TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 1804
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.... 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, ignoring the fact that assessee company is a client of JCPL and it was obliged to pay only the profit earned by the assessee....
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.... 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 been taken by the exchange in this regard, meaning thereby there is no violation of rules and regulations prescribed in this regard by the Exchange. (iv) Further, appellant also ....
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.... 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 corresponding adjustments, have been made in the income of such entities. From the above, following facts emerge:- ➤ Appellant is not a member to exchange and cannot execute CCM. ➤ The transactions on account of CCM done by group concerns, are genuine, ➤ The volume of CCM occurr....
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....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 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 t....
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....ot 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 exchange and the modification of the client code numbers of such transactions by the office of the registered share and stock broker, non-prohibition of client code modification by either the stock exchange or SEBI. In the order of assessment, the AO has stated the complete details of the Modus Operandi of creation of fictitious profit and/or losses with a malafide intention of escaping taxes. However, the AO has neither ....
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....sment 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 of the assessee, has been brought on record to show that there was any collusion with each other and were known to each, so that one party diverted its profit or loss to the other parties. Even nothing has been brought on record to suggest that the said losses were purchased and the party were given cheque or cash payment in view of such favours. According to us, such co-relation was necessary to fasten any liability upon the assessee. 12. No new facts or contrary judgments ....
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....anged 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 international referenceable commodities (ie 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 intraday, 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 500/-, If it is greater than 5% but less than 10%, penalty is 1000/- and if it is greater than 10%, then penalty is 10,000/-. From the above, the only inference that can ....
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....ication 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 the case of the assessee but by no stretch of imagination the profit/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 assessee's." These find....
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.... 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. The Ld. D.R. on the other hand heavily relied on the order of the A.O. 7. We have heard the rival arguments made by both the sides, perused the orders of the A.O. and Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both the sides. We find the A.O. in the instant case made an addition of Rs. 11,97,21,030/- on account of CCM and also made further addition of Rs. 92,016/- being commission earned for providing accommodation entry to the persons out of the Group. We find the Ld. CIT(A) deleted the addition, the reasons of which have already been reproduced in the preceding paragraph. We find an identical issue ha....
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....e 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 broker on the stock exchange. There is also nothing on record to suggest that the CCM was done at the behest of the assessee. Further, there is no addition or adverse view taken in the case of the other person with whose accounts presumption is being made that transaction has been shifted. Admittedly there is nothing on record that the revenue has gone to the broker to find out as to who is the beneficiary of the CCM. Further the transactions have not been held to be non genuine. So far as the argument of the Ld. DR that the Client Code Modification is akin to penny stock is concerned, we do not find any merit in the said arguments. In case of the penny stocks shares are purchases at a very low price a....
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....IL 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 facts emerge:- * During the year under consideration, no dividend income has been earned, which can be treated as exempt income, and * A The investment made in its group concern, is on account of strategic investments and on which, no dividend income has been earned. In view of the above, I agree with the arguments of the appellant that no expenditure can be disallowed against NIL. exempt income and this view is also supported by the decision of the jurisdictional High Court of Delhi in the above case(supra). Accordingly, I hold that since no exempt income is earned during the year under consideration and therefore, the A.O. has erroneously invoked the provision of section 14A for making disallowance of alleged expenses of Rs. 1,76,48,396/- and alleged addition made by ....
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....9.2013. 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 questionnaire filed a reply wherein he has reproduced the replies filed by parties namely Jaypee Capital Services Ltd. and Futurz Next Services Pvt. Ltd. in their respective assessments should be considered here, Further to this, assessee also submitted a reply dated 30.30.2015. 15.4 Your Honour on going through the reply, it is very much clear that the amount which has been credited and debited in the account of the assessee in association with the said party is on the account of business transactions and transacted by the assessee being a client and shareholder of the company. 15.5 While drafting the assessment, the Ld.A.O. has basically confused himself with the two capacity of the assessee. i.e. the assessee is surely the shareholder in such companies but at the same point he is their client also. Consequently there are 2 types of tra....
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....s 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. However, the A.O. completely disregarding the same and by relying upon the report of the Special Auditors applied the provisions of Sec.2(22)(e) such an act of A.O. is untenable and contrary to the facts of the case. 15.9 Your honor, It is a settled law that the payments made against the business transactions are outside the purview of section 2(22)(e) of the Act. This fact was also explained to the Ld. A.O. during the assessment proceedings. However the A.O. without applying his mind applied the provisions of Sec. 2(22)(e). 15.10 In this regard reliance is placed on following judicial precedents, which differentiates business transactions from loans and advance as per provisions of section 2(22)(e): 15.10.1 In a very recent judgment of Ishwar Chand Jindal vs. ACIT, [2015] 61 taxmann.com 428 (Delhi - Trib.), Delhi Tribunal held that: "23......... The main contentio....
