Vikram Infrastructure Pvt. Ltd., Indore V. The Addl. CIT Range-1, Indore

ITA 473/IND/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0415 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 09-07-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 14-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Assessee Lawyers: DEVENDRA MEHTA
• Keywords: Unexplained cash credit; Transactions in derivatives
• Section: 133(6); 68

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER AND SHRI B.C. MEENA, HONBLE ACCOUNTANT MEMBER ITA NO. 473/IND/2013 A.Y. 2007-08 VIKRAM INFRASTRUCTURE PVT. LTD INDORE PAN AABCV9957H ::: APPELLANT VS ADDL. COMMR. OF INCOME TAX RANGE I INDORE ::: RESPONDENT APPELLANT BY SHRI DEVENDRA MEHTA AND SHRI GIRDHAR GARG RESPONDENT BY SHRI R.A. VERMA DATE OF HEARING 9 .7.2015 DATE OF PRONOUNCEMENT 2 2 .7.2015 O R D E R PER SHRI B.C. MEENA, AM THIS APPEAL FILED BY THE ASSESSEEE EMANATES FROM THE ORDER OF THE LEARNED CIT(A)-I, INDORE, DATED 15.3 .2013. 2 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEALING IN SECURITIE S. DURING THE YEAR THE ASSESSEE HAS SHOWN LOSS OF RS.1,05,89,240/- ON ACCOUNT OF FUTURE AND OPTIONS TRAD ING. AS PER THE AMENDED PROVISION OF THE INCOME TAX ACT, THE TRADING IN FUTURE AND OPTIONS IS NOT SPECULATIVE, THE REFORE, THE AMOUNT WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEES CONTE NTION AND DISALLOWED THE LOSS. THE LEARNED CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER AFTER RELYING ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SUMATI DA YAL; 214 ITR 801 AND CIT VS. DURGAPRASAD MORE; 82 ITR 540. THE CLAIM OF THE ASSESSEE WAS DISALLOWED. 3. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUMMARIZED THE REASONS OF THE ASSESSING OFFICER ON TH E BASIS OF WHICH HE DISALLOWED THE LOSS OF TRADING IN FU TURE AND OPTIONS. THEREAFTER HE HAS ALSO ANALYZED THE REASONI NG 3 GIVEN BY THE LEARNED CIT(A) IN CONFIRMING THE DISALLO WANCE OF LOSS OF FUTURE AND OPTIONS. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS DONE I TS TRADING IN FUTURE AND OPTIONS WITH THREE BROKERS, NAME LY, SWASTIKA FINLEASE LIMITED; SYSTEMATIX SHARE & STOCKS (I) LTD. AND GEMS EQUITIES & SECURITIES PVT. LTD. SWASTIKA FINLEASE LTD. AND GEMS EQUITIES & SECURITIES PVT. LTD. WERE NEVER SUBJECTED TO ANY INQUIRY BY THE SEBI. FURTHER O NLY IN THE CASE OF SYSTEMATIX SHARE & STOCKS (I) LTD., SEBI INQUIRED AND VIDE ORDER OF SEBI ON THE APPLICATION BY T HE SYSTEMATIX SHARE & STOCKS (I) LTD. IN THE MATTER OF DE ALING IN FUTURE AND OPTIONS, THE NECESSARY ORDER WAS MADE WH ERE THE ASSESSEES APPLICATION WAS ADMITTED WITHOUT ADMITTI NG OR DENYING THE CHARGES. THEREFORE, THE TRANSACTIONS W ITH ALL THE THREE BROKERS WERE GENUINE. HE ALSO SUBMITTE D THAT THIS ISSUE IS NO MORE RES INTEGRA. VARIOUS ITAT BENC HES 4 HAVE CONSIDERED THE ISSUE AND HE RELIED UPON THREE DECISIONS OF ITAT WHICH ARE AS UNDER :- 1. M/S SAMBHAVNATH INVESTMENT VS. ACIT ITANO. 