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Facts
The assessee, an NBFC regularly trading in shares, incurred a loss of Rs. 9,46,26,805/- from trading in the shares of Looks Health Services Ltd. The Assessing Officer (AO) disallowed this loss, treating it as a bogus and artificially engineered transaction to evade taxes. The AO relied on an investigation report alleging price manipulation in the scrip.
Held
The Tribunal held that the Assessing Officer's disallowance was based on conjecture and suspicion rather than cogent evidence. The assessee had provided complete documentary evidence for the transactions, which were conducted through recognized stock exchanges and banking channels. The onus was on the Revenue to prove the transactions were colourable or collusive, which it failed to do.
Key Issues
Whether the loss claimed by the assessee on trading of shares was a genuine business loss or a bogus transaction to evade tax, based on allegations of price manipulation.
Sections Cited
143(3), 147, 148, 10(38)
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Income Tax Appellate Tribunal, MUMBAI BENCH “F” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI RAJ KUMAR CHAUHAN
ORDER PER OM PRAKASH KANT, AM
This appeal by the Revenue is directed against order dated 29/11/2024 passed by the learned Commissioner of Income- tax(Appeals)-50, Mumbai [in short the learned ‘CIT(A)’] for assessment year 2014-15, raising following grounds:
1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (Appeal) erred in not adjudicating on the core issue of character of the scrip of "Looks Health Services Ltd."?
2. Whether on the facts and in the circumstances of the case and 2. Whether on the facts and in the circumstances of the case and 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (Appeal) erred in deleting the disallowance in law, the Ld. CIT (Appeal) erred in deleting the disallowance in law, the Ld. CIT (Appeal) erred in deleting the disallowance made by the AO of the assessee's claim of loss incurred by trading made by the AO of the assessee's claim of loss incurred by trading made by the AO of the assessee's claim of loss incurred by trading in the scrip of M/s Look in the scrip of M/s Looks Health Services Ltd of Rs. 9,46,26,805/ s Health Services Ltd of Rs. 9,46,26,805/- overlooking the fact that the entire transactions were stage overlooking the fact that the entire transactions were stage overlooking the fact that the entire transactions were stage managed with the object to facilitate the assessee to plough back managed with the object to facilitate the assessee to plough back managed with the object to facilitate the assessee to plough back them unaccounted income in the form of fictitious long them unaccounted income in the form of fictitious long them unaccounted income in the form of fictitious long-term capital loss? 3. Whether on the facts and in the circumstances of the case and n the facts and in the circumstances of the case and n the facts and in the circumstances of the case and in law, the Ld. CIT (Appeal), erred in deleting the disallowance of in law, the Ld. CIT (Appeal), erred in deleting the disallowance of in law, the Ld. CIT (Appeal), erred in deleting the disallowance of Rs. 9,46,26,805/ Rs. 9,46,26,805/-made by the Assessing Officer, without made by the Assessing Officer, without considering the direct and circumstantial evidence on record? considering the direct and circumstantial evidence on record? considering the direct and circumstantial evidence on record? 4. Whether on the 4. Whether on the facts and in the circumstances of the case and facts and in the circumstances of the case and in law, the Ld. CIT (Appeal) erred in ignoring the material on record in law, the Ld. CIT (Appeal) erred in ignoring the material on record in law, the Ld. CIT (Appeal) erred in ignoring the material on record and the surrounding circumstances which showed that share price and the surrounding circumstances which showed that share price and the surrounding circumstances which showed that share price of M/s Looks Health Services Ltd" was rigged on Stock exchange of M/s Looks Health Services Ltd" was rigged on Stock exchange of M/s Looks Health Services Ltd" was rigged on Stock exchange and the ass and the assessee was one among several beneficiaries who essee was one among several beneficiaries who indulged in dubious transaction thereby enabling them to declare indulged in dubious transaction thereby enabling them to declare indulged in dubious transaction thereby enabling them to declare undisclosed undisclosed undisclosed income income income in in in the the the grab grab grab of of of LTCG LTCG LTCG exempt exempt exempt u/s u/s u/s 10(38) of the Act? Act? 2. Briefly stated facts of the case are that stated facts of the case are that the assessee the assessee is a Non Banking Financial Corporation (NBFC) Banking Financial Corporation (NBFC) , engaged in trading of engaged in trading of shares including Future and options ( s including Future and options (F & O) market. The assessee F & O) market. The assessee filed its regular return of income for the year under consideration filed its regular return of income for the year under consideration filed its regular return of income for the year under consideration on 26/09/2014 declaring total income at ₹60,28,250/ on 26/09/2014 declaring total income at 250/-. The return of income was selected for scrutiny assessment, which was of income was selected for scrutiny assessment, which was of income was selected for scrutiny assessment, which was completed under section 143(3 completed under section 143(3) of the Income-tax Act, 1961 ( tax Act, 1961 (in short the ‘Act’) on 23/03/2016 determining total income at ) on 23/03/2016 determining total income at ) on 23/03/2016 determining total income at ₹77,04,594/-.
2.1 Subsequently, the Assessing Officer received Subsequently, the Assessing Officer received information information from the investigation wing of Income the investigation wing of Income-tax department, Mumbai tax department, Mumbai that the assessee traded in shares of shares of company m/s Looks Health m/s Looks Health Services Limited (in short ‘looks health’) Limited (in short ‘looks health’) through Stock Exchange, through Stock Exchange, the prices of which were manipulated by of which were manipulated by a group of operators, resulting into a “long-term capital loss term capital loss” of Rs.9,46,26,804/-. In View of the . In View of the information, the Assessing Officer recorded reasons to believe that the Assessing Officer recorded reasons to believe that the Assessing Officer recorded reasons to believe that income escaped assessment and issued notice under section 148 of income escaped assessment and issued notice under section 148 of income escaped assessment and issued notice under section 148 of the Act on 31/03/2021. In ct on 31/03/2021. In response to the notice, the assessee filed , the assessee filed return of income return of income on 30/04/2021. Thereafter, fol . Thereafter, following due procedure under the A procedure under the Act, the Assessing Officer commenced ct, the Assessing Officer commenced reassessment proceedings. reassessment proceedings. During the course of reassessment During the course of reassessment proceedings, proceedings, the the Assessing Assessing Officer Officer made mad e reference reference to to the the investigation report of the Income investigation report of the Income-tax Department, Mumbai, which, tax Department, Mumbai, which, inter alia, highlighted the weak financial position of M/s Looks , highlighted the weak financial position of M/s Looks , highlighted the weak financial position of M/s Looks Health, the trading pattern of its shares on the stock exchange, a Health, the trading pattern of its shares on the stock exchange, a Health, the trading pattern of its shares on the stock exchange, a comparative analysis of such trading pa comparative analysis of such trading pattern with another scrip, ttern with another scrip, and the creditworthiness of the counterparties who had purchased and the creditworthiness of the counterparties who had purchased and the creditworthiness of the counterparties who had purchased the said shares. These findings collectively formed the foundation of the said shares. These findings collectively formed the foundation of the said shares. These findings collectively formed the foundation of the reasons recorded by the Assessing Officer for initiating the reasons recorded by the Assessing Officer for initiating the reasons recorded by the Assessing Officer for initiating reassessment proceedings. reassessment proceedings. The investigation wing had had carried out a detailed analysis of the of the scrip for the period from 07.11.2012 to period from 07.11.2012 to 10.10.2019 (which has been termed by the AO as ‘examination 10.10.2019 (which has been termed by the AO as 10.10.2019 (which has been termed by the AO as period’). During reassessment proceedings, the assessee however ). During reassessment proceedings, the assessee however ). During reassessment proceedings, the assessee however objected to report of such analysi such analysis and submitted that assessee had s and submitted that assessee had carried out transaction of purchase and sales in said scrip in carried out transaction of purchase and sales in said scrip in carried out transaction of purchase and sales in said scrip in regular course of the business. The assessee also filed necessary regular course of the business. The assessee also filed necessary regular course of the business. The assessee also filed necessary document in support of purchase and sales including broker’s note, document in support of purchase and sales including broker’s note, document in support of purchase and sales including broker’s note, bank statement, demat acco bank statement, demat account etc. But the Assessing unt etc. But the Assessing Officer however was not convinced and he supported his finding with however was not convinced and he supported his finding with however was not convinced and he supported his finding with detailed analysis on the issues which were basis of the reasons detailed analysis on the issues which were basis of the reasons detailed analysis on the issues which were basis of the reasons recorded. The Assessing Officer accordingly in his order dated recorded. The Assessing Officer accordingly in his order dated recorded. The Assessing Officer accordingly in his order dated 24.03.2022 passed u/s 147 of the A 24.03.2022 passed u/s 147 of the Act held the loss ct held the loss on share trading as bogus and shame transaction and disallowed the claim as bogus and shame transaction and disallowed the claim as bogus and shame transaction and disallowed the claim of the loss of the assessee amounting to Rs.9,46, of the loss of the assessee amounting to Rs.9,46,26,805/ 26,805/-.
