DEPUTY COMMISSIONER OF INCOME TAX - CENTRAL CIRCLE 8(1), MUMBAI V. S. B. SECURITIES PRIVATE LIMITED, MUMBAI

ITA 7346/MUM/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7215 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Assessment Year: 2009-2010
• Appeal Filed On: 22-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAUDHURY ARUN KUMAR SINGHLD
• Assessee Lawyers: NEELKANTH KHANDELWAL LD
• Keywords: Principle of natural justice; Transactions in derivatives; Reassessment proceedings
• Section: 143(3); 143(1); 148; 263

Judgement Text

1 ITA NO.7346/MUM/2017 M/S. S.B. SECURITIES PRIVATE LIMITED ASSESSMENT YEAR-2009-10 IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI , , BEFORE HONBLE SHRI SANDEEP GOSAIN, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO. 7346/MUM/2017 ( / ASSESSMENT YEAR: 2009-10) D CIT - CENTRAL CIRCLE - 8(1) ROOM NO.656, 6 TH FLOOR AAYKAR BHAVAN, M.K. ROAD MUMBAI-400 020 . / VS. M/S. S.B. SECURITIES PVT. LTD. 6/7, ROTUNDA, 2 ND FLOOR, OFFICE NO.3 5/7, KOTHARI HOUSE, OAK LANE ABOVE GOKUL HOTEL FORT MUMBAI-400 023. ./ ./PAN/GIR NO. AAECS-6189-B ( /APPELLANT ) : ( ! / RESPONDENT ) REVENUE BY : CHAUDHURY ARUN KUMAR SINGH-LD. DR ASSESSEE BY : SHRI NEELKANTH KHANDELWAL-LD. AR #$ % / DATE OF HEARING : 10/07/2019 #$ % / DATE OF PRONOUNCEMENT : 30/07/2019 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER): - 1. AFORESAID APPEAL BY REVENUE FOR ASSESSMENT YEAR [IN SHORT REFERRED TO AS AY] 2009-10 CONTEST THE ORDER OF LD. COMMIS SIONER OF INCOME-TAX 2 ITA NO.7346/MUM/2017 M/S. S.B. SECURITIES PRIVATE LIMITED ASSESSMENT YEAR-2009-10 (APPEALS)-9, MUMBAI, [IN SHORT REFERRED TO AS CIT( A)], APPEAL NO.CIT(A)- ACIT -4(2)(1)/410/16-17 DATED 04/10/2017 ON FOLLOWING GROUNDS OF APPEAL: THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DELETIN G THE ADDITION OF RS.1,66,28,626/- MADE ON ACCOUNT OF SUPPRESSION OF PROFIT AND OBTAIN ING FICTITIOUS LOSS BY THE ASSESSEE COMPANY BY WAY OF CLIENT CODE MODIFICATION (CCM) BY THE BROKERS IN LARGE NUMBER OF COMMODITY TRANSACTION. 2.1 FACTS IN BRIEF ARE THAT THE ASSESSEE BEING A RE SIDENT CORPORATE ASSESSEE STATED TO BE ENGAGED AS SHARE / STOCK BROK ER WAS ASSESSED U/S 143(3) R.W.S. 147 ON 26/12/2016 WHEREIN INCOME OF T HE ASSESSEE WAS DETERMINED AT RS.166.28 LACS AS AGAINST RETURNED LO SS OF RS.42.13 LACS E- FILED BY THE ASSESSEE ON 20/09/2009. THE ASSESSMENT WAS ORIGINALLY FRAMED U/S 143(3) ON 14/12/2011. SUBSEQUENTLY, THE CASE WA S RE-OPENED AS PER DUE PROCESS OF LAW, BY ISSUANCE OF NOTICE U/S 148 O N 28/03/2016 WHICH WAS FOLLOWED BY STATUTORY NOTICES U/S 143(2) AND 143(1) . 2.2 THE REASSESSMENT PROCEEDINGS GOT TRIGGERED PURS UANT TO RECEIPT OF CERTAIN INFORMATION FROM INVESTIGATION WING, AHMADA BAD WHEREIN IT WAS ALLEGED THAT THE ASSESSEE STOOD BENEFICIARY OF CLIE NT-CODE MODIFICATION (CCM). THE INVESTIGATION ARM OF THE DEPARTMENT HAVI NG CONDUCTED SPOT VERIFICATIONS BY WAY OF SURVEYS AND ENQUIRIES NOTED THAT SOME OF THE BROKERS AND THEIR CLIENTS HAVE INDULGED IN THE PRAC TICE OF MISUSE OF CLIENT- CODE MODIFICATION, THEREBY ARTIFICIALLY SHIFTING PR OFITS AND LOSSES FROM ORIGINAL CLIENT CODE TO MODIFIED CLIENT CODE WITH AN INTENTI ON TO REDUCE THE LEGITIMATE TAX LIABILITY WHICH WOULD HAVE ARISEN HAD THE ORIGI NAL TRADES NOT BEEN MODIFIED. 