Income Tax Appellate Tribunal - Kolkata
Shagun Business Services Pvt. Ltd., ... vs I.T.O.,Ward-5(1), Kolkata on 31 January, 2020
ITA No. 2395/KOL/2019
Assessment Year: 2009-2010
Shagun Business Services Pvt. Limited
IN THE INCOME TAX APPELLATE TRIBUNAL,
KOLKATA 'C(SMC)' BENCH, KOLKATA
Before Shri Satbeer Singh Godara, Judicial Member
I.T .A. No. 2395/KOL/2019
Assessment Year: 2009-2010
Shagun Business Services Pvt. Limited,.... ......................................Appellant
13, Pollock Street, Kolkata-700001
[PAN:AADCS5402J]
-Vs.-
Income Tax Officer,.............................,...............................................Respondent
Ward-5 (1), Kolk ata,
Aayakar Bhawan,
P-7, Chowringhee Square, Kolkata-700069
Appearances by:
Shri Anil Kochar, Advocate, for the Appellant
Smt. Ranu Biswas, Addl. CIT, Sr. D.R., for the Responden t
Date of concluding th e hearing : January 27, 2020
Date of pronouncing the order : January 31, 2020
O R D E R
The assessee's appeal for assessment year 2009-10, arises against the Commissioner of Income Tax (Appeals)-19, Kolkata's order dated 25.09.2019 passed in the case No. CIT(A),Kolkata-19/10196/2017-18, involving proceedings under section 143(3)/147 of the Income Tax Act, 1961; in short 'the Act'.
Heard both the parties. Case file perused. The assessee's detailed paper book running into 25 pages comprising of section 148 notice, the Assessing Officer's reasons recorded in support thereof, written submissions before the CIT(Appeals), stock broker's statement and copy of Bank account stands perused.
2. It transpires during the course of hearing that the assessee's sole substantive grievance on merit; apart from raising legal issue of validity of section 147 proceedings, seeks to reverse both the lower authorities action treating the disallowance of losses amounting to Rs.19,09,281/- to 1 ITA No. 2395/KOL/2019 Assessment Year: 2009-2010 Shagun Business Services Pvt. Limited be bogus since involving alleged client code modification made by the broker. The CIT(A)'s detailed discussion affirming the assessing authority's action to this effect reads as under:-
"6. Ground no s. 2 , 3 & 4 are against the addition made u/s. 68 of the Act by the AO in the sum of Rs.19 ,09,281/- observing as under: -
"Fro m the repl y it appears th at the assessee h as itself admitted th at client code modification was occurred in it s share dealing business. The depart mental investigation wing found o ut that the assessee is o ne of beneficiary of client code modification. So it is clear that the assessee booked bogus loss of Rs.19,09,281/- under the garb of client code modification."
7. The AIR appearing on beh alf of the appellant veh emently disputed the addition made on this pret ext by the AO.
8. I h ave carefully considered the arguments of the AIR of th e appellant and perused the relevant issue in the assessment order as well as the materials placed befo re me. The AO has reco rded that the investigatio n carried out by th e Directorate of Income Tax (Investigation), Unit 1 (3), Ahmedabad revealed that net loss to the extent of Rs.19 ,09,281/- was arranged by th e appellant th rough th e broker which is a contrived loss. The AO has recorded that th e appellant h ad failed to substantiate its bonafideness with proper evidence by producing any books of account s th at there was no such transactio n th rough client code module. It is the case of the AO th at as th e transaction h ad been made thro ugh the PAN of the appellant , he ought to be well aware of the fact o f transactio ns being carried out through Client Code Modification, and ought to h ave raised objections with the Broker against such t ransaction. It is the AO's case th at as the appellant h ad failed to provide any evidence in the matter of raising any objections with the broker, as well as any certificate fro m the broker to the effect that there was no such transaction in the name of the appellant towards shifting out profit and loss of sh are business through client code mo dule. Therefo re the AO h as reckoned that as it is quite evident o n record th at during t he relevant assessment year, the appellant had shifted out pro fit of Rs.19,09 ,281/- and therefo re this amount was correctly added back to it s tot al inco me.
