LAURELS PROPERTIES PRIVATE LIMITED,DELHI vs. DCIT CC-1(4), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL
“A” BENCH MUMBAI

BEFORE HON’BLE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER &
SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER
Laurels Properties Pvt Ltd
4353/4C
Ansari
Road,
Daryaganj, Delhi

Vs.
DCIT, CC – 1(4)
902,
9th
Floor,
Pratishtha Bhavan, Old
CGO Annexe, MK Road,
Mumbai – 400020. PAN/GIR No. AAACL2421K
(Applicant)
(Respondent)

Assessee by Ms. Simran Dhawan
Revenue by Shri Aditya Rai, Sr. DR

Date of Hearing
05.06.2025
Date of Pronouncement
04.09.2025

आदेश / ORDER

PER SANDEEP GOSAIN, JM:

The present appeal has been filed by the assessee challenging the impugned order dt. 23.01.2025 passed under section 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre (NFAC) / CIT(A) for the assessment year 2015-16. The assessee has raised the following grounds of appeal:
1. On the facts and in the circumstances of the appellant's case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in not quashing the assessment order passed u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 [hereinafter referred to 2
Laurels Properties Pvt Ltd., Mumbai.

as 'the Act'] despite the fact that re-opening was illegal, bad-in- law or otherwise void for want of juri iction.

rendered under the Securities Exchange Board of India Act,
1992 and not under Income Tax Act, 1961. 5. On the facts and in the circumstances of the appellant's case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in upholding the disallowance of set off of loss of Rs
1,93,37,131/- made by the Assessing Officer disregarding the relevant supporting documents in the form of demat statement, ledger, financial statements and bank statement furnished by the appellant during the course of assessment proceedings, thereby discharging the onus cast on the appellant.

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mentioned activity and generating bogus losses. Therefore the case of the assessee company was reopened u/s 147 of the Act. It was also noticed by the AO that from the data available on record, the assessee has purchased and sold stock options on BSE resulting in loss of Rs 1,93,37,131/- for AY 2015-16. 3. Thus while relying upon the interim order dated 20.08.2015 of SEBI, decision of Hon’ble Supreme Court in Rakhi Trading Private
Limited delivered on 08.02.2018 in CA No 1969 of 2011 and third party statement of one Shri Arun Shah, director of share broking firm M/s Aryav Securities P Limited. It was concluded that the assessee had befitted from engaging in reversal trades in illiquid stock options on BSE resulting in non- genuine loss amounting to Rs 1,93,37,131/- and has incurred cash expenses amounting to Rs
3,86,743/- towards commission for the year under consideration.
4. The order of assessment was challenged by the assessee, however the Ld.CIT(A) dismissed the same. Against this order of dismissal, the assessee has preferred the present appeal before us on the grounds mentioned herein above.
5. All the grounds raised by the assessee are interrelated and interconnected and relates to challenging the order of CIT(A) in upholding the order of AO on various grounds as mentioned in the grounds of appeal, therefore we have decided to adjudicate these grounds through the present consolidated order.
6. Ld. AR appearing on behalf of the assessee while relying upon its written submissions also reiterated the same arguments as were raised by him before the revenue authorities and submitted that the reopening and consequently the order of the assessment was illegal, bad in law and without juri iction. It was submitted that the 6
Laurels Properties Pvt Ltd., Mumbai.

reopening was entirely based on borrowed satisfaction and without application of mind or independent enquiries on the part of the AO. It was further argued that the assessment was re-opened merely on the basis of information received from Investigation
Wing and SEBI Interim Order, which was under a different law with a different purpose and which was subsequently set aside and no independent enquiry was made by the AO before the re- opening of assessment proceedings to translate the information into a 'reason to believe' or even before passing the assessment order. Apart from the above, it was also argued Ld. CIT(A) erred in upholding the disallowance of set off of loss of Rs
1,93,37,131/- made by the AO in the assessment order, incurred on account of trading in stock options by treating the same as bogus even though the sale / purchase was made in the normal course of business through online transactions on recognized stock exchange in the prescribed and legal manner as a bonafide trader without any acquaintance with counter parties to the transaction and thus Ld. CIT(A) while ignoring the decision of the Coordinate Bench of the ITAT in the case of the Assistant Commissioner of Income Tax [2020] 120
taxmann.com 422 (Delhi - Trib.) and even the reliance on the decision of Hon'ble Apex Court in the case of Rakhi Trading P
Limited was misplaced and irrelevant as the said judgement was rendered under the Securities Exchange Board of India
Act, 1992 and not under Income Tax Act, 1961. It was also submitted that Ld. CIT(A) erred in upholding the disallowance of set off of loss of Rs 1,93,37,131/- made by the AO by relying on the statement of Shri Arun Shah, Director of M/s Aryav

