DCIT(CC)-8(3), MUMBAI V. SUPAMA FINANCIAL SERVICE LIMITED, MUMBAI

ITA 6820/MUM/2024

AI Insights

The case revolves around the appeal by the Revenue against the order of the CIT(A) which had deleted the disallowance of a business loss amounting to Rs. 9,46,26,805 claimed by Supama Financial Service Ltd. The loss was incurred from trading in shares of M/s Looks Health Services Ltd, which the Revenue alleged were part of a scheme to launder unaccounted income under the guise of long-term capital gains. The Assessing Officer had initially disallowed the loss based on findings from the Income Tax Department's investigation wing, which suggested that the transactions were stage-managed. However, the CIT(A) found that the Revenue did not substantiate these allegations with concrete evidence, leading to the deletion of the disallowance. The Tribunal, after reviewing the evidence and arguments, concurred with the CIT(A) and dismissed the Revenue's appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 789701 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: misc
• Appeal Filed On: 24-12-2024
• Other Referred Cases: ITO v. Sohani Dipak Tanna in ITA No. 2245/Mum/2022, Varun Naginbhai Patel v. DCIT in ITA No. 417/Ahd/2019
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAVITA P. KAUSHIK
• Assessee Lawyers: RIDDHISHA JAIN
• Keywords: Set aside; Speculation loss; Reassessment proceedings; Income from undisclosed sources; Document seized; Documents seized; Principle of natural justice; Accommodation entries; Tangible material; Bogus
• Section: 147; 148; 143(3); 10

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “F” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI RAJ KUMAR CHAUHAN (JUDICIAL MEMBER) ITA No. 6820/MUM/2024 Assessment Year: 2014-15 DCIT (CC)-8(3), Room No. 656, 6th floor, Aayakar Bhavan, M.K. Road, Mumbai-400020. Vs. Supama Financial Service Ltd., 27/2, 109 Sheikh Memin Street, Zaveri Bazar, Mumbai-400002. PAN NO. AADPJ 5617 R Appellant Respondent Assessee by : Ms. Riddhisha Jain Revenue by : Ms. Kavita P. Kaushik, Sr. DR Date of Hearing : 17/09/2025 Date of pronouncement : 26/11/2025 ORDER PER OM PRAKASH KANT, AM This appeal by the Revenue is directed against order dated 29/11/2024 passed by the learned Commissioner of Income- tax(Appeals)-50, Mumbai [in short the learned ‘CIT(A)’] for assessment year 2014-15, raising following grounds: 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (Appeal) erred in not adjudicating on the core issue of character of the scrip of \"Looks Health Services Ltd.\"? Printed from counselvise.com 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (Appeal) erred in deleting the disallowance made by the AO of the assessee's claim of loss incurred by trading in the scrip of M/s Look overlooking the fact that the entire transactions were stage managed with the object to facilitate the assessee to plough back them unaccounted income in the form of fictitious long loss? 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (Appeal), erred in deleting the disallowance of Rs. 9,46,26,805/ considering the direct and circumstantial evidence on record? 4. Whether on the in law, the Ld. CIT (Appeal) erred in ignoring the material on record and the surrounding circumstances which showed that share price of M/s Looks Health Services Ltd\" was rigged on Stock exchange and the ass indulged in dubious transaction thereby enabling them to declare undisclosed income in the grab of LTCG exempt u/s 10(38) of the Act? 2. Briefly stated facts of the case are that Banking Financial Corporation (NBFC) shares including Future and options ( filed its regular return of income for the year under consideration on 26/09/2014 declaring total income at of income was selected for scrutiny assessment, which was completed under section 143(3 short the ‘Act’) on 23/03/2016 determining total income at ₹77,04,594/-. 2.1 Subsequently, the Assessing Officer received the investigation wing of Income assessee traded in shares of Supama Financial Service Ltd 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (Appeal) erred in deleting the disallowance made by the AO of the assessee's claim of loss incurred by trading in the scrip of M/s Looks Health Services Ltd of Rs. 9,46,26,805/ overlooking the fact that the entire transactions were stage managed with the object to facilitate the assessee to plough back them unaccounted income in the form of fictitious long n the facts and in the circumstances of the case and in law, the Ld. CIT (Appeal), erred in deleting the disallowance of Rs. 9,46,26,805/-made by the Assessing Officer, without considering the direct and circumstantial evidence on record? 4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (Appeal) erred in ignoring the material on record and the surrounding circumstances which showed that share price of M/s Looks Health Services Ltd\" was rigged on Stock exchange and the assessee was one among several beneficiaries who indulged in dubious transaction thereby enabling them to declare undisclosed income in the grab of LTCG exempt u/s Act? stated facts of the case are that the assessee Banking Financial Corporation (NBFC) , engaged in trading of s including Future and options (F & O) market. The assessee filed its regular return of income for the year under consideration on 26/09/2014 declaring total income at ₹60,28,250/ of income was selected for scrutiny assessment, which was completed under section 143(3) of the Income-tax Act, 1961 ( ) on 23/03/2016 determining total income at Subsequently, the Assessing Officer received information the investigation wing of Income-tax department, Mumbai shares of company m/s Looks Health Supama Financial Service Ltd 2 ITA No. 6820/MUM/2024 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (Appeal) erred in deleting the disallowance made by the AO of the assessee's claim of loss incurred by trading s Health Services Ltd of Rs. 9,46,26,805/- overlooking the fact that the entire transactions were stage managed with the object to facilitate the assessee to plough back them unaccounted income in the form of fictitious long-term capital n the facts and in the circumstances of the case and in law, the Ld. CIT (Appeal), erred in deleting the disallowance of made by the Assessing Officer, without considering the direct and circumstantial evidence on record? facts and in the circumstances of the case and in law, the Ld. CIT (Appeal) erred in ignoring the material on record and the surrounding circumstances which showed that share price of M/s Looks Health Services Ltd\" was rigged on Stock exchange essee was one among several beneficiaries who indulged in dubious transaction thereby enabling them to declare undisclosed income in the grab of LTCG exempt u/s the assessee is a Non engaged in trading of F & O) market. The assessee filed its regular return of income for the year under consideration 250/-. The return of income was selected for scrutiny assessment, which was tax Act, 1961 (in ) on 23/03/2016 determining total income at information from tax department, Mumbai that the m/s Looks Health Services Printed from counselvise.com Limited (in short ‘looks health’) of which were manipulated by “long-term capital loss information, the Assessing Officer recorded reasons to believe that income escaped assessment and issued notice under section 148 of the Act on 31/03/2021. In return of income procedure under the A reassessment proceedings. proceedings, the Assessing Officer mad investigation report of the Income inter alia, highlighted the weak financial position of M/s Looks Health, the trading pattern of its shares on the stock exchange, a comparative analysis of such trading pa and the creditworthiness of the counterparties who had purchased the said shares. These findings collectively formed the foundation of the reasons recorded by the Assessing Officer for initiating reassessment proceedings. detailed analysis of the 10.10.2019 (which has been termed by the AO as period’). During reassessment proceedings, the assessee however objected to report of such analysi carried out transaction of purchase and sales in said scrip in regular course of the business. The assessee also filed necessary document in support of purchase and sales including broker’s note, Supama Financial Service Ltd Limited (in short ‘looks health’) through Stock Exchange, of which were manipulated by a group of operators, term capital loss” of Rs.9,46,26,804/-. In View of the the Assessing Officer recorded reasons to believe that income escaped assessment and issued notice under section 148 of ct on 31/03/2021. In response to the notice, the assessee filed return of income on 30/04/2021. Thereafter, fol procedure under the Act, the Assessing Officer commenced reassessment proceedings. During the course of reassessment proceedings, the Assessing Officer made reference to the investigation report of the Income-tax Department, Mumbai, which, , highlighted the weak financial position of M/s Looks Health, the trading pattern of its shares on the stock exchange, a comparative analysis of such trading pattern with another scrip, and