8.1. Having examined the matter, I find th at th e appellant h as not been able to bring anything on record t o prove th e ratio nale, need and just ification for client co de modifications. While it may be t rue that such client code modificatio n may not per se be illegal, it h as to be brought on reco rd by t he appellant, as he is the beneficiary th at the mo difications were to be o n an accept able level , and the client s were KYC complaint . In such 2 ITA No. 2395/KOL/2019 Assessment Year: 2009-2010 Shagun Business Services Pvt. Limited matter, the relevant extract of SEBI Circular dated 06 .02.2003, relating to the Modification of Client Code is being reproduced hereunder: -
"The stock: exchanges shall not no rmally permit changes in th e Client ID and would keep a strict vigil on cases of client code modification and would implement a mo netary penalt y structure that woul d escalate with the number of such incidences. Besides, t he exch ang e may t ake necessary action against members making repeat ed ch anges. H owever, genuine mist akes may be allowed to be rectified".
'Thus, a careful reading of the above, ext ract suggests th at th e change in Client ID is generally hot allowed except where there, is some genuine mist ake. The SEBI circular also mandates the Stock Exchanges to k eep st rict vigil the instances of client code modification and implement ation of a penalty st ruct ure. In the light of the reading and submission of N SE, it is to be observed that the practice adopted by NSE is scrutiny of client code modifications on a post facto basis, with monet ary penalties in direct propo rtion to the quantum of incidence in compliance with the SEBI circular. Regarding the requirement of not allowing the change in client code except for genuine mist ake, it is also to be observed that the term 'genuine mist ake' has wide connotation. However, on perusal of the submissions made out by the appell ant during the appellate proceedings, it does not emanate th at the mo dificat ions were genuine. Furthe r, a careful study of the SEBI Circular would reveal th at a two tier penalty struct ure has been provided fo r. A monet ary penalty h as been envisaged when there is an escalation in the number of client code modificatio ns. However, in th e case of repeat ed offences, further necessary act ion has been recommended. Therefo re, in view of matter, I hold that the AO was correct in concluding th at in the present instance there was deliberat e shift ing of profits by the appellant in connivance with the broker. Thus, the addition of Rs.19,.09,281/ - reso rted to by th e AO o n this beh alf accordingl y uphel d, and the gro und no s. 2, 3 & 4 of the appellant stands dismissed" .
3. Learned Counsel vehemently contends that the ld. CIT(Appeals) has erred in law as well as on facts in upholding the A.O's action in treating the assessee's above stated loss as unexplained cash credit. The Revenue, on the other hand, has chosen to place strong reliance on the ld. CIT(Appeals)'s foregoing detailed discussion. I notice in these peculiar facts and circumstances this tribunal's coordinate bench in M/s. Khaitan Trade Holdings Pvt. Limited -vs.- ITO in ITA NO. 2179/KOL/2017 has adjudicated the very issue as under:-
3 ITA No. 2395/KOL/2019Assessment Year: 2009-2010 Shagun Business Services Pvt. Limited "2. The assessee is a co mpany and is a sub-broker in shares.
The Assessing Officer disallowed the claim o n account of derivat ive t ransactions of Rs.8 ,91,057/-. The Asses sing Officer held that the assessee had entered into limited transactions and all the transactio n in which the assessee entered into were transactions in which Client Code Modification (CCM), was made by the broker, through whom the t ransactions were affect ed. He held th at the loss which were booked by th e assessee were actually incurred by somebody else, but by ch anging the code subsequently, the bro ker t ransferred the lo ss to the assessee. The Assessing Officer gave a letter to the stock exch ange fo r verificat ion of the genuineness of the t ransactions. The stock exchange h as confirmed th at modificat ions were made in this case. Th e assessee contended th at all th ese t ransactions were genuine and th at the relevant cont ract no tes, the reco rd of the transaction were submitted by the assessee and th at , the payments fo r the transactions were made through bank ing channels and confirmations are furnish ed to est ablish the genuineness of the t ransactions. It co ntended that , wh en th e National Stock Exchange itself has confirmed that th e transactions in question, the loss canno t be disallowed. The Assessing Officer applied the theory of human probabilities and relied on the decision of the Hon'ble Supreme Court in the case of Sumati DayaJ v. CIT (1995) 214 IT R 801 (SC) and CIT -vs. Durga Prasad More (1971) 82 ITR 540 (SC), and made the disallowance.
2.1. On appeal the Id. First Appellate Authority, upheld this order of the Assessing Officer. He held that human error cannot occur on all occasions. He observed that the derivative transactions took pl ace through a broker but on different dates. He al so applied the theory of probabilities and dismissed the case of the assessee. He reject ed the co ntentions of the assessee that additio n cannot be made on mere suspicion, conjectures and surmises as held by the Hon'ble Supreme Court in th e case of Messrs. Lalchand Bhagat Ambical vs The Commissio ner Of Income- Tax 37 ITR 2 88 SC.