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Securities Private Limited (the alleged accommodation entry provider) even though he had not stated anything incriminating as regards the transactions by the assessee. It was submitted that the disallowance of set off of loss of Rs 1,93,37,131/- made by the AO was without providing copy of statement of Shri Arun Shah relied upon by him and without providing an opportunity to cross-examine Arun Shah despite repeated requests, which is against the principles of natural justice. It was argued the addition of Rs 3,86,743/- made by the AO on account of alleged ad-hoc commission @ 2% on the amount of alleging the loss incurred, treating the transaction as a bogus accommodation entry was wrong.
7. On the other hand Ld. DR relied upon the orders passed by the revenue authorities and also its written submissions and the same is reproduced herein below:
1. This synopsis is compiled as per direction given in the hearing held on 05/06/2025. 2. In this case information was received from DDIT unit-6
Mumbai regarding co-ordinated and pre-meditated trading on the BSE by engaging in reversal trades in illiquid stock options and currency options resulting in non-genuine business loss/
gains to the beneficiary entities. On analysis of the stock options segment of BSE for the period April 1,2014 to March
31,2015. 3. AO has noted that some parties constantly made significant profits while some other made significant losses by executing reversal trades in stocks in BSE. Laurels Properties Pvt Ltd.
[Appellant) is one of the beneficiaries who have indulged in generating bogus losses on the equity options segment on the Bombay stock exchange reversal trades. In case of the appellant re-opening was based on the order of SEBI and some enquires made by the AO, who subsequently make a valid

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reason for re-opening of the case u/s 147 and notice u/s 148. Hence, the Re-opening done by the AO may kindly allowed.
4. Coming to the main fact of the case regarding to the reversal trades. During the year the assesse made investment in various scrip's details of which was submitted during the course of appellate proceedings.
Notably, all the sale and purchase have been made with only one party i.e. Rector Investments Pvt Ltd.
5. AO has enquired about the scrip Rector Investment Pvt Ltd'
and pointed out some important facts such as identical purchase and sale quantity. Huge variations in purchase and sale price carried out between same party and counter party.
Time gap between purchase and sale transaction is less than a day as both the transaction took place within the same day.
6. AO observed that other than their reversal trades which appeared to be suspicious did not have any other trades in stock options including any other exchange.
7. AO has also added
SEBI interim order[WTM/RKA/I 106/2015].In this order
AO has highlighted some important facts about reversal trades such as unreasonable low or high price/ out of sync with the underlying price.
8. The Ld.CIT(A) has made some important observations regarding the trade done by the appellant in various scrip's. It is observed that the appellant has entered into contract
EQUOPTABNV30APR2015-1650- CE it is noted that the buy order time is 12:38:54, at a rate of Rs.64/-, while the 'sell' is done in the very next minute at 12:39:54 at Rs.26/-.Again 'buy'
is done in the very next minute of 'buy' is done at rs.54.50/- at 12:40:37, while 'sell' is done at Rs.15/- at 12:05:25 i.e within
10 seconds of buy and at Rs.28/- at 12:41:11 i.e within 30
seconds of buy similarly other trades are done in similar manner reversal buy/sell trade are done within a period of seconds without much time lag. Such precise synchronization in placement of buy/sell orders by appellant and its counterparty to match trades have shown substantial variation in prices leading to huge losses to the appellant and big gains for its counter party. Hence, it is not mere coincidence that assesse could match its trades with the same counterparties with whom it had undertaken first leg of the respective trades.

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genuine trades have either booked gains or loss and the gains or loss appears to be of notional in nature. [PARA 28 pgno.41]
Generally, there is nil or negligible participation of the public in the trading in illiquid stock option contracts. Hence, the impact of these non-genuine trade has been considered. When the impact of artificial volume created by the two counterparties is seen as a whole, it is not possible from the material on record to quantify the amount of disproportionate gain or unfair advantage resulting from the artificial trades between the counter parties or the consequent loss caused to investors as a result of the default. The Noticee has entered into 2,319 non genuine trades in 118
stock option contracts which demonstrates the repetitive nature of the default on its part.
15. The copy of SEBI order dated 13 June,2019 is attached herewith to accept our submission. It is our humble your prayer to the Hon'ble ITAT members.

