2023 (11) TMI 647 - AT - Income Tax

Disallowing business loss - As pr AO assessee was directly involved in sham and bogus transactions of entry providers - business of trading in shares and securities - HELD THAT - AO has not contradicted these scrips as to how far the assessee s involvement was there, except observing that the shares involved were admittedly controlled by the entry providers. AO related to this scrip has not given observation as to how the entry providers and the assessee as well as the share broker i.e. ASE Capital Markets Limited has involved in the entire transactions except that the assessee through ASE Capital Markets Limited has purchased and sold the shares. The same is related to scrips of Comfincap, Radford Global Limited, SIMIL, Turbo Tech Engineering Limited and Dhenu Buildcon Infra Limited. The documents such as contract notes, investor s report and client-wise sauda summary were before the Assessing Officer but the Assessing Officer has not taken cognisance of these documents thereby stating that the assessee was directly involved in sham and bogus transactions of entry providers. Though AO has given the chart of fluctuation as well as increase of the data during the said period, the same cannot be the sufficient reason for disallowing the business loss of the assessee. Thus, the Assessing Officer was not right in disallowing the claim of business loss of the assessee. Appeal of the assessee is thus allowed.

Summary

Issues Involved:
The judgment involves the disallowance of business loss and denial of opportunity for cross-examination in an appeal filed by the Assessee against the order of the CIT(A), National Faceless Appeal Centre (NFAC), Delhi for the Assessment Year 2014-15.

Disallowance of Business Loss:
The Assessee, engaged in trading in shares and securities, filed the return of income for the Assessment Year 2014-15, declaring total income at Rs. 5,08,113/-. The Assessing Officer disallowed the claimed loss of Rs. 1,53,890/- on the grounds of sham transactions involving certain scrips. The Assessee contended that the Assessing Officer failed to discharge the onus of proving the transactions as non-genuine, solely relying on suspicion without a specific basis. The Assessee argued that documentary evidence of genuine transactions on recognized stock exchanges through SEBI registered intermediaries was submitted, disproving the disallowance. The Assessing Officer's observations on the involvement of entry providers were deemed insufficient to justify disallowing the business loss.

Denial of Opportunity for Cross-Examination:
The Assessee raised a ground of appeal regarding the denial of an opportunity for cross-examination of persons relevant to the case. The Assessing Officer had provided various statements of entry providers, exit providers, and brokers, but the Assessee was not granted the requested cross-examination opportunity. The Assessee argued that the statements were irrelevant as there were no transactions with those individuals, and the denial of cross-examination hindered the Assessee's ability to challenge the allegations effectively.

Conclusion:
After considering the arguments presented by both parties, the Tribunal found that the Assessing Officer's disallowance of the business loss was unjustified. The Tribunal noted the lack of substantial evidence linking the Assessee to sham transactions and emphasized the importance of considering documentary evidence provided by the Assessee. Consequently, the appeal of the Assessee was allowed, overturning the decision of the CIT(A) and the Assessing Officer.