AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (11) TMI 415
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....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 seized document also contained computer data belonging to assessee and accordingly, in view of the provisions of Section 153C r.w.s. 153A of the Act, 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/-. Thereafter the assessment was framed u/s. 153A (1)(b) r.w.s. 143(3) vide order dated 29.12.2009 and the total income was determined at Rs. 99,25,850/-. Aggrieved 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 Assessee. Aggrieved by the aforesaid order of ld. CIT(A), Revenue is now in appeal before us and has raised the following effective ground:- 1. The ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 20,73,540/- made on account of suppre....
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.... 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 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 client 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 of the appellant Company and have also gone through the various judicial pronouncements cited before me. At the very outset, it may be stated that the huge additions made by the Assessing Officer in the assessment years under appeal on t....
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....how . that client code modifications 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 penalty 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 around 0.5% for the Assessment Years under appeal. Therefore, I see no justification 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 the Assessing Officer that the client code modifications were carried out in large numbers with the motive of transferring profits. The 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 client code modifications with a view to reduce incidence of tax. 4.12 Further, whatever modifications have been carried out, the reasons for such modifications were thoroughly explained before the Assessing Officer as also before me. The assessee's explanation has been....
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.... argument, 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 transferred 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 avoid payment of tax of Rs. 30 to 35. The methodology adopted by the Assessing Officer for calculating notional and hypothetical profits gives rise to several crucial questions which remain unanswered and this point was thoroughly explained by the assessee at pages -14 to 19 of the reply dated-23rd November, 2009 filed before the Assessing Officer. These anomalies in the presumptions of the Assessing Officer have also been explained at pages - 45 to 50 of the Statement of Facts. 4.13 Another factor which cannot be ignored is 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 genera....
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....A.Y. 2006-07, the increase in profits was accepted by him. He further placed reliance on the decisions in the case of Sambhavnath Investment vs. ACIT 38 CCH 077, Ashok Goyal (HUF) vs. 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 the 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 as if Client Code Modifications were not carried out and the transactions were closed on the expiry date. Ld. CIT(A) has further noted that while deciding the appeal in the case of Kunwarji Finance Pvt. Ltd. for A.Y. 2005-06 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 Kunwarji Finance Pvt. Ltd. (supra) against the order of ld. CIT(A), Revenue had preferred appeal before the Co-ordinate Bench of Tribunal which was dismissed by the Co-ordinate Bench by orde....
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....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 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 d....
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....s 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 the prof it/loss arising after the client code modification can be considered in the hands of the assessee. 11. The Id. 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 Id. 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....