3109/MUM/2011 DATED 31.12.2013 2. ACIT VS. KUNVARJI FINANCE PVT. LTD.; ITA NOS. 61 5 TO 618/AHD/2010 DATED 19.03.2015 3. ITO VS. E-NET INFOWAYS PVT. LTD.; ITA NO. 2180/DEL/2012 DATED 14.12.2012 WHERE ON SIMILAR FACTS AND CIRCUMSTANCES THE APPEALS OF THESE ASSESSES WERE ALLOWED. HE ALSO SUBMITTED THAT THE FACTS OF THE CASES RELIED ON BY THE REVENUE WERE COMP LETELY DIFFERENT TO THE FACTS OF THE ASSESSEES CASE AND HE SUBMITTED AS FOLLOWS :- AS REGARD RELIANCE PLACED BY THE CIT(A) ON THE JUDGMENTS IN THE CASE OF SUMATI DAYAL (214 ITR 801) AND DURGA PRASAD MORE (82 ITR 540) IT IS SUBMITTED THATBOTH THESE JUDGMENTS ARE DISTINGUISHABLE ON THE FACTS OF THE ASSESSEES CASE. IN THE CASE OF SUMATI DAYAL (214 ITR 801) 5 THE HONOURABLE SUPREME COURT WAS DEALING WITH EXEMPTION IN CASE OF WINNING FROM HORSE RACES. ON THE BASIS OF FACTS LIKE THE ASSESEES OWN AFFIDAVIT, HER LACK OF EXPERIENCE IN HORSE RACING, HER EXPENSES ON PURCHASE OF TICKETS OF JACKPOTS, HER NON-RECORDING OF LOSSES FROM HORSE RACES, REPORT OF DIRECT TAXES ENQUIRY COMMITTEE ETC., THE HONOURABLE SUPREME COURT HELD THAT THE WINNING FROM HORSE RACES WAS NOT ENTITLED TO EXEMPTION AND WAS TAXED UNDER SEC. 68 OF THE INCOMETAX ACT, 1961 AS UNEXPLAINED CASH CREDIT. AS REGARDS THE JUDGMENT IN THE CASE OF CIT VS. DURGAPRASAD MORE (82 ITR 540), RELIED UPON BY THE ASSESSING OFFICER, IT IS SUBMITTED THAT THE IMPUGNED JUDGMENT IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. IN THE CASE OF DURGAPRASAD MORE (82 ITR 540), THE HONOURABLE 6 SUPREME COURT WAS DEALING WITH TAXABILITY OF INCOME FROM HOUSE PROPERTY IN THE HANDS OF THE ASSESSEE. ON THE BASIS OF THE FACTS LIKEHIS WIFE NOT HAVING ANY INDEPENDENT SOURCE OF INCOME, HER STRIDHAN CONSISTING OF RS. 2,00,000/- LYING ALL ALONG WITH HER FATHER, DEED OF CONVEYANCE IN THE ASSESSEES FAVOUR WHEREAS THE DEED OF TRUST EXECUTED BY HIS WIFE NEARLY AFTER A YEAR, INCOME FROM THE IMPUGNED PREMISES BEING ASSESSED IN THE ASSESSEES HANDS FROM THE ASSESSMENT YEAR 1942-43 TO 1957-58 ETC., THE HONOURABLE SUPREME COURT HELD THAT THE PROPERTY WAS NOT A TRUST PROPERTY AND THE INCOME THEREOF WAS ASSESSABLE IN THE HANDS OF THE ASSESSEE. AS AGAINST IT, THE FACTS OF THE ASSESSEES CASE ARE TOTALLY DIFFERENT FROM THE FACTS IN THE ABOVE CASES. IN THE ASSESSEES CASE, THE ASSESSING 7 OFFICER MADE ADDITION SOLELY ON THE BASIS OF SEBI ORDER RELATING TO