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Income Tax Appellate Tribunal, KOLKATA ‘B’ BENCH, KOLKATA
Before: SRI RAJESH KUMAR & SRI ANIKESH BANERJEE
order
: February 22nd, 2024 ORDER
Per Anikesh Banerjee, Judicial Member:
1. The instant appeal of the assessee was filed against the order of Ld. Commissioner of Income-tax (appeals)-NFAC, Delhi [in brevity ld. ‘CIT(A)’] dated 16.10.2023 passed u/s 250 of the Income Tax Act, 1961 (in brevity the ‘Act’) for assessment year 2015-16. The impugned order was emanated from the order of the ld. ACIT, Circle-5(2), Kolkata (in brevity the ‘AO’) passed u/s 143(3) of the Act dated 29.12.2017.
2. The assessee has taken the following grounds of appeal:
1. For that on the facts of the case the order passed by the Ld. C.I.T.(A)- NFAC is completely arbitrary, unjustified and illegal.
I.T.A. No.: 1362/KOL/2023 Assessment Year: 2015-16 Vicky Fincon Private Limited.
For that on the facts of the case, the Ld. C.I.T.(A) was wrong in not considering the merit of the case, therefore, the order passed by the Ld. C.I.T.(A) is completely arbitrary, unjustified and illegal.
3. For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in making disallowance of Rs. 2,27,75,452/- on account of bogus loss in share trading which is completely arbitrary, unjustified and illegal.
4. For that on the facts of the case, the Ld. C.I.T.(A) was wrong in dittoing the order of the A.O. and confirming the disallowance amounting to Rs.2,27,75,452/- as trading loss in share transaction were done on the platform of the exchange, treating the same as bogus loss which is completely arbitrary, unjustified and illegal.
For that on the facts of the case, the A.O. has only relied upon Investigation Wings materials but the A.O. himself has not made any independent enquiry, therefore, the disallowance amounting to Rs.2,27,75,453/- is completely arbitrary, unjustified and illegal.
For that on the facts of the case, the Ld. CIT(A) ought to have considered that the assessee company had discharged its onus by furnishing all the relevant documents in connection with the trading of share and also proved the identity, creditworthiness and genuineness of transactions, thus his action is completely arbitrary, unjustified and illegal.
For that the interest u/s. 234B amounting to Rs.9,25,518/- charged mechanically are wrong & illegal.
8. For that the appellant reserves the right to adduce any further ground or grounds, if necessary, at or before the hearing of the appeal.”
Tersely we advert the fact of the case. The assessee is a share trader and investor. During the impugned assessment year, the assessee has future & option loss amounting to Rs. 1,49,19,837.75 and the purchase of quoted share of Rs. 5,34,48,339.96. During the impugned assessment year, the assessee incurred loss amounting to Rs. 2,77,75,452.84 after dealing with different share in stock exchange. Ld. AO calculated the total loss suffered by the assessee to Rs. 2,27,75,453/- while trading in share transaction in listed securities as these losses have been booked transactions of different stock which the ld. A/R has treated as the penny stock. The assessee was asked to explain the loss amounting to Rs. 2,27,75,453/- during the assessment proceedings. The assessee submitted the evidence and supporting documents before the ld. AO. But the ld. AO has added back the amount to the total I.T.A. No.: 1362/KOL/2023 Assessment Year: 2015-16 Vicky Fincon Private Limited. income of the assessee. Being aggrieved, the assessee filed an appeal before ld. CIT(A). Ld. CIT(A) upheld the assessment order. Being dissatisfied on appeal order, the assessee filed an appeal before us.
Ld. A/R, Mr. Soumitra Choudhury, Advocate vehemently argued and submitted written submissions which are kept in the record. Mr. Choudhury invited our attention in appeal order page 9 and placed that ld. CIT(A) has passed the order in very cryptic manner and the decision was given by one line. The relevant paragraph is inserted below: “I have gone through the facts of the case in detail. The jurisdictional High Court has passed a detailed order in favour of the Revenue in PCIT vs. Swati Bajaj and Ors. where it sums up as ………………………… Respectfully following the decision of the jurisdictional High Court, I have no hesitation in dismissing these grounds of appeal
.”
