ITO,Wd-12(3), Kolkata, Kolkata V. Amrabathi Investra Pvt. Ltd., Kolkata

ITA 758/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1831 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 30-03-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 25-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: N K PODDAR SENIOR
• Section: 143(3); 133(6); 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 758 / KOL / 2014 ASSESSMENT YEAR:2009-10 ITO WARD, 12(3), P-7, CHOWRINGHEE SQUARE, 7 TH FLOOR, KOLKATA-69 V/S . AMRABATHI INVESTRA PVT. LTD., 50/6A, HARISH MUKHERJEE ROAD, KOLKATA-25 [ PAN NO.ACCA 1312 Q ] /APPELLANT .. / RESPONDENT C.O. NO.17/KOL/2017 (A/O ITA NO.758/KOL/2014) ASSESSMENT YEAR: 2009-10 AMRABATHI INVESTRA PVT. LTD., 50/6A, HARISH MUKHERJEE ROAD, KOLKATA-25 V/S . ITO WARD, 12(3), P-7, CHOWRINGHEE SQUARE, 7 TH FLOOR, KOLKATA-69 APPLICANT/ CO-OBJECTOR .. / RESPONDENT /BY ASSESSEE SHRI N.K. PODDAR, SENIOR ADVOCATE /BY REVENUE SHRI SALLONG YADEN, ADDL. CIT-DR /DATE OF HEARING 30-03-2017 ! /DATE OF PRONOUNCEMENT 03-05-2017 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE REVENUE AS WELL AS CROSS OBJECT ION (CO) BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIO NER OF INCOME TAX (APPEALS)-XII, KOLKATA DATED 27.01.2014. ASSESSMENT WAS FRAMED BY ITO ITA NO.758/KOL/2014 & CO 17/KOL/2017 A.Y. 2009 -10 ITO WD. 12(3), KOL. VS. AMRABATHI INVEESTRA PVT. LTD. PA GE 2 WARD-12(3), KOLKATA U/S 143(3) OF THE INCOME TAX AC T, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 28.1 2.2011 FOR ASSESSMENT YEAR 2009-10. SHRI SALLONG YADEN, LD. DEPARTMENTAL REPRESENTATIVE REPRESENTED ON BEHALF OF REVENUE AND SHRI N.K. PODDAR, LD. SENIOR ADVOCAT E APPEARED ON BEHALF OF ASSESSEE. 2. ONLY ISSUE RAISED BY THE REVENUE IN THIS APPEAL IS WHETHER THE LD CIT(A) IS RIGHT IN ALLOWING THE LOSS OF RS.20,17,97,265/- ON ACCOUNT OF DERIVATIVE ACTIVITIES. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND ENGAGED IN TRADING IN SHARES, INVESTMENTS AND G RANTING OF LOANS. THE ASSESSEE, IN THE YEAR UNDER CONSIDERATION HAS CLAIM ED LOSSES UNDER DERIVATIVE ACTIVITIES FOR THE AMOUNT OF RS.20,17,97,265/-. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOUND THAT THE FOLLOWING BROKERS WERE INVOLVED IN THE DERIVATIVE TRANSACTIONS. S.NO. NAME OF THE COMPANY AMOUNT OF LOSS 1. M/S INDIA CAPITAL MARKETS PVT. LTD. (-) 20,1 4,86,105/- 2. M/S ALCHEMY SHARES AND STOCK BROKERS PVT.LTD. (-) 3,11,160/- THE AO CONFIRMED THE AFORESAID LOSS FROM NATIONAL S TOCK EXCHANGE (FOR SHORT NSE) U/S 133(6) OF THE ACT AND FOUND THAT SEVERAL M ODIFICATIONS WERE CARRIED OUT BY THESE BROKERS IN THE CODES OF THE CLIENT. IN VIEW OF ABOVE, THE AO ISSUED NOTICES U/S 133(6) OF THE ACT TO AFORESAID B ROKERS TO ASCERTAIN THE REASON FOR THE MODIFICATIONS IN THE CLIENT CODES. I N COMPLIANCE THERETO OF THE M/S INDIA CAPITAL MARKETS PVT. LTD. (ICMPL FOR SHOR T) SUBMITTED THAT THE CLIENT CODES WERE MODIFIED DUE TO THE TYPOGRAPHICAL HUMAN ERRORS AND THESE CHANGES WERE MADE ONLINE DURING THE TRADING HOURS W HICH WERE ACCEPTED BY NSE. SIMILARLY THE M/S ALCHEMY SHARES AND STOCK BRO KERS PVT. LTD. (ASSBPL FOR SHORT) SUBMITTED THAT NO CHANGES WERE CARRIED O UT IN THE BACK OFFICE. THE AO ALSO ISSUED COMMISSION U/S 131(1)(D) OF THE ACT TO THE DIRECTORATE OF INVESTIGATION, MUMBAI TO VERIFY THE TRANSACTIONS OF THE ASSESSEE WITH THE ITA NO.758/KOL/2014 & CO 17/KOL/2017 A.Y. 2009 -10 ITO WD. 12(3), KOL. VS. AMRABATHI INVEESTRA PVT. LTD. PA GE 3 AFORESAID BROKERS. IN COMPLIANCE THERETO THE STATEM ENTS U/S 131 OF THE ACT OF THE DIRECTORS OF BOTH THE BROKER COMPANIES WERE REC ORDED. ICMPL SUBMITTED THAT THE CLIENT CODES WERE MODIFIED DUE TO THE TYPO GRAPHICAL HUMAN ERRORS WHEREAS THE ASSBPL SUBMITTED THAT CHANGES WERE CARR IED OUT IN THE CLIENT CODE AS PER THE INSTRUCTIONS OF ASSESSEE COMPANY. I N VIEW OF ABOVE, THE AO CALLED UPON THE ASSESSEE TO CLARIFY THE REASONS FOR THE CHANGE OF CLIENT CODES. THE ASSESSEE IN RESPONSE THERETO SUBMITTED THAT ICM PL HAS ADMITTED THAT THE MODIFICATION IN CLIENT CODE WAS CARRIED OUT DUE TO TYPOGRAPHICAL ERRORS WHEREAS THE ASSBPL HAS NOT SUBMITTED ANY CORRESPOND ENCE FROM THE ASSESSEE SUGGESTING FOR CLIENT CODE. ALL THE CHANGE S MADE IN THE CLIENT CODE WERE IN THE KNOWLEDGE OF THE NSE AND ALL THE ENTIRE TRANSACTIONS WERE MATCHING BETWEEN THE BROKERS AND ASSESSEE-COMPANY. HOWEVER, THE AO DISREGARDED THE CONTENTION OF THE ASSESSEE AND DISA LLOWED THE IMPUGNED LOSS BY ADDING IT TO THE TOTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD. C IT(A). THE ASSESSEE BEFORE THE LD CIT(A) SUBMITTED THAT THERE WERE 3,11 ,866 TRANSACTIONS WITH ICMPL WHEREAS THE TRANSACTIONS WITH ASSBPL WERE 211 ONLY IN THE YEAR UNDER CONSIDERATION. THEREFORE, IT WAS VERY MUCH PO SSIBLE THAT THE STAFF WHILE PUNCHING THE DATA CAN MAKE SOME MISTAKES IN THE CLI ENT CODE. MOREOVER, ALL THE CHANGES IN THE CLIENT CODE WERE MODIFIED WITHIN THE TIME GIVEN BY THE NSE AND ALL THE DETAILS FOR THE MODIFICATION IN CLIENT CODE WERE AVAILABLE WITH THE NSE. THE LD. CIT(A) DURING APPELLATE PROCEEDINGS MA DE THE FOLLOWING OBSERVATIONS : 1. THE TRANSACTIONS WERE ICMPL WERE DULY RECORDED I N THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THE PARTY HAS ALSO CONFIR MED THE SAME IN THE RESPONSE TO THE NOTICE ISSUED U/S 133(6) OF THE ACT. 2. ICMPL ALSO CONFIRMED THAT THE CLIENT CODES WERE MODIFIED DUE TO HUMAN MISTAKES AT THE TIME OF PUNCHING THE DATE. TH IS FACT WAS ALSO RECORDED IN THE STATEMENT FURNISHED U/S 131 OF THE ACT. ITA NO.758/KOL/2014 & CO 17/KOL/2017 A.Y. 2009 -10 ITO WD. 12(3), KOL. VS. AMRABATHI INVEESTRA PVT. LTD. PA GE 4 3. THERE WAS NO IN-GENUINE TRANSACTION WITH THE ICM PL AND NO DEFECT HAS BEEN BROUGHT ON RECORD. 4. IN CASE OF ASSBPL, IT WAS CONFIRMED THAT THERE W AS MODIFICATION IN THE CLIENT CODE AS PER THE INSTRUCTION OF ASSESSEE- COMPANY. IN VIEW OF ABOVE, THE LD CIT(A) HAS DELETED THE ADD ITION MADE BY THE AO IN PART BY OBSERVING AS UNDER:- I AM OF THE VIEW THAT THE ASSESSING OFFICER WA S NOT JUSTIFIED IN DISALLOWING THE IMPUGNED LOSS IN DERIVATIVES (FUTUR E & OPTION) AGGREGATING TO RS.20,14,86,105/- ON ACCOUNT OF FUT URE AND OPTION LOSS INCURRED BY THE APPELLANT THROUGH THE STOCK BROKER M/S INDIA CAPITAL MARKETS PVT. LTD. THEREFORE, THE DISALLOWANCE MADE BY THE AO S HEREBY DELETED. AS REGARDS THE DISALLOWANCE OF RS.3,11,160/- MADE B Y THE AO ON ACCOUNT OF FUTURE AND OPTIONS LOS SISNCURRED THROU GH STOCK BROKER M/S ALCHEMY SHARES AND STOCK BROKERS PT. LTD., IT IS NO TICED THAT THE STATEMENT GIVEN BY THE DIRECTOR OF M/S ALCHEMY SHAR E & STOCK BROKERS THAT YES, I HAVE GONE THROUGH THE CLIENT CODE MODIFICA TIONS DATE IN SOFT COPY. WE HAD NO MALA FIDE INTENTION FOR DOING THIS. IT WAS ONLY DONE AS PER THE INSTRUCTIONS GIVEN BY THE ABOVE MENTIONED C LIENT M/S AMRABATHI INVESTRA LTD. WE HAVE TO FOLLOW UP THE INSTRUCTIONS OF THE CLIENT. ON GOING THROUGH THE STATEMENT THE STATEMENT OF THE SHARE BROKER RECORDED U/S. 131 IT IS SEEN THAT THE BROKER CATEG ORICALLY STATED THAT THE CHANGE IN THE CLIENT CODE WAS MADE ON THE INSTRUCTI ON OF THE APPELLANT. THEREFORE, EVEN THOUGH THE LOSS WAS INCURRED IN SOM E OTHER CLIENT NAME, IT WAS CHANGED TO THAT OF THE APPELLANT AT TH E INSTRUCTION OF THE APPELLANT TO BOOK THE LOSS AND CREATE LOSSES IN ITS BOOKS. THE APPELLANT HAS ARGUED OTHERWISE THAT LOSS WAS RECORDED IN ITS BOOKS AND THAT IT WAS ROUTED THROUGH THE STOCK EXCHANGE, HOWEVER, THIS F ACT WILL NOT TAKE AWAY THE OTHER COMPELLING FACT THAT THE LOSSES WERE BOOKED INTENTIONALLY TO ARTIFICIALLY CREATE LOSES IN THE BOOKS AS SUPPOR TED BY THE STATEMENT OF THE BROKER TAKEN U/S 131 OF THE ACT. UNDER THIS FAC TS AND CIRCUMSTANCES OF THE CASE, I AM OF THE CONSIDERED VIEW THAT THE A O WAS JUSTIFIED IN MAKING THE DISALLOWANCE OF THE LOSS CLAIMED ON ACCO UNT OF THE FUTURE AND OPTIONS INCURRED THROUGH STOCK BROKER M/S ALCHE MY SHARES AND STOCK BROKERS PVT. LTD., THEREFORE, THE DISALLOWANC E OF LOSS OF RS.3,11,160/- IS UPHELD. BEING AGGRIEVED BY THE ORDER OF LD CIT(A) BOTH REVE NUE AND ASSESSEE ARE IN APPEAL AND CO BEFORE US. ITA NO.758/KOL/2014 & CO 17/KOL/2017 A.Y. 2009 -10 ITO WD. 12(3), KOL. VS. AMRABATHI INVEESTRA PVT. LTD. PA GE 5 5. THE ISSUE RAISED BY REVENUE AND ASSESSEE ARE INT ER-CONNECTED THEREFORE WE ARE TAKING UP THE MATTER FOR ADJUDICAT ION TOGETHER. 