REVERSAL TRANSACTIONS IN RELATI ON TO ONE OF THE BROKER VIZ. SYSTEMATIXSHARE & STOCKS (I) LTD. WITH WHOM THE ASSESSEE HAD ENTERED INTO F&O TRANSACTIONS. THE ORDER WAS PASSED BY THE SEBI IN RELATION TO BROKER AND NOT IN RELATION TO THE ASSESSEE. MOREOVER, THE AS WAS NEVER CALLED BY THE SEBI WITH ITS TRANSACTIONS WITH THE SAID BROKER. DURING ASSESSMENT PROCEEDINGS THE ASSESSEE PRODUCED ALL THE BROKER NOTES, CONTRACT NOTES, VOUCHERS, BANK STATEMENTS ETC. WHICH WERE RELEVANT FOR VERIFICATION OF ITS F&O TRANSACTIONS. THE NOTICES U/S 133(6) ISSUED TO THE BROKERS WERE DULY COMPLIED WITH SELF- SERVING AND GENERALIZED STATEMENT AND AFFIDAVIT OF THE THIRD PARTIES GIVEN IN THEIR OWN CASES. AS REGARD MODIFICATION OF CLIENT CODE, THE ASSESSEE 8 WAS NOT AWARE ABOUT ANY SUCH MODIFICATION BECAUSE THE CONTRACT NOTES ISSUED BY THE BROKERS ALWAYS MATCHED WITH THE TRANSACTIONS ORDERED BY THE ASSESSEE. THE ASSESSEE COULD NOT FIND ANY MISTAKE OR INCONGRUITY ON VERIFICATION OF THE BROKER NOTES. THEREFORE, THE RATIO OF THE JUDGMENTS RELIED UPON BY THE ASSESSING OFFICER IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. 4. ON THE OTHER HAND, THE LEARNED DR PLACED RELIANCE O N THE ORDERS OF THE LOWER AUTHORITIES. 5. WE HAVE HEARD BOTH THE SIDES. HON'BLE ITAT, A-BENC H AHMEDABAD IN THE CASE OF M/S KUNVARJI FINANCE PVT. LTD. AND OTHERS; IT(SS) A NOS. 615 TO 618/AHD/2010 AND OTH ERS VIDE ORDER DATED 19.3.2015 HAS CONSIDERED THE ISSUE O F MODIFICATION OF CLIENT CODE IN DETAIL WHERE THE ADDITI ON WAS 9 MADE ON THE BASIS OF CLIENT CODE MODIFICATION. LD. ITA T HELD AS UNDER :- 8. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THE ASSESSING OFFICER BELIEVED THE CLIENT CODE MODIFICATION TO BE MALAFIDE BECAUSE IN HIS OPINION THE CLIENT CODE MODIFICATION WAS FOR UNUSUALLY HIGH NUMBER OF CASES. THEREFORE, FIRST THING TO BE DECIDED IS WHETHER THERE WAS THE CLIENT CODE MODIFICATION FOR UNUSUALLY HIGH NUMBER OF CASES. THE COMMODITY EXCHANGE I.E. MCX VIDE CIRCULAR NO.MCX/T&S/032/2007 DATED 22.01.2007, ISSUED GUIDELINES WITH REGARD TO THE CLIENT CODE MODIFICATION, WHICH READS AS UNDER:- CIRCULAR NO. MCX/T&S/032/2007 JANUARY 22, 2007 CLIENT CODE MODIFICATIONS IN TERMS OF PROVISIONS 10 OF THE RULES, BYE-LAWS AND BUSINESS RULES OF THE EXCHANGE, THE MEMBERS OF THE EXCHANGE ARE NOTIFIED AS UNDER: IT(SS)A NOS. 615 TO 618, 677 TO 680, 813-817 OF 2010 IT(SS)A 301 & 302/2011 & & CO250 TO 253 OF 2010 CO 313 TO 315, 342 TO 346 OF 2010 KUNVARJI FINANCE PVT LTD & GROUP 27CASES 11 FORWARD MARKETS COMMISSION (FMC) VIDE ITS LETTER NO. 6/3/2006/MKT-II (VOL III) DATED DECEMBER 20, 2006 AND JANUARY 5, 2007 HAS DIRECTED AS UNDER. A. THE FACILITY