SAMSON FOUNDATIONS,CHENNAI vs. ACIT NON CORPORATE CIRCLE 5(1), CHENNAI

आदेश / O R D E R

PER INTURI RAMA RAO, ACCOUNTANT MEMBER: This is an appeal filed by the assessee directed against the order of the Commissioner of Income Tax (Appeals)-5, Chennai (‘CIT(A)’ for short) dated 12.06.2018 for the Assessment Year (AY) 2015-16.

ITA No.2432/2018 :- 2 -:

‘’1. For that the order of the Learned Commissioner of Income Tax (Appeals) is contrary to law, facts and circumstances of the case and at any rate is opposed to the principles of equity, natural justice and fair play.

SPECULATION LOSS ON SHARES:

(b) The appellant submits that the order of Assessing Officer in considering the loss as Business loss arising out of penny stocks and order passed by the Learned Commissioner of Income Tax (Appeals) in considering the same as Speculation Loss are contrary views.

(c) Further as per Section 43(5) of The Income Tax Act, 1961 “Speculative transaction” means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips.

(d) For that the Learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that appellant had undertaken trading in shares of companies which were listed in stock exchange and documents produced by the appellant to the Assessing Officer as well as to the Learned Commissioner of Income Tax (Appeals) in the form of DEMAT statements, Contract Notes for purchases and sale of shares after payment of SIT and Bank Statements which was acknowledged both by the Assessing Officer and by the Commissioner of Income Tax (Appeals) in their respective assessment order and appeal order also establishes the fact that the transactions does not fall under the ambit of Section 43(5) of The Income Tax Act, 1961 for it to be treated as loss from speculation business.

ITA No.2432/2018 :- 3 -:

(e) The appellant further submits that the observation of the Learned Commissioner of Income Tax (Appeals) that the assessee did not furnish any evidence to prove the genuineness of the loss and to prove that the loss was not speculative even though acknowledging the evidence furnished by the appellant in the form of DEMAT statements, Contract Notes and Bank Statements in his appellate order is contrary.

(f) The judicial precedence relied upon by the Learned Commissioner of Income Tax (Appeals) are in the case of companies whereas the appellant is a partnership firm and hence the applicability Section 73 in the case of the appellant does not arise.

(g) On the basis of the above facts the order of the Learned Commissioner of Income Tax (Appeals) treating the business loss incurred by the appellant on trading in shares as speculation loss and denying the set off of this loss against other income is not in accordance with law.

(a) Allow the loss claimed by the appellant by treating the same as Business Loss.

(b) Restrict the levy of Interest under section 234B and 234C.

(c) Such other orders as may be passed as this respectful authority may deem fit’’.

The appellant is a partnership firm deriving income under the

head ‘’income from house property’’ and engaged in the business of

trading in shares and securities in stock exchanges and power

ITA No.2432/2018 :- 4 -:

generation from windmills. The return of income for the AY 2015-16

was filed on 30.11.2015 disclosing total income of Rs.2,12,62,770/-.

Against the said return of income, the assessment was completed by

the Deputy Commissioner of Income Tax, Non Corporate Circle-5,

Chennai (hereinafter called “AO”) vide order dated 26.12.2017 passed

u/s. 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) at total

income of Rs. 3,27,17,223/-. While doing so, the AO disallowed the

claim for set off of loss arising on sale of shares of Rs.1,14,54,453/- by

holding that shares of the company which were sold were penny

stocks. While coming to this conclusion, the Assessing Officer had

taken note of the following facts.

(i) Assessee company had not traded in Blue chip companies. Out of the total shares of Rs.3,99,00,000/-, only shares worth Rs.22,00,000/- were brought in blue chip companies.

(ii) Shares of the companies in which loss was claimed stated to have been indulged in providing bogus accommodation entries in long term capital gains/ loss as per the requirement of the assessee.

ld.CIT(A), contending that shares of the companies were not penny

stocks for the following reasons.

ITA No.2432/2018 :- 5 -:

(i) The appellant is a trader in shares and securities in stock markets.

(ii) The appellant had purchased and sold shares through Kotak Securities who are members of Bombay Stock Exchange.

(iii) The appellant had paid for purchase of shares and received for sale of shares in bank account

(iv) The purchase and sale of shares are reflected in the DEMAT account.

However, the ld. Commissioner of Income Tax (Appeals) had agreed

with the Assessing Officer and accordingly dismissed the appeal.

Income Tax (Appeals) the assessee is in appeal before us in the

present appeal. The ld. Authorised Representative submitted that

stocks purchased and sold during the year are not penny stocks as

held by the Assessing Officer. The entire transactions were done

through registered broker M/s. Kodak Securities Ltd and the shares

were demated and gap between purchase and sale of shares were

more than one year. He further submitted that merely because

companies whose shares were brought by the assessee were figuring

ITA No.2432/2018 :- 6 -:

in the list of penny stocks as per the report of Director of

Investigation Wing, Income Tax Department, Kolkata per se cannot

be reason to doubt the genuineness of the transaction.

placed reliance on the orders of lower authorities.

record. The Assessing Officer disallowed the claim for set off of loss

incurred in the business of purchase and sale of shares doubting the

genuineness of the transactions of purchase and sale of shares. The

Assessing Officer was of the opinion that set off of los cannot be

allowed, as shares of the companies in respect of which loss was

claimed by the assessee were penny stocks as per the report of

Director of Investigation Wing, Income Tax Department, Kolkata.

From the perusal of the order of the lower authorities there is nothing

on record to say that report of the Director of Investigation Wing,

Kolkata was made available to the assessee. Furthermore, the

Assessing Officer had not established collusion of the assessee in the

alleged fraud. M/s. Kodak Securities Ltd is not one of those banned

entities by SEBI. The time gap involved between purchase and sale of

shares is more than one year and shares were demated. In the

ITA No.2432/2018 :- 7 -:

circumstances, the transactions cannot be held as ‘’not genuine’’

merely based on suspicion. Suspicion however, be strong cannot

take the place of proof. It is settled position of law that no addition can be made on mere suspicion. Therefore, we are of the considered

opinion that disallowance of claim for set off of loss in trading of the

transactions cannot be upheld. Hence, we reverse the order of the lower authorities and allow the appeal of the assessee.

Order pronounced on 30th day of January, 2020, at Chennai.

Sd/- Sd/- (जॉज� माथन) (इंटूर� रामा राव) (GEORGE MATHAN) (INTURI RAMA RAO) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER

चे�नई/Chennai �दनांक/Dated: 30th January, 2020. KV आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF