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2024 (11) TMI 892
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....ngly, delay of 22 days is condoned. 3. In both the years the issues involved are common arising out of identical set of facts and therefore, same were heard together and have been disposed of by ways of this consolidated order. For the sake of ready reference appeal for A.Y.2013-14 is taken up wherein the Revenue has raised following grounds:- "Ground-1 "Whether on the facts and in the circumstances of the case and in Law, the Ld. CIT(A) was right in holding that the primary responsibility was of NSEL which has offered paired contracts and advertised the assured return and not the assessee? 2 "Whether on the facts and in the circumstances of the case and in Law, the Ld.CIT(A) was right in ignoring the fact that the SEBI has found fault in the assessee and considered that the assessee is not "fit and proper" person for holding the certificate of registration in the securities market and debarred it from trading in the Commodity Market.?" 3 "Whether on the facts and circumstances of the case and in Law, the Ld. CIT(A) was right in ignoring the facts that the deposits received by the assessee from the investors created an obligation on the assessee and th....
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....from the corresponding new buyer and would then release the commodities to the buyer and price of the commodities to the seller. NSEL would have the custody of the goods from the time of purchase under the T+2 contract till the time of its sale. 7. The ld. AO in his order u/s. 201(1) r.w.s. 201(1A) of the Act has observed that in the year 2013, Forward Market Commission directed NSEL to stop launching contracts after the payment default and this led to the closure of NSEL in July 2013. Further, investigation led by Enforcement Directorate (ED) & Economic Offences Wing (EOW) revealed the active role of brokers also in alleged scam of NSEL. As per the findings of the Investigation agencies, the brokers had sold the commodities on the floor of National Spot Exchange to the clients by assuring them fixed returns. The transactions on the exchange were carried out in the guise of commodity trading without ensuring delivery of the commodity traded on the exchange. In light of these investigations, the proceedings u/s. 201(1) r.w.s. 201(1A) of the Act were initiated by the Ld. A.O. and he passed the order dated 20/03/2020 treating the assessee as an 'assessee in default' on acco....
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.... also placed by the AO on the Enquiry report of SEBI dated 11/04/2017 wherein it was observed that the assessee had carried out back-to-back paired contracts at NSEL for and on behalf of its constituents and that the assessee had entered into short term buy contract and long-term sale contract with predetermined price and profit for the buyer and seller. The ld. A.O. also placed reliance on the order of Forward Market Commission dated 17/12/2013 and the judgement of the Hon'ble Bombay High Court in the case of 63 Moons Technologies Ltd. vs. UOI in Writ Petition No. 2743 of 2014 as well as the judgement of the Hon'ble Bombay High Court in the case of National Sport Exchange Ltd. vs. State of Maharashtra in Writ Petition No. 1403 of 2015 dated 01.10.2015 and held that the transaction undertaken by the assessee on the NSEL platform represented finance business in the garb of commodity trading. 11. Accordingly, AO held that the assessee company accepted deposits from its customer which was invested in such a manner that the returns on investments were assured for the beneficiaries. He therefore held that the fixed returns given to the investors by the assessee company was no....
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....t as an alternative to fixed deposits and the return offered was 16% across all commodities. The Ld. CIT (A) also referred to various observations of the said order of SEBI as well as the judgement of the Hon'ble Supreme Court in the case of 63 Moons Technologies Ltd and held that the assessee merely facilitated these transactions and that they cannot be held liable to deduct TDS u/s. 194A since the assessee was not the counter party to the transaction. It was accordingly, held that the provisions of Section 194A of the Act cannot be invoked in the case of the assessee. For the sake of ready reference the relevant observation of the Ld. CIT(A) holding that assessee was not liable to deduct TDS and there was no liability u/s. 44A which is reproduced hereunder:- 16.2. Thus, in my view, the contracts/transactions do attract provisions of sec. 194A considering the unambiguous language used. However, the issue still to be decided is whether the appellant is responsible for paying the income and is correspondingly required to deduct TDS u/s. 194A. 17. It has been contended that in the light of the decisions of the Hon'ble Supreme Court, it is NSEL which has offe....
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....d contract in castor oil. The 'paired contracts', it is noted, were being marketed as an alternative to fixed deposits. 28. I note that it was primarily the responsibility of NSEL, and not the brokers, to ensure that there was adequate collateral to secure the sell orders posted on its platform. But in the larger scheme of how these "paired contracts' were structured, it was not inconceivable that sell orders would be short sales as they were designed to be reversed in all cases, Therefore, the question remains whether a reasonable person would expect the sellers to move the collateral to a warehouse in a situation where the transaction is reversed. However, as the responsibility was primarily of the exchange and got of the brokers facilitating these transactions, I am not going to delve any deeper on this issue. 30. I note the fact that 'paired contracts were by design structured in a manner that did not result in delivery of commodities, were offered by NSEL, have been found by authorities including the Hon'ble Supreme Court to be in violation of the conditions prescribed in the exemption Notification dated June 05, 2007, Issued by MCA. ....
