2019 (1) TMI 15 - AT - Income Tax

Disallowance of loss of trading in bonds - A.O. was of the view that trading transactions in securities has not been effected for commercial purpose but to create loss with a view to reduce tax liability. - non-compliance of the summons - Held that - A.O. has neither fully investigated nor brought any material on record to prove that the transactions are bogus. It is also explained that the assessee has squared up the deal which otherwise would have resulted in locking up of huge fund for a longer time and particularly in view of the fact that such long term fund was not available at the disposal and by non-honoring he would have been declared insolvent. The assessing officer has not examined/investigated the transactions in order to prove that the transactions were bogus and not genuine. The A.O. has not contradicted the claim of the assessee that there was no prohibition on carrying out off market transactions. The assessee has already filed a compliance letter dated 22/02/2016 (PBP 37) by the submitting the requisite details. For alleged non-compliance of the summons, the A.O. has neither issued any show cause notice nor imposed penalty u/s. 272A(l)(c) of the Act. The assessee has also provided his new address where he was presently staying for communication to the A.O. He has also requested for reasonable and adequate time for making compliance. We observe from the material placed on record that the A.O. has not further indicated the need for any personal examination of the assessee. The loss on the trading of the lands was occurred before the earning of profit on the sale of land by the assessee. We find that as per material on record the loss in trading of lands was occurred on 01/01/2013 whereas the profit on the sale of land was occurred on sale of land 24/01/2013. Considering the contention of the ld. counsel that it is open market trade and the price is as agreed upon by the purchaser and sellers as per their requirement based on different factors like need of liquidity of funds etc., we observe that the A.O. has raised a number of doubt about the genuineness of above cited transactions but has not proved with supporting materials that the transactions were bogus - A.O. has failed to establish with relevant material that the impugned transactions in the sale/purchase of shares were not genuine. No justification in the decision of Ld.CIT(A) to disallow the loss on transactions on lands merely on doubt assumption basis, therefore the appeal of the assessee is allowed

Issues Involved:
1. Disallowance of loss of trading in bonds.
2. Non-genuineness of transactions.
3. Non-provision of cross-examination.
4. Charging of interest under sections 234A, 234B, and 234C.

Detailed Analysis:

1. Disallowance of Loss of Trading in Bonds:
The primary issue was the disallowance of a loss of ?4,57,29,090 claimed by the assessee on trading in bonds. The Assessing Officer (A.O.) disallowed the loss, considering the transactions as non-genuine and aimed at creating artificial losses to offset profits from land sales. The A.O. observed that the transactions were executed off-market and not reported to the stock exchanges, and the sale price was significantly lower than the market price on the date of the transaction. The A.O. also noted that the transactions were settled within a very short duration, raising doubts about their genuineness.

2. Non-Genuineness of Transactions:
The A.O. concluded that the transactions were not genuine, citing several reasons:
- The transactions were not reported to the stock exchanges as required by SEBI regulations.
- The sale price of the bonds was significantly lower than the market price.
- The transactions were executed within a very short time frame, indicating a lack of commercial purpose.
- The funds involved in the transactions were transferred between related parties within minutes, suggesting an artificial arrangement to create losses.
- The A.O. relied on the statement of Mr. Pratik R. Shah, who admitted to providing accommodation entries, although the statement did not specifically mention the assessee.

3. Non-Provision of Cross-Examination:
The assessee argued that the A.O. relied on the statement of Mr. Pratik R. Shah without providing a copy of the statement or an opportunity for cross-examination, violating the principles of natural justice. The assessee contended that the transactions were genuine, conducted through demat accounts, and settled through banking channels. The assessee also pointed out that similar transactions in previous years were accepted by the A.O. without any adverse inference.

4. Charging of Interest under Sections 234A, 234B, and 234C:
The assessee also challenged the charging of interest under sections 234A, 234B, and 234C, arguing that the disallowance of the loss was incorrect and, therefore, the interest should not be charged.

Tribunal's Findings:

Disallowance of Loss of Trading in Bonds:
The Tribunal observed that the assessee provided all necessary documents and details regarding the transactions, including demat account statements and bank statements. The Tribunal noted that the A.O. accepted the profit from similar transactions but disallowed the loss without substantial evidence. The Tribunal found that the A.O. failed to prove that the transactions were bogus and not genuine.

Non-Genuineness of Transactions:
The Tribunal concluded that the A.O. did not fully investigate the transactions or bring any material evidence to prove that the transactions were not genuine. The Tribunal noted that the transactions were executed through proper banking channels and demat accounts, and the price of the bonds could vary based on market conditions and the agreement between the buyer and seller.

Non-Provision of Cross-Examination:
The Tribunal agreed with the assessee that the A.O. violated the principles of natural justice by not providing a copy of Mr. Pratik R. Shah's statement or an opportunity for cross-examination. The Tribunal emphasized that the A.O. should have provided the necessary documents and allowed cross-examination before using the statement against the assessee.

Charging of Interest under Sections 234A, 234B, and 234C:
Given that the Tribunal found the disallowance of the loss to be unjustified, the charging of interest under sections 234A, 234B, and 234C was also deemed incorrect.

Conclusion:
The Tribunal allowed the appeals, concluding that the A.O. failed to establish that the transactions were not genuine and that the disallowance of the loss was based on assumptions and presumptions without substantial evidence. The Tribunal also found that the principles of natural justice were violated by not providing the assessee with the necessary documents and an opportunity for cross-examination. Consequently, the disallowance of the loss and the charging of interest were both overturned.

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