TaxTMI 
TaxTMI 
2025 (7) TMI 1804
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....and ignoring the fact that the CCM done by the sister concern M/s Futurz Next Services Ltd. though which profit of the assessee company was reduced by Rs. 8.82 crore is done through back office. c) On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts in holding that the CCM done by assessee company is within permissible criteria, thus, ignoring the fact that the CCM was done in the code of certain entities only and the modified client code were not similar to the original client code, the values of client code was significant and other conditions laid down by stock exchanges. d) On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts in directing the AO to delete disallowance made u/s 14A. e) On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts by deleting the addition of Rs. 60,40,87,544/- made on account of deemed dividend u/s 2(22)(e) of the Act. f) On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts in holding that all the transactions with JCPL are business transaction, thus....
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....the code of assessee company to the other client codes and vice versa. (iii) During appellate proceedings, appellant has submitted that, this addition cannot be made in the account of assessee, as assessee is not a member to the exchange and cannot execute client code modifications. Further, the appellant also submitted that in case of group concerns (Jaypee Capital services Ltd., Future Next Services Ltd.), the CCM is modification change of client codes, after execution of trades. This facility is provided by the Stock Exchange/ Commodity Exchange, in order to rectify any error or wrong data entry done by the staff of broker company, at the time of punching orders. Further, it is submitted that these CCM, is subjected to certain guidelines provided by the SEBI, with regard to the execution of entries, genuinely punched wrong and not as a routine. The observations of the Special Auditor regarding huge number of CCM transactions, are grossly incorrect, being misused to shift the profit /loss from one client to another. However, in appellate proceedings, it has been submitted CCM transactions, have been recorded in case of group concerns less than 1%, and no penal action has....
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.... Therefore, it is submitted by the appellant that in their case, these errors are less than 1% of the total number of transactions entered into and the entries relating to CCM and have been accepted by both the parties. The A.O. has not brought any evidence to support the allegation apart from suspicion on the basis of SEBI guidelines. Hence, it is submitted by the appellant that there is no justification for drawing any adverse inference on this account, without bringing any specific anomaly with regard to genuineness of the transactions and no fine has been imposed by concerned authorities, in respect of CCM. (v) It is further submitted by the appellant that the entries, which are being alleged, where profit/losses arising from the alleged transactions by the A.O., are all being assessed to tax and such profit/losses, are included in total income declared in each of such case, which has been charged at the maximum marginal rate. Therefore, it is submitted that, there cannot be any allegation of intention to avoid taxes by shifting profit to loss by manipulating entries. The same A.O. has assessed all these entities in assessment proceedings u/s 153A/143(3) and no corresp....
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....us decisions cited before us. We find the AO in the instant case made addition of Rs. 1.90.71.392/-on account of CCM on the ground that in the case of member(broker) group of companies of the assessee, it is held that the CCM is by and large not for the genuine reasons and for extraneous consideration and that the assessee has suppressed its income to the extent of Rs. 1,90,71,392/-. We find the Ld. CIT(A) deleted the addition made by the AO on the ground that the assessee is not a member of any exchange and cannot execute CCM. Further the transactions on account of CCM done by group concerns are genuine and the volume of CCM occurred are within permissible limit allowed by SEBI. It is also the observations of the CIT(A) that the exchange or SEBI has not found any violation of rules and regulations relating to CCM and the CCM transactions are falling within the prescribed limit. It is the submission of the Ld. DR that it is not a genuine mistake and the transactions are not genuine. Further the CCM was done by the assessee through its sister concern Mis. Futurz Next Services Limited through which the profit of the assessee company was reduced by 1.90 crores. According to t....
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.... the Mumbai Bench of the Tribunal in the case of M/s. DCIT Vs. Comet Investment (P) Ltd. vide ITA No. 5802/Mumbai/2017 order dated 13.05.2019. We find the Tribunal dismissed the appeal filed by the revenue by observing as under :- 7. After having heard the counsels for both the parties at length and after having gone through the facts of the present case, we find from the records that the assessee is not a registered broker on the Stock Exchange. Only the registered brokers can modify Client code (CCM) of their own clients. Therefore in such circumstances, the allegations of assessee having done or restored to CCM is apparently not correct. The AO has not brought on record that even the instructions for CCM was ever given by the assessee. Hence, in these circumstances, the assessee can't be held responsible for CCM if any done at the end of the broker. The AO except for the fact of receiving information from the DIT (I & CI), has not considered the other aspects of the transaction to be considered as the transactions of the assessee The other relevant aspect i.e. receipt and /or payments of monies, the time gap between the actual transactions on the stock exch....
