AI Drafter 
TaxTMI 
TaxTMI 
2019 (1) TMI 893
X X X X Extracts X X X X
X X X X Extracts X X X X
....ircumstances of the case. 3. The brief facts of this issue are that the assessee is engaged in the business of share brokingm sub broking etc. The assessee filed its return of income for the Asst Year 2013-14 on 11.9.2013 declaring total income of Rs. 3,37,95,314/-. The ld AO observed that the assesee company had bought 310000 shares of Blue Circle Services Limited and incurred trading loss of Rs. 1,53,47,039/- thereon on its sale. Similarly, he observed that the assessee purchased 24500 shares of Tuni Textile Mills Limited and incurred trading loss of Rs. 2,32,23,735/- on its sale. These two total trading loss worked out to Rs. 3,85,70,774/- which was sought to be examined by the ld AO in the assessment. Since the main activity of the assessee is trading in shares in the capacity of broker and as well as dealing on its personal account, the loss incurred on sale of the aforesaid shares were claimed as regular business loss in the return of income. The ld AO observed that the assessee was involved in a long drawn process of rigging of stock market prices in collusion with the various entry operators. He observed that the assessee had invested in the shares of the aforesaid compa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....be. The ld AO accepted the profits and losses from all other scrips except loss incurred on Blue Circle Services Limited and Tuni Textile Mills Ltd and accordingly proceeded to disallow the business loss claimed thereon in the sum of Rs. 3,85,70,774/- in the assessment as bogus loss. 4.1. We find that the assessee had furnished the following details before the ld AO :- a) Evidence to prove that the assessee company itself is a registered stock broker with SEBI having membership of SEBI recognized stock exchanges viz National Stock Exchange (NSE), Bombay Stock Exchange of India (BSE) and MCX Stock Exchange (MCX-SX). b) Statement of quantity of shares purchased and sold for 743 scrips during the year under consideration and the scrip wise profit and loss earned during the year. c) Details of purchases and sales of scrips as called for in the requisite format by the ld AO. d) Obligation files of the stock exchange for certain settlement numbers 100, 103, 113, 162, 167, 170, 171, 177, 204,219, 222, 223, 224, 234 & 235. e) Trade files received from the stock exchange in which the settlement number, settlement date, trade date, distinct order numbers, trade numbers and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 3,37,95,314/-. The 'said income was declared after claiming loss on purchase and sale of equity shares of Rs. 3,85,70,774/-. The said loss was incurred for sale of 3,10,000 equity shares of Blue Circle Service Ltd of Rs. 1,53,47,039/- and 1,25,800 equity shares of Tuni Textiles Ltd of Rs. 2,32,23,735/-. The case was selected for scrutiny assessment, The AO assessed the income of Rs. 8,89,91,088/- while framing the scrutiny assessment the AO has disallowed share loss incurred by the appellant in respect of two scripts namely Blue Circle Services Ltd amounting to Rs. 1,53,47,039/- and Tuni Textiles Ltd amounting to Rs. 2,32,23,735/-. The total disallowance on account of alleged bogus share loss stood at Rs. 3,85,70,774/-: The AO has further disallowed sum of Rs. 1,66,25,000/- claimed by the appellant u/s 35(1)(ii) of the Act. It has been alleged by the AO that the donation paid to School of Human Genetics and Population Health (SHG&PH) is bogus in nature and therefore the appellant was not eligible to claim any deduction u/s 35 (l)(ii) of the Act. At para 1.2 of the assessment order the AO alleges that he has received some information from the investigation wing Kolkata....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hare attains the desired level. The rise & fall in price of the shares is sharp and it is not at all correlated & commensurate with fundamentals of the company. The financials of such companies do not justify such, rise and fall in the prices of shares of ,such companies. * When the time is ripe for the LTCG, cash is provided by the beneficiaries to the agents and then this cash is handed over to operator. These persons then receive RTGS in lieu of such cash from small RTGS operators. * The initial transfer of shares in the name of beneficiary cm be an 'off market transaction' or 'online transaction' and, thereafter, issue of ' preferential shares' at nominal rates or issue of bonus shares even though there is hardly any profit or business activity in these companies. * Enquiries further revels that the funds for the purchase of shares which are off- loaded to book factious LTCG, .as already mentioned above, are in fact provided by the beneficiaries in cash. Finally at para 2.8 the AO has summarized that as reported by the investigation wing Kolkata the promoters of the listed penny stock companies run the syndicate, the b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rd that Mr. Purohit was cross examined and confronted. In para 2.12 the AO has reproduced the report of investigation wing describing how Bogus short term capital loss is undertaken. It is also strange that the modus operandi and procedure of price rigging was very much in the knowledge of the AO at the time of passing of the assessment order but in spite of that he failed to establish the presumption into facts. Since it's a general observation without any supporting material. The observations are just opinion of the investigation wing without establishing any nexus with the appellant company. It is a settled position of law that a disallowance cannot be made merely upon presumption and whims or suspicion of the AO. No matter how so ever strong the suspicion is, in absence of any corroborative material disallowance is unjustified and bad in law. The AO at page 13 to 15 has made some charts to indicate how the prices of Tuni Textile Mills Ltd and Blue Circle Services Ltd moved over a period of five years in BSE. This is academic in nature and has no bearing of upon the appellant's claim of loss on sale of these shares. The AO in his order very much explain....