NOBLE SECURITIES, Jaipur V. ITO, Alwar

ITA 911/JPR/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9686 (ITAT-JAIPUR)
• Duration Of Justice: 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 20-10-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: POONAM RAI DCIT DR DHK
• Keywords: Transactions in derivatives; Avoidance of tax
• Section: 131; 148

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH HKKXPUN] YS[KK LNL; DS LE{K BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER VK;DJ VIHY LA-@ ITA NO. 911/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2010-11 M/S. NOBLE SECURITIES 137, BASANT VIHAR SCHEME NO.3, ALWAR CUKE VS. THE ITO WARD- 1(4) ALWAR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AADFN 7322 B VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY: SHRI P.C. PARWAL, CA JKTLO DH VKSJ LS@ REVENUE BY :SMT. POONAM RAI, DCIT-. DR LQUOKBZ DH RKJH[K@ DATE OF HEARING : 14/03/2017 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 23/03/2017 VKNS'K@ ORDER PER BHAGCHAND, AM THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A), ALWAR DATED 07-10-2016 FOR THE ASSESSMENT YEAR 2010-11 RAISING THEREIN FOLLOWING GROUNDS:- 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW I N UPHOLDING THE VALIDITY OF NOTICE ISSUED U/S 148. 2. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS. 27,63,104/-MADE BY A O BY HOLDING THAT ASSESSEE WAS INDULGED IN TRANSFERRING FICTITIOUS PR OFITS/LOSS TO THE OTHER CLIENTS/ BENEFICIARIES BY MISUSING THE CLIENT CODE MODIFICATION FACILITY TO THE F&O SEGMENT AND THEREBY CREATED A LOSS OF RS . 27,63,104/- AND SUPPRESSED THE INCOME TO THAT EXTENT. ITA NO. 911/JP/2016 M/S. NOBLE SECURITIES VS. ITO, WARD- 1(4), ALWAR . 2 2.1 THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN MAK ING VARIOUS INCORRECT OBSERVATION IN CONFIRMING THE ADDITION MA DE BY AO. 2.1 APROPOS GROUND NO. 1 OF THE ASSESSEE, IT IS OBS ERVED FROM THE RECORDS THAT AS PER INFORMATION RECEIVED FROM THE D IT(I&CI), MUMBAI THROUGH THE ADDL. CIT RANGE-1 ALWAR VIDE HIS OFFICE LETTER NO. 1574 DATED 17-03-2005 THAT DURING THE YEAR UNDER CONSIDE RATION A LOSS OF RS. 27,63,104/- WAS CREATED IN ASSESSEE'S CASE DUE TO T HE MODIFICATION OF TRANSACTIONS MADE BY THE ASSESSEE IN F&O SEGMENT TO THE OTHER PERSONS THROUGH THE CLIENT CODE MODIFICATION FACILITY IN F& O SEGMENT. ACCORDINGLY, AFTER RECORDING THE REASONS, NOTICE U/ S 148 OF THE ACT WAS ISSUED TO THE ASSESSEE FIRM ON 26-03-2015. THE ASSE SSEE FIRM VIDE ITS ARS LETTER DATED 15-04-2015 HAD REQUESTED TO PROVIDE TH E COPY OF REASONS FOR REOPENING OF THE CASE WHICH WERE PROVIDED TO THE AS SESSEE BY THE DEPARTMENT ON 17-04-2015. IT IS ALSO NOTED FROM THE RECORDS THAT THE ASSESSEE FIRM VIDE ITS AR'S LETTER DATED 12-05-2015 HAD RAISED OBJECTIONS TO THE INITIATION OF PROCEEDINGS U/S 148 OF THE ACT AND THE SAME WAS DISPOSED OFF BY THE DEPARTMENT VIDE LETTER NO. ITO/ W-1(4)ALW/2015- 16/372 DATED 28-08-2015 AND THE LETTER OF THE DEPAR TMENT WAS SERVED UPON THE ASSESSEE THROUGH REGISTERED POST. IT IS AL SO NOTED THAT THE LD. ITA NO. 911/JP/2016 M/S. NOBLE SECURITIES VS. ITO, WARD- 1(4), ALWAR . 3 CIT(A) HAS TAKEN THIS FACT INTO CONSIDERATION BUT H E DID NOT FIND ANY MERIT ON THE ISSUE IN QUESTION. 2.3 AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIALS AVAILABLE ON RECORD, I DO NOT FIND ANY PLAUSIBLE REASON FROM LD. AR OF THE ASSESSEE THAT THE DEPARTMENT HAS WRONGLY INVOKED THE PROVISI ONS OF SECTION 148 OF THE ACT ON THE ASSESSEE WITHOUT DISPOSING OFF THE OBJECTIONS. IT IS NOTED THAT THE AFTER RECORDING THE REASONS, THE NOTICE U/ S 148 OF THE ACT WAS ISSUED ON 26-03-2015 AND COPY OF THE REASONS FOR RE OPENING OF THE CASE WAS PROVIDED TO THE ASSESSEE ON 15-04-2015 BY THE D EPARTMENT. IN SUCH A SITUATION, I DO NOT FIND FORCE IN THE ARGUMENTS OF THE LD. AR OF THE ASSESSEE AND THUS GROUND NO. 1 OF THE ASSESSEE IS D ISMISSED. 3.1 APROPOS GROUND NO. 2 AND 2.1 OF THE ASSESSEE, T HE FACTS AS EMERGES FROM THE ORDER OF THE LD. CIT(A) IS AS UNDER:- 5.3.1. I HAVE GONE THROUGH THE ASSESSMENT ORDER AS WELL AS SUBMISSIONS MADE BY THE APPELLANT. FOLLOWING FACTS HAVE EMERGED. 1. THAT THE APPELLANT IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF TRADING IN SHARE. 2. THAT THE FIRM IS DOING TRADING ON ITS OWN BEHALF AND ON BEHALF OF ITS CLIENTS. 3. THAT ON THE BASIS OF AN INFORMATION RECEIVED FRO M DIRECTORATE OF INCOME TAX (INTELLIGENCE & CRIMINAL INVESTIGATION) THAT THE APPELLANT HAD BOOKED A LOSS OF RS. 27,63,104/- DUE TO MODIFICATION MADE BY THE ASSESSEE IN F& O SEGMENT TO THE THIRD P ARTIES THROUGH THE CLIENT CODE MODIFICATION FACILITY. 4. THAT THE AO HAD REOPENED THE CASE U/S 148 OF THE ACT BY DULY RECORDING THE REASONS. ITA NO. 911/JP/2016 M/S. NOBLE SECURITIES VS. ITO, WARD- 1(4), ALWAR . 4 5. THAT THE DETAIL OF REOPENING WAS PROVIDED TO THE ASSESSEE ON 17-04-2015. 6. THAT THE ASSESSEE FIRM HAD RAISED OBJECTIONS TO THE REOPENING PROCEEDINGS. THE OBJECTIONS WERE DULY CON SIDERED BY THE AO AND A WRITTEN ORDER DISPOSING THE PETITION OF TH E ASSESSEE WAS PASSED AND SERVED TO THE ASSESSEE. 7. THAT IT WAS FOUND BY THE AUTHORITIES THAT THE FI RM WAS FOUND USING CLIENT CODE MODIFICATION FACILITY IN F& O SEGMENT ON NSE DURING THE YEAR UNDER CONSIDERATION. BY DOING THIS, IT IS ALLEGED THAT FICTITIOUS LOSSES AND PROFITS WERE TRANSFERRED TO I TS CLIENTS. 