SNEH LATA GARG,DELHI vs. DCIT CENTRAL CIRCLE-5, NEW DELHI

This appeal by the assessee is preferred against the order of the Ld. Commissioner of Income Tax [Appeals]-24, New Delhi dated 21.02.2019 pertaining to assessment year 2015-16 on the following grounds:- 1. That the Ld. CIT(A)-24, New Delhi has erred both in law and on facts in upholding the denial of loss of Rs. 36,95,007/- on sale of purchase and shares during the instant year. 1.1That while upholding the denial of the loss the Ld. CIT(A) has arbitrarily rejected the evidences placed on record to hold that the loss incurred and claimed is not genuine and the entire process of purchase and sale of shares was clearly a pre-mediated plan to create bogus loss. 1.2 That the finding that “evidences produced before the AO have been examined in the light of the enquiries/ findings of the Investigation Wing as well as independent inquiry by the AO” is factually incorrect, legally misconceived and untenable.

1.3 That the Ld. CIT(A) has confirmed the above addition without confronting the alleged information obtained from Investigation Wing to appellant and also providing cross examination of the parties on whose statement reliance has been placed in impugned order of assessment and therefore order so made is vitiated order. 1.4 That further more the learned Commissioner of Income Tax (Appeals) has sustained the addition on mere speculation, generalized statements, theoretical assumptions and allegations and assertions, without there being any supporting evidencse and is therefore not in accordance with law. 1.5 That the entire addition is based on surmises conjecture and suspicion and therefore illegal, invalid and, unsustainable. 1.6 That even otherwise the learned Commissioner of Income Tax (Appeals) has failed to appreciate that once the appellant has discharged its initial onus then the learned Commissioner of Income Tax (Appeals) could not have mechanically proceeded to uphold the disallowance based upon the material received from investigation wing and without conducting any independent enquiries on his own. Prayer : It is therefore, prayed that denial of loss made and sustained by the learned Commissioner of Income Tax (Appeals) may kindly be deleted" and appeal of the appellant be allowed.

Accordingly, notice u/s. 143(2) of the Act was issued on 28.7.2016 to the assessee which was duly served upon the assessee. Subsequent notices u/s. 142(1) of the Act and other notices were issued during the course of assessment proceedings. In response to the these notices, the AR of the assessee appeared and filed reply and details. 2.1 During the assessment proceedings, AO observed that assessee has sold one plot at TDI and earned short term capital gain of Rs. 48,00,000/- from sale of a plot. Assessee has set off this gain from short term capital loss in securities which the AO has reproduced in para no. 2 at page no. 1 of the assessment order. According to the AO, on the basis of the Investigation Report, the shares of M/s Cressanda Solution Ltd. (also known as Smart Champ IT and Infra Limited before amalgamation), Pearl Agriculture Limited and Pearl Electronics Limited have been used for providing accommodation entries in the form of bogus Long Term Capital Gain (LTCG)/Short Term Capital Loss (STCL). AO also examined the financial status of the said companies and found that the companies had generally losses of miniscule profit. After detailed examination of the said companies the AO was of the view that on the basis of various Reports, it was found that the said companies are only paper companies and are conduit in providing the accommodation entries and getting commission for the same. 2.2 The case of the assessee is relating to short term capital loss claimed in her return of income. Directorate of Investigation, Kolkata had undertaken 84 penny stocks including the companies from where the assessee has purchased the shares in dispute and found that these companies are included in 84 companies and indicating bogus LTCG/STCL entries claimed by large number of beneficiaries. The modus operandi involving operators, intermediaries and the beneficiaries has been detailed in the investigation report prepared and disseminated by the Kolkata Investigation Directorate. Similar investigations were also conducted by the Directorate of Investigation, Mumbai and Ahmedabad. The basic aim of this scheme is to route the unaccounted money of LTCG beneficiaries into their account / books in the garb of exempt Long Term Capital Gain. This entry of LTCG is taken by selling the shares on the stock exchange and registering the proceeds arising out of the sale of shares into the books as LTCG/STCL. For implementing this scheme, shares of some penny stock companies were used. The modus operandi for providing accommodation entries has been explained by the AO in his assessment order. During the course of investigation relating to STCG/STCL accommodation entries for various entry operators were located and their statements were recorded u/s. 131 of the Act which was reproduced by the AO in the assessment order. On the basis of modus operandi adopted by the assessee in connivance with the share brokers, the AO is of the view that it is a clear cut manipulating or trading in the shares of these 03 companies from where the assessee has purchased the share in dispute and occurred the STCL in order to reduce the taxable income and set off her short term capital gain against short term capital loss in trading of penny stocks. 2.4 To examine all these issues, the AO confronted the same vide order sheet entry dated 20.11.2017 and requested the assessee to produce the assessee on 27.11.2017, but the assessee did not appear against summons dated 6.12.2017 issued u/s. 131 of the Act for personal deposition on 11.12.2017, but again assessee did not appear. Finally, a show cause notice was issued and assessee was asked why the short term capital loss of Rs. 36,95,007/- should not be disallowed and added to the income of the assessee. In response to the same, assessee filed her reply dated 11.12.2017 which the AO has reproduced in para no. 9.6 of his order. 2.5 The AO has considered the reply and other documentary evidences filed by the assessee and held that despite giving sufficient opportunities, assessee did not appear personally so that she could be examined how she invested in the shares of these companies which are not carrying out any significant business activities. AO was of the view that assessee has not discharged her onus for substantiating the claim made in her return of income and finally held that the short term capital loss earned by the assessee is a sham transaction with the accommodation entries providers. In support of this contention, the AO has also cited various judgments of the Hon’ble High Courts and the Hon’ble Supreme Court and finally completed the assessment by disallowing the Short Capital Loss (STCL) of Rs. 36,95,007/- and added the same to the income of the assessee vide order dated 30.12.2017 passed u/s. 143(3) of the Act. Aggrieved with the assessment order, assessee filed an appeal before the Ld. CIT(A), who vide his impugned order dated 21.2.2019 dismissed the appeal of the assesee by upholding the assessment order of the AO. Against the impugned order dated 21.2.2019, assessee is in appeal before the Tribunal.

“2. It has been observed that during the year the assessee has sold one plot at TDI and earned short term capital gain of Rs. 48,00,000/- from sale of a plot. This gain has been partially set off from short term capital loss in following securities:-

Name of the Date of Sale price Net sale Purchase Purchase Capital Company sale price date cost gain/loss Cressanda Solution 18.02.2015 5891 5891 27.10.2014 27999 -22108 Limited (510) Cressanda Solution 18.02.2015 257636 257636 27.10.2014 1219329 -961693 Limited (22210) Cressanda Solution 18.02.2015 68208 68208 02.12.2014 299880 -231672 Limited (5880) Cressanda Solution 18.02.2015 214600 214600 22.01.2015 496725 -282125 Limited (18500) Cressanda Solution 18.02.2015 214600 214600 22.01.2015 493950 -279350 Limited (18500) Cressanda Solution 18.02.2015 214600 214600 30.01.2015 499672 -284900 Limited (18500) Cressanda Solution 25.03.2015 214600 214600 27.10.2014 399672 -327891 Limited (7280) Total Loss from -2389739 Cressanda Pearl Agri (15000) 10.03.2015 184383 184383 27.10.2014 819744 -635361 Total Loss from Pearl -635361 Agri Pearl Elec (15000) 11.03.2015 155198 155198 27.10.2014 825105 -669907 Total loss from Pearl -669907 Elec Total Loss Rs. 36,95,007 5.1 After perusing the aforesaid details filed by the assessee for the sale and purchase of shares from Cressnada Solution Limited and Pearl Agriculture and Pearl Electrical and the total loss caused amounting to Rs. 36,95,007/- to disallow the STCG caused by the assessee, but the sale and purchase of shares of M/s Cressnda Solution Limited details as reproduced above i.e. amounting to Rs. -2389739/-, I am supporting my view for disallowing the short term capital loss with the decision passed by the ITAT ‘E’ Bench Delhi order dated 14.6.2019 in the case of Sh. Sanat Kumar vs. Asstt. Commissioner of Income Tax, Circle 36(1), New Delhi passed in (AY 2014-15) in which the Bench has observed that “Investigation Wing has called information u/s. 133(6) of the Act from Bombay Stock Exchange Company namely Cressanda Solution Ltd. Whose shares have been purchased and sold by the assessee to claim STCG was suspended for trade within last 3 years. The AO was specifically replied from the Bombay Stock Exchange i.e. separate record available with Stock Exchange that “as per record available with the exchange, trading in the securities of the Company, Cressanda Solution Ltd. was suspended on account of reduction of capital”, thus had become clear that it was merely providing accommodation entries in the form of bogus LTCG and STCG in order to evade the taxes. The contention of the assessee is that she has purchased the shares from banking channels and as such when the purchase is genuine then the sale cannot be questioned itself, because the entire transaction of sale and purchase is to be seen in entirety in the light of attending circumstances is not tenable keeping in view of the facts and circumstances of the present case more particularly when trading of the company i.e. Cressanda Solution Ltd. Was suspended by the Bombay Exchange in February 2013 and revoked w.e.f. March, 2013. 5.2 Keeping in view of the facts and circumstances as explained above as well as the chart of sale and purchase of shares of M/s Cressanda Solution Ltd., I am of the view that assesee has purchased shares of Cressanda Solution Ltd. Shares after suspension /revocation i.e. after February, 2013 and March, 2013, as indicated in the aforesaid Table. Hence, no plausible explanation as well as documentary evidence has been provided by the assessee to contradict this finding. Therefore, the short term capital loss on account of sale and purchase of shares M/s Cressanda Solution Ltd. Rs. 2389739/- is confirmed and hence, the action of the Ld. CIT(A) is hereby affirmed on this issue. 5.3 As regards the balance loss of Rs. 6,35,361/- and Rs. 6,69,907/- for the sale and purchase of sales of Pearl Agri (15000) shares and Pearl Elec (15000) shares. After considering the written submissions alongwith the documentary evidences filed by the assessee and some chart filed by the assessee showing the STCL, I am of the view that AO has not asked specifically for the reasons for causing the loss with supporting evidences from the assessee and assesee has also not explained the reasons for causing the loss and supporting evidence. I am of the view that it would be in the interest of justice, if these issues of STCL of Rs. 6,35,361/- and Rs. 6,69,907/- on account of sale and purchase of shares of Pearl Agri (15000) shares and Pearl Elec (15000) shares be set aside to the file of the Assessing Officer to examine the same as per law, after giving full opportunity to the assesee with the clear directions to the AO to call for the reasons for causing the loss on account of sale and purchase of shares of two companies with the supporting documentary evidences. If the AO is satisfied with the explanation given by the assesee with the supporting evidences, then the AO is at liberty to decide the same, as per law, after giving full opportunity to the assessee to substantiate its claim.