ITO, WARD-1(1), KOL, KOLKATA vs. M/S. ILLUSION BARTER PVT. LTD. , KOLKATA

The instant appeal of the revenue was filed against the order of Ld. Commissioner of Income-tax (appeals)-NFAC, Delhi [in brevity ld. ‘CIT(A)’] dated 11.01.2023 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. Asst. CIT (OSD), Ward-1(2), Kolkata (in brevity the ‘AO’) passed u/s 143(3) of the Act dated 27.12.2017.

The assessee has taken the following grounds of appeal:

When the appeal was called for hearing, no one appeared on behalf of assessee to represent his case. There is no application for seeking adjournment either. On perusal of record, we find that the hearing is scheduled on 25/1/2024. Previously the dates were fixed number of times. In view of the above and considering the nature of dispute, we proceed to dispose the appeal ex-parte qua the assessee after hearing the learned DR and on the basis of material available on the record.

The brief fact of the case is that the assessee is a company and filed return in impugned assessment year by declaring total income amount to Rs. 35,840/-. The assessee in impugned assessment year set off loss of short- term trading loss in quoted share with taxable interest income. The claim of trading loss amount to Rs. 404,159/-. During the assessment the ld. AO has treated the loss as bogus short term capital loss instead of trading loss which was transacted with Cressanda Solutions Limited. After conversion of the trading loss to capital loss, the ld. AO has treated the impugned loss as bogus and was added back with the total income of the assessee. The aggrieved assessee filed an appeal before the learned CIT(A). The learned CIT(A) has accepted assessee’s plea and allowed the appeal by a speaking order. Being aggrieved the revenue file the appeal before us by challenging the apple order. As the issue is related to bogus short-term loss which was treated by revenue has bogus short term capital loss, so the revenue is eligible for filing appeal before that ITAT.

The ld. DR vehemently argued and relied on the assessment order.

We heard the argument of revenue, considered the available record and orders of the revenue authorities. The addition was made on basis of the Page 2 of 5 I.T.A. No.: 537/KOL/2023 Assessment Year: 2015-16 M/s. Illusion Barter Pvt. Ltd. proposed idea without submitting proper evidence. The relevant part of the assessment order is inserted as below: - “9. In view of the discussion made above and applicability of preponderance of probability in unveiling a colourable transaction while determining matters under taxing statutes, as repeatedly observed by the Hon'ble Supreme Court in cases referred to above, I hold the loss of Rs. 4,04,159/- claimed to have been suffered by the assessee by trading in shares of Cressanda Solutions Ltd. as bogus and disallow the same. Hence, the sum of Rs. 4,04,159/-, being purported loss from trading in Cressanda Solutions Ltd. is added back to the total income of the assessee. Penalty proceeding u/s 271(1)(c) of the Income Tax Act, 1961, is initiated separately for furnishing inaccurate particulars of income.” 6.1. The observation of the ld. CIT(A) is reproduced as below: - “5.4 It is also pertinent to note that the appellant was issued various notices u/s 250 of the I.T. Act by the First Appellate Authority to make submissions and file documentary evidences in support of grounds of appeal, but the appellant has not responded to these notices during the appellate proceedings. The, contentions of the appellant have been considered and it is observed from the assessment order that it has been passed u/s 143(3) of the I.T. Act. However, the AO has not considered or discussed the submissions made by the appellant during the assessment proceedings in the assessment order. The AO did not provide any copies of the investigation reports, material gathered and the statements recorded by the Investigation Wing to the appellant before concluding that it was a bogus loss incurred on trading of penny stock shares of M/s. Cressanda Solutions Ltd. Therefore, the AO has not followed the principles of natural justice by providing adequate opportunities to the appellant to explain his case during the assessment proceedings. The AO did not consider the details and evidences submitted by the appellant substantiating the entire transaction of trading of shares of M/s. Cressanda Solutions Ltd. Also, it is observed that the AO has not issued a final show cause proposing the disallowance of trading loss in shares of Rs.4,04,159/- before finalizing the assessment u/s 143(3) of the I.T. Act. The AO has not carried out any kind of independent investigation into the transaction of trading in shares of M/s.Cressanda Solutions Ltd by the appellant. The AO has simply relied upon the general modus operandi adopted by the penny stock companies as discussed by the report of the Kolkatta Investigation Wing. The AO should have conducted an independent investigation into the trading in shares of M/s. Cressanda Solutions Ltd and his findings should have been incorporated in the assessment order. The AO relied upon the decision of the Hon'ble Supreme Court in the case of Sumati Dayal (214 ITR 801) and Durga Prasad More (82 ITR 540), however, these judgements are not applicable to the instant case as the AO has not”

In the result, the appeal filed by the revenue in is allowed for statistical purpose. Kolkata, the 30th January, 2024.