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TMI Blog2015 (4) TMI 539X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of the assessee on the basis of mere presumption or suspicion. It is not the case of the Revenue that such alleged profit has actually been received by the assessee. In view of the totality of the above facts, we do not find any justification to interfere with the order of the CIT(A) in this regard and the same is sustained - Decided against revenue. Addition in respect of the income disclosed by the assessee at the time of search - Held that:- In the case of Kailashben Manharlal Chokshi (2008 (9) TMI 525 - GUJARAT HIGH COURT), it was noticed that when during the course of assessment proceedings the assessee has given the proper explanation for investment in various properties, the addition cannot be made on the basis of statement made at odd hours. Similarly, in the case of Ratan Corporation (2005 (3) TMI 748 - GUJARAT HIGH COURT), reiterated that when the statement made during the course of search has been retracted, then it is duty of the Assessing Officer to make further inquiries. Similar view is expressed by their Lordships of Hon'ble Jurisdictional High Court in the case of Radhe Associates (2013 (8) TMI 247 - GUJARAT HIGH COURT), wherein the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity trading, speculation in shares and commodities etc. The assessee-company is part of group of companies which include Kunwarji Commodity Brokers Pvt Ltd (KCBPL for short) and Kunwarji Finstock Pvt Ltd (KFPL for short). The company KCBPL is a registered broker in Commodity Exchanges while the company KFPL is a registered broker in share market. In the case of Kunwarji group of cases, a search u/s 132(1) was carried out on 25.03.2008. At paragraph 1 of the assessment order, the Assessing Officer has stated that during the course of search various books of account and documents as per Annexures A1 to A65 of the Panchnama were seized from the main office premises of this group and surveys were also carried out in the companies of this group. Searches were simultaneously carried out at the residential premises of the directors Shri Nayan Thakkar, Shri Kunal Shah and Smt. Rujuta Sheth and their statements were recorded. During the course of assessment proceedings, the Assessing Officer noticed that KCBPL has done client code modifications for unusually high numbers of time. Therefore, the Assessing Officer drew inference that the modification of the client code had been resorted to wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are on the basis of certain assumptions. The main basis of the Assessing Officer for making the additions is that large number of client code modifications were carried out by KCBPL and such modifications during the four Assessment Years under appeal come to 36,161. The assessee explained to the Assessing Officer as also before me that the total trades conducted by KCBPL on behalf of various clients including entities of Kunwarji Group, during the previous year's relevant to the four Assessment Years stand at 38,58,645. Thus, the client code modifications come to 0.94%. The assessee further explained that out of the client code modifications carried out, 15,310 modifications were done by the clients/traders themselves through direct connectivity with the Commodity Exchanges to which they had access. Thus, the client code modifications carried out directly by the traders come to 45% of such modifications, which means that the percentage of modifications carried out by KCBPL would be around 0.5%. It was further explained with supporting evidence that one trading order normally comprises of more than one trade, which would further reduce the percentage of modifications to a neglig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal profit and not real income , which has also been termed as notional by the Assessing officer himself in the notice u/s. 142(1) issued by him. (i) The Assessing Officer has calculated the alleged suppressed profits on a further assumption that the open position in all contracts to buy or sell are squared off at the expiry prices of the contract. In other words, the Assessing Officer assumed that the transactions would be finalised at the expiry date and accordingly, he calculated the assumed profit on the basis of the prices .of the commodity prevailing at the expiry date. Apparently this is a hypothetical exercise. (ii) The Assessing Officer completely ignored the correct factual position that the client code modifications were, in most of the cases, carried out within a few minutes or in all cases by the end of the same day, as client code modification is not permitted beyond that day. (iii) On the other hand, the expiry price is a price which prevailed on the day on which the contract expires and has to be square off. When the modification has been done, within a few minutes or on the same day, it is beyond comprehension as to how relevant contract is assumed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and accordingly these additions are deleted. 