2014 (6) TMI 398 - AT - Income Tax

Confirmation of addition Bogus loss from share broker to set off as STCG - Reassessment - Held that - One of the Directors of the group of share broking companies, Shri Mukesh Choksi has admitted that his companies were indulging in fraudulent billing activities and in the business of providing bogus profit/loss and capital gains/loss, etc. - through the Investigation Wing the AO came to know that the assessee has taken bogus loss from the said share broking company - The assessee is a salaried employee and nothing has been brought on record to show that she has been trading/investing in the stock market in the past/subsequent years - no delivery of shares was taken - the assessee never paid for the shares purchased by her nor received the sale consideration on sale of shares - Only the difference, i.e. the loss was settled - The transactions of purchase and sale of shares were neither subjected to security transaction tax nor any evidence has been brought on record to suggest that STT was paid on these transactions. This conduct of the assessee defies all logics because such practice is done only in the derivatives market where no delivery is taken and the settlement is done only on account of profit or loss - The statement of the Director of the share broking company cannot be brushed aside lightly - When the person from whom the alleged transaction has been taken place categorically denies the genuineness of the transaction there remains nothing to be proved more because a contract for unlawful activity is void abinito - the assessee has purchased bogus loss from the share broker to set off the sort term capital gains to reduce tax liability thus, there was no infirmity in the findings of the CIT(A) Decided against Assessee.

Summary

Issues:
Challenge to correctness of CIT(A) order, Addition of Rs. 1,65,077 as short term capital loss, Genuine nature of share transactions.

Challenge to CIT(A) Order:
The assessee challenged the correctness of the CIT(A) order dated 10.12.2003 for A.Y. 2005-06. The assessee raised objections regarding the reopening of the case under Section 148 and the consideration of evidences and submissions. However, the counsel for the assessee did not press ground No. 1, leading to its dismissal. The only grievance that remained was the confirmation of the addition of Rs. 1,65,077.

Addition of Short Term Capital Loss:
The facts of the case revealed that the assessee, an individual deriving income from salary, filed a return of income for the relevant year. The Assessing Officer (AO) disallowed the claimed loss of Rs. 1,65,077 from the short term capital gains, as he believed the transactions with M/s. Gold Star Finevest Pvt. Ltd. were bogus based on statements during a search. The CIT(A) referred the matter back to the AO for verification, who reported that the assessee did not provide evidence of share delivery. The CIT(A) upheld the disallowance, stating that the transactions were not genuine, as the shares were not delivered or paid for, considering the Director's admission of issuing bogus bills. The Tribunal dismissed Grounds No. 2 & 3, upholding the AO's decision.

Genuine Nature of Share Transactions:
The assessee contended before the Tribunal that the transactions were supported by contract notes and should not be doubted. The counsel argued against using the Director's statement without cross-examination and cited precedents to support the claim's genuineness. However, the Tribunal noted the Director's admission of fraudulent activities and the lack of share delivery or payment by the assessee. It highlighted the absence of STT payment and the settlement of only the loss amount, indicating a scheme to reduce tax liability. The Tribunal found no error in the CIT(A)'s decision, dismissing the appeal.

In conclusion, the Tribunal upheld the CIT(A)'s decision to disallow the claimed short term capital loss of Rs. 1,65,077, as the transactions were deemed non-genuine based on the lack of share delivery, payment, and STT, coupled with the Director's admission of fraudulent billing practices. The Tribunal found no merit in the assessee's arguments and dismissed the appeal.