8. THAT THE APPELLANT HAS CLAIMED THAT IT WAS A GEN UINE MISTAKE ON THE PART OF ITS STAFFS TO HAVE PUNCHED F IRMS CODE INSTEAD OF ITS CLIENTS CODE. AND THAT LATER ON WHEN SUCH A MI STAKE WAS NOTICED THE SAME WAS DELETED BY DELETING THE TRADING FROM THE F IRMS CODE AND CREDITED TO THE CLIENTS CODE. 9. THAT THE APPELLANT HAS FURTHER SUBMITTED THAT TH E MISTAKE WAS DONE AT THE BROKERS LEVEL AND THE FIRM SHOULD NOT BE HELD RESPONSIBLE FOR MISTAKE COMMITTED BY THE BROKERS. 10. THAT THE APPELLANT HAS FURTHER SUBMITTED THAT C LIENT CODE MODIFICATIONS ARE A VERY LEGITIMATE TRANSACTIONS WH ERE IF ANY MISTAKE IS COMMITTED THEN IT HAS TO BE RECTIFIED WITHIN 15 MIN UTES OF THE CLOSE OF TRADING SESSION. 5.3.2 I HAVE CONSIDERED THE ABOVE MENTIONED FACTS. I HAVE PARTICULARLY TAKEN INTO ACCOUNT THE FUNCTIONING OF THE STOCK EXCHANGE WHERE A TRADING IS DONE ON THE BASIS OF PURCHASE TR ANSACTION ENTERED BY THE BROKERS. THE BROKER DOES IT ON THE ADVICE OF TH E SUB-BROKERS/ CLIENTS. HERE IN THIS CASE THE BROKER I.E. M/S. ART ISTIC FINANCE (P) LTD. HAD BOOKED PURCHASE/ SALE OF SCRIP ON THE ADVICE OF THE APPELLANT I.E. M/S. NOBLE SECURITIES USING THE CLIENT CODE OF M/S. NOBLE SECURITIES. LATER, M/S. NOBLE SECURITIES ADVISED THE BROKER M/S . ARTISTIC FINANCE (P) LTD. TO MODIFY THE CLIENT CODE AND BOOK IT IN T HE NAME OF THE OTHER CLIENTS OF M/S. NOBLE SECURITIES. THUS, THE TRANSAC TIONS WHICH WERE EARLIER MADE IN THE NAME OF THE APPELLANT WERE TRAN SFERRED TO THIRD PARTIES. THE APPELLANT HAS CLAIMED THAT THE PURCHAS ES WERE WRONGLY DONE IN THE NAME OF M/S. NOBLE SECURITIES INADVERTE NTLY PUNCHING ITS CLIENT CODE AND THAT SUBSEQUENTLY IT WAS RECTIFIED BY THE BROKERS WITHIN TIME ALLOWED BY THE EXCHANGE. SO THE WHOLE SUBMISSI ON OF THE APPELLANT IS HINGED UPON THE INADVERTENT MISTAKE OF THE STAFF IN PUNCHING THE WRONG CLIENT CODE I.E. CLIENT CODE OF THE APPELLANT INSTEAD ITA NO. 911/JP/2016 M/S. NOBLE SECURITIES VS. ITO, WARD- 1(4), ALWAR . 5 OF CLIENT CODE OF ITS CLIENTS. HOWEVER, THE APPELLA NTS CLAIM, TO MY MIND, IS HOLLOW AS CLEARLY MADE OUT BY THE AO IN TH E ASSESSMENT ORDER THAT SUCH MODIFICATIONS ARE DONE 2380 TIMES INVOLVI NG 55 CLIENTS OVER A PERIOD OF 197 DAYS DURING THE YEAR UNDER CONSIDERAT ION. MISTAKE CANNOT BE REPEATED SO BRAZENLY OVER SUCH A NUMBER OF TIMES . EVEN IF THE END OF THE SESSION, STILL THE FACILITY CANNOT BE ALLOWE D TO BE MANIPULATED FOR UNDUE GAINS AND CREATE A SITUATION WHERE THE INCOME /LOSS CAN BE DIVERTED. IN THIS REGARD, I HAVE ALSO TAKEN INTO AC COUNT THE APEX COURT JUDGEMENT IN THE CASE OF