TaxTMI 
TaxTMI 
2015 (4) TMI 328
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.....Year 2007-08. IT(SS)A.No.658/Ahd/2010 is the appeal of the Revenue directed against the order of the CIT(A)-I, Ahmedabad dated 25.6.2010 for the Asstt.Year 2008-09. 2. Common ground no.1 of the appeal in all the assessment years under consideration is directed against the order of the CIT(A) in deleting the addition of Rs. 35,50,000/- in A.Y.2005-06, Rs. 1,16,70,000/- in A.Y.2006-07, Rs. 44,00,000/- in A.Y.2007-08 and Rs. 3,80,000/- made on account of undisclosed income on the basis of client code modification. 3. Brief facts of the case are that the assessee is a director in Kunwarji Finstock Pvt. Ltd. (KFPL) and is engaged in the business of commodity transaction through the broker, Kunwarji Commodities Brokers Pvt. Ltd. (KCBPL) and is an investor in shares and securities. In the Kunwarji group of cases, a search under section 132(1) of the Act was carried out on 25.3.2008. During the course of search, books of accounts and documents as per Annexures A1 to A65 of the Panchnama were seized from the main office premises of this group and survey were also carried out in the companies of this group. The searches were simultaneously carried out at the residential premises of the d....
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....icer is only on account of the fact that the Assessing Officer has calculated notional profits on the assumption as if Client Code Modifications were not carried out and the transactions 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 on 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 notional 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 several decided cases. My findings on all these issues as recorded in my order in the case of KFPL have already been reproduced supra. For the same reasons Ground No. 3 for the A.Ys. 2005-06. 2007-08 and 2008-09 is allowed. 5. At the time of hearing both the parties agreed before us that this issue was now covered in favour of the assessee by the decision of the Ahmedabad Bench of the Tribunal in the case of ACIT Vs. M/s.Kunvarji Finance Pvt. Ltd. and Others, in IT(SS)A.Nos.615 to 618/Ahd/2010 & Others order dated 19.3.2015. 6. We find th....
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....above, Members may 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 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. K....
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.... 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 the profit/loss arising after the client code modification can be considered in the hands of the assessee. 11. The ld. CIT(A) in paragraph 4.13 of his order has 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 ld. CIT(A) has not been controverted by the Revenue at the time of hearing before us. When the transaction has been duly accounted for and the profit/loss has accrued to the concerned parties in whose names transactions have been closed, there cannot be any basis or justification for considering those profit/loss in the case of the assessee on the basis of mere presumption or suspicion. It is not the case of the Revenue that such alleg....
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....r a period of 36 hours and the statement of Shri Nayan Thakkar was commenced at about 11 O'clock in the-night and continued upto 5.00 AM next day. I have also observed that at the time of recording the statement u/s.132(4), the authorities referred to Annexure- 1, which was made the basis of disclosure. However, there seemed to be lack of clarity and uncertainty with respect to 'Annexure-A'. Subsequently, it was informed to the assessee that the said Annexure-1 should be constituted as Annexure-A and that the said Annexure-A contained a 1st of 65 items of books/documents/papers. It is also observed that on the basis of this AnnexurerA, statement u/s.132 was recorded; however, the said Annexure was not made the basis of addition. Moreover, the Assessing Officer has not been able to deal with the contents' of affidavit in a convincing manner. Regarding ;the delay in retraction, the facts and circumstances have been explained before me in detail. The appellant company was never allowed adequate opportunity to inspect and go through the voluminous seized records and even the copy of the statement recorded on 25/26th March, 2008 was given to the appellant company on 20th....
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....de modification is concerned, it has been dealt with by me on merits while dealing with the grounds relating to the addition. Accordingly, the statement recorded u/s. 132(4) had no basis of arriving at the disclosure of Rs. 12 crores which did not contain any year or which did not even refer to any assets -and it is a known fact that any undisclosed income found during the course of search should also simultaneously be reflected in some valuables, assets or expenditure. In spite of exhaustive inquiries at the time of search and during the post search inquires and also at the time of assessment proceedings no undisclosed assets or expenditure were ever found out or referred to which can correspond to the alleged undisclosed income and accordingly, the view of the appellant that the disclosure at the time of search had no basis has to be accepted." 8. For the same reasons in the present case also I hold that the disclosure made by Shri Nayan Thakkar cannot be assumed to be voluntary and based on seized documents. Accordingly, ground No.2 is allowed." 10. Both the parties during the course of hearing agreed that the issue is covered in favour of the assessee by the consolidated orde....
