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Income Tax Appellate Tribunal, “C” BENCH, CHENNAI
Before: SHRI GEORGE MATHAN & SHRI S. JAYARAMAN
आदेश/ O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER:
The assessee filed these appeals against the orders of the Commissioner of Income Tax (Appeals)-5, Chennai in & 172/CIT(A)-5/16-17 dated 31.05.2017 for assessment years 2013-14 & 2014- 15, respectively.
:-2-: & 1889/Chny/2017
M/s. Samson Foundation, a partnership firm, is in the business of trading in shares and securities. In the assessment made for assessment years 2013-14 & 2014-15, the Assessing Officer (A O) disallowed the assessee’s claim of business loss and deduction u/s. 35(1)(ii), respectively.
Aggrieved, the assessee filed appeals before the CIT(A). The CIT(A) held that the assessee did not furnish any evidence to prove the genuineness of the loss, it failed to prove that the loss was not speculative and hence upheld the action of the AO for both the assessment years. On the assessee’s claim u/s. 35(1)(ii), the CIT(A) held that the assessee did not file any confirmation letter from the institutions to establish the genuineness of the donations and failed to disprove the department finding that the donations were merely accommodation entries, the alleged donations were routed back to the assessee after deduction of commission by the entry providers etc. For assessment year 2014-15, the assessee also claimed deduction u/s. 80IA which was dismissed by the CIT(A) holding that the AR did not file any material in support of its claim .
Aggrieved, the assessee filed these appeals. The AR submitted that the CIT(A) failed to appreciate the facts that the assessee has undertaken trading in shares of company which were listed in stock exchange. The documents produced by the assessee to the AO in the form of demat statement, contract notes and bank statements establish the fact that the :-3-: & 1889/Chny/2017 transaction does not fall under the ambit of section 43(5). The CIT(A) erred in treating the business loss incurred by the assessee on trading in shares as speculation loss and denying the set off of this loss against other business income. The CIT(A) failed to appreciate the fact that the entire purchase amount should not be treated as speculative loss and only the loss arising as a difference between purchase and sale price should be considered. Per contra, the DR submitted that the assessee converted the investment in shares as on 31.03.2012 as a stock in trade as on 01.04.2012.
Thereafter, purchased and sold shares in both NSE & BSE. In the assessment year 2013-14, the assessee claimed loss from the following scripts:
(i) Blue Circle Services Ltd., (ii) Chirawa Cements Ltd., (iii) Tuni Textile Mills Ltd., Which were purchased during December, 2012 and January, 2013 and sold in February & March, 2012 by which the assessee claimed huge losses. In the assessment year 2014-15, it purchased in December, 2013 and sold in March 2014 and incurred huge loss from the following scripts:
(i) Ashika Credit Capital Ltd., (ii) Indian Infotech& Software Ltd., As per the information received from the searches conducted by the Directorate of Income Tax (Inv.) Ahmedabad and Director of Income Tax (Inv.) Kolkata, it came to light that the above shares were penny stock, they
:-4-: & 1889/Chny/2017 were used for creating bogus long term capital gains, bogus short term capital loss by way of creating accommodation entries etc. The assessee claimed to have undertaken purchases and sales of such shares during the impugned yearsand booked such losses. Considering all the facts and circumstances, the AO held that the business losses claimed by the assessee from these shares are not genuine and hence he disallowed the losses claimed by the assessee in both assessment years. Before the appellate authority also, the assessee could not prove the genuineness of such losses and hence, the appellate authority upheld the action of the AO for both these assessment years. The AR rebutted stating that in assessment year 2013-14, the partners have decided to trade in shares and securities as a business of the firm and hence they converted the investment into shares and thereafter purchased and sold the impugned shares through recognised stock exchange by prevailing price with an intention to make profit. Neither the purchase price nor the sale price was fixed by the assessee. Unfortunately, the assessee incurred the loss for these transactions which are incidental to the business. In fact, the assessee curtailed the loss by exiting soon. Per contra, the DR submitted that if it was a genuine transaction, the assessee having purchased shares in December 2012, would not have purchased further shares in January, 2013 also.
Further, from the assessee’s conduct in the next assessment year on similar line , its conduct with reference to its claim of deduction u/s. 35(1)(ii)and its associated facts etc , which are also subject matter of appeals before this :-5-: & 1889/Chny/2017 tribunal, infra, it is clear that the assessee had understated its income in various mannersviz., by claiming bogus loss and bogus donations etc., and hence the orders of the CIT(A) may be sustained.
We have considered the rival submissions. It is clear from the orders of the lower authorities that the assessee has converted its investments for the first time during assessment year 2013-14 and claimed to have began trading in shares. Ultimately, the assessee claimed huge loss in both the assessment years. The AO has a duty to verify and satisfy whether the losses claimed to have been incurred are genuine or not. In this connection, he may conduct appropriate enquiry as deemed fit. However, in this case, we find that the AO instead of requiring the assessee to explain all the facts and associated circumstances including the particulars of persons involved in connection with the impugned transactions etc and requiring the assessee to furnish all the materials it has in its support etc , simply based on the internal information he has received, has come to a conclusion that the impugned transactions are not genuine. Since, all the facts and circumstances required for the purposes of deciding these issues are not examined properly and placed on record, we deem it fit to remit these issues back to the AO for a fresh examination for both the ays. The assessee shall furnish all the facts and circumstances associated with these transactions, place all the materials in its support before the AO and then comply to the AO’s requirements as per law. The A O is free
:-6-: & 1889/Chny/2017 to conduct appropriate enquiry as deemed fit, but he shall furnish adequate opportunity to the assessee on the material etc to be used against it and decide this matter in accordance with law .
On the disallowance u/s. 35(1)(ii):
The AR submitted that the CIT(A), without considering the details in the form of donation appeal letter, donation paid details through banking channels, donation receipts, notification from the Ministry of Finance according approval to the Institution for weighted deduction u/s. 35(1)(ii), upheld the orders passed by the AO disallowing the weighted deduction claimed U/s.35(1)(ii) at Rs.1,05,00,000/-& Rs.70 lakhs, respectively, on the donations made at Rs. 60 lakhs in assessment year 2013-14 and Rs.40 donations made in assessment year 2014-15. The AO based on information received from Investigation Wing, Kolkata treated the donation as bogus. The Ld. CIT(A) failed to appreciate the fact that the assessee is not in obligation to check if such institution was making accommodation entries when the Ministry of Finance has granted approval for institution. The Ld. CIT(A) failed to establish that the assessee had received back donation made in cash or any other form from the School of Human Genetics Population Health and Herbicure Healthcare Bio-Herbal Research Foundationetc. Per contra, the DR submitted that the assessee claimed deduction u/s. 35(1)(ii) in respect of the donations made at Rs.35 lakhs to School of Human Genetics Population Health, Kolkata and Rs.25 lakhs to Herbicure Healthcare Bio-Herbal Research
:-7-: & 1889/Chny/2017 Foundation, Kolkata, totalling at Rs. 60 lakhs in assessment year 2013-14 and Rs.40 lakhs to School of Human Genetics Population Health, Kolkata in assessment year 2014-15. As a result of survey conducted by the Investigation Wing, Kolkata in January, 2015, it came to light that the donors in connivance with various brokers, entry operators, donees etc, misused the benefit conferred u/s. 35(1)(ii) for undertaking bogus donations. The evidences gathered indicated that the transactions were not genuine as the donor took merely accommodation entries and the alleged donation were routed back to them after deduction of commission by the entry providers at various stages. When the funds were returned back to the donors through the banking channels or otherwise such amounts became unaccounted funds in the respective assessee’s hands etc. With these findings, the AO offered adequate opportunity to the assessee and disallowed assessee’s claim of deduction u/s. 35(1)(ii). Before the appellate authority also, the assessee could not prove the genuineness of the transactions and hence, the appellate authority confirmed the impugned disallowances in both the assessment years which may be sustained.
We have considered the rival submissions. The assessee is claiming deductions u/s. 35(1)(ii) based on the donations made to School of Human Genetics Population Health, Kolkata at Rs 35 lakhs and Rs 25 lakhs to Herbicure Healthcare Bio-Herbal Research Foundation, Kolkata in ay 2013-14
:-8-: & 1889/Chny/2017 &Rs 40 lakhs to School of Human Genetics Population Health, Kolkata in ay 2014-15 . When the assessee claimed to have donated huge sums to certain persons, the onus is on the assessee to establish who , with whom, how and in what circumstances the impugned sums were donated etc. However,in this case, the AO has taken up himself the onus to disprove the genuineness of the donation much before the assessee has proved the genuineness of the donation. When an assessee steps forward to give huge donations, the assessee would have adequate reasons to give such donations. Here, it is noticed that the assessee has not been given any opportunity to prove the genuineness but the assessments have been made based on the evidences collected by the Revenue in the course of the survey conducted on the respective organizations. This is not permissible. This being so, in the interest of natural justice, the issues of the genuineness of the donations are restored to the file of the AO for re-adjudication. The AO must keep in mind that the onus of proving the donations are actually donations and not accommodation entries and that the said organizations were eligible for claiming deduction u/s. 35(1)(ii) of the Act etc rests on the assessee. If the AO does have any evidence to the contrary, it is to be put to the assessee for his rebuttal. The assessee shall produce the recipients of the donations for examination along with the evidences to prove the receipt of the donation. The internal communications of the Revenue are evidences for drawing an opinion on possible wrong claims but they are not the final evidence. This being so, the :-9-: & 1889/Chny/2017 issue of the donation in these appeals are restored to the file of the AO for re- adjudication after granting the assessee adequate opportunity to prove the genuineness of the donations as pointed out ,supra.
In respect of assessee’s claim of deduction u/s. 80IA for assessment year 2014-15, we find from the assessment order that the AO began to compute the income from the total income determined u/s. 143(1). In the disallowances u/s 143(3) , we do not find any disallowance U/s.80IA. The CIT(A) in his order observed as under:
“8.2 During the course of the hearings on 25.04.2017, 03.05.2017 and 24.05.2017 the AR did not file any material in support of the appellant’s claim for deduction u/s. 80IA. 8.3 In the absence of evidence in support, this ground of appeal is dismissed.”
Thus, this issue was not a subject matter in the impugned assessment order and its appeal order also. Hence, this issue cannot be adjudicated.
In the result, the assessee’s appeals in & 1889 of 2017 are treated as allowed for statistical purposes
:-10-: & 1889/Chny/2017
Order pronounced on Tuesday, the 06th day of March, 2018 at Chennai.