ACIT, CENTRAL CIRCLE 2(3), AHMEDABAD vs. DYNAMATIC DEVELOPERS PRIVATE LIMITED, MUMBAI

Shri Alpesh Parmar, the Ld. CIT-DR has taken us through the assessment order. He explained that as per SFIO report certain brokers had mis-utilised the facility of CCM. The assessee had done the trading through the broker M/s. Anand Rathi Commodities Limited (ARCL) in commodities through NSEL. The Department had issued summon to Shri Chetan Pitamber Bharkhada (President of ARCL), who had admitted his involvement in the CCMs. He had further admitted that no physical delivery of goods took place at the time the trades were executed on NSEL. Further, when the trading on NSEL was suspended, ARCL did not fulfil payment obligation against the sale contracts of the trades in respect of which losses were claimed by different clients. The Ld. CIT-DR submitted that SEBI too had acknowledged the involvement of ARCL in ACIT Vs Dynamatic Developers private Limited,AY- 2013-14 4 the entire NSEL scam. According to the Ld. CIT-DR, the assessee was involved in the larger racket of the NSEL scam and was a beneficiary of fictitious loss/gain on account of speculative transactions. Accordingly, the AO had worked out fictitious buy and fictitious sale transactions carried out by indulging in CCM and accordingly such fictitious buy and sale amounts were added to income of the assessee. Further, the profit derived by the assessee in such transactions was also separately added. Accordingly, the Ld. CIT-DR strongly supported in the order of the assessing officer.

Per contra, Shri Mitesh Mehta, Ld. CA of the assessee submitted that the assessee had disclosed total turn-over of Rs.67,14,19,781/- and the transactions of fictitious buy and fictitious sale as worked out by the AO on account of CCM, was part of trading account of the assessee. Therefore, no separate addition in this regard was called for as these transactions were duly reflected in the trading account of the assessee. He submitted that the profit derived by the assessee on account of CCM transactions was also duly reflected in the trading account of the assessee. According to the Ld. AR, by making separate addition for fictitious buy, fictitious sale and for profit derived in such fictitious transactions; the AO had triplicated the addition for the same income. The Ld. AR submitted that the Ld. CIT(A) had considered the facts of the case in right perspective and correctly allowed relief to the assessee. He further submitted that the transactions in which client code modification were done were duly included in the regular books of accounts and the profit derived thereon was also duly disclosed. Therefore, there was no rational

We have considered the rival submissions and carefully gone through the facts and the materials brought on record. The AO had received an information about CCM by ARCL, through whom the assessee company had traded on NSEL. The client code modification in the case of the assessee was to the extent of Rs.11,34,20,350/- on account of fictitious purchase and Rs.10,88,87,175/- on account of fictitious sales. The assessee had also provided a letter from ARCL explaining how and why client code modification was done. It was evident from the information available on record that CCM was not done by the assessee neither it was at the instance of the assessee. The CCM was done by the broker and the purchases and sales effected by CCM were part of purchase and sales as disclosed by the assessee in its trading accounts. The assessee company has dealt in agri-commodities on NSEL platform and total purchase of Rs.66.13 crores and sales of Rs.55.19 crores was disclosed in the trading account, with a closing stock Rs.11.95 crores. It is not the case of the Revenue that the purchase of Rs.11.34 crores and sales of Rs.10.88 crores made by way of CCMs were not part of the trading account or not disclosed by the assessee in its account. Since the fictitious buy and fictitious sale by way of CCMs, as worked out by the AO, was already disclosed in the trading account of the assessee, there was no rational for making separate additions in this respect. The Ld. CIT(A) after examining the facts in great detail had given a categorical finding that the purchase and sale transactions involved in CCMs were duly included in purchases and sales as disclosed by the assessee in its ACIT Vs Dynamatic Developers private Limited,AY- 2013-14 6 trading account. Further, the profit earned by the assessee by way of manipulated trading through CCM transactions was also included in the profit as disclosed by the assessee in its P&L account. The finding given by the Ld. CIT(A) in this regard is found to be as under:

The Revenue has been unable to controvert the findings of the Ld. CIT(A). The fact that the transactions of sales and purchases related to CCM arising from trading on NSEL platform was accounted for in the trading account of the assessee has not been disputed. Under the circumstances, no separate addition for sales and purchases related to CCM transactions could have been made. Therefore, the additions on ACIT Vs Dynamatic Developers private Limited,AY- 2013-14 10 account of fictitious purchase of Rs.11,34,20,350/- and fictitious sale of Rs.10,88,87,175/- was rightly deleted by the Ld. CIT(A). Similarly, the profit derived by the assessee in CCM transactions was also duly reflected in the gross profit as disclosed in the trading account. Therefore, there was no justification for making separate addition of Rs.1,00,79,414/- on account of STCG derived on CCM transactions. The decision of the Ld. CIT(A) on this issue is also upheld as the transactions on account of client code modifications and profit derived thereon, were duly included in the regular books of accounts and were part of P&L account for the purpose of taxation and no separate addition on account of CCM transaction was called for. Accordingly, the order of the Ld. CIT(A) is upheld and the grounds taken by the Revenue are dismissed.

In the result, the appeal of the Revenue is dismissed.