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Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR
Before: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 512/JP/15
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh dqy Hkkjr] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 512/JP/15 fu/kZkj.k o"kZ@Assessment Year : 2011-12 cuke The DCIT, Circle-2, M/s Pyramid Tradelinks Pvt. Ltd., Vs. Jaipur. 513’ Sin Moon Chambers, Plot No. S-4, Kalwad Scheme, Near Ajmer Flyover, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN No.: AAECP9897M vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrhdh vksj ls@Assessee by : Shri P.C. Parwal (C.A.) jktLo dh vksj ls@Revenue by : Shri D.C. Kothari (CIT) lquokbZ dh rkjh[k@Date of Hearing : 03/05/2017 ?kks"k.kk dh rkjh[k@Date of Pronouncement: 27/07/2017. vkns'k@ORDER PER SHRI VIKRAM SINGH YADAV, A.M.
This is an appeal filed by the Revenue against the order of Ld. CIT(A)-I, Jaipur dated 27.03.2015 for A.Y. 2011-12 wherein the Revenue has taken the sole ground of appeal as under:- “1. 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 bogus losses booked through NMCE amounting to Rs. 6,18,87,338/-“
Briefly the facts of the case are that during the year under consideration, the assessee has reported net profit from its speculative
ITA No. 512/JP/15 DCIT vs. M/s Pyramid Tradelinks Pvt. Ltd. Jaipur business activity amounting to Rs. 8,73,82,640/-. The breakup of the speculative business income declared by the assessee company is as under:-
Exchange Profit/Loss (Rs) MCX 20,95,09,389.10 NCDEX (-) 5,79,04,877.16 NMCE (-) 6,18,87,338.87 ACE (-) 23,34,534.69 Grand Total 8,73,82,638.38
The dispute relates to speculative loss of Rs. 6,18,87,338.00 relating to transactions on NMCE platform. The Assessing Officer held that the said loss is bogus and has been deliberated created so as to reduce speculative profit. It was further held by the AO that even if the transaction has been carried out in a proper exchange with proper bills, then also it doesnot make it genuine. It was held that mere paper companies booking losses and assessee also purchasing losses is again a non-genuine activity and losses booked are liable to be disallowed. Accordingly, losses to the tune of Rs 6,18,87,338 was considered as non-genuine and added back to the total income of the assessee. The Assessing Officer while making the said disallowance has relied on the report of DIT (I&CI) Rajasthan dated 21.03.2014 which we have examined in subsequent paragraphs.
Being aggrieved the assessee carried the matter in appeal before the ld. CIT(A) who called for a remand report from the Assessing officer. After taking into consideration the submission of the assessee and the remand report from the Assessing Officer, the ld CIT(A) held that the Assessing Officer had made disallowance merely on the basis of suspicion, surmises and conjectures and it is not backed by any positive finding or enquiry conducted. It is based mainly on the general report of Forward Market Commission (FMC) in respect 2
ITA No. 512/JP/15 DCIT vs. M/s Pyramid Tradelinks Pvt. Ltd. Jaipur of fabricated contracts and other documents by MD and CEO of NMCE in the same cannot be attributed to the assessee company without any material or evidence. Accordingly, addition of Rs. 6,18,87,338/- pertaining to the speculative loss was deleted by the ld CIT(A).
The ld. CIT(DR) submitted that the decision of ld. CIT(A) is not acceptable as the addition was made by the Assessing Officer after in-depth enquiry and not only on the basis of report of FMC. The AO relying on the report of DIT (I&CI), Rajasthan has held that M/s Motisons Commodities Pvt Ltd, a broker of NMCE had provided accommodation entries/bogus entries to the assessee. It was further submitted that the assessee earned huge profits till 18.01.2011 and thereafter it started transactions with M/s Motisons Commodities Pvt. Ltd. from 18.01.2011 and suffered huge losses of Rs. 6,18,87,338/- upto 21.02.2011 which is unbelievable, therefore, the AO has rightly made addition by way of disallowance of bogus losses of NMCE.
In response, the ld. AR submitted that there is no finding in the report of the Forward Market Commission which would suggest that the assessee indulged in any bogus transaction which has resulted in bogus losses during the year. Further it was submitted that there is no evidence that M/s Motisons Commodities Pvt. Ltd. a broker of NMCE was involved/indulged in any such bogus transactions. It was further submitted that the Assessing Officer in his remand report has admitted that there are no bogus entries found in respect of the transactions executed through Motisons Commodities Pvt. Ltd. as per the report of ITO(Intelligence)-II as well as Director of Income Tax (I&CI), Jaipur.
Further the Ld. AR relied upon written submission filed before the ld CIT(A) which is reproduced is as under:-
“The ld. A.O. only on the basis of report of DIT(I&CI), Mumbai, that the assessee company has incurred a loss of more than Rs. 5 crores with NMCE, a
ITA No. 512/JP/15 DCIT vs. M/s Pyramid Tradelinks Pvt. Ltd. Jaipur Commodity Exchange, ITO (Intelligence) II initiated enquiry against the company for ascertaining genuineness of loss incurred by the company in transactions carried in NMCE through Motisons Commodities Pvt. Ltd. Jaipur a Broker of NMCE. He recorded Statements of VenU Gopal Agarwal, who was a Director of the assessee company during the relevant assessment year, called for various documents including contact Notes of Motisons Commodities Private Limited, Hindustan Technosol Private Limited and Ganpati Investments regarding trades carried with the assessee company which were duly provided by the respective Brokers.
