9911796707
TMI Blog2024 (1) TMI 1306X X X X Extracts X X X X X X X X Extracts X X X X ..... stock exchange or brokers, has merely relied on the investigation wing/SEBI reports. We find no whisper in the assessment order disbelieving the evidences filed by the assessee or rejecting the same and the AO has merely proceeded on an assumption that the transactions entered into by the assessee during the year, which have resulted into the lossare bogus and fictitious intended to evade the legitimate taxes due to the assessee. See RENU AGGARWAL [ 2023 (7) TMI 288 - SC ORDER] We are inclined to hold that the AO has failed to carry out any independent investigations/enquiries into the evidences filed by the assessee and has rejected the claim by the assessee qua loss from share trading in F O segment only on the basis of surmises and conjectures and relying on the statements of entry operators who never named the assessee and their statements were recorded long before. Therefore, we set aside the order of first appellate authority and direct the Assessing Officer to delete the allow the loss. Assessee appeal allowed. Addition u/s 14A of the Act r.w.r. 8D(2)(iii) - AO observed that the assessee made huge investments in equity shares, however, the assessee has not made any disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the stocks are as follows:- SI. No. Name 1. Shree Shakeen Textile 2. Unno Industries 3. SRK Industries 4. Global Infratech 5. Comfort Fincap 6. Ashika Credit Capital 7. Nikky Global 4. The ld. Assessing Officer in para 3.4. of the assessment order referred to the large scale manipulations done by some entry operators in connivance with some brokers to provide pre-arranged long term /short term capital gain / loss/trading loss by price rigging and manipulation on the stock exchange platform. The ld. Assessing Officer also referred to the enquiries conducted by the SEBI and the Investigation Wing of the Deptt in which it was found that some brokers have manipulated and rigged the share prices in order to give undue benefit to the beneficiaries and the above stocks are included in the list of shares whose prices were rigged by the operators/stock brokers. Thereafter at para 3.5., the ld. Assessing Officer discussed the mode of price rigging resorted to by the brokers/entry operators. In para 3.6., the Assessing Officer discussed that the assessee company had interest income of Rs. 4,14,84,889/- and after setting off the loss as referred to above, the assessee declared taxable inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have been done on a recognised stock exchange platform besides making and receiving the payments through proper banking channels. The ld. A/R reiterated that the contract notes, bills, D-mat a/c and vouchers etc. were duly produced before the Assessing Officer. The ld. A/R further stated that the Assessing Officer has not issued notices u/s 133(6) of the Act nor any summons u/s 131 of the Act to any of the parties to corroborate the allegation as made in the assessment order or to disbelieve the evidences and merely relied on the report of the investigation wing and SEBI. The ld. A/R submitted that though the possibility and chances are there that unscrupulous elements may have indulged in taking undue advantages of the systemic loopholes but the same cannot be applied as a straight-jacket formula in all the cases who have done share trading through stock exchange platform unless any substantive evidences/materials are brought by the Assessing Officer on record qua the brokers and entry operators to the effect they were actually indulged in the rigging and manipulation. The ld. AR also submitted that assessee has not been issued any notice either by the SEBI or by the investigati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer and the Assessing Officer has only made a generalized observation in the assessment order without carrying out any specific enquiry and without bringing on record any cogent material in the absence of which no addition can be made. The ld A/R submitted that assessee has not been named by persons whose statements were recorded by the investigation wing or by the stock exchange and the statements of those persons were relied which are totally unconnected with the assessee. The ld. A/R submitted that though the names of the shares traded by the assessee appeared in the list of 84 companies published by the SEBI, however, this fact by itself could not make the transactions carried out by the assessee on the recognized exchange platform as fictitious and bogus in a generalized manner without establishing the specific complicity of the assessee. 7.2. The ld. A/R further stated that where two constructions/interpretation of law are possible on any issue, the one which is favourable to the assessee has to be followed as held by the Hon ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192. 