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TMI Blog2020 (1) TMI 1665X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties. Case file perused. The assessee's detailed paper book running into 25 pages comprising of section 148 notice, the Assessing Officer's reasons recorded in support thereof, written submissions before the CIT(Appeals), stock broker's statement and copy of Bank account stands perused. 2. It transpires during the course of hearing that the assessee's sole substantive grievance on merit; apart from raising legal issue of validity of section 147 proceedings, seeks to reverse both the lower authorities action treating the disallowance of losses amounting to Rs.19,09,281/- to be bogus since involving alleged client code modification made by the broker. The CIT(A)'s detailed discussion affirming the assessing authority's action to this effect reads as under:- "6. Ground nos. 2, 3 & 4 are against the addition made u/s. 68 of the Act by the AO in the sum of Rs.19,09,281/- observing as under: - "From the reply it appears that the assessee has itself admitted that client code modification was occurred in its share dealing business. The departmental investigation wing found out that the assessee is one of beneficiary of client code modification. So it is clear that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on cases of client code modification and would implement a monetary penalty structure that would escalate with the number of such incidences. Besides, the exchange may take necessary action against members making repeated changes. However, genuine mistakes may be allowed to be rectified". 'Thus, a careful reading of the above, extract suggests that the change in Client ID is generally hot allowed except where there, is some genuine mistake. The SEBI circular also mandates the Stock Exchanges to keep strict vigil the instances of client code modification and implementation of a penalty structure. In the light of the reading and submission of NSE, it is to be observed that the practice adopted by NSE is scrutiny of client code modifications on a post facto basis, with monetary penalties in direct proportion to the quantum of incidence in compliance with the SEBI circular. Regarding the requirement of not allowing the change in client code except for genuine mistake, it is also to be observed that the term 'genuine mistake' has wide connotation. However, on perusal of the submissions made out by the appellant during the appellate proceedings, it does not emanate that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional Stock Exchange itself has confirmed that the transactions in question, the loss cannot be disallowed. The Assessing Officer applied the theory of human probabilities and relied on the decision of the Hon'ble Supreme Court in the case of Sumati DayaJ v. CIT (1995) 214 ITR 801 (SC) and CIT-vs. Durga Prasad More (1971) 82 ITR 540 (SC), and made the disallowance. 2.1. On appeal the Id. First Appellate Authority, upheld this order of the Assessing Officer. He held that human error cannot occur on all occasions. He observed that the derivative transactions took place through a broker but on different dates. He also applied the theory of probabilities and dismissed the case of the assessee. He rejected the contentions of the assessee that addition cannot be made on mere suspicion, conjectures and surmises as held by the Hon'ble Supreme Court in the case of Messrs. Lalchand Bhagat Ambical vs The Commissioner Of Income- Tax 37 ITR 288 SC. 3. Aggrieved the assessee is before us in appeal. 4. After hearing rival contentions, I find that the assessee has provided documentary evidence by way of contract notes, bank statements evidencing cheque payments for all these trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the impugned transactions were carried out through banking channel and all the supporting evidence such as contract note, payment of STT were filed at the time of assessment proceedings. We also find that Ld. CIT(A) confirmed the order of AO on the basis of his guess-work as evident from his appellate order which is reproduced below:- "there is a possibility that the modifications might have been made to accommodate the appellant as the broker of the appellant was a sister concern. " Further the Id. CIT -A has observed in his order as under:- "Even though apparently it has not been established that the such modification had been done in violation of rules and regulations prescribed by SEBI and the AO had proceeded on suspicion, however at the same time it also cannot be concluded either the loss would not be attributable 10 these "modifications". On perusal of the order, we find that Ld. CIT(A) has confirmed the order of AO on his own surmise and conjecture which is not permissible in the eyes of law. Ld. DR has also not- brought anything on record contrary to the advance arguments placed by Ld. AR for the assessee as well as no defects o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision was' correct or 'wrong cannot the question, which can he a subject-matter of decision in such a case. In order to find out whether the transaction is genuine or in genuine it is neither the expedience nor correctness of the decision nor the business expertise of the person to be considered. It is to be considered on the basis of the materials that there was no such transaction and that these share transactions were paper transactions. The suffering of loss, could not be a factor for such purpose.' Having regard to the facts and circumstances of the case, the view taken by the Tribunal allowing share loss cannot be said to be erroneous or perverse.- CIT vs. Emerald Commercial Ltd & Anr (2001) 171 CTR (Cal) 193: (2001) 250 ITR 539 (Can. CIT- vs. Dhawan Investment & Trading Co. Ltd (1999) 238 ITR 486 (Can and CIT vs. Currency Investment Co. Ltd (2000) 158 CTR (Cal) 361: (2000) 241 ITR 494 (Cal) relied on. Respectfully following the same, we hold that the impugned loss claimed by assessee is genuine loss in the above facts and circumstances of the case and therefore eligible for deduction. Accordingly, AD is directed. This ground of assessee's appeal is allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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