5. Ld. A/R, Mr. Choudhury further, placed that the assessee has a huge number of share dealing which is amounted to Rs. 1,49,19,837.75 for future & option loss and purchase of quoted share amounting to Rs. 5,34,48,339.95. So, the entire transaction of share loss is not a single transaction or a single incident in assessee’s case. The relevant submission in APB page 17 is duly inserted as below:
I.T.A. No.: 1362/KOL/2023 Assessment Year: 2015-16 Vicky Fincon Private Limited. 6. Ld. A/R in argument further, placed that during the assessment and appeal proceeding, assessee submitted all the documents before the authorities and no veracity was challenged by the Revenue authorities. The relevant documents are as follows:
SL. PARTICULARS Authorities PAGE NO(s). NO. before whom Hied/ available 1. Audited Balance Sheet CIT(A) &A.0. 1 to20 2. Copy of Income Tax Return along with ITR-V CIT(A)&A.O. 21 to 60 3. Notice issued u/s 143(2) of the Act CIT(A) &A.0. 61 to 62 4. Written submission filed before AO on 27.12.2017 with all CIT(A)&A.O. 63 to 74 documentary evidences substantiating the transaction.
5. Statement showing details of purchase, sale & loss as CIT(A) &A.0. 75 incurred by the assessee & as disallowed by the AO in the disputed shares.
6. Scrip-wise statement of loss along with respective Contract CIT(A)&A.O. 76 to 83 Notes: 84 to 96 i) Cressanda Commercial Ltd 97 to 99 ii) Dhanleela Investment Ltd 100 to 103 iii) Mahavir Advances Ltd 104 to 114 MatraKaushal Ltd 115 to 123 iv) Mashika Finance Ltd 124 to 129 v) vi) Pearl Agriculture Ltd 130 tol34 Pearl Electric Ltd vii) Rajlaxmi Industries Ltd viii) 7. Bank statement showing: CIT(A)&A.O. 135 to 153 • Payment for Purchase Consideration • Receipt of Sale Consideration 8. De-Mat Account from 01.04.2014 to 31.03.2015 showing: CIT(A)&A.O. 154 to 164 a) Shares-IN on Purchase b) Shares-OUT on Sale 9. Ledger account of the Broker (M/s Basan Equity Broking CIT(A) &A.0. 165 to 167 Ltd) in the books of the assessee for the year ended 31.03.2015 10. Ledger of the Assessee in the books of broker showing CIT(A)&A.O. 168 to 169 entries for purchase & sale of shares for respective shares during FY 2014-15 11. Notice u/s 250 & Submissions made by the assessee CIT(A) 170 to 200 before CIT(A) 7. Ld. D/R vehemently argued and placed that the entire transaction is dealt through penny stock. The assessee had booked the loss to cover up the profit. Ld. D/R invited our attention to the assessment order page 2 para 1 which is reproduced as below:
1. Share Trading loss on Penny Stock: During the course of assessment proceedings. It is noticed from the ITS details that the assessee company has purchased/sales shares transactions for which Penny Stock Trade data has been displayed and resulting in a Page 4 of 11 I.T.A. No.: 1362/KOL/2023 Assessment Year: 2015-16 Vicky Fincon Private Limited. huge loss amounting to Rs.2,27,75,452/- in transaction of Penny Stocks. Since these loss are not allowable in view of report of Investigation Wing. On hearing dated 18.12.2017 as asked from the A/R to furnished the net result from trading of below mentioned Penny Stocks, the A/R of the assessee tiled the submission with net result in Penny Stocks which is reproduced as under: Particulars Purchase Amount Sale Amount Gain/Loss Qty. Qty. Amount Cressanda Commerci 75,000 40,33,538.62 75,000 7,68,460.00 -32,65,078.62 Dhanleela Investment 25,000 48,44,569.80 25,000 23,26,587.50 -25,17,982.30 Mahavir Advanced 5,000 17,90,849.55 5,000 7,53.250.00 -10,37,599.55 Matra Kaushal 50,000 25,90,463.60 50,000 4,51,595.00 -21,38,868.60 Mishika Finance Ltd. 1,25,000 64,86,447.00 1,25,000 9,61,347.15 -55,25,099.85 Pearl Agriculture Ltd. 50,000 24,46,915.50 50,000 4,80,785.00 -19,66,130.50 Pearl Electric 1,00,000 50,67,462.75 1,00,000 9,20,160.00 -41,47,302.75 Rajlaxmi Industries 1,00,000 29,79,782.67 1,00,000 8,02,392.00 -21,77,390.67 Total -2,77,75,452.84 It is seen from the details that the assessee has suffered a loss of Rs.2.27.75,453/- while trading in shares transaction in listed securities, as these losses have been booked in transaction of different Penny Stocks. Therefore, the assessee is requested to explain why these loss of Rs.2.27,75,453/- should not be disallowed in computing total income.