However on the verification of the documents by I.T.O. (Intelligence)-II submitted by the Company and other Brokers who has dealings with the assessee company has neither revealed any deficiency or short comings in the records nor any material was found by ITO (Intelligence)-II by which any adverse inference could be drawn against the assessee company.
However relying solely on report of DIT(I&CI), Mumbai that as some of the member/Brokers from West Bengal & Uttar Pradesh were indulged in artificially creating the volume and also in providing accommodation entries for Profit & Loss and as such entire transactions in NMCE are not genuine, the ld. ITO(Intelligence)-II and worthy DIT(C&I) without bringing any cogent material on record, reported that the loss of Rs. 61887338/- including brokerage incurred by the Company through Motisons Commodities Pvt. Ltd. is not genuine and is liable to be disallowed. Acting on the report of Ld. ITO(Intelligence)-II and worthy DIT(C&I), the A.O. has asked the assessee company to explain why the loss of Rs. 61887338/- including brokerage may not be disallowed.
In this regard, the assessee company submitted to A.O. that the assessee company has carried out transaction in NMCE through its broker Motisons Commodities Private Limited (MCPL). All the transactions have been done
ITA No. 512/JP/15 DCIT vs. M/s Pyramid Tradelinks Pvt. Ltd. Jaipur online through trading terminals of MCPL. MCPL has issued valid contracts notes every day for trades carried out through it. The contract note contains details of order no, Trade No, Trade Date/Time, Trade Type i.e. whether purchase or Sell, Kind of Commodity Traded, Brokerage & other expenses and net amount payable or receivable by the Broker for that day. The details of all the transactions carried through MCPL are also available with NMCE and are verifiable. There is no reversal of trades carried through MCPL which is also verifiable from NMCE as NMCE keeps records of trade reversals or code changes. The assessee company has kept proper margins with the Broker to enable it to carry out trades. All the payments to MCPL have been made through RTGS which is verifiable from the bank statements of the assessee company as well as from the ledger of MCPL.
All the transactions carried out through MCPL are genuine transactions and same are verifiable from the contract notes issued by MCPL. The transactions were carried out in the regular course of business. The contract notes contains the Order No, Trade No, Trade date & time and other required particulars and same are also verifiable with the trading records maintained by the Exchange. There has been no tampering with the contract notes. No instance has been pointed out regarding trade modifications or client code changes. The payments have been made through banking channels and are duly acknowledged by the MCPL as per its ledger. All the transactions are appearing in the books of MCPL which is evident from the account of assessee company appearing in the books of MCPL.
There is no material available except the Report of DIT (C & I), Mumbai which suggest that the loss incurred by Company through MCPL in respect of trades in MCPL is bogus. Even the report of DIT (C & I) does not name the Broker MCPL to have been engaged in providing accommodation entries of profit or loss. Penalty of meager Rs. 5000 was imposed on MCPL for trades in Nickel in the month of October, 2010. Had MCPL indulged into non genuine 5
ITA No. 512/JP/15 DCIT vs. M/s Pyramid Tradelinks Pvt. Ltd. Jaipur trades in the month of January to March 2011, when assessee company started trading with MCPL, NMCE or FMC would have imposed more penalties on MCPL or would have suspended it from the Exchange. Since no such action has been taken against MCPL, it can reasonably be assumed that FMC/NMCE has found the trades of MCPL as genuine.
The officials of the NMCE in their statements recorded with DIT (C & I) has categorically stated that not all the members have been involved in the activity of transferring Profit & Loss. They have further stated that they were mainly involved in creating artificial turnover on the exchange. They have stated names of few Brokers or clients who were found to be indulged in activities of creating artificial volumes or in transferring the Profit or Loss but name of Motisons Commodities Pvt. Ltd. or of assessee company has not been mentioned by them.
The allegation of Ld. A.O. that the assessee company has purchased loss as it was having profits in MCX is also not correct. The assessee company was engaged in the business, the nature of which is speculative which is highly risky. The prices of commodities are influenced by various factors on which the traders do not have any control. Some time there are huge fluctuations in the prices of commodities which can wipe out the entire profits. Profit and loss are the two sides of same coins. It is the wisdom of the Person that when he wants to enter into commodity market and when he wants to exit and if the person makes heavy losses, it his prudence to continue or exit. The assessee company has made profits from one exchange and made losses from other exchanges does not mean that Profits are genuine and the losses are not genuine. All the entries pertaining to profits and losses should be accorded equitable treatment and the same standard should be applied in respect thereto. Same sets of documents and Audit trail is available in respect
ITA No. 512/JP/15 DCIT vs. M/s Pyramid Tradelinks Pvt. Ltd. Jaipur of transactions carried out in each exchange and it is not justified to disregard the loss incurred in one exchange, accept profits made in one exchange and even accept loss incurred in other exchanges viz NCDEX & ACE without pointing any defects in the documents/evidences or infirmity in the transaction process.
It is also important that MCPL through its Authorized representative in the statements recorded before ITO (Intelligence) II has denied to have provided accommodation entry of loss to the Assessee Company. The statements of director of assessee company also has no deficiency.
