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TMI Blog2015 (11) TMI 415X X X X Extracts X X X X X X X X Extracts X X X X ..... Ahmedabad dated 22.11.2010 for A.Y. 2005-06 2007-08 respectively. 2. At the outset, before us, both the parties submitted that though the appeal of the Assessee relates to two different assessment years but the facts and circumstances of both the years are similar except for the assessment years and amounts involved and the submissions are also common for both the appeals and therefore both the appeals can be heard together. We therefore proceed to dispose of both the appeals together for the sake of convenience and proceed with the facts in IT(SS)A No. 92/Ahd/2011 for A.Y. 2005-06. 3. The relevant facts as culled out from the material on record are as under. 4. Assessee is an individual stated to be carrying out the business of trading in shares and investments. A search and seizure action was conducted on Kunwarji Group on 25.03.2008 and subsequent dates and various documents and other things found were seized. The seized document also contained computer data belonging to assessee and accordingly, in view of the provisions of Section 153C r.w.s. 153A of the Act, proceedings u/s. 153C were initiated against the Assessee by issuing notice on 16.09.2009 and in response ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1(1)/252,253,254 255/2009-10. In that case, the correct factual position regarding Client Code Modifications has been thoroughly analyzed1 and examined by me and it has been found that whatever profits have accrued to the clients and the other parties with whom the clients have traded are duly accounted in the books of the concerned parties and these transactions duly matched with the data of the Commodity Exchanges. The mismatch which has been worked ,out by the Assessing Officer is only on account of the fact that the Assessing Officer has calculated notional profits on the assumption as if Client Code Modifications were not carried out and the transactions were closed on the expiry date. While deciding the appeals in the case of KFPL, on similar issues, it was forcefully argued before me that the addition on the basis of Client Code Modifications are only -on assumptions and surmises which is not permissible under law and further that the additions are only notional and bringing to the charge of tax such notional income is repugnant to the concept of real income . For the above propositions reliance was placed on several decided cases. My findings on all these issues as recorde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that one trading order normally comprises of more than one trade, which would further reduce the percentage of modifications to a negligent figure. This point has been explained at page - 35 of the Statement of Facts with reference to transactions at MCX. The total number of trades in MCX is 26,69,129 and the total number of trades modified stands at 15,678. The number of orders modified is only 5,915, which comes to 0.22% of the total number of trades. It has been pointed out on behalf of the appellant that the position regarding transactions in NCDEX would also be similar but the break-up is not available from NCDEX. Copies of circulars issued by MCX have been filed, which show . that client code modifications with a view to rectify punching errors is permissible to the extent of 1%. If such modifications are more than 1% but less than or equal to 5%, nominal penalty of ₹ 500 is leviable. In the present case, if all the facts are objectively analysed, it is seen that effectively the client code modifications can be said to.be around 0.5% for the Assessment Years under appeal. Therefore, I see no justification in the assumption of the Assessing Officer that large number of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 be open till expiry date and how the expiry prices can be adopted for calculating the so called suppressed profits. (iv) The trading parties could not have been aware of the expiry price and, therefore, no motive can be imputed that the modifications were carried out with a view to avoid tax. There is no material whatsoever to support the conclusion drawn by the Assessing Officer that client code modifications were carried out mala fide with a view to transfer profits. Such assumption is totally illogical for the simple reason that even if for the sake of argument, it is assumed that profits were transferred from one client to another, there, can be no motive for such transfer because if such assumed profit is transferred within the Group, the transferee entity will have to pay the tax. On the other hand, if the profit is transferred to some outside client, it would amount to a situation where a sum of ₹ 100 is foregone by the appellant Company to avoid payment of tax of ₹ 30 to 35. The methodology adopted by the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missions made before A.O and ld. CIT(A) and further submitted that in case of Kunwarji Finance Pvt. Ltd. the place from where the documents were seized and were the basis of the impugned addition, the appeal of the Revenue was dismissed by the Co-ordinate Bench of Tribunal in IT(SS)A Nos. 615 to 618/A/2010 order dated 19.03.2015. He pointed to the relevant para 11 at page 64 65 of the paper book and therefore ld. CIT(A) has rightly deleted the additions. He further submitted that A.O was also not consistent in his approach of making the additions because the A.O had not accepted the reduction in profit due to client modification in A.Y. 2005-06 2007-08 but when there was increase in profit due to Client Code Modifications in A.Y. 2006-07, the increase in profits was accepted by him. He further placed reliance on the decisions in the case of Sambhavnath Investment vs. ACIT 38 CCH 077, Ashok Goyal (HUF) vs. ACIT 37 CCH 543 and Alpha Commodities Pvt. Ltd. vs. ACIT ITA No. 2119/Mum/2010. He also placed on record the copy of the aforesaid decisions. He thus supported the order of ld. CIT(A). 8. We have heard the rival submissions and perused the material on record. We find that l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 S.No Percentage of Client Code changed to total orders (matched) on a daily basis Penalty (Rs.) 1 Less than or 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 to 10% 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 mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions 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 modification was with the malafide intention. When the client code was modified on the same day, there cannot be any malafide intention. Had client modification done after the transactions period when the price of the commodity has already changed, then perhaps there could have been some basis to presume that client code modification 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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