OF CLIENT CODE MODIFICATIONS INTRA-DAY ARE ALLOWED. B. THE MEMBERS ARE ALSO ALLOWED TO CHANGE THEIR CLIENT CODES BETWEEN 5:00 P.M. TO 5:15 P.M., IN CASE OF THE CONTRACTS TRADED TILL 5:00 P.M. AND BETWEEN 11:30 P.M. TO 11:45 P.M. FOR THE CONTRACTS TRADED TILL 11:30 P.M. ON ALL THE 11 TRADING DAYS FROM MONDAYS TO FRIDAYS AND ON SATURDAYS THE SAME SHALL BE ALLOWED BETWEEN 2:00 P.M. TO 2:15 P.M. C. HOWEVER, ON THE DAYS WHEN TRADING IN COMMODITIES TAKES PLACE TILL 11:55 P.M. THE CLIENT CODE MODIFICATION WILL BE ALLOWED ONLY UPTO 12:00 P.M. D. AT ALL TIMES, PROPRIETARY TRADES SHALL NOT BE ALLOWED TO BE MODIFIED AS CLIENT TRADES AND CLIENT TRADES SHALL NOT BE ALLOWED TO BE MODIFIED AS PROPRIETARY TRADES. E. IN ORDER TO ENSURE THAT CLIENT CODES ARE ENTERED WITH ALERTNESS AND CARE, A PENALTY ON THE CLIENT CODE CHANGES MADE ON A DAILY BASIS SHALL BE IMPOSED AS UNDER: 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 12 THAN 5% BUT LESS THAN OR EQUAL TO 10% 1000 4 GREATER THAN 10% 10000 F. IT IS CLARIFIED THAT THE FACILITY OF CLIENT CODE MODIFICATION IS ALLOWED AS AN INTERIM MEASURE ONLY UPTO MARCH 31, 2007 AND AFTER THIS DATE THE SAID FACILITY WILL BE COMPLETELY STOPPED. WITH REFERENCE TO POINT C. AS REFERRED ABOVE, MEMBERS MAY PLEASE NOTE THAT THE CLIENT CODE MODIFICATIONS WILL BE ALLOWED ONLY UPTO 11:55 P.M. IN INTERNATIONAL REFERENCEABLE COMMODITIES (I.E. COMMODITIES TRADED UPTO 11:55 P.M.) MEMBERS ARE REQUESTED TO TAKE NOTE OF THE FMC DIRECTIVES AND ENSURE STRICT COMPLIANCE. FROM THE ABOVE, IT IS EVIDENT THAT CLIENT CODE MODIFICATION IS PERMITTED INTRA- DAY, I.E. ON THE SAME DAY. AS PER COMMODITY EXCHANGE, IF CLIENT CODE MODIFICATION IS UPTO 1% OF THE TOTAL ORDERS, THERE IS NO PENALTY AND IF IT 13 IS GREATER THAN 1% BUT LESS THAN 5%, THE PENALTY IS RS.500/-. IF IT IS GREATER THAN 5% BUT LESS THAN 10%, PENALTY IS RS.1000/- AND IF IT IS GREATER THAN 10%, THEN PENALTY IS RS.10,000/-. FROM THE ABOVE, THE ONLY INFERENCE THAT CAN BE DRAWN IS THAT AS PER MCX, THE CLIENT CODE MODIFICATION UPTO 1% IT(SS)A NOS. 615 TO 618, 677 TO 680, 813-817 OF 2010 IT(SS)A 301 & 302/2011 & & CO250 TO 253 OF 2010 CO 313 TO 315, 342 TO 346 OF 2010 KUNVARJI FINANCE PVT LTD & GROUP 27CASES 12 IS ABSOLUTELY NORMAL AND THEREFORE, THE BROKER IS PERMITTED TO MODIFY THE CLIENT CODE UPTO 1% WITHOUT PAYING ANY PENALTY. EVEN CLIENT CODE MODIFICATION UPTO 5% IS NOT CONSIDERED UNUSUALLY HIGH BECAUSE THAT IS ALSO PERMITTED WITH THE TOKEN PENALTY OF RS.500/-. IN THE CONTEXT OF THE CIRCULAR ISSUED 14 BY COMMODITY EXCHANGE, LET US EXAMINE WHETHER THE CLIENT CODE MODIFICATION DONE BY THE BROKER I.E. KCBPL IS UNUSUALLY HIGH. AT PAGE NO.16 ON PARAGRAPH NO.4.3, THE CIT(A) HAS GIVEN THE NUMBER OF TRANSACTIONS ENTERED INTO BY THE ASSESSEE FOR THE PERIOD 2004-05 TO 2007- 08 AND THE NUMBER OF CLIENT CODE MODIFICATION AND PERCENTAGE THEREOF. WE HAVE ALSO REPRODUCED THE SAME AT PARAGRAPH NO.6 OF OUR ORDER. FROM THE SAID DETAILS, IT IS EVIDENT THAT THE CLIENT CODE MODIFICATION WAS DONE IN FOUR YEARS 36,161 TIMES. AS AN ABSOLUTE FIGURE, THE CLIENT CODE MODIFICATION MAY LOOK VERY HIGH, BUT IF WE LOOK IT AT IN TERMS OF TOTAL TRANSACTIONS, IT IS ONLY 0.94%. THE TOTAL NUMBER OF TRADE TRANSACTIONS IS 38.58 LACS AND THE CLIENT CODE MODIFICATION IS ONLY 36,161. THEREFORE, THE CLIENT 15 CODE MODIFICATION IS LESS THAN 1% OF THE TOTAL TRADING TRANSACTIONS. AS PER CIRCULAR OF COMMODITY EXCHANGE, CLIENT CODE MODIFICATION UPTO 1% IS QUITE NORMAL AND IS PERMITTED WITHOUT ANY PENALTY. THAT THE ASSESSING OFFICER HAS NOT GIVEN ANY REASON ON WHAT BASIS HE PRESUMED THE CLIENT CODE MODIFICATIONS TO BE UNUSUALLY HIGH. IN THE LIGHT OF THE MCX CIRCULAR, WE ARE OF THE OPINION THAT THE CLIENT CODE MODIFICATION WAS QUITE NOMINAL AND NOT UNUSUALLY HIGH AS ALLEGED BY THE ASSESSING OFFICER. 9. THE ASSESSING OFFICER HELD THE CLIENT CODE MODIFICATIONS TO BE MALAFIDE WITH THE INTENTION TO TRANSFER THE PROFIT TO OTHER PERSON BY MODIFYING THE CLIENT CODE SO AS TO AVOID THE PAYMENT OF TAX. FROM THE CIRCULAR OF THE COMMODITY EXCHANGE, IT IS EVIDENT THAT CLIENT 16 CODE MODIFICATION IS PERMITTED ON THE SAME DAY. THEREFORE, WE ARE UNABLE TO FIND IT(SS)A NOS. 615 TO 618, 677 TO 680, 813-817 OF 2010 IT(SS)A 301 & 302/2011 & & CO250 TO 253 OF 2010 CO 313 TO 315, 342 TO 346 OF 2010 KUNVARJI FINANCE PVT LTD & GROUP 27CASES 13 OUT ANY JUSTIFICATION FOR THE ALLEGATION OF THE ASSESSING OFFICER THAT THE CLIENT CODE MODIFICATION WAS WITH THE MALAFIDE INTENTION. WHEN THE CLIENT CODE WAS MODIFIED ON THE SAME DAY, THERE CANNOT BE ANY MALAFIDE INTENTION. HAD CLIENT MODIFICATION DONE AFTER THE TRANSACTIONS PERIOD WHEN THE PRICE OF THE COMMODITY HAS ALREADY CHANGED, THEN PERHAPS THERE COULD HAVE BEEN SOME BASIS TO PRESUME THAT CLIENT CODE MODIFICATION IS INTENTIONAL. HOWEVER, WHEN THE CLIENT CODE MODIFICATION IS 17 DONE ON THE SAME DAY, IN OUR OPINION, THERE WAS NO BASIS OR JUSTIFICATION TO HOLD THE SAME TO BE MALAFIDE. 10. MOREOVER, THE LD. ASSESSING OFFICER HAS COMPUTED THE NOTIONAL PROFIT/LOSS TILL THE TRANSACTIONS PERIOD AND NOT TILL THE PERIOD BY WHICH THE CLIENT CODE MODIFICATION TOOK PLACE. EVEN IF THE VIEW OF THE REVENUE IS ACCEPTED THAT THE CLIENT CODE MODIFICATION WAS WITH MALAFIDE INTENTION, THEN THE PROFIT OR LOSS ACCRUED TILL THE CLIENT CODE MODIFICATION CAN BE CONSIDERED IN THE CASE OF THE ASSESSEE BUT BY NO STRETCH OF IMAGINATION THE PROFIT/LOSS ARISING AFTER THE CLIENT CODE MODIFICATION CAN BE CONSIDERED IN THE HANDS OF THE ASSESSEE. 