Shanti Commoddities, Jalgaon v. Income-tax Officer, Nashik

ITA 787/PUN/2010 | 2007-2008
Pronouncement Date: 28-11-2014 | Result: Dismissed

Appeal Details

RSA Number 78724514 RSA 2010
Assessee PAN AACAS2256F
Bench Pune
Appeal Number ITA 787/PUN/2010
Duration Of Justice 4 year(s) 6 month(s) 3 day(s)
Appellant Shanti Commoddities, Jalgaon
Respondent Income-tax Officer, Nashik
Appeal Type Income Tax Appeal
Pronouncement Date 28-11-2014
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 28-11-2014
Date Of Final Hearing 04-11-2013
Next Hearing Date 04-11-2013
Assessment Year 2007-2008
Appeal Filed On 25-05-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE BEFORE: SHRI G.S. PANNU ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR JUDICIAL MEMBER ITA NOS. 855 & 856/PN/2010 ASSESSMENT YEAR S : 200 6 - 07 & 2007 - 08 INCOME TAX OFFICER CENTRAL 2 NASHIK VS. M/S. SHANTI COMMODITIES 18 SAHAKARI AUDOGIC VASAHAT MIDC AREA AJINTHA ROAD JALGAON (APPELLANT) (RESPONDENT) PAN NO. AACAS2256F ITA NOS. 857 & 858/PN/2010 ASSESSMENT YEAR S : 200 5 - 06 & 200 6 - 07 INCOME TAX OFFICER CENTRAL 2 NASHIK VS. M/S. SAHAYOG COMMODITIES (OLD) C/O PARTNER SHRI BASANT R. AGRAWAL SADGURU NAGAR MIDC AREA JALGAON (APPELLANT) (RESPONDENT) PAN NO. ABCFS2966C ITA NOS. 859 & 860/PN/2010 ASSESSMENT YEAR S : 2006 - 07 & 2007 - 08 INCOME TAX OFFICER CENTRAL 2 NASHIK VS. M/S. SAHAYOG COMMODITIES (NEW) 17 SAHAKARI AUDYOGIK VASAHAT MIDC AREA AJANTHA ROAD JALGAON (APPELLANT) (RESPONDENT) PAN NO. ABCFS2966C ITA NOS. 776 & 777/PN/2010 ASSESSMENT YEAR S : 2006 - 07 & 2007 - 08 SAHAYOG COMMODITIES 17 AUDYOGIK VASAHAT COMPLEX AJANTHA ROAD MIDC JALGAON VS. INCOME TAX OFFICER CENTRAL 2 NASHIK (APPELLANT) (RESPONDENT) PAN NO. ABCFS2966C PAN NO. ABCFS2966C 2 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N ITA NOS. 786 & 787/PN/2010 ASSESSMENT YEAR S : 2006 - 07 & 2007 - 0 8 SHANTI COMMODITIES 18 AUDOGIC VASAHAT COMPLEX AJINTHA ROAD MIDC JALGAON VS. INCOME TAX OFFICER CENTRAL 2 NASHIK (APPELLANT) (RESPONDENT) PAN NO. AACAS2256F PAN NO. AACAS2256F A SSESSEE BY: SHRI SUNIL PATHAK/ SHRI NIKHIL PATHAK RE VENUE B Y: SHRI A.K. MODI DATE OF HEARING : 30-10-2014 DATE OF PRONOUNCEMENT : 28-11-2014 ORDER PER R.S. PADVEKAR JM:- IN THIS BATCH OF TEN APPEALS SIX APPEALS ARE FILED BY THE REVENUE AND FOUR APPEALS ARE FILED BY THE ASSESSEE. AS THE ASSESS EES ARE INTERLINKED AND THESE APPEALS ARE ARISING OUT OF THE COMM ON SEARCH AND SEIZURE ACTION CONDUCTED ON 22-11-2007 AND HENCE BATCH OF APPEALS ARE DISPOSED OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. AT THE BEGINNING OF THE HEARING BOTH THE PA RTIES AGREED THAT WE SHOULD TAKE THE APPEALS OF M/S. SAHAYOG COMMODI TIES (NEW) AS THE LEAD APPEALS BEING ITA NOS. 776 & 859/PN/2010 FOR THE A.Y. 2006-07 WHICH ARE THE CROSS APPEALS ONE BY THE ASSESS EE AND ANOTHER BY THE REVENUE. WE ACCORDINGLY TAKE THE REVENUES AP PEAL BEING ITA NO. 859/PN/2010 FOR THE A.Y. 2006-07 FOR DISPOSAL. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS IN THE APPEAL: 1. (A) WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.40 16 93 630/- BY TREATING INCOME AS EARNED BY CLIENTS OF THE ASSESSEE AND NOT BY THE ASSESSEE? 3 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N (B) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) FAILED TO APPRECIATE THAT THE TRANSACTIO NS CLAIMED TO HAVE BEEN DONE ON BEHALF OF PURPORTED CLI ENTS WAS NOT LEGALLY PERMISSIBLE AS THE ASSESSEE WAS NEITHER BROKER OR SUB-BROKER OF SUCH CLIENTS AND THEREFORE E RRED IN DELETING THE ADDITION OF RS.40 16 93 630/-. (C) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) FAILED TO APPRECIATE THAT THERE WAS NO C LIENT AGREEMENT KYC DETAILS BROKER'S NOTE WITH PURPORTED CLIENTS AND THEREFORE ERRED IN DELETING THE ADDITION OF RS.40 16 93 630/-. 2.(A) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) FAILED TO APPRECIATE THAT TRANSACTION RE SULTING IN SPECULATION LOSS OF RS.1 00 21 000/- DONE THROUGH MADHYA BHARAT INTERNATIONAL (I) LTD. WAS NOT LEGALLY PERMISSIBLE TRANSACTION AND THEREFORE THE AO HAS RIGH TLY DISALLOWED THE BOGUS SPECULATION LOSS OF RS.1 00 21 000/- THOUGH THE AO HAS WRONGLY MADE ADDITION U/S 41(1) IN T HE ASSESSMENT ORDER. (B) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THAT MADHY A BHARAT INTERNATIONAL (I)LTD. CARRIED OUT THE TRANSAC TIONS ON ITS OWN ACCOUNT & NEVER ACTED AS BROKER OR SUB-BROKER OF THE ASSESSEE & LOSSES INCURRED BY MADHYA BHARAT INTERNATIONAL (I)LTD. WERE SUBSEQUENTLY TRANSFERRED T O THE ASSESSEE BY WAY OF MERE ENTRIES HENCE LOSSES ARE NOT GENUINE LOSSES. (C) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. C1T(A) FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE HAD FAILED TO PRODUCE CONTRACT NOTES BILLS PR OOF OF PAYMENT OF MARGIN MONEY SIGNED COPY OF AGREEMENT ET C. WHICH SHOWS THAT LOSSES OF RS.1 00 21 000/- ARE NOT GENUINE LOSSES AND MERELY REPRESENTS BOOK ENTRIES NO T SUPPORTED BY GENUINE TRANSACTION AND HENCE LOSSES NE ED TO BE IGNORED. 2. IN THIS APPEAL THERE ARE EFFECTIVELY TWO ISSUES. WE FIRST DECIDE THE GROUND NO. 1 WHICH IS IN RESPECT OF THE ADDITION OF RS.40 16 93 630/- WHICH WAS MADE BY THE ASSESSING OFFICER A ND DELETED BY THE LD. CIT(A). THE ASSESSEE IS A PARTNERSHIP FIRM WHICH IS CONSTITUTED VIDE DEED OF PARTNERSHIP DATED 30-06-2005 W .E.F. 01-07- 2005. IT APPEARS THAT THE OLD PARTNERSHIP FIRM WHICH WA S CONSISTING OF SEVEN PARTNERS AND THIS NEW FIRM WAS CONSTITUTED BY T HE THREE PARTNERS AS THE OTHER PARTNERS RETIRED FROM THE FIRM. I T IS STATED THAT ASSESSEE FIRM ACTS AS SUB-BROKER AND EARNS BROKERAGE AND NCDEX TRADING PROFIT. THE ASSESSEE FILED THE RETURN OF INCOME FOR THE A.Y. 4 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N 2006-07 U/S. 139 ON 21-10-2006 DECLARING TOTAL INCOME OF RS.47 91 684/-. THERE WAS A SEARCH AND SEIZURE ACTION U/ S.132(1) OF THE ACT AGAINST THE ASSESSEE GROUP ON 22-11-2007 AND IN CONSEQUENCE OF THE SEARCH AND SEIZURE ACTION THE ASSESSEE FIRM WAS IS SUED A NOTICE U/S. 153A ON 18-09-2009. IN RESPONSE TO THE SAID NOTIC E THE ASSESSEE FILED THE RETURN OF INCOME DECLARING THE SAME INCOME AS PE R THE RETURN OF INCOME ORIGINALLY FILED U/S. 139 OF THE ACT ON 21-10-2006. THE ASSESSING OFFICER HAS OBSERVED THAT IN THE COURSE OF SEAR CH IN SAHAYOG GROUP OF CASES IT WAS FOUND THAT M/S. SAHAYOG COMMODITIES HAS EARNED HUGE INCOME FROM COMMODITIES MARKET. AS NOTED BY THE ASSESSING OFFICER THE ASSESSEE IS A CLIENT OF M/S. A.M. FUTUR E OF MUMBAI. THE ASSESSEE HAS EARNED THE INCOME FROM COMMODITY MARKE T THROUGH ITS BROKER M/S. A.M. FUTURES. IT WAS FOUND THAT THE ASSESSEE DISTRIBUTED THE SAID PROFIT TO ITS DIFFERENT CLIENTS. THE ASSE SSING OFFICER EXAMINED THE BOOKS OF ACCOUNT OF THE ASSESSEE FOR THE F .Y. 2005-06 AND HE HAS NOTED THAT THE ASSESSEE HAS DISTRIBUTED PR OFITS OF RS.41 92 40 472/- TO 170 CLIENTS AND ALSO INCURRED LOSSES OF RS.1 75 46 842/- AND EARNED NET PROFIT OF RS.40 16 93 630/- W HICH WAS NOT DECLARED AS A PROFIT OF THE ASSESSEE. IN SHORT THE SAID PROFIT WAS TREATED AS A PROFIT OF THE ASSESSEES CLIENTS AS THE SAID PROFIT WAS PASSED ON TO THEM. 3. DURING THE COURSE OF SEARCH AND SEIZURE ACTION STAT EMENT OF SHRI SATISHCHAND GOPILAL MITTAL PARTNER OF M/S. SAHAYOG COMMOD ITIES WAS RECORDED U/S. 132(4) OF THE ACT ON 23-11-2007. AS N OTED BY THE ASSESSING OFFICER THE PARTNER OF THE ASSESSEE ACCEPTED T HAT THE ASSESSEE IS A CLIENT OF M/S. A.M. FUTURE AND NOT A SUB-BRO KER. THE PARTNER OF THE ASSESSEE FIRM ALSO ACCEPTED THAT HE WAS A CLIENT OF M/S. SANJAY PULSE PROCESSORS PVT. LTD. JALGAON (NCDEX) M/S. SH UBH COMMODITIES JALGAON (NCDEX) AND M/S. SHANTI COMMODITIES 5 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N JALGAON (NCDEX) AND NOT A SUB-BROKER FOR ANY OF THEM. IN THE STATEMENT SHRI MITTAL STATED THAT THE ASSESSEE FIRM WAS ACTING AS A SUB-BROKER AND IN RESPECT OF 170 PARTIES FOR WHOM THE B USINESS WAS DONE BY THE ASSESSEE FIRM THOSE WERE TREATED AS CLIENTS . SHRIT MITTAL ALSO ADMITTED THAT THE ORDER FOR BUYING AND SELLING WAS PLA CED UNDER CLIENT-ID (S0016) WHICH IS OF THE ASSESSEE FIRM WHEN AS PER THE RULES OF NCDEX THE SAID ID CANNOT BE USED FOR OTHER PARTIES. SHRI MITTAL ALSO EXPLAINED THE MODUS OPERANDI WITHOUT BEING THE SUB -BROKER OR BROKER OF NCDEX HOW THE ASSESSEE FIRM WAS OPERATING OR DOING ITS BUSINESS BY MANIPULATING CUSTOM ID. THE ASSESSING OFFICER THEREFORE CAME TO THE CONCLUSION THAT ALL CONTRACTS BETWEEN THE ASSESSEE AND ITS CLIENTS IN RESPECT OF THE TRANSACTIONS IN THE COMMODITIES ARE ILLEGAL U/S. 15 OF FORWARD CONTRACT (REGULATION) ACT 1952 AND U/ S. 11(3) OF THE FCRA AND ALL CONTRACTS ARE VOID. 4. THE ASSESSING OFFICER PROCEEDED TO ASSESS RS.40 16 93 63 0/- A NET PROFIT WHICH WAS CLAIMED TO HAVE BEEN DISTRIBUTED BY T HE ASSESSEE FIRM TO ITS 170 CLIENTS AS AN INCOME OF THE ASSESSEE IN ITS HAND. THE ASSESSEE RESISTED THE ACTION OF THE ASSESSING OFFICER. THE ASSESSEE FILED THE SAMPLE COPY OF THE NCDEX BILL TO SHOW HOW THE OP ERATIONS WERE DONE IN THE NCDEX. IT WAS STATED BY THE ASSESSE E THAT THE TRADE BILLS ISSUED BY THEM TO THEIR CLIENTS WERE GENERATED BY TH E NCDEX SOFTWARE IN WHICH THE ENTIRE MATTER SUCH AS CODE NO. NAM E BILL NO. DATE SETTLEMENT NO. SETTLEMENT PERIOD ETC. ARE MENTIONED . THE ASSESSEE ALSO STATED THAT THEIR CLIENTS USED TO VISIT THE IR BUSINESS PLACE AND THEY USED TO PLACE THE ORDERS. THE ASSESSEE ALSO STATED THAT DURING THE SEARCH AND SEIZURE PROCEEDINGS EVEN IF THE C LIENT LIST AND ADDRESS WERE NOT READILY AVAILABLE BUT THEREAFTER IMMEDIAT ELY IT WAS PREPARED AND SAME WAS FURNISHED. IT WAS ALSO CLAIMED BY THE ASSES SEE THAT EACH CLIENT IS HAVING ID CODE NO. AND HENCE IT IS EAS Y TO KNOW 6 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N EVERY CLIENT. IN RESPECT OF THE STAMP DUTY PAYMENT THE ASSESSEE STATED THAT THE SAME WAS AUTOMATICALLY CREDITED/DEBITED THROUGH THE BILL AMOUNT AND NET AMOUNT RECEIVABLE OR PAYABLE IS ONLY R EFLECTED IN THE BOOKS AS PER SOFTWARE PROGRAMMER. IT WAS ALSO STA TED THAT M/S. A.M. FUTURE ALSO CREDITED/DEBITED THE STAMP DUTY ON THE ENTIRE TRANSACTIONS AND THEY ALSO CHARGED IT THROUGH THE BILL AN D NET AMOUNT RECEIVABLE OR PAYABLE IS ONLY REFLECTED IN THE BILLS AND IN T HEIR ACCOUNTS. THE ASSESSEE ALSO STATED THAT ALL CLIENTS ARE GENUINE AND VERIFICATION IS DONE BY THE SEARCH OFFICIALS. THE ASSESSING OFFIC ER WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE AND HE ASSESSED THE ENTIRE INCOME OF RS.40 16 93 630/- AS UNDISCLOSED INCOME OF THE ASSESSEE IN ITS HAND. THE DETAILS OF INCOME RETURNED DIFFERE NT ADDITIONS MADE AND FINALLY INCOME ASSESSED BY THE A.O. ARE AS UNDER : ASSESSEMNT YEAR 2006-07: INCOME RETURNED AS PER NET PROFIT OF AUDITED PROFIT & LOSS ACCOUNT RS.47 91 684/- ADD: NET INCOME EARNED BY THE CLIENTS (PROFIT RS.41 92 40 472 - LOSS RS.L 75 46 842) RS.40 16 93 630/- ADD: SPECULATION LOSS IN RESPECT OF TRANSACTION OF MADHYA BHARAT INTERNATIONAL PVT. LTD. [U/S.41(1)] RS.1 00 21 000/- TOTAL INCOME ASSESSED RS.41 65 06 314/- ----------------------------- - 4.1 THE REASONS NOTED BY THE ASSESSING OFFICER FOR HOLDING THAT THE SUM OF RS.40 16 93 630/- REPRESENTS UNDISCLOSED INCOME OF T HE ASSESSEE FIRM ARE AS UNDER: I). INITIALLY DURING THE COURSE OF SEARCH ACTION THE ASSE SSEE (Q. NO. 11 OF THE STATEMENT DATED 22.11.2007) CONTENDED TH AT SAHAYOG COMMODITIES WAS DOING TRADING COMMODITIES FUTU RES ON PROPRIETARY BASIS AS WELL AS ON BEHALF OF CLIENTS. IN RESPECT OF 7 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N PROPRIETARY TRADES THE ASSESSEE GETS PROFIT OR LOSS AND IN RESPECT OF TRADES BY CLIENTS THEY EARN BROKERAGE INCOME. FOR THIS PURPOSE THE ASSESSEE IS ENROLLED AS SUB BROKER OF THE FOLLOWIN G BROKERS FOR DEALING IN NCDEX. A. AM FUTURES NAVI MUMBAI. B. SANJAY PULSE PROCESSORS JALGAON. C. SHUBH COMMODITIES JALGAON. D. SHANTI COMMODITIES JALGAON. (AFTER THE ABOVE THREE SUB-BROKER FACILITIES WERE SURRENDERED). II) DURING THE COURSE OF THE STATEMENT THE RELEVANT POR TION OF NCDEX RULES AND REGULATIONS WHICH STIPULATE THAT A P ERSON WHO IS AN AUTHORIZED PERSON OF A MEMBER DURING ITS CONTI NUATION OF BEING AUTHORIZED PERSON SHALL NOT QUALIFY TO BECOME A N AUTHORIZED PERSON OF ANY OTHER MEMBER WAS READ OUT TO SHRI SAT ISH MITTAL (Q.4). HE ACCEPTED THAT SAHAYOG COMMODITIES IS A CLIENT OF M/S. A M FUTURES AND NOT A SUB-BROKER (Q.6 AND 7). HE HAS FU RTHER ACCEPTED THAT HE WAS A CLIENT OF BOTH M/S. SANJAY PU LSE PROCESSORS PVT. LTD. JALGAON (NCDEX) M/S. SHUBH COMMOD ITIES JALGAON (NCDEX) AND M/S. SHANTI COMMODITIES JALGAON (NCD EX) AND NOT A SUB-BROKER FOR ANY OF THEM (Q.8). THE SAID FA CT HAS ALSO BEEN CONFIRMED BY THE ASSESSEE IN THE SUBMISSION DA TED 09.11.2009. III) WHEN ASKED AS TO HOW HE COULD HAVE DEALT WITH OVER 1 70 CLIENTS WHEN M/S. SAHAYOG COMMODITIES ITSELF WAS MEREL Y A CLIENT SHRI. SATISH MITTAL (Q.9) STATED THAT HE TREATED SAHAYOG COMMODITIES AS A SUB-BROKER AND ACCORDINGLY TREATED T HESE 170 PARTIES AS ITS CLIENTS. IT NEEDS TO BE NOTED OVER HER E THAT EVEN IF ONE ACCEPTS FOR THE SAKE OF ARGUMENT THAT M/S. SAHAY OG COMMODITIES WAS A SUB-BROKER EVEN THEN A SUB-BROKER IS NOT ENTITLED TO ISSUE A BROKER NOTE/CONTRACT NOTE. ONLY TH E MAIN BROKER IS AUTHORIZED TO ISSUE A BROKER NOTE. HOWEVER IN TH IS CASE M/S. SAHAYOG COMMODITIES HAS AS PER ITS OWN CLAIM UNAUTHORIZ EDLY ISSUED NOTES UNDER ITS OWN LETTER HEAD IN THE NAME TO ITS SO CALLED CLIENTS. IN ABSENCE OF CONTEMPORANEOUS EVIDENCE THER E IS NO PROOF AS TO WHEN THESE NOTES WERE ISSUED. THIS CLEARLY SHOW S THAT IT WAS A SELF SERVING ACT OF M/S. SAHAYOG COMMODITIES. IV) SHRI. SATISH MITTAL WAS THEN ASKED TO EXPLAIN THE MOD ALITIES THAT WERE FOLLOWED IN EXECUTING THE TRADES ON BEHALF O F THOSE SO CALLED 170 CLIENTS. HE STATED THAT THEY EXECUTED THE C ONTRACTS BY PUTTING THE NAME OF THEIR CLIENTS IN THE 'REMARK' C OLUMN (Q.10). SHRI. SATISH MITTAL WAS THEN ASKED TO OPEN THE TERMIN AL AND SHOW AS TO HOW AND WHERE THE NAME OF SO CALLED CLIENTS WAS INSERTED IN THE REMARKS COLUMN. AT THIS STAGE IT IS RECORDED THAT THE ASSESSEE TOOK 25 MINUTES AND CONSULTED WITH HIS EMPLOYEES. THE STATEMENT WAS RECORDED IN PRESENCE OF HIS CHARTERED ACCOUNTAN T. AFTER A PAUSE OF OVER 25 MINUTES SHRI. SATISH MITTAL EXPRESSE D HIS INABILITY TO SHOW AS TO HOW THE ORDERS OF A SO CALLED CLIENTS COULD BE EXECUTED BY MAKING AN ENTRY IN THE REMARKS COLUMN WHILE OPERATING IN THE ACCOUNT OF M/S. SAHAYOG COMMODITIES BEING A CLIENT (Q. 12). THEN HE WAS ONCE AGAIN ASKED TO EXPLAI N THE MODALITIES OF PLACING CONTRACTS UNDER THE USER-ID OF M/S. SAHAYOG 8 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N COMMODITIES. HERE SHRI. SATISH MITTAL ADMITTED (Q. 13) THA T THEY PLACED THE ORDERS TO BUY AND SELL UNDER CLIENT-ID (S00 16) OF M/S. SAHAYOG COMMODITIES AND ADDED THAT THE TRANSACTION CA NNOT BE APPORTIONED TO ANY OTHER CLIENT AT THE TIME OF PLACIN G THE ORDER. IN THE LIGHT OF THE ABOVE THE CONTENTION OF THE ASSESS EE (VIDE HIS LETTER DATED 09.11.2009) THAT THE ENTIRE TRANSACTIONS OF THE COMMODITIES TRADE ARE CARRIED OUT ONLINE WITH THE EXCH ANGE IS DEVOID OF ANY MERITS. ONCE IT IS ESTABLISHED THAT M/S. SAHAYOG