It is settled law that addition or disallowance in assessment cannot be made without evidence or material (Dhakeshwari Cotton Mills Ltd. vs. CIT (1959) 26 ITR 775 (SC). The general observation of forward market commission (FMC) on enquiries about conduct of transactions entered into by some members in NMCE without any name of assessee or of Motisons Commodities P. Ltd. forwarded by DIT (I & Cl), Mumbai to DIT (I & Cl), Jaipur cannot be made basis for assessment without any material or evidence against assessee. for assessment without any material or evidence against assessee. The I.T.O. (Intelligence) - II, Jaipur also found no material or evidence against assessee and the statement of director of assessee company confirmed the transactions and furnished all relevant documents in which no defect was found by ITO. The authorized person of Motisons Commodities P. Ltd. also appeared before I.T.O. (Intelligence) - II, Jaipur and confirmed the transaction and denied to have provided any accommodation entries to assessee company but I.T.O. (Intelligence) - II, Jaipur relied only on said general report of Forward Market Commission and drawn wrong conclusion that loss of Rs. 6,18,87,338/- booked by assessee through Motisons Commodities P. Ltd. is not genuine which finding is not based on any material
ITA No. 512/JP/15 DCIT vs. M/s Pyramid Tradelinks Pvt. Ltd. Jaipur or evidence and, therefore is wrong and bad in law. The settled rule of law is that any malpractice, like that of selling by short measures (Hira Bai Vs. CIT 4 ITR 95) or charging price in excess of the controlled price (Sivan Vs. CIT 34 ITR 328, CAG. IT Vs. Cherian 117 ITR 371) or selling smuggled goods (Lai Chand \/s. CIT 37 ITR 288 (SC) etc. cannot be attributed in general to the assessee that he followed such practice. Similarly the general report of Forward Market Commission in respect of fabricated contracts and other documents by MD & CEO of NMCE cannot be attributed to assessee company without any material or evidence that assessee company also followed it. The ordinary presumption of law is that apparent state of affairs is real unless the contrary is proved (Kalva Vs. Union of India 49 ITR 165 (SC), CIT Vs. Daulat Ram 87 ITR 349, 360-61 (SC). The presumption is in favour of good faith and non-concealment of income and the initial burden of finding some material in support of finding of concealed income is on department (CIT Vs. Swami 241 ITR 363). In view of this position of law and there being no material or evidence against assessee company the loss of Rs. 6,18,87,318/- incurred in transactions with MCPL by assessee in NMCE cannot be disallowed in law and action of Ld. A.O. is wrong and bad in law.
In view of the above submissions that the transactions carried through MCPL in NMCE are genuine, entire transactions are supported by proper contract notes, bills, ledger and bank statements and there is no cogent material/evidences on record to disbelieve these transactions except merely by conjectures and surmises, it is humbly prayed that disallowance of loss Rs. 61887338/- including brokerage incurred by the company through Motisons Commodities Pvt. Ltd. in respect of trade executed in NMCE be allowed and addition made deserves to be deleted.”
In order to appreciate the rival contentions raised by both parties, it would be relevant to refer to reports of FMC, DIT (I&CI) and other related
ITA No. 512/JP/15 DCIT vs. M/s Pyramid Tradelinks Pvt. Ltd. Jaipur communication and material evidence available on record in seriatim which has formed the basis of subject disallowance.
Letter of DIT(I&CI), Mumbai dated 04.02.2014 address to DIT(I&CI), Jaipur
The letter of DIT(I&CI), Mumbai dated 04.02.2014 address to DIT(I&CI), Jaipur is the first communication on the subject and forms the bedrock of the whole proceedings. In the said letter, DIT(I&CI), Mumbai stated that the Forward Market Commission (FMC) had received a complaint regarding artificial trading volume and tax evasion transactions by some Members and clients in National Multi Commodity Exchange (NMCE), Ahmedabad. The Commission conducted an inquiry into the complaint of irregularities in NMCE and found substance in the allegations. A copy of the Report along with Annexure- I to X as received from FMC is enclosed. Thereafter, the DIT(I&CI) notes the finding of the FMC enquiry report. Further, it was stated in the said letter that FMC has forwarded a list of 72 persons/entities having shown losses exceeding Rs. 5 crores and 30 parties having declared profit exceeding Rs. 5 crores. In the list so received from the FMC, it was noticed that nine clients are based in Mumbai and necessary investigation has been carried in those cases. In most of cases, the losses incurred through NMCE have been adjusted/ set off against profit from other Exchanges/business income or income under other heads. In the case of profit also, the same has been fully/partially adjusted against losses. In one of the cases, the statement of the client was recorded during the course of enquiry and the client has admitted that all the transactions carried out through NMCE were non-genuine and, has disclosed additional income of Rs. 6.7 crores and agree to make the payment of taxes thereon.
