TaxTMI 
TaxTMI 
TaxTMI 
2024 (9) TMI 1864
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....of equity share in the name of Blue Circle Services Limited (in short 'BCSL') and CCL International Limited (in short 'CCLII') at Rs. 40,96,229/- and Rs. 1,16,89,407/- for A.Ys. 13-14 and 14-15 respectively. 04. Since, the issues are common, we adjudicate the same on the basis of facts for A.Y. 2013-14 for which assessee has raised following grounds of appeal: - "1. That the order of the learned CIT ais bad in law and on the facts of the case. 2. That the learned CIT (A) erred in upholding trading loss of Rs. 4096229/- alleging that the scrips Blue Circle and CCL international are declared to be bogus loss providing entities as per the Directorate of Investigation, Kolkata." 05. Brief facts of the case are that the assessee is a Private Limited Company engaged in the business of investment and finance. Income of Rs.6,10,535/- declared in the return of income for A.Y. 2013-14 filed on 29th September, 2013. Assessee is a non-banking finance company (NBFC) and is dealing in shares in NSE and Bombay Stock Exchange under cash segment. Assessee's case selected for scrutiny followed by validly issuing and serving notices u/s 143(2) and 142(1) of....
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....ding loss in dealing in shares of Tuni Textiles Ltd. and M/s Blue Circle Services Limited (in short `BCSL') and this Hon'ble Tribunal decided in favour of the assessee. Further, reliance placed on another decision of Nalanda Builders Pvt Ltd. Vs. DCIT in ITA No. 763/Kol/2022 dated 11th January, 2024, wherein also similar type of issue of bogus loss from purchase/ sale of equity shares of Tuni Textiles Ltd. and BCSL was for consideration and Hon'ble Tribunal decided in favour of the assessee. He thus submitted that since the issue is squarely covered by the decision of this Hon'ble Tribunal which have been rendered after considering the recent judgement of Hon'ble jurisdictional High Court, the assessee deserves to succeed. 08. On the other hand, the learned Departmental Representative (in short Ld DR) vehemently supporting the orders of the learned lower authorities and also stated that assessee has dealt in the penny stock companies and that the issue is covered against the assessee in view of the judgement of the Hon'ble jurisdictional High Court in case of Principal Commissioner of Income-tax Vs. Swati Bajaj [2022] 139 taxmann.com352 (Calcutta). 09.....
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....here appeal of the assessee has been allowed holding the loss from purchase and sale of equity shares alleged to be penny stock company as genuine. The decision of the Tribunal in case of Namokar Builders Pvt. Ltd. (supra), reads as under: - "6. In the rebuttal the Ld. Counsel for the assessee submitted that the decision of Hon'ble Calcutta High Court in the case of Swati Bajaj, supra have been considered in all the above decisions including the one in the case of Nalanda Builders Pvt. Ltd. (supra) and has been respectfully distinguished to be not applicable. The Ld. AR also submitted that in Nalanda Builders Pvt. Ltd. supra, the decision in the case of M/s. Gateway Financial Services Ltd. (supra) has been followed. The Ld. AR, therefore, submits that the appeal of the assessee may kindly be allowed by following the above decision. 6. After hearing the rival contentions and perusing the material available on record, the undisputed fact as gathered from the records before us are that during the year the assessee sold a flat measuring 1682 sft. at Chandra Mahal, 15, Burdwan Road, Kolkata for a consideration of Rs.1,85,00,000/- and earned capital gain on such tra....
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....i 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 the appellant the Assessing Officer has noted at Page-2 of the assessment order dated 18.12.2016 that employee of Gateway Financial Sri Ranjeet Kumar Gupta, Sri Kiranjeet Mahanta in their statement on oath dated 10.02.2015 accepted that they are appointed as director in different zama kharchi companies. Further the employee of Gateway Financial Sri Soumen Chowdhury in his statement on oath dated 10.02.2015 accepted that the said company is engaged in buying and selling of different shares including jamakharchi companies for providing accommodation en....
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....rs 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 (Delhi-Trib.) has held that "whether cross-examination is to be provided or not depends upon the facts of each case and there is no thumb rule or straight tight jacket formula for arriving at this conclusion. It all depends on facts of each case whether principles of natural justice have been complied with or not. If decision making authority has provided due opportunity to the person complaining of non-observance of principles of natural justice, then it is for the person so complaining to demonstrate the same and show the prejudice caused to him. Mere bald assertion of no....
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....ciples 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 upon only on the statement of the Third Party unconnected with the appellant 29. In the case of Krishna Chand Chela Ram v. CIT reported in (1980) 125 ITR 713 (SC) the Supreme Court has held that "cross-examination is must where Assessing Officer relies upon only on the statement of the Third Party unconnected with the appellant. Hon'ble Supreme Court has held that the letters, dated 14.02.1955 and 09.03.1959, did not constitute any material evidence which the Tribunal could legitimately taken into account for the purpose of arriving at the finding that the amount of Rs.....
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....ed 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 of the appellant was not commented upon by the Investigation Wing and therefore the said Investigation Wing report is not evidence to impeach the transaction of the appellant. We find that the Ld. Departmental Representative could not point out anything to show that the said Investigation report was relied upon by ld. AO in the order of assessment was related to the specific transaction of the appellant. In the circumstances, the said Investigation Report wherein some other persons were found to be involved in some manipulation does not establish that the appellant was also involved....
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....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 carried out in the case of Mr. Praveen Kumar Agarwal it was stated by ld. Counsel for the assessee as an officer of Court that as on date no proceedings are pending against Mr. Praveen Kumar Agarwal in regard to the alleged transactions before any authorities other than Income Tax Department. Even otherwise, we are not dealing with the case of Praveen Kumar Agarwal. So far as the statements of remaining persons which have been referred by ld. AOs in the assessment orders they have all either been taken during the course of search/survey in some other cases or during the course of any pr....
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....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 cases prior to the conclusion of assessment proceedings in the instant appeals and such investigation included the persons who have been alleged to be entry providers/operators, share brokers etc. 36. Now, before us in case of one of the assessee's, namely, Gateway Financial Services Ltd., the issue relates to bogus short-term capital loss from sale of equity shares of Blue Circle Services Ltd. and in the remaining three cases the issue is regarding alleged bogus Long term capital gain from sale of scrip, namely, Radford Global Ltd. 37. Since the facts relating ....
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....estment 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 dt. 27/06/2023, wherein the same combination of Judicial and Accountant Member has dealt with the issue regarding the claim of short term capital loss/business loss from sale of equity shares which was alleged by the revenue authorities being arranged from penny stock companies has decided in favour of the assessee after dealing with the facts of the case, modus operandi of carrying out such transactions by the assessee and also dealing with the judgement of the Hon'ble jurisdictional High Court in the case of Principal CIT Vs Swati Bajaj 446 ITR 56 (Cal), and also examining ....
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....preme 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 details and evidences furnished by the assessee and confronting with the same to the assessee. 9.2 The Hon'ble Calcutta High Court, however, in the case of PCIT vs. Swati Bajaj & Ors (supra) has observed that to prove the allegations a logical process of reasoning from the totality of the attending facts and circumstances surrounding is to be adopted. That it is the duty of the Court to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded so as to reach a reas....
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....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 shares in a staggered manner in January 2014 in anticipation of trading profits. The purchase of the stock was motivated not only by the dividend but the anticipated price rise. However, since the stock of Rutron was in a sustained fall and therefore like any prudent trader, the company purchased the stock only when its price fell substantially. However, when it became apparently clear that the financials of Rutorn were not indicative of future financial performance of the stock, the assessee company, being a prudent trader swi....
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....nly 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 Id. 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. That the trade was undertaken based on the not only the fundamentals but also the technical aspects of the stock. The shares of Unno were purchased on 22nd January 2014 in anticipation of trading profits and the same were sold on 20th March 2014 when there was an indicator for a further decline in the prices of a stock. That the stock of Unno was in a steep fall and the company had purchased the stock only when its price fell substantially. That the company did not enter/exit at the highest/lowest price an....
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.... 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 Global Infratech & Finance Ltd, in respect of which, only 46 specific persons/entities were found guilty of price manipulation in shares of the said company after detailed investigation. That some of the entities had inter alia questioned the act of SEBI in not holding all persons/entities who had traded in the shares of Global Infratech and Finance Limited to be artificial or suspicious. However, the SEBI in their Order had specifically observed that only the promoters and/or their connected entities were found to be guilty of price manipulation and....
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....ifically denied the same. That the assessee has sufficiently demonstrated that the financial results and the fundamentals of the scrip 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 the assessee therein. 12. We find force in the contentions raised by the ld. counsel for the assessee. Firstly, in this case, the assessee has not claimed long-term capital gains on account of unrealistic steep rise in the share prices of these scrips traded in as was in the case of PCIT vs. Swati Bajaj &Ors (supra). The Hon'ble High Court had held, under the circumstances, that the burden was upon the assessee to explain the business prudence of investment in these scrips of the companies having neg....
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....ries 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 analyzed the same vis-a-vis circumstantial evidences like the negligible financial worth of the companies whose shares were traded in, the unrealistic steep hike in the share prices as against the recessive market trend and the failure of the assessee to explain the commercial prudence for making such huge investments. The additions thus have been made on the basis of circumstantial evidences and considering the preponderance of probabilities. Hon'ble Supreme Court in Padmasundra Rao v. State of T.N. 255 ITR 147 (SC) has held....
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....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. 44. Thus, to conclude we hold that firstly the principles of natural justice have been violated while carrying out the assessment proceedings in the case of the assessee(s) since no opportunity for cross-examination was provided for those persons whose statements have been relied upon by the assessing officer for making the alleged additions. Secondly, there is no direct evidence referred to by the assessing officer or in the report of the investigation Wing that the assessee(s) have made arra....
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.... the decision of the tribunal wherein the following findings of fact were recorded: "The above findings recorded by Id. 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 further held that the name of the appellants were neither quoted by any of such persons nor any material relating to the assessee was found at any place where investigation was done by the investigation Wing. The ld. CIT(A) relying on various orders of Lucknow Benches and other Benches has allowed relief to the assessee by placing reliance on the evidences filed by the assessee before Assessing Officer. I do not find any adversity in the order of ld. CIT(A) specifically keeping in view the fact that Lucknow ....
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....has failed to carry out any independent investigations/enquiries into the evidences filed by the assessee and has rejected the claim by the assessee qua loss from shares trading only on the basis of surmises and conjectures and relying on the statements of entry operators who never named the assessee and their statements were recorded long before . Therefore, we set aside the order of first appellate authority and direct the Assessing Officer to delete the allow the loss of Rs.3,19,65,849/- . The first issue raised by the assessee is allowed. The ground Nos. 5 to 9 are allowed. 7. Since the facts before us are materially same vis-à-vis the facts in the case as discussed above, therefore, we are inclined to follow the decision of Coordinate Bench in the case of Nalanda Builders Pvt. Ltd.(supra), accordingly, we set aside the order of Ld. CIT(A) and direct the AO to allow the loss incurred on sale of shares to the tune of Rs. 1,87,25,176/- and allow the set off of the same against the LTCG earned by the assessee. Resultantly, the appeal of the assessee is allowed. 8. In the result, the appeal of the assessee is allowed. 011. From perusal of the finding of ....