THE ACIT ,CENTRAL-UJJAIN, INDORE vs. M/S ARIHANT CAPITALS MARKETS LTD , INDORE

आदेश / O R D E R

PER MANISH BORAD, A.M: The above captioned appeals filed at the instance of the Revenue for Assessment Year 2016-17 & 2014-15 and Cross Objection by the assessee for Assessment Year 2014-15 are directed against the order of Ld. Commissioner of Income Tax(Appeals)-3(in short ‘Ld.CIT(A)] Bhopal dated 09.04.2019 & 09.07.2020 respectively, which are arising out of the order u/s 143(3)of the Income Tax Act 1961(In short the ‘Act’) dated 29.12.2018 and order u/s 147 r.w.s. 143(3) of the Act dated 25.11.2019 framed by ACIT(Central), Ujjain.

The revenue has following grounds of appeal in ITA No. 10/Ind/2021 in Arihant Future & Commodities Ltd. for Assessment Year 2014-15: 1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of bad debts claimed u/s 36 amounting to Rs. 1,93,91,871/-, while ignoring the peculiar facts & circumstances of the case as elaborated in the assessment order by the Assessing Officer. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the aforesaid disallowance of bad debts, without appreciating the fact that the counter party (National Spot Exchange Limited) who had allegedly not made payment to the assessee, itself has stated that the claim of bad debts are

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

premature, as final deficiency in amount could not be arrived at as contemplated u/s 36(1)(ii); and it is not unlikely that claim may be put forward by Brokers, Traders and NBFC companies u/s 37(1) of the Act. Since, the counter party is not denying and is in process to make payment to the assessee, the assessee cannot claim the amount as bad debts. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the aforesaid disallowance of bad debts, while relying on the Hon’ble Apex Court’s judgement in the case of M/s TRF Limited V/s CIT (2010) 323 ITR 397 (SC); but without appreciating that the said judgement cannot be squarely applied on the instant case and in distinguishable on facts, in so far as the case of the assessee is related with a nationwide scam carried out by misusing the platform of NSEL causing impact on a larger spectrum of economy and investors; whereas, in the case of TRF Limited there was no such situation. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 59,65,000/- made u/s 68 and the addition of Rs. 2,40,000/- u/s 69C of the IT Act by the Assessing Officer, while incorrectly observing that the wrong was done by the persons in their personal capacity, and not in the capacity of the employees of the assessee company. 5. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the aforesaid additions, without appreciating the facts that the wrong was done by using the assessee’s platform, by the persons who were on the responsible posts in the assessee-company at the time the wrong was done and that the entire plot was unearthed during the survey proceedings carried out at the premises of the assessee-group and the evidences were found at the premises of the assessee-group. 6. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the aforesaid additions, while ignoring the well-settled law that an employer is bound by and responsible for the deeds of its employees and therefore, the assessee cannot absolve itself of the responsibility of the misdeeds of its employees. 7. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the aforesaid additions, while ignoring that a company is an artificial person and is nothing more than the persons who manage, operate and run it; and, as such, a company is inseparable from its employees, and is responsible for and bound by their deeds and misdeeds. 8. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the aforesaid additions, without appreciating the facts that the said employees, namely Shri Anish Jain and Shri Sunil Pandey, in their individual capacity, were never capable and were never having resources to commit such a wrong. Without the tacit approval of the assessee company, they were not in the position to play such a complex, long-lasting and multi-party game. Transactions carried out and the parties involved were not a one-time affair, but it was an episode lasted for at least three years as per the findings of the survey. It is not

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prudent and logical to conceive that this could have been done by individual employees without the knowledge and involvement of the assessee company. 9. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the aforesaid additions, without appreciating the fact that all the transactions were made online and on real time basis, and therefore, there was no occasion to claim that these transactions could not have come to the knowledge of the assessee company. 10. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the aforesaid additions, without appreciating the fact that any person on personal level cannot manage these types of activities without any organizational support. 11. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the aforesaid additions, without appreciating the fact that the statement recorded of Shri Anish Jain cannot be relied upon because of the facts that he was the assessee’s witness and the statement given by him was a tutored one. 12. On the facts and in the circumstances of the case the Ld. CIT(A) has erred in deleting the aforesaid additions, without appreciating the fact that the assessee has not produced any other evidence which can prove that the assessee was not involved in these transactions.

The Revenue has raised the following grounds of appeal in ITA 734/Ind/2019 in Arihant Future & Commodities Ltd. for AY 2016-17: 1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 1,53,36,000/- made u/s 68 and the addition of Rs. 1,80,000/- made u/s 69 of the IT Act, while incorrectly observing that the wrong was done by the persons in their personal capacity, and not in the capacity of the employees of the assessee company. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the aforesaid additions, without appreciating the facts that the wrong as done by using the assessee’s platform, by the persons who were on the responsible posts in the assessee-company at the time the wrong was done, and that the entire plot was unearthed during the survey proceedings carried out at the premises of the assessee-group, and the evidences were found at the premises of the assessee group. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the aforesaid additions, while ignoring the well-settled law that an employer is bound by and responsible for the deeds of its employees; and therefore, the assessee cannot absolve itself of the responsibility of the misdeeds of its employees. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the aforesaid additions, while ignoring that a company is an artificial

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person, and is nothing more than the persons who manage, operate and run it; and, as such, a company is inseparable from its employees, and is responsible for and bound by their deeds and misdeeds. 5. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the aforesaid additions, without appreciating the facts that the said employees, namely Shri Anish Jain and Shri Sunil Pandey, in their individual capacity, were never capable and were never having resources to commit such a wrong. Without the tacit approval of the assessee company, they were not in a position to play such a complex, long lasting and multi-party game. The transactions carried out and the parties involved were not a one-time affair, but in was an episode lasted for at least three years as per the findings of the survey. It is not prudent and logical to conceive that this could have been done by individual employees without the knowledge and involvement of the assessee company. 6. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the aforesaid additions, without appreciating the fact and all the transactions were made online and on real time basis; and therefore, there was no occasion to claim that these transactions could not have come to the knowledge of the assessee company. 7. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the aforesaid additions, without appreciating the fact that any person on personal level cannot manage these types of activities without any organizational support. 8. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the aforesaid additions, without appreciating the fact that the statement recorded of Shri Anish Jain cannot be relied upin because of the fact that he was the assessee’s witness and the statement given by him was a tutored one. 9. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the aforesaid additions, without appreciating the fact that the assessee has not produced any other evidence which can prove that the assessee was not involved in these transactions.

The revenue has raised following grounds of appeal in ITA No. 11/Ind/2021 in Arihant Capital Markets Ltd. for Assessment Year 2014-15: 1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of bad debts claimed u/s 36 amounting to Rs. 1,93,91,871/-, while ignoring the peculiar facts & circumstances of the case as elaborated in the assessment order by the Assessing Officer. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the aforesaid disallowance of bad debts, without appreciating the fact that the counter party (National Spot Exchange Limited) who had allegedly not

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made payment to the assessee, itself has stated that the claim of bad debts are premature, as final deficiency in amount could not be arrived at as contemplated u/s 36(1)(ii); and it is not unlikely that claim may be put forward by Brokers, Traders and NBFC companies u/s 37(1) of the Act. Since, the counter party is not denying and is in process to make payment to the assessee, the assessee cannot claim the amount as bad debts. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the aforesaid disallowance of bad debts, while relying on the Hon’ble Apex Court’s judgement in the case of M/s TRF Limited V/s CIT (2010) 323 ITR 397 (SC); but without appreciating that the said judgement cannot be squarely applied on the instant case and in distinguishable on facts, in so far as the case of the assessee is related with a nationwide scam carried out by misusing the platform of NSEL causing impact on a larger spectrum of economy and investors; whereas, in the case of TRF Limited there was no such situation. 4. On the facts in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 29,08,905/- made u/s 14A of the IT Act, while ignoring the fact that the assessee’s own auditor in audit report had worked out disallowance under section 14A of Rs. 5,01,070/- and made remark for the same that this should be disallowed; and that, the assessee has filed and relied upon the said audit report, thus, clearly justifying the nature of addition made by the Assessing Officer u/s 14A of the Income Tax Act, 1961. 5. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting this aforesaid addition u/s 14A, while observing that the assessee has not used borrowed funds for making investment in shares. The Ld. CIT(A) has ignored that the assessee did incur interest expenses for the relevant year, and had the assessee not borrowed the amount for its business, there would have been no need to incur interest expenses. The Ld. CIT(A) has also not appreciated that the assessee cannot claim that so & so amount was its own money which is invested and so & so amount was borrowed money which was utilized for business. He has also not appreciated that this type of artificial division has no basis and is arbitrary, and the money cannot be compartmentalized in this way. 6. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the aforesaid addition u/s 14A, while incorrectly observing that the assessee had not received any dividend on the investment made; since it is not necessary to earn dividend income during the year for working of 14A disallowance as is clarified by the CBDT’s Circular No. 5/2014 dated 11th February, 2014. 7. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the aforesaid addition u/s 14A, while incorrectly observing that the interest income of the assessee was much higher than the interest incurred; because u/s 14A read with rule 8D, there is no provision of netting of interest expenditure.

