The ACIT, Central Circle-1(1), Ahmedabad V. Shri Amar Mukesh Shah, Surendranagar

ITSSA 92/AHD/2011

• Counselvise Citation: [2015] 122 COUNSELVISE.COM (IT) 0836 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 16-09-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 02-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VASUNDHARA UPMANYU
• Assessee Lawyers: PRITESH L SHAH
• Keywords: Search and seizure; Transactions in derivatives; Corroborative evidences
• Section: 143(3); 142(1); 153A; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER & SHRI S.S. GODARA, JUDICIAL MEMBER) I.T.(SS) A. NOS. 92 & 93 /AHD/2011 (ASSESSMENT YEARS: 20 05-06 & 2007-08) A.C.I.T., CENTRAL CIRCLE 1(1), AHMEDABAD V/S SHRI AMAR MUKESH SHAH TANKI CHOWK, OPP. CLOTH MARKET, SURENDRANAGAR (APPELLANT) (RESPONDENT) PAN: AQEPS 9060L APPELLANT BY :SMT. VASUNDHARA UPMANYU, SR. D.R. RESPONDENT BY : SHRI PRITESH L. SHAH, A.R. ( )/ ORDER DATE OF HEARING : 16-09-2015 DATE OF PRONOUNCEMENT : 30-09-2015 PER ANIL CHATURVEDI, ACCOUNTANT MEMBER 1. THESE TWO APPEALS FILED BY THE REVENUE ARE AGAINST THE ORDER OF CIT(A)-I, AHMEDABAD DATED 22.11.2010 FOR A.Y. 2005-06 & 2007- 08 RESPECTIVELY. IT(SS)A NOS. 92 & 93/AHD/2011 . A.YS. 2005 -06 & 2007-08 2 2. AT THE OUTSET, BEFORE US, BOTH THE PARTIES SUBMITTE D THAT THOUGH THE APPEAL OF THE ASSESSEE RELATES TO TWO DIFFERENT ASSESSMENT YE ARS BUT THE FACTS AND CIRCUMSTANCES OF BOTH THE YEARS ARE SIMILAR EXCEPT FOR THE ASSESSMENT YEARS AND AMOUNTS INVOLVED AND THE SUBMISSIONS ARE ALSO C OMMON FOR BOTH THE APPEALS AND THEREFORE BOTH THE APPEALS CAN BE HEARD TOGETHER. WE THEREFORE PROCEED TO DISPOSE OF BOTH THE APPEALS TOGETHER FOR THE SAKE OF CONVENIENCE AND PROCEED WITH THE FACTS IN IT(SS)A NO. 92/AHD/2 011 FOR A.Y. 2005-06. 3. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 4. ASSESSEE IS AN INDIVIDUAL STATED TO BE CARRYING OUT THE BUSINESS OF TRADING IN SHARES AND INVESTMENTS. A SEARCH AND SEIZURE ACTION WAS CONDUCTED ON KUNWARJI GROUP ON 25.03.2008 AND SUBSEQUENT DATES AND VARIOUS DOCUMENTS AND OTHER THINGS FOUND WERE SEIZED. THE S EIZED DOCUMENT ALSO CONTAINED COMPUTER DATA BELONGING TO ASSESSEE AND A CCORDINGLY, IN VIEW OF THE PROVISIONS OF SECTION 153C R.W.S. 153A OF THE A CT, PROCEEDINGS U/S. 153C WERE INITIATED AGAINST THE ASSESSEE BY ISSUING NOTICE ON 16.09.2009 AND IN RESPONSE TO WHICH ASSESSEE FILED HIS RETURN OF INCOME ON 27.10.2009 DECLARING TOTAL INCOME AT RS. 77,99,300/-. THEREAFT ER THE ASSESSMENT WAS FRAMED U/S. 153A (1)(B) R.W.S. 143(3) VIDE ORDER DA TED 29.12.2009 AND THE TOTAL INCOME WAS DETERMINED AT RS. 99,25,850/-. AGG RIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO VIDE ORDER DATED 22.11.2010 GRANTED SUBSTANTIAL RELIEF TO THE ASSESS EE. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), REVENUE IS NOW IN AP PEAL BEFORE US AND HAS RAISED THE FOLLOWING EFFECTIVE GROUND:- IT(SS)A NOS. 92 & 93/AHD/2011 . A.YS. 2005 -06 & 2007-08 3 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS. 20,73,540/- MADE ON ACCOUNT OF SUPPRESSION OF PROFI T BY THE ASSESSEE BY WAY OF CLIENT CODE MODIFICATIONS BY THE BORKERS IN A LARGE NUMBER OF COMMODITY TRANSACTIONS. 5. A.O HAS NOTED THAT ASSESSEE WAS ENGAGED IN COMMODIT Y TRANSACTIONS THROUGH ITS BROKER, KUNWARJI COMMODITY BROKERS PVT. LTD. HE HAS NOTED THAT ON ENQUIRIES CONDUCTED BY INVESTIGATION WING, IT WA S REVEALED THAT KUNWARJI COMMODITY BROKERS PVT. LTD. HAD DONE CLIENT CODE MO DIFICATIONS UNUSUALLY HIGH NUMBER OF TIMES DURING FINANCIAL YEA R 2004-05 TO 2006-07 AND THE MODIFICATIONS WERE RESORTED WITH MALAFIDE I NTENTIONS AND WAS FOR THE PURPOSE OF TRANSFERRING THE PROFITS/LOSSES FROM ONE CLIENT TO ANOTHER. IN THE CASE OF ASSESSEE, IT WAS CONCLUDED BY A.O THAT KUNW ARJI COMMODITY BROKERS PVT. LTD. HAD CARRIED OUT CLIENT CODE MODIF ICATIONS IN ACTIVE CONNIVANCE WITH THE ASSESSEE WHICH HAD RESULTED INT O THE DIVERSION OF PROFITS OF THE ASSESSEE TO OTHER PERSONS. A.O THERE AFTER WORKED OUT THE DIFFERENCE OF PROFITS AS INDICATED BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS AND AS WORKED OUT BY REVERSING THE EFFECT OF CLIENT CODE MODIFICATION, AND THE DIFFERENCE AS WORKED OUT BY HIM OF RS. 20,73,54 3/- WAS TREATED AS SUPPRESSED PROFIT OF ASSESSEE. AGGRIEVED BY THE ORD ER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO DELETED TH E ADDITION MADE BY THE A.O BY HOLDING AS UNDER:- 5.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISS IONS OF THE APPELLANT. THE ENTIRE FACTS WITH REGARD TO THE ADVERSE INFERENCES DRAWN BY THE ASSESSING OFFICER ON ACCOUNT OF CLIENT CODE MODIFICATIONS HAVE BEEN E LABORATELY DISCUSSED BY ME IN THE CASE OF KUNWARJI FINANCE PVT. LTD. WHERE THE APPEALS FOR THE A.Y. 2005-06 TO 2008-09 HAVE DISPOSED OF BY COMMON ORDER DATED 2 0.05.2010 IN APPEAL NO. CIT(A)- 1(1)/252,253,254&255/2009-10. IN THAT CASE, THE CO RRECT FACTUAL POSITION IT(SS)A NOS. 92 & 93/AHD/2011 . A.YS. 2005 -06 & 2007-08 4 REGARDING CLIENT CODE MODIFICATIONS HAS BEEN THOROU GHLY ANALYZED 1 AND EXAMINED BY ME AND IT HAS BEEN FOUND THAT WHATEVER PROFITS HAVE ACCRUED TO THE CLIENTS AND THE OTHER PARTIES WITH WHOM THE CLIENTS HAVE TRADED ARE DULY ACCOUNTED IN THE BOOKS OF THE CONCERNED PARTIES AND THESE TRANSACTIONS DULY MATCHED WITH THE DATA OF THE COMMODITY EXCHANGES. T HE MISMATCH WHICH HAS BEEN WORKED ,OUT BY THE ASSESSING OFFICER IS ONLY O N ACCOUNT OF THE FACT THAT THE ASSESSING OFFICER HAS CALCULATED NOTIONAL PROFITS O N THE ASSUMPTION AS IF CLIENT CODE MODIFICATIONS WERE NOT CARRIED OUT AND THE TRA NSACTIONS WERE CLOSED ON THE EXPIRY DATE. WHILE DECIDING THE APPEALS IN THE CASE OF KFPL, ON SIMILAR ISSUES, IT WAS FORCEFULLY ARGUED BEFORE ME THAT THE ADDITION O N THE BASIS OF CLIENT CODE MODIFICATIONS ARE ONLY -ON ASSUMPTIONS AND SURMISES WHICH IS NOT PERMISSIBLE UNDER LAW AND FURTHER THAT THE ADDITIONS ARE ONLY N OTIONAL AND BRINGING TO THE CHARGE OF TAX SUCH NOTIONAL INCOME IS REPUGNANT TO THE CONCEPT OF 'REAL INCOME'. FOR THE ABOVE PROPOSITIONS RELIANCE WAS PLACED ON S EVERAL DECIDED CASES. MY