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e and sale of Tuni Textile Mills Ltd and Blue Circle Services Ltd along with Trade Files and Obligation Statement received from respective Stock Exchange including settlement number, demat statement (duly certified by the Depository participant) showing inward and outward movement in such scripts. Copies of bank statements were also furnished to substantiate the payments made and payments received in respect of trading of shares of these scripts. An explanation was also filed vide letter dated 16.03.2016 explaining as to why no disallowance of share loss should be made by the AO. During-the appellate proceeding, I have gone through the details of the appellate as filed during the assessment proceedings. The information reveals that the assessee during the year under consideration purchase and sold 743 script. The total purchase amount is of Rs. 39648.59 Crores and sale amount is of Rs. 39667.05 Crores. The net profit is of Rs. 18.46 Crores. I have also gone through the script wise details of traded scripts which is part of paper book filed by the appellate during the appellate proceedings and it was also filed before the AO during the assessment proceedings. So it cannot b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation wing to bring on record any material to disbelieve the claim of the appellant. The AO or the investigation wing has made academic discussion regarding the probability of the appellant having entered into transactions in collusion with operator of scripts with a view to claim loss in share trading business and thereby reducing the taxable income and tax liability. In fact there is no evidence that the prices of the scripts have been deflated. The AO has not doubted the purchase or sale price prevailing at the material point of time. There is no allegation that the transactions were entered between related parties. In absence of any evidence to show that loss incurred by the appellant is a fictitious loss, the entire general discussion in the assessment order should fade into insignificance. It is a 'settled law that no addition or disallowance should be made or sustained on conjectures, speculation & suspicion, how high or strong they may be, because suspicion and surmises without any evidence cannot take the place of proof. It is further submitted that on 16.03.2016 the appellant submitted written submission before the Assessing Officer and also made a specific r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a just, fair and reasonable procedure which necessarily meant the observance of the principles of natural justice. That is why these principles have been called as part of the universal law, as part of the rule of law and have also been termed as fair play in action. Audi alterarm partem is one of the fundamental principles of natural justice. A quasi-judicial or administrative decision rendered or an order made in violation of the rule of audi alteram partem is null and void and the order made in such a case can be struck down as invalid on that score alone - Maneka Gandhi v. Union of India AIR 1978 SC.597, Gangadharan Pillai v. ACED [1980] 126 ITR 356 at pp. 365 to 367 (Ker.). In other words, the order which infringes the fundamental principle, passed in violation of audi alteram partem rule, is a nullity. When a competent Court of authority holds such an order as invalid or sets it aside, the impugned order becomes null and void - Nawabkhan Abbaskhan v. State of Gujarat AIR 1974 SC 1471 at p. 1479. In the light of these decisions, the additions made by the Assessing Officer in violation of the principles of natural justice had to be set aside as void only insofar as th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of Mr Jagdish Purogit, he must have cross examined with the appellate to collect the evidence in the matter, which has not been done in the case. Thus the AO has failed to discharge his duties. The Hon'ble Delhi High Court in the case of in the case of Dharam Pal Prern Chand Ltd reported in 295 ITR 105; while dismissing the appeal filed by the Revenue has held as under (page 108): There is no doubt that even if the strict rules of evidence may not apply, the basic principles of natural justice would apply to the facts of the case. The Assessing Officer placed reliance upon the report of the Shri Ram Institute for Industrial Research for deciding against the assessee. The report cannot be automatically accepted particularly since there is a challenge to it and the assessee had sought permission to cross-examine the analyst making the report. Since the Assessing Officer did not permit the correctness or otherwise of the report to be tested, there is a clear violation of the principles of natural justice committed by him in relying upon it to the detriment of the assessee. The Assessing Officer failed to appreciate that reply letters dated 10.03.2016 and 16.03.2....