2024 (2) TMI 1406 - AT - Income Tax

Bogus loss in share trading - disallowance as trading loss in share transaction were done on the platform of the exchange, treating the same as bogus loss which is completely arbitrary, unjustified and illegal - HELD THAT - We find that the assessee has made the transaction of shares and generated the loss during this financial year. The relevant documents are duly submitted before the revenue authorities and also submitted before the Bench in relation to the share trading loss. There is no question about the veracity of the documents submitted before the authorities. But the revenue-authority is fully relied on the preponderance of probability as per the order of Hon ble Apex Court in the case of Sumati Dayal 1995 (3) TMI 3 - SUPREME COURT and the order of Swati Bajaj 2022 (6) TMI 670 - CALCUTTA HIGH COURT . But in case of loss, there is no question of the peak increase of the share value and also the assessee is suffering the capital loss by generating the share loss. We fully relied case of Samrat Finvestor Pvt. Ltd. 2024 (1) TMI 1306 - ITAT KOLKATA - The same logic is also applied for transacted shares also. The assessee has suffered losses by transaction of number of shares. The assessee itself transacted huge volume of share during impugned assessment year. We find that the entire addition is made on basis of preconceive idea as generated after a general investigation of investigating authority. We accordingly set aside the appeal order and quash the addition amount - Assessee appeal allowed.

Issues Involved:
1. Legality and justification of the order passed by the Ld. CIT(A).
2. Disallowance of Rs. 2,27,75,452/- on account of alleged bogus loss in share trading.
3. Reliance on Investigation Wing's materials without independent enquiry by the AO.
4. Consideration of the assessee's evidence and supporting documents.
5. Charging of interest under section 234B.

Issue-wise Detailed Analysis:

1. Legality and Justification of the Order Passed by the Ld. CIT(A):
The assessee contended that the order passed by the Ld. CIT(A) was "completely arbitrary, unjustified, and illegal." The Ld. CIT(A) was criticized for not considering the merits of the case and for merely confirming the order of the AO without independent analysis. The assessee argued that the Ld. CIT(A) passed the order in a "very cryptic manner" and dismissed the grounds of appeal by simply following the decision of the jurisdictional High Court in the case of PCIT vs. Swati Bajaj and Ors.

2. Disallowance of Rs. 2,27,75,452/- on Account of Alleged Bogus Loss in Share Trading:
The AO disallowed the loss claimed by the assessee on the grounds that the transactions involved penny stocks, which were suspected to be bogus. The AO relied on the report of the Investigation Wing. The assessee argued that the transactions were genuine and conducted on the stock exchange platform. The assessee provided extensive documentation, including the audited balance sheet, income tax returns, bank statements, and demat account statements, to substantiate the genuineness of the transactions.

3. Reliance on Investigation Wing's Materials Without Independent Enquiry by the AO:
The assessee argued that the AO relied solely on the materials provided by the Investigation Wing without conducting any independent enquiry. The AO's reliance on the preponderance of probability, as per the decisions in Sumati Dayal vs. CIT and PCIT vs. Swati Bajaj, was deemed inappropriate by the assessee. The assessee emphasized that there was no evidence of price rigging or involvement in any scheme to book bogus losses.

4. Consideration of the Assessee's Evidence and Supporting Documents:
The assessee submitted various documents to prove the genuineness of the transactions, including the audited balance sheet, income tax returns, notices issued under section 143(2), written submissions, bank statements, demat account statements, and ledger accounts. The assessee argued that these documents were not challenged by the revenue authorities and should have been considered to establish the genuineness of the transactions.

5. Charging of Interest Under Section 234B:
The assessee contended that the interest charged under section 234B amounting to Rs. 9,25,518/- was wrong and illegal. However, this issue was not elaborated upon in detail in the judgment.

Judgment:
The Tribunal found that the assessee had made genuine transactions in shares and incurred losses during the financial year. The documents submitted by the assessee were found to be credible, and there was no question about their veracity. The Tribunal noted that the revenue authorities relied on the preponderance of probability without direct evidence against the assessee. The Tribunal referred to the decision of the Co-ordinate Bench in the case of Samrat Finvestors Pvt. Ltd. and found that the principles of natural justice were violated as no opportunity for cross-examination was provided.

The Tribunal concluded that the disallowance made by the AO was based on preconceived notions and general investigations without specific evidence against the assessee. The Tribunal set aside the appeal order and quashed the addition of Rs. 2,27,75,453/-. The appeal was allowed in favor of the assessee.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, quashing the addition of Rs. 2,27,75,453/- and finding that the transactions were genuine and conducted in the regular course of business. The Tribunal emphasized the importance of direct evidence and the principles of natural justice, setting aside the arbitrary and unjustified order of the Ld. CIT(A).

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