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TMI Blog2024 (5) TMI 1454X X X X Extracts X X X X X X X X Extracts X X X X ..... LTCG realized from the sale of flat as stated supra. We have also perused the decision referred before us in the case of Nalanda Builders Pvt. Ltd. [ 2024 (2) TMI 330 - ITAT KOLKATA] wherein the issue of sale of two stocks namely, M/s. Tuni Textiles Ltd. and M/s. Blue Circle Services Limited was involved and the losses suffered on the sale of above shares was adjusted against the LTCG accrued from sale of fixed asset i.e flat. We have perused the above decision carefully and observed that the facts are quite similar and also that the decision in the case of Gateway Financial Services Ltd. [ 2023 (7) TMI 743 - ITAT KOLKATA] has been followed by the Coordinate Bench. We also note that the decision in the case of Nalanda Builders Pvt. Ltd. [ 2024 (2) TMI 330 - ITAT KOLKATA] as relied upon by the Ld. AR has considered the decision of Gateway Financial Services Ltd [ 2023 (7) TMI 743 - ITAT KOLKATA] which has distinguished the decision of the Hon ble High Court in the case of Swati Bajaj [ 2022 (6) TMI 670 - CALCUTTA HIGH COURT] . We set aside the order of CIT(A) and direct the AO to allow the loss incurred on sale of shares and allow the set off of the same against the LTCG earned by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod commencing from 27.12.2012 to 01.01.2013. The assessee also furnished the copies of Demat Account and details of payment. Thereafter, the AO by referring to and discussing the large scale manipulations on the stock market platform done by some unscrupulous entry operators to provide some pre-arranged long term capital gain and short term capital loss/trading loss by price rigging in some shares in a syndicate manner . The also noted that these two shares appeared in the list of penny stocks comprising 84 companies as brought out by SEBI and Investigation Wing of the Income Tax Department after conducting detailed enquiries and investigations. The AO noted that the price of shares were at its peak when the assessee purchased the same and to give accommodation entries for long term capital loss sold those shares. The AO also noted that the assessee sold the shares at a lower price when the syndicate wanted to provide accommodation entries for trading loss. The AO also noted that due to the transactions of purchase and sale of penny stocks, the assessee has declared less taxable income. Hence, summons u/s. 131 of the Act was also issued to M/s. Trans Scan Securities Pvt. Ltd. and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Tuni Textiles Ltd. and M/s. Blue Circle Services Limited were part of the list of 84 penny stocks and, therefore, the loss generated from sale of the above shares was apparently an accommodation entry and was rightly rejected by the authorities below. The Ld. DR also submitted that the case is squarely covered by the decision of Swati Bajaj, supra and, therefore, order of Ld. CIT(A) may be upheld. 6. In the rebuttal the Ld. Counsel for the assessee submitted that the decision of Hon ble Calcutta High Court in the case of Swati Bajaj, supra have been considered in all the above decisions including the one in the case of Nalanda Builders Pvt. Ltd. (supra) and has been respectfully distinguished to be not applicable. The Ld. AR also submitted that in Nalanda Builders Pvt. Ltd. supra, the decision in the case of M/s. Gateway Financial Services Ltd. (supra) has been followed. The Ld. AR, therefore, submits that the appeal of the assessee may kindly be allowed by following the above decision. 6. After hearing the rival contentions and perusing the material available on record, the undisputed fact as gathered from the records before us are that during the year the assessee sold a fla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the recent judgment of Hon'ble Jurisdictional High Court in the case of Principal CIT Vs Swati Bajaj reported in [2022] 446 ITR 56 (Cal) is concerned, we observe that the Hon'ble High Court at Calcutta in the case of Principal CIT Vs Swati Bajaj [2022] 446 ITR 56 (Cal) at Page 142 of the judgment in the second last paragraph has observed that where a witness has given directly incriminating statement and the addition in the assessment is based solely and mainly on the basis of such statement, in that eventuality it is incumbent on the Assessing Officer to allow cross examination of the witness. Adverse evidence and material, relied upon in the order, to reach the finality should be disclosed to the assessee. In the case of the appellant the Assessing Officer has noted at Page-2 of the assessment order dated 18.12.2016 that employee of Gateway Financial Sri Ranjeet Kumar Gupta, Sri Kiranjeet Mahanta in their statement on oath dated 10.02.2015 accepted that they are appointed as director in different zama kharchi companies. Further the employee of Gateway Financial Sri Soumen Chowdhury in his statement on oath dated 10.02.2015 accepted that the said company is engaged in b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 11(4) and 11B of the SEBI Act, hereby revoke the Confirmatory Orders dated October 12, 2015, March 18, 2016 and August 26, 2016 qua aforesaid 82 entities (paragraph 9 above) with immediate effect. 23. It is well settled that while acting in their quasi-judicial capacity the income tax authorities have to adhere to the principles of natural justice and in the instant cases Assessing Officers of respective assessee(s) ought to have given opportunity to assessee(s) to cross examine these five persons whose statements were the basis of alleged additions. 