2.2 On further appeal, the assessee challenged the reassessment On further appeal, the assessee challenged the reassessment On further appeal, the assessee challenged the reassessment proceedings as well as the disallowance of the loss by the AO on proceedings as well as the disallowance of the loss by the AO on proceedings as well as the disallowance of the loss by the AO on merit. The Ld. CIT(A) though dismissed the ground challenging the merit. The Ld. CIT(A) though dismissed the ground challenging the merit. The Ld. CIT(A) though dismissed the ground challenging the validity of the reassessment by the assessee but deleted the validity of the reassessment by the assessee but deleted the validity of the reassessment by the assessee but deleted the disallowance of loss on merit. Aggrieved, the Revenue is in appeal the Revenue is in appeal before the Income-tax Appellate Tribunal (in short ‘the ITAT’) raising tax Appellate Tribunal (in short ‘the ITAT’) raising tax Appellate Tribunal (in short ‘the ITAT’) raising the grounds only on the disallowance on merit. on the disallowance on merit.
All the grounds of appeal mainly concern with the issue in All the grounds of appeal mainly concern with the issue in All the grounds of appeal mainly concern with the issue in dispute of deletion of disallowance of loss by the ld CIT(A), therefore, eletion of disallowance of loss by the ld CIT(A), therefore, eletion of disallowance of loss by the ld CIT(A), therefore, all the grounds are dealt together. all the grounds are dealt together.
3.1 Briefly stated, facts qua the issue in dispute are that the Briefly stated, facts qua the issue in dispute are that the Briefly stated, facts qua the issue in dispute are that the assessee had purchased shares of M/s Looks Health for a value of assessee had purchased shares of M/s Looks Health for a value of assessee had purchased shares of M/s Looks Health for a value of Rs.12,44,69,995/- during the period period from from 11.10.2013 11.10.2013 to to 29.10.2013, having details as under: having details as under: Date Particulars Qty Rate Value Value 21-10-2013 Looks Health Services ltd 105600 402.13 4,24,64,501.17 Looks Health Services ltd 4,24,64,501.17 . ,
^ 22-10-2013 408.20 3,3635,272.36 82400 3,3635,272.36 Looks Health Services Ltd. Looks Health Servi , : 23-10-2013 66400 410,78 2,72,76,064.51 2,72,76 Looks Health Services Ltd Looks Health Services Ltd 24-10-2013 Looks Health Services Ltd 31200 411.85 1,28,4935743 Looks Health Services Ltd 1,28,4935743 29-10-2013 Looks Health Services Ltd 20000 41-2.16 82,43,299,89 Looks Health Services Ltd 82,43,299,89 Total 12.44,69,995.36 12.44,69,995.36 3.2 Subsequently, the Subsequently, the assessee disposed of the said shares on assessee disposed of the said shares on 25th and 26th March, 2014, for an aggregate sale consideration of 25th and 26th March, 2014, for an aggregate sale consideration of 25th and 26th March, 2014, for an aggregate sale consideration of Rs.2,98,42,189/-, thereby incurring a loss of Rs.9,46,26,805/ , thereby incurring a loss of Rs.9,46,26,805/ , thereby incurring a loss of Rs.9,46,26,805/-. The assessee claimed the said loss as a ‘business loss’, contending that assessee claimed the said loss as a ‘business loss’, contending that assessee claimed the said loss as a ‘business loss’, contending that it is a Non-Banking Financial Company (NBFC) regularly engaged in anking Financial Company (NBFC) regularly engaged in anking Financial Company (NBFC) regularly engaged in the business of trading in shares and derivatives, and that the the business of trading in shares and derivatives, and that the the business of trading in shares and derivatives, and that the impugned transactions were undertaken in the ordinary course of impugned transactions were undertaken in the ordinary course of impugned transactions were undertaken in the ordinary course of its business during the year under consideration. The Assessing its business during the year under consideration. its business during the year under consideration. Officer, however, wever, wever, placed placed placed reliance reliance reliance upon upon upon the report the report the report of of of the the the Investigation Wing of the Income Investigation Wing of the Income-tax Department, Mumbai, tax Department, Mumbai, wherein, upon a detailed analysis of the dealings in the scrip of wherein, upon a detailed analysis of the dealings in the scrip of wherein, upon a detailed analysis of the dealings in the scrip of Looks Health Services Ltd. Looks Health Services Ltd., it was revealed that there existed , it was revealed that there existed significant volatility i significant volatility in its price on the Bombay Stock Exchange n its price on the Bombay Stock Exchange (BSE) during the period from 07.11.2012 to 10.10.2019 (hereinafter (BSE) during the period from 07.11.2012 to 10.10.2019 (hereinafter (BSE) during the period from 07.11.2012 to 10.10.2019 (hereinafter referred to by the Assessing Officer as the “examination period”). referred to by the Assessing Officer as the “examination period”). referred to by the Assessing Officer as the “examination period”).
