CIMSYS RESEARCH INDIA PVT. LTD., ,KOLKATA vs. ITO, WARD - 8(1), KOLKATA , KOLKATA

The assessee’s sole substantive grievance raised in the instant appeal seeks to reverse both the lower authorities’ action treating its currency derivative loss of ₹30,48,249/- as bogus unexplained cash credits based on search statement of Shri Assessment Year 2012-13 Cimsys Research India Pvt. Ltd. Vs ITO-Wd-8(1) Kol. Page 2 Sahet Saraf; one of the director in M/s Marigold Vanijya Pvt.Ltd. (registered commodity broker) that it had been providing accommodation entry of loss by way of currency derivative transactions. Learned departmental representative’s case is that both the lower authorities have been rightly disallowed the assessee’s currency derivative loss since suffering from lack of genuineness and creditworthiness in viw of the overwhelming evidence collected during the course of foregoing search proceedings.

We have given our thoughtful consideration to rival pleadings against and in support of the instant impugned loss. The assessee’s detailed paper book comprising of 200 pages including contract notes issued by the broker relating to currency derivative transactions, corresponding bank statement, various judicial precedents and taxpayer’s submission before the CIT(A) stands perused. We find that the instant issue of bogus currency derivative loss based on Shri Sachet Saraf’s search statement is no more res integra as tribunal’s co-ordinate bench’s decision in ITA 1560/Kol/2016 ACIT, Circle-12(2) Kolkata vs. M/s Tirupati Awas Pvt. Ltd., decided on 28.03.2018 has deleted the identical disallowance vide following detailed discussion:- “4. The brief facts of the case are that the assessee is a company engaged in the business of real estate development & investment in shares. The assessee filed its return of income for the A.Y under consideration declaring total income of Rs.10,68,100/- on 30-01-2015, and the same was processed u/s. 143(1) of the Act on 28-01-2012. 5. A search & seizure operation was conducted in the office of Sachet Saraf & Others u/s. 132 of the Act on 22-03-2013, wherein a statement of Shri Sachet Saraf, director of M/s. Marigold Vanijya P.Ltd was taken. He stated that M/s. Marigold Vanijya P.Ltd is a broker of currency derivatives listed with MCX Stock Exchange. A notice u/s. 148 of the Act was issued the assessee. In response, the assessee requested to treat the return originally filed on 08-08-11, as a return filed in response to notice issued u/s. 148 of the Act. The AO further issued notices u/s. 143(2) and 142(1) of the Act and in response to which, the AR of the assessee appeared. For verification of transaction notice u/s. 133(6) of the Act was issued to MCX, Mumbai and assessee was also asked to clarify the alleged loss of Rs.43,90,251/-. It failed to do so. Therefore, AO added back the sum of Rs. 43,90,251/- as unexplained loss by his order dt. 31-03-2015 passed u/s. 147/143(3). 6. The assessee challenged the above order of AO before the CIT-A and contended that the said transaction was online through MCX Stock Exchange by its broker, M/s. Marigold Vanijya Pvt. Ltd, is a registered 3 member of MCX Assessment Year 2012-13 Cimsys Research India Pvt. Ltd. Vs ITO-Wd-8(1) Kol. Page 3 Stock Exchange Limited. The claim of loss was duly reflected in the audited financial statement as well as in the return of income by applying the provisions of section 43(5)(d) of the Act. The assessee company is registered with the said broker and complied with all KYC norms. The assessee has been allotted client (code) no. CK0105 for trading purpose in currency derivatives in the segment of exchange. The MCX Stock Exchange is a notified/listed stock exchange under the Income Tax Act. The assessee has been issued valid contract notes in respect of on line trade, wherein, order number, trade number, trade time etc. are properly mentioned as prescribed by concerned authorities/stock exchange. The assessee made the payments to above said registered/listed broker for the said transaction by way of account payee cheques. The assessee submitted all the details relating to contract notes and ledger copies of assessee in the books of said broker. Apart from above, the assessee also submitted an affidavit of Mr. Sachet Saraf, director of M/s. Marigold Vanijya Pvt. Ltd admitting that all the foreign currency transactions done by assessee are boan fide, genuine and recorded by said MCX Stock Exchange Referring to the statement given by Shri Sachet Saraf during the course of search & seizure operation, it was submitted that there no direct connection with the assessee.

The CIT-A considering the above submissions of assessee was satisfied that the assessee submitted all the required details in support of its transaction/claim. The CIT-A held that the AO did not place on record any cogent and factual or palpable material/evidence in support of his view and therefore, deleted the said addition made by the AO by observing as under:- ‘4.2 I have considered the submission of the AR of the appellant as well as the case laws referred to in his submission. I find that the appellant has incurred loss of Rs.43,90,251/- on account of dealing in foreign exchange derivatives. The assessment in the instant case was reopened by the AO based on information received by the AO of Marigold Vanijya (P) Ltd. Mr. Shri Sachet Saraft, one of the Directors of Marigold Vanijya (P) Ltd during the course of search & seizure operation u/s. 132 of the Act, had deposed before the concerned DDIT that the company was engaged in the business of providing accommodation of losses and profits to the beneficiaries as and when desired. The appellant in the instant case being an alleged beneficiary was issued notice u/s. 148 of the Act. In course of the reassessment proceedings, the appellant furnished all the requisite documents in support of transactions entered into by it in respect of foreign exchange derivatives. On this score, I find that no enquiry, whatsoever, has been conducted by the AO with either the broker or the MCX Stock Exchange to verify the genuineness of the transactions entered into by the appellant. No convincing material, except for the statement of Mr. Sachet Saraf, has been relied upon by the AO in making the impugned addition. It has been brought to my notice that even the statement of Mr. Sachet Saraf was retracted at a later point of time (supra). This fact has not been controverted by the AO in any manner. It is trite law that additions cannot be made, based merely on the statement of a third party, in the absence of any corroborative material evidence. There must be cogent and palpable material evidence material evidences on record for any justifiable action in the matter. I find that the AO has not done justice in the matter in this respect for which the impugned addition cannot stand the test of appeal. I find that the appellant has discharged its initial onus by furnishing all the requisite Assessment Year 2012-13 Cimsys Research India Pvt. Ltd. Vs ITO-Wd-8(1) Kol. Page 4 details in respect of foreign exchange loss incurred by it. It is not the case of the AO that the appellant has failed to furnish documentary evidences in support of the said foreign currency loss. Thus, considering the entire facts and circumstances of the issue at hand in the backdrop of the various case laws cited in the submission supra and in the absence of any cogent finding or corroborative materials brought on record by the AO to substantiate his stand in subverting the submission of the appellant on the impugned matter at the assessment stage. I do not find any merit in the action of the AO in making the impugned disallowance of Rs.43,90,251/- as unexplained loss with regard to the said transactions. In view of the foregoing, I find that the addition made on this count is not sustainable at the appellate stage which is now directed to be deleted. The AO is directed accordingly. “ 8. Before us the ld. DR submits that the assessee failed to produce any evidence gathered by the AO in re-assessment proceedings. MCX Stock Exchange did not furnish full details in respect of said transaction of assessee in response to notice issued u/s. 133(6) of the Act. Thus the AO has rightly added the said amount to the total income of assessee. The CIT-A basing on submissions of assessee has given relief to assessee without calling remand report of AO in admitting additional evidence. Thus, the CIT-A has erred in accepting wrong contention of assessee. He also violated the provisions of Rule 46A in admitting the same. The CIT-A has also failed to give an opportunity to AO for verification of the details as submitted by the assessee. In view of above, he prayed to allow the grounds of appeal