2017 (9) TMI 1773 - AT - Income Tax

Disallowance of short term capital loss - purchase of shares - addition on reliance on the statement given by Shri Mukesh Choksi - Held that - The sale consideration has been received through banking channels, meaning thereby, the genuineness of receipt of sale consideration also stands proved. It is not the case of the AO that the price of purchase/sales was not in tune with market rates. The assessee has furnished evidences to support the claim of purchase and sales in the form of broker notes, the bank statements and de-mat statements. In my view, these documents sufficiently prove the genuineness of purchase and sale of shares. The tax authorities have simply placed reliance on the statement given by Shri Mukesh Choksi. When the documentary evidences, that too external evidence, support the case of the assessee, I find no reason in placing reliance solely on the general statement given by Shri Mukesh Choksi. The cancellation of registration of the broker license of M/s Alliance Intermediary, in my view, would not nullify the evidences furnished by the assessee, since the payments and delivery of shares have been proved. As contended by Ld A.R, the assessing officer has not brought any material on record to disprove the evidences furnished by the assessee. There is no reason to suspect the genuineness of purchase and sale transactions of shares. Accordingly set aside the order passed by CIT(A) and direct the AO to allow the impugned claim of short term capital loss. - Decided in favour of assessee.

Summary

Issues Involved:
Challenge to disallowance of short term capital loss declared by the assessee for the assessment year 2007-08.

Analysis:
1. The assessee declared a short term capital loss on the sale of shares, which was disallowed by the Assessing Officer (AO) due to suspicions regarding the transactions with Mukesh Choksi group of companies.
2. The assessee submitted all relevant documents during the assessment proceedings to prove the genuineness of the transactions, including bills, contract notes, bank statements, and depository account statements.
3. Despite the submissions, the AO disallowed the short term capital loss, relying on information related to a share scam involving Mahasagar Securities Pvt. Ltd. group and the cancellation of registration of a broker by SEBI.
4. The assessee argued that the transactions were genuine, supported by proper documentation, and not linked to any scam. They highlighted that the shares were of reputable companies, payments were made through banking channels, and transactions were reflected in the depository account.
5. The Ld CIT(A) upheld the disallowance, leading the assessee to appeal to the Tribunal.
6. The Tribunal found merit in the assessee's contentions, noting that the purchased shares were not part of the suspected group, payments were made through cheques, and transactions were reflected in the depository account, proving their genuineness.
7. The Tribunal criticized the tax authorities for solely relying on a statement by Shri Mukesh Choksi without concrete evidence to disprove the genuineness of the transactions. The cancellation of the broker's registration did not negate the evidence provided by the assessee.
8. Consequently, the Tribunal set aside the Ld CIT(A)'s order and directed the AO to allow the claim of short term capital loss, emphasizing the genuineness of the transactions based on the evidence presented.
9. The appeal by the assessee was allowed, and the order was pronounced on 18.9.2017.