3.3 The Learned Departmental Representative (Ld. DR) drew The Learned Departmental Representative (Ld. DR) drew The Learned Departmental Representative (Ld. DR) drew attention to the weak financial position of attention to the weak financial position of Looks Health Services Looks Health Services Ltd., as noted by the Assessing Officer both in the reasons recorded , as noted by the Assessing Officer both in the reasons recorded , as noted by the Assessing Officer both in the reasons recorded for reopening as well as in the reassessment order. He submitted for reopening as well as in the reassessment order. He submitted for reopening as well as in the reassessment order. He submitted that although the company’s sales turnover had remained broadly at although the company’s sales turnover had remained broadly at although the company’s sales turnover had remained broadly consistent, the fluctuations in its share price were wholly consistent, the fluctuations in its share price were wholly consistent, the fluctuations in its share price were wholly disproportionate to such operational performance. The Ld. DR disproportionate to such operational performance. The Ld. DR disproportionate to such operational performance. The Ld. DR further pointed out the Assessing Officer’s observation that the further pointed out the Assessing Officer’s observation that the further pointed out the Assessing Officer’s observation that the shareholding pattern of the company revealed a comparatively low ding pattern of the company revealed a comparatively low ding pattern of the company revealed a comparatively low promoter holding of 22.17% and an unusually high public promoter holding of 22.17% and an unusually high public promoter holding of 22.17% and an unusually high public shareholding of 78.83%. He also referred to the Assessing Officer’s shareholding of 78.83%. He also referred to the Assessing Officer’s shareholding of 78.83%. He also referred to the Assessing Officer’s finding that the company’s return on capital employed was erratic finding that the company’s return on capital employed was erratic finding that the company’s return on capital employed was erratic across the financial years 2012, 2015, and 2017, and that the e financial years 2012, 2015, and 2017, and that the e financial years 2012, 2015, and 2017, and that the company had failed to generate any meaningful return on the company had failed to generate any meaningful return on the company had failed to generate any meaningful return on the capital invested. The Ld. DR additionally emphasized the Assessing capital invested. The Ld. DR additionally emphasized the Assessing capital invested. The Ld. DR additionally emphasized the Assessing Officer’s observation that, despite a year Officer’s observation that, despite a year-on-year decline in year decline in operating margins, the company’s share price exhibited sharp and ins, the company’s share price exhibited sharp and ins, the company’s share price exhibited sharp and unexplained fluctuations without any corresponding financial unexplained fluctuations without any corresponding financial unexplained fluctuations without any corresponding financial justification.
3.4 The Learned Departmental Representative (Ld. DR) further The Learned Departmental Representative (Ld. DR) further The Learned Departmental Representative (Ld. DR) further invited attention to the trading pattern of the scrip of Looks Health invited attention to the trading pattern of the scrip of invited attention to the trading pattern of the scrip of Services Ltd. on the Bombay Stock Exchange (BSE). He pointed out on the Bombay Stock Exchange (BSE). He pointed out on the Bombay Stock Exchange (BSE). He pointed out that the trading data for the period from 09.04.2013 to 04.04.2020 that the trading data for the period from 09.04.2013 to 04.04.2020 that the trading data for the period from 09.04.2013 to 04.04.2020 revealed a sharp escalation in prices during the period from revealed a sharp escalation in prices during the period from revealed a sharp escalation in prices during the period from 09.04.2013 to 22.04.2014, followed by a subsequent and sustained 09.04.2013 to 22.04.2014, followed by a subsequent and sustai 09.04.2013 to 22.04.2014, followed by a subsequent and sustai decline thereafter. The Ld. DR referred to the Assessing Officer’s decline thereafter. The Ld. DR referred to the Assessing Officer’s decline thereafter. The Ld. DR referred to the Assessing Officer’s observation that the trading volume in the scrip generally remained observation that the trading volume in the scrip generally remained observation that the trading volume in the scrip generally remained low, with sporadic spikes in activity on a few specific dates. He low, with sporadic spikes in activity on a few specific dates. He low, with sporadic spikes in activity on a few specific dates. He highlighted the conclusion of the Assessing Officer that the scrip highlighted the conclusion of the Assessing Officer highlighted the conclusion of the Assessing Officer was not traded on a regular and consistent basis, but rather was not traded on a regular and consistent basis, but rather was not traded on a regular and consistent basis, but rather exhibited intermittent periods of unusual trading upsurge. The Ld. exhibited intermittent periods of unusual trading upsurge. The Ld. exhibited intermittent periods of unusual trading upsurge. The Ld. DR further referred to the detailed analysis undertaken by the DR further referred to the detailed analysis undertaken by the DR further referred to the detailed analysis undertaken by the Assessing Officer on the basis of data collated from both the Assessing Officer on the basis of data collated f Assessing Officer on the basis of data collated f National Stock Exchange (NSE) and the Bombay Stock Exchange National Stock Exchange (NSE) and the Bombay Stock Exchange National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), wherein it was observed that large (BSE), wherein it was observed that large-scale manipulation was scale manipulation was apparent in the trading of the said scrip. The Assessing Officer, apparent in the trading of the said scrip. The Assessing Officer, apparent in the trading of the said scrip. The Assessing Officer, having examined various parameters of trading behaviour, drew a having examined various parameters of trading behavi having examined various parameters of trading behavi comparative analysis between the scrip of comparative analysis between the scrip of Looks Health Services Looks Health Services Ltd. and that of NHPC Ltd. NHPC Ltd. The Ld. DR referred to the observations The Ld. DR referred to the observations of the Assessing Officer and the accompanying charts depicting the of the Assessing Officer and the accompanying charts depicting the of the Assessing Officer and the accompanying charts depicting the price and volume movement, which demonstrated that the sharp price and volume movement, which demonstrated price and volume movement, which demonstrated rise and fall in the price of rise and fall in the price of Looks Health Services Ltd. Looks Health Services Ltd. bore no correlation correlation correlation with with with the the the company’s company’s company’s fundamentals, fundamentals, fundamentals, especially especially especially considering that it had incurred losses during the financial year considering that it had incurred losses during the financial year considering that it had incurred losses during the financial year 2012. The Assessing Officer further noted, upon comparison, that 2012. The Assessing Officer further noted, upon compar 2012. The Assessing Officer further noted, upon compar the scrip of NHPC Ltd. NHPC Ltd. exhibited no such volatility, thereby exhibited no such volatility, thereby strengthening the inference of artificial manipulation in the trading strengthening the inference of artificial manipulation in the trading strengthening the inference of artificial manipulation in the trading of Looks Health Services Ltd. Looks Health Services Ltd. The relevant observation of the The relevant observation of the Assessing Officer is reproduced as under: Assessing Officer is reproduced as under:
“11.1 Result lt Under this aspect of trading, following different perspectives of Under this aspect of trading, following different perspectives of Under this aspect of trading, following different perspectives of price movement has been checked. price movement has been checked.