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

Grounds of Assessee’s CO No. 48/Ind/2021 in the case of Arihant Future & Commodities Ltd. for Assessment Year 2014-15 read as under:

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Grounds of Assessee’s CO No. 49/Ind/2021 in the case of Arihant Capital Markets Ltd. for Assessment Year 2014-15 read as under: -

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As the issues raised in these appeals are mostly common and relate to 2. same assessee group, at the request of both the parties, these appeals/COs were heard together and are being disposed off of by this common order for sake of convenience and brevity. Since the issues raised in the case of Arihant Future & Commodities Ltd. for AY 2014-15 in ITA no. 10/Ind/2021 are common in other two appeals of the Revenue, the same is taken up at first.

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

market across the country for both manufactured and agriculture produce. There was a direct need to set up a national level, integrated market for agriculture products, to reap the benefit of a spot market. NSEL was the first commodity spot exchange of the country and to boost the volume, the three exchanges NSEL, NSPOT and National AFMC were allowed to conduct forward trading. NSEL became the country’s first ever electronic commodity exchange for spot delivery of contracts including agricultural products. It also provided facility to store the goods purchased by the traders/investors in the warehouse owned/nominated by NSEL for which it was charging warehousing fees and issuing a warehouse receipt, which was transferable and tradable. However, it is noticed that NSEL was involved in certain irregularities and was taking long time to settle the contracts. The then regulator Forward Market Commission (FMC) intervened and asked “NSEL” to wind up the existing contracts. This action taken by FMC ended in unearthening NSEL scam and it was found that the physical commodities were short of the record, the warehouse receipts were not backed by proper physical commodities and when the investors claimed commodities worth their money, the same could not be provided to them as the stocks were way short in the warehouses. Large number of small and big traders and investors as well as brokers suffered huge losses as the payout obligations were not met by NSEL.

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the books of the assessee were also submitted during the course of assessment proceedings and are also enclosed in the paper book.

4.4 Ground No. 10:- Through this ground of appeal the appellant has challenged the addition of Rs 1,93,91,871/- made by the AO on account of disallowance of bad debts claimed u/s 36. The issue has been discussed in Para 5.1 to 5.7 of the assessment order.

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4.4.1 The primary facts are that the appellant has carried on various trades at NSEL (National Spot Exchange Ltd.) during the year under consideration and also in the earlier years. NSEL scam came to light during the year under consideration after which NSEL did not made payment of its dues to various persons who were trading on NSEL. The appellant claimed bad debts of Rs. 1,93,91,871/- in respect of its dues from NSEL which has been disallowed by the AO by stating in para 5.2 that the process of auctioning of the assets of NSEL has started and properties are under auctioning and significant amounts will be received by the brokers / traders and since the recoveries is an ongoing process, the ultimate recovery shall take longer time and hence the claim of bad debt by the appellant is premature as final deficiencies in amount could not be arrived at as contemplated u/s 36(2)(ii) therefore, the claim is liable for rejection. The AO has further observed that many of the NBFCs companies have also claimed entire amount as bad debts and therefore, multiple deduction of the same amount are being claimed by two different entities. It is also the contention of the AO that the traders on NSEL have claimed such amounts as business loss on one hand and on the other hand they are claiming themselves as investors and not traders on NSEL. This dual stand does not match with the stand taken for claiming the entire amount as deduction. It is also stated that the bad debts occurred due to non-payment of dues on paired contracts which were not allowed as per the FMC as the assessee did not take delivery of the goods and did not had any infrastructure to store the goods purchased. Some observations made by the Honourable High Court of Mumbai while dealing with the case of Jignesh Prakash Shah (Promoter of NSEL) have also been abstracted in the assessment order. 4.4.2 On the other hand the appellant has contended that it was regularly trading in various commodities through NSEL during its normal business operations. The appellant has explained that NSEL devised a unique modus operandi through which an investor / trader was provided the facility to purchase various goods and also to sell the same simultaneously. The goods so traded on the NSEL platform were stored on behalf of the purchaser in various warehouses / godowns situated and operated all over India by NSEL. The buyer had an option to take the delivery of the goods or to sell the same at NSEL itself, in which case the warehouse receipt in the name of the buyer evidencing that the goods purchased are lying in the warehouse of NSEL would be transferred in the name of the subsequent buyer. NSEL also charged various charges such as warehousing charges, insurance etc for this facility provided by it to the investors / traders. The delivery of these goods lying at the warehouses could be taken by the investor / trader, in which case the party would have to arrange for transportation and further storage of such goods at its own risk and perils. It is also explained that to avoid the hassles of doing all this exercise and also considering the fact that there was a ready tradable market of these goods, most of the investors / traders preferred to keep the goods stored in the warehouses operated by NSEL and preferred to sell the same through the NSEL platform itself. Considering the lucrative returns, the momentum of trading on NSEL platform saw a mammoth 13

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growth in number and volume of trades on NSEL exchange. It is further explained by the appellant that in early 2012 Forward Market Commission (FMC) stepped in which was appointed as designated agency to collect data from NSEL with a view to safeguard the interest of the investors. FMC observed certain issues which were reported to the Department of Consumer Affairs (DCA) in April 2012. After considering the report of FMC, DCA intervened in July 2013 and directed NSEL to settle all the existing contracts on the respective due dates without undertaking any fresh contracts. Acting upon the directions of the DCA NSEL suspended the launch of fresh contracts / new commodity / product / centre. The appellant has further explained that on 31st July 2013 NSEL announced suspension in trading and merged the delivery and settlement of all the pending contracts and deferred the same for a period of 15 days. This abrupt move by NSEL resulted into a payment crises involving colossal amounts and involving thousands of investors and traders. This entire debacle was termed as NSEL scam. In the process, the amounts due from NSEL to the appellant against the material sold by the appellant through NSEL exchange were not paid by NSEL on the due dates. The appellant has also stated that it has sold through NSEL on 26.07.2013 and 27.07.2013 certain goods, which were purchased by it through NSEL itself. The appellant had duly paid the full price against the purchases made by it, however, it did not realize the sale consideration of the goods sold through NSEL in the last week of July 2013. The appellant then stated that considering the overall fiasco and also considering the fact that neither any amounts were being received by the appellant from NSEL nor there were any chances of recovery, the appellant considered these receivables as irrecoverable and therefore treated the same as bad debts and wrote off the said amounts in its books of accounts. The appellant has also contended that subsequent to the unearthing the scam, NSEL, under the pressure from various Government agencies declared schedule for the payment of the impugned dues however, such schedules were never adhered to by NSEL and finally it did not made any payments. It is also stated by the appellant that it has not recovered the dues till date, even after passing of almost seven years barring very miniscule amounts. Various other contentions have also been raised by the appellant to substantiate that the amounts under consideration have in fact become bad and there are no chances of any recovery. The appellant has also referred and placed reliance on various decisions and also on the CBDT instruction and contended that bad debts are allowable as deduction and the only requirement of law is that the same should be written off in its books of accounts. All these contentions of the appellant are already abstracted through its written submission. 4.4.3 Rebutting the various contentions of the AO made in the assessment order, the appellant stated that various inferences drawn by the AO in the assessment order in this behalf are without any basis and have been so drawn merely on surmises and baseless assumptions. With regard to the observation of the AO that there are sufficient assets to liquidate and recover the outstanding amount and that the assets of NSEL have been attached by the investigating agencies and that the recovery 14