FINDINGS ON ALL THESE ISSUES AS RECORDED IN MY ORDE R IN THE CASE OF KFPL HAVE BEEN REPRODUCED HEREUNDER: '4.11 I HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE VARIOUS REASONS GIVEN BY THE ASSESSING OFFICER FOR HIS CONCLUSION THAT THE C LIENT CODE MODIFICATIONS WERE DELIBERATELY AND MALA FIDE CARRIED OUT WITH A VIEW TO TRANSFER THE PROFITS SO AS TO REDUCE THE INCIDENCE OF TAX IN THE CASE OF KUNWARJI GROUP. I HAVE ALSO CONSIDERED THE DETAILED SUBMISSIONS MADE BEFORE ME ON BEHALF O F THE APPELLANT COMPANY AND HAVE ALSO GONE THROUGH THE VARIOUS JUDICIAL PRONOUN CEMENTS CITED BEFORE ME. AT THE VERY OUTSET, IT MAY BE STATED THAT THE HUGE ADD ITIONS MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT YEARS UNDER APPEAL ON THE BASIS OF CLIENT CODE MODIFICATIONS HAVE NO REFERENCE TO ANY SEIZED MATER IAL. THESE ADDITIONS HAVE BEEN MADE BY THE ASSESSING OFFICER-ENTIRELY ON THE BASIS OF CERTAIN POST-SEARCH ENQUIRIES MADE FROM THE COMMODITY EXCHANGES. THESE ENQUIRIES REVEALED THAT KUNWARJI COMMODITY BROKERS PVT. LIMITED (KCBPL), WH ICH IS ENGAGED IN THE BUSINESS OF BROKERAGE ON COMMODITY EXCHANGES, HAS C ARRIED OUT CLIENT CODE MODIFICATIONS. THERE IS NO OTHER MATERIAL OR EVIDEN CE TO SUPPORT THE ADDITIONS MADE BY THE ASSESSING OFFICER AND THE ASSESSING OFF ICER HAS DRAWN HIS OWN IT(SS)A NOS. 92 & 93/AHD/2011 . A.YS. 2005 -06 & 2007-08 5 INFERENCES FROM THE CLIENT CODE MODIFICATIONS. FURT HER, THE ADDITIONS MADE BY THE ASSESSING OFFICER ARE ON THE BASIS OF CERTAIN ASSUM PTIONS. THE MAIN BASIS OF THE ASSESSING OFFICER FOR MAKING THE ADDITIONS IS THAT LARGE NUMBER OF CLIENT CODE MODIFICATIONS WERE CARRIED OUT BY KCBPL AND SUCH MO DIFICATIONS DURING THE FOUR ASSESSMENT YEARS UNDER APPEAL COME TO 36,161. THE A SSESSEE EXPLAINED TO THE ASSESSING OFFICER AS ALSO BEFORE ME THAT THE TOTAL TRADES CONDUCTED BY KCBPL ON BEHALF OF VARIOUS CLIENTS INCLUDING ENTITIES OF KUN WARJI GROUP, DURING THE PREVIOUS YEARS RELEVANT TO THE FOUR ASSESSMENT YEAR S STAND AT 38,58,645. THUS, THE CLIENT CODE MODIFICATIONS COME TO 0.94%. THE ASSESS EE FURTHER EXPLAINED THAT OUT OF THE CLIENT CODE MODIFICATIONS CARRIED OUT, 15,31 0 MODIFICATIONS WERE DONE BY THE CLIENTS/TRADERS THEMSELVES THROUGH DIRECT CONNE CTIVITY WITH THE COMMODITY EXCHANGES TO WHICH THEY HAD ACCESS. THUS, THE CLIEN T CODE MODIFICATIONS CARRIED OUT DIRECTLY BY THE TRADERS COME TO 45% OF SUCH MOD IFICATIONS, WHICH MEANS THAT THE PERCENTAGE OF MODIFICATIONS CARRIED OUT BY KCBP L WOULD BE AROUND 0.5%. IT WAS FURTHER EXPLAINED WITH SUPPORTING EVIDENCE THAT ONE TRADING ORDER NORMALLY COMPRISES OF MORE THAN ONE TRADE, WHICH WOULD FURTH ER REDUCE THE PERCENTAGE OF MODIFICATIONS TO A NEGLIGENT FIGURE. THIS POINT HAS BEEN EXPLAINED AT PAGE - 35 OF THE STATEMENT OF FACTS WITH REFERENCE TO TRANSACTIO NS AT MCX. THE TOTAL NUMBER OF TRADES IN MCX IS 26,69,129 AND THE TOTAL NUMBER OF TRADES MODIFIED STANDS AT 15,678. THE NUMBER OF ORDERS MODIFIED IS ONLY 5,915 , WHICH COMES TO 0.22% OF THE TOTAL NUMBER OF TRADES. IT