2019 (4) TMI 1737 - AT - Income Tax

Bogus loss on sale of shares - loss in trading of shares - genuine share purchase transaction - commission @ 5% addition - HELD THAT - As relying on ADITYA VIKRAM SUREKA HUF VERSUS ITO, WARD-34 (2) , KOLKATA 2019 (1) TMI 892 - ITAT KOLKATA Revenue has failed to pin-point any specific evidence rebutting correctness of assessee s voluminous details regarding the share transactions in issue. Mutatis mutandis to delete the impugned business loss(es) disallowance / addition as well as commission @ 5% (supra) in these facts and circumstances.

Issues Involved:
1. Treatment of business losses as bogus and addition as unexplained cash credit under Section 68 of the Income Tax Act, 1961.
2. Disallowance of commission expenses.
3. Treatment of commodity loss as bogus and addition under Section 68.

Detailed Analysis:

1. Treatment of Business Losses as Bogus and Addition as Unexplained Cash Credit under Section 68:
The core issue in the appeals was whether the business losses claimed by the assessees from the sale of shares in Nikki Global Finance Ltd. were genuine or fictitious. The Assessing Officer (AO) treated the losses as bogus and added them as unexplained cash credits under Section 68 of the Income Tax Act, 1961. The AO's findings were based on an investigation indicating that the transactions were merely accommodation entries intended to create artificial losses to offset actual incomes.

The AO analyzed the economic parameters of Nikki Global Finance Ltd. and concluded that the rise and fall in share prices were artificial and not in line with normal market behavior. The AO noted that the company had no substantial business activities and that the transactions were carried out in a manner to give them the appearance of legitimate stock exchange transactions.

The CIT(A) upheld the AO's decision, emphasizing the suspicious nature of the transactions and the lack of credible evidence to support the assessees' claims. The CIT(A) referenced various judicial precedents, including the Supreme Court's rulings in CIT vs. P. Mohankala and Sumati Dayal vs. CIT, which highlight the importance of human probabilities and the burden of proof on the assessee to justify suspicious transactions.

However, the Tribunal, in its analysis, found that the Revenue failed to provide specific evidence rebutting the assessees' detailed documentation regarding the share transactions. The Tribunal noted that the transactions were supported by contract notes, demat statements, and bank statements, and there was no direct evidence of manipulation or collusion by the assessees. The Tribunal relied on previous decisions, such as Aditya Vikram Surreka HUF vs. ITO, which negated the application of circumstantial evidence in similar cases. Consequently, the Tribunal deleted the additions made by the AO, allowing the appeals.

2. Disallowance of Commission Expenses:
The AO disallowed the commission expenses claimed by the assessees, calculating the undisclosed expenditure at 5% of the alleged bogus loss. This was added back to the total income under Section 69C of the Income Tax Act, 1961. The CIT(A) upheld this addition, reasoning that since the business losses were treated as bogus, the related commission expenses were also not genuine.

The Tribunal, however, found that since the primary addition of business losses was deleted, the consequential addition of commission expenses also could not be sustained. The Tribunal thus deleted the addition of commission expenses, allowing the appeals in this regard as well.

3. Treatment of Commodity Loss as Bogus and Addition under Section 68:
The AO treated the commodity loss claimed by the assessee as bogus, citing the non-existence of the broker and the commodity exchange involved. Notices issued to these entities were returned undelivered, and an on-site inspection confirmed their non-existence. Consequently, the AO added the commodity loss as unexplained cash credit under Section 68.

The Tribunal did not specifically address the commodity loss issue in the detailed analysis provided. However, the general principle applied by the Tribunal in the case of share transactions—requiring specific evidence to rebut the assessees' claims—suggests that similar scrutiny would apply to the commodity loss claim. If the assessees provided credible documentation and the Revenue failed to present specific evidence of manipulation or non-genuineness, the addition might not be sustained.

Conclusion:
The Tribunal allowed the appeals, deleting the additions made by the AO regarding the business losses and related commission expenses. The Tribunal emphasized the need for specific evidence to substantiate claims of bogus transactions and found that the assessees' documentation was sufficient to support their claims. The detailed judicial precedents and principles of human probabilities played a crucial role in the Tribunal's decision.

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