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and conjectures only although it is settled law that no assessment can be made on suspicion howsoever strong it may be. The Hon'ble Supreme Court in the case of Umacharan Shaw & Brothers vs. CIT [1959] 37 ITR 271 (SC) held that " ..... there are many surmises and .conjectures, and the conclusion is the result of suspicion which cannot take the 'place of proof in these matters ..... ".' Reliance in this connection is placed on the celebrated decision of the Hon'ble Supreme Court in Lalchand Bhagat Ambica Ram vs. CIT [1959] 37 ITR 288 (SC) wherein the Hon'ble Apex Court had relied on its earlier judgement rendered in the case ofOmar Salay Mohamed Sait [1959] 37 ITR 151 (SC) and had held that: "It is, therefore, clear that the Tribunal in arriving at the conclusion it did in the present case indulged in suspicions, conjectures and surmises and acted without any evidence or upon a view of the facts which could not reasonably be entertained or the facts found were such that no person acting judicially and properly instructed as to the relevant law could have found, or- the finding was, in other words, perverse and this court is entitled to interfere," It is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng from the transactions of purchase and sale of shares were held to be genuine when it was found that the transactions are supported by documentary evidences like Contract Notes, Bills and vouchers and where the transactions were settled by account payee cheques/banking channels. The courts held that the same could not held to be bogus on the basis of general adverse reports of Investigation Wing and/or some other agencies of the Government and/or enquiry made by the Assessing Officer. The Hon'ble High Court in the case of CIT vs. Lakshmangarh Estate & Trading Co. Ltd. - ITA No, 270 of 1999 (Judgment dated 7th October, 2013) held that - "On-the basis of a suspicion howsoever strong it is not possible to record any finding of fact. As a matter of fact. suspicion can never take the place of proof What were the individual facts and circumstances in the case of other investors indicated in the chart appearing at Page-51 of the paper book are not known to us. In so far as the assessee is concerned, the facts and circumstances are before us which we have also tabulated. The finding arrived at by the Tribunal indicated above was not even alleged by Mr. Dutta to have....
X X X X Extracts X X X X
X X X X Extracts X X X X
....T vs. Shreyashi Ganguli - ITAT No. 196 of 2012 (Judgment dated 5th September, 2012) found that the transactions were as per norms under controlled by the Securities Transaction Tax, brokerage service tax and cess, which were already paid. They were complied with. All the transactions were through bank. There is no iota of evidence over the above transactions as it were through d-mat format. Hence, Hon'ble Court agreed with the findings of the learned Commissioner of the Income-tax (Appeals) in accepting the transactions as genuine. Jurisdictional Hon'ble Calcutta High Court had held that: "The Assessing Officer has doubted the transaction since the selling broker wassubjected to SEBI's action. However, the d-mat account given the statement of transactions from 1.4.04 to 31.3.2005 i.e. relevant for the assessment year under appeal [2005-06] are before us. There cannot be any doubt about the transaction as has been observed by the Assessing Officer. The transactions were as per norms under controlled by the Securities Transaction Tax. brokerage service tax and cess. which were already paid. They were complied with. All the transactions were through bank. There is....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... purchase and delivery of shares to the brokers on their sale and the Assessing Officer had not brought anything on record to prove that there was any connivance between the assessee and the share brokers. The Appellate Authority further came to the conclusion that the Assessing Authority had disallowed the capital loss of Rs. 15,29,049 only on the basis of information submitted by the Stock Exchange and the Assessing Officer himself had not brought anything on record to prove that the transactions of purchase and sale of the shares in which the assessee had suffered the loss were not genuine transactions. It is further recorded by the Appellate Authority that the assessee had submitted the complete documentary evidences to prove his transactions of purchase and sale of those shares and the Assessing Officer could not prove that the evidence submitted by the assessee was either false or fictitious.' It was further pointed out that the assessee had- purchased and sold the shares through the registered share brokers of the CSE, the delivery of shares was received or given through the Demat account and the payments were made or received through the account payee cheques and the co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ITAT Kolkata ITA NO-626,627 & 1536/KOL/ * Lalit Jagmohan JaIan(HUF) vs. ACIT [ITA No.693/Kol/2009, Order dated 10.02.2016, Kol ITAT * ITO vs. Vijay Kumar Khemka, I.T.A No. 834/KOL/08, Order dt. 19/12/2008 * ACIT vs. Swapan Kr. Biswas, I.T.A No. 121/KOL/08, Order dt. 25/07/2008 * Anil Kr. Khemka vs DCIT, I.T.A No. 901 to 905/KOL/09, Order dt. 28/01/2010 * Sri Jaywant Hemani vs ITO, I.T.A No. 340/KOL/07, Order dt. 06/12/2007 * ACIT vs Shri Niranjan Mondal, I.T.A No. 1778/KOL/10, Order dt. 04/11/2011 * ACIT vs Abhishek Agarwal, I.T.A No; 1593/KOL/09, Order dt. 11/11/2011 * Rakesh Kumar Kedia vs DCIT, I.T.A No. 2107/KOL/08, Order dt. 23/01/2009 * DCIT vs. Bisseswarlal Mannalal & Sons, IT.A No. 1318/KOL/09, Order dt. 22/01/2010 * CIT vs. Sudeep Goenka [2013] 29 taxmann.com 402 (Allahabad HC) * CIT vs. Mukesh Ratilal Marolia IT Appeal No. 456 of2007 (Judgment of Bombay High Court dated 7th September, 2011) * Mukesh R. Marolia vs. Addl. CIT, Range-15(2) (2006) 6 SOT 247 (Mum) * CIT vs. Jamnadevi Agarwal [2010] 328 ITR 656 (Bom) -CIT vs. Vishal Holding & Capital (P.) Ltd. [2....