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TMI Blog2024 (5) TMI 1229X X X X Extracts X X X X X X X X Extracts X X X X ..... action could not have rejected the evidences submitted by the assessee. In fact, in this case nothing has been found against the assessee with aid of any direct evidences or material against the assessee, under these circumstances nothing can be implicated against the assessee. One is bound to consider and rely on the evidence produced by the assessee in support of its claim and base decision on such evidence and not on suspicion or preponderance of probabilities, no material was brought on record by the AO to controvert the evidence furnished by the assessee. It is a settled law that no disallowance on estimation, surmise or conjecture basis can be made. As decided in SHAILESH S. SHAH [ 1997 (3) TMI 610 - ITAT MUMBAI] that no addition can be made purely based on suspicion. Just because assessee`s broker has become defaulter, is not conclusive evidence to make addition , the assessing officer should examine other evidences submitted by the assessee, such as, the evidence of the purchase of shares of two concerns; the source of such purchases has been explained by assessee and has been brought to tax by the department, holding of shares in Demat form and consequent sales through the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per audit report, the assessee has earned long term capital gain on sale of immovable properties amounting to Rs. 4,27,19,591/-. The assessee is engaged in the business of trading in shares. As per profit and loss account annexed with the audit report, there are purchases of shares total amounting to Rs. 5,00,83,490. There are sales of shares total amounting to Rs. 1,02,42,051 and closing stock of Rs. 15000. During the year, the assessee has incurred loss of Rs. 4,55,72,791/-. There is long term capital gain of Rs. 4,17,53,626/- in the current financial year. At the same time, there is huge business loss of Rs. 4,55,72,791/-. The assessee has claimed set off of business loss from long term capital gain of Rs. 3,76,64,312/-. This claim of loss against long term capital gain was found suspicious and the claim of the assessee was examined in detail by the assessing officer. 4. On verification of the share transactions done by the assessee, it was noted by the assessing officer that from the following scrips, the assessee has incurred loss during the year under consideration. Name of the scrip Amount of loss M/s Blue circle services Ltd 2,92,23,370/- M/s Proaim enterprises Ltd 63,97,50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement on 22.03.2013 and 13.03.2013, respectively. However, as per details submitted by you, trading of shares of M/s Blue Services Ltd has started right from 14.09.2012 till 22.03.2013. Similarly trading in the share scrips of M/s Proaim Enterprises Ltd, has started right from 23.01.2013 till 18.02.2013. 4.1.2 Whereas, the credit in your Demat account have come only on 22.03.2013 and 13.03.2013. Meaning thereby is that you had no stock on hand, on the date of selling in both these two scrips. In view of this, you are hereby required to explain how stocks have been sold without their credits, in your Demat statement Rs. 4.1.3 A search was conducted in the business premises of the assessee Shri Raj Kumar Kedia S/o Late Shri S N Kedia, at New Delhi and the statement on oath of Mr. Rajkumar Kedia was recorded on 13.06.2014 wherein he admitted that he has provides Long Term Capital Gains as well as STCL to different beneficiaries who approached him for the purpose. The scrips admitted also includes the name of M/s Blue Circle Services P Ltd. In his statement he, empathetically admitted that some of the cases in which booking for bonus pre-arranged LTCG and loss was done through him, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Security Exchange Board of India (SEBI) restraining the trade of above scrips. Mr Anil Roongta after carefully considering the facts of the case and action initiated by the SEBI had admitted the Long Term Capital Gain on trading of scrip of M/s Mishka Finance Ltd as fictitious and admitted as undisclosed income. Therefore, assessing officer noted that the facts and circumstances of the case indicated involvement of Shri Anil Satnarayan Roongta in obtaining Long Term Capital Gains and losses in the trading of penny stocks. In view of the above facts, the AO noted that the assessee through its broker, wherein he is a director himself has managed the Long Term Capital Loss, as is evidenced that the scrips he has traded in are involved in price-rigging and SEBI has opined against them. Secondly, the broker of the assessee has procured the scrips for assessee through off-market transactions and these scrips are related entities in cases where SEBI has found price-rigging, through which bogus LTCG/Loss has been purchased. The Assessing Officer believed that the evidence produced must be analysed by applying the theory of surrounding circumstances and human probabilities. Whenever there a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hort -term capital loss for purpose of neutralizing long term capital gains by way of price difference in share transactions not supported by market factors. The cumulative events in such transactions of shares revealed that same were devoid of any commercial nature and fell in realm of not being bona fide and, hence, impugned loss was not allowable. 10. The assessing officer noted that in the present case of assessee, there is an obvious and plain transaction of tax evasion which has been clothed with the smoke-screen of subterfuges, by the assessee. The facts of the present case clearly reveal that such trading transactions of purchase and sale of shares, had not been effected, for commercial purpose but to create artificial loss, with a view to reducing tax liability. The assessee resorted to readymade scheme for purchase and sale of shares. Such transactions are not genuine and natural transactions but preconceived transactions, demonstrating creation of such short term capital loss. Such transactions are mutually self- serving. It is mentioned that earning profit is a natural instinct ingrained in human beings, particularly in the businessman, unless, of course, earning of los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ineness and character of commercial nature, to such share transactions. Needless to say that one has to look at the whole transactions and a series of steps taken to accomplish such share transactions, in an integrated manner, with a view to ascertaining the true nature and character of such purchase and sale of shares. The shares purchased and sold in these cases, cannot be treated as regular business transactions. Such approach of the assessee, runs contrary to the very nature of human conduct. 12. The Assessing Officer noted that the revenue is looked into the surrounding circumstances, to find out the reality of the recitals made in the documents. Though an assessee s statement must be considered real until it was shown that there were reasons to believe that the apparent was not the real, in a case where the party relied on self- serving recitals in the documents, it was for the party to establish the transfer of those recitals, the taxing authorities were entitled to look into the surrounding circumstances to find out the reality of such recitals. Science has not yet invented any instrument to test the reliability of the evidence placed before revenue authorities. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r appeal before us. 15. Shri Rasesh Shah, Learned Counsel for the assessee, argued that during the assessment proceedings, the assessee submitted enough documents and evidences to prove the genuineness of the transaction. The assessing officer issued notice to the assessee to explain the transaction and in response to the show cause notice, the assessee filed reply, before assessing officer, vide letter dated 21.03.2016 along with following documents: I. Contract Notes for purchases and sales of shares II. Extract of Broker pool account III. Contra Confirmation from Roongta Rising Stock Pvt. Ltd. IV. Global Report along with contract notes for purchases and sales of shares V. Documents relating to M/s. Blue Circle Services Ltd. VI. Documents relating to M/s. Proaim Enterprise Ltd. VII. Documents relating to M/s. Sawaca Business Machines Ltd. VIII. Ledger account of purchase of shares through off market transactions (M/s. Blue Circle Services Ltd.) IX. Demat account of Industrial Bank Ltd. of the broker The ld Counsel further stated that assessee has purchased the shares in the pool demat account of the broker held with Industrial bank Ltd. The Assessee also stated that he was not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. The assessee submitted that the all transactions were through banking channel. The assessee purchased the shares from the market, however later on, the shares were transferred to demat account and from the demat account, the assessee has sold the shares in open market, therefore the transactions were conducted through registered broker and securities transactions tax(STT) was duly paid. There is no evidence of the Assessing Officer that the assessee has taken on-money or taken any accommodation entries. To support his plea, the Ld. Counsel submitted before the Bench, the following documents and evidences, Viz: (1) Final Order Moryo Industries Limited (SEBI/WTM/MPB/EPD-1-DRA-IV/32/2017) (vide Pb.170 to 180), (2) Final Order Radford Global Limited (SEBI/WTM/MPB/EFT-1 DRA-III/30/2017), (vide Pb. 181 to 191), (3) Final Order First Financial Services Ltd. (WTM/SR/SEBI/EFD DRA-3/71/09/2017), (vide Pb.192 to 199), (4) Order Mishka Finance Services Ltd, (WTM/RKA/ISD/30/2015), (vide Pb. 200 to 267), (5) Interi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for purchases and sales from following (v) M/s. Blue Circle Services Ltd. (vi) M/s. Proaim Enterprise Ltd. (vii) M/s. Sawaca Business Machines Ltd. (viii) Ledger account of purchase of shares through off market transactions (M/s. Blue Circle Services Ltd.) (ix) Demat account of Industrial Bank Ltd. of the broker 21. The assessee submitted before the assessing officer that he (assessee) has purchased the shares in the pool demat account of the broker held with Industrial bank Ltd. The Assessee also stated that he was not connected with Raj Kumar Kedia, in any manner. The assessee further, submitted that shares of M/s Blue Circle Services Ltd, belong to a listed company and was dealt on recognized stock exchange. The assessee further submitted that entire share of M/s Blue Circle Services Ltd, were sold by the broker in self code through BSE. The assessee requested to provide him the copy of statement of Shri Rajkumar Kedia and to allow cross examination. The assessing officer neither provided the statement of Shri Rajkumar Kedia nor provided opportunity to the assessee for cross examination of Shri Rajkumar Kedia. However, assessing officer was not satisfied with reply of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Securities Contract Regulation Act, 1956. In this connection, it is submitted that assessee has purchased the shares through broker who is a member of Stock Exchange and so the contention of the assessing officer is not acceptable. Further, it is submitted that it is the Central Government who shall declare that the transaction as illegal under certain circumstances. In the case of assessee, no such order has been passed by Central Government declaring the transaction as illegal. Even otherwise, the illegality of contract cannot override the actual genuine transaction that took place between the broker and the assessee. Assessee did not produce the spot delivery contract as the shares were kept in the pool account of the broker. Accordingly, assessee s reliance on CBDT 704, 28.03.1995 holds good. 23. We note that assessing officer placed reliance on the Interim Order of SEBI in case of Mishka Finance and Trading Limited dated 17.04.2015. The assessing officer observed that SEBI restrained Shri Anil Roongta from trading in this scrip. In this connection, it was submitted by the ld Counsel that assessee did not claim any loss in respect of this company but the loss occurred i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arket price and shares have been delivered to the purchasers from assessee s demat pool account. Further, the sale consideration is supported by the receipts through Banking Channel. Assessing Officer also observed that as per SEBI order no. WTM/RKA/140/ISD/2014 dated 04.12.2014, M/s Insight Multitrading Pvt Ltd was considered as involved for price rigging. This order was passed in the case of Moryo Industries Limited (WTM/RKA/140/ISD/2014). In this connection, it was submitted by assessee that there is no allegation of SEBI that M/s Insight Multitrading Pvt Ltd was involved in price rigging as can be gathered from the perusal of the SEBI s alleged order. On perusal of this order, it is gathered that Moryo Industries Ltd, has given the money as advance to Insight Multitrading Pvt Ltd and other entities were charged with the allegation of Price Rigging. The SEBI has ultimately passed the final order on 21.09.2017 and the name of M/s Insight Multitrading Pvt. Ltd is not appearing in this order. All the alleged three companies are also listed in the BSE at present also and they are active, as can be verified from the Master Data downloaded from website. The Assessing Officer placed re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing officer (AO) grossly erred in relying upon the vague, unrelated statement of one which is unsupported by any other material or corroborative evidence, which was at the back of assessee without providing a right to cross-examine person who so stated. (iii) H.R. Mehta v. ACIT [289 ITR 0561 (Bom)] [HC] In this case it was held that at least the Revenue should have done was to grant an opportunity to the assessee to meet the case against him by providing the material sought to be used against assessee in arriving before passing the order of reassessment. The Assessee was bound to be provided with the material used against him apart from being permitting him to cross examine the deponents. Despite the request dated 15th February, 1996 seeking an opportunity to cross examine the deponent and furnish the assessee with copies of statements and disclose material, these were denied to him. (iv) CIT v. Ashwani Gupta [322 ITR 0396 (DEL)] [HC] It was held that once there is a violation of the principles of natural justice in as much as seized material is not provided to an assessee nor cross- examination of the person on granted, then, such deficiencies would amount to a denial of opportuni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on record, it is difficult if not impossible, to hold that the transactions of buying or selling of shares were colourable transactions or were resorted to with ulterior motive. (iii) CIT V. Shreyashi Ganguli [ITA No. 196 of 2012] (Cal HC) Held that in this case the Hon ble Calcutta High Court held that the Assessing Officer doubted the transactions since the selling broker was subjected to SEBI s action. However, the transactions were as per norms and suffered STT, brokerage, service tax, and cess. There is no iota of evidence over the transactions, as it were reflected in demat account. The appeal filed by the revenue was dismissed. (iv) CIT V. Rungta Properties Private Limited [ITA No. 105 of 2016] (Cal HC) Held that in this case the Hon ble Calcutta High Court affirmed the decision of this tribunal, wherein, the tribunal allowed the appeal of the assessee where the AO did not accept the explanation of the assessee in respect of his transactions in alleged penny stocks. The Tribunal found that the AO disallowed the loss on trading of penny stock on the basis of some information received by him. However, it was also found that the AO did not doubt the genuineness of the documen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under section 68. On appeal, Tribunal deleted addition observing that DEMAT account and contract note showed credit/details of share transactions. The High Court held that the transactions in shares were rightly held to be genuine and addition made by Assessing Officer was rightly deleted. (ix) CIT v. Smt Jamna Dev Agarwal 328 ITR 656 (Bombay)(HC) Held that it was held that from the documents produced before the Court it was seen that the shares in question were, in fact, purchased by the assessees on the respective dates and the company had confirmed to have handed over the shares purchased by the assessees. Similarly, the sale of the shares of the respective buyer was also established by producing documentary evidence. It is true that some of the transactions were off-market transactions. However, the purchase and sale price of the shares declared by the assessees were in conformity with the market rates prevailing on the respective dates, as was seen from the documents furnished by the assessee. Therefore, the fact that some of the transactions were off-market transactions could not be a ground to treat the transactions as sham transactions. (x) CIT v. Mahesh chandra G. Vak ..... X X X X Extracts X X X X X X X X Extracts X X X X
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