EXIM SCRIPS DEALERS PVT LTD,KOLKATA vs. ITO WARD-5(3), KOLKATA

The assessee has raised the following grounds of appeal:- “1. On the facts and circumstances of the case the Ld. Pr.CIT-2, Kolkata erred in initiating proceedings u/s 263 of the Income Tax Act, 1961 (the Act) as there was no case of erroneous order and/or order prejudicial to the interest of revenue. All the facts were duly considered at the time of assessment made u/s 143(3) of the Income Tax Act, 1961. 2. On the facts and circumstances of the case and in law, the Ld. Pr.CIT-2, Kolkata erred in passing the order u/s 263 of the Act which is contrary to the material on record and provisions of the Act, unjust and bad in law as follows:- Assessment Year: 2015-16 Exim Scrips Dealers Pvt. Ltd. 2

That in view of the written replies dated 25.02.2019 and 11.02.2020 to the notice u/s 263 with all the enclosures filed and the oral arguments advanced before the Ld Pr. CIT- 2/Kolkata during the hearings, the Commissioner of Income Tax erred in law and on facts in still holding that the order passed by the A.O. was erroneous and prejudicial to the interest of revenue without contradicting the various claims, through any cogent material or any proper basis. The order u/s 263 therefore, deserves to be quashed.

The 'a' craves leave to add, alter, amend, delete, substitute any of the grounds and / or take additional ground / s before or at any time of hearing of this appeal.”

Brief facts of the case are that the assessee is a Non-Banking Financial Company (NBFC). E-return of income for the Assessment Year 2015-16 was filed on 28/09/2015 declaring income at Rs.28,30,083/-. Case selected for scrutiny under CASS for the following reason:- (a) mismatch in sales turnover reported in Audit Report and ITR (b) mismatch between income/receipt credited to profit and loss account considered under the heads income from other sources. (c) Suspicious sale transaction in shares and exempt long terms capital gains shown in return (penny stock tab in ITS) Assessment Year: 2015-16 Exim Scrips Dealers Pvt. Ltd. 3

This was followed by service of notice u/s 143(2) & (1) of the Act. Submissions filed by the assessee were considered and the ld. Assessing Officer completed the assessment making disallowance u/s 14A of the Act at Rs.3,54,638/- and assessing business income at Rs. 4,28,176/- as against the business income of Rs.73,538/- declared by the assessee and accepting the other income declared by the assessee under the head income from capital gain at Rs.27,12,824/-. Subsequently, the ld. Pr. CIT called for the assessment records and on examining the same found that the issue of short term capital loss at Rs.1,09,87,537/- from the sale of equity shares of six penny stock companies remained to be examined by the Assessing Officer and accordingly issued notice u/s 263 of the Act dt. 18/01/2019 and the same reads as follows:- “Your case was selected for scrutiny under CASS on the reason “Suspicious Sale transaction in shares and exempt Long term Capital Gains shown In return of income (Penny stock tab in ITS)". During the relevant F.Y. your company had invested in six penny stocks against which a short term capital loss of Rs. 1,09,87537/- was claimed. But during the assessment proceedings, the point was not taken into consideration by the Assessing Officer. The Directorate of Investigation, undertaken an Kolkata, had investigation regarding the accommodation entries of Long Term Capital an (LTCG), and was able to identity a number of beneficiaries who had together taken bogus entries of LTCG of huge amounts. This had led to the identification of Penny Stocks' which were used for generating such bogus LTCG. Various enquiries have been conducted by the Directorate of Investigation, which have resulted in the unearthing of a syndicate of Entry Operators, share brokers and money launderers, involved in providing bogus entries of L TCG/Short Term Capital Loss. It has come to light that large scale manipulation has been/ is being done in market price of shares of certain companies listed on the Bombay Stock Exchange by such syndicate in order to provide entries of tax exempt bogus Long Term Capital Gain to large number of persons in lieu of unaccounted cash. The basic objective of this racket is to convert black money into white without payment of Income Tax. In the list of the companies, directly or indirectly owned by the operators and whose share prices have been apparently manipulated by the Syndicate, the afore-stated six scrips also appear.

During the course of revisionary proceedings, the assessee filed the submissions in reply to the showcause notice furnishing the details of short term capital loss incurred from purchase/sale of equity shares of the six companies and stated that it is factually not correct that the ld. Assessing Officer has not taken into consideration the issue of short term capital loss as necessary details were filed. Further, it is submitted that, there is no tax impact arising due to these transactions since the assessee company had tax liability of Rs.8,49,027/- under the normal computation of total income whereas the tax paid under the minimum alternate tax was Rs.32,83,167/- and, therefore, since there is no tax impact, therefore the proceedings u/s 263 of the Act needs to be brought. However, the ld. Pr. CIT was not satisfied with these submissions and held the assessment order to be erroneous insofar as prejudicial to the interest to the revenue thereby setting aside the assessment order to be framed afresh after considering the following observations made in the impugned order. The relevant extract is reproduced hereunder:- “I have carefully considered the facts of the case and gone through the submission of the assessee. The submission of the assessee company has already been discussed in the above Para 5, therefore, the same is not reproduced here again. On perusal of the assessment record, it is seen that, the case was selected for Scrutiny under CASS on the reason "Suspicious Sale transaction in shares and claiming Long term Capital Gains/Short Term Capital Loss shown in return of income (Penny stock tab in ITS)". During the year under Assessment Year: 2015-16 Exim Scrips Dealers Pvt. Ltd. 5

The ld. Counsel for the assessee apart from referring to the details filed before the Assessing Officer during the course of assessment proceedings, as enumerated in the paper book containing 219 pages and also referring to another paper book containing 34 pages, asserted the fact that even if the alleged short- term capital loss is disallowed there will be no prejudice to the revenue because the tax paid by the assessee under the minimum alternate tax shown in the income Assessment Year: 2015-16 Exim Scrips Dealers Pvt. Ltd. 6

Per contra, the ld. D/R, vehemently argued supporting the order of the ld. Pr. CIT and also referred to the order of the Whole Time Member of the Securities and Exchange Board of India (SEBI) showing that one of the alleged penny stock companies in which the assessee has dealt, namely, Mishka Finance and Trading Limited, the activities carried out by the company and its promoters, directors and other suspected entities are prima facie in violation of SEBI Act, 1992 and SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (“PFUTP Regulations”), and an interim ex-parte order dt. 17/04/2015 was passed restraining the various entities numbering to 129 including Mishka Finance and Trading Limited from accessing the securities market and further prohibited them from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever, till further directions. Referring to this order it was submitted that the ld. Assessing Officer failed to conduct any enquiries in relation to the various penny stock companies and certain other hidden facts which might have been unearthed during the course of examination of the issue.

We have heard the rival contentions and perused the record placed before us. The assessee has challenged the carrying out of the revisionary proceedings by the ld. Pr. CIT and also challenged the finding of the ld. Pr. CIT holding that the assessment order u/s 143(3) of the Act as erroneous insofar as prejudicial to the interest of the revenue. Assessment Year: 2015-16 Exim Scrips Dealers Pvt. Ltd. 7

The finding of the ld. Pr. CIT is confined to the facts that the ld. Assessing Officer has not carried out any examination nor has conducted any enquiry relevant to the said transactions giving rise to the short term capital loss of Rs. 1,09,87,537/-. The contention of the assessee is two-fold. Firstly that the Assessing Officer has examined all these details and secondly even if it is held that the said short term capital loss is disallowed treating it as bogus and earned from penny stock companies, the same will not be prejudicial to the interest of the revenue since even after disallowing the said short term capital loss, the tax paid by the assessee under Minimum Alternate Tax (MAT) is higher.

Now, as far as the first contention of the assessee that, the ld. Assessing Officer has examined the transactions, we find that the assessee’s case was selected for scrutiny for three reasons of which one was “Suspicious sale transaction in shares and exempt long terms capital gains shown in return (penny stock tab in ITS)”. Now referring to the notice issued 142(1) of the Act placed at page 39 & 40 of the paper book, it is noticed that certain details were called for to which the assessee filed replies on 18/01/2017, 06/02/2017, 03/03/2017, 22/03/2017 & 03/04/2017. I.T.A. No. 502/Kol/2020 Assessment Year: 2015-16 Exim Scrips Dealers Pvt. Ltd. 8

It is well accepted that if the assessee’s case is selected for scrutiny for specific reasons, then the Assessing Officer has to put in extra efforts and make deeper enquiry on such reasons and merely taking submission by the assessee will not serve the purpose. On examining the facts of the instant case, we are of the view that the ld. Assessing Officer miserably failed to carry out any enquiry specifically referring to the transactions of short term capital loss from sale of equity shares of alleged penny stock companies referred above and to this extent, we fail to find any merit in the contention of the ld. Counsel for the assessee.

Now as far as the second contention of the ld. Counsel for the assessee that there is no prejudice caused to the revenue, even if the short term capital loss is Assessment Year: 2015-16 Exim Scrips Dealers Pvt. Ltd. 9

We, therefore, find merit in the order of the ld. Pr. CIT passed u/s 263 of the Act and dismiss all the grounds raised in this appeal of the assessee.

In the result, appeal of the assessee is dismissed.

""यथ" / The Respondent 3. संबंिधत आयकर आयु" / Concerned Pr. CIT 4. आयकर आयु" अपील / The CIT(A)- ( ) िवभागीय "ितिनिध, आयकर अपीलीय अिधकरण "ायपीठ,कोलकाता/DR,ITAT,

Kolkata, 6. गाड" फाईल /Guard file.