NAVJYOT INTERNATIONAL PRIVATE LIMIED ,MUMBAI vs. DCIT CIRCLE 14(1)(1) , MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI GIRISH AGRAWALAssessment Year: 2012-13
Per: Narender Kumar Choudhry, Judicial Member:
This appeal has been preferred by the Assessee against the order dated 06.06.2024, impugned herein, passed by the National Faceless
Appeal Center (NFAC)/ Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) under section 250 of the Income Tax Act, 1961
(in short ‘the Act’) for the A.Y. 2012-13. M/s. Navjyot International Private Limited
2
2. In the instant case, the Assessee being engaged in the business of trading in agro commodities, raw cotton, food products, cattle and oil seeds, has declared its income at Rs.73,99,870/- by filing its return of income for the assessment year under consideration on 29.09.2012, which was accepted u/s 143(1) of the Act. Subsequently, the return was processed and assessed u/s 143(3) of the Act and vide order dated
09.03.2015 the income of the Assessee was assessed at Rs.81,78,200/-.
Thereafter, case of the Assessee was reopened on the basis of reasons recorded, which read as under:
“In this case, the assessee company had filed its return of income for A.Y. 2012-13 on 29.09.2012, declaring total income of Rs. 73,99,870/- and the same was accepted u/s. 143(1) of the LT. Act. Assessment order u/s 143(3) passed on 09.03.2015 assessing income of Rs.81,78,200/-.
Information has been received from the office of the Deputy Director of the Income tax (Inv.) Unit-6(3), Mumbai vide email dated 16.03.2019
regarding sharing of beneficiaries information in the case client code modification on the NSEL
The brokers in NSEL have misutilised the client code modification to promote the attractive returns available through trading in paired contracts/The brokers have even financed the investor clients through subsidiary NBFC or through their own.
The assessee has not even filed audit report even though they were required to do so. No profit and loss accounts have been prepared and have not shown the transactions where client code modifications have been done. As per the information transactions (sell or buy) amounting
Rs 1,84,48,800/- involve client code modification and thus have not been recorded in books of account.
The assessee has entered into 19 transactions dated 07.02.2012 and 21.02.2012 and client code modification has been used to change the PAN and modified client PAN is AACCK1102G.The transactions (sell or buy) amounting Rs 1,84,48,800/- involve client code modification and thus have not been recorded in books of account. The above transactions and investigation report has been perused and no audit
M/s. Navjyot International Private Limited
3
report has been filed on e-filing portal. There is no P&L account uploaded on the system. Thus, assessee has not disclosed the transactions in its books of account. Therefore, based on the above facts, the undersigned have reason to believe that the income chargeable to tax to the extent of Rs. 1,84,48,800/-has escaped assessment for A.Y. 2012-13.”
Consequently, notice dated 25.05.2019 u/s 148 of the Act was issued to the Assessee, in response to which the Assessee has filed its return of income on 16.04.2019 by declaring total income of Rs.73,99,870/-. Thereafter, in addition to various statutory notices, a show cause notice dated 01.12.2010 was issued, which read as under:
“Disallowance on account of unexplained income. In this case sharing of beneficiary’s information in the case client code modification had found on the NSEL. The brokers in NSEL have misutilised the client code modification to promote the attractive returns available through trading in paired contracts/ the brokers have even financed the Investor clients through subsidiary NBFC or through their own. The assessee has not even filed audit report even though they were required to do so. No profit and loss account has been prepared and have not shown the transactions where client code modifications have been done. The assessee has been carried out commodity transactions at NSEL
Platform through his broker M/s. Roongta Comtrade Pvt Ltd (Clint Code-
RB03) and M/s. Shree Kosh Services Pvt Ltd (SKSN001). Further transactions (sell or buy) amounting Rs 1,84,48,800/- involve client code modification and thus have not been recorded in books of account.
The assessee has not disclosed the transactions in its books of account.
Further, It is seen that you have not provided the required details/submission of documents on point no.30 & 31 of notice issued u/s 142(1) of IT Act, 1961 dated 18.10.2019, related to above issue.
From the above, it can be seen that you have received Income of Rs.
1,84,48,800/- during the year under consideration. You are hereby directed to show cause as to why the Income of Rs.1,84,48,800/- be not added to the total income of the assessee company. In this regard, it is requested to produce or cause to be produced the submission/ details on above mentioned issue on or before 06.12.2019 at 11:00 A.M.”
M/s. Navjyot International Private Limited
4
4. The Assessee in response to the said show cause notice, filed the relevant details, which were verified and placed on record by the AO and the following issue was raised:
“The assessee has entered into 19 transactions dated 07.02.2012 and 21.02.2012 and client code modification has been used to change the PAN and modified client PAN is AACCK1102G.The transactions (sell or buy) amounting Rs 1,84,48,800/- involve client code modification and thus have not been recorded in books of account. The above transactions and investigation report has been perused and no audit report has been filed on e-filing portal. There is no P&L account uploaded on the system. Thus, assessee has not disclosed the transactions in its books of account. Therefore, based on the above facts, the undersigned have reason to believe that the income chargeable to tax to the extent of Rs. 1,84,48,800/-has escaped assessment for A.Y. 2012-13.”
The Assessee before the AO has claimed that there was no motive behind to mis-utilize the NSEL platform, by client code modification. The Assessee in support of its case also filed the copies of ledger account of the Assessee, as appearing in the books of accounts of brokers. Though the submission of the Assessee was considered, however, the same was not found acceptable by the AO, who ultimately made the addition of Rs.1,84,48,800/- and added the same in the income of the Assessee, by observing and concluding as under:
“The submission of the assessee is considered, however the same is not acceptable. It is seen from the case records that sharing of beneficiaries’
information of client code modification on the NSEL. The brokers in NSEL have misutilised the client code modification to promote the attractive returns available through trading in paired contracts. The brokers have even financed the investor clients through subsidiary
NBFC or through their own. The assessee has not even filed audit report even though they were required to do so. No profit and loss account has been prepared and has not shown the transactions where client code modifications have been done. The transactions (sell or buy) amounting
Rs. 1,84,48,800/- involve client code modification and thus have not M/s. Navjyot International Private Limited
5
been recorded in books of account. The Assessee has carried out commodity transaction at NSEL platform through his broker M/s Shreeji
Kosh service Pvt ltd. It is seen that it has original outstanding amount of Rs1,84,48,800/- against NSEL in its books of accounts. The income amounting Rs. 1,84,48,800/- has escaped income. Therefore, amount
Rs. 1,84,48,800/- is added to the total Income of the Assessee.”
The Assessee, being aggrieved, challenged the said addition before the Ld. Commissioner and has filed the written submission, which reads as under:
“4. अपीलकता का ल
खत नवेदन
Written Submission of the Assessee
The appellant submitted before the AO that scrutiny assessment u/s.14 3(3) of the Income Tax Act, 1961 for the captioned assessment year was complete d and all the required details were submitted during the course of initial assessment. Hence, the re-assessment proceedings shall be dropped.
Addition of Rs. 1,84,48,800/- being turnover of purchases and sales
The learned assessing officer, based on the information received from the office of the Deputy Director of Income Tax (Inv) - Unit-6(3), Mumbai regarding client code modification, has re-opened the assessment and concluded with an addition of Rs.1,84 48,800/- to the income of the Appellant.
As per the information transactions (sell or buy) amounting to Rs.1,84,48,800/- involve client code modification and thus have not been recorded in books of accounts.
The appellant submitted the required details and explained that the client code modifications occurred due to clerical error in the broker's office and submitted the entire details where client code modification took place.
The copies of submissions made to the learned AO are submitted herewith for your kind perusal.
Without rebutting the submissions made by the appellant the AO has in mechanical and unilateral manner made the addition on the basis of assumptions, surmises and conjectures based on the information received from DDIT.
As per Clause B of the assessment order, the AO himself has admitted that client code modification after execution of trade is permitted vide circular
No.SMD/POL ICY/Cir-03 dated February 6, 2003 issued by SEBI.
M/s. Navjyot International Private Limited
6
As pointed out in Clause C of assessment order considering non- genuine
CCM are baseless and the example quoted by him is irrelevant based on assumptions, surmises and conjectures.
We place our reliance on the following judicial pronouncements.
(i) Income Tax Officer 9(2)(4) vs.Pat Commodity Services P Ltd passed by the Hon'ble ITAT, C Bench, Mumbai [ITA Nos.3498 and 3499/ Mum/2012]
where it was held that CCM is not illegal. Further, it was held that due to huge volume of transaction CCM become inevitable. Further if CCM is done at the end of the day then there is no question of shifting profits and losses.