COMMODITIES IS MERELY A CLIENT AND THAT IT HAS A CLIEN T CODE THROUGH WHICH IT IS ENTITLED TO TRADE IN ITS OWN ACCOUN T THE ASSESSEE CANNOT CONTEND THAT IT WAS EXECUTING THE TR ADES ON BEHALF OF ITS CLIENT ONLINE WITH THE EXCHANGE. HENCE ASSESSEES SAY ON THIS COUNT IS REJECTED. FURTHER THE STATEMENT REC ORDED DURING THE COURSE OF SEARCH CLEARLY MENTIONS THAT SHRI SATI SH MITTAL AT ALL TIMES TOOK A PAUSE OF 15-25 MINUTES CONSULTED HIS EMPLOYEE S THE CHARTERED ACCOUNTANT IN WHOSE PRESENCE THE STATEMEN T WAS RECORDED AND THEN ANSWERED A PARTICULAR QUESTION. TH IS SHOWS THAT THERE WAS DUE APPLICATION OF MIND BEFORE ANSWE RING THE QUESTIONS ON OATH AND THE ARGUMENT THAT HE WAS UNDE R TREMENDOUS PRESSURE TO ANSWER THE QUESTIONS MAY NOT HOLD ANY GROUND. V) SIMILARLY IT IS THE CONTENTION OF THE ASSESSEE (VIDE HIS LETTER DATED 09.11.2009) THAT THE ORDERS OF THE CLIENTS WERE EXECUTED ON REAL TIME BASIS ON THE NCDEX SOFTWARE. IT HAS ALSO BEEN CONTENDED THAT THESE DETAILS ARE VERY MUCH AVAILABLE ON THE SOFTWARE WHICH HAS BEEN SEIZED BY THE DEPARTMENT DU RING THE COURSE OF SEARCH ACTION. HENCE VIDE NOTE SHEET ENTRY DATED 28.12.2009 THE WORKING COPY OF THE SEIZED CD'S WERE EX AMINED AND IT WAS FOUND THAT NO SUCH DETAILS REGARDING THE S O CALLED CLIENTS FED ON THE NCDEX SOFTWARE WERE AVAILABLE IN THE SAID CD. THIS FACT WAS CONFRONTED TO THE ASSESSEE AND HE WAS ASKED TO SHOW AS TO WHERE THIS DATA IS AVAILABLE ON THE SEIZE D COPIES OF THE CD. FURTHER ENQUIRES WERE MADE WITH THE NCDEX AND THE SOFT COPIES OF THE TRANSACTIONS ENTERED BY M/S. SAHAYOG C OMMODITIES THROUGH M/S. SHANTI COMMODITIES ON THE NCDEX WERE CALLE D FORTH. ON GOING THROUGH THE SAID CD IT WAS FOUND THAT ALL THE TRANSACTIONS HAVE BEEN ENTERED INTO BY M/S. SAHAYOG COMMODITIES AS A CLIENT OF M/S. SHANTI COMMODITIES AND THERE IS NO ENTRY WHATSOEVER REGARDING ANY OF THE SO CALLED CL IENTS AS CLAIMED BY M/S. SAHAYOG COMMODITIES. THIS FACT HAS ALS O BEEN CONFRONTED TO THE ASSESSEE VIDE NOTE SHEET ENTRY DA TED 28.12.2009 AND THE COUNSEL FOR ASSESSEE STATED THAT HE WOULD ATTEND WITH THE PARTNERS ON 30.12.2009 AND THEN RESPON D TO IT. EVEN OTHERWISE THE CONTENTION TAKEN BY THE ASSESSEE IS INCORRECT SIMPLY BECAUSE HE WAS A MERE CLIENT AND NOT A BROKER TO ISSUE ANY CONTRACT NOTE/BROKER NOTE. THE CONTENTION OF THE ASSESSEE ON THIS POINT IS REJECTED. VI) THE MOST CRUCIAL ISSUE THAT NEEDS TO BE ANSWERED IS WHILE TRADING IN ITS CAPACITY AS A CLIENT HOW CAN M/S. SAHA YOG COMMODITIES DEAL ON BEHALF OF ITS SO CALLED CLIENTS? FURTHER WHAT ARE THE DOCUMENTARY EVIDENCES SEIZED OR PRODUCED DU RING THE COURSE OF SEARCH TO PROVE THE GENUINENESS OF THE CL AIM OF M/S. SAHAYOG COMMODITIES THAT IT WAS DEALING ON BEHALF OF I TS SO CALLED CLIENTS? IN ORDER TO GET AN ANSWER TO THIS CRIT ICAL QUESTION (Q. NO. 14) SHRI SATISH MITTAL WAS ASKED TO EXPLAIN AT W HAT POINT OF TIME AND ON WHAT BASIS THE SAID ORDERS HAVE BEEN BIFURCATED AMONGST THE SO CALLED CLIENTS. SHRI. SATISH MITTAL AFT ER DELIBERATING 9 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N ON THIS ISSUE FOR OVER 15 MINUTES REPLIED THAT ON TH E BASIS OF RECEIPT OF 'TRADE FILE' THROUGH INTERNET FROM THE BR OKER ON THE NEXT DAY THEY USED TO APPORTION THE TRADE ON THE BASIS O F ORDER REGISTER. WHEN HE WAS ASKED TO PRODUCE THE SAID ORDE R REGISTER FOR EXAMINATION HE STATED THAT ALL ORDER REGISTERS ARE D ESTROYED (Q. NO. 15). IT IS ALSO A FACT THAT THESE SO CALLED ORDER R EGISTERS HAVE NEITHER BEEN FOUND NOR SEIZED DURING THE COURSE OF THE SEARCH ACTION. FURTHER THERE IS NO MERIT WHATSOEVER IN THE C ONTENTION OF THE ASSESSEE THAT THESE TRADES ARE ENTERED IN THE S OFTWARE OF THE 'TRADE FILE' THAT IS RECEIVED THROUGH INTERNET FROM THE BROKER ON THE NEXT DAY. THE ASSESSEE WAS ASKED TO SHOW AS TO HOW T HE ORDERS ON BEHALF OF THE CLIENTS CAN BE EXECUTED THROUGH HI S OWN CLIENT CODE. HE STATED THAT THE ENTRIES REGARDING THE NAME OF SO CALLED CLIENTS ARE MADE IN THE REMARKS COLUMN. WHEN ASKED T O SHOW THE SAME ON THE COMPUTER BY OPENING THE TERMINAL BY INSE RTING THE CLIENT CODE OF M/S. SAHAYOG COMMODITIES SHRI SATISH MIT TAL HAS ADMITTED ON OATH NO SUCH REMARK COLUMN EXISTS. HENCE IT IS CLEAR THAT THE NAMES OF THE SO CALLED CLIENTS CANNOT BE ENT ERED WHILE TRADING IN THE CLIENT CODE OF M/S. SAHAYOG COMMODITI ES. THIS BEING THE CASE THERE IS NO MERIT IN THE CONTENTION O F THE ASSESSEE THAT THE ENTRIES OF THE SO CALLED CLIENTS CAN BE ENTE RED IN THE 'TRADE FILE' RECEIVED THROUGH INTERNET FROM THE BROKER ON T HE NEXT DAY. THUS THE CONTENTION OF THE ASSESSEE ON THIS COUNT S TANDS REJECTED FURTHER EVEN IF IT IS PRESUMED THAT THERE IS A SOFT WARE IN WHICH THE ASSESSEE M/S. SAHAYOG! COMMODITIES SUBSTITUTED ITS NAME BY THE NAME OF ANY OTHER SO CALLED CLIENT EVEN THEN THE CLAIM OF THE ASSESSEE CANNOT BE ACCEPTED SO LONG AS THE ASSESSEE IS UNABLE TO PROVE THAT THESE TRADES WERE IN FACT EXECUTED ON BE HALF OF THE SO CALLED CLIENTS BY PRODUCING CONTEMPORANEOUS EVIDENCES IN SUPPORT OF THIS CLAIM. THE ASSESSEE HAS FAILED ON THIS COUNT ALSO. VII) ASSUMING FOR THE MATTER OF ARGUMENT THAT THESE SO CALLED CLIENTS WERE THE CLIENTS OF M/S. SAHAYOG COMMODITIES SHRI SATISH MITTAL WAS ASKED TO PRODUCE THE DETAILS OF APPLICATIO N FORMS DURING THE SEARCH AT Q.18 HE CONCEDED THAT HE IS NOT ABLE TO PRODUCE THE KNOW YOUR CLIENT (KYC) DOCUMENTS IN RESP ECT OF ANY OF THE CLIENTS AS THE SAME WERE NEVER OBTAINED. THIS SITUATION CONTINUES TO REMAIN THE SAME AT THE TIME OF COMPLETIO N OF THE ASSESSMENT PROCEEDINGS. VIII) FURTHER IN RESPONSE TO Q. 23. SHRI. SATISH MITTAL STAT ED THAT SAHAYOG COMMODITIES HAS PAID THE STAMP DUTY TO M/S. A M FUTURES FOR CONTRACTS. MEANING THEREBY THAT THE CONT RACT WAS ONLY BETWEEN M/S. A.M. FUTURES AND M/S. SAHAYOG COMMODITIES A ND NO ONE ELSE. FURTHER THERE WAS NO CONTRACT BETWEEN S AHAYOG AND ITS SO-CALLED CLIENTS (Q.26). THE AGREEMENT BETWEEN A BRO KER AND THE CLIENT OR A TRIPARTITE AGREEMENT BETWEEN THE BRO KER SUB-BROKER AND THE CLIENT IS ESSENTIAL AS IT INSULATES THE BROKER OR SUB-BROKER FROM THE RISKS INCURRED BY THE CLIENTS DURING THE C OURSE OF HIS TRANSACTIONS WITH THE COMMODITY EXCHANGE. IN ABSENCE O F ANY SUCH AGREEMENT M/S. SAHAYOG COMMODITIES REMAINED UNINSULATED FROM THESE RISKS. HENCE IT WAS SOLELY RESPONSIBLE/LIABLE FOR THE LOSSES OR PROFITS ARISING OU T OF THE TRANSACTIONS ENTERED ON BEHALF OF THE SO CALLED CLIEN TS IF AT ALL THERE WERE ANY. UNDER THESE CIRCUMSTANCES IT CANNOT BE SAID THAT THESE WERE THE TRANSACTIONS ENTERED INTO BY M/S. SAH AYOG COMMODITIES ON BEHALF OF ITS SO CALLED CLIENTS. AT THE A SSESSMENT STAGE THE ASSESSEE HAS COME UP WITH AN ARGUMENT FOR THE FIRST TIME THAT THERE WAS AN ORAL AGREEMENT WITH THE SO CALLE D CLIENTS 10 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N AND THAT IT IS NOT NECESSARY THAT THERE IS ANY WRITTE N AGREEMENT. THIS CONTENTION OF THE ASSESSEE IS AGAIN AN AFTERTH OUGHT AS THIS PLEA WAS NEVER TAKEN DURING THE COURSE OF STATEMENT RECORDED IN THE SEARCH ACTION. SECONDLY THE KEY REASON FOR NOT HA VING A WRITTEN AGREEMENT IS THAT HE HAD NO LOCUS STANDII FOR E XECUTING SUCH AN AGREEMENT AS HE WAS NEITHER A BROKER NOR HIS FRANCHISEE. NEEDLESS TO SAY THAT THE ASSESSEE FAILED TO PRODUCE A NY RULING IN SUPPORT OF HIS CLAIM THAT WHILE DEALING IN COMMODITY M ARKETS IT IS NOT NECESSARY FOR THE CLIENT BROKER OR HIS FRANCHIS EE TO SIGN ANY WRITTEN AGREEMENT AND THAT AN ORAL AGREEMENT IS SUFFI CIENT. WITHOUT PREJUDICE TO WHATEVER STATED ABOVE EVEN IF IT IS PRESUMED THAT THERE WAS ANY CONTRACT THEN TRANSACTIONS IN C OMMODITIES FUTURES CLAIMED TO BE UNDERTAKEN BY SAHAYOG WITH THE SO-CALLED CLIENTS ARE ILLEGAL U/S S.15 OF FORWARD CONTRACT (REGULA TION) ACT 1952 AND U/S S.11(3) OF THE FCRA THEY ARE VOID. IX) FURTHER THE ASSESSEE WAS ASKED TO PRODUCE THE COPI ES OF ACCOUNTS OF THESE SO CALLED CLIENTS IN THE BOOKS OF M /S. SAHAYOG COMMODITIES. ON GOING THROUGH THE COPIES OF ACCOUNTS IT IS SEEN THAT THE ASSESSEE HAS NOT COLLECTED ANY MARGIN MONEY FROM THESE SO CALLED CLIENTS. MEANING THEREBY THAT THESE SO CALLED CLIENTS HAVE BEEN ALLOWED TO TRADE IN COMMODITIES WITHOUT THE VALID MARGIN MONEY OR BRINGING IN THE MARK TO MARGIN LOSSE S ON A REGULAR BASIS. THE SPECIMEN COPY OF THE AGREEMENT BET WEEN THE BROKER AND CLIENT SHOWS THAT THE CLIENT IS BOUND TO BRING MARGIN MONEY BEFORE UNDERTAKING THE TRANSACTIONS IN COMMOD ITIES FUTURES. FURTHER THE CLIENT IS BOUND TO PAY THE MARK TO MARGIN LOSSES IF ANY WITHIN THE STIPULATED TIME ON A DAY-TO-DA Y BASIS. IT IS ALSO STIPULATED THAT IN CASE THE CLIENT FAILS TO PAY T HE MARGIN OR AS THE CASE MAY BE MARK TO MARGIN LOSS THE BROKER IS EN TITLED TO CLOSE OUT THE TRANSACTIONS AND RECOVER THE AMOUNT FR OM THE CLIENTS. BUT HERE WE HAVE A CASE WHERE THE ASSESSEE HAS CLAIM ED TO HAVE HAD CLIENTS UNDER HIM DESPITE HE HIMSELF BEING MEREL Y A CLIENT. HE HAS CLAIMED TO HAVE TRADED ON THEIR BEHALF WITHOUT ANY MARGIN OR MARK-TO MARGIN. SURPRISINGLY M/S. SAHAYOG COMMODIT IES HAS REGULARLY PAID ITS MARGIN MONEY TO THE BROKER M/S. A.M . FUTURES. THIS FACT IS ALSO EVIDENT FROM THE BALANCE SHEET OF M/S. A.M. FUTURES. THE MOOT QUESTION IS WHETHER M/S. SAHAYOG COMMODITIES WILL PAY THE MARGIN MONEY ON BEHALF OF ALL ITS SO CALLED CLIENTS WITHOUT COLLECTING ANY MARGIN MONEY FROM T HEM JUST IN RETURN FOR A PETTY AMOUNT CHARGED AS BROKERAGE F ROM THESE SO CALLED CLIENTS. ON THE PILLAR OF PREPONDERANCE OF PROBA BILITY THIS IS IMPROBABLE BUSINESS PROPOSITION. THE BROKERAGE IS CHAR GED AT A FRACTION OF PERCENTAGE WHEREAS THE MARGIN MONEY WOU LD REQUIRE HUGE AMOUNT OF INTEREST COST. THE RESULT IS THAT M/S . SAHAYOG COMMODITIES HAS IN THE END OF THE YEAR ISSUED CHEQUE S OF PROFIT OR COLLECTED CHEQUES OF LOSSES TO AND FROM THE SO CALLED CL IENTS. LOOKING AT THESE TRANSACTIONS FROM THE PREPONDERANC E OF PROBABILITY IT IS HIGHLY IMPROBABLE AND THE TRANSACTIONS NON GENUINE. IN A NORMAL TRANSACTION ON THE COMMODITIES EX CHANGE THE CLIENT TRADES THROUGH HIS ASSIGNED CLIENT CODE THROUGH THE MEMBER OF THE COMMODITY EXCHANGE AND THE VALID CONT RACT NOTE IS ISSUED BY THE MEMBER/BROKER. IN THE INSTANT CASE M/S . SAHAYOG COMMODITIES HAS ISSUED BROKER NOTES TO THE SO CALLED C LIENTS BY APPORTIONING THE PROFITS/LOSSES AT HIS OWN SWEET WILL OR AS PER THE REQUIREMENTS OF THE SO CALLED CLIENTS WITHOUT ANY CONTEMPORANEOUS EVIDENCE. THE BROKER NOTES ISSUED BY M/S. SAHAYOG COMMODITIES TO THE SO CALLED CLIENTS ARE PATENTL Y ILLEGAL AND PURE EYEWASH TO HOODWINK THE REVENUE AUTHORITIES AN D GIVE A 11 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N COLOUR OF GENUINENESS TO STRUCTURED TRANSACTIONS. THE TRANSACTIONS ARE COLOURABLE IN NATURE AND SQUARELY COVERED BY THE DECISION OF THE HON. SUPREME COURT IN THE CASE OF MAC DOWELLS INDIA LTD. X) DURING THE DYING MOMENTS OF THE ASSESSMENT PROCEED INGS THE ASSESSEE PRODUCED THREE OF ITS SO CALLED CLIENTS AS ITS WITNESSES. THE ASSESSEE HAS CONDUCTED THE EXAMINATIO N IN CHIEF OF THESE PARTIES AND IT IS A MERE NARRATION OF THE C LAIMS REITERATED BY THE ASSESSEE TIME AND AGAIN WITHOUT PRODUCING ANY EVIDENCES IN SUPPORT OF THESE CLAIMS. THESE WITNESSES WERE CROSS EXAMINED BY THE UNDERSIGNED ON 28.12.2009 AND IT WAS FOUND THAT NONE OF THEM HAD PAID ANY ADVANCE TAX THEY DID NOT HAVE ANY CONTRACT NOTES THEY HAVE NOT REGISTERED THEMSELVES AS A VALID CLIENT NOT FILLED UP KYC DETAILS HAD NOT PAID ANY MARGINS AND WE RE NOT ABLE TO PRODUCE ANY DOCUMENTARY AND CONTEMPORANEOUS EVIDENCES TO SUPPORT THEIR CLAIMS OF GENUINENESS OF TRANSACTIONS. FURTHER IT IS SEEN THAT M/S. SAHAYOG COMMODITIES HAS E ARNED PROFITS OF CRORES OF RUPEES BY TRADING IN ITS OWN CL IENT CODE BUT HAS NOT BOTHERED TO PAY ANY ADVANCE TAX ON THIS INCOME. IT HAS TAKEN A STAND THAT ALL THESE PROFITS BELONGED TO ITS SO CALLED CLIENTS AND IT WAS COLLECTING MERELY BROKERAGE. ON THE OTHER HAND TH E SO CALLED CLIENTS WHO HAVE EARNED THESE PROFITS AS PER T HE CLAIM OF M/S. SAHAYOG COMMODITIES ALSO HAVE NOT PAID THE ADVANC E TAX COMMENSURATE TO THE PROFITS EARNED. IN THE END THESE SO CALLED CLIENTS HAVE ALSO SETOFF THESE PROFITS AGAINST SOME OTHER LOSSES. THIS SHOWS THAT NEITHER M/S. SAHAYOG COMMODITIES NOR IT S SO CALLED CLIENTS HAD ANY INTENTION OF PAYING ANY ADVANC E TAX AS AND WHEN THEY WERE EARNING THE PROFITS. THIS GOES ON TO SHOW THAT ALL THESE TRANSACTIONS WERE STRUCTURED TRANSACTIONS AND NOT INCURRED IN THE NORMAL COURSE OR BUSINESS. THE LACK OF CONTEMP ORANEOUS EVIDENCE FURTHER FORTIFIES THIS CONCLUSION. FURTHER THE RE IS NO MERIT IN THE CONTENTION OF M/S. SAHAYOG COMMODITIES THAT IT WAS A SUB- BROKER OF M/S. A.M. FUTURES AND OTHERS. DURING THE COU RSE OF SEARCH IN THE CASE OF M/S. A.M. FUTURES THE STATEMENT OF ITS PROPRIETOR WAS RECORDED WHEREIN HE HAS STATED ON OA TH THAT IT HAS NOT PAID ANY BROKERAGE/COMMISSION TO M/S. SAHAYOG COMMODITIES. INFACT M/S. SAHAYOG COMMODITIES HAS PAID BROKERAGE TO M/S. A.M. FUTURES. THIS SHOWS THAT THE C LAIM OF M/S. SAHAYOG COMMODITIES THAT IT IS A SUB-BROKER OF M/S. A.M. FUTUR ES IS FALSE. HAD IT BEEN TRUE THEN M/S. A.M. FUTURES WOULD HA VE PAID BACK A PART OF BROKERAGE TO M/S. SAHAYOG COMMODITIES FOR THE BUSINESS CONDUCTED BY THE LATER ON BEHALF OF THE FO RMER. THE CONTENTION OF THE ASSESSEE ON THIS POINT STANDS REJECTED . XI. IT IS SEEN FROM THE EXTRACT OF ACCOUNT OF THE SO CA LLED CLIENTS IN THE BOOKS OF ACCOUNT OF M/S. SAHAYOG COMMODITIES T HAT THE ASSESSEE M/S. SAHAYOG COMMODITIES HAS NOT CHARGED ANY COMMISSION TO THEIR SO CALLED CLIENTS. THE ENQUIRIES W ITH THE SO CALLED CLIENTS HAVE ALSO NOT KNOWN REGARDING ANY BROKE RAGE AND COMMISSION PAID BY THEM TO M/S. SAHAYOG COMMODITIES. IT CAN ALSO BEEN SEEN FROM THE SO CALLED GENERATED BILLS THAT A SSESSEE HAS NOT CHARGED ANY COMMISSION TO THEIR SO CALLED CLI ENTS. IN VIEW OF THE ABOVE IT IS CLEAR THAT M/S. SAHAYOG COMMODITIES HAS NOT ACTED AS BROKER FOR THEIR SO CALLED CLIENTS. THE ENTIR E AMOUNT OF COMMODITY TRADE BELONGS TO M/S. SAHAYOG COMMODITIES. XII) WE NOW COME TO THE ONLY ISSUE HARPED UPON BY THE ASSESSEE. THE ASSESSEE HAS VEHEMENTLY ARGUED THAT TH E INVESTIGATION WING HAD CARRIED OUT POST SEARCH ENQU IRIES AGAINST 12 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N THESE SO CALLED CLIENTS AND THEY HAVE ALL CONFIRMED THES E TRANSACTIONS WITH M/S. SAHAYOG COMMODITIES AND ALSO DI SCLOSED THEM IN THEIR REGULAR RETURNS OF INCOME. ON GOING TH ROUGH THE COMPILATION OF THE PROFITS/LOSSES DISTRIBUTED BY M/S. SAHAYOG COMMODITIES TO THESE SO CALLED CLIENTS IT IS SEEN THAT ALL THESE CLIENTS HAVE EFFECTIVELY SETOFF THEIR EXISTING LOSSES AGAINST THE PROFITS PROCURED FROM M/S. SAHAYOG COMMODITIES OR THE Y HAVE SET OFF THEIR PROFITS AGAINST THE LOSSES PROCURED FROM M/ S. SAHAYOG COMMODITIES. WITH SOME MINOR EXCEPTIONS (WHICH MIGHT HA VE DELIBERATELY BEEN STRUCTURED TO BRING A FACADE OF R EALITY TO THE ENTIRE GAMUT OF TRANSACTIONS) THE ENTIRE PROFITS OF OVER RS.40 16 93 630/- EARNED BY M/S. SAHAYOG COMMODITIES HAVE EVAPORATED AND REVENUE HAS GAINED A PRECIOUS LITTLE. UNDER THESE CIRCUMSTANCES IT SUITS BOTH M/S. SAHAYOG COMMODITIES AS WELL AS ITS SO CALLED CLIENTS TO CONFIRM THESE TRANSACTIONS AS / THERE IS ONLY ONE LOSER AND THAT IS REVENUE. XIII) THE INVESTIGATION WING HAS CONDUCTED ENQUIRIES WITH SOME OF SUCH SO CALLED CLIENTS OF THE ASSESSEE. DURING THE C OURSE OF ENQUIRIES IT WAS FOUND THAT 11 NUMBER OF SO CALLED CLI ENTS HAVE NOT DISCLOSED THE SO CALLED PROFIT EARNED FROM COMMODIT Y TRADING IN THEIR RETURN OF INCOME FROM M/S. SAHAYOG COMMODITI ES. IT IS ONLY AFTER THE ENQUIRIES CONDUCTED BY INVESTIGATION WING THEY HAVE DISCLOSED THE PROFIT AND REVISED THEIR RETURN O R INCOME. IT SHOWS THAT THE PROFIT WHICH WAS DISTRIBUTED BY M/S. S AHAYOG COMMODITIES WAS NOT BELONGING TO THEM BUT IT BELONGS TO M/S. SAHAYOG COMMODITIES. FILING OF RETURNS BY THESE PERSONS/ADMISSION OF INCOME BY THEM IS THUS AN AFTER THOUGHT APPEARS TO BE A PART OF THE COLOURABLE DEVICE SOUGH T O BE BROUGHT INTO EXISTENCE BY M/S. SAHAYOG COMMODITIES IN COLLUSION WITH THE SO CALLED CLIENTS. THIS IN NO WAY HELPS M/S. SAHAYOG COMMODITIE S COVERING THE TRUTH FOR THE REASON BROUGHT OUT IN DETAIL. XIV) EXPECTEDLY M/S. SAHAYOG COMMODITIES HAS TAKEN A PLEA THAT HOW CAN IT BE HELD RESPONSIBLE FOR WHAT THE CLIEN TS HAVE DONE IN THE DUE COURSE OR IF THE CLIENTS HAVE IN TH E END NOT PAID ANY TAXES? THIS CONTENTION OF THE ASSESSEE WILL HOLD GROUND ONLY IF THE FOLLOWING IS TRUE. A) M/S. SAHAYOG COMMODITIES WAS A BROKER OR SUB- BROKER IN THE LEGAL SENSE. B) M/S. SAHAYOG COMMODITIES HAD A VALID AUTHORITY TO ENTER INTO TRANSACTIONS ON BEHALF OF ITS CLIENTS. C) IT HAD VALIDLY REGISTERED THESE CLIENTS BY FULFILL ING KYC NORMS AND SIGNING PROPER AGREEMENTS WITH THE SO CALLED CLIENTS D) IT HAD PROPERLY ENTERED INTO TRANSACTIONS ON BEHAL F OF THESE SO CALLED CLIENTS BY COLLECTING PROPER MARGINS AND ALSO MARK TO MARGINS AS REQUIRED UNDER THE LAW. E) LAST BUT NOT THE LEAST M/S. SAHAYOG COMMODITIES IS ABLE TO PROVE BY LEADING EVIDENCE AND BY PRODUCING CONTEMPORANEOUS EVIDENCES THAT IT HAD INFACT ENTERED INTO THE TRANSACTIONS ON BEHALF OF THE SO CALLED CLIENTS. 