TaxTMI 
TaxTMI 
2017 (7) TMI 1491
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.... (-) 6,18,87,338.87 ACE (-) 23,34,534.69 Grand Total 8,73,82,638.38 The dispute relates to speculative loss of Rs. 6,18,87,338.00 relating to transactions on NMCE platform. The Assessing Officer held that the said loss is bogus and has been deliberated created so as to reduce speculative profit. It was further held by the AO that even if the transaction has been carried out in a proper exchange with proper bills, then also it doesnot make it genuine. It was held that mere paper companies booking losses and assessee also purchasing losses is again a non-genuine activity and losses booked are liable to be disallowed. Accordingly, losses to the tune of Rs 6,18,87,338 was considered as non-genuine and added back to the total income of the assessee. The Assessing Officer while making the said disallowance has relied on the report of DIT (I&CI) Rajasthan dated 21.03.2014 which we have examined in subsequent paragraphs. 3. Being aggrieved the assessee carried the matter in appeal before the ld. CIT(A) who called for a remand report from the Assessing officer. After taking into consideration the submission of the assessee and the remand report from the Assessing Officer, ....
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....ctions carried in NMCE through Motisons Commodities Pvt. Ltd. Jaipur a Broker of NMCE. He recorded Statements of Venu Gopal Agarwal, who was a Director of the assessee company during the relevant assessment year, called for various documents including contact Notes of Motisons Commodities Private Limited, Hindustan Technosol Private Limited and Ganpati Investments regarding trades carried with the assessee company which were duly provided by the respective Brokers. However on the verification of the documents by I.T.O. (Intelligence)-II submitted by the Company and other Brokers who has dealings with the assessee company has neither revealed any deficiency or short comings in the records nor any material was found by ITO (Intelligence)-II by which any adverse inference could be drawn against the assessee company. However relying solely on report of DIT(I&CI), Mumbai that as some of the member/Brokers from West Bengal & Uttar Pradesh were indulged in artificially creating the volume and also in providing accommodation entries for Profit & Loss and as such entire transactions in NMCE are not genuine, the ld. ITO(Intelligence)-II and worthy DIT(C&I) without bringing ....
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....any through MCPL in respect of trades in MCPL is bogus. Even the report of DIT (C & I) does not name the Broker MCPL to have been engaged in providing accommodation entries of profit or loss. Penalty of meager Rs. 5000 was imposed on MCPL for trades in Nickel in the month of October, 2010. Had MCPL indulged into non genuine trades in the month of January to March 2011, when assessee company started trading with MCPL, NMCE or FMC would have imposed more penalties on MCPL or would have suspended it from the Exchange. Since no such action has been taken against MCPL, it can reasonably be assumed that FMC/NMCE has found the trades of MCPL as genuine. The officials of the NMCE in their statements recorded with DIT (C & I) has categorically stated that not all the members have been involved in the activity of transferring Profit & Loss. They have further stated that they were mainly involved in creating artificial turnover on the exchange. They have stated names of few Brokers or clients who were found to be indulged in activities of creating artificial volumes or in transferring the Profit or Loss but name of Motisons Commodities Pvt. Ltd. or of assessee company has not been me....
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....ee company confirmed the transactions and furnished all relevant documents in which no defect was found by ITO. The authorized person of Motisons Commodities P. Ltd. also appeared before I.T.O. (Intelligence) - II, Jaipur and confirmed the transaction and denied to have provided any accommodation entries to assessee company but I.T.O. (Intelligence) - II, Jaipur relied only on said general report of Forward Market Commission and drawn wrong conclusion that loss of Rs. 6,18,87,338/- booked by assessee through Motisons Commodities P. Ltd. is not genuine which finding is not based on any material or evidence and, therefore is wrong and bad in law. The settled rule of law is that any malpractice, like that of selling by short measures (Hira Bai Vs. CIT 4 ITR 95) or charging price in excess of the controlled price (Sivan Vs. CIT 34 ITR 328, CAG. IT Vs. Cherian 117 ITR 371) or selling smuggled goods (Lai Chand Vs. CIT 37 ITR 288 (SC) etc. cannot be attributed in general to the assessee that he followed such practice. Similarly the general report of Forward Market Commission in respect of fabricated contracts and other documents by MD & CEO of NMCE cannot be attributed to assessee company....
