TaxTMI 
TaxTMI 
TaxTMI 
2013 (9) TMI 1060
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....e Rs. 63,33,031/- and Rs. 59,54,962/- respectively and the total gains works out to Rs. 1,22,87,993/- (page 11 of the paper book). Further, the assessee reported the business losses on account of derivatives transaction amounting to Rs. 59,97,271/- too. Assessee claimed set off of these losses earned on the 'derivatives business' against the other income of the assessee. It is the allegation of the AO that the said losses generated with the ultimate aim of reducing the tax liability. Thus, the genuineness of the said business losses is the core dispute during the assessment proceedings and AO held that these are not genuine losses and in fact, the losses do not pertain to the assessee. Thus, the 'derivative business' of the assessee is the focus and the relevant facts are narrated in the succeeding paragraphs. 3. The turnovers of the derivatives purchases and sales are Rs. 52.52 cr and 51.95 cr respectively and page 39 of the Paper Book contains the relevant details. The gross loss calculated on this account is Rs. 60,21,234/- and para 2 of the impugned order contains the working. Out of this loss, loss of Rs. 56,53,019/- is the cynosure of the dispute and the reas....
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....erred to CM-031 which belongs to the assessee by virtue of Modification procedures allowed by the NSE. With this factual background, AO came to the conclusion that the loss is not a genuine one and it actually belongs to some other clients. Further, it is the allegation of the AO that the said purchase and sale transactions are arranged for the assessee for generation and purchase of losses with an ultimate aim to reduce the tax liabilities of the assessee. In response to the AO's observation communicated to the assessee, assessee filed a written submission dated 29.11.2010. In the submissions, per contra, the assessee mentioned that the loss is genuine and it belongs to the assessee. However, he pleaded innocence with regard to the issue of 'client code modification' and mentioned that the broker should know the reasons for the modification. In this regard, assessee relied on the contract notes issued by the broker, New Delhi and also submitted the ledger extracts showing the payment of Rs. 56,85,855/- on 1st, 17th and 24th of April, 2008. Assessment order is silent about these payments. It is submitted that the assessee is not aware of these intricacies relating to im....
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.... of Nifty futures using the said broker and relied on the contract notes as well as the copies of the ledger accounts. Further, assessee relied on the payments Rs. 56,85,855/- made to the broker through banking channels. It is the argument of the assessee that the aforesaid Client Code Modifications are possible mistakes which should be attributable to the" human error". In response, CIT (A) considered the above submissions of the assessee and examined the issue relating to the test of human probabilities (para 6.6 of the impugned order) and discussed the taking cue from the judgment of Hon'ble Supreme Court in the case of CIT v. Durga Prasad More [1971] 82 ITR 540 and in the case of Sumati Dayal v. CIT [1995] 214 ITR 801 (SC) and observed that the "taxing authorities are required to put on the blinkers while looking at the documents produced before them. They are also entitled to look into the surrounding circumstances to find out the reality.....". Regarding the onus, CIT (A) observed that the assessee failed to prove that the claim of set off qua the business loss is genuine. Further, CIT (A) distinguished the decisions filed before him in cases of CIT v. Gokaldas Hukumchand....
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....r of the transactions from Client Code SJ17 to M032. Regarding the AO's observations on (i) why the assessee has not routed the derivative transactions with his regular broker ie Edelweiss Securities Ltd; (ii) how the broker located in Delhi oblige to affect the transactions worth Rs. 52.53 Crs without keeping any margin money; (iii) why the broker in Delhi was not cooperating with the AO by not responding to the queries raised and the to the notices issued u/a 131, Ld Counsel mentioned that it is for the said broker to explain and the assessee is nothing to say on this issue. On the issue of human probabilities by the CIT (A), Ld Counsel is of the opinion that AO acted merely on the basis of suspicion and surmises. Otherwise, he does not have any information or incriminating material to disallow the claim of the assessee. As per the Ld Counsel, the suspicion, however strong it may be, is not a ground for denying the set off of business loss against the capital gains. Regarding the onus, Ld Counsel has nothing to say. As such, Ld Counsel has not filed any judgments except relying on the case laws cited before the lower authorities. 10. Per contra, Shri Vijay Shankar, Ld Sr AR ....