In the said letter, it was further stated that as per the list received from the
ITA No. 512/JP/15 DCIT vs. M/s Pyramid Tradelinks Pvt. Ltd. Jaipur
NMCE, following clients are belonging to (DIT)(I&CI), Jaipur jurisdiction:
Sr. Clients’ Name Address & PAN Client Code Broker/Member name Net loss declared No. and Code by the client for the year 2010-11 1. Rahi Murtaza 57,Tikkiwal RLS0420 Ratan Lal Somani 7,05,17,997.50 Bhawan, M.I. Road, Jaipur CL0386 PAN: AUVPM9035G 2. Pyramid Tradelinks Pvt. Ltd., QQ99 Motisons 6,16,04,677.50 208, Anukampa-II,M.I. Road, Commodities Pvt. Ltd. Jaipur CL0233 PAN: AAECP9897M
It was further stated in para 9 of the said letter dated 4.02.2014 that: “in view of the detailed enquiry report and the facts as briefly summed up above, necessary investigation needs to be carried out in the above cases.
Please note that the above transactions pertain to F.Y. 2010-11 and scrutiny proceedings may be pending in some cases which are getting time barred on 31st March, 2014. Therefore, priority action in such cases is necessary and CIT/AO need to be suitably informed.
Further, the details of transactions/losses/profits made by the above clients on NMCE during other F.Years particularly F.Y. 2009-10 & 2011-12 also need to be examined as the artificial trading has been done in those years also.”
Report of Forward Market Commission on complaint of artificial increase in trading volume and Income Tax Evasion by Members and clients of NMCE
We now refer to the report of FMC which has been shared by DIT(I&CI), Mumbai with DIT (I&CI), Jaipur. The genesis of this report is the complaint of irregularities in NMCE received by Forward Market Commission
ITA No. 512/JP/15 DCIT vs. M/s Pyramid Tradelinks Pvt. Ltd. Jaipur in December 2010 and thereafter a specific complaint dated 08.03.2011 wherein the complainant has stated that “NMCE has suddenly open today contract Chana and Soya Oil march contract for artificial volume and Tax evasion transactions. The Exchange Officer and Information Technology Department are providing facility”. Vide the said communication; the complainant requested the Chairman, Forward Market Commission to investigate volume and open position of these two contracts.
Subsequently the Forward Market Commission carried out the enquiry involving members, clients and employees of NMCE and their statements were recorded and data relating to top 30 loss making clients for the financial year 2010-11 were analysed. Thereafter, it gave its report with final conclusion drawn and suggestions which are reproduced as under: “ Conclusion: NMCE Senior management along with employees of NMCE have created/introduced members for market making in the year 2010-11. The activity of market making was run from one of the offices situated at C.G. road, Ahmedabad by NMCE employees. The employees like Shri Hemant Goenka had introduced members like M/s Atulit Tieup Pvt. Ltd. ( Member code CL0150), M/s Ramdoot Management Pvt. Ltd.(Member code CL0155) and M/s Konark Comdeal Pvt. Ltd. (Member Code CL0264) to senior management of NMCE.
There is market making practices in the market to bring liquidity in the illiquid contracts and the impact of their trading is NMCE volume increase artificially. Therefore, the charge of the complainant that there is artificial and fictitious trading volume on NMCE exchange is found to be correct.
As far as the evasion of tax by loss making clients and members are
ITA No. 512/JP/15 DCIT vs. M/s Pyramid Tradelinks Pvt. Ltd. Jaipur concerned, it can be ascertained by Income Tax Department. Therefore, at this moment, the complainant’s other charge of evasion of income tax by these clients/Member cannot be confirmed. For the same, the list of all such clients and members who have made profits/losses through this activity may be referred to the Income Tax Department.”
“Suggestion: NMCE may be directed to expel 10 member of NMCE viz M/s sincere commodities and Derivatives Markets Ltd. ( CL0149), M/s Atulit Tieup Pvt. Ltd. (CL0150), M/s Ramdoot Management Pvt. Ltd. (CL0155), M/ Konark Comdeal Pvt. Ltd. ( CL0264), M/s Shiv Shakti Commodities ( CL0397), M/s Sanjay S. Patel ( CL0352), M/s J.D. Sroff ( CL0312), M/s D.M. Finance ( CL0280), M/s Prachi Commodity (CL0348), M/s Maruti Brokarage House Pvt. Ltd. (CL0299) who are involved in the artificial trading activity and transferring of profit and loss to each other by artificial way.
The Commission may forward the list of members/clients who have booked substantial profits/losses to Income Tax Department for scrutiny.”
In its report, the FMC has stated that the clients having profits of more than Rs 30 Crores and clients having losses of more Rs. 10 Crores have been taken for analysis purposes and complete list of all clients who have made losses and profits are enclosed as Annexure-10 to the report of the FMC. Further, basis such analysis, the charge of the complainant that there is artificial and fictious trading volume on NMCE exchange was found to be correct. As far as the evasion of tax by loss making clients and members are concerned, the FMC report says that the same has to be ascertained by the Income Tax Department and therefore, it refrained from commenting upon the charge of evasion of income tax. In the report of FMC where it has
ITA No. 512/JP/15 DCIT vs. M/s Pyramid Tradelinks Pvt. Ltd. Jaipur analysed top 30 clients for the financial year 2010-11, we do not find any finding or discussion regarding the involvement of the assessee or the member of NMCE through which assessee has conducted its transactions on the exchange namely M/s Motisons Commodities Pvt. Ltd in respect of artificial and fictitious trading volume on NMCE exchange. At the same time, it definitely raises doubts and apprehension in the mind of the tax authorities that the other members/clients (other than those analysed) would have been involved in similar activities and thus has called for further investigation. Apparently based on the said report of the FMC, DIT(I&CI), Mumbai vide his letter dated 04.02.2014 has referred the matter of M/s Pyramid Tradelinks Pvt. Ltd. to DIT(I&CI), Jaipur for further investigation, being one of the cases listed out in Annexure 10 to the report of FMC. It would therefore be essential to examine the specific investigation that has been carried out in the instant case and what credible evidence that the Revenue has brought on record.
