2019 (6) TMI 1385 - AT - Income Tax

Disallowance of short term capital loss - assessment order u/s 144 - HELD THAT - The report of the investigation wing of the Income tax Department can be a starting point for investigation into the affairs of the assessee but cannot be the whole and sole basis on which an addition can be made. Copy of the report is neither furnished to the assessee nor is placed before us for my consideration. When a copy of the report is not brought on record, the question of relying on the same to make an addition to the income, does not arise. The assessee has purchased and sold shares through brokers. Copies of Contract notes, copies of payment through banks and other evidences were filed in support of the genuineness of the transactions. The Assessing Officer relies on the statement of the brokers and that of the entry operators but, none of these statements have been brought on record. The contents of the so called statements are not known. SIT report relied upon by the Assessing Officer does not help the case of the revenue as it is a general report. None of the above referred reports can be the basis of additions. A statement has been made that SEBI has suspended the transactions in the scrip but contrary evidence has been brought on record by the assessee to demonstrate that the scrip is being traded even today. Thus, the basis on which the Assessing Officer has made the disallowance, cannot be upheld. Disallowance of Interest deduction u/s 57(iii) - The claim of he assessee is upheld for the simple reason that the ld. CIT(A) agreed with the contentions of the assessee and the only ground on which he upheld the disallowance was that the loss claimed as short term capital loss was suspicious and bogus. As we have held that the assessee s claim on the short term capital loss has to be allowed, this objection of the ld. CIT(A) cannot be sustained. Hence we allow this ground of the assessee.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Disallowance of short-term capital loss.
3. Disallowance of interest deduction under Section 57(iii) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Delay in Filing the Appeal:
At the outset, the Tribunal noted a delay of 1 day in filing the appeal. After reviewing the petition for condonation, the Tribunal was convinced that the assessee was prevented by sufficient cause from filing the appeal on time. Consequently, the delay was condoned, and the appeal was admitted.

2. Disallowance of Short-Term Capital Loss:
The assessee declared a net taxable income of ?4,37,552 for the Assessment Year 2014-15, but the Assessing Officer (AO) passed a best judgment assessment determining the total income at ?27,11,020, disallowing ?18,97,566 claimed as short-term capital loss. The AO observed that the loss was claimed on the sale of shares of COMFORT FINCAP LTD. and requested various evidences to support the transaction. The assessee furnished the required details, but the AO disallowed the loss, citing the unusual nature of the transactions and reliance on the investigation wing's report, SEBI's investigation, and statements from brokers and entry operators.

The First Appellate Authority (CIT(A)) confirmed the disallowance, relying on circumstantial evidence and concluding that the transactions were merely accommodation entries for bogus short-term capital loss. The CIT(A) emphasized the lack of business activity in the company whose shares were traded and the artificial rise and fall in share prices. The CIT(A) also referenced several case laws to support the application of the rules of suspicious transactions.

The Tribunal, however, found that the assessee had furnished all the evidences sought by the AO, including contract notes, bank payment proofs, and other documents supporting the genuineness of the transactions. The Tribunal noted that the AO's reliance on the investigation wing's report and statements from brokers and entry operators was unsubstantiated, as these were not brought on record or provided to the assessee. The Tribunal also highlighted that the scrip COMFORT FINCAP LTD. was still being traded, contradicting the AO's claim of SEBI suspension.

The Tribunal concluded that the disallowance was based on surmises and conjectures, and thus, the addition could not be upheld. The Tribunal referenced the case of Navneet Agarwal vs. ITO, which held that general observations from the investigation wing without specific evidence against the assessee could not justify an addition under Section 68.

3. Disallowance of Interest Deduction under Section 57(iii):
The AO disallowed ?3,75,898 claimed under Section 57(iii) on the grounds that no income was earned by the assessee to justify the expenditure. The CIT(A) upheld this disallowance, contingent on the genuineness of the short-term capital loss transactions.

The Tribunal held that since the assessee's claim on the short-term capital loss was allowed, the objection raised by the CIT(A) could not be sustained. Consequently, the Tribunal upheld the assessee's claim for interest deduction under Section 57(iii).

Conclusion:
The Tribunal allowed the appeal of the assessee, condoning the delay in filing, deleting the additions made on account of disallowed short-term capital loss, and upholding the claim for interest deduction under Section 57(iii).