the creditworthiness of the counterparties who had purchased the said shares. These findings collectively formed the foundation of the reasons recorded by the Assessing Officer for initiating reassessment proceedings. The investigation wing had of the scrip for the period from 07.11.2012 to 10.10.2019 (which has been termed by the AO as ). During reassessment proceedings, the assessee however such analysis and submitted that assessee had carried out transaction of purchase and sales in said scrip in regular course of the business. The assessee also filed necessary document in support of purchase and sales including broker’s note, Supama Financial Service Ltd 3 ITA No. 6820/MUM/2024 through Stock Exchange, the prices resulting into a . In View of the the Assessing Officer recorded reasons to believe that income escaped assessment and issued notice under section 148 of , the assessee filed . Thereafter, following due ct, the Assessing Officer commenced During the course of reassessment e reference to the tax Department, Mumbai, which, , highlighted the weak financial position of M/s Looks Health, the trading pattern of its shares on the stock exchange, a ttern with another scrip, and the creditworthiness of the counterparties who had purchased the said shares. These findings collectively formed the foundation of the reasons recorded by the Assessing Officer for initiating had carried out a period from 07.11.2012 to 10.10.2019 (which has been termed by the AO as ‘examination ). During reassessment proceedings, the assessee however s and submitted that assessee had carried out transaction of purchase and sales in said scrip in regular course of the business. The assessee also filed necessary document in support of purchase and sales including broker’s note, Printed from counselvise.com bank statement, demat acco however was not convinced and he supported his finding with detailed analysis on the issues which were basis of the reasons recorded. The Assessing Officer accordingly in his order dated 24.03.2022 passed u/s 147 of the A trading as bogus and shame transaction and disallowed the claim of the loss of the assessee amounting to Rs.9,46, 2.2 On further appeal, the assessee challenged the reassessment proceedings as well as the disallowance of the loss by the AO on merit. The Ld. CIT(A) though dismissed the ground challenging the validity of the reassessment by the assessee but deleted the disallowance of loss before the Income-tax Appellate Tribunal (in short ‘the ITAT’) raising the grounds only on the disallowance on merit. 3. All the grounds of appeal mainly concern with the issue in dispute of deletion of disallowance of loss by the ld CIT(A), therefore, all the grounds are dealt together. 3.1 Briefly stated, facts qua the issue in dispute are that the assessee had purchased shares of M/s Looks Health for a value of Rs.12,44,69,995/- 29.10.2013, having details as under: Date Particulars 21-10-2013 Looks Health Services ltd . , Supama Financial Service Ltd bank statement, demat account etc. But the Assessing however was not convinced and he supported his finding with detailed analysis on the issues which were basis of the reasons recorded. The Assessing Officer accordingly in his order dated 24.03.2022 passed u/s 147 of the Act held the loss as bogus and shame transaction and disallowed the claim of the loss of the assessee amounting to Rs.9,46,26,805/ On further appeal, the assessee challenged the reassessment proceedings as well as the disallowance of the loss by the AO on merit. The Ld. CIT(A) though dismissed the ground challenging the validity of the reassessment by the assessee but deleted the on merit. Aggrieved, the Revenue is in appeal tax Appellate Tribunal (in short ‘the ITAT’) raising on the disallowance on merit. All the grounds of appeal mainly concern with the issue in eletion of disallowance of loss by the ld CIT(A), therefore, all the grounds are dealt together. Briefly stated, facts qua the issue in dispute are that the assessee had purchased shares of M/s Looks Health for a value of during the period from 11.10.2013 to having details as under: Qty Rate Value Looks Health Services ltd 105600 402.13 4,24,64,501.17 Supama Financial Service Ltd 4 ITA No. 6820/MUM/2024 unt etc. But the Assessing Officer however was not convinced and he supported his finding with detailed analysis on the issues which were basis of the reasons recorded. The Assessing Officer accordingly in his order dated ct held the loss on share as bogus and shame transaction and disallowed the claim 26,805/-. On further appeal, the assessee challenged the reassessment proceedings as well as the disallowance of the loss by the AO on merit. The Ld. CIT(A) though dismissed the ground challenging the validity of the reassessment by the assessee but deleted the the Revenue is in appeal tax Appellate Tribunal (in short ‘the ITAT’) raising All the grounds of appeal mainly concern with the issue in eletion of disallowance of loss by the ld CIT(A), therefore, Briefly stated, facts qua the issue in dispute are that the assessee had purchased shares of M/s Looks Health for a value of period from 11.10.2013 to Value 4,24,64,501.17 Printed from counselvise.com 22-10-2013 Looks Health Servi , 23-10-2013 Looks Health Services Ltd 24-10-2013 Looks Health Services Ltd 29-10-2013 Looks Health Services Ltd Total 3.2 Subsequently, the 25th and 26th March, 2014, for an aggregate sale consideration of Rs.2,98,42,189/-, thereby incurring a loss of Rs.9,46,26,805/ assessee claimed the said loss as a ‘business loss’, contending that it is a Non-Banking Financial Company (NBFC) regularly engaged in the business of trading in shares and derivatives, and that the impugned transactions were undertaken in the ordinary course of its business during the year under consideration. Officer, however, placed reliance upon the report of the Investigation Wing of the Income wherein, upon a detailed analysis of the dealings in the scrip of Looks Health Services Ltd. significant volatility i (BSE) during the period from 07.11.2012 to 10.10.2019 (hereinafter referred to by the Assessing Officer as the “examination period”). 3.3 The Learned Departmental Representative (Ld. DR) drew attention to the weak financial position of Ltd., as noted by the Assessing Officer both in the reasons recorded for reopening as well as in the reassessment order. He submitted Supama Financial Service Ltd ^ Looks Health Services Ltd. : 82400 408.20 3,3635,272.36 Looks Health Services Ltd 66400 410,78 2,72,76 Looks Health Services Ltd 31200 411.85 1,28,4935743 Looks Health Services Ltd 20000 41-2.16 82,43,299,89 12.44,69,995.36 Subsequently, the assessee disposed of the said shares on 25th and 26th March, 2014, for an aggregate sale consideration of , thereby incurring a loss of Rs.9,46,26,805/ assessee claimed the said loss as a ‘business loss’, contending that anking Financial Company (NBFC) regularly engaged in the business of trading in shares and derivatives, and that the impugned transactions were undertaken in the ordinary course of its business during the year under consideration. wever, placed reliance upon the report of the Investigation Wing of the Income-tax Department, Mumbai, wherein, upon a detailed analysis of the dealings in the scrip of Looks Health Services Ltd., it was revealed that there existed significant volatility in its price on the Bombay Stock Exchange (BSE) during the period from 07.11.2012 to 10.10.2019 (hereinafter referred to by the Assessing Officer as the “examination period”). The Learned Departmental Representative (Ld. DR) drew attention to the weak financial position of Looks Health Services , as noted by the Assessing Officer both in the reasons recorded for reopening as well as in the reassessment order. He submitted Supama Financial Service Ltd 5 ITA No. 6820/MUM/2024 3,3635,272.36 2,72,76,064.51 1,28,4935743 82,43,299,89 12.44,69,995.36 assessee disposed of the said shares on 25th and 26th March, 2014, for an aggregate sale consideration of , thereby incurring a loss of Rs.9,46,26,805/-. The assessee claimed the said loss as a ‘business loss’, contending that anking Financial Company (NBFC) regularly engaged in the business of trading in shares and derivatives, and that the impugned transactions were undertaken in the ordinary course of its business during the year under consideration. The Assessing wever, placed reliance upon the report of the tax Department, Mumbai, wherein, upon a detailed analysis of the dealings in the scrip of , it was revealed that there existed n its price on the Bombay Stock Exchange (BSE) during the period from 07.11.2012 to 10.10.2019 (hereinafter referred to by the Assessing Officer as the “examination period”). The Learned Departmental Representative (Ld. DR) drew Looks Health Services , as noted by the Assessing Officer both in the reasons recorded for reopening as well as in the reassessment order. He submitted Printed from counselvise.com that although the company’s sales turnover had remained broadly consistent, the fluctuations in its share price were wholly disproportionate to such operational performance. The Ld. DR further pointed out the Assessing Officer’s observation that the shareholding pattern of the company revealed a comparatively low promoter holding of 22.17% and an unusually high public shareholding of 78.83%. He also referred to the Assessing Officer’s finding that the company’s return on capital employed was erratic across the financial years 2012, 2015, and 2017, and that the company had failed to generate any meaningful return on the capital invested. The Ld. DR additionally emphasized the Assessing Officer’s observation that, despite a year operating margins, the company’s share price exhibited sharp and unexplained fluctuations without any corresponding financial justification. 