Report of Director of Income Tax (I&CI) Jaipur, Rajasthan dated 21st March, 2014 11. Basis the communication received from DIT(I&CI) Mumbai, DIT(I&CI) Jaipur carried out the investigation in the instant case and which forms the basis of disallowance by the AO. In its report, the DIT(I&CI), Jaipur has referred to the various findings of the FMC in its report and also drawn reference to the statement of Shri Amit Sharma, Shri Tarun Gupta and Shri Hemant Goenka who happen to be the employees and ex-employees NMCE. Further he referred to the report of ITO(Intelligence)-II, Jaipur who was entrusted to carry out the necessary verification in the case of assessee. The findings of the DIT(I&CI) are reproduced as under:
“This case was assigned to ITO (Intelligence)-II, Jaipur for verification. The report of ITO (Intelligence)-II, Jaipur dated 21.03.2014 in the case of said
ITA No. 512/JP/15 DCIT vs. M/s Pyramid Tradelinks Pvt. Ltd. Jaipur assessee is enclosed for your kind perusal as Annexure-2. Notices U/s 133(6) and summons U/s 131 of the I.T. Act were raised by the ITO (Intelligence). In response, the assessee submitted copies of contract notes, copy of bank statement, return of income tax and ledger account with the broker. His statement on oath was also recorded. The voluminous data filed by the assessee has no evidentiary value since these are merely paper transactions. There is no dispute to the fact that in FY 10-11, as per findings of FMC, about 90% of the trading volume of NMCE was artificial. Huge accommodation entries for profits and losses were given by the brokers (members) of NMCE to their clients. The assessee is no exception to it. It had also indulged in paper transactions just to reduce its profits earned from MCX and NCDEX. It is also noticed that the assessee had earned huge profits from MCX and NCDEX by 18.01.2011. Soon after, it entered into transactions with NMCE through Motisons Commodities Pvt. Ltd. to book looses. In fact, substantial payment of Rs. 4 crores was made against these losses in February and March, 2011. The fact that transactions were routed through banking channels is not sacrosanct. It is a formality to complete the cycle and generally necessitated to give a shade of genuineness to the alleged transactions. In light of above findings, the loss of Rs. 6,18,87,338/- including brokerage arranged by the assessee through Motisons Commodities Pvt. Ltd. is liable to be disallowed. The entire transactions entered into by the assessee are speculative in nature however these have not been set off against any business profits or other income. The ITO(Intelligence) has also called for information from other brokers pertaining to other exchanges such as MCX, NCDEX and ACE, however no specific evidence or material is in our possession to treat such losses as bogus. The AO may complete the assessment in light of above findings and material on record.”
ITA No. 512/JP/15 DCIT vs. M/s Pyramid Tradelinks Pvt. Ltd. Jaipur Report of ITO(Intelligence)-II, Jaipur dated 21.03.2014
We now refer to the report of ITO(Intelligence)-II which has been relied upon and referred to by the ld DIT (I&CI) and which reads as under:-
“1. The Summons u/s 131 of the I.T. Act issued to M/s Pyramid Tradelinks Pvt. Ltd., 208, Anukampa-11, M.I. Road, Jaipur. In compliance to Summon Sh. Venu Gopal Agarwal, Director of M/s and statement of Sh. Venu Gopal Agarwal, Director M/s Pyramid Tradelinks Pvt. Ltd(PTPL) attended and filed written submission along with ITR, computation, P&L, Balance Sheet, audit report, break-up of speculation business, bank account.
Statement of Sh. Venu Gopal Agarwal, Director (PTPL) was recorded on 20/02/2014 on oath. During the course of statement he stated that M/s Pyramid Tradelinks Pvt. Ltd.(PTPL) is engaged in trading of Commodity futures with the Exchanges MCX, NCDEX, NMCE and ACE. In this company there were two Director one of Sh. Venu Gopal Agarwal and other Sh. Nortan Kandoi during the FY 2010-11.
During the financial year 2010-11, the company has worked with platform of MCX, NCDEX, NMCE, ACE and has declared profit from trading of future commodities amounting to Rs. 87382639/-. The assessee has submitted the break-up of speculation business for FY 2010-11 is as under:- Exchange Profit/(loss) MCX 206509389.10 NCDEX (-) 57904877.16 NMCE (-) 61887338.87 ACE (-) 2334534.69 Grant Total 87382638.38
ITA No. 512/JP/15 DCIT vs. M/s Pyramid Tradelinks Pvt. Ltd. Jaipur
From the perusal of the above position, it is noticed that the assessee has earned profit from MCX Rs. 20,95,09,389/- and set-off losses of Rs. 12,21,26,749/- including NMCE loss of Rs. 61887338.87/- during this financial year. The company has declared net profit of Rs. 87382638/- from trading of future commodities during the FY 2010-11.