MCDOWELL & CO. LTD. IT IS WORTHWHILE TO QUOTE FROM THE LANDMARK JUDGEMENT AS UNDER:- MISRA,J. WHO DELIVERED JUDGEMENT ON BEHALF OF HIM SELF AND THREE OTHER JUDGES (OTHER THAN REDDY. J.) EXTRACTED THE FOLLOWING OBSERVATION FROM THE JUDGEMENT OF GUJARAT HIGH COUR T (ITR PP 200- 01) IN THE CASE OF CIT VS. SAKARLAL BALABHAI (AFFIR MED BY THE SUPREME COURT IN CIT VS. VADILAL LALLUBHAI): (SCC 253-54, P ARA 43) TAX AVOIDANCE POSTULATES THAT THE ASSESSEE IS IN RECEIPT OF AMOUNT WHICH IS REALLY AND IN TRUTH HIS INCOME LIAB LE TO TAX BUT ON WHICH HE AVOID PAYMENT OF TAX BY SOME ARTIFICE OR D EVICE. SUCH ARTIFICE OR DEVICE MAY APPARENTLY SHOW THE INCOME AS ACCRUIN G TO ANOTHER PERSON, AT THE SAME TIME MAKING IT AVAILABLE FORUSE AND ENJOYMENT TO THE ASSESSEE'S AS IN A CASE FALLING WITHIN SECTION 44-D OR MASK THE TRUE CHARACTER OF THE INCOME BY DISGUISING IT AS A CAPIT AL RECEIPT AS IN A CASE FALLING WITHIN SECTION 44-E OR ASSUME DIVERSE OTHER FORMS BUT THERE MUST BE SOME ARTIFICE OR DEVICE ENABLING THE ASSESS EE TO AVOID PAYMENT OF TAX ON WHAT IS REALLY AND IN TRUTH HIS INCOME. I F THE ASSESSEE PARTS WITH HIS INCOME-PRODUCING ASSET, SO THAT THE RIGHT TO RECEIVE INCOME ARISING FROM THE ASSET WHICH THERETOFORE BELONGED TO THE ASSESSEE IS TRANSFERRED TO AND VESTED IN SOME OTHER PERSON, THE RE IS NO AVOIDANCE OF TAX LIABILITY: NO PART OF THE INCOME FROM THE ASSET GOES INTO THE HANDS OF THE ASSESSEE IN THE SHAPE OF INCOME OR UNDER ANY GU ISE. THEN, MISRA. J. RESPONDED: (SCC PP. 254-55, PARA 45 )45. TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITHIN TH E FRAME WORK OF LAW. COLOURABLE DEVICE CANNOT BE PART OF TAX PLANNING AN D IT IS WRONG TO ENCOURAGE OR ENTERTAIN THE BELIEF THAT IT IS HONOUR ABLE TO AVOID THE PAYMENT OF TAX BY RESORTINGTO DUBIOUS METHODS. IT I S THE OBLIGATION OF EVERY CITIZEN TO PAY THE TAXES HONESTLY WITHOUT RES ORTING TO SUBTERFUGES. IN THIS PARTICULAR CASE, THE APPELLANT IS FOUND TO BE INDULGED IN LARGE USE OF FACILITY TO BOOK A LOSS IN THE BOOK BY DIVERTING A PART OF TRANSACTION TO ITS CLIENTS. THIS TYPE OF TRANSACTIO NS PARTICULARLY GIVES UNDUE ADVANTAGE IN F& O SEGMENT WHERE LOSS AND EVEN INCOME CAN BE BOOKED IN CLIENTS FAVOUR TO GIVE ADVANTAGE TO THEM AND ALSO BOOK LOSSES AGAINST THEIR OWN INCOME. AT THE END OF THE SESSION WHEN THE ITA NO. 911/JP/2016 M/S. NOBLE SECURITIES VS. ITO, WARD- 1(4), ALWAR . 