3.4 The Learned Departmental Representative (Ld. DR) further invited attention to the trading pattern of the scrip of Services Ltd. on the Bombay Stock Exchange (BSE). He pointed out that the trading data for the period from 09.04.2013 to 04.04.2020 revealed a sharp escalation in prices during the period from 09.04.2013 to 22.04.2014, followed by a subsequent and sustai decline thereafter. The Ld. DR referred to the Assessing Officer’s observation that the trading volume in the scrip generally remained low, with sporadic spikes in activity on a few specific dates. He Supama Financial Service Ltd at although the company’s sales turnover had remained broadly consistent, the fluctuations in its share price were wholly disproportionate to such operational performance. The Ld. DR further pointed out the Assessing Officer’s observation that the ding pattern of the company revealed a comparatively low promoter holding of 22.17% and an unusually high public shareholding of 78.83%. He also referred to the Assessing Officer’s finding that the company’s return on capital employed was erratic e financial years 2012, 2015, and 2017, and that the company had failed to generate any meaningful return on the capital invested. The Ld. DR additionally emphasized the Assessing Officer’s observation that, despite a year-on-year decline in ins, the company’s share price exhibited sharp and unexplained fluctuations without any corresponding financial The Learned Departmental Representative (Ld. DR) further invited attention to the trading pattern of the scrip of on the Bombay Stock Exchange (BSE). He pointed out that the trading data for the period from 09.04.2013 to 04.04.2020 revealed a sharp escalation in prices during the period from 09.04.2013 to 22.04.2014, followed by a subsequent and sustai decline thereafter. The Ld. DR referred to the Assessing Officer’s observation that the trading volume in the scrip generally remained low, with sporadic spikes in activity on a few specific dates. He Supama Financial Service Ltd 6 ITA No. 6820/MUM/2024 at although the company’s sales turnover had remained broadly consistent, the fluctuations in its share price were wholly disproportionate to such operational performance. The Ld. DR further pointed out the Assessing Officer’s observation that the ding pattern of the company revealed a comparatively low promoter holding of 22.17% and an unusually high public shareholding of 78.83%. He also referred to the Assessing Officer’s finding that the company’s return on capital employed was erratic e financial years 2012, 2015, and 2017, and that the company had failed to generate any meaningful return on the capital invested. The Ld. DR additionally emphasized the Assessing year decline in ins, the company’s share price exhibited sharp and unexplained fluctuations without any corresponding financial The Learned Departmental Representative (Ld. DR) further invited attention to the trading pattern of the scrip of Looks Health on the Bombay Stock Exchange (BSE). He pointed out that the trading data for the period from 09.04.2013 to 04.04.2020 revealed a sharp escalation in prices during the period from 09.04.2013 to 22.04.2014, followed by a subsequent and sustained decline thereafter. The Ld. DR referred to the Assessing Officer’s observation that the trading volume in the scrip generally remained low, with sporadic spikes in activity on a few specific dates. He Printed from counselvise.com highlighted the conclusion of the Assessing Officer was not traded on a regular and consistent basis, but rather exhibited intermittent periods of unusual trading upsurge. The Ld. DR further referred to the detailed analysis undertaken by the Assessing Officer on the basis of data collated f National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), wherein it was observed that large apparent in the trading of the said scrip. The Assessing Officer, having examined various parameters of trading behavi comparative analysis between the scrip of Ltd. and that of NHPC Ltd. of the Assessing Officer and the accompanying charts depicting the price and volume movement, which demonstrated rise and fall in the price of correlation with the company’s fundamentals, especially considering that it had incurred losses during the financial year 2012. The Assessing Officer further noted, upon compar the scrip of NHPC Ltd. strengthening the inference of artificial manipulation in the trading of Looks Health Services Ltd. Assessing Officer is reproduced as under: “11.1 Result Under this aspect of trading, following different perspectives of price movement has been checked. Supama Financial Service Ltd highlighted the conclusion of the Assessing Officer was not traded on a regular and consistent basis, but rather exhibited intermittent periods of unusual trading upsurge. The Ld. DR further referred to the detailed analysis undertaken by the Assessing Officer on the basis of data collated f National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), wherein it was observed that large-scale manipulation was apparent in the trading of the said scrip. The Assessing Officer, having examined various parameters of trading behavi comparative analysis between the scrip of Looks Health Services NHPC Ltd. The Ld. DR referred to the observations of the Assessing Officer and the accompanying charts depicting the price and volume movement, which demonstrated rise and fall in the price of Looks Health Services Ltd. correlation with the company’s fundamentals, especially considering that it had incurred losses during the financial year 2012. The Assessing Officer further noted, upon compar NHPC Ltd. exhibited no such volatility, thereby strengthening the inference of artificial manipulation in the trading Looks Health Services Ltd. The relevant observation of the Assessing Officer is reproduced as under: lt Under this aspect of trading, following different perspectives of price movement has been checked. Supama Financial Service Ltd 7 ITA No. 6820/MUM/2024 highlighted the conclusion of the Assessing Officer that the scrip was not traded on a regular and consistent basis, but rather exhibited intermittent periods of unusual trading upsurge. The Ld. DR further referred to the detailed analysis undertaken by the Assessing Officer on the basis of data collated from both the National Stock Exchange (NSE) and the Bombay Stock Exchange scale manipulation was apparent in the trading of the said scrip. The Assessing Officer, having examined various parameters of trading behaviour, drew a Looks Health Services The Ld. DR referred to the observations of the Assessing Officer and the accompanying charts depicting the price and volume movement, which demonstrated that the sharp Looks Health Services Ltd. bore no correlation with the company’s fundamentals, especially considering that it had incurred losses during the financial year 2012. The Assessing Officer further noted, upon comparison, that exhibited no such volatility, thereby strengthening the inference of artificial manipulation in the trading The relevant observation of the Under this aspect of trading, following different perspectives of Printed from counselvise.com Sr# Perspective 1 High Price Volatility due to change in company’s financial results or some major announcements made by the company 2. Movement of Price in tandem with SENSEX (Look Health) Hence it can be concluded that scrip price movement neither based on technical nor fundamental. 