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and distribution is being monitored by Government Agencies, the appellant has contended that there is no basis of such observation made by the AO which is evident from the simple fact that the appellant has not been able to recover its dues even after lapse of seven years. It is further contended by the appellant that the observation of the AO that the assets of NSEL have been attached, in itself strengthen the contentions of the appellant that the disposal of such assets and recovery of dues would be a very long drawn process. Further the assets are very meager and it would not be possible to settle the major amounts of dues. The appellant has also stated that if at all any part of bad debt is recovered, the same will be offered as income as and when recovered. With regard to the observation of the AO that the ultimate recovery shall take longer time and therefore, claim of bad debts is premature as final deficiency could not be ascertained as contemplated u/s 36(2)(ii), the appellant contended that it has not been able to recover the dues even in seven years, which fact has also been acknowledged by the AO while he stated that the ultimate recovery may take a long time. It is also contended that the relevant provisions of the Income Tax Act providing allowability of bad debts do not contemplate any terminology such as “premature” or “final deficiency”. The appellant also contended that it had already suffered a huge loss due to the debts due from NSEL becoming bad and on top of that disallowing the same and slapping a huge tax demand along with interest was not at all justified. With regard to the AO’s contention that various NBFCs companies have also claimed the amount as bad debt and the similar claims made by traders is resulting into claiming multiple deduction of the same amount by two different entities, the appellant stated that such an observation is vague and too general observation and also stated that there is no case of claiming multiple deduction in the case of the appellant, as the appellant has not financed these transactions through any NFBC. Various other contentions of the AO have been rebutted by the appellant, which submission has already been abstracted as above. 4.4.4 After considering the observations of the AO made in the assessment order and also carefully taking into account various contentions and explanation of the appellant I find that the quantum of dues from NSEL, which has been written off as bad debts by the appellant and which has been disallowed by the AO is not in dispute. The dispute is only with regard to the claim of bad debts made by the appellant, which in the view of the AO is prematured and not proper. I find sufficient force in the contentions of the appellant that the impugned amount could not be received by it even after lapse of seven years, which fact in itself substantiate the contention of the appellant that the impugned amount is in fact irrecoverable and had become bad. It is a settled proposition that the only requirement for claiming an amount as bad debt, as per the provisions of section 36(1)(vii) is that the said amount should be actually written off in the books of accounts, which has been duly meet by the appellant. The amendment made in section 36(1)(vii) by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 01.04.1989 has done away with the requirement of establishing any debt or part thereof as bad in the previous year. This position of law was reiterated by the Honourable Apex Court in 15

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the case of TRF Limited V/s CIT 190 taxmann 391 dated 09.02.2010, subsequent to which the Honourable CBDT also issued instructions vide circular no. 12/2016 dated 30.05.2016 further explaining the legislative intent behind the amendment made in section 36(1)(vii) to avoid unintended disputes over such claims. The only other requirement prescribed by section 36(2)(i) is that such debt or part thereof has been taken into consideration in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year. I find that the appellant has duly met this requirement as well and also there is no adverse remark in this regard in the assessment order. Therefore, the claim of bad debts made by the appellant by actually writing off the said amounts in its books of accounts and claiming the same by debiting the loss to the profit and loss account is proper and the AO was not justified in disallowing the same by holding the said claim to be prematured. With regard to the other contentions of the AO raised in the assessment order, I find that the same have been appropriately rebutted by the appellant through its written submissions. It is stated by the AO that there was a meeting between the FMC, brokers, defaulters and NSEL to put the recovery process in order and the recovery process is monitored by the Honourable High Court Committee (HCC) appointed by the Honourable Bombay High Court and that there are enough asset to liquidate and recover the outstanding amounts. In the opinion of the AO such amount is to be recovered by selling various asset classes as attached and it is only a matter of time that they will be liquidated and disbursed. On these broad contentions the AO treated the claim of bad debts of the appellant as premature. All these contentions of the AO are not apt, which is established by the fact that the NSEL scam came to surface in July – August 2013 and the appellant has not been able to recover such dues till today i.e. even after lapse of seven years. The contention of the AO that similar amounts have been claimed as bad debts by many NBFC companies resulting into multiple deduction of the same amount by two different entities also does not hold good, firstly for the reason the AO has only made a general observation and secondly for the reason that if two entities suffer losses in respect of same transaction, both can claim deduction subject to the provisions of the Income Tax Act. However, if a person has taken loan from NBFC and suffered losses and is not able to pay the dues to NBFC, he would on one hand claim the losses and on the other hand would also offer the amount due to NBFC as income in the form of cessation of liability and the NBFC would claim the amount due as bad debt. Therefore, the contention raised by the AO on this issue is misconceived. Further the appellant has clarified that it has not financed its NSEL transactions from any NBFC, therefore, the question of multiple deduction of same amount does not arise in this case. This contention of the appellant also appears to be correct as no case has been made out against the appellant in the assessment order that it had borrowed loans from NBFC, for financing NSEL trades ought that there is any case of multiple deduction in this case. 4.4.5 The next contention of the AO is that the traders on NSEL have claimed such amounts as business loss and most of them are claiming 16

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themselves as investors and not traders on NSEL and therefore, the claim of bad debts cannot be entertained in view of the stand taken by most of the traders that they are investors not traders. These observations of the AO are also general and not specific to the appellant. No case has been made out that the appellant is an investor and not a trader. Further even if an assessee is an investor and he suffers loss due to bad debts, the same is very much allowable subject to fulfillment of conditions laid down u/s 36(1)(vii) r.w.s. 36(2). In this case the appellant has stated that it never claimed to be an investor in respect of the trades on NSEL and has always offered the profits earned on trades at NSEL as business income in the past and also during the year under consideration. Therefore, this contention of the AO also does not survive. So far as the observation of the AO that the bad debts were due to non-payment of dues on the paired contracts which were not proper as per the FMC and the assessee did not take delivery of the goods and also did not have any infrastructure to store the goods. The explanation of the appellant that such goods were stored at the warehouses operated by NSEL, for which NSEL has also charged warehousing charges would meet this contention of the AO. The appellant have filed various documents including the contract notes and also client wise delivery allocation report issued by NSEL stating that the ownership of the commodities covered by the said warehouse receipts lies with the appellant and also that the discharge of the warehouse receipts shall be made as per the instruction against the commodity pay-in obligation of the appellant or the deliveries shall be adjusted against the sale of the same by the appellant. The appellant has also placed on record the details of warehouse charges charged by NSEL in this respect. All these documents which were also filed before the AO, cumulatively establish that the simultaneous or paired contracts for purchase and sale were also backed by actual delivery of goods. The physical actual delivery of goods was not resorted to by the appellant as NSEL itself provided a proper platform of storing such goods, saving the appellant from all these hassles and also saving the cost of transport and handling these goods. In these circumstances, the appellant did not required any independent infrastructure to store the goods. Further as rightly pointed out by the appellant the observation referred by the AO in Para 5.6 are not relevant at all in the context of claim of bad debts, as those observations were made while deciding the bail application of Jignesh Prakash Shah and the observations could be read only in that context and cannot be read into a case like present case, where the issue is of claim of bad debts. Further all the observations are general in nature and are not specific to any particular trade, transaction or party. 4.4.6 It is seen that the claim of bad debts of the appellant is on account of the amounts due to it from NSEL against the sales made by the appellant. The amount due from NSEL has been actually written off in the books of accounts of the appellant and is therefore clearly allowable u/s 36(1)(vii). Such claim cannot be disallowed merely stating the same as premature, as the requirement of establishing the debt as bad is no more a perquisite condition for claiming and allowing the claim of bad debts. The appellants claim has also been established to have become bad as the 17

