TaxTMI 
TaxTMI 
2024 (9) TMI 1787
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....7.09.2014 declaring total income of Rs. 1,34,616/-. The case of the assessee was selected for scrutiny under CASS and accordingly statutory notices were duly issued and served on the assessee. The assessee is an NBFC company duly registered with Reserve Bank of India. The AO from perusal of the details/information furnished by the assessee qua trading of shares and securities during the year observed that the assessee has incurred a loss of Rs. 51,33,870/ from the trading in two scripts namely Redfort Global Ltd. and Shreenath Commercial ltd the details whereof were given by the AO on the first page of the assessment order. The said loss was set off against the income earned by the assessee by way of interest of Rs. 32,43,618/-. According to the AO, the said loss is bogus as has been brought out by the Investigation Report of DIT(Inv) in which it was pointed out that the above noted companies were not having any intrinsic worth and were not having any proper line of business. The AO observed that there was strong reasons that any prudent business man would not invest and buy the said equity shares. The AO after discussing modus operandi in the assessment order, final....
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....quity shares was apparently accommodation entries and was rightly rejected by the authorities below. The Ld. D.R also submitted that the case is squarely covered by the decision of Principal CIT Vs Swati Bajaj [2022] 446 ITR 56 (Cal) and therefore, the order of Ld. CIT (A) may be upheld. 7. After hearing the rival contentions and perusing the material on record, we find that the assessee has been engaged in dealing of shares and securities during the year. we note that out of the total business done during the year, the assessee incurred loss on two scrips namely Redfort Global Ltd. and Shreenath Commercial Ltd which was set off against the income earned by the assessee by way of interest. The interest income was Rs. 31,43618/- whereas the loss incurred from these two shares was Rs. 51,33,870/-. We note that the AO has only relied on the report of the Investigation Wing stating that these companies were engaged in providing accommodation entries without doing any real business and thus treated the loss as bogus without bringing on record any substantive evidence corroborating the fact that the assessee was in fact involved in the wrong doing. In our opinion the report ....
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.... decided by the Coordinate Benches. We also note that the decision of the Hon'ble Jurisdictional High Court in the case Swati Bajaj & Ors. (supra), relied upon by the ld. D/R, has been distinguished by the Coordinate Bench and held to be not applicable to the facts of those cases. For the sake of ready reference and convenience the relevant part of the order in the case of Gateway Financial Services Ltd. (supra) is expected below:- 21. So far as the recent judgment of Hon'ble Jurisdictional High Court in the case of Principal CIT Vs Swati Bajaj reported in [2022] 446 ITR 56 (Cal) is concerned, we observe that the Hon'ble High Court at Calcutta in the case of Principal CIT Vs Swati Bajaj [2022] 446 ITR 56 (Cal) at Page 142 of the judgment in the second last paragraph has observed that where a witness has given directly incriminating statement and the addition in the assessment is based solely and mainly on the basis of such statement, in that eventuality it is incumbent on the Assessing Officer to allow cross examination of the witness. Adverse evidence and material, relied upon in the order, to reach the finality should be disclosed to the assessee. In the case of ....
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....82 entities with respect to their role in the manipulation of the scrip of Radford, I am of the considered view that the directions issued against them vide interim orders dated December 19, 2014 and November 9, 2015 which were confirmed vide Orders dated October 12, 2015, March 18, 2016 and August 26, 2016 are liable to be revoked. In view of the foregoing, I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11, 11(4) and 11B of the SEBI Act, hereby revoke the Confirmatory Orders dated October 12, 2015, March 18, 2016 and August 26, 2016 qua aforesaid 82 entities (paragraph 9 above) with immediate effect." 23. It is well settled that while acting in their quasi-judicial capacity the income tax authorities have to adhere to the principles of natural justice and in the instant cases Assessing Officers of respective assessee(s) ought to have given opportunity to assessee(s) to cross examine these five persons whose statements were the basis of alleged additions. 24. Coordinate Bench Delhi in the case of Nokia India (P.) Ltd. vs. DCIT reported in [2015] 59 taxmann.com 212 ....
