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TMI Blog2024 (7) TMI 1418X X X X Extracts X X X X X X X X Extracts X X X X ..... picked whatever is convenient to him and ignored what is not. Also, the very graphs reproduced in the body of the AO s order show that millions of shares are being transacted in the three companies in which loss has occurred, with the assessee trading in those shares in the thousands only. Therefore, any allegation of rigging the markets to suit a particular convenience is not borne out by the facts before us. Considering the totality of facts and circumstances and following the order in the case of NBL [ 2024 (5) TMI 1454 - ITAT KOLKATA] we hold that the impugned addition deserves to be deleted, with consequential relief to the assessee. - Sri Rajpal Yadav, Vice-President And Sri Sanjay Awasthi, Accountant Member For the Assessee : Miraj D. Shah, A/R. For the Department : B.K. Singh, Addl. CIT. ORDER PER SANJAY AWASTHI, ACCOUNTANT MEMBER: In this case the assessee filed the return of income for AY 2014-15 on 26.09.2014 declaring a total loss of Rs. 16,38,240/-. A perusal of the Assessing Officer s (hereinafter referred to as ld. 'AO') order reveals that the assessee company is engaged in the business of shares. During the year under consideration the assessee dealt in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said appeal. 2. Aggrieved with the orders of the authorities below, the appellant has come in appeal before us with the following grounds of appeal: 1. For that the Learned Authorities below erred in holding the loss of Rs. 55,40,968 incurred on transaction of the shares of GBL Infra Ltd which was transacted on the stock exchange as a sham transaction. Such finding is perverse and is not based on any independent inquiry hence the finding be reversed. 2. For that the Learned Authorities below erred in holding the loss of Rs. 28,06,000 incurred on transaction of the shares of Shree Shaleen Textile Ltd which was transacted on the stock exchange as a sham transaction. Such finding is perverse and is not based on any independent inquiry hence the finding be reversed. 3. For that the Learned Authorities below erred in holding the loss of Rs. 30,24,014 incurred on transaction of the shares of Unno Industries Ltd which was transacted on the stock exchange as a sham transaction. Such finding is perverse and is not based on any independent inquiry hence the finding be reversed. 4. For that the Lower Authorities failed to appreciate the evidences filed before him/her and thus the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing, which were allegedly meant to result in bogus losses. The ld. Counsel for the assessee has averred that no investigation was conducted by the ld. AO to prove his suspicion, nor was the report of the Investigation Wing ever made available on the basis of which such adverse inference was drawn. d) It has been averred that dealing in all kinds of equity shares, including penny stocks, is routinely done by investors based on their understanding of the markets as well as individual scrips. In fact, the explanation of the appellant in this regard deserves to be extracted: 8. As per the policy of the assessee company, the directors of the company are in charge of trading of shares and securities and personally place orders with the broker over phone. Based on the tips of the market participants and considering the volume of trade, huge interest of the investors and quick price rise in the said script which are evident from the live screen of the computer, the directors entered into buying the shares of the said company. This practice is commonly followed to make a quick buck during a short duration from the stock market. The assessee company had initially purchased 40,000 shares of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . AO has not passed any adverse comment on the gains registered through trading in M/s. Eros International Media Ltd. but has doubted the loss accruing through three other scrips. Thus, it has been contended that the purchase/sale and loss/gain has to be seen in its entirety and not as per the convenience of the ld. AO. Thus, relying on several judicial decisions, it has been averred that the transactions were genuine and deserve to be allowed as such. 3. Before us, the ld. D/R filed written submissions dated 03.06.2024 through which the following facts have been placed before us: a) The poor financial condition of the assessee company in as much as the profit after tax was negligible at Rs. 1,049/- for AY 2013-14 and the said company had a loss of Rs. 16,38,240/- for the present year. The company had no employees needed to be reported u/s 217(2A) of the Companies Act. Also, the company does not have any fixed assets during both AY 2013-14 AY 2014-15. It has also been mentioned that in spite of such weak financials the company has managed to secure share capital of Rs. 16 Lakh at a premium of Rs. 1,85,00,000/-, which defies rational human considerations. b) The relatively poor fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DCIT in ITA No. 763/KOL/2022 order dated 11.01.2024, Vicky Fincon Pvt. Ltd. vs. ACIT in ITA No. 1362/KOL/2023 order dated 22.02.2024 and recent order dated 09.05.2024 in the case of Namokar Builders Pvt. Ltd. vs. DCIT in ITA No. 762/KOL/2022 in support of the contention that mere suspicion, in the face of any facts to the contrary, cannot be allowed to cast any doubt on business transactions. It is seen that the case of Namokar Builders Pvt. Ltd. (supra) is virtually on similar facts as compared to the present case and therefore, in the fitness of things it would be prudent to extract relevant portions from this order: 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 flat measuring 1682 sft. at Chandra Mahal, 15, Burdwan Road, Kolkata for a consideration of Rs. 1,85,00,000/- and earned capital gain on such transfer which was purchased for Rs. 15,30,058/- on 11.04.1992 resulting in the LTCG of Rs. 1,50,45,540/- after making allowance of index cost of acquisition of Rs. 34,54,460/-. During the year, the assessee has also sold equity shares of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 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 accepte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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'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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vit 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), 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 investo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts, 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 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 rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 as follows:- 9. We have considered the rival contentions and gone through the record. The Hon ble Supreme Court in the case of NRA Steelin 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 land mark case of Kale Khan Mohammed Hanif v. CIT [1963] 50 ITR 1 (SC) and Ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. ( 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 P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tals 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 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 stoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid 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 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), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med 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 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 asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst 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 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 Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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 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 st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the same against the LTCG earned by the assessee. Resultantly, the appeal of the assessee is allowed. 5. Considering the finding given in the order of Namokar Builders Pvt. Ltd. (supra) and the fact that the ld. AO has not been able to prove that the impugned transactions were bogus and merely intended to neutralize the gain in trading of shares of M/s. Eros International Media Ltd, we are not inclined to agree with the findings of authorities below. We are also considerably persuaded by the argument that whereas the ld. AO has adversely viewed the incurring of loss, he has taken the transaction leading to gain as being genuine. In our view this is a selective interpretation of the facts before him in as much as the ld. AO has cherry picked whatever is convenient to him and ignored what is not. Also, the very graphs reproduced in the body of the ld. AO s order show that millions of shares are being transacted in the three companies in which loss has occurred, with the assessee trading in those shares in the thousands only. Therefore, any allegation of rigging the markets to suit a particular convenience is not borne out by the facts before us. Considering the totality of facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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