TMI Blog2024 (11) TMI 359X X X X Extracts X X X X X X X X Extracts X X X X ..... educed the percentage to 0.25% from 2% - HELD THAT:- The entire basis of the ld. AO is based on Project Falcon report passed on by the Investigation wing which admittedly pertains to stock option trading carried out on the Bombay Stock Exchange, which has no connection with the assessee as assessee trading was in currency options in United Stock Exchange and it has carried out various opportunities in which assessee had shown profit. All those trades in which assessee disclosed profit has not been disturbed or adversely viewed except for few transactions of losses. For instance in A.Y.2 014-15 there were 11 trades in United Exchange segment, some in futures and some in options, out of which only two trades of currency options have been alleged by the ld. AO. Similarly, in A.Y. 2015-16, the alleged trades in question which were executed in April 2014. The assessee had declared trading profit of Rs. 6,72,64,310/- in A.Y.2014-15 and the alleged non-genuine loss which has been picked up by the ld. AO is only Rs. 7,20,400/-. AO has just misinterpreted the Report to apply in assessee s case without independent analyzing the transactions. At least ld. AO should have conducted some enquiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AMIT SHUKLA (J.M): All the aforesaid appeals filed by different assessees for various assessment years have been filed against separate impugned orders passed by CIT (A)-52, Mumbai for the quantum of assessment passed u/s. 147 /143(3) for the A.Y.2014-15, 2015-16, 2016-17, 2018-19 and 2020-21. 2. In all the appeals the issues involved are common arising out of identical set of facts therefore, same were heard together and have been disposed of by way of this consolidated order. In a summary manner, the issues raised in various grounds are summarized in the following manner:- Sr. No Appeal No. AY Issues Grounds Abans Commodities (1) Private Limited 1 ITA 3315/MUM/2024 2014-15 1. Disallowance of loss on select trades Estimated commission for obtaining loss @ 0.25% (reduced by CIT (A) from @ 2% considered by AO) 1. Re-opening 2. Disallowance of loss on selected trades 3. Commission on impugned illiquid option trades 2 ITA 3443/MUM/ 2024 2015-16 1. Disallowance of loss on select trades 2. Estimated commission for obtaining loss @ 0.25% (reduced by CIT (A) from @ 2% considered by AO) 3. Estimated commission @ 0.25% on purchases from select parties treated as non genuine transactions l. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25% (reduced by CIT(A)from @2% considered by AO) 1. Re-opening 2. Commission on impugned illiquid option trades alleged to be earned as broker on net premium on such options 14 ITA 3669/MUM/ 2024 2018-19 1. Estimated commission @ 0.25% on purchases from select parties treated as non genuine transactions 1. Re-opening 2. Commission on impugned purchases 15 ITA 3670/MUM/ 2024 202-021 1. Estimated commission @ 0.25% on purchases from select parties treated as non genuine transactions 1. Commission on impugned purchases 16 ITA 3516/MUM/ 2024 2018-19 1. Estimated commission @ 0.25% on purchases from select parties treated as non genuine transactions 1. Re-opening 2, Commission on impugned purchases 17 ITA 3517/MUM/ 2024 2020-21 1. Estimated commission @ 0.25% on purchases from select parties treated as non genuine transactions 1. Commission on impugned purchases 18 ITA 351S/MUM/ 2024 2021-22 1. Estimated commission @ 0.25% on purchases from select parties treated as non genuine transactions 1. Commission on impugned purchases 19 ITA 3499/MUM/ 2024 2020-21 1, Estimated commission @ 0.25% on purchases from select parties treated as non genuine transactions 1. Commission on impugned purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed options for an aggregate premium value amounting to Rs. 13,05,500/- and sold the same for an aggregate premium value of Rs. 5,81,500/- resulting in loss of Rs. 7,24,000/-. All the buy and sell trades have been executed through the broker, M/s. Abans Securities Ltd. 6. The ld. AO noted that assessee has undertaken trades in the currency options through its broker and found that:- The assessee has traded in 2 unique contracts and has undertaken both sell as well as buy trades in each of the contracts. It is relevant to note that the buy quantity a d sell quantity for each of the 2 contracts in which trades have been undertaken by assessee is identical. Also, it is to be noted that each of the trades have been squared within the same day and also there is large difference between that the buy rate and sell rate. Further, lupon data analysis, it may be noted that the time gap in buy and sell trade ranges in minutes and seconds only. Also, it is seen that by trading in each of the 2 contracts enumerated in the table above the assessee has consistently recorded losses for each contract. Also, it is seen that by trading in each of the 2 contracts enumerated in the table above, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the- money options, which were thinly traded. 