TaxTMI 
TaxTMI 
2026 (4) TMI 1114
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....s founded on borrowed satisfaction. On merits also, the assessee has assailed the disallowance of business loss of Rs. 29,55,96,375/-, the disallowance of Rs. 37,83,507/- under section 14A, and the addition of alleged bogus commission of Rs. 88,67,891/-. 2. The facts, in brief, are that the assessee is a resident LLP engaged in the business of share trading, mutual funds and investment activities. For the assessment year 2013-14, the assessee filed its return of income on 25.09.2013 declaring Nil income. In the financial year 2012-13 relevant to the assessment year 2013-14, in the course of carrying on its business activities, the assessee had entered into purchase and sale of shares and securities, inter alia, including shares of Shree Nath Commercial and Finance Ltd. The assessee had incurred profits and losses in various scrips and during the year it had incurred losses on sale of shares of Shreenath Commercial and Finance Ltd. amounting to Rs. 22,89,96,974/-. The case of the assessee was selected for detailed scrutiny and notice under section 143(2) dated 03.09.2014 was issued by ITO 24(2)(5), Mumbai. Thereafter, the original assessment came to be completed under section 143....
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....h have got set off with the loss incurred by just one script. In the light of this observation, please explain as to why this loss of around 22 crores booked in the script of Shreenath Commercial should not be considered as non genuine in the light of the fact that it's a penny stock having no worthwhile fundamentals. Ans: The entire trade in Shreenath Commercial was done in the share market based on above technical analysis. The sale and purchase was done in the open market on screen based trading of the stock exchange platform. We have taken actual delivery of the shares in our demat account and payment has been made in respect of the purchases through stock exchange mechanism (pay-in). In respect of sales also, actual delivery has been made to the stock exchanges through our demat account and the payment has been received through Stock Exchanges. The sale was made when the script was hitting lower circuit. If we wanted to show losses, there was no need to sell the script as the script was falling and even after the sale, the script has fallen further. If we had not sold the script, the losses borne by us would have been more based on falling value. As on 31 March, 2....
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....igations were also conducted by the Directorate of Investigation at Mumbai and Ahmadabad 4.2 The basic aim of this dubious scheme was to route the unaccounted money of LTCG Beneficiaries into their account/books in the garb of Long Term Capital Gain. This entry of LTCG is taken by selling the shares on the stock exchange and registering the proceeds arising out of the sale of shares into the books as LTCG. For implementing this scheme, shares of some Penny Stock Companies were used. The same modus is adopted for providing accommodation entry of bogus LOSS 4.3 In this scheme, the shares of the penny stock companies are acquired by the beneficiaries of LTCG at very low prices through the route of preferential allotment (private placement) and off market transaction in general. These shares have a lock-in period of 1 year as per Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009. Another route to acquire the shares is through Amalgamation or merger in this route, the beneficiaries of LTCG are allotted shares of a private limited company which is subsequently amalgamated with a listed penny stock and the beneficiari....
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....anipulative trading has been made using the stock exchange rout. Assessee is also one of the beneficiaries of trading in penny stock shares of M/s Shree Nath Commercial and Finance Ltd. The assessee has facilitated the person having purchased the shares of Shree Nath Commercial and Finance Ltd in giving them the exit route by purchasing the shares and immediately selling it at a loss. The loss so incurred has been set off against the real income earned by the assessee. By this activity assessee able to manage in paying no or less taxes as almost entire income got set off against the artificial loss created on purchased and sell of shares at pre determined price. In the whole activity assessee acted as a facilitator for giving exit to the person having unaccounted money in the form of cash who has purchased the penny stock shares at a very nominal price and manage to sell it at a very high price at exchange and claimed exemption as long term capital gains. In the entire transaction assessee received cash through the operator and operators receives the cash from the person interested in getting entry on account of long term capital gains through stock exchange. Thus this transaction ....
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....ee also figured therein, as according to the Investigation Wing the assessee had claimed loss of around Rs. 22 crores in one scrip, namely Shreenath Commercial and Finance Ltd. On the basis of this very report dated 27.04.2015, the Mumbai Investigation Directorate carried out survey on the assessee on 09.06.2015 and in the course thereof, statement under section 131 of the Act of Shri Amit Kesari, partner of the assessee firm, was recorded on 09.06.2015 and 10.06.2015 with specific questions in relation to the said scrip. 6. What is of considerable significance and in fact goes to the very root of the present controversy, is that the original assessment proceedings were very much pending when this survey was conducted and when the aforesaid statement was recorded. Thus, this was not some material discovered subsequent to the original assessment. On the contrary, it was material generated during the subsistence of the scrutiny proceedings and fully available to the Assessing Officer while framing the original assessment under section 143(3). The statement recorded on 09.06.2015 and 10.06.2015 was already on record and was also duly furnished before the Assessing Officer during th....