6 RELATIVE ADVANTAGE OF A TRANSACTION CAN BE EASILY E VALUATED AND THEN TAKING ADVANTAGE OF CLIENT CODE MODIFICATION, SUCH TRANSACTION CAN BE TRANSFERRED TO CLIENTS ACCOUNT DEPENDING UPON THE CLIENTS REQUIREMENT AND THUS REAL INCOME FROM SUCH TRANSACTIONS CAN BE SUITABLY COMPROMISED. THEREFORE, IN VIEW OF THE REGULARITY W ITH WHICH SUCH TRANSACTIONS HAVE BEEN EFFECTED, THE AO IS JUSTIFIE D IN REJECTING THE CLAIM OF THE APPELLANT AND ADDED SUCH TRANSACTION I N THE HAND OF THE APPELLANTS INCOME. ACCORDINGLY, THE ADDITION OF RS . 27,63,104/- IS SUSTAINED. APPELLANTS GROUND OF APPEAL ON THE ISSU E IS DISMISSED. 3.2 DURING THE COURSE OF HEARING, THE LD. AR OF THE ASSESSEE PRAYED FOR DELETION OF ADDITION BY FILING THE FOLLOWING WRITTE N SUBMISSION. 1. IT IS SUBMITTED THAT THE ASSESSEE IS A TRADING I N SHARE BUSINESS NOT IN THE CAPACITY OF BROKER BUT ON ITS OWN ACCOUN T AND FOR IT CLIENTS. THE ASSESSEE, ITSELF, IS A CLIENT OF M/S ARTISTIC F INANCE PVT. LTD WHICH CARRIED OUT TRANSACTIONS ON BEHALF OF THE ASSESSEE AND THE CLIENTS OF THE ASSESSEE. EVERY CLIENT IS ASSIGNED A UNIQUE CLIENT CODE WHICH IS PUNCHED IN AT THE TIME OF TRANSACTIONS. THE AO ISSUED NOTIC E U/S 131 TO M/S ARTISTIC FINANCE PVT. LTD. WHO VIDE LETTER DATED 05 .03.2016 (PB 37-38) EXPLAINED THAT THE ASSESSEE IS ITS MAJOR CLIENT AND PROVIDES THEM WITH A HUGE VOLUME OF TRANSACTIONS. THE OPERATING STAFF WH O ARE NOT WELL QUALIFIED, TO SAVE TIME HAD PREFIXED THE CLIENT COD E OF THE ASSESSEE IN THE SYSTEM AS DEFAULT WHICH LED TO ERROR IN PUNCHING OF CLIENT CODES AT THE TIME OF TRANSACTIONS. TO RECTIFY THE ERROR IN PUNCH ING OF CLIENT CODE, A FACILITY KNOWN AS CLIENT CODE MODIFICATION (CCM) IS PROVIDED BY THE STOCK EXCHANGE TILL 4:15 PM OF THE TRADE DAY ITSELF . THIS CAN BE DONE ON ONLY WRITTEN REQUEST OF THE CLIENTS (COPIES OF LETTERS ENCLOSED AT PB 39- 46) . 2. IT IS SUBMITTED THAT IN ANY GIVEN DAY, THOUSANDS OF TRANSACTIONS ARE CARRIED OUT BY BROKERS. THE CCM FACILITY IS PRO VIDED BY THE NATIONAL STOCK EXCHANGE TO RECTIFY THE ERRORS / MISTAKES MAD E AT THE TIME OF PUNCHING TRADES. THE NATIONAL STOCK EXCHANGE OF IND IA LIMITED HAS PROVIDED CERTAIN GUIDELINES AND PENALTIES RELATING TO THE CCM FACILITY (PB 20-26) . AS PER THE STOCK EXCHANGE, CCM FACILITY CAN BE US ED TO MODIFY THE CLIENT CODE ON THE TRADE DAY ITSELF TILL 4:15 PM (PB 20). THIS IS ALSO STATED IN CIRCULAR NO. 974 DATED 10.09.2009 OF THE NATIONAL SECURITIES CLEARING CORPORATION LIMITED FOR ITS FUT URES & OPTIONS SEGMENT (PB 25-26) . THE STOCK EXCHANGE HAS ALSO DRAWN A LIST OF THE COMMON VIOLATIONS COMMITTED AND THE APPLICABLE PENA LTIES (PB 21-24) WHERE IT IS STATED THAT IF THE TRANSFER OF TRADES / ERRORS AT THE TIME OF ORDER ENTRIES ARE IN EXCESS OF 2% OF THE NUMBER OF ORDERS EXECUTED, FINE OF 0.1% OF VALUE OF TRADES TRANSFERRED IS APPLICABL E. ITA NO. 911/JP/2016 M/S. NOBLE SECURITIES VS. ITO, WARD- 1(4), ALWAR . 