13 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N ON ALL THESE IMPORTANT COUNTS M/S. SAHAYOG COMMODITIES HAS FAILED TO PRODUCE ANYTHING IN SUPPORT OF ITS CLA IMS. HENCE THE PLEA IT CANNOT BE HELD RESPONSIBLE FOR THE ACTIONS/ OF ITS CLIENTS DOES NOT HOLD ANY GROUND. IN THIS MATTER THE CONFIRMA TIONS OR THE DISCLOSURE OF THE TRANSACTIONS IN THE RETURNS OF THE SO CALLED CLIENTS DOES NOT HELP THE CASE OF ASSESSEE. XV) AS REGARDS CONTEMPORANEOUS RECORDS OF PLACEMENT OF ORDERS THE ASSESSEE STATED THAT THESE ORDERS WERE R ECORDED IN ORDER REGISTERS AND THEN ACCORDINGLY THE PROFITS/LOS SES WERE APPORTIONED. HOWEVER DURING THE SEARCH SHRI. SATISH M ITTAL STATED THAT THESE ORDER REGISTERS HAVE BEEN DESTROY ED. IT IS IMPORTANT TO NOTE THAT THESE ORDER REGISTERS ARE AN IMPORTANT PIECE OF CONTEMPORANEOUS EVIDENCES WHICH ARE CRUCIAL T O LINK THE TRANSACTIONS INCURRED IN THE NAME OF M/S. SAHAYOG CO MMODITIES TO IT SO CALLED CLIENTS. WITHOUT THIS EVIDENCE IT IS VE RY DIFFICULT FOR THE ASSESSEE TO SUBSTANTIATE ITS CASE THAT THE SAID T RANSACTIONS WERE ENTERED INTO BY M/S. SAHAYOG COMMODITIES ON BEHA LF OF ITS SO CALLED CLIENTS. THE QUESTION THAT COMES TO THE MIND IS WOULD ANY ASSESSEE DESTROY A CRITICAL EVIDENCE WHICH WOULD D ECISIVELY CLINCH A CASE IN ITS FAVOUR? THE ANSWER IS NO ASSES SEE WOULD EVER DO IT. HENCE THE CONCLUSION THAT EMERGES IS THAT NO SUCH EVIDENCES WERE EVER THERE AS ALL THESE TRANSACTIONS W ERE EXECUTED BY M/S. SAHAYOG COMMODITIES ON ITS OWN BEHAL F. THEN VIDE THE LETTER DATED 09.11.2009 THE ASSESSEE HAS CHAN GED ITS STAND STATING THAT NO SUCH MANUAL REGISTERS WERE MAIN TAINED. FURTHER IT HAS STATED THAT (PAGE 6 OF LETTER DATED 09 .11.2009) ITS CLIENTS VISITED THE BUSINESS PREMISES AND GAVE THEIR ORDER THEN AND THERE TO THE OPERATOR AND THE SAME WERE EXECUTE D ONLINE. THEN VIDE LETTER DATED 07.12.2009 THE ASSESSEE HAS CON TENDED THAT THEY HAVE CARRIED OUT EACH AND EVERY TRANSACTIO NS OF THE CLIENT AS PER THEIR TELEPHONIC ORDERS. WITHOUT GOING INTO THE VERACITY OF THE CLAIM OF ONLINE TRADING THE ABOVE SU BMISSIONS SHOW THAT THESE THREE DIAMETRICALLY OPPOSITE CONTENT IONS HAVE BEEN RAISED BY THE ASSESSEE AT DIFFERENT POINTS OF TIME. THEY SHOW THAT THE ASSESSEE HAS NOT BEEN ABLE TO MAINTAIN ANY CONSISTENT STAND NOT TO TALK OF THE FACT THAT HE HAS FAILED TO PRODUCE ANY EVIDENCE WHATSOEVER IN SUPPORT OF THE S TANDS HE HAS TAKEN. THUS THE CONTENTION OF THE ASSESSEE ON TH IS COUNT IS REJECTED. HERE IT IS IMPORTANT TO NOTE THAT THE ASSESS EE HAS PRODUCED ONE RAMESHKUMAR FAKIRCHAND JAIN OF KHANDWA AS HIS WITNESS AND CONDUCTED EXAMINATION IN CHIEF. SHRI JAIN HAS CLAIMED THAT HE BOOKED HIS ORDERS TELEPHONICALLY WITH M /S SAHAYOG COMMODITIES. THE SAID WITNESS WAS NOT PRODUCED FOR CROSS EXAMINATION ON 28.12.2008. ON GOING THROUGH HIS EXAMINATION IN CHIEF IT IS SEEN THAT THIS PERSON IS STAYING IN KHANDWA IN MP AND HAS CLAIMED TO BE THE CLIENT OF M/ S SAHAYOG COMMODITIES BASED IN JALGAON. THE MOOT QUESTION IS WHE THER IT IS PROBABLE THAT A PERSON BASED IN KHANDWA THAT HAS ANY NUMBER OF BROKERS IN COMMODITIES MARKET WILL COME ALL THE WA Y TO JALGAON AND BE A CLIENT OF A PERSON WHO IS NEITHER A B ROKER NOR A SUB-BROKER AND TRADE FROM HERE. HOW WILL HE COMMUNICA TE ORDERS WHO WILL DELIVER THE CONTRACT NOTES HOW WILL H E PAY MARGINS AND SO ON? IT IS THEREFORE NOT SURPRISING T HAT THE PERSON HAS NO VALID AGREEMENT AS A CLIENT COULD NOT PRODUCE SINGLE CONTRACT NOTE NEVER PAID ANY MARGINS AND NEITHER DID HE PAY ANY ADVANCE TAX ON HIS PROFITS CLAIMED TO HAVE BEEN EARNED ON COMMODITIES MARKET. THE WITNESS OF THE ASSESSEE AND TH E EXAMINATION IN CHIEF THEREFORE STANDS DISCREDITED. 14 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N XVI) EXPECTEDLY THE OTHER IMPORTANT PLEA TAKEN BY THE ASS ESSEE IS THAT THE PAYMENT OF PROFITS HAVE BEEN MADE BY CROSSED ACCOUNT PAYEE CHEQUES TO THE SO CALLED CLIENTS. SIMILARLY CROSS ED ACCOUNT PAYEE CHEQUES HAVE BEEN RECEIVED FROM THE CLIENTS I N RESPECT OF THE LOSSES. THIS PLEA OF THE ASSESSEE ALSO DOES NOT HOLD ANY GROUND. THIS WOULD HAVE BEEN ACCEPTABLE ONLY IF THE AS SESSEE HAD TRANSACTED ON BEHALF OF THE SO CALLED CLIENTS BY ACCEPTING PROPER MARGINS OR MARK TO MARGINS AND HAD IT BEEN AB LE TO SHOW WITH THE HELP OF CONTEMPORANEOUS RECORDS THAT EACH OF THESE TRANSACTIONS WERE ENTERED SOLELY ON BEHALF OF THOSE CLIENTS. M/S. SAHAYOG COMMODITIES HAS FAILED TO PRODUCE EVEN AN IOTA OF EVIDENCE TO PROVE THAT THESE TRANSACTIONS WERE ENTE RED ON BEHALF OF THE SO CALLED CLIENTS. MERELY SAYING THAT PROFITS W ERE DISTRIBUTED BY CROSSED ACCOUNT PAYEE CHEQUES OR LOSS ES WERE GENUINE AS THE SO CALLED CLIENTS PAID FOR THEM BY CRO SSED ACCOUNT PAYEE CHEQUES AT THE FAG END OF THE YEAR OR EVEN BE YOND THAT IS NOT ACCEPTABLE. ON SIMILAR GROUNDS PRODUCING THE COP IES OF THE BANK ACCOUNTS (VIDE LETTER DATED 23.11.2009) DOES NOT ADVANCE THE CASE OF THE ASSESSEE AS THE BANK ENTRIES DO NOT SHOW ON REAL TIME BASIS AS TO WHEN THE ACTUAL TRANSACTION IN COMMO DITIES TOOK PLACE. IN ABSENCE OF THE CRUCIAL LINK CONNECTING THE T RANSACTION ENTERED INTO BY M/S. SAHAYOG COMMODITIES TO THE CLIEN T THE ONLY CONCLUSION THAT EMERGES IS THAT ALL THESE TRANSACTIONS ARE THE TRANSACTIONS OF M/S. SAHAYOG COMMODITIES. AT ITS BEST IT CAN BE SAID THAT M/S. SAHAYOG COMMODITIES HAS DISTRIBUTED IT S PROFITS/LOSSES BY ISSUING/ACCEPTING CROSSED ACCOUNT PAYEE CHEQUES TO/FROM THE SO CALLED CLIENTS AT ITS OWN WILL. XVII) VIDE LETTER DATED 09.11.2009 THE ASSESSEE HAS CONTEN DED THAT THERE IS MERELY A TECHNICAL BREACH UNDER THE PR OVISIONS OF FORWARD CONTRACT (REGULATION) ACT 1952 AND THERE IS NO VIOLATION UNDER THE PROVISIONS OF INCOME TAX ACT. I DON'T AGR EE WITH THIS CONTENTION. THE PROVISIONS OF THE INCOME TAX ACT LAY DOWN THAT THE CORRECT INCOME OF THE ASSESSEE HAS TO BE BROUGH T TO TAX IN THE HANDS OF THAT ASSESSEE IN THE RELEVANT ASSESSMENT YE AR. IN THE INSTANT CASE WE HAVE ALL THE EVIDENCES ON RECORD TO S HOW THAT THE INCOME FROM COMMODITIES MARKET HAS BEEN EARNED B Y M/S. SAHAYOG COMMODITIES IN ITS CAPACITY AS THE CLIENT. EVEN IF FOR MATTER OF ARGUMENT ONE LEAVES BEHIND THE LEGALITY OF T HE TRANSACTIONS UNDER THE PROVISIONS OF FORWARD CONTRA CT (REGULATION) ACT THERE IS NO EVIDENCE TO SHOW THAT THESE TRANSACTIONS WERE EXECUTED ON BEHALF OF THE SO CALLED CLIENTS . XVIII) IT NEEDS TO BE NOTED THAT NCDEX FMC SEBI ARE THE INSTITUTIONS WHICH ARE SETUP FOR REGULATING THE OPERA TIONS IN THE COMMODITIES MARKET. THESE INSTITUTIONS PUT IN PLACE A FRAME WORK FOR ORDERLY WORKING IN THE MARKET. ANYONE WORKING OUT SIDE THIS FRAME WORK AND CLAIMING GENUINENESS OF THE TRANSACTI ONS SHOULD PROVE ITS CLAIM TO THE HILT. IN THE INSTANT CASE THE ASSESSEE HAS MERELY MADE SOME CLAIMS WITHOUT AN IOTA OF EVIDENCE I N SUPPORT OF THESE CLAIMS. THUS THE SUBMISSION OF THE ASSESSEE ON ALL THESE POINTS IS REJECTED AND THE TRANSACTIONS ARE HELD TO BE PROPRIETARY TRADES OF M/S SAHAYOG COMMODITIES AND THE SAME ARE ACCORDINGLY BROUGHT TO TAX IN ITS HANDS. 15 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N 5. THE ASSESSING OFFICER THEREFORE MADE THE ADDITION OF RS.40 16 93 630/- IN THE HANDS OF THE ASSESSEE AS ITS UND ISCLOSED INCOME AND ALSO TREATED THE SAME AS SPECULATION INCOME. THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LD. CIT(A) ON T HIS ISSUE AND LD. CIT(A) DID NOT AGREE WITH THE CONCLUSION DRAWN BY THE ASSESSING OFFICER FOR ASSESSING RS.40 16 93 630/- IN THE HAND S OF THE ASSESSEE. THE REASONS GIVEN BY THE LD. CIT(A) ARE AS UNDER: 6. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDERS OF THE A.O. AND THE SUBMISSIONS OF THE APPELLANT. THE MAIN CONT ENTION RAISED BY THE A.O. IS THAT THE TRANSACTIONS IN COMMO DITIES DERIVATIVES UNDERTAKEN BY THE APPELLANT FOR ITS CLIE NTS ARE NOT PERMISSIBLE U/S.15 AND U/S. 11(3) OF FORWARD CONTRACT R EGULATION ACT 1952. THE APPELLANT HAS ALSO AGREED THAT IT CANNOT ACT AS BROKER OR SUB-BROKER FOR ENTERING INTO TRANSACTIONS OF TRADING IN COMMODITIES DERIVATIVES IN VIEW OF THE ABOVE SAID PRO VISIONS OF FORWARD CONTRACT REGULATION ACT 1952. THE APPELLANT H AS RIGHTLY CLAIMED IN THIS REGARD THAT EVEN IF THE BUSINESS CAR RIED-OUT BY THE APPELLANT IS NOT PERMISSIBLE THEN ALSO ONLY THE NET IN COME FROM THE SAID BUSINESS IS TO BE TAXED IN THE HANDS OF THE AP PELLANT. THE APPELLANT HAS CARRIED-OUT THE TRANSACTION ON BEHALF O F THE CLIENTS AND HAS EARNED SUBSTANTIAL BROKERAGE INCOME WHICH IS OFFERED TO TAX BY CREDITING SAME TO PROFIT AND LOSS ACCOUNT. THE REFORE THIS CONTENTION RAISED BY THE A.O. IS REJECTED. 6.1 THE OTHER CONTENTION OF THE A.O. IS THAT THE INFO RMATION ABOUT THE CLIENTS WAS NOT AVAILABLE WITH THE APPELLANT AT THE TIME OF SEARCH ACTION. HOWEVER IT IS OBSERVED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE APPELLANT HAS FILED CONFIR MATIONS WITH ADDRESSES PERMANENT ACCOUNT NUMBERS COPIES OF RETURNS OF INCOME AND COMPUTATIONS OF INCOME OF THE CLIENTS AN D THE INVESTIGATION WING HAS ALSO VERIFIED THE CLIENTS IND EPENDENTLY. FURTHER THE DETAILS OF TRANSACTIONS ENTERED INTO ON BEHALF OF THE CLIENTS WITH TIME AND DATE OF EXECUTION OF THE TRANSACTIO NS ARE ALSO AVAILABLE ON THE RECORD OF THE APPELLANT. 6.2 AS REGARDS THE CONTENTION OF THE A.O. THAT THE SAI D CLIENTS HAVE SET-OFF THE PROFIT EARNED ON THE TRANSACTIONS CA RRIED-OUT BY THE APPELLANT BY CLAIMING LOSSES IN RESPECT OF OTHER T RANSACTIONS AND AVOIDED INCOME-TAX PAYMENT IS ALSO NOT ACCEPTABLE AS THE A.O. HAS NOT PROVED THAT THE LOSSES CLAIMED AGAINST THE INCOME BY THE CLIENTS ARE BOGUS. IN FACT MANY OF THE CLIENTS HAVE BEEN ASSESSED TO INCOME-TAX BY THE ASSESSING OFFICERS AT NASHIK AND JALGAON. THE A.OS HAVE NOT DISALLOWED SUCH LOSSES CLAIMED BY THE SAID ASSESSEES AND SUCH LOSSES HAVE NOT BEEN HELD TO BE NON- GENUINE. THE A.O. CANNOT MAKE ADDITION IN THE HANDS OF T HE APPELLANT WITHOUT ESTABLISHING THAT THE INCOME/ LOSS S HOWN BY THE CLIENTS ARE NOT GENUINE. THE APPELLANT HAS ALSO POINTED -OUT THAT MANY CLIENTS HAVE DECLARED THE SPECULATION PROFIT WH ICH IS EQUAL TO OR MORE THAN PROFIT EARNED ON THE TRANSACTIONS CA RRIED OUT BY THE APPELLANT FIRM ON THEIR BEHALF OR HAVE DECLARED SUBSTANTIAL SPECULATION PROFIT IN THE RETURNS OF INCOME FILED BY THEM. AS 16 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N REGARDS THE CONTENTION OF THE A.O. THAT THE STAMP DUTY FOR THE TRANSACTIONS IN COMMODITY DERIVATIVES WAS BORN BY TH E APPELLANT FIRM AND NOT BY THE CLIENTS THE APPELLANT HAS POINTE D-OUT THAT STAMP DUTY IN RESPECT OF THE TRANSACTIONS ENTERED I NTO ON BEHALF OF THE CLIENTS WAS RECOVERED FROM THE CLIENTS AND CRED ITED TO STAMP DUTY ACCOUNT. AS REGARDS THE CONTENTION OF THE A.O. T HAT THE APPELLANT HAS NOT COLLECTED ANY MARGIN MONEY FROM ITS CLIENTS THE APPELLANT HAS POINTED-OUT THAT IT HAS IN FACT COLLECTED M ARGIN MONEY TO THE EXTENT OF RS.4.47 CRORES AND ALSO SUBMITTE D THAT MAXIMUM BALANCE OF MARGIN MONEY PAID BY IT TO M/S. A.M.FUTURES IN RESPECT OF TRANSACTIONS ON BEHALF OF C LIENTS WAS RS.8.54 CRORES WHEREAS MAXIMUM CREDIT BALANCE OF CLIENTS WITH THE APPELLANT FIRM IS MORE THAN THE AMOUNT OF RS.8.54 CRO RES. 6.3 AS REGARDS THE CONTENTION OF THE A.O. THAT NO COMM ISSION OR BROKERAGE WAS CHARGED BY THE APPELLANT FROM ITS CLIEN TS THE APPELLANT HAS POINTED-OUT THAT IT HAS EARNED SUBSTANTIA L BROKERAGE OF RS.3 19 36 721/- AND RS.1 29 34 638/- IN A.YS 2006-2007 AND 2007-2008 RESPECTIVELY AND NET BROKERAG E AFTER REDUCING BROKERAGE PAID TO VARIOUS BROKERS SUBSTANT IAL AMOUNT OF BROKERAGE OF RS.2 78 79 528/- AND RS.1 01 04 401/- IS CREDIT ED TO THE AUDITED PROFIT AND LOSS ACCOUNT. 6.4 IN SUPPORT OF THE TRANSACTIONS ENTERED INTO ON B EHALF OF THE CLIENTS THE APPELLANT HAS FILED AFFIDAVITS WITH THE A.O . IN RESPECT OF MAJOR CLIENTS. INDEPENDENT VERIFICATION WAS MADE BY INVESTIGATION WING BY ISSUING SUMMONS/NOTICES TO TH E CLIENTS AND THE CLIENTS HAVE CONFIRMED THE TRANSACTIONS DONE BY THE APPELLANT ON THEIR BEHALF. 6.5 THE APPELLANT HAS CORRECTLY POINTED-OUT THAT THE PRESUMPTION U/S. 132(4A) OF THE ACT SUPPORTS THE CONT ENTION OF THE APPELLANT AS EACH TRANSACTION ENTERED INTO ON BE HALF OF CLIENT WAS AVAILABLE ON RECORD WITH DATE AND TIME OF EXECUTIO N IN COMPUTERIZED DATA AT THE TIME OF ACTION U/S.132 OF THE ACT. 6.6 FURTHER NO DOCUMENTS NOTINGS OR PAPERS WERE FOUN D DURING SEARCH ACTION SHOWING THAT ANY OF THE 170 CLIENTS H AVE PROVIDED ACCOMMODATION ENTRIES TO THE APPELLANT FIRM TO REDUCE ITS PROFIT. DURING THE COURSE OF SEARCH ACTION NO NOTINGS OR EV IDENCE SHOWING THAT THE PROFIT PAID TO CLIENTS BY ACCOUNT PAYEE CHEQUES WAS RECEIVED BACK BY THE APPELLANT FIRM IN CASH. DURI NG THE COURSE OF SEARCH OR IN POST SEARCH ENQUIRIES OR IN ASSESSMENT PROCEEDINGS THE DESTINATION OF THE ALLEGED SUPPRESSED INCOME OF MORE THAN RS.40 CRORES WAS NOT FOUND IN THE FORM OF UNEXPLAINED EXPENDITURE ASSET OR INVESTMENT. 6.7 FURTHER FOR EARNING THE BROKERAGE INCOME FROM CL IENTS THE APPELLANT HAS PAID SUBSTANTIAL SERVICE-TAX OF MORE THA N RS.35 LACS. THE ACTIVITY CARRIED-OUT BY THE APPELLANT WAS AS PER THE NOTARIZED PARTNERSHIP DEED DATED 30/06/2005 I.E. MUCH PRIOR TO THE DATE OF SEARCH. 