S.R. TIE-UP PVT. LTD., ,KOLKATA vs. ITO, WARD - 4(2), KOLKATA, KOLKATA

आदेश /O R D E R This assessee’s appeal for assessment year 2012-13, arises against the Commissioner of Income-tax (Appeals)-2, Kolkata’s order dated 28.03.2015 passed in case No.11274 & 1412/CIT(A)-2/15-16 involving proceedings u/s. 143(3) of the Income Tax Act, 1961; in short ‘the Act’. Heard both the parties. Case file perused. 2. The assessee’s sole substantive ground challenges both the lower authorities action treating its currency derivatives loss amounting to ₹13,66,852/- to be bogus. Relevant lower appellate discussion qua the instant sole issue reads as under:- “Ground No -1 The grounds of appeal as raised by the assessee against the order of the assessing officer are as under:- • For that on the facts and in the circumstances of the case, the Ld. AO. was not justified in making addition of Rs. 13,66,852/- on account of bogus Loss booking of Currency derivatives based merely on a third party statement.

S.R.Tie-Up Pvt. Ltd. Vs. ITO Wd-4(2), Kol. Page 2 The AR of the appellant during the appellate proceedings, furnished written submissions as under:- In connection with our above said client for above referred. asst. year, we, in addition to the statement of facts and grounds a/appeal along with Form No.35, would further like to state as under. Ground No.1. For that on the (acts and in the circumstances of the case. the Ld. A.O. was not justified in taking addition of Rs.13.66.852/- on account of bogus loss booking of Currency derivatives based merely on a third party statement. In this regard, we are advised to state that the assessee is carrying trade in Future in currency on the platform of MCS through M/s. Marigold Vanijya Private Limited, Mercantile Building, 8, Lal Bazar Street, Block-A, 3rd floor, KoIkata-700001, Ph:033-22303313, Fax: 22318039, TM Code: 65800. During the course of hearing of the case, the appellant produced entire Contract Notes issued by said M/s. Marigold Vanijya Private Limited along with supporting evidences. The assessee has also filed a ledger account of currency future transacted through .said M/s. Marigold Vanijya Private Limited. The entire payment made & received from broker by a/e. payee crossed cheques. The appellant has carried transactions of currency future & option. The value of such transactions comes in crores of rupees, therefore, the brokerage charged by said M/s. Marigold Vanijya Private Limited is in lacs of rupees. The management of MCX has only furnished the data of value of transactions excluding brokerage and other charges taken by broker, 'So the difference of Rs.13,66,832/- + 4,450/- = 13,71,282/- is due to cost of brokerage and other charges levied by the broker. We are enclosing herewith Xerox of transactions carried on 28.02.12, 05.03.12 on sample basis marked as Annexure-1. However, the entire Contract Notes can be produced before your honour if directed as such. The Ld. A.O. has issued a letter u/s.133(6) of I. T. Act, 1961 to MCX to collect the information of dealings of our client through M/s. Marigold Vanijya Private Limited at the platform of MCX. The said MCX has stated in his reply that the appellant has carried transactions through their Exchange but they have earned profit in the dealings through their platform amounting to RsA,450/-. It is pertinent to note that the said MCX has not denied the transactions on their platform by the Appellant through their Broker. Therefore, the Contract issued by their broker M/s Marigold Vanijya Private Limited is quite genuine and correct and without any doubt whatsoever. On the basis of Contract Notes Issued by said M/s. Marigold Vanijya Private Limited, the appellant has prepared a ledger account which shows that the appellant has suffered loss in currency derivatives amounting to Rs.13,66,852/-, copy of Ledger a/c. is enclosed herewith marked as Annexure- 2. The Ld. A.O. has disallowed the said loss which is genuine business loss without any valid reason. His conclusion is based on assumptions & presumptions which cannot be sustained in the facts and circumstances of the case. The Ld. A.O. cannot disregard the Contract notes and other evidences produced during the course of hearing of the case.