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.... FMC has forwarded a list of 72 persons/entities having shown losses exceeding Rs. 5 crores and 30 parties having declared profit exceeding Rs. 5 crores. In the list so received from the FMC, it was noticed that nine clients are based in Mumbai and necessary investigation has been carried in those cases. In most of cases, the losses incurred through NMCE have been adjusted/ set off against profit from other Exchanges/business income or income under other heads. In the case of profit also, the same has been fully/partially adjusted against losses. In one of the cases, the statement of the client was recorded during the course of enquiry and the client has admitted that all the transactions carried out through NMCE were non-genuine and, has disclosed additional income of Rs. 6.7 crores and agree to make the payment of taxes thereon. In the said letter, it was further stated that as per the list received from the NMCE, following clients are belonging to (DIT)(I&CI), Jaipur jurisdiction: Sr. No. Clients' Name Address & PAN Client Code Broker/Member name and Code Net loss declared by the client for the year 2010-11 1. Rahi Murtaza 57,Tikk....
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....ket making was run from one of the offices situated at C.G. road, Ahmedabad by NMCE employees. The employees like Shri Hemant Goenka had introduced members like M/s Atulit Tieup Pvt. Ltd. ( Member code CL0150), M/s Ramdoot Management Pvt. Ltd.(Member code CL0155) and M/s Konark Comdeal Pvt. Ltd. (Member Code CL0264) to senior management of NMCE. There is market making practices in the market to bring liquidity in the illiquid contracts and the impact of their trading is NMCE volume increase artificially. Therefore, the charge of the complainant that there is artificial and fictitious trading volume on NMCE exchange is found to be correct. As far as the evasion of tax by loss making clients and members are concerned, it can be ascertained by Income Tax Department. Therefore, at this moment, the complainant's other charge of evasion of income tax by these clients/Member cannot be confirmed. For the same, the list of all such clients and members who have made profits/losses through this activity may be referred to the Income Tax Department." "Suggestion: NMCE may be directed to expel 10 member of NMCE viz M/s sincere commodities and Derivatives ....
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....t on record. Report of Director of Income Tax (I&CI) Jaipur, Rajasthan dated 21st March, 2014 11. Basis the communication received from DIT(I&CI) Mumbai, DIT(I&CI) Jaipur carried out the investigation in the instant case and which forms the basis of disallowance by the AO. In its report, the DIT(I&CI), Jaipur has referred to the various findings of the FMC in its report and also drawn reference to the statement of Shri Amit Sharma, Shri Tarun Gupta and Shri Hemant Goenka who happen to be the employees and ex-employees NMCE. Further he referred to the report of ITO(Intelligence)-II, Jaipur who was entrusted to carry out the necessary verification in the case of assessee. The findings of the DIT(I&CI) are reproduced as under: "This case was assigned to ITO (Intelligence)-II, Jaipur for verification. The report of ITO (Intelligence)-II, Jaipur dated 21.03.2014 in the case of said assessee is enclosed for your kind perusal as Annexure-2. Notices U/s 133(6) and summons U/s 131 of the I.T. Act were raised by the ITO (Intelligence). In response, the assessee submitted copies of contract notes, copy of bank statement, return of income tax and ledger account with the broker. ....
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....on 20/02/2014 on oath. During the course of statement he stated that M/s Pyramid Tradelinks Pvt. Ltd.(PTPL) is engaged in trading of Commodity futures with the Exchanges MCX, NCDEX, NMCE and ACE. In this company there were two Director one of Sh. Venu Gopal Agarwal and other Sh. Nortan Kandoi during the FY 2010-11. 3. During the financial year 2010-11, the company has worked with platform of MCX, NCDEX, NMCE, ACE and has declared profit from trading of future commodities amounting to Rs. 87382639/ -. The assessee has submitted the break-up of speculation business for FY 2010-11 is as under :- Exchange Profit/(loss) MCX 206509389.10 NCDEX (-) 57904877.16 NMCE (-) 61887338.87 ACE (-) 2334534.69 Grant Total 87382638.38 4. From the perusal of the above position, it is noticed that the assessee has earned profit from MCX Rs. 20,95,09,389/- and set-off losses of Rs. 12,21,26,749/- including NMCE loss of Rs. 61887338.87/- during this financial year. The company has declared net profit of Rs. 87382638/- from trading of future commodities during the FY 2010-11. 5. From the perusal of account statement of M/s Motisons Commodities....
