Itxa/1257/2016 Of Pr Commissioner Of Income Tax 13 v. Pat Commodity Services Pvt Ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1257 OF 2016WITH INCOME TAX APPEAL NO. 1383 OF 2016 Pr. Commissioner of Income Tax-13 v/s. Pat Commodity Services Pvt. Ltd. .. Appellant .. Respondent Mr. Arvind Pinto for the appellant Mr. Sanjiv M. Shah for the respondent CORAM : AKIL KURESHI & M.S. SANKLECHA, J.J. P.C. DATED : 15[th] JANUARY, 2019 1.These appeals involve the same assessee and arise out of commonbackground. We may note the facts from Income Tax Appeal No.1257of 2016. This appeal is filed to challenge the judgment of the IncomeTax Appellate Tribunal (“the Tribunal” for short). 2.Following questions are raised for our consideration :- (i)Whether in law and on the facts and circumstances of thecase, was the Tribunal justified in upholding the deletion of theaddition being the profits of the Company on account of the largescale client code modifications; the said be undertaken to transferthe profits of the company to other clients for the purposes of adjustment of their incomes to evade payment of tax? (ii)Whether in law and on the facts of the instant case, wasthe Tribunal in error in upholding the deletion when the AO hadestablished that the motive of the client code modification was toindulge in circular trading to enable the generation of eitherprofits or losses as required by clients at the end of the financialyear? 3.The respondent assessee is a private limited company engaged inthe business of providing commodity services to its clients. In thereturn of income filed by the assessee for the Assessment Year 2006-07,the Assessing Officer noticed that there were instances of client codemodifications. The Assessing Officer believed that the same was doneto indulge in circular trading to pass on profits or losses to the clients ofthe assessee company as per requirements. After hearing the assessee,the Assessing Officer made additions in the income of the assessee onsuch basis. The issue eventually reached to the Tribunal. The Tribunaldid accept the Revenue's theory of misuse of clients codemodification facility. However, the Tribunal accepted the assessee'sexplanation and discarded the Revenue's theory that profit of theassessee's company were passed on to the clients. It was alsonoticed that the Revenue has not contended that the client code modification facility is often misused by the assessee to pass on losses tothe investors, who may have sizable profit arising out of commoditytrading against which such losses can be set off. The Revenuenormally points out number of such instances of client codemodifications as well as nature of errors in filling of the client code. Atany rate, what can be taxed in the hands of the present assessee is theincome escaping assessment. Even if the Revenue's theory of theassessee having enabled the clients to claim contrived losses, theRevenue had to bring on record some evidence of the income earned bythe assessee in the process, be it in the nature of commission orotherwise. In the present case, the Assessing Officer has added theentire amount of doubtful transactions by way of assessee's additionalincome, which is wholly impermissible. We do not know the fate ofthe individual investors in whose cases, the Revenue could havequestioned the artificial losses. Be that as it may, we do not thinkentertaining these appeals would serve any useful purpose. 4.In the result, both the appeals are dismissed. (M.S. SANKLECHA, J.) (AKIL KURESHI, J.)