TaxTMI 
TaxTMI 
2026 (7) TMI 1579
X X X X Extracts X X X X
X X X X Extracts X X X X
....d. CIT(A) has grossly Rs. 79,06,035/- erred in upholding the action of the AO in making an addition of Rs. 2,43,67,499/- under section 68 of the Income Tax Act 1961 ("the Act") on account of sale of shares listed on BSE and holding the same to be unexplained cash credit instead of the Short Term capital Loss as declared by the assessee. Hence, the addition made on this account is liable to be deleted 1 quashed. 3 That without prejudice to the above the Ld. CIT(A) while confirming the action of the AO has erred in law and on facts in disallowing the loss of Rs. 2,43,67,499/- whereas the claim of loss by assessee in respect of said shares is much less in the assessment year under consideration. 4. That the AO/CIT(A) has failed to appreciate that the provision of section 68 of the Income tax act does not apply to the facts of the case of the assessee. Hence the addition made u/s. 68 and charging of tax under section 115BBE on the additions made does not have any legal leg to stand. 5. That the Ld. CIT(A) has grossly erred in upholding the action of the AO as the AO' has failed to bring on record any relevant and germane material to prove that the sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and made available on record have not been properly considered and judicially interpreted and the same do not justify the addition made. " 2. Brief facts of the case are, the assessee, M/s Pulin Investments Private Limited, is a company incorporated under the provisions of the Companies Act, 1956 (presently, The Companies Act 2013) and is engaged in the business of investment in shares and securities. The objects of the Assessee include purchasing, underwriting, investing in, acquiring, holding and dealing in shares, stocks, debentures and other securities. For the Assessment Year under consideration, the Assessee filed its return of income declaring loss of Rs. 50,68,618/-. During the relevant previous year, the Assessee had mostly sold shares of listed companies through recognized stock exchanges, and all transactions were routed through regular banking channels. The purchase and sale of shares were duly reflected in the books of account of the Assessee which have duly been audited and were supported by contract notes, Demat statements, broker ledger accounts and bank statements. 3. During the course of assessment proceedings, the Assessing Officer (AO) relied upon certain ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d M/s SMC Global Securities Ltd. The acquisition was occasioned by the financial distress of the transferor and represented a negotiated commercial settlement whereby the entire basket of shares was transferred at approximately ten percent below the prevailing market price. He submitted that the transaction was contemporaneously documented, duly intimated to the Bombay Stock Exchange, reflected in the Demat account of the Assessee and supported by accounting entries in the books of all concerned parties. Neither the Assessing Officer nor the ld CIT(A.) has disputed this acquisition. Once the composite transaction itself is accepted, there exists no legal basis to artificially segregate three scrips and disregard only the resultant loss arising therefrom. 6. Ld. AR submitted that the conduct of the assessee further demolishes the Revenue's allegation of a pre-arranged accommodation entry. Immediately upon acquisition, the assessee placed the shares for sale through the recognized stock exchange mechanism. Part of the shares forming part of the very same basket were sold during Assessment Year 2013-14 while the remaining shares were sold during the year under consideration. This i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....He submitted that no statement relied upon by the Investigation Wing implicates the assessee and no evidence demonstrates movement of unaccounted cash and also no material establishes any prior arrangement between the assessee and any alleged operator. He submitted that no enquiry has been conducted from M/s Transparent Shares & Securities Pvt. Ltd., M/s SMC Global Securities Ltd., the brokers or the depository participants despite their identity being fully available. He further submitted that the entire addition, therefore, rests solely upon a generalized investigation report. It is now well settled that such reports may at best trigger an enquiry but cannot themselves constitute substantive evidence against a particular assessee in the absence of an independent investigation establishing a live nexus between the assessee and the alleged accommodation entry. 10. Ld. AR submitted that the Revenue's allegation is further contradicted by its own factual findings. The assessee has earned profit in respect of transactions relating to M/s ESSAR India Ltd. during the relevant year. Thus, one of the very scripts alleged to have been utilized for creating artificial loss has in fact yi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng Assessment Year 2013-14, and the corresponding loss stood accepted by the Department. Once the acquisition and partial disposal under the same transaction have attained acceptance, the Revenue cannot arbitrarily treat the balance sale in the succeeding year as fictitious without bringing fresh incriminating material. At the very least, the amount of loss already accepted in the earlier assessment year cannot again be subjected to tax in the present year, as that would result in patent duplication. 