SURMISE AND CONJECTURE AND SAME IS NOT BASED ON TANGIBLE MATERIAL TO TREAT THE IMPUGNED LOSS AS BOGUS LOSS. 7.2 MOREOVER, WE ALSO FIND THAT T HE DETAILS FURNISHED BY THE ASSESSEE IN RESPECT OF TRANSACTIONS GIVING RISE TO THE LOSS WERE EXACTLY MATCHING WITH THE DETAILS FURNISHED BY THE NSE. IN NONE OF THE CASE, AUTHORITIES BELOW HAVE BROUGHT ON RECORD WHERE ANY MISMATCH IS FOUND BETWEEN THE BOOKS OF THE ASSESSEE AND THE CONFIRMATION RECEIVED FROM NSE. HAD THERE BEEN ANY MANIPULATION IN THE IMPUGNED LOSS THEN IT COULD HAVE BEEN REVEALED FROM THE CONFIRMATION RECEIVED FROM NSE. THEREFORE, THE MODIFICATIONS IN THE CLIENT'S NAME AND CODE CANNOT JUSTIF Y THE IMPUGNED LOSS AS BOGUS. THUS, WE CONCLUDE THAT THE IMPUGNED ADDITION HAS BEEN MADE BY THE AUTHORITIES BELOW ON THE BASIS OF SURMISE AND CONJECTURE WHICH IS NOT PERMISSIBLE IN THE EYES OF LAW AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF LALCHAND BHAGAT AMBICA RAM VS. CIT BIHAR AND ORISSA (1959) 159 ITR 289 (SC). THEREFORE, WE HOLD THAT THE IMPUGNED LOSS CANNOT BE SUBJECT - MATTER OF ADDITION ON THE BASIS OF 11 ITA NO. 457/KOL/2018 A.Y 2009 - 10 SUMATI KUMAR LUNIA 11 SUSPICION. IN THIS REGARD WE ALSO REL Y IN THE CASE OF CIT VS. KUNDAN INVESTMENT LTD . REPORTED IN 263 ITR 626 (CAL) WHERE HON'BLE JURISDICTIONAL HIGH COURT HAS HELD: - 'THE TRIBUNAL HAD FOUND THAT ALL RELEVANT DOCUMENTS RELATING TO CONTRACT N OTES, BILLS, THE QUOTED PRICE AND OTHER MATERIALS WERE PRODUCED. THE TRANSACTIONS WERE MADE THROUGH CHEQUES. ALL THE SHARES RELATED TO THE REPUTED COMPANIES AND WERE QUOTED SHARES IN THE STOCK EXCHANGES AND WERE PURCHASED AND SOLD AT THE PREVALENT QUOTED M ARKET RATES, WHICH WAS VERIFIED FROM THE STATEMENT OF THE STOCK EXCHANGES. ON THESE BASIS, THE TRIBUNAL FOUND THAT THE CIT(A) HAD PROCEEDED ON THE BASIS OF SUSPICION THAT THERE MIGHT BE SOME INGENUINITY IN THE TRANSACTIONS. ON THE BASIS OF THE MATERIALS PR ODUCED, THE TRIBUNAL CAME TO A FINDING OF FACT, WHICH DOES NOT SEEM TO BE PERVERSE. WHETHER THE SHARES COULD BE SOLD IMMEDIATELY ON THE DATE OF PURCHASE OR NOT WAS A QUESTION OF BUSINESS EXPEDIENCE. WHETHER THE DECISION WAS CORRECT OR WRONG CANNOT BE A QUE STION, WHICH CAN BE A SUBJECT - MATTER OF DECISION IN SUCH A CASE. IN ORDER TO FIND OUT WHETHER THE TRANSACTION IS GENUINE OR INGENUINE, IT IS NEITHER THE EXPEDIENCE OR CORRECTNESS OF THE DECISION NOR THE BUSINESS EXPERTISE OF THE PERSON TO BE CONSIDERED. IT IS TO BE CONSIDERED ON THE BASIS OF THE MATERIALS THAT THERE WAS NO SUCH TRANSACTION AND THAT THESE SHARE TRANSACTIONS WERE PAPER TRANSACTIONS. THE SUFFERING OF LOSS COULD NOT BE A FACTOR FOR SUCH PURPOSE. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF T HE CASE, THE VIEW TAKEN BY THE TRIBUNAL ALLOWING SHARE LOSS CANNOT BE SAID TO BE ERRONEOUS OR PERVERSE. -- CIT VS. EMERALD COMMERCIAL LTD. & ANR . (2001) 171 CTR (CAL) 193 : (2001) 250 ITR 539 ( CAL), CIT VS. DHAWAN INVESTMENT & TRADING CO. LTD . (1999) 238 ITR 486 ( CAL) AND CIT VS. CURRENCY INVESTMENT CO. LTD . (2000) 158 CTR (CAL) 361 : (2000) 241 ITR 494 (CAL) RELIED ON.' RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT THE IMPUGNED LOSS CLAIMED BY ASSESSEE IS GENUINE LOSS IN THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AND THEREFORE ELIGIBLE FOR DEDUCTION. ACCORDINGLY, AO IS DIRECTED. THIS GROUND OF ASS ESSEE'S APPEAL IS ALLOWED . 4. I PUT UP A SPECIFIC QUERY TO THE DEPARTMENT AS TO WHETHER ASSESSEES BROKER CARRIED OUT THE RELEVANT CLIENT CODE MODIFICATION AS PER PRESCRIBED RULES OR NOT. THERE IS NO SUCH VIOLATION POINTED OUT DURING THE COURSE OF HEARING BEFORE ME. I, THEREFORE, ADOPT THE ABOVE DETAILED DISCUSSION MUTATIS MUTANDIS TO DELETE THE IMPUGNED ADDITION OF RS. 11,41,737/ - . THE ASSESSEES LEGAL GROUND CHALLENGING THE RE - OPENING IS TREATED AS INFRUCTUOUS. 12 ITA NO. 457/KOL/2018 A.Y 2009 - 10 SUMATI KUMAR LUNIA 12 5 . TH IS ASSESSEE S APPEAL IS PARTLY ALLOWED IN ABOVE TERMS. ORDER PRONOUNCED IN THE COURT ON 28 .0 2 .201 9 SD/ - [ S.S.GODARA ] JUDICIAL MEMBER DATED : 28 - 02 - 2019 **PRADIP, SR. PS COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT/ ASSESSE : SUMATI KUMAR LUNIA C/O S.S LOHIA & CO. 27 BRABOURNE ROAD, 7 TH FLOOR, ROOM NO. 711, KOLKATA - 700 001. 2. INCOME TAX OFFICER, WARD 36(4), KOLKATA. 3..C.I.T (A) . - 4. C.I.T. - KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. 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