Sr# Perspective Result
1 movement wasnot on any underlying Price movement wasnot on any underlying High Price Volatility due to change in High Price Volatility due to change in basis. company’s financial results or some company’s financial results or some major announcements made by the major announcements made by the RESULT: Failed company 2. Movement of Price in tandem with No Relevance with SENSEX. Different Movement of Price in tandem with No Relevance with SENSEX. Different SENSEX (Look Health) Correlation in different period. Sometimes SENSEX (Look Health) Correlation in different period. Sometimes opposite also. While NHPC moved in opposite also. While NHPC moved in tandem with SENSEX. RESULT: Failed
Hence it can be concluded that scrip price movement neither based Hence it can be concluded that scrip price movement neither based Hence it can be concluded that scrip price movement neither based on technical nor fundamental. on technical nor fundamental.” 3.5 The Learned Departmental Representative (Ld. DR) further The Learned Departmental Representative (Ld. DR) further The Learned Departmental Representative (Ld. DR) further drew attention to the analytical findings of the Assessing Officer, drew attention to the analytical findings of the Assessing Officer, drew attention to the analytical findings of the Assessing Officer, who observed that, under normal market conditions, trade volume who observed that, under normal market conditions, trade volume who observed that, under normal market conditions, trade volume and trade count generally move in tandem and trade count generally move in tandem—an increase in market an increase in market participation in a particular scrip would ordinarily result in a icipation in a particular scrip would ordinarily result in a icipation in a particular scrip would ordinarily result in a proportionate rise in both trade volume and trade count, and proportionate rise in both trade volume and trade count, and proportionate rise in both trade volume and trade count, and conversely, a decline in one would be reflected in the other. conversely, a decline in one would be reflected in the other. conversely, a decline in one would be reflected in the other. However, upon analysis of the trading pattern in the scrip of Looks However, upon analysis of the trading pattern in the scrip of However, upon analysis of the trading pattern in the scrip of Health Services Ltd. th Services Ltd., it was found that trade volume and trade , it was found that trade volume and trade count exhibited an inverse relationship, moving in opposite count exhibited an inverse relationship, moving in opposite count exhibited an inverse relationship, moving in opposite directions. The Assessing Officer, upon undertaking a comparative directions. The Assessing Officer, upon undertaking a comparative directions. The Assessing Officer, upon undertaking a comparative , noted that no such examination with the scrip of examination with the scrip of NHPC Ltd., noted that no such irregularity or anomaly was present therein. In furtherance of this y or anomaly was present therein. In furtherance of this y or anomaly was present therein. In furtherance of this analysis, the Assessing Officer also computed the Pearson analysis, the Assessing Officer also computed the analysis, the Assessing Officer also computed the Correlation Coefficient Correlation Coefficient between trade count and trade volume for between trade count and trade volume for both Looks Health Services Ltd. Looks Health Services Ltd. and NHPC Ltd., which corroborated , which corroborated the presence of aberrant trading behaviour in the former. ce of aberrant trading behaviour in the former. The said ce of aberrant trading behaviour in the former. comparison by the AO is reproduced as under: comparison by the AO is reproduced as under:
Scrip Pearson Correlation Indication Indication Coefficient NHPC 0.86 Highly Correlated as value is near Highly Correlated as value is near 1/-1 Look Health 0.55 No correlation as value is too far from No correlation as value is too far 1/- 1 3.6 The Ld. DR further referred to the trade volume of each day The Ld. DR further referred to the trade volume of each day The Ld. DR further referred to the trade volume of each day and concluded that there was no new market participation but only and concluded that there was no new market participation but o and concluded that there was no new market participation but o close group of persons participated close group of persons participated in trading of the of the scrip tuned to their own financial interest. The Ld. DR also referred to the analysis their own financial interest. The Ld. DR also referred to the analysis their own financial interest. The Ld. DR also referred to the analysis of the time difference between passive me difference between passive order and trade. The relevant order and trade. The relevant analysis by the AO is reproduced as under: analysis by the AO is reproduced as under:
Parameter Time Diff. between Value % of Total Passive Order Time & Trade Time Trade Count 0 Sec. to 10 Sec. 8,593 78.94% 0 to 60 Sec. 449 4.12% Trade Volume 0 Sec. to 10 Sec. 24431492 85.77% 1,294,918 4.55% 0 to 60 Sec.
3.7 The Learned Departmental Representative (Ld. DR) further The Learned Departmental Representative (Ld. DR) further The Learned Departmental Representative (Ld. DR) further invited attention to the observations of the Assessing Officer, who invited attention to the observations of the Assessing Officer, who invited attention to the observations of the Assessing Officer, who noted that certain Permanent Account Numbers (PANs) were found noted that certain Permanent Account Numbers (PANs) were found noted that certain Permanent Account Numbers (PANs) were found to have contributed between 40% and 50% to the closing price to have contributed between 40% and 50% to the closing price to have contributed between 40% and 50% to the closing price determination of the scrip during the examination period. The nation of the scrip during the examination period. The nation of the scrip during the examination period. The Assessing Officer, in this regard, reproduced in the assessment Assessing Officer, in this regard, reproduced in the assessment Assessing Officer, in this regard, reproduced in the assessment order the names of specific clients involved in such transactions. order the names of specific clients involved in such transactions. order the names of specific clients involved in such transactions. The Ld. DR also referred to the Assessing Officer’s observations The Ld. DR also referred to the Assessing Officer’s observations The Ld. DR also referred to the Assessing Officer’s observations pertaining to the assessee’s own trading activity, drawing attention ining to the assessee’s own trading activity, drawing attention ining to the assessee’s own trading activity, drawing attention to the tabulated details of purchases and sales executed by the to the tabulated details of purchases and sales executed by the to the tabulated details of purchases and sales executed by the assessee between 21.10.2013 and 26.03.2016. On the basis of this assessee between 21.10.2013 and 26.03.2016. On the basis of this assessee between 21.10.2013 and 26.03.2016. On the basis of this trade data and the surrounding circumstances, the Assessing trade data and the surrounding circumstances, the Assessing trade data and the surrounding circumstances, the Assessing Officer formed the view that the loss claimed by the assessee was icer formed the view that the loss claimed by the assessee was icer formed the view that the loss claimed by the assessee was not genuine but artificially engineered. not genuine but artificially engineered. The relevant finding of the relevant finding of the Assessing Officer is reproduced as under: Assessing Officer is reproduced as under:
“15.2.7. Almost all the instances in the table above where the 15.2.7. Almost all the instances in the table above where the 15.2.7. Almost all the instances in the table above where the purchase is made in purchase is made in 5 days and in a very short time (few days) 5 days and in a very short time (few days) it is squared off (sold). There is no instance of the square off on it is squared off (sold). There is no instance of the square off on it is squared off (sold). There is no instance of the square off on the same day. This is a deliberate trade pattern to generate the same day. This is a deliberate trade pattern to generate the same day. This is a deliberate trade pattern to generate short term loss in place speculative short term loss in place speculative loss.” 3.8 The Ld. DR further referred to the The Ld. DR further referred to the observation of the Assessing observation of the Assessing Officer wherein he has relied Officer wherein he has relied upon the investigation carried out by on the investigation carried out by the Kolkata Investigation Wing the Kolkata Investigation Wing of Income-tax Department tax Department. The relevant finding is reproduced as under: relevant finding is reproduced as under:
