DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 6(4), MUMBAI, MUMBAI vs. PRARAMBH SECURITIES PRIVATE LIMITED , GUJARAT

in A.Y.2021-22 reads as under:- A) "Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 5,78,73,486/ made u/s.40(a)(ia) of the Act by holding that the assessee is not required to deduct TDS u/s 1940 despite having an agreement with its clients for profit sharing an providing the Prarambh Securities' proprietary trading account for the trading activities to the clients.?" b) "Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of Rs.5,78,73,486/- made u/s.40(a)(ia) of the Act by holding that allowing traders to use Prarambh Securities proprietary trading account/portal for trading doesn't constitute contract and hence, there was no liability to deduct TDS u/s 1940 of the Act?" c) "Whether, on the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in deleting the disallowance of Rs.5,78,73,486/- made u/s.40(a)(ia) of the Act by holding that the assessee is not required to deduct TDS even u/s 194J without considering that the profit sharing arrangement of the assessee and the payments made to them for their expertise and knowledge of stock market falls under the ambit of provisions of section 194J of the Act?" d) "Whether, on the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the disallowance of Rs.5,78,73,486/ made u/s.40(a)(ia) of the Act for non-deduction of TDS without appreciating the fact that assessee had been regularly deducting TDS on profit sharing till A.Y 2020-2021.”

The brief facts are that the assessee is a stock broker and is engaged in the business and sale of shares on behalf of its clients and also in its proprietary capacity. For the sake of ready reference the appeal of the A.Y.2021-22 is taken up first and our finding given therein on the issue of disallowance u/s.40(a)(ia) would apply mutatis mutandis. The assessee has e-filed its return of income on 31/02/2022 declaring total income of Rs.22,83,11,800/- which was duly processed u/s.143(1) of the Act. A search and seizure action was carried out in the case of the assessee on 10/05/2023 and consequently, notice u/s.148 was issued on 04/03/2024, in response to which assessee filed its return of income on 28/05/2024 declaring the same total income. During the assessment proceedings the Assessing Officer observed that the assessee had entered into agreement with several traders wherein the trades were carried out by the said traders on the terminal of the assessee and the profits have been shared between traders and the assessee. One such agreement in the form of Memorandum of Understanding with one Mrs. Rohini Bhagat (PBP1) was referred to on a sample basis. The said agreement provides for carrying out of trading activities through the assessee's proprietary trading account and sharing of the profit on a pre-determined profit-sharing ratio. The Assessing Officer noted that the assessee had not deducted TDS on the amount paid to Mrs. Rohini Bhagat towards her share of profit. According to the Assessing and others Prarambh Securities Pvt. Ltd., Officer, provisions of Section 194C of the Act were applicable. In response, the assessee filed a written submission contending that the provisions of section 194C of the Act were not applicable, since the arrangement did not fall within the ambit of a works contract or service contract as mandated by section 194C of the Act. However, the Assessing Officer rejected the assessee's contention and held that TDS ought to have been deducted under section 194C on the amounts paid towards profit-sharing Accordingly, the Assessing Officer disallowed Rs 5,78,73,486/-, being 30% of the expenditure claimed on account of profit-sharing u/s 40(a)(ia) of the Act. The Assessing Officer further stated that, in any case, section 194J of the Act would apply and thus assessee was still liable to deduct TDS (Pg. 15) towards payments made to Mrs Rohını Bhagat and other traders towards profit-sharing. The relevant observation and finding of the ld. AO for the sake of ready reference is reproduced hereunder:- “(i) It is a fact that the assessee company has entered into MOU (Memorandum of Understanding) with the clients to whom access to pro-book was allowed for trading. It is seen from the MOU that access to terminals (Pro-book) was allowed to clients and the profit sharing arrangements done with the clients was on the basis of certain terms & conditions. (ii) On going through the profit sharing agreements, it is seen that the description and scope of arrangement has been clearly spelt out. Further, it is a well established preposition that when two entities/persons come together to perform a particular duty on certain terms & conditions, it constitutes a „Contract‟. A contract is an agreement between two parties that creates an obligation to perform a particular duty. The terms & conditions of the profit sharing agreements clearly defines the obligation to perform a particular duty in a prescribed manner. There is also scope of arbitration in the said arrangements in case of and others Prarambh Securities Pvt. Ltd., dispute between the two parties. Therefore, MOU executed in respect of profit sharing arrangements are nothing but a legally-binding contract which outlines the terms & conditions of the contract. It also fulfils the requirement of section 10 of the Indian Contract Act. Hence, the assessee company was required to deduct tax at source (TDS) from the payments made in respect of profit sharing under the provisions of section 194C of the Act. However, the assessee company has failed to do so. (iii) In response to SCN, the assessee has stated that “Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount……….”. In this regard this is to be stated that the assessee has entered into MOU (Memorandum of Understanding) with the clients and access to terminals (Pro- book) was given to clients and the profit sharing arrangements done with the clients was on the basis of certain terms & conditions. Contracts between the assessee and clients allows the traders to use the portal of the assessee and name of the assessee and traders do the business by using the portal of the assessee. This type of action comes under the purview of „services‟ and it is a contract. Further, MOU executed in respect of profit sharing arrangements is a legally-binding contract which specifies the terms & conditions of the contract. Therefore, the MOU entered by the assessee and the clients are also fulfilled for the contract and the assessee company was required to deduct tax at source (TDS) from the payments made in respect of profit sharing under the provisions of section 194C of the Act. But the assessee company did not do the same. (iv) Even if the contention of the assessee, for the time being is accepted, then also the profit sharing arrangement of the assessee and the payments made to them for their expertise and knowledge of stock market falls under the ambit of provisions of section 194J of the Act. Therefore, alternatively, the assessee was required to deduct TDS under the provisions of section 194J of the Act, as the payments made to them can and others Prarambh Securities Pvt. Ltd., be categorised as „fee for professional services‟ or „remuneration or fees or commission by whatever name called, other than those on which tax is deductible under section 192, to a director of a company‟. Thus, it has been found that even on the basis of the explanation of the assessee, TDS was required to be deducted on the payments made to the clients with who profit sharing agreements were executed. 6.13 Since the assessee has not deducted tax at source (TDS), the expenses claimed by the assessee on account of profit sharing has not been found to an allowable expenses in view of the provisions of section 40(a)(ia) of the Act. It has been found that the assessee company has claimed expenses of Rs.23,45,19,570/- on account of profit sharing. Out of the same, it has been that the assessee has deducted TDS on the payments of Rs.4,16,07,951/-. As such, it has been found that the assessee has not deducted TDS on the payments of Rs.19,29,11,619/- on account of profit sharing. Therefore, in view of the above findings and discussion, an amount of Rs.5,78,73,486/- [being 30% of Rs.19,29,11,619/-]is hereby disallowed u/s 40(a)(ia) of the Act. Accordingly, the same is added to the total income of the assessee. Penalty proceedings u/s 270A of the Act is also initiated separately on this issue for under reporting of income. [Addition : Rs.5,78,73,486/-]