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....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 by the Tribunal does not suffer from any error of law. It is quite clear that the assessee was a travel agency and the above two concerns that it had dealings with, that is M/s Holiday Resort (P) Ltd. and M/s, Ambassador Tours (1) (P) Ltd, were also in the tourism business. The assessee was involved in the booking of resorts for the customers of these companies and entered into normal business transactions as a part of its day-to-day business activities. The financial transactions cannot in any circumstances be treated as loans or advances received by the assessee from these two concerns: Similar view was also taken by their Lordships in the case of Creative Dyeing & Printing. (P) Ltd. (supra). Respectfully following the above decisions of Hon'ble jurisdictional High Court and applying the ratio of the above decisions to the facts of the assessee's case, we hold that the debit balance of Rs. 2,08,212 cannot be ....
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....en 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 companies which are business/commercial transactions which cannot be regarded as deemed dividend under s. 2(22)(e) of the Act and hence, addition made is deleted. ........... 15.16 Your honor, the A.O. in the instant case is grossly ignoring the facts which apparently establishes that these transaction are in the nature of business transaction and is sticking to his vague contention that these transaction are loans to shareholder. It's a very common sense question that a company will not advance a loan to its shareholder for a day or even receive back on the same day itself, moreover such a scenario is running throughout the year, hence by any stretch of imagination such transactions cannot be construed as loan and advance for the purpose of sec.2(22)(e). Your honor, it is hereby submitted that, the A.O. has not gone through the case thoroughly as there is no diversion of funds, since there are regular receipt and payment transactions and in last....
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.... 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 power in the said companies. It is submitted that the voting power is not the only criteria for the applicability of the provisions of section 2(22)(e) of the Act. The provisions of the said section would apply only upon the fulfillment of the following conditions: i. The payment is made by a Company, which is a Company in which the public are not substantially interested ii. The payment is by way of an advance or a loan ii. The payment is made to a shareholder holding not less than 10% voting power iv. To the extent to which the company possesses accumulated profits. In order to make the provisions of sec.2(22)(e) constitutional all the aforesaid conditions should be present, if either of the condition is missing, the applicability of section will be in question. Further to this, your honor's attention is invited to the order of CIT(A) dated 19.01.2016, in case of Gaurav Arora. The facts of both the case are exactly similar. "Page 28: In view of the above, I hold that the transactions in client ledger ac....
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.... 2(22)(e) of the act. It is further held by the A.O. that the JCPL, have granted advances in the nature of loan to the assessee The payment received from the JCPL by assessee is to be treated as deemed dividend in the hands of the assessee. The objections/arguments submitted by the appellant during the appellate proceedings are discussed as under:- (i) The JCPL, is share/currency/derivatives brokers, with whom the appellant and the group concerns maintain client account, in which business transaction of sale and purchase of share/currency/derivatives have taken place during the year under consideration. In the appellate proceedings, appellant has submitted that the accounts of the assessee and other concerns, in which he is substantially interested, with JCPL, are not in the nature of advance or loan. Therefore, it is claimed that these accounts relates to business transactions of share/currency/derivatives only, which is evident from the copy of accounts filed in the assessment proceedings, as well as in the appellant proceedings. (ii) It has been further submitted that the special auditor as well as the A.O., have extracted the alleged account and re-casted account with....
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.... (iii) It is further submitted by the appellant that the ledger account maintained in the books of accounts of JCPL, copy of which was submitted before the A.O. as well as in the appellate proceedings, shows that the same is a running account of purchase/sale. The cheque payments & receipts are relating to transactions of share/currency/derivatives and there is no loan/advance transactions. From the above, following facts emerge: (a) The transactions of cheques received and paid from/to the broker company JCPL, are related to the business transactions of sale/purchase of share/currency/derivatives carried out during the year under consideration, which cannot be segregated. If the transactions of cheque received and paid are taken out of the alleged client accounts, then there is no meaning of trading transactions. In the type of business transaction entered by the appellant with the broker company, the transfer of funds/money on both the sides, is part and parcel of the business done, otherwise it will not be possible to settle the accounts. It is not possible to settle the trading transactions without transfer of the funds/money. Therefore, the method adopted by the specia....
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....ing further the counsel for the appellant contended that since M/s. Pee Empro Exports (P.) Lid. is not into the business of lending of money, the payments made by it to the assessee-company would therefore be covered by section 2(22)(e)(ii) and consequently payments even for business transactions would be a deemed dividend. We do not agree. The Tribunal has dealt with this aspect as reproduced in para (9) above. The provision of section 2(22)()() is basically in the nature of an explanation. That cannot however, have bearing on interpretation of the main provision of section 2(22)(e) and once it is held that the business transactions does not fall within section 2(22)(e), we need not to go further to section 2(22)(e)(ii). The provision of section 2(22)(e)(ii) gives an example only of one of the situations where the loan/advance will not be treated as a deemed dividend, but that's all The same cannot be expanded further to take away the basic meaning, intent and purport of the main part of section 2(22)(e). We feel that this interpretation of ours is in accordance with the legislative intention of introducing section 2(22)(e) and which has been extensively dealt with by this Cou....
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....eference to words found in immediate connection with them and our Supreme Court in the case of Rohit Pulp & Paper Mills Ltd. v. Collector of Central Excise AIR 1991 SC 754 and State of Bombay v. Hospital Mazdoor Sabha AIR 1960 SC 610." (p. 165). 12. Therefore, we hold that the Tribunal was correct in holding that the amounts advanced for business transaction between the parties, namely, the assessee-company and M/s. Pee Empro Exports (P) Ltd. was not such to fall within the definition of deemed dividend u/s 2(22)(e). The present appeal is therefore dismissed. In view of the above, I hold that the transactions in the client ledger accounts, are transactions entered in the ordinary course of business and are relating to sale/purchase of share/currency/derivatives only. Therefore, I further hold that since these transactions are trading/business transactions, accordingly, provisions of section 2(22)(e), do not apply to the facts of the case of the appellant. Accordingly, the addition made by the A.O. on account of deemed dividend of Rs. 60,40,87,544/-, is hereby deleted." 18. At the time of hearing, Ld.CIT DR for the Revenue relied upon the assessment order. 19. Per contra, Ld....
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..../s Futurz Next Services Ltd. has entered into a transaction of sale and purchase of shares of another group company M/s Jaypee Capital Services Ltd. with the assessee company. The sale of 1,54,08,000 shares of JCSL was made with the assessee company on 31-03-2010 @ Rs. 40 per share. On the same date M/s FNSL repurchased 96,30,000 shares @ Rs. 37 per share. It was observed that in this way a loss of Rs. 2,88,90,000/- was created in the hand of assessee company M/s Gen X Commodities Ltd. The assessee group was therefore confronted about the same and was asked to explain the transaction alongwith the documentary evidences. 12.2 In response to the same, it was submitted that the profit generated from the transactions has been taken into account in the case of M/s FNSL. 12.3 1 have considered the above mentioned reply. The assessee has only explained the one leg of the transaction which is profit arises in M/s Futurz Next Services Ltd. However, he left the other part of the transaction which is a loss arises in the case of assessee company. He could not explain the reason how a share having a value of Rs. 40/- purchase in a same day is sold at a price of Rs. 37/-. No prudent person ....
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....]. However, this is not the case of the assessee. The assessee company has not claimed any loss on the sale of these shares. Therefore, the impugned disallowance made by the Ld. A.O. is uncalled for and liable to be deleted. 16.3 With regard to the same, it is respectfully submitted that the assessee company was holding 1,54,08,000 shares of M/s Jaypee Capital Services Ltd. for an amount of Rs. 38,52,00,000/- (value of Rs. 25 per share), as is evident from the Balance Sheet of the assessee company Thereafter, the assessee company has further purchased 96,30,000 shares of M/s Jaypee Capital Services Ltd. on 31.03.2010 @ Rs. 40 per share from M/s Futurz Next Services Ltd., for an aggregate amount of Rs. 38,52,00,000/- Meaning thereby, that the assessee company was now holding 2,50,38,000 shares of M/s Jaypee Capital Services Ltd. for an aggregate amount of Rs. 77,04,00,000/-. Out of these 2,50,38,000 shares, the assessee company has sold 1,54,08,000 shares on 31.03.2010 @ Rs. 37 per share to M/s Futurz Next Services Ltd., resulting into a profit of Rs. 18,48,96,000/- in aggregate, which has been duly recorded in the books by the assessee company, as is evident from the copy of the ....