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TMI Blog2014 (1) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee by way of disallowing losses incurred in trading in Commodities Futures treating the transactions as not genuine. 3. The assessee is a trader and speculator in shares, securities, derivatives and commodities Futures following mercantile system of accounting. For the year under consideration, the return was filed u/s. 139(1) on 23.10.2006 declaring income at Rs. 39,95,520/-. A search action u/s. 132 of the I.T. Act was conducted in Commodity Market Group of cases on 19.6.2007. During the course of search proceedings, the Revenue authorities found data pertaining to trade modifications and client code changes of the brokers. These datas were collected from M/s. Multi Commodity Exchange India Ltd. (MCX) and M/s. National Commodity E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollected from RSBL. On verification of the same, the AO came to the conclusion that the assessee has made transactions during the year under consideration which has resulted in a loss of Rs. 2,88,55,000/-. 3.2. The AO was of the firm belief that the assessee has made huge client code modification during the year resulting into loss of Rs. 2,88,55,000/-. During the course of the assessment proceedings, the AO provided the list of trades and asked the assessee to explain the said transactions. The assessee was also required to show cause as to why addition of Rs. 2,88,55,000/- on account of unexplained loss purchased should not be made to the total income of the assessee. The assessee strongly submitted that all the transactions were made on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions have been confirmed by RSBL and are appearing in the books of account of the broker RSBL and the MCX. The assessee strongly denied the allegations of the AO that the assessee has manipulated the client code to purchase loss. The assessee also submitted that it is not possible for the assessee to modify the client code because the transactions were done by the authorized broker RSBL and therefore, the assessee has no power and authority to modify the client code of MCX. 4.1. After considering the facts and the submissions, the Ld. CIT(A) was convinced with the findings of the AO that the assessee has modified client code by exploiting the window of client code modifications and trade modifications so as to set off such losses again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied is baseless because the transaction was done in the name of the assessee with assessee's code. It is the say of the Ld. Counsel that if for some reason certain transactions have been offered for taxation would not ipso facto make the entire transaction a colourable device. The Ld. Counsel relied upon the decision of the Hon'ble Supreme Court in the case of State of Kerala Vs C. Velukutty 60 ITR 239 wherein it has been held that if certain additions are made on account of secret book maintained by the head office resulting into a reassessment by adding 135% of the turnover would not automatically mean that the branch profit should also be increased by the same percentage because the discovery of secret account in the head office did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. At this stage, we failed to understand how can the assessee modify the client code or the details of transactions which have been transacted by the authorized broker RSBL on MCX. A person transacting through a registered broker cannot have any excess to the terminal of the registered broker with the exchange be it stock exchange or commodity exchange. Thus the allegations of the Revenue authorities that the assessee has modified the client code does not have any basis. On the contrary, the transactions of the assessee with RSBL who in turn has transacted with MCX are supported by various contract notes. We also find that heavy reliance has been placed on the statement of one of the partners Shri Kapil Shah who has offered Rs. 35.22 lakhs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns are colourable device than also one cannot ignore the fact that the assessee has paid a margin money of Rs. 2.90 crores to RSBL which is evident from the statement of accounts of RSBL exhibited at page-52 of the paper book which has been adjusted against the losses of the assessee. The allegation that the assessee has entered into this line of business only in the month of March to book bogus losses also does not stand on its own foot because it is the wisdom of a person that when he wants to enter into commodity market and want to exit and if the person makes heavy losses, it is his prudence to continue or exit. One more important factor in this transaction is that all these transactions have been done through recognized exchange. No ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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