9911796707
TMI Blog2014 (12) TMI 344X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessed by the AO by accepting income declared by the assessee’s clients - when the entire evidence is in favour of the assessee that cannot be brushed aside and tax liability of the assessee cannot be determined on the basis of suspicion and surmises - if the assessee has violated the provisions that specific statute, the action can be taken against the assessee under that enactment but merely because without authority or without license the assessee carried out the trading derivatives and other transaction with the NCDEX may be wrongly representing himself as a broker or misusing the ID but that still not changed the nature of the transaction carried out by the assessee on behalf of its clients- the entire evidence support the case of the assessee save one aspect that the assessee has not followed the provisions of Forward Contract (Regulation) Act, 1952 - the entire exercise done by the AO contrary to the evidence available on record in favour of the assessee – thus, the order of the CIT(A) is upheld – Decided against revenue. Legality of transactions resulting in speculation loss done through Madhya Bharat International (I) Ltd. – Held that:- CIT(A) has rightly deleted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ER Per R. S. Padvekar, JM:- In this batch of ten appeals, six appeals are filed by the Revenue and four appeals are filed by the assessee. As the assessees are interlinked and these appeals are arising out of the common search and seizure action conducted on 22-11-2007 and hence, batch of appeals are disposed off by this consolidated order for the sake of convenience. At the beginning of the hearing, both the parties agreed that we should take the appeals of M/s. Sahayog Commodities (New) as the lead appeals being ITA Nos. 776 859/PN/2010 for the A.Y. 2006-07 which are the cross appeals, one by the assessee and another by the Revenue. We, accordingly, take the Revenue s appeal being ITA No. 859/PN/2010 for the A.Y. 2006-07 for disposal. The Revenue has taken the following grounds in the appeal: 1. (a) Whether on the facts and the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of ₹ 40,16,93,630/- by treating income as earned by clients of the assessee and not by the assessee? (b) On the facts and the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the transactions claimed to have been d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me for the A.Y. 2006-07 u/s. 139 on 21-10-2006 declaring total income of ₹ 47,91,684/-. There was a search and seizure action u/s.132(1) of the Act against the assessee group on 22-11-2007 and in consequence of the search and seizure action the assessee firm was issued a notice u/s. 153A on 18-09-2009. In response to the said notice the assessee filed the return of income declaring the same income as per the return of income originally filed u/s. 139 of the Act on 21-10-2006. The Assessing Officer has observed that in the course of search in Sahayog Group of cases, it was found that M/s. Sahayog Commodities has earned huge income from commodities market. As noted by the Assessing Officer the assessee is a client of M/s. A.M. Future of Mumbai. The assessee has earned the income from commodity market through its broker M/s. A.M. Futures. It was found that the assessee distributed the said profit to its different clients. The Assessing Officer examined the books of account of the assessee for the F.Y. 2005-06 and he has noted that the assessee has distributed profits of ₹ 41,92,40,472/- to 170 clients and also incurred losses of ₹ 1,75,46,842/- and earned net profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that during the search and seizure proceedings even if the client list and address were not readily available but thereafter immediately it was prepared and same was furnished. It was also claimed by the assessee that each client is having ID Code No. and hence, it is easy to know every client. In respect of the stamp duty payment, the assessee stated that the same was automatically credited/debited through the bill amount and net amount receivable or payable is only reflected in the books as per software programmer. It was also stated that M/s. A.M. Future also credited/debited the stamp duty on the entire transactions and they also charged it through the bill and net amount receivable or payable is only reflected in the bills and in their accounts. The assessee also stated that all clients are genuine and verification is done by the search officials. The Assessing Officer was not convinced with the explanation of the assessee and he assessed the entire income of ₹ 40,16,93,630/- as undisclosed income of the assessee in its hand. The details of income returned, different additions made and finally income assessed by the A.O. are as under : ASSESSEMNT YEAR 2006-07: Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roker is not entitled to issue a broker note/contract note. Only the main broker is authorized to issue a broker