TaxTMI 
TaxTMI 
TaxTMI 
2023 (2) TMI 1219
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....of the case, the Ld. CIT (A) has erred in deleting the disallowance of contrived losses on NMCE (Rs. 8,40,05,637/-) by overlooking the glaring evidences/ findings of synchronized trades executed by the assessee with a cluster of brokers/counter parties on MCE exchange which had resulted in excessive losses which were then set-off against profits from other exchanges and without appreciating that the selective quoting of certain loss transactions on other exchanges does not absolve the assessee from providing substantive explanation on excessive losses on NMCE. 2. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in not appreciating the fact that the execution of trades on a recognized exchange (MCE) as per rules, on screen based platform through banking channels and entries in books had no relevance in deciding the genuineness of losses which were inherently managed/ contrived losses. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that the A0 should have brought corroborative evidences against the affidavit filed by the assessee (citing genuine business transactions) whereas it was the assessee who was supp....
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....nd while trading on other exchanges like NCDEX/MCX etc. were consistent during the year which show the assessee quantifies the profits made on other exchanges and then accordingly decided to set-off the same to the maximum extent by booking artificial losses on NMCE. The Ld. CIT(DR) also submitted that information regarding all the transaction of trade executed by the assessee was called from NMCE u/s. 133(6) which has been provided vide letter dated 01.11.2018. The Ld. CIT(DR) vehemently pointed out that on analysis of said data provided by NMCE it was clearly gathered that during the F.Y. 2010-11, pertaining to A.Y. 2011-12 the assessee had made 4823 transactions on NMCE and has made loss of Rs. 8,40,05,637/- which was artificially booked to reduce the tax labiality of assessee. Therefore the Assessing Officer was right making disallowance in this regard and the Ld. CIT(A) has granted relief to the assessee without any justified reason and basis. Therefore impugned first appellate order may kindly be set aside by restoring that of the AO. 4. Replying to the above contention of revenue the learned assessee representative drew our attention towards para 4.2 to 4.2.12 of first appe....
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....second. In support of this fact the assessee submitted copy of the circular issued by National Commodity Derivative Exchanges Ltd dated 18.03.2018 clause 7 where it has been allowed that the number of order per second from a particular CTCL ID/ATS ser-id shall not exceed 15 orders per second. The Ld. AR also submitted that said circular was subsequently revised by SEBI circular vide dated 27.09.2016 wherein number of transactions per second were increased from 15 to 20 as per clause 9 of said circular. The Ld. AR also submitted that the AO was not correct and justified in alleging that all the trade have been executed within 60 seconds when order is placed and all the date are squared up on the very same date, from the circular of NCDEX and SEBI it is clear that till 26 the September 2016, fifteen transactions were allowed and thereafter twenty transactions per second is allowed by the regulator itself. 8. The Ld. AR placing reliance on the order of Hon'ble Kolkata High Court in the case of Pr. CIT vs. M/s. BIB Cables and Conductors, ITA No. 78 of 2017 GA No. 747 of 2017 order dated 19th June, 2018 held that to hold a transaction as bogus there has to be some concrete evidence whe....
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....ided by the department to company. Ongoing through the same it has been found that on nearly all the transactions in every commodity losses have been booked by the company and it can also be observed that the company have started business of NMCE platform from February 2010 and since then the company has incurred only losses in almost every month. From above observations it clearly emerges that only losses have been made on NMCE consistently. Please explain the reasons Why the Ms. Essence Commodities Pvt. Ltd (ECPL) has consistently made losses on NMCE platform. Ans. Sit, these are genuine business transactions and done in the routine course of the business." 4.2.2. During the course of assessment proceedings to support above answer the Director of the assessee company filed an affidavit which was discarded by the A.O without bringing any evidence or corroborated evidence, without making any independent inquiry and disallowed the loss on hypothetical basis. The A.O has not made any enquiry from the third party. In the assessment order he has also not clearly mentioned that if the loss is arranged loss, how the assessee has paid cash to the third party or in what manner accoun....
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....affairs of the exchange. In an emergency, it can even suspend trading. All contracts for futures trade have be approved by the FMC before they can be launched on the exchange. As a self- regulatory organization, NMCE also plays an important role by ensuring that the provisions in the Articles of Association, and Byelaws etc. are followed in letter and spirit. The regulation by the Exchange is rule-based and incorporated in the software itself. Regulation involving human intervention and of discretionary nature is implemented through various committees of professional and experts. Special care is taken while constituting these committees to ensure that there is no conflict of interest. Legal Hierarchy is as under-: 4.2.6 The A.O. made the addition without making any enquiry from the third party. All the transactions were carried out on an online Screen based platform where the buyer and the seller can never known to each other, identity under any circumstances and trades are automatically executed on the basis of matched buying and selling rates as per Exchange and FMC Rules and Regulations. Hence, genuineness of the transactions are beyond doubt. The commodities in which the app....