(ii) DCIT-Central Circle - 8(1) vs. Shri Vipul D Shah passed by the Hon'ble
ITA T, F Bench, Mumbai [ITA No.5688/Mum/2017]
(iii) DCIT-Central Circle 8(1) vs. Comet Investment Pvt Ltd passed by the Hon'ble ITAT, D Bench, Mumbai [ITA No.5689/ Mum/2017]
The Appellant therefore requests your honor to delete the impugned addition made by the learned AO”
The Ld. Commissioner though considered the assessment order, material available on record and the submissions of the Assessee, however not being convinced with the submissions made by the Assessee, ultimately affirmed the aforesaid addition, by dismissing the appeal of the Assessee and concluding as under:
“5. OBSERVATION AND DECISION:
अवलोकन एवं नणय
It appears from the records that the relevant assessment proceeding was reopened after duly recording the reasons for reopening and tacking approval from the Pr. CIT- 14, Mumbai. After completion of assessment proceeding u/s 143(3) dated 19/03/2015 an information has been received from the office of the DDIT (INV), UNIT-6(3), MUMBAI, regarding sharing of beneficiary’s information in the case of client code modification on the NSEL. The brokers in NECL have mis-utilized the client code modification to promote the attractive returns available through trading in paired contracts. The brokers have been financed the investor clients through the subsidiary NBFC or through their own. It is found that the assessee has not even filed audit report though it is required by the law. No profit and loss account has been prepared and has not shown the transactions where client code modification has been M/s. Navjyot International Private Limited
7
taken place. As per the information received (sale or buy) amounting to Rs. 1,84,48,800/- involved in client code modification and thus had not been recorded in books of account. Consequently, the AO inter-alia based on the above facts reason to believe that income to the extent of Rs.1,84,48,800/- has excepted assessment for the AY 2012- 13. The AO has elaborately discussed in the Para no 6.1 and 6.2 of his order dated 13/12/2019 that how the assessee misutilising the client code modification and an amount of Rs. 1,84,48,800/- has escaped assessment.
Considering the above discussion and assesses submission I have no reason to interfere the order of the AO. As such the appeal of the appellant is dismissed.”
The Assessee, being aggrieved, is in appeal before us and has raised various grounds of appeal, which read as under:
“1. On the facts and circumstances of the case and in law, the learned
CIT(A) erred in not considering that the assumption of juri iction of reopening of the case by the Learned Assessing Officer is bad in law as the conditions laid down under the Act for initiating reassessment proceedings u/s 147 of the Act were not fulfilled.
On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the addition of buy and sell value pertaining to certain transaction amounting to Rs. 1,84,48,800/- u/s 68 of the Act, without appreciating the fact that the appellant has not received any such credit in the books of account.
On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the addition of buy and sell value of Rs. 1,84,48,800/- without appreciating the fact that appellant has no control over the client code modification done by the broker and the mistake of broker was rectified within a few minutes on the same day. M/s. Navjyot International Private Limited
8
4. On the facts and circumstances of the case and in law, the learned
CIT(A) erred in confirming the addition made by the Ld. AO by treating the buy and sell value of contracts of sister concern of the appellant under client code modification as appellant's trades without appreciating the fact that the appellant had not carried such trades and the broker of the appellant had mistakenly bought/ sold in the alleged trades in the appellant's account which was reversed immediately within few minutes.
The appellant craves to add, alter, classify, reclassify, delete or modify any of the above grounds of appeal and requests to consider each of the above grounds without prejudice to one another.”
1 The Assessee contradicted the impugned order by raised various issues and citing various judgments which we will deal later, whereas the Ld. D.R. supported the impugned order and submitted that the impugned order does not suffers from any perversity, impropriatory and/or illegality and therefore deserves no interference.
Heard the parties and perused the material available on record. As we have noted above that the assessment of the Assessee was completed vide order dated 09.03.2015 u/s 143(3) of the Act by assessing the total income of the Assessee at Rs.81,78,200/- as against the total income declared to the tune of Rs.73,99,870/- by filing its return of income on 29.09.2012 by the Assessee. Subsequently, information was received from the office of DDIT (Inv.), Mumbai to the effect that brokers in NSEL have misused the client code modification; to promote the attractive returns available through trading in paired contracts/the brokers have M/s. Navjyot International Private Limited
9
even finalized the investor clients through subsidiary NBFC or through their own. The Assessee has allegedly entered into 19 transactions dated
07.02.2012 and 21.02.2012 and used the client code modification to change the PAN and modified client PAN is AACCK1102G. The transactions of sell or buy amounting to Rs.1,84,48,800/- has involved client code modification, which have not been recorded in the books of account of the Assessee.
1 The above transactions and investigation report were perused by the AO and it was found that the Assessee has not filed any audit report on e-filing portal and also not uploaded profit & loss account on the system. Therefore, on the aforesaid facts, the AO formed the reason to believe that the income charged to tax to the extent of Rs.1,84,48,800/- has escaped assessment and consequently the AO reopened the case of the Assessee by recording reasons u/s 147 of the Act and issuing the notice u/s 148 of the Act dated 25.03.2019. The AO afforded opportunity to the Assessee to file its submission, by issuing show cause notice dated 02.12.2019, whereby it was mentioned that sharing of beneficial information in the case of client code modification had found on the NSEL and the brokers in NSEL have mis-utilized the client code modification to promote the attractive returns available through trading in paired contracts/the brokers have even finalized the investor clients through subsidiary NBFC or through their own. The Assessee has not even filed audit report, even though it was required to do so. No profit & loss M/s. Navjyot International Private Limited
10
account has been prepared and have not shown the transactions, where client code modifications have been done. The Assessee has carried out commodity transaction at NSEL platform through his broker M/s. Roongta
Comtrade Pvt. Ltd. (client code modification RB03) and M/s. Shree Kosh
Services Pvt. Ltd (SKSN001). Further transactions (sell or buy) amounting
Rs.1,84,48,800/- has involved client code modification and thus the said transactions have not been recorded in the books of account and the Assessee has also not provided the required details/submissions or document, in response to the notice dated 18.10.2019 u/s 142(1) of the Act.
2 On the aforesaid reasons, the Assessee was show caused “as to why the income of Rs.1,84,48,800/- be not added to the total income of the Assessee company”. The Assessee though in response to above such show cause notice, filed its reply along with the copy of ledger accounts of the Assessee appearing in the books of accounts of brokers and has mainly claimed that there was no motive behind to mis-utilize NSEL platform by client code modification.
3 The AO though considered the reply of the Assessee, however, not being convinced made the addition of Rs.1,84,48,800/- mainly on the reasons that the brokers in the NSEL have mis-utilized the Client code modification to promote the attractive returns available through trading in paired contracts, thus transactions (sell and buy) amounting to M/s. Navjyot International Private Limited
11
Rs.1,84,48,800/- has involved client code modification and the same have not been recorded in the books of accounts by the Assessee though the Assessee has carried out commodity transaction at NSEL platform through his broker M/s. Shreeji Kosh Service Pvt. Ltd. The Assessee has even not prepared its profit & loss account and also not shown the transactions, where the client code modifications have been done and even not filed its audit report, even though required to do so.
4 The Ld. Commissioner in the appeal filed by the Assessee, affirmed the said addition by affirming and reiterating the reasons given by the AO.
5 The Assessee before us has claimed that during the assessment year under consideration, a mistake has been occurred at the Assessee’s broker (M/s. Shreeji Kosh Service Pvt. Ltd.) terminal end, which resulted into erroneously punching of certain transactions in the commodity trading account of the Assessee, instead of commodity trading account of M/s. Kalpvraksh Impex Pvt. Ltd. (Sister concern of the Assessee company) and entering the transactions under the client code of the Assessee rather than the client code of M/s. Kalpvraksh Impex Pvt. Ltd. The mistake occurs due to similar type of client code of a particular group concern; however, it is a fact that broker by realizing its mistake immediately within 1-7 minutes itself punched various transactions to reverse the wrong transactions and therefore the Assessee has not M/s. Navjyot International Private Limited
12
earned any income/benefit from the said transactions. For clarity, the details of reversed trades are reproduced herein below:
M/s. Navjyot International Private Limited
5 The Assessee further claimed that the aforesaid transactions in question were neither entered into by the Assessee in its financials or computation nor reflected by the broker in the Assessee’s daily activity statement. Even otherwise daily activity statement shows, no evidence of client code modification attributable to the Assessee. Hence, the mere fact of alleged client code modifications by the broker, does not establish any basis to assume the Assessee’s involvement. The modified client code modification mentioned in the assessment order is that of the sister concern of the Assessee i.e. M/s. Kalpvraksh Impex Pvt. Ltd. having PAN No. AACCK1102G, where this transaction is actually executed and recorded in the books of account of such sister concern. As it clearly appears in the activity statement of M/s. Kalpvraksh Impex Pvt. Ltd. (annexure D, page 25-30). The AO though alleged that the broker of the Assessee misused the modification to transfer the profit by using the buffer time period allowed by the exchanges “after market limit”, however, the case of the Assessee is at all together and is not related to the alleged modus operandi explained by the AO, as the error occurred in client code was swiftly identified and corrected by the broker in market time limit and within a few minutes (1-7 minutes) of the initial trades punched, as outlined in annexure-E. It is a fact as appears in reversed transaction chart reproduced above that in each case, the broker realizing his mistake, promptly corrected the client code within 1–7 minutes after M/s. Navjyot International Private Limited
14
the original trade, which goes to show occurring of bonafide mistake without any malafide intention.