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....proved. The principles analogous to the provisions of the Indian Evidence Act as also the principles of natural justice demand that the maker of the report should be examined, save and except in cases where the facts are admitted or the witnesses are not available for cross-examination or similar situation. The High Court in its impugned judgment proceeded to consider the issue on a technical plea, namely, no prejudice has been caused to the Appellant by such non-examination. If the basic principles of law have not been complied with or there has been a gross violation of the principles of natural justice, the High Court should have exercised its jurisdiction of judicial review." 28. The aforesaid decision makes it evident that, not only should the opportunity of cross examination be made available, but it should be an effective cross examination, so as to meet the requirement of the principles of natural justice. In the absence of such an opportunity, it cannot be held that the matter has been decided in accordance with law, as cross-examination is an integral part and parcel of the principles of natural justice. Cross-examination is must where Assessing Officer relies up....
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....by the departmental representative. Next, it did not give any opportunity to the company to rebut the material furnished to it by him, and lastly, it declined to take all the material that the assessee wanted to produce in support of its case. The result is that the assessee had not had a fair hearing." 31. In Suraj Mall Mohta and Co. v. A. V. Visvanatha Sastri reported in (1954) 26 ITR 1 (SC) the Supreme Court has held that "the assessment proceedings before the Income tax Officer are judicial proceedings and all the incidents of such judicial proceedings have to be observed before any conclusion is arrived at. The assessee has a right to inspect the record and all relevant documents before he is called upon to lead evidence in rebuttal. This right has not been taken away by any express provision of the Income Tax Act." 32. In respect of the report of the Investigation Wing of the Department, the appellant pointed out the said report nowhere states the name of the appellant or the transaction of the appellant. The said investigation was carried out in case of any other person and not in case of the appellant. In the said investigation the transaction in question ....
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....evised returns if he omitted to make a claim was also not noticed by the AO." Therefore the Assessing Officer was bound to supply those statements and allow the cross examination of the maker of the statements to the assessee according to the judgement of the Hon'ble Calcutta High Court in Swati Bajaj (supra) case as well as in view of the judgments of Hon'ble Supreme Court in the case of Andaman Timber Industries Vs Commissioner of Central Excise reported in [2016] 38 GSTR 117 (SC), Principal Commissioner of Income Tax (Central) Vs Oriental Power Cables Ltd reported in [2022] 143 taxmann.com 371 (SC), Kishinchand Chellaram (AIR 1980 14 SC 2117) and the Hon'ble Calcutta High Court in the case of Eastern Commercial Enterprise (1994) (Cal) [210 ITR 103]. 34. In view of the above discussion, we notice that so far as the statement of Mr. Praveen Kumar Agarwal is concerned who is the director of one of the group companies namely M/s. Gateway Financial Services Ltd. already stands retracted by him by filing affidavit before the Investigation Wing of Income Tax Department and also as regards the submissions of ld. D/R that proceedings under other Acts were ca....
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....been used by ld. AO to make additions in the hands of the assessee(s) in appeal before us, was not provided to the assessee(s) even though requested during the course of hearing before the AO well as ld. CIT(A). Based on these facts, we find merit in the contention of the ld. Counsel for the assessee that principles of natural justice have been violated in the case of all the four assessees namely M/s. Gateway Financial Services Ltd., M/s. Nishit Agarwal Beneficiary Trust, Pinky Agarwal and Pratik Agarwal Beneficiary Trust. 35. In the preceding paragraphs, we have dealt with the legal issue regarding the matter that since the assessee has not been provided sufficient opportunity to cross examine those persons who were directly related to the assessee company i.e., Gateway Financial Services Ltd., and other assessee(s) even when their statements have been relied heavily by the Assessing Officers to deny the claim of short term capital loss /long-term capital gains as the case may be, we note that apart from placing reliance on the statements, the revenue authorities have also referred to the report of the investigation Wing which carried out search and survey in some other ....