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....having membership and clientele all over India. 3. The trading on NMCE happens in electronic platform and all the orders are visible to each and every person in front of electronic screen of NMCE, thus anybody from all India can strike the trade at any point of time, so clustering between members and synchronised trades are not possible. 4. The clustering and synchronization of such fast trades as specified by you between such brokers who are so distant from each other is never possible. 4.2.9 The A.O has made the addition on imaginary basis by presuming that the transaction entered by the appellant company is a synchronized trade with the clustering of few brokers losses is booked in every month of last quarter in every commodity at NMCE platform without appreciating and by ignoring the rules and regulation of the Forward Markets Commission (FMC) which is set up by the Central Government to make close interaction with the commodity exchanges. As per the Forward Market Commission all the commodity transactions were executed on line in digital form on screen, hence it is impossible to know the name of the counterparty broker from whom commodities were purchased or to whom c....
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....filed by it. Further, asking to decide the appeal on the basis of submissions already filed by submitting a letter in dak" In the appeal filed by the assessee, the Tribunal, however, held that there is no bar in undertaking off market transactions in commodities under the law. On the aspect of proving such transactions, the Tribunal opined that the Assessing Officer was duty bound to accept the profit shown in the Profit & Loss Account of the Assessee relying on the following authorities:- (i) Apollo Tyres Ltd. V. CIT 255 ITR 273 (SC); (ii) Malayala Manorama Co. Ltd. V. CIT 300 ITR 251 (SC); (iii) DCIT- Circle- 10(1) V. Dune Leasing & Finance Ltd. 126 ITD 255 (Del.) On factual analysis of the assessee's case, the Tribunal observed and held:- "4. We have heard both the side and perused the materials available on record. The Id. AR submitted two papers books. First book is running in pages no. 1 to 88 and 2nd paper book is running in pages 1 to 34. Before us the Id. AR submitted that the order of the AO is silent about the date from which the broker was expelled. There is no law that the off market transactions should be informed to stock exchange. All the trans....
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....e of our jurisdiction under Section 2604 of the Income Tax Act, 1961. No substantial question of low is involved in this appeal. The appeal and the stay petition, accordingly, shall stand dismissed. 4.2.12 From the above it is clear that even loss arises on off market transactions is not bogus if the transaction are recorded in the books of both the parties and offered for taxation and finally the transaction were settled through banking channel. The FMC appointed the Chartered Accountant for auditing of the appellants accounts. The performance audit report submitted by the auditor is as under:- S. No. Para No. Ch. No. Chapter of manual Violations 1 6.7 Margin Collection (Page #43) VI Clientele' Transactions 2 4.2.5 Trade Log and Order Log (Page #27) IV Verification of Books of accounts and Other Records 3 4.2.5 Margin Deposit Book (Page #27) IV Verification of Books of accounts and Other Records 4 2.4.7 Order Book (Page #27) IV Verification of Books of accounts and Other Records 5 4.1(t) maintenance of Books of Accounts (Page #24) IV Verification of Books of accounts and Other Records 6 4.2.9 Registe....
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.... been carried out through recognized stock exchange which were also confirmed by the stock exchange NMCE commodity exchange and it was also confirmed all the payments have been received/paid though banking channels and have routed through NMCE commodity exchange. The report of forensic auditor appointed by NMCE exchange Ahmadabad, also reveals that in computerized/screen based trading platform the trading members does not know the identity of member or client code of counterparty/second party, hence the member has said/pleaded ignorance of any aforesaid counterparty brokers/clients/second party with whom the trade of members has been matched at NMCE platform. 12. Hon'ble Calcutta High Court in the case of PCIT vs. BIB Cables and Conductors (supra) elaborately analyzed the details of identical transactions and thereafter concluded in the favour of the assessee upholding the orders of Tribunal that all the transactions were undertaken through broker and were duly recorded in the books of accounts of assessee the broker has also declared the transaction it its books of accounts and income earned there from was also offered for taxation. Their Lordship speaking for Hon'ble Calcutta Hi....
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....lkata High Court in the case of PCIT vs. BIB Cables and Conductors (supra). Accordingly grounds nos. 1 to 5 of revenue for A.Y. 2011-12 are dismissed. Ground no. 6 of revenue for A.Y. 2011-12 16. Apropos ground no. 6 the Ld. CIT(DR) submitted that during F.Y. 2010-11 with counter client Victory Tip Up Pvt. Ltd. the assessee has made by calls amounting to Rs. 1,82,21,825/- and sold calls amounting to Rs. 1,87,42,062/- hence the profit made on said particular transactions comes to Rs. 5,20,237/- and assessee has failed to demonstrate that this profits has been accounted for as income and has offered for taxation. Therefore the AO was right in making addition in the hands of the assessee as it was amply clear that assessee has not accounted said profit accrued to it in the books of account. 17. Replying to the above, the Ld. AR submitted that the transaction pertaining to Victory Tip Up Pvt. Ltd. were recorded in the books of accounts and the transactions picked up by the AO for making disallowance were dully entered by the appellant company in its regular and day to day books of accounts. He further submitted that the said transactions were also reflected in the P & L account of ....