6.8 IT IS ALSO NOTICED THAT THE INCOME OF THE CLIENTS OF THE APPELLANT IS ASSESSED BY THE DEPARTMENT IN THEIR RES PECTIVE HANDS ON SUBSTANTIVE BASIS. THEREFORE THE SAME INCOME IS T AXED BY THE 17 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N DEPARTMENT IN THE HANDS OF THE APPELLANT AND ALSO IN THE HANDS OF THE SAID CLIENTS OF THE APPELLANT. THIS AMOUNTS TO DO UBLE TAXATION OF THE SAME INCOME WHICH IS NOT PERMISSIBLE AS PER P ROVISIONS OF THE INCOME-TAX ACT AS LAID DOWN BY HON'BLE SUPREME C OURT IN THE CASE OF LALJI HARIDAS VS. ITO & ANR. 43 ITR 387. 6.9 IN VIEW OF THE ABOVE FACTS AND DISCUSSION I AM O F THE CONSIDERED VIEW THAT THE A.O. IS NOT JUSTIFIED IN ASS ESSING THE NET INCOME EARNED BY THE CLIENTS OF THE APPELLANT FIRM A MOUNTING TO RS.40 16 93 630/- AND NET LOSS OF RS.40 97 718/- INCURRED BY THE CLIENTS OF THE APPELLANT FIRM IN THE HANDS OF THE AP PELLANT FIRM IN THE A.YS. 2006-2007 AND 2007-2008 RESPECTIVELY AND THE SAME ARE DELETED. THE A.O. IS DIRECTED ACCORDINGLY. GROUND NO. L FOR THE A.YS 2006-2007 AND 2007-08 STANDS ALLOWED. NOW BEING AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. 6. THE LD. DR VEHEMENTLY ARGUES THAT THE ASSESSEE IS MERELY A CLIENT OF M/S. A.M. FUTURE OF MUMBAI AND HE IS NOT THE SUB-B ROKER AUTHORIZED TO DEAL IN NCDEX. HE ARGUES THAT AS PER THE RULES AND REGULATIONS OF THE NCDEX ONLY THE AUTHORIZED BROKERS AN D SUB- BROKERS ARE LEGALLY PERMITTED TO CARRY OUT THE TRANSAC TIONS ON BEHALF OF THEIR CLIENTS. HE ARGUES THAT THE ASSESSEE IS CLIENT OF M /S. A.M. FUTURE AND THERE IS NO DISPUTE ABOUT FACT. HE SUBMITS THAT WHEN THE ASSESS EE IS NOT AUTHORIZED BY LAW TO DO THE TRANSACTIONS IN THE N CDEX HOW HE CAN ACT AS A SUB-BROKER FOR 170 CLIENTS. HE ARGUES THA T SHRI SATISH MITTAL PARTNER OF THE ASSESSEE FIRM STATED THAT HE CARRIE D OUT THE TRANSACTIONS ON BEHALF OF THE 170 PARTIES AS HIS CLIENTS EV EN KNOWING THAT THE ASSESSEE FIRM WAS NOT LEGALLY AUTHORIZED TO DO THE TRADING ON BEHALF OF SO CALLED 170 CLIENTS. 7. HE SUBMITS THAT IT IS NOT FACTUALLY CORRECT THAT THE ASSESSEE EXECUTED THE ORDERS OF ITS CLIENTS ON REAL TIME BASIS ON T HE NCDEX SOFTWARE BUT ON THE EXAMINATION OF THE SEIZED DATA IT WAS FOUND THAT NO SAID DETAILS REGARDING THE SO CALLED CLIENTS FED ON THE NCDEX SOFTWARE WERE AVAILABLE IN THE SEIZED CD. THE ENQUIRIES WER E MADE WITH THE NCDEX AND THE SOFT COPIES OF THE TRANSACTIONS E NTERED BY 18 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N M/S. SAHAYOG COMMODITIES THROUGH M/S. SHANTI COMMODITIES ON THE NCDEX WERE CALLED FORTH. HE SUBMITS THAT AS PER THE INFOR MATION GATHERED FROM THE CD ALL THE TRANSACTIONS HAD BEEN CARR IED OUT BY THE ASSESSEE FIRM AS A CLIENT OF M/S. SHANTI COMMODITIES OR M/S . A.M. FUTURES AND THERE IS NO ENTRY WHATSOEVER REGARDING AN Y OF THE SO CALLED CLIENTS. HE REFERRED TO THE STATEMENT OF SHRI SATISH MITTAL RECORDED DURING THE COURSE OF SEARCH AND SUBMITS THAT THERE IS NO CONSISTENCY IN THE ANSWERS GIVEN BY THE SAID PARTNER. H E ARGUES THAT THERE IS VERY CRUCIAL EVIDENCE AGAINST THE ASSESSEE IN RE SPECT OF THE STAMP DUTY PAYMENT. THE ASSESSEE HAS PAID THE STAMP DUTY TO M/S. A.M. FUTURE FOR CONTRACTS AND CERTAINLY THAT SUPPORT TH E CASE OF THE DEPARTMENT THAT THE CONTRACT WAS ONLY BETWEEN M/S. A .M. FUTURE AND THE ASSESSEE FIRM AND NO ONE ELSE. HE SUBMITS THAT HE IS NOT EVEN AN AGREEMENT BETWEEN THE ASSESSEE AND ITS SO CALLED CLIENTS . HE SUBMITS THAT AT THE ASSESSMENT STAGE THE ASSESSEE CAME UP W ITH THE ARGUMENT FOR THE FIRST TIME THAT THERE WAS ORAL MOU BETWEEN THE ASSESSEE AND ITS CLIENTS BUT WHEN DURING THE COURSE OF THE SEARCH ACTION NO SUCH STATEMENT WAS MADE. HE SUBMITS THAT THE TRANSACTIONS OF THE NCDEX ARE GOVERNED AND REGULATED BY FORWARD CONTRACT (REGULA TION) ACT 1952 AND IT IS A SERIOUS OFFENCE IF THE ASSESSEE IS NOT AUT HORIZED TO CARRY OUT THE TRANSACTIONS THEN ALL THE TRANSACTIONS AR E VOID. IN RESPECT OF THE MARGIN MONEY HE SUBMITS THAT THE ASSESS EE HAS NOT COLLECTED ANY MARGIN MONEY FROM THE SO CALLED CLIENTS AND IT IS NOT A BELIEVABLE AS THERE CAN BE THE TRANSACTIONS IN WHICH THE LOSSES WILL BE INCURRED THEN HOW THE LOSSES CAN BE COMPENSATED AND R ECOVERY TO BE MADE. HE SUBMITS THAT THE ASSESSEE HAS REGULARLY PAID THE MARGIN MONEY TO M/S. A.M. FUTURE. MAIN BROKER AND MEMBER OF NC DEX IN CAPACITY AS ITS CLIENT. 19 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N 8. HE SUBMITS THAT THE INVESTIGATION WING HAS CARRIED OUT POST SEARCH ENQUIRIES AGAINST THE SO CALLED CLIENTS AND THEY H AVE CONFIRMED THE TRANSACTIONS WITH THE ASSESSEE BUT THESE ARE ALL T HE ARRANGE TRANSACTIONS AS THE SO CALLED CLIENTS HAVE SET OFF THEIR EX ISTING LOSSES AGAINST THE PROFIT ON TRANSACTIONS CARRIED OUT BY THE AS SESSEE. HE SUBMITS THAT NO ONE OF THE ASSESSEE CLIENTS HAVE PAID AN Y ADVANCE TAX. HE SUBMITS THAT AS PER THE MODUS OPERANDI OF THE ASSESSEE FIRM ON THE RECEIPT OF THE TRADE FILE THROUGH INTERNET ON THE NE XT DAY THE TRADES WERE APPROVED AMONG THE CLIENTS ON THE BASIS OF THE ORD ER REGISTERED WHICH ARE DESTROYED. HE SUBMITS THAT THE PARTNER OF T HE ASSESSEE STATED THAT IN RESPECT OF ABOUT 80% CLIENTS THE ADDRESS ES ARE NOT AVAILABLE AND KYC DOCUMENTS WERE NEVER OBTAINED IN RESPE CT OF ANY OF THE CLIENTS. HE SUBMITS THAT THE SO CALLED CLIENTS OF THE ASSESSEE HAVE NOT CHARGED ANY COMMISSION HENCE THAT ALSO GOES AGAINST THE ASSESSEE. HE ARGUES THAT ENQUIRIES WERE MADE AND IT WA S FOUND THAT 11 CLIENTS OF THE ASSESSEE HAVE NOT AT ALL DECLARED ANY PROFITS IN RESPE CT OF THE TRANSACTIONS CLAIMED TO BE CARRIED OUT BY THE ASS ESSEE FIRM. ONLY AFTER THE ENQUIRIES WERE CONDUCTED BY THE INVESTIG ATION WING BY THE DEPARTMENT THEY HAVE COME FORWARD TO DISCLOSE THE PROFIT BY FILING THEIR REVISED RETURNS THAT ALSO SUGGEST THAT THE CLAIM O F THE ASSESSEE IS NOT CORRECT TO SAY THAT THE PROFITS WERE DISTRIBUTED TO THE CONCERNED ALLEGED CLIENTS. HE SUBMITS THAT WHEN THE ASSESSEE HAS N O LEGAL & VALID AUTHORITY TO ENTER INTO TRANSACTIONS IN NCDEX ON BE HALF OF ITS ALLEGED CLIENTS AS SUB-BROKER OR BROKER THEN THE CLAIM OF THE ASSESSEE IS TOTALLY FALSE. HE ARGUES THAT IT IS CERTAIN STRANGE THA T IF THE ASSESSEES CLAIM IS BONAFIDE IN RESPECT OF CARRYING OUT THE TRADING ON BEHALF OF ITS SO CALLED CLIENTS THEN WHY THEY SHOULD DESTRO YED THE RECORD. THE ASSESSEE HAS NOT PRODUCED ANY SUBSTANTIV E EVIDENCE TO SHOW THAT HE ACTED ON BEHALF OF THE SO CALLED CLIENTS. THE CIT (DR) SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND SUBMITS THAT THE LD. 20 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N CIT(A) WAS NOT AT ALL JUSTIFIED DRAWING THE INFERENCE IN FAVOUR OF THE ASSESSEE. 9. PER CONTRA THE LD. AR FOR THE ASSESSEE VEHEMENTLY ARGUES THAT IN THE COURSE OF SEARCH ON 22-11-2007 NO INCRIMINATING MA TERIAL WAS FOUND TO SUPPORT THE STORY OF THE ASSESSING OFFICER. HE R EFERRED TO THE STATEMENT OF SHRI SATISH MITTAL PARTNER OF THE ASSESSEE FIR M RECORDED DURING THE COURSE OF SEARCH ACTION U/S. 132(4) OF THE INC OME-TAX ACT (PAGE NOS. 111 TO 119 OF COMPILATION) AND SUBMITS THAT A S PECIFIC QUESTION BEING Q. NO. 28 WAS ASKED TO SHRI MITTAL AND IN CLE AR TERMS HE TOLD THAT THE PROFITS DISTRIBUTED TO THE CLIENTS CANNO T BE TREATED AS HIS INCOME AS IT WAS NOT HIS INCOME. THE SAID ANSWER OR S TATEMENT CANNOT BE TREATED AS AFTERTHOUGHT. THE LD. COUNSEL REFE RRED TO Q. NO. 28 AND ANSWER OF SHRI SATISH MITTAL (PAGE NO. 116 OF THE COMPILATION) IN SUPPORT OF HIS ARGUMENT. HE SUBMITS THAT THE ADIT (IN V.) AS WELL THE ASSESSING OFFICER CROSS VERIFIED WITH ALL THE CLIENTS OF TH E ASSESSEE WHOSE CONFIRMATIONS ARE GIVEN AT PAGE NO. 50 OF THE COMPILA TION WHETHER THE CLAIM OF THE ASSESSEE IN RESPECT OF TRADING O N BEHALF OF THOSE CLIENTS ARE CORRECT OR NOT. HE SUBMITS THAT THE ADIT (INV.) CARRIED OUT THE VERIFICATION WITH THE 40 CLIENTS AND ALSO IS SUED THE SUMMONS TO 50 CLIENTS U/S. 131 OF THE ACT WHICH LIST IS GIVE N ON PAGE NO. 52 OF THE COMPILATION. HE SUBMITS THAT MERELY BECAUSE THE ASSESSEE HAS VIOLATED THE PROVISIONS OF FORWARD CONTRACT (REGULATION) ACT 1952 IT DOES NOT MEAN THAT THE TRANSACTIONS CARRIE D OUT ARE NOT GENUINE TRANSACTIONS. HE SUBMITS THAT EVEN IN CARRYING OUT REGULAR BUSINESS OR TRADE A BUSINESSMAN HAS TO FOLLOW MANY OF RU LES AND REGULATIONS AND THERE ARE ALSO REGULAR INSTANCES THAT RU LES ARE NOT FOLLOWED DOES IT MEAN THAT BUSINESS OR TRADE IS ILLEGAL OR IT IS NOT TRADE AT ALL ? 21 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N 10. HE SUBMITS THAT EVEN IF IT IS PRESUMED THAT THE TRAN SACTIONS CARRIED OUT BY THE ASSESSEE ON BEHALF OF ITS 170 CLIENTS WITH THE NCDEX WERE NOT AUTHORIZED BY LAW BUT THE FACT REMAINS T HAT THE NATURE OF THE TRANSACTIONS CANNOT BE CHANGED AS ALL THE 170 CLIENTS IN CLEAR TERMS ADMITTED THIS PARTICULAR FACTS THAT THE ASSES SEE DID ALL THE TRANSACTIONS AS THEIR AGENT AND WHATEVER THE PROFITS OR LOSSES INCURRED IN THOSE TRANSACTIONS WERE ON ACCOUNT OF THE CLIENTS ONL Y AND THE ASSESSEE WAS ONLY RECOVERED BROKERAGE OR COMMISSION. HE SUBMITS THAT THAT EVEN THE ASSESSING OFFICER WHO HAS COMPLETED THE ASSESSMENT OF THE ASSESSEE SAME ASSESSING OFFICER ITO C ENTRAL CIRCLE-II WHO HAS ALSO COMPLETED THE ASSESSMENTS OF MA NY OF THE CLIENTS OF THE ASSESSEE ACCEPTING INCOME FROM NCDEX DECLAR ED BY THEM AND WHICH DETAILS ARE GIVEN ON PAGE NOS. 19 TO 21 O F THE COMPILATION. HE SUBMITS THAT NONE OF THE CLIENTS HAS DENIE D THAT HE HAS NOT RECEIVED THE PROFIT FROM THE ASSESSEE FIRM IN RESP ECT OF THE TRANSACTIONS WHICH WERE CARRIED OUT IN THE NCDEX. HE RE FERRED TO PAGE NOS. 23 TO 41 OF THE COMPILATION WHERE THE DETAILS IN RESPECT OF 140 CLIENTS OF THE ASSESSEE ARE GIVEN IN FORM OF THE CHAR T SHOWING THE PROFIT AND LOSS INCURRED BY THE CLIENT PAN OF THE CLIENT WAR D/CIRCLE IN WHICH ASSESSED DATE OF FILING RETURN BROKERAGE COLLECTED FRO M THOSE CLIENTS MAXIMUM CREDIT BALANCE OF THE CLIENT DURING THE YEAR WHETHER THE CLIENTS HAVE CONFIRMED TO THE ADIT JALGAON DURING THE COURSE OF INVESTIGATION THAT THEY HAVE RECEIVED THE PROFITS IN RESPE CT OF THEIR TRANSACTIONS ETC. HE VEHEMENTLY ASSAILED THE CONCLUSION DRAWN BY THE ASSESSING OFFICER BY DISCARDING ALL THOSE CIRCUMSTANTIAL AS WE LL AS A DIRECT EVIDENCES AND FOR HOLDING THAT WHATEVER THE PROFIT OF 170 CLIENTS HAS BEEN ACCRUED OR RECEIVED DURING THE YEAR THAT IS T O BE TAXED IN THE HANDS OF THE ASSESSEE. HE ARGUES THAT INFERENCE SHOULD BE BASED ON SOME CORROBORATIVE EVIDENCE AS ADMITTED DURING THE COUR SE OF SEARCH 22 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N NO ABNORMAL CASH OR ASSETS WERE FOUND. IF THE ASSESSEE HAVE EARNED ALL THE 41 CRORES AS A PROFIT IN ONE YEAR BUT AT LEAST SO METHING MUST HAVE BEEN REFLECTED SOMEWHERE BY WAY OF CASH BANK ACCO UNT AND INVESTMENTS ETC. 11. HE SUBMITS THAT IN RESPECT OF THE MARGIN MONEY THE ASSESSEE HAS EXPLAINED AND MADE CLARIFICATION BEFORE THE LD. CIT(A) ON SAID CHARGE OF THE AO. THE ACCOUNTS WERE RUNNING ACCOUNTS AND MANY OF THE CLIENTS WERE HAVING THE CREDIT BALANCES WITH THE ASS ESSEE FIRM. HE SUBMITS THAT IT IS ADMITTED THAT THE ASSESSEE HAS USED M/S. A.M. FUTURE TO DO THE TRANSACTIONS ON THE NCDEX BUT THE FA CT REMAINS THAT THE ASSESSEE HAS PAID THE STAMP DUTY FROM HIS OWN ACC OUNT. HE ALSO SUBMITS THAT THE ASSESSEE HAS PAID THE SERVICE TAX ON THE BROKERAGE IN THE A.Y. 2006-07 TO THE EXTENT OF RS.29 39 724/- AND IN T HE A.Y. 2007- 08 TO THE EXTENT OF RS.12 32 217/-. HE REFERRED TO THE PAGE NOS. 143 TO 156 OF THE COMPILATION AND SUBMITS THAT EACH AND EVERY D ETAIL WAS FOUND IN RESPECT OF THE SERVICE TAX PAID BY THE ASSESSE E FROM THE BEGINNING OF THE MONTH IN WHICH THE ASSESSEE STARTED THE TRANSACTIONS I.E. IN THE MONTH FROM APRIL 2005. THE LD. COUNSEL ARGUES TH AT THE INCOME CANNOT BE TAXED TWICE AS ADMITTEDLY ALL THE CLIENTS HAVE DECLARED THEIR PROFITS OR LOSSES EARNED BY THEM THROUGH THE ASSESSEE FIRM IN THE TRANSACTION CARRIED ON THEIR BEHALF WITH THE NC DEX. HE ARGUES THAT FEW SAMPLES ASSESSMENT ORDERS ARE PLACED O N RECORD FROM PAGE NOS. 217 TO 230 TO DEMONSTRATE THAT RESPECTIVE C LIENTS HAVE DECLARED THEIR PROFITS RECEIVED FROM THE ASSESSEE AS THEIR INCOME AND THE SAME HAS BEEN ASSESSED IN THEIR HANDS. HE SUBMITS THAT ALL THE TRANSACTIONS ARE GENUINE AND IT IS DEMONSTRATED BY THE ASSESSEE ALSO. THE ASSESSING OFFICER CANNOT TAKE SHELTER ON THE TECHNICA L ASPECT FOR VIOLATING RULES OF THE NCDEX. HE SUBMITS THAT AT THE TIME OF SEARCH ITSELF DATA FROM THE ASSESSEES COMPUTER WAS COPIED ON C D BUT AT THE 23 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N TIME OF ASSESSMENT SAID CD COULD NOT BE OPENED BY THE A SSESSING OFFICER DUE TO TECHNICAL REASONS. AS PER DATA AVAILABLE ON THE HARD DISK OF THE ASSESSEE THE DETAILS OF THE TRANSACTIONS INC LUDING THE DATE AND TIME OF THE EXECUTION WAS AVAILABLE ON COMPUTER AT TH E TIME OF SEARCH U/S. 132 OF THE ACT. 11.1 HE ALSO ASSAILED THE OBSERVATION OF THE ASSESSING OFFICE R THAT THE ASSESSEE HAS NOT CHARGED ANY COMMISSION TO THEIR CLIENTS . HE SUBMITS THAT THE SAID OBSERVATION IS TOTALLY FALLACIOUS. THE ASSESSE E HAS EARNED THE SUBSTANTIAL BROKERAGE FROM ITS CLIENTS TO THE EXTENT OF RS.3 19 36 721/- AND ALL THE DETAILS WERE SUBMITTED. AS NOTE D BY THE AO 11 CLIENTS HAVE FILED REVISED RETURNS AND THE ASSESSE E CANNOT HAVE CONTROL ON THE CLIENTS AS ADMITTEDLY EVEN AS PER THE DE PARTMENT THERE ARE TOTAL 170 CLIENTS OUT OF WHICH 159 CLIENTS HAVE FILED TH E RETURNS OF INCOME AND ALSO DECLARED THEIR PROFITS BEFORE THE DATE OF SEARCH ACTION. BUT IN RESPECT OF ONLY 11 CLIENTS WHY THEY HAVE NOT FILED RETURNS OF INCOME AND WHY THEY SUBSEQUENT FILED IT IS NOT CONCERN WIT H THE ASSESSEE. HE SUBMITS THAT ANOTHER IMPORTANT ASPECT IS TO BE SEEN THAT THE ENTIRE PAYMENTS OF PROFITS TO THE CLIENTS ARE MADE B Y THE CROSS BANK ACCOUNT PAYEE CHEQUES AND STILL IT IS DOUBTED BY TH E ASSESSING OFFICER. HE SUBMITS THAT THE ASSESSE FAILED TO UNDERSTAND WHAT FURTHER EVIDENCE IS REQUIRED TO SATISFY THE ASSESSING OFFICER WHEN ALL THE SUBSTANTIVE & STRONG EVIDENCE IN FAVOUR OF THE ASSESSEE IS AVAILABLE IN THE FORM OF DOCUMENTARY EVIDENCE AND AS WELL AS THE CONFIR MATIONS BY THE 170 CLIENTS. HE SUBMITS THAT OTHERWISE ALSO ON THE P RINCIPLES OF DIVERSION OF INCOME OVERRIDING TITLE INCOME CANNOT BE IN THE HANDS OF THE ASSESSEE AS IT WAS DIVERTED TO THE CONCERNED CLIENT WHEN THE TRANSACTION WAS COMPLETED. HE SUPPORTED THE ORDER OF T HE LD. CIT(A) ON THIS ISSUE AND PLEADED FOR CONFIRMING THE SAME. 24 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N 12. IN THIS CASE THERE IS NO DISPUTE THAT EVEN IF IT IS CLA IMED BY THE ASSESSEE HE ACTED AS A BROKER OR SUB-BROKER ON BEHA LF OF THE 170 PARTIES OR CLIENTS BUT HE HAS NO VALID LICENSE OR AUTHORISA TION AS PER THE FORWARD CONTRACT (REGULATION) ACT 1952. THE CASE MA DE OUT BY THE ASSESSING OFFICER CAN BE SUMMARIZED AS UNDER: I. THE TRANSACTIONS ENTERED INTO BY THE APPELLANT ON BE HALF OF ITS CLIENTS ARE NOT PERMISSIBLE IN VIEW OF PROVISIONS OF SECT IONS 15 AND 11(3) OF THE FORWARD CONTRACT REGULATION ACT 1952. T HE APPELLANT HAS CARRIED OUT TRANSACTIONS UNDER 4 BROKE RS WHICH IS NOT PERMISSIBLE. II. THERE WERE NO WRITTEN CONTRACTS WITH THE CLIENTS 80% INFORMATION OF THE CLIENTS WAS NOT AVAILABLE AT THE TIME OF ACTIO N U/S. 132 OF THE ACT NO DETAILS OF CLIENTS THEIR ORDERS ETC. IS AVA ILABLE ON NCDEX SOFTWARE/CD. III. THE CLIENTS OF THE APPELLANT HAVE EARNED SUBSTANTIAL I NCOME IN RESPECT OF TRANSACTIONS DONE BY THE APPELLANT FIRM O N THEIR BEHALF HOWEVER THE SAID CLIENTS HAVE SET-OFF THIS PROFIT AG AINST LOSSES CLAIMED FROM OTHER BROKERS AND HENCE AVOIDED PAYMENT OF TAXES. FURTHER THE 11 CLIENTS HAVE FILED REVISED RETURNS FO R OFFERING PROFITS RECEIVED FROM THE APPELLANT FIRM. IV. STAMP DUTY FOR THE TRANSACTIONS ENTERED INTO BY THE APPELLANT FIRM WITH M/S. A.M. FUTURES WAS BORNE BY THE APPELLANT FIRM AND NOT BY THE CLIENTS HENCE THE TRANSACTIONS ARE ONLY BETWE EN M/S. A.M. FUTURES AND THE APPELLANT FIRM. V. THE APPELLANT HAS NOT COLLECTED ANY MARGIN MONEY FROM THE SO CALLED CLIENTS. VI. NO COMMISSION OR BROKERAGE WAS CHARGED BY THE APPELL ANT FROM ITS CLIENTS AND THE BILLS ISSUED BY THE APPELLANT TO IT S CLIENTS SHOW THAT NO COMMISSION WAS CHARGED TO THEM. VII. NO LEADING EVIDENCE WAS FILED TO PROVE THAT THE TRANS ACTIONS ENTERED INTO BY THE APPELLANT WERE ON BEHALF OF HIS CLIENT S. 13. ON EXAMINING THE REASONS AND FINDINGS OF THE ASSESSING OFFICER IT IS SEEN THAT THE TRANSACTIONS OF TRADING IN COMMODITIES DERIVATIVES UNDERTAKEN BY THE ASSESSEE FOR HIS CLIENTS ARE NOT PERM ISSIBLE U/S. 15 AND 11(3) OF FORWARD CONTRACT (REGULATION) ACT 1952. THE ASSESSEE HAS NEVER DENIED EVEN DURING THE COURSE OF ENQUIRY THAT HE IS NOT HAVING VALID LICENSE OR MEMBERSHIP TO CARRY OUT THE COMMO DITIES DERIVATIVES THROUGH THE NCDEX. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS CONTRACT WITH M/S. A.M. FUTURES AND OTHERS AND THE 25 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N ASSESSEE WAS USING THOSE ENTITIES FOR CARRYING OUT ITS TR ANSACTIONS WITH THE NCDEX (NATIONAL COMMODITIES & DERIVATIVES EXCHANGE). T HE ASSESSEE ALSO USED M/S. SANJAY PULSE PROCESSORS PVT. LT D. JALGAON M/S. SHUBH COMMODITIES JALGAON AND M/S. SHANTI COMMODITIES JALGAON. IN THE STATEMENT RECORDED DURING THE COURSE OF SEARCH U/S. 132(4) OF THE ACT SHRI SATISH MITTAL PARTNER OF THE ASSESSE E FIRM ADMITTED THAT THE ASSESSEE FIRM IS NOT AUTHORIZED TO CAR RY OUT THE TRANSACTIONS WITH THE NCDEX BUT AT THE SAME TIME WE FIND THAT HE HAS STATED THAT THE TRANSACTIONS CARRIED OUT ON BEHALF OF 1 70 CLIENTS ARE THEIR TRANSACTIONS AND THE ASSESSEE SHOWED HIMSELF AS AU THORIZED TO CARRY OUT THE TRANSACTIONS WITH THE NCDEX. 14. ON PERUSAL OF THE REASONS OF THE ASSESSING OFFICER WE FIND THAT THE ASSESSING OFFICERS MAIN CONCERN IS NO AUTHORITY TO TH E ASSESSEE FIRM TO CARRY OUT THE TRANSACTIONS WITH THE NCDEX ON BEHALF OF THE 17 0 PARTIES WHICH ARE CLAIMED AS THE CLIENTS OF THE ASSESSEE. IT IS ALSO SEEN THAT THE DEPARTMENT CARRIED OUT THE EXTENSIVE INVESTIGA TION AND VERIFICATION WITH 170 CLIENTS OF THE ASSESSEE AND NONE OF TH E CLIENTS DENIED HAVING CARRIED OUT THE TRANSACTIONS THROUGH THE ASSESSEE FIRM WITH NCDEX. MOREOVER ALL THE CLIENTS HAVE GIVEN THEIR CONFI RMATION IN THE CLEAR TERMS AS PER THE CHART PLACED IN THE COMPILAT ION PAGE NO. 52. IT IS SEEN THAT ADIT (INV) OFFICER ISSUED THE SUMMONS WITH 57 CLIENTS AND ALL CLIENTS ADMITTED THAT THEY HAVE RECEIVED THE PROFITS IN RESPEC T OF THEIR TRANSACTIONS FROM THE ASSESSEE FIRM. WE ALSO FIND THA T THE SEARCH ACTION WAS ALSO CARRIED OUT AGAINST 16 PARTIES WHO ARE C LIENTS OF THE ASSESSEE WHICH DETAILS ARE GIVEN AT PAGE NO. 54 OF THE CO MPILATION BUT ALL THE PARTIES ADMITTED AND OFFERED THE PROFIT RECEIVED FROM THE ASSESSEE FIRM IN RESPECT OF THE TRANSACTIONS CARRIED ON THEIR BEHALF. IT IS ALSO SEEN THAT OUT OF 170 CLIENTS 159 CLIENTS HAVE ALREA DY FILED THEIR RETURNS OF INCOME DECLARING THE SHARE OF THE PROFITS RECEIV ED FROM THE 26 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N ASSESSEE FIRM IN RESPECT OF THE TRANSACTIONS WITH THE NCD EX. IT IS PERTINENT TO NOTE THAT THE ASSESSEE HAS ALSO PAID THE SERVICE TAX PAGE NO. 144 OF THE COMPILATION AND SAME HAS NOT BEEN DISPUTED BY THE ASSESSING OFFICER. ONLY RESERVATION OF THE ASSESSING OFFICER IS THAT THE STAMP DUTY WAS PAID TO M/S. A.M. FUTURES AND ON THAT B ASIS HE CONCLUDES THAT THE ENTIRE TRANSACTIONS WERE ONLY BETWE EN A.M. FUTURES AND THE ASSESSEE FIRM. WE ARE ABLE TO UNDERSTAND HOW T HE 170 CLIENTS CONFIRMED THAT THE ASSESSEE FIRM REPRESENTED AS A BROKE R FOR THEM AND CARRIED OUT THE TRADING DERIVATIVES AND TRANSACTIONS IN T HE NCDEX. IT IS ALSO SEEN THAT MANY OF THE CLIENTS WHO HAVE FILED THEIR R ETURNS OF INCOME AND EVEN THOSE TO WHOM THE ASSESSEE TRANSFERRE D ALL PROFITS OR LOSSES BY PUTTING INTO THEIR ACCOUNTS ARE ASSESSED BY THE SAME ASSESSING OFFICER BY ACCEPTING INCOME DECLARED BY THE ASSE SSEES CLIENTS. FROM THE DETAILS FILED BY THE ASSESSEE IN THE FORM OF CHART WHICH HAS NOT BEEN CONTROVERTED BY THE REVENUE DURING THE ARGUMENT (PAGE NOS. 23 TO 41 OF COMPILATION) ALL THE PARTIES HAVE ADM ITTED THEIR TRANSACTIONS. THERE ARE TOTAL 140 PARTIES/CLIENTS WHICH D ETAILS ARE PROVIDED BY THE ASSESSEE IN THE FORM OF CHART GIVING THE DETAILS OF PAN NO. THE WARD/CIRCLE IN WHICH ASSESSED DATE OF FILING RETURN O F INCOME ETC. 15. THE REVENUE FAIRLY ADMITTED DURING THE COURSE OF THE ARGUMENT THAT NONE OF THE PARTIES OUT OF 170 PARTIES OR CLIENTS H AVE DENIED THE TRANSACTIONS DONE BY THE ASSESSEE ON THEIR BEHALF. LAW IS WELL SETTLED THAT WHEN THE ENTIRE EVIDENCE IS IN FAVOUR OF THE ASSESSE E THAT CANNOT BE BRUSHED ASIDE AND TAX LIABILITY OF THE ASSESSEE CANNOT BE DETERMINED ON THE BASIS OF SUSPICION AND SURMISES. THE O NLY ISSUE LEFT AS PER OUT UNDERSTANDING IS THE CONTRAVENTION OF THE FORWARD CONTRACT (REGULATION) ACT 1952. IN OUR OPINION IF THE ASSES SEE HAS VIOLATED THE PROVISIONS THAT SPECIFIC STATUTE THE ACTION CA N BE TAKEN 27 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N AGAINST THE ASSESSEE UNDER THAT ENACTMENT BUT MERELY BECAUSE WITHOUT AUTHORITY OR WITHOUT LICENSE THE ASSESSEE CARRIED OUT THE TRADING DERIVATIVES AND OTHER TRANSACTION WITH THE NCDE X MAY BE WRONGLY REPRESENTING HIMSELF AS A BROKER OR MISUSING THE ID BUT THAT STILL NOT CHANGED THE NATURE OF THE TRANSACTION CARRIED O UT BY THE ASSESSEE ON BEHALF OF ITS CLIENTS. IN THE PRESENT CASE T HE ENTIRE EVIDENCE SUPPORT THE CASE OF THE ASSESSEE SAVE ONE AS PECT THAT THE ASSESSEE HAS NOT FOLLOWED THE PROVISIONS OF FORWARD CONTR ACT (REGULATION) ACT 1952. WE ARE GIVEN OUR ANXIOUS CONSIDERAT ION TO ENTIRE EVIDENCE ON RECORD AS WELL AS THE REASONS GIVEN B Y THE LD. CIT(A) FOR HOLDING THAT THE ENTIRE PROFITS CANNOT BE TAXED IN THE HANDS OF THE ASSESSEE. WE ARE OF THE OPINION THAT THE ENTIRE EXERCIS E DONE BY THE ASSESSING OFFICER CONTRARY TO THE EVIDENCE AVAILABLE ON REC ORD IN FAVOUR OF THE ASSESSEE. WE THEREFORE CONCUR WITH THE FINDINGS OF THE LD. CIT(A) AND GROUNDS TAKEN BY THE REVENUE ARE DISMISSED. 16. THE NEXT ISSUE IS THE TRANSACTIONS RESULTING IN THE SPECULATION LOSS OF RS.1 00 21 000/- DONE THROUGH MADHYA BHARAT INTER NATIONAL PVT. LTD. AS PER THE GROUNDS TAKEN BY THE REVENUE THE GRIEVANCE IS THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE BOGUS SPECULATIO N LOSS BUT THE REVENUE HAS ADMITTED THE FACT THAT THE ASSESSING O FFICER HAS WRONGLY MADE THE ADDITION U/S. 41(1) IN THE ASSESSMENT OR DER AND THIS ISSUE ARISES FROM GROUND NO. 2(A). THE FACTS WHICH ARE REV EALED FROM THE RECORD AS UNDER. THE ASSESSING OFFICER HAS OBSERVE D THAT IN THE A.Y. 2006-07 THE ASSESSEE HAS CLAIMED LIABILITY OF RS.1 00 21 00 0/- BY WAY OF TRADING IN NBOT THROUGH MADHYA BHARAT INTERNATIO NAL PVT. LTD. THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE WA S UNABLE TO PRODUCE ANY EVIDENCE SUCH AS CONTRACT NOTES ANY BILLS FOR ANY CORRESPONDENCE IN RESPECT OF MADHYA BHARAT INTERNATION AL PVT. LTD. THE ASSESSING OFFICER HAS NOTED THAT LOSSES HAVE BEEN BO OKED BUT NOT 28 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N SETTLED AND NO MARGIN MONEY WAS GIVEN BEFORE UNDERTAKING THOSE TRANSACTIONS WITH M/S. MADHYA BHARAT INTERNATIONAL PVT. L TD. THE ASSESSING OFFICER THEREFORE CONCLUDED THAT THE ASSESSEE FIR M HAS PURCHASED THOSE LOSSES SUBSEQUENTLY TO TAKE THE BENE FIT OF SET OFF. THE ASSESSING OFFICER ALSO GAVE THE REFERENCE OF THE ACCOUNTAN T OF THE ASSESSEE FIRM SHRI RAJENDRA ATTAL WHO STATED THAT THE E NTRIES OF LOSSES OF RS.1 00 21 000/- HAVE BEEN ENTERED IN THE BOOKS OF ACCO UNT ON 31- 03-2006. 17. THE ASSESSING OFFICER ALSO EMPHASIZED ON THE FACT THAT SHRI SATISH MITTAL PARTNER OF THE ASSESSEE FIRM ADMITTED THAT NO MARGIN MONEY WAS KEPT WITH M/S. MADHYA BHARAT INTERNATIONAL PVT. LTD. THERE WAS SEARCH ACTION AGAINST M/S. MADHYA BHARAT INT ERNATIONAL PVT. LTD. ON 02-05-2008. THE ASSESSING OFFICER MADE CERTA IN OBSERVATION IN RESPECT OF THE ASSESSEE THAT HE WAS NOT A REGISTERED NON-MEMBER CLIENT AND ALSO NO PROPER RECORDS OF THE ASS ESSEE WERE MAINTAINED BY M/S. MADHYA BHARAT INTERNATIONAL PVT. LTD. THE ASSESSING OFFICER ALSO GAVE THE REFERENCE OF THE DY. DIREC TOR OF THE NBOT WHO STATED THAT THE SAID TRANSACTIONS ARE TREATE D AS MEMBER TRANSACTION I.E. M/S. MADHYA BHARAT INTERNATIONAL PVT. LTD. AS NOTED BY THE ASSESSING OFFICER THE DIRECTOR OF M/S. MADHYA BHARA T INTERNATIONAL PVT. LTD. SHRI RAM KUMAR AGARWAL STATED T HAT NO BROKERAGE HAVE BEEN CHARGED FROM THE ASSESSEE. THE A SSESSING OFFICER THEREFORE PROCEEDED TO TREAT THE SAID LIABILITY AS A BOGUS LIABILITY. THE ASSESSING OFFICER TREATED THE SAME AS NON-EXIS TING & NON-GENUINE LIABILITY OF RS.1 00 21 000/- AND BROUGHT TO TAX U/ S. 41(1) OF THE ACT AS A CESSATION OF THE LIABILITY. SO FAR AS ACTIO N OF THE ASSESSING OFFICER FOR INVOKING THE PROVISIONS OF SEC. 41(1) IN T HE GROUND NO. 2(A) ITSELF THE REVENUE HAS ADMITTED THAT THE ASSESSING OFFICER HAS WRONGLY MADE ADDITION U/S. 41(1) IN THE ASSESSME NT ORDER. 29 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N THE ENTIRE REASONS AND DISCUSSIONS OF THE ASSESSING OFFICER IS REVOLVIN G AROUND HOW THE SAID LIABILITY WAS NON-GENUINE NON-EXISTING A ND HENCE IT IS TO BE TAXED U/S. 41(1) OF THE ACT. THERE ARE NO OTHER REASONS GIVEN BY THE ASSESSING OFFICER FOR MAKING THE SAID ADDITION. THE LD. CIT(A) HAS DELETED THE ADDITION BY HOLDING THAT SEC . 41(1) IS NOT APPLICABLE. AT THE SAME TIME THE LD. CIT(A) HAS FURTHER OBSERVED THAT IN THE SUBSEQUENT YEAR I.E. F.Y. 2006-07 RELEVANT TO A.Y. 2007-08 M/S. MADHYA BHARAT INTERNATIONAL PVT. LTD. HAS CREDITED T HE PROFIT TO THE EXTENT OF RS.1 05 43 000/- TO THE ACCOUNT OF THE ASS ESSEE ON ACCOUNT OF TRANSACTION CARRIED OUT BY IT FOR THE ASSESS EE FIRM. THE BALANCE AMOUNT OF RS.5 22 000/- WAS PAID BY M/S. MADHYA BH ARAT INTERNATIONAL PVT. LTD. TO THE ASSESSEE BY ACCOUNT PAY EE CHEQUES. THE ASSESSING OFFICER ALSO ASSESSED THE SAID PROFIT OF RS.1 05 43 00 0/- IN THE HANDS OF THE ASSESSEE IN THE A.Y. 2007-08. IN THE BACKGROUND OF THESE FACTS LD. CIT(A) HELD THAT THE SPECULATION LOSS OF RS.1 00 21 000/- IS TO BE ALLOWED TO THE ASSESSEE. WE FIND N O MERIT IN THE GROUNDS TAKEN BY THE REVENUE AS IN SUBSEQUENT YEAR M/S. MA DHYA BHARAT INTERNATIONAL PVT. LTD. HAS CREDITED THE PROFIT TO THE ACCOUNT OF THE ASSESSEE FROM WHICH THE SUM OF RS.1 00 21 000/- WAS DE DUCTED AND BALANCE AMOUNT WAS PAID TO THE ASSESSEE FIRM. IN T HIS CIRCUMSTANCES WE FIND THAT THE LD. CIT(A) HAS RIGHTLY HE LD THAT THE TRANSACTION WAS GENUINE BETWEEN THE ASSESSEE AND M/S. MADHYA BHARAT INTERNATIONAL PVT. LTD. THE BENEFIT OF THE SAID S PECULATION LOSS IS TO BE GIVEN TO THE ASSESSEE. ACCORDINGLY THE GROUND S TAKEN BY THE REVENUE BEING GROUND NO. 2 (A) (B) AND (C) ARE DISMISSED. IN THE RESULT THE REVENUES APPEAL IS DISMISSED. 18. NOW WE TAKE UP THE ASSESSEES APPEAL FOR THE A.Y. 2 006-07 BEING ITA NO. 776/PN/2010 . THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF THE APPEAL: 30 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N 1. THE LEARNED CIT(A) ERRED IN TREATING THE LOSS ARISING IN COMMODITY DERIVATIVE TRADING AS A SPECULATIVE BUSINESS LOSS WIT HOUT APPRECIATING THAT THIS ISSUE COULD NOT BE TOUCHED IN T HIS ASST. U/S. 153A AND HENCE THERE WAS NO REASON TO TREAT THE SAID LOSS AS A SPECULATIVE BUSINESS LOSS AS AGAINST REGULAR BU SINESS LOSS CLAIMED BY THE ASSESSEE. 2. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE LOSS ARISI NG ON TRADING IN COMMODITY DERIVATIVES WAS A SPECULATIVE BUSI NESS LOSS AND NOT REGULAR BUSINESS LOSS. 3. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE TRADING IN COMMODITY DERIVATIVES WAS PART OF THE REGULAR BUSINE SS ACTIVITY OF THE ASSESSEE AND HENCE THERE WAS NO REASON TO TR EAT THE LOSS ARISING FROM THE SAID ACTIVITY AS A SPECULATIVE BUSINES S LOSS. 4. WITHOUT PREJUDICE TO GROUND NOS. 2 & 3 THE ASSESSEE SUBMITS THAT THE BROKERAGE INCOME EARNED BY THE ASSESSEE IN RESPECT OF TRANSACTIONS IN COMMODITY DERIVATIVES SHOULD HAVE BEE N TREATED AS SPECULATIVE BUSINESS INCOME AND NOT AS REGULAR BU SINESS INCOME. 5. THE ASSESSEE SUBMITS THAT THE LEARNED CIT(A) OUGHT TO HAVE ALLOWED SET OFF OF LOSS OF RS.2 09 31 143/- BEING INCURRED IN TRADING IN COMMODITY DERIVATIVES AGAINST THE BROKERA GE INCOME EARNED BY THE ASSESSEE. 19. GROUND NO. 1 DID NOT PRESS BY THE LD. AR. AS GROUN D NO. 1 IS NOT PRESSED BY THE LD. AR HENCE GROUND NO. 1 IS DISMISSE D AS NOT PRESSED. SO FAR AS GROUND NOS. 2 3 & 4 ARE CONCERNED THE MAIN GRIEVANCE OF THE ASSESSEE IS THAT THE LOSS INCURRED THRO UGH M/S. MADHYA BHARAT INTERNATIONAL PVT. LTD. TOWARDS THE TRANS ACTIONS IN THE NBOT IS TO BE TREATED AS NON-SPECULATION LOSS. WHILE DECID ING THE REVENUES APPEAL FOR A.Y. 2006-07 WE HAVE ALREADY NOTED T HAT IN GROUNDS THE REVENUE HAS CONCEDED THAT THE ACTION OF THE ASSESSING OFFICER TREATING THE AMOUNT OF RS.1 00 21 000/- U/S. 41(1) OF TH E ACT AS A CESSATION OF THE LIABILITY WAS NOT JUSTIFIED. THE FACTS PERTAINING TO THE ISSUE ARE ALREADY DISCUSSED WHILE DECIDING THE IDENTICAL ISSUE IN THE REVENUES APPEAL. NOW THE ASSESSEE HAS TAKEN A PLEA THAT THIS PARTICULAR LOSS CANNOT BE TREATED AS A SPECULATIVE LOSS W ITHIN THE MEANING OF SEC. 43(5) OF THE INCOME-TAX ACT. SECTION 43(5) OF THE ACT READS AS UNDER: 31 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N SEC. 43(5) - SPECULATIVE TRANSACTION MEANS A TRANSAC TION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COM MODITY INCLUDING STOCKS AND SHARES IS PERIODICALLY OR ULTIMATE LY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS: PROVIDED THAT FOR THE PURPOSES OF THIS CLAUSE (A) A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCH ANDISE ENTERED INTO BY A PERSON IN THE COURSE OF HIS MANUF ACTURING OR MERCHANTING BUSINESS TO GUARD AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATIONS IN RESPECT OF HIS CONTRACTS FOR AC TUAL DELIVERY OF GOODS MANUFACTURED BY HIM OR MERCHANDISE SOLD BY HIM; OR (B) A CONTRACT IN RESPECT OF STOCKS AND SHARES ENT ERED INTO BY A DEALER OR INVESTOR THEREIN TO GUARD AGAINST LOSS IN HIS HOLDINGS OF STOCKS AND SHARES THROUGH PRICE FLUCT UATIONS; OR (C) A CONTRACT ENTERED INTO BY A MEMBER OF A FORWAR D MARKET OR A STOCK EXCHANGE IN THE COURSE OF ANY TRA NSACTION IN THE NATURE OF JOBBING OR ARBITRAGE TO GUARD AGAIN ST LOSS WHICH MAY ARISE IN THE ORDINARY COURSE OF HIS BUSIN ESS AS SUCH MEMBER; [OR] [(D) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIVATIVES REFERRED TO IN CLAUSE [(AC)] OF SECTION 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT 1956 (42 OF 195 6) CARRIED OUT IN A RECOGNISED STOCK EXCHANGE;] SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION; [EXPLANATION - 20. NOTHING IS THERE ON RECORD TO SHOW THAT THE TRANS ACTIONS WERE SETTLED BY THE ASSESSEE ON ACTUAL DELIVERY. NO EVIDENCE WAS ALSO PLAC ED BEFORE THE LD. CIT(A) NOR BEFORE US. WE THEREFORE CONSTRA INT TO HOLD THAT LOSS INCURRED IN THE OIL TRADING THROUGH M/S. MADHYA BHARAT INTERNATIONAL PVT. LTD. IN THE NBOT IS A SPECULATIVE LOSS W ITHIN THE MEANING OF SEC. 43(5). ACCORDINGLY GROUND NOS. 2 3 & 4 AR E DISMISSED. 