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....109/Mum/2011 AY 2006-2007 dated 19/12/2013 (Mum.) (Trib), ACIT v Kunvarji Finance (P) Ltd (2015) 61 Тактапn.com 52(Ahd.) (Trib.) wherein it was held that CCM within 1% is absolutely normal. Accordingly the addition was deleted. In the facts of the present case also, CCM is within 1%, ITO vs. Pat Commodity Services P. Ltd. ITA Nos. 3498 and 3499/Mum/2012 dt. 7th Aug, 2015 (Mum.)(Trib.), DCIT v Sunil J Anandpara ITA No. 3132/MUM/2015 Assessment Year: 2010-11 Bench | dated 15/9/2017 (Mum.) (Trib.) and ITO vs. Mis M.N. Shares & Stock Brokers Pvt. Ltd. IT No. 5399/M/2017, AN. 2009-10 Bench-SMC. 11. Even nothing has been placed on record by the AO to demonstrate that any proceedings were ever initiated against the assessee by the SEBI or any stock exchange. It was also clarified by the Ld. AR that the broker, through whom the assessee carried on share transactions, were also not imposed any penalty. No corelation between the assessee on the one hand and the other parties on the other hand has been brought on record to co-relate that the parties to whom the alleged profits or loss is supposed to have been diverted to reduce the taxable income o....
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....allowed between 2:00p.m. to 2:15 p.m. c. However, on the days when trading in commodities takes place till 11:55 p.m. the client code modification will be allowed only upto 12:00 p.m. d. At all times. Proprietary trades shall not be allowed to be modified as client trades and client trades shall not be allowed to be modified as proprietary trades. e. In order to ensure that client codes are entered with alertness and care, a penalty on the client code changes made on a daily basis shall be imposed as under: S.No. Percentage of Client Code changed to total orders (matched) on a daily basis Penalty(Rs.) 1. Less than o equal to 1% Nil 2. Greater than 1% but less than or equal to 5% 500 3. Greater than 5% but less than or equal to10% 1000 4. Greater than 10% 10000 f. It is clarified that the facility of client code modification is allowed as an interim measure only upto March 31, 2007 and after this date the said facility will be completely stopped. With reference 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 inter....
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.... person by modifying the client code so as to avoid the payment of tax. From the circular of the Commodity Exchange, it is evident that client code modification is permitted on the same day. Therefore, we are unable to find out any justification for the allegation of the Assessing Officer that the client code modification was with the malafide intention. When the client code was modified on the same day, there cannot be any malafide intention. Had client modification done after the transactions period when the price of the commodity has already changed, then perhaps there could have been some basis to presume that client code modification is intentional. However, when the client code modification is done on the same day, in our opinion, there was no basis or justification to hold the same to be malafide. 10. Moreover, the Id. Assessing Officer has computed the notional profit/loss till the transactions period and not till the period by which the client code modification took place. Even if the view of the Revenue is accepted that the client code modification was with malafide intention, then the profit or loss accrued till the client code modification can be considered in ....
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....ated 21.09.2021 in the case of group company J.P. Capital Services Ltd. for AY 2011-12 and 2012-13 in ITA Nos.3558 & 3559/Del/2016 are reads as under:- 5. "So far as Ground Numbers. (a), (b) and (c) are concerned, the same relate to the order of the Ld. CIT(A) in deleting the addition made by the A.O. on account of Client Code Modification ["CCM"]. The Learned Counsel for the Assessee submitted that the issue stands covered in favour of the assessee by the decision of the Tribunal in the case of Group Company Jaypee Financial Services Ltd., for the A.Y. 2011-2012 vide ITA.No.4266/Del./2016 order dated 03.12.2019 wherein an identical issue had come up. Referring to Para-15 of the order of the Tribunal, he submitted that the Tribunal has decided the issue in favour of the assessee. Referring to page-2, para-6 of the assessment order, he submitted that the present case is also exactly the same as in the case of Jaypee Financial Services Ltd.. He accordingly submitted that the Grounds of Appeal Numbers. (a), (b) and (c) being covered in favour of the assessee, the order of the Ld. CIT(A) be upheld and the grounds raised by the Revenue should be dismissed. 6. ....