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decision of Hon’ble Supreme Court in Rakhi Trading Private
Limited delivered on 08.02.2018 in CA No 1969 of 2011 and third party statement of one Shri Arun Shah, director of share broking firm M/s Aryav Securities P Limited. As none of these are connected to the assessee but the AO without comparing the facts, applied the ‘same analogy’ in the case of the assessee to conclude that the assessee is engaging in reversal trading. In this way the AO had issued notice u/s 148 of the Act by merely acting mechanically on the information supplied by investigation wing and has not conducted any independent inquiry of its own. In this regard reliance has been placed upon the decision in the case of CIT vs. Kamdhenu Steel and Alloys Ltd. (2012) 248 CTR 33, wherein the Hon’ble Delhi High Court has held that ‘reassessment merely on the basis of report of the Investigation wing is held to be not valid’.
10. We further noticed that the assessee vide letter dated
08.02.2022, also requested the AO to provide the following documents as relied upon by the AO:
i.
Copy of information report received from the office of the DDIT (Investigation), Unit- 6(4), Mumbai.
ii.
Copy of Statement of Shri Arun Shah which proves that the appellant company is involved in reversal trading and cross examination of such persons.
iii.
Copy of proposal letter and approval given by PCIT on such proposal given by PCIT on such proposal as required u/s 151 of the Act.

reopening bad in law. The said fact was also ignored by Ld. CIT(A).
In this regard we placed reliance upon the decision of Hon’ble
Supreme Court in the matter of Indian Oil Corporation v.ITO
(159 ITR 956) (SC), decision of Hon’ble Judicature of Bombay High
519 (Bom), decision of Hon’ble Supreme Court in the matter of ITO vs. Lakshmi Mewal Das (103 ITR 437)(SC).
12. Even on the merits of the additions are concern, we noticed from the records that assessee company had made purchase and sale of the options with regard to various scrips, which have been made through duly registered broker of SEBI namely Matri Mangal
Trading P Limited, vide dematerialised accounts. Moreover, the entire purchase and sale consideration have been transferred through proper banking channels. The entire settlement was made only through the online clearance system of the exchange platform.
There is not even an iota of evidence that the assessee had purchased options through an off-line sale by the company. In this regard, assessee company had filed the following documents in order to substantiate its claim.
i.
Ledger account of appellant company in the books of the broker. (copy enclosed at page number 88 of the Factual Paper book) ii.
Contact notes for purchase and sale of options. (copy enclosed at page number 89-97 of the Factual Paper book) iii.
Bank account statement highlighting payment to broker on account of net settled amount. (copy enclosed at page number 98 of the Factual Paper book)

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“14.3 The A.O. however relied upon ad-interim order of the SEBI dated 20/22-8-2015 in which it was found prima facie that profit making entities were deliberately making repeated losses through their reversal trading in stock option which do not make economic sense and facilitating their counter parties, thus, contravening the provisions of SEBI Act and restrain such entities from buying or selling or dealing in the Securities Markets and their objections were called for. The A.O. further referred to the Order of the SEBI dated 22-8-2016 in which SEBI released the confirmatory order and interim order was diluted with permission to the assessee and others for dealing in the scrips. It was further directed in the said order that these directions shall continue to be in force till further directions. These facts clearly show that the ad- interim order of the SEBI was passed without hearing the objections of the assessee and when objections of the assessee were considered, the interim order was diluted by giving permission to the assessee to deal in the transactions. Ultimately, both the orders of the SEBI relied upon by the A.O. have been vacated by the SEBI vide order dated 5-4 2018. Thus, there were no material available with the authorities below so as to conclude that assessee has entered into any dubious or other transactions deliberately to show business loss. In such circumstances, it was imperative on the part of the authorities below to examine the issue on merit and to 14
Laurels Properties Pvt Ltd., Mumbai.