“15.6 The Directorate of Investigation, Kolkata & Mumbai 15.6 The Directorate of Investigation, Kolkata & Mumbai 15.6 The Directorate of Investigation, Kolkata & Mumbai investigated transactions in penny stock shares quoted on BSE investigated transactions in penny stock shares quoted on BSE investigated transactions in penny stock shares quoted on BSE and examined on oath a large number of brokers, directors of and examined on oath a large number of brokers, directors of and examined on oath a large number of brokers, directors of companies that finally purchased the shares, the promoters of companies that finally purchased the shares, the promoters of companies that finally purchased the shares, the promoters of Penny stock companies, the entry operators who managed the Penny stock companies, the entry operators who managed the Penny stock companies, the entry operators who managed the dummy compan dummy companies involved in price rigging. The money trail of ies involved in price rigging. The money trail of the transactions was also examined and, in a large number of the transactions was also examined and, in a large number of the transactions was also examined and, in a large number of transactions trail right from cash deposit account to the transactions trail right from cash deposit account to the transactions trail right from cash deposit account to the beneficiaries' account was unearthed. The result of the beneficiaries' account was unearthed. The result of the beneficiaries' account was unearthed. The result of the investigation in brief is as 'u investigation in brief is as 'under: (i) Many individuals throughout the country identified who have (i) Many individuals throughout the country identified who have (i) Many individuals throughout the country identified who have taken such bogus entries of LTCG/STCL/Loss amounting to taken such bogus entries of LTCG/STCL/Loss amounting to taken such bogus entries of LTCG/STCL/Loss amounting to crores of rupees from 2010 to 2015. crores of rupees from 2010 to 2015. (ii) The result of the enquiry was also shared with SEBI and the (ii) The result of the enquiry was also shared with SEBI and the (ii) The result of the enquiry was also shared with SEBI and the SEBI after investigating SEBI after investigating 11 cases have found the allegation to cases have found the allegation to be correct. The balance cases are still being be correct. The balance cases are still being investigated by investigated by SEBI. (iii) The TOP groups under each investigation directorate of the (iii) The TOP groups under each investigation directorate of the (iii) The TOP groups under each investigation directorate of the country were confronted in course of further investigation. country were confronted in course of further investigation. country were confronted in course of further investigation. Almost all of them barring a Almost all of them barring a few have accepted having taken few have accepted having taken the entries for the entries for a commission.” 3.9 The Ld. DR squarely relied on the finding of the Assessing The Ld. DR squarely relied on the finding of the Assessing The Ld. DR squarely relied on the finding of the Assessing Officer and urged that order of the Ld. CIT(A) should be set aside. that order of the Ld. CIT(A) should be set aside. that order of the Ld. CIT(A) should be set aside.
On the contrary, the Ld. counsel for the assessee relied On the contrary, the Ld. counsel for the assessee relied On the contrary, the Ld. counsel for the assessee relied on the order of the Ld. CIT(A) and submitted that: order of the Ld. CIT(A) and submitted that:
(i) The assessee is a NBFC and regular trader in shares and assessee is a NBFC and regular trader in shares and assessee is a NBFC and regular trader in shares and also engaged in future and options market etc. The shares of also engaged in future and options market etc. The shares of also engaged in future and options market etc. The shares of the scrip Looks Health the scrip Looks Health service ltd were purchase purchased in regular course of business acti course of business activities looking to the credential of vities looking to the credential of promoters; their long background in healthcare sector and ; their long background in healthcare sector and ; their long background in healthcare sector and prospectus of the growth of the company in future. prospectus of the growth of the company in future. prospectus of the growth of the company in future.
(ii) The assessee purchased shares in the month of October, (ii) The assessee purchased shares in the month of October, (ii) The assessee purchased shares in the month of October, 2013, but looking to downward trend in price sold i but looking to downward trend in price sold in March, but looking to downward trend in price sold i 2014 for reducing the further losses. The trade was done on 2014 for reducing the further losses. The trade was done on 2014 for reducing the further losses. The trade was done on prevalent market price. prevalent market price.
(iii) The transaction of both purchase and sales were carried (iii) The transaction of both purchase and sales were carried (iii) The transaction of both purchase and sales were carried out on stock exchange platform with the help of registered out on stock exchange platform with the help of registered out on stock exchange platform with the help of registered brokers with no physical user interface b brokers with no physical user interface between the buyer and etween the buyer and the seller.
(iv) Complete details along with documentary evidence in the (iv) Complete details along with documentary evidence in the (iv) Complete details along with documentary evidence in the form of contract notes form of contract notes-cum-invoice, broker’s ledgers, demat invoice, broker’s ledgers, demat statement, bank statement etc. were filed. statement, bank statement etc. were filed.
(v) No wrong doing was observed in the scrip trading eithe (v) No wrong doing was observed in the scrip trading eithe (v) No wrong doing was observed in the scrip trading either by the stock exchange or by the SEBI. the stock exchange or by the SEBI.
(vi) No evidence of involvement if any of the assessee or its (vi) No evidence of involvement if any of the assessee or its (vi) No evidence of involvement if any of the assessee or its broker has been identified by the Assessing Officer or the broker has been identified by the Assessing Officer or the broker has been identified by the Assessing Officer or the Investigation wing and no such evidences were provided to the wing and no such evidences were provided to the wing and no such evidences were provided to the assessee during assessment proce assessee during assessment proceedings.
(vii) No statement of any person who (vii) No statement of any person who has been claimed as been claimed as participated in trading participated in trading was recorded for verification of the recorded for verification of the hypothesis of the investigation wing. hypothesis of the investigation wing.
(viii) The price on the stock exchange completely depends in (viii) The price on the stock exchange completely depends in (viii) The price on the stock exchange completely depends in demand and supply parameters. demand and supply parameters. In the company public share In the company public share holding was of 78.83%. In such a situation, even otherwise holding was of 78.83%. In such a situation, even otherwise holding was of 78.83%. In such a situation, even otherwise price rigging was not possible. price rigging was not possible.
(ix) Merely because absence of return (ix) Merely because absence of return on financial financial, it was unfair to stamp unfair to stamp the company as ‘penny stock’ ’ more so which is also currently r is also currently regularly traded on stock exchange. egularly traded on stock exchange.
