HARE SHANKER INVESTMENTS & TRADING COMPANY LTD.,NEW DELHI vs. ITO, WARD- 11(1), NEW DELHI

This appeal by the assessee is preferred against the order of the Ld. Commissioner of Income Tax [Appeals]-4, New Delhi dated 16.2.2018 pertaining to assessment year 2014-15 on the following grounds:- i) On the facts and circumstances of the case and in law, Ld. AO has stated and relied upon some material, investigation report, statements of third parties recorded, which were never shared or confronted to the assessee and thus the principle of natural justice are infringed and therefore the impugned assessment order is liable to beq quashed. ii) On the facts and circumstances of the case and in law, Ld. AO has erred and was not justified in making disallowance of the duty transacted and recorded share trading loss of Rs. 13,09,876/-, without any cogent reason or controverting the all possible documentary evidences produced by the assessee. iii) On the facts and circumstances of the case and in law, Ld. AO has failed to provide any cogent reasons arising on the facts of the case or the investigations carried out by him except on conjectures drawing parallel from other instances which did not have any link with the transaction in question. iv) The above grounds of appeal are independent without prejudice to each other. v) The assessee craves to add, modify any new ground of appeal or adduce any new evidence during the course of appeal, as may be necessary, for the disposal of appeal and discharge of due justice to the appellant.

2. Brief facts of the case are that assessee filed its e-return on 22.11.2014 declaring an income of Rs. 4,72,740/-. The return of the assessee was processed u/s. 143(1) of the Income Tax Act, 1961 (in short “Act”). Notice u/s. 143(2) of the Act dated 18.9.2015 was served upon the assessee and questionnaire dated 05.04.2016 and 12.5.2016 were issued alongwith notice u/s. 142(1) of the Act asking the assessee to submit the required information by 19.4.2016 and 25.5.2016. In response to the same, the AR appeared and filed the requisite details from time to time which were taken into consideration by the AO while completing the assessment. 2.1 The Assessee company was incorporated on 10.3.2013 as a Private Limited Company and converted into Limited Company on 11.4.1996 and its main object was to carry out the NBFC activities. The Company has also taken the registration from RBI as NBFC Company vide Certificate of Registration No. B.14.02343 dated 07.10.2012 issued by RBI, New Delhi Regional Office. Apart from that, the assessee company is also dealing in shares. 2.2 The Directorate of Investigation, Kolkata carried out a country-wide investigation to unearth the organized racket of generating bogus entries of Long Term Capital Gains (LTCG) which has adjusted against profit earned in other heads of income during the year. The beneficiary holds the share for one year, the statutory period after which LTCG is exempted u/s. 10(38) of the Act. In the meantime the operators rig the price of the stock and gradually rise its price many times, often 500 to 1000 times. This is done through low volume transaction indulged in by the dummies of the operator at a pre-determined price. When the price reaches the desired level the beneficiary who bought the shares at a nominal price, is made to sell it to a dummy paper company of the operator. For this, unaccounted cash is provided by the beneficiary which is routed through a few layers of paper companies by the operator and finally is parked with the dummy paper company that will buy the shares. 2.3 The AO explained the modus operandi in his assessment order and finally has written that the Directorate of Investigation, Kolkata investigated transactions in 84 such penny stock shares quoted on BSE and examined on oath a large number of brokers, directors of companies that finally purchased the shares, the promoters of Penny stock companies, the entry operators who managed the dummy companies involved in price rigging. The money trail of the transaction was also examined and in a large number of transactions trail right from cash deposit account to the beneficiaries account was unearthed. As a result of investigation, individuals who have taken such entry of bogus LTCG/Loss amounting to several crores have been identified. The AO has also explained the result of any proof of the same in his assessment order and is of the view that assessee is a one of such beneficiary who has purchased 11000 shares of M/s Luminaire Technologies Limited on 06.05.2013 (but the transaction reflected in Demat account on 08.5.2013) for Rs. 5,92350/- @ Rs. 53.85 per share and 300 shares of M/s Nikki Global Finance Limited on 8.7.2013 (but the transaction reflected in demat account on 10.7.2013) for Rs. 2,39,940/- @ Rs. 799.8 per share during the assessment year 2014-15 under consideration. These shares were subsequently sold to two entities on 21.3.2014 (but the transaction reflected in Demat account on 25.3.2014) for Rs. 2,08,779/- (Luminai Tech) @ Rs. 18.98 per share and on 19.3.2014 (but the transaction on reflected in Demat account on 21.3.2016) to a person for Rs. 44,355/- @ Rs. 14.7.85 per share and henceforth resulted in loss of Rs. 3,83,571/- and Rs. 1,95,585/- respectively on shares of Luminai Tech and Nikkigl respectively. 2.4 The AO vide order sheet dated 09.8.2016, asked the assessee to justify why the company has purchased the shares on higher rate and sold out them at lower price during the financial year 2013-14. In response to the same, the AR of the assessee furnished written submissions alongwith copy of computation statement which the AO has mentioned in the assessment order. After examining all the documentary evidences filed by the assessee, the AO was of the view that Assesee indulged in obtaining bogus loss through penny stock transaction and found that the above scrip M/s Luminaire Technologies Limited (code Luminai Tech) and M/s Nikki Global Finance Limited (code NIKKIGL) were involved in the illegal business of penny stock and providing bogus STCL. The Investigation Wing has indentified that both the scripts are used for generating bogus LTCG/STCL. The same modus operandi was also adopted in the share transaction. After considering the written submissions alongwith the documentary evidences filed by the Assessee, AO found that the explanation given by the assessee is not tenable because assessee has not proved that the loss on sale of shares shown by the assessee is not genuine one and it has suppressed its taxable income to take STCL through shares transaction made with above said companies. After analyzing all the details filed by the assessee as well as details obtained from outside agencies the assessee was found to be the beneficiary of taking bogus loss on trading of shares by way of dealing in the aforesaid shares. The assessee has earned bogus loss on sale of shares of Rs. 13,09,876/- by making pre-decided transactions in the aforesaid shares and this amount was added in the income of the assessee company. AO also added Rs. 17,02,000/- on account of notional interest earned on loan and disallowance of expenses on account of ROC fees and completed the assessment u/s. 143(3) of the Act vide order dated 29.12.2016. Against the assessment order dated 29.12.2016, assessee appealed before the Ld. CIT(A), who vide his impugned order dated 16.02.2018 has partly allowed the appeal of the assessee and upheld the addition of Rs. 13,09,876/- on account of Short Term Capital Loss earned through share transactions made with the aforesaid two companies treating has bogus loss on the sale of aforesaid shares. Aggrieved by the impugned order dated 16.02.2018, assessee is now in appeal before the Tribunal.

3. At the time of hearing, Ld. Counsel for the assessee has filed the written submissions made before the Ld. CIT(A) which he has attached in the Paper Book containing pages 1-95 and relied thereon. He stated that assessee has also filed various documentary evidences before the revenue authority which has not been properly considered and wrongly decided the issue in dispute against the assessee. Hence, he requested to set aside the issue in dispute to the file of the AO for fresh adjudication with the directions to consider each and every document filed by the assessee and given adequate opportunity of being heard to the assessee.