S.R.Tie-Up Pvt. Ltd. Vs. ITO Wd-4(2), Kol. Page 3 We are enclosing herewith copies of submission made before Ld. A.O. marked as Annexure-B. We are also enclosing herewith Xerox of Bank statement of Dhantaxmi; Bank Ltd. Abdul Kamal Azad Road, Howrah, A/c. no.018706700000791. Loss from trading on MCX-Under cl.(c) of proviso to s.43(5) it has been provided that a contract entered into by a member of a forward market r stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business shall not be deemed to be a speculative transaction-All the transaction of the assessee are transacted through MCS which is an organized stock exchange-Assessee had done its transactions on regular basis which cannot be termed that they are not regular course of business as provided in cl.(c) of s. 43(5)-Loss incurred by assessee has to be treated as business loss eligible for set off against other business income of the year. MCX is a public limited company, governed under Forward Contract (Regulation) Act, 1952 and working under regulatory body known as Forward Market Commission established under said Act to ensure compliance of the law. Company operating a commodity exchange wherein persons having membership only can transact. The membership of the exchange is given only to those members who are interested in transacting in the prescribed determined criterion for becoming member in the exchange, wherein he is abides by the rules and regulation prescribed in this respect MCX operate commodity exchange through specialized software on real time basis and every member has access to the server of the exchange through his own terminal. The entire working of the exchange is online and on real time basis in very transparent manner. According to the practices prevalent and business module designed by the MCX, a member can buy or sale any commodity transacted on said exchange for any quantity according to the available margins and for any future date, out of options provided by the exchange. Mostly MCX provides three future optional basis. Further at the time of buy or sale, member have to choose one date on which delivery of the commodity shall be made or taken, further member always have right to settle the date. Further actual delivery of the commodity is also possible in the market. In this type of forward market members enters into a forward transaction and to safe guard their interest jobbing and arbitrage is carried out, such jobbing and arbitrage is carried to protect the that interest, which is entered in by the members, with a view to minimize the future probable loss, looking to the prevailing price of the commodity. The loss under consideration is a regular business loss and not results of speculative transaction as per the definition of speculative transaction given in the s. 43(5) of the IT Act, 1961. Considering the facts stated above and in the circumstances of the case, your honour is, therefore, earnestly prayed to allow the appeal to meet the ends of natural justice. I have considered the submissions of the authorized representative of the appellant as well as the assessment order framed in the light of the materials available on record before the assessing officer during the assessment proceedings. The AO has S.R.Tie-Up Pvt. Ltd. Vs. ITO Wd-4(2), Kol. Page 4 mentioned that the matter was investigation from MCX and on the basis of that a show cause notice was sent to the appellate company but no reply was filed by the appellate company during the assessment proceeding. The AR of the appellate during the appellate proceeding also not field any reply/justification for not filing the reply before the AO during the assessment proceeding. The appellate company did not offer any explanation against the issue before the AO. Keeping in view of above, I do not find any infirmity in the order of the assessing officer and the same is hereby upheld. In view of above, this ground of appeal is dismissed.”

2. I have heard rival contentions. Mr. Singh vehemently contends during the course of hearing that the department had carried out a search in case of M/s Marigold Vanijya Private Limited. which indicated that said searched assessee had given bogus derivatives loss’s accommodation entries to investors alike assessee. He therefore strongly seeks to justify the impugned disallowance of currency derivatives losses. I find no merit in the Revenue’s above stated contention in principle. A co-ordinate bench in M/s Chemex Goods Pvt. Ltd. vs. ITO in decided on 18.05.2018 has declined Revenue’s identical argument based on the very searched assessee M/s Marigold Vanijya Pvt. Ltd. as follows:- “2. The assessee is a company and is engaged in the business of granting loans and as well as share trading. It has claimed loss in Foreign Exchange trading of Rs. 17,84,248/-. The Assessing Officer disallowed this loss based on a statement from Shri Sachet Saraf, Director of M/s. Marigold Vanijya Pvt. Ltd. recorded on 23.03.2013 by the Investigation Wing which had carried on a Search & Seizure Operation under section 132 of the Act. It is stated that Shri Sachet Saraf admitted that he was engaged in providing entries of bogus loss or profit as per the requirement of his clients. It is also stated that information was gathered under section 133(6) from MCX and it was confirmed that M/s. Marigold Vanijya Pvt. Ltd. was engaged in providing bogus entries and that Regulatory Authorities have levied penalties on them. The Assessing Officer also observed that M/s. Marigold Vanijya Pvt. Ltd. charged brokerage @ 0.4% and whereas the brokerage cost ranged between 0.01% to 0.0015% and that was paid is abnormally high. He held that the assessee has not offered any explanation as to why he had chosen an unknown broker without reputation on payment of high percentage of brokerage. He concluded that the assessee had, income from other sources, and did not want to pay tax at the rate of 30% thereon and accordingly obtain entries of bogus loss to defraud the revenue. He disallowed the claim of the assessee. Aggrieved the assessee carried the matter on appeal without success. Further aggrieved the assessee is an appeal before us.