note. However, in this case M/s. Sahayog Commodities has as per its own claim unauthorizedly issued notes under its own letter head in the name to its so called clients. In absence of contemporaneous evidence, there is no proof as to when these notes were issued. This clearly shows that it was a self serving act of M/s. Sahayog Commodities. iv) Shri. Satish Mittal was then asked to explain the modalities that were followed in executing the trades on behalf of those so called 170 clients. He stated that they executed the contracts by putting the name of their clients in the remark column (Q.10). Shri. Satish Mittal was then asked to open the terminal and show as to how and where the name of so called clients was inserted in the remarks column. At this stage it is recorded that the assessee took 25 minutes and consulted with his employees. The statement was recorded in presence of his Chartered Accountant. After a pause of over 25 minutes, Shri. Satish Mittal expressed his inability to show as to how the orders of a so called clients could be executed by making an ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that all the transactions have been entered into by M/s. Sahayog Commodities as a client of M/s. Shanti Commodities and there is no entry whatsoever regarding any of the so called clients as claimed by M/s. Sahayog Commodities. This fact has also been confronted to the assessee vide note sheet entry dated 28.12.2009 and the counsel for assessee, stated that he would attend with the partners on 30.12.2009 and then respond to it. Even otherwise the contention taken by the assessee is incorrect simply because he was a mere client and not a broker to issue any contract note/broker note. The contention of the assessee on this point is rejected. vi) The most crucial issue that needs to be answered is, while trading in its capacity as a client, how can M/s. Sahayog Commodities deal on behalf of its so called clients? Further, what are the documentary evidences seized or produced during the course of search to prove the genuineness of the claim of M/s. Sahayog Commodities that it was dealing on behalf of its so called clients? In order to get an answer to this critical question, (Q. No. 14) Shri Satish Mittal was asked to explain at what point of time and on what basis the said orders h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned. This situation continues to remain the same at the time of completion of the assessment proceedings. viii) Further, in response to Q. 23., Shri. Satish Mittal stated that Sahayog Commodities has paid the stamp duty to M/s. A M Futures for contracts. Meaning thereby that the contract was only between M/s. A.M. Futures and M/s. Sahayog Commodities and no one else. Further there was no contract between Sahayog and its so-called clients (Q.26). The agreement between a broker and the client or a tripartite agreement between the broker, sub-broker and the client is essential as it insulates the broker or sub-broker from the risks incurred by the clients during the course of his transactions with the commodity exchange. In absence of any such agreement, M/s. Sahayog Commodities remained uninsulated from these risks. Hence it was solely responsible/liable for the losses or profits arising out of the transactions entered on behalf of the so called clients, if at all there were any. Under these circumstances it cannot be said that these were the transactions entered into by M/s. Sahayog Commodities on behalf of its so called clients. At the assessment stage, the assessee has come up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e moot question is whether M/s. Sahayog Commodities will pay the margin money on behalf of all its so called clients without collecting any margin money from them, just in return for a petty amount charged as brokerage from these so called clients. On the pillar of preponderance of probability, this is improbable business proposition. The brokerage is charged at a fraction of percentage whereas the margin money would require huge amount of interest cost. The result is that M/s. Sahayog Commodities has in the end of the year issued cheques of profit or collected cheques of losses to and from the so called clients. Looking at these transactions from the preponderance of probability, it is highly improbable and the transactions non genuine. In a normal transaction on the commodities exchange, the client trades through his assigned client code through the member of the commodity exchange and the valid contract note is issued by the member/broker. In the instant case, M/s. Sahayog Commodities has issued broker notes to the so called clients by apportioning the profits/losses at his own sweet will or as per the requirements of the so called clients without any contemporaneous evidence. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Sahayog Commodities has paid brokerage to M/s. A.M. Futures. This shows that the claim of M/s. Sahayog Commodities that it is a sub-broker of M/s. A.M. Futures, is false. Had it been true then M/s. A.M. Futures would have paid back a part of brokerage to M/s. Sahayog Commodities for the business conducted by the later on behalf of the former. The contention of the assessee on this point, stands rejected. xi. It is seen from the extract of account of the so called clients in the books of account of M/s. Sahayog Commodities that the assessee M/s. Sahayog Commodities has not charged any commission to their so called clients. The enquiries with the so called clients have also not known regarding any brokerage and commission paid by them to M/s. Sahayog Commodities. It can also been seen from the so called generated bills that, assessee has not charged any commission to their so called clients. In view of the above it is clear that M/s. Sahayog Commodities has not acted as broker for their so called clients. The entire amount of commodity trade belongs to M/s. Sahayog Commodities. xii) We now come to the only issue harped upon by the assessee. The assessee has vehemently argued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nter into transactions on behalf of its clients. c) It had validly registered these clients by fulfilling KYC norms and signing proper agreements with the so called clients d) It had properly entered into transactions on behalf of these so called clients by collecting proper margins and also mark to margins as required under the law. e) Last but not the least, M/s. Sahayog Commodities is able to prove by leading evidence and by producing contemporaneous evidences that it had infact entered into the transactions on behalf of the so called clients. On all these important counts, M/s. Sahayog Commodities has failed to produce anything in support of its claims. Hence the plea, it cannot be held responsible for the actions/ of its clients does not hold any ground. In this matter the confirmations or the disclosure of the transactions in the returns of the so called clients does not help the case of assessee. xv) As regards contemporaneous records of placement of orders, the assessee stated that these orders were recorded in order registers and then accordingly the profits/losses were apportioned. However, during the search Shri. Satish Mittal stated that these order regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a client of a person who is neither a broker nor a sub-broker and trade from here. How will he communicate orders, who will deliver the contract notes, how will he pay margins and so on? It is therefore, not surprising that the person has no valid agreement as a client, could not produce single contract note, never paid any margins and neither did he pay any advance tax on his profits claimed to have been earned on commodities market. The witness of the assessee and the examination in chief, therefore, stands discredited. xvi) Expectedly the other important plea taken by the assessee is that the payment of profits have been made by crossed account payee cheques to the so called clients. Similarly crossed account payee cheques have been received from the clients in respect of the losses. This plea of the assessee also does not hold any ground. This would have been acceptable only if the assessee had transacted on behalf of the so called clients by accepting proper margins or mark to margins and had it been able to show with the help of contemporaneous records that each of these transactions were entered solely on behalf of those clients. M/s. Sahayog Commodities has failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l these points is rejected and the transactions are held to be proprietary trades of M/s Sahayog Commodities and the same are accordingly brought to tax in its hands. 5. The Assessing Officer, therefore, made the addition of ₹ 40,16,93,630/- in the hands of the assessee as it s undisclosed income and also treated the same as speculation income. The assessee challenged the addition before the Ld. CIT(A) on this issue and Ld. CIT(A) did not agree with the conclusion drawn by the Assessing Officer for assessing ₹ 40,16,93,630/- in the hands of the assessee. The reasons given by the Ld. CIT(A) are as under: 6. I have carefully considered the assessment orders of the A.O. and the submissions of the appellant. The main contention raised by the A.O. is that the transactions in commodities derivatives undertaken by the appellant for its clients are not permissible u/s.15 and u/s. 11(3) of Forward Contract Regulation Act, 1952. The appellant has also agreed that it cannot act as broker or sub-broker for entering into transactions of trading in commodities derivatives in view of the above said provisions of Forward Contract Regulation Act, 1952. The appellant has rightly c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stamp duty account. As regards the contention of the A.O. that the appellant has not collected any margin money from its clients, the appellant has pointed-out that it has in fact collected margin money to the extent of ₹ 4.47 crores and also submitted that maximum balance of margin money paid by it to M/s. A.M.Futures in respect of transactions on behalf of clients was ₹ 8.54 crores, whereas maximum credit balance of clients with the appellant firm is more than the amount of ₹ 8.54 crores. 