3.5 The Learned Departmental Representative (Ld. DR) further drew attention to the analytical findings of the Assessing Officer, who observed that, under normal market conditions, trade volume and trade count generally move in tandem participation in a particular scrip would ordinarily result in a proportionate rise in both trade volume and trade count, and conversely, a decline in one would be reflected in the other. However, upon analysis of the trading pattern in the scrip of Health Services Ltd. count exhibited an inverse relationship, moving in opposite directions. The Assessing Officer, upon undertaking a comparative examination with the scrip of irregularity or anomaly was present therein. In furtherance of this analysis, the Assessing Officer also computed the Correlation Coefficient Supama Financial Service Ltd Result High Price Volatility due to change in company’s financial results or some major announcements made by the Price movement wasnot on any underlying basis. RESULT: Failed Movement of Price in tandem with SENSEX (Look Health) No Relevance with SENSEX. Different Correlation in different period. Sometimes opposite also. While NHPC moved in tandem with SENSEX. RESULT: Failed Hence it can be concluded that scrip price movement neither based on technical nor fundamental.” The Learned Departmental Representative (Ld. DR) further drew attention to the analytical findings of the Assessing Officer, who observed that, under normal market conditions, trade volume and trade count generally move in tandem—an increase in market icipation in a particular scrip would ordinarily result in a proportionate rise in both trade volume and trade count, and conversely, a decline in one would be reflected in the other. However, upon analysis of the trading pattern in the scrip of th Services Ltd., it was found that trade volume and trade count exhibited an inverse relationship, moving in opposite directions. The Assessing Officer, upon undertaking a comparative examination with the scrip of NHPC Ltd., noted that no such y or anomaly was present therein. In furtherance of this analysis, the Assessing Officer also computed the Correlation Coefficient between trade count and trade volume for Supama Financial Service Ltd 8 ITA No. 6820/MUM/2024 movement wasnot on any underlying No Relevance with SENSEX. Different Correlation in different period. Sometimes opposite also. While NHPC moved in Hence it can be concluded that scrip price movement neither based The Learned Departmental Representative (Ld. DR) further drew attention to the analytical findings of the Assessing Officer, who observed that, under normal market conditions, trade volume an increase in market icipation in a particular scrip would ordinarily result in a proportionate rise in both trade volume and trade count, and conversely, a decline in one would be reflected in the other. However, upon analysis of the trading pattern in the scrip of Looks , it was found that trade volume and trade count exhibited an inverse relationship, moving in opposite directions. The Assessing Officer, upon undertaking a comparative , noted that no such y or anomaly was present therein. In furtherance of this analysis, the Assessing Officer also computed the Pearson between trade count and trade volume for Printed from counselvise.com both Looks Health Services Ltd. the presence of aberrant trading behaviour in the former. comparison by the AO is reproduced as under: Scrip NHPC Look Health 3.6 The Ld. DR further referred to the trade volume of each day and concluded that there was no new market participation but o close group of persons participated their own financial interest. The Ld. DR also referred to the analysis of the time difference between passive analysis by the AO is reproduced as under: Parameter Trade Count Trade Volume 3.7 The Learned Departmental Representative (Ld. DR) further invited attention to the observations of the Assessing Officer, who Supama Financial Service Ltd Looks Health Services Ltd. and NHPC Ltd., which corroborated ce of aberrant trading behaviour in the former. comparison by the AO is reproduced as under: Pearson Correlation Coefficient Indication 0.86 Highly Correlated as value is near 1/-1 0.55 No correlation as value is too far 1/- 1 The Ld. DR further referred to the trade volume of each day and concluded that there was no new market participation but o close group of persons participated in trading of the their own financial interest. The Ld. DR also referred to the analysis me difference between passive order and trade. The relevant analysis by the AO is reproduced as under: Time Diff. between Passive Order Time & Trade Time Value 0 Sec. to 10 Sec. 8,593 0 to 60 Sec. 449 0 Sec. to 10 Sec. 24431492 0 to 60 Sec. 1,294,918 The Learned Departmental Representative (Ld. DR) further invited attention to the observations of the Assessing Officer, who Supama Financial Service Ltd 9 ITA No. 6820/MUM/2024 , which corroborated ce of aberrant trading behaviour in the former. The said Indication Highly Correlated as value is near No correlation as value is too far from The Ld. DR further referred to the trade volume of each day and concluded that there was no new market participation but only of the scrip tuned to their own financial interest. The Ld. DR also referred to the analysis order and trade. The relevant % of Total 78.94% 4.12% 85.77% 4.55% The Learned Departmental Representative (Ld. DR) further invited attention to the observations of the Assessing Officer, who Printed from counselvise.com noted that certain Permanent Account Numbers (PANs) were found to have contributed between 40% and 50% to the closing price determination of the scrip during the examination period. The Assessing Officer, in this regard, reproduced in the assessment order the names of specific clients involved in such transactions. The Ld. DR also referred to the Assessing Officer’s observations pertaining to the assessee’s own trading activity, drawing attention to the tabulated details of purchases and sales executed by the assessee between 21.10.2013 and 26.03.2016. On the basis of this trade data and the surrounding circumstances, the Assessing Officer formed the view that the loss claimed by the assessee was not genuine but artificially engineered. Assessing Officer is reproduced as under: “15.2.7. Almost all the instances in the table above where the purchase is made in it is squared off (sold). There is no instance of the square off on the same day. This is a deliberate trade pattern to generate short term loss in place speculative 3.8 The Ld. DR further referred to the Officer wherein he has relied the Kolkata Investigation Wing relevant finding is reproduced as under: “15.6 The Directorate of Investigation, Kolkata & Mumbai investigated transactions in penny stock shares quoted on BSE and examined on oath a large number of brokers, directors of companies that finally purchased the shares, the promoters of Penny stock companies, the entry operators who managed the dummy compan the transactions was also examined and, in a large number of Supama Financial Service Ltd noted that certain Permanent Account Numbers (PANs) were found to have contributed between 40% and 50% to the closing price nation of the scrip during the examination period. The Assessing Officer, in this regard, reproduced in the assessment order the names of specific clients involved in such transactions. The Ld. DR also referred to the Assessing Officer’s observations ining to the assessee’s own trading activity, drawing attention to the tabulated details of purchases and sales executed by the assessee between 21.10.2013 and 26.03.2016. On the basis of this trade data and the surrounding circumstances, the Assessing icer formed the view that the loss claimed by the assessee was not genuine but artificially engineered. The relevant finding of the Assessing Officer is reproduced as under: 15.2.7. Almost all the instances in the table above where the purchase is made in 5 days and in a very short time (few days) it is squared off (sold). There is no instance of the square off on the same day. This is a deliberate trade pattern to generate short term loss in place speculative loss.” The Ld. DR further referred to the observation of the Assessing Officer wherein he has relied upon the investigation carried out by the Kolkata Investigation Wing of Income-tax Department relevant finding is reproduced as under: 15.6 The Directorate of Investigation, Kolkata & Mumbai investigated transactions in penny stock shares quoted on BSE and examined on oath a large number of brokers, directors of companies that finally purchased the shares, the promoters of Penny stock companies, the entry operators who managed the dummy companies involved in price rigging. The money trail of the transactions was also examined and, in a large number of Supama Financial Service Ltd 10 ITA No. 6820/MUM/2024 noted that certain Permanent Account Numbers (PANs) were found to have contributed between 40% and 50% to the closing price nation of the scrip during the examination period. The Assessing Officer, in this regard, reproduced in the assessment order the names of specific clients involved in such transactions. The Ld. DR also referred to the Assessing Officer’s observations ining to the assessee’s own trading activity, drawing attention to the tabulated details of purchases and sales executed by the assessee between 21.10.2013 and 26.03.2016. On the basis of this trade data and the surrounding circumstances, the Assessing icer formed the view that the loss claimed by the assessee was relevant finding of the 15.2.7. Almost all the instances in the table above where the 5 days and in a very short time (few days) it is squared off (sold). There is no instance of the square off on the same day. This is a deliberate trade pattern to generate observation of the Assessing on the investigation carried out by tax Department. The 15.6 The Directorate of Investigation, Kolkata & Mumbai investigated transactions in penny stock shares quoted on BSE and examined on oath a large number of brokers, directors of companies that finally purchased the shares, the promoters of Penny stock companies, the entry operators who managed the ies involved in price rigging. The money trail of the transactions was also examined and, in a large number of Printed from counselvise.com transactions trail right from cash deposit account to the beneficiaries' account was unearthed. The result of the investigation in brief is as 'u (i) Many individuals throughout the country identified who have taken such bogus entries of LTCG/STCL/Loss amounting to crores of rupees from 2010 to 2015. (ii) The result of the enquiry was also shared with SEBI and the SEBI after investigating be correct. The balance cases are still being SEBI. (iii) The TOP groups under each investigation directorate of the country were confronted in course of further investigation. Almost all of them barring a the entries for 3.9 The Ld. DR squarely relied on the finding of the Assessing Officer and urged that order of the Ld. CIT(A) should be set aside. 