7 3. THE BROKER ON AN AVERAGE EXECUTES MORE THAN 5000 TRADES IN A DAY. AS IS CALCULATED BY THE AO, THE EXCHANGE IS OP ERATIVE ONLY 260 DAYS IN A YEAR. THUS, IN A YEAR APPROXIMATELY 13 LAKHS T RADES ARE CARRIED OUT BY THE BROKER. THEREFORE, THE FACT THAT DURING THE YEAR, THE BROKER HAD CARRIED OUT 2380 MODIFICATIONS BY USING CCM FACILIT Y IS IRRELEVANT AS IT IS ONLY 0.18% OF THE TOTAL TRADES CARRIED OUT BY TH E BROKER DURING THE YEAR. ALSO, THE FACT THE ASSESSEES CLIENT CODE WAS SET AS DEFAULT IN THE SYSTEM IS FOR THE CONVENIENCE OF THE BROKER. THE AS SESSEE HAS NO CONTROL OVER THE SYSTEM. THE CLIENT BRINGS TO THE NOTICE OF THE BROKER ANY MISTAKE/ ERROR IN THE CLIENT CODE. 4. A STATEMENT SHOWING THE DETAILS OF MODIFIED CLIE NT NAMES AND THE PROFIT/LOSS TO THE MODIFIED CLIENT DUE TO CCM I S AT PB 27-32. ALSO BY REPLY DATED 15.02.2016 (PB 33-34) , THE ASSESSEE HAD SUBMITTED THE CONFIRMATIONS OF ITS PARTIES IN WHOSE CASE MODIFICA TIONS HAVE BEEN CARRIED OUT. THIS SHOWS THAT THE PROFIT/LOSS ARE OF THE CLIENTS OF M/S ARTISTIC FINANCE PVT. LTD. WHICH IS WRONGLY PUNCHED BY IT TO THE ACCOUNT OF THE ASSESSEE AND WHEN POINTED OUT, IT WAS TRANSF ERRED TO THE RESPECTIVE CLIENT ACCOUNT WHO HAVE SHOWN THE SAME IN THEIR RET URN OF INCOME. THUS, ASSESSEE HAS NOTHING TO DO WITH THIS LOSS AND THERE FORE, THERE DOES NOT ARISE ANY QUESTION TO DISALLOW THE SAME. 5. THE LD. CIT(A) ONLY ON SURMISES AND CONJECTURES OBSERVED THAT THESE TRANSACTIONS ARE OF THE ASSESSEE IGNORING THA T M/S ARTISTIC FINANCE PVT. LTD. HAS ADMITTED THAT THESE TRANSACTIONS ARE NOT OF THE ASSESSEE. THE RELIANCE PLACED BY HIM IN CASE OF MCDOWELL & CO. LT D. IS THUS MISPLACED AND NOT APPLICABLE. 6. RELIANCE IN THIS CONNECTION IS PLACED IN THE CAS E OF ACIT VS. KUNVARJI FINANCE PVT. LTD. 119 DTR 1 (AHD.) (TRIB.) WHERE IT WAS HELD THAT AS PER CIRCULAR NO. MCX/T&S/032/2007 DT. 22.01.2007 ISSUED BY THE COMMODITY EXCHANGE, CLIENT CODE MODIFICATION IS PERMITTED INTRA-DAY I.E. ON THE SAME DAY. THERE IS NO PENALTY IF THE CLIENT CODE MODIFICATION IS UPTO 1 PER CENT OF THE TOTAL ORDERS . IN THE PRESENT CASE, CLIENT CODE MODIFICATIONS MADE BY THE ASSESSEE BEIN G ONLY 0.94 PER CENT I.E. LESS THAT 1 PER CENT OF THE TOTAL TRADING TRAN SACTIONS, CANNOT BE SAID TO BE UNUSUALLY HIGH OR MALA FIDE WHEN THE MODIFICATIO N WAS MADE ON THE SAME DAY. HAD THE CLIENT MODIFICATION BEEN DONE AFT ER THE TRANSACTION PERIOD WHEN THE PRICE OF THE COMMODITY HAD CHANGED, THEN PERHAPS THERE COULD HAVE BEEN SOME BASIS TO PRESUME THAT CLIENT C ODE MODIFICATION WAS INTENTIONAL. EVEN IF THE VIEW OF THE REVENUE IS ACCEPTED THAT CLIENT CODE MODIFICATION WAS DONE WITH MALA FIDE INTENTION , THEN THE PROFIT OR LOSS ACCRUING TILL THE CLIENT CODE MODIFICATION CAN BE CONSIDERED IN THE CASE OF THE ASSESSEE BUT THE PROFIT/LOSS ARISING AF TER SUCH MODIFICATION CAN BY NO STRETCH OF IMAGINATION BE CONSIDERED IN T HE HANDS OF THE ITA NO. 911/JP/2016 M/S. NOBLE SECURITIES VS. ITO, WARD- 1(4), ALWAR . 