In the first appeal, the ld.CIT(A) upon detailed examination of the MoU and the factual backdrop accepted the assessee’s contention and held that even though MoU between the assessee company even though the MOU between the assessee company and the traders is a contract, it is not in respect of carrying out of any work. The contract was for sharing of profit as per mutual understanding and it was on principal-to-principal basis. The assessee has provided facility of infrastructure/terminal to the clients to trade in Future and Options on their own. According to the CIT(A), no work and others Prarambh Securities Pvt. Ltd., was carried out and as per MOU only profit is to be shared between the assessee company and traders. Reliance was placed upon the decision of Mumbai Bench of the Tribunal in the case of DCIT v. H. J Securities P. Ltd. The CIT(A) further held that the amount does not fall within the definition of professional services and, hence, 9. 194J of the Act is also not attracted. The relevant findings of the ld,. CIT(A) are reproduced hereunder:-

Before us ld. Counsel for the assessee first of all referred to Section 194C and submitted that the same is not applicable because the Section requires the tax is to be deducted if “any person responsible for paying any sum to any resident…………….for carrying out any work”. Thus, the statutory requirement for deduction of tax arises only in the case where contract is for carrying out any work. Even though there might be a contract but it is not a contract for work. He submitted that as per the terms of agreement, proper will execute the contract in the name of the broker (assessee) through brokers terminal / infrastructure. The resultant profit or loss is to be shared between the trader (75%) and broker (25%). Thus, the agreement aimed towards joint efforts for earning gain and sharing same determined ratio. There is no work carried out by the trader and neither tangible results have been achieved. In support of this proposition, he placed reliance on the decision of the Hon'ble Bombay High Court in the case of East India Hotels Ltd (320 ITR 526) (PBP 7) In this case, the Hon'ble Bombay High Court has reproduced (PBP 11) following passage from the decision of the Hon'ble Supreme Court in the case of Birla Cement Works. "The key words in section 1940 are carrying out any work. Learned counsel for the appellant contended that a word of collection of words should fit into the structure of the sentence in which the word is used or collection of words formed. The contention is that in the context of section 194C, carrying out any work indicates doing something to conduct the work to completion or something which produces such result. The mere transportation of goods by a carrier does not affect the goods and others Prarambh Securities Pvt. Ltd., carried thereby. The submission is that by carrying the goods, no work to the goods is undertaken and the context in which the expression carrying out any work' has been used, makes it evident that it does not include in it the transportation of goods by a carrier.”

The reliance is also placed upon the following observations of the above decision of the Bombay High Court (PBP 13). "Thus, from the above decision of the Apex Court, it is clear that the words carrying out any work in section 194C is limited to any work which on being carried out culminates into a product or result. In other words, the word 'work in section 194C is limited to doing something with a view to achieving the task undertaken or carry out an operation which produces some result. As illustrated in the Circular No. 86, section 1940 would apply to payments for carrying out the work such as constructing buildings or dams or laying of roads and airfields or railway lines or erection or installation of plant and machinery, etc. In all these contracts, the execution of the contract by a contractor/sub-contractor results into production of the desired object or accomplishing the task under the contract From the fact that the contracts for supply of labour to carry out any work has been specifically brought within the purview of section 1940 and the fact that four categories of service contracts have been specifically brought within the purview of section 1940 by inserting Explanation III to section 194C, it cannot be inferred that the services rendered by a hotel to its customers are also covered under section 194C of the Act. It is true that the word 'work' in section 194C is not restricted to works contract only as held by the Apex Court in the case of Associated Cement Co. Ltd. (supra). However, as held by the Apex Court in the case of Birla Cement Works (supra) the word work in section 1940 has to be understood in a limited sense and would extend only to the service contracts specifically included in the said section by way of Explanation III”

The Hon'ble Delhi High Court also observed that a case of an arrangement under which both sides have joint together by mutual arrangement and to share the profits of the joint enterprise carried on by them is not covered by the definition. They mutually undertake the profit-making activity with a stipulation to divide the gains of their collective efforts. The work is undertaken jointly by them for third parties who pay consideration which is shared. Parties do not work for each other.

The assessee also relied upon the decision of the Mumbai Bench of the Hon'ble Tribunal in the case of H.J. Securities P. Ltd. (PBP 40). In a case involving almost identical facts, the Hon'ble Tribunal has decided the issue in favour of the assessee. It is worthwhile to note that in the said case also the assessee, who was member of Bombay Stock Exchange, had entered into similar agreement with jobber wherein a jobber would trade on the strength of membership card of the assessee and the profit/loss would be divided between jobber and assessee. It was held that S. 194C of the Act would not be applicable. and others Prarambh Securities Pvt. Ltd., 12. He further submitted that even 194J is also not applicable because a trader is not rendering any professional services to the assessee and, hence, the provisions of Section 194J of the Act has no application. He drew our attention towards definition of professional services contained in Explanation to S. 194J of the Act. As per the said definition, the professional services include certain specified services only like legal, medical, engineering etc. The present case does not fall under any such category. This is apart from the fact that parties to the agreement do not render services to each other. Therefore, Section 194J of the Act has no application.

On the other hand ld. DR strongly relied upon the order of the ld.AO and submitted that the agreement between the assessee and traders is of rendering of professional services which is an alternative ground taken by the ld.AO.

We have carefully considered the rival contentions, examined the orders of the authorities below, perused the agreements placed on record, and weighed the judicial precedents cited before us. The short question is whether the assessee, under the impugned arrangements, was obliged to deduct tax at source under Section 194C or Section 194J of the Act, and if so, whether the disallowance made under Section 40(a)(ia) by the Assessing Officer is legally sustainable. Applicability of Section 194C and others Prarambh Securities Pvt. Ltd., 15. The foundation of the Assessing Officer’s case rests on the premise that the assessee had entered into contracts with traders for carrying out work on its behalf, thereby attracting Section 194C. This presumption requires scrutiny. Section 194C obliges deduction of tax at source only where a contract is entered into “for carrying out any work.” The phrase “carrying out any work” has been judicially understood to connote doing something which culminates in a work of completion or in the production of a tangible result for another party. Thus, the essential ingredient of a contract for work is that one party undertakes to perform work for the other, and the consideration flows in return for such performance.