3 ITA NO.7346/MUM/2017 M/S. S.B. SECURITIES PRIVATE LIMITED ASSESSMENT YEAR-2009-10 2.3 UPON PURSUAL OF THE INFORMATION, IT TRANSPIRED THAT THE ASSESSEE STOOD BENEFICIARY OF SUCH CLIENT-CODE MODIFICATION TO THE EXTENT OF RS.166.28 LACS. THE ASSESSEE WAS CONFRONTED WITH COMPLETE TRANSACTI ONS LEVEL DATA OF CLIENT-CODE MODIFICATION. IN DEFENSE, THE ASSESSEE, VIDE SUBMISSIONS DATED 22/12/2016, REBUTTED THE ALLEGATIONS LEVELLED BY TH E REVENUE ON ACCOUNT OF CLIENT-CODE MODIFICATION AND PLEADED THAT THE TRANS ACTIONS WERE GENUINE. 2.4 HOWEVER, LD. AO, AT PARA 4.7 ELABORATED THE WHO LE PROCESS OF CREATING ARTIFICIAL PROFITS BY CLIENT-CODE MODIFICA TION AND OPINED THAT ONE BENEFICIARY IS THE BROKER WHO INDULGES IN CLIENT-CO DE MODIFICATION AGAINST CERTAIN CASH COMMISSION RANGING BETWEEN 0.5% TO 6% AND OTHER BENEFICIARY IS THE PERSON IN WHOSE ACCOUNTS PROFITS / LOSSES ARE SHIFTED WITH AN INTENTION TO REDUCE THE OVERALL TAX LIABILITY. 2.5 ALTHOUGH LD. AO AGREED WITH THE VIEW THAT CLIEN T-CODE MODIFICATION WAS PERMISSIBLE WITHIN THE TIME LIMITS AS PRESCRIBE D BY SEBI / STOCK EXCHANGES SO AS TO RECTIFY THE GENUINE MISTAKES OF PUNCHING ERRORS IN THE SYSTEM, HOWEVER, THE SAID FACILITY, AS PER THE INVE STIGATION ARM, WAS BEING MISUSED BY BROKERS TO SHIFTS PROFITS / LOSSES FROM ONE CLIENT TO ANOTHER AS PER THE REQUIREMENTS. UPON MAPPING / ANALYSIS OF AS SESSEES DATA, IT WAS CONCLUDED THAT THE ASSESSEE STOOD BENEFICIARY OF AM OUNT OF RS.166.28 LACS. THE LD. AO FORTIFIED THE CONCLUSION BY OBSERV ING THAT ALL THE FOUR DIGITS OF THE ORIGINAL CODE WERE MODIFIED WHICH CLEARLY SH OW THAT IT WAS NOT A CASE OF MERE PUNCHING ERRORS. AT PARAS 4.11 TO 4.15 OF T HE QUANTUM ASSESSMENT ORDER, AFTER APPRECIATING THE ACTIONS TAKEN BY SEBI / NSE AGAINST SUCH 4 ITA NO.7346/MUM/2017 M/S. S.B. SECURITIES PRIVATE LIMITED ASSESSMENT YEAR-2009-10 MALPRACTICES, LD. AO ADDED THE AMOUNT OF RS.166.28 LACS IN THE HANDS OF THE ASSESSEE BY OBSERVING AS UNDER: - 4.16 FROM THE PATTERN OF CHANGE IN CLIENT CODES, NO CONTEST OF THE ALLEGED MODIFICATIONS BY THE ASSESSEE WITH THE BROKER AND IN VIEW OF THE CIRCULARS ISSUED BY THE NSE IT CAN BE DEDUCTED THAT THE TRANSACTIONS INVOLVING MODIFICATI ON IN CLIENT CODES ARE NOT GENUINE ERRORS BUT ARE A CASE OF BOOKING PROFIT / LOSS FOR TAX EVASION. ALSO, ANOTHER NOTICEABLE FACT IN THE ABOVE TRANSACTIONS IS THAT THE SAME QUA NTITIES OF BUY AND SALE TRADES HAVE BEEN SHIFTED FROM ONE CLIENT TO ANOTHER. 4.17 IT MUST BE NOTED THAT IN THE CASE OF M/S KUNVE RJI FINANCE P LTD., IN IT(SS)A NOS. 615 TO 618/AHD/2010 DATED 19.03.2015, THE HONBLE I TAT, AHMEDABAD HELD AS UNDER: HAND CLIENT MODIFICATION DONE AFTER THE TRANSACTION S 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. IT IS PRECISELY IN THE CASE OF THE ASSESSEE THAT TH E TRANSACTIONS HAVE BEEN COMPLETED WHEN THE PRICES HAVE ALREADY MOVED IN THE INTERIM. THE CLIENT CODES ARE CHANGED AT THE END OF THE DAY, WHEN PROFITS / LOSSES ON SUCH TRANS ACTIONS ARE COMPLETELY KNOWN. 4.18 THE STOCK MARKET REWARDS THE INVESTORS THE INV ESTORS WHO TAKE RISK IN PRICE MOVEMENT OF SHARES. WHENEVER THERE IS UNDERLYING MO VEMENT IN THE PRICES OF THE SHARES, THE WEALTH OF THE INVESTOR UNDERGOES CHANGE AND HE MAKE PROFITS / LOSSES. BUT IN THE PRESENT CASE, IT IS SQUARELY ESTABLISHED THA T NO RISK AT ALL WAS BORNE BY THE PERSONS WHO SELECTIVELY SHIFTED IN ONLY ASCERTAINED LOSSES. THUS THESE LOSSES ARE CONTRIVED LOSSES SHIFTED IN FOR THE PURPOSE OF EVAD ING TAXES DUE WHICH IS OTHERWISE DUE ON OTHER INCOME / GAIN ALREADY INCURRED. THUS, THER E IS NO ELEMENT OF PRICE RISK. THIS SHOWS THAT THE LOSSES / PROFITS WERE NOT INCURRED O N ACCOUNT OF ANY GENUINE RISK TAKING IN MARKET BUT WERE IN A WAY BOUGHT AFTER THEY WERE ASC ERTAINED AND HENCE ARE CONTRIVED. 