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TMI Blog2022 (12) TMI 252X X X X Extracts X X X X X X X X Extracts X X X X ..... the survey by offering gain arising on sale of shares of ACEL as business income instead of short term capital gains offered at special rates of tax. Assessee has actually paid excess tax to the Government. It is not in dispute that assessee had duly paid the differential taxes together with interest thereon along with revised return filed by the assessee on 22/03/2016. It is also pertinent to note that in the various statements recorded by the AO from various persons, the name of the assessee was never mentioned by any of them. Hence, it could be safely concluded that the assessee herein has got absolutely no link with either promoters of the company, entry providers, exit providers, 47 individuals to whom preferrential allotment of shares were made and other private individuals. Hence, we have no hesitation to uphold the order passed by the ld CIT(A) in this regard. Hence, we direct the ld. AO to accept the gain arising on sale of shares to be taxed only under the head income from business and not as unexplained cash credit u/s.68 of the Act. Accordingy, the grounds 1-3 raised by the Revenue are dismissed. Speculative transaction - Deduction for loss claimed by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the Revenue are dismissed. - ITA No.495/Mum/2021 - - - Dated:- 31-10-2022 - Shri Vikas Awasthy, Judicial Member And Shri M.Balaganesh, Accountant Member For the Assessee : Mr. Haridas Bhat, Adv. For the Revenue : Mr. Jayant Jhaveri, CIT DR ORDER PER M. BALAGANESH (A.M): This appeal in ITA No. 495/Mum/2021 for A.Y.2014-15 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-CIT(A) 12, Mumbai in appeal No. CIT(A)12, Mumbai/11344/2016-17 dated 14/08/2020 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3)of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 30/12/2016 by the ld. Dy. Commissioner of Income Tax 6(2)(1), Mumbai (hereinafter referred to as ld. AO). 2. At the outset, we find that the appeal of the Revenue is delayed by 123 days. We find that the appellate order was passed by the ld. CIT(A) during the Covid period and the appeal has been filed before this Tribunal by the Revenue during the Covid period. Hence, in view of the relaxation granted by the Hon ble Supreme Court, the delay of 123 days is hereby condoned and appeal of the Revenue is admitted for adjudication. 2.1. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... okers and traders and the transactions carried out through the Exchange were with malafide intentions. 6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the assessee's claim of expenses of Rs. 21.68,322/- towards warehousing rent, brokerage and commission, stamp charges on purchases and trading of commodities on National Spot Exchange Ltd(NSEL), without appreciating the fact that the alleged commodity transactions claimed to have been carried out by the assessee were not supported by documentary evidence of actual delivery of goods. 7. The Appellant prays that the order of the CIT(Appeals) on the above ground be set aside and that of the AO be restored. 8. The Appellant craves leave to amend or alter any ground or to submit additional new ground, which may be necessary. 3. We have heard rival submissions and perused the materials available on record. The assessee is a limited company engaged in the business of manufacturing and trading of textile products. The assessee filed its return of income for the A.Y.2014-15 on 28/11/2014 declaring total income of Rs.14,75,45,668/- comprising of business loss o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Return for AY 2014-15 is filed showing Short term Capital Gain of 34.05 crore. 09.06.2015 Survey u/s 133A is conducted by the Investigation Wing, Mumbai in the case of M/s Anukaran Commercial Enterprises Ltd 12.06.2015 Survey u/s 133A is conducted by the Investigation Wing, Mumbai consequent of above Survey. The assessee is confronted with the incriminating evidence found during survey which showed that STCG was a bogus accommodation entry and M/s Anukaran Commercial Enterprises Ltd was an accommodation entry provider. 10.12.2015 Consequent to the survey action the assessee files letter for AY 2013-14 withdrawing its claim of Short Term Capital Gain and offers the entire STCG income as business income at Normal rate of taxation. 22.03.2016 The assessee files revised return for AY 2014-15 withdrawing its claim of Short Term Capital Gain and offers the entire STCG income as business income at Normal rate of taxation. 3.1. The ld. AO show-caused the assessee as to why the gains received from sale of sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia, and Shri Parag Dharamshi Seth (exit provider), Shri Rajkumar Kedia, Shri Manish Arora, Shri Satyendra Kumar Jain, Shri Pravin Agarwal, Shri Saumen Chaudhary, Shri Subrata Halder, Shri Anil Kedia and Shri Mayur Jain. The ld. AO also analysed the price moment of ACEL in BSE to show that there was price rigging in the said shares during the period 29/11/2010 to 26/12/2012. 3.4. The assessee in response to show-cause notice issued by the ld. AO also stated that the survey team had shown some statement of third parties relating to LTCG transactions through private placement of shares of AECL. Those statements did not mention the name of the assesee company, its employees, its Directors nor about providing accommodation entry to the assessee company. As regards the query that Shri Arvind Poddar did not have any justification regarding the transaction in ACEL, the assesee stated that investment in shares of a listed company is not usually done by visiting the office of the company attending the Annual General meeting, knowing Directors or profile of the company. Investment is done based on market trends, news available in market through brokers, friends, relatives, daily price movemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 107.50 per share, for a total consideration of Rs 5.37 Crore. Thereafter, there was a bonus issue of shares in the ratio of 8:10 on 27.11.2012 Subsequently, the existing shares were split in the ratio of 1:10 on 27.12.2012, i.e. each equity share of face value Rs 10/- was split into ten equity shares of face value Rs 1. As a result of this bonus issue and share splitting the appellant company was holding 90,00,000 shares as against 5,00,000 shares originally purchased by it. The appellant company sold its entire shareholding during the period from 16.01.2013 to 23.07.2013 ( i.e. F.Y. 2012-13 and F.Y. 2013-14). It is seen from the details of sale transactions that the appellant company has sold the entire shareholding in an extended time frame of more than six months. The shares have been sold at rates varying from Rs 41/- per share to Rs 70/- per share. In other word, this is not a case where shares have been sold at a pre-determined date or period, as the sale has taken place continuously over a span of six months. This is also not a case where all the shares were sold at the peak price to book the maximum gains, as the shares have been sold in the range of Rs 41/- to Rs 70/-. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis, through private placement. This again is not the case of the appellant company. The appellant company has in fact purchased its entire holding in shares of ACEL on 09.10.2012, in the open market, on the platform of BSE, and not by way of private placement. The appellant company was not one of those 47 investors, to whom the shares of ACEL were preferentially allotted, and who were admittedly the beneficiaries of LTCG entry. This is a case where the beneficiaries were identified in the statement of Shri Kushal Pravin Shah Director of ACEL, and corroborated in the statement of entry providers. The appellant company admittedly is not among the beneficiaries so identified. 4.11 On perusal of the statements of Shri Rajesh Kumar Kedia and Shri Parag Dharamshi Sheth, it is seen that they have acted as ext providers for purchasing the shares of ACEL, sold by beneficiaries of bogus LTCG entry There is no mention of the name of appellant company as a beneficiary in any of these statements. 4.12 AO has listed certain other evidence against ACEL at Para 5 of the assessment order, wherein he has reproduced the extracts from the statements of Shri Raj Kumar Kedia, Shri Manish A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preferential allottees. The appellant company, by its own admission, has acquired the shares of ACEL on 09.10.2012, through open market and not on preferential basis. Thus, there is no evidence on record to establish that the appellant company had been one of the beneficiaries of accommodation entry of LTCG in shares of ACEL, even though the evidence on record does suggest that the shares of ACEL were indeed used for providing accommodation entry. 4.15 On the other hand, the appellant has submitted the copies of contract note and relevant Bank Statement for purchase and sale of shares, and copy of demat statement, to substantiate the genuineness of transactions in shares of ACEL. The transactions of purchase and sale in shares of ACEL have been undertaken in the open market, on the platform of BSE, through a reputed stock broker. As regards source of investment of funds, Shri Arvind Poddar, in his statement, has stated that the appellant company had received money from M/s Balgopal Holding and Traders Ltd which is a group concern, and these funds were utilized for making investment in shares of ACEL. In the assessment order, AO has not drawn any adverse inference regarding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind that the action of AO in not accepting the explanation offered by the appellant as to nature and source of the receipts, with reference to the material available on record, was without any justification. The provisions of section 68 are not applicable in the present case, for reasons discussed in preceding paragraphs. Accordingly, the grounds of appeal no. 2 to 5 are allowed. 3.7. None of the factual findings given by the ld. CIT(A) hereinabove were controverted by the Revenue before us with cogent evidences. It is not in dispute that assessee had sold the shares in piecemeal spreading over two assessment years that too at a price ranging from Rs.41 to 70/- per share. We find that assessee was selling the shares only from 16/02/2013 onwards in piecemeal. Even according to the ld. AO, the price rigging of shares of ACEL had happened only during the period 29/11/2010 to 26/12/2012. The assessee had not sold the shares during this period. Hence, the entire basis of rigging of prices, manipulation of prices, role of the assesee thereon, completely falls flat and fails. In any case, one of the main grievance of the ld. AO is that there were 47 investors to whom preferential all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, at the time when it was found that NSEL had no money or commodity against the contracts. Accordingly, the assessee company has written off the value of open contracts, during the year, by taking the value of closing stock as Nil. However, AO has held that the loss arising out of the commodity transaction is to be treated as speculative loss, as the assessee could not provide any evidence of physical delivery of goods. AO also disallowed deduction of Rs. 21,68,322/- on account of warehousing rent, brokerage and commission on purchase and trading of commodity and stamp charges on commodity transactions, holding that the said expenses have been incurred in relation to the commodity transactions, which are treated as speculative in nature. 4.2. The ld. CIT(A) granted relief to the assessee by holding that the loss incurred on commodity transactions by the assessee is covered by express provisions contained in Section 43(5)(d) of the Act and hence, the said loss should be construed only as normal business loss. With regard to allowability of deduction of expenses towards warehousing rent of Rs.12,12,432/-; brokerage and commission amounting to Rs.8,12,749/-; and stamp charges amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carrying out its business transactions. As corectly stated by the ld. CIT(A), as per the provisions of Section 43(5)(d) of the Act, transactions carried out by the assessee cannot be treated as a speculative transaction. Hence, it should be considered as regular business transaction and in case it resulted in a loss, it should be construed as normal business loss. Hence, we do not find any infirmity in the order of the ld. CIT(A) granting relief to this extent. Accordingly, the ground Nos. 4 5 raised by the Revenue are dismissed. 4.4. With regard to allowaibility of other regular business expenses, warehouse rent, brokerage and commission and stamp charges totalling to Rs.21,68,322/- incurred by the assessee in trading of commodities, we have already held hereinabove that the commodity transactions were carried out in the regular course of its business and the same cannot be treated as a speculative business carried on by the assessee. Once, it is held that these are regular business transactions, the aforesaid business expenditure also would become squarely allowable as deduction u/s.37 of the Act. Hence, we do not find any infirmity in the order of the ld. CIT(A) granting r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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