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2018 (9) TMI 1745 - AT - Income TaxGenuineness of claim of loss - allegation of purchase and sale of Penny stocks - transactions in question is a colorable transaction - Assessment u/s 153A after search - Held that - The assessee, in this case has supported these transactions by submitting copies of contract notes for purchase and sale of shares, daily market quotations on the date of purchase, bank statements showing payments of consideration for purchase of shares, copy of Demat Accounts etc. These evidences, have not been controverted or found to be false by the Assessing Officer. In fact no contrary evidence to prove that these documents have no evidentiary value has been collected by the AO. The entire addition has been made on the basis that the prices of shares have been rigged by certain individuals. No evidence is brought on record to connect the assessee with the alleged rigging of prices of shares. No evidence is brought on record to demonstrate that the assessee was involved in the rigging of shares in the stock market or was closely involved with the persons who are allegedly connected in rigging of the prices of shares. The entire addition has been made on probabilities, human behaviour, the alleged unnatural fluctuation in prices of the shares etc., but not based on any evidence connecting the assessee with such allegations. The addition have thus been made on conjectures and surmises. The Hon ble Supreme Court way back in the case of Lalchand Bhagat Ambica Ram vs. CIT 1959 (5) TMI 12 - SUPREME COURT held that assessment could not be based on background of suspicion and in absence of any evidence to support the same. - Decided in favour of assessee
Issues Involved:
1. Legitimacy of the disallowance of trading losses claimed by the assessee on the purchase and sale of shares. 2. Validity of assessments made under section 153A read with section 143(3) of the Income Tax Act, 1961, especially in the absence of incriminating material found during the search. Detailed Analysis: 1. Legitimacy of the Disallowance of Trading Losses: *Facts and Submissions:* - The assessee, engaged in the business of share trading, was subjected to a search and seizure operation under section 132 of the Income Tax Act. - The Assessing Officer (AO) alleged that the assessee indulged in pre-arranged transactions involving penny stocks to book losses and reduce taxable income. - The AO's findings were based on the modus operandi of the transactions, which he deemed pre-arranged and suspicious, supported by the statement recorded under section 132(4) from a key person, and the involvement of related parties in the transactions. - The assessee countered by providing documentary evidence, including contract notes, Demat account statements, and bank statements, to substantiate the transactions. The assessee also argued that the AO's reliance on retracted statements and third-party evidence without cross-examination was unjustified. *Tribunal's Findings:* - The Tribunal noted that the assessee had provided substantial documentary evidence supporting the transactions, which the AO did not find false or fabricate. - The Tribunal emphasized that no evidence connected the assessee with the alleged rigging of share prices or demonstrated involvement in any collusive activities. - The Tribunal held that the addition was based on conjectures and surmises rather than concrete evidence, citing multiple judicial precedents that support the assessee's position. 2. Validity of Assessments under Section 153A: *Facts and Submissions:* - The assessee argued that the disallowance was not based on any incriminating material found during the search, and for the assessment year 2013-14, the original assessment had not abated as no notice under section 143(2) was issued. - The AO and CIT(A) upheld the additions based on the suspicious nature of the transactions and the modus operandi, without specifying any incriminating material found during the search. *Tribunal's Findings:* - The Tribunal referred to the legal position established by various High Courts, including the Delhi High Court in the case of CIT vs. Kabul Chawla, which held that no additions can be made in assessments under section 153A unless based on incriminating material found during the search. - For the assessment year 2013-14, the Tribunal noted that the original assessment had not abated, and no incriminating material was found during the search, thus the addition could not be sustained. - For the assessment year 2014-15, although the assessment had abated, the Tribunal reiterated that the addition was not supported by any concrete evidence linking the assessee to the alleged bogus transactions. Conclusion: - The Tribunal allowed the appeals of the assessee, holding that the additions made by the AO were not based on any incriminating material found during the search and were largely speculative. - The Tribunal emphasized the need for concrete evidence to substantiate claims of bogus transactions and disallowed the additions made on the basis of suspicion and conjectures. Result: - Both appeals of the assessee were allowed, and the disallowances made by the AO were deleted.
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