AI Drafter 
TaxTMI 
TaxTMI 
2015 (8) TMI 973
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....ying on trading activities both on derivatives and delivery based transactions on its 'own' account as well as on behalf of the various clients. The MCX released their Commodity Transaction Data wherein it was reported that the assessee had indulged in modifying the client codes, i.e., transaction carried out in one Code was later shifted to another code. On the basis of above information, Revenue carried out survey operations under section 133A of the Income Tax Act, 1961 (the Act) on 25.3.2008 at the business premises of the assessee. The survey team impounded many incriminating documents which indicated that the assessee was indulging in client code modification on a large-scale. The Investigation Wing recorded the statement from various clients of the assessee company, wherein they confirmed that the trade on their behalf were done either by Shri Prashant J Patel , Principal Officer of the Company or by Shri Ashish Thakkar, an employee of the Company. Shri Prashant J Patel also admitted in the statement recorded from him u/s 131 of the Act that the assessee company has carried out trading transactions at its discretion for many of their clients, i.e., the assessee company has u....
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....w that the assessee has transferred its profits to various clients. Accordingly, the AO took the view that the profit arising out of the transactions, whose client code was modified later, should be considered as the profit of the assessee and hence the same should be assessed in its hands. During the course of assessment proceedings relating to AY 2007-08, the AO also took note of the fact that the profit shifted to some of the clients have been used by them to set off the brought forward losses available with them. Hence the AO inferred that the object of shifting of profit was to reduce the tax burden of its clients. Hence the AO came to the conclusion that it was a colourable device adopted by the assessee to reduce the tax burden, which is not permissible as per the decision of Hon'ble Supreme Court in the case of Mc Dowell and Co. Ltd (1985)(154 ITR 148). 6. Accordingly, he assessed the sum of Rs. 44,80,376/- in the assessment year 2006-07 and Rs. 18,60,33,553/- in assessment year 2007-08 as income of the assessee. It is pertinent to note that the assessee had also shifted certain transactions, which had resulted in loss also to its clients, but the AO ignored the same. ....
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....alties given by MCX, which is extracted above, the ld. CIT(A) observed that the statute has even visualized a situation, where such modification would be more than 10%. However, in the assessee's case, such modification was only around 3% only. c) The explanation of the assessee that there existed a need for modification of client code was not found to be false by the AO. On the contrary, the AO has simply placed reliance on the appraisal report and drawn conclusion against the assessee. The AO was not right in drawing inference that the client code modification has resulted in the profit to client without having any other corroborative evidence. d) All the clients have complied with KYC norms, disclosed their PAN numbers and they are assessed to tax. All the clients have duly disclosed the income from commodity trading in their respective return of income. e) With regard to the observation of the AO that the clients were not aware about the modification, the ld. CIT(A) has observed that none of the client has disowned the transaction. On the contrary, they have confirmed that the profit earned by them have been disclosed in their respective return of income. f) With re....
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....s Durga prasad More reported in 82 ITR 540 (SC). The ld. CIT(A) held that both the decisions are not applicable to the facts of the present case, since the documents produced by the assessee and surrounding circumstances did not indicate any tax evasion. k) The AO has added the profit earned by all the clients numbering about 110 in the hands of the assessee. However, during the course of survey proceedings only six clients have been examined in person. All of them have not disowned transactions carried on by the assessee and the profit earned thereon has been duly offered to tax in their respective return of income. l) Neither the AO nor the survey team has provided any reason or document or statement which could establish that the client code modification has resulted in the alleged shifting of profit and the assessee has received back equivalent amount of cash or anything of money's worth. Since there is no such finding, there cannot be a case that the income, which has already been taxed in the hands of clients, could be taxed in the hands of the assessee. m) In the case of Laxmipratap Singhania V/s CIT (72 ITR 291), the Hon'ble Court held that "it is the fundamental r....
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....of assessee even if preposition relied upon by the Assessing. 7.1 It is a fact that the Assessing Officer has not applied his mind independently in coming to the conclusion in the assessment order. The Assessing Officer could not bring anything on record which can prove that because of such shifting of profit from assessee to client, the assessee has received back the money either in cash or in other form as money's worth. Further the Assessing Officer could not point out that the client to whom profits were transferred has not accounted for such profits as their income. It was also remained an undisputed fact that all the clients are having PAN and regularly filing their tax returns and such profit has already been taxed in their hands, therefore, the same profit once again cannot be taxed in the hands of the assessee 7.2 Accordingly, the entire addition made of Rs. 18,60,33,553/- is deleted. Thus, grounds No.2 to 6 are allowed" 10. Aggrieved by the orders passed by Ld CIT(A), the revenue has filed these appeals before us. 11. We have heard rival contentions and perused the record. A careful perusal of the order passed by the Ld CIT(A) would show that the Ld CIT(A)....
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....here as in the instant case, the clients have carried out the transactions continuously. Further, it is pertinent to note that none of the clients, with whom the assessing officer has carried out the examination, has disowned the transactions. Further, all the clients have duly disclosed the profits arising from the transactions as their respective income. Though the AO has alleged that the said profits have been used to set off the past brought forward losses, yet the Ld CIT(A) has made a detailed analysis of this matter and has given a clear finding that the same was not true in all the cases. The Ld CIT(A) has pointed out that majority of the clients have paid tax on the profits. It was further noticed that the some of the transactions have resulted in loss also and the said loss has also been accepted by the concerned clients. All these factors, in our view, go to show that the assessee has carried out the transactions on behalf of its clients only, even though the transactions were executed in the code of the assessee initially. 13. Further, the Ld CIT(A) has pointed out that there was no modification of client code to the tune of Rs. 3.31 crores and further there was chang....