RAJENDRA KUMAR CHOUDHARY HUF,MUMBAI vs. ITO 30(2)(4), MUMBAI

The assessee has filed this appeal challenging the order dated 31-01- 2024 passed by Ld CIT(A), NFAC, Delhi and it relates to the assessment year 2012-13. The assessee is challenging the decision of ld CIT(A) in confirming the validity of reopening of assessment, assessment of sale value of shares and disallowing the short term capital loss claimed by the assessee.

The assessee is a HUF. It filed its return of income declaring total income of Rs.4,62,690/-. The AO received information that the assessee has traded in M/s Rockon Fintech Ltd and M/s Banas Finance Ltd, which were identified as penny stock companies. The sale value of shares of M/s Rockon Fintech Ltd was Rs.49,00,000/- and the sale value of shares of M/s Banas Finance Ltd was Rs.7,70,000/-. The assessee had actually suffered short term Rajendrakumar Choudhary HUF capital loss of Rs.36,81,701/- in the purchase and sale of shares of above said companies. However, the AO fully relied upon the report given by the Investigation wing and assessed the sale value of above said shares aggregating to Rs.56,70,000/- as unexplained income of the assessee. Consequent thereto, the AO also disallowed short term capital loss of Rs.36,81,701/- declared by the assessee. The Ld CIT(A) also confirmed the same.

We heard the parties and perused the record. We notice that the assessee has purchased and sold shares of above said two companies through stock exchange platform. The purchase consideration was paid through banking channels and the sale consideration was received through banks only. The assessee has furnished copies of bank statements. The shares have entered exited demat account of the assessee. The assessee has furnished copies of broker notes evidencing the purchase and sale through stock exchange platform.

We further notice that the case of the assessee is not usual case of purchase of shares at a lower price and selling them at very high price. It is a reverse case, i.e., the assessee has purchased shares at a higher price and sold them at a lower price. We also notice that the assessing officer did not find fault with any of the documents furnished by the assessee evidencing the purchase and sale of shares. The AO also did not carry out any independent investigation in order to prove that the impugned transactions are bogus in nature. The assessee was not shown to be a part of the group that were manipulating the prices of shares of above said companies. In our view, the generalized information received by the AO would trigger the investigation of the transactions carried on by the assessee, but the said information alone cannot form the basis for disbelieving the transactions. In this regard, we may refer to the decision rendered by Hon’ble Supreme Court in the case of Adamine Construction P Ltd (99 taxman 45), wherein, while dismissing the appeal of Revenue, the Hon’ble Supreme Court has referred to the following observations made by Hon’ble Delhi High Court:-

We noticed earlier that the assessee has purchased and sold the shares of above said companies through stock exchange platform. In the case of PCIT vs. Indravadan Jain HUF (ITA No.454 of 2018 dated 12th July, 2023), the Hon’ble Bombay High Court held as under:- “….The CIT(A) came to the conclusion that respondent bought 3000 shares of RFL, on the floor of Kolkatta Stock Exchange through registered share broker. In pursuance of purchase of shares the said broker had raised invoice and purchase price was paid by cheque and respondent’s bank account has been debited. The shares were also transferred into respondent’s Demat account where it remained for more than one year. After a period of one year the shares were sold by the said broker on various dates in the Kolkatta Stock Exchange. Pursuant to sale of shares the said broker had also issued contract notes cum bill for sale and these contract notes and bills were made available during the course of appellate proceedings. On the sale of shares respondent effected delivery of shares by way of Demat instruction slips and also received payment from Kolkatta Stock Exchage. The cheque received was deposited in respondent’s bank account. In view thereof, the CIT(A) found there was no reason to add the capital gains as unexplained cash credit under section 68 of the Act. The Tribunal while dismissing the appeals filed by the Revenue also observed on facts that these shares were purchased by respondent on the floor of Stock Exchange and not from the said broker, deliveries were taken, contract notes were issued and shares were also sold on the floor of Stock Exchange. The ITAT therefore, in our view, rightly concluded that there was no merit in the appeal.” We notice that the facts available in the present cases are similar to the above said case decided by Hon’ble Bombay High Court. Accordingly, following above said decision, we hold that, in the facts and circumstances of the instant cases, Rajendrakumar Choudhary HUF there is no reason to suspect the genuineness of purchase and sale of shares undertaken by the assessee in the shares of above said companies. Accordingly, we set aside the orders passed by Ld CIT(A) on this issue and direct the AO to delete the addition of sale proceeds of shares of above said company and accept the short term loss declared by the assessee.

In the result, appeal filed by the assessee is allowed.