6. THE LD DR BEFORE US SUBMITTED THAT IT IS MANDATO RY FOR ALL THE BROKERS TO KEEP THE RECORDS IN RESPECT OF ALL THE CLIENT CODES WHICH HAVE BEEN MODIFIED AS PER THE NOTIFICATION NO. 14/2011 ISSUED BY THE C BDT DATED 09.03.2011. IT IS ALSO IMPORTANT TO NOTE THAT THE BROKER HAS BEEN DEALING WITH VARIOUS CLIENTS BUT THE CLIENT CODE WAS MODIFIED ONLY IN RESPECT OF THE ASSESSEE. THEREFORE, THE GENUINENESS OF THE TRANSACTIONS CANNOT BE RELIE D UPON. HE HEAVILY RELIED ON THE ORDER OF AO. ON THE OTHER HAND, THE LD. AR BEFORE US FILED A PAP ER BOOK COMPRISING OF PAGES FROM 1 TO 157 AND SUBMITTED THAT THERE WAS NO DISCREPANCY BETWEEN THE DATE SUPPLIED BY THE NSE AND THE ASSESSEE. INDE ED THE CLIENTS CODES WERE MODIFIED AND THIS ACTION WAS CARRIED OUT AND U PDATED IN THE STOCK EXCHANGE. THE ISSUE OF DISALLOWANCE OF THE LOSS ARI SES WHERE THERE IS MISMATCH IN THE RECORDS OF THE ASSESSEE AND THAT OF THE STOCK EXCHANGE. THE LD. AR ALSO DREW OUR ATTENTION ON PAGES 49 TO 103 W HERE SCRIPTS PURCHASED BY THE ASSESSEE WERE SHOWN BY THE ICMPL, THOUGH THE SA ME WERE NEVER ENTERED IN THE BOOKS OF THE ASSESSEE. SIMILARLY THE LD. AR DREW OUR ATTENTION WHERE THE CODE OF THE ASSESSEE WAS MODIFIED BY THE ICMPL IN RESPECT OF BUY AND SELL TRANSACTIONS WHICH ARE PLACED ON PAGES 104 AND 151 OF THE PAPER BOOK. THE NO. OF CHANGES IN THE CODE WERE NEGLIGIBL E IN COMPARISON TO THE TOTAL NO. OF TRANSACTIONS CARRIED OUT BY THE ASSESS EE. SIMILARLY THE MODIFICATION IN THE CODE OF THE CLIENT WAS NEGLIGIBLE NO. OF TIM ES WITH ASSBPL. THE NECESSARY DETAILS ARE PLACED ON PAGES 152 AND 155 I N THE PAPER BOOK. 7. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THE ISSUE IN THE INSTANT CASE RELATES TO THE DISALLOWANCES MADE BY THE LOWER AUTHORITIES FOR THE AMOUNT OF THE LOSSES CLAIMED BY THE ASSESSEE. THE REASON FOR THE DISALLO WANCES OF THE LOSSES WAS DUE TO THE MODIFICATION OF THE CLIENT CODE. THE AO BELIEVED THE CLIENT CODE MODIFICATION TO BE MALA FIDE TO ESCAPE THE TAX LIABILITY. HOWEVER, ON PERUSAL O F ITA NO.758/KOL/2014 & CO 17/KOL/2017 A.Y. 2009 -10 ITO WD. 12(3), KOL. VS. AMRABATHI INVEESTRA PVT. LTD. PA GE 6 THE RECORDS WE FIND THAT CLIENT CODE MODIFICATION W AS DONE NEGLIGIBLE NOS. OF TIMES WHEREAS THE TOTAL NUMBER OF TRADE TRANSACTION S ARE 3,11,866 ONLY. THUS THE CLIENT CODE MODIFICATION IS LESS THAN 1 PER CEN T OF THE TOTAL TRADING TRANSACTIONS. THE AO HELD THE CLIENT CODE MODIFICATIONS TO BE MALA FIDE WITH THE INTENTION TO TRANSFER THE PROFIT TO OTHER PERSONS BY MODIFYING T HE CLIENT CODE SO AS TO AVOID THE PAYMENT OF TAX. IT IS UNDISPUTED FACT THAT THE CLIENT CODE WAS MODIFIED FEWER NUMBER OF TIMES AND THIS FACT WAS VERY MUCH I N THE KNOWLEDGE OF THE STOCK EXCHANGE. IT IS BECAUSE THAT THE INFORMATION FOR THE MODIFICATION