SKS FINCAP PRIVATE LIMITED,KOLKATA vs. DCIT, CIRCLE - 8, KOLKATA, KOLKATA

The only issue that arises for consideration in this appeal is as to whether the revenue authorities were justified in rejecting the claim of the assessee for share trading loss of Rs.49,11,450/-.

The facts and circumstances in which the appeal arises for consideration are as follows :- The Assessee is a private limited company. It is engaged in the business of dealing in shares and securities. It is registered as a Non-banking financial company(NBFC). The assessee had claimed loss on share trading of Rs.49,11,450/-. This comprises of loss arising out of sale of 2900 shares of Sangotri Construction of Rs.2,53,252/- and loss on sale of 20800 shares of Sarang Viniyog.

The evidence on record shows the following facts :- I)Loss on sale of 2900 shares of Sangotri Construction : The assessee purchased 2500 shares of Sangotri Construction on 19.07.2005 through a broker Shyam Lal Sultania for consideration of Rs.3,75,300/- and another 400 shares of Sangotri Construcxiton on 12.08.2005 from Shyam lal Sultania. The contract note issued by the broker is placed at pages 14 and 15 of the assessee’s paper book. On 17.01.2006 the assessee sold 2900 shares through a broker S.B.Bhutra & Co. The contract note of the broker is at page 17 of assessee’s paper book. Pages 18 to 20 of the assessee’s paper book is the stock exchange quotation for the period during which assessee purchased and sold the shares of Sangotri Construction. The purchase of 2500 shares on 19.07.2005 by the assessee was at 150 per share and the purchase of 400 shares on 12.08.2005 was at 107.39 paise. The rate at which the shares were sold was 56.90 paise (net). The purchase and sale price are in accordance with the Stock Exchange quotation for the relevant period as per the quotation information history of Sangotri Construction shares given at pages 18 to 20 of the assessee’s paper book. The assessee realised the share value of the shares through cheques and the bank statement are placed at pages 22 and 23 of the paper book and evidences realisation of sale proceeds through banking channels on sale of shares.

The main reason why the AO disallowed the claim of the assessee on sale of shares of Sangotri Construction was that Shyam Lal Sultania was suspended by SEBI vide its order dated 29.09.2009 for price rigging and manipulation. The AO has also observed that the price variation of the shares of Sangotri Construction was not justified by any announcement made by the company giving room to the suspicion that the brokers were rigging the price of the shares of Sangotri Construction. AO therefore disallowed the claim of the assessee for deduction on loss of shares. CIT(A) confirmed the order of AO.

We have considered the rival submissions. The evidence on record clearly shows that the purchase and sale of shares were genuine and were through brokers. SKS Fincap Private Ltd.. ,A.Y.2006-07 The payments have been made through banking channels. The price was in tune with the quotation in the Stock Exchange. There can be no doubt or dispute on these aspects. The only reason which needs consideration is order of the SEBI banning Sangotri Construction from trading. Order passed by Stock Exchange is placed at pages 29 to 37 of assessee’s paper book. A perusal of the order shows that Shyam Lal Sultania was banned for price rigging in certain shares. The shares of Sangotri Construction is not one such share. It is further seen that order of SEBI banning Sangotri Construction is w.e.f. 29.09.2005 whereas the assessee purchased the shares of Sangotri Construction through Shyam Lal Sultania on 19.07.2005 and 12.08.2005. In the given circumstances we are of the view that the reasons assigned by the AO for disregarding loss on purchase and sale of shares of Sangotri Construction cannot be sustained. AO has also made reference to the fact that the S.B.Bhutra & Co. through whom the shares of Sangotri Construction has sold have been suspended by SEBI vide its order dated 13.04.2007 for price rigging and manipulation. This order of SEBI is placed at pages 38 to 46 of the assessee’s paper book. The first aspect which we notice is that the order of SEBI was operative from 13.04.2007 whereas the assessee sold the shares of Sangotri Construction through S.B.Bhutra & Co., on 17.01.2006. Secondly, S.B.Bhutra & Co., was found guilty of manipulation of stock price of a different company and not that of Sangontri Construction. This reason assigned by the AO for disbelieving the loss claimed by the assessee on sale of shares of Sangotri Construction cannot be sustained. AO seems to have proceeded on the presumption that persons involved in transaction were tainted persons. Such general allegation in the light of documentary evidences available on record cannot be the basis for disallowing the claim on loss of shares of Sangotri Construciton. We accordingly hold that loss of shares should be allowed.

As far as the sale of shares of Sarang Viniyog is conernced it was an off market sale. The learned counsel for the assessee submitted that the shares in question were held as stock in trade and as per the historical quotation of Stock Exchange the shares were of the value of Rs.43.20 paise per share as on the last date of the previous year. Even if the sale is disbelieved the assessee shall be entitled to value of the shares at the cost of the market price and in any event the loss in question should be allowed to the assessee. We find force in this submissions made by the learned counsel as well. For the reasons stated above we direct that the loss on sale of shares should be allowed as deduction. SKS Fincap Private Ltd.. ,A.Y.2006-07

In the result the appeal of the assessee is allowed. Order pronounced in the Court on 03.02.2016.