decide whether assessee has suffered genuine business losses out of the transactions/trades in question.
However, the authorities below did not examine the issue on merits and merely relying upon the ad-interim order concluded the issue against the assessee. It is also clear from these facts that the ad-interim order which was passed exparte - Whether would disclose any binding precedent or ratio which may be binding on the Income-tax
Department?". In our humble view, it would not be binding precedent. It may create some suspicion or doubt. It is well settled Law that "suspicion howsoever strong may be but it cannot take place of legal proof." The Ld. D.R.
submitted that if the test of human probability is applied to the facts and circumstances of the case, it would prove that assessee has not suffered genuine business loss.
However, such a principle is to be applied to weigh the evidences of either side and draw a conclusion in favour of the party which has more favourable factors in his side.
Further in the present case the findings of the A.O./Ld.
CIT(A) are merely based upon the findings given by the SEBI in ad-interim order and subsequent order which have been vacated subsequently by the SEBI. Even such orders cannot be relied upon at this stage as there were nothing against the assessee so as to conclude that assessee has not suffered genuine business loss because the SEBI itself have mentioned in its Orders that the issue will require detailed verification from the Income-tax Department. The issue before the SEBI Authorities were in fact violation of SEBI provisions and Rules and they have not adjudicated upon if there were any violation of the Income-tax provisions which they also were not competent to deal with it. Therefore, reliance placed by the A.O. of such Orders which are ultimately vacated was totally misplaced and cannot be read against the assessee.

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Act and relating to synchronized trading in which the penalty was imposed under section 15HA of the SEBI Act against the respondent company which was set aside by the Securities Appellate Tribunal ("SAT") and SEBI has preferred an appeal before the Hon'ble Supreme Court. It is a concurrent Judgment of the Hon'ble Judges of the Hon'ble Supreme Court dated 8-2-2018. The appeal against the Traders were allowed and Orders of the SAT are set aside and the Order of the SEBI was restored.
However, the appeals filed against the Brokers were dismissed. In para 20 of the subsequent concurrent order, the Hon'ble Supreme Court held as under:

"20. The question whether there was fictitious transactions creating illegal synchronization has to be gathered from the facts and circumstances and intention of the parties. Acting in concert is something about which it is difficult to obtain direct evidence.
Proof of manipulation might depend upon inferences drawn from factual details. Such inferences could be gathered from pattern of trading data and the nature of the transactions etc."

"45. No grounds have been raised in the show cause notice alleging that the impugned fictitious transactions have been entered into with a view to avoid payment of tax and was an act of tax planning. Adjudicating officer also has not gone into this aspect. Hence, I am not inclined to go into this aspect, whether the impugned transactions were intended to reduce the brunt of taxation and an act of tax planning. The correctness of findings of SAT in the case of Viram Investment (P.) Ltd. is left open."

regard to avoidance of payment of tax and act of tax planning was not adjudicated because the Adjudicating Officer has not gone into this aspect.
However, in the present case, the A.O./Ld. CIT(A) have not gone into the facts and material evidence on record and merely referring to the interim order of the SEBI and subsequent order have decided the issue against the assessee. Since in the case of Rakhi Trading (P.) Ltd., (supra), the issue under Income-tax Act was also not adjudicated upon, therefore, in our humble opinion the decision in the case of Rakhi Trading (P.) Ltd., (supra), would not support the case of Revenue.

authorities below so as to conclude that assessee has entered into any dubious or other transactions deliberately to show business loss. In such circumstances, it was imperative on the part of the authorities below to examine the issue on merit and to decide whether assessee has suffered genuine business losses out of the transactions/trades in question. However, the authorities below did not examine the issue on merits and merely relied upon the ad- interim order and concluded the issue against the assessee.
It is well settled Law that "suspicion howsoever strong may be but it cannot take place of legal proof." The Ld. D.R.
submitted that if the test of human probability is applied to the facts and circumstances of the case, it would prove that assessee has not suffered genuine business loss. However, such a principle is to be applied to weigh the evidences of either side and draw a conclusion in favour of the party which has more favourable factors in his side. In the present case the findings of the A.O./Ld. CIT(A) are merely based upon the findings given by the SEBI in ad-interim order and what happened finally has not been mentioned anywhere throughout the assessment order. Even such order cannot be relied upon at this stage as there were nothing against the assessee so as to conclude that assessee has not suffered genuine business loss.
As it was further Income-tax department to carryout detailed verifications, thus it is clear from the records that the issue before the SEBI Authorities were in fact violation of SEBI provisions and Rules and they have not adjudicated upon if there were any violation of the Income-tax provisions which they also were not competent to deal with it. Therefore, reliance placed by the A.O. of such Orders totally misplaced and cannot be read against the assessee.