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....n carried out on the recognised stock exchange and well within the rules and regulations provided by the SEBI, we note that in all the alleged statements of the alleged third parties and the report of the investigation Wing there is specifically no indication that whether the assessee was directly involved with the promoters/directors of Blue Circle Services Ltd., for such a steep increase/decrease of the prices. It prima facie seems to be a case where the assessee has made an adventure in the business of trading in equity shares being in the business of share trading and investment and shares brokerage were given past many years. At this juncture when the purchase of equity shares has not been doubted by the revenue authorities, and the claim of the assessee is that it has entered into the purchase and sale transactions in the regular course of business and also considering the fact that it is not the case of earning long-term capital gains for claiming exemption u/s 10(38) of the Act, but is a case where the assessee has lost its capital by incurring huge loss. This Tribunal in the case of Raigarh Jute & Textile Mills Ltd. vs. ACIT in ITA No. 2286/Kol/2019; AY 2014-15; order....
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....and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established. "11. The principles which emerge where sums of money are credited as Share Capital/Premium are : In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act." 9.1 The Hon'ble Supreme court, thus, has held that once the assessee has submitted the documents relating to identity, genuineness of the transaction, and credit-worthiness of the subscribers, then the AO is duty bound conduct to conduct an independent enquiry to verify the same. Once the assessee having discharged initial burden upon him to furnish the evidences to prove the identity and creditworthiness of the share subscribers and genuineness of the transaction, the burden shifts upon the Assessing Officer to examine the evidences furnished and even make independent inquiries and thereafter to state that on what account he was not satisfied with the detail....
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....the shares in question. That the assessee had duly taken note of the financials and share price movement of the companies before purchasing the shares. The ld. counsel in this respect has referred to the financials of the said companies, the market trend and the reasons to exit as mentioned in the written submissions as reproduced above. firstly referred to the financial details and share price movement of Rutron International Ltd. It has been submitted that Rutron International Ltd. was a listed public company. The assessee company took note of the annual reports. The said company had reported total assets of 17.88 for F.Y 2012-13 and its turnover and proceeds had improved substantially from its previous years. Its income has also increased substantially. It reported net profit of Rs. 0.50 Crores in FY 2012-13 as against Rs. 0.11 Crores in FY 2011-12 implying an increment of 354.54%. The stock even started declaring dividends (Equity Dividend of Rs. 0.18 Crores in FYE Mar'13 as against NIL in FYE Mar'12, Mar'11 and Mar'10 implying a trend reversal and a dividend payout of 36%). That having regard to these fundamentals of Rutron, the assessee company had purchased sh....
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....test financials of the stock available publicly. 10.3 Regarding the third company, it has been demonstrated that Luminaire Technologies Ltd. ('Luminaire'), was a listed public company at the relevant time. That the shares of Luminaire were purchased in a staggered manner in January and February 2014 in anticipation of trading profits and the same were sold on the 5th of March 2014. The stock of Luminaire was also in a steep fall when the company purchased it. However, the company purchased the stocks only when the price fall was arrested and a trend reversal was visible. However, the favourable technical analysis of the stock, which prompted the company to purchase the stock, did not lead to the anticipated price rise owing to the weak market outlook regarding the stock. The company, having entered the trade to profit in the immediate short term, immediately chose to cut short its losses as the stock price deteriorated further. 10.4 Regarding the decision to trade in the stock of Unno Industries Ltd., the ld. Counsel has explained that the same was based on the company's own reading of the financials of Unno, which was a listed public company at the relevant time.....
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....crement of 1,212.50% and trend reversal). The company, being a prudent trader, did not only rely on the financials of Global to make its decisions in the market. It was also prone to keep tabs on the technical aspects of the stock to pre-empt market movements in it. Envisaging a further fall in the stock prices owing to its interpretation of the deteriorating technical parameters of Global even in the face of robust fundamentals, the company sought to exit its position in the stock completely for the time being. 10.6 It has been further explained that the SEBI has also investigated regarding the allegation of share trading in respect of two companies out of the above mentioned 5 companies. In the case of Rutron, only 14 persons were suspected to be involved in price rigging who were restrained from accessing the security market for a period of 6 months. Neither the assessee nor his share brokers were ever named for restrain from trading in the said scrip. Even, the company itself was not implicated of any wrong doing. Any other person, except the aforesaid 14 persons, was not restrained for trading in the shares in the said company. The second company investigated was Glob....