Examining the present arrangement, it is clear that no such relationship exists between the assessee and the traders. What the agreements envisage is that the traders would execute trades using the assessee’s proprietary trading terminal and infrastructure. The outcome of those trades profit or loss would then be shared between the parties in a fixed ratio. The assessee was not engaging the traders to perform work on its behalf; rather, both parties pooled their respective strengths the assessee providing access to its platform and the traders applying their skill and jointly undertook a commercial venture. The outcome of that venture was uncertain, being dependent upon market fluctuations, and was to be shared in proportion.

This arrangement, in its true character, is a joint venture, not a contract for work. The traders were not and others Prarambh Securities Pvt. Ltd., carrying out any task at the behest of the assessee. There was no promise to deliver a product, no obligation to complete a work, and no independent consideration payable for services rendered. Instead, the consideration was in the form of a share of profits arising from the joint activity. As the Hon’ble Supreme Court has explained in the context of Section 194C, the expression “carrying out any work” cannot be expanded to cover every kind of arrangement, but is confined to contracts where specific work is undertaken for another. The Hon’ble Bombay High Court too has clarified that not all forms of mutual collaboration fall within the sweep of Section 194C, but only those categories of work specifically included in the statutory Explanation.

The Hon’ble Delhi High Court has gone further to hold that where parties embark upon a joint enterprise and mutually agree to share the gains, such an arrangement cannot be regarded as a contract for work, since in those circumstances, the parties do not work for each other they work together for a common commercial object. That principle squarely applies here. The assessee and the traders acted together for a common venture in securities trading; neither was the contractor of the other.

The view also finds reinforcement from the coordinate Bench of this Tribunal in the case of brokers and jobbers, where it was held that execution of trades through the broker’s card and sharing of resultant profit did not amount to a contract for work. The Tribunal recognized that such an and others Prarambh Securities Pvt. Ltd., arrangement was in substance a joint participation in commercial activity, outside the purview of Section 194C.

Seen in this light, the Assessing Officer’s conclusion that the assessee had entered into “contracts for work” is unsustainable. The sine qua non of Section 194C a party carrying out work for another is absent. What is present is merely joint trading activity and profit-sharing, which cannot be forced into the statutory mould of Section 194C. Applicability of Section 194J 21. The Assessing Officer, in the alternative, invoked Section 194J, contending that the payments represented fees for professional services. This contention too does not stand scrutiny. The Explanation to Section 194J defines “professional services” to mean services rendered in specified fields such as law, medicine, engineering, accountancy, technical consultancy, interior decoration, advertising, etc. The present case bears no resemblance to any of these categories.

The traders were not retained by the assessee to provide technical expertise, professional advice, or consultancy. Their role was to trade in securities, in partnership with the assessee, and to share the resultant profits or losses. Their remuneration was not in the nature of a fee paid for services rendered, but was simply their share in the outcome of a joint venture. In other words, the payment was not compensation for services; it was division of profits. The statutory definition and others Prarambh Securities Pvt. Ltd., of professional services cannot, by any interpretative stretch, encompass such an arrangement.

In fact, judicial pronouncements have consistently emphasized that for Section 194J to apply, there must be a direct nexus between the payment and the rendering of professional services by one party to the other. That nexus is conspicuously absent in the present case. The assessee derived no professional service from the traders; it merely shared the results of trading activity undertaken in common. To invoke Section 194J in these circumstances would be to extend the provision beyond its clear terms, which is impermissible.

Having regard to the statutory framework, the terms of the agreements, and the judicial precedents, we are of the considered opinion that neither Section 194C nor Section 194J is attracted. The assessee was under no statutory obligation to deduct tax at source on the impugned payments.

The disallowance made under Section 40(a)(ia) is therefore devoid of merit. To sustain it would be to treat a joint venture as a contract for work or professional service, contrary to both fact and law. Such an interpretation would not only distort the statutory scheme but also penalize legitimate commercial arrangements.

We therefore find no infirmity in the order of the learned CIT(A) deleting the disallowance. His reasoning is well founded in law and deserves to be upheld. and others Prarambh Securities Pvt. Ltd., 27. Accordingly, the appeal filed by the Revenue stands dismissed.