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.... the assessee to the broker at Delhi, Ld DR mentioned that this issue was never dealt with by the authorities below and therefore, he relied on the order of the AO and CIT (A). 11. We have heard laborious arguments put forwarded by Shri S.C. Tiwari Ld Counsel for the assessee as well as Shri Vijay Shankar, Sr. AR for the revenue. The orders of the AO and the CIT(A) and the paper book filed by the assessee are also perused. At the outset we find there is no dispute on the facts relating to the figures mentioned above. The limited issue left for our adjudication relates to (i) whether the business loss belongs to the assessee or not and if the same constitutes a genuine loss of the assessee or not; (ii) whether the assessee has discharged the primary onus completely when he made a claim of business loss and its set off against the other income, which has the effect of reduction of the tax liability; and (iii) the issues relating to human probabilities. The ground of appeal revolves around these sub-issues. 12. The peculiar facts leading to the claim of business loss of Rs. 56,53,019/-are many as mentioned above. Out of them, some of them are (i) assessee digressed from Edelweiss Se....
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....ed 263 transactions initially in the Clients' numbers of No.SJ17 and CM031 and not the assessee. Subsequently, after market hours, these transactions were transferred to the assessee's account with Client Code No.CM031 and the said modification was done with intimation to the NSE. Therefore, this is an undisputed fact that the business loss was originally generated with the Client Code No.SJ17 and M032, which do not belong to the assessee, before the loss is transferred to the assessee's account. It is not know if the persons holding the said Client Codes No. SJ17 and M032 are aware of this major decision. Therefore, the issue is whether the said modification to the Client Code qua the 263 transactions was done with a mala fide intention to generate business loss for the assessee by the collusive arrangement with the broker. This modification to the Client Code has many angles for verification. Unless these questions are fully addressed in proper enquiry by the AO and the assessee provides the explanations, the truth will not emerge. The said broker has to bring relevant documents of Client No.SJ17 and M032 and come forward with the facts before the AO in the interest o....
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....there is need for bringing more basic facts relating to the impugned client Codes No.SJ17 and M032 to the records and the manner of treatment to the same in their books and returns. Further, AO needs to analyse and conclude on the end destination of the payments made by the assessee to Delhi-based broker. 14. Regarding the issue of discharging of the onus by the assessee, it is admitted position that the assessee supplied the details of the M/s Aadya Trading and Investment Pvt Ltd., Delhi-based Broker and the AO duly attempted to obtain the details about the impugned transactions and the controversial client accounts and the attempts have failed. There are no details in record about the reasons for the failure. But the fact is that the AO immediately shifted the onus to the assessee and required the assessee to produce the broker and his records. On failure of the assessee, AO concluded the issue against assessee. It is true that the assessee made a claim of deduction of business loss of Rs. 56,85,855/- and also claimed set off of the said loss against the other income for ultimate reduction of tax liabilities of the assessee. In that situation, normally the onus is certainly on t....
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....g with the proceedings by the AO. Therefore, in our view, the impugned assessment was made prematurely concluding the investigations initiated by the AO and at the end, without bring the relevant basic facts to the records. 15. Regarding the issues relating to the theory of human probabilities, the assessee claims that it is most probable due to human error that the 263 transactions are mistakenly booked in the accounts of the other clients of the Aadya Trading and Investment Pvt. Ltd and subsequently, modified or transferred to the assessee's account. Further, it is a probability that the said transactions effected on the single day of 28.3.2008 yielded loss involving Aadya Trading and Investment Pvt. Ltd. Assessee would have earned loss even if the assessee effect the same transaction with their regular broker. Thus, it is the claim of the assessee amidst these possibilities, AO cannot deny the claim of deduction of the said loss of Rs. 56,85,855/-. 16. On the contrary, from the revenue point of view also, it is possible to think that the assessee has engineered the impugned losses of Rs. 56,85,855/- with the collusive understanding with the broker, who is allegedly defied ....