4. On the contrary, the Ld. counsel for the assessee relied order of the Ld. CIT(A) and submitted that: (i) The assessee is a NBFC and regular trader in shares and also engaged in future and options market etc. The shares of the scrip Looks Health course of business acti promoters; their long background in healthcare sector and prospectus of the growth of the company in future. (ii) The assessee purchased shares in the month of October, 2013, but looking to downward trend in price sold i 2014 for reducing the further losses. The trade was done on prevalent market price. Supama Financial Service Ltd transactions trail right from cash deposit account to the beneficiaries' account was unearthed. The result of the investigation in brief is as 'under: (i) Many individuals throughout the country identified who have taken such bogus entries of LTCG/STCL/Loss amounting to crores of rupees from 2010 to 2015. (ii) The result of the enquiry was also shared with SEBI and the SEBI after investigating 11 cases have found the allegation to be correct. The balance cases are still being investigated by (iii) The TOP groups under each investigation directorate of the country were confronted in course of further investigation. Almost all of them barring a few have accepted having taken the entries for a commission.” The Ld. DR squarely relied on the finding of the Assessing that order of the Ld. CIT(A) should be set aside. On the contrary, the Ld. counsel for the assessee relied order of the Ld. CIT(A) and submitted that: assessee is a NBFC and regular trader in shares and also engaged in future and options market etc. The shares of the scrip Looks Health service ltd were purchase course of business activities looking to the credential of ; their long background in healthcare sector and prospectus of the growth of the company in future. (ii) The assessee purchased shares in the month of October, but looking to downward trend in price sold i 2014 for reducing the further losses. The trade was done on prevalent market price. Supama Financial Service Ltd 11 ITA No. 6820/MUM/2024 transactions trail right from cash deposit account to the beneficiaries' account was unearthed. The result of the (i) Many individuals throughout the country identified who have taken such bogus entries of LTCG/STCL/Loss amounting to (ii) The result of the enquiry was also shared with SEBI and the cases have found the allegation to investigated by (iii) The TOP groups under each investigation directorate of the country were confronted in course of further investigation. few have accepted having taken The Ld. DR squarely relied on the finding of the Assessing that order of the Ld. CIT(A) should be set aside. On the contrary, the Ld. counsel for the assessee relied on the assessee is a NBFC and regular trader in shares and also engaged in future and options market etc. The shares of purchased in regular vities looking to the credential of ; their long background in healthcare sector and prospectus of the growth of the company in future. (ii) The assessee purchased shares in the month of October, but looking to downward trend in price sold in March, 2014 for reducing the further losses. The trade was done on Printed from counselvise.com (iii) The transaction of both purchase and sales were carried out on stock exchange platform with the help of registered brokers with no physical user interface b the seller. (iv) Complete details along with documentary evidence in the form of contract notes statement, bank statement etc. were filed. (v) No wrong doing was observed in the scrip trading eithe the stock exchange or by the SEBI. (vi) No evidence of involvement if any of the assessee or its broker has been identified by the Assessing Officer or the Investigation wing and no such evidences were provided to the assessee during assessment proce (vii) No statement of any person who participated in trading hypothesis of the investigation wing. (viii) The price on the stock exchange completely depends in demand and supply parameters. holding was of 78.83%. In such a situation, even otherwise price rigging was not possible. Supama Financial Service Ltd (iii) The transaction of both purchase and sales were carried out on stock exchange platform with the help of registered brokers with no physical user interface between the buyer and (iv) Complete details along with documentary evidence in the form of contract notes-cum-invoice, broker’s ledgers, demat statement, bank statement etc. were filed. (v) No wrong doing was observed in the scrip trading eithe the stock exchange or by the SEBI. (vi) No evidence of involvement if any of the assessee or its broker has been identified by the Assessing Officer or the wing and no such evidences were provided to the assessee during assessment proceedings. (vii) No statement of any person who has been claimed as participated in trading was recorded for verification of the hypothesis of the investigation wing. (viii) The price on the stock exchange completely depends in demand and supply parameters. In the company public share holding was of 78.83%. In such a situation, even otherwise price rigging was not possible. Supama Financial Service Ltd 12 ITA No. 6820/MUM/2024 (iii) The transaction of both purchase and sales were carried out on stock exchange platform with the help of registered etween the buyer and (iv) Complete details along with documentary evidence in the invoice, broker’s ledgers, demat (v) No wrong doing was observed in the scrip trading either by (vi) No evidence of involvement if any of the assessee or its broker has been identified by the Assessing Officer or the wing and no such evidences were provided to the been claimed as recorded for verification of the (viii) The price on the stock exchange completely depends in In the company public share holding was of 78.83%. In such a situation, even otherwise Printed from counselvise.com (ix) Merely because absence of return unfair to stamp is also currently r 4.1 The Learned Counsel for the assessee, in response, submitted that a mere pattern or fluctuation in trade volume and trade count, which by itself rests on conjecture, suspicion, and surmise, cannot constitute a valid basis to disregard a genuine business loss in the absence of any cogent or corroborative evidence. He contended that the assessee cannot be held accountable for variations in trade volume or trade count, as such factors are entirely market and influenced by public sentiment and investor behaviour. The Learned Counsel further submitted that the losses in question were incurred in the ordinary course of the assessee’s share trading business, which inherently entails a degree of risk commensurate with its potential for profit. The assessee, though operating under bona fide commercial expectations of gain, unfortunately sustained losses owing to an erroneous business judgment rather than any colourable or contrived transaction. 