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TMI Blog2019 (1) TMI 893X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that:- We find that the issue under dispute is already addressed by the order of this tribunal in the case of DCIT vs M/s Maco Corporation (India) Pvt Ltd [2018 (3) TMI 811 - ITAT KOLKATA] - I.T.A No. 211/Kol/2017 - - - Dated:- 5-12-2018 - Shri A T Varkey, JM, Shri M.Balaganesh, AM For the Appellant : Shri Saurabh Kumar, Addl. CIT Sr. DR For the Respondent : Shri Manish Tiwari, AR ORDER Per M.Balaganesh, AM 1. This appeal by the Revenue arises out of the order of the Learned Commissioner of Income Tax(Appeals)-2, Kolkata [in short the ld CIT(A)] in Appeal No. 131/CIT(A)- 2/201-17 dated 09.12.2016 against the order passed by the DCIT, Circle-5(1), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short the Act ) dated 22.03.2016 for the Assessment Year 2013-14. 2. The first issue to be decided in this appeal is as to whether the ld CITA was justified in disallowing the business loss treating the same as bogus loss in the sums of ₹ 1,53,47,039/- in respect of sale of shares of Blue Circle Services Limited and ₹ 2,32,23,735/- in respect of sale of shares of Tuni Textile Mills Ltd, as unexplained cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee on examination of the same replied before the ld AO that the details and data given to the assessee in Pen Drive did not contain any data or information relating to the transactions of scrips carried out by the assessee herein resulting in the loss of ₹ 3,85,70,774/- ( 1,53,47,039 + 2,32,23,735). It was specifically pointed out that the scrips which the ld AO had alleged to be bogus, were not suspended by SEBI on independent investigation carried out by it. The tabulation in this regard is reflected in pages 5 and 8 of the assessment order. It was also pointed out that in the absence of any such specific information allegedly received by the ld AO from Principal DIT (Inv.) Kolkata and without furnishing the same to assessee, no adverse inference could be drawn against the assessee more particularly when all the details and evidences were produced by the assessee before the lower authorities in respect of all the transactions of dealing in shares and securities on which profits and / losses were earned / incurred during the previous year relevant to Asst Year 2013-14. We find that the assessee during the year under consideration had dealt with 743 scrips and had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailing market prices after duly suffering STT . The documentation maintained by the assessee is the same for all the 743 scrips and when the said documents are accepted by the ld AO for 741 scrips, there is no reason to disbelieve the same for shares of Blue Circle Services Limited and Tuni Textile Mills Ltd alone. There is absolutely no dispute that the assessee had duly filed the requisite documents in connection with the purchase and sale of shares as detailed supra and that the prices thereon were market driven. 4.3. We find that the ld CITA had deleted the disallowance by observing as under:- I have considered the submissions of the authorized representative of the appellant as well as the assessment order framed in the light of the materials available on record before the assessing officer during-the assessment proceedings. The appellant is a registered share broker with Securities Exchange Board of India (SEBI). It has active membership of National Stock Exchange (NSE) since 1995, Bombay Stock Exchange (BSE) since 2000 and MCX Stock Exchange of India (MCXSx) since 2008. During the relevant year under consideration the assessee company filed its return of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment order has reproduced extracts of the report of the investigation wing, Kolkata. Gist of such observations are as follows:- Survey was conducted on 30 share broking entities and entry operators working in Kolkata. Enquiries revealed that through the various levels of entry operators unaccounted cash of beneficiaries is taken and prices of shares are manipulated to high prices resulting in Long term capital gains to the beneficiary. Reverse modus operandi is adopted in order to provide short term capital loss. The beneficiaries buy shares from existing promoters either through offline mode or through online mode and after a period of more than one year prices of such scripts increase 10 to 20 times giving rise to exempt LTCG. The operators may incorporate new company and get it listed on stock exchange or by way of amalgamation listing can be done at the stock exchange. 