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TMI Blog2024 (1) TMI 1306X X X X Extracts X X X X X X X X Extracts X X X X ..... as made by the Assessing Officer by invoking provisions of Section 14A of the Act r.w.r. 8D(2)(iii). 3. The facts qua the first issue raised by the assessee are that the assessee, during the year, has incurred loss of Rs. 3,98,50,208/- which comprised of share trading loss amounting to Rs. 2,87,07,277/- and Rs. 1,11,42,931/- in respect of loss on trading in F&O segment. The Assessing Officer observed from the details filed by the assessee that the assessee has incurred loss in seven (7) shares which were listed on the stock exchange. The list 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 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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/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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 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 7.1. 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly 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 accepted that he was working under the direction of Sri Bal Kishan Sikaria Director of Sikaria Share & Sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the two witnesses who were unknown to the appellant was the only basis of iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cided 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 called upon the manager to produce the documents and papers o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the Hon'ble Court dealing with the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 investor it had made the investments and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 relating to long-term capital g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 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 Hat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. ('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'1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 shoulder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipulation 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 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is 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 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 capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c 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 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 Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 entr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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." 11.2. The Hon'ble High Court, after taking into the concurrent findings of the ld. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee made huge investments in equity shares, however, the assessee has not made any disallowance u/s 14A of the Act. The Assessing Officer observed that though the assessee does not have any exempt income during the year but that is not correct criteria for making disallowance and accordingly made disallowance u/s 14A r.w.r. 8D(2)(iii) at Rs. 11,58,944/- being 0.5% of the total average investments. Pertinent to note that though the amount calculated at 0.5% come to Rs. 17,77,903/- but since the assessee has charged to the profit and loss account Rs. 11,58,944/- only and, therefore, disallowance was limited to that extent only. In the appellate proceedings, the ld. CIT(A) dismissed the appeal on this issue. 13.2. After hearing rival contentions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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