7. The trades by these entities, in many cases, contribute to 70% to 100% of total traded volume for the contracts on those days. 11. Accordingly, relying on the report of manipulative trades as highlighted in the SEBI report, AO held that assessee has indulged into fraudulent transaction resulting into non-genuine loss of Rs. 7,24,000/-. He further, referred to the materials available under the project falcon available on ITBA portal wherein there was some statement of Shri Arun Shah, Director of one of the share broking firm wherein he has admitted that in such kind of accommodation entries an unaccounted commission amounting to 2% on the buy and sell are received or paid and accordingly, he estimated commission expenditure of Rs. 37,740/- in cash for availing non-genuine loss of Rs. 7,24,000/- from trading in currency options. 12. Ld. CIT (A) has confirmed the said addition in his consolidated order dated 22/05/2024 passed for all the assessment years. However, on the commission he has reduced the percentage to 0.25% from 2% following the decision of the Tribunal in some other case of Vijay Kumar Kheria vs. ACIT in ITA No. 3176/Mum/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties to book fictitious and non-genuine losses and few of the trades of the assessee were also highlighted by the AO and accordingly, the order of the ld. AO should be sustained. 15. From the perusal of the assessment order it is seen that, the entire basis of the ld. AO is based on Project Falcon report passed on by the Investigation wing which admittedly pertains to stock option trading carried out on the Bombay Stock Exchange, which has no connection with the assessee as assessee trading was in currency options in United Stock Exchange and it has carried out various opportunities in which assessee had shown profit. All those trades in which assessee disclosed profit has not been disturbed or adversely viewed except for few transactions of losses. For instance in A.Y.2 014-15 there were 11 trades in United Exchange segment, some in futures and some in options, out of which only two trades of currency options have been alleged by the ld. AO. Similarly, in A.Y. 2015-16, the alleged trades in question which were executed in April 2014. The assessee had declared trading profit of Rs. 6,72,64,310/- in A.Y.2014-15 and the alleged non-genuine loss which has been picked up by the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame should have been confronted with the assessee to rebut or cross examine. Ultimately, the addition has been sustained by applying adhoc commission rate of 2% which has been scaled down to 0.25% by the ld. CIT (A) that assessee might have incurred such expenditure in cash. There is no evidence brought on record that assessee had actually paid such expenses outside the books and the entire addition is based on conjecture. In any case we have already held that the transactions in which assessee has incurred loss are genuine, therefore, there is no question of imputing any kind of adhoc commission. Accordingly, addition of Rs. 4,718/- in A.Y. 2014-15 and addition of Rs. 4,881/- in A.Y.2015-16 is deleted. Accordingly, appeal for the A.Y.2014-15 is allowed. 17. Coming to the appeal for the A.Y.2015-16 , in so far as the issue relating to non-genuine loss in illiquid options and commission of such non-genuine trading, we have already deleted the addition after detail discussion in appeal for A.Y.2014-15. Accordingly, these two additions are deleted. 18. The other issue which has been raised in A.Y. 2015-16 which is also therein A.Ys. 2016-17, 2017-18 and 2020-21 relates to purchases ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see s Rebuttal/ Submissions A. Common Allegations for all six entities 1. Source of funds / Capital is less compared to the turnover The assessing officer has compared turnover with share capital as the only source of funds. However trading does not require only large own capital. Based on the information received from the supplier, the source of funds can be traced to inter corporate loans taken from various business associates purely for working capital requirements. Further, in trading businesses, there is no requirement of high source of funds. In any event, the profit is commensurate to the funds invested. 2. E-mail was being handled by Abans group No evidence that email was actually being handled by Abans group. The AO has not brought on record any evidence to support the basis on which this allegation is made. He has not mentioned who was operating such email nor provided evidence for the same. E mail by its very nature can be operated from anywhere. It is vehemently contended that the email and ITR of the company was not operated from the office of Abans Group. 