4.19 IN VIEW OF THE ABOVE DISCUSSIONS, IT IS THEREF ORE HELD THAT PROFITS SHIFTING OUT OF RS.1,66,28,626/- AND LOSSES BROUGHT IN NIL/- IN CAS E OF THE ASSESSEE ARE TREATED FICTITIOUS AND NON-GENUINE. HENCE THE SAME IS DISALLOWED AND A TOTAL INCOME OF RS.1,66,28,626 IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 3. AGGRIEVED, THE ASSESSEE PREFERRED FURTHER APPEAL BEFORE LD.CIT(A) AND WHILE CONTESTING THE VALIDITY OF REASSESSMENT P ROCEEDINGS, ASSAILED THE QUANTUM ADDITIONS BY WAY OF ELABORATE WRITTEN SUBMI SSIONS, WHICH HAVE ALREADY BEEN EXTRACTED IN THE IMPUGNED ORDER. THE A SSESSEE REITERATED THAT THE MODIFICATIONS WERE DONE AT BROKERS END DUE TO PUNCHING ERRORS COMMITTED BY THE STAFF UNDER VARIOUS CIRCUMSTANCES LIKE VOLUME AND FREQUENCY OF THE TRANSACTIONS, FLUCTUATION OF RATES , WRONG UNDERSTANDING ON 5 ITA NO.7346/MUM/2017 M/S. S.B. SECURITIES PRIVATE LIMITED ASSESSMENT YEAR-2009-10 TAKING TELEPHONE ORDERS ABOUT THE QUANTITY, NAME OF SCRIP AS WELL AS CLIENT CODE. THE ATTENTION WAS DRAWN TO THE FACT THAT THE MODIFICATION WAS DONE AS PER THE RULES AND REGULATIONS AND WITHIN THE WINDOW PROVIDED BY THE STOCK EXCHANGES. HOWEVER, THE STATED TRANSACTIONS WERE TO TALLY GENUINE AND DULY SUPPORTED BY THE BILLS / CONTRACT NOTES. IN SUPPORT , LEDGER ACCOUNT OF THE BROKER, BALANCE CONFIRMATION OF THE BROKER, BANK ST ATEMENT HIGHLIGHTING THE PAYMENT TRANSACTIONS WERE ADDUCED. IT WAS SUBMITTED THAT ALL THE TRANSACTIONS WERE DULY ACCOUNTED FOR BY THE ASSESSE E IN THE BOOKS OF ACCOUNTS. IN THE SAID CIRCUMSTANCES, THE ASSESSEE R EBUTTED THE ALLEGATIONS LEVELLED BY LD. AO BY SUBMITTING THAT THE ADDITIONS WERE MADE MERELY ON THE BASIS OF PRESUMPTION, SURMISES AND CONJECTURES. THE SUBMISSIONS WERE SOUGHT TO BE FORTIFIED BY SUBMITTING THAT THE PERCE NTAGE OF MODIFICATION, IN VALUE, WERE MERELY 2.36% OF THE TOTAL TRANSACTION V OLUME CARRIED OUT BY THE ASSESSEE. ANOTHER PLEA RAISED WAS THE FACT THAT ALT HOUGH LD. AO GROSSLY RELIED UPON THE INQUIRIES CONDUCTED BY INVESTIGATIO N WING, AHMEDABAD, HOWEVER ADVERSE MATERIAL USED AGAINST THE ASSESSEE WAS NEVER CONFRONTED WHICH VITIATED THE BASIS PRINCIPLES OF NATURAL JUST ICE. RELIANCE WAS PLACED ON THE DECISION OF HONBLE SUPREME COURT RENDERED IN ANDAMAN TIMBERS INDUSTRIES V/S CCE FOR THE SUBMISSIONS THAT FAILURE TO PROVIDE ASSESSE E THE OPPORTUNITY TO CROSS-EXAMINE THE WITNESSES WHOS E STATEMENTS WERE BEING RELIED UPON, RESULTS IN SERIOUS BREACH OF PRI NCIPLE OF NATURAL JUSTICE AND THE SAME WOULD RENDER ASSESSMENT ORDER NULLITY. RELIANCE WAS ALSO PLACED ON NUMBER OF JUDICIAL DECISIONS TO BUTTRESS THE SUBMISSIONS ON MERITS. 6 ITA NO.7346/MUM/2017 M/S. S.B. SECURITIES PRIVATE LIMITED ASSESSMENT YEAR-2009-10 4.1 THE LD. CIT(A) UPHELD THE ACTION OF LD. AO IN R EOPENING THE CASE SINCE THERE WAS AN INFORMATION FROM INVESTIGATION W ING, UPON PERUSAL OF WHICH LD. AO FORMED A REASONABLE BELIEF THAT CERTAI N INCOME ESCAPED IN THE HANDS OF THE ASSESSEE. HOWEVER, ON MERITS, LD. CIT( A) CONCURRED WITH ASSESSEES STAND THAT THE ADDITIONS WERE MADE SOLEL Y ON THE BASIS OF INQUIRIES CONDUCTED BY INVESTIGATION WING AND NOTHI NG WAS BROUGHT ON RECORD BY LD. AO TO ESTABLISH THAT CLIENT-CODE MODI FICATION WAS NOT GENUINE ONE. THE MODIFICATIONS