24. Coordinate Bench Delhi in the case of Nokia India (P.) Ltd. vs. DCIT reported in [2015] 59 taxmann.com 212 (Delhi - Trib.) has held that whether cross-examination is to be provided or not depends upon the facts of each case and there is no thumb rule or straight tight jacket formula for arriving at this conclusion. It all depends on facts of each case whether principles of natural justice have been complied with or not. If decision making authority has provided due opportunity to the person complaining of non-observance of principles of natural justice, then it is for the person so complaining to demonstrate the same and show the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the principles of natural justice, the High Court should have exercised its jurisdiction of judicial review. 28. The aforesaid decision makes it evident that, not only should the opportunity of crossexamination be made available, but it should be an effective cross examination, so as to meet the requirement of the principles of natural justice. In the absence of such an opportunity, it cannot be held that the matter has been decided in accordance with law, as cross-examination is an integral part and parcel of the principles of natural justice. Cross-examination is must where Assessing Officer relies upon only on the statement of the Third Party unconnected with the appellant 29. In the case of Krishna Chand Chela Ram v. CIT reported in (1980) 125 ITR 713 (SC) the Supreme Court has held that cross-examination is must where Assessing Officer relies upon only on the statement of the Third Party unconnected with the appellant. Hon ble Supreme Court has held that the letters, dated 14.02.1955 and 09.03.1959, did not constitute any material evidence which the Tribunal could legitimately taken into account for the purpose of arriving at the finding that the amount of Rs. 1,07,350 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at. The assessee has a right to inspect the record and all relevant documents before he is called upon to lead evidence in rebuttal. This right has not been taken away by any express provision of the Income Tax Act. 32. In respect of the report of the Investigation Wing of the Department, the appellant pointed out the said report nowhere states the name of the appellant or the transaction of the appellant. The said investigation was carried out in case of any other person and not in case of the appellant. In the said investigation the transaction in question of the appellant was not commented upon by the Investigation Wing and therefore the said Investigation Wing report is not evidence to impeach the transaction of the appellant. We find that the Ld. Departmental Representative could not point out anything to show that the said Investigation report was relied upon by ld. AO in the order of assessment was related to the specific transaction of the appellant. In the circumstances, the said Investigation Report wherein some other persons were found to be involved in some manipulation does not establish that the appellant was also involved in any manipulation. 33. Recently, Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the Hon'ble Calcutta High Court in the case of Eastern Commercial Enterprise (1994) (Cal) [210 ITR 103]. 34. In view of the above discussion, we notice that so far as the statement of Mr. Praveen Kumar Agarwal is concerned who is the director of one of the group companies namely M/s. Gateway Financial Services Ltd. already stands retracted by him by filing affidavit before the Investigation Wing of Income Tax Department and also as regards the submissions of ld. D/R that proceedings under other Acts were carried out in the case of Mr. Praveen Kumar Agarwal it was stated by ld. Counsel for the assessee as an officer of Court that as on date no proceedings are pending against Mr. Praveen Kumar Agarwal in regard to the alleged transactions before any authorities other than Income Tax Department. Even otherwise, we are not dealing with the case of Praveen Kumar Agarwal. So far as the statements of remaining persons which have been referred by ld. AOs in the assessment orders they have all either been taken during the course of search/survey in some other cases or during the course of any proceeding in the case of the company the shares of which have been traded by the assessee(s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tunity to cross examine those persons who were directly related to the assessee company i.e., Gateway Financial Services Ltd., and other assessee(s) even when their statements have been relied heavily by the Assessing Officers to deny the claim of short term capital loss /long-term capital gains as the case may be, we note that apart from placing reliance on the statements, the revenue authorities have also referred to the report of the investigation Wing which carried out search and survey in some other cases prior to the conclusion of assessment proceedings in the instant appeals and such investigation included the persons who have been alleged to be entry providers/operators, share brokers etc. 36. Now, before us in case of one of the assessee s, namely, Gateway Financial Services Ltd., the issue relates to bogus short-term capital loss from sale of equity shares of Blue Circle Services Ltd. and in the remaining three cases the issue is regarding alleged bogus Long term capital gain from sale