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.... to reduce its profit earned from MCX and NCDEX. 9. In the light of above findings, the position as above is made clear that the loss of Rs. 61887338/- booked by the assessee through Motisons Commodities Pvt. Ltd. is not genuine. Since the assessee is assessed with the Circle-2, Jaipur who is having territorial jurisdiction over the assessee may be advised to disallow the loss of Rs. 61887338/- as claimed in the FY 2010-11. As regard losses booked through MCX, NCDEX and ACE, the information was called from the brokers such as Hindustan Technosols Pvt. Ltd. and Ganpati Investments and it has been placed on record. No abnormality as such was noticed and no specific evidence is available with us from FMC or DIT(I & CI) Mumbai." Letter of DIT(I&CI), Jaipur dated 27.02.2014 addressed to Managing Director NMCE 13. On perusal of records, it is noted that DIT(I&CI), Jaipur has written a letter to Managing Director NMCE dated 27.02.2014 wherein information relating to M/s Motisons Commodities Pvt. Ltd. was sought. It would be relevant to the contents of the said letter and the response of NMCE as under: "It has further come to the notice that penalty of Rs. 25,000/- ....
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....ITO (Intelligence)-II and the Director of Income-tax (I&CI), Jaipur as well during the course of assessment proceedings it appears that no instances of bogus/accommodation entries found with M/s Motisons Commodities Pvt. Ltd. in respect to the assessee company this fact has also been report in the report of the I&CI, Wing. However, it is pertinent to mention here that the assessee company started the transaction with M/s Motisons Commodities Pvt. Ltd., from 18.1.2011 and the transaction was carried out up to 21.02.2011 i.e. around for one month only and suffered huge losses of Rs. 6,18,87,338 which is unbelievable. This type of transaction clearly create doubt and there is something fishing, as the director of the assessee company himself admitted in his statement taken by the ITO(Intelligence)-II, Jaipur that he is living at Churu and all the transaction are done through phone/chat. 2. There is no instances or reference of assessee company in the FMC report, however, in the report of FMC called by the DIT(I&CI), Jaipur, it has been reported that for trade in "Nickel" a penalty of Rs. 5,000/- was imposed on M/s Motisons Commodities Pvt. Ltd. during the F.Y. 2010-1....
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....nstance of bogus/accommodation entries have been found with M/s Motisons commodities Pvt. Ltd. pertaining to transactions with assessee company. This fact was also reported to the AO. (b) AO merely on the basis of suspicion had doubted that assessee had booked bogus loss of Rs. 6,18,87,338/- with M/s Motisons Commodities Pvt. Ltd. to reduce profit. (c) No credible investigation has been carried out by the AO during the assessment proceeding before arriving at this conclusion. (d) Assessee company started transaction with M/s Motisons Commodities Pvt. Ltd. from 18/01/2011 till 21/02/2011, supported by contract notes containing details such as order No. Trade No., Trade date & time etc. which are also verifiable with the records available with the exchange. (e) penalty of Rs. 5,000/- imposed on M/s Motisons Commodities Pvt. Ltd. for trade in Nickel in the month of Oct. 2010 and no where relatable to the transactions with the assessee company." 19. Having considered the entirety of fact and circumstances of the case, we are of the view that there is no basis for the Revenue to succeed in this matter in absence of any credible investigation and br....
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.... Assessing officer is also relevant for the fact that the data analysed by FMC doesn't contain any data relating to either Motisons Commodities Pvt Ltd or the assessee company and there is no finding of wrong doing either by either Motisons Commodities Pvt Ltd or the assessee company. 21. In terms of investigation carried out by DIT(I&CI) in the instant case, as noted above, the assessee submitted copies of contract notes, copy of bank statement, return of income tax and ledger account with the broker and statement on oath of Director of the assessee company were also recorded. In terms of documents so filed and statement so recorded, the finding of ld DIT(I&CI) is that the voluminous data filed by the assessee has no evidentiary value since these are merely paper transactions and basis of such finding is again the report of FMC wherein referring to statement of one of the employees of NMCE, Id DIT(I&CI) stated that "about 90% of the trading volume of NMCE was artificial. Huge accommodation entries for profits and losses were given by the brokers (members) of NMCE to their clients. The assessee is no exception to it. It had also indulged in paper transactions just to reduce ....