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8. Grounds No. 2 and 3 of the appeal are regarding the addition made by the Assessing Officer on account of Client Code Modification by the brokers in respect of the transactions carried out at stock exchange and commission on the said amount, which was deleted by the ld. CIT(A).

9. The ld. CIT-DR has submitted that as per the investigation done by the Directorate of I&CI, Mumbai as well as Directorate of Ahmadabad, it was found that fictitious profits and losses were created by some brokers DCIT Vs. Gyandeep Khemka by misusing the Client Code Modification facility in F & O segment on NSE. The ld DR has referred to the assessment order and submitted that the Assessing Officer has given detailed commentary as to how the Client Code Modification is done by the brokers at the stock exchange. Client Code is a unique code which is assigned by the broker to its clients and one code is issued to each client, therefore, no client of a broker can have more than one code. The SEBI vide circular No. 39 of 2001 dated 18/07/2001 made it mandatory for all brokers to use unique client code for all clients. In case of any genuine mistakes, a client code is permitted to be changed after execution of trades, however, this permission is given only in exceptional cases of genuine mistakes to be rectified. Thus the purpose of Client Code Modification permission given to the broker is to rectify human error when a client inadvertently provides a wrong code or a wrong code is punched by the broker while executing trade. The broker is allowed to change the client code after trade is executed between 3.30 P.M. to 4.000 P.M. and this permission and facility to rectify a genuine error which might have occurred while entering the code. During the investigation, it was found that the certain brokers are misusing this facility for the purpose of other than genuine errors. The Client Code Modification facility was being misused and brokers transferred gain or loss from one person to another by changing the code in the garb of correcting the error. In the case of assessee, there DCIT Vs. Gyandeep Khemka are multiple edits in the client code which has resulted shifting of profit of Rs. 3,52,94,489/- from the assessee's account. The ld DR has submitted that as many as 97 incidents of client code modification whereby the profits were shifted from assessee's account to these 97 parties in the garb of Client Code Modification after execution of trades and therefore, it cannot be a genuine mistake for which this facility is allowed by the SEBI and stock exchange. The Assessing Officer has given the details of all 97 persons in whose favor the profits were shifted total amounting to Rs. 3,50,99,887/-. Further the profit to the tune of Rs. 1,94,602/- was also shifted in respect of the three other persons. Thus, a total instances of shifting of profit is 100 in the case of the assessee. Thus, the Assessing Officer has established a case that the assessee has misused the facility of Client Code Modification and has shifted out of income of Rs. 3,50,99,887/- to various parties and also shifted in losses of Rs. 1,94,602/- from three parties and in this way it has reduced its taxable income of Rs. 3,52,94,489/-. The Assessing Officer has rightly considered 2% commission on all those transactions and computed the said amount of commission paid at Rs. 7,05,890/-. Hence, the ld DR has submitted that the modus operandi of involvement of misusing the Client Code Modification by the brokers from one client to another client to avoid the tax is clearly brought out by the Assessing Officer and the case of the assessee is nothing but shifting of profit by misusing the said DCIT Vs. Gyandeep Khemka facility of Client Code Modification in connivance with the brokers and in some cases, the loss of the other parties were also shifted to the assessee. Thus, it is both ways the assessee has reduced its taxable income. He has relied upon the order of the Assessing Officer.

5. The Ld. CIT(A) only on surmises and conjectures observed that these transactions are of the assessee ignoring that 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. Ltd. is thus misplaced and not applicable.

6. Reliance in this connection is placed in the case 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 being only 0.94 per cent i.e. less that 1 per cent of the total trading transactions, cannot be said to be unusually high or mala fide when the modification was made on the same day. Had the client modification been done after the transaction period when the price of the commodity had changed, then perhaps there could have been some basis to presume that client code 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 after such modification can by no stretch of imagination be considered in the hands of the assessee. Moreover, CIT(A) having found that all transactions at the commodities exchange have been duly accounted in the books of account maintained by the concerned parties, there cannot be any justification for considering that profit/loss in the case of the assessee on the basis of mere presumption or suspicion.

''As per Circular No. MCX/T&S/032/2007 dt. 22.01.2007 issued by the Commodity Exchange, client code modification is permitted intraday 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 being only 0.94 per cent i.e. less that 1 per cent of the total trading transactions, cannot be said to be unusually high or mala fide when the DCIT Vs. Gyandeep Khemka modification was made on the same day. Had the client modification been done after the transaction period when the price of the commodity had changed, then perhaps there could have been some basis to presume that client code 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 after such modification can by no stretch of imagination be considered in the hands of the assessee. Moreover, CIT(A) having found that all transactions at the commodities exchange have been duly accounted in the books of account maintained by the concerned parties, there cannot be any justification for considering that profit/loss in the case of the assessee on the basis of mere presumption or suspicion.'' Respectfully following the decision of ITAT Ahemdabad Bench (supra), the Ground No. 2 and 2.1 of the assessee is allowed."

With reference to point C. as referred above, Members may please note that the client code modifications will be allowed only upto 11:55 p.m. in DCIT Vs. Gyandeep Khemka international referenceable commodities (i.e. commodities traded upto 11:55 p.m.) Members are requested to take note of the FMC directives and ensure strict compliance."

From the above, it is evident that client code modification 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 penalty 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 broker is permitted to modify the client code upto 1% without paying any penalty. Even 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 done by the broker i.e. KCBPL is unusually high. At page No.16 on paragraph No.4.3, the CIT(A) has given the number of transactions entered into by the assessee for the period 2004-05 to 2007-08 and the number of client code modification and percentage thereof. We have also reproduced the same at paragraph No.6 of our order. From the said 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, but 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. Therefore, the client code modification is less than 1% of the total trading transactions. As per circular of Commodity Exchange, client code modification upto 1% is quite normal and is permitted without any penalty. That the Assessing Officer has not given any reason on what basis he presumed the client code modifications to be unusually high. In the light of the MCX DCIT Vs. Gyandeep Khemka circular, we are of the opinion that the client code modification was quite nominal and not unusually high as alleged by the Assessing Officer.