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appellant’s has not received the amounts due from NSEL even after passing almost seven years. I also find that a similar claim of bad debts in respect of dues from NSEL has been held as allowable by the Honourable ITAT Chennai Bench in the case of M/s Megh Sakariya International Pvt. Ltd. V/s DCIT in ITA No. 59/CHNY/2018 dated 05.09.2018 for AY 2014- 15, wherein also the AO disallowed the claim on similar contentions as done in the present case. In the case before the Honourable Chennai Bench also information was received from NSEL and the AO stated that NSEL was in the process of settling outstanding dues of its traders and auctioning its assets for the said purpose and the claim was disallowed treating the same as premature. It was also held that the resulting loss was a capital loss. The relevant observation of the Learned AO has also been reproduced by the Honourable Chennai Bench in Para 7 of its order which are identically worded, as done by the AO in the present appeal before me. However, the said claim was duly allowed by the Honourable ITAT Chennai Bench. 4.4.7 I also find that similar claim of bad debts on account of dues recoverable from NSEL was also disallowed which has been allowed by the Honourable Jurisdictional Bench of ITAT Indore in the case of Shri Mohan Jain V/s ITO 1(2) Ujjain in ITA No. 605/Ind/2017 for AY 2014-15 dated 05.02.2019. 4.4.8 Therefore, in view of the above discussion and also in view of the above judicial cases including that of the Honourable Jurisdictional ITAT and also that of the Honourable Apex Court in the case of M/s TRF Ltd. V/s CIT (2010) 323 ITR 397 (SC) and also circular no. 12/2016 issued by the Central Board of Direct Taxes, the disallowance made by the AO on account of bad debts amounting to Rs. 1,93,91,871/- is Deleted. Therefore, appeal on this ground is Allowed.

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

26.07.2013 and 27.07.2013 and before the assessee could receive the sale consideration of these goods, the entire NSEL scam came to surface on 31.07.2013 resulting in defaults in payments across the board. Various schedules for the payment to the traders and investors were issued from time to time by NSEL, however, the same were not adhered to and no substantial payments were made by NSEL. Very nominal amounts have been paid, that too, only to very small investors/traders. In the instant case, the assessee has not been able to recover its dues even after lapse of more than seven years except for very nominal amounts and it has always offered all the subsequent recoveries from NSEL as its income and such recoveries are very miniscule. We also find that the assessee has not claimed itself as an investor but as a trader and has also offered the profits earned by it in respect of trades at NSEL as its business income in earlier years and therefore, in our view, the assessee’s claim of bad debts is allowable against its business income.

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

done by the Ld. AO in the present case before us. Therefore, we are reproducing the findings of the Chennai ITAT which are as under:-

“We have considered the rival contentions and perused the orders of the authorities below. It is not disputed that assessee had started commodity trading in NSEL through its broker Sugal Commodity Brokers Pvt Ltd during the relevant previous year. It is also not disputed that debt of B2,02,42,194/- became due to the assessee from the said exchange, on account of the commodity trading undertaken by the assessee during the relevant previous year. Observation of the ld. Assessing Officer with regard to the claim as it appears at page 3 of its order is reproduced hereunder:-

‘’It is pertinent to mention here that the Department has' received information from the National Spot Exchange that due to various reasons the trading on the exchange platform was stopped on 3pt July, 2013, and the NSE has to settle the outstanding receivables of the traders. The NSE also stated that the amounts recovered have been distributed to the brokers under the supervision of the Forward Market Commission (FMC). The NSC further stated that there are enough assets to liquidate and recover the outstanding amounts of the traders / Brokers.

It has come to the light that most of the brokers 1 traders have claimed the outstanding amount as deduction as bad debt u/s 36(1) (vii) / 37(i) of the Income tax Act, 1961. Similarly, most of the NBFC companies which had lent money to Brokers / Traders have also written off such amounts as bad debts.

The NSC further stated that it is in the process of auctioning of the assets and the process have started. It is evident that significant amounts will be received by the brokers / traders. Thus, the claim of bad-debt are premature’’.

It is significant to note that ld. Assessing Officer had accepted the debt to be bad, but had disallowed the claim deeming it to be premature. It is also clear that debt arose on account of trading in commodities in the exchange and not due to sale of any capital assets. Hon’ble Apex Court in the case of T.R.F. Ltd (supra) had held as under at para 4 of its judgment.

‘’4. This position in law is well-settled. After April 1, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in the accounts of the assessee. When a bad debt occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account of the customer. In the case of companies, the provision is deducted from sundry debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted to the

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

Assessing Officer for de novo consideration of the abovementioned aspect only and that too only to the extent of the write-off’’.

It is clear that once a debt is written off as irrecoverable in the accounts of the assessee, it has to be allowed. It is not required that debt should have arose on account of transactions in any preceding years. Once a debt is claimed as bad and written off in the accounts it has to be allowed. No doubt, if the assessee at a later point of time recovers any money against any sum, it is bound to show it as income. Considering the judgment of Hon’ble Apex Court in the case of T.R.F. Ltd (supra), we are of the opinion that the claim of the assessee had to be allowed. Orders of the lower authorities on this issue are set aside.”

S. No. Name Amount 21

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

1 13,00,000/- Adaptec Real Estate Pvt. Ltd. (Mewar Infratech Pvt. Ltd.) 2 5,00,000/- Chrysler Constructions Pvt. Ltd. 3 22,00,000/- Numark Infrabuild Pvt. Ltd. 4 19,65,000/- Smt. Lalita Chouhan Total 59,65,000/-

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

Jain observing that he was the witness of the assessee. Statement of Mr. Anish Jain was again recorded by the Ld. AO during the course of assessment proceedings of AY 2016-17 who affirmed his earlier statement recorded at the time of survey and also the modus operandi of the payment of cash against cheques given by Mr. S. N. Gadiya to the assessee for trading in shares and commodity market. The Ld. AO further noted that Mr. Anish Jain also stated that the Arihant Group of Companies were not involved in the process of payment of cash and introduction of cheques in the companies owned and managed by Mr. S. N. Gadiya and his employees and that no amount of earning in cash was shared with Arihant Group of companies. The Ld. AO then took note of the assessee’s contentions made during the assessment proceedings that the assessee had no involvement in any wrong doing and it was the sole conduct of Mr. Anish Jain who indulged with Mr. S. N. Gadiya and arranged cheques against payment of cash for trading in shares and commodities market. These contentions of the assessee were refuted by the Ld. AO stating that since Mr. Anish Jain was an employee of the assessee and was acting as head of one of the branch of the assessee, he was the witness of the assessee and his statement given during the assessment proceedings for AY 2016-17 was tutored one and hence not reliable. The Ld. AO further noted that the only difference between the theory of the assessee and that of the department is that as per the assessee Mr. Anish Jain was doing all these misdeeds in his personal capacity, whereas as per the department Mr. Anish Jain was doing these misdeeds in the capacity of the employee of the assessee group. The Ld. AO emphasized that Mr. Anish Jain was doing these activities with reference to the clients of the assessee whose trading accounts were being maintained and managed by the assessee and that the assessee is selectively owing up the opening, managing and maintaining the trading accounts of the aforesaid entities but is selectively disowning only the transactions which are uncomfortable to the assessee. The Ld. AO rejected the contentions put forth by the assessee and concluded by holding that the assessee has converted its

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

unaccounted money into the cheques obtained in the paper entities floated by Mr. S. N. Gadiya with the help of Mr. Anish Jain and made the addition of Rs. 59,65,000/- u/s 68 of the Act as unexplained cash credits in the hands of the assessee. Being aggrieved, the assessee preferred appeal before the Ld. CIT(A) and during the course of first appellate proceedings, the assessee made detailed written submission along with the documentary evidences which were also furnished by it before the Ld. AO. The Ld. CIT(A) accepting the contentions of the assessee, the facts and circumstances of the case and also the various documentary evidences placed on record deleted both the additions made by the Ld. AO u/s 68 of the Act and u/s 69C of the Act on this issue. Thus, the Revenue is before this Tribunal.