4.2 Further, the Ld. counse completed u/s 143(3) of the Act, the Assessing Officer duly verified the claim of business loss of trading in shares of Looks Health Trade Ltd. The Ld. counsel further submitted that Assessing Officer did not bring any adverse material or independent suggest that loss was fictitious. Supama Financial Service Ltd (ix) Merely because absence of return on financial unfair to stamp the company as ‘penny stock’ is also currently regularly traded on stock exchange. The Learned Counsel for the assessee, in response, submitted that a mere pattern or fluctuation in trade volume and trade count, which by itself rests on conjecture, suspicion, and surmise, cannot basis to disregard a genuine business loss in the absence of any cogent or corroborative evidence. He contended that the assessee cannot be held accountable for variations in trade volume or trade count, as such factors are entirely market enced by public sentiment and investor behaviour. The Learned Counsel further submitted that the losses in question were incurred in the ordinary course of the assessee’s share trading business, which inherently entails a degree of risk commensurate ts potential for profit. The assessee, though operating under bona fide commercial expectations of gain, unfortunately sustained losses owing to an erroneous business judgment rather than any colourable or contrived transaction. Further, the Ld. counsel submitted that in original assessment completed u/s 143(3) of the Act, the Assessing Officer duly verified the claim of business loss of trading in shares of Looks Health Trade Ltd. The Ld. counsel further submitted that Assessing Officer ny adverse material or independent suggest that loss was fictitious. The Ld. counsel for the assessee Supama Financial Service Ltd 13 ITA No. 6820/MUM/2024 financial, it was ’ more so which egularly traded on stock exchange. The Learned Counsel for the assessee, in response, submitted that a mere pattern or fluctuation in trade volume and trade count, which by itself rests on conjecture, suspicion, and surmise, cannot basis to disregard a genuine business loss in the absence of any cogent or corroborative evidence. He contended that the assessee cannot be held accountable for variations in trade volume or trade count, as such factors are entirely market-driven enced by public sentiment and investor behaviour. The Learned Counsel further submitted that the losses in question were incurred in the ordinary course of the assessee’s share trading business, which inherently entails a degree of risk commensurate ts potential for profit. The assessee, though operating under bona fide commercial expectations of gain, unfortunately sustained losses owing to an erroneous business judgment rather than any l submitted that in original assessment completed u/s 143(3) of the Act, the Assessing Officer duly verified the claim of business loss of trading in shares of Looks Health Trade Ltd. The Ld. counsel further submitted that Assessing Officer ny adverse material or independent finding, which The Ld. counsel for the assessee Printed from counselvise.com relied on the finding of the Ld. CIT(A) that Assessing Officer merely doubted the transaction without conducting any independent inquiry or confronting the assessee with adverse finding. 4.3 In view of the above arguments, the Ld. counsel for the assessee submitted that order of the Ld. CIT(A) might be upheld. 5. We have heard the rival submissions advanced by both sides and carefully perused the material available on record. The issue under consideration pertains to the assessee’s claim of business loss amounting to Rs. 9.46 crores arising from transactions in the shares of Looks Health Services Ltd. 2013 to March 2014. While the assessee contends that the said loss was a genuine business loss incurred in the ordinary course trading activity, the Assessing Officer has characterized it as a bogus and premeditated loss designed to evade tax liability. comprehensive evaluation of the evidentiary record and the detailed reasoning set forth by the Learned Commission (Appeals) [Ld. CIT(A)], we find ourselves in full agreement with the findings of the Ld. CIT(A). In our considered view, the entire edifice of disallowance constructed by the Assessing Officer rests on conjecture, presumption, and remote i cogent or credible evidence demonstrably implicating the assessee. The Ld. CIT(A) has correctly observed that the assessee duly substantiated its claim of business loss by producing complete documentary evidence, including cont Supama Financial Service Ltd relied on the finding of the Ld. CIT(A) that Assessing Officer merely doubted the transaction without conducting any independent inquiry or confronting the assessee with adverse finding. In view of the above arguments, the Ld. counsel for the submitted that order of the Ld. CIT(A) might be upheld. We have heard the rival submissions advanced by both sides and carefully perused the material available on record. The issue under consideration pertains to the assessee’s claim of business amounting to Rs. 9.46 crores arising from transactions in the Looks Health Services Ltd. during the period from October 2013 to March 2014. While the assessee contends that the said loss was a genuine business loss incurred in the ordinary course trading activity, the Assessing Officer has characterized it as a bogus and premeditated loss designed to evade tax liability. comprehensive evaluation of the evidentiary record and the detailed reasoning set forth by the Learned Commissioner of Income Tax (Appeals) [Ld. CIT(A)], we find ourselves in full agreement with the findings of the Ld. CIT(A). In our considered view, the entire edifice of disallowance constructed by the Assessing Officer rests on conjecture, presumption, and remote inference, rather than on any cogent or credible evidence demonstrably implicating the assessee. The Ld. CIT(A) has correctly observed that the assessee duly substantiated its claim of business loss by producing complete documentary evidence, including contract notes, demat statements, Supama Financial Service Ltd 14 ITA No. 6820/MUM/2024 relied on the finding of the Ld. CIT(A) that Assessing Officer merely doubted the transaction without conducting any independent inquiry or confronting the assessee with adverse finding. In view of the above arguments, the Ld. counsel for the submitted that order of the Ld. CIT(A) might be upheld. We have heard the rival submissions advanced by both sides and carefully perused the material available on record. The issue under consideration pertains to the assessee’s claim of business amounting to Rs. 9.46 crores arising from transactions in the during the period from October 2013 to March 2014. While the assessee contends that the said loss was a genuine business loss incurred in the ordinary course of its trading activity, the Assessing Officer has characterized it as a bogus and premeditated loss designed to evade tax liability. Upon a comprehensive evaluation of the evidentiary record and the detailed er of Income Tax (Appeals) [Ld. CIT(A)], we find ourselves in full agreement with the findings of the Ld. CIT(A). In our considered view, the entire edifice of disallowance constructed by the Assessing Officer rests on nference, rather than on any cogent or credible evidence demonstrably implicating the assessee. The Ld. CIT(A) has correctly observed that the assessee duly substantiated its claim of business loss by producing complete ract notes, demat statements, Printed from counselvise.com and corresponding bank entries, thereby establishing both the purchase and sale of the impugned shares. All transactions were carried out on a recognized stock exchange and routed entirely through proper banking channels. In t cash involvement, such documentation genuineness of the transactions, thereby discharging the initial onus cast upon the assessee. discharged its primary burden by producin evidence, the onus shifted squarely upon the Revenue to establish that, notwithstanding the apparent form of the transactions, the same were in substance colourable or collusive in nature, and were either engineered by, or underta connivance of, the assessee. However, as rightly noted by the Ld. CIT(A), the Assessing Officer has not brought on record any tangible or independent material to substantiate such an allegation. The disallowance is founded merely generalized observations drawn from third without any specific inquiry conducted in relation to the assessee or any opportunity afforded to the assessee to rebut adverse findings. The Assessing Officer describing the modus operandi of price manipulation in the scrip of Looks Health Services Ltd. liability upon the assessee, particularly when no direct nexus has been established between the assessee’s funds and any alleged circular or accommodation entries. The Assessing Officer has Supama Financial Service Ltd and corresponding bank entries, thereby establishing both the purchase and sale of the impugned shares. All transactions were carried out on a recognized stock exchange and routed entirely through proper banking channels. In the absence of any element of cash involvement, such documentation prima facie genuineness of the transactions, thereby discharging the initial onus cast upon the assessee. Once the assessee had thus discharged its primary burden by producing credible and verifiable evidence, the onus shifted squarely upon the Revenue to establish that, notwithstanding the apparent form of the transactions, the same were in substance colourable or collusive in nature, and were either engineered by, or undertaken with the knowledge and connivance of, the assessee. However, as rightly noted by the Ld. CIT(A), the Assessing Officer has not brought on record any tangible or independent material to substantiate such an allegation. The disallowance is founded merely upon suspicion, conjecture, and generalized observations drawn from third-party investigations, without any specific inquiry conducted in relation to the assessee or any opportunity afforded to the assessee to rebut adverse findings. The Assessing Officer’s reliance on the general investigation report describing the modus operandi of price manipulation in the scrip of Looks Health