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Income Tax Appellate Tribunal, KOLKATA ‘SMC’ BENCH, KOLKATA
Before: Sri J. Sudhakar Reddy
M/s. Khaitan Trade Holdings Pvt. Ltd………………………………………….…………………….…….Appellant Flat No.1 8th Floor Tower No.B3 Brindaban Garden 98, Christopher Road Kolkata – 700 046 [PAN: AABCK 1321 L] Income Tax Office, Ward-12(1), Kolkata………....……………………………………………………Respondent Appearances by: Shri Sallong Yaden , Addl. CIT, appeared on behalf of the Revenue. Shri S.K. Tulsiyan, Advocate, appearing on behalf of the Assessee. Date of concluding the hearing : March 27th, 2018 Date of pronouncing the order : April 13th , 2018 ORDER Per J. Sudhakar Reddy, AM :-
This is an appeal filed by the assessee directed against the order of the Commissioner of Income Tax (Appeals)-4, Kolkata, (hereinafter the ‘Ld. CIT(A)’), dt. 18/08/2017, passed u/s 250 of the Income Tax Act, 1961 (hereinafter the ‘Act’), relating to Assessment Year 2008-09.
The assessee is a company and is a sub-broker in shares. The Assessing Officer disallowed the claim on account of derivative transactions of Rs.8,91,057/-. The Assessing Officer held that the assessee had entered into limited transactions and all the transaction in which the assessee entered into were transactions in which Client Code Modification (CCM), was made by the broker, through whom the transactions were affected. He held that the loss which were booked by the assessee were actually incurred by somebody else, but by changing the code subsequently, the broker transferred the loss to the assessee. The Assessing Officer gave a letter to the stock exchange for verification of the genuineness of the transactions. The stock exchange has confirmed that modifications were made in this case. The assessee contended that all these transactions were genuine and that the relevant contract notes, the record of the transaction were submitted by the assessee and that, the payments for the transactions
Assessment Year: 2008-09 M/s. Khaitan Trade Holdings Pvt. Ltd were made through banking channels and confirmations are furnished to establish the genuineness of the transactions. It contended that, when the National Stock Exchange itself has confirmed that the transactions in question, the loss cannot be disallowed. The Assessing Officer applied the theory of human probabilities and relied on the decision of the Hon’ble Supreme Court in the case of Sumati Dayal v. CIT (1995) 214 ITR 801 (SC) and CIT vs. Durga Prasad More (1971) 82 ITR 540 (SC), and made the disallowance.
2.1. On appeal the ld. First Appellate Authority, upheld this order of the Assessing Officer. He held that human error cannot occur on all occasions. He observed that the derivative transactions took place through a broker but on different dates. He also applied the theory of probabilities and dismissed the case of the assessee. He rejected the contentions of the assessee that addition cannot be made on mere suspicion, conjectures and surmises as held by the Hon’ble Supreme Court in the case of Messrs. Lalchand Bhagat Ambical vs The Commissioner Of Income-Tax 37 ITR 288 SC.
Aggrieved the assessee is before us in appeal.
After hearing rival contentions, I find that the assessee has provided documentary evidence by way of contract notes, bank statements evidencing cheque payments for all these transactions, payment of security transactions tax before the Assessing Officer. The National Stock Exchange has confirmed that these transactions have taken place in the exchange and in the name of the assessee. The issue that has to be adjudicated, is whether, when CCM is done to correct errors, it can be inferred that manipulation has been done by the assessee.
4.1. The Kolkata ‘A’ Bench of the Tribunal, in the case of M/s. Ratnabali Commodities vs. The Income Tax Officer, Ward-12(3), Kolkata, in Assessment Year 2008-09, order dt. 30/08/2017, wherein at para 5 & 6, it has been held as follows:- “5. Heard rival submissions and perused the material available on record. We find that the issue in hand is squarely covered in favour of assessee by the said order dt. 16-06-17 in assessee's own case in ITA No. 191/Kol/2015 for the A.Y 2009-10, wherein the assessee has claimed loss of Rs. 19,76,538/-. The AO treating the same as bogus added the same to the total income of the assessee only on the ground that the broker has modified the name and code of assessee. We find that this Tribunal vide its said order dt. 16-06-17 in assessee's own case for the A.Y 2009-10 held that modifications are permitted by NSE and such modification carried out within the prescribed time limit provided by NSE. Relevant portion of finding of such order is reproduced herein below:- 7. We have heard the rival contentions of both the parties and perused and carefully considered the material on record; including the judicial pronouncements cited and placed
Assessment Year: 2008-09 M/s. Khaitan Trade Holdings Pvt. Ltd reliance upon. The issue before us revolves for the amount of loss claimed by assessee for ~ 19,76,538/- which was treated by the Authorities Below as bogus mainly due to the modification carried out in the name and code of the assessee by the broker. The director of the assessee-company and the director of the broker company listed with NSE are same person. The impugned loss was treated as bogus due to several reasons such as it was incurred at the fag-end of the year, to reduce the taxable profit earned by assessee during the year and similar kind of loss was also disallowed in the immediate preceding year. 7.1 From the foregoing discussion, we find that indeed the client's code and name were modified in respect of transactions claimed by assessee. However, on perusal of record. we find that the impugned transactions were carried out through banking channel and all the supporting evidence such as contract note, payment of STT were filed at the time of assessment proceedings. We also find that Ld. CIT(A) confirmed the order of AO on the basis of his guess-work as evident from his appellate order which is reproduced below:- "there is a possibility that the modifications might have been made to accommodate the appellant as the broker of the appellant was a sister concern. " Further the Id. CIT -A has observed in his order as under:- "Even though apparently it has not been established that the such modification had been done in violation of rules and regulations prescribed by SEBI and the AO had proceeded on suspicion, however at the same time it also cannot be concluded either the loss would not be attributable 10 these "modifications". On perusal of the order. we find that Ld. CIT(A) has confirmed the order of AO on his own surmise and conjecture which is not permissible in the eyes of law. Ld. DR has also not- brought anything on record contrary to the advance arguments placed by Ld. AR for the assessee as well as no defects of whatsoever has been pointed out in the documents produced by assessee in support of its impugned loss. We also find whatever modifications were carried out by the broker they were carried out within the time permitted by the NSE for the purpose of modification. Thus, we are of the view that the order of Authorities Below is based on surmise and conjecture and same is not based on tangible material to treat the impugned loss as bogus loss. 7.2 Moreover, we also find that the details furnished by the assessee in respect of transactions giving rise to the loss were exactly matching with the details furnished by the NSE. In none of the case. Authorities Below have brought on record where any mismatch -is found between the books of the assessee and the confirmation received from NSE. Had there been any manipulation in the impugned loss then it could have been revealed from the confirmation received from NSE. Therefore, the modifications in the client's name and code cannot justify the impugned loss as bogus. Thus, we conclude that the impugned addition has been made by the Authorities Below on the basis of surmise and conjecture which is not permissible in the eyes of law as held by the Hon'ble Supreme Court in the case of Lalchand Bhagat Ambica Ram vs. CIT Bihar and Orissa (1959) 159 ITR 289 (SC). Therefore, we hold that the impugned loss cannot be subject-matter of addition on the basis of suspicion. In this regard we also rely in the case of CIT vs. Kundan Investment Ltd. reported in 263 ITR 626 (Cal) where Hon'ble jurisdictional High Court has held:- "The Tribunal had found that all relevant documents relating to contract notes, bills, the quoted price and other materials were produced The transactions were made through cheques. All the shares related to the reputed companies and were quoted shares in the stock exchanges and were purchased and sold at the prevalent quoted market rates, which was verified from the statement of the slack exchanges. On these basis, the Tribunal found that the CIT(A) had proceeded on the basis of suspicion that there might be some ingenuinity in the transactions. On the basis of the materials produced, the Tribunal came to a finding of fact, which does not seem to be perverse. Whether the shares could be sold immediately on the date of purchase or not was a question of business expedience. Whether the decision was' correct or 'wrong cannot the question, which can he a subject-matter of decision in such a case. In order to find out whether the transaction is genuine or in genuine it is neither the expedience nor correctness of' the decision nor the business expertise of the person to be considered. It is to be considered on the basis of the materials that there was no such transaction and that these share transactions were paper transactions. The suffering of loss, could not be a factor for such purpose.' Having regard to the facts and circumstances of the case, the view taken by the Tribunal allowing share loss cannot be said to be erroneous or perverse.- CIT vs. Emerald Commercial Ltd & Anr (2001)
Assessment Year: 2008-09 M/s. Khaitan Trade Holdings Pvt. Ltd 171 CTR (Cal) 193: (2001) 250 ITR 539 (Cal), CIT vs. Dhawan Investment & Trading Co. Ltd (1999) 238 ITR 486 (Cal) and CIT vs. Currency Investment Co. Ltd (2000) 158 CTR (Cal) 361: (2000) 241 ITR 494 (Cal) relied on. Respectfully following the same, we hold that the impugned loss claimed by assessee is genuine loss in the above facts and circumstances of the case and therefore eligible for deduction. Accordingly, AO is directed. This ground of assessee's appeal is allowed."
In view of above, we find that the CIT-A was not justified in confirming the impugned addition/disallowance of loss on account transactions in derivatives to the extent of Rs. 5,46,885/-. Accordingly, the same is liable to be deleted. The ground raised
by the assessee is allowed.
5. Respectfully following the propositions of law laid down by the Co-ordinate Bench of the Tribunal, and in view of the evidence on record, I deleted this disallowance and allow this appeal of the assessee.
6. In the result, appeal of the assessee is allowed.