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2023 (9) TMI 102 - AT - Income TaxDisallowing set off of short term capital loss on sale of shares scrips against the short term long term capital gain - ingenuine transaction - assessee managed the loss of sale of share scrips to avoid the payment of tax on capital gain earned on sale of immovable properties - AO doubted the transaction of assessee on the basis of report of Investigation Wing Kolkata - HELD THAT - No independent investigation was carried out the assessing officer to disprove the fact and evidence brought on record by the assessee - merely because there was allegation and investigation was done, the transactions of assessee were through recognised broker of stock exchange cannot be doubted, unless there is allegation against the broker through whom the assessee carried such transaction. Assessee has furnished complete evidence including contract note of shares, demat details, detail of bank a/c. However, no adverse evidence was brought against such evidence. Nor the AO made adverse comment on such evidences. CIT(A) granted relief to the assessee by taking view that assessee had filed concrete and irrefutable evidences and assessing officer merely rely on the information supplied by the Investigation Wing without making independent enquiry about the facts and genuineness of such shares transaction carried out by the assessee. It was also held by ld CIT(A) that assessing officer in the assessment order held that investigation wing had carried out detailed investigation in case of penny stock but neither the name of broker, who have done such transaction nor the name of companies which are involved such activities are mentioned in the assessment order. Thus find merits in the submissions of assessee that statement of assessee was recorded in the office Assessing Officer and no adverse was extracted in his statement. The assessee invested huge fund of Rs. 1.00 Crore in anticipation to earn good return, but the assessee suffered losses in short span of time, so he immediately sold the scrips of such shares and that transaction carried out by the assessee is genuine and cannot be doubted. Appeal of the Revenue is dismissed.
Issues Involved:
1. Legitimacy of Short Term Capital Loss (STCL) claimed by the assessee. 2. Allegations of manipulation in stock prices of penny stocks. 3. Applicability of judicial pronouncements on tax avoidance and colorable devices. 4. Validity of the Assessing Officer's order versus the CIT(A)'s order. 5. Applicability of CBDT Circulars on monetary limits for filing appeals. Summary: 1. Legitimacy of Short Term Capital Loss (STCL) Claimed by the Assessee: The Revenue contested the CIT(A)'s decision to allow the assessee's claim of STCL amounting to Rs. 25,44,405/-, arguing that the loss was booked through transactions in penny stocks to offset gains from the sale of immovable properties. The Assessing Officer (AO) noted that the shares involved were from companies listed as penny stocks by the Investigation Wing of the Income Tax Department, and the transactions were allegedly manipulated to show losses. The AO disallowed the STCL, adding Rs. 18,83,934/- to the income and disallowing the carry forward of Rs. 6,60,471/-. 2. Allegations of Manipulation in Stock Prices of Penny Stocks: The AO argued that the stock prices of the companies involved were artificially rigged to provide STCL to the assessee. The assessee, however, provided substantial documentary evidence, including contract notes, demat account statements, and bank statements, to substantiate the genuineness of the transactions. The CIT(A) found that the AO did not independently verify the facts and relied solely on the Investigation Wing's report, which did not specify the brokers or companies involved in the alleged manipulation. 3. Applicability of Judicial Pronouncements on Tax Avoidance and Colorable Devices: The Revenue cited the Supreme Court's ruling in McDowell vs. CTO, which held that colorable devices cannot be part of tax planning. The CIT(A), however, found that the assessee had provided irrefutable evidence supporting the genuineness of the transactions and that the AO had failed to disprove this evidence. 4. Validity of the Assessing Officer's Order versus the CIT(A)'s Order: The Tribunal upheld the CIT(A)'s decision, noting that the AO did not conduct an independent investigation and merely relied on the Investigation Wing's report. The Tribunal found that the assessee had provided comprehensive evidence to prove the genuineness of the transactions, and no adverse findings were made against this evidence. 5. Applicability of CBDT Circulars on Monetary Limits for Filing Appeals: The Revenue argued that the case fell under the exception clause of the CBDT's monetary limit for filing appeals, as per Circular No. 23/2019. However, the Tribunal dismissed the appeal, affirming the CIT(A)'s order and finding no infirmity or illegality in it. Conclusion: The appeal by the Revenue was dismissed, and the CIT(A)'s order allowing the assessee's claim of STCL was upheld. The Tribunal found that the assessee had provided substantial evidence to support the genuineness of the transactions and that the AO had failed to conduct an independent investigation to disprove this evidence.
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