21. THE NEXT ISSUE IS IN RESPECT OF LOSS OF RS.2 09 31 143/- WHICH IS INCURRED IN TRADING IN COMMODITY DERIVATIVES. NOW THE ASSE SSEE HAS TAKEN A PLEA THAT SAID LOSS MAY SET OFF AGAINST THE BROK ERAGE INCOME 32 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N EARNED BY THE ASSESSEE. THE LD. CIT(A) HAS DISCUSSED THIS ISSUE IN PARA NOS. 7.1 7.2 AND 7.3 ARE AS UNDER: 7.1 IT IS NOTICED THAT THE APPELLANT FIRM HAS CLAIMED LOSS IN RESPECT OF COMMODITIES DERIVATIVES TRANSACTIONS BY DEBITING THE SAME IN THE PROFIT & LOSS ACCOUNT. THE SAID LOSS IS S PECULATION LOSS AND HENCE CANNOT BE SET-OFF AGAINST BROKERAGE IN COME WHICH IS REGULAR BUSINESS INCOME EARNED BY THE APPELLANT FI RM. THE A.O. HAS CONSIDERED AND CORRECTLY DECIDED THE ISSUE IN P ARA 5 OF THE ASSESSMENT ORDER FOR A.Y. 2006-07 AS UNDER: ON GOING THROUGH THE P & L ACCOUNT OF THE ASSESSEE IT IS SEEN THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.2 09 31 143/- ON ACCOUNT OF LOSSES IN COMMODITIES TRADING. THE LOSSES INCURRED IN COMMODITIES TRADING A RE CLEARLY SPECULATIVE IN NATURE AS DEFINED U/S. 43(5) OF THE I.T. ACT 1961. THESE CANNOT BE CLAIMED AS BUSINESS LOSS. ONL Y THE ELIGIBLE TRANSACTIONS AS SPECIFIED UNDER PROVISO (D) BELOW S. 43(5) ARE NOT TREATED AS SPECULATIVE BY THE DEEMING FICTION UNDER THE ACT. THE 'ELIGIBLE TRANSAC TION' AND 'RECOGNIZED STOCK EXCHANGE' IS DEFINED UNDER EXPLAN ATION (I) AND (II) BELOW THE S. 43(5) OF THE ACT. THE TRANSACTION S ON COMMODITIES MARKET ARE NOT COVERED BY THE EXCEPTIONS AND HENCE ARE HELD TO BE SPECULATIVE IN NATURE. THE LOSSES OF RS.2 09 31 143/- ARE THEREFORE HELD TO BE SPECULATIVE IN NATURE.' 7.2 AS THE A.O. HAS ASSESSED THE SPECULATION INCOME OF RS.40 16 93 630/- OF THE CLIENTS OF THE APPELLANT FIRM IN THE HANDS OF THE APPELLANT THE SPECULATION LOSS OF RS.2 09 31 143/- WAS SET- OFF AGAINST THE SAID INCOME. AS THE ADDITION ON ACCOUN T OF SPECULATION INCOME OF THE CLIENTS AMOUNTING TO RS.40 1 6 93 630/- IS DELETED THE A.O. IS DIRECTED TO DISALLOW THE SAID SP ECULATION LOSS OF RS.2 09 31 143/- CLAIMED BY THE APPELLANT AS DEDUCT ION FROM BROKERAGE INCOME. THE A.O. IS DIRECTED TO ALLOW THE SAID SPECULATION LOSS TO BE CARRIED FORWARD. THE CONTENT ION OF THE APPELLANT IN THIS REGARD THAT THE BROKERAGE INCOME E ARNED IN RESPECT OF THE TRANSACTIONS IN COMMODITY DERIVATIVES IS OF EXACTLY SIMILAR NATURE OF INCOME EARNED FROM TRANSACTIONS IN COMMODITY DERIVATIVES IS INCORRECT AS THE BROKERAGE INCOME EA RNED IS REGULAR BUSINESS INCOME AS NO SPECULATION IS INVOLVED IN BRO KERAGE INCOME AND THE BROKERAGE IS CHARGED AT FIXED PERCEN TAGE. THE OTHER CONTENTION OF THE APPELLANT THAT ITS CHARTERED ACCOUNTANT MR. ARVIND AGRAWAL AND ITS TAX CONSULTANT/ADVOCATE WERE OF THE VIEW THAT SUCH SET-OFF IS ALLOWABLE AND HENCE PREPARED AND FILED RETURN OF INCOME ACCORDINGLY IS OF NO RELEVANCE AS THE PROVISIONS OF THE INCOME-TAX ACT ARE TO BE FOLLOWED. 7.3 IN VIEW OF THE ABOVE FACTS AND DISCUSSION THE A.O . IS DIRECTED TO DISALLOW THE SPECULATION LOSS OF RS.2 09 31 14 3/- AND RS.55 62 201/- CLAIMED BY THE APPELLANT AS DEDUCTIBLE FROM BROKERAGE INCOME OF A.YS 2006-2007 AND 2007-2008 RESPE CTIVELY. THE GROUND NO.3 FOR THE A.Y. 2006-2007 AND GROUND NO. 2 FOR A.Y. 2007-2008 THEREFORE STAND DISMISSED. 33 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N 22. WE HAVE HEARD THE PARTIES. WE FIND THAT THE SPECU LATION LOSS OF RS.2 09 31 143/- CANNOT BE SET OFF AGAINST THE REGULAR BUSIN ESS SET OFF AS PER THE PROVISIONS OF SEC. 73(1) OF THE INCOME-TAX ACT . IN OUR OPINION THERE IS NO MERIT IN THE GROUND NO. 5. ACCORDINGLY GROUND NO. 5 TAKEN BY THE ASSESSEE IS DISMISSED. 23. NOW WE TAKE UP THE REVENUES APPEAL FOR THE A.Y. 20 07-08 BEING ITA NO. 860/PN/2010 . THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS: 1. (A) WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE SPECULATION LOSSES OF RS.40 97 718/- WHICH WAS TREATED AS ASSESSEES LOSS AND NOT OF THE ASSESSEES CLIENTS. (B) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) FAILED TO APPRECIATE THAT THE TRANSACTIO NS CLAIMED TO HAVE BEEN DONE ON BEHALF OF PURPORTED CLI ENTS WAS NOT LEGALLY PERMISSIBLE AS THE ASSESSEE WAS NEITHER BROKER OR SUB-BROKER OF SUCH CLIENTS AND THEREFORE E RRED IN DELETING THE ADDITION ON A/C OF SPECULATION LOSS OF RS.40 97 718/-. (C) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) FAILED TO APPRECIATE THAT THERE WAS NO C LIENT AGREEMENT KYC DETAILS BROKER'S NOTE WITH PURPORTED CLIENTS AND THEREFORE ERRED IN DELETING THE ADDITION ON A/C OF SPECULATION LOSS OF RS.40 97 718/-. 24. IN RESPECT OF THE A.Y. 2007-08 THE PROFIT OF THE ASSE SSEES CLIENTS WAS BROUGHT TO TAX OF RS.40 97 718/- TREATING THE SAME A S INCOME OF THE ASSESSEE. THE DETAILS OF THE RETURN OF INCOME AND AD DITION MADE AND INCOME ASSESSED BY THE ASSESSING OFFICER FOR THE ABOV E ASSESSMENT CAN BE SUMMARIZED AS UNDER: ASSESSEMNT YEAR 2007-08: INCOME RETURNED (AS CONSIDERED BY A.O.) RS.3 42 672/- ( NET PROFIT AS PER P & L A/C RS.2 43 717 + DISALLOWANCE U/S. 40(A)(IA) RS.98 960/- = RS.3 42 677/-) ADD: SPECULATION LOSS CLAIMED AS EXPENDITURE/ 34 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N BUSINESS LOSS ALLOWED TO BE CARRIED FORWARD. RS.55 62 201/- TOTAL INCOME ASSESSED RS.59 04 873/- NET SPECULATION LOSS ALLOWED TO BE CARRIED FORWARD NET LOSS EARNED BY THE CLIENTS (-) RS.40 97 718/- (PROFIT RS.71 35 357/- - LOSS RS.1 12 33 075/-) ADD: SPECULATION LOSS INCURRED BY THE APPELLANT (-) RS.55 62 201/- TOTAL (-) RS.96 59 919/- ------------------------- ------------------------- 24.1 WE HAVE HEARD THE PARTIES. THE AO DECLINED TO ACCE PT THE PLEA OF THE ASSESSEE THAT THE ASSESSEE HAS CARRIED OUT THE TRANSACTIONS AS A SUB-BROKER ON BEHALF OF HIS CLIENTS IN THE NCDEX AND BROU GHT TO TAX THE ENTIRE INCOME IN THE A.Y. 2006-07 IN THE HANDS OF THE ASSESSEE. SAME WAY IN THE A.Y. 2007-08 THE AO HAS ALSO DECLINED TO ACCEPT THAT THE SAID LOSS ( I.E. RS.40 97 718 (1 12 33075 LOSSES 71 35 357 ) DOES NOT REPRESENT THE SPECULATION LOSS OF THE ASSESSEE AND HE ACCORDINGLY ALLOWED THE SAID LOSS IN THE HANDS OF THE ASSESSEE TO BE C ARRIED FORWARD TO THE SUBSEQUENT YEARS. THE REASONS GIVEN BY THE AO IN THE A.Y. 2007-08 ARE VERBATIM IS IN THE A.Y. 2006-07 FOR BRINGING T O TAX THE ENTIRE PROFITS OF THE ASSESSEES CLIENTS ON THE TRANSACTIO NS CARRIED OUT IN THE NCDEX. HENCE WE FOLLOWING OUR REASONS IN THE A.Y. 200 6-07 UPHOLD THE ORDER OF THE LD.CIT(A) HOLDING THAT THE SAID LOSS CANNOT BE TREATED AS ASSESSEES LOSS. ACCORDINGLY THE RESPECTIV E GROUNDS RAISED BY THE REVENUE ARE DISMISSED. IN THE RESULT REVENUES APPEAL FOR THE A.Y. 2007-08 IS DISMISSED. 25. NOW WE TAKE UP THE ASSESSEES APPEAL FOR THE A.Y. 2 007-08 BEING ITA NO. 777/PN/2010 . THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS: 35 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N 1. THE LEARNED CIT(A) ERRED IN TREATING THE LOSS ARISING IN COMMODITY DERIVATIVE TRADING AS A SPECULATIVE BUSINESS LOSS WIT HOUT APPRECIATING THAT THIS ISSUE COULD NOT BE TOUCHED IN T HIS ASST. U/S. 153A AND HENCE THERE WAS NO REASON TO TREAT THE SAID LOSS AS A SPECULATIVE BUSINESS LOSS AS AGAINST REGULAR BU SINESS LOSS CLAIMED BY THE ASSESSEE. 2. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE LOSS ARISI NG ON TRADING IN COMMODITY DERIVATIVES WAS A SPECULATIVE BUSI NESS LOSS AND NOT REGULAR BUSINESS LOSS. 3. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE TRADING IN COMMODITY DERIVATIVES WAS PART OF THE REGULAR BUSINE SS ACTIVITY OF THE ASSESSEE AND HENCE THERE WAS NO REASON TO TR EAT THE LOSS ARISING FROM THE SAID ACTIVITY AS A SPECULATIVE BUSINES S LOSS. 4. WITHOUT PREJUDICE TO GROUND NOS. 2 & 3 THE ASSESSEE SUBMITS THAT THE BROKERAGE INCOME EARNED BY THE ASSESSEE IN RESPECT OF TRANSACTIONS IN COMMODITY DERIVATIVES SHOULD HAVE BEE N TREATED AS SPECULATIVE BUSINESS INCOME AND NOT AS REGULAR BU SINESS INCOME. 5. THE ASSESSEE SUBMITS THAT THE LEARNED CIT(A) OUGHT TO HAVE ALLOWED SET OFF OF LOSS OF RS.55 62 201/- BEING INCURRED IN TRA DING IN COMMODITY DERIVATIVES AGAINST THE BROKERAGE INCOM E EARNED BY THE ASSESSEE. 26. GROUND NO. 1 IS NOT PRESSED BY THE LD. AR. AS GROU ND NO. 1 IS NOT PRESSED BY THE LD. AR HENCE GROUND NO. 1 IS DISMISSE D AS NOT PRESSED. SO FAR AS GROUND NOS. 2 3 & 4 ARE CONCERNED THE CONTENTION OF THE ASSESSEE IS THAT THE LOSS INCURRED IN TRADING IN CO MMODITY DERIVATIVES CANNOT BE TREATED AS SPECULATIVE BUSINESS LOS S. WE HAVE DECIDED AN IDENTICAL ISSUE IN THE ASSESSEES OWN CASE IN T HE A.Y. 2006- 07. FOLLOWING OUR REASONS WE CONFIRM THE ORDER OF THE LD. CIT(A) IN THIS YEAR ALSO. WE DISMISS THE GROUND NOS. 2 3 & 4. 27. IN GROUND NO. 5 THE ASSESSEE HAS PLEADED FOR ALLOWIN G THE SET OFF OF LOSSES OF RS.55 62 201/- WHICH WERE INCURRED IN TRADING IN COMMODITY DERIVATIVES AGAINST THE BROKERAGE INCOME EARNE D BY THE ASSESSEE. THE IDENTICAL CONTENTION HAS BEEN TAKEN IN T HE A.Y. 2006- 07 AND THIS ISSUE IS DECIDED AGAINST THE ASSESSEE. AS TH E FACTS ARE IDENTICAL IN THIS YEAR WE HOLD THAT AS PER THE PROVISIONS O F 73(1) OF THE ACT THE SPECULATIVE LOSS IN THE COMMODITY DERIVATIVES CANN OT BE SET OFF 36 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N AGAINST THE REGULAR BUSINESS INCOME BUT SAME CAN BE CAR RY FORWARD AND SET OFF AGAINST THE SPECULATIVE BUSINESS PROFIT. ACCORD INGLY GROUND NO. 5 IS ALSO DISMISSED. IN THE RESULT THE ASSESSE E APPEAL IS DISMISSED. 28. NOW WE TAKE UP THE APPEALS OF M/S. SAHAYOG COMMODIT IES (OLD) BEING ITA NOS. 857 & 858/PN/2010 FOR THE A.YS. 2005-06 AND 2006-07. THIS IS THE OLD FIRM OF M/S. SAHAYOG COMMODITIES (NEW) WHICH DETAILS ARE ALREADY DISCUSSED IN THIS ORDER. THE REV ENUE HAS TAKEN THE FOLLOWING GROUNDS IN THE A.Y. 2005-06 ARE AS UNDER: 1. (A) WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.38 44 218/- BY TREATING INCOME AS EARNED BY CLI ENTS OF THE ASSESSEE AND NOT BY THE ASSESSEE? (B) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) FAILED TO APPRECIATE THAT THE TRANSACTIO NS CLAIMED TO HAVE BEEN DONE ON BEHALF OF PURPORTED CLI ENTS WAS NOT LEGALLY PERMISSIBLE AS THE ASSESSEE WAS NEITHER BROKER OR SUB-BROKER OF SUCH CLIENTS AND THEREFORE E RRED IN DELETING THE ADDITION OF RS.38 44 218/-. (C) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) FAILED TO APPRECIATE THAT THERE WAS NO C LIENT AGREEMENT KYC DETAILS BROKER'S NOTE WITH PURPORTED CLIENTS AND THEREFORE ERRED IN DELETING THE ADDITION OF RS.38 44 218/-. 29. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS IN THE A .Y. 2006- 07 ARE AS UNDER: 1. (A) WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.60 30 320/- BY TREATING INCOME AS EARNED BY CLI ENTS OF THE ASSESSEE AND NOT BY THE ASSESSEE? (B) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) FAILED TO APPRECIATE THAT THE TRANSACTIO NS CLAIMED TO HAVE BEEN DONE ON BEHALF OF PURPORTED CLI ENTS WAS NOT LEGALLY PERMISSIBLE AS THE ASSESSEE WAS NEITHER BROKER OR SUB-BROKER OF SUCH CLIENTS AND THEREFORE E RRED IN DELETING THE ADDITION OF RS.60 30 320/-. 37 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N (C) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) FAILED TO APPRECIATE THAT THERE WAS NO C LIENT AGREEMENT KYC DETAILS BROKER'S NOTE WITH PURPORTED CLIENTS AND THEREFORE ERRED IN DELETING THE ADDITION OF RS.60 30 320/-. 30. IN THIS CASE ON THE BASIS OF SEARCH AND SEIZURE ACTIO N AGAINST THE ASSESSEE FIRM ON 22-11-2007 U/S. 132 OF THE ACT THE ASSESSING OFFICER HAS PASSED THE ASSESSMENT ORDERS FOR THE A.YS. 20 05-06 AND 2006-07 U/S. 143(3) R.W.S. 153A OF THE ACT. THE DETAILS OF THE INCOME RETURN AND INCOME ASSESSED BY THE ASSESSING OFFICER IN TH E ABOVE MENTIONED TWO YEARS ARE AS UNDER: ASSESSEMNT YEAR 2005-06: INCOME RETURNED AS PER NET PROFIT AS PER PROFIT & LOSS ACCOUNT RS.55 528/- ADD: NET INCOME EARNED BY THE CLIENTS (PROFIT RS.49 53 716 - LOSS RS.11 09 498) RS.38 44 218/- TOTAL INCOME ASSESSED RS.38 99 746/- -------------------------- -------------------------- ASSESSEMNT YEAR 2006-07: INCOME RETURNED AS PER NET PROFIT AS PER PROFIT & LOSS ACCOUNT RS.9 615/- ADD: NET INCOME EARNED BY THE CLIENTS (PROFIT RS.88 45 548 - LOSS RS.28 15 228) RS.60 30 320/- TOTAL INCOME ASSESSED RS.60 39 935/- -------------------------- -------------------------- 31. THE FACTS WHICH ARE REVEALED FROM THE RECORDS AS UN DER. THE ASSESSEE FIRM WAS ENGAGED IN THE BUSINESS OF BROKERAGE A ND NCDEX TRADING. IN RESPECT OF A.Y. 2005-06 IT WAS REVEALED DURIN G THE COURSE OF THE SEARCH & SEIZURE ACTION THAT THE ASSESSEE HAS ENTERED INTO THE TRANSACTIONS IN THE COMMODITIES TRADING ON BEHALF OF 34 CLI ENTS AND 30 CLIENTS IN THE A.Y. 2006-07 WHICH RESULTED INTO TO THE P ROFITS TO THE 38 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N EXTENT OF RS.38 44 218/- AND RS.60 30 320/- IN THE A.YS. 2005 -06 AND 2006-07 RESPECTIVELY. OTHERWISE THE FACTS PERTAINING TO THE ISSUE ARE IDENTICAL AS IN THE CASE OF M/S. SAHAYOG COMMODITIES (N EW). THE ASSESSING OFFICER HELD THAT THE PROFIT EARNED BY THE CLIENTS AMOUNTING TO RS.49 53 716/- AND RS.88 45 548/- IN THE A.YS. 2005-06 A ND 2006-07 RESPECTIVELY AND ALSO THE LOSSES INCURRED BY TH E CLIENTS AMOUNTING TO RS.11 09 498/- AND RS.28 15 228/- FOR THE A.YS . 