Now coming to the issue of disallowance of loss of unaccounted trade reversal, the ld. AO observed that assessee entered into certain transaction in option trading which have been reversed according to the ld. AO., since the counter party at the time of entering into transaction and at the time of reversal of the transaction is same, the transactions are arranged one and hence, not genuine. These transactions, according to the details provided by the ld. AO have resulted into profit of Rs.5,87,087/- and loss of Rs.5,02,882/-. Since according to him the transactions are not genuine, the loss of Rs.5,02,882/- has been disallowed, the ld. CIT(A) had deleted the addition made by the ld. AO after observing and holding as under:- 25.3.1 The facts of the case of the appellant are that during the search in the case of the appellant company and other entities, it was found that Achintya Commodities Pvt. Ltd., Achintya Securities Pvt. Ltd., L7 Hightech Pvt. Ltd., Prarambh Securities Pvt. Ltd and VISA Capital Partners had traded amongst themselves in Future and Option. During the year, the appellant company made trade of Rs.1,10,86,619/-, Rs.9,08,250/- and Rs.8,69,563/- with Achintya Securities Pvt. Ltd., L7 Hightech Pvt. Ltd. and VISA Capital Partners. The total value of trade was of Rs.1,28,64,431/-. The AO noted that the trading in F&O done by the appellant company was with the related entities. Further, the trade was carried out by the appellant company with opposite entity for a single trade at the same time, same price and same quantity. It was not possible to match the trade done by the appellant company with that carried out by another entity without proper planning and arrangement between the parties. The AO considered the trading in F&O with the other entities as reversal trading. The and others Prarambh Securities Pvt. Ltd., AO considered the loss of Rs.5,02,822/ as arising from reversal trading and therefore the loss was disallowed. 25.3.2 During the appellate proceedings, the appellant submitted that the AO relied on the same data and considered part data as genuine and other part of data as artificial. The AO has considered profit of Rs.5,87,087/- as genuine and loss of Rs.5,02,822/- as artificial. The appellant also submitted that on same issue of trade reversal, NSE issued showcause and the proceedings were closed by NSE after considering the explanation given by the appellant. A copy of closure letter of the NSE was given to the AO, but the AO has ignored such closure letter. The appellant has relied upon the decision in the case of Sumati Dayal vs. CIT 80 Taxman 89(SC). 25.3.3 The AO has relied upon the data received from NSE and some of the evidences of matching trade found between the appellant company and the other 6 companies. The appellant, during the assessment proceedings explained to the AO that the appellant carried out 50,000 trades in F&O in a year and out of that, only 90 trades was matching. The percentage of trade matching was negligible. During the year, the total sale in F & O was Rs.4,73,87,555/- and total purchase was 4,73,03,349 /- and it resulted into profit of Rs.84,205/-. The profit of Rs.84,205/- was net result of profit of Rs.5,87,087/- and loss was Rs.5,02,822/-. The AO has considered the profit of Rs.5,87,087/- as genuine and loss of Rs.5,02,822/- has been considered as non genuine. The AO has made general observation regarding the practice of trade reversal carried out in F&O. The AO has not brought out any corroborative evidence of trade reversal carried out by the appellant with other entities in a planned manner. Once the profit arising from the same transaction has been considered as genuine, then the loss arising from the same transaction should also be considered as genuine. The NSE issued a showcause notice dated 25.03.2022, 31.10.2022 and 22.03.2023 in respect of reversal trade. In response to that, the appellant filed submission/explanation to NSE. After considering the explanation of the appellant company, NSE closed the proceedings initiated under the showcause notice dated 25.03.2022, 31.10.2022 and 22.03.2023. The appellant had submitted a copy of letter of NSE dated 15.09.2023 and 21.03.2023, by which the proceedings initiated in respect of and others Prarambh Securities Pvt. Ltd., trade reversal were closed by NSE. The copies of the letter was given to the AO during the assessment proceedings, which the AO has ignored. Thus, the AO, without examining the correctness of facts and without considering the closure of proceedings by NSE has considered the loss of Rs.5,02,822/- as non-genuine. Therefore, the disallowance of loss of Rs.5,02,822/- in respect of trade reversal is deleted.