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

page no. 175 to 199 of the paper book vehemently argued that the entire modus operandi was admitted by these two persons in the initial statements itself and nowhere the involvement of the assessee in any manner was ever stated by any person during the survey. The learned counsel for the assessee emphasized that proper details and names and even contact details of the persons who provided cash and were the actual beneficiaries of the entire modus operandi was categorically confirmed by Mr. Anish Jain and also Mr. S. N. Gadiya in the statements recorded at the time of survey. The learned counsel for the assessee from the written submissions filed before the Ld. CIT(A) referred to the following table wherein the details of actual beneficiaries of the impugned entities were provided by Mr. Anish Jain and Mr. S. N. Gaidya to the survey team at the time of survey on the assessee:-

Sr. Name of the Party Person carrying Reference (statements recorded no. out actual during the course of Survey trading, i.e. proceedings) actual beneficiaries of the trading (i) 1. Adaptec Real Mr. Gurumukh, Statement of Mr. S. N. Gadiya Estate Pvt. Ltd. Mobile no. dated 31.12.2015 (question no. (Formerly known 9826037702 4) as (ii) Statement of Mr. Anish Jain MewarInfratechPvt. dated 31.12.2015 (question no. Ltd.) 11, 12) and dated 01.01.2016 (question no. 13, 14, 15) 2. NumarkInfrabuild Unknown (i) Statement of Mr. S. N. Gadiya Pvt. Ltd. (Formerly person, Dhulia dated 31.12.2015 (question no. known as 4) (ii) Convenient Statement of Mr. Anish Jain Infratech Pvt. Ltd.) dated 31.12.2015 (question no. 11, 12) and dated 01.01.2016 (question no. 13, 14, 15) 3. Duponant Real Unknown (i) Statement of Mr. S. N. Gadiya Estate Pvt. Ltd. person, Dhulia dated 31.12.2015 (question no. 4) (ii) Statement of Mr. Anish Jain

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

dated 31.12.2015 (question no. 11, 12) and dated 01.01.2016 (question no. 13, 14, 15) (i) 4. Chrysler Mr. Rajesh Statement of Mr. S. N. Gadiya Constructions Pvt. Gokhru, dated 31.12.2015 (question no. Ltd. (Formerly Mobile no. 4) known as Nicolin 9893167418 (ii) Statement of Mr. Sunil Pandey Constructions Pvt. dated 01.01.2016 (question no. Ltd.) 10 & 14) (iii) Statement of Mr. Anish Jain dated 31.12.2015 (question no. 11, 12) and dated 01.01.2016 (question no. 13, 14, 15) 5. Smt. Lalita Mr. Jagdish Statement of Mr. S. N. Gadiya dated Chouhan Agrawal Dhulia 31.12.2015 (question no. 10)

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

absolutely without any basis. Referring to the written submission filed before the Ld. CIT(A) which are also abstracted in the order of the Ld. CIT(A) and are also enclosed at page no. 354 to 409 of the paper book, the learned counsel for the assessee contended that all the allegations made by the Ld. AO have been properly rebutted therein and the Ld. CIT(A) has rightly deleted the addition.

4.2 Ground No. 7 & 8 :- Through these grounds of appeal, the appellant has challenged the addition of Rs. 59,65,000/- made on account of unexplained cash credits u/s 68 received from M/s Adaptec Real Estate Pvt. Ltd., M/s Chrysler Construction Pvt. Ltd., M/s Numark Infrabuild Pvt. Ltd. and Smt. Lalita Chouhan. All these parties are clients of the appellant. The appellant being a broker of various recognized Commodities Exchanges of India engaged in the business of commodity trading and broking, client accounts of these parties were opened with the appellant for carrying out trades on these exchanges. A survey u/s 133A was conducted on 29.12.2015 in the case of the Appellant. The AO has noted that on verification of the statements recorded at the time of survey proceedings of various employees namely Shri Anish Jain and Shri Sunil Pandey and one outsider party Shri S. N. Gadia, it was found that the appellant is involved in floating of paper companies through its staff and was engaged in the trading through these companies in the equity and commodity market and converted its unaccounted cash in cheques and introduced such cheques in the companies for the purpose of trading. The AO further observed that the companies / entities M/s Adaptec Real Estate Pvt. Ltd., M/s Chrysler Construction Pvt. Ltd., M/s Duponant Real Estate Pvt. Ltd. and M/s Numark Infrabuild Pvt. Ltd. and Smt. Lalita Chouhan were floated through the employees of the appellant and its group companies and were used for the above purpose. The AO also observed that Shri Anish Jain and Shri Sunil Pandey and the outsider party Shri S. N. Gadia has accepted that the cheques were issued by these entities against the cash provided to S. N. Gadia by Anish Jain who was working as branch manager of Arihant Capital Markets Ltd, a sister concern of the appellant. As per the AO, the trading account of these clients were opened through which traders were carried out and the amounts received for carrying out such trades in these accounts, was in the nature of accommodation entry, for which cash was provided by Mr. Anish Jain to Mr. S. N. Gadia who in turn arranged cheques in the account of these clients. It is the case of the AO that all this modus operandi was done for 27

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

and on behalf of the appellant and therefore, he treated the amounts received in the account of these clients as unexplained cash credits and made additions in the hands of the appellant. 4.2.1 I find that identical issue was there in the appeal of the appellant for AY 2016-17, wherein during the regular assessment proceedings of AY 2016-17, the AO issued notice to the appellant to explain this issue in light of the survey proceedings conducted u/s 133A on 29.12.2015 in response to which the appellant requested the AO to provide copies of the statements recorded during the survey and after obtaining the same the appellant filed a detailed reply also seeking cross examination of Anish Jain. The AO required the appellant to produce Anish Jain, whose statement was also recorded on 25.12.2018 and as noted by the AO in para 4.4 of the assessment order Anish Jain affirmed his earlier statement and also stated that Arihant group of companies were not involved in the process of collection of cash and introduction of cheques in the companies owned and managed by Shri S. N. Gadia and his employees. Shri Anish Jain also stated that no amount of earning in cash was shared with Arihant group of companies. The AO than noted in Para 4.5 that the appellant contended that it had no involvement in wrong doings and it was sole conduct of Anish Jain who indulged with S. N. Gadia in the modus operandi. However, the contentions of the appellant were not accepted by the AO mainly on the plea that Anish Jain was an employee of the appellant and therefore, his statement cannot be relied upon and made the addition in the regular assessment order of AY 2016-17. 4.2.2 In the present reassessment order also basically relying on the same observations, the AO made the addition of Rs. 59,65,000/- received by the appellant during the year under consideration from M/s Adaptec Real Estate Pvt. Ltd. (Formerly known as Mewar Infratech Pvt. Ltd.) of Rs. 13,00,000/-, M/s Chrysler Constructions Pvt. Ltd. (formerly known as Nicolin Constructions Pvt. Ltd.) of Rs. 5,00,000/-, M/s Numark Infrabuild Pvt. Ltd. of Rs. 22,00,000/- and Smt. Lalita Chouhan of Rs. 19,65,000/-. 4.2.3 I find that the issue is identical as already decided by me in IT11254/2018-19 dated 09.04.2019 in the appellant’s own case for AY 2016-17. It would be worthwhile to abstract the following relevant operating paras from this order, which would be equally applicable in this year. “4.1 Ground No 1:- Through this ground of appeal, the appellant has challenged the addition of Rs. 1,53,63,000/- on account of unexplained cash credits u/s 68. A survey u/s 133A was conducted on 29.12.2015 in the case of the appellant which is a subsidiary company of Arihant Capital Market Ltd. The AO has noted that on verification of the statements recorded at the time of survey proceedings various employees mainly Shri Anish Jain and Shri Sunil Pandey and one outsider party Shri S. N. Gadia, the appellant was found involved in floating of paper companies through its staff and was engaged in the trading through these companies in the equity and commodity market and converted its unaccounted cash in cheques and introduced such cheques in the companies for the purpose of trading. The AO further observed that