2005- 06 AND 2006-07 RESPECTIVELY WERE EARNED AND INCURRED BY THE ASSESSEE ITSELF. FOR THE COMING TO THE SAID CONCLUSION THE REASONS GIVEN BY THE ASSESSING OFFICER ARE SUMMARIZED AS UNDER: I. THE TRANSACTIONS ENTERED INTO BY THE APPELLANT ON BE HALF OF ITS CLIENTS ARE NOT PERMISSIBLE IN VIEW OF PROVISIONS OF SECT IONS 15 AND 11(3) OF THE FORWARD CONTRACT REGULATION ACT 1952. T HE APPELLANT HAS CARRIED OUT TRANSACTIONS UNDER 4 BROKE RS WHICH IS NOT PERMISSIBLE. II. THERE WERE NO WRITTEN CONTRACTS WITH THE CLIENTS 80% INFORMATION OF THE CLIENTS WAS NOT AVAILABLE AT THE TIME OF ACTIO N U/S. 132 OF THE ACT NO DETAILS OF CLIENTS THEIR ORDERS ETC. IS AVA ILABLE ON NCDEX SOFTWARE/CD. III. THE CLIENTS OF THE APPELLANT HAVE EARNED SUBSTANTIAL I NCOME IN RESPECT OF TRANSACTIONS DONE BY THE APPELLANT FIRM O N THEIR BEHALF HOWEVER THE SAID CLIENTS HAVE SET-OFF THIS PROFIT AG AINST LOSSES CLAIMED FROM OTHER BROKERS AND HENCE AVOIDED PAYMENT OF TAXES. FURTHER THE 11 CLIENTS HAVE FILED REVISED RETURNS FO R OFFERING PROFITS RECEIVED FROM THE APPELLANT FIRM. IV. STAMP DUTY FOR THE TRANSACTIONS ENTERED INTO BY THE APPELLANT FIRM WITH M/S. A.M. FUTURES WAS BORNE BY THE APPELLANT FIRM AND NOT BY THE CLIENTS HENCE THE TRANSACTIONS ARE ONLY BETWE EN M/S. A.M. FUTURES AND THE APPELLANT FIRM. V. THE APPELLANT HAS NOT COLLECTED ANY MARGIN MONEY FROM THE SO CALLED CLIENTS. VI. NO COMMISSION OR BROKERAGE WAS CHARGED BY THE APPELL ANT FROM ITS CLIENTS AND THE BILLS ISSUED BY THE APPELLANT TO IT S CLIENTS SHOW THAT NO COMMISSION WAS CHARGED TO THEM. VII. NO LEADING EVIDENCE WAS FILED TO PROVE THAT THE TRANS ACTIONS ENTERED INTO BY THE APPELLANT WERE ON BEHALF OF HIS CLIENT S. 32. ON THE PERUSAL OF THE ASSESSMENT ORDERS IN BOTH TH E ASSESSMENT YEARS IN THIS CASE IT IS SEEN THAT THE ENTIRE FACTS AND REASONS GIVEN BY THE ASSESSING OFFICER ARE VERBATIM AS IN THE CASE OF 39 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N M/S. SAHAYOG COMMODITIES (NEW) HENCE FOR AVOIDING THE REPET ITION OF THE FACTS AND REASONS WE PREFERRED TO GO WITH THE ORDE R OF THE LD. CIT(A). THE ADDITION MADE BY THE ASSESSING OFFICER OF RS.38 99 746/- AND RS.60 30 320/- IN THE A.YS. 2005-06 AND 2006-07 RESP ECTIVELY ARE ONLY AFTER THE REDUCING THE LOSSES OF RS.11 09 498/- A ND RS.28 15 228/- IN THE A.YS. 2005-06 AND 2006-07 RESPECTIVE LY. WHEN THE MATTER REACHED BEFORE THE LD. CIT(A) THE LD. CIT(A) HE LD THAT THE TRANSACTIONS ARE GENUINE AND NET PROFITS OF THE CLIENTS OF THE ASSESSEE FIRM AMOUNTING TO RS.38 44 218/- AND 60 30 320/- CANNOT BE BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE FIRM. THE R EASONS AND FINDINGS GIVEN BY THE LD. CIT(A) ARE AS UNDER: 6. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER S OF THE A.O. AND THE SUBMISSIONS OF THE APPELLANT. THE MAIN CONT ENTION RAISED BY THE A.O. IS THAT THE TRANSACTIONS IN COMMO DITIES DERIVATIVES UNDERTAKEN BY THE APPELLANT FOR ITS CLIE NTS ARE NOT PERMISSIBLE U/S.15 AND U/S. 11(3) OF FORWARD CONTRACT R EGULATION ACT 1952. THE APPELLANT HAS ALSO AGREED THAT IT CANNOT ACT AS BROKER OR SUB-BROKER FOR ENTERING INTO TRANSACTIONS OF TRADING IN COMMODITIES DERIVATIVES IN VIEW OF THE PROVISIONS OF AFORESAID SECTIONS OF FORWARD CONTRACT REGULATION ACT 1952. T HE APPELLANT HAS RIGHTLY CLAIMED IN THIS REGARD THAT EVEN IF THE BUSINESS CARRIED-OUT BY THE APPELLANT IS NOT PERMISSIBLE THEN ALS O ONLY THE NET INCOME FROM THE SAID BUSINESS IS TO BE TAXED IN THE HANDS OF THE APPELLANT. THE APPELLANT HAS CARRIED-OUT THE TRANSA CTION ON BEHALF OF THE CLIENTS AND HAS EARNED SUBSTANTIAL BROK ERAGE INCOME WHICH IS OFFERED TO TAX BY CREDITING THE SAME TO THE PROFIT & LOSS ACCOUNT. THEREFORE THIS CONTENTION RAISED BY THE A.O. IS REJ ECTED. 6.1 THE CONTENTION OF THE A.O. IS THAT THE INFORMATION ABOUT THE CLIENTS WAS NOT AVAILABLE WITH THE APPELLANT AT THE TIM E OF SEARCH ACTION. HOWEVER IT IS OBSERVED THAT DURING THE COURS E OF ASSESSMENT PROCEEDINGS THE APPELLANT HAS FILED CONFIR MATIONS WITH ADDRESSES PERMANENT ACCOUNT NUMBERS COPIES OF RETURNS OF INCOME AND COMPUTATIONS OF THE CLIENTS AND THE INVE STIGATION WING HAS ALSO VERIFIED THE CLIENTS INDEPENDENTLY. FURTHER THE DETAILS OF TRANSACTIONS ENTERED INTO ON BEHALF OF THE CLIENTS WITH TIME AND DATE OF EXECUTION OF THE TRANSACTIONS ARE ALSO AVAIL ABLE ON THE RECORD OF THE APPELLANT. 6.2 AS REGARDS THE CONTENTION OF THE A.O. THAT THE SAI D CLIENTS HAVE SET-OFF THE PROFIT EARNED ON THE TRANSACTIONS CA RRIED-OUT BY THE APPELLANT BY CLAIMING LOSSES IN RESPECT OF OTHER T RANSACTIONS AND AVOIDED INCOME-TAX PAYMENT IS ALSO NOT ACCEPTABLE AS THE A.O. HAS NOT PROVED THAT THE LOSSES CLAIMED AGAINST THE INCOME BY THE CLIENTS ARE BOGUS. IN FACT MANY OF THE CLIENTS W ERE ASSESSED BY THE ASSESSING OFFICERS AT NASHIK AND JALGAON. THE A.O. HAVE NOT DISALLOWED SUCH LOSSES CLAIMED BY THE SAID ASSESSEE S AND SUCH LOSSES HAVE NOT BEEN HELD TO BE NON-GENUINE. THE A PPELLANT 40 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N HAS ALSO POINTED-OUT THAT MANY CLIENTS HAVE DECLARED THE SPECULATION PROFIT WHICH IS EQUAL TO OR MORE THAN PR OFIT EARNED ON THE TRANSACTIONS CARRIED-OUT BY THE APPELLANT FIRM ON THEIR BEHALF OR HAVE DECLARED SUBSTANTIAL SPECULATION PROFIT IN TH E RETURNS OF INCOME FILED BY THEM. AS REGARDS THE CONTENTION OF T HE A.O. THAT THE STAMP DUTY FOR THE TRANSACTIONS IN COMMODITY DER IVATIVES WAS BORNE BY THE APPELLANT FIRM AND NOT BY THE CLIENTS THE APPELLANT HAS POINTED-OUT THAT STAMP DUTY IN RESPECT OF THE TR ANSACTIONS ENTERED INTO ON BEHALF OF THE CLIENTS WAS RECOVERED FROM THE CLIENTS AND CREDITED TO STAMP DUTY ACCOUNT. AS REGARDS THE CO NTENTION OF THE A.O. THAT THE APPELLANT HAS NOT COLLECTED ANY MARGIN MONEY FROM ITS CLIENTS THE APPELLANT HAS POINTED-OUT THAT IT HAS IN FACT COLLECTED MARGIN MONEY AND ALSO SUBMITTED THAT MAXIMUM BALANCE OF MARGIN MONEY PAID BY IT TO M/S. A.M. FUTURE S IN RESPECT OF TRANSACTIONS ON BEHALF OF CLIENTS WAS LESS THAN MAXIMUM CREDIT BALANCE OF CLIENTS WITH THE APPELLANT FIRM. 6.3 AS REGARDS THE CONTENTION OF THE A.O. THAT NO COMM ISSION OR BROKERAGE WAS CHARGED BY THE APPELLANT FROM ITS CLIE NTS THE APPELLANT HAS POINTED-OUT THAT IT HAS EARNED SUBSTANTIA L NET BROKERAGE OF RS.3 46 005/- AND RS.9 20 061/- IN A.YS. 2005- 2006 AND 2006-2007 RESPECTIVELY AND THE SAME IS CRE DITED TO THE PROFIT AND LOSS ACCOUNTS OF THE RESPECTIVE YEARS. 6.4 IN SUPPORT OF THE TRANSACTIONS ENTERED INTO ON B EHALF OF THE CLIENTS THE APPELLANT HAS FILED AFFIDAVITS WITH THE A.O . IN RESPECT OF MAJOR CLIENTS. INDEPENDENT VERIFICATION WAS MADE BY INVESTIGATION WING BY ISSUING SUMMONS/NOTICES TO TH E CLIENTS AND THE CLIENTS HAVE CONFIRMED THE TRANSACTIONS DONE BY THE APPELLANT ON THEIR BEHALF. 6.5 THE APPELLANT HAS CORRECTLY POINTED-OUT THAT THE PRESUMPTION U/S. 132(4A) OF THE ACT SUPPORTS THE CONT ENTION OF THE APPELLANT AS EACH TRANSACTION ENTERED INTO ON BEHALF OF CLIENT WAS AVAILABLE ON RECORD WITH DATE AND TIME OF EXECUTION IN COMPUTERIZED DATA AT THE TIME OF ACTION U/S.132 OF THE ACT. 6.6 FURTHER NO DOCUMENTS NOTINGS OR PAPERS WERE FOUN D DURING SEARCH ACTION SHOWING THAT ANY OF THE CLIENTS HAVE PROVIDED ACCOMMODATION ENTRIES TO THE APPELLANT FIRM TO REDUCE ITS PROFIT. DURING THE COURSE OF SEARCH ACTION NO NOTINGS OR EV IDENCE SHOWING THAT THE PROFIT PAID TO CLIENTS BY ACCOUNT PAYEE CHEQUES WAS RECEIVED BACK BY THE APPELLANT FIRM IN CASH. DURI NG THE COURSE OF SEARCH OR IN POST SEARCH ENQUIRIES OR IN ASSESSMENT PROCEEDINGS THE DESTINATION OF THE ALLEGED SUPPRESSED INCOME OF RS.99 LACS WAS NOT FOUND IN THE FORM OF UNEXPLAINED EXPENDITURE ASSET OR INVESTMENT. 6.7 IT IS ALSO CLAIMED THAT THE INCOME OF THE CLIENTS O F THE APPELLANT IS ASSESSED BY THE DEPARTMENT IN THEIR RES PECTIVE HANDS. THEREFORE THE SAME INCOME IS TAXED BY THE DE PARTMENT IN THE HANDS OF THE APPELLANT AND ALSO IN THE HANDS OF TH E SAID CLIENTS OF THE APPELLANT. THIS AMOUNTS TO DOUBLE TAXA TION OF THE SAME INCOME WHICH IS NOT PERMISSIBLE AS PER PROVISIO NS OF THE INCOME-TAX ACT AS LAID DOWN BY HON'BLE SUPREME COUR T IN THE CASE OF LALJI HARIDAS VS. ITO & ANR. 43 ITR 387. 6.8 IN VIEW OF THE ABOVE FACTS AND DISCUSSION I AM OF THE CONSIDERED VIEW THAT THE A.O. IS NOT JUSTIFIED IN ASS ESSING THE NET INCOME EARNED BY THE CLIENTS OF THE APPELLANT FIRM A MOUNTING TO RS.38 44 218/- AND RS.60 30 320/- IN THE HANDS OF THE APPEL LANT FIRM IN A.YS 2005-2006 AND 2006-2007 RESPECTIVELY AND THE S AME 41 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N IS DELETED. THE A.O. IS DIRECTED ACCORDINGLY. GROUND NO. 1 FOR THE A.YS 2005-2006 AND 2006-2007 STANDS ALLOWED. NOW THE REVENUE IS IN APPEAL BEFORE US. 33. THE LD. COUNSEL SUBMITS THAT HIS ARGUMENT IN THE CAS E OF M/S. SAHAYOG COMMODITIES (NEW) MAY BE TREATED AS HIS ARGUMENT IN THIS CASE AS THE FACTS ARE IDENTICAL. HE SUBMITS THAT THE ONL Y RESERVATION OF THE ASSESSING OFFICER IS THAT THE ASSESSEE WAS NOT LEG ALLY PERMITTED U/S. 15 AND 11(3) OF FORWARD CONTRACT (REGULATION) ACT 1 952 TO CARRY OUT THE TRANSACTIONS COMMODITIES DERIVATIVES IN THE NCDEX ON BEHALF OF ANY PARTIES. HE SUBMITS THAT ALL THE PARTIES IN THIS CAS E FOR BOTH THE ASSESSMENT YEARS HAVE CONFIRMED AND ALSO DECLARED T HE PROFITS EARNED BY THEM AND THE ASSESSEE HAS MERELY CHARGED THE BROKERAGE WHICH HAS ALREADY BEEN DISCLOSED BY THE ASSESSEE. HE AR GUES THAT THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION. THE LD. DR ON THE OTHER HAND SUBMITS THAT HIS ARGUMENT IN THE CASE OF M/S. SAHA YOG COMMODITIES (NEW) MAY BE TREATED AS ARGUMENT IN THIS CASE. 34. WE FIND THAT THE ASSESSEE FIRM HAS ENTERED INTO A TR ANSACTION IN THE COMMODITIES DERIVATIVES IN NCDEX ON BEHALF OF HIS 34 CLIEN TS IN THE A.Y. 2005-06 AND 60 CLIENTS IN THE A.Y. 2006-07 RESPEC TIVELY. IN THIS YEAR THERE ARE PROFITS AS WELL AS LOSSES. THE FACTS A RE VERBATIM AS IN THE CASE OF M/S. SAHAYOG COMMODITIES (NEW) WHICH APPEALS HAVE BEEN ALREADY DECIDED IN THIS ORDER ITSELF. IT IS ALSO NOT D ENIED BY THE ASSESSEE THAT HE WAS NOT MEMBER OF THE NCDEX AND HE HAS CARRIED OUT THE TRANSACTIONS IN THE COMMODITIES DERIVATIVES THRO UGH M/S. A.M. FUTURE AND OTHER MEMBERS OF NCDEX. AS THE FACTS AR E IDENTICAL AND ALL THE CLIENTS OF THE ASSESSEE THEY HAVE ADMITTED & DECLARED THEIR PROFITS IN THE RETURNS OF INCOME. WE THEREFORE FOLLOWING OUR REASONS IN THE CASE OF M/S. SAHAYOG COMMODITIES (NEW) CONFIR M THE ORDER OF THE LD. CIT(A) IN THIS CASE ALSO IN BOTH THE ASS ESSMENT YEARS 42 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N AND GROUNDS TAKEN BY THE REVENUE ARE DISMISSED. IN TH E RESULT THE REVENUES APPEALS ARE DISMISSED. 35. NOW WE TAKE UP THE APPEALS OF M/S. SHANTI COMMODITIE S BEING ITA NOS. 786 787 855 & 856/PN/2010 WHICH ARE THE CROS S APPEALS BY THE ASSESSEE AS WELL AS THE REVENUE. WE FIRST TAKEN THE APPEAL FILED BY THE REVENUE FOR THE A.YS. 2006-07 BEING ITA NO. 855/PN/2010. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS IN THE A.Y. 2006-07: 1.(A) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) FAILED TO APPRECIATE THAT TRANSACTION RE SULTING IN SPECULATION LOSS OF RS.3 02 38 100/- DONE THROUGH MADHYA BHARAT INTERNATIONAL (I) LTD. WAS NOT LEGALLY PERMISSIBLE TRANSACTION AND THEREFORE THE AO HAS RIGH TLY DISALLOWED THE BOGUS SPECULATION LOSS OF RS.3 02 38 100/- THOUGH THE AO HAS WRONGLY MADE ADDITION U/S 41(1) IN T HE ASSESSMENT ORDER. (B) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THAT MADHA Y BHARAT INTERNATIONAL (I) LTD. CARRIED OUT THE TRANSAC TIONS ON ITS OWN ACCOUNT & NEVER ACTED AS BROKER OR SUB-BROKER OF THE ASSESSEE & LOSSES INCURRED BY MADHYA BHARAT INTERNATIONAL (I) LTD. WERE SUBSEQUENTLY TRANSFERRED TO THE ASSESSEE BY WAY OF MERE ENTRIES HENCE LOSSES ARE NOT GENUINE LOSSES. (C) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THAT THE A SSESSEE HAD FAILED TO PRODUCE CONTRACT NOTES BILLS PROOF OF P AYMENT OF MARGIN MONEY SIGNED COPY OF AGREEMENT ETC. WHICH SHOWS THAT LOSSES OF RS.3 02 38 100/- ARE NOT GENUINE LOSSES AND MERELY REPRESENTS BOOK ENTRIES NOT SUPPOR TED BY GENUINE TRANSACTION AND HENCE LOSSES NEED TO BE IGNORED. (D) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) ERRED IN ALLOWING SPECULATION LOSS OF RS.8 10 620/- WHICH MERELY REPRESENTS BOOK ENTRY NOT SUPPORTED BY GENUINE TRANSACTION. 36. THERE ARE TWO ISSUES IN THIS APPEAL. THE FIRST ISSUE IS THE SPECULATION LOSS OF RS.3 02 38 100/- WHICH IS IN RESPECT OF TRANSACTIONS DONE THROUGH MADHYA BHARAT INTERNATIONAL (I) LTD. THE ASSESSING OFFICER HAS MADE THE ADDITION U/S. 41(1) TREATING T HE SAME AS INCOME OF THE ASSESSEE. AS PER THE GROUNDS TAKEN B Y THE REVENUE 43 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N IT IS CONCEDED IN THE GROUND ITSELF I.E. (1)(A) THAT THE ASSE SSING OFFICER HAS WRONGLY MADE THE ADDITION U/S. 41(1). BUT THE GRIEV ANCE OF THE REVENUE IS THAT LD. CIT(A) SHOULD NOT HAVE ALLOWED THE SAID LOSSES AS THE ASSESSEES SPECULATION LOSS. THIS IS ALSO ONE OF THE G ROUP CONCERNS IN SAHAYOG GROUP. IN CONSEQUENCE OF THE SEAR CH AND SEIZURE ACTION U/S. 132 OF THE ACT CONDUCTED ON SAHAYOG GROUP OF JALGAON ON 22-11-2007 THE ASSESSMENT IN THIS CASE WAS ALSO COMPLETED U/S. 143(3) R.W.S. 153A OF THE ACT. THE DETAILS OF INCOME RETURN ADDITION MADE INCOME ASSESSED BY THE ASSESSING O FFICER OF THE ABOVE MENTIONED YEARS ARE AS UNDER: ASSESSEMNT YEAR 2006-07: INCOME RETURNED AS PER NET PROFIT OF AUDITED PROFIT & LOSS ACCOUNT RS.1 77 69 495/- ADD: NET INCOME EARNED FROM TRADING IN COMMODITIES DERIVATIVES RS.1 03 07 731/- ADD: SPECULATION LOSS IN RESPECT OF TRANSACTION OF A) MADHYA BHARAT INTERNATIONAL PVT. LTD. [U/S.41(1)] RS.3 02 38 100/- B) PAWANKUMAR LADDHA [U/S. 41(1)] RS.14 32 020/- LESS: SPECULATION INCOME CONSIDERED SEPARATELY (-) RS.1 03 07 731/- TOTAL INCOME ASSESSED RS.4 94 39 615/- ----------------------- ----------------------- 37. THE ASSESSEE FIRM HAS ENTERED INTO OIL DERIVATIVES TR ANSACTIONS IN NBOT INDORE THROUGH M/S. MADHYA BHARAT INTERNATION AL (I) LTD. WHICH IS CARD HOLDER OF NBOT. THE ASSESSEE INCURRED THE SPECULATION LOSS OF RS.3 02 38 100/- IN RESPECT OF THE TRANSACTIONS CAR RIED OUT BY THE M/S. MADHYA BHARAT INTERNATIONAL (I) LTD. FOR THE AS SESSEE. IN THE REASONS GIVEN IN THE ASSESSMENT ORDERS WHICH ARE ALSO V ERBATIM AS IN THE CASE OF M/S. SAHAYOG COMMODITIES THE ASSESSING OFFICER TREATED THE SAID LOSS AS NON-GENUINE ON THE FOLLOWING REASONS: I. EVIDENCE OF THE TRANSACTIONS ENTERED INTO BY M/S. MA DHYA BHARAT INTERNATIONAL (I) LTD. FOR THE APPELLANT IS NOT PRODUCED. II. NO MARGIN MONEY WAS PAID IN RESPECT OF THE TRANSACTION S. 44 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N III. THE ENTRY OF LOSS WAS PASSED BY THE APPELLANT AT THE YEAR END. IV. THE TRANSACTIONS WERE ENTERED INTO BY M/S. MADHYA BH ARAT INTERNATIONAL (I) LTD. AND TRANSFERRED THE SAME TO T HE APPELLANT FIRM. V. THE LOSS IS NOT ACTUAL LOSS BUT MERE BOOK ENTRY. VI. AS PER BYLAWS OF NBOT ALL THE NON-MEMBER CLIENTS ARE REQUIRED TO BE REGISTERED WITH NBOT BEFORE DOING THAT THEY HAVE TO ENTER INTO AGREEMENT FOR TRANSACTING BUSINESS AT NBOT WITH PROP ER KYC DETAILS REQUIRED TO BE MAINTAINED BY BROKERS. THE AS SESSEE WAS NOT A REGISTERED ON-MEMBER CLIENT OF M/S. MADHYA BHA RAT INTERNATIONAL (I) LTD. VII. NO BROKERAGE HAS BEEN CHARGED FROM THE ASSESSEE. VIII. THE CONDITIONS MENTIONED IN SPECIMEN COPY OF AGREEMEN T EXECUTED BY M/S. MADHYA BHARAT INTERNATIONAL (I) LTD. WITH ITS CL IENTS ARE NOT FULFILLED. IX. THE LIABILITY SHOWN BY THE ASSESSEE AS PAYABLE TO M/S. MADHYA BHARAT INTERNATIONAL (I) LTD. IS IN FACT NOT PAYABLE AND THE SAME IS LIABLE TO BE TAXED U/S. 41(1) OF THE ACT AS CESSATION OF LIABIL ITY. 38. THE ASSESSING OFFICER TREATED THE OUTSTANDING AMOUNT CLAIMED TO BE PAYABLE ON 31-03-2006 TO M/S. MADHYA BHARAT INTERN ATIONAL (I) LTD. OF RS.3 02 38 100/- AS NOT PAYABLE AND BROUGHT THE S AME TO TAX U/S. 41(1) OF THE ACT AS CESSATION OF LIABILITY. WHEN THE MATT ER REACHED BEFORE THE LD. CIT(A) LD. CIT(A) HELD THAT THE AS SESSING OFFICER WAS NOT JUSTIFIED IN INVOKING PROVISIONS OF SEC. 41(1) O F THE ACT. THE FINDING OF LD.CIT(A) ON INVOKING PROVISIONS OF SECTION 41(1) H AS BEEN ACCEPTED BY THE REVENUE IN GR.NO.1(A). 