TMI Blog2024 (2) TMI 330X X X X Extracts X X X X X X X X Extracts X X X X ..... was bogus and was rightly disallowed by the AO - HELD THAT:- As 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 of decision in Raigarh Jute Textile Mills Pvt. Ltd. [ 2023 (6) TMI 1309 - ITAT KOLKATA] squarely applies to the instant case. Also decided in Dipansu Mohapatra ( 2023 (2) TMI 392 - ORISSA HIGH COURT] 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 alongwith contract notes for purchase and sale, D-mat A/C and bank statement and furthermore no incriminating materials were found ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Section 56(2)(x) of the Act are not applicable which provides that where the market value of the property is more than the sale consideration received by the assessee then the difference between the two shall be considered. The case of the assessee finds support from the decisions of the coordinate benches in the Sandeep Patil ITA No.924/Bang/2020, John Flower Inida Ltd. ITA No.7545/Mum/2014 and Dulari Devi Hetampuria ITA No. 1290/Kol/2018. Hence Ground Nos. 2 to 4 are allowed. 5. The second issues raised in Ground Nos. 5 to 9 is against the confirmation of addition of Rs. 3,19,65,849/- has made by the Assessing Officer by disallowing the short term capital loss on sale of equity shares. 6. The facts in brief are that the Assessing Officer upon perusal of the computation of income observed that during the year, the assessee has incurred loss of Rs. 3,19,65,849/- and the said loss was adjusted against the long term capital gain on sale of properties. The Assessing Officer observed that the loss has been incurred on the sale of shares of M/s. Tuni Textiles Ltd. M/s. Blue Circle Services Ltd. The Assessing Officer also noted that similar transactions were made in the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the Assessing Officer. 8. The ld. A/R, submitted that in compliance to the questionnaires/directions in terms of order sheet notings by the Assessing Officer, the assessee filed all the evidences comprising contract notes, bills/vouchers, sales bills, copies of bank statements, D- mat a/c and broker bills raised in respect of purchase and sale of shares before the Assessing Officer. However, the assessing officer instead of carrying out an independent verification into these transactions entered into by the assessee during the year, the Assessing Officer has simply relied on the investigation Wing s report as well as on the SEBI investigation in which the SEBI has prepared a list of 84 shares in which manipulations and rigging were stated to have happened on the stock exchange platform. The ld. A/R argued that though these above securities traded by the assessee have been treated as appearing in the list published by SEBI, however, that list is published by the SEBI cannot be sacrosanct since the transactions in the instant case have been done on a recognised stock exchange platform besides making and receiving the payments through proper banking channels. The ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of PCIT vs. Swati Bajaj Ors. [2022] 139 taxmann.com 352 (Calcutta), has been distinguished to be not applicable to the facts of those cases. The ld AR submitted that since the issue involved in the present appeal is similar to ones as decided by the Tribunal in the above appeals, the loss on sale of shares/F O segment needs to be allowed to the assessee as claimed by following the said decisions. Besides, the ld. A/R also relied on the following decisions: 1) Pr CIT vs. Smt. Renu Aggarwal reported in 456 ITR 249 (SC) 2) PCIT vs. Indravadan Jain [2023] 156 taxmann.com 605 (Bombay) 3) PCIT vs. Dipansu Mahapatra [2023] 149 taxmann.com 99 (Orissa) 4) ITO Vs. Smt. Bimla Debvi Singhania ITA Nos. 212 213/CKT/2019 9.1. The ld. A/R submitted that in all these judicial precedents, transactions were done by the assessees on recognised stock exchange platforms and earnings profits/sustaining losses were accepted by the above judicial forums on the ground that the assessee has discharged its onus by filing all the evidences before the Assessing Officer and the Assessing Officer has only made a generalized observation in the assessment order withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication share premium/unsecured loans but the same hold good in the present case also as the assessee has filed all the evidences before the AO proving the genuineness of the transactions. Further, the ld. Assessing Officer has not carried out an investigation and merely relied upon the report of the investigation Wing and SEBI on this issue. The ld. A/R argued that under these circumstances, the order passed by the Assessing Officer, is bad in law. 11. The ld. D/R, on the other hand, opposed the arguments advanced by the ld. A/R on the ground that the issue is covered against the assessee by the decision of the Hon ble Jurisdictional High Court in the case of PCIT vs. Swati Bajaj Ors. (supra). The ld. D/R submitted that a very massive racket was busted by the investigation agencies which was a part of organised rigging in order to yield undue benefits to the beneficiaries by various unscrupulous entry providers and stock brokers whereby the prices of penny stocks were rigged on the stock exchange platform. The ld. D/R submitted that the transactions done by the assessee are nothing but bogus accommodation entries and, therefore, loss sustained by the assessee during the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is expected below:- 21. So far 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and Exchange Board of India Act, 1992 read with Sections 11, 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, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xamination. If the basic principles of law have not been complied with or there has been a gross violation 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 cross-examination 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 Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Officer are judicial proceedings and all the incidents of such judicial proceedings have to be observed before any conclusion is arrived 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC), Principal Commissioner of Income Tax (Central) Vs Oriental Power Cables Ltd reported in [2022] 143 taxmann.com 371 (SC), Kishinchand Chellaram (AIR 1980 14 SC 2117) and 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ik Agarwal Beneficiary Trust. 35. In the preceding paragraphs, we have dealt with the legal issue regarding the matter that since the assessee has not been provided sufficient opportunity 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of trading in equity shares being in the business of share trading and investment and shares brokerage were given past many years. At this juncture when the purchase of equity shares has not been doubted 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. 9.1 The Hon ble Supreme court, thus, has held that once the assessee has submitted the documents relating to identity, genuineness of the transaction, and credit-worthiness of the subscribers, then the AO is duty bound conduct to conduct an 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 founde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company took note of the annual reports. The said company had reported total assets of 17.88 for F.Y 2012-13 and its turnover and proceeds had improved substantially from its previous years. Its income has also increased substantially. It reported net profit of Rs. 0.50 Crores 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, the favourable technical analysis of the stock, which prompted the company to purchase the stock, did not lead to the anticipated price rise owing to the weak market outlook regarding the stock. The company, having entered the trade to profit in the immediate short term, immediately chose to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo companies out of the above mentioned 5 companies. In the case of Rutron, only 14 persons were suspected to be involved in price rigging who were restrained from accessing the security market for a period of 6 months. Neither the assessee nor his share brokers were ever named for restrain from trading in the said scrip. Even, 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 submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrored in their price movements and therefore it was not a case that the movement in prices was not explained. Evenas demonstrated above, in three (3) out of the five (5) scrips, there were no adverse orders of SEBI regarding any kind of price manipulation. Further in the remaining two scrips, the SEBI upon completion of investigation found 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erm capital loss. Neither the name of the assessee nor of his share broker is mentioned in the list of exit providers. The circumstances of this case do not suggest of unnatural and unrealistic human conduct. The Assessing Officer in this case has not pointed out any adverse evidence against the assessee. He has simply relied upon the investigation 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: Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition/disallowance made by the assessee is merely on the basis of preponderance of probabilities. Therefore, in the present case, when the statements and investigation report relied upon by the AO has not been given to the assessee for the purpose of cross-examination as well as rebuttal, we in view of the above decision are inclined to hold that the alleged loss being 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the basis on which the Assessing Officer had made the additions. While allowing relief to the assessee, the ld. CIT(A) has specifically held that there is no adverse comment in the form of general and specific statement by the Pr. Officer of stock exchange or by the company whose shares were involved in these transactions and he held that Assessing Officer only quoted facts pertaining to various 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. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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