3. Aggrieved the assessee is before us in appeal.
4. After hearing rival contentions, I find that the assessee h as pro vided documentary evidence by way of contract notes, bank statement s evidencing ch eque payments for all these transactions, payment of security t ransactions t ax before the Assessing Officer. Th e National Stock Exchange has confirmed that these transactio ns have t aken pl ace in the exchange and in the name of the assessee. Th e issue that h as to be adjudicated, is whether, wh en CCM is do ne to co rrect errors, it can be inferred that manipulation has been done by the assessee.
4.1. The Kolkat a 'A' Bench of th e T ribunal, in the case of M/s. Ratnabali Co mmodit ies vs. The Income T ax Officer, Ward-12(3), 4 ITA No. 2395/KOL/2019 Assessment Year: 2009-2010 Shagun Business Services Pvt. Limited Kolkata, in ITA No. 787/Kol/2013, Assessment Year 2008-09, order dt 30/08/2017, wherein at para 5 & 6, it h as been hel d as follows:-
"5. Heard rival submissions and perused the material available on reco rd. We find that the issue in hand is squarel y covered in favour of assessee by t he said order dt. 16-06-17 in assessee's own case in ITA No. 191/Kol/2015 for the A.Y 2009-10, wherein the assessee has claimed loss of Rs.19,76,538/-. The AO treating the same as bogus added the same to the total income of the assessee o nly on the ground that th e broker h as modified the name and code of assessee. We find th at this Tribunal vide its said o rder dt. 16-06-17 in assessee's own case for the A.Y 2009-10 held that modifications are permitted by NSE and such modification carried out within the prescribed time limit provided by NSE. Relevant po rtion of finding of such o rder is reproduced herein below:-
7. We have heard th e rival contentions o f both the parties and perused and carefully considered the material on record; including th e judicial prono uncements cited and placed reliance upon.
The issue befo re us revolves fo r the amo unt of loss claimed by assessee fo r- 19,76,538/- which was treated by th e Authorities Below as bogus mainly due to the mo dificat ion carried o ut in the name and code of the assessee by the brok er. Th e directo r of the assessee-company and the directo r of the broker company listed with NSE are same person. The impugned loss was t reated as bogus due to several reasons such as it was incurred at the fag-end of the year, to reduce the t axable profit earned by assessee during the year and simil ar kind of loss was also disallowed in the immediate preceding year.
7.1 Fro m the fo regoing discussion, we find th at indeed th e client's code and name were modified in respect of transactions cl aimed by assessee. However, on perusal of record, we find th at the impugned t ransactions were carried out th rough banking ch annel and all the suppo rting evidence such as cont ract note, payment of STT were filed at th e time of assessment proceedings. We also find that Ld. CIT(A) confirmed the order of AO on the basis of his guess-work as evident from his appellate order which is reproduced below:-
"there is a possibil ity that the modifications might have been made to acco mmodate th e 5 ITA No. 2395/KOL/2019 Assessment Year: 2009-2010 Shagun Business Services Pvt. Limited appellant as the bro ker of th e appellant was a sister concern. "
Further the Id. C IT -A has observed in h is order as under: -
"Even though apparently it h as not been establish ed that th e such modification had been done in violat ion of rules and regul at ions prescribed by SEBI and th e AO had proceeded on suspicion, however at the same time it also cannot be co ncluded either the loss would not be att ributable 10 these " modifications".
On perusal of the o rder, we find th at Ld. C IT(A) h as confirmed the order of AO on his own surmise and conject ure which is not permissible in t he eyes of law. Ld. DR h as also not- brought anything on record contrary to the advance arguments pl aced by Ld. AR for the assessee as well as no defect s of whatsoever has been pointed out in the documents produced by assessee in suppo rt of its impugned loss. We also find whatever modifications were carried o ut by th e broker they were carried out within the time permitted by the N SE for the purpose of mo dificat ion. Thus, we are of the view that the o rder of Authorities Below is based on surmise and co njecture and same is not based on tangible material to treat the impugned loss as bogus loss.
7.2 Moreo ver, we also find th at the det ails furnished by the assessee in respect of t ransactions giving rise to the loss were exactly matching with t he detail s furnished by the NSE. In none of the case, Authorities Below have brought o n record where any mismatch - is found between the books of the assessee and th e confirmatio n received from NSE. H ad th ere been any manipulation in the impugned loss then it could h ave been revealed fro m t he confirmation received from NSE. Therefore, th e modifications in t he client's name and code cannot justify the impugned loss as bogus. Thus, we concl ude th at the impugned additio n has been made by the Autho rities Below on the basis of surmise and co njecture which is not permissible in the eyes of law as hel d by the Hon'ble Supreme Court in the case of Lalchand Bh agat Ambica Ram vs. ClT Bihar and Orissa (195 9) 159 ITR 289 (SC). Therefo re, we hold that the impugned loss cannot be subject - matter of addition o n the basis of suspicion. In this regard we also rely in the case of CIT vs. Kundan Invest ment Lt d. repo rted in 263 IT R 626 (Cal) wh ere Hon 'ble jurisdictional High Court has h eld: -
6 ITA No. 2395/KOL/2019Assessment Year: 2009-2010 Shagun Business Services Pvt. Limited "The Tribunal h ad found that all relevant documents relating to cont ract notes, bills, the quoted price and ot her materials were produced The transactio ns were made th rough cheques. All the shares rel ated to the reput ed co mpanies and were quoted shares in the stock exchanges and were purchased and sold at the prevalent quoted market rates, which was verified from th e statement of the sl ack exchanges. On these basis, the T ribunal found th at th e C IT(A) had proceeded on the basis of suspicion th at th ere might be so me ingenuinity in the t ransactio ns. On th e basis of the materials produced, t he Tribunal came to a finding of fact, which does not seem to be perverse. Whether th e shares could be sold immediately o n the date ofpurch ase or not was a question of business expedience. Whether the decision was' correct o r 'wrong cannot the question, which can he a subject -matter of decision in such a case. In order to find out whether the t ransaction is genuine o r in genuine it is neither the expedience nor co rrectness of t he decision no r the business expertise of the perso n to be considered. It is to be considered o n the basis of the materials th at there was no such t ransaction and that these sh are transactions were paper t ransactio ns. The suffering of loss, could not be a factor for such purpose.' Having regard to the fact s and circumst ances of the case, the view tak en by the Tribunal allowing share loss cannot be said to be erroneous or perverse.- C IT vs. Emeral d Commercial Lt d & Anr (2001) 171 CTR (Cal) 193:
(2001) 250 ITR 539 (Can. CIT - vs. Dhawan Invest ment & Trading Co. Ltd (1999) 238 ITR 486 (Can and C IT vs. C urrency Investment Co. Lt d (2000) 158 CTR (Cal ) 361: (2000) 241 ITR 494 (Cal) relied o n.
Respectfully following the same, we ho ld that the impugned loss cl aimed by assessee is genuine loss in the above fact s and circumstances of th e case and therefo re eligible for deduction. Accordingly, AD is directed. This ground of assessee' s appeal is allowed."
6. In view of above, we find that th e C IT-A was not just ified in confirming the impugned addit ion/disallowance of loss on account transactions in derivatives to the ext ent of Rs. 5,46,885/-. Accordingly, th e same is liable to be deleted. The ground raised by the assessee is allowed.
7 ITA No. 2395/KOL/2019Assessment Year: 2009-2010 Shagun Business Services Pvt. Limited
5. Respect fully following the pro positio ns of law laid down by the Coordinate Bench of the T ribunal , and in view of the evidence on reco rd, I deleted this disallowance and allow this appeal of th e assessee".
4. I adopt the above extracted detailed reasonings mutatis mutandis to hold that the impugned unexplained cash credit addition is not sustainable in the facts of the present case. The same is directed to be deleted.
The assessee's other substantive ground challenging the validity of the proceedings (supra) is not pressed for during the course of hearing.
5. This assessee's appeal is partly allowed in above terms.
Order pronounced in the open Court on January 31, 2020.
Sd/-
(Satbeer Singh Godara) Jud icial Member Kolkata, the 31 s t day of January, 2020 Copies to : (1) Shagun Business Services Pvt. Limited, 13, Pollock Street, Kolkata-700001 (2 ) Income Tax Officer, Ward-5 (1), Kolk ata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-700069 (3) Commissio ner of Income Tax (Appeals)-19, Kolkat a;
(4) Commissioner of Inco me T ax- , Kolkata
(5) The Depart ment al Represent ative
(6) Guard File
By order
Assistant Registrar,
Income Tax Appellate Tribunal,
Kolkata Benches, Kolkata
Laha/Sr. P.S.
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