TaxTMI 
TaxTMI 
2024 (7) TMI 1418
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.... in a net loss of Rs. 6,70,259.63. Thereafter the AO proceeded to disallow the entire loss arising out of trading in shares, at Rs. 1,13,70,981/- and assessed the total income at Rs. 97,32,741/-. In brief, the ld. AO has given a finding that he was of the considered opinion that the trading loss arising on account of dealing in penny shares, that too at the fag end of the financial year, could not be understood from any prudent commercial point of view. The ld. AO proceeded to cast a doubt that the transactions leading to the said loss were artificially designed in such a manner that the gain in dealing in the shares of Eros International Media Ltd. could be erased through the resultant loss. In the body of the assessment order the ld. AO has gone to great lengths to show that the three companies in which loss has occurred are either having negligible profits or are loss-making entities. The ld. AO has also presumably used publicly available data to show that these three companies have the kind of financials and profitability that should warn a prudent investor from staying away from them. Ld. AO has also reproduced share price movement charts in his order to allege that the tradin....
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.... therefore be held to be inadmissible for purpose of assessment and all addition and disallowance on such basis be deleted. 6. For that the Lower Authorities erred in not providing cross examination of the adverse statement and as such therefore such statement be held to be inadmissible for purpose of assessment and all addition and disallowance on such basis be deleted. 7. For that in the facts and circumstances of the case the assessment order was passed merely based on report provided by third party and no independent inquiry was made by the Learned Assessing Officer. Hence the addition / disallowances made be deleted. 8. The appellant prays that leave be granted to produce additional evidence in terms of Income Tax Appellate Tribunal Rules at the time of hearing of the appeal. 9. The appellant craves leave to press new, additional grounds of appeal or modify, withdraw any of the above grounds at the time of hearing of the appeal." 2.1. Before us, ld. Counsel for the assessee has primarily reiterated the contentions raised before both the ld. AO and the ld. CIT(A) and has put before us the following issues in brief covering all the grounds ....
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....,000 shares @Rs. 19.80 in March 2014. In the case of Unno Industries Ltd, initial lot of 75000 shares were acquired @Rs.32.65. Within a gap of 4 days the price was reduced @Rs.32.55 - which tempted the assessee to buy more shares to reduce the average price per share and the assessee acquired further 80,000 shares of Unno Industries Ltd. Such course of actions, are quite usual in the business of share-trading and not driven by ill-motive as alleged by the AO." e) The price movement of the three scrips in which loss occurred does not in any way show that the exit price, leading to the impugned loss, was artificially arranged in such a manner that an allegedly bogus loss could be booked by this assessee. It has been averred that while the assessee has dealt with in shares numbering in several thousands the charts reproduced in the body of the assessment order by the ld. AO show volumes in millions of shares traded in specified time periods, which have apparently been noticed for adverse consideration by the ld. AO. f) The said shares were sold or purchased from the Bombay Stock Exchange at rates prevailing on particular dates and through brokers whose identity cannot be doubted....
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.... a man of common prudence can easily infer that the investor company i.e. GILT COMMODITIES PVT LTD and the three investee companies are all solely paper companies which do not exist for business profit but they all resemble to be the nominal companies and penny stock companies meant for providing accommodation entries to the targeted beneficiaries. The bell shaped transactions in the share trading of the involved companies depicts that what appears is not real and the claimed financial yields are not at all reliable and they appear to be the fabricated ones. On the basis of the petty turn over, meagre cash and bank balance, meagre income, meagre operating profit, and net profit, non-payment of dividend against huge unsecured investment, poor EPS, the price movement chart allied with weak financial credentials of the investee companies and report from investigation wing, it can be objectively & rationally inferred that the claimed share transaction loss is not real loss but artificially make arrangement loss. In the background of these facts, the assessing officer rightly disallowed the trading loss on penny stock, which was later upheld by the Ld. CIT(A). ....
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....f against LTCG realized from the sale of flat as stated supra. We have also perused the decision referred before us by the Ld. Counsel for the assessee as stated hereinabove particularly in the case of Nalanda Builders Pvt. Ltd. (supra) wherein the issue of sale of two stocks namely, M/s. Tuni Textiles Ltd. and M/s. Blue Circle Services Limited was involved and the losses suffered on the sale of above shares was adjusted against the LTCG accrued from sale of fixed asset i.e flat. We have perused the above decision carefully and observed that the facts are quite similar and also that the decision in the case of Gateway Financial Services Ltd. (supra) has been followed by the Coordinate Bench. We also note that the decision in the case of Nalanda Builders Pvt. Ltd. as relied upon by the Ld. AR has considered the decision of the Coordinate Bench in the case of Gateway Financial Services Ltd. (supra) which has distinguished the decision of the Hon'ble High Court in the case of Swati Bajaj(supra). The operative part of the decision in the case of Nalanda Builders Pvt. Ltd. (supra) is extracted below: "13. We have also perused carefully the facts of the decisions passed by the C....
