2023 (4) TMI 639 - HC - Income Tax

Addition u/s 68 - fictitious booked loss by the assessee company an account of sale transaction in penny stock shares - Tribunal had allowed the assessee s appeal fully relying upon its earlier decision in the case of in SMT. USHA DEVI MODI 2021 (1) TMI 679 - ITAT KOLKATA - assessee submitted that Tribunal did not solely passed its conclusion in the decision of Usha Devi Modi (supra) but also took note of various other decisions which were relied on in the said decision - HELD THAT - As case of SMT. USHA DEVI MODI vs. CIT decided by ITAT in favour of assessee revenue had preferred appeal before this Court 2023 (4) TMI 118 - CALCUTTA HIGH COURT which held merely because the assessee had invested in other blue chit companies had earned profit or incurred loss cannot validate the tainted transactions. It has been established by the department that the rise of the prices of the shares was artificially done by the adopting manipulative practices. Consequently whatever resultant benefits which accrue from out of such manipulative practices are also to be treated as tainted. However the assessee had opportunity to prove that there was no manipulation at the other end and whatever gains the assessee has reaped was not tainted. This has not been proved or established by any of the assessee before us. Assessee having not proved the genuineness of the claim the creditworthiness of the companies in which they had invested and the identity of the persons to whom the transactions were done have to necessarily fail. In such factual scenario the Assessing Officers as well as the CIT(A) have adopted an inferential process which we find to be a process which would be followed by a reasonable and prudent person. Taking note of the proximity of the time between the buy and sale operations and also the sudden and steep rise of the price of the shares of the companies when the general market trend was admittedly recessive and thereafter arrived at a conclusion which in our opinion is a proper conclusion and in the absence of any satisfactory explanation by the assessee the Assessing Officers were bound to make addition under Section 68 On a reading of the impugned order we find that in paragraph 10 the entire decision in Usha Devi Modi has been extracted and in paragraph 11 the Tribunal states that applying the proposition of law laid down in case restricted above the appeal of the assessee was allowed . The argument with regard to the manner in which the power under Section 263 of the Act was exercised by PCIT was considered in the batch of cases and the decision was arrived at in favour of the appellant/revenue. We find that the decision in the case of Usha Devi Modi has been rendered by the Tribunal having been raised by the Court in its judgement dated 30.03.2023 we hold that the said decision will apply to the case on hand. Consequently the revenue has to succeed in this appeal.

Summary

Issues Involved:
1. Validity of the re-assessment order.
2. Verification and enquiry of fictitious booked loss.
3. Applicability of the Kolkata High Court decision in Pr. CIT-5 vs. Swati Bajaj.

Issue 1: Validity of the Re-assessment Order
The revenue questioned whether the Tribunal committed a substantial error in law by holding that the re-assessment order dated 20.03.2020 was bad in law. The Tribunal had allowed the assessee's appeal by fully relying on its earlier decision in SMT. USHA DEVI MODI vs. CIT. The High Court found that the Tribunal's reliance on the Usha Devi Modi case was misplaced as the revenue's appeal against that decision had been allowed by the High Court on 30.03.2023. Thus, the Tribunal's order was deemed incorrect and required interference.

Issue 2: Verification and Enquiry of Fictitious Booked Loss
The revenue contended that the Tribunal's decision was perverse because it held that the fictitious booked loss of Rs.73,22,950/- by the assessee company on account of sale transactions in penny stock shares needed no verification and enquiries. The High Court noted that the Tribunal had not conducted the necessary enquiry into the genuineness of the transactions and had ignored the manipulative practices involved. The Tribunal's superficial handling of the matter led to the conclusion that its order was not only perfunctory but also perverse.

Issue 3: Applicability of the Kolkata High Court Decision in Pr. CIT-5 vs. Swati Bajaj
The revenue raised the issue of whether the point of law had been decided by the Kolkata High Court in the matter of Pr. CIT-5 vs. Swati Bajaj. The High Court confirmed that the Tribunal had followed its decision in the case of M/s. Gitsh Tikmani (HUF) and Others, which was subsequently overturned by the High Court in the Swati Bajaj case. The High Court emphasized that the Tribunal failed to consider the surrounding circumstances and the manipulative practices that were central to the case, thus necessitating interference with the Tribunal's order.

Conclusion:
In light of the above issues, the High Court allowed the appeal filed by the revenue, answering the substantial questions of law in favor of the revenue. The Tribunal's order was set aside due to its reliance on an overruled decision and its failure to conduct a proper enquiry into the transactions.