4.1 The Learned Counsel for the assessee, in response, submitted The Learned Counsel for the assessee, in response, submitted The Learned Counsel for the assessee, in response, submitted that a mere pattern or fluctuation in trade volume and trade count, that a mere pattern or fluctuation in trade volume and trade count, that a mere pattern or fluctuation in trade volume and trade count, which by itself rests on conjecture, suspicion, and surmise, cannot which by itself rests on conjecture, suspicion, and surmise, cannot which by itself rests on conjecture, suspicion, and surmise, cannot constitute a valid basis to disregard a genuine business loss in the basis to disregard a genuine business loss in the basis to disregard a genuine business loss in the absence of any cogent or corroborative evidence. He contended that absence of any cogent or corroborative evidence. He contended that absence of any cogent or corroborative evidence. He contended that the assessee cannot be held accountable for variations in trade the assessee cannot be held accountable for variations in trade the assessee cannot be held accountable for variations in trade volume or trade count, as such factors are entirely market-driven volume or trade count, as such factors are entirely market volume or trade count, as such factors are entirely market and influenced by public sentiment and investor behaviour. The enced by public sentiment and investor behaviour. The enced by public sentiment and investor behaviour. The Learned Counsel further submitted that the losses in question were Learned Counsel further submitted that the losses in question were Learned Counsel further submitted that the losses in question were incurred in the ordinary course of the assessee’s share trading incurred in the ordinary course of the assessee’s share trading incurred in the ordinary course of the assessee’s share trading business, which inherently entails a degree of risk commensurate business, which inherently entails a degree of risk commensurate business, which inherently entails a degree of risk commensurate with its potential for profit. The assessee, though operating under ts potential for profit. The assessee, though operating under ts potential for profit. The assessee, though operating under bona fide commercial expectations of gain, unfortunately sustained bona fide commercial expectations of gain, unfortunately sustained bona fide commercial expectations of gain, unfortunately sustained losses owing to an erroneous business judgment rather than any losses owing to an erroneous business judgment rather than any losses owing to an erroneous business judgment rather than any colourable or contrived transaction. colourable or contrived transaction.
4.2 Further, the Ld. counse Further, the Ld. counsel submitted that in original assessment l submitted that in original assessment completed u/s 143(3) of the Act, the Assessing Officer duly verified completed u/s 143(3) of the Act, the Assessing Officer duly verified completed u/s 143(3) of the Act, the Assessing Officer duly verified the claim of business loss of trading in shares of Looks Health the claim of business loss of trading in shares of Looks Health the claim of business loss of trading in shares of Looks Health Trade Ltd. The Ld. counsel further submitted that Assessing Officer Trade Ltd. The Ld. counsel further submitted that Assessing Officer Trade Ltd. The Ld. counsel further submitted that Assessing Officer did not bring any adverse material or independent ny adverse material or independent ny adverse material or independent finding, which suggest that loss was fictitious. suggest that loss was fictitious. The Ld. counsel for the assessee The Ld. counsel for the assessee relied on the finding of the Ld. CIT(A) that Assessing Officer merely relied on the finding of the Ld. CIT(A) that Assessing Officer merely relied on the finding of the Ld. CIT(A) that Assessing Officer merely doubted the transaction without conducting any independent doubted the transaction without conducting any independent doubted the transaction without conducting any independent inquiry or confronting the assessee with adverse finding. inquiry or confronting the assessee with adverse finding. inquiry or confronting the assessee with adverse finding.
4.3 In view of the above arguments, the Ld. counsel for the In view of the above arguments, the Ld. counsel for the In view of the above arguments, the Ld. counsel for the assessee submitted that order of the Ld. CIT(A) might be upheld. submitted that order of the Ld. CIT(A) might be upheld. submitted that order of the Ld. CIT(A) might be upheld.
We have heard the rival submissions advanced by both sides We have heard the rival submissions advanced by both sides We have heard the rival submissions advanced by both sides and carefully perused the material available on record. The issue and carefully perused the material available on record. The issue and carefully perused the material available on record. The issue under consideration pertains to the assessee’s claim of business under consideration pertains to the assessee’s claim of business under consideration pertains to the assessee’s claim of business loss amounting to Rs. 9.46 crores arising from transactions in the amounting to Rs. 9.46 crores arising from transactions in the amounting to Rs. 9.46 crores arising from transactions in the shares of Looks Health Services Ltd. Looks Health Services Ltd. during the period from October during the period from October 2013 to March 2014. While the assessee contends that the said loss 2013 to March 2014. While the assessee contends that the said loss 2013 to March 2014. While the assessee contends that the said loss was a genuine business loss incurred in the ordinary course of its was a genuine business loss incurred in the ordinary course was a genuine business loss incurred in the ordinary course trading activity, the Assessing Officer has characterized it as a trading activity, the Assessing Officer has characterized it as a trading activity, the Assessing Officer has characterized it as a bogus and premeditated loss designed to evade tax liability. Upon a bogus and premeditated loss designed to evade tax liability. bogus and premeditated loss designed to evade tax liability. comprehensive evaluation of the evidentiary record and the detailed comprehensive evaluation of the evidentiary record and the detailed comprehensive evaluation of the evidentiary record and the detailed reasoning set forth by the Learned Commission reasoning set forth by the Learned Commissioner of Income Tax er of Income Tax (Appeals) [Ld. CIT(A)], we find ourselves in full agreement with the (Appeals) [Ld. CIT(A)], we find ourselves in full agreement with the (Appeals) [Ld. CIT(A)], we find ourselves in full agreement with the findings of the Ld. CIT(A). In our considered view, the entire edifice findings of the Ld. CIT(A). In our considered view, the entire edifice findings of the Ld. CIT(A). In our considered view, the entire edifice of disallowance constructed by the Assessing Officer rests on of disallowance constructed by the Assessing Officer rests on of disallowance constructed by the Assessing Officer rests on conjecture, presumption, and remote i conjecture, presumption, and remote inference, rather than on any nference, rather than on any cogent or credible evidence demonstrably implicating the assessee. cogent or credible evidence demonstrably implicating the assessee. cogent or credible evidence demonstrably implicating the assessee. The Ld. CIT(A) has correctly observed that the assessee duly The Ld. CIT(A) has correctly observed that the assessee duly The Ld. CIT(A) has correctly observed that the assessee duly substantiated its claim of business loss by producing complete substantiated its claim of business loss by producing complete substantiated its claim of business loss by producing complete documentary evidence, including cont documentary evidence, including contract notes, demat statements, ract notes, demat statements, and corresponding bank entries, thereby establishing both the and corresponding bank entries, thereby establishing both the and corresponding bank entries, thereby establishing both the purchase and sale of the impugned shares. All transactions were purchase and sale of the impugned shares. All transactions were purchase and sale of the impugned shares. All transactions were carried out on a recognized stock exchange and routed entirely carried out on a recognized stock exchange and routed entirely carried out on a recognized stock exchange and routed entirely through proper banking channels. In t through proper banking channels. In the absence of any element of he absence of any element of cash involvement, such documentation cash involvement, such documentation prima facie establishes the genuineness of the transactions, thereby discharging the initial genuineness of the transactions, thereby discharging the initial genuineness of the transactions, thereby discharging the initial onus cast upon the assessee. onus cast upon the assessee. Once the assessee had thus Once the assessee had thus discharged its primary burden by producin discharged its primary burden by producing credible and verifiable g credible and verifiable evidence, the onus shifted squarely upon the Revenue to establish evidence, the