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....d that statement of Sri Bal Kishan Sikaria was recorded on oath on 04.01.2016 who is a Director of Sikaria Share & Stock Broking Services Ltd which is the member of Calcutta Stock Exchange and 5 Other companies. Mr. Amit Singh of an employee of him, who in reply to Question No. 6 confirmed that he was indulging in providing accommodation entries to various parties and in reply to Question No. 12 he stated that he confirms that Sri Amit Singh was the Proprietor of M/s SS Enterprises which is controlled and managed by him have purchased 2,69,870 shares of Radford Global through Calcutta Stock Exchange which were sold by Pratik Agarwal Beneficiary Trust, Praveen Agarwal HUF, Pinky Agarwal and Nishit Agarwal Beneficiary Trust of approx. Rs. 2,19,10,234/- through their sellerbroker M/s. Gateway Financial Services Pvt. Ltd resulting in facilitation of pre-arranged accommodation entry of LTCG to them. This evidence was utilised by the Assessing Officer in treating their Long Term Capital Gains from transaction in shares of Radford Global Ltd as bogus and making addition u/s 68 of the Act. 22. Regarding the report of SEBI report dated 19.12.2014 we find that the said order was rev....
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....g the Show Cause Notice, right to cross examination has to be given and held that we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause Notice." 26. The Hon'ble Supreme Court of India in New India Assurance Company Ltd. v. Nusli Neville Wadia & Anr., AIR 2008 SC 876, while considering a case under the Public Premises (Eviction of Unauthorised Occupants) Act, 1971, held that though the statute may not provide for cross- examination, the same being a part of Principles of Natural Justice should be held to be an indefeasible right. It was held as follows: "If some facts are to be proved by the landlord, indisputably the occupant should get an opportunity to cross-examine. The witness who intends to prove the said fact has the right to cross-examine the witness. This may not be provided by under the statute, but it being a part of the principle of natural justice should be held to be indefeasible right" 27. In the case of Rajiv Arora v. Union of In....
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....oduce the documents and papers on the basis of which he made the statement and confronted the assessee with those documents and papers." 30. In the case of Dhakeswari Cotton Mills Ltd. v. CIT reported in (1954) 26 ITR 775 (SC) the Hon'ble Supreme Court has held that "the rule of law on this subject has been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Singh where it was stated that while proceeding under sub-section (3) of section 23, the Income-tax Officer, though not bound to rely on evidence produced by the assessee as he considers to be false, yet if he proposes to make an estimate in disregard of that evidence, he should in fairness disclose to the assessee the material on which he is going to find that estimate; and that in case he proposes to use against the assessee the result of any private inquiries made by him, he must communicate to the assessee the substance of the information so proposed to be utilized to such an extent as to put the assessee in possession of full particulars of the case he is expected to meet and that he should further give him ample opportunity to meet it." It was held in that case that "In this case we....
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....evant finding of the Hon'ble Court dealing with the issue of opportunity of cross-examination and principles of natural justice not given to the assessee held as follows: "6. Another ground on which the ITAT found fault with the additions made by the AO was that reliance was placed on statement of 'so called entry operator' to justify the additions under sections 68 and 69 of the IT Act. These statements were recorded on various dates in some other proceedings not connected with the Assessee. Further, the statements were recorded much before the date of the survey conducted on the Assessee. It was unable to be disputed by the Department that the Assessee did not have an opportunity to challenge such statements and further, no opportunity to cross-examine the so-called entry providers was given to the Assessees. 7. Having heard learned Senior Standing Counsel for the Department (Appellant) and having perused the impugned orders of the AO, CIT(A) and the ITAT, the Court finds that both the grounds viz., the claim for benefit of section 10(38) of the Act and denial of an opportunity to cross examine the entry providers, turned on facts. The ITAT was justi....
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....the assessee has always been that as a prudent investor it had made the investments and some investments did not give any return rather gave losses and, in some cases, profits were earned. It was incumbent upon ld. AO to provide the assessee(s) a proper opportunity of cross-examination with all those persons who stated to be either involved in accommodation entries or were having some connection with the alleged transactions. There was no opportunity with the assessee(s) to cross-examine those persons, that why they have referred these transactions as bogus or accommodation in nature. No such exercises have been carried out at any stage by the Revenue authority. Though the assessee has placed material on record to show that on merits also the case of the assessee is strong and the alleged transactions have been carried out through banking channel as well as through recognised stock exchange and demat accounts and also it has been claimed that in one case there is a loss and there is no addition u/s 68 of the Act but without going into the merits of the case even on legal ground itself, we, in view settled judicial procedure referred hereinabove, are inclined to hold that there is a....
