2024 (11) TMI 230 - AT - Income Tax

Reopening under Section 147 valid for tax loss trades but trading loss disallowance rejected without proven price manipulation

Shri Sagar Jhaveri, Shri Vicky Rajeshbhai Jhaveri, Aarav Financial Services Pvt. Ltd. Versus Dy. CIT, Central Circle-1 (1) Ahmedabad

ITAT Ahmedabad upheld the validity of reopening proceedings u/s 147 based on investigation wing information regarding tax loss trades in shares. The ... Validity of Reopening Proceedings u/s 147 - information was received from investigation wing, Ahmedabad that the assessee has booked tax loss trade in share - HELD THAT:- Reopening in this particular case cannot be held as change of opinion and the reopening u/s. 147 is valid. The contention of the ld. A.R. that the objections filed by the assessee company suffers from factual and legal infirmities also cannot be tenable as the Assessing Officer has given the independent finding in respect of trading in shares particularly that of M/s. Radhe Developers Ltd. Therefore, the decision of NDTV [2020 (4) TMI 133 - SUPREME COURT] is not applicable in assessee’s case as though the assessee has disclosed the trading, it has not specifically given the details such as bifurcation of the scrip trading in respect of M/s. Radhe Developers Ltd. at the earlier reopening stage. Thus, the reopening is valid. As regards relates to the contention that prosecution in question was duly recorded in books of account cannot the sole criteria for quashing the reopening as the reopening u/s. 147 is invoked in respect of investigation report as well as the independent finding/reasons given by the AO in respect of escapement of income as per AO’s belief. The contention of the ld. A.R. is that he was not given cross-examination of the persons whose statement was recorded and relied upon is also does not stand as the Assessing Officer issued the notice u/s. 148 and initiated proceedings u/s. 147 and given independent findings which was not wholly and solely based on the statements. The decisions in case of NDTV [2020 (4) TMI 133 - SUPREME COURT], Calcutta Discount [1960 (11) TMI 8 - SUPREME COURT] as well as Parshuram Potteries [1976 (11) TMI 1 - SUPREME COURT] and Bombay Stock Exchange [2014 (6) TMI 444 - BOMBAY HIGH COURT] will not be relevant in assessee’s case as the reopening u/s. 147 was on the issue of trading in scrip of M/s. Radhe Developers India Ltd. which is more specific centric and cannot be said that the reopening was just a second opinion or afterthought of the Assessing Officer. Thus, the Assessing Officer is justified in reopening the assessment. Decided against assessee. Disallowance of Loss in Trading of Shares - AO has not co-related with the trading as well as the price fluctuation of M/s. Radhe Developers Ltd. as any connection with the assessee’s syncronised manner of trading and the link which establishes the assessee’s involvement in the fluctuation of the price has not been categorically mentioned in the assessment order. The CIT(A) has also not given any independent finding after verifying that whether there is an actual syncronised trading between the assessee and that of company scrip i.e. M/s. Radhe Developers Ltd. which has a variation/fluctuation in its pricing at the time of purchase as well as at the time of sale. The details given by the assessee before us was also before the CIT(A) as well as before the Assessing Officer. From the perusal of these orders, it can be seen that the Assessing Officer as well as CIT(A) has not given any detailed finding as to whether the assessee has actively involved in the price manipulation during the assessment year 2011-12. The SEBI report as well as the suspension of the Bombay Stock Exchange is in the year 2015 giving the details of 2012. The involvement of assessee’s transaction has not been specifically pointed out either in the assessment order or in the order of the CIT(A). Thus, on merit the disallowance made by the Assessing Officer does not sustain. Decided against revenue. Issues Involved:1. Validity of Reassessment Proceedings under Section 147 of the Income Tax Act.2. Disallowance of Loss in Trading of Shares.3. Notional Addition on Account of Commission Paid.Issue-Wise Detailed Analysis:1. Validity of Reassessment Proceedings under Section 147 of the Income Tax Act:The appellants contested the reassessment proceedings initiated under Section 147, arguing that the assessment orders were based on a mere change of opinion and lacked jurisdiction. They claimed that the reopening was based on borrowed satisfaction from vague third-party information, not on specific evidence related to their cases. The appellants also argued that the Assessing Officer (AO) failed to provide a speaking order in response to objections, as mandated by the Supreme Court in GKN Driveshaft. However, the tribunal found that the reopening was not merely a change of opinion but was based on independent satisfaction derived from investigation reports and SEBI findings. The tribunal held that the reopening was valid as the AO had independently recorded reasons based on prima facie evidence, thus dismissing the appellants' contentions regarding the invalidity of the reassessment proceedings.2. Disallowance of Loss in Trading of Shares:The appellants challenged the disallowance of losses incurred from trading shares of companies like Radhe Developers and Gujarat Meditech, arguing that the transactions were genuine, conducted through recognized stock exchanges, and supported by documentary evidence. They contended that the AO's conclusions were based on surmises and conjectures without any direct evidence of manipulation or sham transactions. The tribunal observed that while the AO had questioned the legitimacy of the transactions, there was insufficient evidence to conclusively establish that the appellants were involved in price manipulation or that the transactions were not genuine. The tribunal noted the lack of specific findings linking the appellants to any fraudulent activities during the relevant assessment years and thus allowed the grounds related to the disallowance of trading losses.3. Notional Addition on Account of Commission Paid:In cases involving Gujarat Meditech Ltd., the AO had made notional additions for alleged commission payments on the purchase consideration of shares. The appellants argued that these additions were speculative and unsupported by evidence. The tribunal found that the AO had not demonstrated any concrete evidence of commission payments or established a nexus between the appellants and any commission agents. As the primary addition related to trading losses was deleted, the tribunal also allowed the grounds concerning the notional commission additions, rendering them infructuous.Conclusion:The tribunal partly allowed the appeals, upholding the validity of the reassessment proceedings but deleting the additions related to disallowed trading losses and notional commission payments due to lack of substantive evidence. The tribunal emphasized the need for specific and concrete evidence to support such additions, which was found lacking in the present cases.