JAP INFRACON PVT. LTD., MUMBAI V. ITO-12(3)(1), MUMBAI

ITA 95/MUM/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7907 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 07-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DHARM VEER SINGH
• Assessee Lawyers: R C JAIN
• Keywords: Transactions in derivatives; Set aside
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC MUMBAI BEFORE SHRI VIKAS AWASTHY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 95/MUM/2019 ASSESSMENT YEAR: 2009 - 10 JAP INFRACON PVT. LTD. B - 102, TWINKLE APT, NEW LINK ROAD, LOKHANDWALA COMPLEX, ANDHERI (W), MUMBAI - 400053. VS. ITO - 12(3)(1), R OOM NO. 147A, AAYAKAR BHAVAN, MUMBAI - 400020. PAN NO. AAACP3809P APPELLANT RESPONDENT ASSESSEE BY : MR. R.C. JAIN, AR REVENUE BY : MR. DHARM VEER SINGH, DR DATE OF HEARING : 13/01/2020 DATE OF PRONOUNCEMENT : 22/01/2020 ORDER PER N.K. PRADHAN, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2009 - 10. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 21, MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) R.W.S 147 OF THE INCOME TAX ACT 1961, (THE ACT). 2. THE ISSUE HERE IS WHETHER AN ADDITION OF RS.4,75,322/ - CAN BE MADE BY THE AO ON ACCOUNT OF ALLEGED ARTIFICIAL LOSS CREATED BY MEANS OF CLIENT CODE MODIFICATION. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2009 - 10 ON 30.09.2009 DE CLARING TOTAL INCOME OF RS.9,24,610/ - . THE JAP INFRACON PVT. LTD.ARI ITA NO. 95/MUM/2019 2 ASSESSING OFFICER (AO) RECEIVED INFORMATION FROM THE DEPUTY DIRECTOR OF INCOME TAX (INV), UNIT - 1(3), AHMEDABAD THAT THE ASSESSEE WAS A BENEFICIARY OF LOSSES IN F&O SEGMENT, WHICH THE BROKER OF THE ASSESSEE PROVIDE D TO HIM BY MEANS OF CLIENT CODE MODIFICATION. ON THE BASIS OF THE ABOVE INFORMATION, THE AO RE - OPENED THE ASSESSMENT AND ASKED THE ASSESSEE TO EXPLAIN AS TO WHY LOSSES OF RS.4,75,322/ - SHOULD NOT BE DISALLOWED AS NON - GENUINE HAVING BEEN CREATED IN ITS ACC OUNT BY ITS BROKER RK GLOBAL SHARES AND SECURITIES LTD. BY MEANS OF SHIFTING OF TRADES BY CLIENT CODE MODIFICATION. THE ASSESSEE FILED A REPLY VIDE LETTER DATED 07.12.2016 AND 22.12.2016 ENCLOSING COPIES OF CERTAIN BROKERS NOTE ISSUED BY RK GLOBAL SHARES & SECURITIES LTD. HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE EXPLANATION OF THE ASSESSEE AND MADE A DISALLOWANCE OF RS.4,75,322/ - ON THE REASON THAT (I) ORIGINALLY LOSSES OF RS.4,75,322/ - ON BUSINESS IN F&O SEGMENT ACCRUED TO VARIOUS PERSONS/CLIENTS OF RK GLOBAL SHARES & SECURITIES LTD. ; HOWEVER, RK GLOBAL SHARES & SECURITIES LTD. SHIFTED THESE LOSSES AGGREGATING TO RS.4,75,322/ - TO THE ACCOUNT OF THE ASSESSEE; (II) ALL INSTANCES OF CLIENT CODE MODIFICATION CARRIED OUT BY RK GLOBAL SHARES & SECURITIE S LTD. ARE SIMILAR TO THAT OF THE ASSESSEE; (III) ONLY COMPLETELY MATCHED SQUARED OFF INTRA - DAY POSITIONS WHICH HAVE BEEN MODIFIED HAVE BEEN TAKEN SO AS TO COMPLETE LOSSES THEREBY REDUCING TAXABLE INCOME. WITH THE ABOVE REASONS, THE AO MADE A DISALLOWANC E OF RS.4,75,322/ - . 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT VIDE ORDER DATED 31.10.2018, THE LD. CIT(A) AGREED WITH THE FINDINGS OF THE AO AND DISMISSED THE APPEAL FILED BY THE ASSESSEE. JAP INFRACON PVT. LTD.ARI ITA NO. 95/MUM/2019 3 4. BEF ORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE AO HAS NOT MADE ANY INQUIRIES FROM THE BROKER AND THE COUNTER PARTIES TO ESTABLISH THE FACTS OF APPELLANT HAVING TAKEN THE ALLEGED NON - GENUINE/FICTITIOUS LOSSES. IT IS EXPLAINED THAT THE AO HAS SIMP LY RELIED UPON THE INFORMATION RECEIVED FROM THE INVESTIGATION WING, AHMADABAD. IT IS FURTHER ARGUED THAT NO INDEPENDENT INQUIRY HAS BEEN MADE BY THE AO AND THE ADDITION IS SOLELY BASED ON SUSPICION WITHOUT APPRECIATING THAT THE SAME, HOWSOEVER STRONG , CAN NOT PARTAKE THE CHARACTER OF EVIDENCE. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITS THAT IN THE INSTANT CASE CHANGING OF THE CLIENT CODE SHOWS THAT THE ASSESSEE HAS USED THE FACILITY AS A ROUTINE PROCESS AND NOT AS AN EXCEPTION TO RECTIFY THE GENUINE PUNCHING/PLACING ERRO RS. FURTHER, IT IS STATED THAT THE ASSESSEE HAS FAILED TO PROVIDE ANY CREDIBLE EVIDENCE IN SUPPORT OF GENUINE PUNCHING ERROR AND IT HAS NOT PRODUCED SUFFICIENT EVIDENCE TO PROVE THAT IT IS A MERE HUMAN ERROR. RELYING ON THE ORDER OF THE LD. CIT(A), THE LD. DR SUBMITS THAT MERELY REBUTTING THE CASE WITHOUT ANY SUBSTANTIAL DOCUMENTARY EVIDENCE WILL NOT SUPPORT THE CASE OF THE ASSESSEE AND INCRIMINATING MATERIAL HAS BEEN FOUND. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECOR D. IN THE INSTANT CASE, THE AO HAS SOLELY RELIED ON THE INFORMATION RECEIVED FROM DEPUTY DIRECTOR OF INCOME TAX (INV), UNIT - 1(3), AHMADABAD THAT THE ASSESSEE WAS A BENEFICIARY OF LOSSES IN F&O SEGMENT, WHICH THE BROKER OF THE ASSESSEE PROVIDED TO HIM BY ME ANS OF CLIENT CODE MODIFICATIONS. THE AO HAS NOT FOUND ANY FAULT IN THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE AND RECORDED IN ITS BOOKS OF ACCOUNT. THERE IS MERIT IN THE CONTENTIONS OF THE LD. COUNSEL THAT THE MODIFICATION, IF ANY , WAS CARRIED OUT BY T HE BROKER ONLY TO CORRECT ANY PUNCHING ERROR THAT MAY HAVE JAP INFRACON PVT. LTD.ARI ITA NO. 95/MUM/2019 4 HAPPENED WHILE EXECUTING THE TRANSACTIONS WHICH IS PERMITTED BY THE STOCK EXCHANGE AND THE ASSESSEE CANNOT BE CALLED UPON TO EXPLAIN THE SAME. A PERUSAL OF THE ASSESSMENT ORDER DATED 31.12.2016 PAS SED BY THE AO CLEARLY INDICATES THAT THE INFERENCE DRAWN THEREIN IS NOT BASED ON ANY EVIDENCE. CONSIDERING THE FACTS OF THE INSTANT CASE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DELETE THE DISALLOWANCE OF RS.4,75,322/ - . 6. IN THE RESULT, THE APPEAL FI LED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22/01/2020. SD/ - SD/ - ( VIKAS AWASTHY ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 22/01/2020 BISWAJIT , SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI