KUNDA NANDA KIRPEKAR,MUMBAI vs. ITO INT TAX WARD 3(1)(1), MUMBAI

Apart from that, assessee has also challenged the validity of proceedings u/s.148. The brief facts are that assessee is a non- residential individual to file return of income in India on 05/08/2013 declaring total income of Rs.6,43,741/- which 3 Kunda Nanda Kirpekar consisted of short term capital gains of Rs.6,07,780/- on commodities transaction. The said return was accepted u/s. 143(1) vide intimation dated 10/06/2014. Thereafter, assessee’s case was reopened by issuance of notice u/s.148 dated 27/03/2021 based on the following ‘reasons recorded’:-

Based on this information, ld. AO issued show-cause notice which reads as under:- “...in this case an information is received from DDIT (Inv.) Unit- 6(3), Mumbai vide letter No. DDIT(Inv.)-Unit6(3)Mumbai dated 11/04/2019. As per information, SFIO has carried out investigation in NSEL (National Spot Exchange Ltd), it was found out that an orchestrated misuse for Client Code Modification for tax evasion, was carried out by the 219 Brokers, the details of client code modification were called from NSEL. After analysis of that data and considering the contention of brokers, it was concluded that client Code Modification had been used as tool for tax evasion and only settled trades had been considered to arrive at the beneficiaries. 2. As per the information received you are one of the beneficiaries who had taken benefit of Client Code 4 Kunda Nanda Kirpekar Modification. During the F.Y. 2013-14, you have been benefited to an amount of Rs. 42,44,000/- by way of client Code Modification. 3. As being the beneficiary of client code modification, you have shifted your loss and understated your income to the tune of Rs. 42,44,000/ In view of the above, you are hereby show-caused as to why the above mentioned amount of Rs. 42,44,000/- should not be added to your total income under consideration..."

In response, assessee filed her submissions which has been dealt and incorporated in the impugned assessment order. The ld. AO took note of excel sheet showing CCM from which ld. AO observed that in some of the scrips and total amount of transaction entered into by the assessee on account of client code modification was Rs.1,27,39,970/- holding that assessee had manipulated to show fictitious loss. AO noted that assessee had made purchases amounting to Rs.84,56,000/- and sale amount of Rs.43,83,970/-, thus effecting net loss of Rs.41,73,030/- on the transactions on which CCM was done. Thus, he held that it is a fictitious loss of Rs.41,73,030/- which he treated as unexplained expenditure u/s.69C.

Before us ld. Counsel submitted that assessee was retail investor and has entered into small transactions. During the year, there were over all 19 buy transactions and 12 sell transactions, however, ld. AO only took only 7 buy transactions and 3 sell transactions and if cumulatively all the transactions are then over all assessee has gained and declared short term capital gain and no where she has claimed any kind of speculative loss or any kind of trading loss which is the basic premise of the ld. AO to hold that assessee has entered into CCM with the broker to get some fictitious loss. He pointed out that ld. AO has selectively taken 7 buy transactions and 3 sell transactions which are not correct. Further, broker M/s. Anand Rathi Commodities Ltd. had confirmed that CCM did not result into profit / loss to the modified client as the modification did 6 Kunda Nanda Kirpekar not permit any change in the price or split in the commodity bought / sold. He also drew our attention to the ledger account of M/s. Anand Rathi Commodities Ltd in the computation of short term capital gain shown by the assessee. Thus, the entire premise by the ld. AO in incorrect.

On the other hand, ld. DR relied upon the order of the ld. AO and ld. CIT (A) and had submitted that here there was a specific information that assessee alongwith her broker had entered CCM and she has benefited an amount of Rs.42,44,000/- by way of CCM. Thus, ld. CIT (A) has correctly upheld the said addition made by the ld.AO.

After hearing both the parties and on perusal of the material placed on record, we find that the entire case of the ld. AO is that assessee had made purchases amounting to Rs.84,56,000/- and have sold scrips at Rs.42,83,970/- and thereby effecting net loss of Rs.41,72,030/- on which client code modification was done and held that it is a fictitious loss for reducing its total profit on the spot profit quantity as done through NSEL. However, from the details of transactions noted that assessee has made 19 buy transactions and 12 sell transactions and in over all transaction, assessee has earned short term capital gain of Rs.6,07,780/-. There is no loss which has been claimed by the assessee or tried to set off any kind of fictitious loss from gain. In all the transactions, assessee had shown book gain and none of the transactions has entered into loss. Thus, the very basic premise of the ld. AO itself is incorrect. The ld. AO has taken 7 buy 7 Kunda Nanda Kirpekar transactions and 3 sell transaction to deduce the loss of Rs.41,73,030/- which is not correct, because scrip wise sale and purchase has to be matched and if that is done, then there is no such loss at all. This is evident from the transaction details filed before us. From the perusal of these transactions, it is seen that majority of the transactions are purchase of commodities and there is no corresponding sale transactions. Apart from that, assessee has also filed confirmation from the broker M/s. Anand Rathi Commodities Ltd for confirming that there have been no transactions originating in the client code of the assessee which has been stated to be modified to some other client. This has not been further enquired or verified by the ld. AO, when Assessee has filed the entire contract note and the confirmations given by the broker. Thus, the entire premise for making the addition made by the ld. AO for treating it as fictitious loss is incorrect. Ld. AO should have taken into consideration all the transaction of the same scrips and if the ld. AO has taken 7 buy transactions, then he should have also taken into consideration corresponding sale to match the quantities of buy and sale. He cannot just take up 3 sell transactions. If the corresponding quantity of buy and sell is taken into consideration, then there is no loss at all even in those 7 transactions taken by the ld. AO. This working has been given by the assessee at page 55 of the paper book. For the sake of ready reference, the working of the loss disallowed by the ld.AO with mismatch quantities are as under:-

We are not adjudicating the issue of validity of reopening u/s.148 and the same is dismissed as infructuous.

In the result, appeal of the assessee is allowed.