HAS BEEN POINTED OUT ON BEHALF OF THE APPELLANT THAT THE POSITION REGARDING TRANSACTIONS IN NCDEX WOULD ALSO BE SIMILAR BUT THE BREAK-UP IS NOT AVAILABLE FROM NCDEX. COPIES OF CIR CULARS ISSUED BY MCX HAVE BEEN FILED, WHICH SHOW . THAT CLIENT CODE MODIFICAT IONS WITH A VIEW TO RECTIFY PUNCHING ERRORS IS PERMISSIBLE TO THE EXTENT OF 1%. IF SUCH MODIFICATIONS ARE MORE THAN 1% BUT LESS THAN OR EQUAL TO 5%, NOMINAL PENAL TY OF RS. 500 IS LEVIABLE. IN THE PRESENT CASE, IF ALL THE FACTS ARE OBJECTIVELY ANALYSED, IT IS SEEN THAT EFFECTIVELY THE CLIENT CODE MODIFICATIONS CAN BE SAID TO.BE ARO UND 0.5% FOR THE ASSESSMENT YEARS UNDER APPEAL. THEREFORE, I SEE NO JUSTIFICATI ON IN THE ASSUMPTION OF THE ASSESSING OFFICER THAT LARGE NUMBER OF CLIENT CODE MODIFICATIONS WAS CARRIED OUT. FOR THE SAME REASON, THERE IS HARDLY ANY BASIS FOR THE ASSUMPTION ON THE PART OF IT(SS)A NOS. 92 & 93/AHD/2011 . A.YS. 2005 -06 & 2007-08 6 THE ASSESSING OFFICER THAT THE CLIENT CODE MODIFICA TIONS WERE CARRIED OUT IN LARGE NUMBERS WITH THE MOTIVE OF TRANSFERRING PROFITS. TH E ASSESSING OFFICER HAS FAILED TO BRING ANY MATERIAL OR EVIDENCE ON RECORD TO EVEN REMOTELY SUGGEST THAT THE ASSESSEES OF THIS GROUP RESORTED TO DELIBERATE CLIE NT CODE MODIFICATIONS WITH A VIEW TO REDUCE INCIDENCE OF TAX. 4.12 FURTHER, WHATEVER MODIFICATIONS HAVE BEEN CARR IED OUT, THE REASONS FOR SUCH MODIFICATIONS WERE THOROUGHLY EXPLAINED BEFORE THE ASSESSING OFFICER AS ALSO BEFORE ME. THE ASSESSEE'S EXPLANATION HAS BEEN SUMM ARISED UNDER SIX POINTS AT PAGES - 42 TO 43 OF THE STATEMENT OF FACTS. THESE R EASONS ARE CONVINCING AND OBVIOUSLY, THE CLIENT CODE MODIFICATIONS HAVE BEEN CARRIED OUT TO RECTIFY GENUINE PUNCHING ERRORS. IF SUCH GENUINE ERRORS ARE NOT REC TIFIED, AND THE TRANSACTIONS ALLOWED CONTINUING IN THE NAME OF WRONG CLIENTS, IT WOULD RESULT INTO A CHAOTIC SITUATION. THEREFORE, I SEE NO MERIT IN THE CONCLUS ION DRAWN BY THE ASSESSING OFFICER THAT CLIENT CODE MODIFICATIONS WERE CARRIED OUT WITH A VIEW TO TRANSFER PROFITS. THIS VIEW IS FURTHER STRENGTHENED BY THE F ACT THAT THE ADDITIONS MADE BY THE ASSESSING OFFICER ARE ENTIRELY IN THE NATURE OF 'NOTIONAL PROFIT' AND NOT 'REAL INCOME', WHICH HAS ALSO BEEN TERMED AS 'NOTIONAL' B Y THE ASSESSING OFFICER HIMSELF IN THE NOTICE U/S. 142(1) ISSUED BY HIM. (I) THE ASSESSING OFFICER HAS CALCULATED THE ALLEGE D SUPPRESSED PROFITS ON A FURTHER ASSUMPTION THAT THE OPEN POSITION IN ALL CO NTRACTS TO BUY OR SELL ARE SQUARED OFF AT THE EXPIRY PRICES OF THE CONTRACT. I N OTHER WORDS, THE ASSESSING OFFICER ASSUMED THAT THE TRANSACTIONS WOULD BE FINA LISED AT THE EXPIRY DATE AND ACCORDINGLY, HE CALCULATED THE ASSUMED PROFIT ON TH E BASIS OF THE PRICES OF THE COMMODITY PREVAILING AT THE EXPIRY DATE. APPARENTLY THIS IS A HYPOTHETICAL . (II) THE ASSESSING OFFICER COMPLETELY IGNORED THE C ORRECT FACTUAL POSITION THAT THE CLIENT CODE MODIFICATIONS WERE, IN MOST OF THE CASE S, CARRIED OUT WITHIN A FEW MINUTES OR IN ALL CASES BY THE END OF THE SAME DAY, AS