11. THE LD. CIT(A) IN PARAGRAPH 4.13 OF HIS ORDER HAS ALSO RECORDED THE FINDINGS THAT ALL TRANSACTIONS AT THE COMMODITIES EXCHANGES 18 HAVE BEEN DULY ACCOUNTED IN THE BOOKS OF ACCOUNT MAINTAINED BY THE CONCERNED PARTIES. SUCH PROFITS/LOSS HAS BEEN DULY ACCOUNTED WHENEVER THE TRANSACTIONS HAVE BEEN CLOSED. THUS, WHATEVER PROFITS HAVE BEEN GENERATED OR ACCOUNTING OF ACTUAL TRADE, HAVE BEEN OFFERED AND BROUGHT TO THE CHARGE OF TAX IN THE CASES OF CONCERNED ASSESSEES. THESE FINDINGS OF FACT RECORDED BY THE LD. CIT(A) HAS NOT BEEN CONTROVERTED BY THE REVENUE AT THE TIME OF HEARING BEFORE US. WHEN THE TRANSACTION HAS BEEN DULY ACCOUNTED FOR AND THE PROFIT/LOSS HAS ACCRUED TO THE CONCERNED PARTIES IN WHOSE NAMES TRANSACTIONS HAVE BEEN CLOSED, THERE CANNOT BE ANY BASIS OR JUSTIFICATION FOR CONSIDERING THOSE PROFIT/LOSS IN THE CASE OF THE ASSESSEE ON IT(SS)A NOS. 615 TO 618, 677 TO 19 680, 813-817 OF 2010 IT(SS)A 301 & 302/2011 & & CO250 TO 253 OF 2010 CO 313 TO 315, 342 TO 346 OF 2010 KUNVARJI FINANCE PVT LTD & GROUP 27CASES 14 THE BASIS OF MERE PRESUMPTION OR SUSPICION. IT IS NOT THE CASE OF THE REVENUE THAT SUCH ALLEGED PROFIT HAS ACTUALLY BEEN RECEIVED BY THE ASSESSEE. IN VIEW OF THE TOTALITY OF THE ABOVE FACTS, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE CIT(A) IN THIS REGARD AND THE SAME IS SUSTAINED; AND GROUND NOS. 1 AND 3 OF THE REVENUES APPEAL ARE REJECTED. IN THE CASE OF SAMBHAVNATH INVESTMENT, THE HON'BLE ITAT , MUMBAI BENCH HAS DECIDED AS UNDER :- 8. THE REVENUE AUTHORITIES HAVE TAKEN A LEAF OUT OF THE ANSWER TO QUESTION NO. 10 AND HAVE COME TO THE CONCLUSION THAT THE ENTIRE LOSS IS 20 OUTCOME OF A COLOURABLE DEVICE. HOWEVER, AT THE SAME TIME, THE REVENUE AUTHORITIES HAVE COMPLETELY IGNORED THE ANSWER TO QUESTION NO. 9 WHEREIN THE PARTNER HAS CATEGORICALLY DENIED OF HAVING MADE ANY REQUEST FOR ANY CHANGE IN CLIENT CODE. THE REVENUE AUTHORITIES CANNOT BLOW HOT AND COLD IN THE SAME BREATH. IF THEY BELIEVE TO ANSWER ONE QUESTION, THEY MUST ALSO BELIEVE TO ANSWER ANOTHER QUESTION IN THE SAME STATEMENT. EVEN IF FOR THE 8 ITA NO.3109/M/2011 SAKE OF ARGUMENT ONE ACCEPTS THAT THESE TRANSACTIONS ARE COLOURABLE DEVICE THAN ALSO ONE CANNOT IGNORE THE FACT THAT THE ASSESSEE HAS PAID A MARGIN MONEY OF RS. 2.90 CRORES TO RSBL WHICH IS EVIDENT FROM THE STATEMENT OF ACCOUNTS OF RSBL EXHIBITED AT PAGE-52 OF THE PAPER BOOK WHICH HAS BEEN 21 ADJUSTED AGAINST THE LOSSES OF THE ASSESSEE. THE ALLEGATION THAT THE ASSESSEE HAS ENTERED INTO THIS LINE