OF THE CLIENT CODE WAS GATHERED BY THE AO FROM THE NSE WHI CH PROVES BEYOND DOUBT THAT THE ASSESSEE HAS NOT MODIFIED ANY CLIENT CODE WITHOUT INFORMING TO THE NSE. HAD THERE BEEN MISMATCH IN THE CODE BETWEEN TH E REPORT SUBMITTED BY THE BROKER OF THE ASSESSEE AND THAT OF THE NSE, THE QUESTION/DOUBT ON THE GENUINENESS OF THE TRANSACTION ARISE? THEREFORE, WE ARE UNABLE TO FIND OUT ANY JUSTIFICATION FOR THE ALLEGATION OF THE AO THAT THE CLIENT CODE MODIFICATION WAS WITH THE MALA FIDS INTENTION. WHEN THE CLIENT CODE WAS MODIFIED ON THE STOCK EXCHANGE WITHOUT INFORMING THE SAME DAY THEN IT CAN BE INFERRED THERE IS SOME MALA FIDE 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 C ODE MODIFICATION IS INTENTIONAL. HOWEVER, WHEN THE CLIENT CODE MODIFICA TION IS DONE ONLINE ON THE STOCK EXCHANGE, IN OUR OPINION, THERE WAS NO BASIS OR JUSTIFICATION TO HOLD THE TRANSACTION TO BE BOGUS. 7.1 IT IS ALSO IMPORTANT TO NOTE THAT ALL TRANSACTI ONS AT THE EXCHANGES HAVE BEEN DULY ACCOUNTED IN THE BOOKS OF ACCOUNT MAINTAI NED BY THE CONCERNED PARTIES. SUCH PROFIT/LOSS HAS BEEN DULY ACCOUNTED W HENEVER THE TRANSACTIONS HAVE BEEN CLOSED. THUS, WHATEVER PROFITS/LOSS HAVE BEEN GENERATED OR ACCOUNTING OF ACTUAL TRADE, HAVE BEEN OFFERED AND B ROUGHT TO THE CHARGE OF TAX IN THE CASES OF CONCERNED ASSESSEE. THESE FINDINGS OF FACTS RECORDED BY THE LD CIT(A) HAVE NOT BEEN CONTROVERTED BY THE LD. DR AT THE TIME OF HEARING BEFORE US. WHEN THE TRANSACTION HAS BEEN DULY ACCOU NTED FOR AND THE ITA NO.758/KOL/2014 & CO 17/KOL/2017 A.Y. 2009 -10 ITO WD. 12(3), KOL. VS. AMRABATHI INVEESTRA PVT. LTD. PA GE 7 PROFIT/LOSS HAS ACCRUED TO THE CONCERNED PARTIES IN WHOSE NAMES TRANSACTIONS HAVE BEEN CLOSED, THERE CANNOT BE ANY BASIS OR JUST IFICATION FOR CONSIDERING THOSE PROFIT/LOSS IN THE CASE OF THE ASSESSEE ON TH E BASIS OF MERE PRESUMPTION OR SUSPICION. IT IS NOT THE CASE OF THE REVENUE THA T SUCH ALLEGED HAS NOT ACTUALLY BEEN INCURRED. IN VIEW OF THE TOTALITY OF THE ABOVE FACTS, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF TH E CIT(A) IN THIS REGARD AND THE SAME IS SUSTAINED. THUS, THE APPEAL OF THE REVENUE IS REJECTED AND CO OF THE ASSESSEE IS ALLOWED. 8. IN THE RESULT, APPEAL OF REVENUE STANDS DISMISSED A ND THAT OF ASSESSEES CO IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 03/ 05/2017 SD/- SD/- (#$) () (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP, SR.P.S &'(- 03 / 05 /201 7 / COPY OF ORDER FORWARDED TO:- 1. /ASSESSEE-AMRABATHI INVESTRA PVT. LTD. 50/6A, HARIH MUKHERJEE ROAD, KOL-25 2. /REVENUE-ITO WARD-12(3), P-7 CHOWRINGHEE SQ. 7 TH FLOOR, KOLKATA-69 3.'0'12 3 / CONCERNED CIT KOLKATA 4. 3- / CIT (A) KOLKATA 5.6 78$$12, 12!, / DR, ITAT, KOLKATA 6.8;<=> / GUARD FILE. BY ORDER/ , /TRUE COPY/ /' 12!,