3. After hearing rival contentions, we find that the similar issue has come up before the ‘B’ Bench of this Tribunal in the case of ACIT vs M/s. Tirupati Awas Pvt. Ltd., ITA No. 1560/Kol/2016 for the A.Y. 2011-12 order dated 28.03.2013. The Tribunal based on the very same facts i.e. statement of Shri Sachet Saraf, Director of M/s. Marigold Vanijya Pvt. Ltd. in the very same search had at para 10 observed as follows: “Heard rival submissions and perused the material on record. We find that the A.O. issued notice u/s 133(6) of the Act to MCX Stock Exchange, Mumbai. Admittedly, the said stock exchange complied with the notice issued by the A.O. along with supplying various details in respect of said transaction. According to A.O., it is incomplete details. However, the CIT(A) noted in his order that the A.O. failed to verify the genuineness of S.R.Tie-Up Pvt. Ltd. Vs. ITO Wd-4(2), Kol. Page 5 transaction with that of broker of MCX Stock Exchange. It is also observed that the CIT(A) found satisfied that the assessee filed all the required details and documents in support of the transactions entered into by it in respect of foreign exchange derivatives. We find that the A.O. made the addition only on the basis of statement recorded during the search & seizure operation in the premises of the said Sachet Saraf, Director of M/s. Marigold Vanijya Pvt. Ltd. The said statement of Mr. Saraf was retracted at a later point of time. The CIT(A) found satisfied that there was no corroborative evidence which supports the view of the A.O. that the said transaction was unexplained. Therefore, we find no additional evidence, which was filed before the CIT(A), but not before the A.O. The CIT(A) deleted the said addition only on the basis of material/evidence available on record, which were very much before the A.O. in the re-assessment proceedings. The case laws as relied on by the assessee before the CIT(A) were relevant and applicable to the present facts of the case. The CIT(A) has discussed the each case law thoroughly. Thus, the CIT(A) was justified in deleting the addition made by the A.O. on this issue. The grounds raised

by the revenue in the appeal are dismissed.”

4. The learned DR relied on the order of the ITAT in the case of DCIT vs M/s. DRP Trading & Investments Pvt. Ltd., for the A.Y. 2012-13 order dated 08.11.2017.

5. This order is not applicable to the facts of the case, as in the cash in hand, the assessee had paid a margin money of Rs.5,00,000/- in the transactions and whereas in the case of M/s. DRP Trading & Investments Pvt. Ltd., there was no margin money paid. The assessee has filed copy of the ledger of the assessee, in the books of M/s. Marigold Vanijya Pvt. Ltd., the copy of all the contract notes, copy of the affidavit given by Shri Sachet Saraf stating that the transactions with the assessee are bona fide trading transactions and that all the transactions were made by account payee cheques only, in support of his contention. In my view, the assessee discharged the burden of proof that lay on it. As the facts of these cases are similar to the facts of the case of M/s. Tirupati Awas Pvt. Ltd., I respectfully follow the same and delete the disallowance and allow this ground of the assessee.” I therefore reject Revenue’s argument in principle more particularly for the reason that the relevant exchange had in fact confirmed the assessee’s derivatives deriving profits to the tune of ₹4,450/-. What remains now is only reconciliation issue between the correct figures of gains / losses in currency derivatives. The assessee has also placed on record the relevant transactions details issued by the M/s MCX alongwith order No, time, trade, trade time; contracts description, quantity, buy / sale gross rate and value etc. I find that the assessee has filed the following correction statement as under:- Reconciliation statement Total Sales 36,07,81,107.00 (As confirmed by the AO in the assessment order) Less: Total purchase 36,07,76,657.00 (As confirmed by the AO in his assessment order) ------------------- Profit 4,450.00 (As confirmed by the MCX Exchange Ltd. ) Less: Brokerage, Service Tax and TOC @ 0.1830%