From the perusal of account statement of M/s Motisons Commodities, M/s Ganpati Investment and M/s Hindustan Technosol, it is noticed that the assessee company commenced business with M/s Ganpati Investments and earned huge profits by 18th January, 2011. As per account statement of M/s Motisons Commodities, the assessee commenced business with the platform of NMCE from about 18th January, 2011. Only two months were remaining of financial year 2010-11, in these months the assessee increased the volume of future trading with the NMCE and booked loss of Rs. 61887338.87 in the end of the months of financial year. Most of the trading was done by the assessee in the month of February and March, 2011. From the perusal of the bank statement, it appears that the assessee had booked loss in the end of March, 11 and paid Rs. 4 crore to the broker M/s Motisons Commodities on 29.03.2011 against the loss.
As per report, the investigation conducted by the FMC, the statement of various employees of NMCE Ahmedabad viz Sh. Amit Sharma, Tarun Gupta, the statements of some members/clients were also recorded. The FMC in its conclusion stated that NMCE’s Senior Management along with employees of NMCE have created/introduced members for market making in the year 2010- 11. There is market making practices in the market to bring liquidity in the illiquid contracts and the impact of their trading in NMCE volume increased artificially. Therefore, the charge of the complainant that there is an artificial
ITA No. 512/JP/15 DCIT vs. M/s Pyramid Tradelinks Pvt. Ltd. Jaipur and fictitious trading volume on NMCE exchange is found to be correct.
The statement of Sh. Amit Sharma, Senior Manganer, Business Development NMCE, Ahmedabad recorded by the FMC, stated that some of the members and clients of NMCE are doing activity of transferring of profit or loss intentionally as per their requirement to evade taxes. It is also seen by the FMC after data analysis received from NMCE that there is abnormal increase in the volume at the end of the year i.e. month of February, March.
The documents filed by the assessee do not carry any weight as these are paper transaction. There is no dispute to the fact that in FY 2010-11 as per findings of FMC, about 90% of the trading volume of NMCE was artificial. Huge accommodation entries for profits and losses were given by the brokers/member of NMCE to their clients. The assessee is also one of the beneficiary. It had also indulged in bogus losses just to reduce its profit earned from MCX and NCDEX. 9. In the light of above findings, the position as above is made clear that the loss of Rs. 61887338/- booked by the assessee through Motisons Commodities Pvt. Ltd. is not genuine. Since the assessee is assessed with the Circle-2, Jaipur who is having territorial jurisdiction over the assessee may be advised to disallow the loss of Rs. 61887338/- as claimed in the FY 2010-11. As regard losses booked through MCX, NCDEX and ACE, the information was called from the brokers such as Hindustan Technosols Pvt. Ltd. and Ganpati Investments and it has been placed on record. No abnormality as such was noticed and no specific evidence is available with us from FMC or DIT(I & CI) Mumbai.”
Letter of DIT(I&CI), Jaipur dated 27.02.2014 addressed to Managing Director NMCE
ITA No. 512/JP/15 DCIT vs. M/s Pyramid Tradelinks Pvt. Ltd. Jaipur
On perusal of records, it is noted that DIT(I&CI), Jaipur has written a letter to Managing Director NMCE dated 27.02.2014 wherein information relating to M/s Motisons Commodities Pvt. Ltd. was sought. It would be relevant to the contents of the said letter and the response of NMCE as under:
“It has further come to the notice that penalty of Rs. 25,000/- was imposed in the case of Shri Ratan Lal Somani for FY 2011-12. However this Directorate is not aware of the specific allegations for which penalty was levied in the case of Shri Ratan Lal Somani. I shall be highly obliged, if you could forward the copy of penalty order to this office, which will help us in further strengthening the case of the department. Further there is no direct evidence to show that these two members namely, Shri Ratan Lal Somani and M/s Motisons Commodities (P) Ltd., were actually doing the non-genuine trade. Therefore, any specific evidence which was utilized for levy of penalty or collected in these two cases, should also be intimated and forwarded to this Directorate.”
In response to the above-said letter, the NMCE vide its letter dated 10.03.2014 has enclosed a copy of the penalty order relating to suspicious trade undertaken by M/s Motisons Commodities Pvt. Ltd. The said penalty order dated 16.11.2010 refers to trade in Nickel October 2010 series executed on NMCE platform on 25th October 2010 and stated that “the management of the exchange after looking into details of trade and further to explanation thereof, has decided to impose penalty of Rs. 5,000/- with a warning that such trade will not be executed in future.”
ITA No. 512/JP/15 DCIT vs. M/s Pyramid Tradelinks Pvt. Ltd. Jaipur The remand report of DCIT, Circle-2, Jaipur dated 05.02.2015 during appellate proceedings before ld CIT(A)
During the course of appellant proceedings before the ld CIT(A), the AR filed detailed written submission along with the assessee’S ledger copy maintained by M/s Motisons Commodities Pvt. Ltd. and assessee’s contract notes. In that regard, the ld. CIT(A) u/s 250(4) of the Act asked the AO to offer his comments on the following two issues as under:- “ (a) To show instances of bogus/accommodation entries found with M/s Motisons Commodities Pvt. Ltd. with respect to the assessee company. (b) Also to show/highlight instances or reference of assessee company in the FMC Report where it has been specifically mentioned that either assessee company or M/s Motisons Commodities Pvt. Ltd. (Briefly mentioned as MPCL) are involved in providing bogus/accommodation entries to the assessee.”
