TaxTMI 
TaxTMI 
2026 (9) TMI 248
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....l commission addition, and Grounds Nos.5 and 6 relating to the deletion of the interest disallowance. The Revenue has specifically challenged the learned CIT(A)'s appreciation of the Investigation Wing reports, SEBI orders, stock exchange data and statements of persons relied upon by the Assessing Officer. 2. Briefly stated, during the course of assessment proceedings the Assessing Officer examined the assessee's share transactions and noticed substantial losses arising from transactions in certain scrips identified by the Department as penny stocks. The Assessing Officer, having regard to the Investigation Wing material, SEBI material, stock exchange data, the financial position of the concerned companies, their unusual price movements and statements recorded during investigation, held that the transactions were not genuine business transactions but were part of a pre-arranged mechanism for generating artificial losses. The Assessing Officer accordingly disallowed the loss claimed by the assessee. He also made a consequential addition on account of alleged commission on the premise that payment of consideration to operators was an integral part of such accommodation-ent....
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.... contract notes, demat statements and other contemporaneous documentary evidence and that there was no direct allegation or material demonstrating that the assessee himself had participated in the alleged manipulation. It was contended that even if allegations existed against the concerned companies or certain operators, such allegations could not automatically be extended to the assessee unless the Department established a specific connection between him and the alleged accommodation-entry providers. The ld.AR also submitted that the statements of third parties relied upon by the Assessing Officer could not be effectively used against the assessee in the absence of an opportunity of cross-examination. Reliance was placed upon the decisions of Bombay High Court in the case of Shyam R. Pawar, 54 taxmann.com 108 and the coordinate bench of the Mumbai tribunal in the case of Fairdeal Finn Services Pvt. Ltd., 173 taxmann.com 517, on the proposition that an Investigation Wing report or general allegation of manipulation, without specific material establishing that the assessee's transactions were part of the manipulation, could not justify treating otherwise documented share transac....
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....dence showing that the shares were not actually purchased or sold, or any material establishing that the consideration recorded in the transactions did not represent the actual consideration. 8. We have also considered the decisions relied upon by the ld.AR, particularly Shyam R. Pawar and Fairdeal Finn Services Pvt. Ltd. The proposition emerging from the submissions before us is that an addition cannot be sustained merely on suspicion or on the basis of a general investigation report without material connecting the assessee with the alleged manipulation. In the present case, the Revenue has established circumstances surrounding the relevant scrips, but has not established the necessary factual link between those circumstances and the assessee's conduct. The documentary evidence evidencing the actual purchase and sale therefore cannot be disregarded merely because the relevant companies or their scrips were the subject of investigation. 9. Another factor supporting the assessee's claim was the overall scale of his share-trading activity. The assessee had undertaken transactions in approximately 2,500 scrips, whereas the Department's allegation of manipulation was confined....
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....had proceeded on the basis that if the loss claimed by the assessee was generated through an accommodation-entry mechanism, the persons facilitating such accommodation would have received consideration by way of commission. The learned CIT(A) deleted the addition because he had accepted the underlying share transactions and the resultant loss as genuine and consequently found no basis for the commission addition. The Revenue has challenged the said finding by contending that payment of commission was a general feature of the alleged arrangement. 13. We have already held, while adjudicating Grounds Nos.1 to 3, that the Revenue has failed to establish that the impugned share transactions were non-genuine or that they formed part of an accommodation-entry arrangement. Once the foundational allegation of an artificial loss is not established, the consequential commission addition cannot survive merely on the assumption that commission would necessarily have been paid. We are conscious that an addition under section 69C requires material to support the conclusion that expenditure was actually incurred. No independent material establishing payment of commission by the assessee has bee....
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....sed for business purposes, not for personal benefit or tax avoidance. Following the Supreme Court's decision in S.A. Builders Ltd. (288 ITR 1), the ITAT ruled that where a holding company advances borrowed money to a subsidiary in which it has a deep interest, and the funds are used for business purposes, the interest on such borrowed funds is ordinarily deductible under Section 36(1)(iii) of the Income Tax Act, 1961. 16. We have considered the rival submissions. It is not in dispute that the assessee held 51% shares in M/s Setu Securities (P) Ltd. and, therefore, had a substantial interest in the affairs of the said company. It is also the assessee's case that the business activities of the company were connected with his own business. These are relevant circumstances while considering the plea of commercial expediency. The question, however, is whether the Revenue has demonstrated that the interest-bearing funds were in fact diverted for a non-business purpose. The mere existence of an interest-free advance to a related concern does not, without examination of the surrounding financial position and the actual utilisation of funds, automatically establish that the inter....