of scrip, namely, Radford Global Ltd. 37. Since the facts relating to claim of loss and gain are different, we will first take up the issue regarding alleged bogus short-term capital allege ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the revenue authorities, and the claim of the assessee is that it has entered into the purchase and sale transactions in the regular course of business and also considering the fact that it is not the case of earning long-term capital gains for claiming exemption u/s 10(38) of the Act, but is a case where the assessee has lost its capital by incurring huge loss. This Tribunal in the case of Raigarh Jute Textile Mills Ltd. vs. ACIT in ITA No. 2286/Kol/2019; AY 2014-15; order dt. 27/06/2023, wherein the same combination of Judicial and Accountant Member has dealt with the issue regarding the claim of short term capital loss/business loss from sale of equity shares which was alleged by the revenue authorities being arranged from penny stock companies has decided in favour of the assessee after dealing with the facts of the case, modus operandi of carrying out such transactions by the assessee and also dealing with the judgement of the Hon ble jurisdictional High Court in the case of Principal CIT Vs Swati Bajaj 446 ITR 56 (Cal), and also examining that the facts of the case are different with that of Swati Bajaj (Supra) and the same being not applicable in the case and has held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... independent enquiry to verify the same. Once the assessee having discharged initial burden upon him to furnish the evidences to prove the identity and creditworthiness of the share subscribers and genuineness of the transaction, the burden shifts upon the Assessing Officer to examine the evidences furnished and even make independent inquiries and thereafter to state that on what account he was not satisfied with the details and evidences furnished by the assessee and confronting with the same to the assessee. 9.2 The Hon ble Calcutta High Court, however, in the case of PCIT vs. Swati Bajaj Ors (supra) has observed that to prove the allegations a logical process of reasoning from the totality of the attending facts and circumstances surrounding is to be adopted. That it is the duty of the Court to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded so as to reach a reasonable conclusion and the test would be what inferential process that a reasonable/prudent man would apply to arrive at a conclusion. Further proximity and time and prior meeting of minds is also a very important factor. A holistic approa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es in FY 2012-13 as against Rs.0.11 Crores in FY 2011-12 implying an increment of 354.54%. The stock even started declaring dividends (Equity Dividend of Rs.0.18 Crores in FYE Mar 13 as against NIL in FYE Mar 12, Mar 11 and Mar 10 implying a trend reversal and a dividend payout of 36%). That having regard to these fundamentals of Rutron, the assessee company had purchased shares in a staggered manner in January 2014 in anticipation of trading profits. The purchase of the stock was motivated not only by the dividend but the anticipated price rise. However, since the stock of Rutron was in a sustained fall and therefore like any prudent trader, the company purchased the stock only when its price fell substantially. However, when it became apparently clear that the financials of Rutorn were not indicative of future financial performance of the stock, the assessee company, being a prudent trader switched gears and immediately cut short its losses by exiting its position in Rutron. The ld. AR, therefore, has demonstrated that the investments in these shares were governed on commercial prudence. 10.2 The Ld. Counsel has further demonstrated that the Trades in Comfort Fincap Ltd. ( Comfor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cut short its losses as the stock price deteriorated further. 10.4 Regarding the decision to trade in the stock of Unno Industries Ltd., the ld. Counsel has explained that the same was based on the company s own reading of the financials of Unno, which was a listed public company at the relevant time. That the trade was undertaken based on the not only the fundamentals but also the technical aspects of the stock. The shares of Unno were purchased on 22nd January 2014 in anticipation of trading profits and the same were sold on 20th March 2014 when there was an indicator for a further decline in the prices of a stock. That the stock of Unno was in a steep fall and the company had purchased the stock only when its price fell substantially. That the company did not enter/exit at the highest/lowest price and the trades in Unno were entered into only after carefully considering both the technical and fundamental aspects of the stock. The trend visible in the then latest financials of the stock available publicly was upbeat. That Unno had reported Total Assets of Rs.42.55 Crores for FYE Mar 13 and its turnover and profit had remained stable over the years despite the falling prices in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the company itself was not implicated of any wrong doing. Any other person, except the aforesaid 14 persons, was not restrained for trading in the shares in the said company. The second company investigated was Global Infratech Finance Ltd, in respect of which, only 46 specific persons/entities were found guilty of price manipulation in shares of the said company after detailed