The Principal Commissioner Of Income Tax (Central), Jaipur v. Gyandeep Khemka

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No.38/2019 The Principal Commissioner of Income Tax (Central), Jaipur. ----Appellants Versus Gyandeep Khemka, 30, Khemka House, Kishan Nagar, ShyamNagar Extension, Janpath, Jaipur. ----Respondent/Assessee For Appellant(s) : Mr. Siddharth Bapna on behalf ofMr. Anil Mehta, AAGFor Respondent(s): Mr. Sanjay Jhanwar HON'BLE THE CHIEF JUSTICE HON'BLE MR. JUSTICE INDERJEET SINGHJudgment 29/08/2019 1.The question of law sought to be urged by the revenue arisesout of profit shifting, an exercise carried out by the assessee,which used to trade in stocks and securities, with tradingmembers. The AO, for the assessment year (AY 2009-10), citing aSEBI circular of 29.07.2011, and after examining several instancesheld that the shifting was contrary to the guidelines inasmuch asthere was no similarity, in the nature of transactions or theparties, involved with client code. The assessee’s appeal wasallowed on both the questions of reopening of assessment as wellas on the merits. 2.The revenue’s further appeal to the ITAT, succeeded in partto the extent that the re-assessment proceedings were held to bevalid, however as to the additions made, the ITAT concurred withthe findings of the CIT(A). The ITAT took into account thesubmissions of revenue, specially the effect of the circular dated29.07.2011. It was also significantly observed that neither wassurvey conducted under section 133(6) by the AO despite thespecific request of the assessee nor was any notice under section131 issued in respect of transactions which led to the shifting ofprofits. 3.The ITAT findings are as follows:- “Accordingly, the order of the Assessing Officer is notsustainable when the assessee was not granted anopportunity to cross examine the brokers. In the casein hand, the Assessing Officer has not given anyfinding that the assessee and the other parties inwhose account, the transactions are treated astransfer of profit are in collusion along with the broker.There is nothing on record or any fact or finding by theAssessing Officer to suggest that the assessee and theother parties as well as the brokers are in collusion tocarry out these transactions of transfer of profit fromthe account of the assessee in the accounts of otherparties by misusing the client code modificationfacility. Therefore, even if the broker might haveinvolved in such mischievous practice but to makesuch addition in the hands of the assessee it isnecessary to establish that the assessee and the otherparties alongwith brokers are in collusion. Furtherthere should also be exchange of money between theparties as a consideration for such a transfer of profit.Even otherwise when it is not found that originallythese trades were carried out by the broker as per theinstructions of the assessee and subsequently thesewere transferred in the account of the other persons toshift the profit.” 4.This Court has considered the revenue’s submissions.Counsel stressed that the SEBI circular, is decisive and that theshifting of client code was in respect of suspect parties. 5.It is not disputed by the Revenue that pursuant to the socalled violation of the SEBI circular, further investigation orenquiry was not carried out by the AO before concluding that theamounts claimed as shifting of profits, were in fact dubious andhad to be added back in the manner that the AO actually did.Furthermore, the findings of the CIT (A) have been confirmed bythe ITAT; consequently, the Court is now called upon to examineand appreciate concurrent factual findings. No substantial questionof law arises. 6.The appeal is dismissed. (INDERJEET SINGH),J (S. RAVINDRA BHAT),CJ