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... appellant's Proprietary account. It is not a case where the AO has made any enquiry about the directors of the company whose shares were traded. The assessment order does not suggest it. The AO has also not brought out any material on record that cash trail of the appellate company was prepared by the Investigation Wing, or by the AO and the appellant has been confronted by any investigation wing of the country in course of any investigation. The AO also not brought out any material on record that the company whose share were purchased has been confronted by any investigation wing of the country. There is no such material on record which suggest that the company whose share were purchased has accepted having taken the entries for a commission and has voluntarily surrendered. Further, the appellant is not a one of that company / beneficiaries who had taken entries and' have voluntarily surrendered it for taxation without any further enquiry. There is no material on records which suggest that the appellant or the shares which were traded by the appellant were one of those alleged beneficiaries. There is no material on record which suggest that any investigation was ever cond....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ore, I am inclined to hold that the action of AO was predetermined and completely guided by the DDIT (Inv), Kolkata's report. Thus after careful consideration of the entire gamut of assessment order, statements recorded by the DDIT(Inv), written submissions as well as the paper book and the decisions relied upon by the AR of the appellant, the disallowance as made by AO is deserve to be deleted. Accordingly, the AO is directed to delete the addition. This ground of appeal is allowed." 4.4. Moreover, we find the issue of gains arising out of shares of these type of companies had been the subject matter of adjudication by this tribunal in the case of Smt. Savita Bhura vs DCIT in ITA No. 12/Kol/2017 dated 19.9.2018 for Asst Year 2013-14 wherein reliance was placed on various decisions of tribunals and high courts. Some of them were even followed by the ld CITA while granting relief to the assessee. Hence we do not find any infirmity in the order of the ld CITA granting relief to the assessee. 4.5. In view of the aforesaid findings in the facts and circumstances of the case and respectfully following the judicial precedent relied upon hereinabove, we hold that the ld AO had e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n case of SHG&PH there are broker wise ledgers of commission. No purchase bills were found for financial year 2014-15. Documents related to commission were found and impounded. * These institutions have few persons with good CV who are associated only in honorary position and they are not involved in the day to day activities. * The research work shown is just reproduction of published material. Details in respect of research work could not be furnished by these institutions. * These institutions have miniscule presence and their contribution to scientific research is too negligible for the kind of donation they received. The research facilities are near about missing in these institutes. * These institutes have blatantly violated Rule 5C, 5D & 5E of Income Tax Rules which are required to be complied by the institutes approved u/s 35(1)(ii) of the Act. 7. The assessee in response to show cause notice replied as under:- "Please refer to show cause notice No. DCIT/ Cir-5(1)/Kol/AABCP5425G/2976 dated 01.03.2016 served on the company on 02.03.2016 asking to show cause as to why not the deduction under section 35 of the Act amounting to Rs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e case of some persons acting as an agent for collecting donations for an on behalf of 'The School of Human Genetics and Populations Health' , who are not known to us. On the basis of such allegation you propose to disallow a sum of Rs. 1,66,25,000/- claimed as deduction under 35 of the Act. iii) Before proceeding further in the matter and before making our submissions against your show cause notice we deny that we have ever given bogus donations to any person whatsoever. The basis of your allegation is the aforesaid statements of some managerial staff of the trust and some brokers, recorded under section 131 of the Act in the course of survey proceedings by the Investigation Wing of Kolkata in their cases. The statements of these persons have not been provided to us. iv) We submit that the statements recorded u/s 131 of the Act in the course of Survey cannot be used as evidence against us, inasmuch as there is no power to any authority whatsoever to record a statement under section 131 of the Act in the course of survey proceedings. For this proposition we rely on the decision of the Hon'ble Madras High Court in the case of CIT vs. S. Khader Khan Son [2008]300 IT....
