Securities trading losses allowed after providing sufficient transaction evidence including bills and demat statements

ITAT Surat allowed the assessee's appeal regarding disallowance of business loss from securities trading. The AO rejected LTCG claims on penny stock transactions, citing unexplained physical share delivery and absence of spot delivery contract notes required under Securities Contract Act. However, ITAT held that the assessee provided sufficient evidence including bills, contract notes, demat statements, and bank records proving transaction genuineness. The AO failed to establish collusive transactions or provide material evidence against the assessee. ITAT emphasized that additions cannot be made on suspicion, estimation, or conjecture basis, and deleted the addition made by AO.

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Issues Involved:
1. Disallowance of business loss on account of sale of securities.
2. Genuineness of share transactions and the right to cross-examination.

Summary:

Disallowance of Business Loss:
The assessee filed a return of income for AY 2013-14 declaring an income of Rs. 51,36,060/-. The Assessing Officer (AO) issued notices u/s 143(2) and 142(1) of the Act and conducted a detailed examination of the assessee's claim of business loss of Rs. 4,55,72,791/- on account of trading in shares, which was set off against long-term capital gains (LTCG) of Rs. 4,17,53,626/-. The AO found that the transactions involved penny stocks, which were used to book artificial losses. The AO referred to a statement by Shri Rajkumar Kedia, who admitted to providing bogus LTCG and losses. Consequently, the AO disallowed the business loss claimed by the assessee.

Genuineness of Share Transactions and Right to Cross-Examination:
The assessee argued that all transactions were genuine, conducted through a registered broker, and supported by contract notes, demat statements, and bank statements. The assessee requested the cross-examination of Shri Rajkumar Kedia, which was denied by the AO. The CIT(A) upheld the AO's decision, emphasizing the modus operandi of using penny stocks for tax evasion.

Tribunal's Findings:
The Tribunal noted that the assessee provided substantial evidence to support the genuineness of the transactions, including contract notes, broker's pool account details, and demat statements. The Tribunal criticized the AO for not providing the statement of Shri Rajkumar Kedia or allowing cross-examination, which violated the principles of natural justice. The Tribunal referenced several judgments supporting the assessee's right to cross-examination and the need for the revenue to provide concrete evidence rather than relying on suspicion.

Conclusion:
The Tribunal concluded that the AO failed to bring any material evidence to prove that the transactions were collusive or not genuine. The Tribunal emphasized that decisions should be based on evidence and not on suspicion or preponderance of probabilities. Consequently, the Tribunal allowed the appeal and deleted the addition made by the AO.

Order Pronouncement:
The appeal filed by the assessee was allowed, and the order was pronounced on 05/01/2024.

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