WERE DONE AS PERMISSIBLE BY THE STOCK EXCHANGES RECOGNIZING THE FACT THAT THE ERRORS WOULD BE INEVI TABLE. IT WAS ALSO OBSERVED THAT RATIO OF SUCH MODIFICATIONS WAS QUITE SMALL I.E. 0.54% OF TOTAL TRADES CARRIED OUT BY THE ASSESSEE DURING THE YEAR. 4.2 IT WAS ALSO OBSERVED AT PARA 6.7 OF THE IMPUGNE D ORDER THAT LD. AO TOOK COGNIZANCE OF THE GENERAL INFORMATION PROVIDED BY THE INVESTIGATION WING WITHOUT BRINGING ON RECORD ANY MATERIAL TO SHO W THAT THE PARTIES TO WHOM ALLEGED PROFITS WERE SUPPOSED TO HAVE BEEN DIV ERTED TO REDUCE THE TAXABLE INCOME OF THE ASSESSEE HAD NOT INCLUDED THE M IN THEIR RESPECTIVE RETURNS OF INCOME. NO CORRELATION WAS BROUGHT ON RE CORD TO ESTABLISH THAT THESE PARTIES WERE IN COLLUSION WITH EACH OTHER OR WERE KNOWN TO EACH OTHER SO THAT ONE PARTY DIVERTED ITS PROFITS TO THE OTHER PARTY. THERE WAS NOTHING TO SHOW THAT THE PROFITS / LOSSES WERE PURCHASED AND T HE OTHER PARTIES GAVE CASH OR CHEQUE PAYMENT FOR SUCH FAVOR AND AS SUCH N O CORRELATION OF SUCH TRANSACTIONS COULD BE ESTABLISHED BY LD. AO. 4.3 IN THE ABOVE BACKGROUND, LD. FIRST APPELLATE AU THORITY FORMED AN OPINION THAT ADDITIONS WERE MADE ON THE BASIS OF AS SUMPTION AND SURMISES 7 ITA NO.7346/MUM/2017 M/S. S.B. SECURITIES PRIVATE LIMITED ASSESSMENT YEAR-2009-10 ONLY SINCE ALL THE TRANSACTIONS WERE DULY ACCOUNTED FOR BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS AND THERE WAS NO JUSTIFICATIO N TO CONSIDER THE STATED LOSSES AS FICTITIOUS LOSS. 4.4 RELIANCE WAS PLACED, INTER-ALIA, ON THE DECISION OF THIS TRIBUNAL RENDERED IN ITO V/S. PAT COMMODITIES SERVICES P.LTD. [ITA NOS. 3498/MUM/2012 07/08/2015] & M/S SAMBHAVNATH INVESTM ENT V/S ACIT [ITA NO.3109/MUM/2011 19/12/2013] TO ARRIVE AT A CONCLUSION THAT THE ADDITIONS WERE MADE MERELY ON THE BASIS OF SUSPICIO N, PRESUMPTIONS, SURMISES AND CONJECTURE WITHOUT THERE BEING ANY SPE CIFIC EVIDENCE ON RECORD TO ESTABLISH THAT MODIFICATIONS WERE DONE WI TH THE KNOWLEDGE OF ASSESSEE OR AT HIS BEHEST. THE MODIFICATION WAS DON E BY THE BROKER AND THE ASSESSEE COULD NOT BE MADE RESPONSIBLE FOR THE ACTS OF THE OTHERS. THERE WAS NO EVIDENCE OF CASH COMING BACK TO THE ASSESSEE . THEREFORE, THE IMPUGNED ADDITIONS COULD NOT BE SUSTAINED IN THE EY ES OF LAW. FINALLY, LD. AO WAS DIRECTED TO DELETE THE IMPUGNED ADDITIONS. A GGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 5. THE LD. DEPARTMENTAL REPRESENTATIVE [DR] WHILE S UPPORTING THE STAND OF LD. AO, SUBMITTED THAT EVEN IF LD. AO FAILED TO CARRY OUT REQUISITE INVESTIGATION, LD. FIRST APPELLATE AUTHORITY WAS WE LL EMPOWERED TO CONDUCT THE AFORESAID INQUIRIES IN TERMS OF DECISION OF HON BLE DELHI HIGH COURT RENDERED IN JANSAMPARK ADVERTISING & MARKETING PVT. LTD. [2015 56 TAXMANN.COM 286]. PER CONTRA, LD. AUTHORIZED REPRESENTATIVE FOR ASSESSEE [AR], RELYING UPON THE OBSERVATIONS OF LD. FIRST APPELLATE AUTHORITY PLACED RELIANCE ON THE RECENT DECISION OF THIS TRIB UNAL RENDERED IN DCIT V/S 8 ITA NO.7346/MUM/2017 M/S. S.B. SECURITIES PRIVATE LIMITED ASSESSMENT YEAR-2009-10 VIPUL D.SHAH [ITA NO.5688/MUM/2017 DATED 03/07/2019 ] STATING THAT THE FACTUAL MATRIX STOOD SQUARELY COVERED IN ASSESSEES FAVOR BY THE DECISION OF THE TRIBUNAL. 