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

the companies / entities M/s Adaptec Real Estate Pvt. Ltd., M/s Chrysler Construction Pvt. Ltd., M/s Duponant Real Estate Pvt. Ltd. and M/s Numark Infrabuild Pvt. Ltd. and Smt. Lalita Chouhan were floated through the employees of the appellant and its group companies and were used for the above purpose. The AO also observed that Shri Anish Jain and Shri Sunil Pandey and the outsider party Shri S. N. Gadia has accepted that the cheques were issued by these entities against the cash provided to S. N. Gadia by Anish Jain who was working as branch manager of one of the branch of Arihant Capital Markets Ltd. The AO issued notice to the appellant in response to which the appellant requested the AO to provide copies of the statements recorded in the survey and after obtaining the same the appellant filed a detailed reply also seeking cross examination of Anish Jain. The AO required the appellant to produce Anish Jain, whose statement was recorded in 25.12.2018 and as noted by the AO in para 4.4 he affirmed his earlier statement and also stated that Arihnat group of companies were not involved in the process of collection of cash and introduction of cheques in the companies owned and managed by Shri S. N. Gadia and his employees. Shri Anish Jain also stated that no amount of earning in cash was shared with Arihant group of companies. The AO than noted in Para 4.5 that the appellant contended that it had no involvement in wrong doings and it was sole conduct of Anish Jain who indulged with S. N. Gadia in the modus operandi. However, the contentions of the appellant were not accepted by the AO mainly on the plea that Anish Jain was an employee of the appellant group and therefore, his statement cannot be relied upon. Accordingly the AO made the addition of Rs. 1,53,63,000/- received by the appellant during the year under consideration from M/s Adaptec Real Estate Pvt. Ltd. of Rs. 62,63,000/, from M/s Chrysler Construction Pvt. Ltd of Rs. 45,00,000/- and from Smt. Lalita Chouhan Rs. 46,00,000/-. “4.1.1 The appellant has filed copies of statement recorded during the survey of S. N. Gadia, Anish Jain and others and referring to the same stated that these persons never stated that the appellant company or its subsidiary were involved in the process. The trading accounts of these entities were opened as normal clients for carrying out routing tradine transactions as done in the case of all other clients in the normal course of business. The appellant was not at all aware of any wrong doings by these persons including Anish Jain who was the employee of Arihant Capital Markets Ltd. Also referring to the statement of Anish Jain recorded by the AO during the assessment proceedings, the appellant contended that Mr. Anish Jain reaffirmed his earlier stand taken before the Investigation Wing at the time of survey and categorically stated that the Arihant group of companies are not involved in the entire process of collection of cash and introduction of cheques. The appellant also pointed out that the AO merely made allegations that the cash was provided by the appellant which is neither correct nor

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

based upon any evidence and that the AO has also not referred any specific instance or any specific statement where the allegations made by the AO against the appellant are reflecting. 4.1.1 The appellant has filed copies of statement of S. N. Gadia, Anish Jain and others recorded during the survey and referring to the same stated that these persons never stated that the appellant company was involved in the process. The trading accounts of these entities were opened as normal clients for carrying out routine trading transactions as done in the case of all other clients in the normal course of business. The appellant was not at all aware of any wrong doings by these persons including its employee Anish Jain. Also referring to the statement of Anish Jain recorded by the AO during the assessment proceedings of AY 2015-16, the appellant contended that Mr. Anish Jain reaffirmed his earlier stand taken before the Investigation Wing at the time of survey and categorically stated that the Arihant group of companies are not involved in the entire process of collection of cash and introduction of cheques. The appellant also pointed out that the AO merely made allegations that the cash was provided by the appellant which is neither correct nor based upon any evidence and that the AO has also not referred any specific instance or any specific statement where the allegations made by the AO against the appellant are reflecting. 4.2.2 After going through the detailed written submission as well as the statements of various persons recorded during the survey and also the statement of Mr. Anish Jain recorded by the AO during the assessment proceedings, I find that Four companies i.e. M/s Adaptec Real Estate Pvt. Ltd., M/s Chrysler Construction Pvt. Ltd., M/s Duponant Real Estate Pvt. Ltd. and M/s Numark Infrabuild Pvt. Ltd. were formed, controlled and managed by one Mr. S. N. Gadia wherein he himself and his employees are directors as evident from answer to question no. 2 of statement of Mr. S. N. Gadia dated 31.12.2015. It was stated by Mr. S.N. Gadia in his statement recorded during the survey operations conducted on Arihant Future and Commodities Limited that these companies were formed by him for share trading and other trading activities. He further stated that he was involved only in trading of shares and had not undertaken any trading in commodity as evident from answer to question no. 3 & 4 of statement of Mr. S. N. Gadia dated 31.12.2015. All these four companies along with one Mrs. Lalita Chouhan also an employee of Mr. Gadiya were having trading accounts for carrying out share trading in ACML and commodity trading in AFCL. These trading accounts were referred and opened by Mr. Anish Jain and were also introduced by him as clearly reflecting from answer to question no. 4 of statement of Mr. S. N. Gadia dated 31.12.2015. These trading accounts were opened by the appellant in the normal course of its business as the account of any other client for carrying out normal trading transactions on the respective stock exchange / commodity exchange.

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

4.2.3 However, the fact was that the trading accounts of all the four companies with Arihant Futures & Commodities Ltd. were actually operated and managed by different persons such as Mr. Gurmukh Chhabaria, Mr. Rajesh Gokhru and Mr. Jagdish Agrawal who were actually carrying out the trading transactions in these accounts. These persons were introduced to Mr. Gadiya by Mr. Anish Jain. This fact is clearly evident from the answer to question no. 4 of statement of Mr. S. N. Gadia dated 31.12.2015 which was also confirmed by Mr. Anish Jain in answer to question nos. 11 & 12 of his statement dated 31.12.2015. 4.2.4 From the statement it is also clear that for the purpose of carrying out commodity trading transactions, Mr. Gurmukh Chhabaria, Mr. Rajesh Gokhru and Mr. Jagdish Agrawal, used the trading accounts of the four companies and Smt. Lalita Chouhan. For carrying out these trades Mr. Gurmukh Chhabaria, Mr. Rajesh Gokhru and Mr. Jagdish Agrawal used to provide cash to Mr. Anish Jain who in turn used to hand over the same to Mr. S. N. Gadiya against which Mr. S. N. Gadiya used to provide cheques in the four companies owned and operated by him to be used for the purpose of carrying out the trading transactions in their respective accounts opened with the appellant and Arihant Futures & Commodities Ltd. This fact is evident from answer to question no. 5, 6 & 7 of statement of Mr. S. N. Gadia dated 31.12.2015. This statement of Mr. S. N. Gadia was affirmed by Mr. Anish Jain in his statement in reply to question no. 12, 13 & 14. 4.2.5 Thus it is evident that Mr. Anish Jain facilitated Mr. Gurmukh Chhabaria, Mr. Rajesh Gokhru and Mr. Jagdish Agrawala by providing a trading platform through the entities owned by Mr. S. N. Gadiya, in consideration of which Mr. Anish Jain received some additional income, part of which was shared by him with Mr. Sunil Pandey another co-worker and also with Mr. S. N. Gadiya. Proper identities of these persons who were actually carrying out the trades and also providing the cash were disclosed along with their contact numbers by Mr. S. N. Gadia and also confirmed by Mr. Anish Jain in their initial statements recorded during the course of survey. It was categorically stated that cash was provided by these actual beneficiaries to Mr. Anish Jain who used to hand over the same to Mr. S. N. Gadia for facilitating equal amount of cheques in the four companies floated by Mr. S. N. Gadia. Similar modus operandi was adopted in the case of Smt. Lalita Chouhan who was an employee of Mr. S. N. Gadia as clearly reflecting from answer to question no. 4 & 5 of statement of Mr. S. N. Gadia dated 31.12.2015 and answer to question no. 10, 11 & 12 of statement of Mr. Anish Jain dated 31.12.2015. 4.2.6 Thus it is evident from the statements recorded during the survey proceedings itself that the actual persons behind all these activities were neither the appellant nor its subsidiary company but were some outside persons, proper identities of whom were also

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

disclosed by S. N. Gadia and Anish Jain as evident from the following.