8. The ld. A/R also argued that the assessee has furnished all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bogus accommodation entries and, therefore, loss sustained by the assessee during the year from share trading and F O segment was rightly disallowed by the Assessing Officer. The ld. D/R, therefore, prayed that the appeal of the assessee may kindly be dismissed by upholding the orders of the authorities below. 10. We have heard rival contentions and perused the material placed before including the various decisions cited by either sides before us. Undisputedly, the assessee has dealt in eight stocks which appeared in the list of penny stocks published by SEBI. It is also true that the investigation wing of the department has unearthed a large scale manipulations on the stock exchange platform by the entry providers in connivance with the stock brokers which was carried out on the stock exchange platform by taking advantage of the loopholes in the system. However, keeping in view the facts and circumstances of the case, we observe that the assessee has filed the copies of contract notes, bills/vouchers, evidences of payments and copies of D-MAT Accounts before the Assessing Officer. We also note that the Assessing Officer, instead of carrying out investigations/enquiries into these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eway Financial Sri Soumen Chowdhury in his statement on oath dated 10.02.2015 accepted that the said company is engaged in buying and selling of different shares including jamakharchi companies for providing accommodation entry in different forms such bogus long term capital gain/loss etc. He also explained the modus operandi of pre-arranged bogus LTCG transactions. The AO further observed that statement of Sri Amit Singh was recorded on oath on 22.12.2015 who in reply to Question No.5 accepted that he was working under the direction of Sri Bal Kishan Sikaria Director of Sikaria Share Stock Broking Services Ltd. The AO further noted that statement of Sri Bal Kishan Sikaria was recorded on oath on 04.01.2016 who is a Director of Sikaria Share Stock Broking Services Ltd which is the member of Calcutta Stock Exchange and 5 Other companies. Mr. Amit Singh of an employee of him, who in reply to Question No. 6 confirmed that he was indulging in providing accommodation entries to various parties and in reply to Question No. 12 he stated that he confirms that Sri Amit Singh was the Proprietor of M/s SS Enterprises which is controlled and managed by him have purchased 2,69,870 shares of Rad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-observance of principles of natural justice, then it is for the person so complaining to demonstrate the same and show the prejudice caused to him. Mere bald assertion of non-observance of the principles of natural justice is of no consequence. 25. Further, Supreme Court in the case of Andaman Timber Industries v. CCE reported in (2015) 281 CTR 241 (SC) has considered that if there was no material with the Department on the basis of which it could justify its action, and if the statement of the two witnesses who were unknown to the appellant was the only basis of issuing the Show Cause Notice, right to cross examination has to be given and held that we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause Notice. 26. The Hon ble Supreme Court of India in New India Assurance Company Ltd. v. Nusli Neville Wadia Anr., AIR 2008 SC 876, while considering a case under the Public Premises (Eviction of Unauthorised Occupants) Act, 1971, held that though the statute may not prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal could legitimately taken into account for the purpose of arriving at the finding that the amount of Rs. 1,07,350 was remitted by the assessee from its Madras Office, and if these two letters were eliminated from consideration, there was no material evidence at all before the Tribunal which could support its finding. What the manager of the bank wrote in his letters could not possibly be based on his personal knowledge but was based on here say. The revenue authorities ought to have called upon the manager to produce the documents and papers on the basis of which he made the statement and confronted the assessee with those documents and papers. 30. In the case of Dhakeswari Cotton Mills Ltd. v. CIT reported in (1954) 26 ITR 775 (SC) the Hon'ble Supreme Court has held that the rule of law on this subject has been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Singh where it was stated that while proceeding under sub-section (3) of section 23, the Income-tax Officer, though not bound to rely on evidence produced by the assessee as he considers to be false, yet if he proposes to make an estimate in disregard of that evidence, he should in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lved in some manipulation does not establish that the appellant was also involved in any manipulation. 