2023 (8) TMI 434 - AT - Income Tax

Bogus Short term capital loss - accommodation entry transactions - HELD THAT - We note that one prudent men will indulge in the purchase and sale of securities where the ulterior motive is not to earn the capital gain. Thus, the blame of the lower authorities considering the assessee as Coterie of the person calming the exempt capital gain is not correct based on the facts. It is also noted from the available record that the assessee had purchased shares through SEBI registered broker namely Hem Securities Ltd and the same were not physical form as it would be in the case of the penny stock companies and also there is not split corporate action. Thus, we note that the assessee had purchased the shares through contract note and sold all the shares through contract note. It is also noteworthy to mention that shares purchased by the assessee were credited in his D Mat account and they were transferred accordingly. As also noted from the available records that all the transactions for purchase and sale of shares through the broker Hem Securities were settled only via banking channel. There appears no ambiguity in the sale and purchase of shares through the SEBI brokers Hem Securities and all the transactions took place through banking channel and on the transactions of purchase and sale of Shares, STT had been paid having time and date stamp. Hence, taking into consideration of the above facts and circumstances of the case, we do not concur with the findings of the ld. CIT(A) on the issue in question. Ground No. 1 of the assessee is allowed. Also as purchase and sale of shares as bogus transactions not confirmed there is no question arises as to making addition by the AO on account of commission paid by the assessee. Hence, the Ground No. 2 of the assessee is allowed.

Summary

Issues Involved:
1. Disallowance of Short Term Capital Loss.
2. Addition on account of alleged commission paid for arranging accommodation entry.

Summary:

Issue 1: Disallowance of Short Term Capital Loss
The assessee filed an appeal against the order of the CIT(A) which sustained the AO's disallowance of a short term capital loss of Rs. 3,41,083/- on shares of Luminaire Technologies, considering it as an accommodation entry. The AO, based on information from the Investigation Wing, issued a show cause notice to the assessee, who failed to provide a satisfactory explanation. The AO concluded that the loss was bogus and added it to the total income, initiating penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961.

The CIT(A) confirmed the AO's action, noting that the AO had detailed the modus operandi and highlighted evidence from a survey conducted on Luminaire Technologies. The CIT(A) also referenced the decision of the Calcutta High Court in Swati Bajaj and the Delhi High Court in Suman Poddar, which supported the AO's findings.

The assessee argued that the AO acted on preconceived notions without linking information to the appellant, did not share material or statements with the appellant, and denied the opportunity to cross-examine witnesses. The assessee also provided evidence of regular investment activities, transactions through SEBI registered brokers, and settlement through banking channels.

The Tribunal found that the transactions were genuine, conducted through SEBI registered broker Hem Securities, with shares credited and transferred through the D Mat account, and all transactions settled via banking channels. The Tribunal did not concur with the CIT(A)'s findings and allowed the assessee's appeal on this ground.

Issue 2: Addition on Account of Alleged Commission Paid
The AO added Rs. 6,821/- as unexplained expenditure, assuming it was commission paid for the accommodation entry. The CIT(A) upheld this addition, citing the natural corollary of obtaining accommodation entries.

The Tribunal, having found the transactions genuine, ruled that there was no basis for the alleged commission addition. Consequently, the Tribunal allowed the assessee's appeal on this ground as well.

Conclusion:
The Tribunal allowed the appeal of the assessee, reversing the disallowance of the short term capital loss and the addition for alleged commission paid.