Sr. Name of the Party Person Reference (statements recorded no. carrying out during the course of Survey actual trading, proceedings) i.e. actual beneficiaries of the trading 1. Adaptec Real Estate Mr. Gurumukh, (iii) Statement of Mr. S. N. Gadiya Pvt. Ltd. (Formerly Mobile no. dated 31.12.2015 (question no. 4) known as Mewar 9826037702 (iv) Statement of Mr. Anish Jain Infratech Pvt. Ltd.) dated 31.12.2015 (question no. 11, 12) and dated 01.01.2016 (question no. 13, 14, 15) 2. Numark Infrabuild Unknown (iii) Statement of Mr. S. N. Gadiya Pvt. Ltd. (Formerly person, Dhulia dated 31.12.2015 (question no. 4) known as (iv) Statement of Mr. Anish Jain Convenient Infratech dated 31.12.2015 (question no. 11, 12) Pvt. Ltd.) and dated 01.01.2016 (question no. 13, 14, 15) 3. Duponant Real Unknown (iii) Statement of Mr. S. N. Gadiya Estate Pvt. Ltd. person, Dhulia dated 31.12.2015 (question no. 4) (iv) Statement of Mr. Anish Jain dated 31.12.2015 (question no. 11, 12) and dated 01.01.2016 (question no. 13, 14, 15) 4. Chrysler Mr. Rajesh (iv) Statement of Mr. S. N. Gadiya Constructions Pvt. Gokhru, dated 31.12.2015 (question no. 4) Ltd. (Formerly Mobile no. (v) Statement of Mr. Sunil Pandey known as Nicolin 9893167418 dated 01.01.2016 (question no. 10 & 14) (vi) Constructions Pvt. Statement of Mr. Anish Jain Ltd.) dated 31.12.2015 (question no. 11, 12) and dated 01.01.2016 (question no. 13, 14, 15) 5. Smt. Lalita Chouhan Mr. Jagdish Statement of Mr. S. N. Gadiya dated Agrawal Dhulia 31.12.2015 (question no. 10)

As rightly pointed out by the appellant that the fact that the actual trading transactions in the account of above five entities were carried out by some other outside persons could have been easily verified by the voice recordings maintained by the appellant and also impounded by the Investigation Wing during the survey. 4.2.7 I find that the AO has also recorded a statement of Mr. Anish Jain on 25.12.2018 during the assessment proceedings, copy of which is filed wherein he has affirmed his earlier statement given before the Investigation Wing at the time of survey on 31.12.2015 and 01.01.2016 and in reply to question no. 8, he stated that the activities of trading through the trading accounts of companies of

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

Mr. S.N. Gadiya & one individual Smt. Lalita Chouhan is carried out by him in his personal capacity on behalf of Mr. Gurmukh, Mr. Rajesh Gokhru, Mr. Jagdish Agrawal and management of the appellant group in no manner, whatsoever, is involved in the activities of providing cash to companies of Mr. S.N. Gadyia. He also stated that no additional income or commission was earned by the Arihant Group of companies apart from the normal brokerage income earned in due course of its business from all the customers. Relevant extract of the statement is reproduced below:

“I wish to state that all these activities were carried out by me in my individual capacity on behalf of persons like Mr, Gurmukh, Mr. Rajesh Gokhru, Mr. Jagdish Agrawal etc. … Arihant Group of companies or it management was not involved in any such activities of providing cash … no additional income or commission was passed to Arihant group of companies ... The brokerage of Rs. 100/- on turnover of every Rs. 1 Crores was not paid to Arihant Group of companies in cash but was charged in the contract notes, as is done in all other cases…” Similarly in reply to question no. 9, Mr. Anish Jain has further stated that the cash paid to Mr. S. N. Gadia is actually received from Mr. Gurmukh, Mr. Rajesh Gokhru, Mr. Jagdish Agrawal etc. The Arihant Group of companies was not at all involved in the practice of providing any kind of unaccounted cash to Mr. S.N. Gadia relevant abstract of the question by the AO and its answer are. “Q. No. 9 – If the cash paid to Mr. S.N. Gadiya was not provided by Arihant Group of companies then who provided the said cash. Also explain the mode through which you received the cash. Ans.- I has already stated above that the cash was provided to me by the persons like Mr. Gurmukh, Mr. Rajesh Gokhru, Mr. Jagdish Agrawal etc. who actually carrying out the trades through these trading accounts. I used to received the cash from these persons directly in person and sometimes through other persons which was used to be paid immediately to Mr. S.N. Gadiya.” 4.2.8 In reply to question no. 10, Mr. Anish Jain also provided the details like addresses PAN and phone no. of Mr. Gurmukh, Mr. Rajesh Gokhru, Mr. Jagdish Agrawal which were also provided earlier during the survey proceedings. 4.2.9 In reply to question no. 11, Mr. Anish Jain explained the methodology of earning commission income from this modus operandi and sharing pattern of the same amongst different persons and stated that commission of Rs. 335/- was received on the transaction of Rs. 1 crore in Commodity market. Further in reply to question 12 it was stated that the trading activities in the equity market were carried out through the trading accounts of the companies of Mr. S.N. Gadiya and Mrs. Lalita Chouhan was carried out in their personal capacities. This fact was also placed on records vide statement dated 31.12.2015 of Mr. S.N. Gadiya in

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

reply to question no. 8 recorded at the time of survey, copy of which is enclosed. 4.2.10 Therefore, from the statement of Mr. S. N. Gadia and Mr. Anish Jain recorded by the Investigation Wing at the time of survey in December 2015 – January 2016 and also the statement of Anish Jain recorded by the AO during the assessment proceedings it is very clear that the appellant company was no where involved in any malicious transactions as observed by the AO. The AO got carried away by the fact that Mr. Anish Jain was an employee of the appellant and since he was instrumental in all these activities in collusion with Mr. S. N. Gadia and various other persons such as Mr. Gurmukh, Mr. Rajesh Gokhru, Mr. Jagdish Agrawal, such activities were carried out by the appellant. However, it is seen that there is neither any statement of any person that such activities were carried out by the appellant nor there is any other evidence to this effect found during the course of survey and brought on record by the AO. On the contrary proper identities of the persons on whose behalf such activities were actually carried out were disclosed both by Mr. S. N. Gadia and Mr. Anish Jain. There seems no valid reason to disbelieve their statements particularly in the absence of any contradictory and cogent material on record. The appellant cannot be held guilty merely on the basis that its employee was involved in such activities without there being any supportive material and also on the particular facts that the employee himself has accepted the entire modus operandi as having been conducted on his own, without any involvement of his employer i.e. the appellant and also considering the fact that there is no contradiction in the statement of various persons. Therefore, I am inclined to hold that the amounts received by the appellant in the normal course of its business from its clients i.e. the entities managed and controlled by S. N. Gadia cannot be treated as unexplained credit in the hands of the appellant. Therefore, the addition made by AO amounting at Rs. 1,53,63,000/- is Deleted. Therefore, the appeal on this ground is Allowed.”

