INDUS SECURITIES PRIVATE LIMITED ,MUMBAI vs. DCIT, CIRCLE3(2)(1), MUMBAI

Addition under section 68 of the Act

5. On the facts and in the circumstance of the case and in law, the CIT(A) erred in upholding that the transaction of sale of shares of a listed company as non- genuine and as unexplained cash credit under section 68 of the Act.

6. On the facts and in the circumstance of the case and in law, the CIT(A) erred in confirming the action of the AO of making an addition under section 68 of the Act without appreciating the evidences produced on records to prove the "identity". "source" and "genuineness";

7. Without prejudice to the above, the CIT(A) erred in confirming the action of the AO in taxing Rs. 55,88,573/- under section 115BBE of the Act without a corresponding reduction in the business income (wherein the said amount has already been included), resulting in double taxation;

3.1. Assessee's case was reopened by issuing a notice u/s 148 of the Act dated 31.03.2021. In the reasons to believe recorded by the ld. Assessing Officer for initiating the re-assessment proceedings, in para -3, it is noted that assessee has earned fictitious profits in equity/derivative trading transaction and is a beneficiary of bogus long term capital gain (LTCG)/short term capital loss (STCL). Para-3 of the said reasons to believe are reproduced as under:

“As per the information summary available in Insight Portal, the following information relating to Assessment Year 2016-17 pertains to the assessee company.

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3.2. Based on the above information summary, ld. Assessing Officer noted that large scale manipulation of trades and fabricated trading activity had taken place in the scrip of NutraPlus India Ltd. (NPIL) which had led to generation of fictitious profit and loss which are not genuine and are pre-determined. Ld. Assessing Officer thus, called for explanation from the assessee in respect of the aforesaid transaction 3.3. Pursuant to this, assessee filed its objection on the re-opening proceedings, initiated u/s.147 r.w.s. 148 by making its submission dated 08.07.2021. In the said objections, assessee strongly submitted that the income alleged to have escaped assessment by the ld. Assessing Officer is an income chargeable to tax as ‘business income’ which has already been reported in the audited financial statements and included in the return so filed by the assessee. No exemption is claimed by the assessee in this respect u/s. 10(38) of the Act. Assessee also objected on the purported investigation report and other referred information to suggest that assessee is involved in price manipulation. It was thus, contended that the reasons to believe reported by the ld. Assessing Officer are mechanical and general without appreciation of the facts of the case.

3.4. Assessee furnished detailed break up of profit earned on shares of NPIL during the year under consideration, details of which are tabulated as under:

3.5. Assessee further submitted that there is no basis to identify NPIL as penny stock as alleged by the ld. Assessing Officer in the reasons to believe recorded by him since the said company had significant underlying sales to demonstrate its revenue generating operations, details of which are tabulated as under:

i) Contract notes of purchase and sale by Axis on BSE platform. ii) Bank statements showing source of purchase and sale. iii) DMAT account of the assessee showing purchased / sold shares credited, debited or transferred from/to broker. iv) Broker ledger account showing purchase and sale transactions in NPIL shares.

4.1. According to the assessee it had earned profit of Rs. 54,49,769/- (55,88,637 – 1,38,868) after considering brokerage, taxes and other charges on sale of shares of NPIL. Proceeds of this transaction were Indus Securities Pvt. Ltd, AY 2016-17 received in the bank account. The said transaction was undertaken on the Bombay Stock Exchange Platform through SEBI registered brokers and other intermediaries regulated by SEBI. However, ld. Assessing Officer proceeded to complete the re-assessment by holding that creditworthiness and genuineness of the transaction are not satisfactorily explained, since assessee sold the shares resulting in profit of 23% without giving any valid reasons for the increase in the price of the shares. Aggrieved, assessee went in appeal before the ld. CIT(A), who confirmed the addition so made by the ld. Assessing Officer. Aggrieved, assessee is in appeal before the Tribunal.

5.1. Further, since no specific case is made out by the ld. Assessing Officer in respect of the nature of income, it demonstrates non application of mind while recording the reasons to believe for the re- Indus Securities Pvt. Ltd, AY 2016-17 assessment proceedings. From para-7 of the impugned assessment order, it was pointed out that ld. Assessing Officer has recognised and acknowledged the contention of the assessee that income had already been offered to tax though he did not accept this verifiable fact even though necessary documentary evidence were placed on record. It was also pointed out that in the order disposing objections raised by the assessee, this contention of the assessee that income has already been offered under the head ‘Business Income’ is taken note of but negated by the ld. Assessing Officer.