onus shifted squarely upon the Revenue to establish evidence, the onus shifted squarely upon the Revenue to establish that, notwithstanding the apparent form of the transactions, the that, notwithstanding the apparent form of the transactions, the that, notwithstanding the apparent form of the transactions, the same were in substance colourable or collusive in nature, and were same were in substance colourable or collusive in nature, and were same were in substance colourable or collusive in nature, and were either engineered by, or underta either engineered by, or undertaken with the knowledge and ken with the knowledge and connivance of, the assessee. However, as rightly noted by the Ld. connivance of, the assessee. However, as rightly noted by the Ld. connivance of, the assessee. However, as rightly noted by the Ld. CIT(A), the Assessing Officer has not brought on record any tangible CIT(A), the Assessing Officer has not brought on record any tangible CIT(A), the Assessing Officer has not brought on record any tangible or independent material to substantiate such an allegation. The or independent material to substantiate such an allegation. The or independent material to substantiate such an allegation. The disallowance is founded merely disallowance is founded merely upon suspicion, conjecture, and upon suspicion, conjecture, and generalized observations drawn from third generalized observations drawn from third-party investigations, party investigations, without any specific inquiry conducted in relation to the assessee or without any specific inquiry conducted in relation to the assessee or without any specific inquiry conducted in relation to the assessee or any opportunity afforded to the assessee to rebut adverse findings. any opportunity afforded to the assessee to rebut adverse findings. any opportunity afforded to the assessee to rebut adverse findings. The Assessing Officer The Assessing Officer’s reliance on the general investigation report ’s reliance on the general investigation report describing the modus operandi of price manipulation in the scrip of describing the modus operandi of price manipulation in the scrip of describing the modus operandi of price manipulation in the scrip of Looks Health Services Ltd. does not, by itself, suffice to fasten does not, by itself, suffice to fasten Looks Health Services Ltd. liability upon the assessee, particularly when no direct nexus has liability upon the assessee, particularly when no direct nexus has liability upon the assessee, particularly when no direct nexus has been established between the assessee’s funds and any alleged tablished between the assessee’s funds and any alleged tablished between the assessee’s funds and any alleged circular or accommodation entries. The Assessing Officer has circular or accommodation entries. The Assessing Officer has circular or accommodation entries. The Assessing Officer has referred to the generic pattern of cash deposits and fund layering referred to the generic pattern of cash deposits and fund layering referred to the generic pattern of cash deposits and fund layering observed in other cases; but the Revenue has failed to establish a observed in other cases; but the Revenue has failed to establish a observed in other cases; but the Revenue has failed to establish a direct nexus proving that funds used by the assessee for investment nexus proving that funds used by the assessee for investment nexus proving that funds used by the assessee for investment were routed through a web of bank accounts after cash deposit in were routed through a web of bank accounts after cash deposit in were routed through a web of bank accounts after cash deposit in individual accounts or loss suffered was a part of a bogus individual accounts or loss suffered was a part of a bogus individual accounts or loss suffered was a part of a bogus accommodation entries. A mere reference to the scrip being accommodation entries. A mere reference to the scrip being accommodation entries. A mere reference to the scrip being identified as a “penny stock” cannot, in law, suffice to convert a as a “penny stock” cannot, in law, suffice to convert a as a “penny stock” cannot, in law, suffice to convert a bona fide business loss into a fictitious or contrived one, without bona fide business loss into a fictitious or contrived one, without bona fide business loss into a fictitious or contrived one, without independent corroboration. The assessment order also proceeds to independent corroboration. The assessment order also proceeds to independent corroboration. The assessment order also proceeds to rely heavily upon untested third rely heavily upon untested third-party statements of certain broker party statements of certain brokers or operators, yet the assessee was not afforded the opportunity of or operators, yet the assessee was not afforded the opportunity of or operators, yet the assessee was not afforded the opportunity of cross-examination, thereby violating the fundamental principles of examination, thereby violating the fundamental principles of examination, thereby violating the fundamental principles of natural justice. The Ld. CIT(A) has, in our view, rightly deprecated natural justice. The Ld. CIT(A) has, in our view, rightly deprecated natural justice. The Ld. CIT(A) has, in our view, rightly deprecated such reliance and correctly held that the disallowa such reliance and correctly held that the disallowance cannot stand nce cannot stand on such infirm foundation. on such infirm foundation.
5.1 The denial of cross examination or material relied upon of cross examination or material relied upon of cross examination or material relied upon constitutes a factual a factual flaw and violation of principle of natural and violation of principle of natural justice in view of ratio laid down by the Hon’ble Supreme Court in ratio laid down by the Hon’ble Supreme Court in ratio laid down by the Hon’ble Supreme Court in case of Andamon Timber Industries v. CIT (supra) Andamon Timber Industries v. CIT (supra) that that any finding based on the statement without providing the affected party and based on the statement without providing the affected party and based on the statement without providing the affected party and opportunity of cross-examination must be rejected. examination must be rejected.
5.2 The Revenue contended that no prudent investor would The Revenue contended that no prudent investor would The Revenue contended that no prudent investor would willingly incur such subs willingly incur such substantial losses. However, this argument tantial losses. However, this argument overlooks the legal and commercial realities of market participation. overlooks the legal and commercial realities of market participation. overlooks the legal and commercial realities of market participation.
Financial institutions and entities engaged in high Financial institutions and entities engaged in high- -volume trading operations are inherently exposed to market volatility and the operations are inherently exposed to market volatility and the operations are inherently exposed to market volatility and the attendant risk of loss. The mere occurrence of a loss, or the fact loss. The mere occurrence of a loss, or the fact loss. The mere occurrence of a loss, or the fact that a counterparty in the transaction may later be identified as a that a counterparty in the transaction may later be identified as a that a counterparty in the transaction may later be identified as a questionable entity, cannot, by itself, render the transaction in- questionable entity, cannot, by itself, render the transaction in questionable entity, cannot, by itself, render the transaction in genuine or invite penal consequences upon a bona fide market genuine or invite penal consequences upon a bona fide market genuine or invite penal consequences upon a bona fide market participant. A taxpayer cannot be held culpable for systemic lapses . A taxpayer cannot be held culpable for systemic lapses . A taxpayer cannot be held culpable for systemic lapses or failures in market regulation. The Assessing Officer has, in the or failures in market regulation. The Assessing Officer has, in the or failures in market regulation. The Assessing Officer has, in the present case, proceeded on the assumption that the buyer and present case, proceeded on the assumption that the buyer and present case, proceeded on the assumption that the buyer and seller entities were acting in collusion, without bringing on record seller entities were acting in collusion, without bringing on record seller entities were acting in collusion, without bringing on record any credible or corroborative evidence in support of such inference, ny credible or corroborative evidence in support of such inference, ny credible or corroborative evidence in support of such inference, including including including statements statements statements or or or confirmations confirmations confirmations from from from the the the alleged alleged alleged counterparties. The mere act of downloading or reproducing the counterparties. The mere act of downloading or reproducing the counterparties. The mere act of downloading or reproducing the names of purchase or sale parties from stock exchange records names of purchase or sale parties from stock exchange records names of