OF BUSINESS ONLY IN THE MONTH OF MARCH TO BOOK BOGUS LOSSES ALSO DOES NOT STAND ON ITS OWN FOOT BECAUSE IT IS THE WISDOM OF A PERSON THAT WHEN HE WANTS TO ENTER INTO COMMODITY MARKET AND WANT TO EXIT AND IF THE PERSON MAKES HEAVY LOSSES, IT IS HIS PRUDENCE TO CONTINUE OR EXIT. ONE MORE IMPORTANT FACTOR IN THIS TRANSACTION IS THAT ALL THESE TRANSACTIONS HAVE BEEN DONE THROUGH RECOGNIZED EXCHANGE. NO MATERIAL EVIDENCE HAS BEEN BROUGHT ON RECORD TO DEFY THESE TRANSACTIONS BY ANY DENIAL FROM THE EXCHANGE AUTHORITIES NOR THERE IS ANY EVIDENCE ON RECORD TO SHOW THAT THE BROKER RSBL HAS DENIED TO HAVE ENTERED INTO THESE TRANSACTIONS ON BEHALF OF THE ASSESSEE. THE 22 RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF STATE OF KERALA VS C. VELUKUTTY(SUPRA) IS WELL FOUNDED INASMUCH AS MERELY BECAUSE THE INCOME HAS BEEN OFFERED DURING THE COURSE OF SURVEY IN RESPECT OF CERTAIN TRANSACTIONS WOULD NOT IPSO FACTO MAKE ALL OTHER TRANSACTIONS WHICH ARE WELL SUPPORTED BY CONTRACT NOTES AS BOGUS. CONSIDERING ALL THE FACTS AND THE RELEVANT MATERIAL EVIDENCES PLACED BEFORE US, WE HAVE NO HESITATION IN HOLDING THAT THE REVENUE AUTHORITIES HAVE GROSSLY ERRED IN DISCARDING THE CLINCHING EVIDENCES ON RECORD. THE ENTIRE ADDITIONS HAVE BEEN MADE ON SURMISES AND CONJECTURES WHICH ARE NOT PERMISSIBLE. THE ADDITION OF RS. 2,53,33,000/- IS 23 TO BE DELETED . THE AO IS DIRECTED ACCORDINGLY. GROUND NO. 1 AND ITS SUB GROUNDS ARE ALLOWED. IN THE CASE OF ITO VS. E NET INFOWAYS P. LTD.; ITA NO.2180/DEL/2012 THE DELHI BENCH B OF ITAT HELD AS UNDER :- 8. COMING TO GROUND NO.3, THE ARGUMENT OF THE DEPARTMENTAL REPRESENTATIVE, BASED ON THE FINDING OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER IS DEVOID OF MERIT. WRONG PUNCHING OF CLIENT CODE, REQUIRING SUBSEQUENT CHANGE IN CLIENT CODE IS RECTIFIED BY THE NATIONAL STOCK EXCHANGE, WHICH HAS FORMULATED RULES AND STRICTLY IMPLEMENTS THEM. IT IS NOT CORRECT TO ASSUME THAT THESE CHANGES WERE FRAUDULENTLY DONE WITHOUT ANY 24 INVESTIGATION AND EVIDENCE. SUCH SURMISE CANNOT BE ENDORSED. THE FIRST APPELLATE AUTHORITY IN PARA 7.3 AT PAGE 25 HELD AS FOLLOWS. IT IS SEEN THAT AS FAR AS TRANSACTIONS ARE CONCERNED SAME ARE REFLECTED WITH NATIONAL STOCK EXCHANGE (NSE) AND SAME HAVE BEEN CARRIED OUT ON THE STOCK EXCHANGE. THERE IS NO DISPUTE ABOUT THE LOSS INCURRED ON SUCH TRANSACTIONS. THE NATIONAL STOCK EXCHANGE HAS CONFIRMED THAT THESE F&O TRANSACTIONS WERE CARRIED OUT IN THE NAME OF APPELLANT HOWEVER THERE WAS A CHANGE OF CLIENT CODE. IN THIS REGARD THE APPELLANT HAS SUBMITTED THAT THIS MISTAKE HAS OCCURRED DUE TO WRONG PUNCHING OF CLIENT CODE BY THE STAFF OF THE BROKER AND THE SAME WAS LATER ON 25 RECTIFIED WITH THE NATIONAL STOCK EXCHANGE. IT MAY BE MENTIONED HERE THAT EVEN THE NSE WAS AWARE OF THE FACT THAT CLIENT CODE WAS INITIALLY PUNCHED WRONG AND THEREAFTER IT HAS BEEN CORRECTED BY THE BROKER. THEREFORE NO INFORMATION WAS HIDE FROM THE NSE. THERE IS NO ILLEGALITY NOTICED IN THIS CHANGE OF CLIENT CODE. THIS IS A MERE HUMAN ERROR AND IT CAN HAPPEN IN EVERY SPHERE OF LIFE. THEREFORE THIS ERROR IS NOT SO IMPORTANT WHICH CAN LEAD TO DISALLOWANCE OF ENTIRE LOSS. IF THERE WAS ANYTHING WRONG ABOUT THE CHANGE OF CODE THE NSE AND SEBI WOULD HAVE TAKEN ACTION AGAINST THE BROKER AND WOULD HAVE MADE ENQUIRY AGAINST THE APPELLANT COMPANY. SINCE THERE WAS NOTHING WRONG IN F&O TRANSACTIONS 26 AND CHANGE OF CLIENT CODE WAS DONE TO RECTIFY MISTAKE TAKEN PLACE DUE TO WRONG PUNCHING OF CODES NO ACTION WAS CALLED FOR AGAINST THE BROKER AND AS WELL AS THE APPELLANT. SINCE THE LOSS HAS BEEN INCURRED IN THE NORMAL COURSE OF THE F&O TRANSACTIONS AND SUCH TRANSACTIONS ARE IN THE KNOWLEDGE OF NSE, THEREFORE THE LOSS INCURRED ON DERIVATIVE TRADING TRANSACTIONS HAS TO BE ALLOWED AND SUCH LOSS HAS ALLOWED SET OFF AGAINST THE INCOME FROM SHORT TERM CAPITAL GAIN. THE F&O TRANSACTIONS HAVE BEEN TREATED AS BUSINESS TRANSACTIONS IF THEY HAVE BEEN CARRIED OUT ON RECOGNIZED STOCK EXCHANGE. THESE TRANSACTIONS HAVE BEEN CARRIED OUT ON NSE WHICH IS RECOGNIZED FOR SUCH ITA NO: 27 2180/DEL/2012 PAGE 5 OF 6 ASSESSMENT YEAR: 2008-09 E-NET INFOWAYS (P) LTD. TRANSACTIONS. HENCE LOSS ON SUCH TRANSACTIONS IS A BUSINESS LOSS AND SAME HAS TO BE ALLOWED SET OFF. THE ASSESSEE HAS ENTERED INTO FUTURE AND OPTIONS TRANSACTIONS WITH THREE BROKERS. SWASTIKA FINLEASE LIMI TED AND GEMS EQUITIES & SECURITIES PVT. LTD. WERE NEVER SUBJECTED TO ANY INVESTIGATION BY SEBI WITH REGARD CHAN GE CLIENT CODE. ON THE TRANSACTION WITH SYSTEMATIC SHARE & STOCKS (I) LTD. THE ASSESSEE INCURRED LOSS OF RS. 22,07,765/- AND THERE WAS NO MODIFICATION IN THE CLIE NT CODE. THE INVESTIGATION OF SYSTEMATIX SHARE & STOCK ( I) LTD. WAS CLOSED BY SEBI VIDE ORDER DATED 7 TH OCTOBER, 2008. A COPY OF THE ORDER WAS PLACED ON RECORD. CONSIDERIN G THE CASE LAWS RELIED ON BY THE LEARNED COUNSEL FOR THE AS SESSEE 28 AND FACTUAL POSITION WITH REGARD TRANSACTIONS IN F&O, WE HOLD THAT THE FACTS OF THE ASSESSEES CASE ARE SIMILAR TO THE FACTS OF M/S KUNVARJI FINANCE PVT. LTD. AND OTHERS (SUP RA), THEREFORE, RESPECTFULLY FOLLOWING THE SAME, WE ALLOW THE ASSESSEES APPEAL. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. PRONOUNCED IN OPEN COURT ON 22 ND JULY, 2015 SD SD (D.T. GARASIA) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER 22 ND JULY, 2015 DN/-