The Ld. A.R further argued that the issue is duly covered by the order of the Co-ordinate Bench of ITAT-Kolkata in the case of Samrat Finvestors Pvt. Ltd. vs. ITO in for AY 2014-15 date of pronouncement 11.01.2024. The relevant paragraphs are duly reproduced as below:
“3. The facts qua the first issue raised by the assessee are that the assessee, during the year, has incurred loss of Rs. 3,98,50,208/- which comprised of share trading loss amounting to Rs. 2,87,07,277/- and Rs. 1,11,42,931/- in respect of loss on trading in F & O segment. The Assessing Officer observed from the details filed by the assessee that the assessee has incurred loss in seven (7) shares which were listed on the stock exchange. The list of the stocks are as follows: Page 5 of 11 I.T.A. No.: 1362/KOL/2023 Assessment Year: 2015-16 Vicky Fincon Private Limited. Sl. Name No.
Shree Shakeen Textile 2. Unno Industries 3. SRK Industries 4. Global Infratech 5. Comfort fincap 6. Ashika Credit Capital 7. Nikky Global 9. The Ld. A.R further invited our attention in para 22 of the order. The relevant paragraph are reproduced as below:
“12. We find force in the contentions raised by the ld. counsel for the assessee. Firstly, in this case, the assessee has not claimed long-term capital gains on account of unrealistic steep rise in the share prices of these scrips traded in as was in the case of PCIT vs. Swati Bajaj & Ors (supra). The Hon’ble High Court had held, under the circumstances, that the burden was upon the assessee to explain the business prudence of investment in these scrips of the companies having negligible financial worth and thereafter of steep rise in their share price resulting into huge capital gains within a short span of time. The case before us is of business loss in share trading. The assessee, as observed above, has duly explained the factors and considerations which prevailed for making decision by the assessee company of purchasing in the aforesaid five scrips, which included their financial worth, the market position, their income, dividends etc. Further, it was not a case that the shares shown to have been purchased off market/privately and thereafter they were put into demat account after sufficient lapse of time from the alleged date of physical purchase and then sale of the same within a short span of time after they were accounted in the demat account, gaining high monetary capital gains. In the case of the assessee, the shares were traded on the stock exchange, the same were kept in the demat account of the assessee. There is no allegation of involvement of the assessee or even his share broker in any type of price rigging. There even does not seem any probability of meeting minds of the assessee and/or his share broker and the promoters of the companies. A very peculiar fact which is noted from the assessment order/investigation wing report is that in the list of the persons whose statement was allegedly recorded and who in their statement have admitted of price rigging, the names of share brokers, entry operators and exit providers have been mentioned. The facts on the file itself show that there was meeting of minds of the entry operators and the share I.T.A. No.: 1362/KOL/2023 Assessment Year: 2015-16 Vicky Fincon Private Limited. brokers and exit providers. The price rigging was done by giving benefit to various subscribers with connivance of share brokers and the motive was to convert their unaccounted money into tax exempt long-term capital gains and for that purpose, there were certain persons chosen as exit providers who would buy shares when the share prices would be at its peak and those exit providers thereafter would suffer losses on account of fall in the price of the shares. This specific fact on the file shows that the exit providers were already chosen to execute the plan. The motive was to give the benefit of bogus long-term capital gains to various beneficiaries and to make that plan foolproof, the exit providers were already chosen with a pre- determined planning as to at what stage the beneficiaries of bogus long-term capital gains would be given exit. That perhaps was not dependent upon chance exit providers willing to book bogus short- term capital loss. Neither the name of the assessee nor of his share broker is mentioned in the list of exit providers. The circumstances of this case do not suggest of unnatural and unrealistic human conduct. The Assessing Officer in this case has not pointed out any adverse evidence against the assessee. He has simply relied upon the investigation report which is a general investigation report. The Hon’ble Calcutta High Court in the case of PCIT vs. Swati Bajaj &Ors (supra) has considered the said report and analysed the same vis-a- vis circumstantial evidences like the negligible financial worth of the companies whose shares were traded in, the unrealistic steep hike in the share prices as against the recessive market trend and the failure of the assessee to explain the commercial prudence for making such huge investments. The additions thus have been made on the basis of circumstantial evidences and considering the preponderance of probabilities. Hon'ble Supreme Court in Padmasundra Rao v. State of T.N. 255 ITR 147 (SC) has held that circumstantial flexibility, e.g. one additional or different fact, may make a world of difference between conclusions in two cases: “Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case, said Lord Morris in Herrington Vs. British Railways Board (1972) 2 WLR 537.Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases.”
I.T.A. No.: 1362/KOL/2023 Assessment Year: 2015-16 Vicky Fincon Private Limited. The Hon’ble Karnataka High Court in the case of “Flipkart India (P.) Ltd. v/s Assistant Commissioner of Income-tax”, [2017] 79 taxmann.com 159 (Karnataka) has observed that considering the fact that this blind appreciation of a precedent is a frequent occurrence, in catena of cases, the Hon'ble Supreme Court has clearly opined that a judgment should not be read as a provision of law. A judgment is confined to the facts and circumstances of its own case. It is only when the facts and circumstances in two cases are similar that the ratio of the former case becomes applicable to the latter case. As discussed above, in the absence of any direct incriminating evidence against the assessee, the distinguishable and weak circumstantial evidence, in our view, do not suggest the preponderance of probability of the assessee being involved in price rigging of the scrips or being the predetermined and pre planned beneficiary of the devised scheme, therefore, the impugned additions are not warranted in this case, and the same are accordingly ordered to be deleted.”