Services Ltd. does not, by itself, suffice to fasten liability upon the assessee, particularly when no direct nexus has tablished between the assessee’s funds and any alleged circular or accommodation entries. The Assessing Officer has Supama Financial Service Ltd 15 ITA No. 6820/MUM/2024 and corresponding bank entries, thereby establishing both the purchase and sale of the impugned shares. All transactions were carried out on a recognized stock exchange and routed entirely he absence of any element of establishes the genuineness of the transactions, thereby discharging the initial Once the assessee had thus g credible and verifiable evidence, the onus shifted squarely upon the Revenue to establish that, notwithstanding the apparent form of the transactions, the same were in substance colourable or collusive in nature, and were ken with the knowledge and connivance of, the assessee. However, as rightly noted by the Ld. CIT(A), the Assessing Officer has not brought on record any tangible or independent material to substantiate such an allegation. The upon suspicion, conjecture, and party investigations, without any specific inquiry conducted in relation to the assessee or any opportunity afforded to the assessee to rebut adverse findings. ’s reliance on the general investigation report describing the modus operandi of price manipulation in the scrip of does not, by itself, suffice to fasten liability upon the assessee, particularly when no direct nexus has tablished between the assessee’s funds and any alleged circular or accommodation entries. The Assessing Officer has Printed from counselvise.com referred to the generic pattern of cash deposits and fund layering observed in other cases; but the Revenue has failed to establish a direct nexus proving that funds used by the assessee for investment were routed through a web of bank accounts after cash deposit in individual accounts or loss suffered was a part of a bogus accommodation entries. A mere reference to the scrip being identified as a “penny stock” cannot, in law, suffice to convert a bona fide business loss into a fictitious or contrived one, without independent corroboration. The assessment order also proceeds to rely heavily upon untested third or operators, yet the assessee was not afforded the opportunity of cross-examination, thereby violating the fundamental principles of natural justice. The Ld. CIT(A) has, in our view, rightly deprecated such reliance and correctly held that the disallowa on such infirm foundation. 5.1 The denial of cross examination or material relied upon constitutes a factual justice in view of ratio laid down by the Hon’ble Supreme Court in case of Andamon Timber Industries v. CIT (supra) based on the statement without providing the affected party and opportunity of cross-examination must be rejected. 5.2 The Revenue contended that no prudent investor would willingly incur such subs overlooks the legal and commercial realities of market participation. Supama Financial Service Ltd referred to the generic pattern of cash deposits and fund layering observed in other cases; but the Revenue has failed to establish a nexus proving that funds used by the assessee for investment were routed through a web of bank accounts after cash deposit in individual accounts or loss suffered was a part of a bogus accommodation entries. A mere reference to the scrip being as a “penny stock” cannot, in law, suffice to convert a bona fide business loss into a fictitious or contrived one, without independent corroboration. The assessment order also proceeds to rely heavily upon untested third-party statements of certain broker or operators, yet the assessee was not afforded the opportunity of examination, thereby violating the fundamental principles of natural justice. The Ld. CIT(A) has, in our view, rightly deprecated such reliance and correctly held that the disallowance cannot stand on such infirm foundation. of cross examination or material relied upon a factual flaw and violation of principle of natural ratio laid down by the Hon’ble Supreme Court in Andamon Timber Industries v. CIT (supra) that based on the statement without providing the affected party and examination must be rejected. The Revenue contended that no prudent investor would willingly incur such substantial losses. However, this argument overlooks the legal and commercial realities of market participation. Supama Financial Service Ltd 16 ITA No. 6820/MUM/2024 referred to the generic pattern of cash deposits and fund layering observed in other cases; but the Revenue has failed to establish a nexus proving that funds used by the assessee for investment were routed through a web of bank accounts after cash deposit in individual accounts or loss suffered was a part of a bogus accommodation entries. A mere reference to the scrip being as a “penny stock” cannot, in law, suffice to convert a bona fide business loss into a fictitious or contrived one, without independent corroboration. The assessment order also proceeds to party statements of certain brokers or operators, yet the assessee was not afforded the opportunity of examination, thereby violating the fundamental principles of natural justice. The Ld. CIT(A) has, in our view, rightly deprecated nce cannot stand of cross examination or material relied upon and violation of principle of natural ratio laid down by the Hon’ble Supreme Court in that any finding based on the statement without providing the affected party and The Revenue contended that no prudent investor would tantial losses. However, this argument overlooks the legal and commercial realities of market participation. Printed from counselvise.com Financial institutions and entities engaged in high operations are inherently exposed to market volatility and the attendant risk of loss. The mere occurrence of a loss, or the fact that a counterparty in the transaction may later be identified as a questionable entity, cannot, by itself, render the transaction in genuine or invite penal consequences upon a bona fide market participant. A taxpayer cannot be held culpable for systemic lapses or failures in market regulation. The Assessing Officer has, in the present case, proceeded on the assumption that the buyer and seller entities were acting in collusion, without bringing on record any credible or corroborative evidence in support of such inference, including statements or confirmations from the alleged counterparties. The mere act of downloading or reproducing the names of purchase or sale parties from stock exchange records cannot, in the absence of tangible material such as communication trails, transaction correspondences, or fund linkages, establish the existence of collusion. In this context, the Learned Commissioner of Income Tax (Appeals) [Ld. CIT(A)] has, in our considered opi rightly observed that while the assessee had duly discharged its initial burden by producing primary evidences notes, demat statements, and corresponding banking records Department failed to produce any independent evidence, such proof of cash movement, seized documents, or any material indicating that the loss was a mere paper entry or a manifestation Supama Financial Service Ltd Financial institutions and entities engaged in high- operations are inherently exposed to market volatility and the loss. The mere occurrence of a loss, or the fact that a counterparty in the transaction may later be identified as a questionable entity, cannot, by itself, render the transaction in genuine or invite penal consequences upon a bona fide market . A taxpayer cannot be held culpable for systemic lapses or failures in market regulation. The Assessing Officer has, in the present case, proceeded on the assumption that the buyer and seller entities were acting in collusion, without bringing on record ny credible or corroborative evidence in support of such inference, including statements or confirmations from the alleged counterparties. The mere act of downloading or reproducing the names of purchase or sale parties from stock exchange records in the absence of tangible material such as communication trails, transaction correspondences, or fund linkages, establish the existence of collusion. In this context, the Learned Commissioner of Income Tax (Appeals) [Ld. CIT(A)] has, in our considered opi rightly observed that while the assessee had duly discharged its initial burden by producing primary evidences—such as contract notes, demat statements, and corresponding banking records Department failed to produce any independent evidence, such proof of cash movement, seized documents, or any material indicating that the loss was a mere paper entry or a manifestation Supama Financial Service Ltd 17 ITA No. 6820/MUM/2024 -volume trading operations are inherently exposed to market volatility and the loss. The mere occurrence of a loss, or the fact that a counterparty in the transaction may later be identified as a questionable entity, cannot, by itself, render the transaction in- genuine or invite penal consequences upon a bona fide market . A taxpayer cannot be held culpable for systemic lapses or