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....ing to the Ld. DR the CCM is akin to penny stock. It is the submission of the Ld. Counsel for the assessee that the transactions entered into by the assessee are not found to be false or untrue and although SEBI is the regulator no action has been taken by SEBI holding that the transactions are not genuine. Further no adverse material has been found by the search party during the course of search and the revenue even have not gone to the broker who has done the CCM. It is also his argument that it is not known as to whom the account has shifted. 11. We find some force in the argument of the Ld. Counsel for the assessee. We find force in the argument of the Ld. Counsel for the assessee that client code modification is the internal matter of the broker and assessee has no control over it. The AO in the instant case has not spelt out as to on which scrips the assessee has shifted the profit. We find the AO nowhere in the assessment order has mentioned of any statement of broker of the assessee regarding the admission of any client code modification. We find in the instant case the addition has been made by the AO despite assertions by the assessee that it was not a registered....
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....the appellant are discussed as under:- (i) As per A.O., during the year under consideration, though, no dividend income has been earned, but the assessee has made the investment in JCSL amounting to Rs. 38,52,00,000/-. However, the A.O. was of the view that the assessee has not shown any expenditure against the income which might have been arised as a dividend income on such investment, which is a exempt income and accordingly, the A.O. invoked the provisions of section 14A and determined the disallowance u/r 8D at Rs. 1,76,48,396/-. (ii) During the appellate proceedings, the appellant has stated that the investment in group company JCSL, was strategic investment and not made for earning the dividend income. The dividend income on this investment was NIL and therefore, the A.O. was wrong in invoking provision of section 14A. The appellant has also relied upon the Hon'ble Delhi High Court decision in the case of CIT vs. Holcim India P. Ltd. ITA no. 486/2014 and ITA no. 299/2014 dated 05.9.2014. The ratio laid down by this decision is that no disallowance can be made u/s 14A, if there is no exempt income earned during the year. From the above, following....
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....ervices Ltd. by M/S Gen X commodities Ltd. M/S Gen X commodities Ltd, have more than 10% shareholding in M/s Jaypee Capital Services Ltd. accordingly the Ld. A.O. by invoking the provisions of section 2(22)(e) of the Act made addition on account of deemed dividend. 15.1 The brief facts of the case are that a search and seizure action took place in the business premises of Jaypee Group in which the assessee is a substantial shareholder, consequent to which the case of the assessee came under the purview for the previous six assessment years and notices u/s 153A were issued in all the said six years. 15.2 Therefore, during the year under consideration the assessee was served with the notice u/s 1534 dated 05.08.2013 (copy enclosed at PB 48) and in response to the same the assessee filed his return of income on 02.09.2013. Further, the assessee was served with various notices u/s 143(2), 142(1) and questionnaires. The copies of the same are placed in the paper book. 15.3 The ld. Assessing Officer assessee, vide another notice was asked to provide the details of the loans and advances taken and given during the year. The assessee in response to the said quest....
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.... a client to the two companies and thus have earned an income from the share trading which has been credited in his account and wrongly predicted as deemed dividend by the ld. Assessing officer. 15.8 Your honor, the transactions carried out between the assessee and the above parties reflects running transactions of debit and credit throughout the year which candidly enumerates that such transactions are on account of regular business transactions only. The Ld. A.O. has only relied upon the Special Audit report of the Special Auditors, given in respect of the above parties. However the assessee has particularly submitted that the Special Auditors while preparing the report have considered only the bank payment and receipt entries and calculated the amount of deemed dividend. The Special Auditors have not considered the associated share trading transactions of sales and purchases, which are linked with the said payments and receipts. This fact is further corroborated from the fact that the payment made also includes the margin money which is required for trading in the capital market as well as in the commodities market, as per the requirements of the Stock Exchange Rules. H....
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....il and July. Thereafter, from July, 2005 to 22nd March, 2006, there was a credit balance and again on 30th March, 2006, there was a debit balance. If we further analyze the accounts, we find that the maximum debit balance of the account of the assessee was only Rs. 2,08,212 while the maximum credit balance was more than Rs. 2 crores. That the debit balance of Rs. 2 lakhs was only for a period of ten days ie. from 23rd July, to 8th Aug., 2006 while the credit balance of more than a crore remains for more than two months and credit balance of more than Rs. 20 lakhs remains for more than six months. From the copy of that, it is evident that the assessee also made purchase of ten vehicles. Thus, the account is clearly in the nature of a running current account and merely because for a few days there was a debit balance of Rs. 2,08,212, it cannot be said that such debit balance was either loan or advance by M/s Daisy Motors (P.) Ltd. to the assessee. On these facts, the ion of Hon'ble jurisdictional High Court in the case of Ambassador Travels (P) Ltd. (supra), wherein their Lordships held as under, would be squarely applicable: 5. We are of the view that the order passed b....
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.... running account in discharge of its existing debts or against purchases or for availing services, such payments made in the ordinary course of business carried on by both the parties could not be treated as deemed dividend for the purpose of s. 2(22)(e). The deeming provisions of law contained in s. 2(22)(e) apply in such cases where the company pays to a related person an amount as advance or a loan as such and not in any other context. The law does not prohibit business transactions between related concerns, and, therefore, payments made in the ordinary course of business cannot be treated as loans and advances. Therefore, in the facts and circumstances of the case and in the light of the judicial pronouncements considered above, especially in the light of decision of the Bombay High Court in the case of Nagindas M. Kapadia (supra), we hold that payments made by a company in the course of carrying on of its regular business through a mutual, open and current account to a related party do not come under the purview of s. 2(22)(e) of the Act." 26. In the light of the aforesaid judgment, it is held that these are simple current account transactions between the two group co....
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....wed and the true test is always language used. but all these things would come into play when the nature of transaction would fall under some section. That is firstly the transaction should fall under a particular section then only the conditions of that section would be strictly followed. But in our case the transaction is apparently a regular business transaction. And if the contention of A.O. is accepted then each and every payment to shareholder would tantamount to deemed dividend u/s 2(22)(e), even the payment for re-imbursement of any expense incurred by the shareholder/director on the part of company would be deemed dividend. Certainly this is not the intendment of the Section, the section only wants to cover those transaction which are really in the nature of dividend and not each and every payment. Hence the contention of A.O. is not at all tenable in law and should be set aside. 15.18 Further in this regard, it is respectfully submitted that the Ld. A.O. has only relied upon the Special Audit Reports of the companies, and has made the addition in the hands of the assessee only on the basis of the same, as the assessee holds more than 10% voting ....
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....rcy Peshotan Batlivala Vs. ITO, 2012(9) TMI 154, ITAT Delhi." 17. While granting relief, the CIT(A) adjudicated the issue as under:- 10.3. Findings: The findings are as under:- 10.4 I have carefully considered the assessment order, written submissions, case laws relied upon and oral arguments of the Ld. AR. The A.O. in the assessment order, has made an addition of Rs. 60,40,87,544/- u/s 2(22)(e), for the following reasons: (i) The companies namely M/s Jaypee Capital Services Pvt. Ltd.(JCPL), and M/s Gen X Commodities Ltd.(GCL), are closely held companies. The assessee has substantial holding in JCPL. There are large number of transactions including payments by the JCPL to the assessee. Further, the group companies are also making the payments to each other regularly as per the ledger account submitted. (ii) The ledger account submitted by the appellant, consists of large number of transactions in respect of shares transactions done by assessee, as client of JCPL, which are not covered u/s 2(22)(e) of the act. However, where there are cheque payments, the same has to be considered as loan/advance for the purpose of section 2(22)(e) of ....
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....pellant/concern with this company. This fact is evident from the amount of Rs. 60,40,87,544/-, computed by the A.O. in the case of JCPL on the basis of alleged re-casted copy of account, as against the actual copy of account maintained in the books of accounts of this company. (c) It has been further submitted that the even alleged account prepared by the special auditor (in case of JCPL), which has not been followed by the A.O. and has prepared another account. The A.O. has taken alleged loan amount by adopting lesser of the payment made by JCPL to the appellant/concerns and net balance available on a particular date. Therefore, it is, submitted that even the alleged account prepared by the A.O., does not reflect the correct nature of the account, as same is prepared without following any accounting principles and ignoring the nature of each transaction. It is argued that the A.O. cannot ignore the nature of business transactions entered into by the assessee/group concerns with JCPL, which are relating to share/currency/derivatives and therefore, it is wrong on part of the A.O. to consider running account of business transactions as loans and advances, so as to consider t....
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.... fact, these purchase and sale transactions, have not even doubted by the special auditor in the audit report as well as by the A.O. in assessment order. The special auditor and A.O. has re-casted the ledger account by not considering the business transaction of sale/purchase of share/currency/derivatives, which is not correct, since deemed dividend cannot be computed by way of pick and choose of few transactions, rather an account has to be considered in its entirety. The above view, is also supported by the ratio laid down in the decision by Jurisdictional High Court of Delhi in the case of CTT Vs. Creative Dyeing & Printing (P.) Ltd. [2009] 184 TAXMAN 483 (DELHI), as under: 11. The counsel for the appellant has very strenuously urged that neither the Tribunal nor the Judgment of this Court in Raj Kumar's case (supra) deals with that part of the definition of deemed dividend u/s 2(22)(e) which states that deemed dividend does not include an advance or loan made to a shareholder by a company in the ordinary course of its business where the lending of money is a substantial part of the business of the company [section 2(22)(e)(ii)] Le., there is no deemed divi....