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....nce to the report of the investigation Wing but in that case the issues were relating to long-term capital gains and additions were made u/s 68 of the Act. But in case of Gateway Financial Services Ltd., which is a share broking firm as well as trader in equity shares and being assessed to tax for past many years has dealt in the equity share, namely, Blue Circle Services Ltd.. Since the AO has only disallowed the claim of bogus loss, it in itself means, that the genuineness of purchases of equity shares of Blue Circle Services Ltd., has not been disputed by the revenue authorities. The assessee in this case has purchased 5232616 equity shares. The ld. AO has also referred to the equity shares price chart of Blue Circle Services Ltd., wherein there is a steep upward trend from 2011-12 onwards then a downward trend which goes up to the end of 2013 and again there is an increase in trend during 2013-14 but not to that extent of the past trend of steep increase. The claim of the assessee is that, looking at the trend of equity share, in the anticipation of earning good profits it made the investment in equity shares of Blue Circle Services Ltd., and there was some increase in the pric....
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....upreme Court in the land mark case of "Kale Khan Mohammed Hanif v. CIT"[1963] 50 ITR 1 (SC) and "Roshan Di Hatti v. CIT" [1977] 107 ITR 938 (SC) laying down the proposition that the onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and credit-worthiness, then the AO must conduct an inquiry, and call for more details before invoking Section 68. If the Assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the Revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source. Thereafter the hon'ble Supreme court summed up the principles, which emerged after deliberating upon various case laws, as under: i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of th....
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....he companies not having financial worth. They had failed to establish genuineness of steep rise in price of shares within a short period of time that too when general market trend was recessive. That the ld. Assessing Officer has pointed out that the assessee could not explain, why it invested in such script without knowing the financial performance of the company. That such cannot be case of intelligent investment or simple and straight case of tax planning to gain benefit of long term capital gains earnings @ 491% over period of 5 months which is beyond human probability and defies business logic of any business enterprises dealing with share transactions. Even brokers who coordinated transactions were also unknown to assessee. All these facts give credence to unreliability of entire transaction of shares giving rise to such capital gains ratio. That the Assessing officer was justified in making the additions on the basis of the material available on record, the surrounding circumstances, the human conduct and preponderance of probabilities. 10. Now, we have to examine the contentions of the assessee in the light of the ratio of law laid down by the hon'ble Supreme Court....
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....d. (Total Assets of Rs. 25.23 Crores in FYE Mar'13 as against Rs. 21.49 Crores in FYE Mar'12; Operating Profit of Rs. 1.83 Crores in FYE Mar'13 as against Rs. 86 Crore in FYE Mar'12; Reported Net Profit of Rs. 0.99 Crore in FYE Mar'13 as against Rs. 0.59 Crore in FYE Mar'12 implying an increment of 67.79% ) and the stock even started declaring dividends whose trend showed a marked upward trajectory (Equity Dividend of Rs. 0.54 Crores in FYE Mar'13 as against Rs. 0.22 Crore in FYE Mar'12 and NIL in FYE Mar'11 and Mar'10 implying a trend reversal and a dividend payout of 59.60%). The purchase of the stock was timed in anticipation of the expected price action that usually follows in such stocks showing a reversal in dividend payout trend. That the shares of Comfort (still Comfort Fincap Ltd 535267) were purchased in a staggered manner in January 2014 in anticipation of trading profits and the same were sold, again in a staggered manner, in March 2014 when the trade went awry. The stock of Comfort was also in a steep fall when the company purchased it. However, the company purchased the stocks only when the price fall was sustained over a period of time. It is notable that the company....
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....re in FYE Mar'12; Reported Net Profit of Rs. 0.07 Crore in both FYE Mar'13 and FYE Mar'12 implying a marked stability in financial performance in the recent years. However, the head and shoulders pattern on the stock charts implied an oncoming decline in the stock prices, therefore, the assessee company immediately sold the stock to avoid further loss. 10.5 In case of Global Infratech& Finance Ltd. ('Global') shares, it has been explained that the trade was undertaken based on the parameters which clearly set out both the logic and rationale behind the trades. The stock of Global was also in a steep fall when the company purchased it. The shares of Global were purchased in a staggered manner in February 2014 in anticipation of trading profits and the same were sold, again in a staggered manner, in March 2014. However, the company purchased the stock only when the price fall was sustained over a period of time. That the stock parameters had improved from its previous reporting period (Total Assets of Rs. 56.62 Crores in FYE Mar'13 as against Rs. 20.90 Crores in FYE Mar'12; Operating Profit of Rs. 1.49 Crores in FYE Mar'13 as against Rs. 0.01 Crore in FYE Mar'12; Reported Ne....
