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Income Tax Appellate Tribunal, “B” BENCH KOLKATA
Before: Shri Sanjay Garg & Dr. Manish Borad
order : November 29, 2023 आदेश / ORDER संजय गग�, �या�यक सद�य �वारा / Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the assessee against the order dated 01.12.2022 of the National Faceless Appeal Centre (hereinafter referred to as the ‘CIT(A)’) passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’). 2. The assessee in this appeal has taken the following grounds of appeal: “1. That, on the facts and circumstances of the case, the Learned National Faceless Appeal Centre, Delhi erred in passing ex-parte order dated 1st December, 2022 under section 250 of the Income Tax Act, 1961 in the case of Appellant Assessee Company for the Assessment Year 2014-15 in violations of the Principles of Natural Justice.
2. That, on the facts and circumstances of the case, the Learned National Faceless Appeal Centre, Delhi erred in confirming the arbitrary Assessment year: 2014-15 R. C. Suppliers Pvt. Ltd disallowance of genuine loss of Rs.71,38,200 made by the Assessing Officer in respect of the transactions made in M/s. First Financial Services Limited on the alleged ground said transactions of sale of Such shares were manufactured, managed, fabricated and that the said transactions were sham transactions entered for evading taxes.
3. That the Learned National Faceless Appeal Centre, Delhi erred in confirming the arbitrary disallowance of genuine loss of Rs.71.38.200 made by the Assessing Officer in respect of the transactions made in M/s. First Financial Services Limited arbitrarily disregarding the documentary evidences, which form part of the Assessment Records.
4. That the Learned National Faceless Appeal Centre, Delhi erred in confirming the arbitrary disallowance of genuine loss of Rs.71,38,200 made by the Assessing Officer in respect of the transactions made in M/s. First Financial Services Limited on the alleged ground that the said transactions were the result of accommodation entries relying on the unreliable report of the Kolkata Investigation wing without allowing an opportunity of rebuttal, cross-examination to the Assessee Company.
5. That the Learned National Faceless Appeal Centre, Delhi erred in arbitrarily contending that the documentary evidences submitted by the Assessee Company is smoke screen and then contending that the Assessee Company had failed to discharge its burden of proof and the Assessing had been able to prove that the claim of Assessee was incorrect even though the Assessing Officer failed to bring on record any documentary evidence and/or material to support his allegations.
6. That the Learned National Faceless Appeal Centre, Delhi erred in confirming the arbitrary disallowance of genuine loss of Rs.71,38,200 made by the Assessing Officer in respect of the transactions made in M/s. First Financial Services Limited the basis of his arbitrary findings and observations which were based on mere surmises, suspicions, conjectures and irrelevant considerations.
7. That the Learned National Faceless Appeal Centre, Delhi erred in confirming the arbitrary disallowance of genuine loss of Rs.71,38,200 made by the Assessing Officer in respect of the transactions made in M/s. First Financial Services Limited by relying on judgments which are distinguishable on facts as well as on law.
8. That the impugned order dated 1st December, 2022 passed by learned National Faceless Appeal Centre, Delhi under section 250 of the Income Tax Act, 1961 is against law and facts of the instant case.” Assessment year: 2014-15 R. C. Suppliers Pvt. Ltd
3. The sole issue raised in this appeal is relating to the denial of the claim of long-term capital loss/short-term capital loss of Rs.71,38,200/- claimed by the assessee in relation to the transaction in shares.
4. The Assessing Officer denied the said loss observing that the said transaction in shares was bogus and it was relating to the shares of M/s First Financial Services Ltd. which was a penny stock company. The Assessing Officer in this respect took notice of the report of the Investigation Wing, Kolkata, wherein, the modus operandi adopted by the entry providers in the case of penny stock companies has been discussed and it has been found mentioned that M/s First Financial Services Ltd. was one of the penny stock companies, whose shares were traded for booking bogus long-term capital gains or short-term capital loss. Since, the assessee had also traded in the said company, therefore, the Assessing Officer held that the loss booked by the assessee was not genuine. He accordingly made the addition of the long-term capital loss claimed by the assessee into the income of the assessee.
5. In appeal, the assessee claimed that the loss claimed by the assessee on sale of shares of M/s First Financial Services Ltd. was not bogus, rather, the assessee was a bona fide purchasers of shares. That the assessee was not involved in any type of price rigging or otherwise the assessee had no knowledge about the price rigging of the shares of the said company. However, the ld. CIT(A) did not agree with the contentions of the assessee and observed that the onus was on the assessee to prove that the transaction leading to claim of loss was genuine transaction and was not bogus. That once there was an investigation report which proved that trading in shares of penny stock companies including the shares of M/s First Financial Services Ltd. leading to loss was not genuine, the onus was on the assessee to prove I.T.A No.64/Kol/2023 Assessment year: 2014-15 R. C. Suppliers Pvt. Ltd that it has booked genuine loss u/s 101 of the Indian Evidence Act, 1972 as it was the assessee who was asserting a claim that it was engaged in genuine share transaction. He, therefore, held that since the assessee had failed to discharge its burden of prove and the Assessing Officer, therefore, was justified on relying upon the report of the investigation wing, wherein, it was found that the share price of M/s First Financial Services Ltd. were rigged to book bogus long-term capital gain/short term capital loss.
We have heard the rival contentions and gone through the record. At the outset, the ld. counsel for the assessee has submitted that in this case, the assessee was bona fide purchasers of shares and the loss incurred by the assessee was genuine. That though the share price of M/s First Financial Services Ltd. might have been rigged by some persons but the assessee was not aware of that and the assessee was not involved in share price rigging. The ld. counsel, in this respect, has further submitted that even the role of the assessee has been duly investigated by the SEBI and that vide order dated 02.04.2018, the SEBI has not found the assessee to be involved in price rigging of shares of M/s First Financial Services Ltd. The ld. counsel in this respect has brought our attention to para 85 of the order of the SEBI dated 02.04.2018 in the matter of matter of M/s First Financial Services Ltd., wherein, the role of the assessee and other persons has been discussed. The name of the assessee “R.C Suppliers Ltd.” has been mentioned at serial no.69 in the list of noticees and the relevant discussion has been made in this respect in para 85 of the order, wherein, the SEBI in para 86 of the order has discussed about the contentions raised by the assessee along with other noticees and the SEBI after considering the above submissions has not found the assessee and some other parties to Assessment year: 2014-15 R. C. Suppliers Pvt. Ltd be involved in depressing price of the scrip of M/s First Financial Services Ltd. The relevant paras 86 & 87 of the order of the SEBI in the matter relating to the price rigging of M/s First Financial Services Ltd. are reproduced as under:
“86. In this regard, it is observed that during Patch 4, the price of the scrip opened at Rs.17.60, reached a low of Rs.7. 10 and closed at Rs.7.95 i.e, a decrease of Rs 9.65 (54.83%) in the price of the scrip. The noticees have submitted that their contribution to negative LTP is very miniscule and they had no intention to depress the price of the as most of their trades were above LTP or had no impact on LTP. Bazigar Trading Pvt. Ltd., BSR Finance & Construction Pvt. Ltd., Cellour Marketing Pvt. Ltd., Life Line Marketing Pvt. Ltd., RC Suppliers Pvt. Ltd. and Raina Vyapaar Pvt. Ltd. have submitted that they are not connected with FFSL or any other entity connected to FFSL.
It is observed that except for Padma Impex, Amit H Patel-HUF, Pride Distellary Pt. Ltd., Comfort Securities Ltd. and Kripa Securities Ltd., the negative LTP impact of the trades of other Noticees to total market LTP in patch 4 is ranging from O.01% to 0.20%. Further, as already observed, the connection of Amit H Patel-HUF, Pride Distellary Pvt. Ltd. and Kripa Securities Ltd. with FFSL is not made out. It is also noted that there is no allegation in the SCN that the trades were synchronised or that there were similar motives. Therefore, I do not find them to be involved in depressing the price of the scrip.”
Though the aforesaid investigation and action taken by the SEBI was restricted to those entities that were connected to the company and involved in price manipulation, however, since the role of the assessee has been duly investigated by the SEBI and it was found that the assessee was not involved in price rigging and no action was taken by the SEBI against the assessee, ‘R.C. Suppliers’, therefore, under the circumstances, in our view, the assessee has discharged its initial burden that it was not involved in price rigging of M/s First Financial Services Ltd.. Since the role of the assessee in particular has been examined by the SEBI, therefore, general observations of the investigation wing cannot be mutatis mutandis applied to the assessee. The Coordinate Mumbai Bench of the Tribunal in somewhat similar Assessment year: 2014-15 R. C. Suppliers Pvt. Ltd circumstances in the case of another assessee in respect of the scrip of M/s First Financial Services Ltd. itself, in the case of Sunita Chaudhry vs. ITO in ITA No.143/Mum/2022 vide order dated 13.10.2022 has observed as under:
“11. We find that SEBI vide interim order dated 19/12/2014 and 11/08/2015, inter-alia, restrained 154 entities, including the assessee, from accessing the securities market and buying, selling or dealing in securities, either directly or indirectly, in any manner, till further directions, pending investigation in the script of in case of First Financial Services Ltd. The directions issued vide aforesaid interim orders were, inter-alia, confirmed vide subsequent orders passed by SEBI. Subsequent to the interim orders, SEBI carried out an investigation to look into the role of debar entities in price manipulation in scrips of First Financial Services Ltd. Vide interim order dated 06/09/2017, the earlier interim orders were modified by SEBI and 91 entities including the assessee against whom directions were issued vide aforesaid interim orders were found to be not in violation of provisions of SEBI Act, 1992 and SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities) Market Regulations, 2003. Accordingly, SEBI vide aforesaid interim order dated 06/09/2017, revoked the directions issued vide earlier interim orders in exercise of powers conferred under section 19 of SEBI Act, 1992 read with section 11, 11(4) and 11B thereof, with immediate effect. The interim order dated 06/09/2017 also forms part of the paper book at page 295 – 302.
We find that despite the aforesaid interim order dated 06/09/2017 passed by SEBI being specifically mentioned by the assessee in her objections before the AO as well as in her submission before the learned CIT(A), the impugned addition was sustained. Since, the very transaction of the assessee in the scrips of First Financial Services Ltd, which resulted in long term capital gains to the assessee, has been found to be not violative of provisions of relevant Act and Rules by the SEBI upon necessary investigation and even the initial restraint order was revoked vide interim order dated 06/09/2017, therefore, we find no basis in sustaining the impugned addition made by the AO by treating the said transaction to be a penny stock transaction resulting in bogus long term capital gains. Accordingly, we direct the AO to delete the impugned addition of Rs. 84,45,050. Further, since the other addition of Rs. 22,712 by AO is also consequent to the aforesaid impugned addition, therefore, the said addition is also directed to be deleted.”
The facts and issues in the present appeal are also identical and in view of the observations made above by the Coordinate Bench of the Tribunal and also in view of our observations given in earlier paras of