ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 6(4), MUMBAI, MUMBAI vs. SURESH KANMAL JAJOO, MUMBAI

In this regard, the Ld. DR appearing on behalf of the Revenue, while relying upon the order of the AO, submitted that the Ld. CIT(A) had erred in deleting the additions made by the AO without appreciating the fact that the assessee had booked bogus long-term capital loss by organized tax evasion through sale of scrips of M/s Neha International, which had been identified as a penny stock.

Whereas, on the contrary, the Ld. AR appearing on behalf of the assessee reiterated the same arguments as were raised before the Revenue Authorities and also relied upon the orders passed by the Ld. CIT(A).

We have heard counsel for both the parties, perused the material placed on record, the judgments cited before us, and also the orders passed by the Revenue Authorities. From the records, we noticed that during the year under consideration, as per the information available with the Department, it was observed that there had been tax evasion through bogus long-term capital gain/short-term capital loss 2 (LTCG/STCL) by way of manipulated trading. In the course of investigation, 18 penny scrips were identified wherein manipulation of trade by a complex web of premeditated and pre-arranged artificial transactions was carried out to book bogus LTCG/STCL entries to interested beneficiaries, and the assessee was one such beneficiary in the identified scrip involving bogus LTCG/STCL of Rs. 54,00,578/- by trading in the penny scrip namely Neha International. However, additions were made by holding that the said company, i.e., Neha International, was a penny stock and had been suspended by BSE for trading and also permanently suspended by NSE.

It was also submitted that since the assessee invested in a company which did not have strong fundamentals to attract investment from a common investor, and despite having several opportunities of booking handsome profits or even smaller losses, the assessee had, for no reasonable cause, continued to hold the stock, which goes to show that the assessee had intentionally booked losses. Whereas, on the contrary, it was submitted that the assessee had bought the shares in Financial Year 2010-11 and held them for 8 long years before selling them. It was further submitted that the equity shares were purchased in demat form on the online terminal of a recognized stock exchange through a registered share broker after payment of STT, service tax, stamp duty, brokerage, and all other applicable cess/taxes. It was also submitted that the shares were sold on the online terminal of a recognized stock exchange through a registered broker after payment of service tax, duty, brokerage, etc., 3 and the amount was received through account payee cheque from the broker. Consequently, the shares were also transferred from the demat account, and all documentary evidences in support thereof were submitted by the assessee.

After having considered the entire facts of the present case, we found that the AO failed to bring on record any corroborative evidence to prove that the assessee was actively involved in price rigging. In our view, it is not possible for a person to plan so far ahead by buying shares and holding them for 8 years merely waiting for the shares to fall so that the desired loss could be booked. Therefore, we find no merit in the arguments of the Ld. DR that the shares were held for 8 years for booking the desired loss. Even otherwise, in our view, investment decisions are inherently subjective and driven by investors’ personal judgments and market outcomes. Merely because an investment decision results in loss cannot render a legitimate loss as sham. Even as per the facts of the present case, in earlier years, the Department had accepted the short-term capital gain in the same scrip. It has also been brought on record that the assessee had been a regular investor for several years, and all the shares were purchased in demat form through the online terminal from registered brokers after payment of the required taxes, and the shares were held for around 8 years before being sold.

Thus, considering the totality of facts and circumstances, we found that the Ld. DR had neither disputed the documentary evidences placed on record by the assessee nor pointed out any defect therein, nor independently brought any corroborative evidence on record. In the absence of such corroborative evidence by the Revenue, the claim of the assessee cannot simply be denied. It is a settled position of law that suspicion, howsoever strong, cannot replace evidence.

Thus, considering the totality of facts and circumstances as discussed above, and since no new facts, circumstances, or documents have been placed on record by the Ld. DR in order to controvert or rebut the lawful findings recorded by the Ld. CIT(A), we see no reason to interfere with or deviate from the findings recorded by the Ld. CIT(A). Hence, we dismiss the grounds raised by the Revenue and uphold the order of the Ld. CIT(A) deleting the additions.

In the result, appeal filed by the Revenue is dismissed.