In response to this, the AO submitted his remand report vide letter dt. 5/02/2015 which reads as under: “1. As per details filed during the proceedings before I&CI, Wing, Jaipur the ITO (Intelligence)-II and the Director of Income-tax (I&CI), Jaipur as well during the course of assessment proceedings it appears that no instances of bogus/accommodation entries found with M/s Motisons Commodities Pvt. Ltd. in respect to the assessee company this fact has also been report in the report of the I&CI, Wing.
However, it is pertinent to mention here that the assessee company started the transaction with M/s Motisons Commodities Pvt. Ltd., from 18.1.2011 and the transaction was carried out up to 21.02.2011 i.e. around for one month
ITA No. 512/JP/15 DCIT vs. M/s Pyramid Tradelinks Pvt. Ltd. Jaipur only and suffered huge losses of Rs. 6,18,87,338 which is unbelievable. This type of transaction clearly create doubt and there is something fishing, as the director of the assessee company himself admitted in his statement taken by the ITO(Intelligence)-II, Jaipur that he is living at Churu and all the transaction are done through phone/chat.
There is no instances or reference of assessee company in the FMC report, however, in the report of FMC called by the DIT(I&CI), Jaipur, it has been reported that for trade in “Nickel” a penalty of Rs. 5,000/- was imposed on M/s Motisons Commodities Pvt. Ltd. during the F.Y. 2010-11 for their certain suspicious trades. This, this fact clearly establish that M/s Motisons Commodities Pvt. Ltd. is involved in providing bogus or accommodation entries....”
In its rejoinder to the remand report, the assessee submitted the following submission before the ld CIT(A) which reads as under: “1. In para 1 first sub para Ld. AO accepted that as per details filed before I&CI Wing, Jaipur, ITO(Intelligence)-II in course of assessment proceedings no instance of bogus/accommodation entries found with Motisons Commodities Pvt. Ltd. pertaining to the assessee company and this was also a fact reported in the report of I&CI Wing forwarded to AO. The assessee also claimed the same in written submission and hence no comments.
In next sub-para Ld. AO reported that assessee company started transactions with Motisons Commodities Pvt. Ltd. from 18/01/2011 upto 21/02/2011. In this connection it is submitted that earlier assessee company was carrying transaction in other exchanges and Motisons Commodities Pvt. Ltd. was not member of them. In any case this is no factor to disbelieve the transactions done with Motisons Commodities Pvt. Ltd. the mere doubt raised by Ld. AO
ITA No. 512/JP/15 DCIT vs. M/s Pyramid Tradelinks Pvt. Ltd. Jaipur cannot take place of evidence which is core requirement of disallowance of loss. The commodity transactions in exchange are done online and same can be carried out from any place. The director of company living in Churu and did transaction from there on behalf of company.
The levy of penalty of Rs. 5000/- on Motisons Commodities Pvt. Ltd. is not in relation to any transactions with company. The transactions of company are of afterwards date while said penalty was imposed on said party earlier in October, 2010. The penalty imposed on said party was also not for doing any suspicious trade with Assessee Company. The penalty was imposed for trade in Nickel while the trade of assessee company was of other goods mainly and only a very small part is trade in Nickel. The copy of penalty order is submitted for your perusal.”
Having considered the various investigation reports and related communication, we now refer to the following finding of the ld. CIT(A) which are as under:-
“(a) From the enquiry report submitted AO has reported that as per details filed before ITO (Intelligence)-II, I&CI Wing, Jaipur during the course of assessment proceeding, no instance of bogus/accommodation entries have been found with M/s Motisons commodities Pvt. Ltd. pertaining to transactions with assessee company. This fact was also reported to the AO. (b) AO merely on the basis of suspicion had doubted that assessee had booked bogus loss of Rs. 6,18,87,338/- with M/s Motisons Commodities Pvt. Ltd. to reduce profit. (c) No credible investigation has been carried out by the AO during the assessment proceeding before arriving at this conclusion. (d) Assessee company started transaction with M/s Motisons Commodities Pvt. Ltd. from 18/01/2011 till 21/02/2011, supported by contract notes containing details such as order No. Trade No., Trade date & time etc. which are also verifiable with the records available with the exchange.
ITA No. 512/JP/15 DCIT vs. M/s Pyramid Tradelinks Pvt. Ltd. Jaipur (e) penalty of Rs. 5,000/- imposed on M/s Motisons Commodities Pvt. Ltd. for trade in Nickel in the month of Oct. 2010 and no where relatable to the transactions with the assessee company.”
Having considered the entirety of fact and circumstances of the case, we are of the view that there is no basis for the Revenue to succeed in this matter in absence of any credible investigation and bringing on record any verifiable evidence to support the theory of booking artificial speculative losses by the assessee company in respect of transactions executed on NMCE platform.