14. Ultimately, he submitted that the Revenue has failed to discharge the burden cast upon it. He submitted that it has neither disproved the documentary evidence produced by the assessee nor established any connection between the assessee and any alleged accommodation entry provider. It has not demonstrated circulation of unaccounted funds, cash trail, manipulation of demat records, fabrication of contract notes or falsity of banking transactions. The entire addition is founded upon suspicion, conjecture and generalized investigation material. It is trite law that suspicion, however grave, cannot replace legal evidence. 15. Accordingly, he pleaded that in these circumstances, th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ember operating through M/s SMC Global Securities Ltd., which acted as its Professional Clearing Member (PCM) with the Stock Exchanges on their behalf. In the course of its business operations, M/s SMC Global Securities Ltd. stood as guarantor on behalf of M/s Transparent Shares & Securities Pvt. Ltd. before the Stock Exchanges. As security for such obligations, shares of thirteen listed companies were deposited with M/s SMC Global Securities Ltd. as collateral security. Subsequently, M/s Transparent Shares & Securities Pvt. Ltd. suffered substantial financial losses and became liable to discharge certain obligations towards M/s SMC Global Securities Ltd. As a consequence, for settlement thereof, a commercial decision was taken to transfer the entire basket of shares held as collateral and a tripartite MOU between the parties was signed. It was in these circumstances that the Assessee acquired shares of all thirteen companies through a single en-bloc transaction. 20. We also observed that the Assessee purchased the entire basket of thirteen companies on 15.03.2013 at a negotiated price representing approximately 10% discount to the prevailing market quotation available on the Bo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lance was sold thereafter in the ordinary course of market operations and the Assessing Officer himself records that the shares were purchased in March and sold up to August. Thus, the allegation that the Assessee acquired shares as part of any manipulated penny-stock arrangement is contrary to the actual conduct of the Assessee, which shows that the shares were treated as trading/business stock and were put to sale from the very beginning. 23. We further observed that most importantly, out of the very same basket of thirteen companies, transactions relating to several companies and even part of the shares sold in the preceding year have been accepted by the Revenue and the purchase transaction itself has never been disputed; also, the source of investment has not been disputed; the transfer of shares has not been disputed; the Demat credit has not been disputed; and the banking trail has not been disputed. Yet, out of the thirteen companies acquired under one indivisible commercial arrangement, the Assessing Officer has selectively picked three companies and proceeded to disregard the resultant loss. Such an approach is inherently arbitrary and contrary to settled principles of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....market mechanism wherein the identity of the counter party is neither known nor controlled by the Assessee. Therefore, in absence of any material showing collusion, the sale transaction cannot be treated as bogus merely because the scrip was viewed with suspicion by the Investigation Wing. 27. We observed that all payments relating to purchase and all receipts relating to sale were routed through normal banking channels and the Assessee had filed bank statements along with narrations of debit and credit entries for the year ended 31.03.2014 and also no adverse inference has been drawn from the bank statements. The Assessing Officer has not alleged that any cash was deposited by the Assessee before issuing cheques, nor has he shown that the sale consideration received through banking channels were withdrawn in cash and was routed back to any person in cash or otherwise. 28. Further we observed that the Demat account of the Assessee conclusively establishes that the shares were actually held by the Assessee. Once the shares stood credited in the Demat account and were thereafter debited upon sale through the stock exchange, the factum of ownership and transfer stands proved thr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed accommodation entry operation. This has admittedly not been done. 32. We further observed that the Assessing Officer has not rejected the books of account of the Assessee and he has not recorded any finding that the books are unreliable also has not invoked any provision to disregard the regular accounts. Once the books of account, bank records, demat statements and broker records are not found defective, the transaction recorded therein cannot be selectively rejected merely because the resultant computation shows a loss. 33. The entire addition therefore rests on conjectures and not on evidence. The Revenue has accepted the documentary trail but rejected the commercial result of the transaction. Such selective acceptance is impermissible. If the purchase, demat holding, sale through stock exchange and bank receipts are accepted, the loss flowing from such transaction cannot be treated as unexplained income without disproving the underlying documents. 34. We observed that it is a vital fact that the Assessee has purchased shares of all thirteen companies en-bloc on 15.03.2013 at a discount of approximately 10% from the prevailing BSE market rate. Immediately thereafter,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....chase, demat holding, sale through stock exchange and banking channels. The significance of these decisions is that the very same scrip, namely M/s ESSAR India Ltd., was alleged by the Department to be suspicious. However, the Tribunal did not accept the Revenue's general allegation and held that where the transaction is supported by contract notes, demat statements, banking records and STT payment, the claim cannot be rejected merely because the scrip appears in a suspicious list. 38. In fact, the allegation qua ESSAR India Ltd. is self-defeating. The record shows that the Assessee had earned profit on sale of shares of ESSAR India Ltd. during the year under consideration. Therefore, the Revenue's case that the entire transaction was structured for booking artificial loss is factually incorrect. If one of the very scrips alleged to be suspicious has resulted in profit, the transaction cannot be painted as a colourable device for creating artificial loss. 39. In the present case, in our view, the Assessee has a strong point. The Assessee has not dealt with the said scrip as an isolated investment. The shares of ESSAR India Ltd. formed part of an en-bloc acquisition of thirtee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....justice. The Assessing Officer has relied upon statements and material allegedly collected by the Investigation Wing. However, the Assessee was not supplied copies of all such statements and material. The Assessee was also not granted an opportunity to cross-examine the persons whose statements were relied upon. The Assessee had specifically requested that the evidence, if any, regarding alleged exchange of cash against cheque payments or receipts be supplied. The Assessee also sought opportunity to cross-examine the persons whose statements were being used against it. Despite such specific request, the material was not furnished and cross-examination was denied. The entire addition is based on third-party statements and general investigation findings. No statement directly names or implicates the Assessee. No statement establishes that the Assessee paid cash or received accommodation entries. In such circumstances, reliance on such material behind the back of the Assessee is legally impermissible. 43. We also observed that the failure of the Assessing Officer to conduct enquiries is particularly fatal in the present case because all relevant parties were identifiable and verifi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of section 68 are absent. 46. This issue is now directly covered in favour of the Assessee by the decision of the Coordinate Bench in Marut Nandan & Co. v. ITO, Ward-1, Hisar, ITA No. 4751/Del/2024. In the said case also, the addition was made under section 68 of the Act in respect of alleged bogus loss arising from transactions in listed shares. The coordinate bench, after considering the nature of the transaction, held that where the assessee has actually incurred business loss on transactions in shares listed on the stock exchange and such transactions have been routed through SEBI registered stock brokers, the said loss cannot, by any stretch of imagination, fall within the expression "unexplained cash credits". The Tribunal specifically held that the loss resulted in an outgo and depletion of funds and therefore represented a debit transaction rather than a credit transaction. On this reasoning, it was held that addition under section 68 was impermissible in law at the threshold. 47. We further observed that the Assessee has suffered a business/trading loss on sale of shares which were duly held in Demat account and sold through recognised stock exchange mechanism. The ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d on such investment exceeds the amount recorded in the books of account. Thus, for invoking section 69B, there must be a clear finding that the assessee has made an investment which is either not fully recorded or is recorded at a value lower than the actual amount expended. In the present case, no such finding exists either in the assessment order or in the appellate order. 51. We are of the opinion that the entire case of the Assessing Officer, as recorded in the assessment order, is that the Assessee was allegedly beneficiary of bogus short-term capital loss/business loss in the shares of M/s Dhenu Buildcon India Ltd., M/s ESSAR (India) Ltd. and M/s Shree Nath Commercial & Finance Ltd. The Assessing Officer has not alleged that the Assessee paid any amount over and above the recorded purchase price of the shares. On the contrary, the Assessing Officer has himself recorded the purchase price of the shares and has proceeded to dispute only the genuineness of the loss arising on subsequent sale. Therefore, the dispute is not regarding unexplained investment but regarding allowability/genuineness of loss. 52. We further observed that the investment in the shares was duly reco....