3. ITRs filed from premises of Abans group from IP address 103.207.9.67. This is factually incorrect. Based on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s factually incorrect. This fact is not commented upon by investigation wing. The assessing officer did not carry out any investigation or reverification. D. Specific Allegations for Yogdarshan 1. Inquiry was conducted in this case at the address of the registered office. The Inspector reported that there was no business activity happening at this premises. Based on the information provided by the supplier, the inquiry was conducted during peak Covid period at Mumbai premise, whereas the transactions are done from premises situated in Gujarat. Interestingly, the Inspectors report in all cases is identical. It says that the office is small, is dilapidated and is closed. It further says it is unused for a long time. It further refers to enquiries from staff of another premise, but fails to even mention the name of such office or any staff. This clearly shows it to be a prejudiced report. 2. The statements of Shareholders Directors were recorded. They were not aware of most of the things. AO has not shared the complete statement. The inferences drawn are not supported by the extracts reproduced in the assessment order. The directors had given details of brokers, sales, purchase partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urned income of about Rs 4 lakhs is capable of making this investment. Further, source need not be current income alone. It is biased inference. G. Alleged allegations for L M Tradecom 1. Directors are not men of Means The details of return of income narrated and their addresses do not justify such inference. 2. IP address 112,196.138.237 for filing return of income is at Abans Group offices as per Q22 of statement of Shiv Shankar Singh The extract of the statement reproduced in the assessment order in Answer to Q22 does not mention this IP address. It is learnt that the IP address was 112.196.129.164. This shows that allegations made in the investigation report is false and the assessing officer failed to verify and draw correct inferences. 21. All these submissions which were given before the ld. AO and ld. CIT (A) has not been considered at all. Most of these inferences have been drawn from the Investigation report and did not even verify the various allegations made in the report while assessee brought on record all the details and evidences. Ld. counsel further submitted that investigations were carried out during the peak Covid period and verifications were made in Mumbai whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oubted for the reason that ultimately the ld. AO s allegation is that assessee might have earned commission on such purchases as these are non genuine parties with no credentials and on inquiry by the investigation wing various facts have emerged about their credibility. If the purchases are from the books and source of purchases are not in doubt and assessee has produced all the evidences to prove the purchases then how can on such purchases adhoc addition on account of commission can be made. Before the AO assessee has submitted following details to prove the purchases: (i) Purchase invoices; (ii) Warehouse receipts showing physical receipt of the goods in the warehouse; (iii) Delivery Orders; (iv) Bank statements demonstrating payment towards the purchases; (v) GST returns showing receipt of the goods and availment of input tax credit on such purchases. If these documents have not been doubted then where is the question of making adhoc addition of commission on such purchases. 25. Coming to the various allegations made by the AO and the rebuttal given by the assessee before the AO as well as before the CIT(A), it is seen that one of the allegations of the AO was that the source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be adversely viewed. Similarly, with regard to every allegation, counter submissions as noted above has not been dealt by the ld. CIT (A) specifically when they were duly explained through various documents and facts. Once these facts were brought on record, ld. AO should have at least himself carried out any enquiry or verification rather than blindly apply and relying upon the investigation report. Thus, in view of the aforesaid submissions given by the assessee and rebuttal given against various allegations of the AO are liable to be accepted. In any case, the case of the ld. AO is that assessee might have earned commission from such purchases of 0.25% which cannot be sustained as ld. AO has applied commission of 2% and reduced to 0.25% by CIT (A) are on mere conjecture. It is not a case where the entire purchases have been added, albeit ld. AO has presumed that assessee might have earned commission on such purchases made from non-genuine parties. Accordingly, such adhoc application of commission of 0.25% is deleted. 