CLIENT CODE MODIFICATION IS NOT PERMITTED BEYOND THAT DAY. (III) ON THE OTHER HAND, THE EXPIRY PRICE IS A PRIC E WHICH PREVAILED ON THE DAY ON WHICH THE CONTRACT EXPIRES AND HAS TO BE SQUARE OFF . WHEN THE MODIFICATION HAS BEEN DONE, WITHIN A FEW MINUTES OR ON THE SAME DAY, IT IS BEYOND COMPREHENSION IT(SS)A NOS. 92 & 93/AHD/2011 . A.YS. 2005 -06 & 2007-08 7 AS TO HOW RELEVANT CONTRACT IS ASSUMED TO BE OPEN T ILL EXPIRY DATE AND HOW THE EXPIRY PRICES CAN BE ADOPTED FOR CALCULATING THE SO CALLED SUPPRESSED PROFITS. (IV) THE TRADING PARTIES COULD NOT HAVE BEEN AWARE OF THE EXPIRY PRICE AND, THEREFORE, NO MOTIVE CAN BE IMPUTED THAT THE MODIFI CATIONS WERE CARRIED OUT WITH A VIEW TO AVOID TAX. THERE IS NO MATERIAL WHATSOEVE R TO SUPPORT THE CONCLUSION DRAWN BY THE ASSESSING OFFICER THAT CLIENT CODE MOD IFICATIONS WERE CARRIED OUT MALA FIDE WITH A VIEW TO TRANSFER PROFITS. SUCH ASS UMPTION IS TOTALLY ILLOGICAL FOR THE SIMPLE REASON THAT EVEN IF FOR THE SAKE OF ARGU MENT, IT IS ASSUMED THAT PROFITS WERE TRANSFERRED FROM ONE CLIENT TO ANOTHER, THERE, CAN BE NO MOTIVE FOR SUCH TRANSFER BECAUSE IF SUCH ASSUMED PROFIT IS TRANSFER RED WITHIN THE GROUP, THE TRANSFEREE ENTITY WILL HAVE TO PAY THE TAX. ON THE OTHER HAND, IF THE PROFIT IS TRANSFERRED TO SOME OUTSIDE CLIENT, IT WOULD AMOUNT TO A SITUATION WHERE A SUM OF RS. 100 IS FOREGONE BY THE APPELLANT COMPANY TO AVO ID PAYMENT OF TAX OF RS. 30 TO 35. THE METHODOLOGY ADOPTED BY THE ASSESSING OFFICE R FOR CALCULATING NOTIONAL AND HYPOTHETICAL PROFITS GIVES RISE TO SEVERAL CRUC IAL QUESTIONS WHICH REMAIN UNANSWERED AND THIS POINT WAS THOROUGHLY EXPLAINED BY THE ASSESSEE AT PAGES -14 TO 19 OF THE REPLY DATED-23 RD NOVEMBER, 2009 FILED BEFORE THE ASSESSING OFFICER. THESE ANOMALIES IN THE PRESUMPTIONS OF THE ASSESSIN G OFFICER HAVE ALSO BEEN EXPLAINED AT PAGES - 45 TO 50 OF THE STATEMENT OF F ACTS. 4.13 ANOTHER FACTOR WHICH CANNOT BE IGNORED IS THAT ALL TRANSACTIONS AT THE COMMODITIES EXCHANGES HAVE BEEN DULY ACCOUNTED IN T HE BOOKS OF ACCOUNT MAINTAINED BY THE CONCERNED PARTIES. SUCH PROFITS/L OSS HAS BEEN DULY ACCOUNTED WHENEVER THE TRANSACTIONS HAVE BEEN CLOSED. THUS, W HATEVER PROFITS HAVE BEEN GENERATED ON ACCOUNTING OF ACTUAL TRADE, HAVE BEEN OFFERED AND BROUGHT TO THE CHARGE OF TAX IN THE CASES OF CONCERNED ASSESSEES. ALL THE POINTS RAISED BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT P ROCEEDINGS HAVE BEEN DULY AND PROPERLY REPLIED-TO BY VARIOUS LETTERS FILED BY THE ASSESSEE AS ENUMERATED AT PAGES 57 TO 66 OF THE STATEMENT OF FACTS WHICH HAVE BEEN REPRODUCED SUPRA. 4.14 CONSIDERING THE ENTIRE FACTS AND THE LEGAL POS ITION, I HAVE NO HESITATION IN HOLDING THAT THE ADDITIONS MADE BY THE ASSESSING OF FICER IN THE FOUR ASSESSMENT IT(SS)A NOS. 92 & 93/AHD/2011 . A.YS. 2005 -06 & 2007-08 8 YEARS UNDER APPEAL ON ACCOUNT OF CLIENT CODE MODIFI CATIONS ARE WITHOUT ANY BASIS AND ACCORDINGLY THESE ADDITIONS ARE DELETED.' 5.3 FURTHER, IN THE CASE OF THE APPELLANT THE TOTAL NUMBER OF CLIENT CODE MODIFICATIONS IS 1497 AS NEW CLIENTS AS MENTIONED B Y THE ASSESSING OFFICER AT PAGE 4 OF THE ASSESSMENT ORDER. LOOKING AT THE TOTA L QUANTUM OF THE TRADES CARRIED ON BY THE APPELLANT, THESE MODIFICATIONS ARE IN NEG LIGIBLE NUMBER AND THUS, NO ADVERSE INFERENCE CAN BE DRAWN ON THE BASIS OF SUCH NEGLIGIBLE MODIFICATIONS WHICH HAVE BEEN DONE TO RECTIFY PUNCHING ERRORS. FU RTHER, AS OBSERVED BY ME ABOVE THE ADDITION IS IN THE NATURE OF ONLY NOTIONA L INCOME AND MADE BY ASSUMPTIONS. CONSIDERING THE TOTALITY OF THE FACTS AND THE LEGAL POSITION I HOLD THAT THE ADDITION MADE BY THE ASSESSING OFFICER ON THE B ASIS OF CLIENT CODE MODIFICATIONS IS WITHOUT ANY BASIS WHATSOEVER AND A CCORDINGLY, THESE ADDITIONS ARE DELETED. 6. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), RE VENUE IS NOW IN APPEAL BEFORE US. 7. BEFORE US, LD. D.R STRONGLY SUPPORTED THE ORDER OF A.O. ON THE OTHER HAND LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND LD. CIT(A) AND FURTHER SUBMITTED THAT IN CASE OF KUNWARJI FINANCE PVT. LTD . THE PLACE FROM WHERE THE DOCUMENTS WERE SEIZED AND WERE THE BASIS OF THE IMPUGNED ADDITION, THE APPEAL OF THE REVENUE WAS DISMISSED BY THE CO-ORDIN ATE BENCH OF TRIBUNAL IN IT(SS)A NOS. 615 TO 618/A/2010 ORDER DATED 19.03 .2015. HE POINTED TO THE RELEVANT PARA 11 AT PAGE 64 & 65 OF THE PAPER B OOK AND THEREFORE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITIONS. HE FURTHE R SUBMITTED THAT A.O WAS ALSO NOT CONSISTENT IN HIS APPROACH OF MAKING THE A DDITIONS BECAUSE THE A.O HAD NOT ACCEPTED THE REDUCTION IN PROFIT DUE TO CLI ENT MODIFICATION IN A.Y. 2005-06 & 2007-08 BUT WHEN THERE WAS INCREASE IN PR OFIT DUE TO CLIENT CODE MODIFICATIONS IN A.Y. 2006-07, THE INCREASE IN PROF ITS WAS ACCEPTED BY HIM. IT(SS)A NOS. 92 & 93/AHD/2011 . A.YS. 2005 -06 & 2007-08 9 HE FURTHER PLACED RELIANCE ON THE DECISIONS IN THE CASE OF SAMBHAVNATH INVESTMENT VS. ACIT 38 CCH 077, ASHOK GOYAL (HUF) V S. ACIT 37 CCH 543 AND ALPHA COMMODITIES PVT. LTD. VS. ACIT ITA NO . 2119/MUM/2010. HE ALSO PLACED ON RECORD THE COPY OF THE AFORESAID DECISIONS. HE THUS SUPPORTED THE ORDER OF LD. CIT(A). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. WE FIND THAT LD. CIT(A) WHILE DELETING THE ADDITION HAS NOTED THAT THE A.O HAD CALCULATED NOTIONAL PROFITS ON THE ASSUMPTION A S IF CLIENT CODE MODIFICATIONS WERE NOT CARRIED OUT AND THE TRANSACT IONS WERE CLOSED ON THE EXPIRY DATE. LD. CIT(A) HAS FURTHER NOTED THAT WHIL E DECIDING THE APPEAL IN THE CASE OF KUNWARJI FINANCE PVT. LTD. FOR A.Y. 200 5-06 TO 2008-09 HE HAS HELD THAT THE ADDITION ON THE BASIS OF CLIENT CODE MODIFICATIONS WAS ON THE BASIS OF ASSUMPTION AND SURMISES AND WAS NOT ON THE BASIS OF CONCEPT OF REAL INCOME. WE FURTHER FIND THAT IN THE CASE OF KUNWARJ I FINANCE PVT. LTD. (SUPRA) AGAINST THE ORDER OF LD. CIT(A), REVENUE HA D PREFERRED APPEAL BEFORE THE CO-ORDINATE BENCH OF TRIBUNAL WHICH WAS DISMISS ED BY THE CO-ORDINATE BENCH BY ORDER DATED 19.03.2015 AND THE RELEVANT FI NDING OF THE CO-ORDINATE BENCH READS AS UNDER:- 8.WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BOT H THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THE ASSESSING OFFICER BELIEVED TH E CLIENT CODE MODIFICATION TO BE MALAFIDE BECAUSE IN HIS OPINION THE CLIENT CODE MOD IFICATION WAS FOR UNUSUALLY HIGH NUMBER OF CASES. THEREFORE, FIRST THING TO BE DECID ED IS WHETHER THERE WAS THE CLIENT CODE MODIFICATION FOR UNUSUALLY HIGH NUMBER OF CASES. TH E 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 IT(SS)A NOS. 92 & 93/AHD/2011 . A.YS. 2005 -06 & 2007-08 10 CLIENT CODE MODIFI CATIONS IN TERMS OF PROVISIONS OF THE RULES, BYE-LAWS AND B USINESS RULES OF THE EXCHANGE, THE MEMBERS OF THE EXCHANGE ARE NOTIFIED AS UNDER: 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. B. THE MEMBERS ARE ALSO ALLOWED TO CHANGE THEIR CLI ENT CODES BETWEEN 5:00 P.M. TO 5:15 P.M., IN CASE OF THE CONTRACTS TRADED TILL 5:0 0 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 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 TA KES 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 ALLOW ED TO BE MODIFIED AS CLIENT TRADES AND CLIENT TRADES SHALL NOT BE ALLOWED TO BE MODIFI ED AS PROPRIETARY TRADES. E. IN ORDER TO ENSURE THAT CLIENT CODES ARE ENTERED WI TH 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 THAN 5% BUT LESS THAN OR EQUAL TO 10% 1000 4 GREATER THAN 10% 10000 IT(SS)A NOS. 92 & 93/AHD/2011 . A.YS. 2005 -06 & 2007-08 11 F. IT IS CLARIFIED THAT THE FACILITY OF CLIENT CODE MO DIFICATION IS ALLOWED AS AN INTERIM MEASURE ONLY UPTO MARCH 31, 2007 AND AFTER THIS DAT E THE SAID FACILITY WILL BE COMPLETELY STOPPED. WITH REFERENCE TO POINT C. AS REFERRED ABOVE, MEMBERS MA Y 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 DIREC TIVES AND ENSURE STRICT COMPLIANCE.' FROM THE ABOVE, IT IS EVIDENT THAT CLIENT CODE MOD IFICATION 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 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 PENAL TY 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% IS ABSOLUTELY NORMAL AND THEREFORE, THE BRO KER IS PERMITTED TO MODIFY THE CLIENT CODE UPTO 1% WITHOUT PAYING ANY PENALTY. EVE N 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 BY COMMODITY EXCHANGE, LET US EXAMINE WHETHER THE CLIENT CODE MODIFICATION DON E BY THE BROKER I.E. KCBPL IS UNUSUALLY HIGH. AT PAGE NO.L6 ON PARAGRAPH NO.4.3, THE CIT(A) HAS GIVEN THE NUMBER OF TRANSACTIONS ENTERED INTO BY THE ASSESSEE FOR TH E PERIOD 2004-05 TO 2007-08 AND THE NUMBER OF CLIENT CODE MODIFICATION AND PERCENTAGE T HEREOF. WE HAVE ALSO REPRODUCED THE SAME AT PARAGRAPH NO.6 OF OUR ORDER. FROM THE S AID 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, BU T 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. TH EREFORE, THE CLIENT CODE MODIFICATION IS LESS THAN 1% OF THE TOTAL TRADING T RANSACTIONS. AS PER CIRCULAR OF COMMODITY EXCHANGE, CLIENT CODE MODIFICATION UPTO 1 % IS QUITE NORMAL AND IS PERMITTED WITHOUT ANY PENALTY. THAT THE ASSESSING O FFICER HAS NOT GIVEN ANY REASON ON WHAT BASIS HE PRESUMED THE CLIENT CODE MODIFICATION S TO BE UNUSUALLY HIGH, IN THE IT(SS)A NOS. 92 & 93/AHD/2011 . A.YS. 2005 -06 & 2007-08 12 LIGHT OF THE MCX CIRCULAR, WE ARE OF THE OPINION TH AT 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 MODIFICA TIONS 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 CODE MODIFICATION IS PERMITTED ON THE SAME DAY. THE REFORE, WE ARE UNABLE TO FIND OUT ANY JUSTIFICATION FOR THE ALLEGATION OF THE ASSESSING O FFICER THAT THE CLIENT CODE MODIFICATION WAS WITH THE MALAFIDE INTENTION. WHEN THE CLIENT CO DE 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 INTENTIONA L. HOWEVER, WHEN THE CLIENT CODE MODIFICATION IS DONE ON THE SAME DAY, IN OUR OPINION, THERE WAS NO BASIS OR JUSTIFICATION TO HOLD THE SAME TO BE MA LAFIDE. 10. MOREOVER, THE ID. ASSESSING OFFICER HAS COMPUTED TH E NOTIONAL PROFIT/LOSS TILL THE TRANSACTIONS PERIOD AND NOT TILL THE PERIOD BY WHIC H 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 TH E PROF IT/LOSS ARISING AFTER THE CLIENT CODE MODIFICATION CAN BE CONSIDERE D IN THE HANDS OF THE ASSESSEE. 11. THE ID. CIT(A) IN PARAGRAPH 4.13 OF HIS ORDER H AS ALSO RECORDED THE FINDINGS THAT 'ALL TRANSACTIONS AT THE COMMODITIES EXCHANGES 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 ID. CIT(A) HAS NOT BEEN CONTROVERTED BY THE REVENUE AT THE TIME OF HEARING BEFORE US. WHEN THE TRANSACT ION HAS BEEN DULY ACCOUNTED FOR AND THE PROFIT/LOSS HAS ACCRUED TO TH E CONCERNED PARTIES IN IT(SS)A NOS. 92 & 93/AHD/2011 . A.YS. 2005 -06 & 2007-08 13 WHOSE NAMES TRANSACTIONS HAVE BEEN CLOSED, THERE CANNOT B E ANY BASIS OR JUSTIFICATION FOR CONSIDERING THOSE PROFIT/LOSS IN THE CASE OF THE AS SESSEE ON 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 REVENUE'S APPEAL ARE REJECTED. 11. IN THE PRESENT CASE, LD. CIT(A) WHILE DELETING THE ADDITION HAD RELIED ON THIS DECISION IN THE CASE OF KUNWARJI FINANCE PVT. LTD. AND THE ORDER OF LD. CIT(A) IN THAT CASE WAS UPHELD BY THE CO-ORDINATE B ENCH OF ITAT AS CITED HEREINABOVE. BEFORE US, REVENUE HAS NOT BROUGHT A NY DISTINGUISHING FEATURE IN THE CASE OF ASSESSEE OR THAT OF KUNWARJI FINANCE PVT. LTD. IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WIT H THE ORDER OF LD. CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. 12. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. NOW WE TAKE UP IT(SS)A NO. 93/AHD/2011 FOR A.Y. 2 007-08 13. IN THE PRESENT CASES, SINCE BOTH THE PARTIES HAVE A DMITTED THAT THE FACTS AND CIRCUMSTANCES OF THE CASE ARE IDENTICAL TO THAT IN A.Y. 2005-06, WE THEREFORE FOR THE REASONS STATED HEREINABOVE WHILE DECIDING T HE APPEAL FOR A.Y. 2005- 06 IN IT(SS)A NO. 92/AHD/2011 (SUPRA) AND FOR SIMIL AR REASONS DISMISS THE GROUNDS OF REVENUE IN THE PRESENT APPEAL. IT(SS)A NOS. 92 & 93/AHD/2011 . A.YS. 2005 -06 & 2007-08 14 14. IN THE RESULT, BOTH THE APPEALS OF REVENUE ARE DISM ISSED. ORDER PRONOUNCED IN OPEN COURT ON 30 - 09 - 2015 . SD/- SD/- (S.S. GODARA) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AH MEDABAD