6. WE HAVE CAREFULLY HEARD THE RIVAL SUBMISSIONS AN D PERUSED RELEVANT MATERIAL ON RECORD. THE UNDISPUTED POSITION THAT EM ERGES IS THAT THE ASSESSMENT WAS REOPENED UPON RECEIPT OF CERTAIN INF ORMATION FROM INVESTIGATION WING ALLEGING THAT THE ASSESSEE STOOD BENEFICIARY OF MISUSE OF CLIENT-CODE MODIFICATION. ANOTHER UNDISPUTED FACT T HAT EMERGES IS THAT ALL THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE WITH THE B ROKERS WERE DULY REFLECTED IN ITS BOOKS OF ACCOUNTS, THE LEDGER EXTR ACTS WERE DULY CONFIRMED AND THE TRANSACTIONS WITH BROKERS WERE THROUGH BANK ING CHANNELS. NO DISCREPANCIES WERE POINTED OUT IN THE BROKERS ACCO UNT. NOTHING HAS BEEN BROUGHT ON RECORD TO ESTABLISH THAT THE ASSESSEE WA S IN COLLUSION WITH BROKERS OR OTHER PARTIES SO AS TO INDULGE IN THE PR ACTICE OF CLIENT-CODE MODIFICATION WITH A VIEW TO SHIFT THE PROFITS. ON T HE FACTS, ONUS WAS ON REVENUE TO REBUT THE ASSESSEES STAND BY BRINGING C OGENT MATERIAL ON RECORD WHICH WOULD PROVE THE NEXUS OF THE ASSESSEE WITH THE ACTIVITY OF CLIENT-CODE MODIFICATION. THE ADDITIONS HAVE BEEN M ADE MERELY ON THE BASIS OF GENERAL OBSERVATION OF THE INVESTIGATION W ING. IT IS TRITE LAW THAT NO ADDITIONS COULD BE MADE MERELY ON THE BASIS OF PURE GUESS WORK, SUSPICION, CONJECTURES OR SURMISES. 7. ANOTHER ASPECT IS THAT THE APPLICABLE RULES OF T HE STOCK EXCHANGES PERMIT CLIENT-CODE MODIFICATION SO AS TO RECTIFY TH E PUNCHING ERRORS WITHIN CERTAIN TIME AFTER CLOSING OF THE TRADE. NOTHING WO ULD SUGGEST THAT THE 9 ITA NO.7346/MUM/2017 M/S. S.B. SECURITIES PRIVATE LIMITED ASSESSMENT YEAR-2009-10 MODIFICATIONS WERE DONE IN BREACH OF THE APPLICABLE RULES OR ANY PUNITIVE ACTION WAS TAKEN BY THE STOCK EXCHANGES AGAINST THE ASSESSEES BROKER FOR VIOLATION OF THE SAID FACILITY. IT IS ALSO EVIDENT THAT THE PERCENTAGE OF MODIFIED TRADES IN TERMS OF VALUE AS WELL AS VOLUME WAS MINI SCULE IN COMPARISON TO TOTAL TRADES CARRIED OUT BY THE ASSESSEE WITH THE B ROKER. 8. IN FACT, THE DECISION OF CO-ORDINATE BENCH OF TH IS TRIBUNAL IN DCIT V/S VIPUL D.SHAH [SUPRA] (WHICH HAS BEEN AUTHORED BY ONE OF US), SQUARELY APPLIES TO THE FACT OF THE PRESENT CASE. THIS DECIS ION HAS BEEN RENDERED AFTER CONSIDERING THE EARLIER DECISION OF TRIBUNAL RENDERED IN ITO V/S. PAT COMMODITIES SERVICES P.LTD. [SUPRA] & M/S SAMBHAVNA TH INVESTMENT V/S ACIT [SUPRA] AND HOLD THE ADDITIONS COULD NOT BE SUSTAINED IN TH E EYES OF LAW. THE OPERATIVE PORTION OF THE DECISION, FOR EASE OF CONVENIENCE, COULD BE EXTRACTED IN THE FOLLOWING MANNER: - 5.2 COMING TO THE MERITS OF THE CASE, WE FIND THAT CLIENT-CODE MODIFICATION IS A FACILITY GRANTED BY STOCK EXCHANGES / SEBI TO BROKERS SO AS TO TAKE CARE OF THE PUNCHING ERRORS WHICH TAKE PLACE DURING TRADING HOURS. IT IS UNDISP UTED FACT THAT THE ASSESSEE WAS NOT A REGISTERED BROKER AND COULD NOT CARRY OUT ANY MODIF ICATIONS AT HIS END. ANOTHER FACT IS THAT NOTHING ON RECORD ESTABLISHES THE FACT THAT TH E SAID MODIFICATIONS WERE DONE AT ASSESSEES BEHEST. THE TRANSACTIONS OF THE ASSESSEE S WERE DULY SUPPORTED BY BILLS / CONTRACT NOTES. THE ASSESSEE PLACED ON RECORD CONFI RMATION OF FEW PARTIES WHOSE NAME APPEAR IN THE DATA PROVIDED TO THE ASSESSEE WHEREIN THEY HAVE CONFIRMED THE TRANSACTIONS AS BELONGING TO THEM ONLY. NO EVIDENCE HAS BEEN BROUGHT ON RECORD TO ESTABLISH THAT ANY OF THE PARTY DISOWN THE TRANSACT IONS. THE ASSESSEE MAINTAINED THAT THE DATA DID NOT PERTAIN TO THE ASSESSEE WHICH HAS NOT BEEN REBUTTED BY LD. AO. NO NEXUS OF THE SAID DATA HAS BEEN ESTABLISHED WITH TH E LOSSES SUFFERED BY THE ASSESSEE. NOTHING ON RECORD ESTABLISHES ANY COLLUSION / CONNI VANCE OF THE ASSESSEE WITH THE SHARE BROKER. IT IS TRITE LAW THAT ADDITIONS COULD NOT BE MADE MERELY ON THE BASIS OF PRESUMPTION, CONJECTURES OR SURMISES WITHOUT BRINGI NG ON RECORD ANY CONCRETE MATERIAL TO DISLODGE THE ASSESSEES CLAIM. THEREFORE, THE AL LEGATIONS AS LEVELLED BY LD. AO, IN OUR OPINION, ARE WITHOUT ANY COGENT OR SUPPORTING E VIDENCES AND THEREFORE, THE SAME COULD NOT BE SUSTAINED IN THE EYES OF LAW. 5.3 WE FIND SUPPORT FROM THE DECISION OF THIS TRIBU NAL IN M/S SAMBHAVNATH INVESTMENT V/S ACIT [SUPRA] WHEREIN IT HAS BEEN HELD AS UNDER: - 10 ITA NO.7346/MUM/2017 M/S. S.B. SECURITIES PRIVATE LIMITED ASSESSMENT YEAR-2009-10 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE RELEVANT MATERIAL EVIDENCES BRO UGHT ON RECORD BEFORE US. THE AO HAS ANNEXED THE TRANSACTIONS OF RSBL WITH THE ASSESSEE AS PART OF THE ASSESSMENT. THE ENTIRE ALLEGATION OF THE REVENUE AUTHORITIES REVOLVES AROU ND THE MODIFICATION IN CLIENT CODE BY THE ASSESSEE SO THAT IT COULD BOOK LOSSES. AT THIS STA GE, WE FAILED TO UNDERSTAND HOW CAN THE ASSESSEE MODIFY THE CLIENT CODE OR THE DETAILS OF T RANSACTIONS WHICH HAVE BEEN TRANSACTED BY THE AUTHORIZED BROKER RSBL ON MCX. A PERSON TRANSACTIN G THROUGH A REGISTERED BROKER CANNOT HAVE ANY EXCESS TO THE TERMINAL OF THE REGISTERED BROKER WITH THE EXCHANGE BE IT STOCK EXCHANGE OR COMMODITY EXCHANGE. THUS, THE ALLEGATIONS OF THE RE VENUE AUTHORITIES THAT THE ASSESSEE HAS MODIFIED THE CLIENT CODE DOES NOT HAVE ANY BASIS. ON THE CONTRARY, THE TRANSACTIONS OF THE ASSESSEE WITH RSBL WHO IN TURN HAS TRANSACTED WITH MCX ARE SUPPORTED BY VARIOUS CONTRACT NOTES. ALSO, IN ITO V/S. PAT COMMODITIES SERVICES P.LTD. [SUPRA], IT HAS BEEN HELD AS UNDER: - 11. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. A CAREFUL PERUSAL OF THE ORDER PASSED BY THE LD CIT(A) WOULD SHOW THAT THE LD CIT( A) HAS MET EACH AND EVERY POINT RAISED BY THE ASSESSING OFFICER. THE LD CIT(A) HAS POINTED O UT THAT THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE CLIENT CODE MODIFICATION MADE BY THE ASSESSEE WAS NOT GENUINE ONE. IT WAS FURTHER NOTICED THAT NONE OF THE CLIENTS EXAMIN ED BY THE TAX AUTHORITIES HAS DISOWNED THE TRANSACTIONS CARRIED ON BY THE ASSESSEE. AS NOTICE D BY THE LD CIT(A), THE MCX, THE STOCK EXCHANGE, IS VERY MUCH AWARE ABOUT CLIENT CODE MODI FICATIONS AND HENCE IN ORDER TO DISCOURAGE FREQUENCY OF MODIFICATIONS, IT HAS BROUGHT IN PENAL TY MECHANISM. EVEN UNDER THE PENALTY MECHANISM ALSO, NO PENALTY SHALL BE LEVIABLE IF THE MODIFICATION WAS LESS THAN 1% OF THE TOTAL TRANSACTIONS, MEANING THEREBY, THE MCX IS ALSO ACCE PTING THE FACT THAT SUCH KIND OF CLIENT CODE MODIFICATION IS INEVITABLE. 12. UNDER THESE SET OF FACTS, THE NEXT QUESTION T HAT ARISES IS WHETHER THE CLIENT CODE MODIFICATION HAS RESULTED INTO SHIFTING OF PROFITS, OTHERWISE EARNED BY THE ASSESSEE. IT IS A FACT THAT THE ASSESSEE COMPANY HAS STARTED ITS OPERATION S ONLY IN JULY, 2005 BY CONVERTING INDIVIDUAL MEMBERSHIP INTO CORPORATE MEMBERSHIP. FURTHER, THE COMMODITY EXCHANGE WAS ABOUT 3-4 YEARS OLD ONLY AT THE RELEVANT POINT OF TIME. HENCE, THE ASSESSEE CANNOT BE CONSIDERED TO BE AN ESTABLISHED PLAYER IN THE YEARS UNDER CONSIDERATION . FURTHER, THE MOVEMENT OF PRICES OF COMMODITIES CANNOT BE PREDICTED BY ANYONE WITH ACCU RACY AND HENCE IT IS INCONCEIVABLE OR UNLIKELY THAT THE ASSESSEE COULD HAVE MADE PROFITS CONSISTENTLY, EVEN IF IT IS ASSUMED FOR A MOMENT THAT THE ASSESSEE HAD ACTUALLY CARRIED OUT T HE TRANSACTIONS FOR ITS OWN