26. Similar issue of application of commission of 0.25% has been applied for the A.Y.2016-17, 2018-19 and 2020-21, therefore, in view of the finding given hereinabo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loans taken from various business associates purely for working capital requirements. Further, in trading businesses, there is no requirement of high source of funds. In any event, the profit is commensurate to the funds invested. 2. E-mail was being handled by Abans group No evidence that email was actually being handled by Abans group. The AO has not brought on record any evidence to support the basis on which this allegation is made. He has not mentioned who was operating such email nor provided evidence for the same. E mail by its very nature can be operated from anywhere. It is vehemently contended that the email of the company was not operated from the office of Abans Group. 3. ITRs filed from premises of Abans group from IP address 103.207.9.67. This is factually incorrect. Based on the information received from the five suppliers, the ITR has not been filed from IP mentioned in the order but from some other IP address. The assessing officer has not indicated the location where the IP address was found nor has he provided any evidence to prove that. Further, there is no indication of compliance with the requirements of Section 65B of the Indian Evidence Act 4. The sharehold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated in Gujarat. Interestingly, the Inspectors report in all cases is identical. It says that the office is small, is dilapidated and is closed. It further says it is unused for a long time. It further refers to enquiries from staff of another premise, but fails to even mention the name of such office or any staff. This clearly shows it to be a prejudiced report. 2. The statements of Shareholders Directors were recorded. They were not aware of most of the things. AO has not shared the complete statement. The inferences drawn are not supported by the extracts reproduced in the assessment order. The directors had given details of brokers, sales, purchase parties, transport etc., therefore the above observation is not correct. Extracts show that they had asked for time to provide details. They did inform that stocks are maintained in Gujarat. No details of accounting details found was provided to the directors. Nor are copy of such documents shared in the assessment proceedings. The assessing officer conducted no verification during assessment proceedings. No opportunity of cross examination was provided. 3. Books of accounts were found in data recovered from premises The assessing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Ltd., Here also assessee had submitted all the documents and AO has made similar allegations based on investigation report to which assessee has given similar counter submissions which is not reproduced here. Thus, in view of the finding given in the above appeals, adhoc addition on account of commission @0.25% is deleted. Abans Securities Pvt. Ltd. 34. In various years following additions / disallowances have been challenged by the assessee:- Sr. No. AY Appeal No. Commission on non-genuine trades in illiquid options Non- genuine purchases Total Addition 1. 2013-14 3666/M/2024 6,30,433 - 6,30,433 2. 2014-15 3667/M/2024 5,96,173 - 5,96,173 3. 2015-16 3668/M/2024 11,44,234 - 11,44,234 4. 2018-19 3669/M/2024 - 1,26,000 1,26,000 5. 2020-21 3670/M/2024 - 5,17,919 5,17,919 Total 23,70,840 6,43,919 30,14,759 35. In these appeals two additions have been challenged firstly, commission on non-genuine trades in liquid options and non- genuine purchases. In so far as addition on account of nongenuine trades in illiquid options, admittedly the facts are similar to the appeals of Aban Commodities, where we have deleted the said addition after detail discussion. In so far purchases are conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that the assessing officer had the powers to compel attendance and duty to verify the same in assessment proceedings, but failed to do so. 6. Books of accounts were found in data recovered from premises. The assessing officer did not provide the evidence in ta support of this allegation. He did not even provide the m details of content of data, the period to which it pertained, the location where was found. Further, there is no indication of compliance with the requirements of Section 65B of the Indian Evidence Act. 36. Here in this case also the allegation of the ld. AO is that assessee was indulged in reversal trades in illiquid stock option resulting in non-genuine loss / gains to the beneficiary clients and also assessee has earned some cash income @0.25% on buy and sale turn over. The entire basis of the ld. AO is against the information received from project falcon . We have already dealt this issue of adhoc commission in the earlier appeals, which was based on statement of one Shri Arun Shah of M/s. Aryav Securities. Since we have already deleted this addition, therefore, even the addition on account of adhoc commission and nongenuine trades are deleted. Accordingly, al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om two entities have been doubted on which commission rate of 0.25% has been applied. Here in this case also assessee had filed documents to prove the genuineness of the purchases like purchase invoices, warehouse receipts, delivery orders, bank statements and GST returns. Ld. AO s allegation is based on similar lines and the reasons given by the assessee are also the same, therefore, in view of the finding given in the earlier years, adhoc addition of Rs. 0.25% of nongenuine purchases are deleted. 