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Income Tax Appellate Tribunal, “B” Bench, Mumbai
Before: Shri B.R. Baskaran (AM)& Shri Ravish Sood (JM)
O R D E R Per B.R. Baskaran (AM) :-
The assessee has filed this appeal challenging the order dated 27-03-3014 passed by Ld CIT(A)-24, Mumbai confirming the disallowance of Short term Capital loss declared by the assessee in AY 2005-06.
This is second round of proceeding. In the first round, the ITAT had restored the matter to the file of the AO, since the assessee pleaded that the AO had completed the assessment on the strength of materials collected behind the back of the assessee.
The facts relating to the issue are discussed in brief. The assessee is an individual and has declared Shorter Term capital gain/loss on sale of three securities viz., M/s Jaihind Synthetics Ltd, M/s media Matrix Ltd and M/s Channel
2 Shri Bharatkumar Dand Guide Limited. The assessee earned short term capital gain of Rs.17,614/- in M/s Jaihind Synthetics Ltd and suffered short term capital loss of Rs.6,98,940/- in other two securities. The assessee had purchased all the three securities through Mahasagar group of companies. The Mahasagar group of companies was searched by the revenue and the managing director of the said group admitted that they have been providing accommodation entries only for generation of capital gains/loss. Based on the statement so given, the short term capital loss declared by the assessee was doubted. During the course of assessment proceedings, the AO made enquiries with M/s Mahasagar securities and they did confirm the purchase of securities from them. However it expressed its inability to furnish bank account details. The shares were claimed to have been dealt in a Stock exchange named M/s Interconnect Exchange India Ltd. When the AO made enquiries, the above said stock exchange reported that the impugned share transactions have not been routed through them. Under these set of facts, the AO disbelieved the claim of Short term capital loss and accordingly disallowed the same. Even though the assessee furnished copies of broker notes for purchase and sale of shares, De-mat account statements and bank statements, yet the AO rejected them. Accordingly the AO disallowed the Short term capital loss declared by the assessee in the set aside proceedings also. It is pertinent to note that the AO accepted the shares transactions carried out in M/s Jaihind Synthetics Ltd, since the assessee had earned Short term capital gain thereon. It is also pertinent to note that the assessee had sold the shares through another broker named M/s AMU Shares and Securities Ltd, which is not a group company of M/s Mahasagar securities Ltd, but the said fact was also not considered by the AO.
In the appellate proceedings, the Ld CIT(A) examined the ledger account copies relating to financial transactions and raised doubts with regard to the 3 Shri Bharatkumar Dand purpose of payments/receipts recorded therein. He also reiterated that the Stock exchange, viz., M/s Interconnect Stock exchange has denied the transactions. Accordingly he held that the share transactions shown by the assessee with all the three companies are sham and bogus transactions. Accordingly he confirmed the order of AO in disallowing the claim of Short term capital loss. Aggrieved, the assessee has filed this appeal before us.
We have heard rival contentions and perused the record. First of all, we notice that the assessing officer has accepted the share transactions carried out in M/s Jaihind Synthetics ltd, even though they have been carried out through M/s Mahasagar Securities. Secondly we notice that M/s Mahasagar has confirmed the share transactions carried out by the assessee with them. The confirmation letter furnished by them is in contradiction to the statement given by them earlier, wherein they had stated that their group was providing accommodation entries only. We notice that the AO did not take any effort to disprove the confirmation letter given by M/s Mahasagar securities. Instead the AO chose to reject their confirmation letter by observing that they have failed to provide bank statements. On the contrary, the Ld CIT(A) has examined the ledger account of the assessee with regard to banking transactions entered with M/s Mahasagar and expressed his doubts about the purpose of payments/receipts. Thus the very basis on which the AO had rejected the confirmation letter given by M/s Mahasagar securities has effaced due to the importance given by Ld CIT(A) for bank transactions.
The tax authorities have given importance to the letter issued by M/s Interconnect Exchange Ltd, wherein it has stated that the impugned purchase transactions have not been carried through their exchange. The assessee has stated before the Ld CIT(A) that the off-market transactions are also recognized transactions and such transactions are not routed through the stock exchange.
4 Shri Bharatkumar Dand Further he has relied upon the following decisions of Tribunal, wherein the off- market transactions were recognized for computing capital gains:- (a) Shri Mahendra D Jain Vs. ITO (ITA 1661/Mum/2008 dated 19-05- 09)(Mum)
(b) Mr. Kataria Ketan Ishwarlal Vs. ITO (ITA No.4304/Mum/07 dated 30- 04-2010)(Mum)
(c) ITO Vs. Raj Kumar Agarwal (ITA No.1330/Kol/2007 dated 10-08- 2007)(Kol).
We notice that the ld CIT(A) did not address or distinguish these decisions.
It is an uncontroverted fact that the assessee has furnished De-mat account maintained with M/s CDSL, a Government of India enterprise. The de- mat account shows receipt and dispatch of impugned securities. There should not by any doubt that the transactions shown in the de-mat account proves the purchase and sale of securities. It is also a fact that the assessee has sold the shares through another broker, who is not connected with M/s Mahasagar securities. The sale transactions have not been proved to be false. We have earlier noticed that the AO has accepted the share transactions carried in M/s Jaihind Synthetics Ltd through M/s Mahasagar Securities Ltd. We have noticed that M/s Mahasagar securities have confirmed the share transactions and they have been claimed to be off-market transactions at the time of purchase. The sale of shares was through stock exchange through another broker. All bank transactions have been duly disclosed. The broker notes for both purchase and sale of shares, the De-mat accounts for receipt and dispatch of securities have been duly furnished. Under these set of facts, we are of the view that there is no reason to suspect the short term capital loss declared by the assessee. Accordingly we set aside the order passed by ld CIT(A) and direct the AO to accept the short term capital loss declared by the assessee.
5 Shri Bharatkumar Dand
In the result, the appeal filed by the assessee is allowed. Order has been pronounced in the Court on 22.3.2017.