The whole case of the Revenue has been built on investigation carried out by the FMC. In its report, the FMC has stated clearly that it has analysed data relating to top 30 clients and among them clients who have booked profits more than Rs 30 Crores and losses more than Rs 10 Crores. Basis such analysis, FMC in its report has observed that there was abnormal increase in the volume at the end of the year, there were use of blank client codes in respect of clients who do not exist to artificallly increase the volume, creation of artificial members, execution of wash trades. And finally, FMC has come to a conclusion that there is market making practice in the market to bring liquidity in the illiquid contracts. The report further states that evasion of tax by these loss making clients and members can be ascertained by Income tax department and at the moment, the complainant’s charge of artificial and fictitious trading volume on MNCE exchange is found to be correct. The report further states that list of all such clients and members who have made profits/losses through this activity may be referred to the Income tax department for further investigation. In our view, the findings of the FMC have to be seen in the context of data which has been analysed for arriving at its conclusion. The question that arises is whether the finding of the FMC can be applied blindly without further investigation in the instant
ITA No. 512/JP/15 DCIT vs. M/s Pyramid Tradelinks Pvt. Ltd. Jaipur case or not. Further, irrespective of whether the said data represent the reasonable sample size or not, can the same be applied blindly in the instant case where the said data doesn’t contain particulars of either Motisons Commodities Pvt Ltd or the assessee company. In our view, the report of the FMC does point to a deep malice which existed in the stock exchange whereby the trading volumes were artificially inflated to book losses in hands of certain clients and corresponding profits in hands of other clients and it does raise grave apprehension in the mind of the Assessing officer. The same could therefore act as a good and strong starting point to carry out further investigation by the Assessing officer as also pointed out by the FMC. The investigation by the Assessing officer is also relevant for the fact that the data analysed by FMC doesn’t contain any data relating to either Motisons Commodities Pvt Ltd or the assessee company and there is no finding of wrong doing either by either Motisons Commodities Pvt Ltd or the assessee company.
In terms of investigation carried out by DIT(I&CI) in the instant case, as noted above, the assessee submitted copies of contract notes, copy of bank statement, return of income tax and ledger account with the broker and statement on oath of Director of the assessee company were also recorded. In terms of documents so filed and statement so recorded, the finding of ld DIT(I&CI) is that the voluminous data filed by the assessee has no evidentiary value since these are merely paper transactions and basis of such finding is again the report of FMC wherein referring to statement of one of the employees of NMCE, ld DIT(I&CI) stated that “about 90% of the trading volume of NMCE was artificial. Huge accommodation entries for profits and losses were given by the brokers (members) of NMCE to their clients. The assessee is no exception to it. It had also indulged in paper transactions just to reduce its profits earned from MCX and NCDEX.” The Assessing officer has
ITA No. 512/JP/15 DCIT vs. M/s Pyramid Tradelinks Pvt. Ltd. Jaipur thereafter followed the report of DIT(I&CI) and disallowed the losses booked by the assessee company. There is nothing on record to suggest that information was called for by the Assessing officer from the NMCE stock exchange to cross-check the contract notes and trading data provided by the assessee company and to examine the genuineness of the transactions entered into by the assessee company. Further, there is nothing on record to suggest that any investigation were carried out to examine the clients who have booked corresponding profits in their books of accounts and what is the stand of Assessing officer in those cases. In absence of any credible investigation being carried out by Assessing officer and bringing on record any verifiable evidence which proves wrong doing by the assessee company, we donot see any basis for disallowing the speculative loss in the instant case and calling the same as mere paper transactions.
Further, in its remand report, the Assessing officer admitted that no instances of bogus/accommodation entries found with M/s Motisons Commodities Pvt. Ltd. in respect to the assessee company and there is no instances or reference of assessee company in the FMC report. The same is corroborated by the letter of DIT(I&CI), Jaipur dated 27.02.2014 to NMCE where he states that there is no direct evidence to show that the assessee company was actually doing non-genuine trade. Where the Revenue has admitted that there is no wrong doing by the assessee company, merely the fact that there is a FMC report taking about wrong doing in respect of certain transactions and members, the same cannot form the basis for disallowance of the speculative losses. In this regard, it would be relevant to note that the Revenue is adopting the same yardstick of specific evidence for allowing other speculative losses claimed by the assessee company where it states that “The ITO(Intelligence) has also called for information from other brokers pertaining to other exchanges such as MCX, NCDEX and ACE, however no specific
ITA No. 512/JP/15 DCIT vs. M/s Pyramid Tradelinks Pvt. Ltd. Jaipur evidence or material is in our possession to treat such losses as bogus.”
In the entirety of facts and circumstances of the case, and in light of above discussions, we hereby confirm the order of the ld CIT(A) and the ground taken by the Revenue is dismissed.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 27/07/2017. Sd/- Sd/- ¼dqy Hkkjr ½ ¼foØe flag ;kno½ (Kul Bharat) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Jaipur Dated:- 27/07/2017 आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू
vihykFkhZ@The Appellant- DCIT, Circle-2, Jaipur. 1. izR;FkhZ@ The Respondent- M/s Pyramid Tradelinks Pvt. Ltd., Jaipur. 2. vk;dj vk;qDr@ CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए 5. xkMZ QkbZy@ Guard File (ITA No.512/JP/2015) 6.
vkns'kkuqlkj@ By order,
सहायक पंजीकार@ Aेेपेजंदज त्महपेजतंत.