2024 (9) TMI 88 - AT - Income Tax

Addition u/s 68 - disallowance of loss in trading of shares - Manipulation of share prices - AO held that the trades were not genuine business transactions, but a part of accommodation entries, thus the loss was disallowed - HELD THAT - Looking into the facts of the assessee s case, the detailed the modus operandi unearthed by the tax authorities, there is no explanation as to why the assessee during the impugned years under consideration invested in shares of three companies having no financial standing, the assessee has not furnished any reason as to why under what circumstances the assessee deliberately sold shares of these companies and incurred losses on the stock exchange, the assessee is a professional stock broker and is deemed to have knowledge about financials of a company and assessee involved issues in not one but three penny stock companies all point to the fact that the assessee has deliberately and systematically booked bogus losses, during the impugned year under consideration. In the case of Satish Kishore v. ITO 2019 (11) TMI 402 - ITAT DELHI the assessee, an individual, filed return of income claiming long-term capital gain on sale of shares as exempt under section 10(38). AO held that it was found that assessee failed to justify manifold increase in prices of shares despite weak financials of companies. Further, investigation carried out by Department had brought facts on record that share prices had been manipulated artificially, purchased by a set of accommodation entry provider companies controlled by cartel of brokers, entry operator, etc. Moreover, fact that prices of all shares purchased by assessee went up, that too without any corresponding profit or prospects of company, and not even in single case price of share came down, was against human probabilities and impugned year was an isolated year of such profits with no such profits made in earlier or subsequent years. In such circumstances, the Tribunal held that assessee failed to prove genuineness of transaction and long-term capital gain on sale of shares by assessee was an arranged affair to convert its own unaccounted money and thus, exemption claimed under section 10(38) on sale of shares had rightly been disallowed. Thus, we are of the considered view that the Ld. CIT(Appeals) has not erred in facts and in law in confirming the addition made in respect of bogus claimed by the assessee in the instant facts. With regard to the shares of Gujarat Meditech Ltd, the assessing officer observed that the shares were sold by only 3 entities Jhaveri trading and investment private limited, Vicki Rajesh Jhaveri and Shailesh Jhaveri and a total of only 96,000 shares of this company were traded on BSE. In view of the above observations for this entity as well, we observe that CIT has not erred in facts and in law in holding that shares of Gujarat Meditech Ltd. are bogus shares and therefore, lossmade by the assessee is liable to be added to the income of the assessee. Assessee appeal dismissed.

Summary

Issues Involved:
1. Condonation of Delay
2. Addition on Account of Disallowance of Loss in Trading of Shares
3. Reopening of Assessment under Section 147

Detailed Analysis:

1. Condonation of Delay:
The appeals filed by the assessee were time-barred by 46 days. The assessee submitted affidavits explaining the delay due to the Authorized Representative's mother's illness and subsequent religious duties. The Tribunal observed that there was sufficient cause for the delay and condoned it.

2. Addition on Account of Disallowance of Loss in Trading of Shares:
A.Y. 2011-12:

- Background: The assessee filed a return declaring a total loss of Rs. (-)10,08,593. A notice u/s. 148 was issued, and the reasons for reopening were provided. The assessee objected and filed a writ petition, which was dismissed by the Gujarat High Court.

- Assessment Proceedings: The Ld. Assessing Officer issued a show-cause notice regarding the proposed disallowance of Rs. 1,99,01,199/- on trading in Chandni Textiles Engineering Industries Ltd. shares. The AO noted that a search and survey action revealed SCS provided accommodation entries for financial transactions, including share trading losses and gains. Statements from key individuals confirmed SCS's involvement in managing these activities through dummy companies and synchronized trading.

- Findings: The AO held that the transactions in Chandni Textile shares were managed by SCS, rendering them non-genuine. The assessee's request for cross-examination of SCS was denied, and the loss of Rs. 1,52,20,891/- was disallowed and added to the total income.

- CIT(A) Observations: The CIT(A) confirmed the additions, noting that evidence showed 212 companies managed by SCS were bogus and used for accommodation entries. The CIT(A) emphasized that the assessee's transactions were part of SCS's accommodation entry business.

- Tribunal's Analysis: The Tribunal observed that the assessee's reliance on a previous Tribunal decision was not applicable as no categorical finding was given regarding Chandni Textiles being a non-bogus entity. The Tribunal noted that the tax authorities unearthed an organized operation by SCS providing bogus accommodation entries. The assessee systematically incurred losses in three penny stock companies, indicating deliberate booking of bogus losses. The Tribunal upheld the disallowance by the AO and CIT(A).

- Relevant Judicial Precedents: The Tribunal referred to several judicial precedents emphasizing the importance of surrounding circumstances and the application of the test of human probabilities in determining the genuineness of transactions.

3. Reopening of Assessment under Section 147:
The counsel for the assessee did not press the grounds related to the challenge to reopening of assessment under section 147. Consequently, these grounds were dismissed.

Conclusion:
The Tribunal dismissed the appeal of the assessee for both years under consideration, confirming the addition made in respect of bogus claims and upholding the reopening of assessment under section 147. The detailed observations and findings of the tax authorities and judicial precedents were crucial in arriving at this decision.