MANIMUDRA VINCOM PRIVATE LIMITED,KOLKATA vs. DCIT CENTRAL CIRCLE 3(1), MUMBAI, MUMBAI

In the instant case, on the basis of information received from the Investigation Wing regarding alleged manipulation in certain penny-stock scrips, the Assessing Officer reopened the assessment u/s 147 of the Act and examined the transactions undertaken by the Assessee in the shares of Wagned Infra Ltd., JRI Industries and Infrastructure Ltd., ACI Infocom Ltd. and Syncom Formulations (India) Ltd.

The Assessing Officer ultimately treated the business loss of Rs. 1,47,47,345/- as bogus, the trading profit of Rs. 1,87,430/- as unexplained cash credit u/s 68 of the Act and further made an addition of Rs. 1,49,348/- u/s 69C of the Act towards alleged commission.

The Assessee, being aggrieved, preferred an 1st appeal before the Ld. Commissioner and contended that it was regularly engaged in the business of trading in shares; the transactions were carried out through recognised stock exchanges and registered brokers; and the same were duly supported by contract notes, demat statements, bank statements, broker ledgers and evidence of payment of STT, brokerage and other statutory levies.

The Ld. Commissioner, however, confirmed the additions by observing that the financial fundamentals of the concerned companies did not justify the abnormal movement in the prices of their shares and that the trading pattern corresponded with the general modus operandi noticed in cases involving artificial gains or losses through penny-stock transactions. The Ld. Commissioner further held that the documentary evidence merely established a paper trail and did not prove the genuineness of the transactions.

On the contrary, the Ld. DR relied upon the orders passed by the authorities below and submitted that the abnormal price movement, thin trading volume and weak financial fundamentals of the concerned companies established that the transactions were pre-arranged and non- genuine.

We have heard the parties, perused the material available on record and given thoughtful consideration to the rival claims of the parties. We observe that the transactions were carried out through recognised stock exchanges, the shares were reflected in the demat account and the payments and receipts were routed through banking channels. Neither of the authorities below pointed out any specific defect in the contract notes, demat statements, bank statements or broker ledgers furnished by the Assessee.

Though the authorities below referred to the general modus operandi relating to penny-stock transactions, however, no specific material was brought on record to establish that the Assessee was connected with any broker, operator, counterparty or beneficiary involved in manipulation of the prices of the shares. No adverse statement identifying the Assessee, cash trail, communication or any other incriminating material was brought on record. The abnormal movement in

We further observe that the Assessee discharged its prima facie onus by producing the relevant documentary evidence, which remained unrebutted. Though the test of human probabilities may aid appreciation of evidence, however, the same cannot substitute cogent material connecting the Assessee with the alleged manipulation. Thus, in the absence of any such material, we are of the considered view that the Revenue failed to establish that the business loss represented an accommodation entry. Accordingly, the disallowance of Rs. 1,47,47,345/- is deleted.

The trading profit of Rs. 1,87,430/- arose from the recorded purchase and sale of shares through the recognised stock-exchange mechanism. Once the underlying transactions are not proved to be bogus, the said trading profit cannot be treated as unexplained cash credit u/s 68 of the Act. Consequently, the addition of Rs. 1,87,430/- is also deleted.

The addition of Rs. 1,49,348/- u/s 69C of the Act was made merely by estimating commission @ 1%, without identifying the recipient or bringing any evidence on record to establish that the Assessee actually incurred such expenditure. Further, once the underlying transactions are not held to be bogus, the consequential addition towards alleged commission loses its basis. Thus, the said addition is also deleted.

In the result, the Assessee’s appeal is allowed.