33. Recently, Hon'ble High Court of Orissa in the case of PCIT vs. Dipansu Mohapatra reported in [2023] 149 taxmann.com 99 (Orissa) adjudicating similar case of exemption claimed u/s 10(38) of the Act and the assessee was alleged to have taken accommodation entries from Kolkata based companies on the basis of the report of Investigation Wing of Income Tax Department. The relevant finding of the Hon'ble Court dealing with the issue of opportunity of cross-examination and principles of natural justice not given to the assessee held as follows: 6. Another ground on which the ITAT found fault with the additions made by the AO was that reliance was placed on statement of 'so called entry operator' to justify the additions under sections 68 and 69 of the IT Act. These statements were recorded on various dates in some other proceedings not connected with the Assessee. Further, the statements were recorded much before the date of the survey conducted on the Assessee. It was unable to be disputed by the Department that the Assessee did not have an opportunity to challenge s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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), however, there is no documentary evidence either placed by these persons during the course of recording the statement or at any other stage which could show that the assessee(s) were directly involved in the racket of providing accommodation entries or were aware of such activities being carried out. The claim of the assessee has always been that as a prudent investor it had made the investments and some investments did not give any return rather gave losses and, in some cases, profits were earned. It was incumbent upon ld. AO to provide the assessee(s) a proper opportunity of cross-examination with all those persons who stated to be either involved in accommodation entries or were having some connection with the alleged transactions. There was no opportunity with the assessee(s) to cross-examine those persons, that why they have referred these transactions as bogus or accommodation in nature. No such exercises have been carried out at any stage by the Revenue authority. Though the assessee has placed material on record to show that on merits also the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating to claim of loss and gain are different, we will first take up the issue regarding alleged bogus short-term capital alleged by the AO in the case of Gateway Financial Services Ltd.. Though we have discussed the facts of this issue in detail in the preceding paragraphs and have also discussed the finding of the Hon ble Jurisdictional High Court in the case of Swati Bajaj (supra), wherein also there was a reference to the report of the investigation Wing but in that case the issues were relating to long-term capital gains and additions were made u/s 68 of the Act. But in case of Gateway Financial Services Ltd., which is a share broking firm as well as trader in equity shares and being assessed to tax for past many years has dealt in the equity share, namely, Blue Circle Services Ltd.. Since the AO has only disallowed the claim of bogus loss, it in itself means, that the genuineness of purchases of equity shares of Blue Circle Services Ltd., has not been disputed by the revenue authorities. The assessee in this case has purchased 5232616 equity shares. The ld. AO has also referred to the equity shares price chart of Blue Circle Services Ltd., wherein there is a steep upward tren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 as follows:- 9. We have considered the rival contentions and gone through the record. The Hon ble Supreme Court in the case of NRA Steel in the case of PCIT v/s NRA Iron Steel (P) Ltd. reported in [2019] 103 taxmann.com 48(SC) has taken note of the observations made by the Supreme Court in the the land mark case of Kale Khan Mohammed Hanif v. CIT [1963] 50 ITR 1 (SC) and Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC) laying down the proposition that the onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and credit-worthiness, then the AO must conduct an inquiry, and call for more details before invoking Section 68. If the Assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the Revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrive at a conclusion. Further proximity and time and prior meeting of minds is also a very important factor. A holistic approach is required to be made and the test of preponderance of probabilities has to be applied. The Hon ble High Court observed that the assessees therein had failed to justify the rationale behind investment in the companies not having financial worth. They had failed to establish genuineness of steep rise in price of shares within a short period of time that too when general market trend was recessive. That the ld. Assessing Officer has pointed out that the assessee could not explain, why it invested in such script without knowing the financial performance of the company. That such cannot be case of intelligent investment or simple and straight case of tax planning to gain benefit of long term capital gains earnings @ 491% over period of 5 months which is beyond human probability and defies business logic of any business enterprises dealing with share transactions. Even brokers who coordinated transactions were also unknown to assessee. All these facts give credence to unreliability of entire transaction of shares giving rise to such capital gains ratio. Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re governed on commercial prudence. 10.2 The Ld. Counsel has further demonstrated that the Trades in Comfort Fincap Ltd. ( Comfort ) shares, were also based on the company s own reading of the financial statements of the said company. That its stock parameters had improved from its previous reporting period. (Total Assets of Rs. 25.23 Crores in FYE Mar 13 as against Rs. 21.49 Crores in FYE Mar 12; Operating Profit of Rs. 1.83 Crores in FYE Mar 13 as against Rs. .86 Crore in FYE Mar 12; Reported Net Profit of Rs. 0.99 Crore in FYE Mar 13 as against Rs. 0.59 Crore in FYE Mar 12 implying an increment of 67.79% ) and the stock even started declaring dividends whose trend showed a marked upward trajectory (Equity Dividend of Rs. 0.54 Crores in FYE Mar 13 as against Rs. 0.22 Crore in FYE Mar 12 and NIL in FYE Mar 11 and Mar 10 implying a trend reversal and a dividend payout of 59.60%). The purchase of the stock was timed in anticipation of the expected price action that usually follows in such stocks showing a reversal in dividend payout trend. That the shares of Comfort (still Comfort Fincap Ltd 535267) were purchased in a staggered manner in January 2014 in anticipation of trading prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 the market. Unno had a Turnover of Rs. 0.65 Crore both in FYE Mar 13 and FYE Mar 12; Total Income of Rs. 0.65 Crore in FYE Mar 13 as against Rs. 0.67 Crore in FYE Mar 12; Reported Net Profit of Rs. 0.07 Crore in both FYE Mar 13 and FYE Mar 12 implying a marked stability in financial performance in the recent years. However, the head and shoulders pattern on the stock charts implied an oncoming decline in the stock prices, therefore, the assessee company immediately sold the stock to avoid further loss. 10.5 In case of Global Infratech Finance Ltd. ( Global ) shares, it has been explained that the trade was undertaken based on the parameters which clearly set out both the logic and rationale behind the trades. The stock of Global was also in a steep fall when the company purchased it.The shares of Global were purchased in a staggered manner in February 2014 in anticipation of trading profits and the same were sold, again in a staggered manner, in March 2014. However, the company purchased the stock only when the price fall was sustained over a peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort Fincap Ltd, Luminaire Technologies Ltd and Unno Industries Ltd. It has been submitted that no adverse orders ever have been passed by the SEBI regarding price manipulation in respect of aforesaid three companies. The Ld. Counsel, therefore has submitted that the facts of the case of the assessee, when considered in the light of the proposition of law laid down by the Hon ble supreme Court in the case of NRA Steel (supra) and of the hon ble Calcutta High Court in the case of Swati Bajaj (supra), the evidence furnished by the assessee, the surrounding circumstances would show that the assessee s decision to invest in those companies was based on business prudence and that there was no evidence, even circumstantial, that the assessee was involved in price rigging or otherwise instrumental to book bogus short term capital loss. 11. The Ld. Counsel has further submitted that the facts of the case of the assessee were quiet distinguishable from that of the cases of Swati Bajaj others (supra). He has submitted that in most of the cases before the Hon ble High Court, the purchases were off the Stock Exchange/private placements. That there were orders of SEBI suspending the scrip and/or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hasing in the aforesaid five scrips, which included their financial worth, the market position, their income, dividends etc. Further, it was not a case that the shares shown to have been purchased off market/privately and thereafter they were put into demat account after sufficient lapse of time from the alleged date of physical purchase and then sale of the same within a short span of time after they were accounted in the demat account, gaining high monetary capital gains. In the case of the assessee, the shares were traded on the stock exchange, the same were kept in the demat account of the assessee. There is no allegation of involvement of the assessee or even his share broker in any type of price rigging. There even does not seem any probability of meeting minds of the assessee and/or his share broker and the promoters of the companies. A very peculiar fact which is noted from the assessment order/investigation wing report is that in the list of the persons whose statement was allegedly recorded and who in their statement have admitted of price rigging, the names of share brokers, entry operators and exit providers have been mentioned. The facts on the file itself show that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 the setting of the facts of a particular case, said Lord Morris in Herrington Vs. British Railways Board (1972) 2 WLR 537. Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. The Hon ble Karnataka High Court in the case of Flipkart India (P.) Ltd. v/s Assistant Commissioner of Income-tax , [2017] 79 taxmann.com 159 (Karnataka) has observed that considering the fact that this blind appreciation of a precedent is a frequent occurrence, in catena of cases, the Hon'ble Supreme Court has clearly opined that a judgment should not be read as a provision of law. A judgment is confined to the facts and circumstances of its own case. It is only when the facts and circumstances in two cases are similar that the ratio of the former case becomes applicable to the latter case. As discussed above, in the absence of any direct incriminating evidence against the assessee, the distinguishable and weak circumstantial evidence, in our view, do not suggest the preponderance of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessing authority can apply preponderance of probabilities in some cases on account of surrounding circumstances but so far as the cases on hand are concerned, we notice that firstly some observations were made by the SEBI regarding some fishy transactions carried out in case of few companies. Based on such primary information, the income tax department has carried out extensive enquiries and search and surveys in the case of various entry operators and alleged companies and based on such statements, a theory was established regarding such accommodation/bogus entries in the form of capital gains. However, since in the case of the assessee, SEBI at a later stage has intensively carried out the investigation on the facts of the assessee(s) along with other persons as referred in the order of the SEBI (extracted supra), and after a detailed investigation and examination of records exonerated, the assessee(s) from the charges levelled in the show cause notice issued to them. Therefore, when the assessee(s) have been exonerated and the charges against them have been waived and the transactions of purchase and sale of equity shares carried out by them have been found to be genuin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue. 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 or by the company whose shares were involved in the above said transactions. We note that the AO only referred to the report of the investigation wing which was based upon the statements of several persons who were wholly unrelated. The same is the position with regard to report of the SEBI. In the instant case also the name of the assessee was neither quoted by any of such persons nor any materials relating to the assessee was found at any place where investigation/searches were carried out by the Wing. Thus find the above decision squarely applies to the instant case. 11.3. We note that the Hon ble High Court of Orissa in the case of PCIT Vs Dipansu Mohapatra (supra), has held that tribunal was justified in allowing assessee s claim u/s 10(38) of the Act where the assessee has filed the details of purchase and sales of shares along with contract notes for purchase and sale, D-mat A/C and bank statement and furthermore no incriminating materials were found against the assessee in the survey conducted in the premises of the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions and perusing the material on record, we observe that during the year, the assessee has not earned any exempt income and accordingly the assessee has not made any disallowance u/s 14A of the Act. The well settled legal position on this issue is that when there is no exempt income earned during the year then there is no question of disallowance u/s 14A of the Act. Accordingly, we are inclined to hold that the disallowance made by the Assessing Officer is not correct and therefore cannot be sustained. The case of the assessee finds support from the decisions of the Hon ble Apex Court in the case of CIT vs. Chettinad Logistics (P.) Ltd. (2018) 95 taxmann.com 250 (SC) and Maxopp Investment Pvt. Ltd. vs. CIT, New Delhi in [2018] 91 taxmann.com 154 (SC) wherein it has been held that no disallowance is to be made where there is not exempt income. Similar view has been taken by the Hon ble Delhi High Court in the case of Cheminvest Ltd. v. CIT (2009) 317 ITR 86. Accordingly, we direct the Assessing Officer to delete the addition by setting aside the decision of the ld. CIT(A) on this issue. Consequently the second issue raised by the assessee is allowed. 14. In the result, appeal of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