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.... steep increase during recessive trends and therefore the movement in prices was held to be ingenuine. That the Hon'ble High Court had observed that the onus was on the assessee to establish that the price rise was genuine in light of the fundamentals of the scrip. However, in case of the assessee, the trades were made on the Stock Exchange. There was no adverse statement of assessee's broker. Moreover the Director of the assessee was examined and confronted with the allegations u/s 131 of the Act and he had specifically denied the same. That the assessee has sufficiently demonstrated that the financial results and the fundamentals of the scrips was mirrored in their price movements and therefore it was not a case that the movement in prices was not explained. Even as demonstrated above, in three (3) out of the five (5) scrips, there were no adverse orders of SEBI regarding any kind of price manipulation. Further in the remaining two scrips, the SEBI upon completion of investigation found specific entities/persons guilty of manipulation. The Ld. Counsel has further submitted that in the similar facts and circumstances, the coordinate benches of the Tribunal have opined in favour of....
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.... as exit providers who would buy shares when the share prices would be at its peak and those exit providers thereafter would suffer losses on account of fall in the price of the shares. This specific fact on the file shows that the exit providers were already chosen to execute the plan. The motive was to give the benefit of bogus long-term capital gains to various beneficiaries and to make that plan foolproof, the exit providers were already chosen with a predetermined planning as to at what stage the beneficiaries of bogus long-term capital gains would be given exit. That perhaps was not dependent upon chance exit providers willing to book bogus short-term capital loss. Neither the name of the assessee nor of his share broker is mentioned in the list of exit providers. The circumstances of this case do not suggest of unnatural and unrealistic human conduct. The Assessing Officer in this case has not pointed out any adverse evidence against the assessee. He has simply relied upon the investigation report which is a general investigation report. The Hon'ble Calcutta High Court in the case of PCIT vs. Swati Bajaj &Ors (supra) has considered the said report and analysed the same vis-a....
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....ion of this Tribunal in the case of Raigarh Jute & Textile Mills Ltd. vs. ACIT (supra), which is squarely applicable on the facts of the instant case of assessee i.e., M/s. Gateway Financial Services Ltd., we find that the alleged loss has been incurred by the assessee in the regular course of its business. We also note that the statement of various persons recorded by the AO/investigation wing/search team in the course of other proceedings as well as the report of the Kolkata investigation wing, there is no reference to a direct evidence indicating that the transactions in question is in the nature of accommodation entry or for arranging bogus loss. Thus, the addition/disallowance made by the assessee is merely on the basis of preponderance of probabilities. Therefore, in the present case, when the statements and investigation report relied upon by the AO has not been given to the assessee for the purpose of cross-examination as well as rebuttal, we in view of the above decision are inclined to hold that the alleged loss being genuine loss from share trading incurred by the assessee in regular course of business, deserves to be allowed. Thus, impugned disallowance is uncalled for.....
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....and the impugned additions in case of assessee(s) in appeal before us are uncalled for. 13.1. In the case of Pr. CIT Vs. Renu Aggarwal (Supra), the Hon'ble Apex Court has dismissed the special leave petition filed by the revenue affirming the decision the Hon'ble High court of Allahabad in ITA No. 44 of 2022 which in turn has upheld the decision of the tribunal in ITA No. 204/Lkw/2020 A.Y. 2014-15 & anothers. The Hon'ble Apex Court, however, kept the legal issue open. We have perused the decision of the tribunal wherein the following findings of fact were recorded: "The above findings recorded by ld. CIT (A) are quite exhaustive whereby he has discussed the basis on which the Assessing Officer had made the additions. While allowing relief to the assessee, the ld. CIT (A) has specifically held that there is no adverse comment in the form of general and specific statement by the Pr. Officer of stock exchange or by the company whose shares were involved in these transactions and he held that Assessing Officer only quoted facts pertaining to various completely unrelated persons whose statement were recorded and on the basis of unfounded presumptions. He furt....