BENEFIT. WE NOTICE THAT THE ASSESSEE HAS OFFERED EXPLANATIONS A S TO WHY IT CARRIED OUT THE TRANSACTIONS IN ITS OWN CODE, I.E. SINCE THE TIMING OF ENTERING THE TRA NSACTIONS IS CRUCIAL IN THE ONLINE TRADING, THE STAFFS OF THE ASSESSEE COMPANY FOUND IT CONVENIENT TO PUNCH ITS OWN CODE. FURTHER, WE NOTICE THAT THE FACT THAT THE ASSESSEE HAS CHANGED THE COD E TO THE CONCERNED CLIENTS ACCOUNT AT THE END OF THE DAY HAS NOT BEEN DISPROVED. IF AT ALL ANY P ERSON COMES WITH A REQUEST SEEKING PROFITS, THERE WILL NORMALLY BE TIME LAG AND HENCE THE FACT THAT THE ASSESSEE HAS CHANGED THE CODES AT THE END OF THE DAY ONLY SHOWS THAT THE ASSESSEE HAS CAR RIED OUT THE TRANSACTIONS ON BEHALF OF ITS CLIENTS ONLY. SUCH KIND OF TRANSACTIONS SHALL USU ALLY BE SPORADIC TRANSACTIONS, WHERE AS IN THE INSTANT CASE, THE CLIENTS HAVE CARRIED OUT THE TRAN SACTIONS CONTINUOUSLY. FURTHER, IT IS PERTINENT TO NOTE THAT NONE OF THE CLIENTS, WITH WHOM THE ASSESS ING OFFICER HAS CARRIED OUT THE EXAMINATION, HAS DISOWNED THE TRANSACTIONS. FURTHER, ALL THE CL IENTS HAVE DULY DISCLOSED THE PROFITS ARISING FROM THE TRANSACTIONS AS THEIR RESPECTIVE INCOME. THOUG H THE AO HAS ALLEGED THAT THE SAID PROFITS HAVE BEEN USED TO SET OFF THE PAST BROUGHT FORWARD LOSSE S, YET THE LD CIT(A) HAS MADE A DETAILED ANALYSIS OF THIS MATTER AND HAS GIVEN A CLEAR FINDI NG THAT THE SAME WAS NOT TRUE IN ALL THE CASES. THE LD CIT(A) HAS POINTED OUT THAT MAJORITY OF THE CLIENTS HAVE PAID TAX ON THE PROFITS. IT WAS FURTHER NOTICED THAT THE SOME OF THE TRANSACTIONS H AVE RESULTED IN LOSS ALSO AND THE SAID LOSS HAS ALSO BEEN ACCEPTED BY THE CONCERNED CLIENTS. ALL T HESE FACTORS, IN OUR VIEW, GO TO SHOW THAT THE 11 ITA NO.7346/MUM/2017 M/S. S.B. SECURITIES PRIVATE LIMITED ASSESSMENT YEAR-2009-10 ASSESSEE HAS CARRIED OUT THE TRANSACTIONS ON BEHALF OF ITS CLIENTS ONLY, EVEN THOUGH THE TRANSACTIONS WERE EXECUTED IN THE CODE OF THE ASSES SEE INITIALLY. 13. FURTHER, THE LD CIT(A) HAS POINTED OUT THAT THERE WAS NO MODIFICATION OF CLIENT CODE TO THE TUNE OF RS.3.31 CRORES AND FURTHER THERE WAS CHANGE OF CODE FROM ONE CLIENT TO ANOTHER CLIENT TO THE TUNE OF RS.6.16 CRORES. IN BOTH THESE CASES, T HE QUESTION OF SHIFTING OF PROFIT EARNED BY THE ASSESSEE DOES NOT ARISE AT ALL. THE ACTION OF THE AO IN ASSESSING THE ABOVE SAID PROFITS IN THE HANDS OF THE ASSESSEE ONLY SHOW THAT THERE WAS NO P ROPER APPLICATION OF MIND ON THE PART OF THE ASSESSING OFFICER. 14. ANOTHER IMPORTANT POINT THAT IS RELEVANT HER E IS THAT NONE OF THE CLIENTS WAS SHOWN AS RELATED TO THE ASSESSEE HEREIN. NORMALLY THE QUESTION OF S HIFTING OF PROFIT WOULD ARISE BETWEEN THE RELATED PARTIES ONLY. IF THE ASSESSEE HAD REALLY SHIFTED TH E PROFITS TO AN OUTSIDER, THEN THE HUMAN PROBABILITIES WOULD SUGGEST THAT THE ASSESSEE WOULD HAVE RECEIVED BACK CORRESPONDING AMOUNT FROM THE RECIPIENT OF PROFIT. HOWEVER, IN THE INST ANT CASE, THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE HAD RECEIVED BACK CORRESPONDING AMOUNT EQUIVALENT TO THE AMOUNT OF PROFIT CLAIMED TO HAVE BEEN SHIFTED TO TH E CLIENTS. THE AO HAS MAINLY RELIED UPON THE REPORT GIVEN BY THE MCX AND HAS DRAWN ADVERSE CONCL USIONS WITHOUT BRINGING ANY MATERIAL TO SUPPORT HIS VIEW. 15. THE LD CIT(A) HAS ALSO POINTED OUT THAT MODI FICATIONS CARRIED OUT BY THE ASSESSEE WORKS OUT TO AROUND 3% OF THE TOTAL TRANSACTIONS ONLY AND IN OUR VIEW, THE SAID VOLUME, IN FACT, VINDICATES THE EXPLANATION OF THE ASSESSEE. FURTHER NONE OF THE C LIENTS HAS BEEN FOUND TO BE BOGUS AND ALL OF THEM HAVE COMPLIED WITH KYC NORMS, MEANING THEREBY THE IDENTITY OF ALL THE CLIENTS STAND PROVED. NONE OF THEM HAS DISOWNED THE TRANSACTIONS AND ALL OF THEM HAVE ALSO DECLARED THE INCOME IN THEIR RESPECTIVE RETURNS OF INCOME. ALL THESE FACT ORS, IN OUR VIEW, SUPPORT THE CONTENTIONS OF THE ASSESSEE. 16. IN VIEW OF THE FOREGOING DISCUSSIONS, WE A RE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN DELETING THE ADDITIONS MADE IN BOTH THE YEARS UNDER CONSIDERATION. IN OUR VIEW ALSO, THE ASSESSING OFFICER HAS DRAWN ADVERSE CONCLUSIONS AGA INST THE ASSESSEE WITHOUT PROPERLY BRINGING ANY MATERIALS TO SUPPORT THE VIEW, I.E., THE ADDITI ONS HAVE BEEN MADE ON SUSPICION AND SURMISES ONLY. ACCORDINGLY, WE UPHOLD THE ORDER OF LD CIT(A ) IN BOTH THE YEARS UNDER CONSIDERATION. 5.4 SO FAR AS THE CASE LAWS BEING RELIED UPON BY TH E REVENUE IS CONCERNED, WE FIND THAT THE DECISION OF HONBLE HIGH COURT OF CALCUTTA RENDERED IN PR.CIT V/S INDIA FINANCE LTD. [81 TAXMANN.COM 135] DEALS WITH VALIDITY OF JURISDICTION U/S 263 AND THEREFORE, HAS NO APPLICATION. THE DECISION OF HON BLE DELHI HIGH COURT RENDERED IN CIT V/S VASHISHTH CHAY VYAPAR LTD. [66 TAXMANN.COM 371] DEALS WITH A SITUATION WHEREIN THE ASSESSEE BOOKED FICTITIOUS LOSSES THROU GH RELATED ENTITIES AND THE TRANSACTIONS WERE FOUND TO BE BOGUS TRANSACTIONS, WHICH IS NOT THE CASE HERE. 5.5 KEEPING IN VIEW THE ENTIRETY OF FACTS AND CIRCU MSTANCES, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER. ACCORDINGLY, REVENUES APPEAL STAND S DISMISSED. GROUND NO. 4 OF ASSESSEES CROSS-OBJECTIONS STANDS ALLOWED. 9. THE LD. DR HAS RELIED UPON THE DECISION OF HONB LE DELHI HIGH COURT IN JANSAMPARK ADVERTISING & MARKETING PVT. LTD. [SUPRA ] TO SUBMIT THAT THE REQUISITE INQUIRIES COULD HAVE BEEN CONDUCTED B Y LD. FIRST APPELLATE AUTHORITY. HOWEVER, IN THE PRESENT CASE, AS OBSERVE D BY US IN IN PARA 6, THE 12 ITA NO.7346/MUM/2017 M/S. S.B. SECURITIES PRIVATE LIMITED ASSESSMENT YEAR-2009-10 ONUS WAS ON REVENUE TO DISLODGE THE ASSESSEES CLAI M. EXCEPT FOR GENERAL OBSERVATION OF INVESTIGATION WING, THERE WAS NO MIN IMUM ADVERSE MATERIAL ON RECORD AGAINST THE ASSESSEE WHICH WOULD PRIMA-FACIE PROVE THAT LOSS WAS FICTIOUS AND THE ASSESSEE WAS IN CONNIVANCE WIT H BROKERS WHICH WARRANT THE FIRST APPELLATE AUTHORITY TO INVESTIGAT E THE MATTER FURTHER. ALL THE TRANSACTIONS WERE DULY REFLECTED IN THE BOOKS, THE TRANSACTIONS WERE THROUGH BANKING CHANNELS AND THE LEDGER CONFIRMATIONS WERE PLACED ON RECORD. THEREFORE, THE SAID DECISION, IN OUR RESPECTFUL SUB MISSIONS, WOULD NOT APPLY AND COME TO THE RESCUE OF THE REVENUE. 10. THEREFORE, KEEPING IN VIEW THE ENTIRETY OF FACT S AND CIRCUMSTANCES AND IN VIEW OF THE BINDING JUDICIAL PRECEDENTS IN THE S HAPE OF DECISIONS OF CO- ORDINATE BENCHES OF THE TRIBUNAL AS CITED ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE IMPUGNED ORDER. 11. IN RESULT, THE APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JULY, 2019. SD/- SD/- (SANDEEP GOSAIN) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 30/07/2019 SR.PS:-JAISY VARGHESE ! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT 13 ITA NO.7346/MUM/2017 M/S. S.B. SECURITIES PRIVATE LIMITED ASSESSMENT YEAR-2009-10 3. # ( ) / THE CIT(A) 4. # / CIT CONCERNED 5. $%!& ' , ' , / DR, ITAT, MUMBAI 6. %)*+ / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.