2019 (8) TMI 890 - AT - Income Tax

Bogus loss from client code modification - HELD THAT - As decided in SUMATI KUMAR LUNIA VERSUS I.T.O WARD 36 (4) , KOLKATA 2019 (2) TMI 1683 - ITAT KOLKATA in order to find out whether the transaction is genuine or ingenuine, it is neither the expedience or correctness of the decision nor the business expertise of the person to be considered. It is to be considered on the basis of the materials that there was no such transaction and that these share transactions were paper transactions. The suffering of loss could not be a factor for such purpose. The impugned loss claimed by assessee is genuine loss in the above facts and circumstances of the case and therefore eligible for deduction. Accordingly, AO is directed. This ground of assessee's appeal is allowed. As put up a specific query to the department as to whether assessee s broker carried out the relevant client code modification as per prescribed rules or not. There is no such violation pointed out during the course of hearing before me. Therefore, adopt the above detailed discussion mutatis mutandis to delete the impugned addition - Decided in favour of assessee. Bogus LTCG - Unexplained cash credits - sale proceeds derived from sale of shares in M/s GCM Securities Pvt. Ltd and Kappac Pharma Ltd. as unexplained - HELD THAT - There can hardly be any dispute that assessee has placed on record his supportive documentary evidence comprising of relevant purchase bills of shares allotment, certified copies, contract notes, brokerage details etc. We put up a specific query as to whether any of entry operators searched or survey has quoted these assessees names or not before the departmental authorities. There is no such material in the case file indicating such as statement. In Smt. Sangita Jhunjhunwala vs. ITO 2019 (1) TMI 298 - ITAT KOLKATA has deleted similar bogus LTCG coming to Revenue s arguments that department had searched / surveyed various entry operators alleged to have engaged in giving bogus LTCG regarding very scrip, as put a specific question to Mr. Bhattacherjee as to whether any of the said entry operators had ever quoted assessee s name or not. The replies is received in negative. Coupled with this, there is no substance in Revenue s argument that similar addition(s) stand affirmed in various judicial precedents (supra) for the reason that sec. 68 addition is a factual issue requiring the taxpayer to prove the identity, genuineness and creditworthiness of the relevant sum credited. All these assessees have placed sufficient materials on record indicating them to have derived the impugned LTCG form sale of shares This tribunal s yet another decision in Canara Bank vs. JCIT 2017 (11) TMI 1425 - ITAT BANGALORE holds that the estopple principle does not apply in income tax proceedings. We therefore reject Revenue s arguments in support of impugned addition - Decided in favour of assessee.

Issues Involved:
1. Reopening of the case under section 147 of the Income Tax Act, 1961.
2. Treatment of the assessee's loss as bogus.
3. Treatment of the sale proceeds from shares as unexplained cash credits under section 68 of the Income Tax Act, 1961.
4. Disallowance of alleged commission expenditure under section 69C of the Income Tax Act, 1961.

Detailed Analysis:

1. Reopening of the Case Under Section 147 of the Income Tax Act, 1961
The assessee challenged the reopening of the case, arguing that the Assessing Officer (AO) had not acted on "belief" but on mere "satisfaction" without applying his mind. However, the Commissioner of Income Tax (Appeals) [CIT(A)] found that the AO had followed all guidelines and procedures for reopening the case. The CIT(A) noted that the reasons recorded by the AO had a "proximate and live link" with the formation of belief, citing judicial precedents that supported the AO's actions. The CIT(A) upheld the AO's decision to reopen the assessment after observing all legal requirements.

2. Treatment of the Assessee's Loss as Bogus
The AO disallowed the assessee's claim of loss, treating it as bogus due to client code modification. The CIT(A) supported the AO's findings, stating that the assessee failed to prove the rationale and justification for the client code modifications. The CIT(A) cited SEBI regulations, which generally do not permit changes in client codes except for genuine mistakes. The CIT(A) found that the modifications were not genuine and upheld the AO's conclusion that the assessee had deliberately shifted profits in connivance with the broker.

3. Treatment of the Sale Proceeds from Shares as Unexplained Cash Credits Under Section 68
The AO treated the sale proceeds from shares as unexplained cash credits and disallowed the alleged commission expenditure. The CIT(A) found that the assessee's transactions were merely accommodation entries for bogus Long Term Capital Gains (LTCG). The CIT(A) noted that the shares' prices were artificially inflated and then sharply fell, indicating manipulated transactions. The CIT(A) upheld the AO's decision, citing various judicial precedents that supported the treatment of such transactions as unexplained cash credits.

4. Disallowance of Alleged Commission Expenditure Under Section 69C
The AO disallowed the alleged commission expenditure related to the sale proceeds of shares, treating it as unexplained under section 69C. The CIT(A) upheld this disallowance, finding that the entire transaction was bogus and the related expenditure was not genuine.

Tribunal's Decision:
The Appellate Tribunal (ITAT) found that the department failed to prove any violation of rules regarding the client code modifications. The ITAT noted that similar additions had been deleted in other cases where the department could not provide concrete evidence against the assessee. The ITAT adopted the reasoning from previous tribunal decisions, which held that suspicion alone could not justify the addition without tangible evidence. The ITAT deleted the impugned additions, treating the assessee's LTCG as genuine and allowing the appeals in favor of the assessee.

Conclusion:
The Tribunal concluded that the reopening of the case was justified, but the treatment of the assessee's loss as bogus and the sale proceeds from shares as unexplained cash credits were not supported by sufficient evidence. The Tribunal allowed the appeals, deleting the additions made by the AO and CIT(A).

← Previous Next →