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....acts of the case of the assessee, when considered in the light of the proposition of law laid down by the Hon'ble supreme Court in the case of NRA Steel (supra) and of the hon'ble Calcutta High Court in the case of Swati Bajaj (supra), the evidence furnished by the assessee, the surrounding circumstances would show that the assessee's decision to invest in those companies was based on business prudence and that there was no evidence, even circumstantial, that the assessee was involved in price rigging or otherwise instrumental to book bogus short term capital loss. 11. The Ld. Counsel has further submitted that the facts of the case of the assessee were quiet distinguishable from that of the cases of "Swati Bajaj & others"(supra). He has submitted that in most of the cases before the Hon'ble High Court, the purchases were off the Stock Exchange/private placements. That there were orders of SEBI suspending the scrip and/or wherein the concerned trader were found guilty of price manipulation. Further, that there were statements recorded from the brokers of the assessees, who had admitted to have indulged in price manipulation and therefore adverse view was taken. That in the....
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....t into demat account after sufficient lapse of time from the alleged date of physical purchase and then sale of the same within a short span of time after they were accounted in the demat account, gaining high monetary capital gains. In the case of the assessee, the shares were traded on the stock exchange, the same were kept in the demat account of the assessee. There is no allegation of involvement of the assessee or even his share broker in any type of price rigging. There even does not seem any probability of meeting minds of the assessee and/or his share broker and the promoters of the companies. A very peculiar fact which is noted from the assessment order/investigation wing report is that in the list of the persons whose statement was allegedly recorded and who in their statement have admitted of price rigging, the names of share brokers, entry operators and exit providers have been mentioned. The facts on the file itself show that there was meeting of minds of the entry operators and the share brokers and exit providers. The price rigging was done by giving benefit to various subscribers with connivance of share brokers and the motive was to convert their unaccounted money ....
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....tish Railways Board (1972) 2 WLR 537. Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases." The Hon'ble Karnataka High Court in the case of "Flipkart India (P.) Ltd. v/s Assistant Commissioner of Income-tax", [2017] 79 taxmann.com 159 (Karnataka) has observed that considering the fact that this blind appreciation of a precedent is a frequent occurrence, in catena of cases, the Hon'ble Supreme Court has clearly opined that a judgment should not be read as a provision of law. A judgment is confined to the facts and circumstances of its own case. It is only when the facts and circumstances in two cases are similar that the ratio of the former case becomes applicable to the latter case. As discussed above, in the absence of any direct incriminating evidence against the assessee, the distinguishable and weak circumstantial evidence, in our view, do not suggest the preponderance of probability of the assessee being involved in price rigging of the scrips or being the predetermined and pre planned beneficiary of the devised scheme, therefore, the impugned additions are not warranted in this case....
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....me observations were made by the SEBI regarding some fishy transactions carried out in case of few companies. Based on such primary information, the income tax department has carried out extensive enquiries and search and surveys in the case of various entry operators and alleged companies and based on such statements, a theory was established regarding such accommodation/bogus entries in the form of capital gains. However, since in the case of the assessee, SEBI at a later stage has intensively carried out the investigation on the facts of the assessee(s) along with other persons as referred in the order of the SEBI (extracted supra), and after a detailed investigation and examination of records exonerated, the assessee(s) from the charges levelled in the show cause notice issued to them. Therefore, when the assessee(s) have been exonerated and the charges against them have been waived and the transactions of purchase and sale of equity shares carried out by them have been found to be genuine, the theory of preponderance of probabilities is ruled out in the case of the present assessee(s). Thus, when the transactions giving rise to the long term capital gain have been found to be ....
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....pany whose shares were involved in the above said transactions. We note that the AO only referred to the report of the investigation wing which was based upon the statements of several persons who were wholly unrelated. The same is the position with regard to report of the SEBI. In the instant case also the name of the assessee was neither quoted by any of such persons nor any materials relating to the assessee was found at any place where investigation/searches were carried out by the Wing. Thus find the above decision squarely applies to the instant case. 13.3. We note that the Hon'ble High Court of Orissa in the case of PCIT vs Dipansu Mohapatra(supra), has held that tribunal was justified in allowing assessee's claim u/s 10(38) of the Act where the assessee has filed the details of purchase and sales of shares along with contract notes for purchase and sale, D-mat A/C and bank statement and furthermore no incriminating materials were found against the assessee in the survey conducted in the premises of the assessee and therefore the AO could not deny the claim u/s 10(38) of the Act merely by relying on the statements of accommodation entry providers which were recorded....