ITO, WARD-3(1), HYDERABAD vs. SMARK SECURITIES LIMITED, HYDERABAD

The Revenue has raised the following grounds of appeal:

The assessee has raised the following cross objections:

The brief facts of the case are that the assessee is a company, filed its return of income for Assessment Year 2016-17 on 23.08.2016 declaring total income at Nil. On the basis of information available with him, the Learned Assessing Officer (“Ld. AO”) came to know that the assessee had claimed Long Term Capital Gain amounting to ₹70,42,900/- from transactions in shares, which according to the Ld. AO was not genuine. Accordingly, notice under section 148 of the Income Tax Act, 1961 (“the Act”) was issued by the Ld. AO to the assessee on 31.03.2021. In response to the notice issued under section 148 of the Act, the assessee filed its return of income on 20.04.2021 declaring the same income of Rs. Nil. During the reassessment proceedings, the

Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). After considering the submissions and evidences placed on record by the assessee, the Ld. CIT(A) deleted the entire addition of ₹70,42,900/- made by the Ld. AO.

Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us. The assessee has also filed a Cross Objection supporting the order of the Ld. CIT(A).

At the outset, the Learned Departmental Representative (“Ld. DR”) submitted that the solitary issue arising from the grounds raised by the Revenue relates to the deletion of addition of ₹70,42,900/-. The Ld. DR submitted that during the year under consideration the assessee sold 1,25,000 shares of M/s Steel

Per contra, the Learned Authorized Representative (“Ld. AR”) strongly relied upon the order of the Ld. CIT(A). The Ld. AR submitted that the assessee is an NBFC company and one of its principal business activities is investment in shares and securities. It was submitted that the assessee had purchased shares of M/s Steel Exchange India Ltd. during the financial years 2013-14, 2014- 15 and 2015-16 through recognized stock exchanges. The Ld. AR submitted that all the shares were duly credited into the assessee’s demat account and payments for acquisition of shares were made through normal banking channels. It was further submitted that the shares were sold through recognized stock exchanges and the sale proceeds were received through banking channels. The Ld. AR

We have heard the rival submissions and perused the material available on record. The solitary issue arising for our consideration is whether the Ld. CIT(A) was justified in deleting the addition of ₹70,42,900/- made by the Ld. AO by treating the sale proceeds received by the assessee from sale of shares of M/s Steel Exchange India Ltd. as unexplained income. The case of the Revenue is that information received from the DDIT (Investigation), Mumbai revealed that certain penny stock companies were being used for providing accommodation entries and that M/s Steel Exchange India Ltd. was one of such companies. Based on such information, the Ld. AO concluded that the sale proceeds received by the assessee were not genuine. On the other hand, the case of the assessee is that the shares were purchased through recognized stock exchanges, held in demat form, sold through recognized stock exchanges and the entire consideration both for purchase and sale moved through normal banking channels. It is also the case of the

On perusal of the above, we find that the Ld. CIT(A) has very categorically dealt with the issue and passed a detailed, reasoned and speaking order after examining the entire material placed on record. The Ld. CIT(A) has recorded a clear finding that the purchases and sales were supported by contract notes, demat statements and banking records. The Ld. AO has not found any defect in these documents nor has he brought any material on record to establish that the evidences furnished by the assessee were fabricated or false. Before us also, the Ld. DR could not place any material on record to controvert the factual findings recorded by the Ld. CIT(A). We further find that the entire addition has been made primarily on the basis of information received from the Investigation Wing and the alleged activities of Shri Naresh Jain and his associates. However, neither the assessment order nor the material brought before us demonstrates that Shri Naresh Jain had named the assessee as a beneficiary of accommodation entries. No material has been brought on record to establish any nexus between the assessee and Shri Naresh Jain or any of the alleged entry operators. Further, no evidence has been brought on record to establish that the assessee paid any unaccounted cash for obtaining accommodation entries or that the sale proceeds received through banking channels represented its undisclosed income. We have also gone through para nos. 14 to 31 of the order of the Raipur Bench of the Tribunal in the case of Mohammad Anish Hingora Vs. ITO, reported in 175 taxmann.com 65, wherein an identical issue was considered, which is to the following effect:

On a perusal of the above, we find that under identical circumstances, the Tribunal has decided the issue in favour of the assessee by relying on various decisions of the Hon’ble High Courts including Allahabad, Madhya Pradesh, Gujarat, Punjab & Haryana, and Rajasthan High Courts, holding that in the absence of any evidence to show involvement of the assessee in price rigging or bogus transactions, the addition cannot be sustained merely on the basis of suspicion. The consistent judicial view is that however strong the suspicion may be, the same cannot substitute legal evidence. Unless there is cogent material demonstrating that the assessee was a participant in the alleged manipulation or beneficiary of accommodation entries, genuine transactions supported by documentary evidences cannot be disregarded merely because the scrip involved is alleged to have been manipulated by third parties. In the present case also, no evidence has been brought on record to show that the assessee was involved in manipulation of share prices or that the transactions undertaken by it were not genuine. No person has named the assessee as a beneficiary of accommodation entries. No evidence has been brought on record to establish that the assessee had any role in price-rigging activities. The documentary evidences furnished by the assessee remain uncontroverted. Therefore, respectfully following the decision of the Raipur Bench of the Tribunal in the case of Mohammad Anish Hingora Vs. ITO (supra) and in the absence of any incriminating material against the assessee, we are of the considered view that the Ld. AO was not justified in treating the sale proceeds of ₹70,42,900/- as unexplained income in the hands of the assessee. Accordingly, we uphold the order of the Ld. CIT(A) deleting the addition of ₹70,42,900/- and dismiss the grounds raised by the Revenue.

Since we have dismissed the appeal filed by the Revenue and upheld the order of the Ld. CIT(A) in toto, the Cross Objection filed by the assessee has become infructuous and is accordingly dismissed as such. Accordingly, the other grounds raised by the assessee in the cross objections are not adjudicated, the same are kept open.

In the result, the appeal of the Revenue is dismissed and the Cross Objection filed by the assessee is dismissed as infructuous.