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....168 ITR 375 (Bom.) (ii) Ramesh T. Salve vs. ACIT : (2000) 75 ITD 75 (Mum.) (iii) Dr. S.C. Gupta vs. CIT : (2001) 248 ITR 782 (iv) Garibdas Chandrika Prasad vs. CIT : 230 ITR 771 (MP) (v) Hotel Kiran vs. CIT : 82 ITD 453 (Pune) 14. The ld. Counsel for the assessee, on the other hand, stated that during the course of search, statement of Shri Nayan Thakkar was recorded for almost 36 hours. His grandfather was ill and was hospitalized. Therefore, Shri Nayan Thakkar was physically and mentally perturbed. The authorized officer who recorded his statement has told him that the various papers and documents seized from their office premises as per Annexure-1 indicated various defects and discrepancies. He was asked to explain the same without giving the copy of such Annexure-1. In that background, he offered some additional income. However, during the course of assessment proceedings, the assessee vide letter dated 27.03.2009 requested for supplying of the Annexure-1. The Assessing Officer vide reply dated 27.08.2009 confirmed that there is no Annexure-1 but only Annexure-A which was inadvertently mentioned as Annexure-1. That when the assessee received the photocopies of all the seiz....
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.... above, the claims made by the assessee in his affidavit and submissions made during the course of assessment proceedings are not acceptable and it is hereby rejected. However, since the total suppression of profits, which reflects the irregularities in the business affairs of the company and discrepancy in income, and worked out for different years (A.Y. 2005-06 to 2008-09) is Rs. 17.71 Crores, which is in excess of the amount of Rs. 12 crores voluntarily disclosed by the "Kunwarji Group", no separate addition is being made on this issue in the case of the assessee." The CIT(A) was of the opinion that no addition is required to be made on account of disclosure made at the time of search. The relevant finding of the CIT(A) in this regard reads as under:- 3.6 I have given a careful consideration to the facts having bearing on this issue and the submissions made on behalf of the appellant Company. There is no dispute that during the course of search Shri Nayan Thakkar disclosed income of Rs. 1.2 crore and this disclosure was subsequently confirmed by filing a letter wherein the amount of disclosure was also bifurcated. However, all the relevant facts which have been brought to my n....
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....e was any such irregularity, defect or mistake either in the record keeping or seized material. The entire position was also explained before the Assessing Officer by filing detailed letter dated 2nd September, 2009. During the course of entire assessment proceedings, the Assessing Officer has been unable to refer to any seized material, on the basis of which unaccounted income could be proved or established. It proves that whatever additions have been made by the Assessing Officer are not based upon any seized documents and the same have been made on the basis of various data collected by the Department from Commodity Exchanges which reflected client code modifications. 3.7 From the above referred .letter dated 2nd September, 2009 addressed to the Assessing Officer and the statement recorded u/s. 132(4), which I have perused, it becomes clear that the disclosure was obtained by the authorized officer on account of the following four counts : (1) Annexure-1 (2) Seized material "A-6, Kachha books seriated from A-18 to A- 29". (3) Other irregularities / discrepancies (4) Client code modification. It is an admitted fact that no addition has been made in the assessment order on a....
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....fter, the Assessing Officer made the addition of Rs. 18,052/-. The assessee filed appeal before the First Appellate Authority. The AAC admitted the appeal and deleted the addition. On appeal by the Revenue, the Tribunal held that AAC was wrong in entertaining the appeal. On a reference, the Hon'ble High Court has held that the Appellate Assistant Commissioner had no jurisdiction to consider the ground of appeal against the addition of Rs. 18,052 relating to alleged suppressed sales of "Sarki"." 18. In the case of Dr. S.C. Gupta vs. CIT, (2001) 248 ITR 782, the Hon'ble Allahabad High Court has held as under:- "that a statement made voluntarily by the assessee could form the basis of assessment. The mere fact that the assessee retracted the statement could not make the statement unacceptable. The burden lay on the assessee to establish that the admission made in the statement at the time of survey was wrong and in fact there was no additional income. Thus burden was not even attempted to be discharged. The order of the Tribunal was based on facts and no question of law arose from it." 19. In the case of Garibdas Chandrika Prasad vs. CIT, 230 ITR 771 (MP), heir Lordships of Madhya ....