4. The Revenue, aggrieved with the order of the ld. CIT(A), is in appeal before us. 5. At the time of hearing before us, the ld. CIT-DR argued at length. He stated that the assessee and the broker i.e. KCBPL are the group concerns and therefore, it was very easy for the assessee to modify the client code and transfer the profit to some other person as against the assessee. He also stated that the KCBPL has misused the facility allowed by the Stock Exchange for correcting the bonafide mistake for the purpose of transferring the profit from assessee to others. The client code of the assessee were modified by the broker i.e. KCBPL with the malafide intention to help the assessee to suppress the profit. He stated that the Assessing Officer has discussed all the facts in details and the ld. CIT(A) has not considered these facts correctly. The modifications of the client code were unusually high numbers and there cannot be bonafide mistake in thousands of cases. He further submitted that this is a search case and during the course of search, Shri Nayan Thakkar has disclosed the income of ₹ 12 crores. However, when the Return of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also new in this line of trade and therefore, a bonafide error while punching the transactions or the client code usually takes place and the commodity exchange permits the modification of client code on the same day. He referred to the time of the client code modification and pointed out that the client code modification is usually done within few minutes and in any case before the end of the day. He submitted that the presumption of the Assessing Officer that the client code modifications were done with the malafide intention of suppressing the profit could have some basis had the client code modification done after a considerable gap of time between the entering of the transactions and the modification of the client code. Since the client code modification is done on the same day, the assessee or the broker is not aware about the outcome of such transactions. Despite the modification of the client code with the commodity exchange same day, the Assessing Officer worked out notional profit/loss till the date of actual termination of the transactions. He, therefore, submitted that the presumption made by the Assessing Officer factually, logically as well as legally incorrect. In su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... difications In terms of provisions of the Rules, Bye-Laws and Business Rules of the Exchange, the Members of the Exchange are notified as under: Forward Markets Commission (FMC) vide its letter no. 6/3/2006/MKT-II (VOL III) dated December 20, 2006 and January 5, 2007 has directed as under. a. The facility of client code modifications intra-day are allowed. b. The members are also allowed to change their client codes between 5:00 p.m. to 5:15 p.m., in case of the contracts traded till 5:00 p.m. and between 11:30 p.m. to 11:45 p.m. for the contracts traded till 11:30 p.m. on all the trading days from Mondays to Fridays and on Saturdays the same shall be allowed between 2:00 p.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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an absolute figure, the client code modification may look very high, but if we look it at in terms of total transactions, it is only 0.94%. The total number of trade transactions is 38.58 lacs and the client code modification is only 36,161. Therefore, the client code modification is less than 1% of the total trading transactions. As per circular of Commodity Exchange, client code modification upto 1% is quite normal and is permitted without any penalty. That the Assessing Officer has not given any reason on what basis he presumed the client code modifications to be unusually high. In the light of the MCX circular, we are of the opinion that the client code modification was quite nominal and not unusually high as alleged by the Assessing Officer. 9. The Assessing Officer held the client code modifications to be malafide with the intention to transfer the profit to other 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 mod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted for the addition in respect of the income disclosed by the assessee at the time of search. 13. It is submitted by the ld. Departmental Representative that during the course of search, statement of Shri Nayan Thakkar was recorded. He is the Director of the assessee-company. In his statement dated 25.03.2008, he disclosed the unaccounted income of ₹ 12 Crores. That on 10.04.2008, he furnished a letter before the Assistant Director of Income-tax in which he gave the break-up of ₹ 12 Crores, which reads as under:- (a) M/s. Kunvarji Finance Pvt Ltd. - Rs.8,00,00,000 (b) Individuals and other group entities Like Nayan Thakkar, Chetan Thakkar etc.