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2023 (4) TMI 801 - AT - Income TaxBogus LTCG/STCL - Penny stock purchases - scrips treated as bogus transactions and the loss claimed by the assessee should not be entertained - CIT-A deleted the addition - HELD THAT - As noticed from the record that assessee has submitted all the relevant documents of purchase and sale of these scrips in the recognized stock exchange and all the details were submitted before the AO including the payments were made through banking channels only. AO completely overlooked the various documents and supporting evidences submitted by the assessee and he has not analysed these documents and he merely proceeded to make the addition based on the investigation carried on by the investigation agencies and he did not eventually make any investigation on the various documents submitted before him, merely because assessee has dealt with suspected scrips, therefore he has proceeded to make the disallowance. Assessee has purchased and sold these shares through recognized stock exchange and authorised brokers and nowhere it is brought on record that assessee is one of the party involved in the entry provider or involved in manipulating the prices or it is proved that assessee is one of the exit provider. It is fact on record that all the scrips in which assessee has dealt with were already proved to be a non penny stock based on the various decisions of the various Hon'ble High Courts and Tribunal benches. Assessee is a regular trader in various scrips and particularly in this year assessee has dealt with more than 150 scrips and the transactions of the assessee in trading of shares having turnover of more than ₹.528.9 crores and also having substantial dividend and speculation income during this year. This proves to show that assessee is a regular investor and may be assessee has dealt with suspected scrip merely on the basis of movement of share prices and there is nothing on record to prove that assessee has anywhere involved in any types of irregularities. No reason to interfere with the findings of the CIT(A). Accordingly, ground raised by the revenue is dismissed.
Issues Involved:
1. Legitimacy of long-term capital loss claims on suspected penny stocks. 2. Denial of natural justice due to lack of opportunity for cross-examination. 3. Disallowance of claimed losses and addition of commission as unexplained expenditure. Summary: Issue 1: Legitimacy of Long-Term Capital Loss Claims on Suspected Penny Stocks The Revenue filed appeals against the order of the Learned Commissioner of Income Tax (Appeals) [Ld.CIT(A)] for A.Ys. 2014-15 and 2015-16, challenging the legitimacy of long-term capital loss claims on suspected penny stocks. The Assessing Officer (AO) observed that the assessee, a firm engaged in trading shares, F&O, commodities, and derivatives, had purchased various scrips suspected to be penny stocks. The AO relied heavily on an investigation report by the Kolkata Directorate, which indicated bogus LTCG/STCL entries. Consequently, the AO disallowed the long-term capital loss claimed by the assessee and added 2% of the bogus loss as commission under Section 69C of the Income-tax Act, 1961. Issue 2: Denial of Natural JusticeThe assessee appealed to the Ld.CIT(A), contending that the AO denied natural justice by not providing copies of statements relied upon and not allowing cross-examination of the persons who made these statements. The Ld.CIT(A) agreed, noting that the AO had not provided any information or statements to justify the disallowance, which violated principles of natural justice. The assessee had submitted all relevant information, including transactions through recognized stock exchanges, payments through banking channels, and compliance with the Indian Contract Act, 1872. The Ld.CIT(A) found the transactions genuine and allowed the appeal, deleting the commission addition under Section 69C. Issue 3: Disallowance of Claimed Losses and Addition of CommissionThe Revenue appealed, arguing that the assessee indulged in transactions to book long-term capital losses as a colorable device, contrary to the Income Tax Act. The Revenue cited various judicial precedents and investigation reports to support its claim. However, the assessee countered that all transactions were genuine, conducted through recognized stock exchanges and brokers, and supported by contract notes, bank statements, and Demat transaction statements. The assessee emphasized that the AO's assessment was based on generalized allegations without specific evidence against the assessee. After considering the rival submissions, the Tribunal observed that the AO had overlooked the documentary evidence provided by the assessee and had not conducted any independent investigation. The Tribunal noted that the assessee was a regular trader with substantial turnover and income from dividends and speculation. The Tribunal found no evidence of the assessee's involvement in manipulating prices or providing exit routes. The Tribunal upheld the Ld.CIT(A)'s findings and dismissed the Revenue's appeal for A.Y. 2014-15. For A.Y. 2015-16, the Tribunal applied the same reasoning and dismissed the Revenue's appeal, concluding that the facts were similar to those of A.Y. 2014-15. Order pronounced in the open court on 31st March, 2023.
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