2020 (1) TMI 255 - AT - Income Tax

Appeal partially allowed for capital loss denial, remanded for re-examination.

The Tribunal partly allowed the appeal for statistical purposes. The denial of short-term capital loss related to M/s Cressanda Solution Ltd. was upheld, ... Bogus LTCG/STCL - trading of penny stocks - contention of the assessee is that she has purchased the shares from banking channels and as such when the purchase is genuine then the sale cannot be questioned itself - HELD THAT:- Chart of sale and purchase of shares of M/s Cressanda Solution Ltd., I am of the view that assessee has purchased shares of Cressanda Solution Ltd. Shares after suspension /revocation i.e. after February, 2013 and March, 2013, as indicated in the aforesaid Table. Hence, no plausible explanation as well as documentary evidence has been provided by the assessee to contradict this finding. Therefore, the short term capital loss on account of sale and purchase of shares M/s Cressanda Solution Ltd. is confirmed and hence, the action of the Ld. CIT(A) is hereby affirmed on this issue. As regards the balance loss for the sale and purchase of sales of Pearl Agri (15000) shares and Pearl Elec (15000) shares. After considering the written submissions alongwith the documentary evidences filed by the assessee and some chart filed by the assessee showing the STCL, AO has not asked specifically for the reasons for causing the loss with supporting evidences from the assessee and assesee has also not explained the reasons for causing the loss and supporting evidence. It would be in the interest of justice, if these issues of STCL on account of sale and purchase of shares of Pearl Agri (15000) shares and Pearl Elec (15000) shares be set aside to the file of the Assessing Officer to examine the same as per law, after giving full opportunity to the assesee with the clear directions to the AO to call for the reasons for causing the loss on account of sale and purchase of shares of two companies with the supporting documentary evidences. If the AO is satisfied with the explanation given by the assessee with the supporting evidences, then the AO is at liberty to decide the same, as per law, after giving full opportunity to the assessee to substantiate its claim.- Appeal of the Assessee is partly allowed for statistical purposes. Issues Involved:1. Denial of short-term capital loss (STCL) of Rs. 36,95,007 on the sale of shares.2. Allegation of sham transactions and accommodation entries.3. Procedural fairness in the assessment process.4. Examination of the financial status of companies involved.5. Examination of the evidence provided by the assessee.6. Reassessment of specific losses related to Pearl Agriculture and Pearl Electronics.Issue-wise Detailed Analysis:1. Denial of Short-Term Capital Loss (STCL) of Rs. 36,95,007 on the Sale of Shares:The primary issue in this case is the denial of the STCL claimed by the assessee on the sale of shares amounting to Rs. 36,95,007. The AO disallowed this loss, considering the transactions as sham and part of a pre-mediated plan to create bogus loss. The assessee argued that the denial was arbitrary and unsupported by evidence.2. Allegation of Sham Transactions and Accommodation Entries:The AO's investigation revealed that the shares involved were from companies identified in the Directorate of Investigation's report as being used for providing accommodation entries. These companies, such as M/s Cressanda Solution Ltd., Pearl Agriculture Ltd., and Pearl Electronics Ltd., were found to be paper companies primarily involved in facilitating bogus LTCG/STCL entries. The modus operandi involved routing unaccounted money through the sale of shares to create tax-exempt LTCG or STCL.3. Procedural Fairness in the Assessment Process:The assessee contended that the CIT(A) upheld the denial without confronting the alleged information obtained from the Investigation Wing or providing a cross-examination of the parties whose statements were relied upon. The assessee argued that the order was based on speculation and generalized statements without supporting evidence.4. Examination of the Financial Status of Companies Involved:The AO examined the financial status of the companies involved and found that they had negligible profits or losses, indicating that they were not engaged in significant business activities. The AO concluded that these companies were conduits for providing accommodation entries, further supporting the view that the transactions were not genuine.5. Examination of the Evidence Provided by the Assessee:The assessee provided various documents, including bank statements, contract notes, and statements of account, to substantiate the transactions. However, the AO found that the assessee did not appear for personal deposition despite multiple summons, which led to the conclusion that the assessee had not discharged her onus to substantiate the claim.6. Reassessment of Specific Losses Related to Pearl Agriculture and Pearl Electronics:While the AO disallowed the entire STCL claimed, the Tribunal found that the AO had not specifically asked for reasons for the losses related to Pearl Agriculture and Pearl Electronics. The Tribunal set aside the issues of STCL of Rs. 6,35,361 and Rs. 6,69,907 related to these companies to the AO for re-examination. The AO was directed to call for reasons for the losses and supporting documentary evidence, and to decide the matter after giving the assessee a full opportunity to substantiate the claim.Conclusion:The Tribunal partly allowed the appeal for statistical purposes. The denial of STCL related to M/s Cressanda Solution Ltd. was upheld, while the issues related to Pearl Agriculture and Pearl Electronics were remanded to the AO for re-examination. The order emphasized the need for procedural fairness and the requirement for the assessee to substantiate the claims with adequate evidence. The order was pronounced on 06.01.2020.