Respectfully following the above decision of this Tribunal in the case of Raigarh Jute & Textile Mills Ltd. vs. ACIT (supra), which is squarely applicable on the facts of the instant case of assessee i.e., M/s. Gateway Financial Services Ltd., we find that the alleged loss has been incurred by the assessee in the regular course of its business. We also note that the statement of various persons recorded by the AO/investigation wing/search team in the course of other proceedings as well as the report of the Kolkata investigation wing, there is no reference to a direct evidence indicating that the transactions in question is in the nature of accommodation entry or for arranging bogus loss. Thus, the addition/disallowance made by the assessee is merely on the basis of preponderance of probabilities. Therefore, in the present case, when the statements and investigation report relied upon by the AO has not been given to the assessee for the purpose of cross-examination as well as rebuttal, we in view of the above decision are inclined to hold that the alleged loss being genuine loss from share trading incurred by the assessee in regular course of business, deserves to be allowed. Thus, impugned disallowance is uncalled for.
Thus, to conclude we hold that firstly the principles of natural justice have been violated while carrying out the assessment proceedings in the case of the assessee(s) since no opportunity for cross-examination was provided for those persons whose statements have been relied upon by the assessing officer for making the alleged Page 8 of 11 I.T.A. No.: 1362/KOL/2023 Assessment Year: 2015-16 Vicky Fincon Private Limited. additions. Secondly, there is no direct evidence referred to by the assessing officer or in the report of the investigation Wing that the assessee(s) have made arrangements with the entry operators/company owners for carrying out the alleged transactions. Thirdly, additions made by the assessing officer are merely based on a theory called preponderance of probability that in same type of cases prices are rigged up and down by the entry operators in order to provide accommodation entry to various persons in the form of Long term capital gain and though, the assessing authority can apply preponderance of probabilities in some cases on account of surrounding circumstances but so far as the cases on hand are concerned, we notice that firstly some observations were made by the SEBI regarding some fishy transactions carried out in case of few companies. Based on such primary information, the income tax department has carried out extensive enquiries and search and surveys in the case of various entry operators and alleged companies and based on such statements, a theory was established regarding such accommodation/bogus entries in the form of capital gains. However, since in the case of the assessee, SEBI at a later stage has intensively carried out the investigation on the facts of the assessee(s) along with other persons as referred in the order of the SEBI (extracted supra), and after a detailed investigation and examination of records exonerated, the assessee(s) from the charges levelled in the show cause notice issued to them. Therefore, when the assessee(s) have been exonerated and the charges against them have been waived and the transactions of purchase and sale of equity shares carried out by them have been found to be genuine, the theory of preponderance of probabilities is ruled out in the case of the present assessee(s). Thus, when the transactions giving rise to the long term capital gain have been found to be genuine, and as per rules and regulation of SEBI, the finding of the ld. CIT(A) deserves to be set aside and the impugned additions in case of assessee(s) in appeal before us are uncalled for.”
We heard the rival submissions and considered the documents available in the record. We find that the assessee has made the transaction of shares and generated the loss during this financial year. The relevant documents are duly submitted before the revenue authorities and also submitted before the Bench in relation to the share trading loss.
I.T.A. No.: 1362/KOL/2023 Assessment Year: 2015-16 Vicky Fincon Private Limited.
There is no question about the veracity of the documents submitted before the authorities. But the revenue-authority is fully relied on the preponderance of probability as per the order of Hon’ble Apex Court in the case of Sumati Dayal vs. CIT in 214 ITR 801 (SC) and the order of Hon’ble Calcutta High Court in the case of PCIT vs. Swati Bajaj in IA No. GA No/2/2022 and Ors. ITAT/6/2022 & Ors. In [2022] 139 taxmann.com 352 (Cal). But in case of loss, there is no question of the peak increase of the share value and also the assessee is suffering the capital loss by generating the share loss.
We fully relied on the order of Co-ordinate Bench in the case of Samrat Finvestor Pvt. Ltd. (supra). The same logic is also applied for transacted shares also. The assessee has suffered losses by transaction of number of shares. The assessee itself transacted huge volume of share during impugned assessment year. We find that the entire addition is made on basis of pre- conceive idea as generated after a general investigation of investigating authority. We accordingly set aside the appeal order and quash the addition amount of Rs.2.27,75,453/-. We order accordingly.