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2024 (6) TMI 698 - AT - Income TaxDisallowance of trading loss treating the same as bogus loss - As per the assessee, whatever transactions of purchases and sales were carried out by him in the script of M/s Prraneta Industries were duly recorded in the books of accounts and matched with the date of the stock exchange. All the transactions were carried out through the registered stockbrokers which were not connected with SCS - HELD THAT - It is the admitted position that the core business of the assessee was dealing in shares. The assessee during the year under consideration has shown total purchases of different scripts at a value of Rs. 80,78,04,800.00 against the gross sales of ₹ 93,19,71,306.00. Assessee has also shown the closing inventory at ₹ 5,67,62,457.00. Assessee has filed the return of income u/s 139(1) of the Act declaring an income of Rs. 8,33,83,875.00 before adjusting the set of the brought forward losses. Even assuming but without admitting, the loss in dispute is bogus in nature, yet there was sufficient brought forward losses capable of absorbing impugned loss without inviting any extra tax burden on the assessee. Had the assessee been involved in manipulating the prices, then there would not have been declared any profit in the script in the given facts and circumstances. Thus, the conduct of the assessee suggests that he was not involved in manipulating the trading in the script of the company. It is difficult to register in mind that a person maintaining such a portfolio shall enter any bogus transactions to bring down the profit so as to avoid the tax liability in a situation where he has sufficient brought forward losses. As such, considering the magnitude of the business of the assessee, the loss in dispute is miniscule and no prudent person will enter into such bogus transactions. As alleged by the revenue that the assessee has carried out the transactions in the script of M/s Prraneta Industries in connivance with SCS. The basis for holding so was that it was discovered during the search proceedings at the premises of SCS and M/s Prraneta Industries that the company namely M/s Prraneta Industries is engaged in providing accommodation entries through the involvement of SCS. However, on the contrary we find that all the transactions were carried out by the assessee at the stock exchange through the involvement of registered/ stockbrokers. But the Revenue has not established any link between SCS/ M/s Prraneta Industries viz a viz the registered stockbrokers which in our considered view was necessary for carrying out manipulation in the script in dispute. There was nothing on record suggesting that there was any enquiry conducted either by the SEBI or the stock exchange with respect trading in the script of M/s Prraneta Industries. Similarly, there was no complaint filed by any of the party either to the SEBI or the stock exchange about the assessee or brokers or M/s Prraneta Industries that it was involved in the manipulation of the prices of the shares. Similarly, the AO has not conducted an enquiry from the SEBI or BSE about the company whether it was engaged in the frivolous activities as alleged. We also note that in the investigation carried out by the investigation wing of Kolkata/ Mumbai, it was unearthed that there were numerous companies involved generating bogus long-term capital gain, eligible for exemption under section 10(38) of the Act. However, there was no information available on record whether the name of the company i.e. M/s Prraneta Industries was appearing in the investigation carried out by the investigation wing of Kolkata/ Mumbai or any other investigation carried out by the income tax department. An alleged scam might have taken place in the trading of the script M/s Prraneta Industries. But it has to be established in each case, by the party alleging so, that this assessee in question was part of this scam. The chain of events and the live link of the assessee s action giving his/her involvement in the scam should be established. Just the modus operandi, generalisation, preponderance of human probabilities cannot be the only basis for rejecting the claim of the assessee. Unless specific evidence is brought on record to prove that the assessee was involved in the collusion with the entry operator/ stockbrokers for such a scam. In the absence of such finding how is it possible to link their wrong doings with the assessee. Further the case laws relied by the AO are with regard to test of human probabilities which may be of greater impact but the same cannot be used blindly without disposing off the evidence forwarded by the assessee especially without bringing any evidence from independent enquiry corroborating the allegation. As SMT. KRISHNA DEVI, HARDEV SAHAI GUPTA (GARG) , SMT. BINDU GARG 2021 (1) TMI 1008 - DELHI HIGH COURT we hold that in absence of any finding specifically against the assessee in the investigation wing report, the assessee cannot be held to be guilty or linked to the wrong acts of the persons investigated as far as trading loss claimed by the assessee in the scripts of M/s Prraneta Industries. Hence the ground of appeal of the assessee is hereby allowed.
Issues Involved:
1. Disallowance of trading loss treating it as bogus loss. Summary: Issue 1: Disallowance of Trading Loss of Rs. 42,14,344.00 The assessee, engaged in the business of shares dealing, was implicated in a search and seizure operation at the premises of Shri Chandrakant Shah (SCS) and his associates. Various incriminating documents were found, indicating that SCS provided accommodation entries through intermediaries. The AO alleged that the assessee claimed a bogus trading loss in the script of M/s Prraneta Industries Ltd., amounting to Rs. 42,14,344.00. The assessee contested this, arguing that all transactions were legitimate and conducted through registered stockbrokers, with no direct evidence linking the assessee to SCS or any manipulation of share prices. The AO, however, disallowed the loss, citing seized documents and statements from SCS and others, suggesting that M/s Prraneta Industries was controlled by SCS and involved in providing accommodation entries. The CIT-A upheld the AO's decision, emphasizing that the transactions were not genuine and were part of a scheme to provide accommodation entries. Upon appeal, the ITAT found that the assessee conducted genuine transactions through the stock exchange, with no evidence of manipulation or collusion with SCS. The ITAT noted that the assessee had sufficient brought forward losses to absorb the disputed loss, and there was no extra tax benefit gained. The ITAT concluded that the revenue failed to establish a direct link between the assessee and any fraudulent activities, and thus, the disallowance of the trading loss was unwarranted. Issue 2: Disallowance of Trading Loss of Rs. 2,44,62,330.00 for AY 2011-12 The issue for AY 2011-12 was identical to the previous year, except for the change of the script to Chandni Textile Engineering Industries Limited. The ITAT applied the same findings as for AY 2010-11, allowing the appeal in favor of the assessee. Issue 3: Disallowance of Trading Loss of Rs. 10,14,955.00 for AY 2012-13 For AY 2012-13, the script involved was Chandni Textile Engineering Industries Limited and Shri Ganesh Spinners Ltd. The ITAT again applied the same findings as for AY 2010-11, allowing the appeal in favor of the assessee. Issue 4: Appeals for Shri Sagar Rajesh Jhaveri for AY 2010-11, 2011-12, and 2012-13 The issues raised were identical to those in the case of Shri Vicky Rajesh Jhaveri for AY 2010-11, with different scripts involved. The ITAT applied the same findings, allowing all the appeals in favor of the assessee. Conclusion The ITAT allowed all the appeals, concluding that the trading losses claimed by the assessee were genuine and not part of any accommodation entry scheme, as alleged by the revenue. The revenue failed to provide concrete evidence linking the assessee to any fraudulent activities.
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