4.2.4 Since the facts of both the years are identical and the genesis of the issue under consideration is the same survey proceedings carried out u/s 133A on 29.12.2015 and no new material fact has been brought on record, I am inclined to follow my own order passed on this identical issue for AY 2016-17 in the appellant’s own case, as relied and referred above and hold that on the peculiar and identical facts that Mr. Anish Jain in both the statements i.e. the statement recorded at the time of survey and also the subsequent statement recorded by the AO himself, explained and reiterated the same facts and also owned up all the wrong doings. He categorically stated that such practices were not done by the appellant and that the real beneficiaries of the entire modus operandi were also introduced and managed by him along with Mr. S. N. Gadia. The details and identities of such beneficiaries were also properly disclosed by both these persons, which fact has not been controverted. The emphasis of the AO is only that

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

since Mr. Anish Jain was an employee of the appellant, the entire responsibilities of all his action would be of the appellant, this approach of the AO is not correct. It has been stated and reaffirmed by Mr. Anish Jain that all such actions were done by him in his personal capacity and not as an employee of the appellant. The contention of the AO that the employer is bound by the actions of its employee is also misconceived. An employer cannot be held responsible for each and every action of his employee more so when such actions are done in the personal capacity of the employee and not on behalf of the employer. The sole fact that the trading accounts of the impugned parties were maintained by the appellant, in any manner is not sacrosanct to shift the onus of the entire modus operandi from Mr. Anish Jain to the appellant. The appellant opened the trading accounts of these parties in the normal conduct of its routine business process where thousands of trading accounts of various clients are opened, through which these clients carry on the trades on the stock exchanges. Like thousands of other clients, trading accounts of the impugned entities were also opened with the appellant to carry on normal trades in shares and derivatives. Like all other clients, these impugned parties also made payments to the appellant for carrying out trades in their accounts. No default has been brought on record in so far as the trading in shares / derivatives done by these parties through the client accounts maintained by the appellant. Neither there is anything on record nor it can be inferred from the statements that the trading transactions in these accounts were carried out on the instructions of the appellant. There is no evidence to show that the payments made by the impugned clients to the appellant for carrying on trades in their respective accounts was made available by the appellant to these persons. On the contrary there is sufficient material on record as evident from various statements recorded during the survey and also during the assessment proceedings of AY 2016-17 to substantiate that the trading transactions in these accounts were carried out on the instructions of persons like Mr. Gurumukh, Mr. Rajesh Gokhru and Mr. Jagdish Agrawal who are the real beneficiaries and that the funds were also provided by these persons to the impugned parties for carrying out such trades. There is nothing on record to suggest any involvement of the appellant in so far as the entire modus operandi as found and discussed by the AO. The conclusion drawn by the AO that the assessee has converted its unaccounted money into cheques obtained in the paper entities floated by Mr. S. N. Gadia with the help of Mr. Anish Jain is neither borne out from the various facts on record nor from the various statements recorded and therefore, there is no basis at all for such allegation. Therefore, following my earlier decision on the same and identical issue, the addition made by the AO amounting to Rs. 59,65,000/- is Deleted. Therefore, appeal on this ground is Allowed.

4.3 Ground No 9:- Through this ground of appeal the appellant has challenged the addition of Rs. 2,40,000/- made by the AO u/s 69C as unexplained expenditure on the basis of statement of Mr. Anish Jain. The AO noted that Mr. Anish Jain in his statement has stated that the company has paid Rs. 5,000/- in cash per month per trading account to Mr. S. N. 35

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

Gadia who floated the companies on the instruction of the appellant company and therefore, he made an addition of Rs. 2,40,000/- in respect of the four parties considering the amount of Rs. 5,000/- per month as unexplained expenditure. The appellant submitted that Mr. Anish Jain never stated that the amount of Rs. 5,000/- was paid by the appellant company. The appellant referred to the answer to question no. 7 of the statement of Mr. S. N. Gadia wherein he stated that the amount of Rs. 5,000/- per month was paid to him by Mr. Anish Jain. Mr. Anish Jain also confirmed in his statement dated 25.12.2018 vide reply to question no. 4 and accepted that the amount of Rs. 5,000/- per month per company was paid by him to Mr. S. N. Gadia. It was never stated by any person that this amount was paid by the appellant. Further this addition of Rs. 2,40,000/- is a consequential addition made by the AO. Since it has already been held that the appellant was not involved in the modus operandi therefore, this consequential addition in the case of the appellant does not survive. Moreover, considering the fact that Mr. Anish Jain has categorically stated that this payment of Rs. 5,000/- per month was not made by the appellant and there being no other material on record to suggest so, therefore, the AO is not justified in making the addition of Rs. 2,40,000/-, in the hands of the appellant. Moreover, this addition is purely consequential and is also covered in favour of the appellant through my appeal order of AY 2016-17. Therefore, the addition made by the AO of Rs. 2,40,000/- is Deleted. Therefore, the appeal on this ground is Allowed.

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

entities. These entities, then made payments to the assessee for carrying out trading transactions on the recognized Stock and Commodity Exchanges. We also note that the trading accounts of the impugned entities were opened with the assessee company in the normal course of its business. The impugned companies have traded in shares and commodities on the recognized stock exchange through the assessee and in the course of such trading activities have made payments to the assessee through proper banking channels for meeting the obligation of the stock exchange and therefore, against the payments so made by these companies to the assessee, either delivery of shares has been given to them or amounts have been paid back as and when the trading transactions were squared off. All such transactions are not only through proper banking channels but also through recognized stock exchanges, which fact is not at dispute.

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

them, the Ld. AO has proceeded on the sole theory that since Mr. Anish Jain was the employee of the assessee, the assessee was responsible for all his such deeds, which were admittedly done in his individual capacity and not in the capacity as a manger of the assessee company, which action of the Ld.AO is grossly unjustified and cannot be approved.

“In view of your statement and considering the fact that you were employed with Arihant Capital Markets Ltd. and were acting on behalf of Arihant Group of companies, it is clear that you have carried out all these activities for and on behalf of Arihant Group of companies. You also confirmed in reply to question no. 15 of your statement dated 01.01.2016 that Arihant group of companies used to get a commission of Rs. 100/- on turnover of every Rs. 1 crores and therefore, the amount of cash paid to Shri S. N. Gadiya was provided by Arihant Group of companies against cheques issued to them. Do you agree with this.”

In reply Mr. Anish Jain stated that

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

“I wish to state that all this activities were carried out by me in my individual capacity on behalf of persons like Mr. Gurmukh, Mr. Rajesh Gokhru, Mr. Jagdish Agrawal etc. Cash was provided by these persons for carrying out trading activities which was paid to Mr. S. N. Gadiya. Arihant Group of companies or its management was not involved in any such activities of providing cash. These transactions were not carried out as an employee of Arihant group of companies and no additional income or commission was passed to Arihant Group of Companies. The amount of additional income earned by me by way of commission was shared with Mr. Sunil Pandey and some amount was paid to Shri S. N. Gadiya and balance amount was my personal income. The brokerage of Rs. 100/- on turnover of every Rs. 1 crores was not paid to Arihant group of companies in cash but was charged in the contract notes, as is done in all other cases and was realized from the respective trading accounts from the respective clients in their books of accounts.”

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

deleted by the Learned CIT(A) and we find no reason to interfere with the findings of the Ld. CIT(A) on this issue. Accordingly ground nos. 4 to 12 raised by the Revenue have no merit and are hereby dismissed. Thus, the appeal of the Revenue bearing ITA No. 10/Ind/2021 is dismissed.

Arihant Future & Commodities – AY 2016-17 – ITA No. 734/Ind/2019

Arihant Capital Markets Ltd. – AY 2014-15 - ITA No. 11/Ind/2021

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

this issue as culled out from the records are that the Ld. AO made an addition of Rs. 88,024/- u/s 37, by disallowing the penalties paid by the assessee to the stock exchanges. The said disallowance was deleted by the Ld. CIT(A), against which the Revenue is in appeal.

Assessee’s COs

Arihant Future and Commodities Ltd. – AY 2014-15 – CO No. 48/Ind/2021

Arihant Capital Markets Ltd. – AY 2014-15 – CO No. 49/Ind/2021.

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

M/s Arihant Future and Commodities Ltd., Indore ITANo.374/Ind/2019 & others

Thus, in our considered view, the assessee is entitled to deduction of cess. Accordingly, ground no. 7 of CO 48/Ind/210 and ground no. 6 of CO 49/Ind/2021 is allowed.

The order pronounced as per Rule 34 of ITAT Rules, 1963 on 21.03.2022.

Sd/- Sd/- (MAHAVIR PRASAD) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER

�दनांक /Dated : 21.03.2022 !vyas! Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file.

By Order,

Sr. Private Secretary, I.T.A.T., Indore