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Although Ld. D.R. also relied upon the Judgment of the Hon'ble Supreme Court in the case of Rakhi Trading (P.) Ltd.,
(supra), However in this case the issue was against the Traders and Brokers for violation of Regulation of SEBI Act and relating to synchronized trading in which the penalty was imposed under section 15HA of the SEBI Act against the respondent company which was set aside by the Securities Appellate Tribunal ("SAT") and SEBI has preferred an appeal before the Hon'ble Supreme
Court. It is a concurrent Judgment of the Hon'ble Judges of the Hon'ble Supreme Court dated 8-2-2018. The appeal against the Traders were allowed and Orders of the SAT are set aside and the Order of the SEBI was restored. However, the appeals filed against the Brokers were dismissed. In para 20 of the subsequent concurrent order, the Hon'ble Supreme Court held as under:

"20. The question whether there was fictitious transactions creating illegal synchronization has to be gathered from the facts and circumstances and intention of the parties. Acting in concert is something about which it is difficult to obtain direct evidence.
Proof of manipulation might depend upon inferences drawn from factual details. Such inferences could be gathered from pattern of trading data and the nature of the transactions etc."

In para 45 the Hon'ble Supreme Court further held as under:
"45. No grounds have been raised in the show cause notice alleging that the impugned fictitious transactions have been entered into with a view to avoid payment of tax and was an act of tax planning. Adjudicating officer also has not gone into this aspect. Hence, I am not 19
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inclined to go into this aspect, whether the impugned transactions were intended to reduce the brunt of taxation and an act of tax planning. The correctness of findings of SAT in the case of Viram Investment (P.) Ltd. is left open."

The issue in appeal regarding violation of provisions of SEBI Rule was decided based on the facts and circumstances available on record and intention of the parties and ultimately the issue with regard to avoidance of payment of tax and act of tax planning was not adjudicated because the Adjudicating
Officer has not gone into this aspect. However, in the present case, the A.O./Ld. CIT(A) have not gone into the facts and material evidence on record and merely referring to the interim order of the SEBI have decided the issue against the assessee.
Since in the case of Rakhi Trading (P.) Ltd., (supra), the issue under Income-tax Act was also not adjudicated upon, therefore, in our humble opinion the decision in the case of Rakhi Trading (P.) Ltd., (supra), would not support the case of Revenue.
Therefore considering the totality of the facts and circumstances of the case in the light of material/evidences available on record and in the absence of any investigation carried-out by the authorities below, we are of the view that assessee has been able to establish that assessee company has suffered genuine business loss, therefore, authorities below should not have disallowed the same against the assessee. In view of the above findings, we set aside the Orders of the authorities below and delete the entire addition.

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which it had received share application money and Assessing Officer had not doubted such transaction, mere statement of an entry operator that companies in question were 'paper companies', by itself was insufficient to reopen assessment, unless
Assessing
Officer had further information that those companies were non-existent after making further inquiries into matter.

ii.
Decision of Hon’ble Juri ictional Bombay High Court in the case of Rita
Commissioner of Income Tax., the facts of the case are thatwhere assessment was sought to be reopened in case of assessee on ground that assessee had done transactions in shares of 'F', which was a penny stock company traded in Bombay Stock Exchange, however, there was no allegation at all in reasons recorded for reopening that assessee was mastermind or actively involved in rigging of share price of 'F' in stock market and assessee having admitted that it had traded in 'F' and even provided documents thereto during assessment, there being no failure to truly and fully disclose material facts, reopening of assessment after four years was not justified.

iii.
Decision of Hon’ble High Court of Gujarat in the case of Nila
Therefore, keeping in view the entire facts and circumstances and also the legal prepositions, as discussed by us above, we are of the view that the additions of Rs 1,93,37,131/-made on account of 23
Laurels Properties Pvt Ltd., Mumbai.

disallowance of set off of loss and addition of Rs 3,86,743/- made u/s 69C of the Act are not in accordance with the provisions of law, thus the same are directed to be deleted. Consequently, the grounds raised by the assessee are allowed.
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In the result, the appeal filed by the assessee stands allowed.

Order pronounced in the open court on 04.09.2025 (PRABHASH SHANKAR) (SANDEEP GOSAIN)
ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Dated 04/09/2025

KRK, PS

आदेश की ितिलिप अेिषत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. थ / The Respondent.
3. संबंिधत आयकर आयु / The CIT(A)
4. आयकर आयु(अपील) / Concerned CIT
5. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण,मुबई/ DR, ITAT, Mumbai
6. गाड फाईल / Guard file.
आदेशानुसार/BY ORDER,
सािपत ित ////