6.3 As regards the contention of the A.O. that no commission or brokerage was charged by the appellant from its clients, the appellant has pointed-out that it has earned substantial brokerage of ₹ 3,19,36,721/- and ₹ 1,29,34,638/- in A.Ys 2006-2007 and 2007-2008 respectively and net brokerage after reducing brokerage paid to various brokers substantial amount of brokerage of ₹ 2,78,79,528/- and ₹ 1,01,04,401/- is credited to the audited profit and loss account. 6.4 In support of the transactions entered into on behalf of the clients, the appellant has filed affidavits with the A.O. in respect of major clients. Independent verification was made by I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in appeal before us. 6. The Ld. DR vehemently argues that the assessee is merely a client of M/s. A.M. Future of Mumbai and he is not the sub-broker authorized to deal in NCDEX. He argues that as per the rules and regulations of the NCDEX only the authorized brokers and subbrokers are legally permitted to carry out the transactions on behalf of their clients. He argues that the assessee is client of M/s. A.M. Future and there is no dispute about fact. He submits that when the assessee is not authorized by law to do the transactions in the NCDEX how he can act as a sub-broker for 170 clients. He argues that Shri Satish Mittal, partner of the assessee firm stated that he carried out the transactions on behalf of the 170 parties as his clients even knowing that the assessee firm was not legally authorized to do the trading on behalf of so called 170 clients. 7. He submits that it is not factually correct that the assessee executed the orders of its clients on real time basis on the NCDEX software but on the examination of the seized data it was found that no said details regarding the so called clients fed on the NCDEX software were available in the seized CD. The enquiries were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt of the trade file through Internet on the next day the trades were approved among the clients on the basis of the order registered which are destroyed. He submits that the partner of the assessee stated that in respect of about 80% clients, the addresses are not available and KYC documents were never obtained in respect of any of the clients. He submits that the so called clients of the assessee have not charged any commission hence that also goes against the assessee. He argues that enquiries were made and it was found that 11 clients of the assessee have not at all declared any profits in respect of the transactions claimed to be carried out by the assessee firm. Only after the enquiries were conducted by the Investigation Wing by the Department they have come forward to disclose the profit by filing their revised returns that also suggest that the claim of the assessee is not correct to say that the profits were distributed to the concerned alleged clients. He submits that when the assessee has no legal valid authority to enter into transactions in NCDEX on behalf of its alleged clients as sub-broker or broker then the claim of the assessee is totally false. He argues that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions cannot be changed as all the 170 clients in clear terms admitted this particular facts that the assessee did all the transactions as their agent and whatever the profits or losses incurred in those transactions were on account of the clients only and the assessee was only recovered brokerage or commission. He submits that that even the Assessing Officer who has completed the assessment of the assessee, same Assessing Officer ITO, Central Circle-II who has also completed the assessments of many of the clients of the assessee accepting income from NCDEX declared by them and which details are given on Page Nos. 19 to 21 of the Compilation. He submits that none of the clients has denied that he has not received the profit from the assessee firm in respect of the transactions which were carried out in the NCDEX. He referred to Page Nos. 23 to 41 of the Compilation where the details in respect of 140 clients of the assessee are given in form of the chart showing the profit and loss incurred by the client, PAN of the client, Ward/Circle in which assessed, Date of filing return, Brokerage collected from those clients, Maximum credit balance of the client during the year, Whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the time of search itself, data from the assessee s computer was copied on CD but at the time of assessment, said CD could not be opened by the Assessing Officer due to technical reasons. As per data available on the hard disk of the assessee the details of the transactions including the date and time of the execution was available on computer at the time of search u/s. 132 of the Act. 11.1 He also assailed the observation of the Assessing Officer that