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....ies should not arrange their affairs in a manner that they assist the shareholders in avoiding the payment of taws by having these companies pay or distribute, what would legitimately be dividend in the hands of the shareholders, money in the form of an advance or loan. 10.5 If this purpose is kept in mind then, in our view, the word 'advance has to be read in conjunction with the word 'loan'. Usually attributes of a loan are that it involves positive act of lending coupled with acceptance by the other side of the money as loan: it generally carries an interest and there is an obligation of repayment. On the other hand, in its widest meaning the term 'advance' may or may not include lending. The word 'advance' if not found in the company of or in conjunction with a word 'loan' may or may not include the obligation of repayment. If it does then it would be a loan. Thus, arises the conundrum as to what meaning one would attribute to the term 'advance'. The rule of construction to our minds which answers this conundrum is noscitur a socils. The said rule has been explained both by the Privy Council in the case of Angus Robertson v. ....
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....'s own case as well as in the case of group companies in tune with the settled position of law. 20. On perusal of record, it is evident that the impugned credit resulting in additions under s. 2(22)(e) of the Act are offshoot of business transactions and thus outside the bounds of s. 2(22)(e) of the Act. The rationale in the view adopted by the CIT(A) is thus is in tune with the Co-ordinate Bench order in assessee's own case and group case as pointed out on behalf of the assessee. We thus see no reason to interfere with the well-reasoned order of CIT(A) and uphold the finding of the Ld. CIT(A) and accordingly, dismiss the ground Nos.(e) & (f) raised by the Revenue. 21. Ground Nos.(g) & (h) raised by the Revenue concerns additions on account of loss on shares amounting to INR 2,88,90,000/-. 22. The submission made before the CIT(A) on the aforesaid issue reads as under:- 11. "Ground no. 17, is relating to the addition of Rs. 2,88,90,000/- on account of loss on sale of shares. 11.1 The A.O. has made the above addition and findings of the A.O. in assessment order u/s 153A dated 31.3.2015, are reproduced as under:- "12. Unexplained sale and purchase ....
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....sessee company amounting Rs. 2,88,90,000/- is disallowed and added to the income. (Addition Rs. 2,88,90,000/-)" 11.2 During the appellate proceedings, Ld. A.R. has filed written submission vide letter 28.3.2016 and the relevant portion is reproduced as under:- 16.1 This ground deals with the action of the Ld. A.O. in making the impugned addition of Rs. 2,88,90,000/- on the ground that the loss incurred by the assessee company on the sale of shares of M/s Jaypee Capital Services Ltd. is a fictitious loss and was generated only for the purpose of reducing the income of the assessee company. This issue has been dealt with the Ld. A.O, at Page 20-21 in Para 12 of the assessment order. 16.2 In this regard, it is respectfully submitted before Your Honour that during the year under consideration, assessee had entered into a transaction of sale and purchase of shares of M/s Jaypee Capital Services Ltd. through M/s Futurz Next Services Ltd. This fact was observed by the Special Auditor during the course of Special Audit conducted in the case of M/s Futurz Next Services Ltd. Assessee company purchased 96,30,000 shares of M/s Jaypee Capital Services Ltd. @ ....
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....indings: The findings are as under:- 11.4. I have carefully considered assessment order, written submissions and oral arguments of Ld. AR. The objections/arguments of the appellant are discussed as under:- (i) In the assessment order, the A.O. has considered that the sale of shares 154,08,000 of JCSL @ Rs. 40 per share were sold on 31.3.2010 from FNSL and on the same date, 96,000,000 shares were sold @ Rs. 37 per share to FNSL. Therefore, the A.O. was of the view that this transaction has been taken place to generate artificial loss of Rs. 3 per share and accordingly, estimated loss of Rs. 2,88,90,000/-, in the hands of the appellant. (ii) During the appellate proceedings, the appellant has stated that they have filed the complete details of the shares of JCSL owned by the appellant and accordingly before sale of 96,000,000 shares were sold @ Rs. 37 per share to FNSL, the appellant was having total number of shares 154,08,000, having purchase at an average value of Rs. 25 per shares. Therefore, it is submitted by the appellant that the shares, sold on 31.3.2010, were infact purchased at an average price of Rs. 25, per share and not Rs. 40 per share, as al....