'Thereafter, the operator manipulates the share prices. The investors are those persons who want their unaccounted cash to be converted to bogus tax exempt LTCG. The business transactions of such companies are mere paper transactions. The share prices consistently rise nort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs at serial number 8 61 in the said list, but both the scripts were not suspended by SEBI. It clearly indicated that there was no such evidence which suggest any action against the company. Therefore, reliance upon the list by the AO cannot be made to disallow any loss incurred by the appellant. ' At para 2.11 of the assessment order the AO has mentioned names 'of promoters/ key operators of the penny stock. In such list, name of Blue Circle Services Ltd appear at serial number 1 and the name of promoter / operator Sri Jagdish Purohitwhose statements has been recorded by investigation wing is mentioned but no linkage or nexus has been established by the investigation wing in their report or by the AO during the assessment proceedings of Sri Jagdish Purohit and the appellant company. The copy of such statement was never furnished to the appellant. ~urther it is pertinent to mentioned that there is no mention of name of Tuni Textile in this list. The AO, reason best known to him in spite of having the statement of Shri Jagdish Purohit, did not investigate the matter to collect the further evidence in the matter to strengthen his case and there is no such material on rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no irregularity or discrepancy pointed out by the AO in respect of details filed by the appellant in support of its claim that the share loss is a genuine loss. The AO in the assessment order; besides relying upon the general report of the investigation wing, Kolkata has not brought on record any cogent, relevant evidences and facts which can. prove that in reality there was in fact no purchase sale of shares by the appellant. The appellants being a registered share broker its income is from share trading and brokerage done on behalf of its clients. The purchase and sale of shares is the regular business activity of the appellant. It is not that the appellant has only dealt in shares of these two companies, The 'appellant has traded in number of scripts' which has resulted in profits as well as losses also. So, it's a regular business activity of the appellant company. The appellant filed complete details of entire share transaction including those mentioned herein above before the AO. Such details included Statement of quantity of shares purchased and sold of each scrip, scrip wise profit and loss earned during the relevant AY, details of purchase and sale of Tun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant company. The AO has disregarded the claim of the appellant and disallowed share trading loss of ₹ 3,85,70,774/- merely relying upon a general report of Investigation wing Kolkata in respect of various 84 scripts and held that from the date wise chart of the price movement of the aforesaid scripts there was sharp increase and decline in the price of the scripts and the modus operandi adopted by the appellant was to avoid taxes. The Trade Files and Obligation Statement received from respective Stock Exchange in support of purchase and sale such shares, clearly indicated that the appellant has paid all the statutory charges levied by the stock exchanges. The demat account and bank statement of the appellant company placed in the paper book reflect all the transactions of the appellant. The materials as available in paper book, it can safely be concluded that the transactions were complete in terms of documentation and there was no defect in the papers submitted by the appellant in support of the transactions. The appellant has proved the transaction on the basis of documents. No investigation has been carried out by the AO or by the investigation wing to bring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aside as void ab initio. The second segment was as to whether the addition should be deleted or should the case be restored to the ITO, with a direction for re-doing. The rules of natural justice operate as implied mandatory requirement, non-observance of which amounts to arbitrariness and discrimination. The principles of natural justice have been elevated to the status of fundamental rights guaranteed in the Constitution as is evident from the decision of the Full Bench of the Supreme Court in the case a/Union of India v. Tulsiram Patel AIR 1985 SC 1416 at p. 1460, holding '{fiat the principles of natural justice have thus come to be recognised as being a part of the guarantee contained in article 14 of the Constitution because a/the new and dynamic interpretation given by the Supreme Court to the concept of equality which is the subject-matter of that article and that violation of principles of natural justice by a State action is a violation of article 14. In fact, the principles of natural justice, in the realm of life and liberty, would ipso facto even be read into article 21 because any procedure which affected life or liberty had to be a just, fair and reasonable proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n share trading business and thereby reducing the taxable income and tax liability. This proposition is supported by the judgment of the Patna High Court in the case of Additional CIT v. Bahri Brothers Pvt. Ltd. (1985) 154 ITR 244 and the judgment of the Supreme Court of India in the case of CIT v. Orissa Corporation Pvt. Ltd. (1986) 159 ITR 78 (SC). Thus the appellant having discharged the burden, it is the Revenue which had to verify the genuineness of the transaction and the primarily in case AO did not discharge the burden which had shifted on him and had just mechanically adhered to disallow the loss .aimed by the appellant without rebutting any of the submissions of the appellant. . The Hon'ble Jurisdictional High Court in the case of the CIT Vs Eastern Commercial Enterprises [1994] 210 ITR 103, held that right to cross-examine a witness adverse to the assessee is an indispensable right and the opportunity of such cross-examination is one of the corner-stones of natural justice. Thus on this limb of the argument itself the assessment order should be held to be bad in law. When the AO is having the statement of Mr Jagdish Purogit, he must have cross examined with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 2.15 of the impugned assessment order referred to the report of the Investigation Wing of the department and also the statements of various persons recorded under section 131 of the Act to hold that the prices of the shares of many companies listed in Stock exchange were rigged by brokers / persons to provide Long Term Capital gains' and/or profits and losses to desired persons. The Assessing Officer, referring to the report of Investigation Wing, furnished the list of scrips of various companies listed in BSE/NSE which were suspended for dubious trading. However, the said list of suspended shares did not include the name of 'Blue Circle' and Tuni Textiles in which the assessee company traded and suffered losses. The said report, as is evident from Para2.4 to 2.15 of the Assessment Order, contains various presumptions and allegations without any authentic legal evidences thereof. The Assessing Officer disallowed the loss of ₹ 3,85,70,77 4 suffered by the assessee company on various allegations made in para 2.4 to 2)5 of the impugned assessment order which were based on suspicion, surmises and conjectures only although it is settled law that no assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finitely alien to the facts and the evidences brought on record by the Assessee Company. There were no evidence and materials on record which can be aid to be legal positive evidence, supporting the case of the Assessing Officer, more so then the appellate company had discharged its primary onus by producing the books of accounts and all evidences in support of its claim of the aforesaid trading loss of ₹ 3,85,70,774. Thus all the inferences drawn by the Assessing Officer, more particularly at.para'2.4 to 2.14 of the impugned assessment order are based on suspicion, surmises and conjectures alone without any cogent materials and/or evidences brought on record by him against the assessee company. The Appellant had discharged its onus of proving the genuineness of the transactions resulting in trading loss and when the assessee has discharged its onus of proving the genuineness of the transactions by furnishing all evidences, no adverse inference could be drawn unless the same are proved to be false or bogus. The Hon'ble Jurisdictional High Court of Calcutta where the Gains/losses arising from the transactions of purchase and sale of shares were held to be genuine wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing in such activity of generating losses year after year to reduce its tax liability, held as under. Therefore, it cannot be said by any stretch of imagination that any loss was generated. The opinion that the assessee generated a sizeable amount of loss out of pre-arranged transactions so as to reduce the quantum of income liable for tax might have been the view expressed by the Assessing Officer, but he miserably failed to substantiate that Loss might have been suffered. If the loss was suffered, then appropriate deduction has to be made and there is no reason why the Assessing Officer should have refused to do so. The learned Tribunal restored the order of the Assessing Officer and set aside the order passed by the CIT (Appeal) without application of mind. The learned Tribunal ignored the fact that the transaction was carried out at the prevailing price. Therefore, the question of generating loss could not have arisen. The suspicion entertained by the Assessing Officer was misplaced or in any event not substantiated. The Hon'ble High Court in the case ofCIT vs. Shreyashi Ganguli - ITAT No. 196 of 2012 (Judgment dated 5th September, 2012) found that the transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that they had issued the contract notes which had been duly submitted. It was also pointed out that the consideration for purchase and 'sale of those shares have been paid or received through banking channels and copies of bank statements have also been submitted. It further appeared that on purchase of these shares the delivery was taken in Demat account and similarly when the shares were sold, the delivery to the respective brokers have also been given through Demat account. The copy of the Dernat account was also submitted during the assessment proceeding. The Assessing Officer was of the view that the assessee had incurred loss in those shares which were listed on the Calcutta Stock Exchange which was bogus. However, the Appellate Authority came to the conclusion that so far the assessee was concerned, he had entered into transactions of purchase and sale through brokers and he was not responsible for the manner in which the brokers carried out the transactions. It was pointed out that the assessee was concerned only about the receipts of the shares on purchase and delivery of shares to the brokers on their sale and the Assessing Officer had not brought anything on record t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it to discharge basic onus - Whether on facts, transactions in shares were rightly held to be genuine and addition made by Assessing Officer was rightly deleted - Held, yes [Para 7] [In favour of assessee] The AR also placed his reliance on the following judgment of the Jurisdictional Kolkata ITAT and other High court and ITATs where similar view has been taken by the courts. ITO vs. Bijaya Ganguli - ITA Nos. 624 625/Kol/2011 (Judgment dated 26.11.2015) Ganeshmull Bijay Singh Baid (HIUF) vs. DCIT - ITA No.544/Kol/2013 (Judgment dated 04.12.2015) Pavillion Commercial Pvt. Ltd. vs. ITO - ITA No.935/KoI/2012 (Judgment dated 12.08.2016) The Hon'ble Tribunal relied on the judgment of Hon'ble jurisdictional High Court in the case of Commissioner of Income Tax vs. Korlay Trading Co. Ltd. (1998) 232 ITR 0820. DCIT vs. Sunita Khemka - ITA Nos. 71.4 to 718/Kol/2011 ITO vs. PKS Holdings [2016] 71 taxmann.com 345 (Kolkata Tribunal) DCIT Circle-7 Vs M/s Rungta Properties Pvt Ltd, ITAT Kolkata ITA NO-626,627 1536/KOL/ Lalit Jagmohan JaIan(HUF) vs. ACIT [ITA No.693/Kol/2009, Order dated 10.02.2016, Kol ITAT ITO vs. Vijay Kumar Khemka, I.T.A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he SEBI recognized' stock exchanges, viz., National Stock Exchange (NSE), Bombay Stock Exchange (BSE) and MCX Stock Exchange Ltd. (MCX- Sx). There is 13 scripts where the appellate earned profit over 50 Lacs and in 4 scripts where the appellate suffered loss over 50 Lacs including these two scripts. The other script which is NIFTY where loss ofRs 1.27 Crores was incurred during the years. In view of above it can safely presumed that the appellate is regularly engaged in the business of purchase sales of shares and securities and earned both profit and loss. The details of these script are as under: It is not a case where client code modification has been done by the broker. It is not the case of the AO that the appellant has resorted to any client code modification. No client code modification has been done/and all trades have been executed in appellant's Proprietary account. It is not a case where the AO has made any enquiry about the directors of the company whose shares were traded. The assessment order does not suggest it. The AO has also not brought out any material on record that cash trail of the appellate company was prepared by the Investigation Wing, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lement Bank Account of the Company. Similarly receipts against all sale of shares are received from ICCL in the Settlement Bank Account of the Company. No part of payment for purchase of shares made or receipt against sale of shares were done in cash. As far as AO's observation that there is sharp increase/ decreased in the shares prices during the period cannot be the reason for treating genuine LTCL as accommodation / bogus entry because this is a free market where the investor does not have any control over price. The Assessing Officer did not have any material on record to show that the purchase and sale of shares were' bogus. Purely relying on the report forwarded by the Investigation wing, the Assessing Officer came to a conclusion that the entire transaction of loss on purchase and sale of shares as bogus. Therefore, I am inclined to hold that the action of AO was predetermined and completely guided by the DDIT (Inv), Kolkata's report. Thus after careful consideration of the entire gamut of assessment order, statements recorded by the DDIT(Inv), written submissions as well as the paper book and the decisions relied upon by the AR of the appellant, the disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firmed the above bogus activity by these institutions. Statement of auditor recorded during the course of survey clearly shows lacunas in the audit done by them. Statements of number of brokers/entry operators recorded in course of survey proceedings have confirmed the bogus billing or accommodation entries from these institutions. Pre survey post survey enquiries have found that most of the expense side parties are paper bogus concerns. The Bank statements of these institutions show clear pattern of donation coming and going vide the above modus operandi. SHG PH have gone in settlement commission admitting that in lieu of service charge they have provided accommodation entries of donation to the donors. The books of accounts were not there at the registered offices. In case of SHG PH there are broker wise ledgers of commission. No purchase bills were found for financial year 2014-15. Documents related to commission were found and impounded. These institutions have few persons with good CV who are associated only in honorary position and they are not involved in the day to day activities. The research work shown is just reproduction of pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obal Achievers Foundation Award in 2012 and Bharat Vibhushan Samman Puraskar in 2013. The organization has also worked with the Governmental Wing. West Bengal State AIDS Prevention Control Society (WBSAP C) as partner NGO in 2005. These facts clearly show that it was an organization of repute, which was carrying on the work of research and development under the guidance of Prof. D.P. Mukherjee, Ph.D. (U.K.) ii) In the above show cause notice dated 01.03.2016 you had alleged, on the basis of information received by you from Investigation wing of the department, Kolkata, that the said Trust has accepted bogus donations. The aforesaid is being made society on the basis of statements recorded under section 131 of the act in the course of survey proceedings in the case of some persons acting as an agent for collecting donations for an on behalf of The School of Human Genetics and Populations Health , who are not known to us. On the basis of such allegation you propose to disallow a sum of ₹ 1,66,25,000/- claimed as deduction under 35 of the Act. iii) Before proceeding further in the matter and before making our submissions against your show cause notice we deny that we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustice Biswanath Samaddar, Dr. Tilak Bagchi, Ass., Director, Censor Board and may others associated with the said institution for the objects of the institution. We also provide you with the newspaper cut out of Telegraph Kolkata dated 27.09.2012 showing the details of the workshop conducted by the School of Human Genetics and Population Health and the details of the awards and achievement of School of Human Genetics and Population Health. The above clearly show that the said institution is one which is of repute and the donation made in the same could not be doubted as the said organization was actively involved in the field of research for betterment of the common man. The people involved with the organization had credentials which clearly demonstrated the quality of the institution and led the company to donate in the said trust. vii) Without prejudice , the statements of some managerial staff of the trust and some brokers, recorded under section 131 of the Act in the course of survey proceedings by the Investigation Wing of Kolkata, in our humble and respectful submission, cannot be used against the company, without any opportunity of cross examination. viii) We hope that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HPH was recognized vide Gazette Notification dated 28.1.2009 issued by the Central Board of Direct Taxes (CBDT in short), Ministry of Finance (Department of Revenue), Government of India, u/s 35(1)(ii) of the Act. b) SGHPH was also recognized as a scientific industrial research organization (SIRO) by Ministry of Science Technology, Government of India. The renewal of recognition as SIRO by the Department of Scientific and Industrial Research under the Scheme on Recognition of Scientific and Industrial Research Organisation , 1988 was made for the period from 1.4.2010 to 31.3.2013 vide communication in F.No. 14/473/2007-TU-V dated 17.6.2010. 8.2. At the outset, we find that the Taxation Laws (Amendment) Act, 2006 with retrospective effect from 1.4.2006 had introduced an Explanation in Section 35 of the Act which reads as under:- Section 35(1)(ii) Explanation The deduction, to which the assessee is entitled in respect of any sum paid to a research association, university, college or other institution to which clause (ii) or clause (iii) applies, shall not be denied merely on the ground that, subsequent to the payment of such sum by the assessee, the approval granted t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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