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....td. in the equity segment were furnished. Vide letter dated 15.12.2015, details of purchase and sale of quoted equity and derivatives were furnished as Annexures B1 and B2. Most crucially, vide letter dated 23.02.2016, the assessee furnished copy of demat statements as Annexure A, scrip-wise details and charts indicating volatility and price movement as Annexures C and D, copies of bills, contracts, demat statements and details of sale and purchase as Annexure E, and copy of the statement recorded of partner Shri Amit A. Kesari in the course of survey action dated 09/10.06.2015 as Annexure F, wherein specific questions and answers relating to Shree Nath Commercial and Finance Ltd. had been recorded and which thus stood squarely placed before the Assessing Officer in the original scrutiny proceedings. Again, vide letter dated 08.03.2016, explanation regarding low profit/losses and profit/losses in few scrips was furnished, and further explanation along with copy of bank statements as Annexures A and B was also filed. For the sake of clarity that all these issues were duly examined and enquired during the course of assessment proceedings as narrated above were summarized as under:- ....
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.... the issue had escaped scrutiny at the original stage. 10. We find that the record further reveals that the transactions of M/s Shree Nath Commercial and Finance Ltd. were duly covered in the statement of Shri Amit Kesari, partner of the assessee, recorded on 09.06.2015 and 10.06.2015 during the survey. It is evident that as per question nos. 27 and 29 of the said statement, details of purchases and sales of the shares of Shree Nath Commercial and Finance Ltd. were furnished, and as per question no. 28, ledger account reflecting payments and transactions made with brokers was already on record. Question and answer no. 30 of the said statement were to the following effect, namely that when the financials of Shree Nath Commercial and Finance Ltd. were shown and it was suggested that the company was not doing any significant business and the funds were very less and therefore it appeared to be a penny stock company, the answer given was that the investment was made on the basis of technical analysis; that the said stock was in B Group and also BSE Small Cap Index Stock; that subsequently it was also a BSE 500 Index Stock; and that since it was a B Group stock, it could not be consi....
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.... Assessing Officers for pending scrutiny assessments, directing them to access the "Penny Stock" functionality and ensure that information available thereunder, which may be useful for scrutiny cases, is examined and considered while finalising the assessments. Thus, even institutionally, all penny stock related material stood made available to the Assessing Officer before completion of the original assessment. This circumstance assumes importance because it completely negates the hypothesis that the original Assessing Officer was unaware of the investigation inputs or had no occasion to examine them. 13. From the above, it is quite palpable that the original assessment order under section 143(3) dated 30.03.2016 was thus passed after all these materials had come on record and after due enquiry. The order assessed the income at Rs. 11,23,080/- after set-off of brought forward loss of Rs. 4,05,679/-. The record shows that the losses in the scrip of Shreenath Commercial and other shares were declared by the assessee in the return of income itself. The assessment under section 143(3) was completed by ITO 24(2)(5) after consideration of the submissions and after personal discussions....
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....Officer. Therefore, what is projected in the reasons as if it were some fresh tangible material is, in truth, nothing but the very same material which had been specifically scrutinised in the original proceedings. 15. The assertion in the reasons or in the appellate order that the investigation report, statements of various parties and data available on the ITD system were made available in August 2016 also does not advance the Revenue's case in the peculiar facts here. Even assuming that certain collated data or dissemination letter was circulated in August 2016, the very report of Kolkata Investigation Wing dated 27.04.2015 was already available much earlier and in fact, had already triggered the survey on the assessee on 09.06.2015. The survey statement itself, containing specific questions on this very scrip, had already been recorded in June 2015 and furnished before the Assessing Officer during the original scrutiny. CBDT's letter dated 16.03.2016 had already made penny stock information available to Assessing Officers for pending scrutiny cases. Thus, the supposed freshness of the material is more apparent than real. In substance, nothing new emerged after the original as....
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....ng the course of assessment. The survey statement was also filed before the Assessing Officer. The CBDT functionality on penny stock cases had already been made available. In these circumstances, the formation of belief under section 147 on the basis of the same investigation report, same survey, same statement and same transaction details is plainly a case of revisiting an issue already examined. That, in our considered opinion, is impermissible. 19. The legal position in this regard is no longer res integra. The Hon'ble Supreme Court in the case of CIT v. Kelvinator India Ltd. (2010)312/320 ITR 561 (SC) has held that though the Assessing Officer has the power to reassess, he has no power to review, and the concept of change of opinion must be treated as an in-built test to check abuse of power. The Hon'ble Jurisdictional High Court in Bajaj Energy Ltd. v. ACIT (2024) 464 ITR 569 (Bom)(HC) has held that where information regarding investments and common expenditure was already provided during original assessment proceedings and the Assessing Officer had applied his mind thereto, reopening on the same issue is unjustified. Similarly, in D.K. Realty India (P.) Ltd. v. ACIT (2023)....