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.... was disclosed in the sale deed is not the correct sale consideration. In this case the Revenue could not bring on record any material to show that the assessee had paid on-money of Rs. 23,00,000. The reasons given by the Tribunal were based on valid material. The deletion of addition was justified." 22. In the case of DCIT vs. Ratan Corporation, (2005) 145 Taxman 503 (Guj.), the Hon'ble Jurisdictional High Court held as under:- "As noticed hereinbefore, the Tribunal has observed that, in light of the retraction by Shri Pravinbhai Rupawala from the statement, it was the duty of the Assessing Officer to make further inquiry in respect of shop owners. In the Assessment Order, in paragraph No.6(1), while referring to the explanation tendered by the assessee, the Assessing Officer has referred to one of the loose papers seized during the search and seizure operation under section 132 of the Act and recorded that the explanation was in contradiction to the notings in the seized document that these relate to Ratan Market Project containing names of shop holders, amount received from them, construction account with show-wise details. It is, thus, apparent that when the Tribunal re....
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....to be dismissed and is, accordingly, dismissed." 24. Now we revert back to the facts of the assessee's case under the appeal before us so as to reach to the conclusion that the ratio of which of the above decisions would be applicable to the facts of the assessee's case. Xerox copy of the statement of Shri Nayan Thakkar is placed at page no.296 onwards of the assessee's paper-book. From the first page of the said statement, it is clear that the statement began on 25th March 2008 at 11.30 pm. Thus, recording of the statement was started at almost midnight of 25th March 2008. From the last page of the statement, it is evident that it was concluded on 26th March 2008. No time was mentioned on the conclusion of the statement. However, the statement is running into 10 pages, therefore, it can safely be inferred that it was concluded on the early hours of 26th March 2008. In the case of Kailashben Manharlal Chokshi (supra), the Hon'ble Jurisdictional High Court held that if a statement is recorded at midnight, much credence cannot be given to such statement because the person would not be in a position to make any correct or conscious disclosure in a statement recorded at odd hours. The....
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....cuments, various discrepancies and defects have been observed. He has also stated about the client mode modification. In response to these inputs from the authorized officer Shri Nayan Thakkar admitted unaccounted income of Rs. 12 crores. The statement has to be read as a whole; the unaccounted income was offered in response to the information given by the authorized officer that various defects and discrepancies were observed in the seized documents. Now the question remains whether there were any defect and discrepancy in the seized documents as per Annexure-1. It was stated by the ld. Counsel that there was no Annexure-1 at all, and in response to the assessee's letter during the assessment proceedings, the Assessing Officer admitted these facts vide letter dated 27.08.2009 by the Deputy Commissioner of Income-tax which reads as under:- "Office of the Dy. Commissioner of Income-tax, Central Circle-1(1), 3fd floor, Aayakar Bhavan, Ashram Road, Ahmedabad - Phone: 079- 27546781 No.DCIT/CC1(1)/Ahd/Kunvarji/2009-10 Date: 27.08.2009 To: The Principal Officer Kunvarji Finance Pvl. Ltd. 310, Shyamak Complex, Nr. Kamdhenu Complex, Ambawadi, Ahmedabad Sir, Sub: Clarification ....
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....f client code modification which has also been computed on the basis of information collected from the Commodity Exchange in post search enquiry. The CIT(A) has found the addition on account of client code modification to be untenable and while disposing of ground No.1 of the Revenu's appeal, we have concurred with the findings of the CIT(A). No defects or discrepancies in any of the seized documents have been pointed out by the Assessing Officer in the assessment order or by the ld. DR at the time of hearing before us. During the course of search also the officer recording the statement of Shri Nayan Thakkar has not specified any discrepancy or defect in any of the seized documents but made a general statement that there were defects and discrepancies in the various documents seized from the assessee's premises. Such assertion by the authorize officer is found to be factually incorrect. In the affidavit of Shri Nayan Thakkar furnished before the Assessing Officer these facts have been clarified. He stated that after getting the photocopy of the seized documents and their verification with reference to the books of accounts, since no discrepancy was noticed, no undisclosed income w....