purchase or sale parties from stock exchange records cannot, in the absence of tangible material such as communication in the absence of tangible material such as communication in the absence of tangible material such as communication trails, transaction correspondences, or fund linkages, establish the trails, transaction correspondences, or fund linkages, establish the trails, transaction correspondences, or fund linkages, establish the existence of collusion. In this context, the Learned Commissioner of existence of collusion. In this context, the Learned Commissioner of existence of collusion. In this context, the Learned Commissioner of Income Tax (Appeals) [Ld. CIT(A)] has, in our considered opinion, Income Tax (Appeals) [Ld. CIT(A)] has, in our considered opi Income Tax (Appeals) [Ld. CIT(A)] has, in our considered opi rightly observed that while the assessee had duly discharged its rightly observed that while the assessee had duly discharged its rightly observed that while the assessee had duly discharged its initial burden by producing primary evidences initial burden by producing primary evidences—such as contract such as contract notes, demat statements, and corresponding banking records—the notes, demat statements, and corresponding banking records notes, demat statements, and corresponding banking records Department failed to produce any independent evidence, such as Department failed to produce any independent evidence, such Department failed to produce any independent evidence, such proof of cash movement, seized documents, or any material proof of cash movement, seized documents, or any material proof of cash movement, seized documents, or any material indicating that the loss was a mere paper entry or a manifestation indicating that the loss was a mere paper entry or a manifestation indicating that the loss was a mere paper entry or a manifestation of circular transactions involving the assessee’s own funds. The of circular transactions involving the assessee’s own funds. of circular transactions involving the assessee’s own funds. relevant finding of the Ld. CIT(A) is reproduced as under: relevant finding of the Ld. CIT(A) is reproduced as under: relevant finding of the Ld. CIT(A) is reproduced as under:
“23. On perusal of the profit and loss account of the appellant for . On perusal of the profit and loss account of the appellant for . On perusal of the profit and loss account of the appellant for AY 2014-15, it is seen that the appellant has shown revenue 15, it is seen that the appellant has shown revenue 15, it is seen that the appellant has shown revenue from operations of Rs. 13,14,42,348/ from operations of Rs. 13,14,42,348/- and other income of and other income of Rs.1,60,33,779/ Rs.1,60,33,779/-. The revenue from operations includes profit . The revenue from operations includes profit and loss from derivative trading of Rs.10,12,18,123/ om derivative trading of Rs.10,12,18,123/ om derivative trading of Rs.10,12,18,123/- and sale from shares of Rs.2,98,42,189/ from shares of Rs.2,98,42,189/-. The profit and loss account of . The profit and loss account of earlier years, i.e. AY 2013 earlier years, i.e. AY 2013-14 and 2012-13, also shows the 13, also shows the income from derivative trading. From this fact, it is evident that income from derivative trading. From this fact, it is evident that income from derivative trading. From this fact, it is evident that the appellant the appellant is a NBFC and is a regular trader of derivatives is a NBFC and is a regular trader of derivatives and shares. The transactions indicate that in the routine course and shares. The transactions indicate that in the routine course and shares. The transactions indicate that in the routine course of its business activity during the year under consideration, the of its business activity during the year under consideration, the of its business activity during the year under consideration, the appellant has purchased and sold the shares of Look Health appellant has purchased and sold the shares of Look Health appellant has purchased and sold the shares of Look Health India Services Lt India Services Ltd. The appellant has also purchased the shares d. The appellant has also purchased the shares of Citi Cable Network Ltd, which is reflected in the inventories. It of Citi Cable Network Ltd, which is reflected in the inventories. It of Citi Cable Network Ltd, which is reflected in the inventories. It is not a case that the appellant is a naïve investor and has is not a case that the appellant is a naïve investor and has is not a case that the appellant is a naïve investor and has purchased the shares of the alleged scrip offline. purchased the shares of the alleged scrip offline.
The AO mainly relied on 24. The AO mainly relied on the investigation report and financial the investigation report and financial analysis of the alleged company. The main contention is that the analysis of the alleged company. The main contention is that the analysis of the alleged company. The main contention is that the price rise is not supported by the financials of M/s Looks Health price rise is not supported by the financials of M/s Looks Health price rise is not supported by the financials of M/s Looks Health Services Ltd. The AO has not carried out any independent Services Ltd. The AO has not carried out any independent Services Ltd. The AO has not carried out any independent enquires during the assessmen enquires during the assessment proceedings. In this case the t proceedings. In this case the appellant has purchased and sold the shares through stock appellant has purchased and sold the shares through stock appellant has purchased and sold the shares through stock exchange online. It is not a case of off market purchase. All the exchange online. It is not a case of off market purchase. All the exchange online. It is not a case of off market purchase. All the transactions are routed through banking channels and supported transactions are routed through banking channels and supported transactions are routed through banking channels and supported by the brokers notes. There is no ref by the brokers notes. There is no reference in the investigation erence in the investigation report that the appellant is involved in price rigging or connected report that the appellant is involved in price rigging or connected report that the appellant is involved in price rigging or connected with the persons providing accommodation entries. The name of with the persons providing accommodation entries. The name of with the persons providing accommodation entries. The name of the appellant is also not appearing in any investigation carried the appellant is also not appearing in any investigation carried the appellant is also not appearing in any investigation carried out by the SEBI. Therefore, consi out by the SEBI. Therefore, considering the facts that the dering the facts that the appellant is a regular trader in stock market, only due to the appellant is a regular trader in stock market, only due to the appellant is a regular trader in stock market, only due to the facts that the price rise of alleged scrip is not supported by the facts that the price rise of alleged scrip is not supported by the facts that the price rise of alleged scrip is not supported by the financials, the transactions carried financials, the transactions carried out by the appellant cannot appellant cannot be held as bogus.” be held as bogus.” 5.3 The Ld. CIT(A) has placed relied on judicial precedents in the A) has placed relied on judicial precedents in the A) has placed relied on judicial precedents in the following judicial precedents: following judicial precedents:
M/s Munish Financial in M/s Munish Financial in M/s Munish Financial in ITA No. 2637/Mum/2022
ITO ITO ITO v. v. v. Sohani Sohani Sohani Dipak Dipak Dipak Tanna Tanna Tanna in in in ITA ITA ITA No. No. No. 2245/Mum/2022 2245/Mum/2022 Varun Varun Varun Naginbhai Naginbhai Naginbhai Patel Patel Patel v. v. v. DCIT DCIT DCIT in in in ITA ITA ITA No. No. No. 417/Ahd/2019 417/Ahd/2019 5.4 In view of settled In view of settled legal position and in absence of any material legal position and in absence of any material evidence adduced by t evidence adduced by the Revenue to directly connecting he Revenue to directly connecting the assessee to allegation allegations of price manipulation, we hold that finding of price manipulation, we hold that finding of the Ld. CIT(A) is a plausible and legally sustainable interpretation of the Ld. CIT(A) is a plausible and legally sustainable interpretation of the Ld. CIT(A) is a plausible and legally sustainable interpretation of the fact. The Revenue’s grounds of appeal therefore t. The Revenue’s grounds of appeal therefore are meritless t. The Revenue’s grounds of appeal therefore and are accordingly rejected. The deletion of the disallowance of and are accordingly rejected. The deletion of the disallowance of and are accordingly rejected. The deletion of the disallowance of business loss of Rs.9,46,26,804/ business loss of Rs.9,46,26,804/- by the Ld. CIT(A) is hereby by the Ld. CIT(A) is hereby upheld.
In the result, the appeal of the Revenue is dismissed. In the result, the appeal of the Revenue is dismissed. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open Court on onounced in the open Court on 26/11/2025.