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....ntracts in commodities. 44. The settlement default at NSEL led to investors suffering losses of more than INR 5600 Crore. This leads to the question whether the writing on the wall would have been visible if the Notice acted with responsibility, care and diligence. This was the period (2009-2013), when the policy repo rate ranged between 4.75 % to 8%, and NSEL, In its own publicity material, was promising an 'assured return' of 16%. Contracts were structured in a manner where the buy side always made a gain. The return across commodities, as highlighted in the table at page 14, were the same Irrespective of the duration of the contract. This is apart from the other ex facie deviations from the exemption notification that paired contracts suffered from. The lure of extra yield proved to be an irresistible bait. Brokers with vast experience like the Noticee should have been more careful while offering such a product to its clients. 45. I therefore note that there were enough red flags for a reasonable person to come to conclude that what was being offered as paired contracts on NSEL were not spot contracts in commodities. Given the above I am constrained to ....
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.... i) The clause 2.15 and 2.72 of the bye-laws defines the terms 'buyer' and 'seller' to mean the buying or selling client or the exchange member acting as an agent on behalf of the client. (ii) The clause 4 deals with the rules pertaining to the 'Dealing in Commodities'. The clause 4.6 specifically states that while entering an order in the system, the member shall specify whether such order is on own account or on account of his client. If the order is for and on behalf of the client, he should specify the respective client identification number. Thus, even the said clause defines the role of the assessee to be as an agent and a broker acting on behalf of his client. The clause 4.9 also requires that the members, upon executing a trade on the NSEL platform, shall issue a contract note for each of the transaction done by them for the respective client on the trading system. The said contract note issued by the member should be strictly in the format prescribed by the exchange. Even the fees payable on the transaction undertaken by the assessee on the exchange are decided by the NSEL, as evident from clause 4.19 of the bye-laws. This shows th....
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....e was only an intermediary between clients and exchange and therefore, it cannot be held that assessee was counter party to the transaction and that the payment made by the assessee to the clients on account of the profit earned from the commodity transaction represent interest payable to the clients. 17. He further relied upon various evidences to prove that assessee was merely acting as an agent on behalf of the clients to undertake the transactions on exchange platform. The evidences which have been placed in the paper book which are as under:- (i) Member constitute agreement (ii) Letter of authority granted by the client to the assessee (iii) Contract note issued to the clients in the prescribed format (iv) Delivery allocation report issued by NSEL in respect of various clients on whose behalf trade was executed by the assessee. 18. We also find that in the impugned order the ld.AO has referred and relied upon various proceedings carried out by the Government agencies against NSEL, 63 Moons Technologies Ltd. and the assessee to establish that the impugned transaction was undertaken by the assessee and the same represented finance transa....
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....Court observed in para 23 that broker placed the order either to buy or sell any commodity on behalf of its clients. When two orders are placed through two different brokers for two separate clients, a contract for buying and selling comes into existence. On the due date, the buyer through its broker pays-in the amount of purchase of commodity against transfer of document of title and on the same date, the amount is paid-out to the seller. The Hon'ble High Court, thus at Para 29 of its order, observed that the transaction was between the 2 persons, i.e. buyer and seller through medium of NSEL. This proves that even according to the Hon'ble High Court, the assessee was nowhere involved as the counter-party to the transaction. The said judgment of the Hon'ble High Court was challenged before the Hon'ble Supreme Court in the case of the State of Maharashtra v. 63 Moons Technologies Ltd. [CA No. 2748-49 of 2022]. Vide their order dated 22.04.2022, the Hon'ble Supreme Court observed that for the purpose of the provisions of MPID Act, the exchange, NSEL, can be said to have accepted 'deposit' within the meaning of MPID Act. The Hon'ble Supreme Court observed in pa....
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....n shall apply accordingly." 21. Ergo, section 194 is attracted when a person is responsible for payment of interest other than income by way of income and securities. However, in the case of the assessee, assessee being a broker of certain exchange cannot be held to be a person who has been paying any interest to the clients and therefore, we hold that provision of Section 194A cannot be invoked in the case of the assessee because it cannot be reckoned as a person responsible for payment of income by way of interest to the clients. Ld. Counsel has referred few judgments of the Hon'ble Delhi High Court in the case of CIT vs. Hardarshan Singh reported in 350 ITR 427 (Del); and CIT vs. Cargo Linkers reported in 218 CTR 693(Del), wherein the Hon'ble High Court has held that provision of TDS cannot be applied in case of intermediary / agents acted on behalf of its clients and intermediary cannot be held to be person responsible for the purpose of TDS provisions. Though these decisions have been rendered in the case of CNF agents, however, the same principle will apply in the present case also because assessee was also an intermediary between the clients and the NSEL and was never par....