X X X X Extracts X X X X
X X X X Extracts X X X X
....trated the quality of the institution and led the company to donate in the said trust. vii) Without prejudice , the statements of some managerial staff of the trust and some brokers, recorded under section 131 of the Act in the course of survey proceedings by the Investigation Wing of Kolkata, in our humble and respectful submission, cannot be used against the company, without any opportunity of cross examination. viii) We hope that you will find the aforesaid explanation in order and will not make any disallowance of the sum of Rs. 1,66,25,000/- under section 35 of the Act claimed by the company. In case the aforesaid explanation is found to be not acceptable for any reasons whatsoever, we request you to please let us know to enable us to make our submissions thereon. ix) We hope that the aforesaid submissions, details and evidences are in conformity with the requisitions made in pursuance to your aforesaid show cause notice. In case you need any other details and/ or explanation, we would submit the same on hearing from you." 7.1. The assessee also enclosed the following documents along with its reply dated 10.3.2016 in response to the show cause not....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... with retrospective effect from 1.4.2006 had introduced an Explanation in Section 35 of the Act which reads as under:- Section 35(1)(ii) - Explanation The deduction, to which the assessee is entitled in respect of any sum paid to a research association, university, college or other institution to which clause (ii) or clause (iii) applies, shall not be denied merely on the ground that, subsequent to the payment of such sum by the assessee, the approval granted to the association, university, college or other institution referred to in clause (ii) or clause (iii) has been withdrawn. Hence the aforesaid provisions of the Act are very clear that the payer (the assessee herein) would not get affected if the recognition granted to the payee had been withdrawn subsequent to the date of contribution by the assessee. Hence no disallowance u/s 35(1)(ii) of the Act could be made in the instant case. 8.3. ............... 8.4. We also find that the co-ordinate bench of this tribunal in exactly similar facts had decided the issue in favour of the assessee in the following cases:- a) Rajda Polymers vs DCIT in ITA No. 333/Kol/2017 for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-2012 25000 19-11-2012 21-11-2012 59800 26-11-2012 29-11-2012 17000 03-12-2012 05-12-2012 24000 DATE OF SALE DATE OF DEBIT FROM DEMAT A/C QTY. TEXTILE 27-02-2013 27-02-2013 100000 01-03-2013 02-03-2013 1800 04-03-2013 04-03-2013 24000 Document 2 SL. NO. SCRIP NAME PUR. PUR. AMT. SALE SALE AMT. NET AMT. QTY. QTY. 1 AXISBANK 8322216 9580149776 8321716 9585562827 5413050 2 BANKNIFTY 3 BLCISER 4 ICICIBANK 310000 24573255 1251050 12474160763 22354539 1248075 12479175918 5015155 5 INFY 6 JPASSOCIAT 7 JSWSTEEL 8 MCDOWELL-N 310000 7007500 23765455451 24547505 23784060220 5097363 11569889946 5103988 11578001040 8111094 75189552 5303682114 75061552 5311175169 7493055 5325379 3677444171 5325379 3684882142 20151243 22794976472 20143743 22806251146 7437971 11274675 -15347039 18604769 9 MINIFTY 10 NIFTY 11 RCOM 12 RELIANCE 13 RPOWER 14 SBIN 15 12700120 6180628032 12705880 6201209502 20581470 18312100 21402041913 18228650 21389262655 -12779258 82823320 5212897426 8242....