44. In the result, appeal of the assessee is allowed. Abans Jewels Ltd. 45. In various years following additions / disallowances have been challenged by the assessee:- Sr. No. AY Appeal No. Non-genuine purchases Total Addition 1. 2018-19 3516/M/2024 49,07,630 49,07,630 2. 2020-21 3517/M/2024 1,52,88,087 1,52,88,087 3. 2021-22 3518/M/2024 74,39,867 74,39,867 Total 2,76,35,584 2,76,35,584 46. Here again the addition has been made from purchases made from five entities namely, Asterpetal Trade Services Pvt. Ltd., Mavaiya Enterprises Pvt. Ltd., Manmish Traders Pvt. Ltd. Yogdarshan Commercial Trading Pvt. Ltd. and Trishna Trading Services Pvt. Ltd., and assessee had submitted all those docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting which was then processed at our unit at Surat to manufacture Silver and diamond jewellery. During all the years, the Appellant had earned a margin ranging from 4.5% to 5.50% which is a normal margin range for units engaged in this business in SEZ after deducting all direct expenses and employee benefit expenses and before adding foreign exchange fluctuation gain. (ii) The profits earned here are also meagre. The profits for the four years i.e.. FY 2016-17, 2017-18, 2018-19 and 2019-20 are 0%, 0.097%, 0.085%, and 0.14% respectively. There is substantial amount of profit out of the manufacturing activities which get heavily reduced because of large finance and other costs incidental to this business. The actual results show substantial profit from manufacturing activities. The Appellant has been doing the manufacturing activities from year to year and has been exporting manufactured jewellery (iii) As per report of spot verification dated 12.08.2021 received from DDIT(Inv.)-1, Surat, the premises of the Appellant at Surat was found to be closed for a long period of time and the size of the premises did not support the claim of having a huge production capacity The said spot ver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2020-21, the unit located at Sursez, Surat has consumed 3,000(approx) electricity units. Therefore, the question of unit not operational during the said period cannot be sufficient reason to draw any adverse inference against us. We would also like to submit that the report of investigation officer for the financial Year 2021-22 cannot be applied retrospectively for the pending assessment proceedings of the earlier years. It is pertinent to note that, a survey u/s 133A was conducted in a sister concern in December 2019 and only after 20 months the summon u/s 131(1)(d) was issued to DDIT(Inv), Surat. The changed circumstances and COVID period was not considered Further, it is submitted that the product manufactured by the Appellant, Le., Silver Diamond jewellery is a high price product and an individual export invoice was of around Rs 5 crores Also the stock lying with the Appellant at any given point of time was significantly low since purchase was done only after receipt of order for jewellery, thus the size of the Appellant's premises was sufficient to handle such an operation. The size of premise was good enough for the manufacturing activity conducted by the Appellant. All ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout verifying the same has repeated the figures from some external report which is not shared with us. 28. In any event, it is submitted that for AY 2018-19, the Appellant has not entered into any domestic sales and purchases transactions. Thus, the observations pertaining to the domestic parties are not applicable to AY 2018- 19. The fact that it is even incorporated in the assessment order for AY2018- 19 clearly indicates lack of application of mind evidenced in not even checking the facts of the year in question. It is a simple copy paste of investigation wing report and its conclusions. 29. In any event, it is submitted that the purchases and sales of the Appellant are genuine and are proved to be so by the voluminous documents furnished by the Appellant 30. As stated above, the Appellant has sufficiently proved the genuineness of the import and export transactions by submitting documents such as the invoices. Bills of Entry, Shipping Bills, import and export waybills, etc. 31. In any event, the purported evidence relied upon by the department in support of the allegation of non-genuineness of the transactions of the Appellant with the foreign entities and the Appellant's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 020 The accounts of the company are audited by independent auditors. It is learned that Mr. Ravindra Dhuri is the director of the company who is based outside India and therefore local enquiry in India would not yield the desired results. As mentioned by the Ld AO Mr. Ravindra Dhuri being the employee of Abans group is incorrect. He had left Abans group more than 4 years ago. After achieving the relevant skills from the current industry during his employment with us, he got into the bullion industry, and after years of experience in the local market he planned on to enter the international market and started its operations by setting up a company in Hong Kong. There is no evidence mentioned in the assessment order and it is apparent that neither the investigation wing nor the AO has examined or made any direct enquiry with Shri Ravindra Dhuri (iii) Rising Star Trading General Fze AO has not carried out any investigation herself and merely repeated the investigation report post survey action with respect to Rising Star Trading FZE' is a UAE based company engaged in trading in Ferrous and non-ferrous metal, import and export of pearis, precious stones, gold and diamond etc. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roup and in none of the assessments has it been treated as a non genuine company. Despite this, the assessing officer has treated the entire purchase and sales as non-genuine including the exports and imports, 35. The assessing officers observations and our comments in respect of overseas entities have been discussed earlier The Appellant's submissions in respect of the 3 domestic entities referred to in the assessment order thereto are summarised as under: (i) During the survey proceedings in the case of Abans Securities Ltd.. it was found that the Books of Account of these entities were found in Tally in the data recovered from the Survey premises The Appellant does not have information how was tally data of client found at the premises of Abans group nor has the learned AO shared the details of such information period to which that the books of accounts is pertains. Ld AO did not even provide the details of content of data, the period to which it pertained, the location where was found. Further, there is no indication of compliance with the requirements of Section 65B of the Indian Evidence Act. It is possible that tally back up might have been send by client for some reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been outsourced. The books of accounts, handling of emails and all the tax related filings are completed by them. Hence there is no need to hire employees. Almost all the delivery related operations are also outsourced as they use external warehousing storage. After competing in such an environment, the business cannot afford more employees (v) In case of Yogdarshan commercial trading pvt ltd -The premises from where they have stated to function are unused and dilapidated for a long time. There is no business activity happening from these places Based on information received from above entity we would like to state that, spot enquiry was conducted on 02.09.2020 at the above addresses, the said period was under Covid 19 pandemic and both the directors were operating directly from home Therefore the allegations in the inspector report are not valid. Further the spot enquiry was done at the business premises in Mumbai whereas the trading activity was done from the premises in Gujarat. vi) The books of accounts are not maintained at the stated office of the company On the basis of information received from the entity, the compliance burden of the company has been outsourced. The boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amining these documents has solely gone on the investigation report. Once the assessee has given the aforesaid explanation and the reasons countering each and every allegation by the ld. AO then, onus shifted upon department to prove that such an explanation is not acceptable. The aforesaid explanation should have been rejected on a cogent ground or by carrying out independent enquiry by the ld. AO based on such explanation. Thus, the aforesaid explanation filed by the assessee are liable to be accepted and purchases are held to be genuine. 52. Since this issue is almost similar to the issue which has been discussed in the earlier cases and moreover the explanations given on each and every allegation of the ld. AO is countered by the evidence filed on record and was also there before the authorities below which has not been rebutted. Ultimately the notional commission on such purchases of 0.25% has no basis and accordingly, same is deleted. 53. In all the cases assessee has raised validity of reopening u/s. 147/148 of various grounds, however, we have deleted all the additions on merits therefore, the legal issues raised before us had been rendered academic and are kept open. 54. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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