8 ASSESSEE. MOREOVER, CIT(A) HAVING FOUND THAT ALL TR ANSACTIONS AT THE COMMODITIES EXCHANGE HAVE BEEN DULY ACCOUNTED IN TH E BOOKS OF ACCOUNT MAINTAINED BY THE CONCERNED PARTIES, THERE CANNOT BE ANY JUSTIFICATION FOR CONSIDERING THAT PROFIT/LOSS IN T HE CASE OF THE ASSESSEE ON THE BASIS OF MERE PRESUMPTION OR SUSPICION. IN VIEW OF THE ABOVE, THE LD. CIT(A) IS NOT JUSTIFI ED IN CONFIRMING THE ADDITION MADE BY THE AO AND THE SAME BE DELETED. 3.3 DURING THE COURSE OF HEARING, THE LD. DR RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 3.4 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS NOTED THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF TRADING OF TRADING IN SH ARES. IT IS NOTED THAT THE ASSESSEE ITSELF IS A CLIENT OF M/S. ARTISTIC FINANC E (P) LTD. WHICH CARRIED OUT BUSINESS ON BEHALF OF THE ASSESSEE AND THE CLIE NTS OF THE ASSESSEE. IT IS NOTED THAT EVERY CLIENT IS PROVIDED A UNIQUE CODE W HICH IS PUNCHED WHILE MAKING THE TRANSACTIONS. IT IS NOTED THAT SOMETIME THE OPERATING STAFF IS NOT WELL VERSED WITH THE SYSTEM WHO AT THE TIME OF MAKING TRANSACTIONS IN SHARES AND IN ORDER TO SAVE TIME, PREFIXED THE CLI ENT CODE OF THE ASSESSEE IN THE SYSTEM AS DEFAULT WHICH SOMETIME LED TO ERRO R IN PUNCHING OF CLIENT CODES. IN ORDER TO RECTIFY THE PUNCHING OF CLIENT C ODE, A FACILITY I.E. CLIENT CODE MODIFICATION (IN SHORT CCM) IS PROVIDED BY THE STOCK EXCHANGE TILL 4:15 PM OF THE TRADE DAY BY ITSELF WHICH CAN BE DON E ONLY ON WRITTEN REQUEST BY THE CLIENT. IT IS ALSO MENTIONED IN CIRC ULAR NO. 974 DATED ITA NO. 911/JP/2016 M/S. NOBLE SECURITIES VS. ITO, WARD- 1(4), ALWAR . 9 10.09.2009 OF THE NATIONAL SECURITIES CLEARING CORP ORATION LIMITED FOR ITS FUTURES & OPTIONS SEGMENT (PB 25-26) . THE STOCK EXCHANGE HAS ALSO DRAWN A LIST OF THE COMMON VIOLATIONS COMMITTED AND THE APPLICABLE PENALTIES (PB 21-24) WHERE IT IS STATED THAT IF THE TRANSFER OF TRADES / ERRORS AT THE TIME OF ORDER ENTRIES ARE IN EXCESS O F 2% OF THE NUMBER OF ORDERS EXECUTED, FINE OF 0.1% OF VALUE OF TRADES TR ANSFERRED IS APPLICABLE. IT IS ALSO NOTED FROM THE RECORDS THAT THE DURING T HE YEAR THE BROKER HAD CARRIED OUT THE BROKER HAD CARRIED OUT 2380 MODIFICATIONS BY USING CCM FACILITY WHICH IS ONLY 0.18% OF THE TOTAL TRADES CARRIED OUT BY THE BROKER DURING THE YEAR. IT IS NOTED THAT THE A SSESSEES CLIENT CODE WAS SET AS DEFAULT IN THE SYSTEM IS FOR THE CONVENIENCE OF THE BROKER. THE ASSESSEE HAS NO CONTROL OVER THE SYSTEM. THE CLIENT BRINGS TO THE NOTICE OF THE BROKER ANY MISTAKE/ ERROR IN THE CLIENT CODE. I T MAY BE NOTED THAT ITAT AHEMDABAD BENCH IN THE CASE OF ACIT VS. KUNVAR JI FINANCE (P) LTD. 119 LD. DR 1 HAD OBSERVED THAT THE CLIENT CODE MODIFICATION IS PERMITTED INTRA DAY I.E. ON THE SAME DAY. THE RELEV ANT PORTION OF THE DECISION IS AS UNDER:- A S PER CIRCULAR NO. MCX/T&S/032/2007 DT. 22.01.2007 ISSUED BY THE COMMODITY EXCHANGE, CLIENT CODE MODIFICATION IS PERMITTED INTRA- DAY I.E. ON THE SAME DAY. THERE IS NO PENALTY IF TH E CLIENT CODE MODIFICATION IS UPTO 1 PER CENT OF THE TOTAL ORDERS . IN THE PRESENT CASE, CLIENT CODE MODIFICATIONS MADE BY THE ASSESSEE BEIN G ONLY 0.94 PER CENT I.E. LESS THAT 1 PER CENT OF THE TOTAL TRADING TRAN SACTIONS, CANNOT BE SAID TO BE UNUSUALLY HIGH OR MALA FIDE WHEN THE MODIFICATIO N WAS MADE ON THE ITA NO. 911/JP/2016 M/S. NOBLE SECURITIES VS. ITO, WARD- 1(4), ALWAR . 10 SAME DAY. HAD THE CLIENT MODIFICATION BEEN DONE AFT ER THE TRANSACTION PERIOD WHEN THE PRICE OF THE COMMODITY HAD CHANGED, THEN PERHAPS THERE COULD HAVE BEEN SOME BASIS TO PRESUME THAT CLIENT C ODE MODIFICATION WAS INTENTIONAL. EVEN IF THE VIEW OF THE REVENUE IS ACCEPTED THAT CLIENT CODE MODIFICATION WAS DONE WITH MALA FIDE INTENTION , THEN THE PROFIT OR LOSS ACCRUING TILL THE CLIENT CODE MODIFICATION CAN BE CONSIDERED IN THE CASE OF THE ASSESSEE BUT THE PROFIT/LOSS ARISING AF TER SUCH MODIFICATION CAN BY NO STRETCH OF IMAGINATION BE CONSIDERED IN T HE HANDS OF THE ASSESSEE. MOREOVER, CIT(A) HAVING FOUND THAT ALL TR ANSACTIONS AT THE COMMODITIES EXCHANGE HAVE BEEN DULY ACCOUNTED IN TH E BOOKS OF ACCOUNT MAINTAINED BY THE CONCERNED PARTIES, THERE CANNOT BE ANY JUSTIFICATION FOR CONSIDERING THAT PROFIT/LOSS IN T HE CASE OF THE ASSESSEE ON THE BASIS OF MERE PRESUMPTION OR SUSPICION. RESPECTFULLY FOLLOWING THE DECISION OF ITAT AHEMDAB AD BENCH (SUPRA), THE GROUND NO. 2 AND 2.1 OF THE ASSESSEE IS ALLOWED . 4.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED ORDER PRONOUNCED IN THE OPEN COURT ON 23/03/2017 . SD/- HKKXPUN ( BHAGCHAND) YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 23 /03/ 2017 *MISHRA VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S. NOBLE SECURITIES, ALWAR 2. IZR;FKHZ@ THE RESPONDENT- THE ITO, WARD- 1(4), ALWAR 3. VK;DJ VK;QDRVIHY@ CIT(A). 4. VK;DJ VK;QDR@ CIT, 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 911/JP/2016 ) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ @ ASSISTANT. REGISTRAR