investigation. That some of the entities had inter alia questioned the act of SEBI in not holding all persons/entities who had traded in the shares of Global Infratech and Finance Limited to be artificial or suspicious. However, the SEBI in their Order had specifically observed that only the promoters and/or their connected entities were found to be guilty of price manipulation and that the unrelated entities were not to be made party to these proceedings. It has been further submitted that in respect of other three companies, the SEBI did not choose to make any investigation and there is no action taken by the SEBI against the other three companies namely Comfort Fincap Ltd, Luminaire Technologies Ltd and Unno Industries Ltd. It has been submitted that no adverse orders ever have been passed by the SEBI r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound specific entities/persons guilty of manipulation. The Ld. Counsel has further submitted that in the similar facts and circumstances, the coordinate benches of the Tribunal have opined in favour of the assessees therein. 12. We find force in the contentions raised by the ld. counsel for the assessee. Firstly, in this case, the assessee has not claimed long-term capital gains on account of unrealistic steep rise in the share prices of these scrips traded in as was in the case of PCIT vs. Swati Bajaj Ors (supra). The Hon ble High Court had held, under the circumstances, that the burden was upon the assessee to explain the business prudence of investment in these scrips of the companies having negligible financial worth and thereafter of steep rise in their share price resulting into huge capital gains within a short span of time. The case before us is of business loss in share trading. The assessee, as observed above, has duly explained the factors and considerations which prevailed for making decision by the assessee company of purchasing in the aforesaid five scrips, which included their financial worth, the market position, their income, dividends etc. Further, it was not a ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion report which is a general investigation report. The Hon ble Calcutta High Court in the case of PCIT vs. Swati Bajaj Ors (supra) has considered the said report and analysed the same vis-a-vis circumstantial evidences like the negligible financial worth of the companies whose shares were traded in, the unrealistic steep hike in the share prices as against the recessive market trend and the failure of the assessee to explain the commercial prudence for making such huge investments. The additions thus have been made on the basis of circumstantial evidences and considering the preponderance of probabilities. Hon'ble Supreme Court in Padmasundra Rao v. State of T.N. 255 ITR 147 (SC) has held that circumstantial flexibility, e.g. one additional or different fact, may make a world of difference between conclusions in two cases: Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... genuine loss from share trading incurred by the assessee in regular course of business, deserves to be allowed. Thus, impugned disallowance is uncalled for. 44. Thus, to conclude we hold that firstly the principles of natural justice have been violated while carrying out the assessment proceedings in the case of the assessee(s) since no opportunity for cross-examination was provided for those persons whose statements have been relied upon by the assessing officer for making the alleged additions. Secondly, there is no direct evidence referred to by the assessing officer or in the report of the investigation Wing that the assessee(s) have made arrangements with the entry operators/company owners for carrying out the alleged transactions. Thirdly, additions made by the assessing officer are merely based on a theory called preponderance of probability that in same type of cases prices are rigged up and down by the entry operators in order to provide accommodation entry to various persons in the form of Long term capital gain and though, the assessing authority can apply preponderance of probabilities in some cases on account of surrounding circumstances but so far as the cases on han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious completely unrelated persons whose statement were recorded and on the basis of unfounded presumptions. He further held that the name of the appellants were neither quoted by any of such persons nor any material relating to the assessee was found at any place where investigation was done by the investigation Wing. The ld. CIT(A) relying on various orders of Lucknow Benches and other Benches has allowed relief to the assessee by placing reliance on the evidences filed by the assessee before Assessing Officer. I do not find any adversity in the order of ld. CIT(A) specifically keeping in view the fact that Lucknow Benches in a number of cases after relying on the judgment of Hon'ble Delhi High Court in the case of Krishna Devi and others had allowed relief to various assessees. 13.2. The Hon ble High Court, after taking into the concurrent findings of the first appellate authority and the tribunal, held that no substantial question of law is involved in the appeal of the revenue and accordingly dismissed the appeal of the Revenue. In the present case before us also there is no adverse comment in the form of general and specific statement by Pr. Officer of the Stock Exchange o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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