failures in market regulation. The Assessing Officer has, in the present case, proceeded on the assumption that the buyer and seller entities were acting in collusion, without bringing on record ny credible or corroborative evidence in support of such inference, including statements or confirmations from the alleged counterparties. The mere act of downloading or reproducing the names of purchase or sale parties from stock exchange records in the absence of tangible material such as communication trails, transaction correspondences, or fund linkages, establish the existence of collusion. In this context, the Learned Commissioner of Income Tax (Appeals) [Ld. CIT(A)] has, in our considered opinion, rightly observed that while the assessee had duly discharged its such as contract notes, demat statements, and corresponding banking records—the Department failed to produce any independent evidence, such as proof of cash movement, seized documents, or any material indicating that the loss was a mere paper entry or a manifestation Printed from counselvise.com of circular transactions involving the assessee’s own funds. relevant finding of the Ld. CIT(A) is reproduced as under: “23. On perusal of the profit and loss account of the appellant for AY 2014-15, it is seen that the appellant has shown revenue from operations of Rs. 13,14,42,348/ Rs.1,60,33,779/ and loss from derivative trading of Rs.10,12,18,123/ from shares of Rs.2,98,42,189/ earlier years, i.e. AY 2013 income from derivative trading. From this fact, it is evident that the appellant and shares. The transactions indicate that in the routine course of its business activity during the year under consideration, the appellant has purchased and sold the shares of Look Health India Services Lt of Citi Cable Network Ltd, which is reflected in the inventories. It is not a case that the appellant is a naïve investor and has purchased the shares of the alleged scrip offline. 24. The AO mainly relied on analysis of the alleged company. The main contention is that the price rise is not supported by the financials of M/s Looks Health Services Ltd. The AO has not carried out any independent enquires during the assessmen appellant has purchased and sold the shares through stock exchange online. It is not a case of off market purchase. All the transactions are routed through banking channels and supported by the brokers notes. There is no ref report that the appellant is involved in price rigging or connected with the persons providing accommodation entries. The name of the appellant is also not appearing in any investigation carried out by the SEBI. Therefore, consi appellant is a regular trader in stock market, only due to the facts that the price rise of alleged scrip is not supported by the financials, the transactions carried be held as bogus.” 5.3 The Ld. CIT(A) has placed relied on judicial precedents in the following judicial precedents:  M/s Munish Financial in ITA No. 2637/Mum/2022 Supama Financial Service Ltd of circular transactions involving the assessee’s own funds. relevant finding of the Ld. CIT(A) is reproduced as under: . On perusal of the profit and loss account of the appellant for 15, it is seen that the appellant has shown revenue from operations of Rs. 13,14,42,348/- and other income of Rs.1,60,33,779/-. The revenue from operations includes profit om derivative trading of Rs.10,12,18,123/ from shares of Rs.2,98,42,189/-. The profit and loss account of earlier years, i.e. AY 2013-14 and 2012-13, also shows the income from derivative trading. From this fact, it is evident that the appellant is a NBFC and is a regular trader of derivatives and shares. The transactions indicate that in the routine course of its business activity during the year under consideration, the appellant has purchased and sold the shares of Look Health India Services Ltd. The appellant has also purchased the shares of Citi Cable Network Ltd, which is reflected in the inventories. It is not a case that the appellant is a naïve investor and has purchased the shares of the alleged scrip offline. 24. The AO mainly relied on the investigation report and financial analysis of the alleged company. The main contention is that the price rise is not supported by the financials of M/s Looks Health Services Ltd. The AO has not carried out any independent enquires during the assessment proceedings. In this case the appellant has purchased and sold the shares through stock exchange online. It is not a case of off market purchase. All the transactions are routed through banking channels and supported by the brokers notes. There is no reference in the investigation report that the appellant is involved in price rigging or connected with the persons providing accommodation entries. The name of the appellant is also not appearing in any investigation carried out by the SEBI. Therefore, considering the facts that the appellant is a regular trader in stock market, only due to the facts that the price rise of alleged scrip is not supported by the financials, the transactions carried out by the appellant cannot be held as bogus.” A) has placed relied on judicial precedents in the following judicial precedents: M/s Munish Financial in ITA No. 2637/Mum/2022 Supama Financial Service Ltd 18 ITA No. 6820/MUM/2024 of circular transactions involving the assessee’s own funds. The relevant finding of the Ld. CIT(A) is reproduced as under: . On perusal of the profit and loss account of the appellant for 15, it is seen that the appellant has shown revenue and other income of . The revenue from operations includes profit om derivative trading of Rs.10,12,18,123/- and sale . The profit and loss account of 13, also shows the income from derivative trading. From this fact, it is evident that is a NBFC and is a regular trader of derivatives and shares. The transactions indicate that in the routine course of its business activity during the year under consideration, the appellant has purchased and sold the shares of Look Health d. The appellant has also purchased the shares of Citi Cable Network Ltd, which is reflected in the inventories. It is not a case that the appellant is a naïve investor and has the investigation report and financial analysis of the alleged company. The main contention is that the price rise is not supported by the financials of M/s Looks Health Services Ltd. The AO has not carried out any independent t proceedings. In this case the appellant has purchased and sold the shares through stock exchange online. It is not a case of off market purchase. All the transactions are routed through banking channels and supported erence in the investigation report that the appellant is involved in price rigging or connected with the persons providing accommodation entries. The name of the appellant is also not appearing in any investigation carried dering the facts that the appellant is a regular trader in stock market, only due to the facts that the price rise of alleged scrip is not supported by the appellant cannot A) has placed relied on judicial precedents in the M/s Munish Financial in ITA No. 2637/Mum/2022 Printed from counselvise.com  ITO v. Sohani Dipak Tanna in ITA No. 2245/Mum/2022  Varun Naginbhai Patel v. DCIT in ITA No. 417/Ahd/2019 5.4 In view of settled evidence adduced by t assessee to allegation of the Ld. CIT(A) is a plausible and legally sustainable interpretation of the fact. The Revenue’s grounds of appeal therefore and are accordingly rejected. The deletion of the disallowance of business loss of Rs.9,46,26,804/ upheld. 6. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open Court on Sd/- (RAJ KUMAR CHAUHAN JUDICIAL MEMBER Mumbai; Dated: 26/11/2025 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// Supama Financial Service Ltd ITO v. Sohani Dipak Tanna in ITA No. 2245/Mum/2022 Varun Naginbhai Patel v. DCIT in ITA No. 417/Ahd/2019 In view of settled legal position and in absence of any material evidence adduced by the Revenue to directly connecting allegations of price manipulation, we hold that finding of the Ld. CIT(A) is a plausible and legally sustainable interpretation t. The Revenue’s grounds of appeal therefore and are accordingly rejected. The deletion of the disallowance of business loss of Rs.9,46,26,804/- by the Ld. CIT(A) is hereby In the result, the appeal of the Revenue is dismissed. onounced in the open Court on (RAJ KUMAR CHAUHAN) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai Supama Financial Service Ltd 19 ITA No. 6820/MUM/2024 ITO v. Sohani Dipak Tanna in ITA No. Varun Naginbhai Patel v. DCIT in ITA No. legal position and in absence of any material he Revenue to directly connecting the of price manipulation, we hold that finding of the Ld. CIT(A) is a plausible and legally sustainable interpretation t. The Revenue’s grounds of appeal therefore are meritless and are accordingly rejected. The deletion of the disallowance of by the Ld. CIT(A) is hereby In the result, the appeal of the Revenue is dismissed. 26/11/2025. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER BY ORDER, (Assistant Registrar) ITAT, Mumbai Printed from counselvise.com "