the assessee has not charged any commission to their clients. He submits that the said observation is totally fallacious. The assessee has earned the substantial brokerage from its clients to the extent of ₹ 3,19,36,721/- and all the details were submitted. As noted by the AO, 11 clients have filed revised returns and the assessee cannot have control on the clients as admittedly even as per the Department there are total 170 clients out of which 159 clients have filed the returns of income and also declared their profits before the date of search action. But in respect of only 11 clients why they have not filed returns of income and why they subsequent filed, it is not concern with the assessee. He submits that another i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant to its clients show that no commission was charged to them. vii. No leading evidence was filed to prove that the transactions entered into by the appellant were on behalf of his clients. 13. On examining the reasons and findings of the Assessing Officer it is seen that the transactions of trading in commodities derivatives undertaken by the assessee for his clients are not permissible u/s. 15 and 11(3) of Forward Contract (Regulation) Act, 1952. The assessee has never denied even during the course of enquiry that he is not having valid license or membership to carry out the commodities derivatives through the NCDEX. It is also not in dispute that the assessee has contract with M/s. A.M. Futures and Others and the assessee was using those entities for carrying out its transactions with the NCDEX (National Commodities Derivatives Exchange). The assessee also used M/s. Sanjay Pulse Processors Pvt. Ltd., Jalgaon, M/s. Shubh Commodities, Jalgaon and M/s. Shanti Commodities, Jalgaon. In the statement recorded during the course of search u/s. 132(4) of the Act, Shri Satish Mittal, partner of the assessee firm admitted that the assessee firm is not authorized to carry out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee s clients. From the details filed by the assessee in the form of chart which has not been controverted by the Revenue during the argument (Page Nos. 23 to 41 of Compilation), all the parties have admitted their transactions. There are total 140 parties/clients which details are provided by the assessee in the form of chart giving the details of PAN No., the Ward/Circle in which assessed, Date of filing return of income etc. 15. The Revenue fairly admitted during the course of the argument that none of the parties out of 170 parties or clients have denied the transactions done by the assessee on their behalf. Law is well settled that when the entire evidence is in favour of the assessee that cannot be brushed aside and tax liability of the assessee cannot be determined on the basis of suspicion and surmises. The only issue left, as per out understanding is the contravention of the Forward Contract (Regulation) Act, 1952. In our opinion if the assessee has violated the provisions that specific statute, the action can be taken against the assessee under that enactment but merely because without authority or without license the assessee carried out the trading derivatives ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee firm admitted that no margin money was kept with M/s. Madhya Bharat International Pvt. Ltd. There was search action against M/s. Madhya Bharat International Pvt. Ltd. on 02-05-2008. The Assessing Officer made certain observation in respect of the assessee that he was not a registered non-member client and also no proper records of the assessee were maintained by M/s. Madhya Bharat International Pvt. Ltd. The Assessing Officer also gave the reference of the Dy. Director of the NBOT who stated that the said transactions are treated as member transaction i.e. M/s. Madhya Bharat International Pvt. Ltd. As noted by the Assessing Officer the Director of M/s. Madhya Bharat International Pvt. Ltd. Shri Ram Kumar Agarwal stated that no brokerage have been charged from the assessee. The Assessing Officer, therefore, proceeded to treat the said liability as a bogus liability. The Assessing Officer treated the same as non-existing non-genuine liability of ₹ 1,00,21,000/- and brought to tax u/s. 41(1) of the Act as a cessation of the liability. So far as action of the Assessing Officer for invoking the provisions of Sec. 41(1), in the Ground No. 2(a) itself the Revenue ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the loss arising on trading in commodity derivatives was a speculative business loss and not regular business loss. 3. The learned CIT(A) ought to have appreciated that the trading in commodity derivatives was part of the regular business activity of the assessee and hence, there was no reason to treat the loss arising from the said activity as a speculative business loss. 4. Without prejudice to Ground Nos. 2 3, the assessee submits that the brokerage income earned by the assessee in respect of transactions in commodity derivatives should have been treated as speculative business income and not as regular business income. 5. The assessee submits that the learned CIT(A) ought to have allowed set off of loss of ₹ 2,09,31,143/- being incurred in trading in commodity derivatives against the brokerage income earned by the assessee. 19. Ground No. 1 did not press by the Ld. AR. As Ground No. 1 is not pressed by the Ld. AR hence, Ground No. 1 is dismissed as not pressed. So far as Ground Nos. 2, 3 4 are concerned the main grievance of the assessee is that the loss incurred through M/s. Madhya Bharat International Pvt. Ltd. towards the transactions in the NBOT is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e dismissed. 21. The next issue is in respect of loss of ₹ 2,09,31,143/- which is incurred in trading in commodity derivatives. Now the assessee has taken a plea that said loss may set off against the brokerage income earned by the assessee. The Ld. CIT(A) has discussed this issue in Para Nos. 7.1, 7.2 and 7.3 are as under: 7.1 It is noticed that the appellant firm has claimed loss in respect of commodities derivatives transactions by debiting the same in the profit loss account. The said loss is speculation loss and hence cannot be set-off against brokerage income which is regular business income earned by the appellant firm. The A.O. has considered and correctly decided the issue in Para 5 of the assessment order for A.Y. 2006-07 as under: On going through the P L Account of the assessee, it is seen that the assessee has debited an amount of ₹ 2,09,31,143/- on account of losses in commodities trading. The losses incurred in commodities trading are clearly speculative in nature as defined u/s. 43(5) of the I.T. Act, 1961. These cannot be claimed as business loss. Only the eligible transactions as specified under proviso (d) below S. 43(5) are not treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal for the A.Y. 2007-08 being ITA No. 860/PN/2010. The Revenue has taken the following grounds: 1. (a) Whether on the facts and the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the speculation losses of ₹ 40,97,718/- which was treated as assessee s loss and not of the assessee s clients. (b) On the facts and the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the transactions claimed to have been done on behalf of purported clients was not legally permissible, as the assessee was neither broker or sub-broker of such clients and, therefore erred in deleting the addition on a/c of speculation loss of ₹ 40,97,718/-. (c) On the facts and the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that there was no client agreement, KYC details, broker's note with purported clients and, therefore, erred in deleting the addition on a/c of speculation loss of ₹ 40,97,718/-. 24. In respect of the A.Y. 2007-08 the profit of the assessee s clients was brought to tax of ₹ 40,97,718/-, treating the same as income of the assessee. The details of the return of income an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this issue could not be touched in this asst. u/s. 153A and hence, there was no reason to treat the said loss as a speculative business loss as against regular business loss claimed by the assessee. 2. The learned CIT(A) erred in holding that the loss arising on trading in commodity derivatives was a speculative business loss and not regular business loss. 3. The learned CIT(A) ought to have appreciated that the trading in commodity derivatives was part of the regular business activity of the assessee and hence, there was no reason to treat the loss arising from the said activity as a speculative business loss. 4. Without prejudice to Ground Nos. 2 3, the assessee submits that the brokerage income earned by the assessee in respect of transactions in commodity derivatives should have been treated as speculative business income and not as regular business income. 5. The assessee submits that the learned CIT(A) ought to have allowed set off of loss of ₹ 55,62,201/- being incurred in trading in commodity derivatives against the brokerage income earned by the assessee. 26. Ground No. 1 is not pressed by the Ld. AR. As Ground No. 1 is not pressed by the Ld. AR hen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er on the facts and the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of ₹ 60,30,320/- by treating income as earned by clients of the assessee and not by the assessee? (b) On the facts and the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the transactions claimed to have been done on behalf of purported clients was not legally permissible, as the assessee was neither broker or sub-broker of such clients and, therefore erred in deleting the addition of ₹ 60,30,320/-. (c) On the facts and the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that there was no client agreement, KYC details, broker's note with purported clients and, therefore, erred in deleting the addition of ₹ 60,30,320/-. 30. In this case, on the basis of search and seizure action against the assessee firm on 22-11-2007 u/s. 132 of the Act, the Assessing Officer has passed the assessment orders for the A.Ys. 2005-06 and 2006-07 u/s. 143(3) r.w.s. 153A of the Act. The details of the income return and income assessed by the Assessing Officer in the above mentioned two years are as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Further, the 11 clients have filed revised returns for offering profits received from the appellant firm. iv. Stamp duty for the transactions entered into by the appellant firm with M/s. A.M. Futures was borne by the appellant firm and not by the clients hence the transactions are only between M/s. A.M. Futures and the appellant firm. v. The appellant has not collected any margin money from the so called clients. vi. No commission or brokerage was charged by the appellant from its clients and the bills issued by the appellant to its clients show that no commission was charged to them. vii. No leading evidence was filed to prove that the transactions entered into by the appellant were on behalf of his clients. 32. On the perusal of the assessment orders in both the assessment years in this case, it is seen that the entire facts and reasons given by the Assessing Officer are verbatim as in the case of M/s. Sahayog Commodities (New) hence, for avoiding the repetition of the facts and reasons we preferred to go with the order of the Ld. CIT(A). The addition made by the Assessing Officer of ₹ 38,99,746/- and ₹ 60,30,320/- in the A.Ys. 2005-06 and 2006-07 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed against the income by the clients are bogus. In fact, many of the clients were assessed by the Assessing Officers at Nashik and Jalgaon. The A.O. have not disallowed such losses claimed by the said assessees and such losses have not been held to be non-genuine. The appellant has also pointed-out that many clients have declared the speculation profit which is equal to or more than profit earned on the transactions carried-out by the appellant firm on their behalf or have declared substantial speculation profit in the returns of income filed by them. As regards the contention of the A.O. that the stamp duty for the transactions in commodity derivatives was borne by the appellant firm and not by the clients, the appellant has pointed-out that stamp duty in respect of the transactions entered into on behalf of the clients was recovered from the clients and credited to stamp duty account. As regards the contention of the A.O. that the appellant has not collected any margin money from its clients, the appellant has pointed-out that it has in fact collected margin money and also submitted that maximum balance of margin money paid by it to M/s. A.M. Futures in respect of transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,44,218/- and ₹ 60,30,320/- in the hands of the appellant firm in A.Ys 2005-2006 and 2006-2007 respectively and the same is deleted. The A.O. is directed accordingly. Ground No. 1 for the A.Ys 2005-2006 and 2006-2007 stands allowed. Now, the Revenue is in appeal before us. 33. The Ld. Counsel submits that his argument in the case of M/s. Sahayog Commodities (New) may be treated as his argument in this case as the facts are identical. He submits that the only reservation of the Assessing Officer is that the assessee was not legally permitted u/s. 15 and 11(3) of Forward Contract (Regulation) Act, 1952 to carry out the transactions commodities derivatives in the NCDEX on behalf of any parties. He submits that all the parties in this case for both the assessment years have confirmed and also declared the profits earned by them and the assessee has merely charged the brokerage which has already been disclosed by the assessee. He argues that the Ld. CIT(A) has rightly deleted the addition. The Ld. DR on the other hand submits that his argument in the case of M/s. Sahayog Commodities (New) may be treated as argument in this case. 34. We find that the assessee firm has en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 3,02,38,100/- are not genuine losses and merely represents book entries not supported by genuine transaction and hence losses need to be ignored. (d) On the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in allowing speculation loss of ₹ 8,10,620/- which merely represents book entry not supported by genuine transaction. 36. There are two issues in this appeal. The first issue is the speculation loss of ₹ 3,02,38,100/- which is in respect of transactions done through Madhya Bharat International (I) Ltd. The Assessing Officer has made the addition u/s. 41(1) treating the same as income of the assessee. As per the grounds taken by the Revenue, it is conceded in the ground itself, i.e. (1)(a), that the Assessing Officer has wrongly made the addition u/s. 41(1). But the grievance of the Revenue is that Ld. CIT(A) should not have allowed the said losses as the assessee s speculation loss. This is also one of the group concerns in Sahayog Group. In consequence of the search and seizure action u/s. 132 of the Act conducted on Sahayog Group of Jalgaon on 22-11-2007, the assessment in this case was also completed u/s. 143(3) r.w.s. 153A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of liability. 38. The Assessing Officer treated the outstanding amount claimed to be payable on 31-03-2006 to M/s. Madhya Bharat International (I) Ltd. of ₹ 3,02,38,100/- as not payable and brought the same to tax u/s. 41(1) of the Act, as cessation of liability. When the matter reached before the Ld. CIT(A), Ld. CIT(A) held that the Assessing Officer was not justified in invoking provisions of Sec. 41(1) of the Act. The finding of Ld.CIT(A) on invoking provisions of section 41(1) has been accepted by the Revenue in Gr.No.1(a). 39. Now the only grievance of the Revenue is that the transactions resulting in speculation loss of ₹ 3,02,38,100/- done through M/s. Madhya Bharat International (I) Ltd. were not legal transaction hence, on this reason the Ld. CIT(A) should have confirmed the order of the Assessing Officer on disallowance of the speculation losses. In our opinion there is no merit in the grounds taken by the Revenue. There was no evidence to show that the said loss was not genuine loss and it was the loss of M/s. Madhya Bharat International (I) Ltd. The said amount was paid by M/s. Madhya Bharat International (I) Ltd. by cross account payee cheques in nex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with M/s. Pawankumar Laddha in the name of the firm M/s. Shanti Commodities and the bills issued by M/s. Pawankumar Laddha were also in the name of M/s. Shanti Commodities. It was also contended that even though some transactions were entered into prior to the date of partnership deed i.e. before 31-10-2002, but same were entered into by the partners on behalf of the firm. On the observation of the Assessing Officer that loss was incurred prior to the existence of the assessee firm, Ld. CIT(A) has noted that partnership deed is dated 31-10-2005 and the firm commenced it s business from 01-11-2005. He further observed that the bills of M/s.Pawankumar Laddha shows that in respect of the two transactions, the loss amounting to ₹ 4,44,300/- and ₹ 1,77,100/- was incurred prior to 1st day of November, 2005. He held that the said loss amounting to ₹ 6,21,400/- was incurred prior to the existence of the firm and hence, cannot be allowed. As per the bills of M/s.Pawankumar Laddha it is also noticed in respect of two transactions that the loss amounting to ₹ 3,92,900/- and ₹ 4,17,720/- was incurred after 30/10/2005 i.e. after the date of commencement of busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 84 (SC). We agree with the finding of Ld. CIT(A) that the said penalty levied which is in the nature of civil liability and similar to the nature of compounding fees. It is not for something charged for serious violation of provisions of law but these are the routine procedural violations. In our opinion the Ld. CIT(A) has rightly deleted the addition. We, accordingly, confirm the order of the Ld. CIT(A) and ground taken by the Revenue is dismissed. 45. Now, we take up the assessee s appeal being ITA No. 786/PN/2010 for the A.Y. 2006-07. In this case the assessee has taken Ground No. 3 raising the plea that when the assessment is framed u/sec. 153A of the Act, the Assessing Officer cannot decide the nature of the income. Ground No. 3 is not pressed by the Ld. AR. As Ground No. 3 is not pressed by the Ld. AR hence, Ground No. 3 is dismissed as not pressed. Ground Nos. 1, 2, 4, 5 6 are in respect of one issue that is the disallowance of the loss of ₹ 6,21,400/- in respect of transactions carried out through M/s.Pawankumar Laddha. The Assessing Officer has observed that the assessee has registered itself as a client of M/s.Pawankumar Laddha which is a member of the NBOT and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argument of the assessee. Admittedly the said loss was incurred prior to the formation of the assessee firm. So far as second plea is concerned that the said loss was incurred during the regular course of the business and hence, same cannot be treated as a speculation loss and same is to be set off against the brokerage income. We are unable to accept the said plea also. An identical issue has been decided by us in ITA No. 776/PN/2010. As the facts are identical in this case also as admittedly there is no delivery of the goods and transactions were settled without delivery. We, therefore, following our reasons on this issue in ITA No. 776/PN/2010, we dismiss all the relevant grounds and confirm the finding of the Ld. CIT(A). 46.1 The next issue is the claim of 5,00,000/- which is disallowed as a capital expenditure. The Ld. Counsel submits that if it is treated as a capital expenditure then the depreciation may be allowed as held by the Hon'ble Supreme Court in the case of CIT Vs. Techno Shares Stocks Ltd. Ors. 327 ITR 323 (SC). We find that the assessee plea is covered by the decision of the Hon'ble Supreme Court in the case of CIT Vs. Techno Shares Stocks Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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