We have heard the parties at length and perused the relevant material referred to before us and the findings of the AO and CIT(A). The issue before us is the disallowance made by the Assessing Officer on the ground that the assessee’s loss of ₹5,02,822 in F&O trading was the result of reversal trades.

The Assessing Officer noted that during a group search, trades by certain related entities such as Achintya Commodities Pvt. Ltd., Achintya Securities Pvt. Ltd., L7 Hightech Pvt. Ltd., Praramh Securities Pvt. Ltd. and VISA Capital Partners showed occasional matching with the assessee’s trades in the same scrip, at the same time, price and quantity. On this basis, the Assessing Officer treated such trades as reversal trades and disallowed the loss of ₹5,02,822. At the same time, however, he accepted the profit of ₹5,87,087 arising from the same set of trades, thereby assessing a net profit of ₹84,205 for the year.

Before the learned CIT(A), the assessee explained that it executes 15,000 to 20,000 trades per day in liquid, exchange- traded F&O contracts and that in the whole year there were nearly 50,000 trades, out of which only nine trades were shown by the Assessing Officer as matching. It was pointed and others Prarambh Securities Pvt. Ltd., out that all these trades were executed at prevailing market rates through the exchange algorithm and that the matched quantity was only a very small portion of the total volume on those dates. The assessee also placed on record copies of correspondence with NSE which had issued show-cause notices on the subject of reversal trades but had thereafter closed those proceedings after considering the assessee’s explanation. Copies of the NSE closure letters were also filed before the Assessing Officer.

The learned CIT(A) found that the Assessing Officer had only made general observations based on a few coincidental matches and had not brought on record any corroborative material to show that the trades were pre-arranged or artificial. There was no evidence of abnormal pricing, deviation from the last traded price, repeated patterns in illiquid contracts, circularity, or any off-market flow of funds. The CIT(A) also noticed that the Assessing Officer had accepted the profit of ₹5,87,087 from the same trades while rejecting only the loss. Taking into account the closure of surveillance proceedings by NSE, the learned CIT(A) held that the loss was genuine and deleted the disallowance.

On an independent evaluation, we find no infirmity in the conclusion of the learned CIT(A). Allegations of artificial or reversal trades must be supported by material evidence. In the present case, the executions were screen-based, in liquid scrips, at prevailing market rates. Out of nearly 50,000 trades in the year, only nine trades were found to have matched. Such negligible matching is consistent with coincidence and others Prarambh Securities Pvt. Ltd., rather than design, especially when the exchange algorithm matches orders strictly on price and time priority. Given that a handful of top brokers contribute to most of the market volume, the probability of such occasional matching is naturally high.

The Assessing Officer has essentially relied on two factors: that the counterparties were related, and that there was equality of time, price and quantity in a few instances. These two circumstances, by themselves, are not conclusive. Mere relatedness cannot by itself establish collusion in an anonymous exchange system. Likewise, identical time, price and quantity in high-liquidity contracts is a normal feature of screen-based trading.

If the trades were indeed pre-arranged reversal trades, certain features would have been expected, such as use of illiquid contracts to control fills, transactions away from market rates, frequent repeated matches in a pattern, or evidence of off-market settlements. No such evidence has been brought on record. On the contrary, the material shows trades in liquid contracts, at market rates, with only a few coincidences relative to the large volume of total trades. The fact that NSE itself closed its surveillance proceedings after examining the assessee’s submissions further supports the assessee’s claim. While NSE’s closure may not bind the income-tax authorities, it is still a relevant third-party evidence which could not be ignored without cogent reason. and others Prarambh Securities Pvt. Ltd., 36. It is also important to note that the Assessing Officer has accepted the profit from the same trades but treated only the loss as non-genuine. Such selective acceptance is not sustainable. Once the profit is treated as genuine, the corresponding loss from the same set of trades cannot be disallowed without concrete material. The approach of the Assessing Officer amounts to applying inconsistent standards.

The reliance on broad remarks about the practice of reversal trading does not suffice. The evidence in this case shows only nine matched trades in a year of nearly 50,000 trades, all screen-based at market prices, and closure of the matter by NSE. On these facts, the probability clearly supports the assessee’s version that the trades were genuine and not pre-arranged.

We therefore agree with the findings of the learned CIT(A) that the Assessing Officer has failed to prove that the loss was artificial or arose from reversal trading. The disallowance of ₹5,02,822 is not supported by facts or evidence and cannot be upheld.