- ₹ 4,00,00,0000 Rs.12,00,00,000 Thus, in clear terms, he disclosed sum of ₹ 8 Crores as unaccounted income of the assessee. This letter dated 10.04.2008 was filed after the conclusion of the search. That till the filing of the Return of Income, the disclosure made at the time of search was not retracted. However, in the Return of Income, the undisclosed income declared at the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e verified those documents with the books of accounts and found that there is not a single discrepancy in the assessee's seized books of accounts. Since there was no discrepancy in the assessee's books of accounts and the seized documents, the assessee did not offer any undisclosed income. From these facts, it is evident that disclosure made by the assessee at the time of search was erroneous, based upon incorrect facts conveyed by the authorized officer who was recorded his statement. He, therefore, submitted that the order of the CIT(A) is fully justified and the same should be sustained. In support of this contention, he relied upon the following decisions:- (i) Kailashben Manharlal Chokshi vs. CIT : (2010) 328 ITR 411 (Guj) (ii) CIT vs. K. Bhuvanendra and Others (2008) 303 ITR 235 (Mad.) (iii) DCIT vs. Ratan Corporation: (2005) 145 Taxman 503 (Guj.) (iv) CIT vs. Radhe Associates : (2013) 37 taxmann.com 336 (Guj.) 15. We have carefully considered the arguments of both the sides and perused the material placed before us. The facts of the case are that a search and seizure action was conducted on the Kunwarji Group on 25.03.2008. The assesseecompany is one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been brought to my notice in the Statement of Facts and also during the course of the hearing show that when the statement of Shri Nayan Thakkar was being recorded during the course of search, no specific incriminating papers or documents were available and were confronted to him. As a matter of fact, voluminous records in the form of loose papers, documents, books of account and digital record were found and seized, the contents of which were never ascertained at the time of search nor the assessees of this Group were specifically informed about such contents. It is true that the search continued non-stop for a period of. 36 hours and the statement of Shri Nayan Thakkar was commenced at about 11 O'clock in the night and continued upto 5.00 AM next day. I have also observed that at the time of recording the statement u/s 132(4), the Departmental authorities referred to Annexure-I, which was made the basis of disclosure. However, there seemed to be lack of clarity and uncertainty with respect to 'Annexure-A'. Subsequently, it was informed to the assessee that the said Annexure-l should be construed as Annexure-A and that the said Annexure-A contained a list of 65 item ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessment order on account of the first three aspects. It is also an admitted fact that the code modification details were not available and not confronted at the time of search. Code modification details were obtained by the Department from the Commodity Exchanges in post search inquiries and no such details were confronted at the time of search operations and accordingly, the basis of the disclosure did not exist. So far as the first three aspects are concerned, even the Assessing Officer has admitted that there is no such quantum of disclosure on the basis of the seized material, alleged incriminating documents or Annexure-1. So far as Code modification is concerned, it has been dealt with by me on merits while dealing with the grounds relating to the addition. Accordingly, the statement recorded u/s. 132(4) had no basis of arriving at the disclosure of ₹ 12 crores which did not contain any year or which did not even refer to any assets and it is a known fact that any undisclosed income found during the course of search should also simultaneously be reflected in some valuables, assets or expenditure. In the assessment order, the Assessing Officer has not made any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ika Prasad vs. CIT, 230 ITR 771 (MP), heir Lordships of Madhya Pradesh High Court has held as under:- that as per the findings recorded by the three authorities, i.e. the Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal, the assessee failed to show that U was an individual person, who was also doing the money lending business and thereafter the affidavit was produced to justify the undisclosed income of the assessee. All the authorities below had found that there was a contradiction between the statement recorded on oath of U and the subsequent affidavit filed by him. A perusal of the record showed that the affidavit of U filed by the assessee was nothing but an afterthought and just to cover up the undisclosed income. The authorities below after considering the affidavit and statement found that the affidavit did not inspire any confidence. In this view of the matter, it was not necessary to examine U on his affidavit. The statement given by U was on oath after the raid was on record and thereafter it appeared that U wanted to change his stand in order to oblige the assessee. The Tribunal was right in arriving at the conclusion that the money-lending b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction account with show-wise details. It is, thus, apparent that when the Tribunal refers to the duty of the Assessing Officer to make further inquiries in respect of the shop owners, it is in this context. The tribunal has also, as noticed hereinbefore, found that all the seized papers do not relate to Ratan Market Project. In these circumstances, it is not possible to accept the contention raised on behalf of the appellant that the Tribunal had omitted to consider other material. 23. In the case of CIT vs. Radhe Associates, (2013) 37 taxmann.com 336 (Guj.), the Hon'ble Jurisdictional High Court held as under:- 3. We have heard Ms. Paurami Sheth, learned counsel for the Revenue and considered the impugned judgment and order passed by the learned ITAT as well as the order of assessment passed by the AO. At the outset it is required to be noted that though in the order, the AO had mentioned that there is clinching documentary evidence with respect to receipt of on-money , the AO has not mentioned as to what were those clinching documentary evidences. By making the aforesaid addition, nowhere it is mentioned by the AO that what was the nature of clinching documentary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause the person would not be in a position to make any correct or conscious disclosure in a statement recorded at odd hours. The ratio of the above decision of the jurisdictional High Court would be squarely applicable to the facts of the assessee's case because the statement was recorded at the midnight of 25th and 26th March 2008. 25. The Revenue has heavily relied upon the question No.21 and answer thereto in the statement of Shri Nayan Thakkar, which reads as under:- Q.21 I am showing you various papers and documents which have been seized from your office premise as per Annexure-1, in which various defects and discrepancies are observed. You are requested to explain the same. Also, it is seen that client code modifications have been undertaken by your company. You are requested to explain the same. I am particularly showing A-6, Kachha books serialled from A-18 to A-29. You are requested to go through seized documents /papers and explain the same? Ans. I have carefully gone through the seized documents /papers shown to be by you and understood the contents. These are related to my trading as well as clients, whose complete details are maintained in my office sit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate: 27.08.2009 To: The Principal Officer Kunvarji Finance Pvl. Ltd. 310, Shyamak Complex, Nr. Kamdhenu Complex, Ambawadi, Ahmedabad Sir, Sub: Clarification on certain claims made by you in the affidavit filed alongwith return of income of A.Y.2002-03 to 2008-09 -reg. Ref: 1. Affidavit alongwith returns filed by you for A.Y.2002-03 to 2008-09 2. Your letter dated 27.03.2009 filed on 30.03.2009 You have claimed in the affidavit filed with the return of income that you have not been provided with the copies of Annexure-1, which has been mentioned in Question No.21 of statement of Shri Nayan Thakkar recorded in the course of his statement at 310, Shyamak Complex, Ahmedabad on 25 26.03.2008. 2. From the plain reading of the statement, it is clear that the Authorised Officer is referring to the documents / paper / electronic media seized as per the list which is an Annexure to the Panchnama. The Annexure-1 referred above pertains to Annexure A, containing pages number 1 to 3 and containing list of 65 items of books / documents / paper electronic media found and seized from office premises. While recording the statement, the Annexure-A is inadvertently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en clarified. He stated that after getting the photocopy of the seized documents and their verification with reference to the books of accounts, since no discrepancy was noticed, no undisclosed income was offered in the Return of Income. If there was any discrepancy or defect in the assessee's books of accounts or the seized documents indicating any undisclosed income, the Assessing Officer ought to have mentioned the same in the assessment order. In the case of Kailashben Manharlal Chokshi (supra), the Hon'ble Jurisdictional High Court has noticed that when during the course of assessment proceedings the assessee has given the proper explanation for investment in various properties, the addition cannot be made on the basis of statement made at odd hours. Similarly, in the case of Ratan Corporation (supra), the Hon'ble jurisdictional High Court reiterated that when the statement made during the course of search has been retracted, then it is duty of the Assessing Officer to make further inquiries. Similar view is expressed by their Lordships of Hon'ble Jurisdictional High Court in the case of Radhe Associates (supra), wherein the Assessing Officer has made the addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t code modification. These grounds are identical to Ground Nos. 1 3 of the Revenue's appeal in the case of M/s. Kunvarji Finance Pvt Ltd. vide IT(SS)A No.615/Ahd/2010 for Assessment Year 2005-06. Therefore, for the detailed discussion in the case of M/s. Kunvarji Finance Pvt Ltd in IT(SS)A No.615/Ahd/2010 (supra) for Assessment Year 2005-06, we do not find any justification to interfere with the order of the CIT(A) in this regard. Accordingly, Ground Nos. 1 3 of the Revenue's appeals are rejected. 33. Ground No.2 of the Revenue's appeal is with regard to the addition which should have been sustained on account of disclosure of income in the statement recorded at the time of search. This ground is also identical to the Ground No.2 of the Revenue's appeal in the case of M/s. Kunvarji Finance Pvt Ltd. vide IT(SS)A No.615/Ahd/2010 for Assessment Year 2005-06. Therefore, for the detailed discussion in the case of M/s. Kunvarji Finance Pvt Ltd in IT(SS)A No.615/Ahd/2010 for Assessment Year 2005-06, we do not find any merit in the Ground No.2 of the Revenue's appeal and the same is rejected. 34. Ground Nos. 4 5 of the Revenue's appeal are of general nat ..... 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