39. NOW THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE TRANSACTIONS RESULTING IN SPECULATION LOSS OF RS.3 02 38 100/- DONE THROUG H M/S. MADHYA BHARAT INTERNATIONAL (I) LTD. WERE NOT LEGAL TRAN SACTION HENCE ON THIS REASON THE LD. CIT(A) SHOULD HAVE CONFIRMED THE OR DER OF THE ASSESSING OFFICER ON DISALLOWANCE OF THE SPECULATION LOSSES. I N OUR OPINION THERE IS NO MERIT IN THE GROUNDS TAKEN BY THE RE VENUE. THERE WAS NO EVIDENCE TO SHOW THAT THE SAID LOSS WAS NOT GEN UINE LOSS AND IT WAS THE LOSS OF M/S. MADHYA BHARAT INTERNATIONAL (I) LTD . THE SAID AMOUNT WAS PAID BY M/S. MADHYA BHARAT INTERNATIONAL (I ) LTD. BY 45 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N CROSS ACCOUNT PAYEE CHEQUES IN NEXT FINANCIAL YEAR I.E. F.Y . 2006-07 RELEVANT TO A.Y. 2007-08 WHICH DETAILS ARE ALSO GIVEN IN IMPU GNED ORDER OF LD.CIT(A) ON PAGE NO. 6. WHEN THE M/S. MADHYA B HARAT INTERNATIONAL (I) LTD. HAS PAID THE AMOUNT DUE TO THE A SSESSEE IT CANNOT BE SAID THAT THE TRANSACTIONS ARE BOGUS AND NO N-GENUINE. WE ACCORDINGLY DISMISS GROUND NOS. 1 (A) (B) AND (C). 40. GROUND NO. 1(D) IS IN RESPECT OF SPECULATION LOSS OF RS.8 10 620/-. THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS REGISTERED ITSELF AS A CLIENT UNDER M/S. PAWANKUMAR LA DDHA MEMBER OF THE NBOT AND MADE LOSSES OF RS.14.32 LACS DURIN G THE SAME PERIOD. AS PER THE INSPECTION REPORT OF M/S. HARI BHAKTI & CO. THE ASSESSEE FIRM HAS DONE TRADING TRANSACTIONS WITH PAW ANKUMAR LADDHA MUCH BEFORE ITS EXISTENCE AS A PARTNERSHIP FIRM AN D HAS SET OFF ITS LOSSES AGAINST NCDEX PROFIT AT THE END OF THE YEAR. T HE ASSESSING OFFICER THEREFORE PROCEEDED TO DISALLOW THE LOSS CLAIMED BY T HE ASSESSEE OF RS.14.32 LACS. THE ASSESSEE EXPLAINED TO THE ASSESSING OFFICER THAT THE PARTNERS OF THE ASSESSEE FIRM HAVE ORALLY DECIDED TO START THE BUSINESS FROM 01-04-2005 AND HENCE ENTERED INTO TRADE TRANSACTION OF NBOT THROUGH M/S. PAWANKUMAR LADDHA OF INDORE. CONSEQUENTLY THE FIRM HAS MADE THE PAYMENT OF RS.14.32 L ACS TO PAWANKUMAR LADDHA BY ACCOUNT PAYEE CHEQUES. THE ASS ESSING OFFICER WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSES SEE. IN HIS OPINION AS OBSERVED BY HIM THE ASSESSEE COMPANY CAME IN TO EXISTENCE IN FEBRUARY 2006 WHEREAS TRADING TRANSACTIONS THROUGH M/S. PAWANKUMAR LADDHA WERE BETWEEN 12-08-2005 TO 23 -12-2005. THE ASSESSING OFFICER REJECTED THE CONTENTION OF THE ASSE SSEE AND TREATED THE LOSS INCURRED BY THE ASSESSEE OF RS.14.32 LA CS AS NON- GENUINE IN NATURE AND BROUGHT TO TAX THE SAME U/S. 41(1 ) OF THE ACT. WHEN THE MATTER REACHED BEFORE THE LD. CIT(A) THE LD. CI T(A) HELD 46 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N THAT THE ACTION OF THE ASSESSING OFFICER TREATING THE SAID LOSS U/S. 41(1) WAS NOT JUSTIFIED. THE ASSESSEE ALSO PLEADED BEFORE THE L D. CIT(A) THAT THE PARTNERSHIP DEED OF THE ASSESSEE FIRM WAS ENTERED IN TO ON 31-10- 2005 AND NOT THE FEBRUARY 2006 AS STATED BY THE ASS ESSING OFFICER IN THE ASSESSMENT ORDER. THE ASSESSEE ALSO FILED THE COPY OF THE PARTNERSHIP DEED BEFORE THE LD. CIT(A). THE AMOUNT OUTS TANDING TOWARDS LOSS WAS PAID BY CROSS ACCOUNT PAYEE CHEQUES BEARING NO. 97 DATED 03-10-2006. THE ORDERS WERE PLACED WITH M/S. PAWA NKUMAR LADDHA IN THE NAME OF THE FIRM M/S. SHANTI COMMODITIES AND THE BILLS ISSUED BY M/S. PAWANKUMAR LADDHA WERE ALSO IN THE NAME OF M/S. SHANTI COMMODITIES. IT WAS ALSO CONTENDED THAT EVEN THO UGH SOME TRANSACTIONS WERE ENTERED INTO PRIOR TO THE DATE OF PAR TNERSHIP DEED I.E. BEFORE 31-10-2002 BUT SAME WERE ENTERED INTO BY THE P ARTNERS ON BEHALF OF THE FIRM. ON THE OBSERVATION OF THE ASSESSING OFFICER THAT LOSS WAS INCURRED PRIOR TO THE EXISTENCE OF THE ASSESSEE FIRM LD. CIT(A) HAS NOTED THAT PARTNERSHIP DEED IS DATED 31-10-2005 AND T HE FIRM COMMENCED ITS BUSINESS FROM 01-11-2005. HE FURTHER OB SERVED THAT THE BILLS OF M/S.PAWANKUMAR LADDHA SHOWS THAT IN RESPECT OF THE TWO TRANSACTIONS THE LOSS AMOUNTING TO RS.4 44 300/- AND RS. 1 77 100/- WAS INCURRED PRIOR TO 1 ST DAY OF NOVEMBER 2005. HE HELD THAT THE SAID LOSS AMOUNTING TO RS.6 21 400/- WAS INCURRED PRIOR TO THE EXISTENCE OF THE FIRM AND HENCE CANNOT BE ALLOWED. AS PER THE BILLS OF M/S.PAWANKUMAR LADDHA IT IS ALSO NOTICED IN RESPECT OF TW O TRANSACTIONS THAT THE LOSS AMOUNTING TO RS.3 92 900/- AND RS.4 17 720/- WAS INCURRED AFTER 30/10/2005 I.E. AFTER THE D ATE OF COMMENCEMENT OF BUSINESS OF PARTNERSHIP OF THE APPEAL FIRM . THE LD. CIT(A) ALLOWED THE LOSSES OF RS.8 10 620/- WHICH WAS IN RESPE CT OF TRANSACTIONS AFTER 31-10-2005 AND GAVE THE PART RELIEF T O THE ASSESSEE FIRM. 47 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N 41. WE HAVE HEARD THE PARTIES. ADMITTEDLY IN THE PRESE NT CASE THE LD. CIT(A) HAS ONLY CONSIDERED THE LOSSES INCURRED IN THE TRANSACTIONS AFTER THE BUSINESS OF THE ASSESSEE FIRM WAS COMMENCED ON THE EXECUTION OF DEED OF PARTNERSHIP. WE FIND NO MERIT IN THE G ROUNDS TAKEN BY THE REVENUE. ACCORDINGLY GROUND NO. 1(D) IS DISM ISSED. IN THE RESULT THE REVENUES APPEAL IS DISMISSED. 42. NOW WE TAKE UP THE REVENUES APPEAL BEING ITA NO. 856/PN/2010 FOR THE A.Y. 2007-08. THE REVENUE HAS TAKEN THE ONLY GROUND IN THE APPEAL IS AS UNDER: 1. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) FAILED TO APPRECIATE THAT PENALTY LEVIED WAS PE NAL IN NATURE OF INFRACTION OF LAW AND THEREFORE THE LD. CIT(A) ER RED IN DELETING THE ADDITION OF RS.9 44 552/-. 43. THE FACTS PERTAINING TO THE ISSUE ARE AS UNDER. THE ASSESSING OFFICER HAS OBSERVED THAT DURING THE COURSE OF SEARCH INS TANCES OF VIOLATIONS OF VARIOUS LEGISLATION WERE FOUND. ON THE VERIFICATIO N OF RECORD IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE A SSESSEE HAS BEEN CHARGED THE PENALTIES OF RS.4 06 079/- AND RS.5 38 473/ - ON 21- 03-2007. ON THE BASIS OF NARRATIONS IN THE ACCOUNTS OF T HE ASSESSEE THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THOSE P ENALTIES HAVE BEEN CHARGED FOR OPEN INTEREST POSITION VIOLATIONS LAID DOWN BY THE FORWARD MARKET COMMISSION. THE ASSESSING OFFICER ACCORDINGL Y DISALLOWED THE SAID EXPENDITURE UNDER THE EXPLANATION BELOW U/S. 37(1) OF THE ACT AND MADE THE ADDITION TO THE EXTENT OF RS.9 44 552/-. THE LD. CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER BY DISALLOWING THE EXPENSES TOWARDS THE PENALTIES PAID BY THE ASSESSEE. NOW THE REVENUE IS IN APPEAL BEFORE US. 48 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N 44. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD . IT IS SEEN THAT THE FORWARD MARKET COMMISSION (FMC) LAYS DOWN LIMIT O F THE QUANTITY TO BE TRADED BY EACH PARTY AND IF TRANSACTION OF ANY PARTY EXCEEDS THE SAID LIMIT THEN AMOUNT AT CERTAIN PERCENTAGE OF THE VALUE OF COMMODITY TRADED IS CHARGED. THE SAID CHARGES ARE TR EATED AS A PENALTY TO REGULARISE THE TRANSACTION. THE LD. CIT(A) RE LIED ON THE DECISION IN THE CASE OF PRAKASH COTTON MILLS P. LTD. VS. CIT 201 ITR 684 (SC). WE AGREE WITH THE FINDING OF LD. CIT(A) THAT THE SA ID PENALTY LEVIED WHICH IS IN THE NATURE OF CIVIL LIABILITY AND SIMILAR TO THE NATURE OF COMPOUNDING FEES. IT IS NOT FOR SOMETHING CHARGED FOR S ERIOUS VIOLATION OF PROVISIONS OF LAW BUT THESE ARE THE ROUTINE PRO CEDURAL VIOLATIONS. IN OUR OPINION THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION. WE ACCORDINGLY CONFIRM THE ORDER OF THE LD. CIT(A ) AND GROUND TAKEN BY THE REVENUE IS DISMISSED. 45. NOW WE TAKE UP THE ASSESSEES APPEAL BEING ITA NO. 786/PN/2010 FOR THE A.Y. 2006-07. IN THIS CASE THE ASSESSEE HAS TAKEN GROUND NO. 3 RAISING THE PLEA THAT WHEN THE ASSES SMENT IS FRAMED U/SEC. 153A OF THE ACT THE ASSESSING OFFICER CANNOT DECIDE THE NATURE OF THE INCOME. GROUND NO. 3 IS NOT PRESSED BY TH E LD. AR. AS GROUND NO. 3 IS NOT PRESSED BY THE LD. AR HENCE GROUND NO. 3 IS DISMISSED AS NOT PRESSED. GROUND NOS. 1 2 4 5 & 6 ARE IN RESPECT OF ONE ISSUE THAT IS THE DISALLOWANCE OF THE LOSS OF RS.6 21 400/ - IN RESPECT OF TRANSACTIONS CARRIED OUT THROUGH M/S.PAWANK UMAR LADDHA. THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HA S REGISTERED ITSELF AS A CLIENT OF M/S.PAWANKUMAR LADDHA WHICH IS A MEMB ER OF THE NBOT AND INCURRED THE LOSSES OF RS.14.32 LACS. AS OBSERV ED BY THE ASSESSING OFFICER THE SAID LOSSES ARE INCURRED BY THE ASSE SSEE PRIOR TO THE CONSTITUTION OF THE PARTNERSHIP FIRM AND HENCE THE SA ID LOSSES CANNOT BE ALLOWED TO BE SET OFF AGAINST THE INCOME FROM TH E NCDEX. 49 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N THE ASSESSEE STATED THAT THE PARTNERS OF THE ASSESS EE FIRM HAVE ORALLY DECIDED TO START THE BUSINESS FROM 01-04-2005 AND HENC E ENTERED INTO TRADE TRANSACTION OF NBOT WITH PAWANKUMAR LADDHA OF INDORE. AS P ER THE ORAL AGREEMENT THE ASSESSEE FIRM HAS MADE THE PAYM ENT OF RS.14.32 LACS TO M/S. PAWANKUMAR LADDHA BY ACCOUNT PA YEE CHEQUES. THE ASSESSING OFFICER DISALLOWED THE LOSS INCURRED BY THE ASSESSEE ON THE REASON THAT THE ASSESSEE FIRM HAS COM E INTO EXISTENCE IN FEBRUARY 2006 WHEREAS THE LOSS WAS INCURRED IN THE T RADING THROUGH M/S. PAWANKUMAR LADDHA BETWEEN 12-08-2005 TO 23-12- 2005. THE ASSESSING OFFICER DISALLOWED THE ENTIRE LOSS AND T REATED THE SAME AS INCOME OF THE ASSESSEE FIRM U/S. 41(1) OF THE ACT. SO FAR AS THE ACTION OF THE ASSESSING OFFICER TREATING THE SAID LOSS AS AN INCOME OF THE ASSESSEE U/S. 41(1) LD. CIT(A) REVERSED THE FINDING OF THE ASSESSING OFFICER AND HELD THAT THE ASSESSING OFFICER WAS NO T JUSTIFIED TO BRING TO TAX THE SAME OF RS.14 32 20/- U/S. 41(1) OF THE ACT. THE REVENUE HAS NOT CHALLENGED SAID FINDING OF LD. CIT(A) AND HE NCE IT HAS REACHED THE FINALITY. SO FAR AS THE SECOND APPROACH OF T HE ASSESSING OFFICER THAT THE SAID LOSS WAS INCURRED PRIOR TO THE CONST ITUTION OF THE ASSESSEE FIRM AND HENCE THE SAID LOSS CANNOT BE ALLOWED T O BE SET OFF AGAINST THE INCOME OF THE ASSESSEE FIRM THE CIT(A) HAS OBS ERVED THAT THE PARTNERSHIP DEED OF THE FIRM IS DATED 31-10-2005 AND THE ASSESSEE FIRM COMMENCED BUSINESS ON 01-11-2005. THE BILLS OF M/S. PAWANKUMAR LADDHA SHOWED THAT IN RESPECT OF TWO TRANS ACTIONS THE LOSS AMOUNTING TO RS.4 44 300/- AND RS.1 77 100/- WAS INCURRED PRIOR TO THE 01-11-2005. THE LD. CIT(A) THEREFORE DISALLOWED THE LOSS OF RS.6 21 400/- BUT ALLOWED THE LOSS TO THE EXTENT OF RS.8 1 0 620/- WHICH WAS INCURRED AFTER 31-10-2005. NOW THE ASSESSEE HAS RAISED THE GRIEVANCE BEFORE US AGAINST THE FINDING OF LD.CIT(A) PART LY NOT ALLOWING CLAIM OF LOSS. 50 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N 46. THE CONTENTION OF THE ASSESSEE IS THAT THE LD. CIT(A ) WAS NOT JUSTIFIED IN RESTRICTING THE LOSS TO THE EXTENT OF RS.8 10 620 /-. IN OUR OPINION THERE IS NO SUBSTANCE IN THE ARGUMENT OF THE ASS ESSEE. ADMITTEDLY THE SAID LOSS WAS INCURRED PRIOR TO THE FORMAT ION OF THE ASSESSEE FIRM. SO FAR AS SECOND PLEA IS CONCERNED THAT THE SAID LOSS WAS INCURRED DURING THE REGULAR COURSE OF THE BUSINESS A ND HENCE SAME CANNOT BE TREATED AS A SPECULATION LOSS AND SAME IS TO BE SET OFF AGAINST THE BROKERAGE INCOME. WE ARE UNABLE TO ACCEPT THE SAID PLEA ALSO. AN IDENTICAL ISSUE HAS BEEN DECIDED BY US IN ITA NO. 776/PN/2010. AS THE FACTS ARE IDENTICAL IN THIS CASE ALSO AS ADMITTEDLY THERE IS NO DELIVERY OF THE GOODS AND TRANSAC TIONS WERE SETTLED WITHOUT DELIVERY. WE THEREFORE FOLLOWING OUR REASONS ON THIS ISSUE IN ITA NO. 776/PN/2010 WE DISMISS ALL THE RELEVANT GR OUNDS AND CONFIRM THE FINDING OF THE LD. CIT(A). 46.1 THE NEXT ISSUE IS THE CLAIM OF 5 00 000/- WHICH IS DISALLOW ED AS A CAPITAL EXPENDITURE. THE LD. COUNSEL SUBMITS THAT IF IT IS TREATED AS A CAPITAL EXPENDITURE THEN THE DEPRECIATION MAY BE ALLOWE D AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. TECHN O SHARES & STOCKS LTD. & ORS. 327 ITR 323 (SC). WE FIND THAT THE ASS ESSEE PLEA IS COVERED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. TECHNO SHARES & STOCKS LTD. & ORS. (SUPRA). WE ACCORDINGLY DIRECT THE ASSESSING OFFICER TO ALLOW THE DEPRECIATION TO TH E ASSESSEE U/S. 32(1)(II) OF THE INCOME-TAX ACT. ACCORDINGLY GROUND NOS . 7 AND 8 ARE DISMISSED BUT GROUND NO. 9 IS ALLOWED ON THE ALTERNATE PLEA. GROUND NO. 10 IS ALSO ALTERNATE PLEA WHICH IS ALSO DISMISSED AS THE DEPRECIATION IS ALLOWED. IN THE RESULT THE ASSESSEES APP EAL IS PARTLY ALLOWED. 51 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N 47. NOW WE TAKE UP THE ASSESSEES APPEAL BEING ITA NO. 787/PN/2010 FOR THE A.Y. 2007-08. THE LD. COUNSEL SUBMITS THAT HE IS NOT PRESSING GROUND NO. 1. AS GROUND NO. 1 IS NOT PRE SSED THE SAME IS DISMISSED AS NOT PRESSED. GROUND NOS. 2 3 AND 4 ARE GENERAL GROUNDS. EFFECTIVE GROUND IS GROUND NO. 5 WHICH IS READS AS UNDER: 5.THE ASSESSEE SUBMITS THAT THE LEARNED CIT(A) OUGHT TO HAVE ALLOWED SET OFF OF LOSS OF RS.1 09 48 979/- BEING INCURRED IN TRADING IN COMMODITY DERIVATIVES AGAINST THE BROKERAGE INCOME E ARNED BY THE ASSESSEE. 48. AS OBSERVED BY THE ASSESSING OFFICER THE ASSESSEE D EBITED AN AMOUNT OF RS.1 11 10 895/- ON ACCOUNT OF LOSSES IN NCDEX COMMODITIES TRADING AND CREDITED AN AMOUNT OF RS.1 57 981/- AS PROFIT FROM NCDEX COMMODITY TRADING AND ACCORDINGLY CLAIMED THE NET LOSS OF RS.1 09 52 914/-. THE ASSESSING OFFICER HELD THAT THE SAID LOSSES INCURRED IN THE COMMODITIES TRADING ARE CLEARLY SPE CULATIVE IN NATURE AS DEFINED U/S. 43(5) OF THE INCOME-TAX ACT. THE A SSESSING OFFICER THEREFORE DECLINED TO ALLOW THE SET OFF OF THE SAID LOSS AGAINST THE REGULAR BUSINESS PROFIT. THE ASSESSEE CARRIED THE ISS UE BEFORE THE LD. CIT(A). THE LD. CIT(A) DECLINED TO INTERFERE WITH THE FIN DING OF THE ASSESSING OFFICER ON THIS ISSUE. HE HAS OBSERVED THAT THE ASSESSING OFFICER HAS CORRECTLY ASSESSED SPECULATION PROFIT EARNED IN LOSS INCURRED BY THE ASSESSEE FROM TRADING IN COMMODITIES DERIV ATIVES AS SPECULATION INCOME IN THE A.Y. 2006-07 AND SPECULATION LOSS IN A.Y. 2007-08 IN VIEW OF THE PROVISIONS OF SEC. 43(5) OF THE ACT. 49. WE HAVE HEARD THE PARTIES. WE FIND NO MERIT IN THE C ONTENTION OF THE ASSESSEE. ADMITTEDLY THE NATURES OF THE TRANSACTIO NS ARE WITHOUT ANY DELIVERY AND SETTLE PERIODICALLY. WE CONCUR WITH THE F INDING OF LD.CIT(A) THAT SAME IS A SPECULATION LOSS WITHIN THE MEANING OF SEC. 43(5) OF THE ACT. NOTHING HAS BEEN ALSO PLACED BEFORE US T O CONTROVERT THE FINDING OF THE LD. CIT(A). ONCE IT IS HELD AS A SPECULAT ION LOSS AS 52 ITA NOS. 855 856 857 858 859 860 776 777 78 6 & 787/PN/2010 SAHAYOG COMMODITIES & ORS. JALGAO N PER THE PROVISIONS OF SEC. 73(1) OF THE INCOME-TAX ACT TH E SAID SPECULATION LOSS CAN ONLY BE SET OFF AGAINST THE SPECULAT ION PROFIT. WE ACCORDINGLY DISMISS THE GROUND TAKEN BY THE ASSESSEE. IN THE RESULT THE ASSESSEES APPEAL IS DISMISSED. 50. IN THE RESULT : A) REVENUES APPEALS BEING ITA NOS. 855 856 857 858 859 & 860/PN/2010 ARE DISMISSED. B) ASSESSEES APPEALS BEING ITA NOS. 776 777 & 787/PN/ 2010 ARE ALSO DISMISSED AND ASSESSEES APPEAL BEING ITA NO. 786/PN/2010 IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 28 -11-2014 SD/- SD/- (G.S. PANNU) (R.S. PADVEKAR) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED: 28 TH NOVEMBER 2014 RK/PS COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT(A) - I NASHIK 4 THE CIT( CENTRAL ) NAGPUR 5 THE DR ITAT B BENCH PUNE . 6 GUARD FILE. BY ORDER // TRUE COPY // ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE