2023 (5) TMI 462 - AT - Income Tax

Bogus sale proceeds as undisclosed income - addition u/s 68 - short term capital loss claimed by the assessee - penny stock transactions - informations received from investigation wing and AO proceeded to disallow the loss claimed by the assessee as well as proceeded to make the sale proceeds as undisclosed income - HELD THAT - We observe that during the current Assessment Year assessee has purchased the scrip of M/s. VAS Infrastructure Limited and subsequently sold the same within the same year from the recognized stock exchange and also through authorised agent - all these transactions were through banking channels only and in that process assessee has suffered loss. AO mechanically applied the informations received from investigation wing and proceeded to disallow the loss claimed by the assessee as well as proceeded to make the sale proceeds as undisclosed income. As decided in Rajiv Rameshchander 2023 (1) TMI 1249 - ITAT MUMBAI AO/Ld. CIT(A) has not appreciated the facts in the right perspective and has disallowed the business loss of the assessee while trading in this scrip. It is found that Assessee is a trader in shares - as shares traded are his stock-in-trade. And once assessee is found to be a trader, the loss incurred during business need to be allowed as business loss. Thus we are inclined to delete the addition made by the AO u/s. 68 of the Act and direct the AO to allow the short term capital loss claimed by the assessee incurred during the year. Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Addition of unexplained cash credit under Section 68 of the Income Tax Act.
3. Disallowance of short-term capital loss on sale of shares.

Summary:

Condonation of Delay:
The appeal was filed by the assessee with a delay of 338 days. The assessee submitted an affidavit explaining that the delay was due to circumstances beyond his control, including not receiving the ex parte order from the CIT(A) and the need to compile data and documents from a previous Chartered Accountant. The Department objected, stating that relevant details were available on the ITR portal. The Tribunal referred to various judicial precedents, including a Supreme Court decision in the case of Collector, Land Acquisition v. Mst. Katiji and ors., and condoned the delay, emphasizing that substantial justice should be preferred over technicalities.

Addition of Unexplained Cash Credit:
The assessee had dealt in shares of VAS Infrastructure Limited, a penny stock, and claimed a short-term capital loss. The Assessing Officer (AO) treated the sale proceeds as unexplained cash credit under Section 68 of the Income Tax Act, based on information from the Investigation Wing. The AO disallowed the loss and added the sale proceeds as income. The CIT(A) upheld the AO's decision, stating that the transactions were not genuine and were part of a scheme involving penny stocks to convert cash into short-term capital gains or losses.

Disallowance of Short-Term Capital Loss:
The assessee argued that the transactions were conducted through recognized stock exchanges and authorized brokers, and all transactions were routed through banking channels. The Tribunal observed that the AO had mechanically applied the information from the Investigation Wing without verifying the details furnished by the assessee. Referring to a similar case decided by the Coordinate Bench (Rajiv Rameshchander v. Income Tax Officer), the Tribunal noted that the assessee was a trader in shares and the transactions were genuine. The Tribunal directed the AO to delete the addition made under Section 68 and allow the short-term capital loss claimed by the assessee.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, condoning the delay and directing the AO to delete the addition of unexplained cash credit and allow the short-term capital loss. The order was pronounced in the open court on 05th April, 2023.