6 The Assessee at last has submitted that disputed transactions amounting to Rs.1,84,48,800/- arose due to inadvertent error by the broker, who mistakenly executed trades under the client code “SKSN001” assigned to the Assessee, whereas these trades were intended for “SKSK010” which belongs to M/s. Kalpvraksh Impex Pvt. Ltd. Consequently, the buy and sell values of these trades, do not pertain to the Assessee, but in fact belong to M/s. Kalpvraksh Impex Pvt. Ltd. as evidenced by its financial records, as annexed as Annexure-F {pg.33-53}.
7 On the contrary, the Ld. D.R. refuted the claim of the Assessee and supported the orders passed by the authorities below:
8 We have given thoughtful considerations to the rival claims of the parties and again perused the orders passed by the Authorities and documents filed by the Assessee. Admittedly, the client code of Assessee’s sister concern M/s. Kalpvraksh Impex Pvt. Ltd. is “SKSK010” which is having resemblance to the client code of the Assessee i.e. “SKSK001”. Admittedly the broker of the Assessee out 19, has carried 17 transactions from 12:37 to 12:40 PM and within 2 to 7 minutes itself modified the same by realizing wrong punching of the client code, as it clearly appears from the chart shared by the Assessee’s broker as reproduced by us above. Further, the broker has also carried out two transactions out of 19 at 5:11 P.M., however, it is a fact that within 2 to 7 M/s. Navjyot International Private Limited
15
minutes itself, the said transactions were also rectified by the broker of the Assessee. On the aforesaid facts and circumstances, it appears that though the broker of the Assessee may be inadvertently or oversight, done the mistake in punching the Assessee’s client code, however, it is a fact that the Assessee did not get any benefit of the said transactions, as the transactions were reversed/modified within 2 to 7 minutes itself, which goes to show bonafide and non-malafide intention. The transactions infact belonged to M/s. Kalpvraksh Impex Pvt. Ltd. {sister concern of the Assessee}, who has duly accounted for the said transactions as claimed by the Assessee and not denied by the Ld. DR and therefore liability of the transactions under consideration cannot be fastened on the Assessee, as the Assessee has not carried out any such transactions referred to above and therefore correctly not shown in its books of account. And therefore, on the aforesaid reasons, the decision of the AO in making the addition and affirmation thereof by the Ld. Commissioner, is un- sustainable. We are conscious of the fact some of the documents such as the chart of reversal of transactions as shared by the Assessee’s broker and financials of the M/s. Kalpvraksh Impex Pvt. Ltd. as referred to above, were not available before the authorities below, however, as the same goes to the root of the case and are relevant for just and proper decision of the case and even otherwise neither controverted nor denied by the Revenue, therefore the same are considered by us for just and proper decision of the case. Thus, on the aforesaid analyzations, the addition under consideration is deleted.
M/s. Navjyot International Private Limited
Coming to the other grounds such as legal qua challenging the reopening proceedings u/s 147 of the Act, as we have deleted the addition, hence no useful purpose would be served by deciding the legal ground raised by the Assessee as decision of the same would prove futile exercise. Hence, we are inclined not to delve into the same.
In the result, the appeal filed by the Assessee stands allowed.
Order pronounced in the open court on 12.02.2025. (GIRISH AGRAWAL) (NARENDER KUMAR CHOUDHRY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
* Kishore, Sr. P.S.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The DR Concerned Bench
////
By Order
Dy/Asstt.